Sat, Nov 24, 2012 - 11:48am

Well, that was fun, wasn't it? I had been expecting the pop to $1755 to come on Monday. That it came Friday, instead, works out just fine!

What a perfect setup that was for a short squeeze. The stars had aligned. We had:

  • The "Iron Dome" of Cartel resistance at $1735.
  • The 50-day moving average near $1743.
  • Plenty of $1750 calls (due to expire Tuesday) to exploit.
  • And a light volume, holiday trade.
  • It all exploded in a glorious five minutes. What great fun to watch!

    So, now what? As I've been saying for some time, the area around $1755 is the last area of real resistance before the final, ultimate challenge of $1800. Expect some stickiness here, especially with option expiration on Tuesday. However, the trend is definitely our friend here and gold is now above all of its moving averages. Look for money to continue to flow into the pit and prices to eclipse $1755 by later this upcoming week. From there, $1800 awaits and this time that level will fail. Above there and its straight back to the old alltime highs at $1920.

    Silver, on the other hand, continues to lead the way. Now above $34, it has already broken through its final resistance level (equivalent to the $1755 area for gold) and is headed back $35+. Though silver will also battle option expiration volatility early in the week, the stage is clearly set for the final push through $35.50. From there, silver will head toward stiff Evil Empire (JPM) resistance between $37 and $38. It may take a little work but, once through $38, the next stop is $44.

    A couple of other words about silver here. Like gold, silver is once again clearly above all of its moving averages. The closest ones are the 5-day and the 50-day, both around $33.20. This puts silver over $1 ahead of the nearest MA. This shows extraordinary strength and momentum to the momo-HFTs so there is at least some potential for things to get a bit disorderly. At the least, we are certainly entering a period of significant volatility.

    You can really see this on the Open Interest reports. As of Wednesday night, the total open interest in the Comex silver pit exceeded 150,000 for the first time in over two years. This is an extraordinarily important development and reflects a 50% increase over the OI levels of just one year ago. There was not a CoT yesterday because of the Thursday holiday. Look for it on Monday and expect it to be very interesting, particularly in silver. For the reporting week, price was up just 45¢ but total OI rose by almost 6,000. Last week we saw heavy Cartel buying as everyone but JPM seemed to be getting long. What will this week's CoT show? I can't wait to find out!

    Finally today, please allow me to take a stab at explaining in greater detail the "Guest Post" from Andrew Maguire. I posted it on Wednesday as we were leaving for Thanksgiving and I can see now where it caused some confusion. As you know, one of my favorite techniques for explanations is the chronological layout so let's give that a try. Additionally, I think I'm laying this out accurately. This is how I understand it. I'll check with Andy on Monday to ensure that this is at least close to being accurate. If it's not, I'll post some additional clarification then.

    1. The "Authorized Participants" have a special relationship with the fund whereby they issue metal, 100,000 ounces at a time, to the fund in exchange for 100,000 share blocks.
    2. This should function as a two-way street where the AP can get its metal back by redeeming shares and the AP can also supply additional metal in exchange for additional shares. THIS, HOWEVER, IS WHERE THE TRICKERY AND MANIPULATION BEGINS.
    3. On big UP days in paper price, there is often a big physical demand in London and a big demand for additional shares in GLD.
    4. This is a double whammy of demand. The Bullion Bank (and Authorized Participant) should have to not only supply metal at the London allocation but this same BB/AP might also have to deliver metal to GLD to cover all of the newly-issued shares.
    5. I think you can see where that's a lot of metal and, in an environment of limited inventories, rapid BB/AP supply depletion would lead to shortages and even higher prices.
    6. So, here's the trick they employ to manage the situation, even doing so at a profit: The GLD delivers the gold back to the AP without the AP actually redeeming their shares. The AP is considered to be "short" the shares, instead.
    7. These shorted shares provide the "offer" against the investment world "bid" for GLD shares that day on the NYSE. Since no new shares are needed to be created that day, no new demand for physical deposit is created, either.
    8. On the other side of this trade, GLD delivers metal to the AP as if it had redeemed the shares, though. The AP uses this metal to settle the physical allocations for that day.
    9. So, where there should have been two, separate demands for physical, the demand was met by short-selling GLD and then using this GLD metal to meet allocations in London.
    10. The effect is then chronicled by Harvey and others as "gold went up $20 but, mysteriously, GLD shed 2.72 tonnes".
    11. Here, then, is how they reverse these "trades" and return everything to where they were. The BB/AP that is short the metal to the GLD needs to put it back in at some point. The next time a paper price raid is effected on the Comex, the AP itself takes delivery of some metal in London.
    12. This metal is then returned to the GLD in exchange for a "covering" of it's short position.
    13. This, typically, takes place on a DOWN day where Harvey et al notice that "though gold declined $15, the GLD added 2.72 tonnes of metal today. Go figure."

