20 February 2013

Intermediate Gold Chart Revisited - Range Trade in the Currency War

"There is not a crime, there is not a dodge, there is not a trick, there is not a swindle, there is not a vice, that does not live by secrecy."

Joseph Pulitzer

I think that gold is caught in a range trade since its big run up to a record high.

The range is roughly between 1550/1570 and 1800.

I do not think the government is funding this directly, but indirectly the funds are coming from the Fed and its cronies, and well as de facto policy endorsement from the government, so that the regulatory bodies turn a blind eye to the massive shorting at opportune times.

The short interest money flows are getting rather intense as the gold price dips lower to the bottom end of the range, showing increased resistance from stronger hands. This would also indicate a rising or stable interest rate caused by short selling rather than by long liquidation.

The metal bears spent quite a bit of time and ammunition in the middle of last year trying to break support.  So I think we might see another contest at that level hold again, or even become exhausted before we reach it.   I cannot know how strong the hands of the metal longs have become.  And of course, the ready supply of paper to throw at them. 

I think the leverage in the metals is creeping to higher highs.  It will be an interesting contest to watch, as the shorts keep expanding their bets, as indicated by changes in open interest, aided by a decrease in margin requirements at the Comex, and the longs hanging on to a brazen, relentless pounding from London and New York.

As an aside, some fellows talk about backwardation in the gold futures prices, but I see a normal contango.  This is merely an observation from the data. And when people talk about supply constraints, at least some data to show this would be useful to see to back that up.   One can infer it, but it is not really credible without some factual data. 

I don't think this is a bullion play, but rather a paper play, for now.  But as it goes on, it takes an obvious toll in the real world.  Just like the ongoing bailouts of the banks using the creation of currency. 

But at some point the tide will turn, and the timid will find their voice once again. It just is a matter of how much damage has been done, and what demagogues may arise to attempt to tap the wellsprings of confusion, hatred, and resentment.

The 'GotGold Report' shows an interesting chart, that the big short in gold is being driven by the 'managed funds' boys, which includes the hedge funds. This implies that their customers might get taken out to the woodshed in a high powered reversal.

Several commentators including Denver Dave, Harvey Organ,  Him Sinclair, and Dan Norcini among others, have been seeing the same things in the COT reports, but I like this chart which GotGold has created, as it is shown here.   There are none braver than those playing with Other People's Money, especially to the extent that they are insiders and the Others are not.

Peter Hug, the 'trading director' for Kitco Metals, was on Bloomberg TV today calling for a decline in gold to the 1525 level, probably based on the last chart shown below.   I know Kitco buys and sells metals on the retail side, but I wonder what trading they do to merit a 'trading director.'  Are they arbitraging customer sales and gold and silver held in non-allocated accounts?  I am sure that they are hedging their inventory exposures.  I do not think they offer managed funds, so they are probably trading for their own book.

So let's see what happens.  I have no crystal ball unfortunately. But I was willing to dump some  hedges today, in order to free up cash for some possible long buys in the near future.  I will have to watch how the 'sequester' plays out.  Kicked cans and down the road comes to mind.

It would be customary to get a plunge and then a snap back in a capitulation bottom.  However, there is a reasonable chance that the shorts capitulate, either based on an event or sheer exhaustion from trying to meet their downside price objective.

But longer term this is damaging the supply sources and the mining industry.  Desperate central bankers do not really care about this, but it will have its way, sooner or later.  They are truly frightened of losing control.

As a reminder, next week is Comex option expiration, and I suspect we will see a bottom either around that time, or later this week.  Maybe even today.  This is based on the structure of the options, which unfortunately is a fluid situation, so it is not as predictive as one might otherwise hope.

And I do think, almost beyond reasonable doubt, that this 'thrown rope' higher in the SP futures, with the exception of the dip around the fiscal cliff scare, is being driven indirectly by Fed and Administration policy.
“The stock market is the key player in the game of economic growth.”

Alan Greenspan to Maria Bartiromo
And besides targeted tax cuts and loopholes, there are few better methods of channeling liquidity to the one percent that are betting than the equity markets and bond markets, supplemented by privileged access to non-public information about policy, as well as managing public perception of policy and the economy.
"If we understand the mechanism and motives of the group mind, it is now possible to control and regiment the masses according to our will without them knowing it."

Edward Bernays
This bubble in stocks and tinkering with real world supplies of products will end badly, as always.  And it does not provide much comfort to think that the best defense against corruption for many of the leaders of the West is ignorance and incompetence.  It seems like a great confederacy of greed, shepherded by the rule of dark powers, and spiritual wickedness in high places.