Curiouser and Curiouser

Fri, Nov 14, 2014 - 11:43am

As gold refuses to buckle under the stress of a sharply falling yen, signs are increasingly pointing to stress within the physical delivery system...stress that might ultimately break the physical---paper link.

If you listened to yesterday's A2A, you heard Mr. Turk emphatically agree with my assessment:

Without physical delivery at the paper price, the paper price loses all legitimacy.

It is absolutely critical that you understand this. We're not talking about stocks, bonds or other, strictly paper assets. Instead, we're talking about hard assets...commodities, specifically precious metal. In order for a paper derivative contract to have relevance and legitimacy, there MUST be physical transactions consummated at/near that price, otherwise it's just a fantasy.

For example, you and I can't establish a contract for an ounce of gold at $100,000 (yet). Why? Because I won't buy it from you at that price (yet). I can find it cheaper (for now). Similarly, we also can't establish a contract for an ounce of gold at $20. Why? Because I'm sure as shit not giving you my gold for $20/ounce. In both cases, we can establish these contracts all we want but they're illegitimate...they have no relevance...because physical transactions are not taking place at the prices our paper contract specified.

This may be a gross oversimplification but I imagine you get the point and you can see how this analogy fits in with today's paper gold derivative market. If the bullion banks are unable to source physical gold to deliver at the current paper price...a price which has been uneconomically driven lower by HFT algos that sell gold tick-for-tick with the yen...then the paper price loses credibility. This is what we've been waiting years for and we may be seeing the first signs of this phenomenon right now.

Again, as discussed to the point of tedium, the paper price of gold has been loosely linked to the falling yen since 2008. However, this horrific distortion has reached a disgustingly odd, perfect correlation since June of this year. (Note the blue box but also note the red oval on the chart below.)

It's that red oval that has my attention. Why would gold suddenly begin to diverge from the yen link? Conceivably, since they're both paper contracts driven by computer trading, there's no reason for them to suddenly separate. If the USDJPY is going to 120 and then 145, then there's no reason why paper gold can't fall to $1000 or even $900.

Ahhhhh.....but there is a reason. Fundamentals. More specifically, physical demand and the requirement for physical metal to be delivered at the manufactured paper price. I'll remind you again of the sudden, huge drop in London GOFO rates that began three weeks ago. Note that today saw another new, 15-year low in the one-month rate and the six-month has once again turned negative. Negative GOFO has always been and always will be (at least until Jan 30) a signal of extreme physical tightness in London, where gold in tonnage is delivered.

Considering this, let's look even closer at the fraying gold-yen link. Here's a two-month chart:

And here's the chart for just the past 5 days. (This chart isn't perfect because the scales aren't quite the same percentage but it works nonetheless.)

And now, as I type, both metals are extending their gains even while the yen inches back lower (or the USDJPY inches back higher at 116.553). I have a last in the Dec gold at $1175 and the Dec silver is $15.90. Things are currently moving so fast that I'll need to excuse myself for a minute in order to print off some new hourly charts. I'll be right back...




OK, I'm back. Again, the point of all this is that we MAY have found the price levels below which The Bullion Banks cannot source enough metal to meet the physical delivery demands. Not wanting to lose their scheme which has served them so well for nearly 40 years, The Banks have no option but to forcible break the gold-yen link and begin squeezing the shorts. Now, they've got to be careful, though. The last thing they want it to set off a panic and drive price way higher and back through the long-term trendline. (More on that next week.)

For today, though, let's watch the action very closely. A CLOSE in gold ABOVE $1181 would be a very encouraging sign and it would make all of the smarty-pant shorts who sold below there VERY nervous heading into next week.

Note how price has sprung from the $1145 level on three, separate occasions. This could be, might be, is possibly the level below which The Banks can't find enough metal to meet physical demand.

The same might be said for silver. Note how price has now sprung twice from $15.25 and a close today back into the 16s would be very constructive.

