PM Year End Market Commentary - 2016

davefairtex
By davefairtex on Sun, Jan 1, 2017 - 6:19am

On Friday gold fell -7.00 to 1152.00 on moderate volume, and silver fell -0.24 to 15.96 on moderate volume also. Gold, silver, and the miners retraced their recent gains, with silver losing most. PM printed a collection of bearish engulfing and dark cloud cover candle patterns, but given where we are in the cycle, these prints are not as bearish as they might be if we had rallied for a substantial amount of time.

But instead of looking at the last week, I will instead look at the full year 2016 instead, with an eye towards where we might be headed in 2017.

Looking at the PM sector map for the year, we can see that even though the past five months have been unpleasant for PM, the gains in the miners have been fantastic; silver miners led, up 73%, but even the senior miners rose +52%. Platinum was the laggard, retracing almost all of its 2016 rally.  At year end, we see that gold and the miners have crossed their 9 EMA lines, which suggests that a rebound might be at hand.  Gold has not been above its 9 EMA for eight weeks.

Name Chart Chg (A) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 73.47% 73.47% falling falling rising falling ema9 on 2016-12-30 2016-12-31
Junior Miners GDXJ 64.24% 64.24% rising falling rising falling ema9 on 2016-12-28 2016-12-31
Senior Miners GDX 52.48% 52.48% rising falling rising falling ema9 on 2016-12-27 2016-12-31
Copper $COPPER 17.49% 17.49% falling rising rising rising ema9 on 2016-12-12 2016-12-31
Silver $SILVER 15.28% 15.28% falling falling rising falling ema9 on 2016-12-30 2016-12-31
Gold $GOLD 8.64% 8.64% rising falling falling falling ema9 on 2016-12-28 2016-12-31
Platinum $PLAT 1.44% 1.44% falling falling falling falling ema9 on 2016-12-21 2016-12-31

Themes driving gold this year were negative interest rates in Europe and Japan, along with the surprise BRExit vote. However, Trump's election, the ECB deciding to taper, and the Fed projecting 3 rate increases for 2017 caused gold to reverse course. In the last week of 2016, there were hints of a rebound; a swing low, a 9 EMA crossing, along with a COT report that showed managed money was heavily short. This resulted in a spinning top candle on the monthly chart for December, which to my eyes does not look much like a reversal.

On the monthly chart, we see that gold rallied $300 during 2016, hitting a high of 1377.50 before falling to close the year at 1152.00. That's a $300 rally, with a 71% retracement, leaving gold up +91.60 for the year. There is no clear chart support until the strong support zone at 1000-1045.

The chances for 3 rate rises: 37% by Dec 2017.

Year over year, gold open interest rose by +55k contracts, first hitting a high of 902k contracts the week after BRExit, then plunging back down to 503k by end of year.

Silver took much the same path as gold, rallying $7.41 before running into resistance at the 50 month moving average. Silver started dropping several months before Trump's election, but like gold it ended up retracing 2016's gains by 71%. On the weekly chart, strong support is visible for silver at 16, but the monthly chart support looks stronger at the 200 month MA, which currently is right around 15.

The 2016 move in the miners vastly outstripped either gold or silver, with the HUI (the long-term gold miner index) rising 172 points or 151% at the peak, which happened in July right after BRExit. Since the HUI had previously plunged almost 83% (600 at the 2011 high down to 100 in Dec 2015 – a 500 point drop), the bounce doesn't look all that astonishing on the chart, but if you bought the miners down at HUI 100, you had a very good year, even with the 60% retracement from the peak.

USD

In 2016, the buck moved up +3.53 [+3.57%] to 102.28, making a new high that dates back to 2003. The break higher was mostly due to Trump's election win, with a little bit extra from the raised expectations for Fed rate increases during 2017. The dollar chart remains quite strong, and current expectations are for Trump to enact policies that are more inflationary as well as more positive for the USD. My guess is that the buck will move higher in 2017, driving the Euro down to parity, if not even lower.

