PM End of Week Market Commentary - 5/23/2014

davefairtex
By davefairtex on Sun, May 25, 2014 - 1:38am

On Friday gold closed down -1.10 to 1293.00 on heavy volume - silver was down -0.02 to 19.47 on light volume.  Gold slowly tracked lower, was hammered hard at 0820 EDT stopping out 3500 long contracts, but rebounded into the close.  The trading range was relatively narrow, but once again upon being hammered, gold's downspike was bought, which I consider to be positive.  Silver behaved similarly, but rallied more strongly into the close.

Gold continues to form its wedge pattern - usually these patterns lead to exciting moves in one direction or another.  While moves below 1290 seem to be well bid, moves above 1300 are currently equally well sold.  This situation will resolve itself - the only question of course is, in which direction?

For the week gold was mostly flat +0.20 [+0.02%] , silver +0.11 [+0.59%], GDX down -0.47%, and GDXJ down -0.60%. Gold's wedge pattern continued moving sideways and its trading range is compressing, silver is slowly improving, while the mining shares are continuing to dribble lower on light volume.

US Equities/SPX

SPX has moved higher off last week's test of its 50 day MA, scoring a new all time closing high on Friday of 1900.53.  SPX was up +1.21% this week on declining volume.  Declining volume is not what you want to see on a breakout higher, but that's where we are with SPX.

Other clues: the Nasdaq outperformed this week, up +2.47%, and a lot of the former high fliers are starting to rebound with some more enthusiasm than they showed last week.  The tech stock ETF (XLK) broke to new highs.  Also, the VIX cratered, dropping to 11.36; it hasn't been here for more than 14 months.  That was way back when SPX was at 1500.  Remember when we thought that was high?

Miners

GDX basically moved sideways with a modest downward bias this week.  There was no improvement that I could detect, and the GDX:$GOLD ratio also continued lower too.  GDXJ looked much the same.  The only thing remarkable about the miners this week was just how little traders cared about the sector - volume was quite low.

The USD

The buck moved higher this week, spending the first few days consolidating and the last two on a breakout, closing up +0.32 [+0.47%] to 80.43.  The dollar's rally on Friday stopped right at its 200 MA.  At this point, the buck's 50 MA has turned higher, and the buck looks to be in a medium term uptrend.  This suggests to me that money is flowing to the US - both equities and also US treasury bonds.

Rates & Commodities

TLT corrected this week, off -0.74% but seemed to find support once again on its 20 EMA.  With the correction in the euro causing the USD to rally, US treasury bonds look attractive.

Why on earth would people be buying the 10 year US treasury bond at 2.54%?  Well, the entire eurozone core (Germany, France, Belgium, Austria, Finland) has bonds yielding less than that - 1.41% in Germany, to 1.97% in Belgium - and so by comparison, US treasury bonds look good.  Would you rather have your money in France yielding 1.82%?

As a money manager, if you see the dollar rallying and you can get 70 basis points more yield by selling France, what's not to like?

Commodities are slowly drifting lower, this week off -0.11%.

Physical Supply Indicators

* Premiums in Shanghai dropped a bit, off -0.96 to +2.02 over COMEX.  They're still positive, but not by much.

* The GLD ETF lost -5.09 tons this week, and has 776.89 tons remaining.

* Registered gold at COMEX rose by 0.08 tons to 25.15 tons.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1293.10 and silver 19.35:

  PHYS 10.71 -0.50% to NAV [up]
  PSLV 7.76 +2.25% to NAV [down]
  CEF 13.85 -5.23% to NAV [down]
  GTU 45.84 -4.20% to NAV [down]

ETF premiums are mostly lower this week, some (PSLV, GTU) by a fair amount.

Futures Positioning

The COT report is as of May 20th.  Not much happened this week regarding futures exposures; both Managed Money and the Producers reduced exposure on both the long and the short side but only by a few thousand contracts.  Overall positioning remains bullish.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term NEUTRAL, medium term DOWN, long term NEUTRAL.

Silver: short term DOWN, medium term DOWN, long term NEUTRAL

The moving averages stayed relatively constant again this week.  Both 200 MAs are flat, the 50 MA's are both pointing downhill, and the 20 EMAs point downhill but are flattening.  The first stop on the trend change will be when price rises above the 20 EMA; the next, when the 20 EMA crosses the 50.  So far, we're not there yet.

Summary

Gold continues to find support at the 1280-1290 support zone, but attempts to rise above 1300 are met with selling, keeping gold within its narrowing trading range.  Silver improved modestly, while the miners continued meandering lower on light volume.

Looking at the various ratios and averages, gold's moving averages remain unchanged, looking mildly bearish, silver's 50 MA continues solidly downhill while its 20 EMA is flattening.  GDX:$GOLD dropped further, while GDXJ:GDX showed slight improvement, but still remains bearish.  The gold/silver ratio is moving slowly off its highs, but at 66.41 is still elevated.

On the COT report, nothing much changed this week.

Shanghai premiums remain very modestly positive, GLD tonnage dropped, and ETF premiums fell.  Physical demand seems neutral.

Not much changed from last week - things look mildly bearish, but it would not take much of a change in either direction to send PM off on a new strong trend.

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22 Comments

davefairtex's picture
davefairtex
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armstrong on manipulation

So I quote Armstrong because he makes the most sense to me.  Executive Summary: don't confuse the banks incessant front-running and trading against clients with manipulating the trend.  They're not the same thing at all.  One is risk-free and makes your bonus larger, while the other won't do a thing for your bonus and is quite risky.

