SP 500 Futures and Gold at 10:30 AM

The Sept SP 500 Futures daily chart rolled over at big overhead resistance and has now fallen to support, retracing approximately 50% of its advance. Housing sales are falling dramatically according to this morning's economic reports.

Why this would surprise anyone is beyond me. Outside of the cheerleading the economy in the US is wooden, zombie-like, dominated by non-productive speculation and wealth transferal. It is becoming a textbook example of policy error for the next school of economic thought to come forward after this epic failure by the neo-liberals and their faux free market hypocrisy.

The SP 500 *could* fall to the bottom of that trading range which would take it down to 1050. However, JPM and Morgan Stanley have been appointed to get a General Motors IPO out into the market over the next week or so, which will help to relieve the US government of its 60+% stake in that company. So, while it may decline further, or find a footing here despite the news, I would not expect it to fall apart unless there is a big event or breaking news. They would really like to prop the market until they can get this pig out the door.



Gold was hit again by bear raids today. Make no mistake, this is what it is, and it is as we forecast. If one had hedges in place it did not matter, but it does serve to illustrate the shallow venality of this market, and the lax stewardship of the CFTC.



The economic news this morning was quite dire, and concerns about a 'double dip' will revive as the US enters its 'zombie-like' stagflation which is the natural consequence of policy errors and a failure to reform.

How can a country being run by gamblers, control fraud operators, corrupt politicians, and the idiot sons and shills of decrepit oligarchs (W Bush, Clinton, Obama, Palin for example) possibly turn around without a serious reform and change in regime, and a return to the fundamentals that made it great?

This is what Americans voted for in the last election, and they were cheated, and rightfully feel betrayed and disappointed. Change will still inevitably come, but such changes are historically fraught with risk. Other ways will be sought to further distract a restless public. Change and progress will be resisted with a remarkable intensity by a powerful few, like men possessed. The drums of war are being beaten by those who never fight themselves, but feed their half lives off the misery of others.

And so we go into the future with fear and trembling.

Silver Leaving the Comex As Investors Want to Get Physical

Dave from Denver reports that:

"On Friday 516,522 ounces of silver were withdrawn from the Comex from Brinks.

Yesterday another 1.6 million ounces were withdrawn from Brink's and HSBC. It all came from the "eligible" category, which is the investor silver being kept at the Comex. This means it wasn't the banks and SLV playing a "shell game" with their "fractional" silver holdings. This was real stuff leaving and going into real hands off-Comex.

This is a lot of silver leaving the Comex and at least the silver leaving HSBC is motivated investors taking physical delivery.

In the context of gold/silver holding up as well as it has so far this week (silver contract roll, options expiry Thurs, 2-day FOMC meeting), it would seem that the demand for actual physical delivery of gold/silver maybe starting to overwhelm the cartel."

Gold Daily Chart: Déjà Vu All Over Again

A glance at the chatboards and the technical analysts last night cast quite a bit of gloom over the precious metals and the gold chart in particular after the smackdown in price it received after hitting another new all time high. Even some normally steadfast analysts seemed to lose their nerve at that big red 'engulfing candle.'

It didn't help apparently to have noted last week that gold almost always gets hit in an option expiration week, to a great or lesser degree depending on the underlying contract's popularity and the distribution of puts and calls. (Note 1) And of course this is an FOMC two day meeting week as well. Benjy and his mutts are all about the confidence game these days, and Larry Summers is the hairy-knuckled persuader who can move markets and destroy wealth, at least in the short term.

Some of it is disinformation from traders at hedge funds who spread rumours to support their own positions. Some of it is the natural exuberance of those who are hopeful but long suffering from being on the wrong side of a bull market. Even worse are those who simply ignore the markets and pursue some misplaced theory or belief for which they are willing to sacrifice themselves, and hopefully you, if they can manage it.

If you look at this chart below, as gold climbs within 'the handle,' it tends to get hit at the top of the channel with bear raids and profit taking, and then finds a footing near the bottom as the shorts cover and the hot money moves back in. It has done this twice now most recently. Why it comes as such a surprise that it is doing the same thing again is tied perhaps to the memory span of the markets now, which is about a day. This is a day traders market overall, and this is not a good thing.

This does not mean that the price of gold cannot drop from here and go lower, or even break down through support and change its trend. But it does mean that it has not done so yet.

It appears highly probable, to the point that I will be happily surprised if it does not, that the price of gold will go back down to test that trendline support, and set a firmer low, shaking out more weak hands. But anticipating the market too much to the upside or the downside is how speculators lose their nerve, or their money, which is consumed by losses, fees, and commissions through over-trading. They overleverage, overextend, and then throw their positions away at highs or lows.

