PM End of Week Market Commentary - 7/29/2016

davefairtex
By davefairtex on Sat, Jul 30, 2016 - 11:42am

On Friday, gold rose +15.80 to 1353.10 on moderate volume, while silver climbed +0.17 to 20.39 on moderate volume.  An unexpectedly weak 2Q US GDP report drove the dollar down hard, and this helped gold, silver, and the commodity complex to rally.

On the week, gold rose +28.60 [+2.16%], silver climbed +0.70 [+3.53%], GDX moved up +6.29%, and GDXJ rose +9.35%.  Platinum was up +5.97%, palladium rose +3.45%, but copper fell -0.45%.  PM had a good week.

Gold held 1210 support early in the week, and then rallied strongly as the FOMC did nothing, and then continued moving higher as a result of the unexpectedly weak GDP report.  The dollar was down big this week as a result of both events - more than a 2% move - and so gold's move could be viewed as just a currency effect.  Still, the break above the downtrend line is definitely positive; the short term gold downtrend has ended.  Even in Euros, gold still looks reasonably strong, chopping sideways in a three-week consolidation right on its 9 EMA.

COMEX Gold Open Interest dropped a huge -48,482 contracts this week.  That was all Wednesday - Friday.

Silver held 19.25 support this week, following gold higher on both Wednesday and Friday, although Friday's move was far more muted for silver than it was for gold.  Copper had a volatile week, and oil fell hard for 4 days, and that likely didn't help.  Still, silver broke above its downtrend line, it is now is back above the 9 EMA, it has worked off its seriously overbought condition, and the short term trend has flipped back to up again.  If commodities can find a low here, silver should do all right.  It might even make new highs.

Miners

Miners printed a swing low on Tuesday, and never really looked back.  Friday's poor GDP result and plunging dollar encouraged both miner ETFs to make new highs - but not new closing highs just yet.  Still, it was a pretty convincing performance by the miners, who are now back to outperforming gold and silver.  Miners are leading PM once again, and that's bullish overall.

The USD

The buck had a terrible week, off -2.03 to 95.47, plunging through all three moving averages and now clearly in a downtrend.  Most of the damage happened on Friday, which saw a -1.23 point drop due to the unexpectedly bad GDP print.  I guess there was more rate worry built into the price of the dollar than I had expected - any dollar bullishness that remained from the Fed's do-nothing meeting was trashed by the unexpectedly poor US economic performance.  The big beneficiary this week was JPY, which jumped +3.95% - a wicked combination of "not enough money printing" from the BOJ, and the bad GDP number.  PM Abe can't be happy about the outcome there: his $274 billion dollar stimulus package (what would be $933 billion if a similar-sized stimulus was done by the US) was pretty much of a speed bump from the market's perspective.  Not nearly enough.

US Equities/SPX

The US equity market largely moved sideways, dropping -1.43 to 2173.60.  It made another new high on Friday by a few points - 2177.09.  Really, not much happened at all; a friend of mine called it "low volume summer trading."  VIX fell -0.15 to 11.87.

In the sector map, telecom and tech did fairly well, while energy and staples fell.  The falling oil price caused the problems with energy (oil had a terrible week); I'm not sure about the problem with consumer staples.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 6.29% 129.22% rising rising rising rising ema9 on 2016-07-27 2016-07-29
Telecom XTL 2.09% 9.08% rising rising rising rising ema9 on 2016-06-29 2016-07-29
Technology XLK 1.35% 10.33% rising rising rising rising ma50 on 2016-06-30 2016-07-29
Homebuilders XHB 1.26% -3.01% rising rising rising rising ma50 on 2016-07-06 2016-07-29
REIT RWR 0.61% 20.57% rising rising rising rising ema9 on 2016-07-28 2016-07-29
Healthcare XLV 0.28% -0.11% rising rising rising rising ema9 on 2016-06-29 2016-07-29
Materials XLB 0.06% 7.44% rising rising rising rising ema9 on 2016-07-08 2016-07-29
Cons Discretionary XLY 0.02% 3.30% rising rising rising rising ma50 on 2016-07-06 2016-07-29
Financials XLF -0.13% -4.92% rising rising rising rising ma50 on 2016-07-12 2016-07-29
Industrials XLI -0.43% 8.73% falling rising rising rising ema9 on 2016-07-29 2016-07-29
Utilities XLU -1.21% 22.98% rising rising rising rising ema9 on 2016-07-29 2016-07-29
Energy XLE -1.38% -5.00% falling rising rising rising ma50 on 2016-07-25 2016-07-29
Cons Staples XLP -1.44% 11.02% falling rising rising rising ema9 on 2016-07-26 2016-07-29

