PM End of Week Market Commentary - 1/15/2016

davefairtex
By davefairtex on Sat, Jan 16, 2016 - 2:49am

On Friday, gold rose +10.30 to 1088.60 on heavy volume, while silver rose +0.09 to 13.91.  A falling dollar, oil, and US equity market encouraged PM to rally - gold acted as a safe haven.  By end of day, gold held most of its gains, while silver did not.

On the week, gold fell -15.50 [-1.40%], silver dropped -0.02 [-0.11%], GDX lost -9.88%, and GDXJ was hit for -10.52%.  Platinum was down -5.60% and palladium fell -1.33%.  Miners had a really bad week compared to all the other PM components.

While last week saw gold rocket higher off the lows, this week gold retraced, losing about 40% of the its gains but managed to find support on its 50 MA.  If gold can remain above the 50, that is a positive sign.  To move higher, gold first needs a break above the downtrend line.  If gold simply moves sideways, that will work.  If gold loses the 50, gold probably will re-test the lows at 1050.

Silver tried three times to move above its 50 MA this week, but failed each time.  There was a lot of price movement this week, but the direction of silver remained largely unchanged - silver is drifting slowly lower.  You can see the general direction by looking at the green 9 EMA line.  Silver closed the week below all 3 moving averages, which is bearish.

Miners

Last week the miners had broken out and looked relatively healthy, but this week all that came to an end.  Monday saw heavy selling to start the week, and that same general pattern continued all week long.  GDX is now right at support, and if the current trend continues, I do not expect that support to hold.  Something changed last weekend - my guess is some large player decided they didn't want to own miners any longer, and they have been liquidating all week long.  As a result the miners are now dramatically underperforming gold and if the liquidation continues, miners should break below support early next week. 

While a 10% drop in the GDX is a bit disturbing, it doesn't really capture losses in some of the individual equities.  Here's a list of miners together with the losses they suffered just this week.  Goldcorp, one of the larger mining companies, lost 17% this week alone.  If you own mining shares, this week was no fun at all.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Fields GFI 1.29% -44.62% rising rising falling rising ema9 on 2016-01-15 2016-01-15
Newmont Mining NEM -1.89% -17.55% rising falling falling falling ema9 on 2016-01-15 2016-01-15
Randgold GOLD -2.60% -20.70% falling falling falling falling ma50 on 2016-01-15 2016-01-15
Newcrest Mining NCMGY -4.69% -13.11% falling rising falling rising ema9 on 2016-01-08 2016-01-15
Agnico Eagle AEM -5.24% -10.45% falling rising falling rising ema9 on 2016-01-14 2016-01-15
Barrick Gold ABX -6.18% -30.21% falling rising falling rising ema9 on 2016-01-14 2016-01-15
Anglogold Ashanti AU -7.22% -33.54% falling falling falling falling ema9 on 2016-01-14 2016-01-15
Franco-Nevada FNV -7.62% -15.32% falling falling falling falling ema9 on 2016-01-12 2016-01-15
Pan American PAAS -12.43% -42.72% falling falling falling falling ema9 on 2016-01-11 2016-01-15
Silver Wheaton SLW -12.69% -50.97% falling falling falling falling ema9 on 2016-01-11 2016-01-15
First Majestic AG -14.15% -53.81% falling falling falling falling ma50 on 2016-01-08 2016-01-15
Pretium Gold PVG -14.63% -36.41% falling falling falling falling ema9 on 2016-01-11 2016-01-15
Fortuna Silver FSM -14.68% -55.11% falling falling falling rising ema9 on 2016-01-12 2016-01-15
Hecla Mining HL -14.74% -44.71% falling falling falling falling ema9 on 2016-01-08 2016-01-15
Silver Standard SSRI -15.55% -30.82% falling falling falling falling ema9 on 2016-01-11 2016-01-15
New Gold NGD -15.97% -53.05% falling falling falling falling ema9 on 2016-01-11 2016-01-15
Goldcorp GG -17.23% -53.57% falling falling falling falling ema9 on 2016-01-11 2016-01-15
Coeur Mining CDE -18.10% -65.64% falling falling falling falling ema9 on 2015-12-28 2016-01-15
Iamgold IAG -19.64% -55.15% falling falling falling falling ma50 on 2016-01-14 2016-01-15
Kinross Gold KGC -20.86% -57.71% falling falling falling falling ema9 on 2016-01-08 2016-01-15
Yamana Gold AUY -22.50% -63.01% falling falling falling falling ema9 on 2016-01-11 2016-01-15
Royal Gold RGLD -24.50% -60.25% falling falling falling falling ema9 on 2016-01-11 2016-01-15
Eldorado Gold EGO -29.85% -68.07% falling falling falling falling ema9 on 2016-01-11 2016-01-15

