Desperation Is a Tender Trap
It gets you every time. And desperation is what we are seeing in the paper precious metal "markets".
Today was just another example. No doubt you noticed the shockwave that was sent into the gold pit, beginning at 9:47 EDT today. In stages, a bullion bank (which one doesn't matter) dumped over 7,000 contracts in 10 minutes. The resultant decline was about $18. This brought a further wave of selling about 10 minutes later which clipped an additional $6 from price.
Now, don't go deluding yourself into thinking this was somehow legitimate selling. The only headline that occurred near the same time was extremely gold-positive. ( http://www.zerohedge.com/news/chicago-pmi-plunges-527-lowest-print-september-2009) No, this plan was coordinated and executed for one simple reason...to lessen a bank's short position. How does that work, you ask?
Let's say that the bank in question began the day with a net short position of 10,000 contracts. The bank takes a look at the order book and concludes that there are a multitude of sellstops in a certain area. If the bank can exert enough pressure (in this case, dump 7000 contracts), they can buy back their 7000 new shorts plus a couple thousand more by the end of the day. Price recovers as this happens and, presto magico, the net result on Comex price is negligible.
So, in the end, The Bank In Question deliberately manipulated the price lower. They then utilized the triggered stops to cover and they used the attendant weakness to cover even more. About an hour later, The Bank has a net short position of just 8,000 contracts and all is well, as if nothing even happened. Of course, if you were one of the unfortunate longs who got your stop "gunned"...well, sorry. That's what you get for playing in The Crooked Casino. For the rest of us, The Bank In Question is now a couple thousand contracts closer to a net neutral position. This (net neutral or even net long) is their ultimate goal. It has been their goal since 8/5/11 and everything that has happened since (The Labor Day Beatdown, The December Liquidation, The Leap Day Disaster) has been a part of this process.
One more thing, DO NOT FORGET that tomorrow is BLSBS day. Again, because of the archaic manner in which the "unemployment rate" is calculated, expect a headline number that looks good for the O'Bottom Regime. The devil will, once again, be in the details. After an initial decline (stop-harvesting again?), I expect a decent rally.
Here are your latest charts. Note that both gold and silver are still rangebound but are forming pennants within the range. Let's see if they can both break higher and toward the tops of the ranges tomorrow.
In other news, here's something interesting. Jim Comiskey has a client who, in reading over some BIS documents, found the following. Not sure yet how significant this is but I'm going to send it off to Bill and Chris at GATA to get their thoughts. First, there's this line:
3. Foreign exchange risk
718(xxx). This section sets out a minimum capital standard to cover the risk of holding or taking positions in foreign currencies, including gold.136
718(xxxi). Two processes are needed to calculate the capital requirement for foreign exchange risk. The first is to measure the exposure in a single currency position. The second is to measure the risks inherent in a bank’s mix of long and short positions in different currencies.
And then, here is footnote #136, as mentioned above:
(136) Gold is to be dealt with as a foreign exchange position rather than a commodity because its volatility is more in line with foreign currencies and banks manage it in a similar manner to foreign currencies.
Hmmm. Again, this is from an official BIS document. Is this an admission of bank gold manipulation (management of price)? I'm looking forward to hearing what Bill and Chris have to say on the matter.
Finally, below is hands-down the single most important item of the day. Some of you may recall that I alluded to "big things behind the scenes" a few days ago. This is one of those things. Please watch this interview of Hugo Salinas-Price. As you know, the Greek people are about to suffer incredible adversity and hyperinflation as they attempt to regain sovereignty over their currency. This idea of a new national currency that has a direct silver backing would be exactly the type of measure needed to save that country. If anyone reading this has the ability to contact Mr. Tsipras and bring this to his attention, please let me know. I can very quickly put him in touch with Mr. Salinas-Price and, perhaps, we can save the Greek people from this impending disaster brought about by central bankers and unlimited fiat currency.
Hang in there and have a great day. Tomorrow should be quite interesting! TF