Cotton Charts

Sat, Jan 12, 2013 - 12:36pm

Actually, that's a sort of play on words. We're not going to look at the cotton charts. We're going to look at the CoT and some charts.

First, the CoT. Again, remember that this was an odd CoT week. It was a full five days and it started on 1/2, which had the big rally. It also includes the huge selloff of 1/3 and into 1/4. It then captured the really nice rally on Tuesday. So, for the reporting week, we're left with this dichotomy: Gold was down $14 but its OI was UP over 13,000. Silver was UP 24¢ but its OI was down by over 4,000. Hmmmm. What in the name of Harvey Organ is going on here??

Frankly, the gold CoT was great. For the week, the Large Specs dumped 4,800 longs while adding 900 shorts and the Small Specs dumped 3,700 longs while adding 800 shorts. All totaled, the spec side decreased their net long in gold by about 10,200 contracts. For me, because the week was relatively flat overall for price, this spec dumping is just another sign that the 1/3-1/4 beatdown really was a washout low that culminated at $1626 in the wee hours of 1/4.

Now here's the fun part. Soaking up those 10,200 net contracts could have simply come from Cartel short-covering but it didn't. The Cartel only covered 1,300 shorts. The remaining 8,900 contracts were absorbed by Cartel buying and adding long. What more could you want from a bottom? This is a spec dump and Cartel buy. Very bullish, indeed, and it lowered The Cartel net short ratio to just 2.17:1. Again and for reference, just prior to the last two rallies the Cartel net short ratio fell to near 2:1. On 8/14/12, it was 1.98:1 and on 12/26/11 it fell to 2.01:1. Clearly, anything near 2:1 is bullish. With the action of late this past week, we've likely seen the ratio fall even more but we'll have to wait until next Friday to find out.

The Silver CoT is also interesting but not for the same reasons. Remember, on balance price was rising while OI was falling. For the week, the Large Specs dumped about 1,000 longs but still hold over 37,000 contracts. The Small Specs did a double-cross by dumping 1,500 longs and adding 1,500 shorts. The Silver Cartel used this net selling pressure of 4,000 contracts to reduce their net short position by 4,000.

The only change this week is that the other-than-JPM (OTJPM) crowd essentially "stood down". Instead of adding longs like they've been doing (and keeping JPM from covering), they dumped over 400 contracts. Not much in the grand scheme of things because they still hold long about 45,000. But why the change in trend? Did JPM put the word out that they wanted them to "stand down" so that JPM could cover as many as possible, as quickly as possible? Maybe. Because by not adding longs, the OTJPMs allowed JPM to cover 4,500 shorts. That's the most they've been able to cover in one week since this latest manufactured decline began back in October. Hmmm. Collusion, anyone??

Regardless, this is a bullish CoT, too, simply because of the numbers. The Silver Cartel now has a net short ratio of 1.92:1 and though this is not as bullish as gold, it's not too scary, either. For reference, let's use the 8/16/12 CoT and the 12/26/11 CoT again. On 8/14/12, the Silver Cartel net short ratio was 1.49:1 and on 12/26/11 it was 1.34:1. Again, a Silver Cartel net short ratio of under 2:1 isn't scary but it doesn't mean we're out of the woods yet, either. Caution is still warranted.

And here's something else for you to chew on over the weekend. The latest price peak for the metals was in early October. On 10/2/12, the price of silver was just under $35 and the total OI was 139,117. As of last Tuesday, the price was just above $30 yet the total OI had only fallen to 137,452 for a drop of just 1%. So what's the deal? Where's the rotation? In summary, it looks like this:

  • The Large Specs have dumped 10,000 longs and have had no change in their short position.
  • The Small Specs have dumped 5,000 contracts and added almost 2,000 shorts.
  • The Cartel (namely JPM) has been able to cover just 7,400 shorts.
  • The OTJPM Silver Cartel has added 9,200 longs.

So price is down because the spooked-out, fraidy-cat specs have sold. Into this weakness, the OTJPMs have increased their gross long position by over 25% from 35,788 to 44,977. Your decision is: Whom do you want to follow here? The dumping Specs or the buying Cartel???

To help you with this question, here are two charts. Notice that gold is still consolidating and basing but looks to begin a sustainable rally in the next 2-4 weeks. Silver, on the other hand, is working itself into a corner once again and appears to be ready to break out and UP. Just give it a little more time.

