CoT and Chart Review

383
Sat, Dec 8, 2012 - 1:29pm

Considering where we began the week and, also considering where we were on Tuesday, last week didn't turn out half bad. Suddenly, the charts look pretty good and the FOMC meets this week. Got your rally hat on? I do!

But first, before we get rolling, check out these two charts. On the left is a 15-minute Feb gold. It shows a classic, non-news BLSBS pattern. After initial hesitation, the news is aggressively gamed by those in charge. Price gets jammed lower to blow out some stops, panic some longs and inspire some fresh shorts. Then, in the blink of an eye, price reverses and everyone playing gets screwed again. Within the hour, calm is restored and it's as if nothing has happened...unless you're one of the unlucky ones who tried to battle Goliath. On the right is a daily chart of the Jan13 crude. LOTS of noise out there regarding Syrian invasions and chemical weapons but none of it seems to be bothering the crude pit. In fact, there seems to be no reason to even pay attention to crude until and unless it breaks UP through $90 or DOWN through $85. Until then, maybe just trade the range with tight stops?

OK, onto the main set of charts. First, let's look at gold. I did not print off a daily chart but you should know that we put another "engulfing candle" on the chart yesterday and this is usually a very good sign (if it's a bullish one...which it is). On Thursday, the Feb13 gold had a high of $1704.80, a low of 1687.10 and a close of 1701.80. Yesterday, the Feb13 saw a high of 1706.90, a low of 1684.10 and a close of 1705.50. Note that Friday's low was lower than Thursday's low and Friday's close exceeded Thursday's high. Quite bullish, indeed.

Look closely at the 4-hour chart but look even more closely at the 2-hour. On the 4-hour, gold has clearly broken through the two-week long downtrend, regardless of how you draw it. On the 2-hour, notice the almost-perfect, reverse head-and-shoulder bottom and the clear resistance at 1710. Taken in concert, gold certainly looks poised for an UP week next with future resistance near 1725 and the old Iron Dome of 1735-1740.

Silver looks nearly identical to gold. It has also quite clearly broken its 2-week downtrend and is poised for a resumption of the rally. With a similar, reverse H&S in place, silver needs to first clear resistance near 33.30 and then move on toward 33.80 and 34.40.

And now on to the CoTs. I recognize that the reports are almost always groomed and painted by The Cartels in order to mislead the reader, nevertheless, I knew that this week's survey would be significant simply due to the scope of open interest reduction and size of the price moves, all related to the expiration of the Dec12 contracts. I was not disappointed.

GOLD

For the reporting week, price fell nearly $50 while OI fell by a whopping 45,000 contracts (9%). There's really nothing unusual here but you need to see the numbers because they will be quite instructive when we compare them to silver.

Large Spec Net Long = DOWN 34,671

Small spec Net Long = DOWN 6,445

Gold Cartel Net Short = DOWN 41,116

As you can see, it was exactly as expected. For every net long contract a spec sold, The Cartel covered a net short. Some of the internals are interesting, though. For example, the gross short total of The Cartel fell by 46,346. That is a nearly 12% reduction in just one week. It takes their total gross position down to 353,483 and brings the Cartel net short ratio down to 2.6:1. For perspective, at the last price peak near $1800 in early October, The Gold Cartel was short a gross number of 405,520 and had a net short ratio of 2.98:1. At the last, major bottom in mid-August, The Gold Cartel was short 291, 358 and had a net short ratio of 1.98:1. At this point, the gold CoT has reestablished a neutral structure and does not stand in the way of a rally in price.

SILVER

Boyohboy. This is where the action and intrigue are. First, read the paragraph above again and commit some of those numbers to memory. For full perspective in silver, those gold numbers are very important.

For the reporting week, silver was down about $1.25 and the total OI fell by 9,000 contracts or so (5%). The casual observer would rightly expect the silver CoT structure to show roughly the same changes as gold. The casual observer would be dead wrong.

As noted above, on the price drop last week, the Large Specs in gold shed 34,671 net long contracts. On a similar price drop in silver, the Large Specs shed a grand total of 3. That's right...3! The Large Specs dropped a rather miniscule 880 longs but also covered 877 shorts. That's a net change of 3. The Small Specs played along a little but but still nowhere near what JPM et al would like to see. The Small Specs dumped 1,324 longs but they, too, covered shorts to the tune of 507 for a net change of just 817.

