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Here is yet another possible explanation on the mystery of the falling gold and silver prices. In the gold markets powers are at play that act counter to intuition.
We start by asking: Who decides on what trades get executed when and under what conditions? Who decideds on a minute to minute basis? Who on a day to day basis? Is it usually people?
In the past it would have been people, but this is by no means the case today. Much of market action is driven by algorithms. And one of the algorithms active today (inanely) goes something like this:
Falling euro = rising USD = falling price in gold.
Rational human analysis has been delegated to computer algorithms. In the past we used to say, â€śdonâ€™t fight the tape.â€ť Now itâ€™s become â€śdonâ€™t fight the algorithm. Add to this the deliberate smack-downs from various sources and we see that paper gold canâ€™t move in any other way than it is.
The EU is moving towards dissolution, the euroâ€™s future veiled in darkness, but gold is driven down in response.
Should there be an awakening that causes people to adjust their algorithms to reality, gold might explode. Perhaps this will happen when the paper gold price collides with the demand for the real stuff. We are clearly not there yet and anyoneâ€™s guess as to when this will happen is as good as anyone elseâ€™s. To answer that question, we would need to know how much gold the bullion banks still have left and how much is actually being drained.
On this note, I found this dandy piece on the Cartel, their shorts and the gold drain from London vaults. Youâ€™d think itâ€™s only a matter of time until THEY have to go long and cover their shorts to prevent even stronger demand for physicals which they will have a harder and harder time delivering into.
â€śThere still seem to be quite a few folks who question and/or don’t understand the “massive physical orders below $1600″ stuff. Let me state this again for clarity: We’re not talking about the Comex here. The “massive physical orders” are in London and are getting filled there, not New York. This is how it has always been and this is how it remains. That the price of paper gold in NY affects the purchase price of physical metal in London is the “futures tail wagging the spot dog” that Ned Naylor-Leyland described last summer.
And herein lies the conundrum for The Bullion Banking Cartel. On the Comex, new spec and managed money is emerging daily to short the gold and silver markets. This money is primarily run by HFT WOPRs which are keying off the lousy charts and other technicals. You must also remember that, post-MFG, there ‘s virtually no one left in the pit to take the other side of the trade so, when the self-fulfilling short algos pile in, the fall in paper price accelerates. Again, though, Econ 101 teaches us that a falling price almost always leads to greater demand and, in this case, it almost certainly is true.
So, paper price is being driven lower by the spec shorts in New York while Cartel metal inventories are being drained by physical orders in London.
If paper price continues lower, the physical depletion in London accelerates and never forget that every ounce taken out of “the system” decreases the “leveragability” of The Cartel by 100 ounces.
Not only MUST the Cartel adjust their net short position to stem the paper drop, the depletion in physical will greatly impact their ability to add shorts back in when the inevitable rebound occurs. What we are left with is this: The Cartels MUST continue to cover shorts and add longs here in order to halt the price trend which is undoubtedly draining their vaults. Additionally, I suspect that they are losing so much physical metal out the back door that their days of outright manipulation and control of price are ending.
And this short covering and long addition is EXACTLY what we are seeing in the CoT. The latest report, basis last Tuesday, was incredibly bullish and keep in mind…it was dated LAST TUESDAY! Since then, price has fallen another $40 in gold and $1.10 in silver (if you include this morning), so we can safely assume that the CoT structure has only improved. For perspective, consider these stats:â€ť
Should the euro actually break up, I expect gold to explode, no matter what the dollar does and the shorts will end up in the ICU burn unit.
Or how about this — the entire gold / silver push has been a SET-UP — get dough-heads to dump their money into precious metals (the elites selling their gold / silver for top dollar and then they pull the rug out on everything) — everyone sells their gold / silver because it is dumping and the elite buy it back for pennies on the dollar). Meanwhile, everyone else has lost their shirts.
I don’t think so, Bentnail!
Now that is.. out of the box thinking…..
Very interesting comment.
