PM End of Week Market Commentary - 11/11/2016

davefairtex
By davefairtex on Sat, Nov 12, 2016 - 8:33am

On Friday gold fell -31.20 to 1227.40, silver dropped -1.24 to 17.36, both on heavy volume.  The collapse started just after 09:00 Eastern, and continued through afternoon in NY, with silver falling more heavily than gold.  A dollar rally certainly didn't help, but was not the primary cause of the rout.

On the week, gold fell -77.80 [-5.96%], silver dropped -1.06 [-5.75%], GDX plunged -16.55%, and GDXJ plummeted -17.65%.  That's some bad news.  In addition, platinum dropped -5.38%, but palladium rose +9.59%, and copper jumped +10.77%.  That's a massive divergence between gold and silver versus palladium and copper.  It felt to me as though the market transitioned in a couple of days from a worried, flight-to-safety mood into an expansionist, reflationary celebration.

Here's one example of the sudden mood-shift that happened the night of the election:

http://www.bloomberg.com/news/articles/2016-11-10/druckenmiller-sold-gold-on-election-night-in-gamble-on-growth

Stan Druckenmiller says he sold all his gold on election night and is short bonds globally in a bet on stronger economic growth and rising interest rates.

"All the reasons I owned it for the last couple of years seem to be ending,” he said of gold in an interview on CNBC Thursday.

If you factor out the election on Wednesday, it appeared that gold just steadily moved lower off the swing high printed on Monday, culminating with a massive support break on Friday which resulted in a "bearish strong line" candle which definitely doesn't mark a low.  Gold appears headed for a re-test of the round number 1200 support level.  The downside velocity is pretty extreme right now, but gold is not that oversold, so we could see some more selling before gold stops dropping.

If you look at the chart, you can see how the 50 MA acted as resistance during the recent move.  Failure of gold to convincingly move above the 50 was "the tell" that the buy-side mojo had faded.  The swing high on Monday was the sign to bail out.

December rate-increase chances jumped up to 81%

This week, gold open interest fell by -14,071 contracts.

This week silver took several more shots at the 50 MA, closed above it briefly, and then was crushed on Friday as a massive wave of selling drove silver through all three moving averages and down to 17.13 support.  My sense is, silver's drop may be more of an artifact of the gold correction than anything else.  Up until Friday, silver seemed to be fairly well bid, while gold was selling off.  Even now, silver has avoided making a new low, even though Friday's drop was dramatic.  However given the "bearish strong line" candle print, I am pretty sure we will see price move lower; I think its unlikely that 17.13 support will hold.  Next support is down at 16.

Miners

The miners tried rallying through the 50 MA, but the rally failed; Thursday and Friday saw very heavy selling (with accompanying high volume) that drove the miners to new lows.  GDX printed a black marubozu on Friday, which is very seldom a low.  Next support for GDX is down around 19.  If GDX acts "normally", we can expect it to move slowly downhill over the next week, eventually making a low within the next 3-5 days.

The USD

While last week the buck didn't like the thought of a President Trump, this week the reality of President Trump caused it to rally.  The dollar rally took USD up +1.95 [+2.01%] to 98.99, completely retracing its losses from last week and moving the buck back up to 99.  The buck appears to be ready to break to new highs in the near future.  If it does this, that would probably drive PM prices lower.  Note that on the day of the election, the buck staged a huge drop, followed by a huge rebound, with a massive 2.6 point trading range.  This huge sell-off followed by an even larger rebound helped yank the price of gold around also, with the dollar rebound killing off the rally in gold.

US Equities/SPX

The US equity market rallied +79.27 [+3.80%] to 2164.45, blowing through the 9 and the 50 MA.   Small caps did even better, with RUT up a huge +10.22%.  VIX dropped -8.34 to 14.17.  That pretty well epitomizes the week - large moves by a lot of different things.

