Truly Remarkable

Mon, Nov 17, 2014 - 10:54am

This is going to be a really interesting week. There is no doubt that physical stresses are affecting the paper "market" and it will be quite fun to follow the action as the week progresses.

Let's cut to the chase. By linking gold to the sharply-falling yen, WOPR algos have driven the paper price of gold to the point at which the bullion banks are having difficulty sourcing physical metal to meet demand. This is seen on the GOFO chart below. Note that today brought another new 15-year low in the one-month rate. Also note that the two-month and three-month also made new lows for this current period of "backwardation".

If I am correct in this analysis, then we should begin to see a divergence in the algo-generated link between gold and the yen. Is this the case? I don't know, you tell me.

So it appears that we have found a floor down near $1140. That is likely the price where physical can no longer be delivered at the paper price because it was near there that the gold-yen link first began to fray. However, price hit that level back on Wednesday, November 5. Go back up and look at the GOFO chart and note that rates immediately surged even lower the next day. And look at what since happened to price....the divergence which has caused gold to rally nearly $50.

Now, here's the deal. If physical gold was not extremely tight and/or if demand was not continuing at a torrid pace, we would have seen GOFO levels rise back toward 0.0000% in the days that followed. Look at what has happened, instead! As mentioned above, rates have gotten "worse".

So, let's put some of these coincident, anecdotal data points in place:

  • Gold-yen link showing signs of breakage after lockstep movement since June
  • GOFO rates continuing to plummet to most negative in 15 years
  • Rapidly rising Comex gold open interest. UP over 25% in less than three month. UP 8% in just the past 7 days. UP another 3,600 contracts on Friday's preliminary report.
  • Sudden demand for 920 November gold deliveries on Thursday followed on with another 460 on Friday. That's 138,000 ounces of Comex gold for immediate delivery, not waiting for December.

All of this adds up to a very interesting and exciting week ahead.

Of course, the primary technical target for gold...should it break free of the yen...remains $1180. On the chart below, I've drawn the line in blue because it is neither support nor resistance right now with price so close. IF PRICE CAN CONTINUE TO RALLY, we will watch for it to interact once again with the primary, long-term trendline that we've been following since May of 2013. As you can see below, that line is currently near $1230.

I know that everyone is curious about silver, too. Let's start with the GOOD NEWS. One of the rules of my TA is that price will almost always come down and "ride" a trendline that it has recently broken. Back in June, silver finally broke through the long-term trendline that went all of the way back to the highs of April 2011. The line was so sharply downward-sloping that this was inevitable at some point and it also made the similarly inevitable attempt to get price back below the line that much more difficult. "They" tried, however. "They" also failed. As you can see below, price came down and did, in fact, ride the line before bouncing away. This is a very good sign.

In the short-term, though, I wouldn't get all hot and bothered just yet. Price is still stuck in the down channel that has contained it since July. Once price decisively breaks out, then I'll get optimistic. Once price establishes a toehold back above $18.20 with a couple of weekly closes, then I'll get wildly optimistic and begin buying with both hands. Until then, I watch and wait.

Just four links for you on your way out today. First, two of our favorites met to discuss the metals last week...Eric Sprott and Chris Martenson. You should definitely give this a listen.

And Jim Quinn has an excellent new piece out this morning. Please be sure to read it:

I was on with Dr. Janda again yesterday:

Finally, you likely know by now that I find the topic of "end times" and eschatology to be fascinating. NOT that I believe that we are in the end times. We might be. We might not be. I just find it an interesting subject. To that end, I found this article interesting. I must admit, however, that if I were Commander-in chief, I would have already unleashed a Dresden-style carpet bombing of the place just to show these MF-ers who's really in charge...

As I close, gold and the HUI are unchanged though silver and crude are both down. Meh, whatever. As stated above, this is going to be a really interesting week. Check back often.