If Greece is forced to or chooses to leave the European union and this is the “climax” as PG points out, and we are leading up to this now, why isn’t gold going up? When it climaxes and then begins to get better gold will fall even further, no?
This is one of the biggest arguments out there, in that, based on the ever increasing reasons and fundamentals, PMs should be screaming but they are not. I think that there are a lot more margin calls based on losses, a lot of fear so people are running to cash (stupid), a lot of algorithmic trading and plain ol’ market psychology of when an asset has dropped more than people like, capitulation takes place, sending the asset further down.
There is a lot of both fear and confuzion out there!
Why the long explanation – 11 years into the 1970s gold bull – gold dropped from $190 to $110 and the BGMI dropped 60%.
Its the same cycle happening right now. Stop trying to be so smart and just accept gold is going to trade down to $1100 approx, before stage 3 starts. The gold stocks have another 15% to fall.
Look at history. Richard Russell says the goal of a bull market is to make it almost impossible to ride from beginning to end. So the pain is not done.
What, other than the price of gold having gone up for some time, are the similarities between the ’70s and now? Was the financial system on the brink back then? Was one of the main global currencies on the verge of unraveling? Were central banks busy buying as much gold as they could? Were China and India big buyers of gold? No, to all. The world wasn’t sliding into financial purgatory back then, as it is now.
This is why I’m not sure the comparison between the ’70s and now is a very compelling one.
Moi, I find the behaviour of gold very, very perplexing. The least reliable source of answers seem to be charts these days.
nice to see level headed analysis. You da man!
Peter, you took the words right out of my mouth. Jenny, I just don’t see gold goin that far down. But, I could be wrong – I am wrong a lot. But, to compare the 70′s to the present day and age – I believe is an apple/orange deal.
Thanks. Sometimes I get lucky.
I think it’s bouncing from oversold levels. Things can get only so oversold before they bounce. Then, the drop might resume. Also read today that Obama has $500 000 invested with JPM. No wonder he heaped praise on them yesterday.
Here I am answering Irish’s question about JPM, not gold. But come to think of it, if gold were “normal” the same would be expected for IT.
Peter, very interesting about Obama with that much money with JPM, thanks I`ll have to check that out, I`m wondering could this be in the form of stock options that he may have been paid with for services rendered ?
I can’t believe he would be that stupid!
AL, BELIEVE IT, OBAMA IS THAT STUPID…
I bet Obama was trying to corner the silver market thur. jpm…..
Good point, Peter!
Are you ever going to take Peter up on his question from yesterday: ? If Big Al is your contrarian indicator and you said you made “lots of money” by doing the opposite of what he says are you willing to prove it?
And since you wish for people to “stop trying to be so smart” , saying that gold will trade down to $1100 approx and gold stocks have another 15% down are the biggest hypocritical statements you can make because NOW YOU are making the predictions. Shoe meet foot.
Jenny: Should gold go to $1100 as you predict, would that not also mean a deflationary event with the S&P dropping down to around 950? The last time this happened in 2008 in nearly destroyed the banking system. Today the US Federal Debt is nearly twice it was in 2008 and growing along an exponential upwards trend. A deflationary event where gold goes down to $1100 would mean curtains for all governments in the US forcing real draconian cuts in spending not just the satirical politics of cutting growth in spending. Not going to happen.
HI AL ..don’t forget to ask MR PAUL, if he would be up to doing a show with NIGEL FARAGE, & your good self. Thanks again for keeping us informed.
Jenny makes a great point. Everyone is trying to call a bottom in gold and look for an answer as to why its falling in a ‘risk off’ environment. Well, until people stop looking for a bottom, one will never come. We need people to finally give up and think that gold is going down another 50% from here. Only then will we have a chance at putting in a legit bottom.
And if you look back to other major world events, gold almost ALWAYS goes DOWN when the craap hits the fan. This whole notion that its a ‘safe haven’ is utter junk.
9/11 – gold got hammered.
Financial crisis – gold got hammered.
I could name 10 other events.
