Friday Metals Wrap, 4/12/13

Hoo boy.

Closed my recent long positions kicking and screaming.  I actually committed a trader's sin by lowering my predetermined sell point after things took a bad turn in early April.  NB: the trading gods always punish those who break principle!

I'm still surprised and mildly incredulous -- given the macro-environment, I didn't think gold would break clear out of its 12+ year exponential trend.  But for those who have been following this market, the $1480 weekly close is a big deal, whatever the cause. Move your goal posts further from here and you might as well go ahead and buy your tombstone early with "gambler's ruin" carved into it. It pays to remember: the market will still be there tomorrow. Actually ... I can't say that with confidence.

But assuming it will - gold will soon probably close a week testing the ~$1430 level on the weekly three line break chart (red horizontal line)

The end of April will give us a big clue as to how bad things look for the rest of the year. A strong close to the month could mean that this was just a (heavy-handed) wash-out, or, as Paul Craig Roberts has been saying, a thug move by the Fed to protect the dollar. I'm by no means ruling that out. I'm swayed neither by those who always cry manipulation, nor by those who never concede the possibility. Both are flip sides of the same coin, insofar as they let their psychological needs (albeit different psychological needs) control their faculty of judgement. It's simply not easy (or pleasant) to suspend judgement and update one's provisional conclusions as new evidence demands. It's also not easy to widen what one considers "evidence" -- as must be done in our current situation, given the enormous asymmetry of power between the diddlyshit class and the coterie of men with undeniably sociopathic tendencies who can, to a first approximation, do as they please, given their unchecked ability to hide behind a byzantine system of derivatives, procedural law, and propaganda.

At any rate, a $1430 (or below) monthly close on this chart would mark a very bearish three line break.


In fact, a silver monthly close below $27.50 on the monthly chart would also mark an important reversal, and as of now with silver under $26, that looks a lot more probable than not. So, a very bad day for metals bulls.


And note: zero support on the weekly three-line break silver chart whatsoever. This could get ugly.
During my March metals preview,  I explained that I wouldn't be confident that gold has entered its next major up-leg until the weekly GDXJ:DOW ratio had a three-line break reversal (please see here for my rationale). Well, the huge red bar this week means that the DOW pretty much has to have a big sell off, with gold moving inversely, if we're to see a three-line break anytime soon. And that seems intuitively true, too; gold has been going nowhere since equities began their recent blast-off in November.



Does it make "sense" that stocks are responding to trillions of paper money being created every month (and no-selling the FOMC jawboning) but gold and silver are not? Not to me. But this is where we are.




36 comments:

Jeanne d'Arc said...

I think my bet with Turd is going rather well. Pity he turned me down on the 1 oz gold coin option, and went for just $100 instead...

GM: do you have a chart of what the gold price should be if it had tracked perfectly inflation since, say, 2001? And the same for the S&P? I think there you may find some clues.

Copper's a very interesting one to watch at the moment. I had the good fortune to close my base metal stock positions after their sharp rally earlier this week, but I wonder whether it may still be worth going back in or not. Perhaps I will. The silver-copper ratio is another chart I'm finding fascinating at the moment.

I'm still rather proud of this post from December. I do still worry about all the terrible advice on the silverogosphere. In some ways, I feel bad about just letting go. But Dan at TFV and others have been giving the same message as I did, for months before and after I stopped writing, and they were as equally ignored and mocked as me.

So what's the point? Sigh.

S Roche said...

JdÁ you deserve your victory lap.

The Cyprus gold sale is only 13 tonnes. But, look how quickly the Cyprus "not a template" large depositor "bail-in" has gained support. And now, the Cyprus gold liquidation is the template. Italy, France are heading that way, no?

Kid Dynamite said...

wait - what? Gm - you sold your gold positions today?

guess what - THAT"S why gold went down today! well, not because of you (although I have no doubt you are a big hitter), but because there are tens of thousands of GM Jenkins-like guys/gals out there who sold today.

It wasn't manipulation.
It wasn't a paper raid.
It wasn't an evil cartel
It wasn't a conspiracy
It wasn't central banks.

It was a liquidation by gold longs.

If gold bulls are lucky, it was THE liquidation... if not, there is more to come. that much, I do not know.

but the kind of horseshit that was in your prior post (and I know they weren't your words - they were just another nonsensical goldbug fantasy failing to address reality and hiding in confirmation bias) made me nauseous.

