PM Daily Market Commentary – 1/13/2014

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  • Tue, Jan 14, 2014 - 06:24am

    #1

    davefairtex

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    PM Daily Market Commentary – 1/13/2014

Gold closed up +3.80 to 1252.30 on moderate volume, silver closed up +0.24 to 20.40 also on moderate volume.  The gold/silver ratio dropped -0.53 to 61.40.  Gold traded sideways with an upward bias, hitting a new cycle high of 1255.30 in early asia trading.  Silver eventually overtook gold, scoring its new high during the afternoon in NY.

Both gold & silver moved above their respective 50 day MAs, but not with any real power.  The big number for the next PM breakthrough is 20.50 for silver and 1260-65 for gold.  Any break above those levels should cause one of those astonishingly violent short covering rallies – triggered by a resistance level being broken.  To the downside, these violent moves are seen by goldbugs as clear evidence of evil banker manipulation.  To the upside, the same sort of violent moves are…well I don't know what they think about them, because they don't say anything at all.  To me its just stop-hunting, and it happens in both directions, in order to make a buck for the bankers.

The dollar retreated a bit, closing down -0.15 [-0.19%] to 80.60.  The dollar tried rallying before the open in NY but failed, closing below its 50 day MA.

GDX broke out today, up +2.91% on moderately heavy volume, moving right through its 50 day moving average and closing at the highs for the day.  GDXJ was up even bigger, +5.50% on truly massive volume – more than three times normal – breaking above its 50 MA and its consolidation area and also closing at the high.  This move above the 50 MA with such power is a good sign, especially in the face of the SPX dropping -1.26% on the same day.

All the ratios I monitor are bullish – GDX:$GOLD, GDXJ:GDX, $gold:$silver.

Money appears to be rotating out of the "stuff that went up last year" into the "stuff that went down last year."

But we need to see gold move above 1260-65 for the medium term downtrend to be over, because that will break the pattern of "lower highs" that traders judge as one important sign of a downtrend.

  • Tue, Jan 14, 2014 - 11:54am

    #2
    Hrunner

    Hrunner

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    Schizophrenia

Dave,

Nice write-up.

However, you sound a bit schizophrenic.

 "these violent moves are seen by goldbugs as clear evidence of evil banker manipulation"

and then shortly later you say:

"To me, it's just stop-hunting, and it happens in both direction, in order to make a buck for the big bankers"

Soooooooo… I am saying it is manipulation by bankers and you are saying it is manipulation "to make a buck for the big bankers"

But I am the unhinged, "goldbug", and you are the calm, rational analyst.  Okay, got it.

Let me restate my position for clarity, and you are free to express your opinion about my argument and mental soundness.

I believe the gold market and the silver market has a heavy overlay of banker manipulation by commercial entities that A) have the ability to create naked paper futures in unlimited amounts, unbacked by any physical commodity, an activity that is fraudulent and makes a mockery of a true commodity market.  B) work in concert with the directional wishes of the Federal government that willfully allows the fraudulent and bank-profitable activity, free of meaningful criminal enforcement by the DOJ, SEC and CFTC as long as it serves their purpose of manipulating the overall economy, in the exact same manner that the Federal government and their delegates like the Federal Reserve openly manipulate the bond market, the stock market, the mortgage and housing market, the labor market, and all markets in which the federal government can invade with regulatory "oversight" to achieve their utopian and personal goals.

 

The majority of market participants, such as myself, do not have the ability to create naked paper futures, thus providing a huge unfair advantage and destroying the concept of a free and fair market that seeks to set correct prices.

I believe that there can be a coincident amount of market activity alongside the fraudulent banking activity by non-banking entities behaving as if the market was free and fair, and using things like technical analysis to make guesses i.e. investments about which way the market will go.

I have never stated that the manipulation is in one direction and that manipulation is used in both directions, first and foremost as a thermostatic mechanism to keep PM prices in a manageable range where the federal government wants them. to ensure that there is A) no panic in the domestic economy, and B) no competition for the USD, which would detract from the federal propaganda that the USD is safe and sound, that bond rates should be low, and that the government is fiscally sound with a sound balance sheet, and C) to avoid the pressure to return to a sound money system such as a gold-backed currency since this would enforce fiscal discipline on a government that clearly enjoys the power of printing 'funny money' to buy favors and keep politicians in office, to run utopian social programs and to project power around the world.

And that there is no reason to change the current world petro-dollar system, which greatly benefits the United States in that the U.S. can do things like export inflation and have a measure of control over ex-U.S. countries.

 

I believe that markets should fundamentally reflect fundamentals. I.e. a relatively scarce and commercially important element such as silver should be expensive and a relatively common substance such as sand should be cheap.

