PM Daily Market Commentary - 12/18/2013

davefairtex
By davefairtex on Thu, Dec 19, 2013 - 3:09am

Gold closed down -12.70 to 1217.80 on heavy volume, while silver closed down -0.22 to 19.72 on moderate volume.  The gold/silver ratio rose +0.03 to 61.77. Gold was mostly flat, but then started to climb as the Fed meeting end time approached. However on the release of Taper $10B news it spiked down hard on a 6k 1-minute contract move, then rallied again, then finally decided to sell off steadily after Bernanke's press conference, finally hitting 1215.20 and closing near the lows.

Gold's chart looks ugly, closing below that 1220 support level for the first time this cycle.  A loss of support here will likely lead to a retest of 1210, which if it fails, will end up with an almost immediate test of 1200. 

Silver behaved similarly, and the percentage moves were almost identical, but silver managed to remain in the middle of its current trading range and its chart looks quite a bit better.

The dollar closed the day almost unchanged, after oscillating violently immediately after the Fed meeting ended.  However, in after market trading, the buck moved up +0.57% to 80.65; the buck likes Taper, apparently.

The SPX also spiked down initially immediately after the Fed meeting, and then promptly rallied 30 points to close near a new all time high.  SPX likes Taper too.

The 10 year Treasury was down modestly on the day, with yields up 4 basis points, but it too oscillated violently right after the Fed meeting.

GDX was down -1.56% on heavy volume, while GDXJ was down -0.60% on very heavy volume.  Miners followed gold, rallying ahead of the meeting, oscillating for an hour afterwards, and then dropping into the close.  Miners, like gold, were not happy about the Taper, although GDXJ looked quite a bit better than GDX, only being off a modest amount on that very heavy volume.  Someone was doing a lot of buying of junior gold miners - and after the tapering announcement, too.

So in spite of the overall gloom, and gold's bad behavior post Taper, the continued good (relative) performance of silver, as well as GDXJ's relatively positive performance are positive signs.  The gold selloff could have been worse than $12.70 and the miners "only" selling off 1.56% wasn't all that bad.  Still, I expect there will be some more selling in gold, as the shorts try and force gold through the previous lows because the downtrend is still most definitely in place.  Shorts will keep selling until that tactic stops working.

If buyers appear, the way they did last time, it will help re-affirm the bottom at these levels.  Twice before 1210 brought out buying, and we just have to see if it will happen again.  If the buyers appear, then I think gold is a buy down here.  If they don't - then we likely test 1200 and then possibly 1180.

18 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
no buyers at 1210

Well no buyers showed up at 1210, which inevitably led to a test of 1200...which is holding, for now.

Perhaps buyers will show up at 1200.  If not - then there's always 1180.  This will likely be bad news for the miners...

So about the question, "was taper baked into the price of gold" prior to the Fed meeting?  Clearly, no.  The market did not expect a taper.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
silver

And silver is down nearly 2.5%.  What's the explanation?

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
what's the explanation

Why is silver down?

Well the simple explanation is, not enough buyers.  Why there aren't enough buyers - that one I don't know.

Shorts will continue hammering price until buyers show up.  That's my usual mantra.  It's just what they do.

Now gold is through 1200, which is a bad sign.  Next stop: 1180.  Let's see if buyers show up there.  I'm not seeing any massive shorting attacks, just - a steady move downhill with the occasional flurry of stops getting hit as a particular support level is breached.

Neither gold nor silver have any buy-side support at this time.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5570
Gold Price Manipulation Continues

Again, without ascribing motives, I will simply note that when 'someone' dumps thousands of contracts into the thin overnight market all at once, they are not seeking price discovery, they are seeking lower prices.

It's really that simple.

Someone is bombing the price seeking lower prices, therefore they are manipulating prices.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
manipulation continues

This sort of manipulation happens most often to the downside during downtrends, when the buyers seem to be scarce, as they seem to be right now.  Shorts want to push the price lower, its what they do.  And they get away with it as long as there aren't enough buyers on the other side who see the new lower prices as attractive.

