Gold Weekly Chart: Gold 10 Yr Bond Correlation; Bond Crash

"The CME Final indicates that on volume of 291,445 lots (27.2% or 62,000 lots higher than estimate) open interest fell 15, 107 lots (46.99 tonnes or 2.49%) to 590,685 contracts. On a stock market close basis gold was down 3.66%.

This was the heaviest volume since late May, a period of significant activity somewhat distended by the roll-over. Open interest is merely back to the level of mid-June.

A purely long-liquidation driven drop would most likely seen open interest contract more than the price fell. Some important short selling took place yesterday as well."

John Brimelow

“Gold's huge drop on Thursday is not the beginning of a new major leg down for the yellow metal. That at least is the conclusion reached by a contrarian analysis of gold market sentiment. There does not currently exist the kind of stubborn optimism among gold timers that is the hallmark of major market tops...The bottom line? The sentiment winds will be blowing strongly in the gold market's sails in coming sessions”

Mark Hulbert

I am mindful of a further breakdown in equities, but the more likely we will see an important sector rotation in July from bonds to stocks, and this may provide further lift for gold.

However a short term trading range seems more likely to me now, since the bullion banks seem so terrified of gold breaking up through the 1260 level. It is not inconsistent to have a protracted handle on the current cup and handle formation on the daily chart.

What are they afraid of? The physical offtake at the COMEX, especially in silver, was beginning to cause enough strain to raise concerns of a market 'break' which would be highly embarrassing to the Obama Administration. The last thing they need now is another scandal of failed regulation and crony capitalism. But this does not resolve the problem; it merely kicks the can down the road.



Although the correlation is far from perfect, indicative of the variety of drivers that constitute the gold price, the relationship between the 10 Year Note and the Price of Gold has long been in my dataset. It makes fundamental sense when you think about it. But it should be stressed that it is only a minority correlation, and its influence waxes and wanes, especially since the prices of both assets are subject to official meddling by the Treasury and the Fed.



Someone asked me if Big Daddy was Warren Buffett. No, its trader slang for the 30 Year US Treasury Bond.

Speaking of an expected sector allocation smackdown in July, I would not be surprised to see the wiseguys driving investors out of the bonds in July, shoving them into riskier trades, the better to eat you with, my dears.

The US bond is a fairly safe place for now, as long as you don't worry about the coming devaluation of the dollar which I would expect to hit around 4Q this year when they recalibrate the SDR.

But Bonds do crash. Here is a representation of the Bond Crash that followed the stock crash of 1929. See the flight to safety, and then the collapse as the dollar was devalued, a form of soft default? Cyclepro originally posted this. As I queried him he said it was based on data from Martin Armstrong. My own analysis indicated these were not Treasuries but corporates. Treasuries did 'crash' but not to this degree. But the point remains that bond at some point will be no safe haven.

When will this crisis bottom? I don't know, but it will almost certainly end badly because the kleptocracy forgot rule number one of the Trade: bears make money, bulls make money, but pigs get slaughtered.

US Non-Farm Payrolls Report for June; Unemployment at 16.5%

Despite the 'improved' rate of unemployment, achieved by eliminating unemployed people from government statistics as if they no longer matter, the plunge in jobs growth broke an important uptrend which had been fueled by temporary, lowpaying Census jobs.

This chart looks like Obama's post election popularity. The Democrat's are heading into a November bloodbath at the polls. Obama might wish to consider firing Tim and Larry now, rather than as a reaction to angry party members and supporters. Timmy is a busboy, and Larry has failed at every real job he has attempted. Looks like he is running out of tricks. Robert Reich and Elizabeth Warren are the kinds of people you should be bringing in.

A weak and insecure leader surrounds themselves with sycophants, cronies from the old neighborhood, and the hand picked stooges of the powerful. But at some point you need to get the job done for the people when you hold the reins of power. In the commercial world we used to say, "You are not really promoted, until you are successful." And in case you have not noticed, you are on your way to palooka-ville.