It wasn't that some system was down that prevented people who wanted to buy from buying, so they decided to sell instead (*achem* - yes, that is MORONIC) - it was sellers. like you.

days like today, where the PM blogs again spin ghost stories and blame instead of reality make me sick to my stomach for the victims of their "stories"...

GM Jenkins said...

Thanks for stopping by KD - haven't seen you in these here parts for awhile. As you note, the previous post I put up to see what more knowledgeable people like you had to say about it, since it was uncharacteristic of Bill Downey. I suppose he'll retract it or defend it (and regardless he's still a damn good trader). I'll assume you're right about the liquidation, if nothing else by Occam's razor. I'm sure there's some collusion going on behind the scenes, but in the end, if buyers don't step up, they don't step up. Anyways I got superman punched in the balls today regardless of who's to blame for the action!

JdA - that would be a cool chart. I wonder what inflation metric to use though. Anyways, enjoy the victory lap. And let us know what you're trading these days! (I've seen to it that the coal cellar gets a new high speed connection.)

duggo said...

As a simpleton and non-expert. I am always amused by the "experts" that pop-up on Screwtape Files. They are always so right, so convinced, so clever, especially when something goes their way. They are strangely quiet when it doesn't. We have the derogatory terms bandied about like Goldbug, Silverbug or Troll. We are told by some "expert" that the market is just following it's normal course and that it's the longs or the shorts or just the normal day to day action and that if they were as clever as the "expert" they too would not be stupid enough to think otherwise.
My feeling is that everyone is stumbling around in the same blacked-out room. Some are just making more noise than others.
Everyone has their own reasons for being here at Screwtape. Non is better or worse than another.
Some love charts. Some love technical discussions. Some like gambling. Some, like me, buy real Gold and hang on to it. It depends on your age, background and experience of life. What's good for one person is not good for another. Unfortunately there are ant number of people to tell you that you are wrong or stupid. The funny thing is non of these "experts" seem to be millionaires.
If you think I'm criticising you then you shouldn't be so paranoid. It's just a general comment.

victorthecleaner said...

S Roche,

I don't think we know how the story about Cyprus' gold reserve will end. I just know that what the press is telling you doesn't make much sense - none of it.

For example, before you sell at these prices, you would use the gold as collateral for a loan. Looking at GOFO, it is clear that they would basically get an interest free loan this way. Given that they can always default on any portion of their sovereign debt at a time of their choice, selling the gold now would be rather foolish, no?

The official gold of Cyprus is part of the monetary reserve btw and cannot be sold without ECB approval. Perhaps the gov't ofCyprus asked some Brits or Americans for advice and for a loan, they proposed this nonsense, and now Draghi is attaching a condition that makes the entire plan obsolete. Just guessing.

I am pretty sure that they will not just sell at the current price. There will be something else...

Victor

victorthecleaner said...

KD,

FOFOA actually said about 2 years ago that he was expecting a "crash" in the price of gold triggered by liquidation of the longs. How far it will drop and whether this is 'it' we will of course know only with hindsight.

If FOFOA is right with his year of the window, this would also be consistent with the GLD puke indicator lo longer working.

Victor

Louis Cypher said...

Based on this chart (2nd one)

http://thedailygold.com/silver-is-following-its-1970s-pattern/

shorting silver is looking pretty crowded. Not saying it can't get more crowded but it can unwind very quickly.

milamber said...

@JdA &KD,

as gold traders what do you guys think of the information that wikileaks is unearthing? The relevant cables are being assembled at mortymers blog.

Milamber

Kid Dynamite said...

Milamber -
if you have something specific of vast interest, please do point me toward it.

I was under the impression that these were documents from 40+ years ago? that kind of stuff interests me very little because gold now is not what gold was then.... we no longer have a gold standard, and I don't think we ever will again. (but please don't get sidetracked by that assertion...)

my point is that what politicians and bankers of power said about gold back in 1960 means little/nothing today because of the abandonment of the gold standard.

of course, I am making the assumption that you are talking about old docs... I may be wrong about the cables you are referring to.

Kid Dynamite said...

Victor -

I want to repeat this again, because people all over the metals-interweb seem confused by this idea with respect to ETF inflows/outflows.

