Saturday Gold and Silver

341
Sat, Mar 2, 2013 - 12:47pm

It looks more and more like the next two weeks or so are going to be significant.

So, where do we start on this fine Saturday? How about with something from Friday? I posted these two charts into the comments section of yesterday's post. They show a classic short/theft tactic. Someone, either an HFT or a Cartel monkey, pulled the trigger on a sell order in silver at the very thin trading hour of 4:00 a.m., New York time. Since silver was sitting right on top of the previous week's lows, the effect was predictable. A host of sell-stops were "harvested" as price quickly fell about 50¢. Note then that price quickly recovered as liquidity returned with the opening of the Comex session.

Why did I start there today, you ask?

  1. Because now $28.40 is a very important level to watch early next week in silver, and,
  2. It is becoming increasingly likely that the same trick is going to get played out on a much larger scale in both gold and silver before a final bottom is put in and price permanently reverses.

Let's next visit our three friends...Crude, DrC and Sylvia. Do they have any clues for us? Why, yes, they do as a matter of fact. All three have come down dramatically and all three give the appearance of having a bit further to go. And if "commodities in general" show additional weakness over the next 7-10 days, you can probably imagine that selling pressure compounding our problems in gold and silver.

So let's start with silver. Running the stops yesterday has fortunately provided us with a very clear level to watch at $28.40. If silver slips below there again early next week, it would be a near certainty that we are going to take at least one trip down below $28. There has consistently been a lot of support there so taking it much lower is going to be a task for The Bad Guys.

That said, I'm beginning to sense that the ultimate goal of this entire event is to harvest the stops below $26. IF this happens...and currently I'd put the odds at about 25%...a quick drop to $25ish would be your final bottom. Price would quickly recover back above $26 and this deliberate beatdown would be over. How can I say that? More on that in a few minutes. First, two more charts:

And gold could very easily suffer the same fate. If The Cartel can engender enough additional spec selling, a veritable cornucopia of sell stops lay waiting for them sub-1530. And you can just imagine the reaction in the media: "GOLD IN BEAR MARKET!!" will be screamed as loudly as possible in the hopes of inspiring even more selling. Like silver, I only give this about 1 chance in 4 of happening but we must be on the lookout and prepare mentally. IF this occurs, you must be strong and BUY, not sell. The spike low will be The Bottom.

Now lets get back to why I am so confident that the selling has already been stretched to unsustainable levels and why, IF a spike low occurs, the metals would quickly recover. It's all in the CoT.

Yes I know that Santa claimed this week that the CoT is fudged and unreliable and yes I know that Santa has forgotten more about the metals markets that I know.....but....Unlce Ted believes in this stuff and so do I. Here's what Ted said in his mid-week newsletter:

"One of the reasons I think the data in the COT are accurate is that every contract has a long and short side. Therefore, to lie in the large trader reporting system that underlies the compilation of the COT, would require two lies; one by the big commercial lying and another by the counterparty holding the opposite side of the contract. I can see JPMorgan wanting to lie on its COMEX holdings, but I can’t see why a counterparty tech fund or speculator would assist in that lie. Please remember that lying on a large trader report is illegal and will be prosecuted by the CFTC (one of the few things they do well)."

With this in mind, here's a c&p of my CoT comments from yesterday:

For the Wed-Tue reporting week, gold was up $10 but total OI fell by 13,432. Silver fell by 17¢ and OI fell by 9,728.
The only interesting thing in the gold CoT was the divergence between LargeSpecs and SmallSpecs. The LargeSpecs went net long 13,000 contracts while the small specs went net short 7,400. This, my friends, is called leading the HFTs by their collective noses. On the bounce, the LargeSpecs covered shorts and went long to the tune of 13,000 contracts. Once fleeced, the "market" rolled back over and now all of those new longs (at 1600+) are under water.
Once again, the real interesting stuff is in silver. Both the Large and Small specs were adding to their shorts. The Large Specs sold a net 4,700 contracts and the Smalls sold a net 2,300. The commercials also sold 1,700 longs, dropping their gross long position back to a still-whopping 52,509. All of this selling allowed the naked short Cartel members to cover a massive 8,769 shorts or about 9% of their total gross short position! Now at 83,395, The Silver Cartel has been able to trim their short position by over 15,500 contracts, from 98,979 just two weeks ago. That's a drop of 16% in two weeks while price fell $2 from $31 to $29. I'm sure that's just good timing and good fortune...at least that's what Cueball and Thunderlips think.

On the bright side...