Gold in Other Currencies

Gold clearly rebounded this week; in XDR, gold rose +24.90.  Perhaps its more fair to say the Euro and the Yen strengthened rather than the buck fell - gold was up fairly strongly in most other currencies.


 

Rates & Commodities

TLT rose strongly, up +1.99% following through on the swing low marked last Friday.  I have noticed that TLT is moving relatively in concert with gold; the two big days for bonds were also two great days for the yellow metal.  This is a risk off pattern - but we really didn't see any change in equities on the week.

JNK fell -0.83%, dropping below its 9 EMA and printing a swing high.  However, like SPX, it does not look as though its in a hurry to correct.  Risk off.

CRB fell four days out of five, dropping -1.03% but still managing to remain above its 200 MA as the result of Friday's rebound.  GIven how much the buck fell, I would have liked to have seen more of a move.

Crude fell -2.88 [-6.51%] to 41.38, a big loss for the week.  A bearish petroleum status report was responsible for about half the loss; on Friday oil made a new low to 40.57, but then rallied +0.46 printing a mid-range bullish harami, which shows a 24-38% chance of making the low.   Volume was decent but not spectacular.  Perhaps if the buck keeps dropping, oil might recover some more, although this could just be a dead cat bounce.  Crude is sitting just above its 200 MA.

Physical Supply Indicators

* Gold at Shanghai is selling at a -1.70 discount to COMEX.

* The GLD ETF tonnage on hand fell -5.05 tons, with 958 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1353.10 and silver 20.39.

 PHYS 11.27 +1.10% to NAV [up]
 PSLV 7.87 +1.22% to NAV [up]
 CEF 14.65 -3.18% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premium for gold or silver.

* Big bar premiums are slightly lower for gold [2.10% for 100 oz bars in NYC], and higher for silver 1000 oz bars [2.81% for 1000 oz bars in LA], and higher for silver eagles at +12.56%.

Futures Positioning

COT report covers trading up through Tuesday July 26th.

Gold commercials covered -8.4k shorts, while managed money sold -8.5k longs.  The change was relatively modest.  However, the big move in gold (and the big drop in gold OI) happened after the coverage period.

In silver, commercials closed -1.4k short contracts which was a very minor change, while managed money added +5.2k longs.  Managed money accumulating during a time when the silver price fell is relatively unusual; usually they bail out when price drops.  Positions remain at very extended levels.

The Crude COT report shows a high concentration of managed money short positions - perhaps enough to mark a low.  Commercial shorts haven't changed all that much, so it's perhaps a 50/50 shot.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

Downtrend?  What downtrend?  Junior miners leading seniors, silver leading gold, with everything back above the 9 EMA.   Juniors rallied almost 10% on the week.  They are the place to be in an uptrend.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 9.35% 165.58% rising rising rising rising ema9 on 2016-07-27 2016-07-29
Silver Miners SIL 7.46% 156.92% rising rising rising rising ema9 on 2016-07-27 2016-07-29
Senior Miners GDX 6.29% 129.22% rising rising rising rising ema9 on 2016-07-27 2016-07-29
Platinum PL.CW 5.97% 16.63% rising rising rising rising ema9 on 2016-07-26 2016-07-29
Silver SI.CW 3.53% 38.67% rising rising rising rising ema9 on 2016-07-27 2016-07-29
Gold GC.CW 2.16% 24.38% rising rising rising rising ema9 on 2016-07-27 2016-07-29

Gold Manipulation Report

There were no material after-hours spikes this week in either silver or gold.