The sector map shows that financials were the golden child this week; in the immediate aftermath of the election, traders apparently think that Trump will do wonderful things for the bankers.  An 11% move is a very strong one.  Will it last?  That's harder to know.  You can see that most of the gains were concentrated in about a third of the market's sectors.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 11.19% 10.64% rising rising rising rising ema9 on 2016-11-07 2016-11-11
Industrials XLI 8.11% 13.56% rising rising rising falling ema9 on 2016-11-07 2016-11-11
Healthcare XLV 6.03% 1.08% rising falling rising falling ma50 on 2016-11-11 2016-11-11
Telecom XTL 5.60% 17.01% rising rising rising falling ma50 on 2016-11-08 2016-11-11
Homebuilders XHB 5.51% -6.20% rising falling rising falling ema9 on 2016-11-07 2016-11-11
Cons Discretionary XLY 3.90% -0.14% rising falling rising falling ma50 on 2016-11-10 2016-11-11
Materials XLB 3.77% 9.83% rising falling rising falling ma50 on 2016-11-08 2016-11-11
Energy XLE 2.49% 4.85% falling rising rising falling ema9 on 2016-11-11 2016-11-11
Technology XLK 1.19% 8.12% falling falling rising falling ema9 on 2016-11-10 2016-11-11
REIT RWR 0.01% 0.48% falling falling rising falling ema9 on 2016-11-09 2016-11-11
Cons Staples XLP -2.07% 4.75% falling falling falling falling ema9 on 2016-11-09 2016-11-11
Utilities XLU -4.00% 7.80% falling falling rising falling ema9 on 2016-11-09 2016-11-11
Gold Miners GDX -16.55% 55.31% falling falling rising falling ema9 on 2016-11-10 2016-11-11

Gold in Other Currencies

Gold was hammered this week, dropping heavily in all currencies.  Gold fell -86 in XDR.  Gold did best in Euros - "only" dropping $54.  Clearly it was a bad week for gold everywhere.

Rates & Commodities

TLT was crushed along with gold, dropping -7.36% - the largest one-week drop I've ever seen for TLT.   If we multiply these losses times the (roughly) 60 trillion dollar US bond market, the loss to capital in longer-dated bonds was immense.  In five days, 20 year debt went from 2.26% to 2.58%.  And looking at the chart, Friday's "opening black marubozu" candle does not appear to be a reversal bar.  Does this mark the top for the 30 year bond bull market?  If so, then we have a whole lot of pain ahead of us.  Armstrong likes to say that a stock market crash results in a recession, but a bond market crash ends with a depression - that's because the bond market is three times the size of the stock market, so the crash ends up destroying a whole lot more value resulting in a much larger economic impact.

JNK fell too, dropping -1.93%, a fairly large drop for JNK also.  JNK is full of long-dated junk bonds, which lose value in the same sort of way that treasury bonds do when rate expectations change.

CRB dropped -0.97%, with most of the drop happening on Friday.  The PM component was responsible for the decline.

Crude attempted to rally this week but failed, falling -1.01 [-2.29%] to 43.12.  Support for crude is at 43, which brings oil perilously close to another breakdown.  Part of the problem was an IEA report which showed increased production from four OPEC countries totaling 450k new barrels/day in October.  There is also some nervousness about the upcoming OPEC meeting, where the Saudis are back to engaging in brinksmanship with Iran about coming to an agreement on production cuts:

http://oilprice.com/Energy/Energy-General/30-Oil-Or-Worse-If-OPEC-Fails.html

In an effort to push a deal forward, Saudi Arabia reportedly issued an ultimatum to Iran. Saudi officials threatened to intentionally crash the oil price again if Iran did not come on board with production cuts. "The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting," an OPEC source told Reuters.

Ramping up to 11-12 mb/d and essentially pursuing a scorched-earth policy and price war would indeed sink oil prices to new lows. If the Saudis are serious about that threat, there are two possible outcomes from the late-November meeting in Vienna. OPEC agrees to cut production, likely pushing oil back up into the $50s per barrel, or they fail to do so, leading to a price war that crashes prices well below $40 per barrel.

Physical Supply Indicators

No data from Shanghai this week.

* The GLD ETF tonnage on hand fell -15.13 tons, with 935 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1227.40 and silver closing of 17.36:

 PHYS 10.12 0.20% to NAV [up]
 PSLV 6.64 +0.43% to NAV [down]
 CEF 12.56 -5.70% to NAV [down]

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

* Big bar premiums are lower for gold [2.07% for 100 oz bars in NYC], higher for silver [+3.15% for 1000 oz bars in NYC ], and higher for silver eagles at +15.09% [NYC].

