Thu, Dec 15, 2011 - 5:05pm

Thanks for your patience in my absence today. No, I did not have jack-booted thugs visit my home overnight to whisk me away to a re-education camp. Mama Ferg simply required my assistance this morning. That said, I believe we had a very constructive day today in the PMs and we are very close to declaring a bottom.

Let's take this bottom search in three steps. First, let's look at the hourly charts. It is on these short-term charts where we should find our initial evidence.


Isn't it interesting that these charts can look so similar on the way down but then have different shaped bottoms? Gold, if it indeed bottoms here, will have a flat, double-bottom look to it. Silver, on the other hand, shows a distinct, reverse head-and-shoulders bottom. Anyway, none of that will matter if the bottom drops out tomorrow so let's not get ahead of ourselves. For now, though, these charts give us reason for optimism, especially when combined with the weekly charts below.


Let's take these two separately. First, the gold chart. Note that, so far, the decline stopped right where we expected it to, on the lower channel line from 2008. Can't ask for more than that! It is important to note, however, that in the 4 or 5 other touches of this line over the past 3 years, gold has bounced along it for a period of 2-4 weeks before lifting away. So, just because a bottom is in does not mean we should expect gold to trade immediately back to 1800. Give it the rest of this month to get its act together and then maybe we'll have an explosive January.

In silver, look at the new pennant I've drawn. Careful readers will note that I first drew that bottom line yesterday on a chart where we were looking for potential areas of support. In revisiting that idea today, I've decided that this works pretty well and I'm going with it. Why the heck not? Magnify the image and look at how closely the points line up. Additionally, this pennant makes sense from a fundamental standpoint, too. The bottom line of support is drawn off the lows prior to the emergence of our infamous Buyer(s) of Size back in August of 2010 when silver was just $18. The top line of support is drawn off of the highs in April when the pressure on the Forces of Darkness had become so extreme that they had to raise margins 5 times in nine days. Anyway, I may look like an idiot if this formation breaks down and silver heads to $20 but, for now, I'm sticking with it as I believe I'm onto something.

The final piece of the puzzle/riddle/enigma in the search for a bottom is a turn in the one-month lease rates for gold. As you know, it was by noticing the dramatic inversion of lease rates last week that we were able to accurately "predict" this current beatdown. Therefore, any search for a bottom must also include a check of the current, one-month lease rates. Well, whadayaknow? Take a look at this chart. In September, gold stabilized and rallied after one-month lease rates "fell" from -0.5% to -0.25%. Current lease rates "bottomed" earlier this week and have since "rallied" in a manner almost identical to September. Hmmmm.


So, anyway, here's the deal. My confidence level is high that we are very near a bottom...not just of this current beatdown but of the entire, manufactured "correction" from September. Let's see how things trade overnight and tomorrow before we get excited but you can clearly see where things are lining up both technically and fundamentally for a bottom.

Lastly, I must comment again on the very interesting open interest numbers.

  • The Feb12 contract saw its OI rise by 2000 contracts yesterday, a day where the Feb11 contract closed almost $80 lower than its close on Tuesday. Sure, maybe some half-crazy new spec longs initiated a few contracts yesterday. But 2000??? Not a chance. The bulk of the 2000 are clearly blatant, manipulative new shorts added by The Cartel in an attempt to drive price down. Well, what can you say? It worked. Good for them. For us, however, this is very good news. Clearly, the spec longs remaining are resolute. If they didn't panic and sell yesterday, they likely won't sell tomorrow, either. On the other side, those fresh shorts that the monkeys put on yesterday are eventually going to need to be covered. Therefore, this rise in Feb12 OI is a double positive.
  • Potentially more interesting and compelling is the continuing rise in the OI of the Dec11 contract. Even though every day brings settlement of standing contracts, the OI keeps rising. After accounting for settlements, the open interest after yesterday was 2327, UP 517 contracts from Tuesday! Again I ask: Is the demand for physical so high that some are "jumping the queue" in order to get metal this month, not waiting for February?
  • And take a look at this...January is not a "delivery month" so the contract is lightly traded as almost all of the action is in the Feb12 contract, the next delivery month. However, check out the Jan12 OI: After Monday it was at 663 contracts. After Tuesday, it rose to 894. Now, after yesterday, it stands at 1061. Again I ask: Is the demand for physical so high that some are bypassing the normal Comex "order" and moving for delivery in January? If you're not confident that the Comex will be able to satisfy all those that might stand in February but you're not yet ready to pony up 100% margin to buy December, do you buy a Jan11 as "insurance"?

