The Audacity of MOPE

Thu, May 16, 2013 - 11:49am

With the metals down again today, I thought it was time to spread some information, not misinformation or disinformation.

The common MOPE regarding the rising U.S. stock market and potential Fed "tapering" is that finally, after four years of fits and starts, the U.S. economy is recovering and growing based on the improving economic statistics and burgeoning housing recovery. So is that really the case?

Yesterday, we discussed the fallacies of the latest BLSBS data and, as any regular reader of ZeroHedge knows, over the past 90 days almost every key metric of economic activity has "disappointed". Just today we had:

And, again, that's just today. The meme is that everything is finally getting better. Really? Really?? Hmmm. Let's go back to that housing starts thingy. As discussed yesterday, there's a certain LAW called The Law of Supply and Demand. For those who failed Econ 101, think of it in terms of a chart with a vertical axis and a horizontal axis. In it's most basic form, it looks like this:

What this is showing you is that price exists at the intersection of supply and demand. If you increase the supply or decrease the demand of an item, the price equilibrium is reset lower and price falls. Conversely, decreasing supply or increasing demand has the impact of raising prices. (See, it's not complicated. Maybe if you had spent more time studying and less time at the bar, you might have had a higher GPA!)

So, what does this mean for our supposedly robust housing recovery? While admitting that this is not the be-all-end-all, these four charts should be enough to give you pause and prompt you to consider whether the mainstream media is giving you the facts or just a heaping pile of MOPE.

If you're going to build a house, an apartment complex or an office building, you need to acquire a number of things. Most of the process is summarized quite neatly by Thornton Mellon in the clip below:

For the purposes of this discussion, however, let's keep it simple. For our house, we'll need lots of lumber for construction, copper for wiring and plumbing, aluminum for all the HVAC stuff and steel for the support columns and crossbeams. Again, price is a function of supply and demand so one might expect that a "robust" housing sector would be causing increased demand for these raw materials. One might expect that but one would be wrong.

Let's see, how's that lumber market doing?

And I think we all know that ole DrC hasn't been doing too well, either...

Uh-oh. Zero for two. Maybe aluminum and steel are faring better? Nope.

Ahh, but what do I know. I'm just a dope with a MacBook (that's for Turdle ). But it sure looks to me that there isn't much of a housing recovery going on. And if there isn't a housing recovery, then the U.S. economy isn't getting any better. And if the U.S. economy isn't getting any better, then tax revenues won't be increasing. And if tax revenues won't be increasing, then the federal deficit won't be falling. And if the deficit isn't falling, then the Fed will have to keep propping up the bond market. And if the Fed has to continue propping up the bond market, the idea of them "tapering" is simple nonsense. And if tapering is nonsense, explain to me why the metals are once again falling this week.

Well, the past three days, it's all started in London. I think I recall that Ranting Andy has a term for this action but I can't remember what it is. What I do know is that when the selling starts at 2:00 am New York time and carries on until about 7:00 am New York time, the selling is originating in London. And who's in London? Just the bullion banks, that's all, doing their dirty deeds to slant the market in the thin, pre-Comex trading, trying to set the tone for the spec momo HFT money to come charging in at the 8:20 EDT Comex open. It's not complicated and it's all right here for everyone to see:

For today, at least, their efforts have been thwarted by all the crappy economic news and we've got a bit of a bounce on our hands. (That hat is still looking tasty, though.) Maybe, just maybe, we're getting a double bottom painted onto the charts? We'll see. Time will tell.

One last thing to discuss today. You know, back in the day, over two years ago when silver was soaring, there was a lot of talk about Comex defaults and commercial signal failures. I have to admit being sucked in a bit by this back then. Obviously, it didn't happen and I've since been very wary of this kind of talk. Again, if we've learned anything these past three years or so its that the primary power held by TPTB is the power to postpone the inevitable. That said, the Comex gold inventory numbers are really beginning to capture my attention on a daily basis.

We discussed this a bit yesterday but it's worth going over again today. After JPM reclassified another 160,000 ounces of gold from Registered (able to be used to for contract delivery) to Eligible (not ready for delivery), the TOTAL Comex registered inventory fell again yesterday and it now stands at just 1,676,000 troy ounces or about 52 metric tonnes.

Recall that every Comex gold contract is for 100 ounces. This means that the Comex registered vaults only have enough gold on hand to physically settle just 16,760 contracts. Big deal, you say. So what, you mutter. And you may be right. Most likely, The Shell Game & Charade will continue through the clever reclassification of more than enough rehypothecated gold from Eligible to Registered. OK, maybe. But chew on this for a minute.