Here's an article he wrote recently on banks & manipulation - I was going to synopsize it, but its all on point, so I couldn't edit much:

http://armstrongeconomics.com/2014/05/24/banks-manipulating-markets/

... little by little the truth is coming out ever since the LIBOR scandal hit. Both Greg Smith and myself have stated that the banks trade against clients. They have kept track of client positions and trade against them typically front-running them all the time. This has been HOW they make money .

There has been a HUGE clash between the various conspiracy groups. On the one hand, there have been the Goldbugs who want to pretend gold’s decline is purely a manipulation and that is the ONLY reason they are wrong. Then there are those who claim it is the Global-Elitists who control everything from wars to whatever for some dark sinister objective they really cannot articulate. Between these two extremes lies the simple truth – it has always been immediate profits trading against clients. That is standard. Being a major hedge fund manager I speak with experience, not visions, speculations, and claims. To be a REAL hedge fund manager, it was like playing a poker game. It is not as simple and just picking up the phone and say buy or sell. That is for individuals – not big money.

When I had to hedge Platinum for Onassis and was the largest position in the market, everyone knew what you had and watched every move. If I wanted to sell platinum, I had to first buy some gold and then silver to create the impression I would be a buyer. The banks would move the spreads in anticipation I would buy. Then I would sell and take the small loss in the gold and silver to get off the platinum I needed to sell. The banks were ADVERSARIES – never brokers who EVER protected my interests.

This is the way the industry worked. These manipulations of LIBOR to gold and currencies that are now starting to be revealed demonstrate this front-running manipulation of markets that has been trading against client positions. They DO NOT manipulate markets counter-trend NOR do they manipulate markets to force something like gold lower perpetually with no immediate profit. The argument that they are hugely short perpetually is not real. They care about bonus checks, not systemic manipulation with no end goal.

Do not confuse front-running as flawless perpetual manipulation. If these people were that all-powerful, (1) they would not get caught as Merkel said the only difference between the East German Stassi and the USA’s NSA was that the Stassi never got caught., and (2) they would not constantly require bailouts.

Banks are front-running manipulators looking for guaranteed trades – not professional traders taking on risk. Risk is for fools, as they say. This is why they need bailouts because when you front-run and rig the game, you do not need risk management.

UK Financial Conduct Authority has fined Barclays £26 million for manipulating “the setting of the price of gold in order to avoid paying out on a client order.” The sell orders in gold that seem to come as if out of nowhere, have been front-running covering on the client’s order. Slam gold hard, you then buy the low on the client’s order, and the metal then rallies back. This is typical.

However, they have played this game in both directions. When I say a rally is manipulated, the Goldbugs hate me because all rallies are real. I warned on the Buffet silver deal that they were taking silver from $3.5 to $7 and then were going to slam it. This is what they have done for decades. However, it has always been within the trend. Gold’s decline is NOT unusual and follows the typical 13-year rally.

At the core of this behavior is the laser-like focus on short term advantage above everything else.  This dovetails nicely with Chris's observation that the amount of long-term planning on energy in this country is vanishingly small.  Our nation's thinking, both in politics as well as finance, focuses almost entirely on the nearest term goal possible: the next election, or the next bonus check.

Anything beyond that time horizon might as well not exist, for all practical purposes.

It just makes sense to me.  It all fits.

cmartenson's picture
cmartenson
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Economic vs. non-economic players

DaveF,

I agree with Armstrong entirely if we constrain ourselves to just the universe of economic players.  These are the banks and they will do whatever it takes to make money including screwing over clients, cheating, and breaking laws.

But I am curious as to why Armstrong suddenly has forgotten all about the non-economic players (i.e. central banks and/or governments) which he used to write about rather extensively in his prison days?

Non-economic players don't have 'make money' at the top of their personal lists.  For example, the Fed will buy up debt instruments, against the prevailing market rates of interest or trends, in order to set short or long term interest rates.

They bought up gobs of mortgage backed paper, probably the trashiest of the lot, without much of an interest in whether they were going to make money off of them.

The interest of the Fed in these purchases was to 'save the system' and 'fix bank balance sheets' - a couple of outcomes that had/have nothing to do with making money.

Is it unthinkable that the Fed, et al., also have an interest in seeing the price of gold telegraph certain messages (e.g. stability and money printing is not hurting anybody so we can keep doing it, right?)?

To me it's perfectly reasonable to think that the Fed has its interested fingers in the prices of nearly everything it considers important.

So the final market price we see in any big market is the sum of central bank actions and those of the economic players,

That is, it's neither Armstrong nor the GATA camp that are 'right,' instead they are both part right, and therefore each are actually wrong.

At least that's my view.

Wildlife Tracker's picture
Wildlife Tracker
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A couple more silver bottom indicators

Cornelius999's picture
Cornelius999
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I agree Chris.  I always

I agree Chris.  I always thought the Fed's raison d'etre was to interfere in the market!

WildlifeTracker; thanks again for the Silver Charts.

davefairtex's picture
davefairtex
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both intent and ability required for trend manipulation

Chris-

So I hear you saying three things.

1) the Fed thinks gold is a critical indicator to the world of the soundness (or lack thereof) of fiat money.