The USD

This week, the buck managed to climb back above its 50 MA and 9 EMA, and moved slowly higher, rising +0.43 to 99.02.  This doesn't invalidate the swing high from last week, but as of right now the dollar appears to be moving up for another shot at 100.

US Equities/SPX

SPX continued falling this week, dropping -41.70 [-2.17%] to 1880.33, making a new "lower low" on Friday when it broke below the lows set back in August 2015.  The lower low is a big deal, since it showed conclusively that there were not enough buyers interested in buying the dip to stop the market from dropping below that old low.  Because of the new lower low, once SPX manages to bounce, traders will be looking to sell the rally rather than buy the dip.

Sometimes it is instructive to see how the different sectors perform when the market moves lower.   The "defensive" sectors did well this week - utilities, staples, and healthcare.  Financials, homebuilders and basic materials led things lower.  (We ignore the miners - but you can see just how badly they did by comparison).

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 0.70% -9.20% rising falling falling falling ema9 on 2016-01-14 2016-01-15
Cons Staples XLP -1.47% -0.58% falling falling falling falling ma200 on 2016-01-15 2016-01-15
Healthcare XLV -1.69% -2.92% falling falling falling falling ma50 on 2016-01-04 2016-01-15
Technology XLK -1.87% -1.23% falling falling falling falling ma200 on 2016-01-04 2016-01-15
Industrials XLI -2.15% -10.11% falling falling falling falling ema9 on 2015-12-31 2016-01-15
REIT RWR -2.28% -10.13% falling falling falling falling ma200 on 2016-01-12 2016-01-15
Cons Discretionary XLY -2.87% 4.33% falling falling falling falling ma200 on 2016-01-04 2016-01-15
Energy XLE -3.03% -24.90% falling falling falling falling ema9 on 2015-12-28 2016-01-15
Financials XLF -3.08% -7.35% falling falling falling falling ema9 on 2015-12-31 2016-01-15
Homebuilders XHB -4.28% -9.91% falling falling falling falling ema9 on 2015-12-31 2016-01-15
Materials XLB -4.52% -18.48% falling falling falling falling ema9 on 2015-12-31 2016-01-15
Telecom XTL -5.12% -10.12% falling falling falling falling ema9 on 2015-12-31 2016-01-15
Gold Miners GDX -9.85% -39.06% falling falling falling falling ema9 on 2016-01-11 2016-01-15

Gold in Other Currencies

Gold retreated in most currencies - only the Ruble saw big gains in gold.  That's because the poor Ruble was crushed by lower oil prices.  Ongoing moral-of-the-story: gold protects you from severe currency problems, even when it is in an overall downtrend.

Gold in XDR fell -4.90, a relatively modest move.

Rates & Commodities

Bonds (TLT) shot higher again this week, rising +1.94% due to the move lower in equities.  While bonds haven't moved as dramatically as I would have expected given the drop in equities, they are doing all right.  Yield on the 30 year treasury is down to 2.81%.

JNK had a terrible week, falling -2.24%, making a new low on Friday that dates back to 2012.  JNK is continuing to signal risk off.   That IEF:JNK trade is still working out well; IEF (10 year treasury) continues to rise, while JNK continues falling.

The CRB (commodity index) had another bad week, dropping -5.13% and setting yet another new low.  Compared to the overall commodity index, gold is behaving quite well.  Commodities have fallen almost 50% since mid-2014, led lower by oil.

