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 4, 2013 - 2:39pm

more to this point

"Gold can not be overvalued or undervalued."

I assume we at least agree that today the gold markets are manipulated to supress gold's true value?

So we both think that the price at present is wrong, and that it will go up to reflect gold's true value once the manipulations collapse, which we both think they will (I think at least we agree here).

So. Err. Yeah. Which is it, can gold be underValued or not?

tmosleyMotley Fool
Mar 4, 2013 - 2:03pm

In what way does Freegold

In what way does Freegold rely on the internet? It doesn't. Stay on task. Nothing to do with Freegold couldn't have been implemented two thousand years ago.

You are making a huge assumption that people would save 90% of their money in fiat. Further, I thought the point of Freegold was that people saved in gold. Is this not the case? It seems to me that you are warping Freegold into something else in order to sidestep my criticism. If the people don't save in gold under Freegold, then there is no difference between it and the current system, and there is no point talking about it--it won't save the world because it hasn't.

Further, fiat is in no way inherently more convenient than a gold standard. One can write checks against gold in a bank. If one can write checks, then one can certainly use a debit card. There is no difference in this regard. We just have a highly regulated anti-gold banking system.

Gold can not be overvalued or undervalued. It is the denominator. Fiat currencies can be misvalued, as can goods and services. But there is one constant, and that is gold. This is because of convenience. It is difficult to produce enough gold to significantly effect the market, and there is such a large stock of it that it is hard for prices to rise (ie for the price of goods, services, and fiat) to fall.

Central banks can do nothing to staunch the demand for gold if gold is used for savings. There is simply too much economic output, and the central banks own too little gold compared to what exists in private hands. The private market will swallow anything they can throw at it. This is why price controls NEVER WORK. The banks can try for a while, until they run out, and they have find themselves penniless, and then they collapse. This has happened numerous times throughout all of history.

Trust won't save your system, because no-one trusts the US. They are creeping for the exits as is. China would buy every ounce of gold the US threw at the market, nevermind the Chinese and Indians (people, not the government).

People tend to be arrogant in their thinking regarding the past. Thing is, every financial trick that exists today could have been and WAS worked out numerous times throughout history. The differences we see are superficial. If it has happened, then it can and will happen here. The best we can do is delay it by knowing about it, and making the comparisons to history.

Motley Fool
Mar 4, 2013 - 1:31pm

@tmosely

"There is nothing new under the sun."

This is one of the great Untruths. I wont get in to it but simply disprove by example : the Internet.

'You can lend out money and hope to get more of that same type of money back later, but you won't be willing to do that when the velocity of the transactional currency is running wild."

Agreed , so one would need to estimate the velocity of money under this scenario and look at factors impacting it.

Would you agree that as an aggregate very little of income derived by society goes towards savings? In fact, under the current messed up system, as an aggregate the total savings rate is negative globally.

I know you don't have too, and I know you won't like it but can I create a premise just so the rest of the conversation is easier. Can we assume that under freegold the savings rate will be better than present, but even so not very high, perhaps 10% of society's income?

Working with that, on a continuing basis people would 'save' an aggregate of 90% of their savings in fiat in aggregate. Yes, it would not be on a continual basis for every individual, but taking society as a whole, can you see that if most of our income goes towards expenses, no matter what type of entity you are, and given that fiat is the most efficient way to incur said expenses, that society as a whole would save most of their value in fiat most of the time?

That already would be a factor impacting the velocity of currency.

Furthermore the velocity can be managed by central banks ( just put aside your distaste for both central banks and their meddling - which I share fwiw - for a moment) by use of gold. Anything can be overvalued or undervalued, even gold. If gold is overvalued central banks could sell or buy it and influence velocity, and similarly for if it were undervalued. In essence they could create artificial interest rates for gold by managing people's affinity for either gold or fiat.

There are more factors impacting velocity, such as trust, etc, but the above mentioned is the main tools that could be used in that environment to manage velocity so as to manage the rate of decay of the value of fiat, and all of them impact on the matter of trust.

tmosleyMotley Fool
Mar 4, 2013 - 1:16pm

Yes, you are, though the

Yes, you are, though the discussion is a good one, so I will also waste mine.

Debt is only a temporary sink for money. You can lend out money and hope to get more of that same type of money back later, but you won't be willing to do that when the velocity of the transactional currency is running wild. The only way to slow the velocity of a currency is for people to save in it, or for interest rates to be reliably higher than inflation. Freegold prevents both from happening, as savings goes into gold, and interest rates can't keep up with inflation.

It collapses just like all paper currencies. There is no getting around it. If there were, we would already have it, because central bankers LOVE being able to have their cake and eat it too. If there was a way to do that permanently, then they would have tried it.

There is nothing new under the sun. At least not when it comes to paper schemes.

Motley Fool
Mar 4, 2013 - 12:53pm

@dryo

double

I will give you my paypal address if you are serious. I figure I can get another cheap mouse that will last me a few years for hmm 6 or 7 dollars...lol. Living in a third world country is tough, a mouse that clicks a few too many times is not on my priority list.

Motley Fool
Mar 4, 2013 - 12:50pm

@tmosely

Not that I haven't discussed this to death, but what percentage of your income is used for transaction, and what percentage for savings. What about society as a whole? How about businesses? How about governments?

A transactional currency derives it's value from two components, one usage of said currency and two debts owed to be repaid in said currency.

Contemplate again, if you will, if a dynamic equilibrium is possible.

There are always losses inherent in conversion from one medium to another. Most of society wants to hold mostly currency most of the time....because that is what they use to buy bread, etc, and two conversions to meet the same ends (bread) is a losing endeavour. Because it has no inherant value fiat serves well as transactional currency. That is not to say that value is not derived from what it can and will be able to buy.

Lol...probably wasting my breath...again. :)

Mar 4, 2013 - 11:47am

new thread

and I could use a double, or maybe even a triple, and it's not even noon. Better go with a double double.

edit: no, the fool has a broken mouse, and he won't fix it.

opticsguy
Mar 4, 2013 - 11:18am

Armored vehicles

Note that Obama contributor and Illinois employer Navistar is making those things. Pork and nothing else.

We don't need a foreign enemy to enrich the MIC.

ClinkinKYachmachat
Mar 4, 2013 - 10:58am

@ achmachat----confused

I've never had this problem. Could it be an issue with which browser (Firefox here) people are using? Sincere question.

Stack'em High
Mar 4, 2013 - 10:56am

Name calling and insults...

result from the lack of having an intelligent response.

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