SP 500 and NDX Futures Daily Charts

There was a slight downward pressure today as it was a bit of risk off, with some commodities, bonds, and stocks trading weakly because of 'taper talk.'

As if.

There should be no doubt in anyone's mind that the Fed and the government of the US (and UK for that matter) are pursuing policy designed to enhance the well-being of the wealthiest few, and doing very little for the public at large, except perhaps just enough to keep them confusedly apathetic.

Have a pleasant evening.

 

Claims Per Ounce of Deliverable Gold Rises to Record High 61

"So you are lean and mean and resourceful, and you continue to walk on the edge of the precipice, because over the years you have become fascinated by how close you can walk without losing your balance."

Richard Nixon

The point of this 'claims per ounce' measure is not 'how high is too high.' 

The real significance is how out of bounds is the market, so that when the market turns, how high must prices go to clear supply against demand, to revert to the mean.

There is 'plenty' of gold at the Comex and in the world. Unfortunately not much of it is for sale at these prices. And what is sold tends to be rehypothecated. The only question seems to be 'how many times?'

If prices were falling in an environment of ample supply and slack demand, then it would be a different story.  But they are not.  Demand worldwide for physical bullion is high historically, and supply is thin.  And yet prices have decreased.  And there is plenty of evidence of market manipulation.  How hard is this to understand?

As I have said any number of times, the Comex is not where the market is going to break. The physical market is not centered on the Comex, which is the locus of paper price fixing.

If and when the Comex breaks it will be because there is a general default in the physical market, most likely in Asia and the LBMA that triggers a run on the bullion banks, and then on the Comex.

Like the dollar, the Comex will not default in the technical sense because like US bonds they can force a settlement in their paper at a price they dictate.   The problem with that, of course,  is that while it is technically not a default, it is a very real blow to confidence that is not easily undone.    It is a de facto default.

I am concerned that these jokers will go too far.   And the further they go, the less force is required for a 'trigger event' to create a break in confidence.  Those who place their hopes in the players to avoid that regrettable outcome are probably engaging in wishful thinking.   Tell it to the London Whale. 

I do have some hope that the Exchange and/or the regulators will act, but typically they are lulled into the complacency of continuity and political pressure until things begin to get very unstable.  For now the bigger players will just reassure them that there is plenty of gold at the warehouse that can be moved quickly to meet deliveries if required. 

So to summarize, as leverage becomes outsized, any reversion to the mean, also known as unwinding, becomes more difficult.

Every time the registered gold inventory has reached these extreme lows there was an intermediate price trend change within six months.  This time it could be six months, or nine, or twelve.  The longer a divergence from natural market dynamics continues, the harder it will be for players to unwind their short positions and obtain real bullion to cover.  And in a market break, inventory will evaporate almost overnight.  Those who are slow to act will be bailed-in.

It is all about the pricing and managing of risk.  And I think deep down that it is about financially breaking the miners and taking advantageous positions in them ahead of the next leg up for gold in this currency war. 

It's an old story.  I hope that the compliance guys are considering the counterparty risk in metals derivatives when they do their worst case scenarios.

I hope that the regulators and policy makers understand what a 'break in confidence' in the gold market could trigger beyond itself. My own outlook remains for stagflation, with hyperinflation being unlikely except in the event of a major policy error and unfortunate series of follow-on decisions. But this current crop of crony capitalists are just the gang of blindly arrogant knuckleheads to do the improbable.

This is what I think based on what I can see, and I could be wrong.  But the facts seem fairly clear and sound, as it seems to happen in every Ponzi scheme or market instability before things break and start moving on their own momentum.  People suspend their disbelief because things seem to keep moving against reason, until they don't.  And then the experts say, 'who could have seen this coming?'

Gold Daily and Silver Weekly Charts - Are We There Yet Daddy?

"We run carelessly to the precipice, after we have put up a façade to prevent ourselves from seeing it."

Blaise Pascal

Gold and silver largely chopped sideways today with a slight downward bias, but nothing of real consequence.

There was a small amount of movement of gold out of the Scotia Mocatta warehouse on Friday. The report is shown below.

The way to play the precious metals market is to not take leveraged or timed (option) positions. Why is this?

Because the markets are being price manipulated, like the currency markets, LIBOR, base metals, and quite a few others it seems.

So what do we not do? We do not try to time the market, since the guys who are pushing prices around have the advantage of 'seeing our hands' given their market positioning and access to non-public information.

This means we are trading for the intermediate to long term. Daily price antics cannot affect us because we are not leveraged, and we are not holding things like options which have expirations.

I wanted to clarify this, because lately I have been getting some questions that make me think that some are trying to time this market, and pile into leveraged positions to maximize their outsized gains. That is not likely to work. The worst thing that can happen to a new trader is to hit a jackpot like that, because they will break themselves trying to regain the feeling of being fortune's child by playing long shots.

Convergence is a more likely way to play markets. That means that even though some things can get out of bounds and stay there for longer than we might think, eventually the fundamentals will come to bear and the markets will converge back to probability again.

In the case of gold, claims per ounce at these prices are at historic highs. The last two times this happened, we saw a major intermediate trend change within six months. Can it be nine months? Sure, why not? With regulators turning a blind eye and the Fed essentially handing the banks and trading desks $80 billion per month by buying their assets at non-market prices, things can go on for quite some time.

But eventually the fundamentals of supply, demand, and value will apply, and sometimes with a vengeance. We saw this in the financial crisis of 2008, wherein the mispricing of risk in Collateralized Debt Obligations blew up, and the housing bubble collapsed.

Sometimes that is what happens when trend becomes overextended. You can break yourself trying for the maximum profit and bragging rights, and miss the big move when it comes from sheer exhaustion.

So I think that is where we are with the precious metals, and with gold in particular. There are no sure things, but this one seems to be unfolding in a fairly classic manner. Try not to pig out and get sidelined before the time comes. As Bernard Baruch once said, better to lose the first ten percent of a major bull move than to try and get in early.

Now, you may not think we are going to see another leg up in precious metals. And you could be right. So what do you do? You sit out and wait for a clear breakout and confirmation. For those more aggressively inclined you take light positions with cool money and no leverage. And then sit and wait to be right.

I do not know how this will unfold exactly. But I do know one thing. All the pundits and master traders don't know any more than that either. But they will be glad to sell you their opinions, and hope that you do the natural human thing and remember the three times they were right, and forget about the six times that they were wrong. Most people certainly tend to keep score that way.

There are ways to get nearly perfect records in trading. But most of them are not available to the average, honest person.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Après les Jobs Report

Techs were off a bit and the financials were weak, but the DJIA and SP 500 both closed near their all time highs today on weak volume and what was really a lackluster trade.

VIX has fallen back into complacency.

The economic calendar this week is a bit light with some more consequential data showing up towards the end of the weak.

Uber-equity Twitter (TWTR) closed around 43 today.

Have a pleasant evening.