Watching The Flows

67
Wed, Sep 10, 2014 - 11:47am

So here we are. It's September 10 and things sure don't look any better than they did at the end of May. For that matter, things don't look much better than they did at the end of December, either. What's left? Is there any remaining hope for a rally into year end? Can the metals at least eek out a positive return for 2014?

As you know, I've been out the past two days. It was great to look away for a while but, unfortunately, I made the mistake of not completely looking away. What did I see whenever I checked? Just more of the same. With the overnight selloff back on 9/1, The Cartel Monkeys managed to break the 200-day moving average in gold and all we've seen since is Spec selling of longs and adding of shorts. Of course, The Cartel Banks have been using all of this Spec selling to cover their own naked shorts. As you know, that's by design. The Banks now thoroughly dominate these paper markets and it appears that they will continue to do so for at least the foreseeable future.

Think back to how this has all played out in 2014. Twice, Spec interest has flown into the long side of gold (and silver) and twice The Cartel Banks have acted dramatically to first cap price and then smash it back down.

First, after beginning the year at $1200, gold rallied smartly through January and February. It finally broke through and above it's primary long-term trendline on March 14 when it closed at $1382. It opened higher still on Sunday the 16th and traded as high as $1392 before the Cartel offensive began. Price was routed over the next two weeks as it fell by over $110. The Spec shorting/selling and Cartel covering/buying then continued all the way to a bottom in late may at $1240.

Then, price reversed with another rally through the primary trendline, all the way to a high of $1345 on July 10 and July 11. Another Cartel offensive was then put into effect, just as in March. Price broke on Monday, July 14 and the Spec shorting/selling combined with Cartel covering/buying has trimmed price nearly $100 since.

Allow me lay the relative position changes for you so that you can see it in action...

12/31/13

Spec Long 137,182 Commercial Long 182,101

Spec Short 104,959 Commercial Short 215,122

NET 32,223 NET 33,021

3/18/14

Spec Long 183,324 Commercial Long 164,293

Spec Short 46,510 Commercial Short 310,227

NET 136,814 NET 145,934

6/3/14

Spec Long 157,322 Commercial Long 159,545

Spec Short 98,181 Commercial Short 222,989

NET 59,151 NET 63,444

7/8/14

Spec Long 203,464 Commercial Long 135,998

Spec Short 53,443 Commercial Short 302,201

NET 150,021 NET 166,003

9/2/14

Spec Long 172,522 Commercial Long 134,701

Spec Short 75,643 Commercial Short 238,408

NET 96,879 NET 103,707

Obviously, it doesn't take a degree in economics or mathematics to see what is going on here. As I've discussed ad nauseam, the global price of gold is "set" by a small group of about 60 "Large Spec" (hedge fund) traders on one side and 6-8 "Commercial" (Bullion Bank) traders on the other.

  • Price rallies as funds flow to the long side. The Specs buy and buy while The Cartel caps and caps by liquidating longs and adding fresh paper shorts.
  • Eventually, the Cartel capping exhausts the buying momentum and stalls the rally. Once The Cartel gives things a downward shove, the funds begin to sell and sell while The Cartel buys and covers the very same naked shorts they had just recently added.
  • In each case, the rallies were forcibly turned once the naked gross short position of The Banks exceeded 300,000 contracts.

And look at the effort put forth by The Banks to contain these two rallies:

  • Over a period of 10 weeks to begin the year, The Cartel was able to limit the rally to only 15% by supplying the "market" with 95,000 brand new naked short contracts. That's 9.5MM ounces of make-believe paper gold or about 295 metric tonnes!
  • Over a period of just 5 weeks in June and July, The Cartel was able to limit the rally to only 7% by supplying the "market" with 79,000 brand new naked short contracts. That's 7.9MM ounces of make-believe paper gold or about 246 metric tonnes!

Finally, note that the bottom and turn in early June "coincided" with a Cartel naked short position falling back to 222,989 or almost exactly the level of naked shorts seen at the bottom of 12/31/13. What was The Cartel naked short position as of last Tuesday, 9/2? Look back up at the data above and you'll see that it was 238,408.