Finally, one more piece of the puzzle that has really captured my attention is the surging Comex open interest. The numbers for yesterday are still preliminary as the final numbers are not released until early afternoon the following day. However, the preliminary numbers show another HUGE jump in total open interest for both gold and silver.

Yesterday, while gold was up a measly $2.40 and was contained within a 1% range for the session, the total Comex gold OI apparently surged by another 9,700 contracts as 8,700 Dec14s were closed out while 15,700 Feb15s were opened. IF these numbers verify, the total gold OI is now 450,363. This is up nearly 90,000 contracts (+25%) from the multi-year low of 360,935 seen back on August 27. WOW! This would also be the highest total OI since May 20, 2013.

In silver, total Comex OI rose yesterday by 3,565 to 175,263. IF verified later today, this would put the total Comex silver OI back within shouting distance of the all-time high of 179,608 seen back on October 30.

So, what the hell does this mean? As you know, silver OI has been at record high levels for quite some time but why the sudden, 25% surge in gold OI??? And upon which side of the trade are all these new contracts being opened? Is this a parade of late-coming Large Spec shorts, chasing the yen and getting absorbed by a greedy Cartel ready to slam the Bear Trap on them? Maybe. We'll know a little more later today when the CoT is release at 3:30 EST. Rest assured, it will be a major topic of discussion in today's podcast.

OK, it's getting late so I'd better stop here and get this posted.

More later,


About the Author

turd [at] tfmetalsreport [dot] com ()


Nov 14, 2014 - 11:44am

Maybe First

maybe not

Nov 14, 2014 - 11:49am



whats the news for the $25 gold and 50c silver spike?

Nov 14, 2014 - 11:51am


time gold has been stuffed around 1180

Nov 14, 2014 - 11:55am


breaking out and holding above 15.80 is encouraging FOR NOW 

Nov 14, 2014 - 11:59am

Nov 14, 2014 - 12:03pm
Nov 14, 2014 - 12:07pm


there was an article today that ISIS plans to introduce a gold and silver currency

If you read what IS intents to do in that regard one comes to the conclusion that theses guys are quite rationale in terms of knowing what good money is. Once sponsored by CIA, and finally re-launching real money......wondering if that was the initial plan of the Western and Saudi elite. 

Nov 14, 2014 - 12:11pm

Ferdinand Lips

Me thinks Soros is his doppelganger

Nov 14, 2014 - 12:12pm

Ag Au on a run?

I hope so run ya rat bastard pm shorts ( nice even if it doesn't last ha h )

Nov 14, 2014 - 12:12pm

Just got this from a guy in Switzerland

The SGI now has its own theme song!

Nov 14, 2014 - 12:16pm


I remember reading that the sharia gold/silver ratio is one to seven, pretty sure an old turdite wrote about here one day, can't for the life of remember who it was tho

Nov 14, 2014 - 12:18pm

This post sure seems rather timely...

Nov 14, 2014 - 12:22pm


The Theme song is a fabulous idea--rhetoric from the heart of the youth. the message is solid and captures a feeling that perhaps many Swiss have been experiencing but were not able to articulate. I presume it was originally written in Swiss and getting playtime over there?

That weekly gold chart is sure looking like a bottom is forming with two hammer candles. I am certain they want gold to show an annual loss, which means they will strive to keep it below 1237. The last thing they want is a CNBC head talking about a 7% gain for the year with gold, which is only about $1320. They have certainly boxed themselves into a corner.

  • Declining inventories of gold to deliver to hold price down.
  • Price at or below mining cost.
  • Miners cutting production or going out of business if it goes lower.
  • Any move up could re-ignite widespread interest in gold as an "asset class."
  • 80% of the world wants more cheap gold.

With six weeks to go in 2014, perhaps we get a bounce to ease some pressure, then a well timed smash to meet their annual goals for the price?

Edit: Wow, this little rally isn't slowing down yet. How am I supposed to get any work done today now?