I believe that fundamental analysis of natural resources such as energy and the amount silver and gold available to human populations relative to needs, including the massive amount of fiat currency created world-wide, destroying the function of the way money is supposed to function, would by necessity set the prices of precious metals multiples higher.

I believe that manipulation of markets in opposition to the direction that markets would naturally move in alignment with fundamental forces, compared with the cheating and stealing currently going on in our markets, has very bad outcomes since one of the key benefits of free markets is that they constantly regulate human activity to stay in line with physical reality.

I believe that aligning human activity with physical reality is the “right” way to live, and supported by faith systems such as Christianity, because failure to do so leads to chaos, starvation and death.

Is there any point which I have left out that you need more clarity on or would like to raise?
H

  • Tue, Jan 14, 2014 - 01:36pm

    #3

    KennethPollinger

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    Another SRSrocco Report on SILVER

 

 
 
 
 
 
 

SRSrocco Report

 

INSTITUTIONAL BUYING: The Coming Silver Game Changer

Posted: 13 Jan 2014 10:38 PM PST

The key to investing in silver is getting in before the big gains are made.  Even though the price of silver is up substantially in the past decade, it has only kept in par with the rise of the cost of energy.

In 2004 the price of a barrel of Brent crude was $38 and silver was $6.67.  Today the price of silver is $20.50 and Brent crude trading at an average $110 for the past month.  Basically, the price of both have tripled in the past decade:

Brent Crude = $38 X (3) = $114

Silver = $6.67 X (3) = $20.01

The market price of silver is keeping pace with the percentage increase in the price of oil.  This seems to be how the market is currently pricing silver.. same with copper.  The price of copper was $1.25 lb in 2004 and in 2013 it averaged $3.30 lb.

Copper = $1.25 lb X (3)= $3.75

Of course there are many additional factors that go into pricing a commodity, however we can see that the price of energy is good indicator in finding a base guideline.

This should give the silver investor some reassurance that the average price of silver will not fall much in percentage terms below its present level.  I say average because short-term movements in price can be highly volatile.  A perfect example of this is the price of Brent Crude:

Brent Crude Monthly Chart

Brent crude had a big price spike to $132 in July 2008 and then a huge decline to $40 in Dec… just five months later.  Although the short-term fluctuations in price have been quite volatile, the average trend has been steadily higher.

Analysts who are forecasting a deflationary collapse in the price of oil, fail to understand the market today needs a much higher price than it did just 3-5 years ago.  If the price of U.S. West Texas Intermediate oil were to fall below $70-80 and remain at that level… well that means you can kiss goodbye the supposed “Shale Oil Revolution.”

Martin Armstrong recently wrote a blog entry titled, “Dollar Bears May Get Slaughtered”in which he wrote the following comments:

It has been American technology that has also changed the game in energy.The dollar bears just refuse to believe anything has changed. The American oil boom is real and nothing is more self-evident that the sheer fact that 15 major European refineries have been driven out of business in the past 5 years because the US no longer is importing oil from Europe.

Currently, domestic drillers are starting to even threaten change the whole dynamics of energy on the West Coast eliminating the producers in the Middle East and South America. The cheap oil coming out of the Rocky Mountains, has seen output surge by 31% since 2011.

This bullish trend for the dollar that is on the horizon may be sparked by the political trends, but it is far more fundamental. It is reflected in all commodities from gold to wheat.

Armstrong touts “American Invention” for the recent great boom in domestic oil production.  That’s total rubbish.  Hydraulic fracking was invented more than half of a century ago.

According to Wikipedia:

The first experimental use of hydraulic fracturing was in 1947, and the first commercially successful applications were in 1949. George P. Mitchell is considered by some the modern “father of fracking” because he successfully applied it to the Barnett Shale in the 1990s.

Horizontal drilling and Hydraulic fracking have been around for decades.  The technology is old as dirt.  The only reason why we are producing a great deal more oil in the U.S. presently is due to the HIGHER PRICE… not the technology.

I would like to take this time to kindly remind the reader that:

TECHNOLOGY COSTS A LOT OF FIAT CURRENCY

Who on earth would spend $80-$90 a barrel on advanced oil drilling technology if the market was only paying $50-$70??  Maybe Chesapeake, as they are still losing their shirts producing natural gas at $4.

Armstrong goes on further to say that this new energy revolution in the U.S. will be bullish for the Dollar, thus bad news for the Dollar Bears.  Armstrong believes in this market strategy because he has fallen victim to the shale energy propaganda.

While shale energy in the states has bought some time for the U.S. Dollar… it won’t last long.

Putting the Comex Silver Inventories Into Perspective

Silver investors today have this notion that the build of inventories at the Comex to be a negative or bearish indicator for the price going forward.  This may seem plausible at first glance, but when we look over the longer term, inventory builds or declines tend to have little impact on the price.

