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

Founder
turd [at] tfmetalsreport [dot] com ()

  312 Comments

The Vet
Sep 8, 2011 - 11:38am

Banks and shorts in general...

For anyone playing the short side of the market, backwardation and time decay ensures a profit over long periods regardless of price. As long as they can roll positions forward for a premium then they can prosper.

What kills the shorts is backwardation. It allows longs to roll for a profit, and shorts have to pay up to keep their positions a reversal of the contango trade. Backwardation also encourages longs to demand delivery, because in this market status, the metal in the hand now is worth more than it is further out in time.

CreditCrumbs
Sep 8, 2011 - 11:42am

Final thought on Ron Paul

Ron Paul needs to hire full time staff to do the following ASAP:

1. Anticipate what attacks may be planned by the media, and prepare him how to respond to them. It is clear to me that he was not prepared sufficiently for the debate, and he was not aware he was being set up with the trick questions they were asking.

2. Go on the offensive to grab back the ownership of his platform ideas, such as audit the fed, sound money, smaller federal gov, end the wars, etc. He has to communicate to the people that he is the real thing, the others are just parrots.

Modern politics has become so intricate and manipulative. Being a man of integrity, Ron Paul is not used to the rules of the game of modern politics. He has no way of anticipating how cunning the opponents can be. He needs to hire experienced people who can help him in this regard, ASAP.

@ Ferd- Ok, now you did it.

Once you put that in my head I had to get it out. Gracias, amigo!

ewc58
Sep 8, 2011 - 11:42am

Take that Jamie & BM

RANTING ANDY - I hope everyone’s getting the picture that we reached “MANIPULATION SATURATION” this summer, per my July 27th RANT (https://babybulltwits.wordpress.com/2011/07/27/ranting-andy-checkmate-i-e-manipulation-saturation/).

In other words, NO MATTER WHAT the Cartel attempts, NO MATTER WHAT new weapons they throw at the market (such as yesterday’s “Death Star”), GOLD and SILVER will continue to relentlessly climb, month in an month out.

Charts are immaterial, “events” are immaterial (no need to “wait for the Obama speech” or “the unemployment report” or “the G7 meeting”), EVERYTHING IS IMMATERIAL when compared to the EXPLODING WORLDWIDE DEMAND for PRECIOUS METALS.

Jake
Sep 8, 2011 - 11:46am

CNBS Guy Johnson From Greece Fire: "Looking Really Bleak Here"

While Showing the 2-Year Note at 57%, He talks of Riots, Austerity and a recently-Announced Greece GDP of -7% Growth. Maybe John Claude Trichet needs a New Grecian Formula.

The Vet
Sep 8, 2011 - 11:47am

SVM - Level 2 quotes..

The shorts seem to be holding their cool, but they are being assisted by the mindless HFT mob. It going to be fun to watch what happens when the HFT algorithms trip from the sell to the buy side which could happen when $9 breaks convincingly. Just a matter of time IMO...

ewc58
Sep 8, 2011 - 11:49am

Jim Willie piece on BBT

GoldenJackass.com - Whenever it suits Team Titanic from the increasingly tense helm, more phony comparisons are trotted out in baseless news stories posing as legitimate analysis. The latest propaganda plank is that the current financial climate, worse by the week, resembles 2008 and therefore bodes badly for the Gold & Silver prices. The implicit inference has no basis. In the final months of that fateful 2008 year, when Lehman Brothers served as the flagship going down in icy waters, writing the epitaph that marked the historic death event for the US banking industry, not yet recognized, the precious metal price fell by a huge amount in a liquidity drain amidst a grand crisis. While the current climate does resemble that fateful cardiac arrest and death event, followed by the coroner being paid off to falsify the death certificate (see the FASB accounting rules change enacted in law April 2009), the differences are so profound as to warrant a better description. The delineation should help investors to realize that the Gold price will zoom on repeated upward jaunts undeterred, the opposite of the controlled demolition in early 2009. That past raid was led by Wall Street assaults on hedge fund clients and gigantic USFed loans well over $10 trillion to buddy bankers. They engineered a fire sale for a global asset grab, a secretive aggressive shopping spree with illicitly obtained funds without USGovt permission. Nowadays three years later, the same central bankers are on the defensive, presiding over a failed franchise system. We see the exact opposite today.

Read More

Bay of Pigs
Sep 8, 2011 - 11:49am

@Larry

Great post. Loved the story about your banker.