OK, that's all for now. Time to go watch some football. For those who wish to profit by fading my bets, I like Denver, SF, Seattle and Houston. Have a great weekend!


About the Author

turd [at] tfmetalsreport [dot] com ()


SV · Jan 12, 2013 - 12:43pm

Did some of the technological advancements of the 19th century..

End up not working? 

Oh, wait...That's the CoT!

I guess the Financials are still dealing with some commitment issues. Perhaps relationship counseling or a firing line will do the trick?

Lightning · Jan 12, 2013 - 12:49pm


"Missed it by that much". Maxwell Smart.

So It Goes · Jan 12, 2013 - 12:53pm

Top ten

I've got nothing to say other than keep stacking.

Wish I had more FRN's so I could buy more.

kingboo · Jan 12, 2013 - 1:01pm

Neck n neck.......i just cant get that #1 spot...

Oh is a sleepy saturday morn...

kingboo · Jan 12, 2013 - 1:01pm

Neck n neck.......i just cant get that #1 spot...

Oh is a sleepy saturday morn...

DayStar · Jan 12, 2013 - 1:03pm

RE: Cotton Charts

Cotton has been very volatile over the past year and has been up hugely. I bought some cotton tee shirts, and they were about three times what I paid for them last time.


kingboo · Jan 12, 2013 - 1:13pm

Cartel longs.....

The only thing i dont like is the cartel can get long with free money.... That's not my idea of "skin in the game".... So i dont trust the charts too much. Particularly with the HFT's running the show.... gold and silver are Wealth preserving assets that can make you good money when they overshoot on a "fear trade".....but algo's can be irrational... And that's where i think we all get bamboozled.....algorithmic trades dont always seem to follow patterns we would expect...but they're damn good at follow the leader.. I think we all know who the leader's are.... For short term trading, i guess the charts are critical....but for a dumbass like myself looking over the horizon, they're not too useful...

Owtovit · Jan 12, 2013 - 1:18pm

Build a Death Star


we petition the obama administration to:

Secure resources and funding, and begin construction of a Death Star by 2016.

Those who sign here petition the United States government to secure funding and resources, and begin construction on a Death Star by 2016.

By focusing our defense resources into a space-superiority platform and weapon system such as a Death Star, the government can spur job creation in the fields of construction, engineering, space exploration, and more, and strengthen our national defense.


Official White House Response toSecure resources and funding, and begin construction of a Death Star by 2016.

This Isn't the Petition Response You're Looking For

By Paul Shawcross

The Administration shares your desire for job creation and a strong national defense, but a Death Star isn't on the horizon. Here are a few reasons:

  • The construction of the Death Star has been estimated to cost more than $850,000,000,000,000,000. We're working hard to reduce the deficit, not expand it.
  • The Administration does not support blowing up planets.
  • Why would we spend countless taxpayer dollars on a Death Star with a fundamental flaw that can be exploited by a one-man starship?

However, look carefully (here's how) and you'll notice something already floating in the sky -- that's no Moon, it's a Space Station! Yes, we already have a giant, football field-sized International Space Station in orbit around the Earth that's helping us learn how humans can live and thrive in space for long durations. The Space Station has six astronauts -- American, Russian, and Canadian -- living in it right now, conducting research, learning how to live and work in space over long periods of time, routinely welcoming visiting spacecraft and repairing onboard garbage mashers, etc. We've also got two robot science labs -- one wielding a laser -- roving around Mars, looking at whether life ever existed on the Red Planet.

Keep in mind, space is no longer just government-only. Private American companies, through NASA's Commercial Crew and Cargo Program Office (C3PO), are ferrying cargo -- and soon, crew -- to space for NASA, and are pursuing human missions to the Moon this decade.

Even though the United States doesn't have anything that can do the Kessel Run in less than 12 parsecs, we've got two spacecraft leaving the Solar System and we're building a probe that will fly to the exterior layers of the Sun. We are discovering hundreds of new planets in other star systems and building a much more powerful successor to the Hubble Space Telescope that will see back to the early days of the universe.

We don't have a Death Star, but we do have floating robot assistants on the Space Station, a President who knows his way around a light saber and advanced (marshmallow) cannon, and the Defense Advanced Research Projects Agency, which is supporting research on building Luke's arm, floating droids, and quadruped walkers.

