More Evidence of post-QE Deflation Bias

Thu, Sep 25, 2014 - 8:01am

The POSX has surged through 85 today and looks to be on its way to 87+. Just more evidence that our current theme/idea of temporary deflation is, in fact, playing out.

Below is a 5-year chart of the POSX. Note that since this " post-QE deflation" trend took hold, The Pig has rallied nearly 8% and, by getting through resistance just below 85, it looks set to continue rallying toward the 2010 highs between 87 and 89.

So what is so interesting about that? Do you recall what was happening in mid-2o10??

Between December 2008 and June 2010, The Fed purchased a combined total of about $1.6T of MBS and treasuries. In late 2009 and before the program began to wind down in 2010, The POSX began to rally in anticipation that that was the last of it...that The Fed was done and that QE was over for good. Anticipating the deflation that might follow, The POSX shot UP from 80 to 89 in under six months. (Sound familiar?)

Of course, The Great Ponzi began to rattle and shake without Fed liquidity and you know the rest. QE2 was announced just five months later in November 2010 and by mid-2011, The Pig was back down to 78.

We are, right now, in the exact same position! The "market" thinks that QE has been tapered to ZERO, never to be re-started. Do you think that? Probably not but we have to let the "market" sort this out for itself. Perhaps a war or false flag will provide cover for the Fed to start QE4? Does it even matter? You know it's coming and it's just a matter of when.

Back in 2010, the paper gold "market" didn't quite know what to do. It rallied and backed off. Sold off and then rallied. In the end, from late 2009 through mid-2010, price was about flat. And what do we see now?? Since the "taper" announcement last fall, gold has rallied and back off. It has sold off and rallied. In the end, price is about flat.

I still think that price is likely to weaken a bit more in the days ahead as the prospect of running the stops below $1180 has to have The Cartel Monkeys salivating. However, from just a purely "market"-based perspective, how much lower can/will it go IF you believe as I do that perpetual QE is now a necessity for the maintenance of the current system.

(And please don't tell me how gold slid 30% during QE3. Is it not clear to you by now that, after seeing gold rally about 70% during both QE1 and QE2, aggressive action was taken to prevent a similar rise during QE3? A rally which would have implied a price of about $2800 by 2014!)

In the end, QE will resume. The POSX will fall and gold will rally. Those that claim that "the bull market in gold is over" and that "gold is heading to $500" are either ignorant of history or purposefully misleading you. Gold will soon make a very important low and reversal. Prepare accordingly.


About the Author

turd [at] tfmetalsreport [dot] com ()


Sep 24, 2014 - 11:05am

Just a heads up

I think I'll make this public and send it over to the usual outlets later today or tomorrow.

Sep 24, 2014 - 11:11am


Mugatu Crazy Pills:

Sep 24, 2014 - 11:20am


but I read it first

H - original
Sep 24, 2014 - 11:20am


I made Turd..

Thanks Turd... been lurking for a long time.

Had to get out of my silver positions way back at $23 to accommodate family needs - excited by this cheap opportunity to get back in :)

4 oz
Sep 24, 2014 - 11:20am

Isn't this Yoga Wednesday?

Isn't this Yoga Wednesday? Nice to have a post so early today, ty!!

Sep 24, 2014 - 11:21am

2nd again?

Hi Turd,

Good jobs.

We'll know the true outcome after this expiry is over this week.

Sep 24, 2014 - 11:21am

making this public . . .good!

Turd Sooner then later please. Thanks

Sep 24, 2014 - 11:24am
Sep 24, 2014 - 11:30am

Tough Job

I completely agree with Turd's analysis today. The only thing I struggle with is the fact we heard "the bottom is in!!!" "Clear double bottom" " I was the only one saying gold is not going lower after the double bottom" in a multitude of podcasts. I don't fault anyone because a prediction is just that, and because the manipulation is so blatant. I just struggle to see what is ahead of us and am frustrated. I follow Rick Rule pretty close and even he thought a bottom was in but left a caveat that he had not seen a true capitulation as has happened in the past. In the meantime I plan to do what anybody should do in the bowels of a PM bear market. Keep stacking physical. And stacking. And stacking. I just bought a monster of a safe and these prices are going to help me fill it!

Sep 24, 2014 - 11:35am

Another possibility

Is that this is simply policy as reward for Europe keeping the pressure on Russia.

The Euro had an extended period of undeserved relative strength that continued to weigh heavily on their economies. The architect FED programming this financial matrix has enjoyed a low dollar and a rising stock market.... and now its time for the US to take some rising dollar pain on its 'stellar' economy... though I'm pretty sure the plan will be to hold stocks while relentlessly beating the PM's lower.

