Gold Daily and Silver Weekly Charts - Bad Economy, Big Finish

"Mark where his carnage and his conquests cease!
He makes a solitude [desert], and calls it — peace."

Lord Byron, Bride of Abydos

Gold in particular was under pressure since yesterday evening, with a concerted effort being made to hold the line on price around the $1400 level.

This is a big week for gold and silver, with COMEX option expiration tomorrow, and the end of August delivery on Friday, with available inventory at record low levels for this bull market.  There was intraday commentary on this here.

Stocks did a reversal and gold and silver popped like coiled springs when US Secretary of State John Kerry vowed that the US would respond to 'the moral obscenity of massacre in Syria.' 

Smells like teen spirit, and the invasion of Iraq.  And the markets reacted accordingly. 

The economy may be floundering, the leadership may be compromised, and the majority of those over the age of 18 within the Washington Beltway may be on the take, even if indirectly, but there is always the ability to bring the blessings of democracy and the Pax Americana to those who require it, whether they wish it or not.

Let's see how gold and the equity markets manage their way through the rest of this week.

Stand and deliver.

SP 500 and NDX Futures Daily Charts - Market Goes Out On Lows On War Woes

The stock markets did a quick reversal and went out on the lows when John Kerry, US Secretary of State, beat the war drums today on Syria.

The volume was thin and the markets were toppy to begin with, and Kerry's hawkish statements took them down tout de suite.

Pictures of an Exhibition in Policy Error - Without Oath or Honor

The growth in money supply is very strong, both in M2 and MZM, both broad measures of overall supply, each with a differing emphasis on duration.  Both are growing at around 7 percent year over year.   This is certainly in excess of the GDP, and the growth of consumer loans and bank credit, which is only growing at 2.5 percent year over year.

What is particularly disturbing is that the growth rate of real disposable income at this late stage of The Recovery™ is sub one percent, even as corporate profits, cash levels, and executive pay return to stratospheric levels for the large multinationals with large cadres of lobbyists and significant political influence through the revolving door.

I am not saying this is solely a Federal Reserve driven policy error.  Not at all.

Quite a bit of it is being driven by fiscal policy, and specifically by the Congress and a Wall Street friendly Administration.  This is not a New Deal, it is the Raw Deal.

But the failure of the Fed to act aggressively in conjunction with other regulatory agencies to reform the financial system, given the additional powers as regulator which they actively sought in the aftermath of the financial crisis for which they were a primary contributor, makes them equally culpable for the folly of this 'trickle down' approach.  And the 'hands off, see no evil' approach to widespread financial fraud and abuse that continues even today.

There is a credibility trap at work, that prevents those in leadership positions from addressing the real problems frankly and honestly. They will attempt to shift the blame and the pain to the people, but with the pay and privilege of leadership comes responsibilities and obligations, what at another time would have been lumped together as 'honor.'  

Oaths and the highest principles of the land are just pieces of paper, not allowed to stand in the way of the personal god of the day, gettin' paid.

And I think that the ruling elite have lost all sight and sense of the consequences of this in a frenzy of personal advancement and enrichment.

This is neither sustainable nor decent, and will not end well.

 

"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I'm going to put it very bluntly. I regard the moral environment as pathological. And I'm talking about the human interactions that I have. I've not seen anything like this, not felt it so palpably.

These people are out to make billions of dollars, and [think] nothing should stop them from that. They have no responsibility to pay taxes, they have no responsibility to their clients, they have no responsibility to people [or] counterparties in transactions.

They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent and they have a docile president, a docile White House and a docile regulatory system that absolutely can't find its voice. It's terrified of these companies.

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I'm afraid to say... both parties are up to their necks in this.

...But what it has led to is a sense of impunity that is really stunning, and you feel it on the individual level right now. And it's very very unhealthy. I have waited for four years, five years now, to see one figure on Wall Street speak in a moral language.

And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems."

Jeffrey Sachs, Address By Video to a Conference At the Philadelphia Fed, April 2013

As a Reminder, Tomorrow Is Options Expiration On the COMEX

The goal line defense at 1400 gold is more understandable if one remembers that this is an important week on the COMEX.

Tomorrow is an option expiration for gold and silver, and $1400 is a psychologically important level for gold.

Round numbers like 1400 tend to attract a lot of 'buy to cover' stop orders and other types of speculative betting. So a break out through 1400 could trigger a quick run higher of another 30 or 40 dollars.

And perhaps even more significantly, this is the last week of the August delivery period, and gold is in relatively short supply for delivery. At this point a quick rise in price is likely to attract more contract holders to take delivery, rather than encourage eligible bullion holders to switch their COMEX warehoused gold to the 'registered' for delivery category.

I have included a snapshot of the calls that are subject to expiration this week in gold, and their distribution by strike price.  There are about 8,800 calls between 1400 to 1425 that will be expiring this week.

This is only a small part of the picture, but I think it is more relevant than usual for the reasons cited above.

We'll see how the price action continues through this week, for a better idea of what is happening. But it is hardly what one might call fundamentally honest and transparent.

If the cap on price seems counterintuitive you must have an old fashioned concept of what the markets are for, with such quaint notions as supply and demand and price discovery. These markets are all about power and influence, and using gimmicks and positional power and privileged information.

Sometimes when a coiled spring releases, it does so with some extraordinary power.