Developing Gold Bottom: A Closer Look At a Short Term Excess of Power

"The banks have essentially been told by the Federal Reserve they're allowed a certain number of sins. Just not as many as there used to be."

Brad Hintz, Wall Street Reshapes Commodities Market to Fend Off Regulation


"The severity of the Russian winter has been greatly exaggerated."

Napoleon Bonaparte

Here is a closer look at the gold bottom that everyone and their brother was rushing to call last week, so they could claim prescience. 

As a reminder this is an option expiration week for the precious metals on the COMEX, and next week begins the August delivery period.

I have also included an update to the weekly silver chart, for inquiring minds who wish to know.   Silver is following gold on this upsurge.  A confirmation of the rally by silver is important.  If silver confirms the breakout, it will most likely gather significant momentum as its volatility engages the short squeeze.  But the physical silver supply situation is not as compelling as gold has been, although the seeds were sown when the pricing started to curtail mining activity more significantly.

Banks who take funds and guarantees from the Fed at a subsidy have absolutely no business trading the markets for their own profit without significant restraints and transparency, if at all.   The reasons for the prohibitions of Glass-Steagall should be apparent, once again, to all but the most craven servants of big money and the excesses of power.

As I have said several times over the last several weeks, every time that the COMEX dealer inventory has fallen to record lows like this, it has marked an intermediate trend change that in retrospect proved to be significant.

The drawing down of physical inventory available for delivery is one of the surest signs of a price manipulation gone too far.

And for the first time in this waterfall decline since the German people had the temerity to ask for the return of their national gold from the NY Fed, we see a legitimate chart formation that could mark a significant bottom in price.

Note the 'slanting W' which is a term I coined some years ago for a certain type of bottom in a price decline.  The most important feature was the successful retest of support at 1280, and the subsequent breakout above the top of the W today.

We could see a retest of support or two, and there is the more difficult resistance to be encountered from 1340 to 1360, which also includes gold's 50 day moving average.  This is an area of prior support where a potential double bottom failed in the face of a relentless paper selling attack some time ago. I suspect that while it achieved it's purpose, it was 'a bridge too far.'

To put it more simply, taking gold below 1340 was a terrible strategic error, most likely done with nothing but short term greed in mind.   

It may even mark the beginning of the decline and fall of the famed mistress of Wall Street derivatives and commodities manipulation, one way or another.

Sometimes there is no greater justice than when the powerful get their own way. They tend to do foolish things like engaging in a protracted winter war without arranging for adequate supplies, assuming that by their actions the supplies will become available.

The measuring objective of this particular chart formation is about 1450 or so.  There will be additional macro formations to look at on the chart which we will discuss as they develop further.

There is little doubt that the market mischief makers may have another go or two at this down the road.  It will be interesting to see how far their arrogance takes them.   

Of paramount importance is the physical supply.  The damage done to the real market structure for gold by this paper exercise should not be underestimated.   There are great things occurring, in quiet and largely unmarked, in the global markets. 

Gold Daily and Silver Weekly Charts - Reuters Says Gold Demand Outpacing Supply

"The current dislocation indicates that holders of gold futures have begun demanding delivery. But because of the large amount of leverage in the market, participants are not able to deliver on their obligations."

Reuters, Gold Futures Hiccup Indicates Demand Outpacing Supply

This is not news to anyone who has been frequenting this café.  But it is nice to hear it from another source.

The market structure in gold and silver is truly fascinating, particularly if one is looking slightly cross market at the mining sector.

One would hope that the miners would not be driven back into hedges by short term cash requirements at this price level, as they may find it to be fairly uncomfortable in the intermediate term.

And I would not be likely to invest longer term in a miner that was hedging its future ahead of what looks to be the next leg of the bull market. 

That is almost as bad as having a money manager keeping you short into what looks like a very risky set up to the upside. Not my cup of tea.  I wonder if we will see a limit up day or two before this is over. I cannot remember the last time that occurred.

There was commentary on the levels of registered gold at the COMEX that you may find to be of interest.

The market structure indicates that someone is going to be left 'holding the bag' on the short side. But who can say with any certainty given the growing divergence between the paper pricing and the physical reality?  We are in a currency war after all.

The Gold Forwards were negative for the tenth straight day.   Listen to this, and understand what it means. 

In their article about the 'hiccup in gold futures indicates that demand is outstripping supply' for physical bullion Reuters goes on to say:

"A dislocation in the gold futures market indicating that demand for physical delivery of the metal is now far outweighing supply has intensified in recent weeks, increasing concern in the market that the change may not be a momentary blip and participants may have become over-leveraged."

I think this deserves some serious attention.   I would not care to be short the metal, and face any requirements to have to deliver on demand.  It could prove to be costly. 

But again, these markets are so twisted that I don't think it is too much to say that almost anything can happen.  A 'crash' in equities would put a dent in almost any asset sector demand.   But those tend to be less probable events that are amenable to some rudimentary insurance for those with shorter term horizons. 

Have a pleasant weekend.  See you Sunday evening.

SP 500 and NDX Futures Daily Charts - Divergence Continues While VIX Drops

"I listened carefully to yesterday's Bernanke speech. He seemed ill at ease and almost stumbling. I truly believe that Bernanke is confused and even frightened by the results of all his manipulations. But what he's most confused about is the poor results he's been getting from both the economy and the markets. Bernanke appears to me to be a man trapped and confused by his own unorthodox tactics."

Richard Russell July 18, 2013

Bernanke is bewildered by the power of the credibility trap, and the ensuing unresponsiveness and inattentiveness of the Federal government to the problems of the people and the real economy. At least that is my opinion, and I could be wrong.

The divergence between finance and the real economy continued. The SP 500 closed at another new high, even as tech floundered due to poor financial results in the leaders.

VIX has now dropped to levels in which it could once again be a productive hedge against a market decline.

Chris Hedges On the Real News

The Real News is featuring Chris Hedges to inaugurate a new series called Reality Asserts Itself.

Here is part two of a seven part series. Part one is an introduction to Hedges himself.

I don't always agree with Chris Hedges of course. If we did, one of us would probably be superfluous.

I find his ideas and observations to be thought provoking, even where I might not agree because I prefer different approaches or methods of achieving what could be similar objectives.

There is nothing wrong with that sort of divergence. Indeed, I find a diversity of thought and methods, within some fairly well established historical bounds of human decency, albeit too often violated for the sake of a false necessity or expediency, to be the most successful ways of achieving significant results in the real world.

But difference is anathema to the minds of the ideologues and true believers of whatever position on the political and social spectrum, left or right.    And this is why they almost always resort to involuntary conformity of thought, and become increasingly intolerant of the other.