So, can we assume that all we need for another bottom and turn is an additional 20,000 or so of short covering by The Banks? Maybe...and we have to be awfully close. Since the last CoT survey, total open interest in gold has risen by over 12,000 contracts while price has fallen by $11. Without question, this rising OI/falling price signals fresh Large Spec momo shorting and, into this shorting, The Banks are continuing to buy and cover. The latest CoT survey was taken yesterday and the results will be released as usual on Friday. Will The Cartel gross, naked short position be back down to near 220,000? Almost certainly.

"So, what's the point of all this, Turd??" Since we've been using bullets this entire post, we might as well close with some more...

  • It's obvious that The Banks are desperate to contain price in 2014. Otherwise, why would they issue nearly 100,000 contracts of naked shorts in two such relatively short periods of time?
  • I'll tell you why...Because if they hadn't, the rallies would have extend far beyond $1392 in March and $1345 in July.
  • And if those rallies had instead reached $1500 or $1600, the virtuous cycle of TA would have invited in even more Spec buying and driven price even higher. Analysts and the media would have been forced to admit that the "bear market in metals" was over and that simply DOES NOT fit the narrative that The Fed and the other central banks want to push.

Finally, none of this is intended as sour grapes or excuse-making. Obviously if anyone knows and appreciates the extent to which The Banks control the metals, it's me. However, as we began 2014, I expected the metals to resume their bull markets and tack on fresh gains of around 25%. Though there's still over 100 days left in the year, my goals are looking increasingly unlikely and, absent some fresh catalyst to drive fund flows back into the long side of gold (and silver), it looks like I'm going to fall short.

With such staunch and desperate capping likely to impede the next rally too, what we really need is a huge jump in Comex open interest. Back in 2010, total OI was regularly 600,000+ contracts. Total OI has spent the majority of 2014 under 400,000 contracts, even reaching a multi-year low of 360,000 contracts on a couple of occasions. It seems that only by painting The Banks into a sustained retreat by driving open interest back to 500,000+ can we get price to rally toward $1500 and beyond. This will be a key metric in the weeks and months ahead. What would drive open interest higher? That's hard to predict. Far easier to predict is that the paper markets for gold (and silver) are likely to stay rangebound between $1200 and $1320 until it does.

I'll have more later today with a full podcast. We'll go over these numbers again just so that I can be confident that everyone understands the point I'm trying to make. Until then, hang in there and keep the faith. Remain patient and diligent. Recognize the "the metals markets" are farce/joke/sham that are not even remotely indicative of the true supply/demand picture for actual, physical metal and please continue to prepare accordingly.

TF

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  67 Comments

judejin · Sep 11, 2014 - 11:07am

silver is more important than OI of gold

with shanghai premium running over 10% and shanghai inventory almost depleted, silver could be the driver going forward.

OI of silver is at record high.

so every bottom could be the last one.

i'm hopeful!

Galearis · Sep 11, 2014 - 1:48pm

Or

The COMEX prices are the prices for derivatives of the metal at < 1% deliverable. Therefore the prices are fair. What ISN'T fair is the physical price being the same as the paper price.

At this point perhaps market watchers should ask what paper markets aren't rigged rather than what paper markets are rigged? The list would be much shorter.

If the PTB and the MSM and Washington want to start a war with Russia using fictional events, why should any of us wonder about how much or how little control these creatures have on the prices of all things? They have as much control as they can manage and will continue to exercise this until some event happens that eats a big enough hole in the system to end it....The efforts for control in strategic markets are total and will continue to be.

So stack and hope is the plan - or pray according to your spiritual investment.

And in the mean time think about what the "droolers" in Washington will do if any entity becomes influential enough to compete with the COMEX price fixing tyranny (hint: open the mint and we will nuke you). Hint # 2: ponder whether Washington behaviors are becoming more irrational and extreme as this global drama unfolds,,,,and then ask yourself whether North Korea is as unbalanced as Washington appears to be....I think Washington is the much more dangerous entity.

Conclusion: the irrationality of Washington is ones best indication of how close we are to the end. The end will be either of everything, or a political settlement that will see a reset as a solution. Resets seldom happen without war.

FWIW,

G.

daveyboy · Sep 11, 2014 - 5:55pm

Harvey is a clown using

Harvey is a clown using "facts" which have been debunked over and over again to support his argument and then using fantasy statements about there being no gold left and then....

"$200 by the end of 2014" right......the best thing people can do is distance themselves from him as these outlandish baseless remarks only undermine credibility of would be entrants into the market.