The chart below is a 5 year chart of total silver inventories at the Comex:

Total Comex Silver Warehouse Stock chart NEW

If we look at the chart we can see a build of 79 million oz from the low set in May, 2011.  However, if we consider the net build since 2009, it has only been 40 million oz.

While the decline in total Comex silver inventories bottomed at the same time the price of silver peaked (May 2011), looking at past data, we find no real correlation between price and warehouse stocks.

This next chart shows the Comex Silver Inventories from 1993-2005.  Inventories declined from 270 million oz in 1993 to 50 million oz by 1999.

Comex Silver Inventories 1993-2005

In seven years the Comex silver inventories declined 220 million oz (81%).  So what was the impact on the price?

1993 Comex = 270 million oz / Average Silver price = $4.97

1999 Comex = 50 million oz / Average Silver price = $5.22

After the Comex lost 81% of its silver inventories, the net change in the price of silver was a whopping $0.25 or 5%.

The very next chart provides additional proof that warehouse stock movements have no bearing on the price of silver.

2011-2012 Comex Silver ZeroHedge

First, in Sept. 2011, the price of silver fell an amazing 27% with no apparent build of inventories.  Second, from Jan-Mar 2012, Comex silver warehouse stocks increased 15 million oz while the price of silver rose from $28 to $38.

Lastly, the future value of silver will be determined by the size of institutional and retail investor demand and not by warehouse stock levels at the Comex.

Gosh… What About Silver Industrial Demand & Price?

Another concern silver investors have is a fall of industrial demand.  While silver is an industrial metal, its price appreciation over the past decade had more to do with rising energy costs & investment demand rather than industrial consumption.

The chart below shows the 7-year trend of industrial silver consumption:

Silver Price vs Industrial Consumption 1

In 2007, silver industrial consumption was 486 metric tons (mt) while the price averaged $13.38.  Then in 2011, industrial consumption increased a paltry 2 mt as the price jumped 162% to $35.12.

If we look across the chart (except for 2009), annual silver industrial consumption ranged from 470-490 mt with a linear trend of 475 mt for the overall period.

So, if industrial demand was basically flat over the past 7 years, why did the price of silver move up so much?  Simple (as I have stated time and time again)… it was due to investment demand.

Global Silver Investment 2007-2012

Global silver investment demand increased from a measly 4o million oz in 2007 to over 250 million oz in 2010.  Thus, it had a dramatic impact on the price of silver.

Silver investors who want to know where the price of silver is headed in the future need to be concerned more with investment demand rather than industrial consumption.

INSTITUTIONAL BUYING:  The Silver Game Changer

The sector that will have the largest impact on future silver investment demand will be institutional buying.  According to Rick Rule of Sprott Asset Management, we may be witnessing the beginning stages of what could be a big move of institutional investors in the physical precious metal market.

Rick Rule Interviewed on King World News, stated there has been big money circling the natural resource sector and now it looks like a portion is finally making its way into the market.  Recently, Sprott Asset Management won two very large mandates.

1) $100 million from Chinese Zijin mining to partnership with Sprott Asset Management with another commitment of $300-$400 million for future investment.

2) Sprott to co-manage $750 million South Korean private equity fund.

Rick also believes the precious metals offer a much better investment potential for institutions because gold and silver are presently undervalued compared to its overvalued competition — U.S. Treasuries and Long Sovereign Bonds.

Furthermore, Rick speculated on how big money could impact the silver market (paraphrasing):

If $2 billion went into the silver futures market and called for delivery, the relatively low inventory in warehouse stocks could take these markets to a cash basis and really drive the price higher.

There is very little participation on the long side while there is a great deal on the short side   So, it wouldn’t take much to give the shorts a truly religious experience.

Finally, Rick went on to say that Sprott Asset Management believes there will be increased institutional sovereign participation in the physical and certificated physical precious metal markets.   Certificated physical funds are those such as the Sprott PSLV which guarantees the investor an exchange of shares for physical silver metal.

The writing is on the wall.  The Fed & Western Central Banks are propping up the world financial markets by pumping in huge amounts of liquidity.  This policy has put into question the long-term viability of the Treasury & Bond markets.

Even though the East is participating in the Grand Paper Liquidity Scheme, they are forced to do so because the Dollar is still the global reserve currency.  However, as confidence in the Treasury & Bond markets begin to wane, we are going to see more institutions and retail investors rotate out of paper and into physical assets.

This is clearly shown by the huge increase of physical silver demand by India in 2013:

Indian Silver Imports 2007 - 2013

Due to the government regulating the flow of gold into the country in 2013, Indian investors switched to purchasing silver which drove imports to a record high.  Indian silver imports are forecasted to reach 5,400 metric tons (mt) in 2013 up from 1,900 mt in 2012.