"normal" daily flows are increases in inventory in response to "excess" demand for shares, or decreases in inventory in response to "excess" supply of shares.

GLD, recently, is the latter. For people to draw the conclusion "the GLD inventory is plummeting because there is a vast shortage of gold, and thus market participants have to "Raid" the GLD inventory because they can't find gold anywhere else - well, that is simply INCONSISTENT with the significant price decline we've witnessed. it's contradictory. it makes no sense.

as i've said previously, when you see large inventory declines coinciding with a pattern of increasing prices - THAT is the time to get excited about a shortage and ETF "raids"...

declining prices & declining inventory? standard. normal. expected.

in my opinion.

also, note SLV's inventories, which are actually the opposite of the "Excitement" scenario! they are stable/increasing in the face of declining prices...

Funky Tape said...

I'm not a veteran trader, only started buying metals in 2010, but the stories never get any less ridiculous and that's a fact. The bull market in bullshit is still in a solid uptrend. I guess when that finally breaks, the metals will resume their move which I totally expect will happen.

So thanks to KD and Dan at TFV for saying on top of it. The Sprott story is like the icing on the cake. Not sure if it will get better than that one.

Funny how if you just let the market speak to you, you can let it earn for you too. I've been making comments along with GM since late last year about the the coming completion in several things like gold, $US, oil, copper around this time and here we are and it's gold leading the way.

Wonder if chart master duggo looked at the technicals and took some shorts to hedge his physical longs? I did. He's highly intelligent, so I'm sure he banked nicely on Friday. Sold my DZZ and ZSL on Friday at close. Nice 10% days for both. No way am I holding over the weekend.

Next up, crude, copper, $US. Let's get it done!

milamber said...

@KD,

1. The docs are post Nixon shock.
2. I agree the gold standard is irrelevant & I don't think we are going back to it.
3. let me know if still interested & I'll post some snippets later tonight/ tomorrow.

I am interested in your opinion of them if you are willing to oblige.

Thanks,

Milamber

Slow Loris Larry said...

Will someone please enlighten me?

I don't know who 'Dan at TFV' is, or where to find him.

Google is no help!

There are plenty of Dans around on the blogosphere, but I don't think I have run across one of them associated with 'TFV', whatever that is, unless I am just missing something obvious to others.

GM Jenkins said...

SLL- He's Dan at The Fundamental View.

Jeanne d'Arc said...

Dan at The Fundamental View. He and I have spent the last year (more in his case) warning that gold and silver were very top heavy and due for a big washout.

GM Jenkins said...

Too busy to add much today, but I will say Rickards had some interesting tweets regarding manipulation, worth checking out. Point being, not everybody who suspects this stuff is a cretin. Dude just came back from a meeting withTreasury bigwigs.
Some tweets:

My meetings @USTreasury went well. They were kind to invite me & I said what I came to say. This much clear: They take their lead from #Fed.

Exactly. After yesterday I've concluded the #Fed now controls every so-called "market" in the world. Good luck to them.

Interesting that #Gold crash came 4 days before hearings on #Texas depository. It's like #Bernanke sent #Perry a fish wrapped in a newspaper

The dealers know exactly what the #Fed is doing in fixed income but they don't discuss. Same is true in #gold, but fewer dealers.

Difficult to prove #Fed manipulates #gold. But, when detectives face a crime w/ no witness, they look for a motive. Fed has plenty of that.

You wait until the market's going down anyway, push it harder w/ paper sell orders, then momentum does the rest. Easy.
@JamesGRickards wouldn't the mjr gold dealers know it was the Fed though?
Expand
Jim Rickards ‏@JamesGRickards 18h
@fbonacci Maybe. But there's another intermediary, the Bank for International Settlements. They could front for the #Fed to dealers.
Hide conversation Reply Retweet Favorite More

Etc, - worth checking out for another perspective vs. the liquidation view that as i mentioned you gotta go with by occams razor. but occmas razor is just a guide.