Futures Positioning

There was no COT report this week because of the Veterans Day holiday.  Happy Veterans Day to my Uncle, who served in the US Army Infantry in Vietnam in 1968.

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

Gold's rally last week was just a head-fake.  This week we have a sea of red ink - literally every component is below all 3 moving averages.  There's just no sugar coating this - it was an ugly week for PM.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum $PLAT -5.38% 7.60% falling falling rising falling ema9 on 2016-11-10 2016-11-11
Silver $SILVER -5.75% 21.77% falling falling rising falling ema9 on 2016-11-11 2016-11-11
Gold $GOLD -5.96% 13.18% falling falling rising falling ma200 on 2016-11-08 2016-11-11
Silver Miners SIL -14.88% 86.69% falling falling rising falling ma200 on 2016-11-11 2016-11-11
Senior Miners GDX -16.55% 55.31% falling falling rising falling ema9 on 2016-11-10 2016-11-11
Junior Miners GDXJ -17.65% 79.45% falling falling rising falling ma200 on 2016-11-10 2016-11-11

Gold Manipulation Report

There were no meaningful after-hours spikes for PM this week.

Summary

Gold spent the entire week selling off, starting with the swing high on Monday and culminating with the big support break Friday.  The flip in market sentiment on Wednesday was dramatic.

On the week, the gold/silver ratio fell -0.16 to 70.68; the ratio fell steadily for four days, then jumped higher on Friday.  Momentum seems to be bearish.   The GDX:$GOLD ratio plunged, which is definitely bearish.  GDXJ:GDX dropped slightly, and it is starting to look bearish.

No COT report this week.

Gold and silver big bar shortage indicators show no signs of shortage; the ETF premiums were mixed, and GLD's tonnage dropped.

Gold in India at retail jumped in premium, reaching as high as 70% after the government executed a surprise demonetization of the larger banknotes in an attempt to fight "corruption" and "terrorism"; if you had cash, it suddenly became worthless, so what you could do is take the demonetized cash into a jewelry store, buy gold, and get the merchant to back-date the receipt prior to the demonetization.  Jewelry shops charged a big premium for this service. People were also buying train tickets with cash, and then immediately canceling them - you ate the cancellation fee, but at least it was better than losing everything.  There were all sorts of schemes to "use up" the money before its value went to zero.  This was less about gold than about the government defaulting on cash: a real lesson in "how to undermine faith in currency."  Of course if your savings were in gold, you didn't lose anything.  I'm sure this lesson wasn't lost on the Indian people.  This is a trick the government can play just once; and it virtually guarantees a higher demand for gold going forward.

Note that the gold didn't "run out" - they still have lots of gold in India, its just that the premiums have shot through the roof.  It now takes a much higher price to bring the gold out of hiding.  That's why I say gold will never run out - 170k tons of above-ground supply guarantees that - it is just that the premiums will explode when some event causes retail demand to unexpectedly surge.  This is a reasonable proxy for what the US might expect if we have some sort of currency crisis: a massive surge in premiums, and a reactive government cracking down on gold purchases to shut off escape hatches.  Seems best to avoid the fuss and get gold now prior to the event.

Could the US demonetize the $100 overnight, to "get rid of dirty money?"  I suppose it could.  Most likely, this would happen in other countries first, but certainly if such a thing did occur, that would be a pretty decent time to sell your gold.  Imagine that, a 70% jump in price overnight?

But apart from India living the goldbug dream, internationally-priced (paper) gold is now under pressure from selling by people like Druckenmiller whose viewpoint on economic expectation has changed practically overnight.  We see the buck and equities moving higher, while bonds and gold are plunging.

Yet one analyst (Fleck, at KWN) suggested that post-election moves are often retraced, once it becomes clear that there will be a lot of steps required between now and the actual spending of government money and that the details of what will happen are substantially more uncertain than it appeared in the hours and days post-election. 

In other words, this could all change tomorrow.  Thus according to him, it is probably not a great idea to lay on big positions right now in the expectation that the trend must continue.  The current moves may well be overdone.

The charts suggest we probably have further to fall in gold and the miners.  Noodling about when moves will take place and what Trump will probably do is entertaining, but ultimately we need to just watch what the prices are doing.  Its a lot less confusing.  Right now, in PM, they're going down.  Once buyers appear, that will be the time to try an entry...but not until.