If we consider the 2,457 mt build of Comex silver inventories since 2011, it averages about 1,000 mt increase per year.  It wouldn’t take much in the way of institutional buying to absorb that extra 1,000 mt.

In conclusion, I have to get a laugh at the brokerage houses who continue to put out the typical supply and demand forecasts for silver as the world financial system heads closer towards a systematic collapse.

Retail investors today are worried that the paper price of silver could fall even lower in 2014.  While this may be true, how many Americans have been throwing their hard-earned fiat currency into 401K’s for the past 20-30 years?  Who cares where the price of silver trades in the next few years if the best fundamental strategy is for long-term investing.

I’d rather lose a few bucks if the price of silver fell in the short-term rather than watch hundreds of thousands of Dollars evaporate in a 401K when the greatest paper Ponzi scheme in history implodes.

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  • Tue, Jan 14, 2014 - 04:01pm

    #5

    Jim H

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    Good morning (US) Dave, HRunner, and Kenneth

First off, I want to comment on something that SRS Rocco brought up in the Silver piece that Kenneth brought into the conversation…. I mentioned this once before in a post here at PP.com, but I think it bears mentioning again.  First, the reference from SRS Rocco; 

Armstrong goes on further to say that this new energy revolution in the U.S. will be bullish for the Dollar, thus bad news for the Dollar Bears.  Armstrong believes in this market strategy because he has fallen victim to the shale energy propaganda.

While shale energy in the states has bought some time for the U.S. Dollar… it won’t last long.

And this is correct… the boom won't last long.  You don't need me to tell you this, because in one little corner of the market, the free market is actually alive and well, giving us meaningful information in the price of one particular equity (oil trust);  SDT

SDT sports a Dividend of 25% !!!!!  The market has brought this about because of the rapid decline in revenues thrown off by these wells, vs. the original projections by which the trust units were sold. The market is saying that even at a 25% dividend rate today, it's not clear that you will get back the capital from your original investment before these wells go defunct.  Here is a sniglet that illustrates the point, quantitatively, from a commentary on SDT found on seekingalpha.com;

SDT owns a share of the proceeds from the sale of oil and gas from 37 "PDP" wells that were brought online between Q4 2010 and Q1 2011 and 124 "PUD" wells that SandRidge was obligated to develop after the initial sale of trust units. SandRidge completed production of the PUD wells in Q3 2013 and all are now online.

Simply put, the performance of SDT's wells has been terrible. Total production reached a peak of 185 mbbl in Q3 2011, but has dropped sharply to 102 mbbl in the most recent quarter. Making matters worse, this nosedive occurred while SandRidge was adding wells; now that new well development has ceased, total production has nowhere to go but further down. The decline in performance has been so substantial and widespread that I wonder whether the wells are simply a junk asset.

link:  http://seekingalpha.com/article/1890371-sandridge-mississippian-trust-i-a-forecast-of-future-distributions?source=yahoo

So my simple point is that the shale oil boom is a short term phenomenon, and the market is actually signaling this if you know how to put your ear to the pavement in the right place.

Moving on to HRunner's commentary, we simply see things economic and monetary in very much the same light and I appreciate his voice here.  I do think that the drain of finite, limited, and scarce physical Gold stores, which has resulted from the prosecution of Gold and Silver paper price suppression, will come to an end as the stores run out.  I believe the most important job for us here in the Gold and Silver group is to try to identify the signals indicating that the end is near, since this should mean a bottom in price, and an ultimate reversion to a more physical, supply vs. demand market.

One thing that struck me yesterday was a piece I found by a Gold commentator that is thought by many of us, "Goldbugs" to speak for TPTB… or the status quo, or however you want to characterize the system as it stands today, Comex and all.  That commentator is Bron Suchecki, of the Perth Mint.  Here is the piece;

http://goldchat.blogspot.com/2014/01/coin-shortages-and-rationing-are-in-our.html

The gist of this piece is simply this;  When coin shortages appear, and they might appear soon.. don't worry.. it's not signaling a Gold shortage, just a coin blank and casting capacity shortage.   What I see here is the initiation of a new propaganda campaign by the Gold cartel to try to distract the sheeple, and keep them calm in the face of impending Gold supply shortages.  

Finally, I want to mention that I am a bit suprised that Dave didn't bring up the big news in the Gold mining industry yesterday in more detail;  GoldCorp (GG) making an offer to buy junior miner Osisko.  Dave Kranzler, a Gold commentator and PM fund mgr. who happens to be a whip smart University of Chicago MBA with expertise in forensic accounting, had this to say;

      http://truthingold.blogspot.com/2014/01/goldcorp-offers-to-buy-osisko-mining.html

Goldcorp knows where the price of gold is headed and this why they are buying Osisko now.  They also probably know that the window of opportunity to buy 30 million ounces of gold in the ground at this price is quickly closing.  In other words, this deal marks the turn in the massive gold and mining stock sell-off of the last two-plus years.  While I expect Goldcorp to sweeten its offer, don't get caught up in the details of this transaction and miss the big picture:  the bottom is in and gold is back on track to resume the upward trajectory it was on in 2011.