US Equities/SPX

For 2016, the US equity market rose +194.89 [+9.54%] to 2238.83. The leading sector (apart from the miners) was energy, which rose +24.87%. Sickcare did worst, dropping -4.29%. Looking at the year sector map, the market bifurcated – energy/telecom/financials/industrials had double-digit gains, while sickcare/homebuilders/REITs/consumer staples all did relatively poorly.

Most of the gains for the leaders came immediately following Trump's election – even the losers actually recovered in the period from Nov 7 – Dec 31. Will the “Trump Rally” continue into 2017? I expect that will depend on what Trump will end up getting through Congress.  Initially, however, we might get a correction as traders take profits from the (approximate) 10% "Trump Rally."

Name Chart Chg (A) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 52.48% 52.48% rising falling rising falling ema9 on 2016-12-27 2016-12-31
Energy XLE 24.87% 24.87% falling rising rising rising ema9 on 2016-12-28 2016-12-31
Telecom XTL 23.33% 23.33% falling rising rising rising ema9 on 2016-12-28 2016-12-31
Financials XLF 20.15% 20.15% falling rising rising rising ema9 on 2016-12-28 2016-12-31
Industrials XLI 17.37% 17.37% falling rising rising rising ema9 on 2016-12-28 2016-12-31
Materials XLB 14.46% 14.46% falling rising rising rising ema9 on 2016-12-28 2016-12-31
Technology XLK 12.91% 12.91% falling rising rising falling ema9 on 2016-12-28 2016-12-31
Utilities XLU 12.22% 12.22% rising rising falling rising ema9 on 2016-12-29 2016-12-31
Cons Discretionary XLY 4.14% 4.14% falling rising rising rising ema9 on 2016-12-22 2016-12-31
Cons Staples XLP 2.42% 2.42% falling falling falling rising ema9 on 2016-12-30 2016-12-31
REIT RWR 1.88% 1.88% rising falling falling falling ema9 on 2016-12-29 2016-12-31
Homebuilders XHB -0.97% -0.97% falling rising rising rising ma200 on 2016-12-28 2016-12-31
Healthcare XLV -4.29% -4.29% falling falling rising falling ma50 on 2016-12-30 2016-12-31

Gold in Other Currencies

During 2016, gold in USD was up +91.60, which was just slightly better than gold in XDR. The big loser was gold in Rubles, which fell a big -177; that's because the buck fell 18% vs the Ruble, which dropped from a peak of above 80 down to 60 on Dec 30th. As oil prices recover, and if/when the US shuts down the sanction regime in Europe, I'd expect the Ruble to recover even further.

Best performer was gold in GBP, which rose +264. Thanks BRExit!

Rates & Commodities

TLT staged a massive round-trip this year, rising 16% in the first half of the year only to retrace all of that and more, ending the year down -1.20%. Anyone buying at the top is down 16%; the 2.75% annual yield not much comfort. If bond yields return to their peaks of 2009-2010, total losses peak-to-trough will be 35%. Can you imagine what this will do to pension fund returns? Prior to such a larger move down, I suspect (based on the COT report, among other things) that we'll see a near-term rally in bonds, especially if the equity market ends up correcting.

JNK rose +7.49%. It has managed to climb back only halfway to the most recent peak set in 2014, but the combination of the 6.2% yield and the 7.49% yearly move is an SPX-beating 13.69%. JNK is my proxy for credit-quality worries, and JNK's 2016 rally shows a lessening of concern, especially regarding the energy sector.

CRB rose +9.29%, with the rebound in energy and industrial metals prices pulling the index higher. CRB is clearly recovering from its January 2016 low; it has moved back above the weekly 50 MA, which has now also started to turn up. Recovery in the commodity space looks to be a slow process.