  • The total "commercial" long position in silver is actually up over the past two weeks while JPM et al have been covering. On 2/12/13, the gross comm long position was 52,182. As stated above, as of 2/26, it was still 52,509.
  • The Large Specs are racing to get short. On 2/5/13, the Large Specs were only short a record low 6,588 contracts. Three short weeks later, they're short a total 16,016, an increase of 143%!
  • The Large Specs are also feverishly dumping longs. Three weeks ago they were gross long 42,449. As f last Tuesday, that position had been whittled down to 37,753. That's a drop of 11%.
  • And the Large Spec net long ratio, which just 3 weeks ago was totally out of whack at 6.44:1, has fallen all the way back to 2.38:1. Remember, as a general rule, anything under 3 is somewhat bullish and anything over 4 is somewhat bearish. Anything under 2:1 is extremely bullish. For examples, see here: https://www.tfmetalsreport.com/blog/4492/strange-days-indeed
  • Also, all that Cartel short covering has further dropped the Cartel net short ratio. Last week it was 1.70:1 and this week it is 1.59:1. Again, historically, anything approaching 3:1 is very bad. Anything near 1.5:1 is very good.

I don't know if I can pound the table much harder. Could price be forced even lower, taking out $28 and heading toward $26? Yes, of course it can. But, if it does, the silver market will reach and surpass the exact same extremes that indicated bottoms in October of 2011, December of 2011 and August of 2012.

Again, please go back and looks at the "Strange Days Indeed" post from three weeks ago. ( https://www.tfmetalsreport.com/blog/4492/strange-days-indeed) The data is compelling and telling. Both metals, when measured by The Cartel net short ratio, have reached very bullish levels and stop-running spike lows would make them more extremely bullish than any other time that I can recall. Simply put, with CoT history as a guide, there is NO WAY that gold is going to $1200 and silver to $18 or even $22. Not from this CoT structure!

Moving on...Speaking of the CoT, one of your fellow Turdites has constructed a site to help everyone read and interpret the data. It can be found here: https://goldsilvercot.com/charts/cot/index.php

As you know, Santa's company TRX is an advertiser on this site. Someday soon, the miners will turn and I have great faith in Santa and his company for the long term. Last week, they held their annual shareholder meeting and the entire thing was recorded and posted. Here's a link. I think you'll enjoy watching it: https://standrewsclubav.ca/webcast/client_tanzanian/20130228/

And you've probably noticed that we've had to add a captcha to the registration and login process here. Sorry but it was necessary. If you've never run a site before, you simply wouldn't believe the amount and intensity of the spamming effort out there. They really slow site performance so it is hoped that the captcha will help us all in enjoying and learning from the site.

OK, that's it for now. Enjoy your weekend but please be aware of continued volatility next week and do not allow yourself to get all freaked out by the temporary price action. Keep your wits about you and remember the fundamentals. Stay strong and keep the faith. Continue to prepare accordingly.

TF

p.s. Adding these ZH links which were posted Saturday afternoon. Don't want you to miss this: https://www.zerohedge.com/news/2013-03-02/hedging-funds-and-physical-vs-paper-gold. AND YOU MUST READ THIS: https://www.zerohedge.com/news/2013-03-02/why-jpmorgans-gold-vault-largest-world-located-next-new-york-fed

About the Author

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  341 Comments

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Motley Fool
Mar 5, 2013 - 2:00pm

hmm

Sure, I get that. Ive been there too. Hmm.

The thing is, I was taught that in only focussing on what I want to be true, instead of reality, I was missing the point.

No, it is not functioning very well. No, I do not condone inflation theft. I probably hate this current system just as much as you and am sick to death of it. However...in the real world one must take reality into thought and be practical.

Practically it will take a long time to reshape society to want to be productive and not a bunch on bloodsucking leaches ( more than 50% at present), freegold is the shortest and only practical way I can see that we can progress towards the leaches can be reduced and kept to a minimum. I don't think that mentaility could ever be killed in all, sadly. The nice part about freegold is it has happening anyways, whether we advocate for it or not.

Fwiw I don't think all fiat currencies will crash and burn, due to gold. This also is the reason why a equilibrium will be reached.

Ps. take note I edited my previous.

Motley Fool
Mar 5, 2013 - 1:51pm

double

reply on next page.

Ps. You were never nice to me Xty. You could reference your first comment directed at me here if you like....and it went downhill from there. Haha

Also. Challenging 'beliefs' Always brings emotional response. Consider any discussion between an atheist and a religious fundamentalist. To expect that Some here are more driven by belief than logic is not a leap, nor is stating the likely consequences from those painting everyone with that brush.

I didn't assume anything. My current position was hard won in fighting what I would have liked to believe with what is.

