Gold Daily and Silver Weekly Charts - The Architect and Her Nemesis

"Our sales of physical metal yesterday were the second-highest so far this year. Considering where gold is trading, the strength of this demand was surprising. Without necessarily expecting this very high pace of buying to continue, we nonetheless would look for Indian demand to continue at above-average levels, given how willing these buyers have lately been at prices in excess of $1500. Physical demand elsewhere remains subdued. Scrap supply is underwhelming at these price levels." UBS

A nice bounce, but now follow through is everything, for both the metals and the equity markets.

Short term market movements are indeed highly correlated to changes in liquidity if they are present, as even a casual observers knows.

And I would hope that most by now realize that the 'efficient markets hypothesis' is a dead duck, a propaganda piece put forward by the banksters and their demimonde.

This is the theory that the exchanges are naturally fair and neutral parties, perfectly capable of self-regulating themselves so that a level playing field exists for all participants, big and small, insider or not, without any need for regulatory oversight from an official public body. And that participants do not use extra-legal means to gain advantages, paricularly over the non-professional investor. The exchange is like a vending machine, merely taking a small fee for their efforts, and their members would never engage in any trading advantaged by their superior positioning and access to power and money.

The events of the past few years have tossed this canard on the rubbish heap of discredited whimsy where it belongs, although some still reflexively reach for it under duress.

And so when someone appeals to this theory, even if indirectly, to rationalize the recent action in the silver market in which the exchange increased margin requirements five times, in conjunction with bear raids well timed to the off hours, with some of their largest members and customers trapped in massive short positions, you will just have to wonder at the substance and integrity of such an argument.

Most fundamental arguments that appeal to short term market movements as proofs are dodgy in and of themselves.

But let's see what happens. Blythe is not out of money by a long shot, but as the levels of the Comex seem to attest, they remain steadily trending lower on the amounts of silver at their disposal for delivery. Perhaps they can find fresh supplies, but it is unlikely that it will be at lower prices. And so they continue their campaign to discourage and dampen demand.

Volatility comes with wars, even currency wars, and some items are more on the front lines than others.

Therefore I have taken my short term trading profits, and added hedges short the indices to cover what remains. I wish to see if this bounce continues, or if the Street continues to game the markets to perpetuate their perfect trading records.

The Architect and Her Nemesis

SP 500 and NDX Futures Daily Charts - Self-Consuming Capitalism

“And the British political economist Fred Hirsch generalized the point:  once a social system, such as capitalism, convinces everyone that it can dispense with morality and public spirit, the universal pursuit of self-interest being all that is needed for satisfactory performance, the system will undermine its own viability, which is in fact premised on civic behaviour and on the respect of certain moral norms to a far greater extent than capitalism’s official ideology avows.”

Rival Views of Market Society and Other Recent Essays, pg 156

Gold Daily and Silver Weekly Charts - EuroDebt - Le Dolour

"All paper will burn. Come, sit by me. We shall watch the bonfire together." - paraphrase of Another

SP 500 and NDX Futures Daily Charts

Everything was bouncing today, at least those things that had sold during the margin squeeze precipitated by the CME and the CFTC which affected most asset classes except bonds.

Of course they had to relent. Crashing the stock market is probably too high a price to pay in order to save a small clique of traders who are trapped in the silver pits.

But I would not count these fellows out of the game yet. Goldman and their ilk helped to crash an economy in order to loot AIG and the mortage markets.  Their perfidy has few bounds.

Gold Daily and Silver Weekly Charts

"Our government...teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy." Supreme Court Justice Louis D. Brandeis

This morning I added a lengthy intraday commentary here.

A fifth margin increase in silver is baked into the cake for Monday May 9th. Let it not be said that the CME does not care about its biggest customers.

There was a bounce today, and sighs of relief from the beleaguered metals bulls. My own portfolio was exhibiting some fairly impressive G forces today, that made up for the faux pas of coming back in a day early. Adjustments have been made, and thank God for hedges.

So what next. Nothing goes straight up or down, and silver certainly had gotten far ahead of itself. But as noted yesterday, I do not think that we are seeing an analog of the 1980 Hunt Brothers market corner rally which was fairly specific.

But who can say what will happen? Certainly not most of the commentators whom I have read, or the people who took the time to write in and tell me what a dope I am, and how silver is going to $22.

