Operation Cap & Hold

Wed, Dec 10, 2014 - 11:11am

By now, you know how this works. Unleash the London Monkeys at 3:00 am New York time. Put the New York Monkeys to work as soon as the Comex opens. All in the hope of containing yesterday's breakout rally by capping and holding price until momentum begins to wane.

So, in the wee hours of the London morning, gold again rallied toward the 100-day moving average. Once again, it was halted at $1238.90...precisely where it was stopped yesterday on the Comex...just ticks below the 100-day moving average, which yesterday was $1239.30 and today is $1238.50.

Then, unleash The Monkeys at exactly 8:00 am London time. Let them massage price for a little while. Three hours later, both gold and silver are down over 1% from their 8:00 am London levels.

Price, of course, begins to bounce as soon as The Monkeys relent. Gold rallies over $9 to $1235 and silvers rallies over 2% from $17 to $17.36. What happens next? The Comex opens for business with gold trading beginning at 8:20 New York time and silver beginning at 8:25 and, whaddayaknow, down go the metals again. It looked like this:

Again, why here? The Cartel goal is to keep price below the 100-day moving average, first and foremost. After that, they'd love to batter price back down and below the long-term trendline from last May. And in silver, they must see the need to keep it from closing above $17.50. Above there, and silver heads directly toward its own 100-day MA and critical resistance at $18.20. Lastly, after rallies such as yesterday, The Forces of Darkness will always fight to keep things from extending. The last thing They want is two, consecutive, huge UP days for fear of igniting all sorts of positive momentum. As long as They can contain the rallies to a single day, They can maintain the illusion of just a short, quick bounce.

Conveniently, though, all of this capping has given us a pretty tight range to keep an eye on. Check the hourly charts below and be sure to watch for a breakout in either direction:

Blunting Their efforts and providing support is a yen that continues to rally today. IF it can extend through yesterday's highs and move through the 85 level on the chart below, all of those momo-chasers who are long the USDJPY are going to start getting pretty freaking nervous. And, obviously, a strengthening yen weakens The POSX, which in turn helps the metals.

Just two other things before we wrap this up...

Crude continues to wash out. Recall that in yesterday's podcast we noted the almost total lack of bounce following each steep selloff. This is indicative of a market that has yet to find a bottom. With this in mind, is it any surprise that crude is making new lows again today? Of course not. Again, $60 is your target, at a minimum. However, DO NOT be surprised by $56-58...

And, just for fun, check out this daily chart of the S&P. Are we getting ready to roll over again, just like October?

Finally, I thought I had finally landed one of my dream guests for A2A this week but he seems to have wriggled off the hook for a moment. If I can pull it together, I still hope for a podcast either tomorrow or Friday. If not, it's back to the drawing board. I'll keep you posted.

Have a great day,


About the Author

turd [at] tfmetalsreport [dot] com ()


Dec 10, 2014 - 11:14am

after a few days of run up

a small breather would be ok

however, with all the global issues, anything can happen and I do not see a plethora of good news coming.

Dec 10, 2014 - 11:18am

I'll let somebody else be

I'll let somebody else be second...

Dec 10, 2014 - 11:20am

Hopes and dreams

Was it Woody II?


Are we getting ready to roll over again, just like October?


Dec 10, 2014 - 11:21am
Dec 10, 2014 - 11:24am


what's your take on the prevailing impression that the drop in crude 'could' be a very direct leading indicator of the next major market downturn?

i find the argument that junk energy bonds could be the first domino to be very compelling. but i'm not smart enough to know for sure.


Dec 10, 2014 - 11:24am

Rickards Interview on Oil Prices

Had a chance to listen in on an interview with Jim Rickards via a subscription to his Strategic Intelligence Report. It concerned the current situation in the oil markets and how they might affect the overall markets over the near and long term. Most of what he had to say has been covered here in Turdville. However Jim did put figures together that may amplify what we already know. Here’s what I gleaned from his discussion

  1. Over the last 5 years bank and corporate debt due to our energy upswing , especially in the fracking area, has risen to $5.4 Trillion. Most of the business models were based on a price range in crude between $80-$150 per bbl.

