The Moment of Truth
If you're about my age, you probably can't read that title without thinking of this song. By the way, Elizabeth Shue sure was freaking HOT back then.
Well, anyway, we've reached our own Moment of Truth. It's all on the line. This is the place. This is the time. Tonight, gold rests squarely upon the trendline from the lows of three years ago, back during The Great Financial Crisis. Back then, Dennis Gartman couldn't even spell "quantitative easing", much less define it. Back then, the great con artist Bobby P was trying to convince all of his clueless subscribers that gold was immediately headed to $275. Back then, the idiot GeorgeW was still president and my mother still referred to me by my given name.
Its been a long, crazy road. Gold has approached the trendline at least seven times over the past three years. Each time, gold has held and the uptrend has continued. Will it do so again? Maybe.
Notice that I did not say "definitely" or "absolutely". I said "maybe" and I mean it.
Look, fundamentally nothing has changed. In fact, the fundos for gold only improve with each passing day. Each fiscal year, the U.S. government spends roughly $1.5T more dollars than it takes in. This simply cannot continue and the only way out is to significantly devalue the dollar. The euro and the EU are an absolute disaster. The only way out for them is money creation on a massive, never-before-seen scale. Current holders of dollars and euroes, from central banks down to regular folks, see what is coming and are clamoring for all of the physical gold upon which they can lay their hands. Again, fundamentally, the rationale for holding physical precious metal has never been stronger.
The fundamentals for physical metal are of absolutely no consequence in this current, Comex/LBMA system. As I type, it appears that sane and rational investors are shunning the Comex. As mentioned as nauseam, post-MFG, why on earth would anyone purchase and hold gold or silver through the Comex? One would have to be ignorant, naive or foolish to still be operating within that system. The problem is, the Comex operates as a closed system...for every seller, there most be a buyer. Well, if buyers are rapidly exiting the arena, you are left with an overwhelming amount of sellers. And, as well all learned in Econ 101, when sellers outnumber buyers, prices will fall.
So, here we are, caught in this strange new paradigm of extreme physical demand in the face of plummeting paper prices. In this environment, why on earth would we expect the gold price to suddenly stop and reverse exactly at some trendline on the chart? That makes no sense. The trendline is a reflection of market price history that simply has no bearing on today. Simply put, the trendline held in the past because investors still had some measure of faith and confidence in the current system. But this is the dawn of a new day. The Comex is dying. Soon, the spread between the price of paper and physical metal will diverge to such a point as to make the Comex an obsolete joke. But that day isn't here yet. It may still be weeks or months away. Until then, the imbalance between buyers and sellers will only increase so I expect the price of paper metal to decline even farther. All of this likely makes my little trendline as obsolete as a sliderule.
How far paper price falls is, quite obviously, tough to say. I suspect that we'll know we are approaching a bottom when we see the commercial long position in the gold market exceed the spec long position. The latest CoT looks like this:
- Spec longs = 172,973 down 11,495 (-6.23%) from previous week
- Spec shorts = 39,037 up 5,072 (+14.93%) from previous week
- Cartel longs = 159,783 up 7,426 (+4.87%) from previous week
- Cartel shorts = 324,337 down 14,237 (-4.20%) from previous week
Let's watch for spec longs to keep falling while spec shorts keep rising. All the while, The Cartel will be covering shorts and adding longs. At some point in the near future (sometime in Q1 2012), spec longs will dip to 150,000 or less while spec shorts exceed 50,000. Cartel longs may reach 200,000 while Cartel shorts dip below 300,000. Maybe, at that point, gold will find a bottom. Again, it's tough to say for sure.
Regardless, I have a high level of confidence that paper metal will stage a massive rebound in 2012 once The Cartel has shifted the loss burden from themselves to the specs. I will be here to guide anyone attempting to secure fiat profits from this expected, incredible rally. Until then, traders need to exercise extreme caution when trading paper on the Comex. Personally, I feel it's best, at this point, to stand back and let this process play out.
Now, of course, I could be wrong. Maybe gold did in fact find its bottom today, just as I had speculated for months that it would. If so, you must completely disregard this post and pretend that you never read it. Got it? In the meantime, do not be surprised to see The Cartel put the hammer down tonight or tomorrow. There have got to be a ton of sell-stops below 1550. If the monkeys can succeed in triggering them, paper gold could rapidly fall toward $1500. Again, after MFG, who or what will be buying what The Cartel and the remaining spec longs will be selling?
Please be patient. The physical metal that you own and hold in your own two hands are your only insurance against the indescribable financial horror that is to come. Do not let the day-to-day machinations of the criminal, fraudulent Comex frighten you into selling this precious commodity. Be strong. Be confident in knowing that you have made the correct decisions. Persevere and keep the faith.
p.s. For good measure, here's a little more Karate Kid for you. Think of yourself as Daniel-san. The Cobra Kai are Jamie and his monkeys.