For the year, crude rose +16.82 [+45.37%] to 53.89, almost double the low of 27.56 set back in January. On the chart, we can see that oil crossed its (monthly) 9 EMA in April, struggled a bit in July/August, and is clearly starting to break out following the OPEC oil agreement signed in December. There is a strong resistance zone above 52 which crude has already moved through, with the next resistance line at around 60. Absent any big geopolitical events, my guess is that oil should move up to 60, as long as OPEC doesn't cheat too much and shale drilling doesn't restart in a big way. Judging from the US rig counts, most of the shale regions are not very profitable at current prices; only the Permian region has seen a significant recovery in active rigs.

Physical Supply Indicators

* SGE premium to COMEX has risen to $30 over COMEX. Chinese remain very strong buyers of physical gold at these prices. Levels such as this also sometimes mark a low for gold.

* The GLD ETF tonnage on hand rose +180 tons, with 822 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1152.00 and silver closing of 15.96:

 PHYS 9.24 -0.90% to NAV
 PSLV 6.08 +0.14% to NAV
 CEF 11.29 -9.41% to NAV

* Big bar premiums are 2.10% for 100 oz bars in NYC, 3.16% for 1000 oz bars [NYC], and silver eagle premiums are 18.55% [NYC].

Futures Positioning

At the end of 2016, the gold COT report shows a heavy concentration of managed money shorts: 87k contracts, which in the recent past has often (5:7 times) resulted in a 2-3 month rally. In two instances, the rally occurred once the short concentration had built to 110k contracts. So my conclusion is, more likely than not, we have at least a 2-3 month short-covering rally ready to happen for gold in the very near term.

That same situation is not in place for silver; managed money has only 19k short contracts, while the lows typically occur between position sizes of 30k-50k contracts. Any silver rally that occurs will not be driven by short-covering. However, there has been a large amount of long liquidation in silver; if those longs should decide to jump back in again, silver would definitely move higher, but something would have to impel those longs to buy.

So – from the standpoint of a “manipulation” (commercial-controlled) rally, gold is ready, while silver is not. From the standpoint of a major trend change, that's much more difficult to identify. After the election of Trump, western gold buyers are back to not-caring again.

Summary

The miners were the star this year; the rally off the 2015 low was awesome (52% gains for GDX), but only if you bought the low. If you bought the top in 2011 and held, the 2016 rally didn't even begin to cover your losses – you went from down 83% to down “just” 70%.

Gold didn't do quite as well as the miners, but an 8.64% gain was only slightly worse than SPX, and was a whole lot better than if you were in treasury bonds.

Commodities bottomed in February 2016, led by energy: for 2016, oil was up 45%, while natgas rose an even larger 59%. I know we here at the site tend to focus on gold, but sometimes there are opportunities in other “real stuff” areas that have larger potential. This year, oil and natgas were the place to be, at least compared with gold.

Looking Forward to 2017

So what do I see for next year?

Gold COT report is suggesting an imminent rally, based on the level of managed money shorts. Silver isn't there yet; it probably needs a catalyst of some sort to bring the longs back into the market. Whether this rally lasts beyond a month or two – assuming it actually happens – depends on the buck, and a catalyst for gold.  So I'd guess we'll have a Jan/Feb gold rally, but what comes after that is really up in the air.

2017 will be a troubled year for the Euro area. There are national elections in the Netherlands [Mar], France [June], and Germany [Aug-Oct]. Any of these elections have the ability to upset the current status quo. If Trump actually starts to execute on his campaign promises without resorting to fascism, it could encourage European voters to select non-mainstream candidates in their own countries – imagine Marine LePen saying she'll “Make France Great Again.” Elections of any euroskeptic party into a leadership position will call into question the existence of the Euro, and if that happens, money will flee the Euro: for the buck, the Pound, the Yen, Swiss Franc, into German treasury bills, and probably into gold too.