Keep your eye on the ball.. things are starting to get very, very interesting.  

 

     

 

 

 

  • Tue, Jan 14, 2014 - 04:32pm

    #4

    davefairtex

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    crickets!!

Hrunner-

Well, I can see why you have this view of me, since you only look at what I say taken out of context.  I'd think I was crazy too if I just read what you quoted.

You also imagine that I was somehow pointing the "goldbug finger" at you.  Well, I can't help that.  I didn't write this at or for you.  I'm not quite sure why you would think I would do such a thing!

But if you've ever read mainstream goldbug news, you would know that there is often a big hullabaloo made whenever gold goes down and long stops get triggered.  This is held out as clear proof that "the bankers are trying to keep the price of gold down."  When gold goes up, and short stops are triggered, I just hear crickets from those same sources.  No NANEX millisecond charts (minus Chris, whom I don't count as "mainstream goldbug news"), no "long side goldbug manipulation" accusations – its just crickets.  Same market action, just with the chart upside down.

The majority of market participants, such as myself, do not have the ability to create naked paper futures, thus providing a huge unfair advantage and destroying the concept of a free and fair market that seeks to set correct prices.

Really.  I daresay that's simply because you're misinformed.  If you want to become more empowered, you can always open up a standard futures trading account, and you too will have this magical power.  I have it, this Ultimate Power in the Galaxy to open a short position in many, many commodities – I don't feel it is hugely unfair or anything – but then again we're not seeing things the same way so I'm not surprised.

You do realize this is the way futures are designed to work.  Speculators take positions on which they do not intend to take delivery, which helps provide price discovery and liquidity.

That's not to say I don't have issues with how the market currently works.  On many, many occasions I've said that position sizing is critical for proper price discovery.  So the issue I have is not "naked shorting", it is  one of position sizing.  I feel you're ranting against the wrong thing.  But again, we differ on these things, so I'm not surprised.

I believe that markets should fundamentally reflect fundamentals. I.e. a relatively scarce and commercially important element such as silver should be expensive and a relatively common substance such as sand should be cheap.

And this is the key point.  Its the single biggest reason why people lose money in the markets.  They expect the markets to move according to their understanding of the fundamentals.  Unfortunately, the market isn't comprised of Hrunners.  It has all different sorts of participants, each with their own understanding of the fundamentals, each motivated by their own reasons.

Although I daresay the market will most likely agree with your assessment with the relative valuation on silver vs sand.

I can't emphasize enough how often I had bad trades when I tried focusing on "fundamentals" (i.e. I stubbornly focused on my Dave-centric view of How Things Should Be) rather than on what the market was actually doing.

This often counter-intuitive behavior is standard in all markets everywhere.  They behave oddly, from the standpoint of common sense.  Why on earth would a great earnings report cause a company's stock to go down.  It's clearly manipulation!  Either that, or everyone who wanted to buy already had, and the market baked the good earnings into the cake already.

A fantastic real time example: I said to my friend that the best time to sell Dollar/Baht was on the day the big protest in Bangkok was due to start.  That's the point of maximum fear – so sell the event.  Should Baht have risen on the first day of the Bangkok city shutdown?  What are the fundamentals there?  A protest shutting down the city would certainly seem to be bad news, which should lead to the Baht selling off even more.  But how on earth could I figure out it would rise?  And – isn't that just manipulation by the Thai Central Bank? 

Not so much.  Many people experienced in markets would have made the same suggestion.

People imagine that markets should be rational (meaning, "markets should do exactly what I think they should do"), and when they don't do what people expect, those same people feel the need to place the blame everywhere but upon themselves and their poor understanding of how markets really function.  "Money printing means gold should be infinitely valuable."  And the implication is, "this trading thing should be easy."

Well, its not.  And its not because there is a conspiracy of bankers trying to keep the price of gold down.  Again, if this were the case, gold would not have risen from 2001-2011 with nary a down year.  Keystone Cops Conspiracy – least successful conspiracy ever – alleged by the goldbugs all during that move up.

But does anyone talk about that?  Again – crickets.

 

  • Tue, Jan 14, 2014 - 04:48pm

    #6

    davefairtex

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    GG, ANV

Jim-

Thanks for pointing out GG's buy, I didn't see it!  I was focused on some other things.  But I did wonder why Goldcorp took a price hit on a day when the other miners did well.  The industry has done a bad job in acqusitions over the past years and the market appears to be not so happy with the GG buy – but this time could be an exception if gold moves back up to the 1500 level.  Buys now could seem like a work of genius.