During downtrends, rallies get sold, support levels get hit, stops get tripped - at the 1-minute level, it is not clear if the 3000 contracts traded during that timeframe was one actor executing a massive sell order of 3000 contracts, or if one actor sold 500 contracts which tripped another 2500 stops.  Perhaps your nanex access could clear this up.

Regardless, at some point, this sort of short assault will be met with a flood of buy orders that will push price back to the point of departure and above.  Price will have finally dropped to a point where it is so irresistible to the longs, they have to jump on board each time such a discount presents itself.  And suddenly, "the manipulation" won't be happening any longer.  In fact it will be shorts running for cover, as the spikes start repeatedly happening in the other direction.

[FWIW, 0240 EST = 1540 Shanghai, 1440 ICT, and 1640 JST - one man's wee hours are another man's afternoon.  Asia definitely has gold buyers and several gold exchanges that aren't COMEX, and in an uptrend, I'd bet you the new low prices would be snapped up in a hurry by excited asian longs]

I try not to use the word "manipulations" because it tends to affix responsibility for price movement on only one of the actors in the drama, while giving the other actor a free pass.  "The manipulators" would seem to be responsible for the low price in gold, when to my mind, its the lack of buy-side interest where the real responsibility lies.  And that's likely tied in with the overall lack of interest in the whole commodity complex - as seen by the 2 year downtrend in the $CCI.  Has the entire commodity complex been manipulated lower?  Or is something else going on?  If we use more neutral language, it makes it easier to examine things from that basis.  However if we start using terms that might tend to lead us to start placing blame ("if it weren't for the cursed manipulators, gold would be at its 'legitimate' price of...whatever"), we run the risk of jumping to a conclusion - rushing to judgement, as it were.

My guess: if inflation were a serious force right now - and by that, I mean commodity price inflation - we wouldn't be complaining about this sort of manipulation, because gold would be up around 1600-1700 and we'd be in an uptrend.  And any attempts at "manipulation" would be met with ferocious dip-buying, kind of like we're seeing in SPX right now.

So for me, I replace the word "manipulation" with "downtrend", as in, "the downtrend continues."

Which (speaking as an owner of gold) brings me to the subject of emotional resilience... :-)

debu's picture
debu
Status: Silver Member (Offline)
Joined: Aug 17 2009
Posts: 222
Why PM prices are down

It's quite simple.

As commenter Ert explained on "Our Finite World":

What has happened up to now?

1. Zero-Interest (first 1996 in Japan) – this makes positions in wealth and assets with low interests profitable. This first step insured the artificial creation of markets and the upward driving of asset prices (which – by the way – secure debt).

2. „Forward guidance“ (first 1999 in Japan) – the public promise of a long-term low- or zero-interest period, so that everyone can happily and risk-free participate in (1.)

3. „Quantitative easing“ (first 2001 in Japan) – the purchase of bonds and mortgages by the central banks, so that their value stays above the market price. Also to assure that these are still accepted as securities for debts and their value stays at least constant.

4. „Qualitative easing“ – the acceptance of unsellable papers assets (bonds, etc.) for their nominal value – so that private and national central banks get fresh liquidity (a special discipline of the southern EU states)..

Thats whats done… first Japan, then the US – and at last the EU.

Given that litany of policy horrors how could PMs not be down?

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Manipulation explained

Debu,

Let me break down your well laid out points:

1)  Manipulation of interest rates- the effort to earn and save money is not priced correctly.  It is mispriced far too low due to manipulation by artificial agents known as central banks.  Result: Instead of hard-earned and "expensive" money being applied to business ventures that are truly good ideas and well-run organizations, "cheap" money is thrown at stupid, unproductive entities.  This is all great fun until the food and water run out.

2)  Manipulation of information- forward guidance i.e. central bank propaganda dangerously promotes the idea that all is well and we as a society may safely throw $500,000 mortgages at people who do not have jobs.  How did that work out for average, hardworking homeowners (and stock holders) in 2008-2009?

