Getting It Wrong

336
Sun, Feb 17, 2013 - 4:56pm

Wow, there's certainly a lot of bad metals analysis out there this weekend. I might as well throw my big ol' hat in the ring, too.

Before we get started, a disclaimer for me and everyone else who thinks they can accurately predict the future: It's not possible. What am I, a weatherman? You're asking me to tell you, days in advance, how the precious metals are going to respond to completely unpredictable variables like geopolitics, currency wars and monkey sell programs. That said, I still believe that I have a far better handle on this than most and I'll be happy to point out to you some of the errors that others are making as well as put my neck on the line going forward.

Here are just a few of the things that are bothering me:

  • Lots of folks are worked up because Soros has allegedly sold almost half of his holdings in the GLD, nearly 18 mts. However, year-to-date the GLD has seen a net withdrawal of 27 mts. Any chance old George simply redeemed took delivery? That guy didn't get where he is by being stupid and you can bet your batooty that, if there is an unallocated/rehypothecated/leveraged gold scandal brewing, he'd be first in line to get his hands on his metal.
  • The $100/month subscription guys are telling their suckers clients to dump everything and move into...what, exactly, I have no idea. But apparently a couple of downticks is enough to push these guys over the edge, regardless of the underlying fundos.
  • And I don't understand much of the silver CoT analysis that I've read. Everyone is running off in all sorts of different directions but seeming to miss what is directly in front of their faces.

In gold, the CoT is easy to interpret. All the way down from $1800, the specs have been liquidating and The Gold Cartel has bought into this selling and covered shorts. This is how it has always worked and, not surprisingly, it has worked again. The gold CoT is now, at worst, neutral with several internal components back to the bullish category.

Again, though, it's the silver CoT that is so interesting. If you haven't yet, please read through these posts. Read them very carefully, taking the time to compare the CoT structures from various points in the past two years.

https://www.tfmetalsreport.com/blog/4492/strange-days-indeed

https://www.tfmetalsreport.com/blog/4505/still-struggling-silver-open-in...

Everything I've read focuses on the spec long position, as if it's still somehow out of whack. Look at the number yourself, though. As a percentage of open interest and as a ratio of net longedness, there's nothing to strongly suggest that a major spec washout is coming or required. On 9/11/12, with price near $34 the Large Specs were long 41,371 of a total OI of 121,050 (34.18%). As of last Tuesday with price near $31, they are long 40,205 of 152,817 (26.31%).

The only thing that stands out and the one thing that nobody is discussing is the Commercial Long position. It is extraordinarily high. Easily 60-70% higher than you would expect it to be, based upon history. And because it is so high, the Two Big Bad Guys have been unable to cover shorts in silver as they have in gold. I cannot stress enough how odd this is but don't take my word for it, go back and look for yourself. By this time in the price cycle, the Comm Long position would/should have "normally" contracted to 30,000-35,000. Instead, it's 52,182, UP nearly 6,000 contracts just last week! All of this commercial buying prohibited JPM from covering and, instead of a gross short position in the 70,000 range, The Silver Cartel is buried under 98,979 shorts, also UP last week.

On the surface this is extremely bullish and is most likely indicative of a "civil war" in the silver pit. One thing we must be wary of, though...What if JPM is clandestinely building a massive spread position, like they often do in gold and, just as they manipulate gold, they plan to begin creating air pockets in silver by legging out? Since we have no way of knowing, we must be aware of this possibility. Again, though, much more likely is the idea of "civil war", where JPM is trapped as the only remaining firm providing naked paper. The other commercials are buying it all up and forcing the noose ever tighter. This is akin to what happened to Bruno Iksil, their "London Whale". Once word got out that he had built an untenable position, the smaller "sharks" circled in for the kill. We'll see where we go from here but it certainly looks like this coming Friday's CoT will show a continuation or even exacerbation of this trend. Strange days. indeed....

So here are your charts as we enter a new week. I have done my level best to show you exactly where I think we are and where I think we're going. In gold, note first that the daily RSI has now fallen all of the way to 30. Though some spillover selling is possible early week, far more likely is a snapback rally to alleviate this highly oversold position. I'm still looking/hoping for one quick spike to $1580 or so but, regardless, I think we are just about done with the carnage.

And here is the key chart formation that we are going to be watching going forward, again something that I haven't seen anyone else mention. I've drawn the bottom of the pennant from the 7/1/11 price levels that preceded the huge rally in gold that followed and I've drawn the top of the pennant off of those early September 2011 highs. These are very important charts so print them off and keep them closeby in the days ahead.