WTIC had yet another bad week, falling -2.20 [-6.69%] to 30.68...and that actually includes a $1 positive bump from the futures contract roll that happened on Friday.  Front-month contract closed at 29.67.  Oil has dropped 72% since mid-2014.  That's an almost unbelievable drop in price for the master resource.  Seriously, did anyone imagine in 2014 that oil would be in the high 20s 18 months later?  The impact of this move has yet to be really felt in the energy industry.

As a basis of comparison, gold is down 19.5% over the same period.  If gold had fallen the same amount as oil, it would be trading right now at $378/oz.

Physical Supply Indicators

* Shanghai premiums for the Au9999 contract were +9.06 vs COMEX.

* The GLD ETF tonnage on hand rose +8.33 tons, with 657.92 tons remaining.

* Gold is not in backwardation, with the spread in the first two contracts now at +0.00.

* ETF Premium/Discount to NAV; gold closing of 1089.70 and silver 13.90.

 PHYS 8.94 -0.69% to NAV [down]
 PSLV 5.33 -0.26% to NAV [down]
 CEF 10.21 -10.96% to NAV [down]

ETF premiums fell, but not by much.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no particular premiums for gold and a 1% premium for silver.

* HAA big bar premiums are higher for gold [2.27% for 100 oz bars in NYC], higher for silver [3.88% for 1000 oz bars in NYC].  Silver Eagle premiums fell [20.27% in NYC].

Futures Positioning

COT report covers trading up through January 12.

During the coverage period, gold commercials increased short positions by +18.9k, selling -5.4k longs.  Managed Money covered -12.8k short, and bought just +3.2k longs.  This shows that most of gold's move higher last week was about short covering rather than new long buying, which is not ideal if you are hoping for higher gold prices.

Silver saw the commercials drop -2k longs, while Managed Money picked up 1.3k longs.  There was not much change in silver.

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

The miners were really socked this week, while silver and gold managed to avoid big losses.  Gold still remains above both 9 EMA and 50 MA and is the sole bright spot in the PM space.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver COMEX.Silver -0.13% -18.72% falling falling falling falling ema9 on 2016-01-14 2016-01-15
Gold COMEX.Gold -0.75% -13.84% rising falling falling rising ema9 on 2016-01-15 2016-01-15
Platinum COMEX.Platinum -5.54% -34.36% falling falling falling falling ema9 on 2016-01-06 2016-01-15
Senior Miners GDX -9.85% -39.06% falling falling falling falling ema9 on 2016-01-11 2016-01-15
Junior Miners GDXJ -10.52% -37.19% falling falling falling falling ema9 on 2016-01-11 2016-01-15
Silver Miners SIL -12.83% -46.47% falling falling falling falling ema9 on 2016-01-08 2016-01-15

Gold Manipulation Report

There were no meaningful "after-hours" spikes this week in silver or gold.

Summary

Gold retreated this week.  Falling commodity and oil prices dragged pretty much everything lower; gold resisted much of the drop probably due in part to its safe haven component.

The gold/silver ratio fell -1.03 to 78.26, retreating somewhat from its high last week.  GDX:$GOLD plunged dramatically this week, and now looks quite bearish.  Another week like this and the ratio sets a new low.   GDXJ:GDX fell, but only modestly; it looks somewhat bearish.  Ratios look bearish at this point.

COT remains bullish for gold, and somewhat bullish for silver.  The lack of new buying from Managed Money is not a great sign for continued higher gold prices at COMEX.

Gold and silver big-bar physical shortage indicators are higher; in the west, ETF premiums fell, GLD tonnage rose, and gold is at the edge of being in backwardation at COMEX.  Big bar premiums for gold at HAA rose.  In Shanghai, premiums rose to $9 vs COMEX.  Rising premiums suggest gold big-bar supply may be getting a bit tighter.

The big change for me this week was a new round of substantial weakness in the mining shares.  I believe that big money somewhere is liquidating, and until that process is complete, miners will continue to underperform, and perhaps even make new lows.

Commodities continue their relentless downward move, led lower by oil.  The only thing keeping gold afloat is its safe haven component, which gets triggered every time equities take another leap downhill.

My sense: until that confidence in government and central banking starts to ebb, gold will most likely continue to roughly track the commodity complex, which in this current market, isn't a good thing if you are long gold.