The first "delivery" month for gold this year was February. That month, the total number of contracts standing for delivery totaled more than 13,000. This was somewhat odd in that that was nearly more than August, October and December of 2012 combined. That got my attention. Then, when April delivery rolled around, just 6,600 initially stood for delivery. Crisis passed, right? February was just a one-off. An outlier. Uhhh, nope. Over the course of the month, money continued to flow into the April contract for immediate delivery. These buyers were ponying up 100% margin and "jumping the queue" to some extent in that they were seemingly unwilling to wait for June. In the end, when it was all said and done, the Comex ended up delivering to 11,632 contracts in April.

And now here we come toward June. First Notice Day for the June contract is two weeks from tomorrow, the 31st. Again, on that day, the June13 stops trading and all contract holders must put up 100% margin in order to indicate their intent to take delivery. As of yesterday, the total open interest in the June contract was still 200,477. No doubt the vast majority of these are paper traders who, as we approach the end of this month, will sell or cover and roll into August. However, some will hold, intent upon taking delivery. (Maybe if you're Shanghai and you're currently completely cleaned out of gold in your vaults, you might take delivery of a few contracts? Hey, a guy can hope, can't he?) Of course, the question is, how many?

Again, as of this moment, The Comex only has enough Registered gold to settle 16,760 contracts. For some perspective, when we were 11 days out from FND for the April contract, the OI for April was 196,135. When we were 11 days out for the Feb13, the OI was 200,441. So, having the current June OI stand at 200,477 tells us very little. However, we must watch this very closely in the days ahead. Let's keep an eye on Comex vault changes and compare that to the daily drawdown of June open interest.

OK, that's all for today. Once again I plead with you to keep the faith and stand defiant. The laws of supply and demand are currently impacting paper metal which, in turn, impact the price of physical metal, too. This cannot and will not last forever. Hang in there.


About the Author

turd [at] tfmetalsreport [dot] com ()


Halfheartedhamster TF
May 16, 2013 - 3:32pm


Oh brother! Your post isnt an example of the truly crazy (examples of which I listed in the original post and so far all the responses have avoided commenting on in favor of their defense of various strawmen) but it is an example of the kind of excitability and goofy suspicion that leads to utterly wrong conclusions. This is a relatively harmless fault when misjudging a random guy on the internet but a real problem that costs real money when these habits of mind are directed toward investment analysis.

1. I have explained several times now why I have a new screen name. I have never made an attempt to hide this and even pointed it out to mr fix in my first post to him under my new name so he would be aware of my posting history. It has never been a dark, nefarious secret.

2. I do not state I work for the Perth mint. Perhaps it was a little unclear but I was providing QUOTES from Mish Shedlock and some guy who does work for the Perth mint in my attempt to show that the increase in premiums was not the huge deal everyone was making it out to be. The last couple days are just more evidence that everyone in their desperate search for good news is making a mountain out of a molehill over the slight increase in premiums.

Someone pm'd me the other night asking why I had changed my name and with his permission I will gladly post the entire exchange. I am not hiding anything.

Its this silly leaping to conclusions that transforms just a regular PM investor who is annoyed with the weirdos who inhabit a site he reads into a shifty, secretive operator very likely in the employ of unnamed coordinated forces who dont want anyone talking about the increase in coin premiums.

Again, oh, brother.

May 16, 2013 - 3:40pm

It sure looks to me like gold will be . . .

called upon and used to save the world banking system and governments, by monetizing the debt.

Right now, the U.S. debt is some $16Trillion, not counting future payments to program recipients (SS, Medicare, etc.). The 8100 (250,000,000 oz) tons of gold we supposedly have are valued at $325 billion using current gold price of say, $1300/oz.

But, if gold is revalued to $6500/oz., voila' the debt is counterbalanced by an equal amount of gold reserves.

So, if we need to cover future SS/Medicare/ObamaCare costs of $200 trillion, we need a gold price of $81,250/oz.

We'll have enough assets on the shelf to pay out SS for a few generations!

Gold could be a very useful tool . . .


Before any trolls jump up to call me a crazy tin-foil hatter for telling all the innocents here that gold will be at $80,000/oz. tomorrow, and leading them to slaughter, that's not what I am saying.

I am saying that governments/bankers own gold, and that gold could be put to use to restart the global economic system. I DO think that gold will be revalued somewhere between $6500 and $81,000/oz., though!

