PM End of Week Market Commentary - 11/14/2014

davefairtex
By davefairtex on Sat, Nov 15, 2014 - 12:39pm

On Friday gold rose +26.10 to 1187.90 on extremely high volume; silver was up +0.66 to 16.31 on extremely high volume too.  Both metals sold off in Asia and London trading, only to power higher in NY starting at 10:00 EST as the dollar sold off hard.  Both metals blew past their EMA-9 averages and best of all, traders decided to take gold home for the weekend, with the metals closing near their highs for the day.  The gold/silver ratio closed below its EMA-9, dropping -1.41 to 72.85.

Last Friday my primary concern was that the rally in gold might have been a one-shot short-covering wonder.  Now that it has happened twice, it seems clear that the COMEX buyers are waiting in the wings - but they are waiting for the dollar to top out before they will jump in and buy.  The two big rally days have the same thing in common: the buck made a new high early in the day, failed to climb higher, and then sold off hard.  Both times that was the trigger for the gold rally.

Miners followed gold higher on Friday.  As the 10:00 EST gold rally hit, miners kicked off their rally too.  Both ETFs executed strong parabolic moves higher, with the miners closing at or near their highs.  GDX was up a big +6.02% on very heavy volume, while GDXJ rose +6.81% on heavy volume.

For the week, gold was up +9.20 [+0.78%], silver rose +0.49 [+3.13%], GDX was up +2.04% and GDXJ +1.19%.  Although the gains week-over-week weren't that impressive, the move higher on Friday ended up making a higher high, and it also technically confirmed the 1130 low in gold and the 15.04 low in silver.

The USD

On Friday, the buck rose steadily in Asia and Europe, culminating in a strong rally at 0830 in NY after some positive economic reports, marking a new cycle high of 88.36.  However, that was the high for the day; at 1000 EST the buck suddenly fell off a cliff, and didn't stop dropping until late in the afternoon.  While the buck only fell -0.25 to 87.58, the total trading range was large because of the failed rally, and the reversal off the failed move higher was very significant for PM.  Right now, moves in USD are a critical driver for the metals.

On the week, the buck dropped -0.04 [-0.05%], printing a doji on the weekly chart.  A doji at the end of a long move higher is often the sign of a top.  That together with a bearish divergence in the RSI suggests to me we've marked the top in the dollar for now, more likely than not.  If this turns out to be true, this would be quite bullish for PM.

Miners

During the week, the miners spent the first four days having trouble, and then broke sharply higher on Friday as both gold and silver broke above their EMA-9.  GDX closed well above its EMA-9 too, making a higher high, on huge volume.  These are all bullish signs.

The GDX:$GOLD ratio continues to climb, which is bullish, however GDXJ:GDX isn't looking nearly as good.  The junior miners aren't quite onboard with the rally just yet.  One interesting note - a number of the weaker (higher cost) miners have had some very impressive gains over the past few weeks.  That's because they were pounded down to penny stocks over the last few months, and so the rebound off that level shows gains of perhaps 50% over two weeks.   Moral of the story: at major turning points, the risky high-cost producers will have the highest gains.

US Equities/SPX

The US market slowed even further, up +7.90 [+0.39%], spending most of the week tracking sideways and printing tiny doji candles on relatively low volume.  SPX seems to be having trouble moving higher at this point, and it looks like it might be ready to correct.    VIX was mostly unchanged, up +0.13 to 13.31.

Its possible that a dollar correction could encourage a correction in SPX.   While my macro indicators still show a relatively happy story, I'm thinking we might have a dip coming in the near future for SPX.

Rates & Commodities

Bonds mostly moved sideways, down -0.22% on the week, and remained within a narrow trading range, although it seems to be shading a bit to the higher end of the range.  As soon as SPX corrects, TLT should break higher.

JNK dropped -0.80% over the last week, with most of the loss coming in the last two days.  In recent months, JNK has sometimes been a leading indicator for equities; the JNK's recent drop could signal trouble ahead - and PM might benefit as money rotates out of stocks to other sectors.

Commodities rose slightly, closing up +0.20% - not a big move, but even this slight rise has enabled the commodity index to close above its EMA-9, an indication that things are getting at least somewhat better in the commodity space - which should help PM.

WTIC had another down week, dropping -2.50 [-3.195] to 75.93.  The week did end on a happy note (WTIC closed up on Friday +1.64) but oil remains below EMA-9 and still looks quite weak.  Brent dropped -3.98 [-4.77%] closing at 79.41.  Oil below 80 has driven unleaded gasoline futures down to $2.05 - great if you're a consumer, not great if you are PM looking for support for an "inflation thesis" from the other commodities.

Physical Supply Indicators

* Premiums in Shanghai vs COMEX are down -0.97 to -0.29 over COMEX.  Delivery volumes are strong, but we just aren't seeing buyers bidding up premiums in Shanghai the way we did before.

* The GLD ETF lost -6.53 tons, with 720.62 tons remaining.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on November 14) of 1190.20 and silver 16.29:

  OUNZ 11.89 +0.10% to NAV [down]
  PSLV 6.53 +3.33% to NAV [down]
  PHYS 9.86 0.00% to NAV [up]
  CEF 11.69 -9.56% to NAV [down]
  GTU 39.71 -9.78% to NAV [up]

Premiums are mixed - it looks like the goldbugs haven't quite caught up with the COMEX buyers.

Futures Positioning

The COT report is as of November 11th, when gold was trading at 1163 and silver at 15.66.  During this time, gold dropped, made its low at 1130, rallied, then dropped again - a whole lot of volatility in just five days.

For gold during this period, Managed Money increased shorts by +5.3k contracts, and dumped -2.9k longs; a modest bearish increase.  Producers added +9.9k shorts and also bought +9.8k longs, an interesting outcome that leaves producers flat but suggests to me that the big banks might be buying the low while the producers added some hedges on the rally.

In silver, Managed Money dropped -3.8k shorts, while longs were mostly unchanged.  Producers closed out -3.3k shorts and dropped -3.6k longs.  Summarized, silver looks to have some short covering, with some longs bailing out.

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

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

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

Not much good news here.  The move off the lows has yet to impact the moving averages.

Summary

Gold and silver spent most of the week in retreat, only to race higher on Friday once the dollar decided to drop.  If we consider what Greenspan said - that gold is a currency - this makes a certain amount of sense.  If the dollar continually rises, it can only do that if most of the other currencies in the world fall vs the buck.

For both PM and the miners, moving averages are all still pointing lower; since they are lagging indicators, it will take time for a rally to show up in the averages. The gold/silver ratio is down -1.70 on the week, with much of that move coming Friday; it is just starting to hint at a bullish turn. GDX:$GOLD has continued moving higher and looks bullish, GDXJ:GDX looks a bit bearish, with SIL:$SILVER somewhere in between.  Ratios are mixed, gold/silver ratio is starting to look positive, while the lagging moving averages still look negative.

The COT reports showed an increased Managed Money net short position, while producers netted out to no position change.  In silver, there was some short covering from both Managed Money and Producers.

Shanghai premiums have gone slightly negative, ETF premiums were mixed but generally fell, and gold continued leaving GLD.  I'd say physical demand is neutral right now.

This week reinforced my sense that gold made a low at 1130, but the durability of that low will be subject to the whims of the currency market, specifically the USD.  Current indicators suggest the buck has put in a top, but we still need confirmation next week to cement that trend change into place.  I was happy to see that COMEX longs really do want to buy at these levels, but for them the direction of the dollar remains paramount: they will probably not continue buying if the buck resumes its rally.

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42 Comments

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Most other currencies....

I will once again play my role here on PP.com of being the person to point out the logical inconsistencies with arguments that tie the dollar, an infinitely printable fiat currency, to Gold, a non-fiat hard currency with intrinsic value, and with arguments that Dave proposes more generally.  

What Dave said above would seem at first blush to be a validation of the idea that Gold is money;

Gold and silver spent most of the week in retreat, only to race higher on Friday once the dollar decided to drop.  If we consider what Greenspan said - that gold is a currency - this makes a certain amount of sense.  If the dollar continually rises, it can only do that if most of the other currencies in the world fall vs the buck.