Summary

The one-two punch combo of a do-nothing FOMC and a bad GDP print resulted in a large move down in the buck; this spurred a strong gold rebound off 1310 support.  Even when the FOMC does nothing, the market still jumps.  There is also an outside chance that oil made a low.  US equities were flat, but US treasury bonds rallied sharply alongside gold and silver.  Bonds and gold have been fairly well correlated since about February.

The gold/silver ratio fell -0.48 to 66.75, primarily because of the big silver rally on Wednesday.  The GDX:$GOLD ratio jumped strongly higher, as did the GDXJ:GDX ratio.  After a week in the doghouse, both ratios are back to looking bullish.

There was not much change in the COT report - a small amount of short-covering in gold, but managed money bought the dip in silver.  This last is a new thing.  A bullish new thing.  If managed money stops bailing out, the commercial game stops working, and if they actually start buying dips...it could be a revolution.  Managed money continues to be record long in silver, and it just keeps increasing.

Gold and silver big bar shortage indicators show no signs of shortage.

It appears that bad US economic news now results in a gold rally - right alongside the US treasury.  While I don't see a specific near-term catalyst for gold at the moment (other than the negative rate situation), if the buck keeps moving lower and/or the bad economic news keeps flowing in, we might just get to see new highs in gold just as a currency effect.  That's not a bad thing - and if you own miners, you'll get a multiple on the move in gold.  Commercials still have a lot of covering to do.  Trend is now up.  Stick with the trend until something changes.  And who knows what else might happen.

By the way, for trading purposes, the "entry point" for gold this week was buying the breakout of the downtrend line shortly after the FOMC meeting.  Price was only slightly higher than buying the low from the night before, it was still a nice discount off the highs, and the stress level was a lot lower than waiting for the market's reaction to the FOMC.

Current view from the computer:

  • Uptrend: Gold, silver, miners, platinum, natgas, treasury bonds.
  • Downtrend: SPX, DJIA, USD, crude.

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16 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5412
gold flow memes

Does this sound like a familiar meme?

"Gold is flowing from west to east...moving from weak hands to strong ones...Chinese know the true value of gold, and it is never coming back!"

I have always maintained that higher prices would pull that gold right back to the west.  Guess what?  That is happening right now.

http://news.sharpspixley.com/article/lawrie-williams-june-swiss-gold-statistics-highlight-continuing-reverse-gold-flows/253151/

The only thing it needed was higher prices.  How about that?

Is the gold running out?  No, it is not.  But it is getting more expensive...gold is in an uptrend...after six years, central banking is completely out of "traditional ammo" and any prospect of using the "nontraditional ammo" of Helicopter Money is even more gold-positive.

Most importantly, everyone else is starting to figure this out.  The western gold buyer is coming back.  This last part is the key to higher prices for gold.  If only the existing gold owners buy into a story, price won't move.  How could it?  The only enthusiastic buyers are the people who have already bought!  Its when everyone else starts to get the idea...that's when things get interesting.

I also find it interesting that "the cartel" power seems to wane during times like this.  The evidence would seem to indicate that global capital flows beat "the cartel" any day of the week.

Oliveoilguy's picture
Oliveoilguy
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China and Gold

Richard Duncan  (who would be a great guest) writes about China, and said in a recent interview that China's threat to devalue it's currency, and thereby export deflation to the US,  is keeping the FED from raising rates. With the FED hamstrung, it would seem that PM's might experience some true price discovery relative to the dollar.

davefairtex's picture
davefairtex
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threat to devalue

OOG-

I think China's "threat" to devalue its currency is just an unavoidable consequence.

China can only fix its SOE debt problems either via default or "real" money printing - swapping the bad debt for newly printed cash.  (The debt-for-equity swap only works if the equity in the company that owes the debt is long-term viable, which for those SOEs, they are not).  The cash-debt swap will cause a big currency devaluation prior to the event as money flees China, as well as after the event and its inflationary hit, which will cause even more money to flee China.  The currency will get whacked as a side effect of the capital flight.

From an external perspective it sure looks like a devaluation, but the internal motivation is to avoid a big deflationary crash which would probably result in the unfortunate loss of the Mandate of Heaven.  Unfortunate if you happen to be in the leadership, of course.

