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PM Daily Market Commentary – 11/12/2014

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  • Thu, Nov 13, 2014 - 06:05am

    #1

    davefairtex

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    PM Daily Market Commentary – 11/12/2014

Gold dropped -1.20 to 1161.80 on heavy volume; silver fell -0.03 to 15.65 on moderate volume.  PM traded in a relatively tight trading range all day long, with gold and silver moving very little and both printing a doji – I interpret this as a sign of relative strength, given the dollar rally today.

The USD closed up +0.29 to 87.90 – erasing its losses from yesterday and then some.  The Euro continues looking weak, as does the Yen and the Pound.  A few days ago I thought the other currencies were setting up for a rally, but after the past few days – now I'm less certain.  The Euro could go either way, but the Pound and the Yen are both looking quite weak.

Mining shares did not like the dollar rally; as soon as the buck started moving higher, miners sold off relatively hard and stayed down for most of the day.  Still, in the last minutes of the trading session, buyers emerged and pushed the mining ETFs right back to even – GDX closed up +0.11% on moderate volume, while GDXJ dropped -0.51% on moderate volume also.  GDX closed above its EMA-9, while GDXJ closed right on it.

When traders buy the dip into the close in the teeth of a dollar rally, that feels like a bullish outcome to me.

SPX dropped -1.43 closing at 2038.25.  Equities sold off a bit, but the dip buyers showed up as usual pushing the market back up to almost even by end of day.  VIX rallied, then fell, closing up only +0.10 to 13.02.  The SPX has had only a few down days over the last 20 trading sessions; the strength has been quite steady, and anyone hoping to short this market needs to wait for some indication of weakness prior to jumping in.  So far – no weakness at all.

TLT dropped -0.08%, continuing to chop sideways.  JNK closed down -0.17%; it is also in a holding pattern.

The commodity index fell -0.33%; the "commodity rally" seems to be two steps forward, one step back at this point.  Oil isn't helping; WTIC dropped -0.63 to 76.90, and Brent dropped -1.27 to 81.12, making a new low in the process.  Oil can't seem to rally to save its life.  Both oil contracts remain below their EMA-9, as has been the case for most of the last 4 months.

Commodities look iffy, oil looks just plain bad, gold and silver have yet to rise above their EMA-9.  Still, miners look positive, and I'm going with the story that "miners lead gold".  We'll see how that ends up soon enough, I think.  But it would be really helpful if the dollar cooperated…

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  • Thu, Nov 13, 2014 - 08:52am

    #2

    davefairtex

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    Trader Dan Channels Jim Sinclair to Deconstruct Manipulation

In a recent post on his blog, Trader Dan Norcini (formerly a commentator at King World News) deconstructs the standard King World News manipulation explanation using analysis from Jim Sinclair to do so – although truth be told, it was a 2006 version of Mr Sinclair.  Still, I found Dan's analysis compelling.

Some tidbits from his article: http://traderdannorcini.blogspot.com/2014/11/another-eureka-moment-for-gold-bugs.html

Here is a series of questions that none of the gold price suppression scheme advocates will deal with honestly? Why is the Dollar no longer falling against nearly every single currency in the world? Why is the price of nearly every single commodity falling? Why is the TIPs Spread falling? Why is the Velocity of Money falling? Why are the Central Banks desperately trying to fight off Deflationary pressures and longing for their target of 2% inflation and failing to meet it? Why can anyone expect gold to be moving higher in a deflationary environment in which the price of most commodities, especially energy prices, continue to fall?

Keep in mind that none other than Jim Sinclair had written quite elegantly many years earlier about what he correctly termed the FIVE PILLARS of a BULL MARKET in Gold.

Among those are two key pillars and I quote:
1.) RISING COMMODITY PRICES
2.) A FALLING US DOLLAR

Jim noted that these were present during the great bull market of the late 1970's. Guess what? they were also present during the bull phase of gold which lasted from 2001- 2012 ( it began faltering in 2011).