  2. Many of the major oil companies bought forward swap spreads(insurance derivatives) to protect from the downside. These swaps have been provided by the major banks..Citi, JPM, etc. The banks, much as they did prior to the Lehman event in ’07-’08, have packaged these loans into smaller chunks, and sold to ETF’s, mutual funds, and institutions .Sound familiar? These majors are protected at $80, the banks lose the difference between the price of crude and $80 which is then passed on to institutional investors that have these debt swaps into the portfolios. Oil companies that did not hedge are going to default and this will have a big impact on the junk bond market.

  3. Rickards shared that about $200 billion of CDO defaults occurred during the panic of ’08. He said he wouldn’t be surprised to see 20% of the $5.4 T default or over $1T. This he deemed was a conservative figure. He mentioned that the rate of defaulton the mortgage CDO’s was at a higher default percentage during the RE crises. He mentioned that the $200 B in losses was what cratered AIG. The key takeaway here is that the market in question is about 5 times the size and subject to a risk 5 times more critical than the RE crisis.

  4. Rickards warned that all that are invested in Energy market equities ( ETF’s, mutual funds, Junk bond funds, etc. ) should do some research to find whether these swaps show up on the balance sheets.

  5. It probably will take a quarter or two before these losses start showing up. However, he did say that $60 bbl was a short term floor that could accelerate downward once the write-downs begin. Capex spending, drilling and exploration, oil services; should the downward pressure resume, will be severely curtailed, if oil drops below $$60. This could have a cascading affect on all other debt markets. While lower gas prices for the public are good, the pressure on GDP with losses mounting, could roil the economy.

  6. Regarding the Federal Reserve, both Fisher and Plosser, the hawks on the board, will be leaving in January, to be replaced by Charles Evans and John Williams…both doves. This should take some pressure of question of a rate rise. Rickards leanstoward a position, as does most in Turdville, that rates won’t going up in the immediate future. Risks are too high too high and the dollar needs to weaken to stave off potential crisisin emerging markets whose debt is mostly in the USD. Rickards likened the current high dollar situation to that of ’97 default by Thailand which pressures Indonesia, South Korea, Russia, and eventually cratered Long Term Capital Management. He said it took 15 months from June ’97 to Sept ’98 for this crisisto completely unfold.

  7. One interesting tidbit was that Rickards said that Algeria poses a real threat and is forging an allegiance with the Islamic State. Should ISIS take Algeria over, they would not likely reduce oil production at any price due to their financial needs to wage war. This may or may not add to woes of the oil markets. Algeria is hardly on the public radar screens as a threat and it’s just another problem to add to pile that’s been building over the lastyear.

Needless to say Rickards believes the falling oil markets to be a most serious threat to our economy. He’s definitely a macro guy and the market could stabilize. Yes we do live in interesting times. Just be prepared for the unknown.

Dec 10, 2014 - 11:29am

the oil selloff

more than sanctions on russia and Iran

more than driving prices down before election (although the dems took credit for that)

more than saudis defending market share including going after shale

sooner or later the govt will have to say its the economy, stupid.

also, prices on beef, dairy poultry, eggs are way up; cpi only says 3% this year.

its how they substitute--ground beef is up 40% since 1/1/13, lean ground beef up 44%. I found a website in Dept of ag that shows prices, which appear to be reasonable.

If real cost of inflation in food was inserted, then GDP would be far lower just on that.

add to it Baltic Dry index is declining to lows. No activity.

the entire economy,markets, media are shams.

Dec 10, 2014 - 11:29am

Re: Hopes and dreams

"Are we getting ready to roll over again, just like October? Yes"

If the Santa Claus rally doesn't appear soon it wouldn't surprise me if money managers ring the register and book some 2014 profits. If we take out the 203x lows in the S&P's, things could get a little dicey IMO. Dunno

Dec 10, 2014 - 11:32am


MM's have already taken profits but if they want to collect fees they have to do something besides keep assets in fiat.

aside from that look at buybacks for heavy buying and also central banks doing the buying.

There is not that much real buying.

on the other hand, something like 2400 funds hold Amazon stock and I want to know why that many hold amzn when profits are not in the foreseeable future, esp after its latest bond sales to raise operating cash.

Dec 10, 2014 - 11:32am

falling oil - rose colored glasses

falling oil is symptomatic of the petrodollar demise......what if it ushers in a quicker the "Rickards scenario" ....goldbacked SDR.....at the same time...miners enjoy cheap manufacturing costs due to lower oil price.

HUI 1000.