    Anyway, I hope this helps explain the process. Again, the Bullion Bank that is also an AP of the GLD can "flywheel" metal into and out of the GLD and/or SLV anytime they need to in order to meet physical demand elsewhere. In the process, the BB/AP conveniently provides liquidity for GLD/SLV share demand, which negates additional GLD purchasing which would have otherwise been necessary. It's a true WIN-WIN-WIN for the BB/AP as they are able to cap and control price while appearing to have no problem meeting London demand and then they turn around and cover all the positions at a profit on the next bout of price weakness.

    Again, THIS IS NOT SUPPOSED TO BE HOW IT WORKS. The banks are supposed to supply metal to both the GLD and the London buyers. There is not, however, sufficient supply to make this happen at the current price levels. So, instead of allowing price to rise to the natural equilibrium of buying and selling interest, the BB/AP uses the tricks outlined in Andy's guest post to manage and cap the situation. On the bright side, THIS CANNOT CONTINUE FOREVER and, WHEN it fails, the reset in price will be spectacular to behold. BB/APs are now seen bidding against each other in London and competing for allocation with the sovereign funds and the central banks. I think you can probably see that the resolution of all of this will not result in price declining.

    I hope everyone in Turdville enjoys the rest of the weekend. Please be sure to return rested and ready come Monday, though. Next week is going to be very, very interesting.


    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Nov 24, 2012 - 11:51am


    Interesting audio post at king world news today ,weekly wrap up. Ron Rosen is filling in for Dan.

    Colonel Angus
    Nov 24, 2012 - 11:51am
    Bongo Jim
    Nov 24, 2012 - 11:55am


    It's not.

    Nov 24, 2012 - 11:57am

    Monday AG Low

    Anybody willing to guess the low Monday for silver? Welcome back Turd.

    Nov 24, 2012 - 12:00pm


    You're supposed to say FURST!

    Jeez, you've now ruined EVERYTHING.

    and Colonel Angus and you're supposed to say SECOND

    DAMN, the whole world is falling apart.

    Nov 24, 2012 - 12:00pm


    I can't believe it's true...

    well Thurd will do!

    thanks for the gld summary turd. It makes a lot more sense now...

    Nov 24, 2012 - 12:08pm

    Last year, the price of

    Last year, the price of silver dropped $2 in the 2 days leading up to Dec. option expiry. Lets see what happens on Mon-Tues.

    The Swedish Chef
    Nov 24, 2012 - 12:09pm

    OK, so we place the shorts at

    OK, so we place the shorts at $1805 then...

    The Swedish Chef
    Nov 24, 2012 - 12:10pm

    OK, so we place the shorts at

    Double post, sorry... Please delete.

    Nov 24, 2012 - 12:13pm

    Ok Bullocks

    Uno, I'un, Iner, 1, один, één, first

    Nov 24, 2012 - 12:13pm


    Did anyone else see this and immediately roll their eyes?

    JP Morgan Chase Thanksgiving TV Commercial
    Dagney Taggart
    Nov 24, 2012 - 12:19pm

    Good Morning All.

    Last week I posted a question about the current open interest situation. I'll repeat:

    While I'm here, there is something that's of moderate concern: The huge Open Interest. Has anybody done a current analysis? Could this open interest be favoring the long side or is it some sort of twisted suicide pact by the big bullion banks, "trickle-down wealth" to PM holders?

    History says we see a coordinated attack on prices forthcoming. But how/why would that happen considering the Comex is supposedly bleeding from all holes, the Dollar has to die to manage the US debt, and the US has a looming debt showdown?

    I see Turd touched on this above. Anybody care to comment?

    Nov 24, 2012 - 12:20pm


    Boy that would be hard to swallow!

