Legs?

368
Mon, Jul 22, 2013 - 11:51pm

So, have we turned the corner? Does this rally have legs? There's A LOT going on tonight so I thought I'd better type up this post.

First, though, lets revel in the beautiful bout of short-covering and buying we saw today. Officially, August gold was UP $43.10. That's a one day gain of 3.33359%. Astonishing! Do you know how rare that is?? Perhaps some insomniac or otherwise bored Turdite can research the last time gold saw such a dynamic one day gain.

So, is it over? Has our long, international nightmare finally ended? WAY, WAY TOO EARLY TO SAY. However, this is extremely encouraging.

Let's wait to see what today's OI numbers come in at tomorrow. If this was all short-covering, then you can expect to see the total OI in Comex gold drop significantly. A much more encouraging outcome would be an OI that continues to rise. Note the word "continue". Did you know that total OI for Comex gold bottomed on June 17 at 372,950 and that it has been steadily rising ever since? In fact, as of last Friday, the total OI has grown by nearly 20% to 444,732. This will likely drop off again over the next week as we head into contract expiration but we'll keep an eye on it.

And it's the August expiration that was likely the key today. The total Large and Small Spec gross short position as of last Tuesday was nearly 170,000 contracts and remember, there is no way and no how for Specs to deliver against these positions. Thus, they have to be covered and rolled. Have to. The rally today was almost certainly inspired by a rush to the exits for these shorts. Then you've got the poor suckers that are short the Aug13 calls into Thursday expiration. Anyone who sold short at a strike of $1330 or less got a true religious experience today. Remember, the kneejerk reaction when your short call gets squeezed is to go long a futures contract to hedge yourself. Undoubtedly this happened today, too. The end result is a perfect storm of buying that leads to the nearly unprecedented 3.33% move.

So now comes a "moment of truth". Can this rally sustain itself? Can it do enough technical damage to the bears' case that it becomes sustainable to the upside, thereby discouraging The Specs from executing the "roll" part of the "cover and roll" plan? We shall see.

The price of both metals sits tonight at a crossroads. There are resistance levels and moving averages that are immediately overhead. Can this move continue? Can it break those MAs and further frighten the shorts? Can it bust the trendlines from mid-April and begin a new, positive and UP trend?

The most likely scenario is that the shorts will reassert themselves soon and double down. A forced failure at the resistance and MA points listed above would embolden the shorts to push price back down. IF this happens, it will be important for gold to hold near $1300 and silver to hold near $20.

But my intent is not to convince you that this has to happen. GOFO remains sharply negative and the COMEX vaults are at extreme lows heading into August delivery. Some very sharp minds think that we are at The Beginning of The End of the Comex/LBMA fractional reserve system and their latest columns are reprinted below. Read them and give them your full consideration. You know that I feel very strongly about this, too, but I want to remain a bit more subdued on the causes of today's rally. For now, I'll stick with the analysis laid out above.

First, here's our pal Alasdair at GoldMoney. The entire article is posted at their wonderful site and you can find it here: https://www.goldmoney.com/gold-research/alasdair-macleod/gold-derivative-distortions.html However, you simply must read this so here is a full c&p:

The purpose of this article is to explain how derivatives have distorted gold prices with particular reference to the US futures markets. This will enable us to anticipate the price effect when the distortion is eventually unwound.
When a derivative is created it diverts supply and demand from the underlying commodity. If it is then hedged into the underlying commodity the price effect is the same as if it was a simple commodity transaction. Enter the “honest speculator”, who is neither producer nor consumer, but seeks to profit by trading derivatives for profit, without an intention of taking delivery. The speculator who does not roll his positions into subsequent future contracts brings forward demand or supply only to reverse the price effect later in the life of the contract. In this case speculators provide liquidity with no lasting price distortions.
So far we have considered markets which are essentially free. In the US futures markets, this changed when banks were permitted to act as “commercials”, despite the fact they are in fact speculators in the original market definition. The nature of the futures market changed from this moment to one where speculative positions have become more or less permanent.
In the case of gold and silver the banks have absorbed physical demand by continually running net short positions. We cannot say that all of this demand would have existed without the banks’ intervention; however there is no doubt that the expansion of the overall market by the addition of permanent short positions has led to lower prices overall than would otherwise be the case.
If futures markets are not to distort prices on a prolonged basis three conditions must apply: every player must be motivated only by profit, the banks must commit only their own resources and no one else’s, and there must be periodic liquidation of speculative positions. Instead, there is little doubt that there is political intervention, the banks are too big to fail which allows them to commit funds they would not otherwise commit, and there has been no overall liquidation of speculative positions. The result is that banks have been able to manipulate prices, and pricing has become distorted, confirmed by emigration of gold away from derivative markets.
The third condition cited above needs further explanation. Since March speculative longs have been liquidated through stop-loss orders, leaving a core of longs inaccurately regarded as speculators. The banks have closed their short positions by encouraging new speculators to open short positions, so the speculators are all now on the short side. They don’t realise it yet, but the speculator shorts are the now only true speculators in the market. Therefore when they come to close their positions, there is no one to provide them the necessary market liquidity except on a completely different and higher price basis.
The net effect on the gold price so far has been to suppress it. Demand for physical has increased at lower prices as one would expect, leading to a physical liquidity crisis on US futures markets. At the same time a parallel liquidity crisis has developed on the London Bullion Market, evidenced by negative gold forward rates.
Alasdair Macleod
Head of Research, GoldMoney