About the Author

turd [at] tfmetalsreport [dot] com ()


SlobberingBull · Nov 17, 2014 - 10:57am


The crowd goes wild.

arch stanton · Nov 17, 2014 - 11:00am


came out of nowhere. A Cinderella story

AUandAGbull · Nov 17, 2014 - 11:06am


lines in the sand have been drawn: $1180 gold, $16 silver

ZILVERMAN · Nov 17, 2014 - 11:07am



ArtL · Nov 17, 2014 - 11:18am

Who said the Hydra would take it lying down

The price of PM will not be released until the dragon is slain, one head at a time.

AUandAGbull · Nov 17, 2014 - 11:21am


Keep in mind that interest rates were higher in 2001 when comparing GOFO then and now

AUandAGbull · Nov 17, 2014 - 11:31am

True, but also keep in mind

True, but also keep in mind that ZIRP has been in place since 2009 and GOFO remained firmly positive until July of 2013.

· Nov 17, 2014 - 11:33am
Barfly · Nov 17, 2014 - 11:47am

A few economic musings

What my friend said to me on the boat this weekend really got my gears turning. The first point I want to take is the news he told me about Saudi oil. They have a price that they sell to the US for and a price for the rest of the world. My brain immediately reached back to an article I read where they were forcing anybody who wasn't the US to buy full contract quantities of oil, no partial deliveries. He told me that oil companies that he did business with were all cutting back operations sharply. His notion was that the Saudi's had an explicit goal of keeping oil price down in order to destroy the shale oil industry in the US.

I heard an interview on a radio program of a gentleman that was friends with the host who was forty five or so years old, high school diploma, and had a job in a West Texas fracking patch making more money than he ever has. He was clearing, take home, about 120K per year. I know that a lot of the the so called "recovery" numbers that are cited in the news come because of the shale oil numbers. And in general, if you know anything about the oil business, people in it will tell you that an increase in oil production is a huge economic engine. Machine tools, labor, heavy equipment, construction, computers, and nearly everything else are in big demand when the oil business ramps up. I'm thinking that people like the guy who did that interview right before the oil price tanked are going to end up as economic road kill.

The recovery is and has been now for at least 7 years a very tenuous proposition with numbers being fudged and revised all over the place. Taking pieces out of the shale oil industry is going to put the economy undeniably in the hole. Most of the shale oil companies out there, with a few exceptions that have high grade geological formations (sounds like gold mining, huh), will be bankrupted by oil below $100 per barrel. Another friend of mine has told me that the two key numbers with shale oil are $140 to get started and $70 - $100 to sustain production. Below these, companies start running out of capital fast. 

So, where is this all going? I still think that Jim Willie is correct and that the Saudi's are aiming to defect over to China. One might think that by ramping up production and lowering the price of oil in dollars that they are our buddies and want to continue the petrodollar arrangement. But, I think otherwise. What better way to defect to the other superpower than to seriously degrade the US economy before you leave? Destroy oil production in the US and then head for the exit, leaving a shortage of energy when you take your supplies elsewhere and sell them in another currency and leave the previous arrangement in shambles with barely any energy production itself. Very shrewd, if you ask me.

And of course, the Fed's answer to this will be to crank up the printing press. This scenario fits perfectly into the idea of deflation before hyper-inflation. The shale oil business implodes, the economy grinds to a halt, prices everywhere decline, and the central bank prints like mad. Then a sudden reversal of prices because of a super-money bubble. This doesn't even take into account all the foreign held currency that will be coming back to the US. Death of dollar. It all fits in very nicely.

So, going forward, as this plays out... and I know this is going to be unpopular to say... I see even lower prices for gold and silver. Barring a scenario that entails miners closing their doors and selling literally nothing into the market, I see fuel prices and production costs declining for the primary producers and them being able to squeak by and make maybe a little bit of profit due to the lowered costs of fuel. At least for a little while.

So, you've got to be strong for maybe the next three to five years as this thing plays out. If you run up on hard times, it's going to tempting to sell the stack to pay the bills. Don't if it can absolutely be avoided. Only as a last resort. I personally intend to keep stacking. I'm going to be looking for a part time gig, even. Take advantage of the lower prices while you can, because I see the hyper-inflation freight train coming into the other end of the tunnel. I see it very clearly.

