Red Friday

Fri, Nov 28, 2014 - 11:52am

Jeez, Louise. It's hard to know where to start. The metals are down but that's not surprising. Crude oil is staring at 5+ year lows and the bond market is continuing to rally. The "global disinflation bias" continues and it all appears to be accelerating again.

I guess we should start with crude. OPEC failed to agree on anything yesterday and prices have been crushed. Of course, much of this occurred while the NYMEX was closed for the Thanksgiving holiday so the move had been somewhat exaggerated. But not today! There has not even been the slightest hint of a bounce from below $70 and, with a last of $69.09, crude looks like it might put on its lowest monthly close since June of 2009! Holy, moley! Man, woman and child!! What the heck does that mean??

One thing it definitely means is a continuation of the "global disinflation bias" that we've been discussing here since late August. This bias continues to drive every global market except US equities (hmmm...I wonder why that is?) and you cannot and should not ignore the eerie similarities of that crude chart to 2008. I'm still of the ardent belief that the initial drive from $108 crude last summer was begun by the U.S. as a "covert sanction regime" against Russia. It has since generated a life of its own as spec money has poured into the short side of a rapidly accelerating, downward momentum trade. It now seems out of control and what no one knows is what kind of damage this may be inflicting to a daisy chain of derivative exposure across global hedge funds, sovereign wealth funds and banks. DO NOT UNDERESTIMATE the possibility of a 2008-style breakdown in the weeks ahead. The global crude oil/energy markets are HUGE and a move of this magnitude has almost certainly caught a number of market participants flat-footed, over-leveraged and under-capitalized.

That silver is down over 5% today should come as no surprise to anyone. Why?

  • I warned everyone in Monday's podcast that the days surrounding delivery month contract expiration are exceedingly volatile and that "you should expect an opportunity to buy gold sub-1180 and silver sub-16 very soon".
  • The spec algos have aggressively paired crude with silver since last summer in nearly the same fashion that they have paired gold with the yen and we have been documenting this for months. Therefore, with crude down 7% you should not be surprised that silver is down 5%.
  • When silver had the audacity to finally break out of it's 4-month down channel earlier this week, you had to expect an effort to break it back down...and so there is.
  • But silver saw A LOT of support below $15.50 earlier this month and I expect support there again. Just because the crude-linked spec selling has driven price back down below $16, this DOES NOT change my opinion that physical silver is difficult to source and deliver at a sub $15.50 price. I haven't added to my stack for a few weeks. I'll be doing so again later today or Monday.

    Continuing with the disinflation bias theme, have you seen the bond market? Again, disinflation or deflation makes even bonds at 2% looks pretty freaking good on a "real" basis. Couple this with a lack of supply due to The Fed owning half of the market and you get rates that are falling off the cliff again. As I type, the 10-year note is back down to 2.20% and the 30-yr Long Bond is well under 3% at 2.91%. These are the lowest rates since the meltdown/liquidity squeeze of October 15. Additionally, with just another half point or so, The Long Bond will close even higher than it did that day! Rest assured, we'll be watching this very, very closely next week and next nonth.

    All of this affects gold, of course, and it is down as well...though not as much on a percentage basis. In fact, as I type, it is clinging to a toehold above $1180 and, should this continue, it will still paint a third, consecutive weekly close above that important level.

    The yen is moving lower again and the USDJPY is pushing toward 119. WOW! This isn't helping, either, but still gold holds. Again, all I'm watching is $1180 into the close. Let's see what happens.

    GOFO is now so negative that I must admit that I'm beginning to question its relevance. You'll recall that we discussed this earlier this week and rates have plummeted even further today. Check it out:

    Note that the 12-month rate looks like it will be negative, too, by Monday. This has only occurred on one day September of 1999 when the Washington Agreement was signed to "save" the fractional reserve bullion bank system. Therefore, we are only left with two choices:

    1. The fractional reserve bullion banking system is once again on the verge of complete collapse.
    2. The GOFO rates are now simply horseshit and not indicative of anything.

    I'll guess we'll know soon which one it is.

    The miners are all down considerably today but that's to be expected, too. Just keep an eye on the HUI. So long as it remains and closes above 165, it's not the end of the world and it could just as easily reverse and head higher on Monday.