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16 Comments

davefairtex's picture
davefairtex
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more pain for oil: Iran comes online

Sanctions were formally lifted on Iran this weekend - Iran is talking about dropping an additional 500k bbl/day onto the market (seemingly with a certain amount of glee) - and so WTIC crude promptly dropped $1.50 when it opened Monday morning in Asia.  Front month oil is at $28.68, and at least according to my computer model the trend remains down.

Brent oil is doing worse than WTIC, trading at a discount of a buck-fifty to WTIC which puts it somewhere around $27.  It makes me want to buy a big tank and store oil, except that one ounce of gold buys literally 6 tons of oil...it would have to be an awfully big tank...a in-ground swimming pool (25,000 gallons) full of oil = $16,000 = 14 oz gold.  Maybe I'll just stick with gold.

http://www.bloomberg.com/news/articles/2016-01-17/brent-oil-extends-decline-below-28-as-iran-set-to-worsen-glut

Market had to be anticipating this outcome - this could potentially drive a near-term capitulation for oil, we need to watch prices really closely to see if this is the case.  News is really horrid, which as we know is a potentially positive sign.  I'm not expecting a bounce after today's selling spree, but I'm alert to the possibility.

For those who aren't familiar with the jargon, capitulation is the process by which the very last bit of bullish sentiment is wrung from a market by some really terrible news - and this ends up marking the low.  Once the last bull is washed out of his position by this final bit of horrible news, there is nobody left to sell.  Price will then start to recover, even though the news remains awful.

If you are looking to go long, capitulation is the very best possible signal you could see. 

KennethPollinger's picture
KennethPollinger
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What's the best way to short Germany?

Or, are there many ways?  Thanks  Ken

After watching Mike Maloney and Harry Dent's video, Dent seems quite reasonable about shorting Germany. I posted that link under Why this Next Crisis will be Worse than 2008--the hour version.

davefairtex's picture
davefairtex
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oil hanging on

So oil seems to be hanging on relatively well - it gapped down at the open, fell for a while, but has now rebounded to print (so far) a reasonable-looking doji candle.  If we close around these levels (at least above 30), thats the first half of a bullish reversal signal.

The Iran news was horrid for oil supply fundamentals, and if price didn't collapse, that's a positive sign.  If the market doesn't drop on what should be bad news, that says a low might be close at hand: "no more sellers left = market rises."

We'd need a confirmation tomorrow of a close above (say) 31 for confirmation.

This is chart magic at its best.  Ignore news - its a lagging indicator that often just serves to confuse.  Only use it to see what the market "should" have done, and if it doesn't do that, pay attention.  Stuff happens in the world that you and I know nothing about.  Things behind the scenes - politicians, rich people, sovereign wealth funds, governments, other groups buy and sell based on secret information we aren't privy to.  Perhaps the government of Iran is closing out their shorts today, ringing the cash register with glee.  Maybe well-connected politicans are buying.  Think the princes of Saudi Arabia don't know what the plan is?  I'm sure they're active in the market.

So watch the close tonight in oil, and see if we get a confirmation tomorrow.  It hasn't happened yet, but as of right now, its definitely a possibility.

Eannao's picture
Eannao
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Prediciting Oil's Decline

Hi Dave,

further to your comment "did anyone imagine in 2014 that oil would be in the high 20s 18 months later?", I'm currently reading Harry Dent's 'The Demographic Cliff', written in mid-to-late 2013. In it, he predicted a drop in Oil to $25. His theory is that there is a 30-year commodity cycle which peaked 2008-2010 and therefore we will see falling commodities until approximately 2025. He believes that Gold was the last commodity to peak (2011) and will continue to fall, ultimately back to $250 (the level at which the 'bubble' began). 

Any thoughts on this theory?

 

 

KennethPollinger's picture
KennethPollinger
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More on Quigley and Dent

See this:



"The powers of financial capitalism had a far-reaching aim, nothing less than to create a world system of financial control…able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled…by the central banks of the world acting in secret agreements…Each central bank, in the hands of men like Montagu Norman of the Bank of England (and) Benjamin Strong of the New York Federal Reserve…sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world. In each country the power of the central bank rested largely on its control of credit and money supply." Carroll Quigley, Tragedy and Hope, page 324

 

As for Dent, I posted info on a video of his and Mike Maloney today--excellent stuff.