That Gold and the Dollar are competing forms of money - yes, indeed.  That it would logical for Gold to only rise as the dollar falls.... not so much.  The fact that the dollar is rising means something very specific - it means that within the following basket of currencies, the dollar is rising, and some combination of the others must be falling;

The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies.[1]

It is a weighted geometric mean of the dollar's value compared only with a "basket" of six other major currencies which are:

[2]
USDX goes up when the US dollar gains "strength" (value) when compared to other currencies.[3]

http://en.wikipedia.org/wiki/U.S._Dollar_Index

Why should the Gold price be inversely tied to the dollar?  Why should the Gold price in dollars be positively correlated to the Yen (as it has of late).  Why shouldn't the Gold price, in any currency, be more reflective of supply vs. demand for that good, on the world stage?  

If you understand and comprehend the manipulation of the Gold price, you will understand that the whole idea is to make you believe that the dollar is the dog, and that Gold is the tail.  The dollar goes up a little, and Gold goes down a lot.  Or maybe the Yen is the dog (it really is a dog!).  But if you read Greenspan's exact words, you will better understand what the real truth is;

TETT: Do you think that gold is currently a good investment?

GREENSPAN: Yes... Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can macth it.

http://www.zerohedge.com/news/2014-11-07/greenspans-stunning-admission-g...

So, I would suggest that any attempt to make you believe that Gold should only go up when the dollar goes down is in fact propaganda.  Taking the actions of a manipulated market and shouting it out as truth is propagandizing.         

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
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Posts: 5063
gold and USD

JimH-

#1) Assuming demand for gold remains unchanged, if the USD rises, the price of gold must drop.  The reverse must also be true.  (USD moves alone can drive gold prices)

#2) If demand for gold increases, and the USD remains unchanged with the other currencies, then the price of gold will rise in all currencies.  (Gold demand alone can drive gold prices if currencies don't move)

#3) If demand for gold rises, and the USD rises too, the demand for gold must rise more rapidly than the demand for the USD for gold to actually rise in USD terms.  (USD rising = headwinds for gold)

Lastly, #4) Currently, the linkage between gold and USD is particularly strong - almost exaggerated.  On Friday, USD dropped 0.3% and gold rose 2.4%.  This is not something that's open for debate - this is actually what happened.

Hope this clears up your "propaganda" issues.  You are so good at seeing propaganda, you spot it even when it doesn't exist!

 

davefairtex's picture
davefairtex
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Posts: 5063
swiss referendum

Zero Hedge has an interesting article about a note released by DB which says recent polls give the swiss gold referendum a decent chance of passing.

http://www.zerohedge.com/news/2014-11-14/gold-upside-alert-deutsche-bank-says-yes-vote-has-narrow-clear-lead-swiss-gold-refer

This would definitely be gold positive if it passes.  It would also be very interesting to see how rapidly that gold gets repatriated.

A trader friend of mine thinks that is why gold spiked higher on Friday.  I searched, but could not find a timestamp for the original posting time of the DB note.

Doug's picture
Doug
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Posts: 3125
davefairtex wrote: JimH- #1)
davefairtex wrote:

JimH-

#1) Assuming demand for gold remains unchanged, if the USD rises, the price of gold must drop.  The reverse must also be true.  (USD moves alone can drive gold prices)

#2) If demand for gold increases, and the USD remains unchanged with the other currencies, then the price of gold will rise in all currencies.  (Gold demand alone can drive gold prices if currencies don't move)

#3) If demand for gold rises, and the USD rises too, the demand for gold must rise more rapidly than the demand for the USD for gold to actually rise in USD terms.  (USD rising = headwinds for gold)

Lastly, #4) Currently, the linkage between gold and USD is particularly strong - almost exaggerated.  On Friday, USD dropped 0.3% and gold rose 2.4%.  This is not something that's open for debate - this is actually what happened.

Hope this clears up your "propaganda" issues.  You are so good at seeing propaganda, you spot it even when it doesn't exist!

The problem I've been having with this market forces thesis for a couple years is that the demand for gold from Asia has been white hot, the dollar pretty stable until recently and gold has been going steadily down until very recently.  There's something very wrong with this picture.

Doug

Mark_BC's picture
Mark_BC
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Posts: 429
Doug wrote: The problem I've
Doug wrote:

The problem I've been having with this market forces thesis for a couple years is that the demand for gold from Asia has been white hot, the dollar pretty stable until recently and gold has been going steadily down until very recently.  There's something very wrong with this picture.

Doug

Further to this, and something I should have pointed out in the discussion the other day with Dave, is that the recent plunge in PM prices, silver in particular, clearly demonstrates that the market is dysfunctional. When prices crashed, something like an entire typical month's demand for US minted coins was taken in 2 hours. The Mint had to respond by refusing all new coin orders for the rest of the year.

Dave maintains that if a market can supply real physical metal for the paper prices that are being offered, then it is a legitimate market; end of story. I personally feel that this is a bit of a semantic diversion, since if central bank vaults are being disgorged to supply that demand, then that market won't stay legit for long. Whether the market defaults the next day from lack of supply or in 2 years, it's still not legitimate mine supply matching legitimate physical demand.

Anyhoo, the recent action in the silver market disproves Dave's thesis: the paper price went down, and as a result you cannot obtain silver coins from the US Mint. This is opposite of what should happen in a functioning market: when prices crash, suddenly the world should be awash in supply, or vice versa. Of course I'm sure non-US Mint bars are still available (with much more difficulty than before the price crash, I would imagine); however, the fact that supply severely tightened when prices dropped proves that the silver market is not legitimate, and it logically follows that the gold market operates on the same principles of paper price suppression.

davefairtex's picture
davefairtex
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Posts: 5063
how markets work

Mark_BC-

the paper price went down, and as a result you cannot obtain silver coins from the US Mint. This is opposite of what should happen in a functioning market: when prices crash, suddenly the world should be awash in supply, or vice versa.

... the fact that supply severely tightened when prices dropped proves that the silver market is not legitimate...

I'm not sure what world you live in.  In my world, when prices crash, demand increases, and stuff sells out.  For instance, if they drop prices on cars, more cars get sold, until the cars run out.  (Thought experiment: if prices crashed on Ford F150 trucks to $500 per truck, would the supply of those trucks on dealer lots increase, or decrease?  Easy answer - in about a day, every F150 truck would be gone.)

So for me, the selling out of the silver coins makes complete sense to me.  The inventory of silver coins is not large, they go on sale, and they sell out quickly.  To me, the market is working perfectly.

if central bank vaults are being disgorged to supply that demand, then that market won't stay legit for long. Whether the market defaults the next day from lack of supply or in 2 years, it's still not legitimate mine supply matching legitimate physical demand.

Well first of all, there is no central bank supply of silver, so I'm not sure how that applies.  I'm guessing you are referring to gold.

But to your point - there is no rule in markets that mine supply must match "legitimate physical demand."  There is above-ground inventory too.  That acts as supply also, until the inventory runs out.  If prices stay low and demand stays strong for long enough, supply will definitely run out.

As a result, I'm really eager to monitor the supply situation for silver.  I used to think coin supply was important.  That was until the 2013 crash happened, the coins all ran out, premiums exploded, goldbugs breathlessly predicted the imminent demise of the COMEX - and then two months later, production caught up again, the coins returned to the shops, premiums dropped, and everything returned to normal.

So now I focus on the big bars.  That's because they account for a bigger chunk of the aboveground supply than coins.  I feel that as long as you can buy a big 1000 oz COMEX bar for (around) current COMEX market price from a coin shop, then COMEX is still the legitimate price for the silver.

However once that is no longer true, that's a sign that silver is moving into shortage.  And for me, that's the sign to back up the truck...

davefairtex's picture
davefairtex
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Posts: 5063
white hot gold demand?

Doug-

The problem I've been having with this market forces thesis for a couple years is that the demand for gold from Asia has been white hot, the dollar pretty stable until recently and gold has been going steadily down until very recently.  There's something very wrong with this picture.

Unfortunately, China has a much smaller purchasing power than the West.  China has about a 10T GDP, while Europe's GDP is about 18T, and the US is about 17T.  So while China may be white hot, the US and Europe is chilly cool, at least at the moment.  What's more China's M1 growth rate has been dropping like a stone, which is cooling off inflation expectations over there - and I've been noticing that Shanghai premiums haven't gone up during the gold price drops.  So China is not as white hot as it used to be.

Plus commodities have been dropping steadily since 2011.  Look at a commodity chart and you will see this.  "Rising commodity prices" is pillar #3 in Jim (2006) Sinclair's Five Golden Pillars.

You are right though, the rising dollar phenomenon is relatively new.  My guess is, it accounts for the last $200 drop in PM.  That's pillar #1.