We are living in the future! Enjoy it. Or better yet, help build it by pursuing a career in a science, technology, engineering or math-related field. The President has held the first-ever White House science fairs and Astronomy Night on the South Lawn because he knows these domains are critical to our country's future, and to ensuring the United States continues leading the world in doing big things.

If you do pursue a career in a science, technology, engineering or math-related field, the Force will be with us! Remember, the Death Star's power to destroy a planet, or even a whole star system, is insignificant next to the power of the Force.

Paul Shawcross is Chief of the Science and Space Branch at the White House Office of Management and Budget

Tell us what you think about this response and We the People.

fast mover · Jan 12, 2013 - 1:26pm


I'll go with Denver, SF, Seattle and I hate myself...Pats.

Xeno · Jan 12, 2013 - 1:50pm

Play On Words

Good one TF... I will never look at cotton shorts the same way againcrying

and like Santa says... don't believe everything you see;

Federally Assistance Or Just A Hedge Fund?

January 11, 2013, at 11:12 am My Dear Friends,

The early morning operation took place today taking gold off the $1704 level. Many of us are convinced that what we are seeing has Federal assistance. That means to us that the Fed is lending gold to the gold banks to facilitate the operation. Because of that there is a fear of taking on the operation.

I got a call last evening from a friend in the huge private hedge managed money telling me that we have all been bamboozled. The size of hedge funds today can easily mimic what would be considered Federally sponsored. The Fed is quite pleased, but is not the infinite power behind the bear operation that started at $1800.

It is a wild man/women with very big, but not infinite funds that is operating the gold market. That which the longs fear is air, and nothing more than a major huge hedge fund operation.

It is certainly is worth considering. Apple is not off from $750 on its own power. Herbalife did not drop off its recent high without significant help.

In another life at 35 years old I did similar things on the long side. I used banks common then to the Middle East to run gold hard on the upside. I even hired an actor to dress up like a Saudi Sheik. I hired armed private guards. I hired a stretch limo. Nobody knew it was a spoof except the actor, myself and my partner . We arranged with the Comex to permit the armed guards on the floor. His instructions were to go to Mintz Marcus in the pit and in Arabic ask him how to turn this paper in for real gold. Then ask again in really bad english how do I turn my paper gold into real gold. You see, if anything was possible then, now it must be a circus in the use of beards (fake identity covers in buying and selling to influence the market).

This is business now where you must not believe your eyes. This is just something that should be considered as possible. It would be a genus move on the part of anyone wanting the gold market off from $1800. Plant the story in financial MSM that it is Federally backed selling, then do what major hedge funds do today – bet the ranch on infinite margin, and go for broke.

Part of me respects anyone with that much courage to do so.


Road_Scholar · Jan 12, 2013 - 1:50pm

Gotta go with the 49ers

you can't suppress this gold with "paper" and "monkeys"...

tpbeta · Jan 12, 2013 - 2:04pm

Yay Turd

This kind of post is the reason I come here. V interesting. May not always be right, but certainly makes sense.

grinners · Jan 12, 2013 - 2:46pm

QE - Debt - Deficit - US Government

I just don't understand how the US Government continued its spending/deficit between the end of QE2 and the start of QE3.

"QE2 ended the end of the second quarter of 2011. A third round of quantitative easing, or "QE3," was announced by the Federal Reserve in September 2012."

If QE funds the deficit, what happened for this 15 month period of no QE? Where did the money come from? How, literally, did they go into more debt?

grinners · Jan 12, 2013 - 2:52pm

In between was Operation Twist

Where The Fed liquidated approximately $45B/month in short-term treasuries and used the proceeds to purchase longer-term treasuries. This program began in the summer of 2011 continued until last month, when they ran out of short-term paper to sell.

But the bond market (and the government) relies upon the $45B/month, so QE∞ was initiated about a week ago.

fast mover · Jan 12, 2013 - 2:56pm

Texas Gun show

Just returned from the monthly show here in South Central Texas. Usual crowd size, plenty of handguns, maybe 30 or so AR-15 type rifles. Ammo and mag (& extended) were plentiful. Prices are significantly up for the long rifles (2-3x).

Same PM dude with plenty of stock. I relieved him of some 90%.

tyberious · Jan 12, 2013 - 3:05pm

Must hear interview

In this interview Andrew Schectman accuses the Chinese of the being the big short and describes how they do it!