And the seeking alpha article lays out the numbers, and suggests this isn't a particularly rich premium for a good property that has a very low AISC:
http://seekingalpha.com/article/1942511-should-goldcorp-buy-out-osisko-mining?source=yahoo

Today I saw a trading halt on one of the stocks I own, ANV.  Its being bought out by China Gold Stone Mining, but for $7.50, a substantial premium over yesterday's closing price of $4.30.  Can't say I know much about the acquiring company – its private, in Hong Kong, and was incorporated 3 years ago.  More gold moving from west to east?  Who knows.

But in general, this could be the start of something very interesting.  Once the acquisitions start – and they do seem to have started – the speculative frenzy it ignites may well squeeze the living crap out of the mining share shorts, especially in the juniors.

Likely thats the reason behind the massive move & volume in GDXJ yesterday.

And the rise in mining shares likely puts pressure on acquiring companies to strike now before the rally makes the shares of the target company more expensive.

Its a nifty virtuous cycle, and we may get to see it play out if we're lucky.

 

  • Tue, Jan 14, 2014 - 06:49pm

    #7

    davefairtex

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    ANV buyout offer – possible scam?

Curiouser and curiouser.  ANV trading halt ended, +12% on the day currently – but is it a real offer?

FWIW: I'm out.

http://finance.yahoo.com/news/allied-nevada-responds-china-gold-175311272.html

Allied Nevada received a letter from China Gold Stone yesterday which included such a proposal (the "Proposal"), however, for a number of reasons, the Company seriously questions the credibility of the Proposal and advises shareholders to review announcements from China Gold Stone with caution. The Company identified the following concerns with China Gold Stone's announcement and the Proposal:

How's that for an example of possible manipulation?  Announce a fake buyout from a Chinese company (everyone knows the Chinese will pay crazy amounts for gold), stock skyrockets on the news, and anyone buying calls a few weeks prior gets rich.

  • Tue, Jan 14, 2014 - 08:47pm

    #8

    HughK

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    Talk of a gold smash

Hi Dave, Jim, Hrunner and all,

Here are two predictions of a fall in gold prices in the near-term.

According to this recent KWN podcast interview, William Kaye believes that the bullion banks (and the Central Banks) are looking for one more big gold smash in the first two quarters of 2014, down to some level between $1150/oz and $1050/oz in order to increase their current net long position.  Note that on the KWN blog these comments have been edited out with ellipses (…) but you can hear Kaye's view on this in the audio interview.  Now Kaye, like most of us here, is a goldbug, and this is not the type of prediction you typically hear at KWN

Also, Jeffrey Currie Goldman Sachs' head of commodities research, is calling for a fall in gold prices in 2014 similar to Kayes' projection, down to about $1050/oz.  I don't take anything from Goldman Sachs at face value, but they did forecast a drop in the gold price a short time before the last big smash last summer, and then, if I'm not mistaken, they bought up a bunch of PM securities during the smash.  While that seemed to be dishonest media manipulation, it served them well, and their red flag did come just before the big smash im PM last June/July.

So, what I'm wondering is, if you guys see any reports on a short-term fall in gold prices.  For the record, Kaye sees much higher gold prices in the medium term (he says 12-18 months) and I also believe that in the medium to long term there is a very high likelihood of much higher real gold prices.  But, after having watched the PM market for the last three years, a short-term smash in the gold price wouldn't surprise me.  

Any ideas?

Cheers,

Hugh

 

  • Wed, Jan 15, 2014 - 12:29pm

    #9
    Hrunner

    Hrunner

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    Apples and Oranges

Dave,

Good thoughtful response re the irrationality of markets.  Since I admittedly lean to the fundamental side of things, you touched a nerve when you described the anger at markets behaving irrationally.

I suppose a fair modification is that free and fair markets can certainly behave irrationally i.e. out of sync TEMPORARILY (yes, I know markets can behave irrationally longer than I can remain solvent), but it is only a temporary phenomenon.  It cannot last for "very long".

Remind me where I can buy Enron shares, WorldComm shares, or a really valuable pet rock?  All those were all rockin and rollin in Mr. Market with very rational explanations for their prices for quite a while.

Maybe I should give you a little more insight into my gold view.  If I am ruthlessly honest, yes, I would like to make money i.e. profit from my gold and silver purchases.  So perhaps that "greed" may account for some fraction of my anger.

But know this- I now own gold and silver because I am a husband and a scared father of three beautiful children.  I did not own an ounce of gold except for my wedding ring before 2007.  The financial collapse started my personal journey of investigation and seeking an answer that gnawing feeling that something is seriously wrong in the world.  Deeper problems existed than just the garden variety graft and corruption that I became aware of as "background" noise in a society that (I thought) was mostly overall free and fair.

Which led me to sites such as this.  Thankfully. 

