Saturday Stuff

Sat, Feb 23, 2013 - 12:28pm

Just a quick wrap up of some assorted stuff as we prepare for what will be an eventful week ahead.

First of all, the big news from late yesterday...Moody's downgraded Her Majesty's debt. Though this is once again a fundamentally gold-positive event, I wouldn't expect an immediate jump in price because of it. Remember that in the fiat world, Pound weakness inversely means Pig strength.

In the absence of a podcast here at TFMR, please take the time to listen through all three segments of Andy's visit with Eric King yesterday (once they're finally posted). When we spoke yesterday, Andy told me not to expect anything too earth-shattering but I'm confident that it's worth your time, nonetheless. He and I plan hope to record something either Monday or Tuesday so look for that early next week. In the meantime, here are the KWN links:

If you haven't already, you're going to be reading a lot this weekend about yesterday's Commitment of Traders report. As you know, I like to review it right when it comes out and then post a sort of "instant analysis". Here's a c&p of my thoughts from yesterday, in case you missed them:

GOLD: For the week, price fell about $45. While this was taking place, the LargeSpecs added 1900 longs and a jaw-dropping 25,000 shorts! The LS net long ratio falls to an very bullish 2.12:1. The SmallSpecs got in on the act, too. They dumped 400 longs and added nearly 5,000 new shorts. This is an extremely bullish, contrary signal.
But the real action was by The Cartel. They added 4,300 new longs and covered an incredible 24,200 shorts. Again, who was buying while the specs were busy shorting? And who do you think will, ultimately, profit??
The Cartel net short ratio now stands at an extremely bullish 1.83:1.

SILVER: Almost identical to gold. Simply astounding, amazing and incredible.
For the reporting week, the price of silver fell about $1.60. Look what was happening internally:
The LargeSpecs dumped 1,150 longs and added 4,450 shorts. After reaching an unheard of extreme of 6.5:1 just two week ago, the LSpec net long ratio is all the way back to a mildly bullish 3.1:1
The SmallSpecs added 500 longs and 3700 shorts. Again, as in gold, the specs are racing to get short.
The "commercials"...pretty much all big firms except JPM and their con-conspirators...added another 2,026 longs, bringing their total gross long position to a never-before-seen 54,208. Simply incredible! They've continued to add longs all the way down. What do they know? What are they expecting??
The Silver Cartel...namely JPM and their two or three pals...were finally able to cover 6,800 of their disgustingly large short position. It's still disturbingly high at 92,164 but the total commercial net short ratio, which last peaked in September of last year at 2.6:1 has now declined to a quite bullish 1.7:1 Nearly every drop in The Cartel net short ratio to near 1.5:1 has preceded a substantial rally. We are very close!
All in all, both CoTs are extraordinarily bullish and indicative of a bottom very soon. Hang in there, now. Your patience will soon be rewarded!

Now, let me just add a couple of things:

  1. Getting the Gold Cartel net short ratio all the way down to 1.83:1 is a very good sign. For perspective, at the lows of late December 2011 and summer 2012, the Cartel net short ratios were 1.98:1 and 2.01:1, respectively. And this week's data was surveyed on Tuesday, before the big drop on Wednesday. All in all, the gold CoT is very bullish.
  2. Please also consider the net short ratio of The Silver Cartel. After the last four price washouts, here are your net short ratios at the bottom: On 8/14/12 it was 1.49:1. On 12/27/11 it was 1.34:1. On 10/4/11 it was 1.48:1 and on 6/28/11 it was 1.79:1. As of last Tuesday, it had fallen 1.7:1.
  3. And, finally, this theory....note the emphasis on theory. Regular readers know how perplexed I am by the silver OI situation. The primary outlier is the Commercial Long position. It "should be" somewhere near 30,000-35,000 contracts by this point in the price cycle. Instead, it grew again last week to 54,208. Chew on this: What if the 20,000 contract difference is, in fact, JPM trying to square away their naked short position that Uncle Ted estimates to be around 30,000. Now, stick with me on this... They tried to lessen it by covering back in April 2011 and the result was a near-cataclysmic event for them that was only rectified by the Sunday Night Massacre and the collusive CME margin hikes. Since then, they've maintained their position as The Big Short but, beginning late last summer, they began to build an equally-large long position. Again, stay with me here... They've added shorts through the fall to keep a lid on prices until they're ready to let it go, either voluntarily or involuntarily. If this is the case...and that's a very big IF...JPM could be approaching the point where they would be short 25,000-30,000 contracts AND long 25,000-30,000 contracts. At that point, if forced to exit the shorts, they'd be fully hedged and even profiting on the UPside.