 

Ken

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KugsCheese
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KennethPollinger wrote: Or,
KennethPollinger wrote:

Or, are there many ways?  Thanks  Ken

After watching Mike Maloney and Harry Dent's video, Dent seems quite reasonable about shorting Germany. I posted that link under Why this Next Crisis will be Worse than 2008--the hour version.

FX trading is dangerous if you don't know what you are doing.   You could follow Dave's advice to monitor fund flows and invest in those government bonds levering it up or do a barbell put/call strategy betting big on DAX crash.   But isn't gold a good way to short Germany and the rest with minimal risk? 

davefairtex's picture
davefairtex
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oil today: cautiously bullish

March oil closed at 29.98 yesterday and (more or less) printed its doji, which is a reversal bar.  Today march oil has climbed to slightly above yesterday's high of 30.90.  If we close around these levels, then oil will have printed a swing low which, taken alongside the Iran news which should have been wildly bearish but instead appears to be turning into a "sell the news" (well, cover short actually) event, the picture suggests oil could rally more substantially from here.

How far it might go, I have no idea - perhaps $40 or so - but if you're short oil and we see a close today above 31, I'd cover.   Likewise if you are short a shale driler, the snap-back rally could be quite dramatic.

I also believe a move in oil will help equities, so if you're short equities, an oil rally is probably not what you want to see.

As usual, it all depends on how we close.

This is short term stuff.  Longer term, equity trend is down.  But the snap-back rallies during downtrends can be pretty sharp.  They also fade pretty quickly too, generally speaking.

davefairtex's picture
davefairtex
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dent and deflation

Eannao-

Dent is a cycle guy for sure, and his argument for commodity super cycles to drive prices of overall commodities are pretty compelling.  He's missing two pieces as I see it:

1) peak resources have the potential to disrupt the commodity cycle.  all the other commodity cycles have taken place during increasing discoveries - "earth has infinite riches", and it effectively behaved that way back when population was a lot smaller.  this is the first commodity cycle where resource discoveries are doing quite poorly.  especially for oil I believe this to be the case.

2) according to Armstrong, there is also a government cycle.  peak confidence in government, once it is reached will drive money away from government debt and into everywhere else.  gold should benefit, so should equities and possibly real estate in some areas too from capital flows, not because of gold's utility as an inflation hedge.

So while I believe in Dent's commodity super cycle (I'd be worried if I owned a lead, or copper mine), for gold and oil I'm just not nearly as sanguine.  Oil wells don't last as long as copper mines, and the decline rates for shale are especially steep.  What was a 30 year cycle for conventional commodities may turn out to be a 4 year cycle for shale oil.  And the overlapping government confidence cycle will also come in to play, and I'm not sure Dent is on board with that.

The demographics piece is awfully interesting though.  How will declining demographics affect things?  Is Japan's lost two decades an impact from demographics?  Or a debt-bubble-pop?  I haven't looked closely enough, so I don't know.  I certainly could be convinced.

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Arthur Robey
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Alchemy

They will probably trot out the Widom/ Larsen theory after the fact saying
"SURPRISE!  We was only kidding. "
The elements weren't created in supernovae after all.
We had it all wrong. Silly us! "
"The alchemists were right all along "

 

https://www.slideshare.net/mobile/lewisglarsen/lattice-energy-llc-lenrs-...

Of cause alchemy produces a lot of heat.

Eannao's picture
Eannao
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Duplicate

.

Eannao's picture
Eannao
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Posts: 168
Predictive Utility of Cycles

Dave, 

cycles certainly seem to be useful, but as you describe, things are rarely that simple; Cycles overlap and unprecedented events can occur, which skew the outcomes. e.g. Peak Resources or QE 1-3. 

Demographic cycles seem to be a particularly useful indicator when it comes to Real Estate, because unlike most other goods, Real Estate is permanent. Thus people dying are automatic sellers. Dent subtracts "dyers from buyers" to predict demand. He's got lots of good info on demographics in the book. I'll have to read-up on Armstrong's Government cycle. 

