American Austerity

Wed, Nov 5, 2014 - 11:14am

So now the R-republocrats will be in charge again for the next 4-6 years until the D-republocrats get voted back in. This, of course means that austerity reigns and all of America's fiscal issues have been solved, thus the rallying dollar, which means the yen is lower, which means gold and silver are down.

In our totally broken, sham "markets", this is how it works. Don't believe me? Feast your eyes on this. The yen is in candlesticks, gold is in bars:

And lest you think that this is just some overnight phenomenon, here's a chart that covers the past six months. If you're looking for a perfect 1:1 correlation, I think you've found it! Particularly in the blue box that covers everything since July 1:

So, as I've pounded the table the last 4 or 5 podcasts....It just doesn't matter!

  • Technical charts patterns don't matter
  • Potential support points don't matter
  • Demand from China doesn't matter
  • Physical clearance in London doesn't matter

None of it matters! All that matters is that a handful of hedge fund algos are programmed to sell gold with every downtick they "see" in the yen. It makes no difference what the cost of production is. It matters not what the global demand picture is. All that matters is that 50-60 hedge funds are selling paper gold derivatives every time the dollar upticks / yen downticks.

And this will continue until it doesn't. When will that be? It's nearly impossible to say. If I were to hazard a guess, I'd say that the correlation will break sometime before gold gets to $5/ounce.

(Of course, I'm only joking...sort of. Sheesh!)

A moment is coming where The Banks...yes those nasty, evil, soulless Banks...will step in to defend the price. Why? Because they simply will not have the capacity to deliver gold at some point and they won't be able to allow it to go any lower. WHEN they do this, the correlation will finally break, gold will have reached its Final Bottom and a massive, sharp short-covering extravaganza will begin.

However, if you or I think we can predict exactly WHEN this is going to happen, we're crazy. For now, all we can do is watch the fireworks with at least the comfort of knowing why and how things are happening.

The charts say that $1045 gold and $14.65 silver should offer some support. OK, fine. But, if the yen really is going all of the way to 80/120, do you think that gold will actually just arbitrarily stop at $1045? Not likely. Again, gold will reverse (and silver, too) when it finally reaches a breaking point where paper price is driven so low that available physical supply is exhausted and The Bullion Banks no longer have gold to deliver. That could be later today at $1145. That could be next week at $1045 and it could be next month at $945. But that moment is coming. Unfortunately, we'll likely have to endure a few more days of emotional distress before it arrives.

And just a few extra words about silver because what has happened to it over just the past week is almost beyond comprehension. In just the past five days alone, silver is down over or about 15%. With today's low of .13, price is now 20-30% below the recognized cost of production for most miners and nearly 50% below what analysts call the "sustaining cost"...that price needed to actually keep the mine running at a break even pace. How can this be? Again, it has everything to do with algorithmic trading and nothing else.

On last week's CoT report, there was just a total of 44 "managed money" (hedge funds) on the short side of the "market". 44! Those 44 funds continue to pile on the naked shorts as they chase momentum, continually driving price lower and lower and lower. These funds do not own physical silver and they have no intention of providing future delivery. They are simply selling paper derivatives and capitalizing in the downward momentum that they themselves have created. You don't need physical silver to short paper silver. All you need is enough paper money in your account to cover the margin requirement.

This is grotesque. This is in direct opposition to the original rationale behind having futures/forwards markets and this absurdly low price is having an horrific impact on mining companies and their employees. Yes, this cycle will break and price will recover but at what cost, both business and human? It is very frustrating and being powerless to change it is very much disheartening.

Finally, after last week's failed chat room experiment, I thought that this week's A2A should just be yours truly in the regular GoToWebinar format. We'll get back to the regular format next week as I've already secured Mr. Turk as a guest. For tomorrow, however, just click here if you'd like to join us:

Hang in there,


About the Author

tfmetalsreport [at] gmail [dot] com ()

89 Comments on American Austerity

Subscribe or login to read all comments.

Become member and subscribe to Turd's Vault


Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 6/14

6/15 8:30 ET Retail Sales
6/15 8:30 ET Producer Price Index
6/15 8:30 ET Empire State Manu Idx
6/15 9:15 ET Cap Ute and Ind Prod
6/15 10:00 ET Business Inventories
6/16 8:30 ET Import Price Index
6/16 2:00 ET FOMC Fedlines
6/16 2:30 ET Chief Goon Powell presser
6/17 8:30 ET Philly Fed
6/17 10:00 ET Leading Economic Indicators

Recent Comments

by ancient Egyptian...ex-canary, 2 hours 42 min ago
by AIJ Tahoe, 4 hours 19 min ago
by Marcus, Jun 14, 2021 - 11:56pm
by murphy, Jun 14, 2021 - 10:48pm
by Mickey, Jun 14, 2021 - 10:32pm
by SteveW, Jun 14, 2021 - 10:22pm

Forum Discussion

by sierra skier, Jun 14, 2021 - 8:32pm
by Pete, Jun 14, 2021 - 1:29pm
by AccidentalTourist, Jun 14, 2021 - 1:00pm
by Green Lantern, Jun 14, 2021 - 1:00pm