Good luck, prepare accordingly, and keep stacking.

CPE · Nov 17, 2014 - 11:49am


Liebor Interest rates are subtracted from the Gold Lease Rate to determine GOFU. So prevailing interest rates should not be apples to oranges with comparison to the past...

arch stanton · Nov 17, 2014 - 11:55am

mint sales

Anybody heard anything about the mint reopening Ag Eagle sales today? If demand remains as it was they should be sold out by now.

· Nov 17, 2014 - 12:02pm

Fed's response ...


You may be right on target there with teh Fed's response to hte destruction of US oil companies.

Crank up the printing presses... although they may have a second tool now since the G-20 summit--Take your paper along with moar printing and give it to themselves. Almost everyone in my family has no physical...

Two more can kicks:

G-20 enabled bail-ins

MyRA retirement transfer into Treasuries.

I was wondering how Japan's QE replaced our QE and it occurred to me this morning that the Yen-carry trade creates immediate demand for US Treasuries that would not otherwise be there (Yes, I can be that dense).

The lack of physical, if it manifests deeply enough, may really mess up their plans and timetable. 

rl999 · Nov 17, 2014 - 12:10pm

Hydration a key component of defeating ebola

-Basically the loss of fluids through sweating, vomiting, and other bodily functions weakens the body and greatly reduces it's ability to perform basic functions such as fighting the illness.

-An infected person needs to replenish electrolytes & vitamins.

-This case discusses nausea and vomiting - perhaps an IV drip would be better?

Beating Ebola Hinges on Sipping a Gallon of Liquid a Day

Turns out drinking 4 liters (1 gallon) or more of rehydration solution a day -- a challenge for anyone and especially those wracked by relentless bouts of vomiting -- is crucial.

Ada Igonoh, a doctor who caught Ebola in late July while working at the First Consultants Hospital in Lagos, said she took oral rehydration salts, or ORS, mixed in water as soon her gastrointestinal symptoms started -- even before her Ebola diagnosis. “I knew that in diarrheal diseases, shock from dehydration is the number one cause of death,” Igonoh said in an e-mail. “From my research on Ebola while in isolation, I found that to be true.”

Severe fluid loss can cause a type of shock that prevents the heart from pumping enough blood to the body, eventually leading to multiple organ failure.

“As I took the ORS and treated dehydration, it provided me with energy, and my immune system was able to battle the virus,” 29-year-old Igonoh said (ORS - Oral Rehydration Salts)

Mortality could be reduced by delivering a simple message about the importance of taking fluids and picking the right painkillers, he said. Paracetamol, the active ingredient in Panadol, is the preferred medication for pain and fever, and picking others such as aspirin and ibuprofen can worsen bleeding, he said.

“We will halve the mortality by firstly just stopping anti-inflammatories and giving hydration, and really pushing it,” Mardel said.

“Each time I attempted to take the ORS, I vomited,” he told the WHO, according to the transcript. Eventually, Emmanuel found he could keep down 4 liters of fluids a day by taking frequent, small sips between bouts of nausea.

Flavoring the liquid also helps. The granules that Emmanuel’s colleague Igonoh took at home were orange-flavored and much more pleasant than the flavorless kind she was given in the hospital, she said.

(Good way to get the vitamin C in - provides a nice orange flavor, and gives the body time to digest and absorb it.)

Barfly · Nov 17, 2014 - 12:30pm

Dr. J - Precisely

I think that the Fed basically ordered their client central bank in Japan to commit hari-kari. It's all about creating demand for the worthless treasury paper at this point. And destruction of a client currency dovetails nicely with that objective. Confidence, confidence, confidence. That's the name of the game. If it can be maintained just a little bit longer, it's thought of as a win. 

In terms of physical shortages, the timeline may be pushed back on that one because of the economics with the oil price I've talked about. I really can't see no physical being available until complete confidence is lost in the dollar. With the lowered oil price, I truly feel that another rabbit has been pulled out of the hat on us.