And if the western buying is cool and China is merely warm, China isn't enough by itself to keep the market moving higher.  Back in 2011 when all three places were buying at the same time, that was an entirely different story.  Then, EU, US, China were all buying gold like mad.  And those Five Pillars were all in place.  Thus - price rose.

Does that make sense?  The gold "engine" is not firing on all cylinders - just one or two out of four.  Plus, most of the pillars are gone.

It really amazes me that goldbugs tend to focus on one fraction of the marketplace, point at that fraction and say "wow, that fraction is doing well - why isn't gold shooting the moon?"  And the obvious conclusion is always: "it's manipulation!!"  There is really no energy spent to try to really understand the global marketplace and determine in some sort of evenhanded way what the truth might be.

HughK talks about falsification as a technique to try and get to the truth - to avoid the confirmation bias most of us have.  Real traders try to look for the flaws in their own arguments to test their trade hypothesis to really make sure they are right before risking capital on a trade.  With those approaches in mind, if you see a shortage in coins, if you are an honest and hardworking analyst, you will work hard to prove your hypothesis incorrect.  To do this, you would examine all sources of silver for shortages, not just coins.  Finding other areas well supplied, an honest analyst would conclude that the silver coin shortage is just a special case - and thus not an indicator of a serious opportunity.

Have you ever heard a goldbug do this?  I haven't.

See, I want all the same things that the rest of you want.  But I do not want to engage in self-delusion along the way.  If the underpinnings of the gold bull market aren't there, I want to see that clearly.  I want to understand why, so that when those underpinnings return, I will be able to recognize it, and prepare to jump on board.

If I get stuck in "manipulation" as the explanation for everything, and in fact it was just 4 missing pillars, I will be so scared of "the Evil Fed" to jump on board the gold train once those 4 pillars return that I will be paralized and unable to act.

I think this would be most unfortunate, and it is something I want to avoid at all costs.

HughK's picture
HughK
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Posts: 760
Data and humility
davefairtex wrote:

See, I want all the same things that the rest of you want.  But I do not want to engage in self-delusion along the way.  If the underpinnings of the gold bull market aren't there, I want to see that clearly.  I want to understand why, so that when those underpinnings return, I will be able to recognize it, and prepare to jump on board.

This part of Dave's post caught my attention.  Pretty much all of us here at PP agree on quite a bit regarding the first and second E's.

That's why it's hard for me to see someone at PP accused of being a propagandist, or even a mole for the mainstream.  Dave is clearly on board with an alternative view of the economy and even with some degree of central bank manipulation.  But, when he has the gall to claim that there are other factors at work in the gold market besides manipulation then a couple people decide to claim that he is a propagandist.

I find comments here more helpful when they combine bold theories with a humble willingness to hold the theories up to data and to qualify them as the data suggests.  To claim that manipulation is the only story behind the falling gold price is just as simplistic as claiming that US meddling is the only story behind the instability in Ukraine.  I would love to see one of Dave's critics deconstruct Jim Sinclair's Five Pillars and explain why many of these no longer apply.  

We all agree that manipulation is part of the story, but to claim that other factors - including a rising USD - have little to do with the gold price is to basically claim that there are no free agents in the market, responding to and compensating for different episodes of government intervention.  There are, of course, still many free agents and many feedbacks in this incredibly complex system.  

The manipulation is there, but it is by no means total or all powerful, and there is at least a good argument that it is not the dominant dynamic in terms of current PM prices.  To make that argument in a data-driven manner is not propagandizing any more than it is making the argument that manipulation is the key factor, as long as that is data-driven as well.  But, when someone starts talking about possessing the truth, then it's easy to lose interest in their claims.

The power behind the malthusian challenge to the mainstream cornucopian narrative is, to a great extent, because we malthusians* present data.  When we start ignoring data that does not agree with our own narrative, then we slip from being the fairly reasonable French revolutionaries of 1789 and move towards the....less reasonable zealots of 1793.

There is enough agreement here that when people disagree it suffices to focus on their arguments and to treat them with respect, which includes avoiding ad hominem attacks and otherwise adhering to and applying the posting guidelines consistently.  After all, a system where individuals are above the rules, for whatever reason, is no longer bound by those rules.

In addition to being more consistent, when we all focus on one another's arguments the discussion is much richer.

Cheers,

Hugh

*Sorry for the descriptor...we need a better one, but the only other ones I can think of are just as uninspiring: collapsitarians, peak-oilers, those in the limits to growth camp.  :)  

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Peacemaker...

Hugh,  you are a good egg... a peacemaker.  I appreciate that, and I appreciate that my attacks can make some uncomfortable.

Do you recall a poster named Darbikrash?  I think you probably do.  You don't see posts from him anymore... do you recall why?  Chris banned him because he would not concede that the building 7 collapse was a controlled demolition.. and mind you this was not the case of any ordinary person like you or me arguing for the NIST version... Darbi presented himself as some kind of structural engineer or architect who routinely models these kind of things.. what we would call in the Corp. world a "subject matter expert".  Darbi wrote very, very well... he is very intelligent.  In the end, Chris decided that truth is not relative, and Darbi's voice no longer had a place in this community. 

I feel the same way about Davefairtex.. but this is not my website.  I feel that any value he adds as a technical analyst is far outweighed by the damage he does to monetary neophytes as they read his stuff and digest the hidden-in-plain-sight messages.  He is very, very smart... is clearly a subject matter expert in markets.. but he seems to have these odd blind spots.. to the point where I, and others (most recently Dryam), feel the need to question his intentions.  I can't help my desire to express this Hugh any more than you can help your impulse to police this latest "incident".

Dave did it again above... did you see it?  Of course you didn't..  because it is almost subliminal.. it is so well constructed that you didn't see it.  But I do.  What is, "it" you ask?  This;

If I get stuck in "manipulation" as the explanation for everything, and in fact it was just 4 missing pillars, I will be so scared of "the Evil Fed" to jump on board the gold train once those 4 pillars return that I will be paralized and unable to act.

How do you interpret this interjection Hugh?  I read it as follows;  You, reader, would be silly to think of the FED as an evil entity.  Right?  Dave will I am sure express his plausible deniability that, "that's not what he meant".. that it was in quotes because he was personifying a third person that is not him.. whatever.  The net of the sentence is to make the regular person reading the message (and remember, Dave knows more than almost any of us when it comes to markets) feel like they would be an idiot to take that posture.  

Look the truth is that the FED is evil.  Nobody who has a pulpit here on PP.com should EVER come on here and suggest that this is not so.  It is proven science as much as the building 7 collapse is proven science.  G. Edward Griffen starting researching the FED in order to write a book about it and ended up so changed by what he learned that he has dedicated much of his time since to waking others up;

http://www.freedomforceinternational.org/

http://www.freedomforceinternational.org/freedomcontent.cfm?fuseaction=I...

THE IRS AND THE FEDERAL RESERVE; FRATERNAL TWINS
by G. Edward Griffin 2008 January 9

Although it would seem that the Internal Revenue Service and the Federal Reserve System are unrelated, appearances can be misleading. It is true that they are separate creatures – one that collects money and one that creates money – but upon examination, we find they are fraternal twins with common parentage and instinct. They both have grown to gargantuan proportions since their birth in 1913 and have become insatiable predators, dining on the productivity of the common man. In the case of the IRS, the perpetual feast is consumed as taxes, taken directly from our earnings and savings. In the case of the Fed, it is taken indirectly as inflation, but the net effect is exactly the same.

Consider the following facts:

1. Both were enacted into law in the same year.

2. Both laws were drafted and sponsored by the same politicians clustered around the Morgan and Rockefeller banking dynasties.

3. Both were sold to the public as measures to benefit the common man and restrict the power of the super wealthy; the same people who, incidentally, created the legislation.

4. Both provide sophisticated mechanisms whereby the super wealthy can protect and expand their wealth; but these mechanisms are denied to the common man.

5. Both are essential to the expansion of government power and the establishment of control over the masses, which is the ultimate goal of the elitists who anticipate being the hidden rulers of such a system.

6. Both are protected by leaders of the two major political parties who are amply funded by these elitists and their institutions. Politicians may speak critically of the income tax and the Federal Reserve during campaigns for election but never seriously challenge them once in office. (Congressman Ron Paul is an exemplary exception to this rule.)

7. Both creatures will continue to grow until they devour every last vestige of our personal wealth and freedom – unless they are slain. They are intrinsically deadly, and our nation cannot survive in freedom unless we replace the puppets now in Congress with real Americans who will place our nation ahead of personal gain. The IRS and the Fed must be abolished.