China has eliminated all news origination from internet sources in recent weeks.

http://www.bloomberg.com/news/articles/2016-07-25/china-slaps-ban-on-internet-news-reporting-as-crackdown-tightens

This might be a precursor.

Fudgery Gaylore's picture
Fudgery Gaylore
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premiums and Bob Weidemer

I've been waiting for a promised silver "pullback", "correction", "retracement", whatever the term of the week was, and it is looking like I must have missed it on a Tuesday night at 3:18 am.  Still get a kick out of Dent calling it a commodity.  It has to be used in some process that is used by at least some percentage of the population.  Actually, currency is a commodity for gold and silver because you can't start a commercial bank or monetary system without it.  Or, at least a successful one.   

 

Every commodity has flat lined, except for gold and silver--that should tell you something is wrong with the economy.  Let's get Bob Weidemer back on a podcast and see what he believes the Fed will do when the deflationary crash transitions to the financial markets...

Fudgery Gaylore's picture
Fudgery Gaylore
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Posts: 7
premiums and Bob Weidemer

I've been waiting for a promised silver "pullback", "correction", "retracement", whatever the term of the week was, and it is looking like I must have missed it on a Tuesday night at 3:18 am.  Still get a kick out of Dent calling it a commodity.  It has to be used in some process that is used by at least some percentage of the population.  Actually, currency is a commodity for gold and silver because you can't start a commercial bank or monetary system without it.  Or, at least a successful one.   

 

Every commodity has flat lined, except for gold and silver--that should tell you something is wrong with the economy.  Let's get Bob Weidemer back on a podcast and see what he believes the Fed will do when the deflationary crash transitions to the financial markets and what will happen to gold and the new kid on the block, digital currencies...

kennethbolin's picture
kennethbolin
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Gold flows from east to west...

Big gold imports to London.....rare

Big gold imports to NY.....rare

Big slowdown of offtake in Shanghai....rare

DOES ANYONE THINK THAT CHINA BOUGHT THE VAULTS IN LONDON AND NY TO JUST SIT THERE AND COLLECT DUST?

davefairtex's picture
davefairtex
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occam's razor

So why on earth would gold be flowing into London and NY - and purchasing in China has slowed?

Well let's see.  We know Chinese like to sell the highs and buy the lows.  Gold is up $300 in six months.  Chinese people probably see that as "high."  That explains Shanghai.

Now then, we also know that COMEX buyers are very enthusiastic right now.  Presumably, other physical buyers are following suit here in the West.  That explains NY and London.

It doesn't seem that mysterious to me.

Of course we'll see how it goes next month, but if price continues to rise, I'd expect buying to slow further in Shanghai, and for there to be more imports into NY and London, because that's the primary source for all the current enthusiasm - at least from what I can tell anyway.

cmartenson's picture
cmartenson
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I see that differently...
davefairtex wrote:

Does this sound like a familiar meme?

"Gold is flowing from west to east...moving from weak hands to strong ones...Chinese know the true value of gold, and it is never coming back!"

I have always maintained that higher prices would pull that gold right back to the west.  Guess what?  That is happening right now.

http://news.sharpspixley.com/article/lawrie-williams-june-swiss-gold-statistics-highlight-continuing-reverse-gold-flows/253151/

So...following the link I see that SWI imported 161 tonnes and exported 171 tonnes.  

I see that the UAE was the major exporter to SWI, and that while the text  excitedly noted an import of 16.4 tonnes from Hong Kong, the next chart down noted 34.8 tonnes to Hong Kong.  

I am not familiar with the import export dynamics of HK to know if this is normal or unusual.

I'm guessing that the UAE data has more to do with oil exporters sucking wind on low energy prices than the price of gold, although that must be a contributor...but I do think that we're seeing the UAE, et al., trying to raise cash any way they can.

I tend to trust Koos Jansen when it comes to the China data and here's what he says:

In the month of June (2016) SGE withdrawals accounted for a robust 139 tonnes, although this was down 29 % from June last year. The reason being for “somewhat subdued” Chinese gold demand in recent months is that the price of gold has risen strongly over this time horizon and the Chinese tend to buy gold when its price goes down, in contrast to Western investors that buy gold when the price goes up.