2) the Fed has the will to do whatever it takes to successfully manipulate such critical indicators

3) the Fed has the ability to carry this out.

And of course when I talk about "the Fed" I'm referring to today's Fed, 40 years after the gold standard ended, when (most likely) no institutional memory exists from anyone who had any influence in the process of managing the standard way back when.  That Fed is not the same Fed that existed in 1972.

So as to points #1 & 2.  I believe the Fed used to care about gold, but today, it really doesn't.  All things being equal, sure they'd rather not have gold go nuts.  They probably also want oil prices to keep from going nuts too.  But to my mind, those are "would be nice" goals rather than something so critical it requires them to generate a secret, extremely well-funded program with the goal of doing "whatever it takes" to manipulate gold down.  Bottom line, I don't believe they are as motivated as you think they are.  Today.

Point #3.  Ability.  We do have an excellent case study in an extremely well-funded manipulation project that the Fed has embarked upon that can shed some light on the Fed's ability to manipulate trend.  Namely, long rates - their stated goal is to buy bonds in order to keep long rates down.  They've spent 3 trillion dollars in this attempt, in addition to almost endless jawboning.  How has that well funded and explicit effort turned out?

Over the past 18 months, not so well.  Before that, it looked to be working fine.  So the answer is - sometimes it works, and sometimes it doesn't.  Which suggests to me that the answer really is "no."  The way I read the above chart - when the mortgage rates wanted to drop, they dropped.  When the rates wanted to rise, they rose, regardless of what the Fed wanted, or what the Fed did with their balance sheet, or what they said.  The market was larger than the Fed.

So not only do I question the intensity of their present motivations regarding gold, I also question their ability to manipulate trend.  We have a clear example where their motivation is quite intense, they've thrown an unprecedented amount of resource at the problem, and it has resulted in a very iffy result.  They have not been able to successfully manipulate trend over the past 18 months, not even with a 1.5 trillion dollar pricetag.

Last point.  If we assume the Fed has cared about gold ever since that famous memo in the early 80s from Volcker where he talks about manipulating the gold price, and the apparently successful suppression of gold from 1981-2000, we have to ask ourselves a question: why did the 2000-2011 bull market ever happen?  If they were such capable manipulators, and they cared so much for decades, why on earth did gold pop 700% over the 2000-2011 timeframe?  Did they just start caring at the top of the cycle in 2011?  That is an awfully convenient explanation, and one that runs counter to the storyline that "the Fed has always cared secretly about gold."  Either one, or the other is true - not both.

To me, Occam's Razor suggests - cycles happen, and the cycles are beyond the power of the Fed to control.  Gold rises, and the Fed can't stop it.  Gold drops - and the Fed deserves none of the "credit."

I honestly think the Fed would really like to have the power to manipulate trends in everything, especially if such power came for free.  Problem is, the evidence shows that they just can't, not even in areas where they're willing to explicitly throw trillions at the problem, and the failed attempts to manipulate trend end up being quite expensive.

 

Wildlife Tracker's picture
Wildlife Tracker
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Natural Cycles

Great argument Dave. Everything in nature function's in cycles and humans have only created an extension of the natural cycle-defined system. William Cronon defines the human world as "second nature," rather than first or primary nature which we recognize as trees and wildlife. The basic natural functions and forces are the same for both of the defined natures.

I imagine manipulating a market could be compared to culling wolf populations to build moose populations. Culling wolves only disrupts established boundaries defines by the wolves. For every wolf removed, two more opportunity searching wolves will take its place. It's like removing a bucket of water out of an ocean.

In that chart I posted earlier there looks to be a cycle established in silver demand which appears to be correlated with silver pricing. Much like the wolf and the moose populations on Isle Royale. Great insight Dave. Thanks

Hrunner's picture
Hrunner
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Confidence
Dave,
Chris has hit on something critically important, and I know I've said it dozens of times, but 
perhaps not in the clearest possible way, so I'll try again.
 
The most important point of clarification (and please understand, I highly value clarity over 
agreement, to coin a phrase), is that you follow gold and silver prices as if they are just 
numbers and trend lines and dots on a screen following some prescribed law of 
economic nature.  I don't blame you for that, that is what you do, I have expressed appreciation and complement you for your diligent work.  
 
And in a "normal" environment, your work would be sufficient.  By normal, I mean markets that are free, fair, and unmanipulated, either by dishonest participants or by government entities (note I include 
the Fed as a government entity).
 
The diffference between you and me is that I have tried to emphasize the psychological and human behavioral aspects of markets, and equally critical to understanding the "price" of gold.
 
To understand the critical importance of the psychological factors, you have to clearly understand our monetary system, so let's give it another go.  Monetary systems have two critical questions to answer- What is the agreed upon 'marker' of wealth, and what is the 'marker' backed by?  The whole point of having money is that it replaces barter.  
 
With barter, you don't need to ask the two questions, because you exchange material of obvious and immediate value for other objects of obvious and immediate value.  The Arch Druid would say these barter objecs have 'use value'.  Wheat for corn.  Shovels for horses.  A day's labor for a sack of grain.  
 
You don't need government or any 3rd party.  
 
Both market participants know what they are exchanging and have their own notion of value of those items.  Enter money.  It is an intermediary.  It is not intrinsically usefully (what hole can I dig with that quarter?  Gee, that gold coin doesn't taste as good as my oatmeal).  We won't review all the qualities of money here- fungible, ability to assay, ability to divide, rarity....
 