Anyway, just chew on the 3rd point over the weekend. The more I think about it, the more it explains the "commercial long anomaly" and it provides JPM an exit strategy should the toothless CFTC ever choose to call them out.

Here are your updated charts. Given the CoT structure, I feel very comfortable declaring that a bottom is near. (And obviously hope that, by doing so, my Google ad revenue will increase.)

And just a couple of other items that have found their way into my inbox. First, this interview from last fall that details the whys and hows of gold manipulation:

Gold Market Manipulation Explained

This fun article discusses the effects of the gold repatriation movement:

If you haven't read up on this subject yet, I strongly urge you to do so. Just like the German gold repatriation, we may look back on these events and recall them as clear warning signs of imminent events:

And our friends at Gold Bullion International do some excellent analytical work. Their latest was posted to ZH and you should definitely take the time to read it:

Speaking of GBI, for now they are still the only bullion and storage affiliation that this site has. Many of you have purchased from them and I am very grateful for their support. If you are buying coins and bullion, please be sure to check them out. You can link to them trough the ad on the right side of the page. I'll soon be adding affiliations with GoldMoney, SilverDoctors, Provident and JMBullion, too, so please be sure to always consider them when looking the BTFD. (Which I would strongly encourage you to consider doing this weekend.)

OK, I think I'll stop there. I hope that you have a safe and relaxing weekend. You certainly deserve some serenity after the madness of the past two weeks. But keep the faith as this, too, shall pass. The metals have simply been forced back to the bottom of their 18-month price ranges and will soon begin to rebound as physical demand and the glaringly obvious fundamentals begin to take over.


p.s. You've got to check this out. The trollololo song is going mainstream!! I sure hope that the dead Russian guy's estate is getting a little skin out of it...(Thanks to my pal, DocD, for passing it along!)

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About the Author

turd [at] tfmetalsreport [dot] com ()


Lamenting Laverne
Feb 23, 2013 - 5:43pm

@ joehappen - Wedding gifts

Maybe you could say that you really wished for a wedding Indian Style (only maybe a wee bit more modest - since the Indians apparently goes completely bonkers in Gold at their weddings) to start your marriage on a sound savings foundation. I think many people would nod in favor of such an idea, particularly during these times.

I have been to two different weddings in very different countries, where the bride was completely showered in small fiat notes, because it was tradition to send the couple off with a little something on the bottom of the savings chest.

Maybe you could call it a Silver Indian Wedding, and put some easily accessible bullion coins on the wish list with info on where they can be bought - just like you would do if it was a vase or a piece of artisan work etc.

I don't know - just an idea... And congratulations to you too ;-)

Feb 23, 2013 - 5:55pm

@ joe happen

Register with silversmiths, ie silverware , cutlery, cream dispensers etc.

Just a thought.

Some of our lady turdites might have more experience, with wedding planning ideas.

Feb 23, 2013 - 6:05pm

The technical narrative and the manipulation narrative

We all know the technical narrative suggests short covering will eventually come, but consider this. It seems likely that someone expended a lot of treasure during Xmas and then again during Chinese New Year rewriting the algorithm expectations in relation to PMs, so that those heuristic morons would learn to sell even as QE ramped up. The prime objective was not to cause a short term waterfall, IMHO, so much as to create the narrative that the bull market is over. Hence the repetitive waterfalls at the same time every day. It was Pavlovian tactics at their most crude. That point needs to be fully taken on board.

The cartel want you trained to thing that the bull markets in precious metals is over. The link between money printing and inflation does not exist. The dollar remains strong. Put your money into equities. The good times are back.

I say all this because it doesn't seem likely that this is a narrative they're going to let go easily. It's just too valuable in macro terms - far more so that the value of the PM markets in question. They need gold at $1400 and silver at $24 to make it credible. So the desire exists. Do the means exist? Well maybe they do in the short term. Dropped margins and lowering lease rates all help. Japan printing and maybe buying US bonds is fantastically helpful in strengthening the dollar.

Where the wheels fall off for me though is the strong dollar. It will kill any prospect of US growth. They have to bring it down, at which point inflation creeps in, or maybe rushes in. This narrative is self limiting. But it might nevertheless be good enough for the next three to six months. Enough to put PMs right back in their box.

Remember that the hedge funds are still net long PMs, even though they are now driving this downturn. They aren't really buying the narrative 50% yet and yet their selling has taken us to here. There's therefore quite a bit of downside left to mine, if the powers that be can make the narrative sale last for a bit longer. And if JPM has also been building up a secret long warchest as the CoT might suggest, then their capacity to go short is even greater, should they chose to.

If this sounds horribly bearish, then be consoled that my analysis is nearly always unnecessarily complicated, evidentially challenged and basically wrong. You can usually call a bottom on it. That's of some comfort anyway. 8-)

Feb 23, 2013 - 6:20pm

Open interest anomaly

IMO Turd is likely right in his theory (and I don't always agree with him).