People of substance, Barry, people of substance. There is no substitute.




Unemployment according to the U6 Alternate Measure was steady at 16.5% thanks to discouraged workers dropping off the radar screen.



U6 Unemployment: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workersLabor force status: Aggregated totals unemployed

SP 500 September Futures Daily Chart

The US equity markets went out on the lows, after having set a new low in this decline, ahead of a four day weekend, at least for senior traders.

The markets have 'jitters' over the Non-Farm Payrolls report tomorrow sparked by fresh concerns over a double dip recession. The "D" words, Depression and Deflation, are being tossed around aggressively.

Let's remember this and compare it to where we are in thirty days, towards the end of July.



As an aside, it is now becoming increasingly clear that Goldman Sachs 'triggered' the housing crisis by pulling its credit lines to New Centuary Financial mortage company, and helped to trigger the most recent crisis by pulling credit lines first on Lehman, and then later on AIG.

I wonder if Goldie has what it takes to pull the credit lines on the United States? One can only wonder. Keep an eye on Big Daddy, because it's the whale in the ocean.

Gold Daily Chart: Shock and Awe; Cup and Handle Formation; US Bonds on Deck

The metal bears and bullion banks certainly get an 'A' for effort in this most impressive 'shock and awe' smackdown in the gold bullion futures. I was getting concerned about this sort of attack given the recent things floated out in the press about gold and its relationship to external events.

I had an email this morning saying that 'this proves that charting has no value in a manipulated market.' If this is your understanding of charting, that it is a sure thing, that perfect system you have been looking for, then you are right, it has no value to you. Maps do not take you where you wish to go; maps let you know where you are relative to your objective.

What charting provides is perspective, a visual representation or 'map' of the market.

More importantly, it helps us to understand the context of this sell off, which looks like the banks 'threw the kitchen sink' at the futures market over growing concern about the potential for a breakaway rally, and the physical offtake at the Comex getting out of control.

That this is US-centric selling program could not be more clear from this chart, a selling phenomenon which is repeated almost every day after the London PM fix and as the US markets open.



I do think the cup and handle formation is still active, although it has been pressed to the level at which we would be more concerned about follow through selling to the downside. As we have always said, in the event of a general selloff, a liquidity panic, everything will get sold, and the charts are trumped.

I was a little surprised that they could press it all the way down to 1199 even on an intraday, expecting 1204 to provide more solid support. But the trade is thin, and the markets are 'lightly regulated' by the CFTC under Gary Gensler (Goldman alumnus) to say the least.



Now having said all that, I am not overlooking a broader setup in the markets, created by the likes of Morgan Stanley, Goldman Sachs, and JP Morgan and their associated hedge fund cronies, in which the big financials are herding investors, shoving them around the allocation plate, keeping them moving, which is how they make their money through taxing transactions heavily with fees, commissions, and soft frauds.

Stocks are rather oversold in the short term, and the bonds are very overbought. As I mentioned yesterday, if the market does not 'crash' it would be quite seasonal for the bonds to come under bear attacks in July. Here is what that chart looks like.



Can they get ever more overbought? Sure, we just saw that sort of panic buying in the last great plunge in US equities. But historically bonds are well priced to put it mildly, and certainly not for anyone seeking value. I think a lot of tension in the market is due to the Jobs Report tomorrow, and the fact that most traders will be leaving on vacation after today.

As I recall Goldman was forecasting stocks to go lower, down to 950, if we broke support as we did a few days ago. I am interested to see if their forecasts match up with their own books. Personally I think that since they are a Fed supported bank, they should be required to disclose all their major positions in the particular, not aggregate or net, on a monthly delay at most, with weekly even better. That way the people would know if these monstrosity banks are acting honestly as a major bank supported by taxpayer dollars, or are they really enormous hedge funds which are entitled to a greater level of secrecy, but should be fully culpable for all their losses.