In traditional monetary systems, i.e. gold-backed or wealth-backed, there was generally a symmetrical increase in the amount of money with the amount of "backing", i.e. the more productive and wealthier a system got, the more gold was extracted (and looted from weaker nation states) to assure some amount of wealth to gold stability.
 
I believe that the vast majority of Americans still think that our money still works that way.  
 
Of course it does not.  But more on that shortly.To state clearly, if your money is backed back gold, and your nation-state increases its wealth and productivity, then you must either increase your gold holdings (if you want stable exchange rates), or have a method to increase the value of gold per unit wealth in a way that is transparent and easily communicated, so that citizens will confidently use the money without fear of cheating or a small number of players using insider information to use exchanges in arbitrage to make illicit gains.
 
Contrast that system with our current fiat system.  
 
What is the dollar backed by?  Gold?
 
Not gold as of 1971.  Is it silver?  Nope.  Is it some type of sophisticated accounting system of total wealth including timber, oil, minerals?  Nope.  No.  What is "it"?  James Rickards gets it, and says it multiple times.  One word.
 
Confidence.
 
What is "confidence"?  
 
Please understand the mindset of TPTB at the Federal Reserve.  It is not your mindset.  It is an unfamiliar mindset to yours.  Put yourself in their shoes.  Do they care about the relationship of the value of the dollar to goods?  No.  In fact, they are comfortable with ever-changing relationship of the dollar to hard assets.  They are actually trying to get inflation as a cornerstone of Fed policy.  
 
This is the part you have to think really deeply about, because it is abstract.
 
They do not care about the (absolute) value of the dollar, they care about the confidence in the dollar.  That is all, I repeat, all, they really need to manage.  Confidence must be maintained in the U.S. and with any entity that uses the dollar.
 
Stated clearly and precisely, the dollar is backed by the confidence of the people using it.  
 
This is the definition of a fiat currency.
 
Now follow me grasshopper.  What is confidence?  How do you define it?
 
[dictionary.com]  Full trust; belief in the powers, trustworthiness, or reliability of a person or thing: We have every confidence in their ability to succeed."
 
In other words, it is one of your favorite things to talk about, in markets you like to speculate about its effects in gold price.  It is emotion, belief, a psychological state.  In some situations, emotions and specifically confidence may be completely disconnected from physical reality.
 
So the Fed is doing some kind of sophisticated wealth accounting to ensure that the dollar is backed by an appropriate amount of wealth, it is not carefully managing the relationship of the amount of gold per dollar bill in circulation, it is not carefully assessing and changing the the ratio of dollars to gold.
 
It is only managing confidence in the U.S. dollar.If you understand that, you are halfway home.  You must understand that at heart, the Fed is selling confidence, and that is all.  And since confidence is a human emotion, it is in the emotion-controlling business.
 
 Amazingly, they have all but stated that is there business.  
 
Please see Bernanke's recent public presentations about 'communications' and optics and management of expectations.  They are simply stating what has always been a public policy.  It is evidenced by the crescendo of Fed communications, speeches, the carefully managed Fed governor statements.
 
Take the next step.
Now, what are the tools of confidence building?-  Well admittedly several tools are available- statistics (if it's a number with a fancy name attached, it must be correct and important, right?), things like "GDP deflator", "consumer price index" "U1 unemployment", important-sounding papers from Princeton economists about models (these guys must know what they are doing, they have Ph.D.'s and use sophisticated words), and they surround themselves with the trappings of imortance and confidence- they are well-dressed, give important sounding speeches, and are covered by the MSM as if they are important and smart and we should hang on their every word.  
 
These are all part of the PR campaign, i.e. building confidence.  Remember, these are the people at the heart of the monetary system, so their appearance must build confidence.
 
What are the opposing forces of confidence?  What are the so-called 'anti-confidence' forces?  
Because the keepers of the dollar (more accurately, keepers of the dollar confidence) know that once these are identified they must be neutralized.
 
1.  People who disagree and state clearly the opposing case about Fed policies.  Peter Schiff, James Rickards, Chris Martenson.  Are these people and numerous other critics engaged seriously by the Fed, or are they demi-gogued and made fun of in the mainstream media?  I think you know the 
answer already.
 
2.  Bond prices falling.  I think you would agree that UST are the functional equivalent of USD.  They certainly are treated that way as collateral.  A falling bond price means that confidence is falling that the USD will be valuable in the future.  If the USD will be less valuable in the future, what about today?  Is the future now?
 
You do appreciate that the Fed is openly buying up to 90% of UST on the open market?  Some say 100% through back channels.  I trust you will not ascribe that fact to a conspiracy theory of Hrunner's, since that is openly stated Fed policy executed through Fed open market operations that are published by Fed and freely available.
 
So we know that the dollar is a fiat currency, backed only by the confidence in the people that are using it, that the Fed is the main entity that has responsibility for managing the dollar, so by extension, the confidence in the dollar.  And that we have open, public documentation that the Fed actively manages communication and discussion in the media to support that confidence, and that they physicially buy bonds to keep bond prices low, as confidence building.  In other words, they drive the price-value of bond higher in order to instill confidence in the dollar.
 