In the words of Charlie Munger ' If you want to know how a group of people will act, simply look at their incentive for doing so!'.

Sun Tzu, know your enemy = JPM et all are not thicko traders! Add to this the London Whale muck up made recently, combined with Blythes statement on TV that they were not naked shorting PM's on their own behalf = If they're caught out this time they'd have no chance of defending themselves and the fallout would in all likelihood result in a 'Margin Call' like scenario crashing the whole ponzi scheme!

Far better for them to transfer their naked paper liability to the Large and Small Specs over time (ie pension funds etc), and let the specs act as the fall guys, probably in collusion with them IMO (ie a simple stealth tax pay back on the populous for all the free QE $ pumping up the markets). Throw in a dollop of Mope such as Moody's downgrades (conveniently overlooking the fact that a little Canadian rating agency is now barred from even rating the USA for the next few years as a result of questioning US debt), and you've got the perfect get out for the 1%. Net result is PM's can rocket in price with mope justification, Govts get their currency devaluation without damaging the credence of the likes of JPM, joe public loses out through their paper savings/pension fund losses (particularly as most joe's have already cashed in their jewellery to 'we buy gold'). PLUS This would conveniently justify the annual taxing of PM jewellery / bullion / coins AS THIS WEEK PROPOSED BY UK POLITICIANS (check out Gordon Browns 12 year pre plan regarding trust taxation if you think they don't know how to forward legislate to catch future revenues).

George Soros ' There are only two kinds of ideas, those that have been falsified, and those that have yet to be falsified!'. So why would he have recently dumped a large portion of his gold? =

1)Price due to drop (which it has, so has he bought it back?) If you do a bit of research you'll quickly realise that Soros / Paulson buy / sell news is wholly misleading, as per Georges stated philosophy, so perhaps,

2) He was holding paper gold shares and he's converted to physical, which would tie in with all of the above, or

3) He's misleading the populous to build up a larger position at the lowest price as per his stated philosophy, or

3) He's being philanthropic and wants to help all the other fund managers! Yeah that's likely, check out how much money he made betting against the £ in the 1990's

Pity I had to sell my last bit of physical to feed my family, so I'm only following it all now for fun. I may well be wrong, and am always open to be proved so, but facts speak louder than mope, so IMO hang on in there guys.

Feb 23, 2013 - 6:28pm


"JPM et all are not thicko traders! Add to this the London Whale muck up made recently, combined with Blythes statement on TV that they were not naked shorting PM's on their own behalf = If they're caught out this time they'd have no chance of defending themselves and the fallout would in all likelihood result in a 'Margin Call' like scenario crashing the whole ponzi scheme"

Problem is these CoT shifts are recent. Blythe said that stuff months ago and the CTFC investigation has been running for years. Presumably even the CTFC investigators would notice that these compensatory longs are only a month old. Has to be more to it than that. Might it be that JPM were previously holding longs on behalf of other hedge funds, who gave the sell order. I don't really understand how this stuff works tbh. I guess only Blythe does. I strongly suspect it has something to do with arbitraging the different delays in price sensitivity to do with buying and selling of ETF PMs, futures PMs, and physical PMs, as described here...

Ilya Repin
Feb 23, 2013 - 6:30pm

TF sorry but Pound weakness

TF sorry but Pound weakness does not mean USD strength, it means the opposite.

have you even looked at the GBP corss' ??

CHF NZD AUD SEK NOK CNY SGD all are pretty much identical to USD cross'

GBP will bring down the USD. Very basic concept based on historical relationship between Sterling and the USD. Just look at the charts people.

never heard of the "special relationship" geeeez

I think gold opens up and trades up this week. Miners too.

2 more down days (at any point) for a confirmed numeric bottom and two more down months untill cylce low is complete. it doesnt have to be a new low.

The next major move should climax around Feb/March 2014

If im wrong then im wrong.

Feb 23, 2013 - 6:43pm

I guess we'll group this post

I guess we'll group this post with the 7 out of 10 you disagree with?

cliff 567robov
Feb 23, 2013 - 6:56pm

good job robov

Clear concise and accurate is my view robov.

Atta-boy says cliff

Feb 23, 2013 - 7:00pm

Go For the Jugler

Lee Adler who always does that, does it again with his latest offering.

The Fed between a rock and a rock? This is MUST check out. Adler rides again!

Feb 23, 2013 - 7:04pm

@Ilya Repin

The US dollar index has a GBP £ component of 11.9%. If the £ goes down , the $ index goes up. Winston Churchill doesn't really enter into it.

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