A Pattern Emerges

229
Wed, Jul 10, 2013 - 12:14pm

Because I'm still adjusting to the time change coming off of my vacation, I found myself tossing and turning last night when I suddenly came to this realization. Though not on the level of Dr. Emmett Brown after hitting his head on his bathroom sink, I think you'll find this interesting, nonetheless.

As you know, The Bullion Banks have engaged in a relentless campaign to lessen their exposure and potential liability in paper precious metal. Since the announcement of QE∞ last September, price has counter-intuitively fallen by over a third from near $1800 to below $1200. All the while, The Bullion Banks have decreased their total net short position in paper gold from 737 metric tonnes to less than 70 metric tonnes (from the CoT survey of 7/2/13). From a chart perspective, it looks like this:

Now, look closely. See anything? No? Look again, even closer. Do you see anything now? Do you see any type of pattern?? I must admit that, prior to last evening, I hadn't seen it, either. But it's there, waiting for you to discover it.

OK. What if now I gave you this? Take a look at the chart below with some notes made upon it. Now what do you think?

Hmmm. Well that's interesting, isn't it? Yes, price is down by over 30% from last September. However, almost all of the decline has taken place during the five calendar months of October, December, February, April and June. In fact, as you'll see below, the vast majority of the decline has occurred during the middle of those months. Hmmm. That's interesting, too.

Now before we dig further, what if I gave you these two charts?

So, now, let's go back to the current decline. What is so special about the months of October, December, February, April and June? I'll give you a few moments to think about that before we continue...

.....

.....

If you guessed, "They're Comex delivery months, Turd!", then you win today's prize! Yes! Those months are, in fact, "delivery" months for The Comex. Recall that the active futures contract is always the front month for delivery. Currently, this is the August13 contract. As of Monday, it had a total open interest of 206,000 contracts and it will stop trading and have it's First Notice Day on July 31. Anyone holding a contract after that date must show their intent for delivery by providing 100% margin in their account. Deliveries to eligible contract holders will then take place through the month of August.

Still with me? Good.

This same process occurred back in September for the October12 contract. First Notice Day was at the end of September and deliveries took place through October. The price of gold peaked at $1796 on October 5 but managed to hang in there for another week or so. But then look what happened and note the exact date:

DATE PRICE GLD TONNAGE

10/12/12 $1773 1,340.52

10/24/12 $1699 1,336.90

10/30/12 1,336.30

So, what do we see here? Near the middle of the delivery month, price began to drop rather steeply and a little bit of gold was shaken out of the GLD "inventory". Then, after a decent rally in November, price began to decline again once we flipped the calendar to the delivery month of December. Look what happened and, again, note the date:

DATE PRICE GLD TONNAGE

12/12/12 $1723 1,351.42

12/20/12 $1635 1,350.52

12/28/12 1,350.82

And now you're thinking, "OK, Turd. What's the deal?". Well, let's continue, shall we? Again, please note the date:

DATE PRICE GLD TONNAGE

2/11/13 $1669 1,326.89

2/21/13 $1555 1,290.31

2/25/13 1,272.85

Well, that's interesting. This time, the mid-delivery-month decline shook out over 50 tonnes of gold from the GLD. "Hmmmm. I wonder what would happen if we tried that again?"

DATE PRICE GLD TONNAGE

4/12/13 $1564 1,158.56

4/16/13 $1321 1,145.92

4/29/13 1,080.64

"Wow. This is awesome!", the Evil Ones said. "We hit price in February and shook out 50 tonnes. Then, even while price was stable from 2/21 - 4/12, we were able to grab 114 more. Finally, by breaking price down through the floor at $1525, we got 75 tonnes in April! What a deal!!"

Once again, price was relatively stable mid-April to mid-June, while no Comex deliveries were taking place. Then look what happened, again paying special attention to the date:

DATE PRICE GLD TONNAGE

6/12/13 $1394 1,009.85

6/28/13 $1181 969.50

7/9/13 939.75

So, what is the lesson here?

  • The Bullion Banks have utilized the manufactured price drop to lessen their exposure and potential liability in paper gold by over 90%.
  • This resulting "discount" in paper price has led to a surge in global physical demand. For example, see here: https://www.mineweb.com/mineweb/content/en/mineweb-gold-news?oid=197040&sn=Detail
  • However, Registered and Eligible Comex inventories are dangerously low. As of yesterday, The Comex showed 224 tonnes of Eligible and just 35 tonnes of Registered (ready for delivery).

What to do, what to do? The plan is clear! Raid price during the delivery month!! Create the selling and panic necessary to shake loose tonnage from the GLD. Use this gold to settle delivery obligations, not only in New York but London, too. Once the current delivery "crisis" has passed, leave gold alone to wallow and flounder, only acting to cap price whenever necessary to keep the downtrend in place. Once the next delivery month arrives: Wash, rinse and repeat.