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23 Comments

mikeg's picture
mikeg
Status: Member (Offline)
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Posts: 11
Ouch

Been there a few times Dave... sucks!

Funny (not) but this is my 2nd source for COT results that hasn't published yet (the other one is always in by 5:00 pm Friday)... Hmmmm

Clearly Putin and/or Trump up to no good again.

Good news is the redo usually goes pretty well... hope yours does, and thank you for the extra effort required!

Best,

Mg

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
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Posts: 5967
Sorry Dave!

That is depressing.  

So sorry.

It's happened to me a few times, notably when I accidentally click outside of the comment box without noticing and then hit the backspace key which takes me back a page.

Now I compose nearly everything in word and then paste to avoid that issue, because it is so demoralizing.

Alternatively I "select all, copy" l as I go...with the frequency defined by my low tolerance for losses.

newsbuoy's picture
newsbuoy
Status: Gold Member (Offline)
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Posts: 324
Please Stand By

 

We go now to the latest weather forcast:

DROUGHT INFORMATION STATEMENT
NATIONAL WEATHER SERVICE NEW YORK NY
226 PM EDT THU OCT 27 2016

...SEVERE DROUGHT CONDITIONS HAVE BEEN EXPANDED THROUGH THE
REMAINDER OF NORTHERN NEW JERSEY...

...SEVERE DROUGHT CONDITIONS ARE IN EFFECT ACROSS LONG ISLAND,
SOUTHERN CONNECTICUT, QUEENS, BRONX, RICHMOND, WESTCHESTER, PUTNAM,
ORANGE AND ROCKLAND COUNTIES IN NY AND ACROSS NORTHERN NJ...

SYNOPSIS...

A PERSISTENT, DRY WEATHER PATTERN THAT BEGAN THIS SPRING AND SUMMER
HAS CONTINUED THROUGH THE MONTH OF OCTOBER. RAINFALL DEFICITS OF TWO
TO THREE INCHES CONTINUED ACROSS THE SEVERE DROUGHT AREA DURING THE
LAST MONTH. RAINFALL DEFICITS SINCE JANUARY 1ST RANGE FROM EIGHT TO
TWELVE INCHES.

ALTHOUGH RECENT RAINS HAVE HELPED TO IMPROVE DROUGHT CONDITIONS, A
SUSTAINED PERIOD OF NEAR NORMAL PRECIPITATION WILL BE NECESSARY TO
RETURN TO NORMAL LEVELS OF WATER AVAILABILITY.

THE OCTOBER 27TH RELEASE OF THE U.S. DROUGHT MONITOR SHOWED SEVERE
DROUGHT CONDITIONS EXPANDING THROUGH MOST OF THE LOCAL HYDROLOGIC
SERVICE AREA.

THE DROUGHT MONITOR IS UPDATED WEEKLY WITH THE LATEST CONDITIONS
AVAILABLE ONLINE.

SUMMARY OF IMPACTS...

THE LATEST NEW YORK...NEW JERSEY AND CONNECTICUT STATE DROUGHT
MANAGEMENT TASK FORCE CONTINUED SEVERE DROUGHT CONDITIONS ACROSS
MOST OF THE HYDROLOGIC SERVICE AREA.

SOIL MOISTURE CONDITIONS...

THE LATEST CROP MOISTURE INDEX ISSUED BY THE CLIMATE PREDICTION
CENTER INDICATED ABNORMALLY DRY SOIL MOISTURE ACROSS THE AREAS UNDER
THE SEVERE DROUGHT CONDITIONS.

GROUNDWATER CONDITIONS...

THE USGS GROUND WATER LEVEL NETWORK SHOWS THAT NUMEROUS WELLS ACROSS
AREAS UNDER THE SEVERE DROUGHT CONDITIONS ARE RUNNING BELOW NORMAL
TO MUCH BELOW NORMAL. IT TYPICALLY TAKES A LONG TIME ON THE ORDER OF
WEEKS FOR GROUND WATER TABLES TO RESPOND TO RAINFALL...OR TO THE
LACK OF RAINFALL.

RIVER AND STREAMFLOW CONDITIONS...

FLOWS ON STREAMS ACROSS AREAS UNDER THE SEVERE DROUGHT ARE MUCH
BELOW NORMAL.

