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

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  67 Comments

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Thorus
Sep 10, 2014 - 2:14pm

The comments about the Twilight Zone had me go look this up

Video unavailable

It's the song by Golden Earring, not the TV show.

Best Regards,

Thorus

imach1
Sep 10, 2014 - 2:06pm

What can I say

Everything is backward white is black. Up is down. Ect ect ect.

H8Fiat
Sep 10, 2014 - 1:59pm

Question

Did NetDania change the way they report trading volumes? The last few weeks have just been huge compared to previous. Or is this the new normal? Just can't believe that OI hasn't exploded if true. Seem to recall about when margin requirements were lowered.

BTW, I wouldn't piss on a banker if they were on fire. I may try to beat the fire out with a bag of junk though.

H8

benque
Sep 10, 2014 - 1:53pm

landplanner

I agree with your thoughts on suppression of oil and palladium. Just as gold, in the form of Canada's gold reserves, was dumped into the market by Mulroney (the toady of Reagan), to reduce USSR's gold revenues. Russia still produces gold, and (I think) still exports some.

Maybe Ukraine CB will be buying waaaaaay out of the money oil calls now, to finance their future gas purchases, when the leash is released on the oil price. Assuming, of course that NATO and Russia don't nuke Ukraine to cinders first.

Kansascrude
Sep 10, 2014 - 1:46pm

I'll take your punches and keep stacking

Easy to feel like a punch drunk fighter here. Saw another blurb on German Repatriation from Koos supposedly the fight is still being waged wonder when we will see some real Phys move! Hope the Swiss vote for repatrioting their gold too. I still see those both as positive catalysts.

https://www.bullionstar.com/article/german%20gold%20repatriation%20accel...

In retrospect seems like the strength of the dollar has been maybe a bit under estimated in its effects on demand of PM's. While its transparent to us in lower PM prices the ROW has not seen the price drop we have so my guess this is another advantage the Cartel is using to hammer prices. Meanwhile the Chinese demand and Russian demand continues to increase inspite of the usual dirty tricks to hamstring Russian demand but driving down oil and prices and the value of the ruble. How much longer can we underestimate the efforts of the dirty bag o tricks boys......being so filled with hate for them is not healthy for me so need to find an outlet....until then MAY THEY ROT IN HELL! meanwhile I'm still stacking.

-SilverIsMoney-
Sep 10, 2014 - 1:44pm

I cant recall anything like this before...

I truly feel like im in the twilight zone. Even more so than before... Theres no reality left.

SilverX3
Sep 10, 2014 - 1:39pm

The Fed and its proxy agents aka Banks will always be present in

PM markets to delay the inevitable rise. You are correct Turd in that additional capital inflows are necessary to provide "resistance" against the Cartel, and break UP and OUT of this current 3+ year correction.

I can see a couple of scenarios in which OI returns, but it won't be bcos investors want back in to the Comex:

1) Stock market slides into a bear market

2) An Lehman-like event, or, black swans, returns Gold to safe haven status for mainstream institutional funds, and diverts stock market funds into commodities

3) Fed counters ECB with a considerably bigger QE in 2015, causing USD and bonds to fall off the cliff

landplannerTF
Sep 10, 2014 - 1:39pm

Oil and Palladium

Turd,

It may be that the price of Palladium is being hammered down to reduce Russia's earnings on sales. Similar to oil's action lately. With Russia being the #1 producer, why not. If straight up sanctions aren't having the intended consequences (and plenty of unintended), kick them in the balls....left being the oil price and right being the palladium price.

lp

jezfry
Sep 10, 2014 - 1:29pm

Harvey Organ

I just watched the interview with his bold predictions. He reminds us that China will start a physical gold exchange on the 22nd of this month and will also run out of physical silver in approximately 6 weeks. He predicts overnight gains that seem unbelievable at this stage - but who knows, maybe he's right!? The timetable would dovetail with the likely timetable for a major escalation in war - so although I remain hugely skeptical I have to admit his predictions resonate with me.

InsAndArts
Sep 10, 2014 - 1:26pm

"The Great Gatsby" - how this book relates to us today.

( Bear with me on this subject please. )

***

Toward the end of the book there is a scene where the father goes back east to claim the body of his son, the murdered bootlegger Jay Gatsby. He reads Gatsby's notebook written as a young man. It earnestly states the young Gatsby's goals; self improvement, discipline, saving a potion of his income.

So he starts out earnest and hard working, but is corrupted (although to him it looks like he's getting closer to his goal)

The reason the book is a tragedy is this: Gatsby lost all the best parts of himself as a young man.

That, for me at 55 was my takeaway and I reread the book every 10 years.

Gatsby's chain of drugstores served as a front for 'medical whisky'. The fortunes made during that era were quick and spectacular.

(And BTW, much in gold coin, which was not 'turned in' but shipped up to deep storage in Canada, we're told...but I digress)

https://www.google.com/search?q=1920%27s+medical+whisky&client=firef...

The reason this is one of the great classics ever written is that Gatsby's journey is our own. Listen, it's very tough on an emotional level to accept that the 'fix is in' and that hard work is for 'loosers'. I do not accept this. For men this hits hard because we are taught 'who we are is what we do or accomplish' in life.

This weeks smash down is a example.

We live in a time that asks us to ignore corruption daily. Is that not true? This is the demand upon us if we want to lead a stress free 'normal' life. Accept the matrix or suffer.

Not just PM markets. We are being asked in the US today to accept rampant corruption from stern to bow. I am not a moral crusader, nor do hold myself as a judge of any man, but we are loosing the best of who we are.

The bottom line is that internal pain we feel is the result of this conflict between what we know is right and what we are being forced to accept as the 'new normal'.

I offer no answer friends, only my personal awareness, that I'm sharing with you now.

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