DeaconBenjamin · Nov 17, 2014 - 12:46pm

A Recent pro-ISIS Mutiny in Saudi Royal Air Force

Riyadh (KSA), November 17, 2014
 - According to our confidential sources within the Saudi army, an increasing number of disgruntled Saudi pilots refuse to carry out missions against the so-called Islamic State in Iraq and the Levant (ISIL). The Saudi rebel officers argued that it is against their set of ethics and religious views to target their fellow Sunni brothers in Iraq and neighboring Syria.

The Saudi military Intelligence reportedly had arrested two senior F-16 pilots whom turned down their missions in late October, expressing their utmost resentment toward their country’s alliance with the United States against to what they see as “innocent and defenseless Iraqi civilians” and accusing the Saudi regime to be too docile to White House “vicious” whims.

White House officials and CIA had informed the Saudis that their American-trained pilots are in fact jettisoning their bombs and ammunitions over inconsequential or totally unpopulated areas and then returning to their bases in K.S.A.

A growing number of Saudis including high-ranking army officers strongly believe their regime is using ISIL as a precious bargain chip to secure its grip on war-ravaged Middle-East.

The crisis of disobedient Saudi officers descended into a real nightmare when the two pilots somehow managed to access to their facebookaccounts and post diatribes and undermine the Saudi regime’s double-track policy regarding the U.S.-led campaign against the Islamist militants in battle-scarred Iraq and Syria.


Amid U.S. assiduous efforts to form a wide-range anti-ISIL campaign, many oil-rich Arab kingdoms including Saudi Arabia, a longtime White House ally, attempted to convince Obama administration that it will serve America’s best interests in Middle-East to restore the power to former ruling Iraqi Ba’ath Party of notorious Saddam Hussein.

The two Saudi pilots purportedly are being held incommunicado for weeks without being indicted or charged , waiting to be tried in military court.

TF Metals fan · Nov 17, 2014 - 1:37pm

oil price effect on mining costs

What is the effect of a 25% lower oilprice on the miningcosts? Eg: Silver mining costs are considered to be somewhere between $18 to $22/ounce for newer mines. But how much of these costs is directly linked to the price of oil? 

boomer sooner · Nov 17, 2014 - 1:38pm

Dollar index

Anyone taken a gander? 87.94 a few minutes ago. 67 bp move, low to high, today. Talk about a yoyo over the last week. Add- I took a closer look and it has not closed outside the candle from the 5th of November, top or bottom. Which way is she gonna go? My guess ^.

SamSchlepps · Nov 17, 2014 - 1:43pm

Couple of vectors to add to the oil discussion

Barfly, think you're right on the end - but timing can be sooner. Just a couple of thoughts to add to the heavy lifting you're doing. It all affects gold and silver

Control of Flow and and Refining the Oil

On this thread, a very prolific and I think well respected oil gent Rockman (SRS would backup this as reference) speaks to refining as giving you control over final product and direction of flows of oil - who gets what spectrum of oil products at what price - much broader implications than just price of a barrel. So yes, lower price means less reinvestment into rapidly depleting shale oil and affects other production. But another important fact is whether the USA can get product, refine, and have at any price - if you control the flow, it may get otherwise redirected away from the USA. In one of the comments, Rockman speaks to the fact that USA imports roughly 20% of the world's exported oil and does some re-export - bound to change lower methinks. China has been way busy spending US bucks on refining capabilities in key areas. Russia is just one piece of what they are doing in oil and gas

Price Grid Shenanigans - remember TF spoke to those as being manipulated in September - so its not just the Saudi's that are doing this - the USA is doing it to itself? or there is some banker involvement? or the USA started something and other folks are taking it a bit further than the USA wanted? Don't know, but the price changes across the board in all commodities would seem to help China the most and not necessarily do as much for the USA.

