Wrapping 2012

632
Sat, Dec 29, 2012 - 12:53pm

2012 is nearly over and it feels like it has been a tough and lousy year. And it has. But has it been that bad? Could it have been a lot worse? Damn straight it could have been.

As we entered 2012, silver had bounced off of $26 but was still only trading near $28. Gold had touched $1550 and was near $1570. There was no current, overt quantitative easing program, only Operation Twist, and we were just beginning an election year with all of the attendant MOPE and SPIN regarding an economic recovery. Things looked pretty darn bleak.

Of course, we know what happened next. The metals rallied through January and February. They swooned until August and then rallied again into October before being beaten back again. It was all painful to watch and very little fun to write about...BUT...the metals have eked out a gain this year. Gold is UP nearly $100 and silver is up $2 or about 7% each. Again, I'm not trying to slather lipstick on the proverbial pig here but...given all of the things we faced in 2012...that's not too shabby and, as we head into 2013, the situation looks almost entirely different.

The U.S. economy is dragging along the bottom. The U.S federal deficit and debt are growing hopelessly out of control and the country's credit rating is poised to be downgraded again sometime very soon. Global central banks are accumulating physical metal at an increasing pace and the Federal Reserve is openly printing $85B/month. My point is: If the metals can survive 2012 with all of the headwinds, how might they trade in 2013 with the wind at their back?

Exactly.

Yesterday's CoT showed a continuation of spec long liquidation in gold and the silver specs finally gave up, too. For the week, gold was only down $12 yet the specs shed over 14,400 net longs, which allowed the Gold Cartel to cover another 14,400 net shorts. But silver fell almost $2, with most of the damage coming on the successive days of 12/19 and 12/20. The specs responded by dumping almost 8,400 gross longs. Apparently the pain became too extreme to hold on any longer.

So, as we head into 2013, here is a CoT snaphot. The large specs are long a gross total of 200,436 contracts. The Cartel is short a gross total of 327,413 and the Cartel net short ratio is 2.34:1. As we entered 2012, the large specs were long 167,413 but The Cartel was short a nearly identical 326,454 with a net short ratio of 1.95:1.

The silver picture, once again, is more intriguing. Ponder these numbers:

DATE PRICE LARGE SPEC LONG CARTEL LONG CARTEL SHORT CARTEL RATIO

12/27/11 $28 24,026 41,224 55,356 1.34:1

2/28/12 $35 38,012 33,802 78,395 2.32:1

8/14/12 $28 32,317 47,797 71,199 1.49:1

10/2/12 $35 47,236 35,788 93628 2.62:1

12/24/12 $30 39,620 44,302 91,010 2.05:1

A couple of things that jump out at me:

  • The Cartel gross short position has risen by 64% since over the past twelve months.
  • The Large Spec gross long position is also up 64% over the past twelve months.
  • The Cartel gross long position is nearly back to levels which have twice indicated price bottoms in the past.
  • The current Cartel net short ratio could be considered "neutral" at 2.05:1.

Finally, just a few words about price. The charts don't look too hot so don't be surprised by some further weakness in the short term. This would undoubtedly inspire even more long liquidation which would "improve" the CoT structure even more. But, as noted above, the fundamentals for 2013 are vastly better than 2012 AND this whole "fiscal cliff" nonsense will only serve to make them even more positive. Therefore, hang in there and buy the dip. Take delivery and add to your stack. Trust your instincts and be ruled by logic, not emotion. Look around and prepare accordingly.

TF

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  632 Comments

Dyna mo hum
Dec 30, 2012 - 4:12pm

From Fox news

Looks like Wayne Allen Root gets it gets it right. I only hope the masses wise up quick! https://www.foxnews.com/opinion/2012/08/23/why-are-on-brink-greatest-dep...

Bongo Jim
Dec 30, 2012 - 4:28pm
Owl CanyonMr. Fix
Dec 30, 2012 - 4:30pm

Would you be kibd enough to elaborate on this:

''Unfortunately, you may not be able to “cash it all in” at anything that resembles a profit for quite some time.''

sandy beach dave
Dec 30, 2012 - 4:39pm

Federal Judge throws out JPM Manipulation case

What a country we live in! This makes me sick to my stomach. JPM is not only Too Big To Fail, they are Too Big To Prosecute.

https://maxkeiser.com/2012/12/30/federal-judge-dismisses-silver-manipulation-lawsuit-against-jp-morgan/

criscrossing
Dec 30, 2012 - 4:48pm

US Dollar

Charles H. Smith posted this very informative article https://www.oftwominds.com/blogoct11/orthodoxy-heresy10-11.html

Here he also addresses the Triffin paradox which was my first introduction to this theory.....I believe CHS may be correct in predicting that a global recession will cause the dollar to strengthen....and if this is true what would that portend for the metals?

Such a wonderful community here....to all a very happy New Year!

ivars
Dec 30, 2012 - 4:49pm

@Canada-relation to USG debt and correction length

I think just ask yourself as I do - why is gold going up exponentially for the last 12 years? Of course, loss of trust in fiat USD (other fiat the same). What is the most common tendency in fiat economies during the last 12 years? Buildup of sovereign debt. High inflation is past, before 1982. Sovereign debt increase took its place. Instead of hidden tax on todays citizens in form of inflation that tax is now levied on future income in form of government debt payments.