And now this evening, Santa has joined the fray. He, too, has been all over the GOFO situation and you well know that he has been expecting an end to fractional reserve bullion banking for quite some time. From his site, here's a full c&p of his latest remarks:

My Dear Extended Family,
The cause of today’s spectacular rise in the gold price is the reality that with Friday continues large drops in the Comex warehouse gold inventory. No cogent argument can be formed against the reality that because of the continued fall in gold inventory that within in 90 days or sooner the Comex must change its delivery mechanism.
The highest probability is that Comex will have to move to cash settlement rather than gold. Part of that settlement could be lots of 100,000 GLD that represents the ability to exchange for gold.
Their problem is that if GLD is part of the settlement mechanism for the spot Comex contract that GLD will be destroyed by the convertibility. It is a truism in gold that which is convertible into gold will in fact be converted over time.
Gold rose today because those knowledgeable know the inevitability of the changing of the Comex contract, as it is today which calls for settlement in gold between contracting parties. There is no question this is the emancipation of physical gold from the fraud of no gold, paper gold. The emancipation will cause physical gold exchanges to take birth and to be the discovery mechanism for the price of gold. This is the end of the ability to use paper gold future contracts as a mechanism to make the gold price sing and dance at the will of the manipulators.
With manipulation coming to an end the true value of gold will be discovered by the cash exchanges that are now taking birth. The advent of the cash spot exchanges around the world is the natural demise of the Comex set up as convertible and now being converted.
As long as one can buy spot, pay insurance, transportation and re-casted by Rand Refinery to Asian products sold profitably, the demands for real gold are ending the hay days or even existence of the futures exchanges.
Gold is headed back to be traded as it was before 1973. Gold will trade well above $3500 and those who have lived in the gold market like me for now 53 years know it.
A price of $50,000 for gold is not out of the question as a result of its emancipation from “fraudulent paper, no gold, paper gold.”
GOFO is screaming this truth. The warehouse inventory of every futures gold exchanger is screaming this. The fact that there is no meaningful above ground supply of gold is screaming this. The fact that most of the central banks supply of gold is leased is screaming this. There is no reason why gold cannot move up hundreds of dollars a day when the Comex changes their spot contract settlement, as they must, as they will, very soon.
Respectfully,
Santa

So here we are. A powerful rally today that has extended into this evening with gold up another $2 as I type at 11:30 pm EDT. Chances are very high that The London Monkeys will go to work on price in a few hours and slam price down $10 or so by sunrise in New York. That's OK and is to be expected. The real key is tomorrow and later this week. Does this rally have legs? Can gold move convincingly through $1340 and silver through $21? We'll see. However, if not now then I'm convinced they will very soon. This has been a powerful rally from a capitulative low on rising open interest. That's a very good start.

I'm going to be out most of Tuesday as I have some personal business to attend to. I'll try to check in from time to time but please try to be nice to one another in my absence. We've come a long way and have built a powerful and well-informed community. Keep the faith. Your patience will soon be rewarded.