PRECIPITATION/TEMPERATURE OUTLOOKS...

THE 6 TO 10 DAY OUTLOOK ISSUED BY THE CLIMATE PREDICTION CENTER
VALID FROM NOVEMBER 1ST THROUGH THE 5TH SHOWS TEMPERATURES ABOVE
NORMAL AND PRECIPITATION BELOW NORMAL. THE 8 TO 14 DAY OUTLOOK VALID
FROM NOVEMBER 3RD THROUGH THE 9TH SHOWS TEMPERATURES ABOVE NORMAL
AND PRECIPITATION BELOW NORMAL.
Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
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Posts: 918
Is your weather clip real? Or made up?

From the video logo, I could see it going both ways.  (I know there's a drought in NY... whether it's that bad, I'm not sure.)

 

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1227
I feel your pain...

Dave,

I have been down that road way too many times. Like Chris, I make use of Word most of the time to minimize my losses. That said, whenever I forget to be paranoid I loose an hour of work. My rule of thumb is that if I ever think in passing, gee I'd hate to lose this, I quickly copy and paste to Word. Amazing how many times it still bites me when I think that maybe this time will be different...

Cheers,

Mark

davefairtex's picture
davefairtex
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Posts: 5681
sympathy

Thanks for all your notes of sympathy, I really appreciate it.

My remedy was to immediately treat myself to a nice dinner, open a bottle of my favorite 1er Cru white burgundy, and to basically just forget about it for a time.

That seemed to work.  :)

Also thanks for the good ideas.  While I don't have word (I'm a mac user) I'll give open office a shot and see if I can make that work.  Failing that, apple has "pages", maybe that will work.  For sure I need to change my workflow and make sure this doesn't happen again.

I've tried the copy-and-save-before-posting approach, and it used to work (and still does, for short posts - like this one), but these days PP won't let me copy my entire article once it gets too long any more.  The "selection" vanishes after I try to grab more than a few pages.  New behavior probably related to the site migration.

Chris: regarding the "backspace" problem - that happened to me so many times that I went and changed the behavior of backspace in my (firefox) browser.  Now it just scrolls up a page (the "microsoft" behavior) rather than going back a page in the history.

http://lifehacker.com/269945/set-backspaces-firefox-behavior

So what actually happened was this:

Prior to posting, I always check to see if PP is accessible.  (having it NOT be available = a decent chance of losing my post, so I always check first).  So I open a new pp.com.  It showed that for this new page, I was no longer logged in.  (Another failure mode; not being logged in = chance of losing my post).  I had seen that before - my fix was to log in. So I tried logging in, but it didn't seem to take.  I was still not logged in.  Very odd.  Then I noticed that all my other PP pages were refreshing.  Heart sinking, I went to check - sure enough, my just-completed post on the previous page was just gone.

I now realize this is a failure mode I've noticed very occasionally: sometimes, changing something in one PP instance results in ALL my other PP windows refreshing.  Fun and games, until someone loses an eye!

Next time, I'm going to write the whole blessed thing in an editor.  :)  Otherwise I'll run through my (much depleted) burgundy collection way too fast!

 

Tim Ladson's picture
Tim Ladson
Status: Bronze Member (Offline)
Joined: Sep 22 2012
Posts: 78
Thanks Dave

Dave,

Many thanks for re-posting the PM End of the Week Commentary, especially this week. I always look forward to your insights and was very interested to hear your take on the volatility PM's are experiencing in the post election chaos. You certainly deserved that dinner and bottle of wine - cheers !

Tim.  

newsbuoy's picture
newsbuoy
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Posts: 324
That's the reall deal

Cut&paste from noaa.gov

 

dreinmund's picture
dreinmund
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Posts: 23
Dave, Thanks for recreating

Dave,

 

Thanks for recreating the post. Your insights are always appreciated.

 

Dominik

AaronMcKeon's picture
AaronMcKeon
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Joined: Apr 29 2014
Posts: 76
Demonetizing Benjamins

My heart skipped a beat at the thought of the US doing what you've just described in India.  Could they actually pull off doing that overnight?  One would think they would "have" to give people some advanced notice since the $100 note is so widely circulated.  I keep some physical on hand somewhere safe and the thought of it becoming worthless overnight is a little scary.

reflector's picture
reflector
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Posts: 279
i don't always sell gold...

admission by BoE governor that the uk and us have been active in gold price suppression:

‘We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it.