Point being, gold gets sold down almost more than anything else when people panic in the markets. That one point seems to be lost on 99% of the perma-Gold Bulls and I cant fathom why they are so dense at times.
Once this Euro nonsense calms down and they either chuck Greece out (which would strengthen the Euro, contrary to popular belief) or they do the opposite and award an endless supply of bailout funds, then gold should begin moving back up again. Further down the road we will start to see a huge inflationary environment when economies around the world start to really rebound. THEN gold will soar, posssibly double where its at now or more. But until then and until some resolution in europe one way or the other, gold remains under pressure along with all commodities.
9/11: Gold closed Sept ’01 UP 7.5%. The HUI closed up almost 10% that month. After plunging almost 20%, the Dow closed DOWN about 11%. So gold, including the miners, did it’s job.
Do you consider this a bad time to buy? This is only the second time in over a decade that the HUI has been oversold on the weekly chart (RSI 14). The price is now at a strong support zone that goes back to the beginning of ’06. In gold terms, the HUI is already very close to the ’08 lows. The time to buy any asset is when it is hated.
All the best – Matthew
matthew…ditto….on the “,buy when it is hated….”
My stock screen is a sea of red WITH ONE EXCEPTION: JPM is up 1.84% on the day.
HI PETER….JPM up 1.84%!!!!!! WHAT’S UP DOC..ARE THEY BUYING THEIR OWN STOCK.
I think itâ€™s bouncing from oversold levels. Things can get only so oversold before they bounce. Then, the drop might resume. Also read today that Obama has $500 000 invested with JPM. No wonder he heaped praise on them yesterday.
You some how seem to strangely omit the fact that after the slamming, gold continued to rise and reached higher highs.
I agree with you about the Euro and the velocity of money but gold dropping another 50%…ehhhh…I might consider that if Jenny’s bottom call of $1100 gets hit.
GOLD dropping another 50% !!!…bottom call of $1100 !!!….”NO CHANCE”, that would make silver a few dollars an ounce..nnnooooooooo way……..& if i’m wrong i will eat my cat.
make sure that you shave the darn critter before you eat it. I boiled mine with the hide still on and it ruined the meat. Just some advice.
MARK A. advice taking, thank you . PS any advice on a good sauce?…BIG AL What wine would you recommend ?.. & don’t say something from CATALONIA.
A mayonaise and mustard mix with a touch of salted vinegar. As for Wine…I would recommend rubbing alcohol because you are gonna have to sterilize your guts after eating that meal.
Hey Mr. Irishtony,
I’ve found that if you skin them they look and taste just like rabbit, when grilled. If he’s an old cat, he’ll be a little tough, so maybe age him a couple of days and marinate in teriyaki for a good 24 hours. With some imagination and a healthy dousing with some Texas Pete hot sauce, wheweee, you really got something there.
IRISH LIKES THE RABBIT WITH THE FUR STILL ON IT..
I will join you and PAY for my plane ticket over the pond to meet you. No way – no how!
And I kinda like cats –
MARC…..becareful with the cat talk,,,IRISH , STILL CONSIDERS HIMSELF A “KOOL KAT”
Yep! I should be more careful!
You’ll eat your cat? What! Are you related to the President?
I was thinking about the movie Fatal Attraction just last week. You know. The scene with the rabbit. Uh-boy, back to the therapist…
Hi Mark, I’m not expecting a 50% drop in gold from here, not in the least but my point is that so many people keep (wrongly) trying to call the bottom in Gold. Its futile. It will bottom when it decides to and not before. It could still drop substantially, is my point but eventually it WILL be much higher than current prices, of that I’m most confident.
I’ve just seen too many occasions when people are watching and expecting gold to go up on some bad news of some sort and it does the exact opposite.
Ok, maybe 9/11 wasnt the best example but most major negative world events have ‘initially’ seen the gold price take a hit – only for it to go higher later on after the reaction by most often monetary policymakers to ease, which is always positive for gold. Its just the initial reaction that people seem to continually mis-judge and then berate Gold for, when there is no reason to.