3)  Manipulation of bonds and mortgages- see 1) and 2).

4)  Manipulation of money- fiat currency is printed out of thin air to "steer the economy", which translated from Fed-speak is to "make the numbers look like the models say they should".  These are  the scintillating models that the wonderful Fed also created out of thin air.  You know, the ones that exclude the financial sector. 

Money is not a marker of wealth to be created fairly and impartially by an honest public steward, to be used as a public utility and as a public good. 

Money is not a reward that is directed to the best producers of desirable goods and services. 

No, money is now fabricated as fiat currency, using no honest benchmarks such as tangible wealth.

Money has gloriously evolved to the central planning utopian ideal where is now an "input" to make "inflation" and "employment"  have the "right numbers". 

How is this done?  By throwing fiat money at corrupt and unregulated banks and crossing fingers.

No manipulation going on here.

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
So smart and so clueless

Dave,

It is almost painful to see someone I consider to be so smart and so plugged into market analysis to be so clueless when it comes to the concept of manipulation.

Exhibit A:

"I try not to use the word "manipulations" because it tends to affix responsibility for price movement on only one of the actors in the drama, while giving the other actor a free pass.  "The manipulators" would seem to be responsible for the low price in gold, when to my mind, its the lack of buy-side interest where the real responsibility lies."

Dave, this is like saying "well, you see that fellow lying on the ground unconscious?  Well, he has to receive 50% of the blame because after all, it was his face that got in the way of the punch thrown by the 250 pound drunk guy at the bar".  Do you not understand to fundamental Newtonian principle of action and reaction?  To extend the physics analogy, do you think buyers and sellers are gaseous particles, just randomly bouncing around in Brownian motion in a bell jar?

Exhibit B:

"Regardless, at some point, this sort of short assault will be met with a flood of buy orders that will push price back to the point of departure and above.  Price will have finally dropped to a point where it is so irresistible to the longs, they have to jump on board each time such a discount presents itself."

Dave, do you not understand that there are finite limits, in terms of total sellers (if a commodity is truly scarce) and especially buyers, to every market?  Let me give you an example.

There are people in this world that seem to be very interested in buying this:

Princess Diana Beanie Baby RARE!

http://www.ebay.com/itm/Princess-Diana-Beanie-Baby-RARE-/121202300455?pt=Beanbag_Plush_US&hash=item1c38385627

This beanie baby is being offered at the Buy It Now bargain price of $375,000.  A quick scan shows that the Princess Diana Beanie Baby is offered at anywhere from $10,000 to $375,000- don't ask me, I have no idea why one is selling for more than the others.  About 100 of these stuffed animals are on offer.  This apparently a very limited 1st Edition that ended in 1997.

The main points are the following:

1.  The Princess Diana Beanie Baby is expensive because it is rare and cannot be created in unlimited quantity out of thin air.

2.  There are limited numbers of PDBB buyers.  I am an example of this phenomenon.  I would not buy one for any price.  I am not "in the market" for one.  I will never be "in the market" for one.  I do not understand why they cost so much.  They don't have any use value.  I wouldn't buy one if I won the lottery this weekend and had $50 million to spare.  I believe the vast majority of the world's population are like me.  However, I acknowledge that there are a handful of people on the planet who would buy one.

3.  This current market structure we see is relatively free and fair, it is bringing together buyers and sellers who are buying and selling a 'scarce' good.  That is the way free markets are supposed to work.  The result is that you see about 100 PDBB's on sale on eBay for a price range of $50,000 to $375,000.  I don't know what the final sales price is, the 'clearing price' if you will, but you get the point.

4.  What if, Dave, I brought in a couple of skilled seamstresses who could make perfect copies of PDBB in my basement.  For about $1.00 each in cost of goods and labor (banks can actually create paper gold at essentially $0, but for now we will stick with $1.00 for the PDBB).  I can make essentially unlimited counterfits that are identical to the real thing.  So the first week I make about 300 of them.  I offer all 300 at a Buy It Now price of $50.  Now the real market is 100 PDBB sellers and about 100 buyers.  I am quite sure that all the buyers were previously paying $100,000 for a PDBB will immediately buy my $50 PDBB.  They are now gone from the market.  The price of PDBB went from $100,000 to $50 overnight.