So where was the action? All of it was within The Cartel category. The Cartel members who held some long contracts (not JPM) dumped 4,134 longs and The Cartel members who are short (including JPM) covered 4,954 shorts. So, on the $1.25 price drop, The Silver Cartel only saw their net position fall by 820 contracts and their net short ratio barely budged at 2.52:1. Again, refer back the the gold CoT. The Gold Cartel reduced their net position by over 41,000 contracts or, roughly, 15%. On a similar price move, the Silver Bad Guys were only able to reduce their net short position by 820 or, roughly, 1.3%.

What the heck is going on here? Since time immemorial, price shakeouts like the one last week have been staged to force the specs to sell in order for the banks to cover. During last week's beatdown, the only ones selling were the smaller commercials. The large specs barely budged. This is an extremely unusual and potentially significant development and it continues the trend we've suspected of strong hands becoming the primary longs in silver.

And now, for perspective, check this out. Back on 10/2/12, The Silver Cartel was actively working to cap price below $35.50 in order to keep silver within its 2012 range. It worked, obviously, and price fell below $31 before recovering to current levels. But here's the crazy and wild part:

10/2/12 Large Spec gross longs = 47,236

Current Large Spec gross longs = 50,204

10/2/12 Silver Cartel gross shorts = 93,628

Current Cartel gross shorts = 96,924

And let's throw this log on the pile, too. Since 10/2, the "everyone but JPM" Cartel has also added gross longs, growing from 35,788 to 38,410.

What in the name of Ted Butler is going on here?? Are we finally seeing the beginnings of our "Civil War" in silver? It increasingly appears that JPM is being painted into a corner. Where normally The Big Short would sell into rallies and cover on selloffs, that doesn't seem to be working this time. The non-panic, non-selloff of the Large Specs is extremely encouraging for all of us. I'm so stunned by it that words fail me. Not only last week but in the two months since the early October peak, the Large Specs have been buyers, not sellers. Even from a net perspective, the totals are astonishing. On 10/2 and with price above $35, the Large Specs were net long 38,118. As of last Tuesday and with price below $33, the Large Specs are net long 41,272.

I could go on and on but I think you get the picture. For the first time in memory, the Large Specs seem emboldened and willing to hold paper silver, even in the face of orchestrated Cartel raids. The key now will be the everyone-but-JPM commercials on the next rally. Will they aggressively re-add longs, buying back the 4,000 they sold this week and then even more? Time will tell. For now, this week's silver CoT is very, very encouraging. The charts look good, too, so let's see what the rest of the month brings. I'm still an ardent believer that 2013 is going to be an historic year for silver. The data and price action from this past week only bolsters my confidence.

I hope that everyone has a safe and restful weekend. Please come back on Monday, recharged and ready to go. With the FOMC meeting coming up, the week ahead promises to be wild one.

TF

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  383 Comments

Indenture
Dec 8, 2012 - 7:31pm

Xty I understand that people

Xty I understand that people here believe the silver to gold ratio will return to its' historic levels but I'm interested in why this belief is held. When I look at the histric ratios I see a long period without paper money and a short period with paper money that messed things up. But that doesn't help me understand what is to come in the future. Why will the ratio return when things are different now?

Thick skin does not seem like a desireable atribute to be necessary to post on a precious metals blog but I will try and brush off possibly rude remarks if that is what is done here.

El Gordo
Dec 8, 2012 - 7:40pm

Basic laws to understanding people

If you read this and understand it, then you may be in the wrong place. It covers some of you (or us) on this blog however, it's up to you to figure out specifically who. Believe me, they are out there though.

https://cantrip.org/stupidity.html

Indenture
Dec 8, 2012 - 7:40pm

Below Ground Ratios

El Gordo "I had always heard from somewhere that in nature silver is 16 times more plentiful than gold and that was the source of the original 16 to 1 ratio." Why would the ratio of silver vs. gold in the ground be directly related to the way humans use the metals above the ground?

Sheetrocker
Dec 8, 2012 - 7:43pm

Gold/Silver Ratio

As DPH posted above, the gold/silver ratio has historically been all over the place. Great little video, by the way.

Personally, I feel the current production ratio is much more important than any historical ratio. Since most reliable sources claim worldwide silver stockpiles are gone, the production ratio is really what matters.