Now what, oh what, could the opposing thermostat to the price of bonds be?  Such that if its price were going higher, would destroy confidence in the dollar?   
Well it could be almost any commodity, because rising commodity prices in dollars would display the destruction of the dollar and thereby destroy confidence.  Oil is especially important.  I find it interesting that oil price has stayed so stable in the face of both an alleged recovery, and the mountains of dollars printed, and in the face of countries and corporates that need $130-$140 to recoup capital investments to get oil out of the earth, but that's a discussion for another post.
 
What could it be.....?  What commercially traded entities have been used as money for 6,000 years, are as part of our human fabric as food and shelter.And what price would clearly want to control if you had access to unlimited dollars, and political access to the the main trading commercial banks that control the prices of markets?  What could it be....?
 
Starting the see the connection between the psychological and the physical yet?  Between the "economic" and "non-economic"?
To answer your critiques specifically-
 
If you think the Fed doesn't care about gold, and moreover, does not publicly lie about 
their attention to gold, then you are simply not paying attention.  Beside the volumes of evidence that the Fed does care about gold, answer the simple question- if the Fed, and US government does not care about gold, then why not sell 10,000 tons of it to pay off some of the national debt?  Seriously, if you believe gold is a "historical" asset, and by extension, worthless to you and you find it silly that anyone ascribes any value to it, why not just sell it on the open market to a bunch of suckers that willing to exchange valuable dollars for worthless gold?  It's a simple question.  I have yet to hear the credible answer.
 
As far as UST, I don't exactly know what chart you are talking about.  By my reading of the charts, the price of the 30 year UST has been rising since 2006, right through the financial crisis, and right through 4 trillion of fiat money printed and put on the Fed balance sheet.  Since this curve is doing the opposite of flat-lining, I would say mission accomplished for the Fed.  But maybe you interpret a rise from low 100's to the 140's differently than I do.  
 
Mission accomplished.
 
At the same time, the Fed (and a global economy that has been trying to deflate) has managed to keep oil in a trading range.  
 
Mission accomplished.
 
And more to the point at hand, keep gold from accelerating to all time price highs as the risk of inflation has increased to historical levels in parallel with the $4 trillion Fed balance sheet.
Mission accomplished.
 
As for ability, perhaps you need to understand that the Fed has the ability to print unlimited amounts of USD.  Do you understand the meaning of the word unlimited?  I'm not a math Ph.D., but I think I understand the following mathematical relationship:
 
Unlimited Fed money> Limited market participant money
 
This is one point of disagreement that I have with folks like Rickards who seem to think the Fed can't or at least won't print $4 trillion more USD.  At this point, I think the markets reflect only what the Fed policy and Fed unlimited dollars generally want them to reflect. 
 
Markets are priced in dollars, the Fed has access to unlimited dollars, the Fed believes it needs to be in charge of the global, i.e. dollar, economy.  The Fed manipulates the global markets.  Before you tell me that there are legitimate market participants, and the Fed is not the only participant, I agree.  By manipulate, I mean the Fed intervenes when markets don't go the way they want them to go.
 
There are natural events such as currency and stock markets crashes in Ex-US countries 
that cause a flight to safety, and naturally prop up the price of the long bonds, which is great from the Fed's perspective.  There is nonsensical analysis of precious metals by Keynesian economists.  As long as markets follow the Fed script, they don't need to intervene.
 
At some point, there will be a reset.  Given the oceans of dollars available to the Fed, it will have to some event outside of the existing U.S. dollar dominated markets.  At this point the leading events are the existence of non-dollar denominated markets (such as the one just created by Russia and China), starvation or food insecurity of large groups per the paradigm Chris just posted about recently, significant war involving the largest world players, or some other game changer (Edward Snoden) that none of us, myself included, saw coming.
 
I wish everyone a great Memorial Day weekend, hope you get to spend time with those you love, and remember for a few moments, the ones that you don't know that loved you and your country enough to fight for our freedom.
Mots's picture
Mots
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Confidence, Economics, etc

I  appreciate reading all of these well-thought out ideas about money flows and valuation and confidence and GDP statistics as an assumed yardstick of a person's contribution/received value and what the Fed is doing and what the GDP is doing and all of that good stuff.  however, an important factor is  missing in the analyses but that affects these conclusions.  As the (bankers/politicians/economists etc) parasites who produce no wealth but just steal progressively assert new tax  laws upon the wealth producers and by tagging the wealth that flows their fiat system rachet up the pressure, local community resilience REMOVES wealth  and wealth producing activities from  their oversight.  The economic analyses assume that everyone cycles all their production and consumption through the parasite wealth extraction (tax/usury) systems.  However, to the extent that resilient communities succeed, this is  NOT true.  the parasites dont TAKE and the people KEEP.  You can argue GDP all night and statistics, but a resilient community member is enjoying a high quality life that is NOT MEASURED by your graphs and statistics.

This  is  an important trend that may dominate the real story.  When neighbors create food, energy, services etc for each other and become sufficient, they  enjoy something like 30% increased retention due to lack  of tax.  In  other words, resilient communities dont feed the parasite government and  bankers (the "financial services industry" portion of our economy is already up to 19% and siphons this 19% of the economy by "financial" gaming, which resilient communities OPT out of.  Furthermore,  government parasitic collections are also a large load on non-resilent communities (resilient communities may be 20-30% ahead in this regard as well).  If everyone could become a member of a resilient community, the GDP and other yardsticks will have much less meaning and the parasites will wither.  