Nov 14, 2014 - 12:25pm

IMO we still need

to see the gold stocks make a higher high to confirm this rally in gold is for real

Nov 14, 2014 - 12:25pm


now we are decoupling, imagine the bid we will find if the yen can have a little pullback.....

there will be blood.


Nov 14, 2014 - 12:26pm

Watching the HUI too

Can it crawl above and close above 165?? That'd be a start...

Nov 14, 2014 - 12:29pm

You know, one possible

You know, one possible explanation for the surging OI is a growing realization that the SGI is actually going to pass. The dumbass "market" would look at this as a possible demand surge and anticipate by buying futures.

NOT saying that this is the case. Just a possible explanation.

Grey Mare
Nov 14, 2014 - 12:29pm


Dr. J,

Switzerland has four national languages: French, German, Italian and Romansh.


Nov 14, 2014 - 12:32pm

Gotta tell ya

This is really getting interesting. Nothing conclusive yet but it sure is fun to think sometimes that I may actually have some idea what I'm talking about...

Note that the yen is still down on the day by 0.36% while gold is up 2.16%.

Nov 14, 2014 - 12:32pm

Could it be

"Expected" language at G-20 about personal bank deposits to shield taxpayers instead of governments during crisis? Bail-ins vs bail-outs? Why have cash in a bank? Go to true money


Nov 14, 2014 - 12:32pm

just popped 1180 1200 here we come

just hit 1190

and if you look at the weekly gold closing price we just bounced of that very important trend line which is VERY significant

Nov 14, 2014 - 12:33pm


That could very well have something to do with it, too.

Nov 14, 2014 - 12:35pm

Like Turd mentioned

a WEEKLY close above 1180ish would make all the chart monkeys REALLY NERVOUS :-) 

Nov 14, 2014 - 12:41pm


a few weeks ago he discussed this and said by mid Nov we should see gold run up if the SGI was for real.

now, add in we have the dec contract coming up in less than 2 weeks.

how much paper can banks or whomever toss at this before the swiss vote to try to drive gold down.

I have said repeatedly that when gold runs up its phenomenal. Learned that from Sinclair.

not counting on it yet, but this feels different.

Nov 14, 2014 - 12:50pm


Talked the Swiss initiative this AM. Missed most of it, but he emphasized that the Swiss powers that be are agin it as all governments involved with fiat would be.

Nov 14, 2014 - 12:55pm

swiss vote

double posting, sorry !

Nov 14, 2014 - 12:59pm

regarding the SWISS vote

Yesterday I saw the ballot regarding the Swiss gold referendum (Turd Twitter Link), and as German guy I can guarantee you: The way the question is asked: Wollen Sie die Volksinitiative "Rettet unser Schweizer Gold" annehmen?.........will only be answered by a YES by each person that is not particularly familiar with the case. The word "Rettet unser" in this case definitely has the meaning of "rescue our". So each person that is not sure how to decide will go for YES, just to be on the safe side.

So if I see how the SWISS gold question question is actually being raised I am inclined to say that there will be a pro- gold vote on Nov. 30th.

Nov 14, 2014 - 1:04pm

Exactly Lakedweller

There is no way that TPTB will allow the Swiss gold referendum to pass with a yes vote. It would cause a huge domino effect across all banking, fiat currency, and gold hypothecation schemes. Ron Paul primary election results, manipulated. Scottish Independence vote, manipulated. Bush/Gore election, manipulated. Swiss guess

Nov 14, 2014 - 1:09pm

Cautiously It does feel different

Been nibbling this am on PM equities. With all that's going on that could/should have a meaningful affect on PM pricing, we're entering a pivotal weekend where being short is a risk with minimal reward. The OI this afternoon will clear up few things. Turd don't sell yourself short here. There's not one in hundred analysts out there that could have figured out the weak yen/weak gold relationship or the deflationary bias that's been the undertone of the economy. Hat tip to you for looking at things in different way. Something tells me the shtf after our market closes regarding Ukraine. Just one of those hair on the back of your neck feelings.

