Watching The Flows

67
Wed, Sep 10, 2014 - 11:47am

So here we are. It's September 10 and things sure don't look any better than they did at the end of May. For that matter, things don't look much better than they did at the end of December, either. What's left? Is there any remaining hope for a rally into year end? Can the metals at least eek out a positive return for 2014?

As you know, I've been out the past two days. It was great to look away for a while but, unfortunately, I made the mistake of not completely looking away. What did I see whenever I checked? Just more of the same. With the overnight selloff back on 9/1, The Cartel Monkeys managed to break the 200-day moving average in gold and all we've seen since is Spec selling of longs and adding of shorts. Of course, The Cartel Banks have been using all of this Spec selling to cover their own naked shorts. As you know, that's by design. The Banks now thoroughly dominate these paper markets and it appears that they will continue to do so for at least the foreseeable future.

Think back to how this has all played out in 2014. Twice, Spec interest has flown into the long side of gold (and silver) and twice The Cartel Banks have acted dramatically to first cap price and then smash it back down.

First, after beginning the year at $1200, gold rallied smartly through January and February. It finally broke through and above it's primary long-term trendline on March 14 when it closed at $1382. It opened higher still on Sunday the 16th and traded as high as $1392 before the Cartel offensive began. Price was routed over the next two weeks as it fell by over $110. The Spec shorting/selling and Cartel covering/buying then continued all the way to a bottom in late may at $1240.

Then, price reversed with another rally through the primary trendline, all the way to a high of $1345 on July 10 and July 11. Another Cartel offensive was then put into effect, just as in March. Price broke on Monday, July 14 and the Spec shorting/selling combined with Cartel covering/buying has trimmed price nearly $100 since.

Allow me lay the relative position changes for you so that you can see it in action...

12/31/13

Spec Long 137,182 Commercial Long 182,101

Spec Short 104,959 Commercial Short 215,122

NET 32,223 NET 33,021

3/18/14

Spec Long 183,324 Commercial Long 164,293

Spec Short 46,510 Commercial Short 310,227

NET 136,814 NET 145,934

6/3/14

Spec Long 157,322 Commercial Long 159,545

Spec Short 98,181 Commercial Short 222,989

NET 59,151 NET 63,444

7/8/14

Spec Long 203,464 Commercial Long 135,998

Spec Short 53,443 Commercial Short 302,201

NET 150,021 NET 166,003

9/2/14

Spec Long 172,522 Commercial Long 134,701

Spec Short 75,643 Commercial Short 238,408

NET 96,879 NET 103,707

Obviously, it doesn't take a degree in economics or mathematics to see what is going on here. As I've discussed ad nauseam, the global price of gold is "set" by a small group of about 60 "Large Spec" (hedge fund) traders on one side and 6-8 "Commercial" (Bullion Bank) traders on the other.

  • Price rallies as funds flow to the long side. The Specs buy and buy while The Cartel caps and caps by liquidating longs and adding fresh paper shorts.
  • Eventually, the Cartel capping exhausts the buying momentum and stalls the rally. Once The Cartel gives things a downward shove, the funds begin to sell and sell while The Cartel buys and covers the very same naked shorts they had just recently added.
  • In each case, the rallies were forcibly turned once the naked gross short position of The Banks exceeded 300,000 contracts.

And look at the effort put forth by The Banks to contain these two rallies:

  • Over a period of 10 weeks to begin the year, The Cartel was able to limit the rally to only 15% by supplying the "market" with 95,000 brand new naked short contracts. That's 9.5MM ounces of make-believe paper gold or about 295 metric tonnes!
  • Over a period of just 5 weeks in June and July, The Cartel was able to limit the rally to only 7% by supplying the "market" with 79,000 brand new naked short contracts. That's 7.9MM ounces of make-believe paper gold or about 246 metric tonnes!

Finally, note that the bottom and turn in early June "coincided" with a Cartel naked short position falling back to 222,989 or almost exactly the level of naked shorts seen at the bottom of 12/31/13. What was The Cartel naked short position as of last Tuesday, 9/2? Look back up at the data above and you'll see that it was 238,408.

So, can we assume that all we need for another bottom and turn is an additional 20,000 or so of short covering by The Banks? Maybe...and we have to be awfully close. Since the last CoT survey, total open interest in gold has risen by over 12,000 contracts while price has fallen by $11. Without question, this rising OI/falling price signals fresh Large Spec momo shorting and, into this shorting, The Banks are continuing to buy and cover. The latest CoT survey was taken yesterday and the results will be released as usual on Friday. Will The Cartel gross, naked short position be back down to near 220,000? Almost certainly.

"So, what's the point of all this, Turd??" Since we've been using bullets this entire post, we might as well close with some more...

  • It's obvious that The Banks are desperate to contain price in 2014. Otherwise, why would they issue nearly 100,000 contracts of naked shorts in two such relatively short periods of time?
  • I'll tell you why...Because if they hadn't, the rallies would have extend far beyond $1392 in March and $1345 in July.
  • And if those rallies had instead reached $1500 or $1600, the virtuous cycle of TA would have invited in even more Spec buying and driven price even higher. Analysts and the media would have been forced to admit that the "bear market in metals" was over and that simply DOES NOT fit the narrative that The Fed and the other central banks want to push.

