I don't know if anyone else feels this way, but I've been having a strange feeling of deja vu and I couldn't seem to place it. I was standing there this morning, making some coffee, when it hit me. This is late 2009 all over again. If you were trading and stacking back then, I'm sure you'll recall that painful period. If not, let me give you a little refresher.
Where were you in late 2009? Were you listening to this:
I know where I was...I was making some serious cash. In July of 2009, gold was trading in the low $900s. By Thanksgiving of that year it was near $1200 and Turd was flush (no pun intended). And I will never, ever forget where I was when gold peaked. I was reading ZH and watching Fox Business when I saw gold trade at 1225 and read a headline on ZH that the Bundesbank was going to be announcing a huge gold purchase in the morning. My personal sentiment indicator went to 10+. Unfortunately, that didn't work out so well. Beginning the next day, gold began to roll over, instead, and by the first Friday of December, I was doomed. The BLSBS report came out and was spun into good news. Dreams of "green shoots" and a "recovery summer" soon took over. The POSX shot higher and, over the next 3 months, rallied nearly 10% from 74 to 81.
The resulting decline in gold was brutal. First, it had peaked at $1226 and Santa had promised an "angel" at $1225 for years. The fact that I'd let greed overcome me and consequently didn't sell at $1225 was crushing and when gold rolled back down through $1100 in January, I was seriously depressed. All of the same old AGAs were claiming that $1225 was a blow-off top and that gold was soon going to be trading back below $1000 and was probably headed back toward $800. I was sick, Mister Hyde was furious and it seemed like all was lost.
But we didn't quit, we didn't give up. I knew that the whole "recovery summer" thing was a joke. The U.S. economy wasn't going to recover, the best it could do was stagnate and limp. The MOPE and the SPIN were so thick, I could barely breathe and when gold bottomed at $1052 in February of 2010, there was hardly anyone around who noticed or even cared. And that's the funny thing about bottoms, you rarely, if ever, notice them in the present as they are only visible in hindsight. With hindsight, we now know that the "green shoots" of 2009 became the dead weeds of 2010. All of the breathless proclamations by LIESman et al not withstanding, the facts, the math and reality took hold again by mid-2010 and gold finally surged back to the $1225 level in May and through $1225 in September.
My point is simple: We are currently in an identical situation. Gold surged to $1925 last September and, on 9/6/11, gold was ready to rocket higher on news that the SNB was going to devalue the Swissie by 10%. Again, sentiment was at the 10+ level and, again, we were within a few dollars of a Santa "angel" at $1936. Well, we all know what happened next and now, after six months of this brutal "correction" where gold has again fallen 15% while the POSX has rallied 10%, we are once again staring into the Pit of Despair. LIESman et all are screaming from the rooftops that the economy is improving and The Bernank is desperately implying that QE is over. Well, I call "bullshit" and I'm standing tall against them. Will you join me?
As I type, gold is at $1632 and silver is at $31.43. I've been maintaining all month that gold would likely bottom between 1600 and 1650 and that silver was headed to 31, maybe even 30. Why would anyone panic now when we are so close to the bottom. Always remember and never forget: THE ONLY WAY YOU WILL CONSISTENTLY MAKE MONEY TRADING GOLD AND SILVER IS TO BUY WHEN EVERYONE ELSE IS SELLING AND SELL WHEN EVERYONE ELSE IS BUYING. Period. Why is this true? Because this strategy essentially puts you on the same side of the trade as The Cartels, which as you know post-MFG, are exerting an increasing level of influence on the paper metal markets. It is clear to me that now --right now-- The Cartels are buying and covering not selling and adding. I discussed this yesterday in two, separate comments to the previous thread and they are reprinted below:
Back at the last highs of 2/28, total gold OI was 479,044. As of Monday's close, it had fallen to 434,226 for a drop of 9.35%. The last time gold total OI was at this level was 2/14/12 when price closed at $1718. Additionally, even back in January, we find higher total OI numbers. The week of 1/16 averaged total OI of about 439,000. Gold began 2012 with a price near $1600 and a total OI of 420,000.