    Nov 24, 2012 - 12:23pm
    Nov 24, 2012 - 12:24pm
    Nov 24, 2012 - 12:26pm

    Rising production costs put a $1,300 floor under the gold price

    Thanks to the rising cost of labour, energy and raw materials, the average cost of mining an ounce of gold across the industry has risen considerably in recent years. As a result there is a natural floor under the price of gold at around $1,300, and for some producers the number is nearer $1,800.

    The price of gold has risen every year for the past 11 years (this will be the twelfth) however so too has the cost of producing gold. According to the Thomson Reuters GFMS’s Gold Survey 2012, the average cost across the gold mining industry for mining an ounce of gold is $727 per ounce.

    As the chart below shows, the cash cost per ounce of production, or simply the “cash cost”, has risen inexorably along with the price of gold.

    Chart showing the relationship between the rising gold price & industry cash costs


    Nov 24, 2012 - 12:26pm







    Nov 24, 2012 - 12:26pm



    Nov 24, 2012 - 12:30pm


    That would be Dutch

    Dagney Taggart
    Nov 24, 2012 - 12:34pm

    History would also suggest...

    Dagney, you should look at the OI history of late 2010 into the price peak of April 2011.

    OI declined over time as the rally continued. Banks and specs were covering shorts and driving price higher. Against the common misconception, the rally was NOT due to specs adding to longs. Though there was certainly spec long money in play, it was short-covering that was the primary driver of the rally from $28 to $48.

    Nov 24, 2012 - 12:35pm


    Cash cost fairytales and the need for management discipline in the gold sector

    Author: Geoff Candy
    Posted: Thursday , 22 Nov 2012

    Gold companies need to start focusing increasingly on providing shareholders with a good return on capital, says US Global Investors.

    Speaking on Mineweb.com's Gold Weekly podcast, US Global CEO, Frank Holmes said that the major gold mining companies face the dilemma of trying to grow their production profile while they are simultaneously depleting their current resource base. Faced with a critical shortage of technical skills and rising costs, Holmes says that while companies don't want to show that their production profile is in decline, the "idea of growth for growth's sake is flawed."

    "Today," he says, "with high gold prices they are booking profits yet they still mark themselves on this cash cost measure. Of course governments are the only people that believe that gold companies are producing gold at $1000-plus margins and in their view this is a windfall profit the company is reaping at the expense of the state. Companies need to talk in terms of total cost to produce an ounce of gold."

    Aldis continues that, if one looks across the 65 largest gold companies it monitors, the all-in cost to produce an ounce of gold this year is about $1300.


    So, we finally get some analysts stating that "CASH COSTS ARE FAIRYTALES". Furthermore, according to US Global, all in costs to mine gold are now at $1,300. This should make the investor feel comfortable that we will never see $1,000 gold ever again.

    Response to "THE FORCES THAT WILL PUSH SILVER OVER $100", was overwhelming

    I just want to say thanks for all the positive replies to my latest post-article. I have to say, The Forces That Will Push Silver Over $100, generated the most email response ever. Of course, there was a certain percentage that did not agree with some of my points... such as peak oil, but overall, I believe the precious metal investors are starting to understand these forces.

    The one aspect that received the most debate was the SILVER = ENERGY. Anyhow, hope everyone had a great Holiday.

    Nov 24, 2012 - 12:35pm

    Attn: All TTM subscribers

    I've added a special Saturday podcast, as well.

    Katie Rose
    Nov 24, 2012 - 12:39pm

    A Reminder About Garden Seeds

    Just to let you know that just like PM's, there will be a growing shortage of garden seeds this spring. Last year's drought brought about lesser harvests, and that includes the farmers who grow seeds for the rest of us.

    There is a worsening situation with winter wheat this year due to the continuing drought. We aren't hearing about it much, but the USA is in a world of hurt.

    Please do not procrastinate. Order your garden seeds now! If you wait till 2013, chances are many of the varieties you want will be sold out.

    Also, Peaceful Valley Farm Supply has a fabulous sale that ends Sunday night. This is our favorite place to get just about anything pertaining to gardening.


    Now I am off to press apples for cider. We are really late this year. I'm hoping I do not freeze. We're doing it in the barn, out of the rain. Uranium Springs and his family are coming to help. There is nothing quite like the squeal of little children as the cider comes out of the press.


    Nov 24, 2012 - 12:41pm

    Pedal To The Metal / Melt-Up

    @boatman had a earlier post that I'm reposting in context to some thoughts I posted last night regarding the debt ceiling and future Fed policy actions. I'll post that below this WSJ article.