In any event, these OI statistics are really, really interesting and must be watched every day as we close out this month and move into January. They may not be able to tell us definitively, before-the-fact that something major is happening on the physical demand side of things but they certainly give us warning to pay attention. If a major physical squeeze does develop in the next few weeks, we will be able to look back on these OI numbers with hindsight and say that the signs were all there, staring us in the face.

That's all for now. The LTs have a "Christmas Pageant" tonight so I will be out of touch for a while, monitoring the action on my iphone. Let's see if a rally can develop that carries over into tomorrow. Keep your fingers crossed.


About the Author

turd [at] tfmetalsreport [dot] com ()


· Dec 15, 2011 - 5:06pm

someone posted this earlier

I think this is an interesting analogy:

One Hundred Million Dollar Penny
goldeneconomizer · Dec 15, 2011 - 5:09pm



Jdawg · Dec 15, 2011 - 5:13pm

Get Ready to Board

The train will leave the station shortly. · Dec 15, 2011 - 5:17pm

What is all of This Concern about Deflation?

The people are only concerned about inflation because the largest burden of inflation is on those who receive the newly created money last. The true deflation concern is assets deflating enough in value to cause the banks to go bankrupt.

What is all of this Concern about Deflation?

· Dec 15, 2011 - 5:18pm
TheObsoleteMan · Dec 15, 2011 - 5:23pm


While the metals MIGHT be bottoming, I think that the best we can expect is flat price action. We are deep into the holidays season, and many traders are not active. I expect the real fireworks around the second week of next month. of course Europe going to hell, or military action in the Persian Gulf could change all of that very suddenly, so be watchful.

JPAagau · Dec 15, 2011 - 5:33pm

Not convinced yet

Can't get too excited about a major bounce until I see the metals move in the opposite direction of equities in any meaningful way. In the short-term, if some headline out of Europe sends the S&P down 15 points, I suspect the metals will go right along for the ride . . . 

rockstate · Dec 15, 2011 - 5:40pm

Great video! 

Great video! 

TheObsoleteMan · Dec 15, 2011 - 5:41pm


I pity the poor SOB that had to clean up all of those pennies!

Bsong · Dec 15, 2011 - 5:44pm

100 million $ penny

That comes to a whopping $53,333.00 per US citizen regardless of age! 

onealpha · Dec 15, 2011 - 5:53pm

Kyle Bass comments

I posted this yesterday and you can find his comments on gold at The 41:55 mark. The whole interview is great though.

Dr G · Dec 15, 2011 - 5:54pm

Agree with the above poster

Agree with the above poster regarding flat trading. I think we are a wash until January.

Jasper16 · Dec 15, 2011 - 5:58pm

Richard Russell say sell all stocks ever PM ones!

Last paragraph and just and FYI the last time he made this call was in 2008. Right after he made this the HUI went up and I thought the old man was crazy so I didn't sell. Hence I got owned before I sold out.

Plz give me 1$ RBY again, plz!

Dave T · Dec 15, 2011 - 5:58pm

iPhone Apps

Turd - Care to share with us what your favorite iPhone apps are for watching the markets?

henry · Dec 15, 2011 - 6:01pm
Dave T · Dec 15, 2011 - 6:04pm

I just simply follow the

I just simply follow the metals thru the kitco charts on the homepage.

TheObsoleteMan · Dec 15, 2011 - 6:06pm

I don't see how this is much

I don't see how this is much different from what I said. Note that the typical bottom on the weekly chart bounces along the trendline for 2-4 weeks. Similar action here would take us into January.

