Trading The Midline

Sat, Dec 15, 2012 - 11:58am

As you're well aware, the metals have been rangebound for all of 2012. As we enter the new year, where will price be and will the ranges hold? Correctly answering those questions holds the key to successfully forecasting the next big move.

Admittedly I'm biased. Not only am I 100% confident of my long-term assessment, the short-term fundamentals seem extraordinarily positive, as well. To recap:

  • The U.S. government is embroiled in a nasty fiscal debate. Regardless of how these issues are resolved, the debt ceiling must still be increased and, as we know, the price of gold has historically tracked the debt ceiling quite well.
  • The last debt ceiling debate ultimately led to a drop in the U.S. credit rating. This event sparked a 5-week, Cartel short-covering rally from $1665 to $1920.
  • The Fed is poised, in January, to restart the wholesale printing of money ($85B/month) in order to partially fund the U.S. government deficit for fiscal 2013 (which, after just two months, is on a run rate of $1.7T).
  • Recent history suggests that gold rises sharply for 3 consecutive years and then consolidating every 4th.
  • Here are two charts that you need to commit to memory as we turn the corner into 2013. The first is one we've printed here repeatedly. It shows the price of gold tracking the ever-increasing level of U.S. government debt. The second chart is one that I just found this week. It shows the price of gold this century and details the point made in the last bullet above.

    Against this fundamental backdrop, the metals will likely enter 2013 mired within the trading ranges that contained them in 2012. The charts below detail all of the price action over the past 12 months. Please study them for a moment. Note how price has consistently found support or resistance near the midline of these ranges. When trending either above or below the midline, the trader needs to hold either a bullish or bearish bias, depending upon where price currently resides.

    And this is a critical point as we finish 2012 and head into 2013. Where would you expect price to reside currently, based upon the fundamentals? Should price be above the midline or below? Should the trend be toward the upper end of the range or the lower end? Should we maintain a bullish bias or a bearish bias? Again, based upon the fundamentals laid out above and other factors such as total gold open interest (which is only 432,000 so I ask you again, who is left to sell?), I simply do not believe that the metals should break down here, through the midlines and trend toward the lower end of the ranges. A far more likely outcome is that the metals bounce off of the blue diagonal trendlines I've drawn and then proceed to rally into the end of the year. I have been thinking (hoping?) that we'd wrap up 2012 near the top of the ranges. While the action this week certainly calls that into question, there's still quite a bit of time left and, as we saw on Black Friday, thin holiday conditions can lead to sudden short squeezes. If we don't make it back to $1780-1800 gold and $35 silver before year-end, I'll be perfectly content with $1750 and $34. And, regardless of how the next two weeks play out, all of this week's BS regarding the "premature" ending of QE will be soon recognized for what it was...complete and utter nonsense. Why?

    • Unemployment will not print at 6.5% anytime in 2013 and not in 2014, either. Even The Fed's own forecasts do not show sub-6.5% unemployment until 2015 (which is exactly why they've consistently said that rates would be "extraordinarily low through mid-2015).
    • And inflation will not print higher than 2.5% anytime soon, either. Oh, you and I will know that's it's higher than 2.5% every time we go the grocery store. That's not in question. But what's also not in question is that the CPI will never be allowed to show anything higher that 2.5%. Right this minute, your politicians in Washington are discussing ways to alter the computation of the CPI so that they can, once again, dramatically cut the COLAs for Social Security recipients. (

    Finally and again, I can't stress this enough...though I'm too lazy to type it all out again so here's a C&P from the comments section of the previous thread:

    Submitted by Turd Ferguson on December 14, 2012 - 10:17am.
    The Fed is buying $45B in treasuries directly from The Treasury Department. This is direct monetization of the debt and money that is put into circulation by federal government spending, transfer payments etc.

    The Fed is also buying $40B/month in MBS from the Primary Dealers. This does two things:

    1. "Cleans up" the PD balance sheets by allowing them to exchange the near-worthless CDS for cash which the PDs then, in turn, use to purchase treasuries.
    2. By purchasing $40B/month in treasuries, the PDs artificially create demand for treasuries at auction. This demand, when combined with Fed demand, creates $85B/month in buying pressure at auction. This continues the illusion of a healthy bond market, keeps auctions from failing and holds interest rates at extraordinarily low levels.


    OK, that's enough for a Saturday. Please use this weekend to step away from your computer for a while. Hug your kids, grandkids or someone else who is near and dear to you. Appreciate and value the important things in your life because, as we were all sadly reminded of again yesterday, they can be taken from you in an instant.

    God Bless everyone in Turdville and thank you for making all of this possible.


    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Dec 15, 2012 - 12:06pm
    Dec 15, 2012 - 12:07pm


    Great post Turd

    Missed it by thiiiiiiis much!

