- Thou shall NOT see gold as safe haven; whenever there’s a crisis, TPTB attack precious metals;
- Connecting the dots between GOFO going back into the negative, gold premiums rising in Asian markets, the debt limit “crisis” and visible paper raids in gold and silver;
- IMF gov’t bail-in proposal: Fix sovereign dept problems with a “one time” 10% wealth tax
- Importance of physical assets as a hedge against escalating global financial crisis, coming capital controls
Baseball is a wonderful sport, but it’s no longer the American national past-time. That rarified title now belongs to can kicking, a sport characterized by avoidance of object reality, where the rules of the game include employing any and all so-called solutions to buy time. Double points are awarded when long-term problems compound for every kick of the can. Come on, President Obama. Make it official. It’s time for another Executive Order: the Can Kicking Redemption Act of 2013.
To the surprise of virtually no one, the debt ceiling was raised this week. But it’s only a temporary reprieve. In early 2014 this Kabuki theatre will return. Ironically enough, it’s probably safe to assume the Obama Administration and the leaders of the Democratic Party welcome a reasonably quick return to the theatrics given the perception that the Republicans — and especially the tea party — has taken the brunt of the public’s scorn. Trouble is, a strong argument can be made that despite a short-term tactical victory, the Obama camp is going to have a serious problem on their hands once Americans come to understand how they have been lied into supporting Obamacare. We’ve discussed these lies on TND, and in particular, in our interview with Dr. Dave Janda.
It should come as no surprise that once the debt ceiling “crisis” passed, gold and silver turned in a meaningful rally. Never mind the fact that over the last month there have been small precious metals rallies explained as hedging against the risk of financial market turmoil, only to have the exact same explanation applied to declines in precious metals over subsequent days. As Bill Murphy is fond of saying, “Price action makes market commentary.”
Last week we reported on the 2 million ounce gold flash crash. Cartel footprints have become so apparent since the naked shorting drive-by shooting over the April 12 through April 15 period that even mainstream media is forced to report the facts from time to time. Today, Frank Tang published a noteworthy article in Reuters highlighting unusual trading. Tang notes:
On October 1 and October 11, volume in just ten minutes exceeded 20,000 lots, accounting for almost a tenth of the market’s average daily turnover this year, Reuters data showed. Two of those incidents triggered the CME Group’s rarely-used “stop logic” function that automatically halts trade briefly to prevent excessive price movements.
Amusingly enough, Thursday’s upside action is being seized upon by cartel apologists like Denis Gartman. Mr. Gartman framed the situation for his subscribers with this ditty:
Finally, we wonder why it is that no one has argued that gold has suddenly been “manipulated” upward in light of the violent rally yesterday. Is gold only “manipulated” when it falters? Is it rising of its own fundamental volition instead of manipulative machinations? We’re just askin’. It seems like a reasonable question to ask.
For over a decade the vast majority of these unusual trading spikes have been downside spikes. Mr. Gartman is blind to data, at best, or following some sort of agenda.
Mr. Tang’s reported other insightful, amusing comments:
“What’s unusual about these moves is the price stays at a new level so that suggests it’s a natural buyer or seller,” (noted) Chris Concannon, executive VP of New York-based electronic trader Virtu Financial. “This is moving to and setting a new price level, so it can only be done by someone who’s buying or selling substantial amounts and then holding.”
“Natural” buyer or seller? Please. Spoken exactly as one would expect from a trader that deals in a world were ten minutes is considered long-term trading. “Swing Traders” and old school “short-term” speculators are better equipped to understand that a bullion bank managing a short-side biased “book” over the course of any given COMEX delivery month will occasionally need to jump to cover short positions. That cycle takes place over the course of a few weeks, apparently well beyond the vision of these captains of the flash trading industry, like Mr. Concannon. Thursday’s upward spike was largely short covering by bullion banks and speculators – especially hedge funds.
In order to understand the context of that move, we have to connect dots visible with other dynamics. Let’s begin with GOFO.
The following chart displays the London PM Fix gold price divided by 1000 in pink. The division by 1000 is executed simply to create a representation of gold that can easily be compared visually to the swings in GOFO shown in blue. Notice that on October 15th, the 30 day GOFO rate was reported at exactly zero. That also happened to be the exact day gold bottomed and started to move higher as GOFO moved into the negative for the rest of the week:
This short-term correlation speaks to the high probability that earlier this month “official” gold from central banks was leased into the market to satisfy elevated demand for physical off-take at the LBMA. When enough physical was flowing, GOFO was “normal” and positive. But when the crisis of the debt limit negotiations came to a resolution and the cartel could take a break from their mission to prevent gold being seen as a safe haven asset, the flow of leased gold slowed or stopped, and the ongoing, ever-present demand for physical was allowed to drain gold out of the Western financial system without a counter balance force of leased central bank gold dumped into the LBMA.
We should note that analysis of longer-term periods do not show the same consistent correlation. For example, if you run the numbers for the period of August 1st and today, it results in a negative correlation of -0.20339. Nevertheless, the pattern of very short term shifts from positive to negative 30 day GOFO rate this year does indeed correspond to short-term trend shifts in the price of gold.
Bottom-line: considering the other data points (rising premiums in Asia; timing of large paper gold moves Thursday that was likely short covering and the end of the political “crisis”), the dots all connect. But don’t tell Gartman. Obviously, we’re just deluded gold bugs and we should not look at evidence.
Moving into next week, the trading bias for precious metals should be to the upside. But the cartel is just taking a nap. They’re not likely going to let upside action get far given that COMEX options expiration for gold falls on Oct. 29th. Given the low levels of COMEX gold inventory, cartel monkeys can’t take risk letting physical off take get out of control. Thus, on a net basis, next week will likely see gold rise, along with silver. But no later than the week of Oct. 28th we’d expect to ghouls of Halloween set loose, and more flash crashes to the downside.
Enjoy the weekend — Eric Dubin
Image Source: Chip Somodevilla/Getty Images/Zimbio)
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