Going forward, this likely means that we're "safe" for about another month. Besides, it's summer and we're in the middle of vacation season. Aside from the occasional short squeeze or price plunge, the pattern suggests that gold will be stable between $1250 and $1350 until early August. But then....watch out!

Forewarned is forearmed.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  229 Comments

Howard Roark
Jul 10, 2013 - 2:21pm

Spike

Well gold spiked some $10 in a few minutes and what a line up it shows...

It´s all so strange. The new pattern?

Salut,

HR

achmachat
Jul 10, 2013 - 2:21pm

s1lverbullet

that's because technically, the metals didn't take off.

you are witnessing foreign exchange at work. The USD took a dive and it looks as though the metals are up.

in EUR, silver spot is still at around 15€ per ounce.

treefrog argentus maximus
Jul 10, 2013 - 2:25pm

argentus maximus,

your "rejection" of low silver prices may have begun. first majestic (ag) recently announced that they were suspending silver sales until price improves. they are stockpiling product, and while all silver miners got hit today, ag held better than most. they are presently rebounding nicely.

if we see more of this, it is bullish for silver prices. if gold sellers are watching and can understand what's happening, it's bullish for gold prices.

monkry achmachat
Jul 10, 2013 - 2:27pm

Agreed-fx

Yup, gold right now is CAD 1$ less than before the minutes due to USD index/ CAD fx.

s1lverbullet achmachat
Jul 10, 2013 - 2:27pm

@ Achamat

I didn't mean a technical breakout, but rather just the first knee jerk reaction to the minutes. These HFTs are totally distorting and cluster fucking these markets

ChicagoMark
Jul 10, 2013 - 2:30pm

@treefrog

Where did you read that First Majestic was suspending silver sales? That would be an encouraging sign. Are the miners fighting back? They haven't before. Perhaps they are tired of getting stepped on.

zman
Jul 10, 2013 - 2:32pm

WTI oil at $106,  reports are

WTI oil at $106, reports are that inventories are very low, I thought production was strong, so demand must be very strong, if the economy is weak, why is oil demand so strong?

Gold Dog
Jul 10, 2013 - 2:44pm

Santa

Hi Gang!

I have been working my tail off. I couldn't make Santa in Chicago on Monday but sent my secretary with her steno book. I have just finished perusing her write up and here are the few major takeaways---The ones we all are not aware of now.

1- If the DX hits the mid to upper 90's, she's gonna blow!

2- Not all of his "Pillars of Gold" have been hit yet. (Reference to his 2006 book that I have not read.....anybody?)

3- Barrick Gold is for sale, they even approached him....it's toast.

4- The juniors with easily mined reserves of 3+ million ounces are a strong buy. He indicates a list is available from him.

5- If you demand direct registration of your securities you can call CEDE and get them re-registered back in 24 hours if you want to sell. Don't listen to your broker's BS, it's $50 each way. If you run into roadblocks get a new broker!

6- He says there will not be a new gold backed fiat. "China will wear their gold like a necklace which will make their fiat seem safer."

7- He indicated that we made a mistake throwing Iran out of the SWIFT system, it just showed the rest of the world that we would. They were pretty much on a COD basis anyway.

She said it was an interesting crowd. The demo was 99% white and dressed either for an audience with the Queen or dressed to do some yard work. Guys in ties left early.

She thought it quite interesting that many of the questions from the scruffiest looking had to do with holding kilo bars verses 400 ounce bars. To wit- A "regular dockers and tee shirt guy" said he was flying to NYC to visit his gold in three different vaults. <- Sorry if you are that guy, I am just quoting here.

Her shorthand is a bit rusty and much information was traded fast and furious. If anyone has additional questions I can make her tease them out of her notes.

Your friend,

Dog

EDIT- Sorry, one other thing. The safest currencies to hold are the Yuan, they shoot people who mess up their banking system, and the Indian Rupee, they haven't had the time to screw themselves up yet.

EDIT- Missed maybe the most important one. The US Dollar remains the world reserve currency for the foreseeable future. China and Russia don't have the horsepower to replace it. All of the deals we read about are small and background noise.

rtabit
Jul 10, 2013 - 2:44pm

@achmachat

that's because technically, the metals didn't take off.

you are witnessing foreign exchange at work. The USD took a dive and it looks as though the metals are up.

in EUR, silver spot is still at around 15€ per ounce.

Good point. Looks like we're getting a decent bounce off upper parallel line of red fork for DX now though.

treefrog ChicagoMark
Jul 10, 2013 - 2:48pm

chicago mark

i read it a day or two ago. now i can't find the link. i guess it will have to be an"unconfirmed report" until and unless somebody can verify it. i hope it's true, but i can't back it up

sorry.

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