Ok Dan, let's go find out more about these five pillars.  A little digging reveals the following picture:

http://3.bp.blogspot.com/_m5i6pLhlNWU/TH5xQPqutTI/AAAAAAAAC9I/-cXgZNVssn8/s1600/Five+Golden+Pillars.jpg

  1. Top in the USD
  2. Trust in US Paper assets declining
  3. Bullish Commodity Markets
  4. US Budget Deficit, Current Account Deficit, Trade deficit firmly in place
  5. Top in the US Treasury/Long Bond

Ok, so where are we on those five pillars?  In my analysis, I will use "weekly" charts and the MA 200, MA 50, and EMA-9 to give us a non-emotional perspective on the longer term trends of the various pillars:

  1. Top in USD: 100% FAIL, total uptrend (price above MA 200, MA 50, EMA-9)
  2. Trust in US Paper Assets Declining: 100% FAIL, SPX total uptrend (price above MA 200, MA 50, EMA-9)
  3. Bullish Commodities: 100% FAIL, total downtrend (price below MA 200, MA 50, EMA-9)
  4. US Budget Deficit, Current Acct Deficit, Trade Deficit: 30% FAIL – US budget deficit declining (was 1.5 trillion, now a run-rate of about 600 billion per year)
  5. US Treasury top: 100% FAIL – total uptrend (price above MA 200, MA 50, EMA-9)

Four of the five pillars just don't exist – items 1, 2, 3 and 5 are about as non-supportive as they could possibly be.  Only the trade and current account deficits show any problems at all.

Rather than searching out a scapegoat and constantly blaming Mr Fed-The-Scapegoat for every ill we suffer, it seems like a more productive approach might be to perform a dispassionate analysis on the market, so we don't let that "desire to be right" lead us astray.

My sense is, the "gold is manipulated all the time" crowd are so desperate to be right about their gold trade, they forget about the clear, steady logic that got them into gold in the first place.  It wasn't money printing, or Fed policy – it was those really simple five pillars.

At some point in the future, these pillars will be in place again.  When they do, I predict gold will do quite well, regardless of what "the Fed" may try to do.   But until the worm turns, why gnash our teeth and constantly beat on The Big Fed Scapegoat when we only have zero-point-seven out of 5 pillars to hold up our gold bull market?

Back when those five pillars were in place, gold rallied strongly.  Nothing could stop it.  Not even The Fed.

For further reading, Dan also penned this deconstruction of Paul Craig Roberts and his "shocking interview" over at KWN – the number of misunderstandings that PCR had about the marketplace apparently pushed Dan over the edge.  I will include one paragraph I liked best, but I encourage you to read the whole article:

http://traderdannorcini.blogspot.com/2014/11/paul-craig-roberts-and-spread-of.html 

[Speaking of the manipulators]  … these authorities are rather remarkable … they have singlehandedly managed to simultaneously knock down crude oil, unleaded gasoline, corn, wheat, soybeans, heating oil, copper, platinum, etc. at the same time. They have also managed to take the TIPS spread and change its entire direction, when it should be going up – based on Mr. Robert's view – instead of what it is currently doing and going down. They have also managed to push the Russian ruble lower, the yen lower, the Euro lower and nearly every other currency that exists, all against the Dollar, which they have somehow mysteriously managed to levitate in spite of the fact that in Mr. Robert's view, "it has no value".

One of my favorite things about Dan is that he drags out charts and other bits of evidence to support his claims.  I happen to like evidence-based approaches.  I don't agree 100% with everything he says – but I can understand why he thinks a certain way, and it is always evidence-based.

  • Thu, Nov 13, 2014 - 12:06pm

    #3

    Penny551

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    Trader Dan / Casey article

Excellent analysis. 

Looks like the PMs could go either way or just grind sideways for a while. My plan is to continue dollar cost averaging physical and steer clear of anything speculative until we clearly see a couple more of those "pillars."

I think Dan took PCR a little out of context there, although PCR is certainly a bit of a sensationalist. 

Bud Conrad over at Casey had an outstanding writeup yesterday detailing the banks ability to move price:

“Paper Gold” and Its Effect on the Gold Price

 

  • Thu, Nov 13, 2014 - 01:46pm

    #4

    Jim H

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    Ahhh, the calming balm of the anti-manipulationist narrative

I was feeling tense again this morning thinking about the consequences of Japan, the third largest economy in the world, having the box they are in tighten to the point where they need to print enough money to buy all the bonds, AND some stocks too.  But then I see that the Gold market is still calm, and pricing Gold at below the cost of mining.  And then I see Dave's comment, which helps me (OK, well not me actually) to believe that what the market is telling me is true.  Even in the face of so many concerns, the market participants, on balance, want to sell Gold.. all must be well, right?  It all makes me think of this quote;

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

Joseph Goebbels

Dave has in the past reminded us that the Comex is a physical delivery market…. but the truth is that this is a very tenuous connection to physical, as outlined in the Casey article linked above;

I explained in my October article in The Casey Report that the Comex futures market structure allows a few big banks to supply gold to keep its price contained. I call the gold futures market the “paper gold” market because very little gold actually changes hands. $360 billion of paper gold is traded per month, but only $279 million of physical gold is delivered. That’s a 1,000-to-1 ratio:

Market Statistics for the 100-oz Gold Futures Contract on Comex
  Value ($M)
Monthly volume (Paper Trade) $360,000
Open Interest All Contracts $45,600
Warehouse-Registered Gold (oz) $1,140
Physical Delivery per Month $279
House Account Net Delivery, monthly $41

“Paper Gold” and Its Effect on the Gold Price

Whatever.  For me, PP.com is a wasteland for metals commentary.  As with Dryam and others who commented recently, I cannot help but think that our metals analyst is really a minder from the status quo, here to calm us.  Here to let us know that Gold will tell us with it's price action when it's finally time to buy.  Here to tell us that there won't be an overnight revaluation due to the coiled spring finally bursting.. because, because, there is no coiled spring.  Good luck with that. 

  • Thu, Nov 13, 2014 - 03:24pm

    #5

    davefairtex

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    bashing (v2006) Jim Sinclair

JimH-

I'm not quite sure how you can bash the 2006 version of Jim Sinclair so readily.  Me, I like that version of Jim that was able to successfully predict the bull market so accurately and the bear market as well.  During a bull market, you can say just about anything and that is no proof you are right; it is predicting both bull and bear that gets my attention.  If you'd followed his five pillars, you would have sold gold at or near its highs once the strength of the five pillars started to recede.

The conditions today: dropping commodities, rising dollar, rising US treasury bonds, rising US stock market, and (so far) declining deficit – it all smacks of continued confidence in US paper.  Who needs gold in that environment?  Certainly not the hedge fund buyers at the COMEX.  Do they represent "truth"?  Don't be silly.  But they do represent a very large amount of money – money that moves markets.

So, will these conditions stay this way in perpetuity?  No.  Once they change, so too will the opinions of the COMEX hedge fund buyers, who will return to gold enthusiastically once the facts on the ground change, and then gold will really pop in price, Fed or no Fed.  I believe that everything moves in its own cycle.

I know, this talk of cycles is heresy to the members of the Church of Gold Must Always Rise.  "Ordinary things" have cycles, but gold must always increase in price or else it must be manipulation.  Even if the Fed has no need to manipulate prices lower since they're already really, really low.  Yet every move down is still called manipulation to please the Faithful.  Scapegoats are a time-honored way of distracting people from having to face reality – in this case, the reality that gold has price cycles just like everything else in the world.

If the goal is to buy straw hats during the winter, this seems to be a pretty chilly period right now for gold.  If gold has its price cycles, just like everything else, does it not make sense to take advantage of the "gold wintertime" and stock up?  Four of our five pillars are gone.  Price has been beaten down.  If gold acts just like any other market, why not treat it that way and attempt to buy low and sell high?

See, if gold is just a thing and not some sort of pseudo-religious iconic object to be revered, emotion is removed, and we can look at gold as just a thing with a price.  Either price is high, and should be sold, or low, and should be bought.  Jim Sinclair circa 2006 gave us a map.  Why not use it to our advantage?  Why must we always focus on "manipulation" as our sole lens through which we view the price of gold?

 

  • Thu, Nov 13, 2014 - 04:31pm

    #6

    Mark_BC

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    davefairtex wrote:Yet every

[quote=davefairtex]

Yet every move down is still called manipulation to please the Faithful.  Scapegoats are a time-honored way of distracting people from having to face reality – in this case, the reality that gold has price cycles just like everything else in the world.

[/quote]

But the "gold" price isn't actually the gold price — it's the price of paper derivatives called "gold", trading with little or no actual metal involved. The only metal involved comes from the central banks who are willing to provide real metal to the exchanges demanding real metal at that particular paper price (because the central banks are the ones benefiting from "gold" price suppression), which ironically aren't even the exchanges that set the "gold" price. So basically how I see it is that the central banks let the bullion banks play their dirty derivative games manipulating "gold" price, making their paper profits as a result, providing that they keep "gold" paper price within a certain range. 

I will agree however that it is hypocritical for goldbugs to declare every down move as manipulation yet every up move as some signal that the paper traders are losing control. I argue that it's all manipulation, up and down — because it's all paper trading. I also agree that the goldbug price forecasters grossly underestimated the extent to which the system would be contorted to keep the empire going. I remember Jim Sinclair's prediction that when it hit $1650, it would be off to the races and never look back. Well, instead it quickly spiked to $1900, then slumped down to $1200 for a few years. There is real danger in using fundamentals to predict markets that are totally manipulated, until those markets fall apart. When that happens is a bit of a guessing game.

