In Greater Detail

Tue, Nov 11, 2014 - 11:15am

I've gotten a few emails and I saw a few comments overnight, so I thought I should take some time to discuss again the ongoing relationships within our wholly computer-driven "markets".

To wit, the questions basically center around this:

"Turd, why the heck does gold move with the yen? This makes no sense. Fundamentally, a weaker yen (or any major fiat currency) should be positive for gold, not negative."

And my answer is:



This is the point. The question is fundamentally correct. The yen is a major, major global fiat. Only The Pig and the euro have a more prominent role in global finance. And the Bank of Japan recently announced that they are now going to be printing (devaluing) the yen to such an extent that they will be completely monetizing ALL ongoing Japanese government debt. An announcement like that should have driven gold much higher. Instead, as you know, it went much lower. Why?

Because, at present, the small handful of hedge funds that are trading gold derivatives have been programmed to sell gold with every downtick in the yen, likely because every downtick in the yen leads to a corresponding uptick in The POSX. So, a hedge fund computer "sees" a falling yen and it almost immediately responds by selling paper gold. There's no logic in this and certainly no assumptions regarding the fundamentals that are being made. Instead, this is simply a fully-electronic transaction, executed by high frequency trading computers.

Fools and goons, like those in the financial media or at the Perth Mint, would have you believe that this is "the gold market". That the "price" is set by about 60 actively trading hedge funds versus 6-8 Cartel banks and, to a certain degree, they are correct. So long as physical transactions continue to occur at/near the paper Comex price, then the electronic derivative market continues to have legitimacy.

Ahh...but what happens when it doesn't?

Somewhere between paper price $1155 and paper price $155, there will be an economic disconnect. Conceivably, the machines could mindlessly drive paper price to zero if the only factor taken into consideration when trading paper derivatives was changes to the value of the yen vs the dollar. But, at some point along the way, holders of physical metal will refuse to sell at the falsely-contrived paper price. This equals less supply. Also, at some point, miners of physical metal will refuse to operate their mines at the falsely-contrived paper price. This also means less supply. And if this occurs while demand continues or increases, the "market" will break.

Why? Because for a paper commodity derivative market to have any legitimacy at all, there must be physical deliveries made at the paper price. Again, why? Because if no physical deliveries are made at the paper price, then the price is pure fantasy.

Think of it this way. Let's say your local supermarket decides to offer strawberries at 25¢/pound even though there are no strawberries to be had on the wholesale market for anywhere less than $2/pound. Buyers soon show up and take delivery on all of the strawberries the supermarket had in inventory at the uneconomically low price. In order for the the market to then continue selling strawberries at 25¢/pound, they'll need to find a source of new berries willing to provide them at that price level. But holders of existing strawberries aren't selling below their real value and farmers aren't going to produce them at 25¢/pound and, so, the supply of that price...dries up. There is no "market" left. Oh sure, the supermarket can pretend that they still have strawberries on sale at 25¢/pound but if no one is actually buying them and taking them home at that price, then it's all just a fantasy regardless of the goons who are quick to declare a relentless bear market in strawberries.

So, what the hell am I writing about here? (And this is why I like the podcasts so much!) These "markets" are hopelessly broken at present. Physical price is being set by a small collection of hedge funds that are only selling paper derivatives based upon downward movements in the Japanese yen. This has no connection to economic fundamentals and this has no connection to physical supply and demand. Don't believe me? See for yourself:

Again, physical delivery must take place at the paper price or the paper price loses all legitimacy. Notice the blue ovals on the charts above. A disconnect has suddenly appeared in the yen/gold correlation. Is this the first sign that paper price has been driven down as low as it can go without breaking the paper---physical connection? Maybe.

The anecdotal evidence continues to come out of London where the supply of readily-leasable, 400-oz gold bars is apparently quite tight. GOFO rates plummeted again today and are back to the 15-year lows that we first saw last Thursday. Note the overall change from Oct 22 to today but pay particular attention to the dramatic change that began when the calendar flipped to November:

And so why is all of this important? Because:

  • If the yen is going to be devalued to almost nothing
  • And if the computers are going to continue linking the yen with gold
  • And if physical supply continues to be found at lower and lower prices
  • Then there is nothing stopping price from moving even lower

Charts, fundamentals, physical demand be damned. None of it matters if The Bullion Banks are able to continue delivering physical metal at the electronic derivative price. And that's the main question, because if the Banks don't have the metal to deliver here:

  • Paper price MUST rise to the point where delivery stress subsides OR
  • The long-awaited end of "futures wagging spot" is upon us

And, either way, this will be very exiting and good news WHEN it happens.

Lastly, before I head out, I just want to thank everyone for the kind notes and words of wisdom following yesterday's podcast. Again, the message I meant to convey is this:

Please try to help others when you can. Maybe even just a smile or a kind word. You never know what demons some other person might be struggling with and maybe, just maybe, a kind gesture from you could be the one thing that turns everything around. None of us exist on an island and all of our actions and interactions have consequences, some known but most unknown. To that end, try to be a force for good and endeavor to always make your impact a positive one. You weren't put here to simply serve and enrich yourself and, as the world seemingly grows darker with each passing day, it is imperative that we all keep this in mind.

More later,


About the Author

turd [at] tfmetalsreport [dot] com ()


Nov 11, 2014 - 11:01am


Just a note on this as the numbers are still preliminary and I usually wait to discuss OI changes in the afternoon podcasts.

But this is amazing and very strange! As noted yesterday, total Comex gold OI surged on Friday by over 16,000 contracts to its highest level in 16 months. This was not unusual or unexpected given the sharp rally on Friday but significant, nonetheless.