I have always been an arrogant bastard. I won't deny this. (though I wonder at times if it is arrogance or certitude but serah) I try and tone it down, though you might not believe that, haha. If you like I can link you both a display of my hubris and my steadfast belief in silver for your amusement.

Mar 5, 2013 - 1:50pm

Nope

let's not assume a functional equilibrium is reached. All fiat currencies crash and burn. We disagree fundamentally partly because you see a top down system as essential - "velocity ... deemed too low ... can be altered" - by playing with the amount of currency and the gold base. This is the system we already have. And it is not functioning very well. I believe we need competing banks and currencies and that governments and central banks cannot be trusted.

Motley Fool
Mar 5, 2013 - 1:38pm

Nope

We discussed velocity and the factors impacting it earlier.

The answer is not really, due to the way in which people functionally logically use their incomes.

Let us say at some volume of currency X and some volume of GDP Y the velocity is some multiple Z which is deemed too low. Then by adjusting the currency base, and gold base that velocity can be altered.

Let's assume a functiona equilibrium is reached...at that point is is simply a matter of keeping the currency base in line with the needs thereof and the growth in the economy and the flow of capital goods inclusing of gold, gold of course being the final and ultimate form of such capital goods moving.

The problem is tractable, as evidenced by it being functional today in a much less stable system.

Mar 5, 2013 - 12:22pm

velocity of paper is a problem

It isn't gold that you will need to force people to own, it is fiat that will be like a hot potato.

Motley Fool
Mar 5, 2013 - 6:50am

@tmosley

I will need to wrap up this discussion fairly soon, which I think will make sense when you see the comment I intend to put up later in main discussion. I will continue this discussion publicly, since it may be of some benefit to others.

Right. So.

"Yes, there is a difference between spending and saving income. What does this have to do with what I said?"

I think for the purpose of this discussion it might be of use for me to define saving in a manner you may not be familiar with. I think doing so may assist in resolving differences.

Hmm.

Saving : The act of storing value in a medium for a specfic amount of time with the intent to reclaim said value later in usage.

This definition lends itself well to any type of medium, gold, silver, canned spam, fiat currency, anything really.

Now I know that not all mediums are equal stores of value, and some have value leakage, but let's disregard that aspect to stick to my point.

There is a point to all this preamble of course.

Consider the travels of a single currency note. I buy bread from a baker, he uses it to pay his supplier, who uses it to pay a company that installed a oven for him, that I happen to work for and that pays me a salary. A salary I use to buy bread. At all points in time that note is held by someone, who is for a period, storing value in it.

This is what I meant that in aggregate, value is stored in currency, even when used only for expenditures, if by different entities at differnt times.

Surely you agree that for most of us entities, the bulk of our incomes go towards expenses. Again such storage is not flawless, but it is fairly functional, as evidenced by society today, where despite vastly complex production processes, everyone is able to buy pretty much whatever he likes, whenever he likes.

"For your second reply--fiat is overvalued."

Value does not exist in a vacuum. It is judged by the person who does the valuing and in comparison to other things. If you say fiat is overvalued (relative to gold) I do not disagree, but would note it is a comparison simply of the relative values of the two. As such saying one is undervalued or the other is overvalued is simply a matter of prespective. It means the same thing about the direction the ratio of the two is likely to take, ceteris paribus.

"Does Freegold require savings in gold or doesn't it?" Require...no? But expects it to happen because it will make a hell of a lot of sense, sure. But require...idk that sounds like 'force' to me. Freegold would not force you not to be stupid and save in idk day old bread. You are free to be stupid, and pay the consequences.

"There has been no effect on the price of gold, as gold is priced in terms of itself."

You cannot price gold in itself. Value is a comparison made by active intelligence between two different things. Valuing gold in itself is self-referential and thus meaningless. That would be the same as saying 'a gram is a gram', it tells you nothing about what a gram is, or it's relation to anything else. It is simply a tautology with no meaning or purpose.

"They could do what you suggest now--stop printing money, but they won't, for political reasons."

Quite correct, and this also is why freegold will happen, because they will have no choice, for political reasons.

" Those same reasons would cause them to drain the treasury of gold under both your Freegold and a federally imposed gold standard."

I disagree, but am not going to get into that here. A question though...did they drain their gold reserves in 1971, they certainly threatened to defend the dollar to the last bar, but look at their actions. Yes there is political will at play here, but it may not be what you think.

" I don't think you realize just how long history is."