Over the long term gold keeps its purchasing power when currencies generally do not.
Ahhh..Okay, Now I WILL COMPLETELY AGREE WITH YOU ON THIS MATTER! In the past I’ve posted on this blog the exact same feelings, and its one of the reasons I decided to make my own decisions and do my own research – that’s why I haven’t jumped into purchasing any mining stocks heavily. I lost a ton of money listening to gurus and failing to back up what they told us to do in their newsletters. They always talked about how they had the experience and the inside knowledge on how to navigate the “secrets of the market” Well, if those were secrets, they must have been smoking something to come up with their analysis. I sometimes wish I could turn back the hands of time to get back all that I have lost, but it is what it is.
I agree with your statements completely and I support your complaints.
stay frosty and thanks for explaining!
Thats what people are forgetting. Gold is NOT going up in value. Rather, fiat currencies are doing what they have ALWAYS done….lose purchasing power over time!
Marc – exactly! Gold is maintaining its purchasing power whereas paper is rightly losing its.
Mark Alan – I was just reading one of the ‘guru’ Gold Analysts the other day recommending Canaco and how it was a great entry point in that Junior. I believe that stock plunged over 60% today. I’ve always done better buying stocks that none of the Newsletter writers or Analysts follow. I find as soon as coverage begins on a stock, then the bias begins as well, and its hard to find out the true facts.
Well, here is a little more fuel to the bear market on gold. I think Irish posted the article regarding the announcement by the IMF to purchase $2 billion in gold because of the economic conditions. The article was posted also over at zerohedge as well.
As fate would have it, the story was proven to be a carrot, no such statement by a representative was ever made, so this could have also helped the sell off. A lot of fear and uncertainty out there. I am eating some crunchy broken glass this afternoon. I sure hope this level holds because the momentum is looking REALLY UGLY at this point.
Sorry MARK….cant take the credit for the IMF piece, that was BOB.
Well WAY TO GO BOB!!! Duhhh! just kidding.
Marc…..becareful and make sure if you extend credit to IRISH YOU HAVE AL COSIGN THE NOTE….
have you been proof reading again? you keep referring to me as Marc and not Mark. Freudian slip, there Jerry?
that article always sounded dubious at best to me. Thats the other thing you have to watch out for in this sector – there are so many talking heads all telling you one thing or another and how gold is going to the moon, yada yada. It will go up, but in its own time and we dont need silly people misleading investors with stories like this that are baseless. There is enough solid fundamental reasons as to why gold will climb over time, most importantly I think is the ever rising demand out of China. That didnt exist in the 1970s. Its new and its real and I think will have a bigger impact than almost anything else, other than countries actively wanting to debase their own currencies. This rout right now in mining stocks and commodities themselves will run its course. Eventually sellers will run out of anything to sell and then we have a bottom and can slowly work our way higher from there. I wouldnt expect a V shaped rally simply because too many people are. Got to play the contrarian here.
About the IMP to purchase piece check http://www.commodityonline.com/printnews.php?news_id=48052&table=news This is an updated and corrected version. The IMF has NOT stated that it plans to buy $2.3 billion of gold as reserves. INSTEAD, the IMF has only stated that it plans to increase its reserves……
Someone last week posted this and it seems to have gotten lost.
THE GOLD PRICE WILL RISE ONLY WHEN THE EASTERN DEEP POCKETS DECIDE THEY ARE CONTENT WITH THE MASSIVE GOLD RAIDS ON CARTEL GOLD RESERVES, ONLY WHEN ENORMOUS VOLUMES OF ORDERS ARE FILLED AT LOW PRICES, THUS DRAINING CARTEL MEMBER BANKS.
The gradual decline could very well be because of the following reason.
What Jim is saying is that Asian Forces know the game, want the gold, and figured out how to get it ar lower prices.