BTW, mish shedlocked announced switching his gold for silver yesterday....might want to listen up on that one....he switched his silver for gold way back in April 2011. Prescient, indeed.

Frank Guistra buying miners....now.

Dec 10, 2014 - 11:33am

that rickards recap

is some ominous stuff.

it's hard to see any positive outcomes from here.

Dec 10, 2014 - 11:33am
Dec 10, 2014 - 11:34am

I'm very concerned about this

I'm very concerned about this actually. Junk energy bonds are only one possible "first domino". The $4T in commodity derivatives held by US TBTF banks is another.

Again, you just simply CANNOT take 40+% out of the world's largest and most important commodity market in four months without serious repercussions and unknown unknowns.

Dec 10, 2014 - 11:42am

Bill Fleckenstein's thoughts re: Energy, ...


It is also worth noting that the junk market continues to be weak and the HYG junk bond ETF traded back to its old spike low from the middle of October. The possibility certainly exists that the collapse in oil and the carnage in many of the U.S.-listed domestic shale/fracking oil "plays" will cause some problems in the high-yield market. After all, they have roughly $200 billion in debt outstanding.

I have made the point many times recently that I do believe the intersection of the mutual fund industry and the world's bond markets is going to be the scene of an accident, as the promise of daily liquidity while owning bond issues where you couldn't get out with a "get out" machine spells real trouble. Is this start of it? It certainly could be, and at a time when no one is expecting it.

Dec 10, 2014 - 11:44am

Here is my personal canary

Goodrich Petroleum (GDP)

This is GDP March 2019 8.875% Bonds. This is a chart of yield.

Their stock has gone from $30's to $3.

Here is another list of shale plays if anyone is curious.


Another is called Dirty Sanchez Energy (SN), bonds have gone down 30% in a month.

Dec 10, 2014 - 11:48am

junk bonds energy

I was looking at ARP last night, an E&P MLP--it is sensitive to oil prices, vs pipelines not as sensitive.

anyway, ARP had bonds outstanding in the 7-9% range--junk, MMP a pipeline is in the 5% range

that extra 3% is noteworthy when revenues are falling fast as in the case of ARP.

Dec 10, 2014 - 11:50am

Re: Question On How A Big Company Buys A Jr Miner

"The market cap of this small mining company is ..say $10 Million."

My guess is that they would tender an offer with a slight premium above the $10M market cap? Dunno

Dec 10, 2014 - 11:50am


Horse, I think I'm going to buy a few shares of Dirty Sanchez just for something to hang on the wall. lmao, anyone who would name a public company Dirty Sanchez is made of pure awesomeness IMO

late update: dammit, there's no "dirty" on the ticker, my Christmas is ruined

Dec 10, 2014 - 11:53am

I was wondering

I should have clarified that I renamed them from Sanchez to Dirty Sanchez.

They drill for oil, which is both black/brown and dirty.

You know what they say, if the shoes fits.

Dec 10, 2014 - 11:53am

Question On How A Big Company Buys A Jr Miner

Hi everyone, Im pretty new to this field and had a question that Ive been having a small debate on.

Say a big company is about to acquire a small jr mining company.

The Jr Mining Company lets say has 20 million ozs of silver (or thereabouts) on their properties through their drilling reports.

The cost to get silver out of the ground is $11.50/oz.

The market cap of this small mining company is ..say $10 Million. (its all time high for market cap is say $200 million)

How does the large company pay for the small jr mining company??

One person told me that they will pay say 50 cents in ground to make a profit, say...they will sell for $12/oz with the cost of operation is $11.50.

The person stated that the big company will 22 million ozs of silver (underground/in mines) x .50 which equals to $11 Million.

That does not make sense but i am very new and have to learn. I thought that the big company would actually have to pay for all the 'possible' mined silver underground.......perhaps at a discounted rate since you have to factor in costs.

In my opinion, the big company will pay say $10/oz of silver (or slightly less) for "$220 Million"...NOT what is potential profit 50 cents per ounce, that sounds crazy.