I cannot say it enough. It is not about predicting and making one way bets. It is all about managing risk in the short term, and paying attention to the market. I signalled my own sell within a day of the top, and came back in a day and a half before the bounce, for a trade.  I would have preferred to have waited longer, but the CME surprised me with the extra margin requirements.  And so I adjusted my strategy and came out without taking 'the big hit.' 

I think what bothers some people who write in is that I am still a long term holder of the metals. They send the oddest messages, feigning personal omniscience, and assuming some sort of undeserved pride in finally not being as wrong as they have been for a long time.

Well, sorry, but until the fundamentals change I don't change that long term portfolio, and certainly not in response to big moves either down or up, that are here and gone like flashes in the pan.  That is for the short term trading portfolio.

It bothers me a bit that the Comex does not seem to be addressing the very low levels of deliverable silver in their warehouse, and the incredibly large short position held by a few of the TBTF banks who are playing with public monies as far as I can tell.  That remains a potential problem even if they raise margins to 100%. And lower prices through rules changes do not help supply problems, the last time I checked.  It tends to dampen supply and make the problems even worse given enough time.

I have a bias to gold, I admit. But if you want to flee a manipulated market, I am not so sure that gold is so much different than silver, but certainly quite a bit less volatile, and more widely held as a a form of wealth by sovereign nations. 

I still cannot get over the fellow blogger who claimed that gold cannot be money because its value fluctuates, and some people hold it using leverage. I don't suppose the forex market is familiar territory to someone who could say this.  Everything is subject to speculation.  The crux of the matter is counter party risk and the ability, or lack thereof to manipulate supply in the long term.

Bart Chilton has indicated that the CFTC should look into the recent market action. To what end? They never release any of the pertinent data, and certainly don't do anything about it. And I suspect they won't until the aftermath of this latest banking fraud, after something breaks and a crisis ensues. I like Bart, and think he wants to do the right thing. I have also been in management situations that I think are similar to the one he is in now, so he has all my sympathy and good feelings as a lonely voice for truth, a pillar in the stream.

Greece is threatening to leave the EU, and I am sure that many of ther others in the EU will say, "Well let them." And yet it is not quite that simple, because the reason for leaving would be to default on their debts. Perhaps of benefit for Greece, but very bad for their creditors.

Would this extinction of euro debt result in a stronger euro as in the model of the monetary deflationists? Sometimes it is instructive to take your assumptions and apply them to someone else, to see if they are self-serving.

Greece's euro debts are held to a large degree by German banks. And a Greek default would encourage Ireland to do the same, and its debt is largely held by English banks. And in turn these banks are highly interconnected to the multinational banks. The financial market is still a mine field of counter party risk, and the Anglo-Americans and the rest are in a currency war.

The banks and their servants in office are fighting and gutting regulation every day, and there is little doubt in my mind that there will be a new financial crisis, worse than the last, that will shake the dollar denominated debt to its very foundations. But that's just my opinion, and I cannot tell what the time frames might be. However, I think I know what to look for. I also still believe that the UK will lead the way in the downward spiral of the western financial oligarchy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

"The extreme volatility seen in the price of silver—exacerbated by tightened margin requirements—and the la large swings in the price of gold, price of oil and in certain U.S. dollar exchange rates, do not in any way change the long-term outlooks for the U.S. dollar or for the long-term hedges against a collapse in U.S. dollar purchasing power. The current markets leave open the potential for near-term jawboning (official or through market intermediaries) and government intervention (overt or covert) to encourage relative U.S. dollar strength.

Despite whatever volatility there may be, the U.S. dollar remains on track for an eventual complete collapse in a hyperinflation, and the roots of that hyperinflation remain embedded in the system. The primary hedge against losing U.S. dollar purchasing power remains physical gold (and silver), with some funds outside the U.S. dollar. As discussed in the Hyperinflation Special Report (2011), I still like the Swiss franc, Canadian dollar and Australian dollar."

John Williams, 6 May 2011

SP 500 and NDX Futures Daily Charts

Hardly an auspicious day for the equity bulls as the rally from the Non-Farm Payrolls reported faded hard into the weekend close.

The NFP report came in on the high side of estimates. I looked over all the usual aspects to the number, and it appears that the usual suspects like Birth-Death and Seasonality are in line. And as a reminder, one should never substract the Birth Death imaginary jobs directly from the headline number. It goes into the unadjusted gross number which is then subject to seasonal adjustment, which in some months is quite impressively large.

One thing that struck me is that this was, because of the way in which the calendar dates fell, a five week reporting interval rather than four. It was not clear to me that the BLS adjusted properly for this.

On the other hand, there was some thought that agricultural hiring for planting has been late this year because of weather. Well, I cannot speak to that.

No matter, it is the longer term trend that is of more interest and meaning. And it seems to indicate that the US is adding low paying jobs, judging by the very slack median wage. Hardly the stuff of a recovery for Main Street.

The money printing bonuses for Wall Street continue. This is the set of ingredients one might expect to bake a stagflationary cake.

Have a pleasant weekend.

Year To Date Performance of a Few Dollar Denominated Assets - Currency Wars

The chart below not only shows the Year-to-Date returns, but also very nicely illustrates that concept called volatility, also known as risk.

The management of risk is the number one preoccupation of a successful trader. If you cannot do this, if you do not think of it with your every breath, don't trade.

Trading for the short gain is a thing unto itself. This is why I say that one does not ask traders what to do when shaping their long term public policy, or draw serious economic conclusions from short term market movements. I have to admit that economists themselves, joining the ranks of most politicians and regulators, have a fairly poor track record of late on influencing public policy, but that is a matter for disgraced professions to mull over while they try to talk their way around another financial mess which many of their members actively helped to create.

If you wish, take well thought out long term investments and hold them in a reasonably constructed portfolio appropriate for your objectives. The markets are particularly dangerous now because they are awash with easy money and wilder than the statistics show due to complacent regulation. Everything in this life involves risk. These days things are often not as they appear, and even cash is not without risk. Life is a school of probability.

It is particularly hard to describe currency risk to Americans because most of them have never been outside their country except perhaps for an insulated holiday on the Pax Americana. A surprisingly large number of the Yanks do not own passports, except lately perhaps for purposes of domestic identification. Quite an innovation, to need a passport to go about your business in your own country.

I am not saying that this insularity is a bad thing necessarily, but a phenomenon that subtly but profoundly influences group thinking, the cultural weltanschauung.

And it can be the strength of a nation when it mobilizes to action, but also the weakness, the downside of a relatively isolated and homogenous society, as in the case of an island, ethnic group, or otherwise relatively inward looking society, easier prey for demagogues, and psy ops, and the flattery of frauds. Care for another helping of freedom fries?

But this self-containment is understandable. After all, it is a big and very diverse country, full of natural beauty, much given to the rewards of exploration and travel, a study in itself. And the people are on the whole hospitable, remarkably unpretentious, easy going, and friendly. The country has the gift of virtual self-sufficiency if it were to once again seek it. And it would be the world's loss.

This idea of education and experience is not to say that people need to be geniuses to be people. One of our girls is not quite the sharpest tool in the shed, but she is undoubtedly wise beyond her years, in an almost wonderful way, because she has been gifted with an enormous power of empathy and common sense. Each one can be beautiful in their own ways if you have an eye to see them as they have been created. Every flower has its own enchantments, varieties, and value in God's economy.

But as for a knowledge of money, unless one's profession has exposed them to practical currency exchange situations, they often have only a cartoon like concept of currency fluctuations and relative values as digits on a screen, an intellectual abstraction.

As one of my old professors used to remark, it smells of the lamp, ie hasty and academic without practical understanding. And give them a little power or good luck, and they can quickly become almost unbearable. One of the greatest benefit of an education is that it will teach you what you do not yet know, it will show you the distant horizons.

"And therefore as a stranger give it welcome.
There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy." Hamlet Act 1, sc. 5, 159–167

When a reasonably intelligent person remarks that gold cannot be money because its value fluctuates, while their own currency is doing loop de loops to the downside, and their bonds provide negative returns, you have to wonder, until you realize that they are captive to their self-imposed limitations, their limited personal experience, and education and wisdom have not been allowed to lift them out of their deep wells of subjectivity.

educare, Latin from ex ducare, 'to lead out of, to bring forth'

And this I think is the interpretation I prefer for Dürer's Melencolia I. The exhaustion of knowledge, mechanical prowess without humanity or wisdom, which becomes frustrated by its inability to understand life, and to achieve contentment.

Granted, volatility is unusually high in the markets. But we are in a global currency war. Governments are in the markets, which themselves are awash with cheap liquidity and leverage. What else would you expect?

These are big events, and they will not be resolved in a day, a week, or even months.. Try to maintain your equilibrium, and you may wish to stay out of the way of the giants as they contend with one another. That is easier said than done, because the next financial crisis will be of a much greater magnitude, and everyone will be a participant, one way or the other.

US Ten Year Note does not include interest payments.

Gold Daily and Silver Weekly Charts - Currency Wars

With five margin increases in ten days, one could suggest that the CME and their do-nothing friends in the CFTC are machine-gunning the lifeboats, and the refugees from the currency wars.

There is no problem with the exchanges and regulators increasing margin requirements per se, and of course restraining leverage is a good thing. I would just like to see it done more transparently and in a 'rule-based' manner, as opposed to the ad hoc, cronyistic way in which it is done today, most often for the benefit of insiders who control the exchanges, and call for help and rule changes when they get in trouble. And they get into trouble through lax regulation and excessive leverage.

There are 'crash' silver calls down to below 30 to 22 abounding. Keep in mind I sold my short term silver trading positions last week, and was short term bearish.  I have just started buying back in to gold and silver yesterday and a little before with hedges. Also bear in mind that this decline is accompanied by a sell off in equities as we had suggested it would. Hence our hedging strategy has worked.

People ask, why do not the sovereign silver and gold bulls, the BRICS, fight this? The answer is that they are long term bullion buyers, and this short term paper strategy benefits them greatly.

I think the comparisons to the Hunt Brothers silver bubble might be a bit difficult to sustain, very big picture to the point of meaninglessness. The circumstances between then and now are very different, with the only thing in coincidence being the technical price action. But a concentrated effort by the government and the banks could write history and draw the graphs to suit themselves.

I think there is more to this than meets the eye. It really centers around a major struggle with regard to international currency, and the methods by which countries denominate their trade, and store the liquid reserves portion of their wealth. This is a currency war.

Certainly there are almost no bull calls for the precious metals here, and only a few neutrals. I am changing from short term bearish to neutral, and holding new light positions, most of them revolving around a few 'special situations.'  I am neutral, which implies uncertainty. When in doubt, stay out.

I have touched none of my long term positions.

Let's see how the Non-Farm Payrolls number looks, and how it is received. If there is a liquidation panic in the weeks ahead, then all bets are off of course.

This is going to pivot on the stock market and the Fed's short term liquidity actions. The market swings are being triggered by the opaque and irregular management of the markets and the money supply, and the fraud which still taints much of the financial system. Even the staid Economist magazine is questioning US government economic statistics. 

The American oligarchs may be having their own Mubarak moment in the not too distant future.

What has been hidden will be revealed, and what has been whispered will be shouted from the rooftops.

But one day at a time, so let's see what happens tomorrow.

SP 500 and NDX Futures Daily Charts

Another down day for US equities, although it is very telling that the VIX is still a very modest 18.20. In other words, although there is a fairly good decline in place, it is not accompanied by real fear, or at least, not yet.

Non-farm Payrolls tomorrow. Unemployment claims shocked the markets a bit this morning.

I think this is a cynical traders' market, dominated by bank liquidity and insiders. That does not make it any less dangerous to the ordinary person or the real economy.

Republicans Shelby and McConnell are refusing to confirm anyone for the Consumer Protection Agency created by Dodd-Frank, unless it is gutted first in a redo of the law. Although the Democrats are hardly real reformers, the Republicans are the fawning servants of the corporate oligarchy.

This adds more incentive for Obama to do a recess appointment of Elizabeth Warren.

An Interesting Theory on Silver for Volatile Times in Desperate Economic Conditions

Here is an interesting theory on the recent silver run up and correction which someone pointed out to me this evening from a chatboard.

I do not know if his theory is valid of course, and the author allows as much, as more data is required.  I doubt even the COT report this Friday will be of use.  I like to follow Harvey Organ and Dan Norcini on these matters and will look forward to their weekend commentary.

But what this person is saying is essentially the 'gut read' I had while watching the tape, off and on in recent days.

If the market was correcting because longs were selling out and walking away, why did the CME have to do a 4th and 5th margin increase to make it more difficult to hold long positions?   If something is burning of its own accord, why keep pouring gasoline on it, over and over?

Well one explanation is that they want people to cut their losses and not be overwhelmed if the prices continue lower. That is legitimate and I would be very grateful if they were to begin doing that. Too bad that US regulators never seem to do this when it really counts, like with equities and home mortgages and banking leverage for example.

But there was no denying that the parabolic increase was just dodgy. As you may recall I expressed wonder at it, and took my trading profits off the table, to much private criticism in the emails I might add.

And then we saw the repeated late night hits that started in conjunction with the CME's actions to increase margins, market actions that were too obvious to be accidental or coincidental.

I really believe that the core of the problem involves the deliverable ounces at CME, a big looming problem. I think the CFTC knows quite a bit more about the dynamics of this market and its associated and opaque derivatives than they admit. And I believe they are desperately concerned.

I did post a link from Ben Davies this evening in which he speculates that the high prices brought a load of scrap into the market, which is what prices do. But that scrap has not been measured, and it would have happened rather quickly, in a matter of weeks. I do not think the refiners can produce new eligible bars quickly enough even from scrap.

But regardless, it has not really shown up where we would like to see it. And as Ben points out, once this initial influx of scrap, low hanging fruit they like to call it, is exhausted, prices will begin to climb again because miners cannot even begin to adjust supply higher quickly enough. And the market action in the miners continues to be heavy handed and manipulative from my vantage point.

I suspect a lot more of what has entered the market is forward hedging by some of the bigger miners and the bullion banks, who were locking in profits, but ON PAPER.

So a lot of paper silver may have entered the market, but that is not really what is needed. So the exchange and the regulators and the big dealer who are incredibly short feel the need to dampen demand for near term bullion.   And by driving down the price they worsen a bad situation IF systemic shortages exist due to years of market underpricing and undersupply.   And if that is the case, the short term fix is a longer term poke in the eye with a sharp stick.  But few can accuse American management style of a bias to the long term solutions when a lucrative short term fix that becomes someone else's problem is available.

I am just fascinated by this, and cannot wait to see how it resolves and it develops. I am viewing this as one act in a much larger drama, the reforming of the global governance system that has been in place since the end of World War II.

Let's see what happens, and what comes floating in on the tides of change.

And please try to keep in mind what has happened over the past ten years. I am utterly amazed that the US has just passed through one of the greatest financial scandals and frauds in history, and within two or three years is willing to act as though nothing had happened, that it was just some random act of God, and that everything is back to a 'new normal' again.  Few prosecutions and shallow reforms.  Remarkable.

Well, things are not normal. There is an abscess in the body politic. And the next collapse and crisis which is coming is going to be monumental.  And some surely view it as an opportunity to feed their will to power. And perhaps Ron Paul will prove to have been prescient.

"Believe me, the next step is a currency crisis because there will be a rejection of the dollar, the rejection of the dollar is a big, big event, and then your personal liberties are going to be severely threatened." Ron Paul

Let's see what happens, and wait for some stronger indications of what the situation may be. As noted here many times, these are particularly dangerous markets, and only professionals and highly experienced traders should be actively in them.

But there is no charge for watching...

WSB
CME Margin Hike won't matter, The CRIMEX Clowns got stuffed yesterday
wrs - Wed, May 4, 2011 - 08:48 PM

I think I know what happened. I kept thinking that if OI increased on the kind of price drop we saw yesterday, then longs didn't capitulate because if they did, OI would have shrunk.

Here is what I think happened, the Commercials have been decreasing their net short in this latest run up, in other words, they helped it go up by covering short and going long. I believe they were doing that to accentuate the rise and to be able to liquidate their profits and accentuate the drop and cover short when the spec longs gave up. They wanted silver to look parabolic and then fail in order to scare everyone off.

Well it looks like the large specs have held tight, the COT report on Friday should show that the large long specs increased longs and are more net long while the commercials are more net short. Yesterday it was the commercials selling at a discount to the spec longs who just soaked up all the selling the commercials could do.

So today they raised margins again because I bet that the OI didn't drop much today if they had to raise margins again.

This is setting up for a huge snap back rally if my conjecture is close to correct.

Gold Daily and Silver Weekly Charts - Comex Raises Silver Margins for 4th Time

CME Raises Silver Margin Requirements for the 4th Time

I'm trying to remember how many times the Fed raised stock margin requirement during the tech bubble, or mortgage down payment minimums and bank reserve requirements in the last credit bubble.

The spin machine and demand dampening campaigns are well underway in an attempt to rescue the pampered princes of Wall Street and the City of London from yet another overleveraged paper asset scheme gone wrong, wobbling the Anglo-American banking system.

It is the duty of the central banks and the government to preserve and protect the privileged few and their financiers not only from justice, but any pain of loss or minor inconveniences as well, no matter the cost to the public trust.

Now if only they could magically create some substantial new bullion supplies for the Comex to forestall what appears to be an approaching default on delivery, at least based on identifiable inventory and assets represented by paper in customers' hands.

As Daniel Drew once famously observed:

"He who sells what isn't his'n, must buy it back, or go to prison."