A successful life going forward would be to drop out of the banking/government system altogether and live a primarily DIY life at the resilient community level.  Such person does not exist from the view of the GDP number crunching banker/government parasite.  The wealth produced and consumed is not counted.  The economic analyses then only pertain to an imaginary subset of reality.  Maybe Greece is an example in this regard.

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thc0655
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Posts: 1512
On "confidence"

Here's a great piece of psychological/social analysis that helps me understand why this whole crazy Fed system can keep going.  The author explains why "confidence" is so important for the Fed and TPTB and why predicting when a loss of confidence (and a system reset) might occur is so impossible.  However, he does discuss what forces might intervene and cause everyone to suddenly realize the King has no clothes and bring the whole tawdry carnival to an abrupt end.

http://www.salientpartners.com/epsilontheory/notes/When%20Does%20The%20Story%20Break.html

Happy Hunger Games!

davefairtex's picture
davefairtex
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Posts: 5062
two simple questions

Hrunner-

Two simple questions.

1) If the Fed has access to infinite money, and they find it of critical importance that gold not rise in price, and they're willing and able to use infinite money to manipulate any and all markets worldwide, why then the gold bull market of 2000-2011?  According to your worldview, gold should not have risen one dollar over that period, since the Fed is just that powerful.  So I ask again - why the bull market of 2000-2011?  According to your stated worldview, that simply shouldn't have happened.

2) If the Fed has access to infinite money, are willing to use great gobs of it in secret suppression projects, and they want bond rates to fall, why then have bond rates risen over the past 18 months?  Once again, you contend the Fed will use as many dollars as necessary to achieve their objectives.  Yet, rates rose, which is definitely contrary to stated Fed objectives.  Why the bond bear market of the last 18 months?  According to you, that simply shouldn't have happened.

I encourage you to consider these questions directly.  These are matters of evidence, not opinion or guesswork.  Gold rose 700% from 2000-2011.  30 year mortgage rates rose 100 basis points from early-2013 until now.

How does your model of the world - Fed having infinite money, and (perhaps more importantly) the absolute will to use it to execute a raft of secret price suppression projects - explain these outcomes?

KugsCheese's picture
KugsCheese
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Posts: 1428
Re: Gold Manipulation

"The Death of Money" book makes a pretty convincing case that gold is being manipulated by the big players, including the FED.

Wildlife Tracker's picture
Wildlife Tracker
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Posts: 403
Did my post from the other

Did my post from the other day get deleted?

davefairtex's picture
davefairtex
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Posts: 5062
death of money

Kugs-

So manipulation is not all created equal.  Its clear to me we've got the daily skim manipulation - that's been clear for a while now.  That's what LIBOR was all about, and that's what the bankers excel in - zero risk short term manipulations that hose their clients and increase their bonuses.  And if they're caught, its a wrist-slap and a fine.  "Rogue trader, rogue trader!"

So if you could tell me that this book makes a good case for trend manipulation, i.e. the basic ability to set price to be whatever it is they want it to be at any given moment, then I'm interested.  I'm also interested to understand why the market super-beings with such overwhelming power (and the apparent unquenchable desire to keep gold down) just decided not to use those powers for 11 years during the 700% move from 2000-2011.

I keep asking this question, and nobody - nobody - has answered it satisfactorily.

(The answer "oh, they just didn't feel like it" - not a satisfactory answer; remember that desire to keep gold down being unquenchable doesn't match up well with "didn't feel like it for 11 years")

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cmartenson
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No, not deleted...
Wildlife Tracker wrote:

Did my post from the other day get deleted?

I can see it, but it's been hidden from view for some reason...I suspect our spam software needs to be looked into...give me a few minutes...

Edit:  All fixed.  Your's too Mots.

 

Wildlife Tracker's picture
Wildlife Tracker
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Posts: 403
Thanks Chris. This discussion

Thanks Chris. This discussion really needed a chart on moose populations ;)

jgritter's picture
jgritter
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Posts: 273
Epsilon Theory

So the USD is the world reserve currency until it isn't?  Are we at the stage now were we are dancing along to the music trying to keep track of who has blue eyes (who's ready to jump when confidence in the dollar stumbles)?  Or are we still waiting for the missionary (China) to say "Enough gold has moved from West to East to allow us to offer a gold backed Yuan as an alternative reserve currency"?  When that time comes will all the tribesmen who have been trying to figure out when to get out of dollars jump in their canoes and head for china at the same time?  How long will the transition to a new reserve currency take?  Hours, days, weeks, nanoseconds? 

I understand that there is a prediction for a change in the weather, but I can't follow the technicalities of the conversation.  Should lay people be looking for a sea breeze or a micro burst, fog or a tornado.

This padawan learner is having trouble following the conversation.

Thanks, John G

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thc0655
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Posts: 1512
Epsilon Theory

I feel your pain John G as I often feel important concepts and data are escaping my grasp in the vortex of everything that's being said and done.  However, I also believe in taking a step back and grasping the Big Picture so that I can use that as a framework for understanding all the bits swirling around.  As long as I don't miss some crucial bits that alter the underlying framework, I can afford to miss stuff without ending up in a disaster.  The framework tells me we're headed for huge changes requiring wise and clever adaptations to avoid being swept away in the storm ("The next 20 years...").

