In The Woods

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

turd [at] tfmetalsreport [dot] com ()


Sep 8, 2011 - 11:21am

Why the Central Banks need to cover and run to higher ground

1.) The end game of debasement is obvious and accelerating and is MSM news at this point everyday. The Govt./C.B.'s know what big moves are coming next and from who.

It's quickly coming to a end point in currency debasement. It is still a race. Just what exactly is the finish line that they are hurrying to? They know what's on the other side.

2.) The Chinese know the EE/Fed. PM game and have seen enough and have probably telegraphed a drop dead date to our Govt. when they intend to make a big move. The Chinese want dominance but they don't want global economic chaos/panic. That doesn't serve their purpose short term or long term imo. I don't see a huge, suprise announcement by them. They are gradually releasing enough slow motion telegraphed signals all around. Venezuela was the first big one and I'm sure that China was OK with Hugo doing so.

3.) The start of PAGE and other Asian exchanges being pegged to the physical PM and not paper. Huge! The U.S. banks know what this means....they are running out of time. I think that might be the reason we are seeing deeper attacks that are less effective at this point. The intensity has picked up over the last couple months imo. It may have started to fizzle out already. I'm sure they have at least one big attack left before they abandon to higher ground.

4.)This caught my eye today and ties in with the internationalization of the Renimbi. The U.S. and other C.B.'s know it's inevitable and it appears to have soft date for implementation.

Sept. 7, 2011, 11:26 p.m. EDT

China to back London as offshore yuan hub: FT

By Chris Oliver

HONG KONG (MarketWatch) -- China may offer its backing later Thursday to the interests of U.K. banks seeking to turn London into an offshore trading center for the Chinese yuan, according to the a report Thursday in the Financial Times. George Osborne, the U.K. chancellor, and Wang Qishan, Chinese vice-premier, are due to hold talks in London later in the day, the report said. The event will include signing of a joint statement formally welcoming the interest from British banks and financial institution for London as an offshore hub for yuan trading, the report said.

DPH: I'm trying to find a earlier article that states 2015 as the target date. I'll post it later when I find it.

Found it.>>>

Sep 8, 2011 - 11:21am

For all the SVMer's

I think you guys are on sale bigtime. Buy. I don't own 'em, only b/c you can't own them all. I have their 1.21.12 16 & 17 calls on my top buy list. Ellis Martin Report with Silvercorp Metals (NYSE:SVM)

Also today.... I'm watching Golden/ECU and AuRico/Northgate developments closely. I like both combos a lot. Just very leery of ECU due to the shorts that seem to live on them...

Eric, Tom, anyone else, thoughts on these 2 proposed mergers?

Sep 8, 2011 - 11:21am


ty and hat tips to the vet and trinistad for posting those charts and articles so quickly.

where do you find those things? ;)

Sep 8, 2011 - 11:25am

Banks covering.. my thoughts

Why banks are covering. It’s a classic example of the fox guarding the henhouse. Let me explain;

They sell into the rising strength of the metals until it causes a sharp drop allowing them to cover at a profit. This is a good reason to keep an eye on aspects of commercial positions (IMO when you see a decrease in commercial short positions it can indicate they are exiting the market) [1]

Perhaps someone with the years of trading experience (Turd, Tom, Atlee, et al) can explain more clearly about automatic trading halts [downside], and the fact one was hit on Globex the other night during the selloff. It isn’t my niche, but I think it is worth pointing out.

As far as the SNB pegging – I stand by my reasoning this had everything to do with Swiss mortgages. With everyone running to the CHF for stability it would have caused a deflationary environment. You have to look at just how many mortgages are held by the SNB (Poland, Hungary especially), the exchange rate would have driven them to a housing bubble – that was a mathematical certainty. The exchange rates were rising astronomical. Keep in mind mortgages make up a large portion of the Swiss GDP, in fact, the biggest mortgage book relative to its GDP in all of Europe.