TF

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  368 Comments

Silverivalist
Jul 23, 2013 - 1:48am

Zero Hedge to provide webcast for Senate Hearings tomorrow am

Examining Financial Holding Companies: Should Banks Control Power Plants, Warehouses, and Oil Refineries?
538 Dirksen Senate Office Building
10:00 AM - 11:30 AM

Ahead Of Tomorrow's Hearing On Goldman And JPM's Commodity Cartel Submitted by Tyler Durden on 07/22/2013 12:18 -0400

[snippet] While we don't expect anything new to develop here, nor anywhere else, until the entire system comes crashing down and forces a fundamental overhaul of modern finance at the grassroots level, tomorrow's hearing will be webcast live on Zero Hedge and will have the following witnesses.

Ms. Saule Omarova
Associate Professor of Law
University of North Carolina at Chapel Hill School of Law

Mr. Joshua Rosner
Managing Director
Graham Fisher & Company

Mr. Timothy Weiner
Global Risk Manager
Commodities/Metals, MillerCoors LLC

Mr. Randall D. Guynn
Head of Financial Institutions Group

We look forward to seeing how the Chairman, or his successor, will deflect this one.

judejin
Jul 23, 2013 - 2:08am

shanghai silver futures premium collapsed

when silver moved from 20.20 to 20.50+ last night, shanghai silver futures barely budged.

now, in asia session, when silver dipped to 20.20ish, shanghai silver futures moved lower compressing premium to only about 1%.

last year, before gold/silver made the aug-sept rebound, premium in shanghai collapsed too.

so premium in shanghai is a contrarian signal. whoever is shorting the market is getting out of it by compressing the premium thus minimizing their losses and baffling the longs,especially the weak and impatient longs.

i, personally, welcome low premium in shanghai, because i want to get in when premium is low.

judejin
Jul 23, 2013 - 2:18am

shanghai silver futures COT shows some perma shorts/hedgers

covered in June. shanghai silver futures COT show long/short holdings at each brokerage level after market close everyday. there are quite a few perma shorts/hedgers covered in june.

the shanghai futures market is much more transparent than crimex.

Motley Fool
Jul 23, 2013 - 2:49am

@jy896 - reposted from old thread

I have previously tried informing and presenting different points of view. Suffice to say that not go to well.

Recently I have tried simply posting some pertinent facts and allowing others to do their own due diligence. This makes me a jackass too it seems.

Honestly I don't see that I can win against such sentiments.

"If it is that LBMA is by far the decisive factor in PM price discovery, then logically it would follow that no major changes in pricing would occur when LBMA is not active -- or that if such a rare occurrence should happen, it would be immediately be undone by the 'true' price discovery on LBMA the following day. Do you REALLY think that is what's happening? If not, what IS it that you think is happening?"

The LBMA 'market' consists of a network of individuals, working on the bullion side and representing bank trades, that are in constant communication through telephone, email and internet. It is not a electronic venue as such, but rather a group of interconnected individuals. Hence this market is only not active when no two banks are open at the same time. Given the timezone differentials, this isn't a lot of the time.

My own investigations into this subject was such a long time ago that it is hard for me to recall exacting sources of easy introductory material.

Furthermore I am far from an expert on these things, just a curious layman with a penchant for facts.

For me to suggest actual industry experts whose views to research here, such as Bron or Jeff Christian, is also a losing proposition here, given the ludicrous conspiracy theories that are held here as a matter of commonality, based on flawed understanding of the markets, and rationalization in the face of lack of facts.

The LBMA + OTC is the market. The other tiny things such as COMEX are sideshows.

The banks do work in those markets, because of arbitrage.

The one overriding motive for banks are profits, and as such where there are profits to be made, that is where you will find them.

The costs for the banks of trading on the COMEX are much higher than in the LBMA or OTC markets, and as such they avoid them like the plague(profit motive) unless there is some money to be made in arbitrage.

Anyhow, I am tired of trying to explain things, when all I am met with is vitriol, so I don't bother as much anymore, and I think my reasons are sufficient.

Strongsidejedi
Jul 23, 2013 - 2:54am

Settlement of gold futures with shares in GLD?

@motley fool -

I read your posting above regarding the role of LBMA.

Isn't the issue the LBMA vault and how much gold in the vault has already been hypothecated?

I was under the impression that the GOFO deals with the LBMA vault as part of the leasing/loan collateralization.

YaMasuta
Jul 23, 2013 - 3:08am

YaMasuta - The art of Automated Trader Signal Detection

YaMasuta

I have been developing a web-based highly advanced Analytic software robot called “YaMasuta”. I decided to start sharing my software robot analytics of the metal even though YaMasuta will not be live on the Web until September this year on www.YaMasuta.com as beta version.