One could write all day and night on this topic, but I will just throw this in as it pertains to the FED - they destroyed the career of this idealist - you can relate to idealists, right Hugh?;

http://www.propublica.org/article/carmen-segarras-secret-recordings-from...

"A confidential report and a fired examiner’s hidden recorder penetrate the cloistered world of Wall Street’s top regulator — and its history of deference to banks."

Look Hugh... some things are just not up for argument IMO.  Maybe the FED was not always as bad, or as evil, as they are today.  I liked Volcker.  Here's what he has to say about today's FED;

http://davidstockmanscontracorner.com/the-great-paul-volcker-speaks-slam...

Mr. Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, “Do we want prices to double every generation?”

Finally, let's talk about something that Dave does NOT talk about ... and that is GOFO.  GOFO is presently signaling the highest level of stress in the big Gold bar market that has been seen since 1999.  Why don't you hear about this from Dave?  He came up with a convoluted means to discount it many months ago, and has not talked about it since.  BUT, there are other Gold analysts out there who do think it meaningful, like this guy who worked for the Reserve Bank of Australia as a Gold analyst and studies the leasing market;

http://goldmarketmacro.wordpress.com/2014/11/07/eastern-physical-demand-...

This negative gold forward rate is a true backwardation of gold prices.  It means participants can sell physical gold now and instantaneously buy it for delivery in 2 months time at a 0.145% discount.  Not only that, but the entrepreneurial arbitrageur can also invest the proceeds from the spot sale in risk-free securities over the period.  In two months time, they will have their gold back, have banked 14.5 basis points profit, have banked the risk free security return and will have save on 2 months storage and insurance of the physical gold. 
This is why backwardation of gold is so fascinating, it just should not happen.  The arbitrageur may not be so smug if the future delivery never occurs (in trying to make 0.145% he has lost 100% of his gold), and that is the risk which backwardation effectively prices in. 
Why it is happening now is due to one of two things.  Either it means there is the sniff of panic around physical gold buyers, in so far as the gold inventory they require over the next two months may not materialise.  Or it means the demand to short the gold market has become so high that financial investors are prepared to borrow gold (to short it) at rates higher than borrowing unsecured funds such as Libor.
So in other words we have a situation where physical gold demand is rising but financial demand is weak, in fact financial demand has become so weak it’s turned into financial supply.  Which side do you think is taking more risk in this scenario – the buyers of physical gold who use their savings to accumulate gold they never intend to sell or the sellers of financial gold who use borrowed money to short gold they will one day have to buy back!

 

  

           

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Mark_BC
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Dave, let's pull up a supply
Dave, let's pull up a supply / demand chart here: http://en.wikipedia.org/wiki/File:Supply-and-demand.svg
Let's work through this thoroughly since I think we're all talking about prices / supply / demand etc. but not necessarily looking at the same page. There are two directions one could approach the phenomenon of falling silver prices from (in a legitimate market): either 1) a sudden collapse in consumer demand -- a shift in the demand curve towards the left which leads to reduced quantity sold as well as reduced price, or 2) a sudden wash of excess supply coming from somewhere -- a shift in the supply curve to the right which results in decreased price, but increased sales.
 
(As a side note, this type of analysis could be used to determine why oil prices have crashed lately -- is it because demand has tanked from a global recession, or is it because the market has been flooded with excess oil as Saudi Arabia runs full tilt in some strategic move to hurt other oil producers -- I don't know which it is, but if we could get hold of reliable oil production data the question would be answered.)
 
What did we observe the other week in silver prices? We saw decreasing prices and increasing demand. This means that it was an example of (2) above, a supply shock, not a demand shock. This is consistent with the arguments of those purporting that PM prices are manipulated down since we argue that huge paper contracts are used to flood the market with synthetic supply which drives down prices. Similarly, the demand for metal is mostly synthetic, and few market participants take physical delivery anyways, so they are able to push the prices around to wherever they want. They can manipulate it up, down, wherever they want; but since so few participants take physical delivery and since such huge volumes take place (we often see two weeks' worth of global mine production changing hands over a period of minutes) the market becomes a paper circus that has nothing to do with the long term fundamentals of supply and demand for that particular commodity. We argue that they are able to do this because of the large supply of above-ground stock of metal that is available to the CB's to provide the necessary physical metal to the PM bugs who actually do want metal.
 
The only reason these price manipulations work over periods of years is because of the high stock to flow ratios of gold and silver (moreso with gold). This would contrast with oil which has a very low stock to flow ratio, which prevents such market manipulation because shortages or gluts would quickly appear (only a few weeks of supply is present above ground for oil). This also makes analysis of the oil market a bit easier than the PM markets because of the huge stock of physical metal that is available to feed into the market when required. Now, you argue that CB's have no silver metal to supply to the market in order to support their price suppression scheme. This is an interesting point. I wouldn't be so sure. Silver used to be money and when that ended it resulted in huge stockpiles sitting around for the last century or so. The Hunt Brothers probably failed because they did not understand how much silver was available at that time to flood the market. How much is still available, I don't know. How are CB's gaining access to that metal, and where is it? I don't know. But I have a feeling that there is (or was) a large stockpile of it that has been getting used up over the last few decades in this coordinated scheme to convince people to reject PM's as money and instead use credit notes.
 
You provide an example of a car dealership slashing prices on F150's which would then stimulate increased sales. Well why would a car dealer do this? He's going to lose profit as a result. Every clearance sale I have seen for cars is a response to a lack of demand, that sales aren't high enough, and the car dealer is trying to drum up sales by reducing prices. For example, he's trying to get rid of last year's models since people prefer the new models, so he slashes prices. This is an example of scenario (1) above -- the dropping prices are a RESPONSE to DECREASING consumer demand (a shift in the demand curve to the left) -- and the car dealer shifts the supply curve to the right which he hopes will counteract the shifting demand curve and maintain quantity sold, and clear his lot of last year's models so he can bring new ones in. The other reason I don't think your Ford F150 example is very relevant is that there is no such thing as a paper F150. When you buy one, you get one. You don't buy 10 synthetic F150's and not take delivery, in some scheme to play the futures market and make a profit on fluctuating F150 prices, and then take delivery of only the blue one you actually want.
 
And to echo HughK, I think tht the disagreemens we have here are very useful and I value challenging what I hold to be true since it can only lead to a deeper and more solid understanding of how things work.
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cmartenson
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An important correction
Jim H wrote:

Hugh,  you are a good egg... a peacemaker.  I appreciate that, and I appreciate that my attacks can make some uncomfortable.

Do you recall a poster named Darbikrash?  I think you probably do.  You don't see posts from him anymore... do you recall why?  Chris banned him because he would not concede that the building 7 collapse was a controlled demolition..

I did not ban Darbikrash...his account remains as open and active as the day he started it.  I would never ban someone because I disagreed with them. Ever.  Not my style.

He chose to leave because I kept insisting that he address the topic, namely 2.25 seconds of free fall and he kept veering off into new territory every time I cornered him on some strange departure or other and then insisted we discuss the 2.25 seconds.

But let me reiterate - I have never banned anyone, ever, for disagreeing with me.  

We do ban from time to time for repeated and overt violations of our posting guidelines, but that's another matter.

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Time2help
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"Subject Matter Experts" are sometimes anything but
Jim H wrote:

Do you recall a poster named Darbikrash?  I think you probably do.  You don't see posts from him anymore... do you recall why?  Chris banned him because he would not concede that the building 7 collapse was a controlled demolition.. and mind you this was not the case of any ordinary person like you or me arguing for the NIST version... Darbi presented himself as some kind of structural engineer or architect who routinely models these kind of things.. what we would call in the Corp. world a "subject matter expert".  Darbi wrote very, very well... he is very intelligent.  In the end, Chris decided that truth is not relative, and Darbi's voice no longer had a place in this community.        

Though Darbikrash's analysis may well have seemed to be subject matter expertise, speaking as a fellow structural engineer it is my professional opinion that the technical content of his "analysis" was pretty much smoke and mirrors.  How anyone could talk about WTC 7 "pancaking" into it's own footprint with near perfect symmetry (his final post of that particular thread), that's just plain dishonest. It didn't even jive with the obviously fraudulent NIST report (which said that WTC7 collapsed due to a cascading failure resulting from a single column joint failure due to (low temperature) office fires).  "Pancaking" was supposed to be WTC 1 and 2. 