Looking at total credit growth - credit growth drives GDP - it does appear that the three nations with upcoming elections are seeing some growth; one might wonder if the ECB's money printing operation starting up one year prior and slated to run through the end of 2017 might have been deliberate to keep the current parties in power. Credit growth right now is: EU [+2.3%], Germany [+2.9%], France [+3.9%], and Netherlands [+6.4%]. As a comparison: Italy [+0.1%], Ireland [-5.4%], Spain [-4.4%], Greece [-3.2%], and Portgual [-3.6%]. Or more acronym-ically: GFN wins, PIGS lose.

Will this be enough to keep the incumbents in power?  It appears that the ECB has stacked the deck as best it can, but your guess is as good as mine if it ends up working. Migrant/Refugee issues may end up overriding everything else.

Ultimately, here's the dynamic I see playing out.

US Good News: If the buck rallies on “US good news”, that's bad for gold, and will probably eventually send gold down to test support at 1000-1045. This will depend on a successful series of Fed rate increases, on Congress passing a chunk of Trump's legislation which will (theoretically) be viewed favorably by the market. Under this scenario, I would see the Euro drop down to parity, the buck rise to (around) 107, and gold down to test 1100 if not 1045.

EU Bad news: If the buck rallies on “EU bad news”, that's good for gold – and possibly, really good for gold, if a Euroskeptic party is elected and actually ends up leaving the Eurozone. An EU exit probably sees the buck rampage through 120, and the Euro plunge into the 80s. I don't expect a NE-Exit, a FR-Exit, or a DE-exit in 2017, but the election of a euroskeptic government might cause a referendum to be scheduled, giving the new government time to print a bunch of new currency “just in case.” I wouldn't see DX 120 util an Euro exit was imminent. A sharp rise in the buck would really hurt US exports, and would eventually send the US into recession.  I'd see gold at 1500+ in this scenario, probably at 2000+ after an actual *-Exit.

US Bad News: If the buck falls on “US bad news” (i.e. Congress simply refuses to pass any of Trump's budgets or legislation), that's probably mildly good for gold, since the Fed won't raise rates under that circumstance, and the buck will correct back into the low 90s. Under that circumstance, gold might rally back to the mid-1200s. I don't think that's as likely an outcome, but it could happen.

White Swans: Other wild cards (foreseeable problems that don't have dates attached to them) include either a China credit meltdown, or a Japan credit meltdown, both of which would probably be quite gold positive for the respective local physical markets, but might not impact the international price of gold as substantially. The authorities would probably implement strict capital controls, which could end up splitting off the local physical gold market from the international prices.

Ultimately, if gold does drop to the 1000-1045 level, I'd be a buyer, both of the metal, and of the mining shares. The “populist” wave is building. Trump is a symptom, not a one-off, and I believe the time is not far off when this wave will have enough momentum to swamp any attempts to fend it off. This happens in either 2017 or 2018, that's my sense. Perhaps the fuse gets lit in 2017 and finally explodes 12 months later.

I guess I'd put my money on an early gold rally, followed by a combination of US Good News, and then some EU Bad news, so a rally to (perhaps) 1200, followed by a drop to 1000-1045, then followed by a very strong rally - the timing and extent of which will be driven by the election cycles in Europe.

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20 Comments

lambertad's picture
lambertad
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Posts: 184
Thanks, Dave

Happy New Year, Dave. 

As always, I appreciate the time you take to write the daily, weekly, and year end market commentaries. 

It will be interesting if things play out the way you expect, and the best part is you put your predictions down in writing so you either get to say I told you so, or we get to give you a hard time about it... just kidding. 

I'm saving up some cash for the possibility of a 1000-1045 low that both yourself and others have discussed. I think I'll start averaging in once we get to 1050 and buy heavy if we get below 1000.  

Thanks again and best wishes in 2017. 

Adam

Nate's picture
Nate
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lunatic or prophet?

Clif High podcast with Greg Hunter

Greg Hunter wrote:

High, who calls what he does “Predictive Linguistics,” mines the internet and collects billions of data points to produce forecasts of the future.