Every day I wake up, one of the first realizations I have is that "Today something really crucial may break that will cause some dramatic downward collapse."  For instance, I happened to have the TV business channel on in the background while doing some chores in May 2010 when the Dow fell 600 points in 20 minutes.  Scary.  That wasn't The Big One, but it could start with something like that and cascade into a disaster of Biblical proportions.  I realize that could happen any day now.  (That realization is complementary to the one I always get as I'm reporting for work and think, "Today/tonight I may be in a fight to the death with someone I've never met.")  And every night when I go to sleep (so far), and I see that The Big One didn't start, I'm relieved that I have another day of gradually preparing to adjust to the slow grind down.  Rapid changes are the most difficult to cope with even if the amount of change is the same over time (whether it's a slow grind down, a cataclysmic collapse, or a slow decline punctuated by occasional big stair-steps down).  

Based on the concept that our problems are only getting worse every day  we put off dealing with them, I'd rather start dealing with them right now (rip the bandaid off).  But, if I get another day to relax and enjoy today, I'll take it and add another day to my preparations.  Besides, it's not like anyone is going to ask my opinion about when they should start The Big One, nor do I have any way to influence the timing or the outcome.

"Happy Hunger Games.  And may the odds be ever in your favor."  

(The odds improve for me every day.)wink

Denny Johnson's picture
Denny Johnson
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Posts: 348
China 'manipulating'

I haven't seen the possibility addressed here, but I'm wondering about the likelihood of China or Russia or.... 'manipulating' the gold price to the downside to continue to build their stash on the cheap???

Cornelius999's picture
Cornelius999
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Posts: 373
Someone, writing decades ago,

Someone, writing decades ago, whose name escapes me, had another name for Epsilon Theory.  Conventional Wisdom of the Dominant Group - more affectionately known as COWDONG!

Cornelius999's picture
Cornelius999
Status: Gold Member (Offline)
Joined: Oct 17 2008
Posts: 373
Someone, writing decades ago,

Someone, writing decades ago, whose name escapes me, had another name for Epsilon Theory.  Conventional Wisdom of the Dominant Group - more affectionately known as COWDONG!

Hrunner's picture
Hrunner
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Posts: 256
Answer to Trend Manipulation

Davie,

I apologize.  You are correct that in my previous post on this thread I did not answer your fair question.  I really did intend to, but ran out of time, electronic ink and honestly forgot.

The best description for the Fed's (and central banks in general) approach to gold in the run up to 2008 that I know of is "managed ascent".   I can't take credit for coining that phrase, and apologies, I can't give proper attribution, but Jim Rickards or James Turk possibly.

During pre-2008 "normal" times, there was movement connection of asset prices to generic inflation, and debt-fueled global growth.  Everything went up.  Whether is was Oil, roughly 430%

Copper, roughly 700%

Sugar, roughly 700%

or Housing, roughly 250%

In summary, during this period, A) the Fed had few choices but to allow a Managed Ascent because all asset classes were rising rapidly, and B) (more importantly) the Fed did not need to do much because the global economy was perceived as sound, gold insurance was not highly sought, and dollar collapse was not on anyone's radar screen.  Happy days were here again.  The Fed needed to only 'tap on the brakes' of gold price periodically (again, several intelligent investors could see the liquidity-fueled asset inflation and were bidding gold higher).

The Fed policy agents are now seen standing on the brakes.

Let me know if you want a post of a Nanex chart of what "standing on the brakes" looks like.

You can read my previous post re "Confidence" if you want to have background on the "Why".

So all of these asset classes were rising, driven by Fed easy money policies, and fair enough, secondarily, overall global demand.   The Fed only needed a moderated overall economic policy that included allowed gold to rise in parallel to other asset classes.  Just not too much and not out of alignment with other assets.

Recall that these were the halcyon days of free money, housing prices rising into infinity, the always growing home equity credit card.  So simply, people and investors were happy and not worried.  

Of course, as we learned in retrospect, there were very troubling goings on in the background of these happy days by reckless financial institutions levering up on their MBS to the sky, but virtually no one noticed that, nor did anyone care.

It goes without saying, but I'll say it, everything changed after the credit crisis.  Besides deflationary collapses in, well, just about everything, we all know what the Fed did to the money supply.  QE to infinity is fact not fiction.  ZIRP as far as the eye can see.  We only learned recently how many trillions of dollar swaps the Fed made available to Europe.  The Fed truly "saved" the world with the magic liquidity button.

Fast forward past 2009, to today, after credit markets and asset prices stabilized in the short term.

Anyone with two neurons knows that we have not solved our debt issues, that what has happened in the past 5 years was a Fed fire hose rescue operation that (temporarily) arrested prematurely a pre-ordained deflationary collapse.  Now 7 billion of us are whistling past the graveyard, betting our futures on a handful of flawed humans with dubious economic models and suspect allegiances and motives.

To coin another phrase, good luck with all of that.

And as I and others have said seemingly thousands of times, in the face of oceans of increasing money and credit-money, smart folks should be buying every ounce of gold they can get with whatever non-essential cash is available.  The price of gold should be multiples higher to appropriately reflect inflation risk and investment demand.

But thanks to an endless stream of "optics control" by the Fed, by the MSM, by the conventional investment community, we have a lot fewer smart, at least educated, folks than there ought to be regarding financial risk and risk mitigation.

That's the entire point about how important the optics of price of gold reflected in the gold charts, and derivative analytics i.e. TA world of trends, 100 DMA, stochastics, etc, etc, etc, etc.