Next I have my seamstresses sew up another 300 PDBB.  I put them on the market at $50 again, but since I rapidly exhausted my buyers at $50, only a few showed up again, say 100 buyers.  I have to reduce the price to $25 to sell the rest of my PDBBs.  The market price of a PDBB is now $25. 

I repeat my production run of 300 PDBB the next week and put them on eBay at $25.  About 100 sell and that's it.  I offer them a reduced 'ask' price of $10.  About 100 more sell.  The price of PDBB is now $10.  I offer them at $5.  No one buys.  I offer at $4.  No one buys. I offer them at $3.  No one buys.  I offer them at $2.  10 people buy.  I offer them at $1.  No one buys.  I offer them at $0.01.  No one buys.

This is what happens in a manipulated market that becomes exhausted.  At some point, there are simply no more buyers.  This happens over and over in the PM markets when bullion banks fabricated thin air paper gold and throw it on the market.  It may be inconceivable to you, Dave, but just like for PDBBs, there are only so many people or entities in the world that want to buy gold.  And when those entities have bought the amount that they believe they want, they are done.  Or if they see crazy, inexplicable behavior in the markets, they are done- too much unpredictability and risk.  The only time "new" buyers show up is at ridiculously low prices- see my example of the $2 price point for the PDBB.  I guarantee you the $2 buyers are not the same buyers that bought at $100,000.  Those $2 buyers are just buying for the fun of it, for a lark, because they like the color purple sported by the PDBB.  They are not investors and value seekers like the $100,000 buyers. 

Please understand that there is a difference between the real PDBB and the counterfeit PDBB.  The ability to counterfeit PDBB creates this distortion.  Take away the ability to counterfeit, and prices move to where they naturally want to be, based on actual scarcity and the ability of buyers to pay price X.

This is exactly what is happening in precious metals.  The PM market is supposed to be a place where scarce gold and silver is sold by actual producers and holders.  Instead, it is a place where 100:1 paper gold to real gold 'product' is sold.  Gold is fabricated by bullion banks and dumped on the market until it is exhausted and the price is where the counterfeiters want it to be.

Think through this Dave, it is not that complicated a trick.

For the record, the manipulators of PM are not as clumsy as the eBay seller in my example, since they are more surgical in their "dumping".  But dumping it is, and they are always flirting with a market "break" with this manipulation.  We are seeing greater and greater clumsiness more often in PM markets recently.  See the circuit breaker trips that Chris and others have carefully pointed out.  I believe the chances of a more catastrophic market failure are with us every day.  Perhaps the co-conspirators in the CFTC and Fed have things under control.  We will see.

Thank you again for your excellent data summaries of the PM markets.

H

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
clueless vs a disagreement

Hrunner-

Well, I prefer to think of what we have as a disagreement rather than as one of us (you in this case) being clueless.  :-)  A phrase I learned a while back was something like: "reasonable people can differ on this matter."  One hopes we are both reasonable people.

First:

Dave, this is like saying "well, you see that fellow lying on the ground unconscious?  Well, he has to receive 50% of the blame because after all, it was his face that got in the way of the punch thrown by the 250 pound drunk guy at the bar".  Do you not understand to fundamental Newtonian principle of action and reaction?  To extend the physics analogy, do you think buyers and sellers are gaseous particles, just randomly bouncing around in Brownian motion in a bell jar?

So if this had been just a one-way deal, where gold had been battered by this awful vicious predator for the past 13 years, I might agree with you.  Unfortunately for this worldview, from 2000-2011 gold rose 600%.  If this gold-manipulating predator were so horrible, so dreadfully effective, he was the most incompetent predator ever, since he completely failed in his attempts to beat up anyone for a very long time.