Keystone - foreign oil or any oil - why would the start and stop of Keystone be good/bad - It seems Obama spoke recently and said its just a pass through - USA doesn't need the oil or get the oil. He doesn't want, but Congress sure does.

Just adding to the mix - don't know how it all works out - as Marchas would say - just keep stackin'

StevenBHorse · Nov 17, 2014 - 2:03pm

Cost of oil and mining stocks

I will point you here. It's a good primer.

It will be different for each mining company, and will depend on the location of the mines. Cyanide prices have also fell hard, but I don't know what kind of magnitude that will have on costs. I could click through some 10-k and q's, but I don't have the time at the moment. I think the answer would be somewhere between 5-10% lower costs. You also have to factor the grade of the ore that they are mining. If all else is equal with fuel costs, mining higher grade will lower your costs, since you are milling less tonnes.

-SilverIsMoney- · Nov 17, 2014 - 2:03pm

Totally agree Barfly...

You and I are in sync with our rational... I think its going down the same way and its in large part why I'm moving to part time and most likely going back to school. I think this is all a set up and the deflation will get worse before the fed is forced to go paper crazy. I've got about 3 semesters left so hopefully I can time it out perfectly and end up with a better job at lower prices and then stack like ive never stacked before it finally goes boom.

I'm with ya on the 2-3 year table...

Mickey · Nov 17, 2014 - 2:05pm

miner action today

is nice follow thru for a change.

points the way up

but taking one day at a time--actually each hour at a time

AUandAGbull · Nov 17, 2014 - 2:10pm

Calm before the storm

If we can hold onto 1180 after the FOMC minutes are released on Wednesday I'll be very impressed

not real hopeful though :-(

Mickey · Nov 17, 2014 - 2:19pm


i do not think we can base anything on history anymore--good bad or indifferent.

First all the data is compromised, Earnings, gofo, cot cpi gdp, press releases, eps,

the best jobs on wall st and in companies go to those who know how to manage earnings rather than building an organization thru product development and marketing.

i do not think minutes release means much any more-they have been playing games whenever they want and that includes the high flying algo hedge funds who can move markets themselves and do several times a day-which is why JNUG is so volatile.

our way to win is to develop a long term strategy, maybe tweek it a bit, play with it a bit. But we can't trade it as we really do not have the resources. speaking for myself.

I have some regular stocks however, I have one finger ready to sell--if you do not sell early you will be late.

TF Metals fan · Nov 17, 2014 - 2:29pm



cavalier · Nov 17, 2014 - 2:31pm

Streamers Continue to Stream Up

The streamers continue to move up

SLW plus 3%

SAND up 8%

Why are the streamers seeming to out preform the miners? Do people like the perceived safety of exposure to multiple mines? Are they easier for someone who is moving from traditional stocks to the miners?

and EXK continues up 3.5%

SteveW · Nov 17, 2014 - 3:23pm


The real problem with religious prophesy of all flavours, imho, is that the true believers will tend to follow actions that are consistent with fulfilling the prophesy.

That, plus the fact that many prophesies forecast the end of humanity on Earth.

For example our Stephen Harper is said to be a fundamentalist Christian who believes that Armageddon is near. Perhaps that was part of his non-diplomatic and gauche remark to Putin in Australia.

mike97 cavalier · Nov 17, 2014 - 3:34pm

Two gold royalty companies to merge

The improving climate in the precious metals has resulted in a proposed merger of Virginia Mines VGQ.TO and Osisko Gold Royalties OR.TO. The combined company will become the 4th largest gold royalty company with 400 million or so in free cash to buy more royalties.

MONTREAL AND QUEBEC CITY, QUEBEC--(Marketwired - Nov 17, 2014) - Osisko Gold Royalties Ltd. (OR.TO) ("Osisko") and Virginia Mines Inc. (VGQ.TO) ("Virginia") are pleased to announce that they have entered into a definitive agreement to combine the two companies to create a new leading intermediate royalty company with two world-class gold royalty assets in Quebec.