From 1 June until 30 June 2016 the price of gold in US dollars jumped by 9 % from $1,214.70 to $1,325.76. Over the first six months of 2016 the price of gold exploded by 25 % (from $1,061.5 on 1 January 2016). So, since January this year when the price of gold started to rise, the Chinese actually stepped down their gold purchases while Western demand, which can be roughly measured by the net flow in/out of the UK, went up impressively.

(Source)

So, yes, Chinese demand is down a robust 29% from last June, but this is not the same thing as a reversal of flows.  Instead we might note that the SGE took off 139 tonnes for June.

This is still hefty west to east flows...

I am also confused as to why the SWI data in the charts in the first link includes no China column...as of 2014 China had three mainland ports open for gold importing, Beijing, Shanghai and Shenzhen.

So I am a bit suspicious of the provided charts as being comprehensive....

Jim H's picture
Jim H
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Thank you Chris

Indeed, 20 tons flowing from Switzerland to the US may be out of the ordinary, and worthy of some kind of note.. but I never knew Switzerland was considered an "Eastern" nation, or that it was somehow the same as China.  Indeed, there is no evidence to suggest Gold is leaving China, as you point out.. only a mild moderation of demand.  

Dave's work is a tortured narrative because he does not recognize manipulation.  I appreciate that you are willing to straighten out PP.com readers in this case.

davefairtex's picture
davefairtex
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Posts: 5412
torturing narratives

Dave's work is a tortured narrative because he does not recognize manipulation.  I appreciate that you are willing to straighten out PP.com readers in this case.

Jim I think you are forgetful.  I definitely recognize the desire to manipulate, and the attempts to manipulate.  I've said so a large number of times.  I'll say it again: I believe that the bankers want to manipulate everything, all the time, they try to do so whenever they can get away with it, and gold is no exception.  If you forget again, I'll be happy to remind you as many times as it takes.

From what the evidence tells me, those bankers manipulate during a downtrend really well.  The 2012-2015 period and the corresponding COT report was a prime example of this.

They don't manipulate the uptrends well at all.  The last six months is a prime example.

From what I can tell, you believe the cartel's power waxes and wanes due to forces that you have never clearly explained.  Me, I believe the cartel's power remains unchanged; the trend is due to capital that is deciding to either flow in, or out of the gold market.  My model is simple: money flows in, price rises.  Money flows out, price drops.  Cartel's ability to manipulate depends entirely on how much countervailing force is present.  You find my model to be "a tortured narrative."

I find the waxing-and-waning-for-unspecified-reasons narrative to be the tortured one.  Cartel is all powerful!  No wait, its not.  Oh, now it is again!  Oops, now its not.

We'll all know more next month if the flow of gold into London and NY continues, or if it was just a one-time thing.  I think its likely to continue.  I believe that the new higher prices will suck in gold from the rest of the world and move it back west again as demand in the west continues to increase.  I suspect Asians will sell into rising prices because that's what their historical pattern has been.  They buy the lows and sell the highs.  Shanghai is in discount right now, and has been for several weeks.

Gold is now flowing back into London.  I don't recall if any goldbug writers predicted this.  Did they?  My sense was, they were predicting that the gold in London would run out.  If I'm wrong about this and your goldbug writers predicted this flow of gold back into London, please correct me, because then they and I will have been on the same page.

 

kennethbolin's picture
kennethbolin
Status: Member (Offline)
Joined: Nov 23 2010
Posts: 5
Gold flows from east to west...

Soon to be a public fact. Chinese entities are stocking up their western vaults in accordance to long term plans. "You show me yours and I show you mine!"

 

David Allan's picture
David Allan
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Posts: 105
Chinese gold

For some years I've found Alisdair Macleod to be a credible and consistent commentator on the global perspective. Of course he has a an agenda but I have never found him to overly push pms or his company - in fact I seem to recall him being a guest on Chris's podcast some time back.His contention  has been that the Chinese government reached their target holding of gold in the early 2000s after decades of quiet accumulation. At that point they had acquired 25,000 or perhaps 30, 000 tonnes and then started encouraging the general population to buy. If this is any where near accurate the bulk of the west to east flow has already happened.