Here's where it gets amazing and strange:

The preliminary numbers for yesterday, when price gave back about 40% of Friday's gains, show another increase of nearly 13,000 contracts! If shown to be final and accurate, this would bring the total Comex gold OI up to 447,204. That's the highest level since 5/22/13 and an increase of 86,000 contracts (+23%) since the multi-year low OI of 360,935 seen back on August 27 of this year.

Why the sudden HUGE jump? And why yesterday?? Simple logic would have led us to assume that OI would have fallen yesterday as some of those who bought on Friday were chased right back out. Instead, even more OI joined the party! This is extremely unusual and I'm not sure what to make of it. Taken in tandem with the GOFO rates, it certainly has me curious.

Again, let's wait for the final numbers this afternoon and this will give me some extra time to analyze and consider the ramifications.

Nov 11, 2014 - 11:03am

Thursday A2A

Again, this week's A2A will be with Mr. Turk. If you're sick of the KWN headlines and would like, instead, to ask James your own questions...well, this is your chance.

You can register to join us by clicking here:

arch stanton
Nov 11, 2014 - 11:33am

no 2

happy vets day all

Condolences from yesterday

Nov 11, 2014 - 11:33am


Yes, you're right, Turd. Let's try making this a better world by the time we leave than it was when we entered. A smile and a kind word cost nothing but can sometimes mean so much (who know what burdens others might be carrying?). We're all in this together. Thank you for so poignantly reminding us of this in yesterday's very difficult and sad podcast. You're a good man, Turd.

Nov 11, 2014 - 11:33am

Putin's gallantry upstages Chinese host at APEC


BEIJING (AP) — It was a warm gesture on a chilly night when Vladimir Putin wrapped a shawl around the wife of Xi Jinping while the Chinese president chatted with Barack Obama. The only problem: Putin came off looking gallant, the Chinese summit host gauche and inattentive.

Worse still were off-color jokes that began to circulate about the real intentions of the divorced Russian president — a heartthrob among many Chinese women for his macho, man-of-action image.

That was too much for the Chinese authorities.

The incident at a performance linked to this week's Asia-Pacific summit originally was broadcast on state broadcaster CCTV and spread online as a forwarded video. But it was soon scrubbed clean from the Chinese Internet, reflecting the intense control authorities exert over any material about top leaders while also pointing to cultural differences over what's considered acceptable behavior in public.

"China is traditionally conservative on public interaction between unrelated men and women, and the public show of consideration by Putin may provide fodder for jokes, which the big boss probably does not like," said Beijing-based historian and independent commentator Zhang Lifan.

Xi's wife, Peng Liyuan, was once a popular folk singer more famous than her husband, and in contrast to her predecessors she has taken on a much more public role, prominently joining her husband on trips abroad as part of China's soft power push to seek global status commensurate with its economic might.

Propaganda officials have built the image of Xi and his wife as a loving couple. Photos of Xi shielding his wife from rain on a state visit, picking flowers for her, or simply holding her hand have circulated widely on China's social media, prompting much oohing and aahing.

"When the president personally held up the umbrella for the madam, it complies with the international norm of respecting women," blogger Luo Qingxue wrote on the news site for the party-run newspaper People's Daily last year after Xi was seen holding an umbrella over himself and Peng on a state visit to Trinidad and Tobago.

But Putin messed up the script Monday night while Xi chatted with the American president.

In the video, Peng stood up, politely accepted the gray shawl or blanket offered by Putin, and thanked him with a slight bow. But she soon slipped it off and put on a black coat offered by her own attendant.

It spawned a flurry of commentary on China's social media before censors began removing any mention of the incident.

Nov 11, 2014 - 11:33am

Great Heads Up Turd

On the OI can't wait till this evenings podcast for more of an update as I'm an Auditory learner, hence why I don't post that much and only express by video.

Also, well said, "Please try to help others when you can. Maybe even just a smile or a kind word. " It's my goal to do that every day. Keep Stacking

Steve Silver
Nov 11, 2014 - 11:35am

Turk A2A

Hi Turd

Always liked Turk excited to be able to ask some questions. Its often difficult for me to join the A2A because of work. So here are my questions for Turk. 1. Since Gold Money has to purchase physical gold how can they do that if LBMA vaults empty. 2. Is there a delay time for bullion delivery and how has it varied. 3. Is GOFO accurate or manipulated BS. 4. has the bear market significantly reduced Gold Money customer holdings. I trust an answer from Turk alot more than the GLD banksters.



Nov 11, 2014 - 11:37am


my first first?

Edit: Thank you Turd and Company for continually providing your observations, thoughts, and insights into this market. It's the anchor that grounds me to the reality of our situation, that allows me to continue to purchase physical in the face of this onslaught. Since my last post, I've made good on my statement of buying at 18, 17, 16, and will continue if need be at 15 on down. Feels good. The 'bets' on the miners and the leveraged etf's in my 'possession' not so much. Looking forward to seeing Santa this Saturday. I'll provide a brief synopsis if I can this weekend.


Nov 11, 2014 - 11:41am

All the signs we look at are being confirmed by price

At least for now - very positive sign that gold is moving up based on :

1) Huge jump in Gold OI on price jump and price smash

2) GOFO back down sharply negative

3) Price is back above $1160 as we speak

4 oz
Nov 11, 2014 - 11:44am

WOW~~~ Todays Holter!

Very “quietly” the world’s 20 largest economies will meet in Brisbane, Australia later this coming week. I use the word “quietly” because here in the U.S. almost no mention of the upcoming meeting has been made.....

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