    El Gordo
    Dec 15, 2012 - 12:07pm


    This one just sneaked up on me.

    Dec 15, 2012 - 12:18pm

    Are you a shill turd?

    You said, "I shill believe that, as we enter 2013, we are more likely to be above the line". I think this is a conspiracy:) I hope everyone has a great weekend. Thanks for the update Turd.

    Charles S. Hamlin
    Dec 15, 2012 - 12:21pm


    In the spirit of the holiday season I must say "Thanks Turd" for your continual effort to get the word out to those that will listen.

    Have a Great Saturday everyone!


    Dec 15, 2012 - 12:25pm

    My poor handwriting

    It is sloppy but, if you look closely, the word it "still" not "shll".

    Dec 15, 2012 - 12:36pm

    Removed comment

    Removed comment.

    Dec 15, 2012 - 12:36pm

    and Stacked...

    That ring is under about as much pressure as the silver/gold shorts. Eventually, nature always wins...

    Dec 15, 2012 - 12:42pm

    How much gold would...

    Moving this forward from last thread. Any takers or forward thinkers here?

    Of course there is


    ...the U.S. need to allow China to purchase on the open market at held back (shorted to death )prices while China gets repaid or made whole on their debt they hold?

    We have a sharp group of Brainiac's on this site and yesterdays discussion on China being the big short via JPM and the U.S. was interesting to consider and seems really straightforward and sensible to at least consider further.

    Given the last known (or thought to be) parameters that the U.S has 8,000 tonnes of gold and China has 1,500 tonnes and that gold goes for approx &1700 today yet is on the US books at $42 I'll ask the following and throw some scenario's out there.

    If the U.S. owes China about $3 trillion USD and they've negotiated some type of arrangement regarding gold and silver and it's price is being suppressed via heavy shorting so that the Chinese can take delivery of as much supposedly western metal that it would take to satisfy them, my question becomes one of.... how much U.S. or western gold/silver would the U.S. allow China to stockpile and at what price will they possibly value gold and/or silver if they use both to back a new joint reserve currency at some point?

    Would the U.S allow China to have half of the U.S gold or not even close if it's being used to pay China back to some degree? Given the assumption that at some point they make a historic pact and share the reserve currency would it be 50/50 or 60/40 etc?

    Will the USD/RMB become a new trade pairing that is based on each currency being pegged to the other in some type of new valuation or ratio that reflects the new reserve currency arrangement that allows and forces the Yuan to float much, much higher to gain and reflect it's new found strength?

    My guess would be that the U.S. would allow possibly a 70/30 or 60/40 type of split but I think a 50/50 would probably work best for both if they both agree that gold/silver gets priced much higher for both of their benefits.

    My questions are...

    1.) How much gold would the U.S give up but never admit to in order to repay China in some measure?

    2.) How much would they revalue gold up to and what ratio would they use for silver's price?

    3.) Would they split the reserve currency role 50/50 or something more/less?

    My assumption is if they make some huge change in the monetary system then gold/silver are mostly no longer available or it's prohibitively high in price and being sold in very small amounts such as milligrams if they were to price gold much higher.

    My other thought on gold/silver purchases by the Chinese citizens is that it's a sure fire way for the Chinese Govt. to almost instantly raise the standard of living and wealth of many or their citizens if they revalue good to a crazy amount. About 50% of the average Chinese citizen makes a daily wage of approx $1.

    If many of their citizens own gold and/or silver (no matter what amounts) and the value of the metal goes up appreciably then those same people will instantly have become much wealthier then they were on a day to day basis previously. My point regarding most of the above is that their seems to be no shortage of benefits to either the U.S or China and it's citizens regarding taking care of the outstanding debt issue, weak currencies relative to each other and the possible instant wealth effect the revaluing of gold and/or silver would have on both countries and the world.

    In an a world full of debt and bad collateral and low growth and revenue being taken in it appears to me that in one full swoop they could eliminate many of their problems and get people to start spending money on each others produced consumer goods etc to stimulate growth and jobs and taxes revenues. The Chinese, Americans (and Indians and the rest of the world who buys gold/silver) would be suddenly enriched with their newly found wealth and would soon buy up all the depressed housing at dirt cheap prices thus clearing significant inventory and the last big significant hurdle to any recovery (in this country at least).

    My guess on that hypothetical scenario is that the U.S would give up approx. 2000-3000 tonnes of gold without public acknowledgement (maybe not even their own gold but other countries) and have a 66.6/33.3% reserve currency ratio with China and gold trades at the newly established price of $15-25,000 per/oz with a 20 to 1 ratio being allowed for silver and the price of gold not being fixed but becoming a floor and it being allowed to float, but only upwards.

    If they could keep gold and silver down and shorted for their gain (like they do now) then they could certainly keep it jacked up and made suddenly unavailable and increasingly scarce. Supply and demand will finally kick in for their benefit so that the price can only go up and the value of their backed currency can be kept strong.