By the Swiss decreasing the value of the Franc, it will increase demand. But for the large money holders – pegging at 1.20 will force them to seek refuge over the coming weeks / months. This is going to create volatility for awhile, especially in currencies. POSX will artificially rise, then drop – same goes with PM prices. I can assure you we are not out of the woods yet, and I am certain volatility will trigger SPAN algos that will force MH’s – in fact I would be on the lookout for one coming Friday or next week.

argent rampant
Sep 8, 2011 - 11:26am

@Silver Stool

"one's own emotion is a more powerful enemy than the corrupt market manipulators. "

Amen, brother!

My own trading rule # 10 is: Trade on others' emotions, not your own.

There are five categories of wealth: Spiritual, Physical, Intellectual, Relationships, and Financial. Pay attention to them all!
Sep 8, 2011 - 11:27am

Why are the banks desperate

Why are the banks desperate to cover? I'm guessing it's because PAGE is coming and it's better to take a little pain now than massive mortal wounds when true price discovery is nigh.

Sep 8, 2011 - 11:28am

Security for our own good.... yikes!

With no intention of turning this into a political discussion, I would just like to point about "security" being put in place by the government for "our own good."

Ron Paul Says The Border Fence Built To Keep Us In

Everytime you think about this toughness on the boarder, and ID cards... and REAL IDs.

It is a penalty against the American people too. I think this fence business is designed and may well be used against us and keep us in.

In economic turmoil the people want to leave with their capital and there is capital controls and people controls....

So every time you think about a fence keeping all those bad people out, think about those fences used against us keeping us in.


Now take these two lines above and link it to the end of Keyensian Economics in which we discuss here. This combined with the fact that the EE are in all aspects of our all western societies.... leaves one to assume that the coming currency extinction event will lead to political oppression.... and most likely military oppression when violence comes to America....

Ron Paul says the government is setting the stage for violence in America

These times will not come with roses and flowers for gold and silver holders... what do you think the population around you will think of you supporting a standard in which you are benefiting from and they are losing everything they have....

I fear there is a false comfort here on Turdville, for we are apart of this world just as the unaware are.... and in my opinion it would be seriously naive to think that this site has not been monitored and will be gone when regulation to the internet in the name of national security is unveiled.... not giving us the forum for discussing ideas back and forth.

Be careful my fellow Turdites, for as wonderful as the world and the gift of life are, there are those who wish freedom be a footnote in the "new world."

Sep 8, 2011 - 11:28am

Long-term perspective on US debt and gold

Hat-tip to Broomer on ZH for the graph. Can't vouch for the accuracy of this chart, but food for thought (one can easily calculate/verify with historical Fed charts and 30-yr gold chart):

Number of tons of gold estimated mined since the beginning of civilization: 166.6K

Desire/ability on the part of policymakers, CB (and/or their paymasters) to stop adding to, let alone reduce sovereign debt: ZERO

Inflation-adjusted price of gold in 1980 in today's dollars (a la James Turk):

Nothing really new, just a bit of reassurance in the fundos.

At the end of the day, the true holders of wealth do need an 'ark' to the other side of this as well:

Regardless of the other productive assets, land, corporations, infrastructure, weaponry/military might 'THEY' (or, for that matter, we) are able to get their hands on, liquid moveable 'money' is always needed. As many have pointed out, it's all, 100% pure fiat out there today:

John Pierpont had such a way with words. Would definitely have given William Jefferson Blythe III a run for his money in a contest to define 'is', and would NEVER have been found to be in perjury...

Sorry, I forgot who posted the link yesterday, but thanks. Worth a thorough read. Wonder what percentage of investors/'financial professionals' would fully understand this conversation today.

Sep 8, 2011 - 11:28am
Sep 8, 2011 - 11:33am

Norwegian Krone

Looks like Norway will follow in lock step with the Swiss. Currency wars will flourish.

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