    And the December gold and silver contracts have now expired and have begun trading first notice. Almost exactly as we projected last week, there were 11,524 standing in the Dec gold and 3,950 standing in the Dec silver. How many actually end up taking "delivery" remains to be seen. The CME delivery report for Wednesday already shows 582 "deliveries" pending with 580 of them coming out of The Scoshe's house account. This, of course, is the same Scoshe that hurriedly stopped 1,331 contracts of Nov gold just two weeks ago...4+ metric tonnes of gold that still has yet to leave the JPM vault for the Scoshe's. WHAT A FREAKING JOKE THIS ALL IS!

    And silver has already seen 1,614 delivery notices sent out. That's nearly half of all the standing open interest! So much for the theory that the Comex was going to break in December. I warned you NOT to get your hopes up. Anyway, you can see it all and follow along here:

    Finally, the long-awaited vote on the Swiss Gold Initiative is Sunday. As you know, ole Turd has been all over this since May and has been begging the Swiss to reclaim their sovereignty and independence by voting "YES". We'll have to wait and see what happens but let me just state that I will be absolutely stunned and flabbergasted is "YES" actually wins. Just like Scottish independence, too many folks will never, ever question the status quo out of fear and personal greed. Additionally, when the forces of global finance are aligned against the issue, the issue is very likely to fail. I'll be hoping and praying for victory come Sunday but by no means am I optimistic or even hopeful.

    For what it's worth, here's a fun related link from SoveriegnMan:

    And one more thing, today is "Black Friday" and Monday is "Cyber Monday". Nearly all of our sponsors and advertisers are running specials and discounts so please be sure to check the TurdMart store for all of your holiday stacking and prepping needs. If you go to these sites via the TurdMart pages, your old pal Turd actually earns a small commishkey so please be sure to give all of the links your thorough consideration.

    Because of the holiday, there won't be a CoT today. It will instead be released on Monday, a full six days after the survey was taken. Thanks, CFTC!! Anyway, I might record a podcast later today but I might also wait until tomorrow. We'll just have to see how the day goes. Have a great weekend, regardless!


    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Nov 28, 2014 - 11:53am


    Now to read the post

    Nov 28, 2014 - 11:54am


    I think Monday if we get a no vote will be a final washout of the hui before going higher ....

    Nov 28, 2014 - 12:04pm

    Nov 28, 2014 - 12:06pm


    Monday might be a good day for miner shopping then. 

    Nov 28, 2014 - 12:09pm


    Russia’s monetary solution

    By Alasdair Macleod

    Posted 28 November 2014

    The hypothesis that follows, if carried through, is certain to have a significant effect on gold and the relationship between gold and all government-issued currencies.

    The successful remonetisation of gold by a major power such as Russia would draw attention to the fault-lines between fiat currencies issued by governments unable or unwilling to do the same and those that can follow in due course. It would be a schism in the world's dollar-based monetary order.

    Russia has made plain her overriding monetary objective: to do away with the US dollar for all her trade, an ambition she shares with China and their Asian partners. Furthermore, in the short-term the rouble's weakness is undermining the Russian economy by forcing the Central Bank of Russia (CBR) to impose high interest rates to defend the currency and by increasing the burden of foreign currency debt. There is little doubt that one objective of NATO's economic sanctions is to harm the Russian economy by undermining the currency, and this policy is working with the rouble having fallen 30% against the US dollar this year so far with the prospect of further falls to come.

    Russia faces the reality that pricing the rouble in US dollars through the foreign exchanges leaves her a certain loser in a currency war against America and her NATO allies. There is a solution which was suggested in a recent paper by John Butler of Atom Capital, and that is for Russia to link the rouble to gold, or more correctly put it on a gold exchange standard*. The proposal at first sight is so left-field that it takes a lateral thinker such as Butler to think of it. Separately, Professor Steve Hanke of John Hopkins University has alternatively proposed that Russia sets up a currency board to stabilise the rouble. Professor Hanke points out that Northern Russia tied the rouble to the British pound with great success in 1918 after the Bolshevik revolution when Britain and other allied nations invaded and briefly controlled the region. What he didn't say is that sterling would most likely have been accepted as a gold substitute in the region at that time, so running a currency board was the equivalent of putting the rouble in Russia's occupied lands onto a gold exchange standard.

