Look, we've been discussing/warning for weeks that this "disinflation bias" could lead the paper dumpers to smash everything, across the board, and that, if all of this volatility makes you queasy, now would be an excellent time to have some put options as a hedge against paper price drops. Look around today. Do you see any reason to change this somewhat dismal short-term outlook?
We've had a nice (Calvin?) bounce as the disinflation fears seemed to ease with a rising yen. However, the charts are undeniably bad for gold, silver and the miners. Additionally, as we've been watching this week, crude and platinum look like hell and copper is giving back some of it's early week squeeze gains, too. Stocks are down and bonds are rallying. This all has the look of a renewed Disinflation Bias and Fear trade and, as we head toward next week's all-important Fedlines, it's likely to get worse.
What does this mean for you? Prepare for anything and everything.
But let's begin with a story that I've been watching bubble just below the surface for the past few weeks. Rather than waste time spelling out all of the details (we can always do that if/when this gets worse), just read the concluding paragraph from ZH below. If this piques your interest, then go ahead and read the full article. The point is this: A continued commodity meltdown may very well spark the destruction of Glencore...the impact on gold and silver would be completely unpredictable...and, it could very well impact ALL markets in a 2008-style daisy chain lock-up/meltdown.
"Finally, some have started to ask: what happens if Glencore were to fail? Well, since Glencore is not just a miner, but probably the world's largest commodity trading desk, and is a key commodity counterparty for everyone, the answer is simple: Lehman... only this time in the commodity space."
So, let's check the awful charts. To save time...and because we'll certainly cover these in today's podcast...let's go through these quickly.
As you know, the HFTs in the equities, gold and some commodities are all trading nearly 1:1 with changes to the dollar-yen (USDJPY). The yen broke out of a 3-year downtrend three weeks ago and is still holding somewhat firm. But what do we KNOW about the breaking of long term trend? You almost always get a test of potential support as price comes back down and "rides the line". The pennant you see on the daily chart could easily be broken...of, I don't know...on Thursday of next week maybe? If that happens, the yen could easily cruise back down to ride the old trendline near 80 and potentially attempt a double bottom. And how would that impact gold, silver and the commodities? Furthermore, how would that impact a sick and dying company like Glencore? And if Glencore begins a death spiral, how will that impact EVERYTHING? (See what it's like in my world?)
Regardless of all the speculation above, the chart of gold is undeniably terrible. By breaking down again today, it looks like a test of the lows near $1080 is coming and a breakdown through there would open the door for $1045.
And I almost stumbled into this during the podcast a day or two ago...Let's just say all of the anecdotal reports of wholesale gold shortages are all real and true and that London truly is empty. You must therefore assume that The Evil Banks KNOW this. The Banks would therefore be preparing now for an eventual force majeure or cash settlement of futures or whatever. Well, hell's bells. Just last Friday, we found out that The 24 Criminals on the BPR are still NET SHORT 72,347 Comex gold contracts. Do you think they'd like to reduce that position a bit before all hell breaks loose? Probably! If The Bastards could swing all the way back to NET LONG before system demise, they could leave the hedge funds and other specs holding the bag as shorts that failed to deliver. Look, I'm not saying that this has to happen, but it's definitely something you need to be thinking about.
And silver is horrible, too. We discussed how bad things looked back on 8/26 when it broke to new lows and below $14. Well, now that it has broken down and out of the $14.40-14.90 range we've been following, it's nearly impossible to believe that a test of that $13.95 isn't coming. And if/when that levels fails (and it very likely will), you're looking at the possibility of $12. Again, please recall how many times we've discussed the necessity of put hedges if all of this makes you nauseous. However, if all of this really does mean a final, 2008-style washout, the final dip and buying opportunity will be one for the record books. Is that worth pulling/hoping for? For some of us, maybe. For others...again, please take whatever steps are necessary to avoid a mental/personal breakdown.
And the HUI...oh, crap. How many times over the past few weeks have we discussed that a break of 105 would be a precursor for a reading in the double digits? Well, here you go! I have a last of 101.69. Again, if you've never owned the miners and you've avoided the excruciating pain of the past 3+ years, this is a potential gold mine (pun intended). If the HUI is now headed to a final low near 75 or even 60, this would present a true opportunity of a lifetime for anyone fortunate enough to pick up a few shares of the survivors. Could this be coming? Maybe. Could something under 100 be coming, at a minimum? Almost certainly.
Exacerbating all of this and indicative of future pain are the charts of crude, copper and platinum. Crude and copper look ready to reverse and re-plunge and platinum looks headed toward old lows, just like gold.
There's so much more to discuss but it's already 11:51 a.m. EDT and I need to get this posted. Again, we'll be sure to explore what these "markets" might be telling you to expect next week during today's podcast so please be sure to check back later today or over the weekend. I'll give you a hint, though, and this very much pertains to the theme of this post...namely that the Disinflation Bias trade is about to intensify and potentially get out of control. What could happen next Thursday that would cause this and why would the central market planners have the notion that rising rates might even make their all-important "stock market" go up? Think about that and I'll explain my reasoning later today.