I copied this chart from Seeking Alpha, via the link provided by DPH.

Element Crustal abundance (ppm) Reserves (T) Annual Production
Silver 0.075 530000 23,800
Gold 0.004 51000 2,700
Ratio 18.750 10.392 8.815

Source: US Geological Survey, Mineral Commodity Summaries, January 2012, Jefferson Lab.

As demand begins to exceed supply, the ratio of 8.815 shown above should be what matters.

El Gordo
Dec 8, 2012 - 7:44pm

Indenture

Beats me. See link in above post.

Indenture
Dec 8, 2012 - 7:45pm

Still reading 'The Basic Laws'

El Gordo - Why would you post a link to a page describing stupid people? Is this part of the 'thick skin' test? Usually when people redirect from a question to an insult it is because there own personal arguments are weak, but because I have yet to hear any of your arguments I can't form an opinion.

¤
Dec 8, 2012 - 7:46pm

Indenture

I think that the ration will at one point hit 10-12 to 1 but not for long unless it's set in some new type of monetary stone that is agreed upon by CB's.

I think the ratio will start to swing relatively wild once it plunges down to below 30 and heaves back up and down between 50 the low 20's until some type of super obvious and publicized shortage happens that causes a basic supply/demand issue.

The one thing that could stabilize and standardize the ratio to some resemblance of a historical one (15-20 to 1) is if all the big meaningful CB's come to some agreement that silver will be held at a certain ratio and that it becomes some basis for settlement of trade internationally. It would make sense for them to revert to using silver in tandem to some extent with gold because their's not enough gold unless they revalue it much higher. The only way I can see for TPTB to keep gold from going ballistic is if they allow silver to reach a pretty hefty price itself via the G/S ratio so that gold doesn't have to carry the entire load price wise.

A scenario where gold will need to be at a much higher fixed price due to monetary conditions (or a new international policy) also means that silver probably already will have been halted from trading far before that point due to an obvious shortage or market delivery failure or because of it's eventual inclusion in the new monetary system.

China will much to say about silver and it's pricing, acceptability and necessity in the future. Simply put, there's not enough physical gold unless they price it sky high (not likely) and there is much more silver (weight-wise) that could be priced much higher via GSR to compensate for the lack of gold.

And then again...there's tungsten and a possible unspoken necessary illusion that might need to be kept alive for all parties involved.

"Why Tungsten Gold Is Necessary & Tolerated"

Submitted by DrkPurpleHaze on August 17, 2012 - 6:18pm.

https://www.tfmetalsreport.com/comment/118486#comment-118486

Dec 8, 2012 - 7:46pm

re ratio

I carefully did not express a belief. I am not convinced that the historic ratio is a meaningful indicator of future price, but that is because I do not think we can predict much about the future with precision.

I do believe that all paper money has failed, mainly because it is based on coercion. Therefore I believe we will return to sound money, and that is where history does help me, as weights and measures is the only way to go, as has repeatedly been shown. I also believe that the price of gold is seriously manipulated to manage foreign currency, and that it has been suppressed to avoid revealing the depreciation of fiat all around us. It would appear that the price of silver has been even more manipulated and suppressed - and that the supply is becoming limited, more so than gold. The potential for a higher upside in silver is there. But moderation in all things, so diversity is key it seems me when it comes to what you stack for the future.

It is sad that a thick skin is required, but the anonymity of the internet allows for a shocking degree of bad manners.

edit: I think you just answered your own question:

the short period of paper money that messed things up is coming to an end, so the mess might just clean itself up.

Indenture
Dec 8, 2012 - 7:51pm

Silver for Oil?

Xty - Thank you for your reply. When you say we 'will return to sound money' I take it to mean that there will be no paper money? I have studied the barter system also and I have been having a difficult time wrapping my head around one problem. In barter or a hard money system I keep wondering how we are going to buy oil. How will companies buy oil to refine so we can have gas?

