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 40. 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 .

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 .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 ()


Nov 17, 2014 - 10:57am


The crowd goes wild.

arch stanton
Nov 17, 2014 - 11:00am


came out of nowhere. A Cinderella story

Nov 17, 2014 - 11:06am


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

Nov 17, 2014 - 11:07am



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.

Nov 17, 2014 - 11:21am


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

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
Nov 17, 2014 - 11:38am
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.

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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