Mon, May 14, 2012 - 11:08am

Hey, no one can accuse me of going down without a fight.

I know that there are people out there that think that all "paper" is going to zero. Maybe it is. What the heck do I know? However, can we all agree that, for gold and silver to go to zero, demand for the physical metal has to go to zero, as well? As gold drops through round-number levels, the price-to-zero argument implies that demand must also be dropping because, as well all learned in Econ 101, price is a simple function of supply vs demand. In the end for price to continue declining, demand must remain low or fall even further until it reaches a point where buyers outnumber sellers and price rebounds.

I mention this for two reasons:

  1. If you truly believe that gold is headed to 1400 or 1200 or 900, then you must also believe that there will not be much demand for physical metal at 1500 or 1300 or 1000. Only an absence of demand can drive price that low.
  2. If, instead, you believe that global demand for physical metal continues, regardless of price, then you must believe (as do I) that physical demand will, eventually, drive the paper price back higher.

There still seem to be quite a few folks who question and/or don't understand the "massive physical orders below $1600" stuff. Let me state this again for clarity: We're not talking about the Comex here. The "massive physical orders" are in London and are getting filled there, not New York. This is how it has always been and this is how it remains. That the price of paper gold in NY affects the purchase price of physical metal in London is the "futures tail wagging the spot dog" that Ned Naylor-Leyland described last summer.

And herein lies the conundrum for The Bullion Banking Cartel. On the Comex, new spec and managed money is emerging daily to short the gold and silver markets. This money is primarily run by HFT WOPRs which are keying off the lousy charts and other technicals. You must also remember that, post-MFG, there 's virtually no one left in the pit to take the other side of the trade so, when the self-fulfilling short algos pile in, the fall in paper price accelerates. Again, though, Econ 101 teaches us that a falling price almost always leads to greater demand and, in this case, it almost certainly is true.

So, paper price is being driven lower by the spec shorts in New York while Cartel metal inventories are being drained by physical orders in London.

If paper price continues lower, the physical depletion in London accelerates and never forget that every ounce taken out of "the system" decreases the "leveragability" of The Cartel by 100 ounces.

Not only MUST the Cartel adjust their net short position to stem the paper drop, the depletion in physical will greatly impact their ability to add shorts back in when the inevitable rebound occurs. What we are left with is this: The Cartels MUST continue to cover shorts and add longs here in order to halt the price trend which is undoubtedly draining their vaults. Additionally, I suspect that they are losing so much physical metal out the back door that their days of outright manipulation and control of price are ending.

And this short covering and long addition is EXACTLY what we are seeing in the CoT. The latest report, basis last Tuesday, was incredibly bullish and keep in mind...it was dated LAST TUESDAY! Since then, price has fallen another $40 in gold and $1.10 in silver (if you include this morning), so we can safely assume that the CoT structure has only improved. For perspective, consider these stats:

CoT Date Cartel gold net short ratio Cartel total gold longs EE silver net short ratio EE total silver longs

5/8/12 1.94:1 161,037 1.39:1 45,482

2/28/12 2.69:1 145,061 2.32:1 33,802

12/27/11 1.97:1 162,522 1.34:1 41,224

8/30/11 2.23:1 176476 2.41:1 31,944

4/5/11 2.64:1 157327 2.69:1 33,413

Frankly, there's so much information in the little table above that I don't know where to start. Let's simply point out this: For silver, since the EE peak and near signal failure of April 2011, the net short ratio has fallen from 2.69:1 to 1.39:1. This is remarkable and clearly indicative of the trend by the EE to exit their long-held net short position. Ultimately the question is, will they add shorts again on the next rebound, similar to the period of 12/27/11 to 2/28/12? Who knows but with ongoing investigations, lawsuits, trading losses and physical depletion, it would certainly seem to behoove JPM et al to NOT try it again.