Either that, or after 11 straight years of up-move, it was time for a correction.

Clearly, I favor "the correction" as the more likely explanation, especially since the correction in gold is correlated with corrections in so many other commodities.

And during corrections, buyers don't show up.  And when they do, the trend changes, and the correction is over.  So yes, I blame the bulls for not showing up.  Poor bulls, so beat up by the super-strong manipulators.  Except for the period 2000-2011, which we ignore because...its inconvenient to our thesis!

Now then, on to your example.  BTW, I'm with you on the PDBB.  Not interested either.

But here's the thing.  There are a lot of people in the world that buy gold, not just in the west.  Your case would work perfectly if only the west was involved, since people in the west primarily don't buy physical gold.  Then I would agree with you, there would be no link between the paper price and the limited supply of physical gold and your PDBB analogy would have real descriptive power.

But your model of the world is incomplete.  In Shanghai, Hong Kong, Bangkok, HCMC, and Singapore, these places all have physical gold demand that is linked directly to the COMEX price.  There is no way to exhaust them using paper, using fake PDBB clones manufactured for $1.  They demand real gold, the Real PDBB, in exchange for their cash.  Of which there is a limited supply.  (Well, 38 years of supply, but definitely limited).

I track Shanghai gold premiums most every day.  Yesterday (1530 CST = 0230 EST, prior to the big assault) the premium was all of $4.62.  Its likely higher now, I'll run through the math in a few hours after Shanghai closes.  Are the Shanghai buyers exhausted by having bought all that paper?  No, because many of them buy real gold, not paper.  Same in Singapore, Bangkok, Hong Kong.

I think we have a perfect storm for gold at the moment.  A falling $CCI, low inflation statistics in the US, deflation in the eurozone, a rising US stock market making other investments more attractive, India's gold import restrictions, and a seemingly well-supplied market in asia.  My guess: the marginal gold buyer is in the West, and since they're selling, not buying, the price of gold drops - or gets hammered by the shorts, whatever you explanation you prefer.

FWIW I do think all the paper gold receipt schemes out there has absorbed some significant chunk of what would otherwise be physical demand.  Is this a plot, or simply a result of a convenience preference?  We all have bank accounts which store the vast majority of our cash assets, which we prefer over stuffing the bills in the mattress.  Same with stock certificates, and so on.  We can imagine "paper gold" is a sinister plot - and it might even be - but its most likely convenience that drove us most of the way.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
gold premium: shanghai +9.38 over COMEX

Friday's premium for Au(T+D) [delivered gold] contracts in Shanghai is $9.38, up +4.77 over yesterday.  The big gold move down has brought the buyers out in China.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Signs that the Paper Gold Markets are Broken

For those of you upticking DaveF's apology above for the Gold manipulators... you simply have not done your homework - you are ill-informed.  I remain as perplexed as HRunner as to why DaveF is both as smart as he is (easily acknowledged from his writings) and yet as naive as he remains on this particular subject.   

What happened in 2011 was simply this;  TPTB realized that Gold was about to enter a mania phase... and they needed to stop it in order to maintain confidence in their unbacked, debt-based fiat currency.  They crushed the price in the paper markets, as HRUnner has described.  In doing so, TPTB upset the balancing act that occurs in a nominally free supply vs demand market place.. leading to many identifiable results;

1)  China demand exploded - firesale on physical Gold!  Yippeeeeeeeeeee

http://www.ingoldwetrust.ch/wp-content/uploads/Hong-Kong-China-gold-trad...

Note:  100 tons in 2010... up to > 1000 tons this year, just via Hong Kong alone.  

2)  As the suppressive efforts have continued, the availability of physical Gold to send Eastward has forced TPTB and their bullion bank lackeys to raid all available sources.. most notably the GLD ETF hoard.  This is easy to do when you are bullion bank, and can even be profitable!  Drop a bomb of paper contracts onto the Comex... drop the price.. and buy GLD shares on the way down.  Cover your paper shorts near the bottom of the downdraft you created... and then sell the extracted physical Gold for a premium to the East.  Cool!  

http://jessescrossroadscafe.blogspot.com/search?updated-max=2013-12-17T1...