Sprott is a turd (no pun intended) it was so transparent when he said at the beginning of the year that silver will be at $50, that it was bs.

Nevertheless, if Sprott is raking it in this year then he was on the money, your money that is as you also got screwed on the premiums too.

What we have seen unfold is of course rampant manipulation and fixing of markets, but that is the norm, but also an endless amount of crap about the "imminent" death of the dollar and when that occurs....why suddenly the elite play masters will not force upon the people a digital currency, no, the metals will reign supreme.

I am so sick of this shit, so sick that I barely post because I can't be bothered. I will hold on to my silver for another year and then assess at a time where I can at least break even what the market is really doing.

SE · Sep 11, 2014 - 9:10pm

I told ya...

That this was not going to happen, Turd. I said either October this year (if the manipulative trading ban is really enforced by CME starting on Monday), or if the said ban has no effect, and the markets continue as before, it might be another year at most before silver really gets out of the $50 boundary. I think Bo Polny said something like $200 by the end of the year. NOT GOING TO HAPPEN. At the end of this month, I will remind you again that there's $10 saying that $26 for silver won't happen by the end of the year.

Meanwhile, I'm twisting and turning to figure out how to get more money coming in because my travel trailer is falling apart, with AC and wiring issues. Please prove me wrong. I've been asking you for three years to prove me wrong and see silver hit $50 so that I can wipe out ALL debt at higher prices.

ratioarbitrage · Sep 12, 2014 - 3:55am

London <-> Shanghai flows - a tentative rationale

Fact: Physical silver is running out in Shanghai

Fact: Physical silver is plentiful in the West

Fact: Physical gold is plentiful in Shanghai

Fact: Physical gold is running out in the West

Fact: Silver is cheaper in Shanghai than London (net of VAT) but more expensive than London (including VAT)

Deduction: A mechanism has been pushing silver from East to West.

Hypothesis: Chinese authorities are aware of likely metal flows - including smuggling - at given rates and have an interest in keeping physical silver relatively plentiful in the West for the time being. The VAT regime and the relative price levels are being manipulated in China too to ensure that this continues as long as possible.

Secondary hypotheses: Chinese authorities are relatively uninterested in the price / availability of silver in China since they believe future high prices will not adversely affect industrials in a big way. They are however extremely interested in maintaining gold flows from West to East, which involves maintaining a) investor disinterest and b) physical markets at the retail level. They know that Western monetary authorities will also make huge efforts to maintain traction between Western physical gold market and paper gold market (thefts from various central banks in war zones / "swaps" for paper, etc.). They believe that keeping the Western physical silver market loose and easy to fulfill will prolong the investor hate and perceived traction between physical and paper markets in gold.

Expected consequence: In the long term China will want to have physical silver available, but never at the expense of gold, which is more of an existential priority in the long term. The shortages now developing may represent the natural boundary for this scheme. It can tentatively be suggested that major West to East gold flows are ceasing and silver is running out in China at roughly the same time. Thereafter, price rises rather than investor hate will free up physical gold in the West, and the silver flows can be allowed to reverse. The premium may then be allowed to rise so that silver also flows eastwards. Actual price rises in the West may take longer, since physical silver is in fact still plentiful in the West.

Fire away.

Safety Dan · Sep 12, 2014 - 4:47am

I admire someone who is

I admire someone who is willing, with their expertise and knowledge make a call like Harvey has openly made his prediction. 

Its not easy to be correct, nor to make such predictions. 

With that understanding, I won't disrespect or belittle him, even if he is wrong. He has many more years of experience in this business. My respect for him, and his calls will be intact, correct or not. 

ancientmoney ratioarbitrage · Sep 12, 2014 - 3:36pm

RatioArbitrage re: your "facts"

I have a bit of trouble with this particular "fact:"

"Fact: Physical silver is plentiful in the West"

---------------------------------------------------------------------------------------------

If, by this you mean there may be more physical remaining in comex and SLV warehouses (but I repeat myself), than there is in Shanghai then I would agree as far as it goes.

But that word "plentiful" doesn't really fit; there has been enough flow of physical silver, along with multitudes of plentiful paper silver to keep silver cheap--but I don't think it is because there is plentiful physical silver lying around. That is the impression we are expected to internalize, to keep the scam alive.

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