For those of you who are still "on the fence" about 9/11 and believe in keeping an open mind about things, I'd encourage you to watch:

Edit: Jim H: I finished reading your post after I submitted mine, that was my bad.  Didn't realize which side of the fence you were on until I read through...I'll make a point to avoid that in the future.

 

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Jim H
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You will understand my confusion...

Since I received the following PM from Darbi himself (or herself) on May 28 of this year;

Apparently, though, there is no room for any opinions or data that contradicts the party line, as CM has revoked my posting privileges here, effectively kicking me off the site.

Just though you'd like to know.

Hey.. it's the internet    : )

Also, remember what I said T2H, that Darbi, "presented himself" as a subject matter expert. 

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Mark_BC
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Regarding 9/11 I have to

Regarding 9/11 I have to admit that I didn't really look into it in much detail until fairly recently. I was always suspicious of it but for some reason never put the time into investigating it from a technical perspective. Time2help, I'm am mech engineer, so close enough, and it is interesting how so many professionals reject the official line. So much for it all being a whacko conspiracy theory. And NIST seems to spend as much time denying accusations and defending the official line than actually explaining the event. As the saying goes, it isn't official until it's officially denied. From a technical point of view, the more they try to explain away the events of 9/11, the more they dig themselves in a hole. They should have just shut up if they wanted to convince me.

The one comment that proves beyond a doubt that NIST is lying, or that they have completely technically incompetent "engineers" working for them, was a 9/11 report summary I read a while back (sorry, can't find the link) where they described the mechanism of failure of the towers as some catastrophic collapse where the weight and momentum of the upper floors crushed the lower floors and snowballed out of control to such an extent that the lower floors were unable to stop or even slow the falling debris from above. Well, right there, that statement violates even basic introductory physics. Any resistance (especially from something as strong as the lower floors of WTC 1 and 2) is going to slow down a falling wave of debris from above, regardless of how strong that wave is. They said this to try to defend the freefall rate of collapse. Sorry NIST, but with that one statement you have proven yourself either complicit in the cover-up, or grossly incompetent. There is no way to explain away the freefall rate of collapse, nothing.

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davefairtex
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the evil Fed

JimH-

Jim, I have to say, you are a constant source of amazement.

When I view the world through your eyes, I see a Fed that is chock-full of super-competent geniuses with unlimited power and authority who can set prices in any market to be anything they want.

From my viewpoint, the Fed is a collection of academics and bureaucrats, with limited authority, that have all received their PhDs from the same school, and the fact that they keep pushing the same button and expecting different results reveals them to be limited in imagination and captured by their own (dead end) worldview.

I think the Fed needs to have their power drastically curtailed, and we need to have an audit happen every year.  Each and every year.  And have it published for all to see.  I'd love to see all the records on the Fed gold, and all the money they have spent on everything.  It sure sounds like I'm sidestepping the whole "evil" issue.  I guess I am.  I'd just prefer to remove their power for everything except as a lender of last resort on good assets, make everything annually transparent, and prosecute the employees for any crimes that are discovered.  Demonization isn't my thing, I guess.  I just want things to change.

Now, what did I mean when I used the words "the Evil Fed" in quotes like that?

I was painting a picture with words of the standard goldbug view of a super-competent organization whose entire aim is to hose holders of gold at every turn, because the Fed views gold as the most dangerous thing ever.  The Evil Fed is the shorthand for such a mind-picture.  I think you give them way too much credit, too much power, and as a result you generate fear and paralysis in possible buyers of gold who are now worried that the all-powerful Fed will simply stuff any gold rally on their lunch break with a flick of a switch "simply because they can."

Now for me.  Am I a super-clever specialist at disinformation?  Or do I just have a worldview that differs from yours (and really, not even by all that much), and every now and then I present actual evidence that backs up my opinions.  I can see how that to some people, having someone disagree who is both intelligent and being able to present evidence might be a scary thing.

Sometimes I feel we are arguing about how many angels can dance on the head of a pin.  I say five, you say ten, and then you say I'm a servant of Satan for saying five and thus should be instantly excommunicated for my apostate views on the relatively meager view I have on power of angels.

Sheesh.

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davefairtex
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useful disagreements

MarkBC-

And to echo HughK, I think tht the disagreements we have here are very useful and I value challenging what I hold to be true since it can only lead to a deeper and more solid understanding of how things work.

A man after my own heart.  Ok, let's see what the issues are.

The only reason these price manipulations work over periods of years is because of the high stock to flow ratios of gold and silver (moreso with gold). This would contrast with oil which has a very low stock to flow ratio, which prevents such market manipulation because shortages or gluts would quickly appear (only a few weeks of supply is present above ground for oil)

I think you are right about stocks & flows.  The numbers I saw recently were the following.  Gold had 37 years of supply (at current demand rates), and oil had about 90 days of supply.  Silver - I was actually unable to locate a solid set of numbers for above-ground silver.  They were all over the map.

One source has it at 21 billion oz, or 674k tons, or about 25 years, based on total silver production throughout history (minus the silver lost over time).  This includes silverware and old coins and jewelry and other harder-to-mobilize supply sources.

Ted Butler has a estimate, counting only 1000 oz bars as silver supply, of only 1 billion oz (or about 31k tons), a little more than a year of silver stocks in this easy-to-mobilize industrial-grade format.

http://goldsilverworlds.com/investing/ted-butler-i-own-silver-because-of-coming-silver-shortage/

So silver lies in between gold and oil in terms of stocks to flows.  I totally agree that oil is an easier market to analyze since shortages in production would be pulled through to the marketplace much more rapidly than with silver or gold because of the lower stocks levels.

The other reason I don't think your Ford F150 example is very relevant is that there is no such thing as a paper F150. When you buy one, you get one. You don't buy 10 synthetic F150's and not take delivery...

Now that's a good point.  My metaphor was flawed.  I was only trying to suggest that when prices drop, demand increases, and thus its not surprising that silver coins sold out as a result of the price drop.  I didn't mean to suggest that somehow the silver dealers got together to put silver on sale in order to spur demand.

There are two directions one could approach the phenomenon of falling silver prices from (in a legitimate market): either 1) a sudden collapse in consumer demand -- a shift in the demand curve towards the left which leads to reduced quantity sold as well as reduced price, or 2) a sudden wash of excess supply coming from somewhere -- a shift in the supply curve to the right which results in decreased price, but increased sales.

I think the silver price move was primarily a drop in investment demand in the west - a lack of interest in the hedge funds wanting "exposure to silver price" as a hedge against inflation.  Is this a paper phenomenon?  Yes I think it largely is - minus the traders who buy and sell SLV.  But that doesn't make the price illegitimate, as long as stocks of silver exist and sellers exist who are willing to sell their stocks for the COMEX-quoted price.

However, the increase in physical demand at such low prices by people who really do need the stuff will inevitably cure this problem.  This doesn't mean the market is illegitimate, it just means the easily-available stocks will get drawn down until the futures market wakes up and pays attention.

Besides, who is to say that the inventory of 1000 oz bars must remain at 31k tons for the market to remain "legitimate"?  Maybe the people owning the silver inventory want to put their money to work elsewhere.

Here's another thought.  If I ran a company that needed large amounts of silver, I'd step up and buy some silver futures contracts at the current price to lock in these low prices going forward.  If I bought 5000 oz of silver, I'd have to pony up $80k, but a futures contract controlling that much silver only costs me $6k.  I could lock in silver prices 6 months, 12 months, 18 months, 24 months forward.  Heck, I could even take delivery.  As prices get cheaper, more and more companies will do this.  There is real, fundamental demand for silver futures contracts from industrial users; low prices will bring more of these guys into the market on the buy side.

I'm ok with using Butler's easily-mobilized 1000 oz silver as "above ground supply".  And as a result, those 1000 oz bars are my go-to indicator for scarcity in the silver market.  If they don't have premiums on them, I define that as "no scarcity."  If they do have premiums, then - we should really pay attention.

My goal is to avoid "the COMEX is falling" hype that happened May/June 2013 when silver coins ran out, and many imagined that COMEX was going to imminently default because coins were scarce.

However, if there is rising scarcity in the big bars, I want to know about it as soon as possible, so I can back up the truck...

 

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davefairtex
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GOFO & context

Finally, let's talk about something that Dave does NOT talk about ... and that is GOFO.  GOFO is presently signaling the highest level of stress in the big Gold bar market that has been seen since 1999.

So let's see a chart about the GOFO rates then.

