Patiently Waiting

391
Wed, Nov 21, 2012 - 10:27am

I'm expecting a big December and an historic 2013. First things first, though, as we wait out December option expiration and the concurrent "Iron Dome" capping.

So, we sit. And wait. And wait some more. Who knows, maybe your Local Coin Shop will offer some Black Friday premium discounts? If so, take him up on it. Keep stacking and accumulating as much, much fun lies ahead.

For now, it's all about capping and controlling price through December option expiration day next Tuesday. Here are the two, major forces in play:

  1. Open interest in the Dec12 call options is enormous. As "StevenBHorse" kindly pointed out for us yesterday, there are currently 61,523 open contracts between 1735 and 1800. As Ruprecht would say: That's a lot. Of particular interest to The Gold Cartel is the startling 32,537 calls at the $1800 level. I would venture a guess that most of these positions were opened back in late September as nearly everyone (including yours truly) felt assured that, with the onset of QE∞, gold would be somewhere north of $1800 by Thanksgiving. Considering that every dollar above $1800 means $3,250,000 in option payout, the October beatdown from $1795 to $1690 seems rather predictable in hindsight.
  2. Both gold and silver are currently trading above every single one of their moving averages except one...the critical 50-day. The 5-day and 10-day are important, don't get me wrong. And the 200-day will almost always provide predictable support or resistance. The 50-day, however, is the biggie. Having price above or below the 50-day is one of the major determining factors as to whether or not the momo-chasing, HFT algos will be in buy mode or sell mode. At this juncture, a move UP and through the 50-day MAs will provide the final impetus for rallies back to $35-36 in silver and $1800 in gold. As I type, the 50-day MA in the Dec12 gold contract is at $1743.30 and the 50-day in the Dec12 silver is at $33.24.

So, what happens the rest of today and Friday? Probably not much. Just more of the same. HFTs are trolling for stops to harvest on either side so we'll likely continue to see trading in a very tight range.

The only possibility for "fun" might come early next week. Recall how those who are short calls or puts are often manipulated and gamed ahead of option expiry. For next week, the most likely possibility would be a squeeze of those who are short the $1750 calls...if there are a significant amount...and it's impossible to tell. If this happens, though, we'd see a quick spike toward $1750, followed by a further rally through $1750 as those who are short the 1750 calls panic and are forced to buy a futures contract in order to hedge. After a move to $1755 or so, gold would then revert back toward $1740-45 with the sheep having been successfully shorn. The open interest at 1750 may not be sufficient enough for this happen but we'll see. Keep an eye out, anyway.

Here are two current charts. Outside of another "Swiss Stair" accumulation pattern in silver, there's not a lot going on. That will soon change.

And, finally, it's the day before the Thanksgiving holiday here in the U.S. This means it is once again time to reprint one of my favorite posts, "Absolute Advice For Relatives". I wrote this two years ago, right after the onset of QE2. Though we've yet to see the extreme price inflation I was expecting, there can be no argument that the advice is still solid. (I mean, seriously, have you done your Thanksgiving grocery shopping yet? Sheesh!!)

Happy Thanksgiving, everyone. Be sure to check back later today for a very important guest post update.

TF

https://tfmetalsreport.blogspot.com/2010/11/absolute-advice-for-relatives.html

WEDNESDAY, NOVEMBER 24, 2010
Absolute Advice For Relatives
If you're like The Turd, you will most likely get peppered tomorrow with questions from pseudo-intellectual relatives regarding the current world/market environment. Your over-educated yet under-informed cousin or brother-in-law will seek out your current "wisdom" on investing, politics, etc. He or she will then feign interest while you speak but you will feel certain that, in the end, they just don't "get it" as your absolute conviction overwhelms their status quo mindset. You could probably talk for hours about the failure of Keynesianism, Quantitative Easing, the criminal political class, the fallacy of TBTF, POMO and the PDs, the infallibility of gold, etc...but why even try? Your cousin's husband doesn't understand any of this anyway and your show of intellect will only make him feel threatened. He'll quickly tune you out and run off to the family room to watch the Cowboys.