    Dec 15, 2012 - 12:56pm


    STOP IT-- your postings are preventing me from thinking with a clear mind

    ah hell- on second thought who wants to think clearly


    Dec 15, 2012 - 12:57pm

    Hat tip

    ACojones, last thread, +1

    Dec 15, 2012 - 12:58pm



    I think the AU midline is the same as one of Santa's magnets.

    no coincedence


    Dec 15, 2012 - 12:59pm


    Well there's no hockey season, so I've got to do something...

    (I guess my Kings are still champs)

    Dec 15, 2012 - 1:05pm


    And my Leafs have managed to lose one game this season....... the winter classic LOL

    At least we still have Junior hockey, can't wait for World Juniors to start.

    Dec 15, 2012 - 1:09pm

    fiscal cliff

    If everyone is expecting a rally in gold when the fiscal cliff issue is resolved, maybe it's good to bet the other way? Go short?

    Dec 15, 2012 - 1:10pm

    Hasn't Uncle Ben Missed every call during his time at the fed?

    I am confident that unemployment won't go below 6.5% before 2016. It may not get there until after the close of WW3.

    What we aren't reading or hearing about right now is the collapse in consumer spending on anything other than essentials. At my transmission shop November and December sales are way down. Every business owner and salesman I know is talking about how slow it is. It's scary. We are heading into another round of business closings like we saw in 2008-2009. From what I am seeing on main street, 4th quarter sales for this year are going to be disappointing. Even the homeless guys that come by shop looking for cans or food are bitching about the lack of available recyclables in the dumpsters. Seems there are more people dumpster diving now around here than ever before, and people are saving their cans instead of tossing them out more than ever before. You know things are bad when there is too much competition between the homeless for dumpsters to pick thru.

    The economy is toilet bound, just like the metals are range bound. BUT, I believe the metals will break out their ranges years before the economy stops swirling the bowl.

    Transmission Rebuilder

    Dec 15, 2012 - 1:10pm

    For Katie Rose

    from Jim Sinclairs website

    A GIGGLE with the GOATS Jingle Bells Holiday Performance
    Urban Roman
    Dec 15, 2012 - 1:11pm

    The bearish analysis, of course

    ... still applies. While it may not be more than a brief interval on those long-term charts (at least so long as the "Dollar" means anything, and when it doesn't, we'll have a lot more to worry about than the POSX vis-a-vis the PMs and/or other currencies), we could see a deflationary event. First of all, note that the money created by the Fed's action monetizing the worthless MBS has already been spent into the economy by all those deadbeat NINJA-loan recipients. It is gone already, and all the Fed is doing is keeping the useless banks going ("foaming the runway").

    In the deflationary case, you have long term holders of paper Au and Ag selling off (and perhaps a few stackers, we have seen the occasional comment from a Turdite selling part of a stack), and selling into a market that has already been manipulated as low as it can go. This would cause a REAL dip, as opposed to the synthetic dip we have seen on the charts the last few years. The reason for the selling is that the economy has essentially ground to a halt as more businesses and industries close down and stop their activities. EVERYthing drops in price, as there are no more consumers and demand dries up. Even food and fuel consumption decline sharply as people start eating lower on the food chain and seriously conserving.

    Also note, deflationary depressions can last for decades.

    My point being: keep some "powder" dry, and don't expect your stack to bring you endless prosperity. In reality, it might bring your children and grandchildren some advantage in the latter part of the century.

    Dec 15, 2012 - 1:20pm

    @DPH RE: how much gold would...

    It wouldn't surprise me at all that there's an agreement between US & China with the gold for debt issue. In a perverse way, it could be the excuse that TPTB justify everything when the shit hits the fan at some point. However, the arrangement would be more more like an OPEC-type deal. Meaning, there'd be a "deal" to rig markets but everyone in the deal cheats whenever it suits them...

    Dec 15, 2012 - 1:25pm
    Dec 15, 2012 - 1:28pm

    & this

    Secretary of state faints, sustains concussion

    Secretary of State Hillary Rodham Clinton, who skipped an overseas trip this past week because of a stomach virus, sustained a concussion after fainting, the State Department said Saturday.

    Congressional aides do not expect her to testify as scheduled at congressional hearings on Thursday into the Sept. 11 attack against a U.S. diplomatic outpost in Benghazi, Libya, that killed four Americans, including the U.S. ambassador.

    The aides spoke on condition of anonymity because they weren't authorized to publicly discuss Clinton's status.

    Dec 15, 2012 - 1:38pm

    the big insiders

    will use any cliff agreement to "sell the news"... be ready SPX 1317 by 12/26 aprox......

    Dec 15, 2012 - 1:38pm


    I use to think that the Benghazi was just an ant hill a media show, if you will, but there may just be more to it!