The Jackson Hole... ECB and FED announcements all came within a few weeks. I find it hard to believe that ... after a 'tapering' trend that has been in place now for a year... suddenly is new information that requires a dramatic shift in perceptions. We are now suddenly bombing Syria.... what happened to the conflict a year ago when Obama drew his little red lines and then had to stand down? And now not a peep out of Putin ???

And we are at the lows again while Asian metals exchanges come online... and the BRICS and daily and vocally abandoning the dollar (and of course... its getting stronger!!). I'm not sure there's anything 'market' about this except for algo's reacting to the picture that's being painted.

This is purely financial WAR.

Sep 24, 2014 - 11:36am

As Ukraine's debt tangle unwinds, Russia holds key thread

LONDON (Reuters) - A selloff on Ukraine's dollar debt is focusing attention on a controversial $3 billion bond held by Russia, raising investor concerns that President Vladimir Putin could use the issue to trigger a cascade of defaults across Kiev's sovereign Eurobonds.

The so-called bail-bond, taken out late last year by former Ukrainian President Viktor Yanukovich, carries a clause which - given Kiev's steadily worsening finances - may enable the Kremlin to demand immediate repayment.

At best, that could force Western lenders to stump up more cash for Kiev. In the worst - albeit less likely - scenario, so-called cross-default provisions carried by most Eurobonds would force payment on all Ukraine's remaining dollar bonds at once if Moscow is not paid on time.

Putin, who has annexed Crimea and is widely accused of stoking a separatist revolt in eastern Ukraine, is seeking to maximize economic leverage to prevent pro-Western President Petro Poroshenko fulfilling a far reaching free trade agreement with the European Union.

Under Russian pressure, the EU and Ukraine agreed this month to postpone implementation of the accord until the end of 2015 after Kiev accepted a ceasefire with the pro-Russian rebels in a conflict that has killed more than 3,000 people.

At the heart of the bond issue is an unusual clause in the covenant which stipulates "total state debt and state-guaranteed debt should not at any time exceed an amount equal to 60 percent of the annual nominal gross domestic product (GDP) of Ukraine".

As Ukraine's economy has shrunk and its currency has fallen, that level may already have been breached - Commerzbank analysts reckon the current hryvnia exchange rate around 13 per dollar is the trigger point. If not, debt-to-GDP will top 67 percent by end-2014, the International Monetary Fund predicts.

"There is little doubt the ratio will be crossed," says Standard Bank analyst Tim Ash. "Russia will likely use this issue to make life very difficult for Ukraine."

The issue is preying on Ukrainian officials' minds, Ash says, noting that Finance Minister Oleksander Shlapak told a recent conference he expects Moscow to demand early repayment. In that event, Kiev would dip into IMF money and the central bank's $16 billion reserves, Shlapak said.

But even if Russia does not call the bonds, there are other ways it can use them to strengthen its position against Ukraine.


Moscow was canny enough to structure the debt as Eurobonds governed by UK law and enforceable in British courts. So even without demanding repayment, the Kremlin as holder of almost a fifth of the outstanding bonds will wield huge clout if Ukraine is forced down the debt restructuring path.

Because the other bonds are in relatively few hands - U.S. giant Franklin Templeton alone is believed to hold 40 percent - a debt workout without Russia could be relatively simple.

Thus it would make sense for Ukraine to delay restructuring until the bail-bond expires in December 2015 - just to avoid facing Russia across the restructuring table. But it now looks unlikely Kiev can hang on that long.

"I don't think Russia wants to accelerate the bond because Ukraine does have the reserves to pay this debt. They want to be sitting at the restructuring table and have a say in the final outcome," said David Spegel, head of emerging debt strategy at BNP Paribas.

"That's the reason the (IMF and EU) have been unwilling to push the restructuring issue, it's one of the biggest impediments."

Sep 24, 2014 - 11:37am

"Clear Double Bottom"

Yep that was me and, in case you haven't looked, the DOUBLE BOTTOM is holding as price still has about a $40 cushion.

All I've said lately is that there is a possibility of it not holding simply because a determined Cartel effort to break $1180 would, undoubtedly, set off a boatload of sell-stops.

IF THIS HAPPENS, it will be a very short and very sharp, V-shaped low and I'm extremely confident that price would spike back UP and above $1180 in short order.

Sep 24, 2014 - 11:45am

Turkey’s gov't signals joining anti-ISIL bid

Turkish soldiers stand as Syrian refugees wait for permission to enter Turkey at the Yumurtalık border crossing near Suruç, Sept. 24. AP Photo / Burhan Özbilici

Turkey’s land forces commander inspected troops along the Syrian border on Sept. 24, as the Turkish government signaled a policy change in actively joining the international coalition led by the United States against the jihadist threat in Iraq and Syria.