Who is right in the case? Much thanks

Dec 10, 2014 - 11:57am

Dirty Sanchez

Dirty Sanchez Oil Drilling by areyouaheavy

www.cafepress.comCollege GiftsCollege Mens

Funny retro styled shirt for a fictitious oil drilling company - Dirty Sanchez

Dec 10, 2014 - 11:59am


Thank you, you've saved Christmas, the wife is going to be incredibly happy that it comes in her size (small). lol

Dec 10, 2014 - 12:03pm

Follow da Money

The last time oil was hit like this was when President Cheney, (O c'mon, just get over it), was demanding a US invasion of Georgia. Anyone recall what the (given) reason was? Doesn't matter, they made one up. He and the Neo's wanted a war with Russia, same thing the Neo's and their new puppet Barry espouse now, only Ukraine is currently the unwitting and ignorant patsy. A low oil price crushes the economy of countries that actually sell oil for their livelihoods - like Russia.. War is the objective, and in war there are casualties; Mutual Funds, Bonds, oil specs, Twin Towers, whatever.

Unless of course you see that late 2008 drop as a natural market event..........................................;-}

Dec 10, 2014 - 12:54pm

Greg Hunter, 5 Big Banks will survive

Greg Hunter with Ellen Brown – 5 Big Banks will Survive Next Financial Calamity – Everybody Else Bankrupt (Video)

Greg Hunter, 5 Big Banks will survive the financial calamity, everyone else goes Bankrupt

Ellen Brown-5 Big Banks will Survive Next Financial Calamity-Everybody Else Bankrupt
Dec 10, 2014 - 12:56pm

And here's a little ditty from your friendly Treasury Department


Well, I know that they coerced compliance from the foreign banks that do business in the US when it came to FATCA, but Treasury is going to require all holders of US Debt to report it to them? LOL! I guess they just want to be able to assess and prioritize US's vulnerabilities with our little debt problems? Man oh man.....

Dec 10, 2014 - 12:56pm


Assuming that the Junior Miner is on the stock exchange (otherwise why would you ask) - they would have to make a takeover offer that was at a premium to the current price. Say +40%.

So if current price was 2 cents per share, the take over offer would need to be 2.8 cents or more to provide incentive to sell.

However - the board of the junior may either fight or facillitate the takeover.

It also depends on what the largest shareholders want.

Just noting that some recent takeovers were at multiples of the share price.

Dec 10, 2014 - 1:00pm

GOFO = LIBOR – GLR: Hypothetical

If GLR was to go negative.

Then GOFO would be +ve, and GOLD would stop moving as what bank would pay the lessee to hold their Gold?

Dec 10, 2014 - 1:01pm

Shale box

Fed can't let this go down. They will have to buy the shale debt. Shale keeps pumping. Oil prices stay too low. Krugman! What do we do??

(stokes scruffy, weak-chin-hiding beard)

"I have it!"

"what, Doctor Krugman, what?!

"We must destroy the Shale wells and then, re-drill them. Oil price will get a bit of a jump, and the jobs increase will be amazing. This stuff is easy. I AM a genius."

Seriously. Does anyone think that they won't view the shale oil guys the same way as they viewed the bankstas...we can't let these bonds go bad, they will destroy the banks, we can't let the banks get destroyed, I will lose my campaign donor...

New Century Financial crashed in Spring 2007, everything else, a year later. Maybe Armstrong is right....BTW, 2007 was awesome for PMs...

Dec 10, 2014 - 1:02pm

Gold steady, HUI up 0.78%

While the DJIA, S&P, Nasdaq & Russel all crater.

The decoupling continues.

SamSchlepps TF
Dec 10, 2014 - 1:03pm

US Jobs got and get way impacted by the Shale "miracle"

FWIW - this may have slipped by - right at the bottom of the Stockman article - but seem very important in deciphering what is - sham growth in jobs we all know and what will be - when the only jobs growth engine goes away; on top of all the other things that low oil prices mean

"... As the global boom cools, oil demand withers, the junk market craters, and the shale patch tumbles into depression, someone might actually note the chart below.

Its been another central bank parlor trick. The job count in the 45 non-shale states last Friday was 400,000 lower than it was at the end of 2007. That’s right, not one new job—even part-time or in the HES complex—- for the last seven years.

All the new jobs have been in the 5 shale states. That is, they were manufactured by the Fed’s tidal wave of cheap capital and the central bank fueled global recovery which created the illusion that $100 oil was here to stay.

But it isn’t and neither is the shale boom, the shale jobs or the shale investment spike, which counts for a good share of overall CapEx growth since the crisis.

Yes, indeed. The monetary politburo did it again..."



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