Just a little more CoT perspective, from Unlce Ted. The cumulative gold net short position is just 151,400 contracts a/o last Tuesday. This is the lowest since early 2009 when gold was near $900. In silver, the EE net short position is just 17,900 contracts. The only time in the past decade when the EE net short position was at this bullish of an extreme was on the 12/27/11 reporting date noted above. A few more nuggets for Uncle Ted:

  • In gold, the 4 main bullion banks covered 12,000 contracts last week alone and their net short position is now just barely above 100,000 contracts. This is the lowest it has been since 2007 and sub-$700 gold.
  • Since the latest top on 2/28/12, the Cartel has bought back 100,000 net contracts or 10,000,000 ounces in notional terms. That's $16B in gold!!
  • JPM's net silver short position is now around 12,000 contracts and likely lower, given the action of late last week. This means they've essentially cut their own net short position in half since late February.
  • The EE having returned their net short position to 12/27 levels means that they sold the equivalent of 150,000,000 ounces on the way up between 12/27 and 2/28 and now they have bought back the entire 150,000,000 ounces on the way down.

So, anyway, what's the point? It's this: Yes, the "price" of gold and silver might go lower still. However, stable/increasing demand at these lower prices is serving to drain the vaults of The Cartels. They are rapidly covering shorts and adding longs in an attempt to stem this tide of declining price and inventory. Eventually, a massive short squeeze will happen. The bottom will be in and price will stabilize at a level higher than where we are currently. The key will then be: What happens next?

  1. The Cartels resume shorting into the rally and begin to rebuild a massive net short position.
  2. The Gold Cartel decreases or even abandons their price-capping efforts permanently. In silver, The EE may even go flat or net long. Ted's "raptors" are already net long 16,800 contracts, by the way.

From where will this bottom materialize. Of course, it's impossible to say for sure but I believe we are very, very close. In the end, though, it hardly matters. Just keep stacking. The next phase of this bull market in metal is going to be breathtaking. Be ready.

Have a great day! TF

About the Author

turd [at] tfmetalsreport [dot] com ()


May 14, 2012 - 11:08am



Frankenstein Government
May 14, 2012 - 11:13am

Bernanke Has Never Let Me Down

I posted this piece on the entire commodity complex today incl. precious metals. https://thecivillibertarian.blogspot.com/#!/2012/05/precious-metals-hold...

Anybody wanna bet me that QE3 is coming?

What If
May 14, 2012 - 11:16am

Had to do it


May 14, 2012 - 11:17am

Actually no TF, we cannot

Actually no TF, we cannot agree that demand for physical is dropping if the paper price is falling. If you know your counterparty is broke and will never deliver you gold you won't want to buy his paper. It doesn't mean you don't value the underlying asset.

May 14, 2012 - 11:18am

Other factors

"Only an absence of demand can drive price that low."

Why might there be such an absence of demand? If we get a deflationary environment (however temporary), that would do it. If we get a repeat of the Great Uncertainty Sell-off of 2008, that would also do it. These two might merge into one as a cause/effect loop where an anticipation of deflation causes a mass sell-off.

In any case, I can imagine a lack of demand that would see prices fall to these levels. I think is is plausible if not probable.

May 14, 2012 - 11:20am


The new Chief Investment Officer at JPM is the former chairman of TBAC. What is TBAC?


Amazing. You seriously couldn't make this shit up.

May 14, 2012 - 11:21am

The Meat Grinder

My friends, the chart below shows what the last eight months have been for us. Eight horrible, churning, doubt-inducing months replete with false bottoms, false breakouts and a whipsaw market going up and down and up and down again. Did you go long at some point here? Unless you both A. hit the bottom perfectly, and B. had a “buy and hold at all costs” will of steel, you’ve been ground to a pulp several times over. Went short at some point here? Same thing. Up and down and up and down, and for all our study and stress, we are still at the same price point we were eight long months ago, except that most paper PM / miner investors are lighter in the pocket because of this action.


This is the Meat Grinder. This is how you raise the stress-level of PM investors to DefCon 4. This is how you get people who otherwise agree on 90% of their fundamental beliefs to pick at each other like chickens in a peck-order frenzy. This is how you get the finest minds in the business to exhibit the following prediction schizophrenia (stolen shamelessly from my friend Green Lantern in this post at The Speak today): https://www.tfmetalsreport.com/comment/560521#comment-560521

“russell, pento, et al say stay away from stocks crash coming. rick rule says buyers market, gold keeps going down. Paul vaneden says 900$ gold. Jay taylor says deflation. Frank B says we've hit bottom. Richard maybury issued a buy back in February, Caseys says more down to come, hatheway says we hit bottom, jim rickards says watch cross rates for euro-usd for QE (getting lower), peter shicff yells buy buy buy no matter what price we are at, eric sprott calls buffett an asshole and gold to hit $2000 by years end. Gerald Celente yells revolution and blood in the streets, James dines speaks out of both sides of his ass (maybe that's his english), jim sinclair yells QE to infinity 1711-2000 gold, john embry says they keep manipulating and that good buys were weeks ago, james turk says silver to $50 every week and that we hit bottom (2, 4, 6, 8, 20 weeks ago), dennis gartman says bull market over. did i leave anyone out?"