Land Forces Commander Gen. Hulusi Akar visited Turkey’s military facilities and troops deployed along the Syrian border, where he was briefed by officers in the field.

Turkey boosted its military presence along the Syrian border to deal with refugee influx in recent years and with the potential Syrian offensive last year. There are also reports that the army has intensified its military mobility in the region after the Islamic State of Iraq and the Levant (ISIL) attacked the Syrian Kurds in the Kobane region bordering Turkey.

The development came after President Recep Tayyip Erdoğan, who is in New York to attend the U.N. General Assembly meeting, hinted that Turkey could actively support the U.S.-led aerial campaign against ISIL targets in Syria.

Talking to journalists in Ankara, meanwhile, Deputy Prime Minister Yalçın Akdoğan stressed that “military cooperation” was a wide definition that could have many different meanings.

“Asking whether Turkey will fire a bullet is one thing; asking whether it will engage in a military campaign is another thing. Militarily, you can provide human intelligence or visual intelligence. You can supply with logistics. You can take part in military campaign through various means,” Akdoğan said.

Recalling that U.S. officials wanted to see Turkey playing a central role in the fight against the ISIL, Akdoğan underlined that Turkey was geographically the closest country to the threat and it is already embroiled in the issue. The deputy prime minister said victory against ISIL can only be claimed by ground troops, hinting that the Free Syrian Army is the best option for this but it has not been provided with adequate weapons to fight against both the Bashar al-Assad regime and the ISIL.

“With whom you are planning to ally in the region? What is your objective? That’s why Turkey wants to see a broader Syrian policy,” he said.

Akdoğan stressed that Turkey’s level of participation in the coalition will be evaluated in the Cabinet and other state institutions. Erdoğan had said earlier that Turkey will make its decision after his return to Ankara next week.

Sep 24, 2014 - 11:57am

Are we talking about $1180 here?

Wouldn't a touch down to that level and spike up and all the way back above $1300 make it a TRIPLE bottom - June/Dec 2013 and Sept/Oct 2014?

Sep 24, 2014 - 11:59am

Turd still is talking about a

bottom in paper gold in the not too distant future.

The way he argues seems logical. And here is the problem: Anything that was rational during the last 3 yrs expecting the metals to stop their decline and resume their way up was.....reason for them to fall further.

Still too much optimism in the market. I expect to see the metals fall through fall to the end of '14. Bottom might be in early 2015, who knws. Unless H. Organ and R. Kirby predictions (surprisingly) come true and Shanghai runs out of the physical stuff.

Sep 24, 2014 - 11:59am
Sep 24, 2014 - 12:06pm
Sep 24, 2014 - 12:08pm


saw a NYT article on line yesterday that said medicaid cost was 6,600 per person.

we already have 82 million on medicaid. It appears tha Obamacare could bring in ~35 million folks to Medicaid.

thats 230 billion more per year in spending and probably about 50 trillion mo rein unfunded costs for medicaid, but I do no tkno wif the current unfunded entitlement costs include hthe 82 million already in medicaid.

anyway you cut this its going to cost us money we do not have.

there was also a report out today that the GAO tried to find out what the costs of Obamacare and could not because the data is not available.

deeper and deeper.

there still is no such thing as a free lunch

Sep 24, 2014 - 12:12pm

Q: Silver miners locking in prices

I am hoping there might be an expert here on this. As the price of silver has likely slide under production costs, I am assuming that silver producers/miners have locked in their prices by using options. That way they would be able to continue selling at at least break even if prices continue to go lower. Is this what is happening?

If so, can a company keep this up indefinitely at, say $17.50, or does this "insurance" break down if the price stays below production for too long? Put in another way, how long can prices stay below production costs before it makes no sense to sell silver? Here I'm assuming that deep pocketed companies may keep production going, but just sit on their silver until prices are profitable.


Texas Sandman
Sep 24, 2014 - 12:14pm

Very good post

Absolutely agree. We're also in the same position as 2008 before they began "extraordinary measures". Land of $8.50 silver on its way to $50. This post is too good to leave for the hoi polloi.

High value for the pig while good for import prices is absolutely terrible for multinational corporations and you'll see that reflected in the stocks.

Sep 24, 2014 - 12:50pm

If it took 5 months in 2010 to "restart" QE

Based off of that stat alone, there's no friggin' way that 4 years later the Fed can even wait that long. Deflation, not to mention stock market plunging will get them back in QE mode in a hurry.