    Professor Hanke has successfully advised several governments to introduce currency boards over the years, but we can probably rule it out as an option for Russia because of her desire to ditch US dollar relationships. However, on further examination Butler's idea of fixing the rouble to gold is certainly feasible. Russia's public sector external debt is the equivalent of only $378bn in a $2 trillion economy, her foreign exchange reserves total $429bn of which over $45bn is in physical gold, and the budget deficit this year is likely to be roughly $10bn, considerably less than 1% of GDP. These relationships suggest that a rouble to gold exchange standard could work so long as fiscal discipline is maintained and credit expansion moderated.

    Once a rate is set, the Russians would not be restricted to just buying and selling gold to maintain the rate of gold exchange. The CBR has the power to manage rouble liquidity as well, and as John Butler points out, it can issue coupon-bearing bonds to the public which would be attractive compared with holding cash roubles. By issuing these bonds, the public is in effect offered a yield linked to gold, but higher than gold's interest rate indicated by the gold lease rates in the London market. Therefore, as the sound-money environment becomes established the public will adjust its financial affairs around a considerably lower interest rate than the current 9.5%-10% level, but in the context of sound money it must always be repaid. Obviously the CBR would have to monitor bank credit expansion to ensure that lower interest rates do not result in a dangerous increase in bank lending and jeopardise the arrangement.

    In short, the central bank could easily counter any tendency for roubles to be cashed in for gold by withdrawing roubles from circulation and by restricting credit. Consideration would also have to be given to roubles in foreign ownership, but the current situation for foreign-owned roubles is favourable as well. Speculators in foreign exchange markets are likely to have sold the rouble against dollars and euros, because of the Ukrainian situation and as a play on lower oil prices. The announcement of a gold exchange standard can therefore be expected to lead to foreign demand for the rouble from foreign exchange markets because these positions would almost certainly be closed. Since there is currently a low appetite for physical gold in western capital markets, longer-term foreign holders of roubles are unlikely to swap them for gold, preferring to sell them for other fiat currencies. So now could be a good time to introduce a gold-exchange standard.

    The greatest threat to a rouble-gold parity would probably arise from bullion banks in London and New York buying roubles to submit to the CBR in return for bullion to cover their short positions in the gold market. This would be eliminated by regulations restricting gold for rouble exchanges to legitimate import-export business, but also permitting the issue of roubles against bullion for non-trade related deals and not the other way round.

    So we can see that the management of a gold-exchange standard is certainly possible. That being the case, the rate of exchange could be set at close to current prices, say 60,000 roubles per ounce. Instead of intervention in currency markets, the CBR should use its foreign currency reserves to build and maintain sufficient gold to comfortably manage the rouble-gold exchange rate.

    As the rate becomes established, it is likely that the gold price itself will stabilise against other currencies, and probably rise as it becomes remonetised. After all, Russia has some $380bn in foreign currency reserves, the bulk of which can be deployed by buying gold. This equates to almost 10,000 tonnes of gold at current prices, to which can be added future foreign exchange revenues from energy exports. And if other countries begin to follow Russia by setting up their own gold exchange standards they likewise will be sellers of dollars for gold.

    The rate of increase in the cost of living for the Russian population should begin to drop as the rouble stabilises, particularly for life's essentials. This has powerfully positive political implications compared with the current pain of food price inflation of 11.5%. Over time domestic savings would grow, spurred on by low welfare provision by the state, long-term monetary stability and low taxes. This is the ideal environment for developing a strong manufacturing base, as Germany's post-war experience clearly demonstrated, but without her high welfare costs and associated taxation.

    Western economists schooled in demand management will think it madness for the central bank to impose a gold exchange standard and to give up the facility to expand the quantity of fiat currency at will, but they are ignoring the empirical evidence of a highly successful Britain which similarly imposed a gold standard in 1844. They simply don't understand that monetary inflation creates uncertainty for capital investment, and destroys the genuine savings necessary to fund it. Instead they have bought into the fallacy that economic progress can be managed by debauching the currency and ignoring the destruction of savings.

    They commonly assume that Russia needs to devalue her costs to make energy and mineral extraction profitable. Again, this is a fallacy exposed by the experience of the 1800s, when all British overseas interests, which supplied the Empire's raw materials, operated under a gold-based sterling regime. Instead, by not being burdened with unmanageable debt and welfare costs, by maintaining lightly-regulated and flexible labour markets, and by running a balanced budget, Russia can easily lay the foundation for a lasting Eurasian empire by embracing a gold exchange standard, because like Britain after the Napoleonic Wars Russia's future is about new opportunities and not preserving legacy industries and institutions.