El Gordo
Dec 8, 2012 - 7:54pm

Indenture

The post was more for your benefit since you are new to the blog. You may note from time to time out of the clear blue someone will direct a frontal assault on someone else without claiming anything substantive. It's sort of like player one says he likes vanilla ice cream and player two says player one is full of BS because everyone knows that chocolate ice cream is better, healthier, less fattening, and so forth, and besides, anyone who eats vanilla probably really covers it in chocolate anyway to disguise its true flavor or else is someone who can't make up their mind about anything and just runs with the crowd because they are racist and don't like dark colored ice cream and so on ad infinitum. That's where the thick skin comes in from time to time as it is best to just ignore the trolls who pull stunts like that and move on. FYI.

Subscribe or login to read all comments.

Contribute

Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

Key Economic Events Week of 8/5

8/5 9:45 ET Markit services PMI
8/5 10:00 ET ISM services PMI
8/6 10:00 ET Job Openings
8/8 10:00 ET Wholesale Inventories
8/9 8:30 ET Producer Price Index

Key Economic Events Week of 7/29

7/30 8:30 ET Personal Inc/Spending & Core Inflation
7/30 10:00 ET Consumer Confidence
7/31 8:15 ET ADP employment
7/31 2:00 pm ET FOMC Fedlines
7/31 2:30 pm ET CGP presser
8/1 9:45 ET Markit Manu PMI
8/1 10:00 ET ISM Manu PMI
8/2 8:30 ET BLSBS
8/2 10:00 ET Factory Orders

Key Economic Events Week of 7/22

7/23 10:00 ET Existing home sales
7/23 10:00 ET Richmond Fed Manu Idx
7/24 9:45 ET flash Markit PMIs
7/25 8:00 ET Count Draghi/ECB policy meeting
7/25 8:30 ET Durable Goods
7/25 8:30 ET Wholesale Inventories
7/26 8:30 ET Q2 GDP first guess

Key Economic Events Week of 7/15

7/15 8:30 ET Empire State Fed Index
7/16 8:30 ET Retail Sales and Import Price Index
7/16 9:15 ET Cap Ute and Ind Prod
7/16 10:00 ET Business Inventories
7/17 8:30 ET Housing Starts and Building Permits
7/18 8:30 ET Philly Fed
7/19 10:00 ET Consumer Sentiment

Key Economic Events Week of 7/8

7/9 8:45 ET Fed Stress Conference, three Goon speeches
7/10 8:30 ET CGP Hump-Hawk prepared remarks
7/10 10:00 ET CGP Hump-Hawk House
7/10 10:00 ET Wholesale Inventories
7/10 2:00 ET June FOMC minutes
7/11 8:30 ET CPI
7/11 10:00 ET CGP Hump-Hawk Senate
7/11 12:30 ET Goon Williams
7/12 8:30 ET PPI

Key Economic Events Week of 7/1

7/1 9:45 ET Markit Manu PMI
7/1 10:00 ET ISM Manu PMI
7/1 10:00 ET Construction Spending
7/2 6:35 ET Goon Williams
7/3 8:15 ET ADP June employment
7/3 8:30 ET Trade Deficit
7/3 9:45 ET Markit Services PMI
7/3 10:00 ET ISM Services PMI
7/3 10:00 ET Factory Orders
7/4 US Market Holiday
7/5 8:30 ET BLSBS

Key Economic Events Week of 6/24

6/25 10:00 ET New Home Sales
6/25 1:00 pm ET Chief Goon Powell
6/25 5:30 pm ET Goon Bullard
6/26 8:30 ET Durable Goods
6/27 8:30 ET Q1 GDP final guess
6/28 8:30 ET Personal Income and Consumer Spending
6/28 8:30 ET Core Inflation
6/28 9:45 ET Chicago PMI

Key Economic Events Week of 6/17

6/18 8:30 ET Housing Starts and Building Permits
6/19 2:00 ET FOMC Fedlines
6/19 2:30 ET CGP presser
6/20 8:30 ET Philly Fed
6/21 9:45 ET Markit flash June PMIs

Key Economic Events Week of 6/10

6/11 8:30 ET Producer Price Index
6/12 8:30 ET Consumer Price Index
6/13 8:30 ET Import Price Index
6/14 8:30 ET Retail Sales
6/14 9:15 ET Cap Ute and Ind Prod
6/14 10:00 ET Business Inventories

Forum Discussion

by sierra skier, Aug 17, 2019 - 7:14pm
by sierra skier, Aug 17, 2019 - 8:30am
by Boggs, Aug 16, 2019 - 7:46pm
by Boggs, Aug 16, 2019 - 7:07pm
randomness