‘It was very difficult to get the gold price under control, but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K. ’ Sir Eddie George (1938-2009), Bank of England Governor, September, 1999.

http://www.jsmineset.com/2016/11/13/in-the-news-today-2568/

davefairtex's picture
davefairtex
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Posts: 5681
"we have now succeeded"

‘It was very difficult to get the gold price under control, but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K. ’ Sir Eddie George (1938-2009), Bank of England Governor, September, 1999.

Boy.  The man was a genius.  I think I'll pay attention to him.  After a very difficult time of getting gold under control, The Fed managed to achieve "success" for about a year, right at the top of dotcom, when money was fascinated with all things Internet, and gold was the poor stepchild's poor stepchild.

But once dotcom topped out, gold took off like a shot and never looked back.  Doh!  How's that "control" and "success" working for you, US Fed?  Just because someone is "active" doesn't mean the activity actually has the desired impact!  The US Fed has been active in lowering rates.  Has that helped the economy?  Not so much.

My conclusion: Market Forces Win Again.

davefairtex's picture
davefairtex
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Posts: 5681
USD breakout: +0.78 to 99.84

Buck is shooting higher in Asia trading right now closing on round number 100, easily breaking through the previous high at 99.

Its a big move, and it is not doing gold any favors.  A few more days of this will see the dollar at new highs.

 

reflector's picture
reflector
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Posts: 279
admission

dave, i think you glossed over the essential point, and that is that the boe head explicity stated that the us and the uk have indeed been active in suppressing the gold price.

i think that's a pretty stunning admission that i haven't heard before from someone at that level.

davefairtex's picture
davefairtex
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Posts: 5681
admissions

reflector-

i think that's a pretty stunning admission that i haven't heard before from someone at that level.

Oh I see...I recall some post by Chris made a while back about Greenspan saying something similar back in the 90s in one of those Fed minutes.  And my sense is, that wasn't the only comment.  Each one wasn't as  explicit, but it all added up to a pretty clear picture that they didn't want gold to explode higher or something like that.  My only thought is, all the comments are pretty dated.  The newest one is 17 years ago - that's a long time.

I do find it super ironic that the guy trumpeted the grand success of the intervention just before gold took off on an 11 year bull market.  Like Irving Fisher's comment that "stocks have arrived at a permanently high plateau..." just before the 1929 crash.

Do they still care?  I think probably.  Recently, it seemed like "someone" dropped 50,000 contracts short right into the BRExit gold rally.  That sure felt like a central bank to me.

My sense is, they still intervene, but not all the time.  My guess: they're running the equivalent of the PPT, but to the short side for gold.  When scary things happen, they go short.  Then they slowly close their short positions over time as the price drops.

Also my guess: they've given up trying to "control" the price of gold, because its just too expensive.  They just try to make sure it doesn't get too out of hand on the "spiky" days.

Cold Rain's picture
Cold Rain
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Posts: 378
Manipulation

Here's my view on manipulation:  What difference does it make?  If governments, CBs, etc. are actively manipulating prices lower, prices are dropping.  If they're not, prices are still dropping.  Either way, prices are dropping.  And even if they do come out tomorrow and say, "hey everybody, we're tampering with the gold market to keep prices lower", there's nothing that will be done about it.

In the "manipulation scenario", they will do it as long as they want to.  And it will work until they stop (which, if you read any gold bug blog, is either going to be never or until they want to intentionally crash the system) or until there is a catalyst that overwhelms them.

In the "non-manipulation scenario", the market is driving prices lower, currently.  That will continue until a catalyst changes the paradigm.

Either scenario likely requires some sort of catalyst for new highs in gold/silver, whether it be hyperinflation, fear over an economic collapse, war on cash, just plain old fashioned war, rapid draining of supply, etc. etc. etc.  Until then, price will do what it's going to do.  And right now, unfortunately, that's lower.  That's my weak armchair qb analysis. :)

dryam2000's picture
dryam2000
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Posts: 293
Labeling low prices

Labeling low prices on any financial product as being "good" or "bad" makes no sense.  It completely depends on one's time horizon for when they are planning to sell, or maintain their hedging/insurance position.  Low prices make for great buying opportunities.  In the interim, whether prices are driven via manipulation or free market forces is immaterial.

sand_puppy's picture
sand_puppy
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Meaning of "dollar and bond yields shooting higher"

DaveF,

I need some help understanding what this means in terms of money flows.