The blatant and obvious price smashes in the middle of the night, the hiding of 10's of trillions of dollar swaps, the lies about the meaning and utility of precious metals by Fed officials.  These are obvious signs (to me and a few others, at least) of the current level of desperation.  But, as any student of human psychology knows, desperate and stressful situations create symmetrically desperate and stressful responses.  I predict some big mistakes are coming.

To answer your bond price question, I have never said that the Fed agents were the only market participants.  The global economy is continuously fragile at present and has had a string of national economic scares, for example Cyprus and EU bank collapses, Argentinian and Turkish central bank balance sheet destruction, and now Chinese credit market concerns with some major financial institutional bankruptcies.  The dollar i.e. UST always benefits in these serial crises from a flood to safety via the "cleanest dirty shirt in the laundry" phenomenon.  The Fed steps in when there are outflows i.e. risk-on trade periods to pick up any slack as bonds roll over / new issuance.  The mission is always to keep bond prices at historic lows.  Because the big commercial banks and most importantly the U.S. government simply cannot afford historic bond yields of 4, 5, 6% 10 year UST.  They simply cannot.  It will immediately double the national deficit.  And set off a vicious cycle of yield increases.  The Fed of course knows this.  So those rates will not materialize.  I answered your question, now please answer one of mine.  If the economy is "normal" and "recovered" and "growing", why aren't bond yields at historically normal levels of at least 4% and higher?

So I think you would agree from the Fed perspective, "mission accomplished" on the bond front.

Just like the Tacoma bridge disaster, we can watch with fascination, intuitively knowing that it cannot go on forever, and likely not much longer, but unable to predict with perfect precision when it breaks.

But soon enough, my friend.  May God bless you and other people of good will as they prepare spiritually, physically and financially for that period of time when things break.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
managed ascents

Hrunner-

We both see what happened, but place an entirely different interpretations on it.  (Big surprise!)  But it is good to see that we agree on what actually happened, if not about why.

First let me knock an easy one.  Your "Nanex Chart" isn't proof of successful trend manipulation or "standing on the brakes."  It is however proof of Barclay-style manipulations, good for a quick boost to the bonus and a lose for the customer.  Likely that sort of operation has been going on since the LBMA opened its doors.  My sense is, it has been getting more explicit and frequent.

But again, that's not trend manipulation.  Its a short term no-risk skimming operation to transfer money from customer's pockets to the trader's quarterly bonus and the bank's P&L.

To prove effective & successful long term trend manipulation, you need to come up with evidence (evidence!!) that gold's price has suffered to a greater degree than other things over the long haul.

What you can't do is simply say that gold "should have" done better and use that as evidence.  That's just your opinion.  Why should I accept your opinion as to what the fair and proper price of gold should be?  Are you trying to be a central banker or something?

See, we know the Fed has tried to manipulate the trend of the bond market.  It is explicit Fed policy, and they have spent trillions giving it their best shot.  And in response, sometimes the bond market has cooperated, and sometimes it hasn't.  Available evidence (evidence!!) suggests that trend manipulation is not only hard, works only sporadically, but is expensive too.

My only point in all this is about trend manipulation.  Its very hard to do, especially long term, and it is usually quite costly to even attempt.  And we have evidence (evidence!!) that even when the Fed really wants rates lower, and they are spending trillions to make it happen, half the time the market just doesn't cooperate and rates rise instead.

So why should we imagine that the Fed can control the trend in gold market, when there is no evidence of such attempts at control, and in fact there is evidence that their overt and expensive efforts to control the bond market have met with only spotty success?

All markets have cycles.  Gold is a market.  It too has a cycle.  There are up-cycles and down-cycles.  While I know everyone wants to use the Fed as Scapegoat of the Century (and indeed, it deserves that title in many areas), just because gold rose at the same rate as sugar and copper and the other commodities is not evidence of Fed successful trend manipulation!  In fact, it is just evidence that gold tends to act like other commodities!

I know, the next response would be "ah yes, and that's exactly what they want us to think!"  Circular logic at its finest, but not evidence-based reasoning.

I found this last point of yours really interesting:

And as I and others have said seemingly thousands of times, in the face of oceans of increasing money and credit-money, smart folks should be buying every ounce of gold they can get with whatever non-essential cash is available.  The price of gold should be multiples higher to appropriately reflect inflation risk and investment demand.

This site, and the fact we are generally pretty lonely here, is a full and complete explanation of why gold's price isn't higher.  Most people don't agree with us!   How many times have you seen "the look" whenever you talk about the stuff we know to be true?  It happens all the time.  It is reflected in Chris's perpetual complaints about how our national leadership (and the vast horde of technocrats that support them - and the public in general) are ignoring some really important issues that will bite us all in the ass in the not-too-distant future.

So since we know the vast majority of people are blissfully (wilfully) ignorant, why then would that ignorance not be reflected in the price of gold too?  Why must we find a "gold trend manipulator scapegoat" crutch to explain this instead?

Ultimately, the answer is a simple one.  Gold is not higher because the vast majority of people (with money) don't agree with us.  And in a market, "agreement" translates directly into price.

As for your question:

If the economy is "normal" and "recovered" and "growing", why aren't bond yields at historically normal levels of at least 4% and higher?

My goodness.  I never said anything about "normal" "recovered" and "growing."  Our economy is bifurcated; for the top 10%, it is recovered and growing.  For the rest - stagnation and contraction, depending on where and who you are.

 

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