I now own gold as a life preserver to try to get my family to the other side of what is shaping up to be a very ugly transition to a world that will come to its day of reckoning with the fundamentals.   A very ugly transition.

The anger I feel now about the behavior of markets is that they are all a manipulated fabrication of a fascist government system that is A) misleading people with old school, garden variety "media propaganda", i.e. Bernanke, Obama running around telling people everything is fine, don't worry about raising the debt ceiling another $2 trillion, don't worry about doubling the national debt and B) "numbers propaganda" i.e. 'gee, the stock market is up, and gold is down, the unemployment rate is decreasing, so everything must be okay'.

Rising gold is supposed to be a signaling mechanism, among other interpretations, that bad inflation is coming, and financial collapse is imminent.  Depriving the world of that 'canary in a coal mine' signal is akin to burning the life rafts on a sinking ship.  In other words, it is immoral and corrupt.

I would be so happy if we could return to a sane world with honorable government officials, serving in a constitutional government, where I and my fellow citizens are free to create, work, make money based on our abilities and level of effort, save the fruits of labor free from confiscation by the government by direct punitive taxation and by indirect theft in the form of inflation which is a design feature of an ever-expanding debt-backed currency created by the fascist coalition of bankers and government "leaders'.

I leave it to you to tell me if I am a "goldbug" or not.

As far as your point about me creating naked paper- surely you don't believe what you are writing. 

I understand well that it may be true that there is widespread underwriting of unbacked contracts to investors such as myself for relatively small futures amounts, that still doesn't make it right and of a high integrity.  I don't agree with doing something that is wrong in small amounts or large amounts.  A thing that is wrong is wrong.

Commodities futures should never be offered without actual physical material backing it, or the clear backing of by, for example, an acre of planted corn or a piece of property containing proven mineral and ore reserves backing. 

I think you will acknowledge that clearly the futures offered gold and silver markets, do not have any semblance of a reality connection to actual metal and mineable metal.

To test your mental experiment: What if I had a propaganda mission of my own and wanted to send gold higher to warn people of the coming collapse?  And perhaps I just have a lot of gold already and am very greedy that I want prices to be higher to make my stash worth multiples more.

If I had the dollars to back a buy on margin of a sufficient number of futures for my little plan, do you think that I could bid  up say, 2,000 gold contracts, day after day, say in 20 milliseconds 'melt ups' every night for a month?  Or two months?  Do you have any idea how high the price of gold would be in short time, as I cleared the ask stack, hour after after hour, night after night?  Would the JPMs of the world push back with 2,000 contract dumps of their own?  Possibly.  And I would double my melt ups to counter.  Ad infinitum.

Do you think for a New York minute that our vaunted federal government would let me do that?

Of course not.  This was tried already, as I'm sure you well know, in a different variation by the Hunt brothers, though not the same path I described above, the net result was a very high spike in silver prices, that the government very promptly stepped in and squashed by forcing an unwind of their position.

But when 2,000 contracts get dumped in the dark of night by some unknown entity, in a completely inefficient and nonsensical way, resulting in a price smash in face of a steadily rising PM price, the response of our same vaunted government was …..

Crickets!

So, as far as fundamentals go-

We have had 5 years of the most anemic "recovery" in the history of recoveries, with the lowest labor participation rate in 36 years, with household income contracting and debt burdens of governments and private entities increasing, and the most massive global currency printing in the history of mankind, led of course by the trillions of dollars fabricated by the Federal Reserve, and the price of a scare industrial metal which relies on $100 barrel oil to dig out of the ground in increasing poor grades of ore and is being consumed at the rate of a billion ounces per year is going down for two years.

And from Dave,

Crickets!

Enjoy the rest of your week,

H

 

  • Wed, Jan 15, 2014 - 03:19pm

    #10

    davefairtex

    Status Member (Offline)

    Joined: Sep 03 2008

    Posts: 2138

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    you can’t steal my crickets

Hrunner-

The anger I feel now about the behavior of markets is that they are all a manipulated fabrication of a fascist government system… [etc, etc, etttttc]

[snip]

I would be so happy if we could return to a sane world with honorable government officials, serving in a constitutional government, where I and my fellow citizens are free to create, work, make money based on our abilities and level of effort, save the fruits of labor free from confiscation by the government by direct punitive taxation

Yes, we mostly agree on what's wrong, and how the folks in charge are focused on maintaining the status quo at all costs.  And I sympathise with your feelings on all of it.

However, here is where I think you go wrong:

Rising gold is supposed to be a signaling mechanism, among other interpretations, that bad inflation is coming, and financial collapse is imminent.  Depriving the world of that 'canary in a coal mine' signal is akin to burning the life rafts on a sinking ship.  In other words, it is immoral and corrupt.