Nov 14, 2014 - 1:10pm

Forbes hit piece on gold

This Will Be Fun As Islamic State Mints Its Own Gold Dinar

We’ve all got the usual problems over the Islamic State, ISIS, IS, whatever they’re calling themselves this week. A return to a medieval theocracy isn’t generally regarded as an advance in the human condition after all. But they’ve also decided to return to medieval currency and monetary policy by minting their own gold, silver and copper coinage.

-(Copper, Silver, and Gold were used in national currencies as recently as 3-5 decades ago, hardly a span that evokes medieval times.)

The first problem is that they’re saying they want to do this to differentiate themselves from that “satanic” global economy. And making your money out of something that is instantly exchangeable for any and every other currency on the planet really isn’t going to do that. Gold (and silver) are instantly tradeable anywhere there’s a jeweler or antiques shop. You can swap if for $, £, €, any other currency at all, anywhere you can physically transport the coin to. The way to cut your economy off from all those Godless is not therefore to have a currency which all and any of them would be delighted to hold. Rather, it’s to have a paper based script which is only of any value within the territory that you control. Print up some banknotes, say it’s legal tender, just like every other fiat currency, and it’ll be worth toilet paper outside your territory and whatever value you ascribe to it inside it. That’s the way to create an autarkic economy, not the adoption of a highly liquid and international commodity as your currency.

-(Read the above paragraph a few times. You will notice that he actually promotes the use of gold. "...instantly exchangeable for any and every other currency on the planet... Gold (and silver) are instantly tradeable...You can swap if for $, £, €, any other currency at all, anywhere you can physically transport the coin to." That is hardly a scathing rebuttal of PM. In fact, isn't that one of the primary reasons we own it? What he is describing is Liquidity. )

(It seems that he fully understands the truth behind fiat as well "...Print up some banknotes, say it’s legal tender, just like every other fiat currency, and it’ll be worth toilet paper outside your territory and whatever value you ascribe to it inside it." It seems he is suggesting that they intentionally create something that will not serve their purpose. They want to save money in a potential growth sector that is highly liquid. PM are the best solution. They can't sell deeds to the land they have claimed, they don't manufacture or export anything, which seems to limit their choices to commodities (fine cars and art, pm, weaponry).)

The second problem is that given this international exchangeability is that the prices within the IS territory are going to be highly volatile. Wheat has, for example, an international price. So does oil: and thus the domestic prices of both of them are going to be linked (at least, maybe not exactly the same, but trade across even the least porous border will mean linked to) to those global prices. And by having a commodity based money those prices will also be linked to the global variations in the gold and silver prices. If gold doubles in value globally then wheat, as expressed in the local currency, halves in price within the Islamic State. If gold halves in value then wheat doubles in price similarly. This isn’t the introduction people might want to a stable and well functioning economy. The local value of money will not be determined locally at all but by the various machinations of gold dealers in London, New York and Zurich (and no doubt many other places too).

-(Starting from the end; "...The local value of money will not be determined locally at all but by the various machinations of ___ dealers in London, New York and Zurich." How is that any different than now?)

-(Is he suggesting that there will be continuous trade with a nebulous trrrrist entity that is condoned by virtually everyone? Won't the small amount of trade that is done, be done (predominantly) at the price isis sets, since it is most likely oil being sold black market to someone that doesn't ever want to get caught buying it? Doesn't that allow isis to set terms of price & payment? Wouldn't it make sense for them to accept only pm and food/medicine/urgently needed whatever?)

-(It also seems that he is suggesting that if pm are adopted we will see (more) manipulations of the value of pm (as expressed in fiat currencies).

The third is that Gresham’s Law does still hold. That gold dinar will be considered “good money”. It is good money after all: we can take it anywhere in the world and get that current value of half an ounce of gold. By comparison the Iraqi Dinar (just to give an example) is “bad money” in that it’s not so fully exchangeable nor does it have anything other than the power of the Iraqi government to stand behind its value. And Gresham’s Law says that bad money will drive out good.