Hagarth · Jan 12, 2013 - 3:13pm

The Pound's Little-Known Crisis of 2015

SDRs are highlighted in this article, thankfully I haven't the time nor the experience to do a comprehensive analysis on how SDRs work, good article on a complex topic.

Paul Tustain – founder and director of Bullion Vault wrote this article:

The Pound's Little-Known Crisis of 2015 - 7 January 2013

It may be only a matter of weeks before the Pound's next great decline begins...

RIGHT AT the top of the banking pyramid you have an institution called the Bank for International Settlements (BIS), writes Paul Tustain – founder and director of Bullion Vault. It acts like a central bank for central banks.

Germany can draw down currency from the Bank of England and deposit it into the BIS. Again, it just writes the cheque drawn on the importer's central bank, and pays it into its BIS account. You could say Germany has placed its 'Foreign Currency Reserve' at the BIS.

The BIS does lots of things I don't understand. But I am starting to understand the Special Drawing Right (SDR). It's a sort of 'compost' currency worth – at the moment – about the same as a Pound. You can mix it up yourself in the garden – as a heap of slowly rotting currencies in the following proportions: US Dollars (0.66) Euros (0.42) Yen (12) and Pounds (0.11). The package gets acquired by exporters when they flip all sorts of other accumulated foreign currency.

BB · Jan 12, 2013 - 3:18pm
grinners TF · Jan 12, 2013 - 3:47pm


thanks for the reply tf, I understand that twist kept short term rates low to keep the wheels from falling off via increased interest payments, but twist wouldn't have provided any extra money to the government like the purchasing of treasuries by the fed. maybe they had reserves stored up from the first two qe's, or there was enough natural bond buying to sustain it for a year... its a mystery to me.

tpbeta · Jan 12, 2013 - 3:47pm


Thanks - look forward to listening. I've been convinced for some months that China and not JPM is the big short, so will be a good listen for my confirmation bias.

HiHo_Silver · Jan 12, 2013 - 3:50pm
tyberious tpbeta · Jan 12, 2013 - 3:52pm


Andy was saying China in respect to gold. I think JPM is red handed in regards to silver not much doubt about that!

Dyna mo hum · Jan 12, 2013 - 3:55pm

This is what its coming to.

Look for more states to follow suit. Hitler would be proud of Pa.

ivars · Jan 12, 2013 - 4:02pm

Saturday thoughts

The intent of the SDR system was to prevent nations from buying pegged gold and selling it at the higher free market price, and give nations a reason to hold dollars by crediting interest, at the same time setting a clear limit to the amount of dollars that could be held. The essential conflict was that the American role as military defender of the capitalist world's economic system was recognized, but not given a specific monetary value. In effect, other nations "purchased" American defense policy by taking a loss in holding dollars. They were only willing to do this as long as they supported U.S. military policy. Because of the Vietnam War and other unpopular actions, the pro-U.S. consensus began to evaporate. The SDR agreement, in effect, monetized the value of this relationship, but did not create a market for it.
This is still true, and if not enough, should be reinforced. That, -military capability to secure Western states, EU, other states and Japan is the key argument for keeping USD as the reserve currency. Trade in USD comes second as that can be imposed from the first.

Since Reigan, the USA has consistently run deficits to build up its most valuable backing for USD as reserve currency- military might. May be as an interesting stimulating factor the fact that this military "good" was built by bringing back deficit USD needed to support world money supply in exchange for Treasury bills issued by USG to finance the military buildup. In essence, the FED increased USD supply which was needed for international monetary system to function , and the USG got this money back ( as if straight from FED, so just by printing) to finance its military buildup. 

So one can say with full assurance that USD as world reserve currency and the currency that provides the base liquidity for the whole world fiat is probably by more than 50% backed by USA military and intelligence strength, weaponry, worldwide presence, readiness quality, ability to respond to wast range of threats etc. - a "good", an asset that still exists and via this linkage has clear monetary VALUE, probably possible to express in USD based on certain reasoning about its readiness to act which the USG has tried hard to prove in the last 23 years IS VERY HIGH, so it is what can be called a "liquid " asset. However, the second aspect that backs USD is USA economy and solvency. That asset has been declining in value.

The usage of the USD in trade comes as a secondary aspect to this first one, and can also be possibly valued in USD.