3)  Comex gets broken... the Poison Pill.  In case you don't know, a "poison pill" is a strategy used by Corporations to defend against hostile takeover... to defend against being bought (out).  These often take the form of codices that allow existing shareholders to buy dilutive shares in the event of a takeover, etc. Whether intentioned this way or not... what I see on the Comex now is the equivalent of a poison pill;  If you were a non-bullion bank entity and you wanted to corner the market and get lots of physical Gold... well... you could not do this via the Comex because the Gold is simply not there.  Ask any ambulance chasing lawyer... you cannot get blood from a stone, and my contention is that you cannot get Gold from the Comex when there is almost no Gold in the Comex.  As of today, the number of claim checks on Gold (active futures contracts) vs. the amount of deliverable Gold is as an all time high ratio;

http://jessescrossroadscafe.blogspot.com/2013/12/comex-claims-per-delive...

The can kicking has continued longer than many of us would have imagined... but the signs of inflation in items the rich prefer abound.  Eventually, this inflation of wealth preserving assets will make it's way to Gold and Silver.. the trick is to understand what is going on and why.  DaveF's analysis... his contention that there are no "buyers" showing up... is not wrong, although he really should, in the context of all we do here on PP.com, add the qualifier that buyers of paper futures contracts are not showing up.. because as I have shown you, the buyers of physical for sure have shown up in droves since the smash in 2011.  The paper futures market is demonstrably broken... as HRunner and I both know - JPM has taken > 95% of the sizeable deliveries this December... a bizarre situation where we now have only the bullion banks playing with themselves in the pool, and the pool having only 5 inches of water in it.  I have not seen any other commentator call this a poison pill... but I consider it as such.  

I believe, as many other commentators do, that there will come a break in the market... a black swan event of some sort, that will cause the broken nature of the price vs value equation for Gold... of the supply vs demand imbalance for Gold.. to become recognizable to all market participants.  This will be the moment where the game of musical chairs that is physical Gold ends... where you will have a last chance to find a chair if you want one.  If you do not understand what is happening at that point.. you will be frozen out.. price will rise quickly and you will be paralyzed if you don't understand how this could be happening.                         

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 653
Dave, Great analysis, as usual

And I have a question for you, after a quote from one of your posts:

 "Someone was doing a lot of buying of junior gold miners - and after the tapering announcement, too."

Question: how does one find out WHICH of these miners were bought?  Does it even matter?  Would it help in trying to get  Set of Targets for present/future buying?  I still have had no responses from my Set of Targets in my prior emails.  Am I wasting my energy? Or what?  You would think folks are lining up their TARGETS, no?

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
buying miners

Ken-

That particular day, volume was extremely heavy in GDXJ, the overall junior gold mining ETF.  If you want to figure out what miners did well on the day, you'd need a watchlist of junior miners, ordered by %net change.  You could get such a watchlist from the GDXJ's component list, likely from their prospectus and/or possibly at the website.  Then you'd have to look at the volume for each of those juniors and see which ones had good volume as a % of average volume.

For my reports I just look at overall market movements, which is why I use the ETFs - for the 10,000 ft view.

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
No one sells 2,000 contracts in the dead of night in 80 millisec

Dave,

Please repeat after me:

"No non-insane entity sells $2,000 contracts in the dead of night in 80 milliseconds"

"No non-insane entity sells $2,000 contracts in the dead of night in 80 milliseconds"

"No non-insane entity sells $2,000 contracts in the dead of night in 80 milliseconds"

Seriously, as I've said many times, I think you are a well-intentioned person, who is also very smart and capable.

I intentionally, and perhaps harshly used the term 'clueless' as your friend to try to shake you out of your denial.  And secondarily, I am concerned that casual and less-informed readers will get scared away from buying gold and silver and thus be deprived of one potential life raft for themselves and loved ones.