YaMasuta is a cutting edge intelligent signal detection robot. YaMasuta is designed and developed to automatically analyze and detect trading signals for the global stock markets and the currency and metal markets.

The secret analytic engine of YaMasuta is the ability to measure Bull and Bear power and detect the hidden signals of when to buy and when to sell. YaMasuta can analyze the entire world markets of stocks and currencies in matter of a few hours while it would take an army of analysts many months to do the same.

I will now share the Gold and Silver Analysis according to YaMasuta for the past year. The Silver and Gold markets are analyzed using their ETF representation, namely GLD, UGL, and SLV and AGQ. I will start sharing YaMasuta Signals for these markets as YaMasuta produce them.

Let us first look at what a watch list looks like on YaMasuta, see image below.

Now let us look the AGQ which YaMasuta made $3M out of $1M starting account for the past year from today date; see figure below.

The last signal YaMasuta made over 60% profit on AGQ and over 30% on SLV on the short side and still short until yesterday close. As you can see YaMasuta still short since the last signal on Feb 11, 2013; see figure below.

However; YaMasuta just switched to a Long position yesterday on Gold as can be seen from the chart below since the Bull Power crossed the Bear Power as you see from the image. YaMasuta has not yet switched from Short to Long on Silver since usually YaMasuta goes long after confirmation of the signal so we will wait and see what YaMasuta will produce over the next few days. However, since YaMasuta gave a buy signal on Gold I would say that this signal could probably apply to Silver as well but may be Silver is lagging according to YaMasuta.

The Gold Bull power is now standing at 96% vs. 4% of Bear power; see below.

The Silver Bull power is now standing at 97% vs. 3% of Bear power; see below.

If The Bear Power crossed to the upside and stay there for confirmation, it is usually a strong short signal and if the Bull power crossed the bear to the upside as we are witnessing now and gets confirmation then it is a strong long signal.

Please note that YaMasuta analyzes the market after the close every day for all stocks, currencies and metals. YaMasuta has a dynamic version where it can analyze on a minute by minute basis but this version is only available for commercial companies who have access to live market data.

I am just sharing my robot signals; please do your own technical and fundamental analysis to discern your own signals as you like since YaMasuta also makes mistakes and give the wrong signals in some cases as you might know the market is totally unpredictable. YaMasuta is being developed to be a highly advanced engine to help in confirmation of trading strategy and may be help us defend against the evil powers who are trying to rid the markets of any normalcy by knowing the true power of the bears and the true power of the bulls and then choose which one to ride. There many functionality in YaMasuta which will be revealed when the beta version released. YaMasuta is for all levels of traders and I hope to go live in three month time frame.

May be we should unleash the Dynamic YaMasuta at JPM and company.

YaMasuta

philipat
Jul 23, 2013 - 5:06am

My 2 Cents

I am not as wildly optimistic as Santa et al because we have seen naked short selling result in hundreds to the downside, whereas massive short covering results in only tens to the upside. The market remains rigged towards the shorts. But, as expressed in earlier posts, I was of the opinion that the bottom was in and that, arguably, the 1180 and 1220 dips represented a double bottom technically.

Given strong ongoing physical demand, the GOFO data and Comex Inventory situation, I can't see that the gamble to double down by specs would be worth taking. The tide is moving against them and doubling down to the extent needed to create any impact would be enormously risky at this stage and would potentially dig a deeper, very,very deep, hole. Sometimes you have to know when to fold 'em and take losses before they get out of control? But I'm sure we can expect a few minor "See what happens" attacks, like from the London monkeys today. Nothing moves up in a straight line.

philipat
Jul 23, 2013 - 5:17am

@Turd

For some reason, that link to The BurningPlatform triggered a Trojan alert in Avast and crashed my Browser. Probably a falso positive but unusual as Avast Professional version is normally very reliable.

Sad-descent philipat
Jul 23, 2013 - 5:47am

@philipat

I use Avast! professional as well and it loaded for me without an alert. (although the site did load slooooowly)

Peoples Front of Judea
Jul 23, 2013 - 5:52am

MINERS ?

Thinking of getting a few hundred pounds of miners stock. I don't know a thing about them any suggestions would be appreciated...And i won't hold anybody responsible if they tank..it's my choice . I just think there are some big gains to be made now ,and a few hundred pounds is worth the risk.

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