However, given the nature of the exchange of USD back into USG treasuries , it comes as no surprise that the total value of these USA assets backing its fiat currency should be the same as the debt issued to cover the trade deficit + to build the assets behind USD. The negative difference between the value of these assets and USG debt is the one that could change the perceived trust in the USG treasuries, and thus USD, and thus gold price. Obviously, since 2001, these asset value have deteoriated compared to the USG debt in the eyes of creditors, thus making the negative difference, and thus gold price, higher.

As gold price has followed the USG debt closely, it is obvious that since 2001, the value of these assets that back USD has been constant while debt kept increasing. Taking 2001 as starting point, when gold prices started to rise significantly , one can assume roughly that the value of assets backing USD is currently valuated at the value of USG debt in 2001, or about 6 trillion USD.

Obviously, the military asset value have not grown as fast as military spending ( totally >6,5 trillion since 2001 in DOD budget alone) due to perceived lack of need of the USA protection after dissolution of the Soviet block The economic part of assets has deteriorated since 2001 and have negative value.

That is just a rough idea. That gives one more way to protect the USD as reserve currency as economical asset part is obviously not the one that can be solved.

Increase the value of USA military assets. That requires the increase of the perceived need for them.

The other part that requires attention is reduction of debt and increase of trade in USD and profits of USA companies.

So there are at least 3 strategies which comes as obvious ones to pursue:

One - direct debt reduction e.g default to FED, which, if well planned, should not cause problems. First the debt needs to be built up, though, and used wisely for other strategies to defend the USD status.

Second- instability generation without outright war, and capabilities to keep these instabilities in balance.

Third- looting, like in case with Iraq and Libya in a sense turning their oil trade to USD and awarding contracts to the USA companies.

The third strategy has not proven to be profitable as costs of war has undermined USD more than gains from them. But that may be also just short term return on investment, with longer term view still ok, requiring expansion of thus strategy. Or bad strategy or badly executed.

Just ideas. Would like to read somewhere about it more, in more exact terms.

opticsguy · Jan 12, 2013 - 4:10pm


During the cotton price spike I decided to stock up on underwear because I heard rumors that the quality was going to go to crap. Recently, I bought some Costo (Kirkland) brand underwear out of curiosity because the price hadn't changed much.

The new model was as thin as paper, felt like paper when you wore them, and the elastic was so poor it was like not having any. I wouldn't polish my car with these. Even though they said 100% cotton, they didn't feel or look like it. This is a bummer, because I though at least Costco would put quality over trying to maintain a certain price level (that's Wal-Mart's job).

Urban Roman · Jan 12, 2013 - 4:15pm

The Kitco 3-day chart

Did anyone else notice this on the Kitco silver chart yesterday? 

Kitco silver chart

After the smackdown at 9:30, the line follows all the little squiggles from last Wednesday, only just a little higher. Did Andy and Turd's Army make any hay off this pattern Friday?

So It Goes · Jan 12, 2013 - 4:26pm

Check out Michael Pento on KWN

Here's a little snippet about what's coming from Michael Pento:

"In the not-too-distant future, the U.S. will face a collapse in our bond and currency markets similar to what is happening in Europe. Endless increases in our borrowing limits, and trillions of dollars of printing from the Fed (and now possibly even from the Treasury) will only hasten the demise of our economy. The ultimate lesson yet to be learned on both sides of the Atlantic is that a bond and currency crisis cannot be solved through inflation. This process virtually guarantees that the bull market in precious metals is only just beginning.”

Check out the rest of his frightening scenario of our future. Keep stacking and hope for the best.
Urban Roman · Jan 12, 2013 - 4:28pm

Oh, and my prize

from the LCS last week .. (not actual size): 


Isn't it cute? 


... too bad it fell into Bull Creek while I was walking the dogs this afternoon ...

tyberious · Jan 12, 2013 - 4:47pm

Pento and other analyst

Gold 10k, Silver ? Lord only knows, but 10:1 seems likely :).

Just keep stacking this could take a while.

tpbeta · Jan 12, 2013 - 5:08pm


But Blythe has stated that the JPM short is a hedge for someone else. Not that I give any credence to her word, but I happen to think it is partially true.

This link takes you to the relevant bit and skips the waffle. Of course he's a pumper but what the hell.

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