Here's another story about a guy named Larry (Summers that is). Chris Powell of GATA hits a Home Run connecting the dots between Robert Rubin, Larry Summers and none other than Paul Krugman.

https://www.gata.org/node/10402

Tesla
Sep 8, 2011 - 11:50am

Nice One Pining4

HAAA haha Your killing me!

Larry
Sep 8, 2011 - 11:52am

Why banks are desperate?

I'll offer a few reasons:

The big banks that hold large short positions in the metals are desperate because they are and will continue to get shellacked by rising prices. We all know that. But they are losing control fast, with PAGE, with countries like Venezuela demanding physical from London & NY.... and they know that the Swiss just shot one of their biggest bullets by in essence, joining the EU. That bang on gold was shortlived (for now) but the currency war has just ramped way up. They MUST get rid of as many short positions as possible and go long before the lid blows.

All other big banks are also desperate, because they cannot sustain the savaging their stocks and revenues will see, and the tremendous fallout (cost) of unwinding the whole credit default swap debacle that they have gotten themselves into. They can also witness the political discourse (not reported on MSM) and watch the trends showing awareness building in the pm's. They know that Obama will not get reelected no matter how much they help him build his campaign war chest. They know that the unemployment will only go up with government "jobs programs" (entitlement continuation) and that riots in the streets will occur.

They know, when the poop hits the fan, they will need massive bailouts (or additional bailouts) from the Fed, but the Fed may not be there for them. Why? Because before long we will see the Cartel suffer it's largest loss of power and control since 1913. There will be a citizen's (taxpayer) revolt that will show the entitled crowds, the unions and the politicos who is boss. They will refuse to continue being robbed to enrich the Cartel Robber Barrons.

Small and Community Banks (the honest, fiscally responsible ones) are desperate because they have played by the rules and have done well over the years but today their customer base is shrinking, not able to fund savings accounts, exiting money market and CD accounts and generally stagnant to reducing inflows. These historically solid smaller banks are suffering losses on delinquent real estate loans and small business failures and they are being strangled by Fed paperwork and new regulation at every turn. The ball of red tape has grown exponentially. People that have money are not borrowing. People that need money can't borrow. I expect small banks in America to greatly reduce in size, then transform into something quite different than they are today. That's another story.

In short, there are a myriad of reasons that bankers are desperate. Small banks will go into consolidation mode and continue austerity through the crisis to come. The smart small banks will get out of their traditional investments (US Bonds) and get on the side of pm's, commodities and certain foreign debt/bonds. The big banks are going to continue eating each other with taxpayer funded bailouts and taxpayer (and deflated Dollar) funded "consolidations", until there are but a few. Then the battle will be between the Fed and the states. The states will win.

Our job is to stay out of the way of the meat eating dinosaurs as they devour each other and raise interest rates beyond Volker levels of the 70's. Our job is to pay attention, invest in pm's and other essential stores of value. Our job is to not just do this for our own enrichment but to prepare enough to help others to convert their way of thinking. Our job is to spread the word. Our job is to continue strengthening ourselves mentally, physically and spiritually so that we don't become casualties along with all those souls that haven't seen the tsunami coming.

Individual bankers are increasingly scared. As an aside, I've had several chats with the President of my bank and a few other execs there about gold, silver and the end of the Keynesian experiment beginning about four years ago. In the beginning, they looked like deer caught in headlights and didn't seem to be able to "compute" the information I gave them. They laughed it off respectfully and they trust me, but they couldn't believe I was correct about where we were headed. Earlier this year, they brought it up again in one of our meetings. This time they were a bit more inquisitive, but still were not able to make the connection or willing to drop their banker egos and ask questions.

Then, this Tuesday I got a pone call. My banker said that "he had seen enough and wanted to talk". He had many questions about what to buy, how, where, etc. You can imagine the questions. I loaded him up with a lot to read and study. I also gave him a dozen funds and mining companies to consider. I told him to make sure that at least half was in physical. He called me this morning all excited about the silver coins he just bought, as well as positions in CEF and GDX. I congratulated him. He asked if we could talk again. Of course I said "sure".

This is not the first time this has happened with my friends, close acquaintances and business associates... but it is the first time a banker has "awakened" and "converted". I'm sure many of you have had this experience and would agree that is feels good to help someone like this (not necessarily a banker).

Sad to say, most people, whether they are bankers, cobblers or candlestick makers are going to be too late to the party to escape the debt trap. But I do expect to get more questions in the coming days and months from the "seeds" that I began planting years ago. I'll welcome them all and invite them here as well.

Apologies for the long comment.

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