    Dec 15, 2012 - 1:39pm

    Secretary of state faints

    Nothing trivial, I hope

    Admiral Ag Bar
    Dec 15, 2012 - 1:42pm

    Urban Roman

    Great post. I'm sitting on stacks of cash (our moving fund) ready to deploy if we truly get a blood-in-the-streets PM sell off. If it goes down crazy, I'm going to also take a loan out of my 401k.

    The Doc
    Dec 15, 2012 - 1:42pm

    Turd nailed it once again.

    Turd nailed it once again. The Fed is scared to death of gold clearing $1800 to the upside, as G2k (gold $2,000) would be imminent. Hence the month long capping at $1730 and counter-intuitive raids post QE4 announcement.
    G2k is a lock once $1800 is cleared to the upside, and this doesn't even take into account another US downgrade or the HEH TF has alluded to which should be resolved one way or another in 2013. This summer's lows near $1500 in gold and $26 in silver will look like the 2008 buying opportunity 2-3 years down the road.


    Dec 15, 2012 - 1:49pm
    Dec 15, 2012 - 2:25pm

    Inflation & Employment

    Here is an interesting view on inflation from my favorite economics blog.

    [We need] inflation -- just enough to reduce the debt burden to more manageable levels, which probably means in the 4 to 6 percent range for several years. The Fed could accomplish this by adopting a flexible inflation target, one pegged to the rate of unemployment. Chicago Fed President Charles Evans has proposed something very similar, a policy that would keep the Fed funds rate near zero and supplemented with other quantitative measures as long as unemployment remained above 7 percent or inflation stayed below 3 percent. Making the unemployment target explicit would also serve to constrain inflationary expectations: As the unemployment rate fell, the inflation target would fall with it.

    It basically is the same solution as after WW2. To let inflation reduce the relative importance of the debt. Not quite the blowup some would imagine. My guess is that the current business cycle is too fragile to allow inflation to reach this level.

    On the topic of employment, regardless of your opinion on the BLS, the current trend suggests that the unemployment rate could reach below 6.5%by the end of 2014 (october 2014 using a simple linear regression), by their standard which is all that matters from the point of view that QE4 is conditional on these factors.

    Of course, all of that would be in vain if the fiscal cliff talks reduce government spending so much as to send the US into recession. Then, I guess easing would be extended through the next business cycle.

    Dec 15, 2012 - 2:27pm

    Santa says

    In his last report, John Williams expects hyperinflation by the end of 2014. He has advised (in an interview separate from his most recent report) that when this happens, the purchasing power of the US Dollar will collapse and in about six months a new currency will be issued. All of this leads to a lower US dollar in an intact trend channel that goes to and below .5600 on the meaningless USDX index.

    You've talked about a new, two-tiered currency regime (if I understand correctly) that will consist of a basket-type currency traded among central banks and national or multinational-basket currencies used by the rest of us.

    My question is, after the new currency regime is created, what will happen to transfer-payment programs like SS, unemployment comp and the like? Will these payments resume in whatever currency the US uses next? How about public-sector employees? They, effectively, receive transfer payments too. Will they still be paid? I know the private sector will be FUBARed because it's subject to market forces.

    Don't laugh at this next question: can this be handled seamlessly or should we assume Petunia is taking flying lessons?


    CIGA MG,

    Think of it as a virtual reserve currency only available to central banks to trade in. Think of it as the same currency system we have now with very different currency cross rate values. Think of it as the euro, ruble, rupee and yuan as a currency trading block, not a unified currency.

    This is how you reduce international dollar debt and insular dollar entitlement payments to almost meaningless levels, all in one great arm wave on a singular day. It will also cure the health cost problem by removing the most sickly from the equation, the pensioner, by accelerated attrition. Timing is a question of when our masters via GS decide to pull the plug on confidence in the US dollar as there is no other practical solution in the minds of our masters.

    The Euro at $1.5O and maybe much higher, which by the way makes my Swiss Franc and Canadian dollar inventory look quite good. I wager you never expected the Swiss Franc being bound to the euro at a cross rate of 1.20 was going to be outrageously bullish for the Swissy? We did here.

    Regarding Petunia, could it be otherwise? She is a Sinclair, and presently there are 4 pilots in the family. No one lives in Alaska now. The only real question is rotorcraft or fixed wing? Dogs (which she is not too fond of) can drive. Why should Miss Petunia remain Earthbound?


    Katie Rose
    Dec 15, 2012 - 2:30pm

    silver66 ~ baby goat video

    You made my morning!

    Baby goats are so darn cute that sometimes we just pull up a chair and watch the show. Our neighbors come over with their lawn chairs as it is such fun entertainment.

    Every year we make a new jungle gym for them to play on. They just love to fly through the sky and jump, jump, jump! They are great at cartwheels, too.


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