The correlation between gold prices and USG debt is around 94% over last 12 years. Nothing else comes even close. Debt continues to increase , fiscal cliff or not, just with different speeds. Future speeds of debt buildup are discounted from gold price, if they are slow, added if they are fast. USA fiscally did better then expected in 2011 and 2012 due to extremely low treasury yields, arresting the increase in the speed of debt , and with fiscal cliff, will be slowing it down in 2013. So gold prices went down and stagnated, now moving down again.

For 2013, with fiscal cliff , the speed of debt increase may HALVE in H1 2013, and, depending on resolution, may stay lower than in 2012 and has probability even to continue this slowing down later ( in which I do not believe) . It is just a probability but enough to make correction in gold prices - actually there has no been real correction yet, just sideways trading after 1900 bubble. So now one is in cards. But it can not last.

So the only real possibility that gold exits the current bull market is actually CUTTING down the USG debt, which seems unlikely in 2013, but can happen later in case trust in USD is going to be lost further and faster by faster increasing debt in 2014-2015 . Given all things in total, its most plausible that gold bull market will continue to run on, with a possible spike in 2015-2016 when a partial USG default can occur ( on FED) if loss of trust in the USD starts to lead to increased bond yields, accelerating USG into insolvency. That would lead to a massive correction, where one can really exit gold at maybe 10 000 USD, the question is will that be smart than as gold will probably be the basis of new monetary system and cost no less than 4000-5000 USD, so still higher than today. By then it can be wise to enter other real assets that will have bottomed ( have no idea which ones).

Base line: Debt has replaced 1970 ties inflation scare (after Nixon went of gold standard and devalued USD) as source of loss of trust in USD. in 1980-2000 trust was rebuilt by inflation targeting. From 2000 lost due to rapidly worsening balance sheet of the USG which stands behind the USD. It is kind of obvious- WHY else would gold appreciate so fast? Of course, in a way its a continuation of the same USD devaluation that happened in 1970 -ties, but done in different manner, by borrowing from future ( and then asking those debts to be repaid in gold- see below).

But again, its not unique to the USA, so loss of trust is not measured against other fiat currencies, but gold. Seems that gold is still conceived in the investor and CB world as the true reference of value.

Second, this gold bubble will end some day as did the previous, but this time not by rate increase ( cost of money) , but by default ( cleaning up the balance sheet of USG). That is needed since no debts are written in gold, and debts can not be inflated away , as that would hurt the CREDITORS- the elite, which makes no sense at all. Even more so, debts are more likely to be rewritten in gold when CBs have enough gold in their vaults ( as share of total world gold) that any black market in gold in significant proportions can be excluded. That requires , if there is 160 000 tons of gold above ground now, about 100 000 tons in total in CBs. The fight is on now who will get which share of the necessary 70 000 ton addition to current CB reserves. I am sure the USA is targeting to get most of it, and will get it. Rest will go to other important players like Germany and EU, Russia and China.

The chat around is that the USA will not be able to get its share. I am sure it will be. What is the use of the most powerful military in the world if one can not protect its economic interests? EU is just a tribute payer to the USA in terms of military protection it gets, and will pay again. China will not be able to muster enough military clout fast enough , nor Russia.

These are not economic games. These are geopolitical ones, and pure economic or market approach makes no sense here. The strongman always gets his share. In this case, the USA. Have no doubt about it. Round one will be won by the USA, and the losers already know it, so they will not even put up a serious fight, just pretend and try to act in secrecy. There is still time for them to cut a better deal further in future.

Bollocks
Dec 30, 2012 - 4:58pm

Speaking of which, Bongo...

This is a cracking rendition - when the original band got back together about 5 years ago for a few shows...

https://www.youtube.com/watch?v=5ewVvVCRWxE

kryton619thurd aye
Dec 30, 2012 - 4:59pm

@thurd aye

I checked this the first time that Bollocks posted the layered silver bars.

In the description of the layered item it states the following:

You are bidding for these 5 x 1oz Pan American Silver bars, the bars are layered in pure .999 silver and come complete

with their own protective capsule. The bars weighs 31 grams each and the measurements

are 50x28x3mm, shipping by 1st class royal mail recorded delivery. Free P&P, No reserve auction, will only ship within the UK..

From the Pan American silver brochure we can find the measurements of the genuine bar which is 50 x 29 x 2.1 mm.

So we can see that the layered bars almost the same in length and width, however, they are ~ 1/3rd thicker than the genuine bars. So the product that they are using does not have the same density as silver.

Bollocks
Dec 30, 2012 - 4:59pm

FleetFeet

I can handle it.

Just about.

Monedas
Dec 30, 2012 - 5:05pm

Murphy !

Enjoyed those TED talks (haven't finished them yet) .... except for the usual whining from the blacks ! Especially enjoyed the Chinese lady who upbraided those stupid liberals .... talking about the positive side of factory work in China ! Great stuff .... reaffirms all my God given, gracious instincts ! Monedas 1929 Comedy Jihad The Closer You Look .... The More You Notice Karl Marx Sucks World Tour

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