David Allan's picture
David Allan
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Posts: 105
Thank you Dave

Recently I took a 'final' whack at PMs. While already over-invested by many criteria I wanted one last hit on the way up. Although I do differ from your interpretation of certain aspects of the market I have very much appreciated your commentary and analysis.  Thank you.

And now I won't have have to worry about checking the market every 5 min to see if I've held out too long. In case I'm not looking maybe you can PM me when silver gets to $250  ;-)

 

David Allan's picture
David Allan
Status: Silver Member (Offline)
Joined: Nov 15 2009
Posts: 105
Thank you Jim H

I  really appreciate your posts and feel the different perspective you bring (and which I largely agree with) is useful and valued by many more than just myself.

Jim H's picture
Jim H
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Joined: Jun 8 2009
Posts: 2385
Manipulation

When I say manipulation - I am really talking about the long term affects of the efforts by the cartel to constantly throw paper at the market.  The long term affect is, in my view, a price that is Way, Way off the true price that would balance physical supply vs. demand. 

http://www.tfmetalsreport.com/blog/7770/curious-pattern-comex-deliveries

When I say manipulation, I mean the cumulative affects of all of the false, paper Gold present in the world.. not just this Comex paper, but the leased CB (and other) Gold that is double counted.. the rehypothecated Gold that is x-times counted, the masses of unbacked unallocated paper Gold in London that simply does not exist other than as promises, and the ETF's like GLD that siphon demand for physical into more paper (  http://investmentresearchdynamics.com/think-gld-is-legit-better-twice-ab...). 

My analysis of the market points to a phase change.  I think we are in that right now.  

These public thread arguments about the details of manipulation are too much of an energy suck for me... I don't want to do this anymore.  For me this is settled science.. arguing with Dave on this topic is like arguing with somebody who thinks the earth is flat.  If anyone from PP.com wants to talk to me about PM's.. please PM me : )     Good luck to all... including Dave. 

 

 

davefairtex's picture
davefairtex
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Joined: Sep 3 2008
Posts: 5412
settled science & confusion

For me this is settled science.. arguing with Dave on this topic is like arguing with somebody who thinks the earth is flat.

Haha Jim, nicely phrased - you got me.  I'm a closet flat-earther!

While I definitely agree with you on the mechanisms (a positive flow of either paper gold or real gold will suppress the price of gold) I do not believe that your goldbug writers qualify as scientists - I've never seen them try to falsify anything, they just look for confirmations, which they find everywhere.  Koos Jansen being the one exception I know of.  And their models are...flawed.  Let's just say flawed.

Just for fun, I'm going to have a little review of the predictions your goldbug "scientists" projected using their models over the past decade or so:

  • COMEX defaults.  How many COMEX defaults have they called for again?  I've lost count.  And that wacky COMEX just keeps going and going.  But it's going to fail soon.  Next month, probably.
  • The ever-popular hyperinflation.  When is that coming?  "Next year for sure" - since about 2005.  In the meantime, debt bubble pops turn out to be deflationary.  Who knew?
  • The dollar - its destruction is assured, it is just about to become confetti.  Disregard that 20% rally, and all that worldwide dollar debt that (it turns out) needs to be repaid using...dollars.  And that deflation is dollar-friendly.  Who knew - again?
  • The uber-powerful cartel, which can print infinite contracts and stuff every rally.  Except when they can't, and/or they don't, and/or they lose interest.  Dog ate my homework, I wasn't really trying anyway.
  • Rising commodity prices are one of the key pillars of the gold bull market.  Until commodities start to drop, of course, and then it's the uber-powerful cartel at work!  OMG they really can stuff every rally!

Its as if the AGW scientists had predicted - using their models - that earth's water would all boil off, that the atmosphere would be ripped away, the sea levels would rise and inundate the entire land mass except for a few select mountain tops, and that a meteor would strike the earth and cause an extinction level event...and that they predicted this sort of thing was just a few months away every year for the past 10 years!  And the answer was to buy a spaceship...from them, of course, they'd gladly sell you one...BUY NOW BEFORE THEY ALL RUN OUT!

This is the stuff I have a problem with.  Not the claim that creating new paper gold suppresses the price.  That one I believe.

Hope that clears up the confusion.  :)

 

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