This is serious stuff, Dave.  I take is seriously, because the opportunity for great harm and misery is there.

Would it make you feel better if I acknowledge that we do not have some type of perfectly convicting evidence of gold manipulation.  True enough, we do not have Jamie Dimon and Ms. Masters on 60 minutes for a 30 minute expose where they proclaim "yeah, I did it".  We do not have an authenticated email where we have the head commodities futures desk at JPM saying, "ok, by tonight we will have enough specs and hedge funds on the long side, so get ready to dump paper at 0200AM, and stop when price is $10 lower".

I concede we do not have these directly damning articles of evidence.

We do have mountains of circumstantial evidence.  And that's good enough for me. 

Another of my famous analogies.  I come over to your house, Dave, and there is a set of men's clothes not yours wadded up in the closet.  Your girlfriend arrives smelling of a cologne you do not use.  Your girlfriend is recently disinterested in you and constantly irritable.  You see a bunch of texts on her phone from a sender named Rick saying "I miss you".

Did I catch your girlfriend actually in bed having fun with your mutual friend and co-worker Rick?  No. 

Am I going to tell you, as a friend- Dude! your girl is cheating on you! You need to get out of that relationship fast, or at a minimum confront her.  Yes.  Sometimes circumstantial evidence is enough.  If you refuse to believe it because you can construct some schema to fit the fact pattern to, then that's on you.  Your girlfriend is doing laundry for the homeless who just coincidentally have the same size as Rick.  The text is not from your friend Rick, but from a family member with the same name.  Your girlfriend hugged her Dad who wears the strange cologne.

Again, construct as you will, it's on you, not on the facts.  Nor on the rest of the world that goes right where the fact pattern takes us.  The simplest explanation is usually the best explanation.

By the way, this is intended as a purely fictional story- in no way am I impugning your romantic skills, sir.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
selling 2000 contracts

Hrunner-

Please repeat after me:

"No non-insane entity sells $2,000 contracts in the dead of night in 80 milliseconds"

Meh.  I've said it before, I'll say it again - please listen this time - of COURSE someone is trying to drive the price of gold lower.  (Do people not read what I write?  I've said this I don't know how many times before.  Lots, certainly.)  Why do I need to repeat your mantra which I agree with so violently?

So who are these evil people trying to drive the price of gold lower?

It's the shorts.  They are the ones selling those 2000 contracts (or maybe its 500, and the other 1500 are stop-loss orders being triggered).  And by the way, your "dead of night", which sounds so sneaky, is actually mid-day, or the afternoon in asia, and the morning in Europe - LOTS of people are awake and trading gold at that time.  Chris talked about the "dead of night" too, and I looked outside and it was light.  Your view of the world sometimes depends on where you stand.

The only move I feel that really happened "in the dead of night" was the massive sale of silver right at the open of the Japan TOPIX back at the peak of silver April 2011.  That one - I think deserves special mention given the massive volume used.  But again, that could have just been a perfectly timed sale right at the peak of a blow-off top that was ready to retrace anyway (a la TSLA and BTC).  That's what blow-off tops do - they stop going up because they are out of buyers.  But nobody can know for sure, not even the people attempting that particular play.

Anyhow, the issue is not that the shorts aren't trying to play their games and move prices lower.  Of course they are.  That's what they do.  And if they outnumber the longs, guess what?

Prices go lower.

Two weeks ago, the shorts tried hammering the gold price below 1220.  When price got to 1210, the longs came out of the woodwork and ripped gold higher with a vengeance, losing the shorts a bunch of money.  The shorts waited two days, and tried again.  Same thing happened.  Longs appeared at 1210, and ripped gold higher, forcing the shorts to cover.  After two bites at this apple, the shorts gave up, and gold rallied.  That's why I made my bottom call at that moment two weeks ago (oops) - strong evidence that the longs were willing to step up at a given price.