    Note Williams use of the word 'limit'....aka ceiling.

    from @boatman...


    Submitted by boatman on November 24, 2012 - 10:14am.


    friday,November 23 - Wall Street Journal (Jon Hilsenrath): "John Williams, president of the San Francisco Federal Reserve Bank and one of the Fed's stronger advocates for continuing to use monetary policy to bolster the economy, said the central bank's securities portfolio hasn't grown "anywhere near" the kind of limits that might impede the Fed from carrying on with its bond-buying programs. 'Our concern is to make sure our policies aren't creating problems with market-functioning,' he said... 'In terms of how far you can go, I don't think that we're anywhere near any kind of limit . . . . Conceptually, you could imagine some upper limit to this but I don't think we're getting anywhere near it.'"




    ☣ Debt Ceiling to Infinity: Melt-Up

    November 23, 2012 - 8:25pm

    After reading Geithner aggressively put forward the idea (before he exits as US Treasury Secretary) I've given it more thought in context with Big Ben's recent comments about not being able to indefinitely do what he's been doing with monetary policy. He laid it right in Congress' lap as did Geithner. Geithners solution is to legislate it away and Bernanke's is to keep echoing that he'll do whatever his Congressional mandate is (wink wink, nod nod).

    It sounds like the start of a telegraphed effort I think that will have Congress bring the idea up when the U.S. breaches the next debt limit again in the Spring/Summer and a credit downgrade happens from it. I think in the upside down world we live in that the bad news will be used to try and spin a good web of twisted logic that the removal of the debt ceiling will remove the annual worrying (and hence the problem) because the debt ceiling won't be mentioned ever again if it's removed entirely from the conversation.

    What I see eventually is Geithner taking over for Bernanke and lobbying for Congress to consider unshackling the Fed before he gets in there so that he has all the tools (printing) at his disposal so that his version of shock and awe in a global monetary policy war/debasement can be launched on everyone else. For some reason the DC establishment is totally smitten by Geithner and he's on the ascent. I don't recall off the top of my head but Geithner has some type of philosophy about banking that is JP Morgan-like in it's shrewd audacity. It a very aggressive capitalization theory based solution and it served him well (arguably) during the 2008 crisis as 100's of billions/many trillions were used in various asset relief programs and bailouts etc.

    My thinking is that he'll be the next Fed head and he'll be as aggressive as almost any Fed head we've ever seen in a preemptive and pro-active manner as he battles China's new currency threat and a weakening USD abroad as well as a burgeoning debt level that will exceed $25 trillion before we realize it....especially if they slam on the accelerator. I think they will do so while at the same time do something pretty audacious with the debt itself in a gutsy and unprecedented accounting maneuver of some type.

    If I was Geithner and I had no debt ceiling limit and I had an approving Congress and President and Wall St/Bankers giving me the thumbs up, I'd go pretty wild with the printing while I still had the USD as the reserve currency and I'd do whatever it took to keep China on the defensive from any monetary policy changes or actions I would need to take that I felt would stymie them. My belief at this point is that the USD will go down swinging and that any future major conflict will be about the USD and gold along with oil influence.

    Geithner and Bernanke are angling toward something bigger that will include lots of wiggle room for the future Fed head who'll have no debt ceiling. Geithner I think will be that guy.

    Get ready for something shocking and spectacular at some point.


    Nov 24, 2012 - 12:42pm

    And I keep forgetting to spend time discussing this

    Yen, Pound and Euro gold are all close to making all-time highs. Dollar gold will not be far behind.


    The Watchman
    Nov 24, 2012 - 12:42pm

    SLV Continues To Be DRAINED

    At SLV, as an authorized participant[s] withdrew a whopping 1,984,432 troy ounces of silver and shipped it off for parts unknown. That's one full day of world silver production.

    The Watchman
    Nov 24, 2012 - 12:45pm

    Quite The Christmas Present

    For the ultimate gold lover on your shopping list, one amazing purchase you can nab is a Christmas tree complete with Disney characters and gold leaf ribbons made of 88 pounds of pure gold from a jewelry store in Tokyo, according to Reuters. The ornamental tree will set you back $4.2 million, but there’s also a smaller version available for $243,000.

    Nov 24, 2012 - 12:53pm


    WOW! I like this Ron Rosen guy! Impressive!

    Nov 24, 2012 - 1:22pm
    Nov 24, 2012 - 1:36pm


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