Getting It Wrong

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.

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.


About the Author

turd [at] tfmetalsreport [dot] com ()


I Run Bartertown
Feb 18, 2013 - 9:02am

City spends $585,000 on study of how to save money

"Why did Baltimore need to pay outside consultants half a million dollars for a report that says the city's financial future is grim?

Some city residents wondered ...For a city as financially strapped as Baltimore, couldn't that work have been done in house?

The answer... is no...."We just didn't have the staff or the expertise to do this,",0,5775814.story


They want to know what's wrong with Baltimore and why it can't function? $585,000 to solve the riddle?

I could've told them for free...or just dropped them off in a choice part of 'cHarm City' and let them figure it out for themselves.

Then I could take my public service consultant show on the road to Detroit, Philadelphia, Birmingham, Atlanta, Chicago, etc., etc. , etc.

Feb 18, 2013 - 9:12am

Wow even the HFT.s computers are patriotic.

Kind of taking the day off too?

We had a nice pop the first hour or so last night then fizzled.

I remember the good old days such as today when the buggers were off counting their money the metals would always rise a good amount.

Fear and Greed.

Makers Mark whiskey just came out and said they will not cut the alcohol content now because of so many online were in outrage about it.

So why doesn't Uncle Benny listen to everyone online about his insidious watering down of the US Peso?

Feb 18, 2013 - 9:15am


More charts

A report from the Congressional Research Service released today finds that welfare spending is now the largest federal budget item. Presently, the federal government spends $745.84 billion to support 83 of these welfare programs.

Feb 18, 2013 - 9:17am
Feb 18, 2013 - 9:17am

Platinum miners shot at

Reports coming in of workers being shot by security guards at Anglo American Platinum mine in S Africa.

Feb 18, 2013 - 9:18am

Armstrong on metals

So why is he so vocal on the metals? Very interesting. He talks about supply and demand and leaves out the entire china story. Why is that? Armstrong seems to have a beef? is he right or wrong, only time will tell. But his thesis seems a little week, it's not as strong as you would think. He says it's not being manipulated. Well maybe he's tied to some folks back on the inside again. We don't know. but the vibration from his writing doens't feel right. will see in time

Feb 18, 2013 - 9:29am
Feb 18, 2013 - 9:39am

(No subject)

Rival Union groups clashed and at least 5 workers shot outside an Amplats mine shaft in South Africa; guards open fire as rival union groups clash according to local TV.

The world's largest platinum producer was hit by violent strikes last year, sparked in large part by a turf battle between rivals unions for membership.

Feb 18, 2013 - 9:41am

Anybody else having trouble

Anybody else having trouble with ZH this morning?

Feb 18, 2013 - 9:43am

ZH for Turd

over here in Europe, it loads as quickly as usual.

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