Back at the price highs of 2/28, total silver OI was 115,866. Total OI was actually higher on 2/24 at 118,204. As of Monday's close, it had fallen back to 108,268 but actually bottomed back on 3/15 at 106,723 or a drop of 9.71%. The last time total silver OI was below 107,000 was 2/17/12 when price was $33.28. Total silver OI averaged about 103,000 in January after beginning the year at almost exactly this level, near 106,000.
Clearly, any "excess" open interest brought about by the early year rallies from 1600 to 1800 and 28 to 37 has now been wrung out. Again, this is just another signal that we are very near a bottom.
Crazy silver OI report basis yesterday.
Yesterday, gold was down $20.20 and total OI was down 3,200 contracts. Perfectly normal.
Silver, however, was down $1.12 yet total OI expanded by 3,154 contracts. The July12 alone went from 12,404 to 14,018. The only deduction that can be made is that a significant amount of new shorts entered the silver pit yesterday. What we don't know is whether it was Cartel or spec shorts. The CoT on Friday will provide some clues but it is highly likely that these are spec shorts. Why? Because The Cartel typically only adds shorts to:
- Cap price OR
- Attempt to start a waterfall/cascade selling event.
If only now we are seeing a huge run-up in spec shorts then we truly are very close to a bottom as the late-coming spec shorts will soon be fleeced just like the late-coming spec longs were fleeced on 2/29.
Total silver OI is now back to where it was two weeks ago, when silver was almost exactly $1 higher.
Ahead of the CoT on Friday, here is what we know:
Gold for the week 3/13--3/20 saw the total OI fall from 442,319 to 431,039 while price fell by $47 (2.77%).
Silver for the week 3/13--3/20 saw the total OI only fall from 111,730 to 111,422 while price fell $1.75 (5.2%).
Likely Conclusion: This week's CoT will be slightly bullish for gold but will show a significant improvement in the CoT picture for silver.
Anyway, the point is that is is always darkest before dawn and we are very deep into the wee hours. The global economies have not and will not improve to the point where we can "grow our way out from under the debt". No way, no how. In 2010, it took 6-8 months before logic, math and facts finally prevailed over hope, MOPE and SPIN. The truth will win again in 2012, you just have to be patient.
One more thing, I received some communication from "Winston" this morning and he provided some very helpful information. He is of the belief that the down move that began Tuesday evening and continues this morning is almost entirely related to April gold option expiration. Again, the Comex is now almost completely controlled by The Cartel as the only participants left are Cartel monkeys and HFT-WOPR momentum chasers. This allows The Cartel, which has full knowledge of the order books for both futures and options, the ability to swing price at their leisure and position price in such a way as to maximize pain for option holders upon expiration. Winston believes that the current target of their malice are not only the call buyers but also the out-of-the-money put sellers for April. Remember, gold was near $1800 just 4 weeks before expiration of the April options. A lot of traders believed that there was easy money to be made by selling out-of-the-money puts, the April 1650s and the April 1600s. Those that did are getting seriously squeezed right now and they are being forced to short actual gold contracts to hedge themselves. Winston thinks that the 22,000+ contracts between 1600 and 1650 are the true target of The Cartel here and that their ultimate intent may be to drop gold as close to 1600 as possible before expiration at the close of business next Tuesday.
What's interesting about this is how it fits right in line with all of the other "bottom signals" we've been discussing here as of late. A low near $1600 tomorrow or early next week would:
- Complete the drop to stout support at 1600
- Complete the right shoulder of a massive reverse head-and-shoulder bottom
- Bring silver down to 30-31, just like we'd envisioned
- Drop gold open interest levels all the back to early January levels
- Put the RSI and MACD indicators into deeply oversold territory
- Drive sentiment and our new TITS indicator to record low levels. Even Mister Hyde is once again suicidal and ready to simply cash out his IRA before it goes to zero. He'd like to take it in cash and go to Vegas where he can blow the rest on blackjack, Jack Daniel's and hookers.
And don't forget that lease rates have clearly bottomed and have significantly reversed. In September and December of last year, lease rates reversed about two weeks before price.
So, in the end, hang in there. I know it's tough and painful to watch everything go down when you know you are on the right side long-term. But let me assure you: This, too, shall pass. Soon...very soon...the metals will bottom and resume their inexorible march higher. Of this, you can be certain.