In The Woods

312
Thu, Sep 8, 2011 - 9:25am

The overnight action is the PMs is certainly encouraging and it would seem as though the half-life of central bank gold intervention is now about as long as central bank currency intervention. We all know, however, that it is still too soon to let our guards down. The quick recovery in price may only serve to embolden our increasingly desperate adversary, so, much caution is still warranted.

That said, I do not want to minimize the importance of the overnight reaction in price. The SNB attack of early yesterday sent the metals markets reeling. The attacks were timed to have a spillover effect onto the Comex and December gold traded as low as $1794 by mid-morning. In the old days, this would have sent gold into a tailspin as weak-handed longs began to race each other for the exits. They knew they were no match for the central banks and The Cartel.

Note, though, how yesterday was different. Once the Comex was closed, things began to improve almost immediately. Baby steps at first but then a full-blown rally overnight in Asia. Our longs are no longer weak-handed. They are resolute. They are buyers of size and they seem to pounce on discounted prices. This must be very discouraging to The Cartel. They are trapped in an untenable short position and they are being forced to cover at increasingly higher prices. HAHAHA!

To that end, I feel I must state this again. Please be sure you are making note of which "analysts" and "traders" are calling a "bubble". One only needs a cursory understanding of the Commitment of Traders data to deduce that there is no such thing as the CoT data since early August has clearly shown that the primary driver of price to this level has been Cartel short-covering. A bubble presumes retail buying. Average, everyday investors rushing in to buy something. The greater fool theory in action. Think dot com. Think Las Vegas real estate. Cartel short-covering does not create a bubble. As stated ad nauseam, the weekly CoT report is a very important, fundamental statistic. Any serious metals analyst knows this. Accordingly, any serious metals analyst knows that gold is not a bubble. The boneheads calling gold a bubble are, therefore, not serious analysts and should be ignored. Do not forget them, though, as they will most assuredly resurface in the future to once again proclaim an end to the gold bull. Remember who they are so that you can ignore them in the future, too.

The next question we need to ask is: Why are the banks so desperate to cover? Ponder that one for a while. I've got my thoughts on the subject. I'd be curious to hear yours.

Here are your charts for this morning. I see they are already becoming outdated as the metals have continued to rally while I type.

Remember today that my warning of yesterday was not to sell, it was not to buy. I stand by that. With the active central bank intervention of earlier this week, it is still too dangerous to be boldly buying with confidence. For now, I am simply holding my positions. The only trades I made yesterday were to re-cover my October gold calls. You may recall, I have been long October calls but, from time to time, I've been selling some calls against them (creating a spread) whenever I felt that risk was high. I've been taking the "short" side off and "opening up" my calls when I feel that risk is minimal. My current trading portfolio is as follows:

Long Oct 1900 gold calls vs short Oct 2000 gold calls

Long Dec 1900 gold calls vs short Dec 2200 gold calls

Long Dec 50 silver calls vs short Dec 60 silver calls

About 25% cash. Patiently waiting.

Lastly, I would be remiss if I didn't print the chart below. Several Turdites have sent it to me looking for my opinion and I feel it deserves your full consideration.

About the quickest way to go broke trading futures is to go around declaring that "this time is different". However, in this case, I feel this time truly is different.

This chart covers the previous 32 years of Keynesian central banker-dominated thinking. We are at the end of the Great Keynesian Experiment. The current system will not be continuing much longer. A new paradigm will soon be emerging. Therefore, while price will still correct from time to time, historical correlations such as this one are of minimal significance.

I've got lasts of 1862 and 42.42. It will be a very interesting day so try to keep an eye on things. More later. TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  312 Comments

PaPaSpeed
Sep 8, 2011 - 10:13am

Just my humble opinion:

My opinion is that the banks will not only cover any gold short positions, but they will become aggressive buyers. If fact it will become a competition between banks as to who will become the largest holder of PM's. Once the "word" leaks out that one major is accumulating vast quantities, the others will rush in along with Country's and the general public.

They have fought a valiant battle, but the tide has turned, the result will be a parabolic rise in the price of PM's.

Keep on Stacking!

cwavec
Sep 8, 2011 - 10:14am

@ Dr G


Precisely my point (or at least part of it). For example, suppose "some"
central bank or other significant party had offered these and another
significant party or even the same one, possibly through some proxy,
had been the buyer.

If, then, this shows up on the charting function of some trading programs
but not in any kind of statistical reporting, what is to prevent these
parties from extinguishing the whole thing via some kind of "swaps" in
the background?

Am I way off base in suggesting that there may be no resulting open
interest, no shorts that anyone would have to cover and no long position
that would have to be liquidated? In other words, could the whole thing
just vaporize except the damage that was done, which would then have to be
repaired by actual market participants?