GM Jenkins said...

some more:

@fbonacci You wait until the market's going down anyway, push it harder w/ paper sell orders, then momentum does the rest. Easy. #Gold
View conversation
Jim Rickards ‏@JamesGRickards 19h
@fbonacci Sticking to facts: #Fed has manipulated #gold in past, has motive to do so now & it's possible. That's not proof, but interesting.
View conversation
Jim Rickards ‏@JamesGRickards 19h
@fbonacci I don't like to speculate if #Fed manipulates #gold without proof. But if you're asking whether it's possible; yeah, it's easy.
View conversation
Jim Rickards ‏@JamesGRickards 19h
@fbonacci Well, that's the easy part. They manipulate interest rates openly every day via dealers. They could so same in #gold w/ dealers.
View conversation Reply Retweet Favorite More
Jim Rickards ‏@JamesGRickards 19h
Difficult to prove #Fed manipulates #gold. But, when detectives face a crime w/ no witness, they look for a motive. Fed has plenty of that.
Expand

S Roche said...

@VtC,

Agreed re Cyprus gold template vs leasing etc, long way to go.

Musing that gold bull market started with Washington Agreement No. 1, launch of Euro etc and Cyprus gold template, IF allowed to happen, is a real game-changer. For that reason alone, may not happen, but, it seems close to happening.

S Roche said...

Re the GLD Puke,

Lance Lewis is of the view that we are seeing a "cluster of pukes" per 2008. Since the rally at $1600 failed he was expecting a capitulation and senses this is it given the negative indicators everywhere, sentiment and extremes etc, and is expecting a short squeeze.

Having ignored his capitulation call I am on board with his squeeze call....two for two???

Kid Dynamite said...

@milamber - sure, I'd love to see the parts you curate for me... but again, if they're from the 70s (Even post-gold standard), i think they'll be outdated.

Kid Dynamite said...

Hi Gm, replying to your email:

please see this comment I left on my own blog about "manipulation"

http://kiddynamitesworld.com/bitcoin-as-a-metaphor-for-everything/#comment-862659122

I never wrote the post about this, because I don't really want to dedicate any more of my time, energy and angst to helping the people who don't really want to hear what I'm telling them, but if/when i do, this will be the basic content of it.

the problem is, I think it's safe to say that I haven't seen A SINGLE metals commentator, Rickards included (and especially Ted Butler, which is inexplicable because he used to do this for a living) who actually understands the combined mechanics of how markets work. Most of them (Butler, Maguire included) demonstrate a gross ignorance of ETFs, which have become a major player in the metals.

as for Rickards: from his tweets that you relayed, he seems to think it's wicked easy to just pound out some sell orders, trigger other people to sell, and become a net buyer yourself into the mass supply you "triggered" (or, he didn't actually say the manipulators would become a net buyer, but if you read my blog comment, you realize that they'd have to be in order to avoid impact later).

guess what - I've been the guy behind the big orders (not in gold and silver). Big orders are not an asset: they're a liability.

this is a fantasy of people who have never traded size: that you can just "tip" the market into doing what you want it to do. fantasy.

yes - EVERYONE presses the market at key technical levels (to the upside and the downside!), which is an entirely different topic, i think.

and oh by the way: no one can ever force anyone else to do something in the market. so blame the weak longs who puke on technical moves, if you're looking for someone to blame...

S Roche said...

@VtC,

As it is Draghi "insisting" then I think ECB approval is a given, the only limit is that gold sales are to cover ELA losses. No more Emergency Liquidity Assistance?

http://www.bloomberg.com/news/2013-04-12/draghi-says-any-cyprus-gold-sale-must-cover-emergency-loan-loss.html

Another driver of selling might have been the sharp reversal in the Yen gold price Friday, with sellers keen to take advantage of record high prices as the Yen succumbed (climbed) on US intervention.

victorthecleaner said...

GM,

Difficult to prove #Fed manipulates #gold. But, when detectives face a crime w/ no witness, they look for a motive. Fed has plenty of that.

And there goes Rickards' leftover credibility....

In the U.S. it is the Treasury Department that is in charge of exchange rate and reserve politics. The Federal Reserve System does not own any gold and is not allowed to trade any gold. The only thing they have are "gold certificates" worth about $11bn and backed by the 8000 tons of gold that the Treasury owns. (Accounted for at the last official price of $42.22 per ounce).

Who of the U.S. government organizations can trade gold? Not the Fed. It is the Treasury Department with their Exchange Stabilization Fund (ESF).

I can only speculate about his motive, but Rickards is seriously misrepresenting how U.S. monetary policy works. One might speculate that Rickards is trying to set up the Fed as the primary scapegoat for the case in which something goes wrong with the dollar.

