It's the one, overriding thought I've had since having to endure 30 minutes of CNBS this morning.
First, let's recap. I've been predicting for over a week that today's NFP-BLSBS would be "disappointing". By late yesterday, so many folks had jumped on that bandwagon that, in hindsight, the PMs were set for an opposite reaction. And that's exactly what we've gotten.
Think about it...A little less than 24 hors ago, The POSX was down OVER A FULL POINT. In currency terms, this was a monumental, if not historic, move. Currencies aren't supposed to move that much in a single day. It used to be a big day was 10 or 20 basis points. Now, The Pig can fall over 100 basis points and it's just another day in the market. This is all about WOPRs, too, but more on that in a minute.
Back to The POSX. After today's paltry 175,000 payroll number and UPTICK in the unemployment rate, the POSX is rallying. How much? Is it back UP 100 bps? No. It has barely retraced half of the elevator shaft it fell down yesterday. But that hardly matters. Though the POSX is still 50 bps LOWER than yesterday at this time, gold is $15 lower and silver is 50¢ lower. In our human world, this seems illogical but in the WOPR world, all is well.
And you see this on CNBS, too, if you look closely. Back in the day...actually WAY back in the day...I had the privilege of visiting the floor of the NYSE on two occasions. It was a crazy, bustling place. There were specialists manning their posts like watchmen and traders maniacally criss-crossing the floor with orders. It was a human process. By no means perfect but at least it had some semblance of reality, a connection to fundamentals and actual intelligence.
Today, the floor of the NYSE is a veritable ghost town. A majority of the trading action now takes place on computers based in places as close as Hoboken and as far away as Kansas City. Gone are the days of actual liquidity provided by real human beings with rational intentions, replaced by computers trading for pennies in a rapid fire shell game that would make even the most accomplished 3-card Monte dealer wince.
The same is true for the metals trade. Physical fundamentals are completely trumped by the contract-flipping computers. Oh sure, from a distance, there appears to be a functioning "market", replete with liquidity, but it's all a ruse. Total open interest in gold is now at a multi-year low of 375,000. For perspective, this is down over 40% from a peak above 600,000 back in 2010. Sure, the CME can print daily volume of 150,000 or 180,000 contracts but don't confuse that with liquidity. Most of this volume is simply WOPRs swapping the same contracts back and forth for dimes at a time.
The result is a gold (and silver) market that is completely divorced from fundamentals. Consider just this example: Back in December of last year, when he confirmed QE∞, The Bernank gave two conditions for slowing or ending the $85B/month money-printing plan.
- Inflation, as measured by the CPI, would have to exceed 2.5%.
- The unemployment rate would have to fall below 6.5%.
The Bernank clearly stated that he did not see either of these events occurring before mid-2015.
And what did we see today? Because of a seasonal adjustment of "people entering the workforce", the participation rate ticked up and the stated unemployment rate actually ROSE from 7.5% to 7.6%. This means that, if you simply go by The Bernank's own words, we are now even farther away from a "taper" of QE than we were yesterday. Try telling that to the WOPRs, though. They create their own momentum and have smashed price by $25 as I type. It's silly. It's nonsense. It has no basis in reality. And it has zero connection to the actual supply/demand fundamentals.
For now, however, paper price as set by The Comex still rules the day. But prices cannot remain permanently disconnected from reality any more than water can run up hill. Eventually, certain laws of nature (and economics) take over and a natural equilibrium is reestablished. This day is coming.
Anecdotal signs of this event are everywhere. Here are just a few:
- "Unprecedented" demand at the U.S. Mint: https://www.moneynews.com/Markets/Bullion-Coin-Demand-Mint/2013/06/05/id/508247
- Chinese imports: https://www.mineweb.com/mineweb/content/en/mineweb-gold-analysis?oid=193192&sn=Detail
- Indian imports: https://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/india-raises-gold-duty-expects-imports-to-fall/article12360802/
- Comex inventory levels: https://www.marketoracle.co.uk/Article40793.html
- All the way down to granular items like this: https://www.stevequayle.com/index.php?s=33&d=406
In the end, the WOPRs trade amongst themselves and the Bullion Banks quietly position themselves against them. Last week's CoT report showed a record low level of Cartel net shorts. Given that today's report will be based upon another 38,000 contract drop in open interest, the level of Cartel shorts will likely fall even more, ensuring not just a turnaround in price but a significant trend change in the weeks ahead.
So, hang in there and understand today's price action for what it is...a simple, computer-algorithm based game of tic-tac-toe. And please, PLEASE, do not try to play along unless you are doing so under the professional guidance of our pal, Andrew. The WOPR itself gave you the only advice you really need:
"A strange game. The only winning move is NOT to play".
Buy the dip and take delivery.