-(This means gold is such utter garbage, that everyone will hoard it (because they are stupid), and it will all disappear. Then isis will mint more gold, (to be hoarded) or they will try something else? At some point greed and necessity equalize...isis dude things to himself "Sure, I want to hold onto this silver coin, but I'm hungry, and the price of bread seems fair." What is his frame of reference, how does he calculate the fair value of that loaf of bread in comparison to this new silver unit of value? He will likely convert the silver coin back into dinar (mentally) to get some idea of whether bread is cheaper or more expensive with silver coins. (That is what I would do, anyway.) Once he has established a frame of reference and value for his silver he will either voluntarily interact with the market or not. However, isis has a lot of power to mute G's law. They can kill any buyers and sellers that hoard pm, don't transact in them, use fiat, etc. They can create nonvoluntary interactions to some extent. How will that effect G's law, the subsequent use and adoption of their pm currency? To many variables to determine. The question is really 'to what extent will isis go to make their new currency dominant'. (& for everyone else in the world that holds pm, what effect will this have on us, how will tptb react, how can we prepare for it?)

This attempt to introduce a bullion based currency, gold and silver dinars, is going to fail. Which will be fun as as above, we’ve rather learned some stuff about matters currency and monetary in the last millennium and a bit. I doubt that the various mullahs pushing it are going to be too disappointed, or even understand why it’s not working, given the fanaticism with which they view the world. But there’s going to be some real amusement watching our own gold bugs watching this experiment. They are in for a real disappointment I think. For it’s just not going to work.

-(He states conclusively that it will fail. However he thinks so based entirely on his own theories, which I find to be lacking a cohesive argument and understanding of the subject matter & human nature. I think that it is guaranteed to fail because; isis will fail, because the threat of violence isn't always stronger than greed (I'll hoard coins unless isis guys live in my town and account for them somehow), because every other country that has tried to use pm as currency have suddenly caught a bad case of us-bombs-us.

I also think that these will become some of the most collectible coins ever due to their scarcity & the 'mystique' that surrounds them

I anticipate scarcity based on the following; few will be produced as the u.s. will commence bombing everything, they will be hoarded locally and not make it out of the country except in small numbers (think Z notes), those that do leave the country will be snapped up by the [un]intelligent agencies and hoarded, gobbled up by big money connected peoples, put into museums, etc.

Finally, why do his last lines seem to evoke the image of a smiling bankster pig demon rubbing its hooves together and chortling 'mwhahahah!' to itself as it pictures pm being demonized and failing as a currency? Why do such people get such pleasure from the destruction of a safe haven alternative? Did he get burned on pm? Is he just an ignorant a*hole?

Become a gold member and subscribe to Turd's Vault


Donate  Shop

Get Your Subscriber Benefits

Exclusive discount for silver purchases, and a private iTunes feed for TF Metals Report podcasts!

Key Economic Events Week of 1/14

1/15 8:30 am ET Producer Price Index
1/15 8:30 am ET Empire State Mfg. Index
1/16 8:30 am ET Retail Sales
1/16 8:30 am ET Import Price Index
1/17 8:30 am ET Housing Starts
1/17 8:30 am ET Philly Fed
1/18 9:15 am ET Capacity Utilization and Ind. Prod.

Key Economic Events Week of 1/7

1/7 10:00 ET ISM Services Index
1/7 10:00 ET Factory Orders
1/9 2:00 ET December FOMC minutes 
1/10 Speeches from CGP, Goons Bullard and Evans
1/11 8:30 ET CPI

Key Economic Events Week of 12/31

1/2 9:45 am ET Markit Manu PMI
1/3 10:00 am ET ISM Manu Index
1/4 8:30 am ET BLSBS
1/4 9:45 am ET Markit Serv PMI