High’s data is pointing to Silver and Gold prices starting to takeoff in early 2017. High says data is showing a possible “$600 per ounce price for Silver” at some point.  High says before that happens, he sees “$125 per ounce” price for Silver on up to “$345 per ounce.”  High’s data also repeatedly says the “gold price per ounce will eventually be equal to the Dow.”

 

 

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thatchmo
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Thanks for the article Dave.

Thanks for the article Dave.  I always read them and try to noodle them out.  However,

 

spinning top candle

bearish engulfing and dark cloud cover candle patterns

Oh, my.  Some of the jargon reminds me of a certain wine magazine I might find in the waiting room of my broker, if I actually had a broker.  Maybe change the column name to "Mine Spectator".  Best of Joy, Health, and Prosperity to you and yours, and all at PP.  Aloha, Steve.

 

 

davefairtex's picture
davefairtex
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candle patterns

Candle patterns are an attempt to summarize 1-3 days worth of activity in one phrase.  So, a "bearish engulfing" tells me that day #1 involved a move higher, and day #2 saw a (bullish) gap up at the open, but then the item sold off all day long, dropping below day #1's open.  At least over those two days, momentum for the item reversed.

Short answer: bearish engulfing = "bearish" (reversal from uptrend to downtrend) + "engulfing" (second day was a "bigger" day in terms of price movement than the first day).

It looks like this:

http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/BearishEngulfing.html

Dark cloud cover is another unpleasant day, with a gap up on day #2, followed by a bunch of selling - although less than for a bearish engulfing, because the selling on day #2 didn't quite overwhelm the buying on day #1.

http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/DarkCloudCover.html

 

DennisC's picture
DennisC
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Same Here!

I know this is serious stuff (and I always appreciate the commentary) but my imagination starts to wander when I read some of the candlestick pattern names.  Things like sliding panda, smiling monkey, coiled snake, crouching tiger, and hidden dragon come to mind.  One of my favorites is "upside gap, two crows".  Sounds like an honorific for some tribal elder.

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:ca...

davefairtex's picture
davefairtex
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candle pattern history

dennis-

So candle patterns came from Japan, and so that's where the fun names come from too.  Some have been translated, others have not.  Just look at the list of candles and you will see.  For example: "harami" = "pregnant" (as in, bullish/bearish harami).

Dark cloud cover.  Doesn't that sound ominous?  Bearish engulfing sounds scary too.  Run, don't walk!

I've noticed in Asia they have all sorts of fun names for things.  In America, we might call a particular martial arts move something boring and practical, such as a "spinning heel kick", but in Thailand, it's "the crocodile sweeps his tail" (Joroke fad hang).  No crocodiles, no tails, but the colorful names probably help you remember, and they might actually help with visualization too.  Lots of people want to know if you can do "joroke fad hang" if they hear you practice muay thai.  I had to learn it just to keep up appearances.

Friend of mine has a kung fu school.  The only move-name I can remember - it really stuck in my mind - is "monkey grabs the peach."

Ouch.

davefairtex's picture
davefairtex
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Armstrong EOY Comment

Martin Armstrong finally gave a smattering of comments about what his computer is reporting:

https://www.armstrongeconomics.com/armstrongeconomics101/welcome-2017-looking-more-optimistic-than-ever/

Meanwhile, gold held the support, the Dow elected two Daily Bearish Reversals, Crude elected two Minor Yearly Bullish Reversals warning of a test of $60, and the Euro fell to bounce off of its Yearly Bearish Reversal at 10365 reaching 10352 and then failed to elect it. With the US share market up for 7 years in 2015, a pause in trend seems likely failing to elect some critical numbers in various markets. Of course, the long-term remains unchanged. The markets are reflecting something far bigger at stake. Trump is bringing in hope of repairing the economy with consumer confidence at a 13 year high. Optimism is in the air, but this cannot alter the long-term trend without reforming the debt crisis as we have laid out. Only then can we postpone disaster a little while longer.