Alas, then Taper happened, and guess what?  The shorts made another try.  And after one short assault driving price through 1210, the longs didn't appear this time.  So the shorts piled on again, and again, and drove the price lower, through 1210, through 1200, and down to 1186.  All because the longs didn't show up this time - I am guessing it is because of the unexpected Fed tapering, which (most likely) surprised the market.

Shorts will (almost) always be able to drive price lower momentarily.  Its what happens after that is the key.  Will the longs appear to buy at a discount?  And gold isn't the only market this happens in.  I've seen it in oil, and copper, and other leveraged commodity markets too.

It is a funny thing about markets.  When they are in a downtrend, both bad news, and good news, are treated as bad news (gold) and prices move lower.  Conversely, when a market is in an uptrend, both bad news and good news are interpreted as good news (SPX) and prices move higher.  SPX is a perfect sign of a market in an uptrend.  Fed doesn't taper - SPX rises.  Fed tapers - SPX rises.  It is bewildering to anyone unused to "how markets behave in an uptrend" and one is tempted to blame mysterious forces, but all markets seem to behave this way.

Look at AAPL, or TSLA.  They rallied far beyond the realm of reason.  But the move up stopped eventually, and came back to earth.  So will SPX.  And usually, the move down happens much faster than the move up.  Nothing sinister about that - again, its just how markets seem to work.

And for gold, it too will eventually bottom out, and the worm will turn and price will begin to move back up.  Regardless of the shorts or their dastardly plans (i.e. their plan to make money) who will then be forced to cover if they value their livelihood. Which they will do.

So - a long winded violent agreement.  Yes, someone is trying to drive prices lower - in every market in existence.  Those would be traders playing the short side of the market.  And yes, they sell in a way calculated to drive prices lower.  In every market in existence.  If the longs outnumber the shorts, this strategy fails.  If the balance is in the other direction, the strategy succeeds.

Or, to go with your analogy, every girlfriend in the world is cheating.  They all come home smelling of cologne not yours, they all receive messages from Rick saying "I miss you", etc.  And the one dating gold?  Sadly, she is no exception.  :-)

Should we have rules to limit just how big positions (on both sides) can get?  I think we should.  It will limit the games the big guys can play, especially at the time of news releases, where things just go nuts.  But that's a story for another time.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
gold's black swan

Jim-

I believe, as many other commentators do, that there will come a break in the market... a black swan event of some sort, that will cause the broken nature of the price vs value equation for Gold... of the supply vs demand imbalance for Gold.. to become recognizable to all market participants.  This will be the moment where the game of musical chairs that is physical Gold ends... where you will have a last chance to find a chair if you want one...

Definitely I agree.  At some point, warehouse receipt schemes fail once some sort of break occurs, and gold is no exception.  They don't happen often - there are decades of normal operations that deceive us all into imagining these schemes will work forever.  That's why Taleb called them Black Swans - we actually live in Extremistan where every now and then we get some crazy discontinuous event, yet we are deluded into imagining that we live in Mediocristan, where everything moves within a relatively narrow range.

FWIW I'm not sure there will be a chance to get the physical gold if that break occurs, at least not in the West.

But that's not to say we should be predicting imminent Black Swans every few weeks.  Doom fatigue will set in - and that's not a fun place to live.  My belief is, we should all take out some Black Swan insurance when its cheap, and then go about living your life.

LeanneBaker's picture
LeanneBaker
Status: Bronze Member (Offline)
Joined: Sep 5 2013
Posts: 29
John Hathaway's latest piece

As always, an insightful and thorough analysis. . .

http://tocqueville.com/insights/lets-get-physical

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
john hathaway & metals complex

Leanne-

I agree, awesome piece, well worth a complete read.

The only place I disagree with the man is about the whys of the gold decline; the entire metals commodity complex has been sold off during the past two years, not only gold.  But as for his advice and prediction of the future...I think, ignore this guy at your peril.

Here's a chart that shows what I mean.  "Metals Index" includes Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium.  See how the metals index tanked prior to gold's move down?  But goldbugs imagine they're being singled out for the beatings.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments