Marché de l'Or: Gold Daily Charts from Pierre and Jesse

Mon ami Pierre dit:

La correction mineure de l'or que nous attendions semble terminée et le support vers 1.157 USD l'once ne devrait pas être cassé à la baisse.

Nous avons donc repris pour nos clients des positions à la hausse sur l'or pour la moitie de notre capacité d'achat.

Que nous augmenterions pour le cas où l'or baisserait néanmoins vers 1.146 (moyenne mobile à 200 jours).

Une cassure à la hausse de la résistance vers 1.211 (moyenne mobile à 50 jours) propulserait l'or vers 1.340 d'ici fin 2010.

Cordialement. Pierre Leconte

The correction is probably now over with the low set at 1,157 and a position has been taken. He will increase this position if gold continues its correction down to the 200 DMA at 1,146.

Gold will go higher to challenge the important overhead resistance at the 50 DMA of 1,211 and if it breaks out he thinks this will set up its rally to a year end high of 1,340.

Gold Daily Chart: Le Café Américain



I am pleased that we both agree from different perspectives. There is a great deal of resistance to gold now in the New York and London markets, so the way higher will likely not be easy unless something happens. I think silver may break out first and lead gold higher but this I cannot say for sure. But a break in the silver cartel would certainly do the trick.

One difference from a technical perspective is that if the price of gold falls to the 200 DMA at 1146 and can 'stick it' (not intraday) this will violate the lower bound of the handle, and I will have to then look at the more boring chart formation of an inverse head and shoulders formation that has completed at the high, and is now retracing the rally.

And this from Richard Russell

"Now I want to reveal my latest thoughts, which have finally come together. The US has a national debt of $13 trillion (that's trillion, not billion). There's no way in God's name that the US can ever pay off that debt. Actually, if the US does nothing the interest on the debt will eat up the nation. Worse, aside from the national debt the US has over $50 trillion in unfunded liabilities.

To put it frankly, the US is facing a debt future that can not be solved by cutting back on expenses and raising taxes. Even if the US taxed away all the income and profits of individuals and all corporate profits, the government would still not be able pay off its debts.

In my opinion, the US MUST default on its debt. There are two ways to default. One is simply to renege on the debt. I don't think the US would ever do that. If the US did that, nobody would ever deal with the US again. The other way to default on the debt is to inflate it away. I'm absolutely convinced that this is the path that the US will take. If the US inflates enough, then over time (many years) the devalued dollar will tend of reduce the power of the debts…

Lastly, what about gold? Gold formed a head-and-shoulders pattern. The pattern broke down, and August gold sank to 1156. But there gold held. It was if a net closed under gold. The plunge scared many of the late gold-buyers out of the market. Since its July 27 low, gold has been quietly creeping higher.

My guess is that gold has bottomed. Too many investors and too many central banks are potential buyers of gold. And they are 'bottom-fishing."

As far as I'm concerned, the "word" is out. The US will default on its monster debts. The US will default via systematic inflation. This will gradually "kill" the dollar. The protection against declining purchasing power of the dollar (brought on by Fed inflation) is gold.

As this is recognized by the masses, gold will move higher. Ultimately, this will develop into the speculative third phase of the gold bull market. The Russell opinion -- this is the time for gold accumulation and patience, a lot of patience.

Question -- Russell, I see a few of the smartest hedge fund managers (Soros, John Paulsen) have been buying heavily into gold mining shares. So, gold bullion or gold mining shares, which should we buy?

Answer -- The fund managers don't want a "safe-haven" position in gold -- they want potential profits. I believe the fund managers who are stocking up on gold mining shares are thinking that a speculative third phase in gold lies somewhere ahead. They're thinking that if gold explodes on the upside, the gold mining shares will go nuts. The shares will go crazy because they have the leverage. It will not cost them any more to mine gold even if the price of gold advances (yes, but union labor may cost more, and there will be the problem of higher taxes.

So I'll admit it -- if gold goes nuts on the upside, fortunes will be made by those holding gold shares. But I still prefer the actual product -- bullion gold. It's a cleaner play, no worries about a mine running out of reserves, no worries about union wage-boosts, no worries about political back-lash or confiscation, just fewer worries. And I avoid worries whenever I can.

To wind it up, I don't care for the stock market's action, but I do like gold's action. Gold and cash, that's where I want to be. And I'd be happy if my subscribers would copy my position."

A Paired Trade in Precious Metals Options and Futures Was the Basic Setup for the Sell Off

This contribution from a trader I know made sense to me. It helps to explain how the trade was set up for a sell off into the metals expiration, although I have not dug down into the numbers to test the theory in detail.

I think the fact that it occurred in rollover week facilitated a sell off. For this to have 'worked' those writing the gold and silver puts had to have been 'set up.'

Since these are generally fairly sophisticated players I had not thought of it, although I am sure they were hedged as well. Sophisticated traders are rarely purely long or short and are often involving intra-market dependencies. Still, one has to wonder if one of the big bank trading desks found a way to set up some large institutions or hedge funds, are they are often wont to do.

"What happened prior to the week of expiration was a large build up of commercial long positions. They were purchased in pairs with with puts. It looked delta neutral.

The banks sold the futures carefully creating a bear flag and then sold the balance on the break. Meanwhile the puts were kept and they minted money.

When you see a build up in longs on the commercial side it is never good in my experience, for gold and silver only.

Regards, Sabre"

SP 500 and NDX September Futures Daily Charts

There was a big rally today that started last night with the futures. The demimonde had its media spokesmodels out cheerleading early on. They became almost apoplectic on a slightly better than expected ISM number that was still rather dismal, all things considered.

If one bothered to look beyond the headlines to the new orders and inventories, it was apparent that they portend a further decline in activity. But that sort of thing is not said when the rally monkeys are in heat.

Stocks ran up to overhead resistance levels, and continued to be led largely by the SP futures, with the broader market lagging the push higher.

Whenever this happens it is hard not to be skeptical of the character of the rally. The Jobs Report is on Friday, with the ADP report on Wednesday morning. Consensus for the Friday Jobs is a loss of 87,000, and for the ADP report expectations are for a gain of 25,000.

SP 500



NDX

US Treasuries On the Long End Are Looking Toppy

Treasuries are not something I like to go long or short unless they are part of a paired trade. The long end of the curve is starting to look like a viable trade, unless one anticipates a short term stock market event and a flight to safety.

Friday is the Jobs Report.

People who have been holding Treasuries as a long term trade have done well. That trade on the long end of the curve is now starting to look like dead money, but these things take time to develop, and the bull trend in Treasuries has been powerful.

Dollar LIBOR Normalizes and US Dollar Index Declines as Eurodollar Short Squeeze Ends

Dollar LIBOR, and the related TED spread, is the 'tell' for these dollar index spikes related to eurodollar short squeezes. As european banks scramble to obtain US dollars to satisfy customer demand, they drive the 'price' of the dollar higher. The cause of the squeeze in this case was the euro uncertainty based on ratings downgrades on Greece and a few other EU member countries, and the hedge funds determined selling of the euro, which created a sell off in euros and a flight to dollar assets. There is also continued deterioration in MBS and other instruments denominated in dollars and held in the euro banks on behalf of customers.



The US dollar index tracks the eurodollar LIBOR to a remarkable degree. When the BIS data comes out for this period in time I am sure we will see a repeat of the squeeze in eurodollar deposits that we had seen in the last two dollar rallies.

Why is this significant? Because it shows that there is no fundamental trend change in the US dollar, which is in a long sideways 'chop' and still likely to head lower.



Although I am sure the Fed swaplines were utilized, the Financial Times reports that some of the european banks have been trading their own customers' gold for BIS dollar reserves.

Net Asset Value of Certain Precious Metal Funds and Trusts

Canadian Stock Exchanges Closed Today

As a reminder the Canadian Stock Exchanges are closed today for their national holiday Civic Day.

So if your junior miners are not 'performing' today the fact that they are not trading on their primary exchange may very well be the reason.

Butler: JP Morgan "Covering Its Silver Shorts Like Crazy"

JP Morgan holds a massive short position in silver, some of which it is said to have inherited as a concentrated speculative position from Bear Stearns. Retreats from such overextended positions are never easy, and therefore never straightforward. Having such a position can be very profitable in the short term since it gives one remarkable control over the paper price of a commodity, paricularly if the regulators are willing to turn a blind eye to certain trading practices.

If it is indeed reducing its oversized short positions, JP Morgan will undoubtedly attempt to 'smack the price' on occasion even as it covers, to prevent the specs and hedge funds from taking too much leash to the long side. This will help to prevent them from provoking a disorderly rout and, God forbid, a 'short squeeze.' In these managed markets, the major players tend to respect each other's turf, so one has to wonder who might take them on.

The 'deadline' if any that they might face is prospective position limits to be imposed and more transparent reporting required by the CFTC. Given the past history, it is most likely that JPM will not be overly inconvenienced by them in the short term. Ted has always been the optimist with regard to regulatory reform and willingness to 'do the right thing.' I also believe this will happen, but slowly. Still, it does seem as though the darkest hour is always before the dawn, and the last few weeks have been disheartening for the metals bulls, as demonstrated in the sentiment indicators.

Let's see what happens in the market and take our cues from that.

"JP Morgan Chase, the big short in the silver market, is "covering like crazy," silver market analyst Ted Butler remarks in his weekly interview with Eric King of King World News.

Butler thinks that both silver and gold turned around this week and he wonders whether, in light of the new financial regulation law, MorganChase will ever come back to shorting silver so much.

Butler also is very encouraged by the comments of Commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission and the promise of position limits in the precious metals markets." Chris Powell, GATA

You can listen to the interview with metals analyst Ted Butler at the King World News Internet site here.

The Committee to Defraud the World

"To say now that 'No one knew' or 'I was mistaken' or 'I was just doing as I was told' is another in a series of lies and deceptions that have supported one of the greatest frauds in the history of the world.

But this is not history. This episode of [MBS] fraud is still playing itself out now. And to fail to understand the depth and breadth of this madness is to place oneself in peril, and in the power of those who are twisting the Western economic and political system even now to satisfy their lust for wealth and power. You are only successful if you can keep what you kill.

This might have been an innocent policy error if it did not involve a transfer of wealth on a massive scale, followed by cover ups, denials, and a control fraud that exists even today.

But it also involved literally thousands of collaborators and enablers, from mainstream media people, economists, analysts, and other thought leaders to politicians and regulators who saw that it was to their advantage to at least passively support this scheme which they knew very well was a fairy tale, a fraud, class warfare by a new name, but were able to hide their own guilty consciences behind self-serving rationalization and the shield of plausible deniability.

History, and hopefully the justice system, will sort this all out. It is difficult, even now, to get one's mind around the enormity of it. This is its most powerful weapon. Who could be such monsters, so amoral, so destructively sociopathic? Future generations will regard it as an episode of madness, driven by a few people in a tight circle of self-reinforcing thought, people with remarkably similar cultural and educational backgrounds, driven by a consuming lust for power, that were able to dupe and delude an entire nation made vulnerable by propaganda, a co-opted press, and apathy.

In the meanwhile all the great mass of people can do is to watch, and wait, and seek to protect themselves from these ravening wolves grown increasingly desperate, as their arrogance comes to a tragic fall. They can vote out incumbents, but the parties choose the candidates, and too often they resemble competing crime families of special interests more than pillars of a representative government, saying one thing to get elected and doing another thing once in office.

It is difficult, even now, to get one's mind around the enormity of it.  This is its most powerful weapon.  Who could be such monsters, so amoral, so destructively sociopathic?  Future generations will regard it as an episode of madness, driven by a few people in a tight circle of self-reinforcing thought, people with remarkably similar cultural and educational backgrounds, driven by a consuming lust for power, that were able to dupe and delude an entire nation made vulnerable by propaganda, a co-opted press, and apathy.

This is when hubris is at its height, and the few feel they have everything to gain and nothing to lose, if only they can gain more power, and therefore become more ruthless. They are trapped in a cycle of fear and greed. The fear provokes the lies and the cover ups, but the greed promotes the extension of the fraud and the theft, requiring even more lies and cover ups. [cf. credibilty trap] 

The operative word is 'over reach,' in a classic late stage Ponzi scheme. This will undoubtedly add to the confusion as the truth is assaulted by the big lie. The last vestiges of polite society are often shed as the downfall reaches it final conclusion, at the end, when all is revealed, at last. And so there will be great danger."

The Committee To Save the World
John Hathaway
July 2010

Eleven years ago, the cover of Time Magazine (right) featured Alan Greenspan, Robert Rubin, and Lawrence Summers posing heroically over the headline: “The Committee to Save the World.”

The sidebar was: “The inside story of how the Three Marketeers have prevented a global meltdown—so far.” The reverent tone of the 2/15/99 article strikes a note of discord in the sour investment climate of today. The article gushed: “In the past six years the three have merged into a kind of brotherhood………What holds them together is a passion for thinking and an inextinguishable curiosity about a new economic order that is unfolding before them..” In today’s less exuberant world, the picture, the headlines, and the content of the article are laughable and mildly irritating.

The “brotherhood” perfected the recipe of papering over market crises with layers of
debt financeable only by negative real interest rates. Their passion for thinking about the new economic order gave birth to capital markets more akin to casinos than rational allocators of capital. In the words of Ambrose Evans Pierce: “Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low, throwing the whole incentive structure of the capitalist system out of kilter, and more or less forcing banks to chase yield and engage in destructive behaviour.”

Subsequent iterations and mutations of world saving committees have become routine. The committee of Jean Claude Trichet, Angela Merkel and IMF Managing Director Strauss-Kahn attempted to rescue the euro, the euro zone, and by extension, the global financial system. Their effort came a scant two years after Henry Paulson, Timothy Geithner, and Ben Bernanke teamed up to rescue the mortgage market and the U.S. banking system. The price of these two bailouts alone exceeds $2.6 trillion and still counting.

In a December 23, 2007 Op-Ed piece penned for the NY Times, Harvard Professor Greg Mankiw wrote: “The truth is the current Fed governors, together with their crack staff of Ph.D. economists and market analysts, are as close to an economic dream team as we are ever likely to see.” Two years later, the number of those who still believe in the magical powers of policy making leadership has plummeted....

Read the rest here.

Five More Failed Banks Cost US Government an Additional $334 Million in Losses

The losses from the mortgage securities frauds and the subsequent bubble collapse continue to debilitate the US financial system, particularly the regional banks, in a slow bleed costing the US government additional millions each week. The public relations campaign promoting the idea that the bank bailouts are done and successful, and that the US made money on this egregious abuse of public monies is patently false, and probably can be described as corporatist propaganda.

The banks continue to mount a campaign to resist reform and regulation. They are taking advantage of the weakness of the Obama administration in failing to reform the banking system through liquidations and managed bankruptcies, including indictments and investigations as was seen in the Savings and Loan scandal.

It is difficult to continue to assume good intentions in this administration, or even mere incompetence. The objections put up by Geithner and Summers to the appointment of Elizabeth Warren as the head of the new consumer protection agency shows how reactionary they continue to be, and resistant to fundamental reforms.

American Banker
Failures on Two Coasts Stretch Toll for Year to 108
By Joe Adler
Friday, July 30, 2010

Five bank closures in four states Friday cost the federal government an additional $334 million in losses.

Regulators shuttered the $373 million-asset Coastal Community Bank in Panama City Beach, Fla., the $66 million-asset Bayside Savings Bank in Port Saint Joe, Fla., the $168 million-asset NorthWest Bank and Trust in Acworth, Ga., the $529 million-asset The Cowlitz Bank in Longview, Wash., and the $768-asset LibertyBank in Eugene, Ore. The failures brought the year's total to 108.

The hammered Southeast bore the brunt of the failure activity, as it has for so many Fridays since the financial crisis began. Twenty banks have been seized in Florida in 2010, while 11 have failed in Georgia so far this year.

The two Florida institutions that failed Friday went to one buyer: Centennial Bank in Conway, Ark. The acquirer agreed to take over Coastal Community's $363 million in deposits, Bayside Savings' $52 million in deposits and roughly all of the assets of both institutions.

The Federal Deposit Insurance Corp. agreed to share losses with Centennial on $303 million of Coastal Community's assets, and $48 million of Bayside Savings' assets. The two failures were estimated to cost the FDIC, respectively, $94 million and $16 million.

Meanwhile, the failure of NorthWest in Georgia was estimated to cost the agency nearly $40 million. The FDIC sold all of NorthWest's $159 million in deposits, and essentially all of its assets, to State Bank and Trust Co. in Macon. The acquirer agreed to share losses with the FDIC on about $107 million of the failed bank's assets.

Elsewhere, the FDIC sold all of The Cowlitz Bank's $514 million in deposits to Heritage Bank of Olympia, Wash., which paid a 1% premium. Heritage also acquired about $329 million of the failed bank's assets, and will share losses with the FDIC on about $161 million of those assets. The FDIC estimated the failure will cost $69 million.

Home Federal Bank in Nampa, Idaho, paid a 1% premium to assume all of LibertyBank's $718 million in deposits, and agreed to acquire $420 million of its assets. The FDIC and Home Federal will share losses on $300 million of those assets. The failure's cost was estimated at $115 million.