So, to translate:

  • "pause in trend" = correction for SPX/DJIA
  • short term rally in gold [although he said elsewhere he expects a test of $1000 before "the big rally"]
  • Oil rallies up to $60
  • Euro rally / dollar correction
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Locksmithuk
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Silver Speardrop takedown

Within the candlestick glossary is there one named the Ripple 'n Speardrop for an improbably consistent silver price line, followed by a sharp whack on the head? This was exactly the scenario over the past few hours? Smells, walks and talks like price manipulation.

 

 

 Price of Gold

 

davefairtex's picture
davefairtex
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silver takedown???

I'm not seeing any sort of silver takedown on my trading app.

In fact, I'm seeing a rally.  I show silver up +0.14 to 16.13, gold up +5.70 to 1157.40.

And that's even with the buck up +0.38.

 

CrLaan's picture
CrLaan
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manipulation and suppression

http://tsi-blog.com/2017/01/market-manipulation-is-not-price-suppression/

 

Market manipulation is not price suppression

davefairtex's picture
davefairtex
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New Year Dollar Rally: +1.14 to 103.43

But miracle of miracles, gold is down just 40 cents, silver is actually up 8 cents, and oil has spiked up through 55, now trading at 54.92 - a price not seen for the last 18 months.

I'm calling that a win.  At least so far anyway.

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cmartenson
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Re: Manipulation and suppression
CrLaan wrote:

http://tsi-blog.com/2017/01/market-manipulation-is-not-price-suppression/

Market manipulation is not price suppression

I think there's both some observable truth as well as some belief-oriented material in that link.

The truth is that banks will always lie, cheat, steal and bend rules whenever they can to pad their own bottom lines.

The belief-oriented material is when he then concludes that this, therefore, means there's been no active role of suppressing prices.  

To move this away from beliefs and into data, all he'd need to do is show that the market moving (or manipulating) events are evenly distributed, to the up and down sides.

They are not.  The down spikes heavily outweigh the up spikes.  In natural gas, another volatile market, the up and down spikes match and cancel out over time.

For silver they do not.  Not even close.

Finally, the emotional content of the words the author used were a dead give away that beliefs were being trotted out as opposed to a data based assessment.  It's always a bit ironic when someone expresses their strong distaste for other people's "wrong" beliefs when they are really just putting their own on display.

To wit:

One of the most annoying claims made by manipulation-focused gold-market commentators is that evidence of market manipulation constitutes evidence of long-term price suppression. The claim is annoying not so much because it is obviously false, but because many people get fooled by it even though it is obviously false.

Well if it's obviously false, then that should be in the data and therefore easily proven.

In psychological terms, we most easily detect in others, and are alarmed or annoyed by, those behaviors about which we are least tolerant of (deep down) in ourselves.  A.K.A.  Projection 101.

 

 

davefairtex's picture
davefairtex
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attempted murder vs successful murder

Chris-

So I'm going to continue along with your assessment.

a) One truth is that banks will always lie, cheat, steal and bend rules whenever they can to pad their own bottom lines.  We agree.

b) Another truth is, in silver (and gold), down spikes heavily outweigh the up spikes.  In natural gas, another volatile market, the up and down spikes match and cancel out over time.  For silver they do not.  Not even close.  We agree here too.

c) The belief-oriented material is when someone might conclude that because suppression is attempted, it (always, or even mostly) ends up resulting in actual price suppression.  On this, I suspect we may not agree.

Or, as my title says, I believe there is a critical difference between repeated attempted murder and actual, successful murder.  In the one case you have a dead body, and in the other, you don't.

If "they" had the power to suppress price on a trend basis, we would never have uptrends, except for brief periods to hose the managed money shorts.  The fact that we do have uptrends is (to me) strong evidence that the repeated attempted suppression does not equal actual, successful, long term trend suppression.  Evidence: Jan 2016-July 2016.  "Worst suppression campaign ever."