  • Thu, Nov 13, 2014 - 04:53pm

    #7

    Jim H

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    Manipulation is NOT the lens… reality is.

Let me deconstruct one of Dave's paragraph's

I know, this talk of cycles is heresy to the members of the Church of Gold Must Always Rise.  "Ordinary things" have cycles, but gold must always increase in price or else it must be manipulation.  Even if the Fed has no need to manipulate prices lower since they're already really, really low.  Yet every move down is still called manipulation to please the Faithful.  Scapegoats are a time-honored way of distracting people from having to face reality – in this case, the reality that gold has price cycles just like everything else in the world.

Dave uses the word, "cycles" three times.  This is a brilliant distraction..or should I say redirection, because indeed, asset markets do seem to have cycles, as does business in general.  The only thing is, Gold is money, and money does not have cycles… over the long run.. debt-based money loses value as debt rises, and hard money holds it's value.  

I fail to see the cycles here;

 Where are the debt cycles as priced in dollars?  I don't see them .  If Gold is the premier form of money, and I do believe Greenspan when he suggests this is so.. then why should it's buying power not rise more steadily as the debt money bubbles grow?  This would only be logical, since Gold is hard money and cannot be printed.. cannot, outside of some new physics being discovered, be subject to a supply bubble.  Were Gold in a free market… a free form of money floating above all the fiat… the price would be higher than it is today.

 

  • Thu, Nov 13, 2014 - 05:21pm

    #8
    Trun87114

    Trun87114

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    Dave – thanks!

Dave has taken a bit of a beating lately so I just wanted to say thanks to him for providing his frequent, educated, and FREE insights.  I read them regularly and appreciate them even if it is not what I want to hear.

That said, I'm appreciative too for the contrasting viewpoints brought to the table by Jim et al.  I love being able to come to one site and see both sides of an argument presented in a coherent manner.

 

  • Thu, Nov 13, 2014 - 05:38pm

    #9

    davefairtex

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    money is a shared agreement

JimH-

If Gold is the premier form of money, and I do believe Greenspan when he suggests this is so.. then why should it's buying power not rise more steadily as the debt money bubbles grow?  This would only be logical, since Gold is hard money and cannot be printed.. cannot, outside of some new physics being discovered, be subject to a supply bubble.  Were Gold in a free market… a free form of money floating above all the fiat… the price would be higher than it is today.

Your theory about the value of gold is quite sound and everything follows quite properly – but only if everyone in society agreed with the words in bold.

They don't.  Money isn't "what Jim says it is", nor is it "what Greenspan says it is."  Money is what the culture as a whole agrees it is.  Money is a shared cultural phenomenon, not a physical relationship asserted by Jim and imposed on society.  Given that, asserting that your price for gold is the "correct" one is an exercise in sheer ego.  It says "Jim knows better than society what the price of this thing should be."

Gold cannot be the premier form of money unless everyone agrees that it is.  Some do, certainly, but a huge number do not.

Especially here in the west, the vast bulk of the population does not see gold as money.  This results in the disconnect you refer to.  You are entirely correct, if the relationship between gold and currency had remained constant (i.e. "the gold standard") gold would be maybe $10k right now.  Maybe more, depending on what the peg was.

The mere fact that gold is wasting away at $1165.30 is clear and convincing evidence to me me that the vast majority of people here in the west don't agree with your assessment of gold being the premier form of money.  And without their enthusiastic support of gold's "money-ness" from western culture, gold stays at $1165.

As armchair futurists, we can project that gold might reachieve money-ness after a big problem with inflation, or default, or some other reset situation, and that the culture might well rediscover gold's money-virtues after some large issue appears.  We may well be correct in our projections.  However, until the culture comes to see things our way, the "current correct price" for gold is the aggregate value assigned by the culture as a whole, not what our ego says that it should be.  And since our culture doesn't see gold as the premier form of money…that price is $1165.

Which brings me back to those five pillars of Jim Sinclair v2006.

 

  • Thu, Nov 13, 2014 - 06:03pm

    #10

    sand_puppy

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    Printing supply, printing demand

I would appreciate a low-level explanation of the way that supply and demand functions set the equilibrium price of gold on the COMEX.

I can understand price discovery process when there is a physical item in supply:  say apples,  and when there is a physical demand:  human beings who want apples.

What I am not able to understand is how the equilibrium price is reached when a large financial institution, is able to print a simulated "supply of apples" (called short contracts) or demand, a simulated group of human beings wanting to buy apples (called long contracts).  And all of this funded by near limitless zero-interest loans.

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