Thanks for your input. E.

davefairtex's picture
davefairtex
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miners crushed: -4.58%

While gold hasn't moved much, miners are just getting crushed today.  With gold down just $4, and silver rallying +0.19, GDX and GDXJ have both lost -4.58%.  Miners are just being smashed.  I have no idea why - other than this just being a continuation from last week's miner sell-a-thon that started on Monday.

The strange thing is, silver miners are also getting crushed.  SSRI down -10.45%, SLW -3.77%, HL -9.88%, PAAS -7.10%, AG -9.16%.  The single-day losses in silver miners are pretty horrific - with silver up 1.37%!

It makes little sense, except massive liquidation by some big player out there who feels the need to raise cash fast.  It reminds me of 2008 - when SLW was beaten down to $3/share because of all the forced liquidation.

 

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cmartenson
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Miners smashed....
davefairtex wrote:

While gold hasn't moved much, miners are just getting crushed today.  With gold down just $4, and silver rallying +0.19, GDX and GDXJ have both lost -4.58%.  Miners are just being smashed.  I have no idea why - other than this just being a continuation from last week's miner sell-a-thon that started on Monday.

The strange thing is, silver miners are also getting crushed.  SSRI down -10.45%, SLW -3.77%, HL -9.88%, PAAS -7.10%, AG -9.16%.  The single-day losses in silver miners are pretty horrific - with silver up 1.37%!

It makes little sense, except massive liquidation by some big player out there who feels the need to raise cash fast.  It reminds me of 2008 - when SLW was beaten down to $3/share because of all the forced liquidation.

Uh oh.

Try to act surprised when later on, perhaps tonight at 1:28 a.m., there's a large bid-stack crushing dump of paper PMs.

This is how these operators operate.  They accumulate large positions in the related instruments (shares, options and ETFs) and then crush the paper price of the physical.

Wash, rinse, repeat.

This sort of manipulation has been happening for a long time....back when I was trading paper silver and gold (2005-2008) I would never dream of doing so without having the miners open and tracked on my other screen.

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thc0655
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I'm watching for that and ready to pounce

Dave wrote:

It makes little sense, except massive liquidation by some big player out there who feels the need to raise cash fast.  It reminds me of 2008 - when SLW was beaten down to $3/share because of all the forced liquidation.

Chris wrote:

Try to act surprised when later on, perhaps tonight at 1:28 a.m., there's a large bid-stack crushing dump of paper PMs.

This is how these operators operate.  They accumulate large positions in the related instruments (shares, options and ETFs) and then crush the paper price of the physical.

For over a year, I've been building up a stack of mass-produced, worthless pieces of paper with pictures on them to trade for silver exactly when the above referenced dynamic hits.  I'm hoping if I strike quickly (within 24-48 hours) I can capture the dramatic drop in the spot price before all the dealers raise their premiums to compensate for the drop in spot. I've done it before, but this looks to be the last big chance before the approaching Darkness descends completely and all the rules and expectations blow up, making decision-making extremely difficult.  I'm looking for silver eagles at $16.25 or less.

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

davefairtex's picture
davefairtex
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manipulation setup?

I'm pretty sure this is not a manipulation setup.

SIL, the silver miner ETF, is down 22% since the start of the year.  Silver at COMEX is actually up 2.2% over that same period.  This isn't some sort of game, somebody is heaving the miners wholesale right off the lifeboat - and it feels like it is not because they want to, its because they have to.

Again, it feels the same as 2008.  Silver miner charts all look horrible - just no bids at all - while silver-the-metal chart is starting to actually look modestly constructive.  I know COMEX silver has been batted around recently (and so a 40 cent pounding wouldn't be "abnormal"), but...my computer is long silver at this point.  That's another hint for me.

Again, check ratio charts SIL:SLV and GDX:GLD.  They show it much more clearly than the miner charts themselves.  Something pretty dramatic changed last monday, and now there is just panic selling in the miners.

Cornelius999's picture
Cornelius999
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A Governments Kicker?

Dave, have a look at " A Year of Sovereign Defaults? by Carmel Reinhart on yesterday's Daily Digest 1/18. Is this Armstrong's  government's cycles also about to kick in?

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