Another thing I don't really want to get in too. Sure it is hard to imagine the span of history, just like it is the size of the universe, and there have been almost inumerable hare-brained schemes. Yet, I have looked at the use of gold in human affairs since man first discovered it, based on the available information, and the reasons for that success is why I think freegold is so great. It will likely outlast that 1500 year span, barring we don't destroy ourselves in the meantime, and what a glorious meritocracy it will be - smiles wistfully-.Someone will always think up new things. (For a paper based example relating to economics, since you didn't like the internet, how about derivatives...absolute stupidity manifest for 20 or so years, never been seen before. ;) )

Key Economic Events Week of 8/10

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8/14 8:30 ET Retail Sales
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8/14 8:30 ET Cap Ute and Ind Prod
8/14 10:00 ET Business Inventories

Karankawa
Mar 5, 2013 - 3:30am

What happened to XTY's post

I read it and was going to reply, but I've searched the threads and it's gone ...

Karankawa
Mar 5, 2013 - 2:41am

Just an update to what I think is a disussion

https://www.youtube.com/watch?feature=player_embedded&v=BS3H6Cakwpw#

Regardless whether it fit on not. It a sign of change that has been happening for a long time.

The rights of Katie to have her goats are the rights we must all stand up for.

Mar 4, 2013 - 5:51pm

Oui, we

You certainly speak for me when you praise irreverence and talk of fearing 'certainty'.

tmosleyMotley Fool
Mar 4, 2013 - 5:15pm

For your second reply--fiat

For your second reply--fiat is overvalued. As a result, labor is also significantly overvalued. This approaches a tautology, given high unemployment.

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Key Economic Events Week of 8/10

8/10 10:00 ET Job openings
8/11 8:30 ET Producer Price Idx
8/12 8:30 ET Consumer Price Idx
8/13 8:30 ET Initial jobless claims
8/13 8:30 ET Import Price Idx
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Unit Labor Costs
8/14 8:30 ET Cap Ute and Ind Prod
8/14 10:00 ET Business Inventories

Key Economic Events Week of 8/3

8/3 9:45 ET Markit Manu PMI July
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8/5 8:15 ET ADP employment July
8/5 9:45 ET Markit Service PMI
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8/7 10:00 ET Wholesale Inventories

Key Economic Events Week of 7/27

7/27 8:30 ET Durable Goods
7/28 9:00 ET Case-Shiller home prices
7/29 8:30 ET Advance trade in goods
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Key Economic Events Week of 7/20

7/21 8:30 ET Chicago Fed
7/21 2:00 ET Senate vote on Judy Shelton
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Key Economic Events Week of 7/13

7/13 11:30 ET Goon Williams speech
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7/15 8:30 ET Empire State and Import Price Idx
7/15 9:15 ET Cap Ute and Ind Prod
7/16 8:30 ET Retail Sales and Philly Fed
7/16 11:00 ET Goon Williams again
7/17 8:30 ET Housing Starts and Permits

Key Economic Events Week of 7/6

7/6 9:45 ET Markit Service PMI
7/6 10:00 ET ISM Service PMI
7/7 10:00 ET Job openings
7/9 8:30 ET Initial jobless claims
7/9 10:00 ET Wholesale inventories
7/10 8:30 ET PPI for June

Key Economic Events Week of 6/29

6/30 9:00 ET Case-Shiller home prices
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7/1 8:15 ET ADP Employment
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Key Economic Events Week of 6/22

6/22 8:30 ET Chicago Fed
6/22 10:00 ET Existing home sales
6/23 9:45 ET Markit flash PMIs for June
6/23 10:00 ET New home sales
6/25 8:30 ET Q1 GDP final guess
6/25 8:30 ET Durable Goods
6/26 8:30 ET Pers Inc and Spending
6/26 8:30 ET Core inflation

Key Economic Events Week of 6/15

6/16 8:30 ET Retail Sales
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6/16 10:00 ET Chief Goon Powell US Senate
6/16 4:00 pm ET Goon Chlamydia speech
6/17 8:30 ET Housing Starts
6/17 12:00 ET Chief Goon Powell US House
6/18 8:30 ET Initial Jobless Claims
6/18 8:30 ET Philly Fed
6/19 8:30 ET Current Account Deficit
6/19 1:00 pm ET CGP and Mester conference

Key Economic Events Week of 6/8

6/9 10:00 ET Job openings
6/9 10:00 ET Wholesale inventories
6/10 8:30 ET CPI for May
6/10 2:00 ET FOMC Fedlines
6/10 2:30 ET CGP presser
6/11 8:30 ET Initial jobless claims
6/11 8:30 ET PPI for May
6/12 8:30 ET Import price index
6/12 10:00 ET Consumer sentiment

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