Let's say there will be a dollar crisis some 5 years down the line. Wouldn't it be natural to shut down the Fed (who is "clearly responsible" for it with all their irresponsible money printing) and hand all responsibility for monetary policy back to the Treasury Department? This would be the total irony because it has always been the Treasury Department that is in charge of exchange rate and reserve politics.

But why is Rickards trying to blame the Fed? Because it makes him feel better? Because he was asked to serve as the mouth piece? I don't know.

Victor

victorthecleaner said...

S Roche,

Lance Lewis [...] is expecting a short squeeze.

if what was traded was physical gold, in the same way as you would trade carrots or potatoes, yes, I could imagine a short squeeze. (Those who promised to deliver carrots but don't own any getting in trouble).

But what is being traded in London is gold, the currency. Where would the short squeeze come from? If I have promised to sell you a gold contract next week, I can just write that contract for you and hedge my price exposure elsewhere. As long as I have the tools to hedge it, I don't even need to own any physical gold in order to do that. (And with the recent price drop, you can be sure that I will call all the mining companies whom I have lent money, and I will tell them they have to sell more gold forward, otherwise I would have to cut their credit lines).

I am not saying there will not be any rebound starting on Monday. Maybe. That depends on the various market participants. I cannot predict that.

But what I am saying is that the goldbug idea that there must be a short squeeze because of a lack of physical gold, is a castle in the air.

The London market trades more than 2600 tonnes per trading day. The world mining production is about 11 tonnes per trading day. Your guess as to the ratio of paper vs physical gold trading.

You simply won't get any short squeeze because the price of paper gold and the price of physical gold are the same by definition. Just as $100 in your bank and $100 in cash have the same price. Until the system has run out of reserves entirely.

Victor

victorthecleaner said...


S Roche,

I am not sure Bloomberg are citing Draghi correctly. That would be kind of a first.

Assuming they do, doesn't Draghi's condition make the gold sale totally unattractive for the government of Cyprus?

Victor

Lord Sidcup said...

VtC

"I can only speculate about his motive, but Rickards is seriously misrepresenting how U.S. monetary policy works."

You have oft refered to Hanlon's Razor.

As Rickard's friends at the Treasury brief him, malicious motives are not required.
Rickards has several beliefs that are ludicrous to me, so may well fully believe what he claims to.

Archer said...
This comment has been removed by the author.
Archer said...
This comment has been removed by the author.
Archer said...

If Bloomberg has it correct, Draghi is only insisting how the proceeds from a gold sale are to be used, not that there must be a gold sale.

Asked about a letter he wrote to Cyprus President Nicos Anastasiades, Draghi said the letter is “very, very clear.” He said the government must abide by the central bank’s handling of the gold stock, since it is independent from political control under European rules.

Now, of course, if you are of the ZH persuasion, none of this can be believed and The Troika are out to force a gold sale.

S Roche said...

@Archer,

From the same article:

“What’s important, however, is that what is being transferred to the government budget out of the profits made out of the sales of gold should cover first and foremost any potential loss that the central bank might have from its ELA.” Draghi

We'll know soon enough.


@Victor,

Don't think Lance L is relying on physical take-off to squeeze the shorts, just normal market reaction.

S Roche said...

@Victor re Rickards,

The first Rickards Tweet:

My meetings @USTreasury went well. They were kind to invite me & I said what I came to say. This much clear: They take their lead from #Fed.

Credibility intact.

Edwardo said...
This comment has been removed by the author.
victorthecleaner said...

S Roche,

don't understand what you are trying to say. I wrote his credibility was gone because in reality it is the Fed that follows the orders from the Treasury Department rather than vice versa.

Victor

S Roche said...

@Victor,

Rickards sees it the other way round, and that from his meeting with Treasury it was clearly the case that they follow Fed.

I cannot bring any personal experience to bear on this point.

victorthecleaner said...

He may tell you a lot when his Sunday is getting too boring. The question is why should he tell you the truth.

What he was claiming is certainly not what it says in the Gold Reserve Act nor what was practised in the 1970s and 1980s. The Treasury makes all decisions, even which international conferences the chairman of the Fed board can attend.

Quite the contrary. The Treasury department decides about interventions in the gold and foreign exchange markets and then directly instructs the trading desk at the New York Fed to implement it. Federal Reserve Board of Governors need not be consulted.

Victor