Not So Happy Tuesday
Lots going on today and I'm off to a late start so let's dive right in.
First, let's talk about the price action today. After the surprising rally yesterday, I asked you to watch the Asia and London trade for clues to the Comex action today. What did we see? After a flat Asian session, the London Monkeys did their usual thing from about 2:00 am EDT on. The London Monkeys have now acted on 14 of the past 17 days. Check this chart from Ranting Andy:
The result was a giveback of more than half of yesterday's gains.
Why did we see this? Hard to say for sure but, with volume light ahead of the BLSBS later this week, I suspect that a lot of this was some Bullion Bank selling that was aimed at lessening some longs ahead of the CoT survey. No doubt the action since last Tuesday is a continuation of the trend of last week's report. Therefore, the banks tried today to lighten a few of the longs they had built up over the course of the week. This also serves the dual purpose of defending the 20-day MA and restoring some confidence to some of the shaky spec shorts. At any rate...we're down a modest $13 as I type. Let's see what tomorrow brings.
Speaking of the CoT, there has been some excellent analysis written in the past few days so I thought I would highlight some here. Again, the positioning of the Commericals vs The Specs has gotten so extreme that it has reached historic levels. Ultimately, how you interpret this depends upon just whom you think is really in charge. Is it The Specs or do The Cartel Banks lead The Specs by the nose into whichever position they would like? Let's start with longtime CoT-watcher Gene Arensberg: http://www.gotgoldreport.com/2013/05/gold-and-silver-disaggregated-cot-report-dcot-for-may-31.html
Next, read this link over at KWN: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/6/4_This_Amazing_Chart_Shows_Gold_Set_For_Massive_$1,000_Spike.html. While we might disagree that this chart alone shows that "gold is set for a massive $1000 spike", the interview is helpful and in contains this excellent chart. (Click on it to enlarge.)
Reading that article inspired the Turdite "WildStyleChef" to create the chart below. This shows graphically how Commercial positioning is inversely correlated to price. (Again, click to enlarge.)
OK, moving on. I found this to be interesting. Recall that when the Dutch bullion bank, ABN AMRO, announced their plan to settle in cash a few months back, many of us called it a default. http://www.tfmetalsreport.com/blog/4667/gold-delivery-or-default This article published Friday follows along with that theme. I don't know anything about the author but that's OK. He probably doesn't know anything about me, either. http://www.jcaschipper.nl/2013/05/nationalized-abn-amro-offers-fools-gold/
Still lots of talk out there about Fed QE "tapering". Again, I think is all silly and it may be a non-topic as soon as Friday at 8:31 am. Regardless, as mentioned last week, even if The Bernank was to announce some type of "taper", it would likely come from the $40B/month MBS-purchase side of the QE∞ equation. The Fed could still monetize $45B/month in treasuries directly while cutting the Primary Dealer
kickback life support handout welfare bullshit MBS purchases to $20B/month. This would still be $65B/month in QE and silence all the hawks. Not saying that it will happen, just saying that even if it did, it's no big deal! $65B/month is still nearly $800B/year in fresh greenback, created from whole cloth for the purpose of sustaining The Great Ponzi. Read more at ZH: http://www.zerohedge.com/news/2013-06-04/chart-day-feds-taper-perspective And here's how it looks graphically:
Finally, I don't know if you've noticed but lately there sure have been a lot of big mines that have been taken off-line.
- There are the well-documented delays at Barrick's Pascua Lama: http://www.bloomberg.com/news/2013-06-03/barrick-says-pascua-lama-output-delayed-past-2014-target.html
- Then we had the massive landslide at Rio Tinto's Kennecott mine in Utah: http://www.news.com.au/world-news/huge-landslide-shuts-kennecott-utah-coppers-bingham-canyon-mine/story-fndir2ev-1226619124124 & http://silverdoctors.com/10-of-us-annual-silver-supply-just-vaporized/
- And now we have this. Freeport's Grasberg mine in Indonesia, the largest gold mine in the world, has been ordered closed for at least 3 months as Indonesian authorities do a safety inspection. http://www.adelaidenow.com.au/business/indonesia-orders-us-owned-mine-to-halt-production/story-fndbbp4c-1226656569293 & http://seekingalpha.com/article/1476581-biggest-gold-mine-in-the-world-shutdown-is-this-the-catalyst-gold-has-been-awaiting
So, now, what to make of all this? Well, if you believe that everything is hunky-dory and that there are no supply issues in gold, then this is no big deal. After all, even though The Grasberg mine is the largest in the world, it still only produces about 30 metric tonnes per year or a little over 1% of all global mine production.
If, on the other hand, you think that the Bullion Banks are living hand-to-mouth and frantically trying to keep their Fractional Reserve Bullion Banking system alive, then it is a big deal. A very big deal.
That's a lot of gold...a lot of currently anticipated and expected supply that isn't coming. How much of this production was already sold forward into the market? And if it was already sold forward, what happens when it fails to materialize on schedule? Hmmmm. Could that lead to those contracts being covered? Could it lead to some new long purchasing as a hedge against supply delays, not only from the suppliers but from the end-users, as well? And with the current CoT structure in gold being akin to an overgrown and dried out California ravine just waiting for a spark...
Let's just leave it there for today. I hope that the rest of your Tuesday goes well and I look forward to seeing what tomorrow brings. Again, if I'm right about the cause of today's drop being Cartel CoT-positioning, then we should see a bit of a bounceback on the Globex and overnight.