The Extra "F" Is For "Final"
As anticipated last week, the metals have been severely beaten again this morning. So, is this it? Is gold going to $1400? Is silver going to $22? Or is this your opportunity to BTFFD?
I lean toward the latter. That said, just a few observations on this fine Tuesday morning...
First, the draining of the GLD resumed in earnest yesterday. After sitting tight for seven, consecutive days, the total gold in "inventory" dropped by another 4.11 metric tonnes. For those keeping score at home:
- 132.87 metric tonnes year-to-date or 9.84% removed. That's just short of 4.3MM ounces.
- According to the World Gold Council, 133 mts is slightly less than the entire holdings of Thailand and slightly more than Singapore. Holding 133 mts would put you at #25 on the global list.
- 4.3MM ounces is the equivalent of 43,000 Comex contracts.
- 4.3MM ounces is 10,750 London Good Delivery bars. "That's a lot." Seriously...think about that for a moment. Ten freaking thousand gold bars! Oh my goodness!!
- 4.11 mts yesterday is 132,139 troy ounces or 330 London Good Delivery bars.
So now think about this. What if this isn't just "investor rotation"? What if those 10,750 gold bars haven't simply been returned to Authorized Participant vaults? What if I'm right and the lion's share of those bars are leaving due to liquidation and conversion? If so....from where will the gold materialize to restock the GLD "inventory" when price inevitably reverses?
Now chew on this: The "Cyprus Story" broke on Saturday, March 16. I seem to recall that even the FOAD, Gartman, stated that weekend that he'd be "shocked if gold didn't open above $1625 on Sunday evening". Well, it didn't. In the entire time since, it hasn't seen $1625. In fact, ponder this one:
- On Friday, March 15, gold closed at $1594.70 and had a total open interest of 447,314.
- Two weeks later on Thursday, March 28, gold closed at $1595.70 and total open interest stood at 408,594.
Now wait a minute. Hold on just a second. I thought that "Cyprus" was about failing confidence in fiat currency. Isn't it also about lack of trust in the financial and banking system? ( Hint: IT IS!) So, then, why on earth would open interest in Comex gold be DOWN 10% since the event began?
I'll pause here for a moment while you ponder that...
Before you say "contract expiration", I'll certainly grant you that that had an impact. But 10%?!? Seriously?!? If ever there was a time when open interest should be expanding, it's now. Yet, it declines. So, again, what does this mean? Why is it happening?
Simply put, this is just more evidence of the growing disconnect between paper and physical. Gradually, The Comex is losing credibility and relevance. That global physical demand is soaring while Comex paper demand is declining is a clear signal of just how FUBAR the entire, current system of price discovery has become.
Now, this alone does not mean that metals trading on the Comex will cease to exist tomorrow. It won't cease next week, either. But in this post-MFG world where physical possession is paramount, the current system is slowly fading away. Ernest Hemingway once wrote (and I paraphrase): "How do you go bankrupt? Slowly and then all at once." This same reasoning applies here. How did The Comex...and by extension the BBs and the BIS...lose relevancy and control? Slowly and then all at once.
Lastly...getting back to the title of this thread. I firmly believe that this is the final dip. I've urged you to buy all the way down since October and I'm not stopping now, confident that every purchase I've made over the past 6 months will soon be deep in the black.
We are now back down to the bottom of the current, 18-month price ranges. I wrote yesterday about the extreme condition of the CoT report and the last crop of "greater fools" about to parade into the short side. As those specs sell into this market today, whom do you think is taking the other side of those trades, remembering that for every seller there must be a buyer? This week's CoT survey is today so we are likely going to see the single-most bullish CoT in memory when it is released on Friday. By then, price will have likely rebounded considerably, leaving many to complain once again about the lag/delay in publishing the info. Whatever. It doesn't matter anyway when we already know how the report will look.
Expect silver to show near record (if not outright record) low levels of Spec net long and Cartel net short ratios. These are, of course, not date-specific bottom indicators. However, when we look back at these price levels 8-12 weeks from now, it will be obvious to all that the next move was going to be sharply higher, not sharply lower.
OK, as I type, I see that another wave of selling has hit the pits. Gold is at $1580 and silver is at $27.41. Good. Take a look at this gold chart. Note that on every occasion since Feb 20, when gold dropped below $1575, it was aggressively bought back up. No reason to think that this won't happen again.
And let's take a more long-term look at silver. On these weekly charts, you can plainly see that we are:
- Once again at the bottom of the range
- In our third ultwa-scahwey "declining triangle"
- Expecting strong buying interest again at $27-27.50
Finally and fwiw, earlier today I "put my money where my keyboard is". I had a pretty good night at an actual casino a few weeks ago so I thought I'd roll some profits into the Comex casino. I am now the proud owner of three July silver $35 calls. (Astute Turdites will note both the strike price AND the contract month.) I'm also hoping to pick up some AGQ again very soon. I'll keep you posted if and when I do. I'm looking to move when silver approaches $27 and obviously we're getting close.
Have a great day and keep smiling. I know this is painful and doubt is a much easier human state than confidence. Do your best to keep you chin up, though. We are on the right side.
3:30 pm EDT UPDATE:
Just a few points of order as the day closes:
- Always keep in mind that CME-reported OI figures are 24 hours delayed. That stated, note that total gold OI fell again yesterday, this time by 1,400 contracts to just 407,112. Again, this is lowest level since 8/22/12. Also, do you suppose the number reported tomorrow (for today) will show a further drop or an increase?
- In contrast, silver OI ROSE again yesterday, by 1,200 contracts to 155,109. This is the highest level since the multi-year high of 157,030 seen on 2/22/13. I have no doubt that all of the Greatest Fool spec shorts that were added today will bring today's OI back up to the 157,000 level tomorrow.
- Because the U.S. mint fails to report sales figures daily, two things have happened. First, March has magically come in with a lower ASE sales total than February. January was 7,498,000. February was 3,368,500 and March was 3,356,500. However, because late March sales were posted to April, total April sales (after just one day) are shown as 812,000. WOW! And I wonder how many they'll sell today and tomorrow? Again, just another sign of paper market FUBAR.
- Both metals fell almost exactly to where I thought they would today. Though there may still be some weakness, I expect any dip toward $27 in silver and $1565 in gold to be aggressively bought and a quick rebound will follow. We may bang around this area for a couple of days but I'm confident that these levels will hold.
- This week's CoT will be spectacularly bullish, particularly for silver. We'll see a silver LargeSpec net long ratio that could come in as low as 1.2:1. This would put the Silver Cartel net short ratio near 1.30-1.35:1. Both levels extremely and extraordinarily bullish.
- And I just got today's GLD update...DOWN another 8.13 mts or 261,385 troy ounces, the equivalent of 653 more London bars removed. This brings the total "inventory" decline YTD to 10.44%.
More later if necessary but likely not until tomorrow. I'll continue adding comments into this thread, though.