The transaction combines two top-quality, highly-complementary asset portfolios, including two long life revenue-generating gold royalties: Osisko's 5% net smelter return ("NSR") royalty on the Canadian Malartic mine, and Virginia's sliding-scale 2.2% - 3.5% NSR royalty on the Éléonore mine. Both the Osisko and Virginia royalties cover not only the operating mines, but also the high-potential land packages surrounding the mines.

Canadian Malartic achieved commercial production in May 2011, and is currently producing approximately 525,000 ounces of gold per year. First gold production was announced at the Éléonore mine on October 2, 2014. Éléonore will be ramping up to approximately 600,000 ounces per year by 2018, according to operator Goldcorp Inc. Currently at 2.2%, the Éléonore NSR royalty is 2.0% on the first 3 million ounces of gold production and increases by 0.25% for each additional million ounces of production. The NSR royalty is also subject to a 10% increase if the spot gold price is above US$500 per ounce (as is the present case). The NSR royalty rate is capped at 3.5%.

Under the terms of the transaction, which is structured as a Plan of Arrangement, each Virginia share will be exchanged for 0.92 Osisko shares (the "Arrangement Consideration"). The Arrangement Consideration represents consideration to Virginia shareholders of C$14.19 per Virginia share based on the closing price of Osisko common shares of C$15.42 per share on the Toronto Stock Exchange as at November 14, 2014. This value implies a 41% premium to the closing price of Virginia shares on November 14, 2014, and a 27% premium to Virginia based on both companies' 30-day VWAPs ending November 14, 2014.

Upon completion of the combination, existing Osisko and Virginia shareholders will own approximately 61% and 39% of the combined company pro forma the concurrent private placements by la Caisse de dépôt et placement du Québec ("CDPQ") and le Fonds de solidarité FTQ (the "Fonds"), respectively, on a basic basis.

The combined company will be named Osisko Gold Royalties Ltd and will have an estimated market capitalization of C$1.3 billion, and will be headquartered in Montreal, Quebec.

goldcom · Nov 17, 2014 - 3:34pm

Streamers Up@cavalier

The Streamers have the advantage of first very low cost of acquiring the metal, far under all in costs, nor do they have to deal with day to day headaches of mining operations. They know the game of mining better than any of us, and invest their money in operations that have the ability to produce in these difficult times. However they do have the responsibility to constantly monitor their miners and help them get through tough times and probably easier for a miner to deal with than a bank.

Streamers are in many cases, especially with the juniors, the only access right now of capital for their operations as that capital has dried up with the banks. SLW has been in the business for quite some time and constantly shows a very good profit margin of 48% while SAND hasn't been in the royalty/streaming game that long and isn't 1/10th the size, just hasn't built up the revenue stream like SLW and still reports a negative profit margin.

Royalty companies also have the diversification of the big miners, having interests in many different mines. I like the streamers and actually bought some FNV and RGLD today.

Danforth Coxwell · Nov 17, 2014 - 3:35pm

Just a gentle reminder.....

that proper hand washing is a excellent way to stop the transmission of infectious disease. Contact your local Public Health Department for more details.

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Key Economic Events week of 12/10

12/11 8:30 ET Producer Price Index
12/12 8:30 ET Consumer Price Index
12/13 8:30 ET Import Price Index
12/14 8:30 ET Retail Sales
12/14 9:15 ET Industrial Prod. and Cap. Utilization
12/14 10:00 ET Business Inventories

Key Economic Events week of 11/26

11/27 9:00 ET Case-Schiller home prices
11/27 10:00 ET Consumer Confidence
11/28 8:30 ET Q3 GDP 2nd guess
11/28 10:00 ET New home sales
11/29 8:30 ET Personal Income and Spending
11/29 10:00 ET Pending home sales
11/29 2:00 ET November FOMC minutes

Key Economic Events week of 11/19

11/20 8:30 ET Housing Starts
11/21 8:30 ET Durable Goods
11/21 10:00 ET UMich Sentiment
11/21 10:00 ET LEIII
11/21 10:00 ET Existing Home Sales