This whole "supposed to be" thing is where I think you go off the rails.  You write this as if this is some natural law somewhere.  It's not.  Rising gold isn't a signal of anything more than an increasing interest in having exposure to gold in all its various incarnations – futures, GLD, PHYS, coins, bars, miners, etc.  And the market is comprised of people – lots of them – each with their own viewpoint, and the sum total of all participants are what determines if there is increasing interest or not.

And then you goes a step further when you assume that a falling gold price, in the face of what you see to be (basically) the end of Western Civ, is prima facie evidence of government control.  And then you get angry about that alleged government control!

Such ego!  You do realize that it could just be that most of the rest of the western world that has money to manage doesn't see things the same way you do?  And that they are the marginal gold buyers at the moment?

And I daresay, if most of the western world felt the same way we did, likely we wouldn't be engaged in all the silliness that is going on today.

As far as your point about me creating naked paper- surely you don't believe what you are writing.

Surely I do.  And…stop calling me Shirley.  Ha.

There's nothing wrong with a naked paper short.  Or a naked paper long.  That's the essence of speculation.  And allowing speculation provides liquidity and price discovery.  If the only buyers of wheat contracts were companies that bake bread, and the only sellers of wheat contracts were farmers that grew wheat or had wheat in a silo, there would be zero liquidity, and the spreads would be massively wide.  The market simply wouldn't work – it wouldn't serve either the purpose of price discovery, or of providing liquidity with a low bid/ask spread to the people who need to hedge.

This state of affairs would be an improvement to you?

Again, position limits are important.  But there is nothing wrong with naked shorts or longs in commodity trading.  In fact, I'll make a stronger statement: they're necessary for the markets to function as designed.

But when 2,000 contracts get dumped in the dark of night by some unknown entity, in a completely inefficient and nonsensical way, resulting in a price smash in face of a steadily rising PM price, the response of our same vaunted government was …..

Eh, that whole "dark of night" thing again.  Its the light of day in Asia, if I recall.  Or Europe.  And Shanghai has a few gold traders, if I recall correctly.  And so does London.  Right?

I've seen the vast majority of "smashes" – even in asia – hammer prices further down when in a downtrend, and then when the market is ready to turn, those same "smash" events turn into a "buy-at-a-discount" events that end up being trend turning points once the price gets cheap enough.

Again, "that's how markets work."

As for this bit – it feels like you just wanted to use my favorite word, "crickets":

We have had 5 years of the most anemic "recovery" in the history of recoveries, with the lowest labor participation rate in 36 years, with household income contracting and debt burdens of governments and private entities increasing, and the most massive global currency printing in the history of mankind, led of course by the trillions of dollars fabricated by the Federal Reserve, and the price of a scare industrial metal which relies on $100 barrel oil to dig out of the ground in increasing poor grades of ore and is being consumed at the rate of a billion ounces per year is going down for two years.

And from Dave,

Crickets!

So let's see, where do I begin?

More credit creation occurred in 1 year of bubble-era borrowing than in all 5 years of Fed money printing.  And that credit creation didn't sit at the Fed as Excess Reserves, either.  No credit creation = no inflation = no higher gold price, at least from what I can tell anyway.  Every goldbug I know focuses on the Fed, and not so much on how much willing borrowers did to bring us here.  They seem to be a bunch of people with broken models of the world – cargo cultists, to use a CHS phrase.  At least in my opinion.

Household income contracting: deflationary.  Anemic recovery: deflationary.  $100 oil: deflationary – just like a rate increase is deflationary.  I'll add one more – defaults & credit contraction: deflationary.  And deflation is NOT good for gold in a non gold-backed currency, regardless of what the sellers of gold would have you believe.  Evidence says otherwise.  Again, more cargo-cult market models.

[Note: "Cargo Cult" means, in this case, a model of how things work that is either directly contrary to the evidence, or simply ignoring bits of evidence that don't fit the model]

And last point: there are 37 years of above-ground supply of gold.  Poor ore grades will take a while to make itself felt in the supply/demand equation.  [Less so with silver – much less so.  And that could be an interesting outcome.]

The western marginal buyer has to return for gold to continue its move up.  And everyone will hail the end of "the grand suppression scheme" – just like the suppression scheme that failed during the 11 years of the gold bull market.

As to whether or not you're a goldbug – I can't answer that.  But if you can't see the symmetry in intraday market activity when the chart behavior looks identical to a – more neutral observer – well perhaps you have a name for that.  I think that people who don't see the symmetry I do either aren't watching, or they don't know what to look for, or their semi-religious inclinations blind them to the obvious.

So again – I believe the same things about the decline that you do.  Its just my model for how the market works that we differ on.  That, and my extensive exploration into the data that has convinced me the story is not as simple as "Fed Money Printing will inexorably lead to a hyperinflationary crash that will send gold to $50k/ounce."

This year, if John Williams is to be believed.

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