In silver, the daily RSI is still above 30 but an early week drop toward major support near $29.20 would certainly take care of that. Not that a drop to $29.20 will happen, but it might. Soon, though, I expect a very sharp, short-covering rebound, UP toward $31 and change. The key pennant here suggests some further consolidation but not much longer. As an aside, it seems that many folks (Your Turd included) are expecting big things from both metals, and particularly silver, in March. These charts certainly seem to confirm that timing. By my count, the week that concludes on Friday, March 22 looks to close the pennant. Maybe you should mark that date on your calendar. (Ides+7)

Lastly, in case you didn't know it, tomorrow is a U.S. holiday so all U.S. markets will be closed. The metals will trade on the Globex, though, so you'll still see prices changing during the day. The real action won't begin again until Monday at 6:00 pm EST, though. Additionally, I'm not going to be around much the next few days so look for some guest posts and open threads. If things get really crazy, I will, of course chime in but, for the most part, I'm going to be out of action. Hang in there, keep the faith and expect more volatility. Savor the discount and btfd. You won't be sorry that you did.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  336 Comments

Jan Roos
Feb 17, 2013 - 4:59pm

First!

Yes Edit: I'll settle for silver

The Green Manalishi
Feb 17, 2013 - 5:06pm

Ok, they say Hollywood movies have a hidden meaning...

What do you make of this...

Oz The Great And Powerful Trailer

Lots of Gold titles and bits and we know what the original story was about - just for fun!

¤
Feb 17, 2013 - 5:14pm

Trez hombre'

Dang...Nana beat me to it

Video unavailable
ferretflat
Feb 17, 2013 - 5:15pm

Holiday

Day off hell, hell I'm doing the coin shops tomorrow!

Nana
Feb 17, 2013 - 5:17pm

Seems We Live In A World Where Wrong Is Right and Right Is Wrong

What else is new at this point...TPTB have control...

------

3rd Amendment: No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.

criscrossing
Feb 17, 2013 - 5:23pm

Top 10

Ha!

That_1_Guy
Feb 17, 2013 - 5:25pm

top 10?

Howd it happen?

Bollocks
Feb 17, 2013 - 5:30pm

Santa agrees - gold not in backwardation

Trader Dan On Backwardation

February 17, 2013, at 12:38 pm by Jim Sinclair

Dear CIGAs,

Many people writing in the gold sector now are drawn into articles written for the effect of sensationalism without the background knowledge or experience in the field to know the subject of their discussion. They usually deliver their writings as fact or from a perfect source.

Backwardation in the gold market and its supposed implications is one such situation.

In the flowing Trader Dan makes this point clear.

Respectfully, Jim

------------

Dear CIGAs,

The futures market is not in backwardation. The structure for gold futures contract is normal.

Plus – when calculating the basis, one has to take a “freeze frame” shot in time because as the front month goes into delivery and open interest falls off, so too does liquidity. This means that oftentimes very few trades are occurring at the Comex. One can see the bids and offers but no trades are occurring.

So when guys talk about the price that the February gold contract is trading, they are taking a price that is already dated because so few trades are actually occurring in that delivery month as the contract winds down.

What you can sometimes try to do, is to take the difference between the bid and the ask and average it and then get an instant quote on the spot price to gold and compare the two.

Most of these guys pushing the gold backwardation story fail to take into account the actual structure of the futures market contracts. Gold is not in backwardation.

Trader Dan

--------------

https://www.jsmineset.com/2013/02/17/trader-dan-on-backwardation/

https://traderdannorcini.blogspot.co.uk/

foggyroad
Feb 17, 2013 - 5:39pm

Excellent Dot connecting TF.

Two points, the spreading aspect requires a good long look.

Second is a personal opinion, but what if the Big Bad ole Fed has lost some of its clout over these primary dealers.

I know they do what their told by the fed, but what would happed if the Fed needed them more than they needed the Fed.

Would they then be able to position their trading desks more in their own favor, demurring at the feds bidding.

Hmm, Greed abounds, sharks the lot of them.

Edit I am assuming the' commercial category' contains some Primary dealer Banks.

'The most recent report was for bank positioning as of August 3. We at Got Gold Report are focused on the positioning in gold and silver futures by the largest U.S. banks – some of the same bullion banks that make up the lion’s share of the COMEX commercial traders in the regular commitments of traders reports (COT) – which are reported weekly on Fridays. "

credit to gotgoldreort
Bollocks
Feb 17, 2013 - 5:41pm

You know I love Trader Dan

You know I love Trader Dan but Sandeep Jaitly would vehemently disagree and he is the expert.

For the record, Sandeep measures spot vs front month, not front month versus next month. By doing so, there is significant backwardation. Consult his Gold Basis Service for more details.

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