The Meat Grinder leaves chaos in its wake, sows dissention and disillusion, causes otherwise rational people to lose faith in things they ought to KNOW are true and ultimately to lose faith in themselves and their abilities.

But do you really want to just chuck it all, go out and buy APPL? Do you really think S&P to 2000? Do you really think the economy is improving? Do you believe you would be better off with some broker getting you into the stock of the month to generate commission for his firm? Do you really think our kids will have it better than we do? Do you really think the USD will remain the world reserve currency? Do you really believe there will be no consequences to a 16 Trillion national debt, Total government debt (national, state and local) of 24 Trillion?

There is ultimately just one thing to understand- the Meat Grinder is a WINNOWING PROCESS. It will chew people up and throw many off the trail, and only those who understand what is going on AND have the guts to hang-on to this bucking, snorting, hissing beast will come out the other side relatively intact. This is the price we pay for living with eyes wide open. So get used to it. 

May 14, 2012 - 11:22am

Again, you are implying a

Again, you are implying a complete disconnect of paper vs physical price and demand. Who knows, maybe you're right. I just don't think so.

May 14, 2012 - 11:24am

Rachel McAdams

It was my birthday on Saturday and since I enjoy my birthday most when my wife is happy I decided to rent us The Vow. Even though it is a chick flick in every sense of the phrase I got to enjoy ogling Rachel while my wife got to enjoy a very pro-romance storyline. It was the best of both worlds. 

What does this have to do with the metals? Not much, except that I am beginning to enjoy my life more and worry less about my stack that sits below the 520 bridge most likely standing as a home for a few rock fish. 


Eric King
May 14, 2012 - 11:26am

Nice chart

That's a nice looking silver chart Turd. Low 28s are looking tasty. 

EURUSD is back down at 1.28, I am looking for 1.25 before the bernank hits turbo at the end of July. I hope you all have more physical than you can carry. 

Be Prepared
May 14, 2012 - 11:27am

Repost.... This is War...a Sound Money War...

A War... This War... Any War is a vicious thing to behold and even worse to experience on the front lines. If you are awake and you have bought PMs, you are the front lines, my friends. This War will consist of many endless battles, skirmishes, retreats and assaults. Most here are not used to the crushing, earth shattering changes that one must face when, right before the first engagement, your stomach is in knots and you're on edge..... This is War and we either become battle hardened or we lose our will to stay in the fight.

The volleys and the mortars being lobbed from TPTB will pound the faith of your convictions, as it is designed to do. There is real pain here for many and there will be more pain for all. Do what you must, my brothers and sisters, to steel your position in any way you know or any way you can learn. Sell if you need to sell, but buy when you can.

One Simple Fact: TPTB doesn't want anyone holding "real and sound" money when they reset and they will wait until the last possible moment to squeeze every last, unmerciful bit of juice from every last one of us.

There is nothing cushy about this war.... no hot meals back off the line in HQ.... no mail call.... no care packages...

What we do have... is each other to console... to provide perspective... to give friendship.... to remember our mission.... to make it to the other side will some semblance of freedom. No big paydays for most of us... just the ability to walk a little freer... to find and live in a little more peace.


@pining and I are in agreement... :-)

May 14, 2012 - 11:27am

Picture of "Athens Ministry of Finance"

Just posted on ZH via a new German-TV documentary. WTF?!?!

And we're supposed to believe that the "bailout and rescue" fixed everything???

May 14, 2012 - 11:28am

Is it 'evil' or just greed/indifference?/The Milgram Experiment

Thanks for the new thread TFyes


I realize the word 'evil' seems to automatically bring up a religious aspect but I think it could easily be substituted for 'sociopathic indifference' just as well. One that goes across the grain of established societal norms in many ways. Not just physical human misery or acts of atrocities against humans but also acts of irresponsible mayhem for power and profit.