I predict that they'll be back 3 months after the Oct meeting - coinciding with the Jan 2015 FOMC meeting. QE infinity to infinity will be announced.

Can totally see 1450-1550 gold by Jan 2015.

Sep 24, 2014 - 12:59pm

Concur with everyone here

Too good of a post. It's a must as a bookmark - stash-away with all those other cues such as the holy grail Gazprom deal, Ken Hoffman, etc. Will one day dust this one off and show it to my posterity. Papa got guidance from some dude named Turd who's shouting from the top of his lungs from some bunker in Kansas.

Amazing, indeed.

Sep 24, 2014 - 1:11pm

Note that I've added the word "Bias" to the title

After speaking with Ranting Andy, I thought it was necessary. Just to clarify, I'm not expecting "deflation". This is just a recognition that the "market" is now working on a post-QE, deflationary bias.

Texas Sandman
Sep 24, 2014 - 1:15pm

No sense in selling at breakeven

unless you think prices will never go above breakeven. And if you believe that, you close the business.

The goal of a business is to make money. Makes more sense to shutter the mines and wait.

I'm wondering how many are hedged at prices north of 22.

Sep 24, 2014 - 1:17pm

Most traders out?

How many more weak hands are in the AU market? With 2013 being a net down year in gold, and 2014 nearly down YTD, and looking anemic compared to putting your money in the S&P, if one were not a gold bug, why would you be in gold at this point. I can't see much more downside except for fleecing some large spec sheep, which would create a V shaped bottom down and back up again, as Turd predicts here.

I suspect that TPTB want Sept to be a down month for AU and for 2014 to be down or flat. They, as others have stated, cannot afford for demand to flood back in and take physical off the market.

What if the US and GLD really are out of gold and China-India-Russia agree to let the banksters drive price lower to cover all their shorts, then the CME trading platform for paper is retired?

How long until the measly ounces in small bars and coins to service our class of investor are gone?

When that small stock of metals is gone, and when there are no big bars for refiners and mints to replace it, the battle is over, and it will takef15K to acquire an ounce of AU as Maloney believes. (Thanks for the video Dan)

We should stack it while we can. How does the old Beatles song go?

If you want it, here it is, come and get it, make your mind up fast....

...Did I hear you say that there must be a catch, would you walk away from a fool and his money...

...But you better hurry cause its going fast!

Texas Sandman
Sep 24, 2014 - 1:17pm


If there is no QE4 and the government can't foist its debt off on some fool from abroad, what happens?

The true purpose of QE is back handed debt monetization.

To say there will be no further QE is to believe there is some other buyer of US Govt debt.

Sep 24, 2014 - 1:20pm

Deflation bias

I am seeing products that are in big supply (cars, homes) going down in value and products like food rise. (I went grocery shopping yesterday!) they cannot let the price of gas (petrol) rise in the US. We would have a street protests if it went above $5 per USG, unless the Kardashians have another well-timed juicy scandal.

Sep 24, 2014 - 1:23pm

There will be no QE4. 

There will be no QE4 or infinity. FED will rise rates in ..Q3 2015. The war premium will save the UST and keep debt interest low;

Besides, interest on USG debt held by FED is 0 as FED profits from these are paid back to Treasury. So QE UST sales its not debt at all in fact long as no one requires the principal back..but it reduces the supply of USG debt notes in the market, keeping the price up.

Sep 24, 2014 - 1:25pm

The differences are many

In 2008, there was a crisis in the credit markets. Specifically when Lehman went belly up the money market funds broke the buck. The short term funding markets dried up completely. I watched it happen in real time. With all the liquidity that has been provided by the Fed, I think a similar scenario is completely off the table. The Fed put guarantees on Money Market Mutual Funds, and the Commercial Paper market. There is nothing to say that if a crisis develops that they wouldn't put these measures back in place.

The real panic, was in the funding markets, and anything and everything was sold to keep the liquidity from completely seizing up.

So in this sense the situation that we are in today is 180 degrees opposite of what we saw in 2008. I think commodities and bonds will be bid up when the equities markets start to crack. The high degree of negative correlation between equities and gold will hold in my opinion.

So I think that what we are seeing here is the last attempt of the Commercials to move from net short to net long the metals, as they know what is coming in the equity markets. If they are net long, and refuse to add shorts like they have in the past, this could get unruly to the upside. The large specs would have very few longs to left to buy from.

Interesting times indeed.

Sep 24, 2014 - 1:30pm

Quote:To say there will be no

To say there will be no further QE is to believe there is some other buyer of US Govt debt.

Absolutely. Also, one can always utilize pensions for that purpose. Patriotic USA citizens. Japanese story.


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