So maybe Jim is right, this is the biggest deal ever!

Let's look from a slightly larger context...

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Jim H
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Long term GOFO chart

Dave, you are 180 degrees off in your analysis of what the long term chart is saying.  To me, the chart clearly says that starting after the financial crisis, we entered a period of intense Gold price suppression and physical shortage, punctuated by increasing periods of actual negative GOFO, or backwardation.  Here is some more analysis from Ellis, for those who care to learn what the chart is really telling us;

http://goldmarketmacro.wordpress.com/2014/08/07/the-importance-of-backwa...


The importance of backwardation in gold

Back in February 2009 Steve Ellis wrote in the Financial Times that gold would go into backwardation.

Insight: Gold primed to be ‘mania asset’

“The long-term story for gold, however, is a remonetisation play as investors lose faith in fiat currencies. Keep an eye on gold lease rates; a spike would be a good lead indicator that gold is about to punch higher as this would reflect a shortage of lendable bullion. Rising lease rates will cause gold to go into backwardation as holders of gold may not want to sell their gold under any circumstances.”

Fast forward to today and consistent backwardation has arrived – The following chart shows the Gold Forward Offered Rate (“GOFO”)* which has been negative 31% of the time over the last year.

GOFO 99-13

(*GOFO is the rate borrowers pay for USD loans if they post gold collateral. Otherwise they would pay Libor and not post gold collateral. Therefore GOFO is secured as far as the lender is concerned so GOFO should be LESS than Libor (ceteris paribus). In this normal situation lease rates (Libor – GOFO) should be positive by the premium lenders are placing on demanding gold collateral.   When GOFO is negative (ie true backwardation) this implies participants are lending USD for a negative return; just to receive gold as collateral.)

But why is backwardation in gold so important?

“The answer to this relies on the fact that a permanent and steep backwardation in gold prices would shake the core of everything we implicitly believe about gold prices. When I bid or offer gold in the course of managing my fund, I assume that gold is unperishable and that every ounce of gold ever mined since the beginning of time (around 150,000 tonnes or 60 times current annual production) still exists somewhere and in some form. Importantly I deduce that higher and higher spot gold prices would eventually entice that gold onto the market. But a permanent and steep backwardation in gold prices would challenge all that.”

In a nutshell a persistence of gold backwardation is evidence that:

  • gold hoarding is rife and universal;
  • participants prefer to be holding physical gold, rather than fiat money (paper money) earning interest “in the bank” together with a paper claim on future gold delivery;
  • the steeper the backwardation, the larger the shortage of gold to trade against dollars or other currencies;
  • there can come a time when there will be no gold available at any price to trade against paper currencies (the “musical chairs” moment);

 

I am having trouble turning the quote fields off -  Let's please re-read the highlighted section and think about what it means in very simple terms... about the Gold market.  

“The answer to this relies on the fact that a permanent and steep backwardation in gold prices would shake the core of everything we implicitly believe about gold prices. When I bid or offer gold in the course of managing my fund, I assume that gold is unperishable and that every ounce of gold ever mined since the beginning of time (around 150,000 tonnes or 60 times current annual production) still exists somewhere and in some form. Importantly I deduce that higher and higher spot gold prices would eventually entice that gold onto the market. But a permanent and steep backwardation in gold prices would challenge all that.”

JimH again - IF the markets were reflective of true supply vs demand (picture the crossing point of the supply and demand vs. price curves that Sandpuppy posted in the last few days)... IF the markets were pricing Gold at this natural balance point, then backwardation would NOT occur, ESPECIALLY in the unique case of Gold which has more stock to flow than any other market in existence.  If the markets were reflecting supply vs. demand, higher prices would, and should bring out the next marginal physical sellers. 

The long term chart is showing that the Gold market has been broken for a long time.. and is just getting "brokener".  I look forward to brokenest.            

 

 

 

 

 

 

 

  

cmartenson's picture
cmartenson
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Ah. There's the confusion
Jim H wrote:

Since I received the following PM from Darbi himself (or herself) on May 28 of this year;

Apparently, though, there is no room for any opinions or data that contradicts the party line, as CM has revoked my posting privileges here, effectively kicking me off the site.

Just though you'd like to know.

Hey.. it's the internet    : )

Also, remember what I said T2H, that Darbi, "presented himself" as a subject matter expert. 

There's room for legitimate confusion here.  Darb's final post was just a hostile amalgam of ad hominem attacks and we un-published that one post of his because it was just a well-stirred and frothy tirade and not constructive.  That's the sort of thing we get all the time when people's most cherished beliefs are challenged.

I assume he then assumed that his posting privileges had been permanently revoked, perhaps something he was already expecting/desiring so when his next post vanished he figured that was that an he'd been banned.

Interesting that he took the time to send around PM's to a variety of people trumpeting his 'banning'...something that would not be possible from a removed account, by the way.  

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davefairtex
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Gold & GOFO - again

So Jim.  Last I remember, you said the grand suppression campaign started in earnest in 2011.  As I recall, before 2011 "they weren't really trying."  But now, I hear you saying that it started in 2008.  (Again, if there was a suppression scheme in 2009-2011, it was literally the Lamest Suppression Scheme Ever - which calls into question your theory of just how effective the Evil Fed manipulation scheme really is).

Here's a chart of GOFO overlaid with gold since the GFC.  Can you point out to me when GOFO tells you "the suppression starts here"?  I just don't see the correlation.

To me, just looking at the series, it suggests GOFO was rising when gold peaked out, and it has fallen along with gold.

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Jim H
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I was being too flippant...

Thank you Chris.  In retrospect, I was being too flippant when I said, "Hey, it's the internet", because PP.com is definitely not representative of most places on the internet... Chris and Adam have built a very special community.. and while some may view the waxing and waning of my tolerance for having a Gold analyst who denies that official manipulation exists as reflecting my broader view of PP.com, and what it means to me... that is not the case. 

  As we approach Thanksgiving.. let me state what PP.com means to me by recollecting something that happened to me a few weeks ago;

As with many here, in the course of our public dialogue, we have private conversations.  Over the years, I have become close to several folks.  Being in these trenches together in this awakened state creates some strong bonds..  I don't think I need to tell anyone that.  During one of these sidebar conversations.. a person who I have become quite fond of made the following offer, kind of out of the blue;  If the shit ever hits the fan, and you are uncomfortable where you are there in suburban NYC... you and your family can come to my house.  Now mind you, I have never met this person face-to-face.. but we have developed a trust.  Here, on the internet.

I brought the computer over to my wife and showed her the PM.. with tears in my eyes.  Who does that?  Offers refuge, however hypothetically, to someone they have never met... over the internet?  It does happen here, and much more happens,  in this community, and I am thankful.   

       

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Montana Native
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Great conversation

This is one of the better threads I've stumbled onto in a long time. I make it a point to occasionally look at these end of the week PM commentaries, and they are greatly appreciated. One thing I can say, is that the details in this conversation are a little esoteric and they are dependent upon data. The quality of data and information is what drives narratives and the truth in a story. How many narratives in the mainstream are blatantly false and revolve around data that is massaged or manipulated?  We should all realize that 2+2=5 can happen, if that is the intended outcome.

Precious metals are certainly considered an alternative currency to many, and Greenspan's recent comments only weeks ago confirm that. I think the large purchases of gold by Russia last quarter also confirm that. Perhaps I'm a little religious about gold. Thomas Paine wrote a great essay on real money way back in the day and it always sticks with me. Digging through the Pujo committee report of 1913 and finding the very sentence where JP Morgan himself admitted that gold was money and everything else was credit still resonates in my soul. Perhaps there was a reason for the London Gold Pool. 

In all honesty, do we really believe that the Federal Reserve has all the Nation's gold accounted for and neatly stacked in a safe facility somewhere? Or is it more likely that when Volker talks historical mistakes, he speaks of today's market. When he mentioned how there should have been joint intervention to prevent a steep rise in gold, did he describe what is going on now? When Greenspan talked of lending gold to suppress the price, was that just a flippant statement? Perhaps there is no reason for Central Banks to fear alternative currencies and for these former Fed chairs to rattle off such statements. I suspect there is more to it however, and that Greenspan's recent statements on gold are to align himself better with the future. It's hard to believe that China and Russia are going to live with the petrodollar forever. Perhaps Apple is worth more wealth than the entire Russian stock market and I'm a fool....it's certainly a possibility. I tend to think Billy Joel had it down though...."Our parents never taught us what's real, iron and coal, chromium steel".