Or to put it another way: "trend suppression only works when...nobody cares."

cmartenson's picture
cmartenson
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Time frames and definitions of success
davefairtex wrote:

c) The belief-oriented material is when someone might conclude that because suppression is attempted, it (always, or even mostly) ends up resulting in actual price suppression.  On this, I suspect we may not agree.

Nope.  We definitely don't agree.  Here's why.

Interest rates.  The Fed, and other central banks, have decided to manipulate the long and short ends of the interest rate curve, arguably the largest market in the world, and they have done so very successfully.  

Clearly pensions and savers and money markets and a whole host of deep and self-interested parties would prefer higher, not lower rates, but those trend setters have proven to be no match for central banks that wanted, pursued and got lower interest rates.

Further, one cannot make any sort of rational argument for Italian ten year debt have a lower yield than US ten year debt, let alone the actual price levels relative to risk and history, yet here we are.

Now someone might argue that this trend will snap back, maybe violently at some point, but that means we are really just arguing over time frames.   Can a trend be manipulated forever?  Duh.  No.

But over what time frame?  Millseconds?  Yes.  Minutes?  Yes.  In the case of interest rates the answer is "years."  If one can agree that interest rates have been manipulated, trends be damned, then what market is larger or more powerful than that?  none.

The structure of these ""markets"" now is such that computer algos control the whole shebang.  And those are easily controlled by money flows.  And central banks have endless access to liquidity and their main proxy clients (Citadel, JPM, et all) have the means to deploy capital at every and any key moments...which I would submit happened in January, June and November 2016.   But that's guessing.

My inner prosecutor hates coincidences, and we have a log jam of coincidences that all point to the idea that Financial Repression is the name of the game and everything that one needs to run a successful Financial Repression scheme has happened, and we know they are running one, and so it is no coincidence to me that every trend-setting event since 2011 has gone 'their way.'  Suppression of gold is a necessary condition of financial repression.  Soon suppressing Bitcoin will be necessary and so look for futures and options to open up on Bitcoin which will be the end of that "market" too.  

It's just how the world works now and I am resigned to that , although I continue to not accept it as either necessary or good.     In fact, I think this is leading us over a cliff because the flip side of "happy markets" is an inability to face reality.  

Jim H's picture
Jim H
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Pt and Pd are rallying hard...

Strong dollar and all.. hmmmmmm.

davefairtex's picture
davefairtex
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definitions

But over what time frame?  Millseconds?  Yes.  Minutes?  Yes.  In the case of interest rates the answer is "years."  If one can agree that interest rates have been manipulated, trends be damned, then what market is larger or more powerful than that?  none.

What you are talking about is manipulation through massive inventory accumulation.  The Fed spent 4 trillion dollars, and that moved rates lower for sure.  In exchange, they were required to acquire a massive inventory of bonds for their balance sheet.  [We'll ignore the 100-basis point taper tantrum, and our recent 100 basis point 2016 tantrum too, for now.]

I claim this strongly suggests that in order to successfully manipulate the trend over a long-ish timeframe, a manipulator is required to use massive inventory accumulation - "buy and hold."  The alternative, which I will call "trading trickery" (your hypothetical "bot pied piper" strategy) must not work - or else the Fed would have used that technique since its a whole lot cheaper and less risky than spending 4 trillion on a bunch of bonds.  (Running a bot: Free.  4 trillion dollar balance sheet increase: Not Free.  Free >> Not Free.  Ergo, "bot pied piper" probably isn't as effective as you think it is).

So what's the "massive inventory accumulation" technique for suppressing gold?  If we presume that the COMEX is the Fed's "price suppression" vehicle, and that massive inventory accumulation is the only way to manipulate trends over a long-ish period, then someone, somewhere should have a massive inventory of short GC contracts.

Yet the total COMEX open interest is about 1000 (paper) tons of gold = $37 billion.  With a total gold market size of 170,000 tons, and a mine supply, annual, of 2500 tons, the COMEX just isn't a factor, at least from a "massive inventory" perspective.