And as for all these hysterical 'forecasters,' so certain of what will come next, and most often repeating the same, tired memes at every opportunity, keep in mind the old saying, "The words of the wise considered in quiet are better heeded than the shouts of a ruler among his fools." Ecclesiastes 8:17

Listen to all worth hearing, especially inviting a diversity of informed opinion, but allow the market and your own calm reason to instruct your actions. There is nothing more powerfully wrong and corrosively dangerous to your money than self-reinforcing group thought. I have seen the evolution of this condition on many chatboards as moderators and powerful and persistent posters start suppressing, first through peer pressure and then through outright bans and censorship, even fact based dissenting thought, contrary judgements, and evidence not supporting their assumptions.

I do not know which way this market will go, up or down. I like to think that I know what to look for by now, and how to listen to what the evidence of the markets is saying to us. All the rest is discipline, perseverance, and money management. Most professional traders find their niche in some market inefficiency or informational asymmetry, and leverage it with their deep pockets, certainly deeper and better connected than yours. As an amateur you cannot hope to compete against them in their short term games. But pride and greed have a siren's song.

If you cannot make decisions and reason calmly when trading, then you are trading to lose, and should just stop it, now. This HFT-driven trading is THE worst market for cheap tricks and outright scams that I have ever seen. Even though they are stealing pennies, it is over millions of transactions, and it debilitates the trade. The silver market in particular is a shame, although we have seen similar manipulation in the energy markets by the likes of Enron for example, that brought one of the US' largest states literally to its knees. And still there is no reform.

Find some safe harbor and stay there, and stop venturing out in dangerous and unfamiliar waters. Better to take an adequate, modest gain than to suffer an immodest loss. You are just feeding the sharks, and they do not need the encouragement.



Note 1: On the Comex / Nymex, the metals options for the GC contract expire on the fourth business days prior to the underlying contract's delivery month. If that day is a Friday or the day before an exchange holiday, then it is the day before that. This is the 24th of June for the July contracts. There is something known as 'Asia Gold' and 'Asia Silver' that have a different expiry, but they seem to be an odd product designed to capture Asian business and has a metric specification and no volumes. For the US contract based options it is the 24th.

SP Futures and Gold Daily Charts at 2:30 EDT: Smoke and Mirrors

The spike in the overnight futures based on the vague assurances from China to revalue the yuan higher, an obvious and strictly political move to pre-empt the discussion of their currency manipulation at the upcoming G20 meeting, was used to justify a classic 'wash and rinse' in the price of stocks, and bring in some coin for the needy Wall Street banks.

This is how the moral hazard of bailing out the Too Big To Be Banks has returned as an unintended consequence, strangling the real economy and the very markets which the bailouts were intended to save by taxing production and capital with the drag of a corruption tax that also has a dampening effect on efficient capital allocation.

The Banks, being fundamentally unreformed and insolvent, with failed business models based on fraud, are unable to make their expected outsized returns using conventional business means. With the mortgage and CDO ponzi scheme collapsed, they must resort to the more familiar soft control frauds in the capital allocation markets, creating and exploiting inefficiencies to support their unsustainable existence. Better that they would have been broken up and liquidated where necessary, rather than being saved without a structural reform.

No matter the rationales put forward, it was an act of political corruption in which the Congress and the last two Administrations are complicit. More and more wealth is being transferred out of the productive economy and into the hands of a financial elite that spends it in the non-productive accumulation of capital, high risk speculation, and hoarding incented by historically low tax rates for the very wealthy.

As I suggested last night, the spike higher in the futures was artificial, and worth fading to the short side. But while it stays above the trendline now around 1110 I would not lean on it too hard, since the threat of a snapback rally in the last hour is always there on these thin volumes. If it breaks down, we are probably heading down to the 1060 support in a roundabout way. The economy is floundering, with about half of US GDP dependent on fraud in financial assets and corporate accounting.

There is also an FOMC rate decision coming up on the 23rd, Wednesday, so we will see some artificial action around that. It is also the day that GTU closes its shelf offering which should take some of the pressure off the unit price.



Chart Updated at 5:00 PM EDT

As a reminder this is the option expiration week (June 24th) for gold and silver July contracts at the COMEX. Even so, the pullback in the price of gold is well within the range of the handle. Short term it is relatively easy to manipulate the price within a certain range of the primary trend, given the current state of regulatory capture at the CFTC. At some point the primary trend will take a much steeper slope as we head towards a commercial failure to deliver. But no one can accuse the people in New York and Washington of long term thinking when there are short term profits to be made, and campaign contributions to be pocketed.



Chart Updated at 5:00 PM EDT