Keep these PM threads going guys!

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dryam2000
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davefairtex

davefairtex,

I'm curious.  Do you believe our debt based monetary system is fundamentally flawed, highly unstable, and in the process of failing?

 

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gillbilly
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GOFO the Gold!

It's nice to see the rivalry lives on between Jim, or "GOFO" the Gold Knight and Dave, Defender of Markets everywhere. Those new to these debates, I like to supply the visuals:

Here is Jim:

And here is Dave (I decided to put him in silver this time):

Keep up the good fight guys! smiley

A good laugh is worth its weight in gold!

davefairtex's picture
davefairtex
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Posts: 5063
our monetary system

dryam-

I'm curious.  Do you believe our debt based monetary system is fundamentally flawed, highly unstable, and in the process of failing?

Curious, eh?

Yes (but not in the way you think), yes (but only after the debt bubble pop - where we are now), and yes.

There is more nuance, but in general, this whole debt bubble pop won't end well.

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Jim H
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GOFO yourself...

Gillbilly, Thank you for abiding by the rules of my contract for use of my image.. that my sword must always be depicted as bigger than Dave's. 

To Dave:  I will answer your question as to my interpretation of the GOFO chart since the GFC tomorrow.  

Finally, here is a candid shot of Gillbilly getting ready for some verbal sparring himself;

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davefairtex
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big swords

JimH-

With a sword, you can chop up anyone within six feet!

With a keyboard, if properly used, you can change the world.  :-)

Its nice to see that everyone has managed to retain their sense of humor!

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gillbilly
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LOLOL

Nice! I thought that might be you in the chainmaille section of the costume shop. I call it my armor all. It's to go with my turtle wax. I see we used the same photographer.

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DisappearingCulture
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Posts: 38
Our monetary system

"There is more nuance, but in general, this whole debt bubble pop won't end well."

A variety of ages is likely represented those posting here. Mine is old enough to have parents who lived through the great depression and talked a lot about it to me. Then we had little welfare. Then more gentle, more moral people who were hungry knocked on my grandparents' back door, and were welcomed in for a meal and access to a bathroom.

Now I suspect desperate, violent, immoral people would come calling, and they wouldn't peacefully leave after a meal.

My mother is quite elderly; her mind is still good and she just wants to be at peace. In a conversation last year she believes The Great Depression she lived through is as bad as it can get.

I say look at Ferguson Missouri right now to see the powder keg an area or segment of society can be in the future. Multiply that times many areas, and realize these people in Ferguson may not have hunger behind a potentially explosive situation.

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Arthur2014
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analysis of the potential for permanent gold backwardation
davefairtex wrote:

Here's a chart of GOFO overlaid with gold since the GFC.  Can you point out to me when GOFO tells you "the suppression starts here"?  I just don't see the correlation. ...

 

Does anyone want to comment on or take a position on this article?

http://www.mineweb.com/mineweb/content/en/mineweb-gold-news?oid=259165&s...

Permanent gold backwardation = global meltdown ahead

An analysis of the potential for permanent gold backwardation to lead to global financial crisis and an enormous increase in the gold price.

Author: Dr Fraser Murrell
Posted: Sunday , 09 Nov 2014

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davefairtex
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paper gold volumes, which market dominates

arthur-

Secondly, it appears that movements in GOFO and the actions of the bullion banks have a significant effect on the global economy. To understand this consider the size of the gold market. Each day (on Comex alone) around 500,000 contracts are traded, there being 100 oz per contract, with each ounce valued around $1,200.  So there is around $60 billion of gold traded per day or around $15 trillion per year. I do not have the figures for all the other markets (London, Shanghai, Hong Kong, Singapore, etc), but when you add it all up, it should be obvious that the global gold market is big enough to influence (and perhaps dominate) any other market on planet earth.

First, COMEX volume for the GC contract (first 5 contracts) is about 200-300k contracts per day, so his volume estimate is off by a factor of two (see volume on stockcharts.com, $GOLD, for front month contract volume).  Second, the FOREX market ($5.3 trillion per day) is about 88 times the size of his overestimated $60 billion dollar per day paper gold market.  If this guy imagines that the trading in the paper gold market is big enough to influence and perhaps dominate any other market on planet earth, he's a confused fellow.

http://www.reuters.com/article/2013/09/05/bis-survey-volumes-idUSL6N0GZ34R20130905

FOREX is the 13,000 pound gorilla, not paper gold.

It took me about 2 minutes to figure this out.  The fact he didn't even take the trouble to check such a simple thing suggests he's a either sloppy researcher - or he is working hard to come to a particular conclusion.

I believe in premiums a lot more than I believe in the GOFO/LIBOR/GLR relationship as a measure of shortage.  If there is true scarcity of those big LBMA bars, then we should be seeing premiums paid for those bars.  We aren't, at least not that I can see.

Once we do see that, that will be huge.

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Arthur2014
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raw data and models
davefairtex wrote:

...  If this guy imagines that the trading in the paper gold market is big enough to influence and perhaps dominate any other market on planet earth, he's a confused fellow.

... The fact he didn't even take the trouble to check such a simple thing suggests he's a either sloppy researcher - or he is working hard to come to a particular conclusion.

Dear davefairtex,

thank you very much for taking the time to answer!

The world wide web largely facilitates publishing and spreading all kinds of rumors, nonsense and insufficiently researched conjectures.

I really appreciate your regular posts. From a methodological point of view they are very easy to understand for me and until now I agree with all of them. (The only exception may be the the stance towards Martin Armstrong. I just don’t know yet.)

In particular I appreciate that you look for raw data to generate your own charts.

Good science starts with raw data. One problem is that most media and journalists use already processed data. Each step of processing bears the risk of a bias by selecting particular data, discarding others, neglecting others and so on. In general we as readers of journalistic articles only get processed data being put in front of us without letting us know how these data were generated, gained and processed. I suppose that journalists working under time pressure often don’t  think about all this either.

I also think that building models is a promising practice in science in general. Whether this is a reliable method in economics I can't assess. Nassim Taleb argues that it is not possible in financial risk management treating so called fat tail risks by rare events. Taleb claims that in that field models and calculations provide us with a false feeling of certainty.

I regret that you are confronted with personal attacks.

Best regards

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Tycer
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Arthur2014 wrote: I regret
Arthur2014 wrote:

I regret that you are confronted with personal attacks.

Best regards

I don't. It keeps him on his toes. It also means that he's most likely correct and serves as a good barometer for me. Personally, when someone on the interweb launches a personal attack at me or anyone I follow, I know them not so their armchair bloviating has not the slightest effect on my life. Except of course when they can cause me to reexamine my facts, further solidifying my knowledge.

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Jim H
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When central banks don't trust each other....

The gig is up;

https://www.bullionstar.com/blog/koos-jansen/the-netherlands-has-repatri...

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davefairtex
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models & martin armstrong

arthur-

I agree with you about journalists, data, and models; few people actually understand the raw data behind the chart they view.  (Who has the time to root through all those time series and see how they interact?)

If someone makes a claim I find surprising, I always try to replicate it myself through the data to prove or disprove what they are saying.  And of course one needs to understand the limits of the data too.  US GDP is a good example, as is the BLS deflator and/or the CPI.

Regarding Martin Armstrong, I've been exploring more of his modeling - if you sign up for his site, you can read more about how he constructs his world models and its pretty interesting stuff.  I'm finding bits and pieces that are useful for me, and I can also see he agrees with Taleb (or perhaps Taleb agrees with him) about the need to explore the rare events.

Lately I have been studying his material, and ran across his manual for understanding the models he has created.  In it he describes cycles, and the importance of time in combination with price.  He also talks about capital flows, floating vs fixed currencies, and the importance of viewing asset prices through the lens of foreigners (i.e. by applying changes in currency rates) not just domestically.

There are lots of interesting concepts in there.  I'm not sure I believe in the constants he has picked, or in the precision he claims for his predictions in time, but his baseline world view and the concepts behind his model make a great deal of sense to me.

http://armstrongeconomics.com/wp-content/uploads/2012/05/manual-models.pdf

Having tried to model different markets using machine learning and a whole bunch of time series, I was able to model most of the moves in markets due to the fundamental changes, but I had a hard time duplicating the peaks (gold in 1981, silver in 2011) using just fundamental data alone.  I was missing the concept of a market phase transition.  I'm still wrestling with how to apply those.