If there WAS a massive inventory somewhere, that would definitely make a much stronger case, because massive inventory accumulation seems to be required to manipulate price over the long-ish term.

But this is all aside from my primary point.  There's always been a "logic fail" in the "successful gold trend manipulation" case for me.

I still find myself stuck with the same question which nobody has ever answered satisfactorily:

If (1) "they" have access to unlimited liquidity which (2) "they" are free to use in order to accumulate massive inventory in order to control the trend, and (3) "they" need gold to stay down in order to implement financial repression, then certainly after 2008, we should never, ever have seen a sustained uptrend in gold.

So I repeat - why did we see uptrends?

I claim that your inner prosecutor is ignoring inconvenient exculpatory evidence in its rush to judgment.   Given (1), (2), and (3), that 700-1900 move should never have occurred.  It did.  This says your logic is faulty somewhere.

During the 2009-2011 period, the Fed was spending trillions accumulating a massive bond inventory in order to manipulate interest rate trend lower.  And yet - even though gold is a vastly smaller market that you claim must be suppressed for the Fed to be successful in its aims (3), gold actually managed to rally $1200 over two years.

Either the suppression goal isn't as important as you think, the mechanism isn't as effective as you think, or the access to "unlimited liquidity" isn't as free as you think.

At least that's how it looks to me.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5686
back to normal

Doesn't it feel good to be getting back to some sense of normalcy around here?  :)

Pretty soon Jim will start to call me a banker shill again and all will be right with the world!

[EDIT: Holy crap Jim, you aren't kidding - that's a 4.6% move in PA and a 4.5% move in PL.  PL has really been lagging in recent weeks...a really big move in both of them...I think especially PL is a great sign...]

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 3 2014
Posts: 633
The best investment?

As ever, thank you again, Dave and PP for helping me clarify my misgivings of the various forms of value protection. PM's have always been a question, because I have never been in a financial position to access that particular mode of wealth protection. My default position has mainly been "invest your time and money in people you trust'. Well, that was until I saw Bernie Madoff's picture in the "Nobody Cares" presentation. So, again, I'm left pondering my options. The Grant Williams video was instructive and has now given me a new hope for future "movements" in the right direction. When I realize that I make a regular deposits everyday as a result of metabolism, I'm sitting on a Gold mine.  Hmmmmm! Now there's something I can depend on! In the mean time,I think I'll go out and plant a tree.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5686
nobody cares

So as a matter of full disclosure, "Nobody Cares" was posted one year ago - right about this same time.  I just found the video to still be relevant as an explanation as to why gold retreated in 2016 once the threat of negative rates receded, traders reversed their position on Trump on the night of the election (Druckenmiller!), and then the 3 rate increases projected for 2017 by the Fed.

I think gold is a good buy at these levels, if you can afford it, but my sense is, it might well be a better buy in the not-so-distant future.  But that's me being market-timey.

Ultimately, the video wasn't intended to be a message suggesting that YOU not care about gold, its me saying that "other people are back to not-caring about gold, and that's why its doing poorly."

This is just an alternative explanation as to why gold prices fall - vs the explanation that "they" have complete control over the trend and are determined to force prices lower.

Ultimately, when people care about gold, price rallies.  When they don't care, price drops.

If you know all this already, please excuse me for being dense. :)

Locksmithuk's picture
Locksmithuk
Status: Silver Member (Offline)
Joined: Dec 19 2011
Posts: 137
Silver whack
davefairtex wrote:

I'm not seeing any sort of silver takedown on my trading app.

In fact, I'm seeing a rally.  I show silver up +0.14 to 16.13, gold up +5.70 to 1157.40.

And that's even with the buck up +0.38.

 

 

Unfortunately the image I posted above seems to be linked to a live chart. The Kitco image which I'd taken at the time (and tried to upload) was of a silver price profile which barely moved 2c either way way, then plunged suddenly by 55c.

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