Money is moving out of some things and into others.  But what?

Is this money fleeing the emerging nations stock markets,  buying US bonds??  Or are owners of foreign sovereign debt buying dollars to pay off the loan (in dollars) used to buy that debt?  A dollar carry trade??

As a non-finance guy, I haven't a clue what is happening here.

KugsCheese's picture
KugsCheese
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Posts: 1469
Re: Meaning Of "Dollar And Bond Yields Shooting Higher"

Its means the PPT's global partners are buying $'s to buy stocks.

davefairtex's picture
davefairtex
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Posts: 5681
what are money flows

SP-

Think of money flows like this.  If you have $50k in bonds and $50k in stocks, and you decide to sell $25k of your bonds and move it to stocks, money is flowing out of bonds and into stocks.

Its not like money really flows like water molecules in a river, but the overall demand for bonds has dropped by the amount of your sale, so their price drops too.  I'm still not sure I'm making sense.  let's try again.

So, simply put, when prices of a given item goes up, it is receiving a money flow - otherwise, the price couldn't rise.  More money in aggregate starts bidding on the item, item runs out of supply at the current price, and price has to rise to pull more "item" into the market.  "Gee, that's a much nicer price, I'll sell my items for sure."

Likewise, when price of an item drops, money is flowing out.  A whole lot of supply of the item has come onto the market, and it swamps demand, so price drops until more demand appears, rinse, repeat.  "My that's a nice discount, I'll pick some item up for that price."

Concrete-examplewise, take bonds.  They've tanked really hard.  People are panic-selling their bond collections, willing to accept ever-lower prices as long as they just get out.  They take cash in exchange.  Money is pouring out of bonds.  For instance: if there were 60 trillion worth of bonds, and then the long bond drops 7%, well, now you have 55.8 trillion in bonds total.  That's a lot of money just gone.  Probably, 4.2 trillion dollars didn't actually change hands, its probably much less than that..  Like when 1 home sells for a lower price, 99 other homes have their value drop too.

After the flurry of trading is over, the total money in existence stays the same, it just changes owners.  The total number of bonds is also the same - they change owners too.  But the aggregate value of all the bonds has dropped - by 4.2 trillion dollars.

So.  Right now, money is flowing into the buck - other people are swapping their Euros (-1.33...its really cratering) for USD (+1.10) - and using those new dollars to buy US assets.  Looks like financial stocks, mostly (XLF:+2.17%).  And probably just US bank deposits too (i.e. cash).  So for traders right now, Euros are trash (gotta get rid of these horrible, sinking euros), buck is cool (Trump is gonna make america great!), so price of EUR falls, price of USD rises, and (gotta buy something with these dollars - lesse what looks good, I know, XLF!) price of financials rise too.  That's a money flow from Euros to USD and then to US financial stocks.

Money is also fleeing tech today (XLK:-1.56%).  Ouch.

There's also a thing called "sector rotation."  That is, market stays roughly flat, one sector rises (XLF:+2.17%) and another sector drops (XLK:-1.56%).  Money is flowing from XLK to XLF.

And that's money flows.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
low in miners today?

Looks like a fairly strong rally in the miners today - a lot more than the dead cat bounce I was expecting.  Gold might be putting in a low, silver I'm not so sure about.  It will all depend on how we close.

 

Oliveoilguy's picture
Oliveoilguy
Status: Platinum Member (Offline)
Joined: Jun 29 2012
Posts: 578
Low?

Just bought a few shares of CEF....My unscientific observation is that CEF lags the miners but follows. Oh well ...who cares about money anyway....I'm so euphoric to be keeping the Supreme Court,  that the pounding I have taken in SLW and GG doesn't hurt too bad.

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 2032
Thanks DaveF

People selling bonds makes the Yield rise, due to the Price of the bond falling.  Damn I hate that convention.  Too much counter-intuitiveness.  Thanks for the explanation.

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