So what do you talk about tomorrow when someone asks? What kind of simple advice can give someone to prepare them for what is certain to be a very challenging year ahead? I plan to dial it back a bit and talk about one thing...inflation. And not just any old, run-of-the mill 3% inflation but serious inflation. I'm talking 20-30% inflation. Milk to $5/gallon kind of stuff. That is what's coming and its a topic most folks can actually get their arms around. Even the fuzzy-headed new boyfriend of your divorcee sister understands inflation and he might even be able to understand why its coming if you explain it well. (This is a chance for you to show off some of your worldly knowledge, too.)

Most folks with a high school-level understanding of economics (this includes your Fed governors) only understand and recognize demand-pull inflation. This is the classic demand side, Phillips Curve inflation that says rising wages, employment and wealth cause economic expansion which leads to more money chasing a static amount of goods. New, excess demand "pulls" prices up and the result is price inflation. Pretty simple stuff. What is coming in 2011, however, is the forgotten beast of cost-push inflation. This type of price inflation is caused by producers and merchants being forced to pass along through higher prices the rising cost of inputs to their products. Consumers, particularly the lower-and-middle income, bear the brunt of the pain. Your income isn't rising to keep pace with rising expenses and you get squeezed. Hard. And its not luxury items that are going up in price, its the staples. Bread, milk, gasoline, clothes, eggs, meat...the basics that no one can realistically live without. It's going to hurt and 2011 is going to be a mean year.

Why will input costs go up? Simple, they are all dollar-dominated and with our Fed now engaging in their final policy option, "QE to Infinity", all dollar-dominated assets are going up in price. Significantly. Your crazy uncle Henry may never take your advice to sell his stocks and buy precious metals but he just might take your advice to stock up now on essentials, before the prices skyrocket. Tell him that if he's going out to buy a new pair of pants, he should buy two. Tell your sister that instead of just buying her kids' winter coats for this year, she should buy coats for next year, too. Tell your cousin that instead of buying groceries every week to, instead, buy a whole dressed-out cow and put it in the freezer along with all the other dried and canned goods she can store.

Still, most crazy relatives won't listen but at least, come next Thanksgiving, they'll remember that you were right. One down side, however. Because you'll end up being the only member of the family that will have prepared and, most likely, the only one with affordable food to eat, you'll probably have to host everyone at your house next Thanksgiving. Oh well, there's a cure for that, too. Wine. Lots and lots of wine. Keep a couple of good Pinots on reserve and you'll be able to handle just about anybody.

About the Author

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  391 Comments

Mr. Fix
Nov 21, 2012 - 6:02pm

@ ballyale

That looks like a whole lot of wishful thinking. Kind of like listening to Larry Kudlow on the radio, he talks about all the things that should happen. They reality is, they are not going to happen. The system is beyond repair. Nothing to do now, but prep and stack.

¤
Nov 21, 2012 - 7:06pm

Hard Collateral

I found this to be a good reinforcing read today over at ZH on the nuts and bolts and heart of the matter at hand and how gold is going to become the ultimate above board collateral.

The Real Reason the Fed Won't Touch Treasuries Again... and Is Tapped Out

Over the last week I’ve introduced the concept of collateral: the basis for the entire financial system. We’ve also addressed why any EU sovereign default would bring about an epic meltdown as EU bonds, particularly those of Spain and Italy are the collateral underlying hundreds of trillions of Euros worth of trades for EU banks.

Again, the most important issue for the financial system is the search for high quality collateral.

Indeed, it is the search for high grade collateral that has caused such periodic spikes in Treasuries, German Bunds, French sovereign bonds, and Japanese bonds (all of these have yielded 0% or even negative yields in the last five years). Big banks are moving away from PIIGS bonds into safer havens.

This is also why the Fed isn’t touching Treasuries with QE3 and why it won’t touch short-term Treasuries with Operation Twist 2 (this program sees the Fed selling short-term Treasuries to buy long-term Treasuries): the Fed wants to keep as much good quality collateral in the system as possible (long-term Treasuries are problematic because institutions know it’s highly likely the US will default within the next 30 years).