Would financial greed or egocentric lust for power/control be considered evil/pathological indifference if the pain or atrocity was one of only money and not physical cruelty against an actual person?

Consider the following video and instead of actual people being hurt try to substitute those people for capital (mis) management and how much easier it would be for certain powerful individuals to inflict pain onto a financial sector or their own country without realizing that is exactly what they are actually doing. 

Eli Roth, director of horror classic Hostel, is searching for the true nature of Evil. In a series of experiments, he examines what causes people to perform evil acts, then the daring test of all-could ordinary people perform acts of violence on strangers.

Roth and a team of psychological experts carry out a series of startling experiments that will shed light on the capacity for evil that lurks within ordinary men and women -- what they find will astound you.

Video unavailable
May 14, 2012 - 11:29am

Mmmmm. Rachel.

Turd's imaginary girlfriend.

May 14, 2012 - 11:29am


>>Again, you are implying a complete disconnect of paper vs physical price and demand. Who knows, maybe you're right. I just don't think so.

Yes, I think so too. The market will force discipline on the banks before it drops to zero via the delivery mechanism. That's not to say there cannot be a disconect in the short term.

May 14, 2012 - 11:29am

LCS Report

After listening to the Podcast from Friday I went down to the LCS to talk with them about how it has been since my last visit a couple of weeks ago. I got there at 4:45 and left when they closed up at 5:55. There was one person leaving when I got there and one more that came in while I was there. The wasn't much silver left but a hundred or so eagles and a decent amount of 90%. There was ZERO gold left. This is just a small shop in a relatively small town and he said they had their best week since late April of 2011. He said they sold a few thousand ounces of silver this past week alone. There wasn't any huge buyers as the most any individual bought was five or six thousand dollars worth. He also said they would have sold about 30 more ounces of gold if he had it in stock. I told him I wanted some Eagles and he was selling them @ $3.50 over spot. I got a tube of 1986's for $32 a piece. I don't know if the bottom is in as I am a horrible trader, but it appears as if the sheeple are awakening and wanting sound money!

Frankenstein Government TF
May 14, 2012 - 11:31am


Johnnnyy...WTF!! Farewell and adieu my Grecian lady...

brokerk22 Pining 4 the Fjords
May 14, 2012 - 11:35am

The Meat Grinder

This is the single best comment and read I have witnessed on this site. Great value pining for the fjords.

Groaner TF
May 14, 2012 - 11:39am

It just proves that this country is run by a crime syndicate

It wont change until the Big guy puts an end to this nonsense.. 

There will probably be another big war induced by the bankers for profit to get the economy going.. awesome 

May 14, 2012 - 11:40am

3 for 3!

Thanks for the post, Turd. This is timely and helpful. 

There are a couple other factors that seem to confirm this bullish possibility soon.

Not that you need it, but I think the rise of the accumulation/distribution line is HIGHLY bullish right now: https://consumingthepoor.com/2012/05/10/should-i-buy-gold-or-silver-now/ .

Furthermore, with Jamie Dimon's recent disclosure of JPM'S massive losses, this seems to me, ultimately, to be a plea for QE for banks. The more they hemorrhage and come close to dying, the closer we get to QE.

That's 3 MAJOR factors for Grandpa Ben to call up Weyerhaeuser and chop a forest down (or just press CTRL+P): net buying volume, cartel longs, and the need to pump up the banks.

P.S. I wonder if we might see a correction in the silver/gold ratio at this point. It seems to me that the time is ripe for silver to move up on gold, and perhaps this is the moment? Perhaps that means gold will stagnate a bit and silver will start moving upward, leading the way up for gold this time.

Silver Passion
May 14, 2012 - 11:49am

I've been stacking gold and silver since 2007

and I've been running low on dollars as you can imagine. I've not sold ANY of my PMs even though my stack is pretty tall and it is tempting at times. Instead, my solution has been to keep downsizing. About 15 yrs ago, I owned an $800k house with monthly pmts of over $3k/per mo. I moved & downsized to a $675k house. I moved again to a $500k house. One year ago, I moved to a $200k house but I'm only RENTING. In 2 weeks, I will move again. This new house, well it's a major step down. Purchase price: $65k, hardly any down payment, no HOA, hardly any taxes, interest rate of 4%, and my payments including taxes: $468/per mo. In So. Calif. What encourages me to hang on is Turd's site with his info and the comments posted, like the one here "meatgrinder" as well as YouTube. 