33 and a turd · Dec 15, 2011 - 6:08pm

Hedge Fund closures

This could help explain a lot

Overnight interbank reports are mentioning quite a few hedge fund closures this week (I’m presuming due to under-performance) and this has led to some heavy liquidation of long Gold positions. Same old story, cut the good positions to pay for the bad. They expect the selling to dry up in the next few days and Asian Sovereign bids near $1500 to provide short-term support.

tpbeta · Dec 15, 2011 - 6:09pm

Gold leasing

Reckon the lease rate has to get to about 1% to bottom. The ECB will lend to underwater European banks at 1% for 3 years, and they are accepting gold as collateral. It was that announcement combined with the negative lease rate (IMHO) that started the fire sale.

Which lease rate matters is therefore an interesting question. My guess is 6 months and below because (a) these guys are living hand to mouth and (b) the one year rate has never been below 1% recently in the first place. It's the shorter term rates that have dipped negative.

The 6 month rate looks like it's a heading back to 1%. Maybe that will be the moment? Maybe it will have to be the 3 month rate.

punchbowl · Dec 15, 2011 - 6:14pm


Mr. Duffy is a marked man. Ho Ho Ho

Brotha Bob · Dec 15, 2011 - 6:16pm

Turds Bottom

Turds bottom, I hope you are right. And it is not as ugly and hairy as the last time.(yes, another joke about Turds bottom) Th ask for the input. Since I bought today, I really hope you are right. Especially with silver.

Double Bogey · Dec 15, 2011 - 6:16pm

Droid App

Don't have an i phone but would imagine there's quite a few apps available. I have a droid app called Gold Silver Monitor that is handy to have on my phone. It refreshes as often as you set it to refresh, has charts, and it's freeeeee

agrock · Dec 15, 2011 - 6:20pm

Gold-Silver Ratio

When you are counting out your Phyzz Gold vs Silver ... what does everyone do to determine the percentages if you're i.e. 70% Silver 30% Gold

Measure the Fiat Values for ex. 70K Silver 30K gold or actual phyzz ounces 70oz silver 30 oz gold

Just curious?

fast mover · Dec 15, 2011 - 6:28pm

Copper pennies

He could have used half as many pennies if they were all pre-83...I'm just saying there were too many shiny ones.


SilverWealth · Dec 15, 2011 - 6:38pm


I don't understand how you have 'confirmation of a bottom if we take out 1600. 

Resistance at 1650,1675,1700 and every ledge on the way up.

 A year to date chart is not so kind. A three wave down pattern can be etched out targeting 1420 area. Its certainly possible. Yes we feel oversold here and I would expect some kind of bounce but until 1800 is taken out that 3 wave pattern is there to dishearten anyone who argues we are double bottoming with September's lows. Maybe, maybe not but a big maybe imo.

Rick Ackerman is not always to my liking but when volatility gets high and big selloffs happen you can help to navigate using his wave system. I hope he's wrong.

Syzygy · Dec 15, 2011 - 6:40pm

Nice sale at Kitco

About $32 for silver libertads, philharmonics etc ATM. I'm tempted even though I think spot will go down some more. I can't tell how long the sale lasts - do these just go on until they decide to pull it?

banal comments · Dec 15, 2011 - 6:44pm



It's not a pennant if it's not a symmetrical triangle, which it isn't. Still, good pick up on the channel-- the 50 wk MA happens to coincide.

sixdollarsilver · Dec 15, 2011 - 6:45pm

@ tpbeta

Sorry, missed your follow up questions last night (my time). Yep, that's the crux of the matter, isn't it - who and how? If I knew the answer to those questions, I'd probably on my jet right about now, heading for St.Kitts :)

33 and a turd · Dec 15, 2011 - 6:49pm


Tyler Durden

Tyler Durden's picture

Read this to understand why JPMorgan, due to being one of only two tri-party repo clearers, effectively can do anything it wants in the capital markets:

A Rare Glimpse Into The Fed's Discount Window Courtesy Of The Brewing Lehman-Barclays Scandal

And then read this:

Tri-Party Repo Infrastructure Reform

...And then everything will start falling into place.

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