However, even this move is problematic because much of the Treasury market is locked up with governments both foreign and domestic.

Total US Sovereign Debt

$16 trillion

Foreign Nation holdings

$5 trillion

Intergovernmental holdings

$4.8 trillion

US Federal Reserve

$1.5 trillion

Remaining

$4.7 trillion

Again, this is why clearinghouses (which oversee the derivatives markets) are now allowing Gold as collateral: they know that eventually sovereign bonds will be worth less or even worthless. And they want access to their clients’ Gold for when this happens.

With that in mind, the countries that will ultimately be considered safe havens when the BIG collapse starts are those with the largest Gold reserves.

Country

Gold Holdings

% of Foreign Reserves in Gold

The US

8,133 tonnes

75.1%

Germany

3,395 tonnes

71.9%

Italy

2,451 tonnes

71.3%

France

2,435 tonnes

71.6%

China

1,054 tonnes

1.6%

Switzerland

1,040 tonnes

14.2%

Russia

918 tonnes

9.2%

Japan

765 tonnes

3.1%

Netherlands

612 tonnes

60.2%

India

557 tonnes

9.8%

I’m not going to get into the issue of whether this Gold exists still (many commentators claim that Central Banks have in fact sold much of this) as I have no way of proving it. The key issue is that the financial elite are now trying to get their hands on Gold as collateral because they realize that sovereign paper based collateral from the EU will soon be worth much less or even worthless.

It is no coincidence that Germany floated the idea of accepting other EU nation’s Gold in exchanged for bailouts back in May 2012 when Europe teetered on the brink of collapse:

Europe’s debtors must pawn their gold for Eurobond Redemption.

Southern Europe’s debtor states must pledge their gold reserves and national treasure as collateral under a €2.3 trillion stabilisation plan gaining momentum in Germany.

The German scheme -- known as the European Redemption Pact -- offers a form of "Eurobonds Lite" that can be squared with the German constitution and breaks the political logjam. It is a highly creative way out of the debt crisis, but is not a soft option for Italy, Spain, Portugal, and other states in trouble....(cont.)

https://www.zerohedge.com/contributed/2012-11-21/real-reason-fed-wont-to...

Wolfsburg
Nov 21, 2012 - 7:09pm

Thanks to Turd

Thank you Turd for hosting this site and I wish all a Happy Thanksgiving!!

Boswell
Nov 21, 2012 - 7:35pm

Going "Rouge"...

Giuliani tried that once...

Too much of this...

RoGUE, not RoUGE ;-(

But remember the pathetic statement, 'Too much rouge is a sign of despair."

Arlene Dahl, Always Ask A Man: Arlene Dahl's Key to Femininity(1967)

Grublux
Nov 21, 2012 - 7:37pm

Next carrot

Dangling in front of public thru mainstream media(" (after fiscal cliff) will be the raising of the debt ceiling. What will that do to $USD? Short term noise aside. Where will silver be after the us debt is downgraded? How will the broad market react???

CaribSurfKing Grublux
Nov 21, 2012 - 7:49pm

Dollar vs Milk, bread etc...

Family assumes becuase milk is not $5+ I am a paranoid prepper type. They keep reminding me to plot Gold vs Apple charts and wake up against the conspiratainment.

Grublux
Nov 21, 2012 - 7:56pm

Tell them

To plot dollar vs apple and compare to gold vs apple. Which is worse. Do you really need to be a stock picker to stay ahead of that curve??? And by the way apple will have its day...

expensive to be the innovator

Grublux
Nov 21, 2012 - 7:57pm

Oh and by the way

Organic milk = $6+ a gallon

Mr. Fix
Nov 21, 2012 - 8:06pm

Interesting.............

Patiently Waiting

Edit, It was +.07 when I pasted it.

then -.05 when I saved it.

Oops.

Never mind.....................................

Nana
Nov 21, 2012 - 8:08pm

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