Patriot Family sevin
May 14, 2012 - 11:50am

RE: LCS Report

Agree with you on the buyers. I only attended one auction this weekend, but it was pretty far away from the city and suburbs - in a fairly small town. The auction house was actually pretty run down, lots of old beat up stuff. Except for the case filled with a few hundred silver coins, mostly common date pre-1964 90% stuff, one ASE and probably 20 silver bars or so. Nearly all went for well over spot and/or going rates for coins with light numismatic value. Buyers drove in from pretty far away, and sat silently though most of the auction until the silver was sold off. I'm starting to see more "typical" people showing up, not just collectors (hence, the higher final bids as collectors and experienced stackers don't generally overpay). The two LCSs I visit along with the pawn shop rounds have very little silver to offer. One couple I was chatting with was buying silver because they are very concerned about their financial future and are just starting to stack PMs. I guess a few more folks are starting to wake up.

May 14, 2012 - 11:51am

Meet The Latest Converted Gold Bug: The IMF

Meet The Latest Converted Gold Bug: The IMF


When wonkish blogs suggest gold ownership as a hedge for the political idiocy of the world, it is mockingly shrugged off. When the BRICs add gold, it is eschewed in a 'well, its diversification' argument. But when the bankers' bankers' bank - The IMF - starts adding Gold to its reserves to cover higher expected credit risk losses (read major devaluations of fiat currency exposure), perhaps - just perhaps - the 'rationality put' we noted earlier is becoming a little more expensive in the minds of Lagarde and her colleagues. 

Dr G
May 14, 2012 - 11:55am

Trud just wrote a great blog

Trud just wrote a great blog post. It was educational and fun to read.

Still, the only part that matters to me is the last portion:

"In the end, though, it hardly matters. Just keep stacking. The next phase of this bull market in metal is going to be breathtaking. Be ready."

​That's it. That's the nut. Everything else is noise.

May 14, 2012 - 11:57am


This is a quote from the SECOND poster, Pining 4 the Fjords below, I am editing it in my post because he is 100% correct! :

"There is ultimately just one thing to understand- the Meat Grinder is a WINNOWING PROCESS. It will chew people up and throw many off the trail, and only those who understand what is going on AND have the guts to hang-on to this bucking, snorting, hissing beast will come out the other side relatively intact. This is the price we pay for living with eyes wide open. So get used to it."

The chinese say they have their first fortune in gold and the second one in business so if the business fails they have their first fortune to start over with. It's a long term thing and we don't want to get sidetracked by selling unless we absolutly have to.

second edit about the Zombie Apocalypse: https://theautomaticearth.org/Earth/planet-earth-fubar.html

May 14, 2012 - 11:57am


First, read this:

News Headline Summary

(US Equities)

White House says JP Morgan's (JPM) large trading losses reinforce need to fully implement Wall Street reform

Then, read this:


May 14, 2012 - 11:59am
Dr G
May 14, 2012 - 12:00pm

In response to the meat

In response to the meat grinder: actually, those that have shorted and held (say ZSL or by some other method) have had a great time.

The reason many here have lost faith is because they probably haven't had faith to begin with. They put all their faith in KWN pumper/shills or went to the other end of the spectrum and believed the "gold in a bubble" hype. 

Neither of those extremes are correct.

Urban Roman TF
May 14, 2012 - 12:03pm


Not only TBAC, but ex-LTCM ..


Because an ex-LTCMer in charge of ~$70 trillion in derivatives? Why, what can possibly go wrong...

May 14, 2012 - 12:04pm

@Turd and @Pining

Turd - Rachel=Giggity

Thanks for the wonderful analysis and break down of the COT. I really appreciate the history behind the positions because it helps me put all of this into perspective and I lack the skill currently to do ALL of that myself. That being said, I have learned to read the COT reports myself, thanks to you, Ted and Harvey. I've picked up a lot from all of you. I went last week and picked up Eagles and I laughed all the way to my stash. Damn fine post Turd.

Pining - B. had a “buy and hold at all costs” will of steel. 


Those are my hands on Jim's blog... :)

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