May 16, 2013 - 3:48pm

summer gold revaluation??

You'd think they might have let the Bank of England in on the secret. Special relationship and all that.

With a mere 310 tons of the yellow stuff (16% of Forex) this island might not come off so well.

Southern Cross
May 16, 2013 - 3:58pm

National ID Grab - Includes Everyone Fingerprinted

Dr. Ron Paul leading The Opposition. Sign Petition below.

Will eventually track the movement of every person in America.

This a huge, huge power grab to enslave us all.

Please watch video and sign Dr. Ron Pauls Petition

(petition) -

(video) -

May 16, 2013 - 4:06pm

Hey! What's going on!

4 Non Blondes - What's Up

We know.

That's all that matters friends.

Love ya all!!!!!!!!!!!!!

PM Believer
May 16, 2013 - 4:10pm

QE to Infinity

Real good advice. I do not post often but I am in the same situation as Stock wondering if I did the right thing.

Thanks for that

hsofiak Stock_Canines
May 16, 2013 - 4:11pm

Why? @ Stock_Canines

I'm in the same boat as you. While walking today I was thinking: Why have good investment decisions turned out badly? I've read several "Austrian Economic" texts, followed the logic of sound money, can't for the life of me figure out what Keynes was saying, see fractional reserve banking as a fraud, recognize the incessant creation of purchasing credits, and scared to death of investing in the likes of AMZN. Had I stayed invested in traditional equities along traditional lines I would be sitting pretty today. Meanwhile, my PM stocks are getting clobbered day after day. SLW's ROA and ROE are positive and far exceed that of AMZN but AMZN trades somewhere in the neighborhood of 80x forward earnings while SLW languishes around 7. If the market is always right then there may be aspects of this world that I am not capable of seeing. Or, the market will be right and we just have to wait for it to notice. It took a long time for the obvious housing bubble to burst and the conductors of this "market" seem to be able to as Turd says, keep the ball rolling long after one would think it would stop. Why ... because those driving the market have the firepower to prevail, at least for now. But, as the last few years have passed, the market related news items get more and more outlandish. First it was bail outs and QE, then bail-in, now abenomics and 7 or 8 sigma moves in PM prices. We are either clueless, or slowly, the cookie is crumbling. Patience ..... there is no being late when the cookie crumbles.

May 16, 2013 - 4:13pm

@QE to infinity

All fair and well reasoned points, and I agree. My point, although perhaps clouded through palatable anxiety, was a question of is the thesis of investing in gold and silver and mining shares inherently faulty and it would be best to liquidate now, even at a loss, then to hold for lower and lower prices. If in two years, the HUI is at 125, gold at 980, and silver at 17, then wouldn't it be better to sell now. The question of course is where would you park the money. I do have a mortgage, so it would it be better to sell now and pay off the mortgage. I guess one could argue that at some point in the future these assets should be higher in price than today, but that could be said for any asset. I am holding on. I just want to make sure I don't blindly follow along if the thesis is proofing to be wrong.

May 16, 2013 - 4:14pm

Oh brother

Perhaps you'd like to reword this then? Maybe be a little more precise with your quotation marks?

This needs to be repeated again

Submitted by AgAuthaChristie on May 1, 2013 - 12:18pm.

Thanks victori.

"The "real" price of gold isn't what you pay for a 1oz coin on eBay. As Mish says "Premiums on small denomination coins is not the same a general premium on physical gold itself." But don't take his or my word for it, here's what Jim Sinclair says:

"For many retail investors around the world they are dialed into the paper market in various exchanges. The second market is a small one, but popular among retail investors, and that’s your corner or even major coin dealers. But neither of those are in fact the real gold market, which is the cash market for gold. This is the cash market for 400 ounce deliverable fine gold bars. That represents the true price of the market on any given day. ... for the physical market, not the coin dealers, but the real market, the 400 ounce deliverable market and Asian type settlement ..."

So what is going on in this real market? Well, don't look to Jim Willie who thinks that "those who purchase metals in bulk are having to pay $2000 or more an ounce for gold in the Asian markets". I work for the Perth Mint and we sell tonnes and tonnes of gold kilo bars into Asia every week and we'd be lucky to get a few dollars of premium above the so-called fake paper spot price. That tells me there isn't any stress in the wholesale markets. So COMEX and LBMA aren't going to be failing any time soon."

The Watchman
May 16, 2013 - 4:16pm

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