    That in a nutshell is the domestic case for Russia to consider such a step; but if Russia takes this window of opportunity to establish a gold exchange standard there will be ramifications for her economic relationships with the rest of the world, as well as geopolitical considerations to take into account.

    An important advantage of adopting a gold exchange standard is that it will be difficult for western nations to accuse Russia of a desire to undermine the dollar-based global monetary system. After all, President Putin was more or less told at the Brisbane G20 meeting, from which he departed early, that Russia was not welcome as a participant in international affairs, and the official Fed line is that gold no longer plays a role in monetary policy.

    However, by adopting a gold exchange standard Russia is almost certain to raise fundamental questions about the other G20 nations' approach to gold, and to set back western central banks' long-standing attempts to demonetise it. It could mark the beginning of the end of the dollar-based international monetary system by driving currencies into two camps: those that can follow Russia onto a gold standard and those that cannot or will not. The likely determinant would be the level of government spending and long-term welfare liabilities, because governments that leech too much wealth from their populations and face escalating welfare costs will be unable to meet the conditions required to anchor their currencies to gold. Into this category we can put nearly all the advanced nations, whose currencies are predominantly the dollar, yen, euro and pound. Other nations without these burdens and enjoying low tax rates have the flexibility to set their own gold exchange standards should they wish to insulate themselves from a future fiat currency crisis.

    It is beyond the scope of this article to examine the case for other countries, but likely candidates would include China, which is working towards a similar objective. Of course, Russia might not be actively contemplating a gold standard, but Vladimir Putin is showing every sign of rapidly consolidating Russia's political and economic control over the Eurasian region, while turning away from America and Western Europe. The fast-track establishment of the Eurasian Economic Union, domination of Asia in partnership with China through the Shanghai Cooperation Organisation, and plans to set up an alternative to the SWIFT banking payments network are all testaments to this. It would therefore be negligent to rule out the one step that would put a stop to foreign attempts to undermine the rouble and the Russian economy: by moving the currency war away from the foreign exchanges and into the physical gold market were Russia and China hold all the aces.

    *Technically a gold standard is a commodity money standard in which the commodity is gold, deposits and notes are fully backed by gold and gold coins circulate. A gold exchange standard permits other metals to be used in coins and for currency and credit to be issued without the full backing of gold, so long as they can be redeemed for gold from the central bank on demand.

    Nov 28, 2014 - 12:12pm

    Email from JMB

    Black Friday Deals Announced!

    Today we are kicking off Cyber Week by offering numerous bullion deals now available online. The special pricing on these products will last into next week while supplies last and will replace our standard Monday weekly deal. All of these products are in stock and ready to ship immediately.

    Available through Monday at special introductory-only pricing is the 2015 1.25 oz Canadian Silver Bisonwhich is available for just $2.25 over spot/oz any quantity. Produced by the Royal Canadian Mint as a custom bullion product, JM Bullion is the exclusive distributor of this Bison coin within the United States.

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    Nov 28, 2014 - 12:12pm

    @mattheim Re: India scraps restrictions on gold imports

    Huge news, thanks!

    Will it make even a small dent in the gold price? Shoulda, coulda, woulda...

    Edit: JNUG now down over 30% on the day! Unbelievable! Lucky you, Dr. P.

    Double Edit: HUI just broke 165!

    Nov 28, 2014 - 12:14pm

    Short covering

    into the close in front of SGI?

    Nov 28, 2014 - 12:15pm

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    Nov 28, 2014 - 12:19pm


    Please be sure to check out the specials at SD Bullion and Provident, too.

    Nov 28, 2014 - 12:22pm

    I hate this but...

    Here is my prediction for the weekend (and so far it looks like I nailed the downtrend just as it started):

    I sure hope I'm wrong and we get a "yes" vote on Sunday.

    Nov 28, 2014 - 12:25pm

    Yes or No doesn't matter

    The bastards who naked short the miners have an insider signal that we get a huge dump in Gold next monday. They would NOT put so much money without central banks covering their ass.

    Dr. P. Metals
    Nov 28, 2014 - 12:26pm

    anyone brave enough to buy JNUG going into all this? LOL

    I don't think I have the cajones...

    Nov 28, 2014 - 12:26pm

    What? Silver Down 6.45%, Beaten by Crude down 7.5%

    This is scaring me. Figure the SGI will fail, proving the seemingly invincible hubris of TPTB. Goal of year-end non-function for G & S as money solidified. This dream-world we are living is going to pop in a devastating fashion. And nobody sees it, nobody questions. Will buy more Silver and food just before New Years. Enjoy these holidays with family and friends. We ain't gunna enjoy next year. Even if we are right.