Finally, none of this is intended as sour grapes or excuse-making. Obviously if anyone knows and appreciates the extent to which The Banks control the metals, it's me. However, as we began 2014, I expected the metals to resume their bull markets and tack on fresh gains of around 25%. Though there's still over 100 days left in the year, my goals are looking increasingly unlikely and, absent some fresh catalyst to drive fund flows back into the long side of gold (and silver), it looks like I'm going to fall short.

With such staunch and desperate capping likely to impede the next rally too, what we really need is a huge jump in Comex open interest. Back in 2010, total OI was regularly 600,000+ contracts. Total OI has spent the majority of 2014 under 400,000 contracts, even reaching a multi-year low of 360,000 contracts on a couple of occasions. It seems that only by painting The Banks into a sustained retreat by driving open interest back to 500,000+ can we get price to rally toward $1500 and beyond. This will be a key metric in the weeks and months ahead. What would drive open interest higher? That's hard to predict. Far easier to predict is that the paper markets for gold (and silver) are likely to stay rangebound between $1200 and $1320 until it does.

I'll have more later today with a full podcast. We'll go over these numbers again just so that I can be confident that everyone understands the point I'm trying to make. Until then, hang in there and keep the faith. Remain patient and diligent. Recognize the "the metals markets" are farce/joke/sham that are not even remotely indicative of the true supply/demand picture for actual, physical metal and please continue to prepare accordingly.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  67 Comments

WatchingGoldRush
Sep 10, 2014 - 11:55am

How much is the FED involved

Since we know now that the FED and other central banks are trading futures - does anyone have any clue as to how those transactions are reported? Does anyone think they would permit their activity to be reported?

How do we know that the FED isn't backstopping the banks and allowing them to offload their shorts to the FED? Is their any transparency anywhere that shows what the Treasury's invlovement is? The FED's involvement? Other CBs?

vonburpenstein
Sep 10, 2014 - 11:57am

first?

....for sure by chance..but hey, luck must be on my side today! Go silver And always remember, you gotta get down to get up...words to live by...aaand just in case you missed this...pass it on, cmon...thx GL https://youtube.com/watch?v=itvnQ2QB4yc

Sep 10, 2014 - 12:00pm

And here's the link for tomorrow's A2A

I'm bringing back Denver Dave. With everything going on, I thought that the timing couldn't be better.

Register to listen/interact here: https://attendee.gotowebinar.com/register/3436467878574196482

Same start time as usual, Noon EDT.

WatchingGoldRush
Sep 10, 2014 - 12:01pm

Nope. None.

And then call Ron Paul and ask him how easy it is to get The Fed to crack open their books. Not gonna happen...

ReachWest
Sep 10, 2014 - 12:04pm

Bizarre.

Thanks Turd. "Recognize the "the metals markets" are farce/joke/sham ... " True that! It is very demotivating - but - personally, I moved past that a long while ago. I really don't care much what the fiat price for an ounce is. What truly frustrates and maddens me is the absolute immorality of it all. Up is down and everything is disconnected from what true value is and what honest properly functioning markets should be. It's immoral as far as I'm concerned - the regulators look away (or are on the take), the banks make more fiat through their crooked actions and the "average Joe" won't even consider bullion because he associates it's value with the fiat number generated out of the crooked Comex. We live in bizarre times. Very sad. It will end. But, it won't end well.

Keg
Sep 10, 2014 - 12:10pm

I think I figured out how to make PMs go up.

If I sell my stack I am certain gold and silver will immediately move up. Sorry guys, ain't gonna happen.

bim jeam
Sep 10, 2014 - 12:16pm

09/11

Could this over week long crushing of the metals simply be a

prelude to some really, really bad news tomorrow?

matt_
Sep 10, 2014 - 12:17pm

There has to be some limit on price manipulation..I'm confused

I'm trying to understand the thesis here. If large banks can sell huge quantities of paper gold that doesn't exist, then they can drive the price down to any arbitrary value. Even to some value disconnected from reality. I understand that price manipulation can affect technical analysis of charts and the psychological sentiment. However, the law of supply and demand still exists. Physical demand still must play some role in setting prices. Right? If the price of gold were driven down to $100, everyone would start buying coins and bars hand over fist. In addition, miners would stop selling because no one can produce an ounce of gold for $100. Prices would have to rise. There must be SOME connection between price and physical demand.

In other words, driving price down will at some point result in the opposite of the intended effect. It should at some point stimulate buying instead of frightening people to sell.

matt_
Sep 10, 2014 - 12:30pm

Exactly

Which is why price failed to fall below $1180 twice last year and why silver continues to find support near $19.

Sep 10, 2014 - 12:32pm

Palladium

I printed this chart earlier today. It's clear that the action yesterday smashed the 7-month trendline as everyone is now convinced that Ukraine is "fixed". The plan was/is to discuss this in today's podcast, too.

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