Does this or, perhaps, does it not bring the whole idea of manipulation
to an entirely new level, not only with respect to the possible
"disappearance" of activity but also with respect to the participants?

As I said, I'm no expert though I really wonder.

Any more cud-chewers out there?

¤
Sep 8, 2011 - 10:15am

Welcome Washington

The more the merrier.

BillAuAgWoods
Sep 8, 2011 - 10:16am

Check out HLLXF.....

Take a look at the below gold chart. If the EE caps Gold at 19oo and the lower trend line holds then the EE is in for a true shit storm! The forming flag says it all.

Sep 8, 2011 - 10:17am

Cool Hand Turds

Wanted to give a hearty congrats to all those on this board (the vast, vast majority judging from the comments section over the last 24 hours) who stayed cool in the face of adversity and midnight raids, didn't panic sell core positions, possibly BTFD, and weathered this recent shake-out like the seasoned pros they are. Buncha salty veterans around here.

Well done folks.

agNau
Sep 8, 2011 - 10:18am

Chart and Swiss Franc indicator:

I totally agree with your different this time. The Keynesian economics has ended. It ended with Zero. When the "incentive" to accumulate those Dollars (liquidity) ended, so expired the Keynesian experiment. Green-expand knew it. He now sits on the sidelines and criticizes. All one had to do to realize when, was to view a long term chart of Rates, and see the apex approaching, and understand nothing was changing. Every contraction in the economy was handled the same way. A cleansing of excess was never allowed. Today an extension of "the good times" is not allowed, as the punch bowl is full of fiat and there is "zero interest" in the room. https://finance.yahoo.com/q/bc?s=%5ETYX&t=my&l=on&z=l&q=... The Bernank is now merely proving to the world that he knows basic math. He is dividing a number by two, and always achieving a smaller number.(lower rate) That.......is all he is doing. That.....will be his contribution to the world of economics.

lamarejoe rocker
Sep 8, 2011 - 10:18am

I'm afreaid you need a new

I'm afreaid you need a new pair of glasses, mate.

The chart is just a couple of days old.

Tom L
Sep 8, 2011 - 10:20am

SVM

and here comes the $9.00 Battle Royale w/ Cheese in SVM. The Put/Call ratio at that level is 2.4:1. So, if it fails the short-covering rally could/should be intense.

Ta,

trinistand
Sep 8, 2011 - 10:21am

SVM - seeking alpha

Long time lurker, first time poster but just saw this over on SA (hopefully not a repost):

https://seekingalpha.com/article/292389-silvercorp-proves-it-s-not-a-fra...

The Death Ceiling
Sep 8, 2011 - 10:22am

@Silverstool

Yeah I spread the metals here in the UK too. I like the extra exposure to prices measured in Dollars, with my physical purchased in Sterling, but best of all it's tax free.

What I have discovered:

1. Money Management.

Position size is absolutely critical. When I started out I tried to trade relatively high leverage over short time periods and soon realised it's rather tricky. Don't be greedy. Always consider the downside risk very carefully before entering a position. I have learnt to be super conservative now, I always make sure I have enough trade funds available to support a long position to way, way below major support lines. For example, in Silver I'm covered to below $20/oz and in Gold to below $1000/oz, roughly a 50% retracement. I don't expect prices to go that low overnight and so I have no trouble sleeping. I don't use Stops, I don't need to. I constantly have Santa's words on a loop in my head, there is likely to be massive volatility as we go forward and if you don't cover yourself properly you will crash and burn.

2. Trade Duration.

It is much easier to trade off major long term trends than the daily market noise, especially as there appears to be so much manipulation in the markets. When I open a trade I expect to run it for many months. Trying to make fiat quickly is the fastest way to lose it. Patience is key. I do not set price targets, how do I know where the price will end up? If you take profits too soon you miss out on the big moves up.

3. Scale in and out.

Buy into weakness, sell into strength. I often start a new long trade with my smallest position size, then incrementally add to that position if and when the price falls. If the price surges up I sell a little of the position but am happy to buy a little back again on subsequent weakness. That way trying to time the exact top and bottom of medium term trends is irrelevant.

4. Control your Emotion.

The hardest thing, but I believe it to be absolutely critical. I don't really view the money in my spread accounts as actual money, everything is just a number. If I'm in a losing trade I try not to be the slightest bit upset by it and if I'm making fiat I try not to be the slightest bit pleased. It's all just abstract numbers that are constantly changing, I often remind myself that we are all just wondering around in the middle of infinity. Some here believe allowing themselves a little rage clears the mind but I think long term that is harmful and that one's own emotion is a more powerful enemy than the corrupt market manipulators.

Anyways, just my thoughts but they work for me. If you have done your research and believe that we are in structural bull markets for the precious metals then position yourself sensibly and enjoy the ride. If you still lose money in this environment perhaps you should ask yourself whether you should be trading at all. m

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