 

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Jim H
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Models work in engineering and science, not in economics

The reason models work is that you are doing your modeling against the backdrop of a stable physical universe.  Models ALWAYS oversimplify.. and yet, if you pick the most important variables, you can often find a model that can be calibrated, in part by past data, and then be used to predict, to a reasonable extent, future outcomes.  That PV always equals (=) nRT (aka The Ideal Gas Law) is an example of our stable physical universe... as is the thermal conductivity of any particular metal alloy (in bulk).  

But, the sands are always shifting underneath us in economics.  The politics shifts, the degree of regulation and the degree of enforcement of said regulations waxes and wanes over time.  The degree and type of data manipulation changes.  People's outlooks and behavior change. 

Predicting the exhaustion rate of a particular kind of oil well is science.. the idea that you could take historical data and come up with a model that would, for instance, predict the price of Gold today, is a fools game in my opinion.  Creating a model and calling it real will only serve to fool one's self that the current Gold price is legitimate.... it is not.  I would hate to see someone come this far... to be reading this and considering that they might want to have some Gold to protect their savings, but then come to the conclusion that this market is not heading for some kind of major break ahead.  It is going to break.  I don't know what the black swan will be, or when it will be, but it will break, just like the London Gold Pool did break.       

The only way to actually know what the price for Gold is, would be to have a free market, whereby physical holders of Gold and physical buyers of Gold interact in a way that balances supply vs. demand.  We have nothing of the sort.. and meanwhile, pressures are building up more and more.. GOFO, which is one measure of pressure in the system, is hitting new highs (of negativity - see below).    

        

 

 

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DisappearingCulture
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Posts: 38
on 1,000 ounce silver bars

"If there is true scarcity of those big LBMA bars, then we should be seeing premiums paid for those bars.  We aren't, at least not that I can see."

I readily admit to being an amateur visitor here; I read some but don't know as much as most people posting here.

I do have a B.S. in Geology. I do know these big players have their own sources of silver for these 1,000 ounce "big player" bars. Thus a shortage for the silver retailers to the public, or the planchet suppliers to a mint, may be separate or at a separate time than a supply shortage for the big players.

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Modelling economics...

For instance, as you construct your model, would you remember that things changed dramatically in 1999... with the repeal of Glass Steagal?  How would one account for that in the model? 

21 November 2014

Senator Levin: Fed Enabled Banks To Elbow Way Into Commodities, Manipulate Prices

 
 

Apparently Senator Levin is not expecting many $250,000 speaking engagements from Wall Street after he leaves the Senate.

The Wall Street Banks have NO business using their subsidized banking funds and deposits to speculate in global markets for their own accounts.

This was the basic safeguard provided by Glass-Steagall for almost sixty years that was overturned in a bipartisan political effort at gettin' paid.

US Senator Carl Levin Opening Statement, Day Two

"The Federal Reserve is considering arguments that Wall Street banks provide hard-to-replace services in these areas. But the separation between banking and commerce has served markets and our economy quite well for decades. And the erosion of that barrier is clearly doing harm today.

Any discussion of these physical commodities activities must begin and end with the need to protect our economy from risk, our markets from abuse and our consumers from the effects of both.

Wall Street banks with near-zero borrowing costs, thanks to easy access to Fed-provided capital, have used that advantage to elbow their way into commodities markets.

Bad enough that this competitive advantage hurts traditional commercial businesses; worse that it opens the door to price and market manipulation and abusive trading based on nonpublic information."

http://jessescrossroadscafe.blogspot.ca/2014/11/senator-levin-fed-enable...

 

 

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davefairtex
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modeling economics

JimH-

If the machine learning algorithm was unable to "learn" the relationships for gold starting in 1999, that would be a clue that your "gold prices are manipulated all the time - starting in 1999" is accurate.

My goal is to try and see what the models can learn, and what they can't.  You think its a fool's errand, but I believe that even in failure, I learn something.  And what happens if I actually have some success?  Wouldn't that be cool?  To me, I gain knowledge either way.

This attitude of mine I call "the spirit of exploration" and I remain an explorer with my enthusiasm for the task undimmed by all the nay-sayers that give me the laundry list of reasons why its impossible.  :-)

If I didn't know better, I'd think you were scared I'd find out that there is no manipulation, and the move lower starting in 2011 was all due to deflation pressures...and so you want to dissuade me from even trying!

If I didn't know better, that is.

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Arthur2014
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models oversimplify
Jim H wrote:

Models ALWAYS oversimplify.. 

Dear Jim,

thank you for answering!

I agree completely that models must oversimplify.

It recalls me an analogy by the Argentine writer Jorge Louis Borges:

A group of cartographers gets the task to elaborate a useful detailed map of their country. They come up with a series of maps, the next always better and more detailed then the preceding / previous.

Their last map is the perfect one. It comprehends / comprises all the desired details. Unfortunately, it is completely useless, because it is on a scale 1:1. It is as large as the country itself.   ;-)

 

Best regards

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robie robinson
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OT, but too

wierd.

I'm catching up on this thread, and others, trying to ignore my imploring bovine girls, reading one of Borges' "Ficciones" and BOOM there goes Arthur2014

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Jim H
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A synchronicity for Robie...

Cool!  But as for modeling economics, correlation does not always imply causation.  Was the movement of the Yen the one and only determinant of the Gold price from July of this year to mid-Nov?  It sure would seem so (chart from Turd Ferguson);

You don't need to do a calculation on the data to know that the correlation coefficient for this dataset, for that time period, is going to be > 0.95... i.e. very, very high.  

What does this mean?  I am not sure to be honest.. it appears to mean, in the age of algos, in the age of manipulation, that somebody with great power over the markets decided that it would be best if the price of Gold did not appear to be skyrocketing from the perspective of the Japanese, who happen to be on the leading edge of all-out currency destruction with their newest hyper-QE program.  We would not want to wake up the sheeple in Japan, now would we?  From their view in the manipulated, quantum QE universe, moving near the speed of hyperinflation, the price of Gold was fixed!  To us, it weakened as the Dollar strengthened.  Free markets at work, or central bank "messaging" theatre?  I think you know what answer I pick;

        http://davidstockmanscontracorner.com/why-japans-money-printing-madness-...

  

To wit, Abenomics was supposed to send exports soaring and the trade accounts back into the black, thereby adding to GDP and household incomes. But what it has actually done has been to slash the global purchasing power of the yen by 35% since early 2013, causing Japan’s bill for imported energy, industrial materials and manufactured components and consumer goods to soar.

Accordingly, Japan’s trade accounts have remained mired in red ink, thereby defeating the fundamental “beggar-thy-neighbor” predicate of Abenomics. As shown in the second panel below, it’s trade account for the first 9 months of 2014 spewed 11 trillion yen of red ink or double its level in the year before Abenomics (2012). Annualized in dollar terms, the once and mighty export powerhouse of Japan has experienced a $200 billion swoon in its trade balance since 2010.

ABOOK Oct 2014 Japan Trade Balance

  So, for a large chunk of this year, we have had a Yen to Gold peg.  Yes, a peg.  A managed peg.  Now, interestingly, what this also meant, since the Dollar and Yen are tied through DXY and the Yen has the largest weighting against the dollar, is that, in the absence of any major moves in the other currencies in the basket, that Gold appeared to move with inverse correlation to the dollar.. in other words, as DaveF has pointed out many times, "strong" dollar means weak Gold.  Now the whole concept of strong dollar meaning weak Gold deserves another post.. and I have pulled out the DXY index for all to see in previous posts.. but that is not my main point today.. my main point is that, right now, in the age of machine manipulation and unlimited free money to back it, the markets can, and will, go where ever the masters want until they break.

They may in fact have broken the Gold market with this peg.  You can see the peg breaking and the chart gapping very recently, coincident with the onset of the highest negative GOFO rates seen since around 2000.  There is anecdotal evidence that big Gold is in short supply;

            As one refiner told me: “Over the past four weeks my cost of hedging has risen by 30 per cent. Not only that, but there is not enough liquidity in the physical market in London to settle my obligations as they come due. I have to fly gold from Zurich to London, because there just is not enough gold on offer in London. You never used to have to do that.”

  https://www.bullionstar.com/blog/koos-jansen/switzerland-net-exports-100...

But hey.. maybe I am wrong.  Maybe I am just a stubborn guy stuck on my pet manipulation theory who won't relent to the growing (Welcome Arthur 2014!) chorus of free market modelers who would have us believe, indeed, who will prove with their models,  that the current Gold price is real and valid, the result of deflationary forces.           

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