    Nov 28, 2014 - 12:35pm

    Whoa…crude making new lows

    Sub $68 and looking at the lowest closing week and month since early 2009! Yikes!!

    Nov 28, 2014 - 12:37pm


    just took out the lows

    Nov 28, 2014 - 12:39pm
    Nov 28, 2014 - 12:44pm

    Anyone see this?

    This may be no real news. Need someone smarter than I to read between the lines.

    AGAU AUandAGbull
    Nov 28, 2014 - 12:52pm

    Market close

    Does the market close earLy today.

    Nov 28, 2014 - 12:58pm
    Nov 28, 2014 - 1:02pm

    Nov 28, 2014 - 1:07pm

    Just complete collapse into

    Just complete collapse into the close. Gold now $1165 with crude nearing $67!!

    Nov 28, 2014 - 1:09pm

    Turd, please give us a podcast!


    It would be great if you could give us a podcast, even if a very short one.

    With so much action today, your calming voice and advice would be greatly appreciated, if you can squeeze out the time.

    Thanks for all that you do for us.

    Dr. P. Metals
    Nov 28, 2014 - 1:12pm

    I believe we closed for the day yes?

    that today was for sure a down-home-good-ol-southern-baptist-deep-fried-and-grilled-fire-and-brimstone-behind-the-woodshed-add-tar-and-feathering SMOKING for even with a reverse 1:10 now, JNUG may only be $30 ROFL....

    Nov 28, 2014 - 1:12pm

    Market issues?

    I was trying to sell WYY via interactive brokers.

    It is saying the order won't be placed until 0930 on 1 dec.

    Some of my other orders were refused as well. (GNBT, NSPH)

    Is something going on with the market (broken?), or something else?

    Dr. P. Metals
    Nov 28, 2014 - 1:14pm


    I didn't think they would take it all back in 1 day...but...maybe it's not "all" back yet LOL

    I'd guess most of us would have expected this to all blow up in an inflationary super-nova, but it looks like a deflationary super-nova may do it...I'm not even sure what that entails/implies..? Turd/others? So JPY 200, Crude $40, Au? Ag? Markets? no clue...I honestly and truly don't even know what the rules are anymore...

    I wish I was a cartoonist, because the only image that comes to mind is a crowded theater, full wall to wall with people, seated in their seats, watching/staring absolutely glued and mezmerized at a S&P 500 up-up-up-up chart now playing on the screen, while many are dozing off due to complacency, all the while a tanker truck of gasoline with logo (danger combustible) has been pouring gasoline into the theater, up to a foot thick now everywhere, even up to the knees of those seated in the theater, and no-one notices, and another truck with a "jet-fuel" logo is on the other side is doing the same dumping it's cargo, and another dump truck is unloading crate after crate of "surplus" TNT into the back-stage area and the isles of the theater, and yet another truck is dumping kindling wood and propane tanks around the side, and the next act to go on is back stage, juggling plates, while on a unicycle, on top of a 10' latter, perched on top of a beach ball, smoking a cigar, and has sparklers in his back pocket, and i'm just a little stick figure up in the balcony and shouting "fire!" at the top of my lungs, and everyone below is fast asleep or mesmerized staring only at the S&P chart...

    there for sure is going to be one heck of a "whoosh....!" when this gets out alive. You don't even want to be within 10 city blocks as to where the theater is located!

    ok, I have a good imagination. Wish I were an artist LOL

    Edit: Maybe that ZH william bonzai character can draw this all up LOL

    Edit 2: oh yeah, I forgot to add: the theater is situated atop a sinkhole, on a fault-line, near an active-volcano, in close proximity to a nuclear plant. And the exit signs are turned off, and doors bolted, no welded, shut.

    Dr. P. Metals
    Nov 28, 2014 - 1:16pm


    RE: "WYY" can't sell it, probably since you were "up"...nice pick BTW. No clue who they are.

    Nov 28, 2014 - 1:18pm

    Re: Market issues?

    markets closed at 13:00 EST

    Nov 28, 2014 - 1:21pm


    Hmmm.... my JNUG stop loss did not execute this morning either???

    Nov 28, 2014 - 1:22pm
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