They know the banks are in trouble, have margin calls and are getting the gold from troubled banks
They attack one bank at a time. First victim UBS(Do not know who they are)
They place bids $10 lower each time and increasing their bids.
If this is true it answers everything.
Now how long will this go on for?
How low can they bring the price?
What happens after they got their fill?
China did not advise 1 billion citzens to buy gold if was going to go down forever.
There will be a new currency. How far out is the question?
Read Bob Moriarty about how to invest
It is easy to sat buy low and sell high but:
Excuse the language but you got to have the balls to buy low as you can see.
Yes, those are very good articles, and you have to understand that China likes to do things in a very methodical process. Time isn’t a concern for them, so while they have all the currency reserves to buy physical and other assets all over the world, we little investors are getting bled dry.
Ol’ Bob Moriarity knows what he is talking about. If you are going to nibble on the miners, go only with top quality junior producers in safe jurisdictions and MAKE ONLY SMALL PURCHASES EACH TIME, We have no idea how far this thing could fall but if gold breaks below $1525 and closes down at the end of the week, you can bet we could very easily see some serious pain over the next month or two.
stay frosty and thanks for the post
How do we know if this is happening?
This is key as to why the fundamentals are there and Gold is lower.
When will it end and how low will they bring it?
I e-mailed Jim(Hat Trick)but he did not reply
Why does Jim Sinclair not mention this?
I sold most of my shares last week cannot take anymore loses.
Now they are much lower
CSI.TO is at $3.5 these guys have high grade gold, platinum and palladium
I think I will concentrate on these guys will be mining mid 2013
I am at a lost what to do
Lord give us wisdom Joe
Hi Big Al, you continue to say that it is a good time to buy quality gold mining shares, while others seem to think it will take a while for a break out. Well, Bob Moriarty seems to think like you, the bottom is in and now is a great time to invest in quality gold mining shares. He seems to think QE3 has nothing to do with gold and gold stocks as Europe is printing money right now and gold is going down. He says it has nothing to do with anything fundamental, charts, etc, only that it has come to a point where the sellers are drying up….hard to sell stocks and the low volume is a sure sign the bottom is in. He says buy when everyone is selling and you will make a lot of money. Here is the link. What do you think? http://www.mineweb.com/mineweb/view/mineweb/en/page103855?oid=151465&sn=Detail&pid=102055
Bob Moriarty makes some excellent points there.
This whole obsession with QE3 – really, its ridiculous. If Gold can only go up due to another quantitative easing isssuance, then we really are in more trouble than one would imagine in this sector.
I prefer to believe, like Bob does, that gold will eventually simply run out of sellers and then the buyers will be in control for the next Bull move.
Gold went up from 2001 until now – and when did all this QE nonsense begin? 2 years ago? 3? Certainly not in 2002 or 2003 and gold was able to move up perfectly well, well before any QE stuff was talked about. Its just another buzz word the media likes bandying around to try to explain the ‘why’ of golds movements when they have no clue as to the actual reasons.
The markets and most investors in general are whores of the MSM propaganda…they desire stimulating phraseology to fulfill their lustful desires to move the markets. I also read Mr. Moriarity’s post today and i completely agree. His call on silver still holding but I do believe it will surpass the April 2011 highs sometime in the future. I like Bob because he is not a cheer leader like most over at KWN. I like KWN but I have learned to take everything they say about “bottoms” with a very large grain of salt.
I agree completely with you Mark A., again. Wow, you would think I am your “private cheerleading section”! HA!!
BOB M..has been quite lately…….that means there is something that is going to happen
unexpectantly……Bob, comes up with some great ones…..
Oh come on, John Nadler is good at writing catchy headlines!
Yes! That’s very true. I have to admit he can be very witty. Funny thing though, he doesn’t advocate people NOT invest in gold, but he is NOT a speculator that’s for sure. I think that is how he seems to play things. He approaches gold in the old fashion manner of investing – 5% to 7% of one’s portfolio and pray that it doesn’t go up – is their typical approach. Jon just doesn’t like the idea of anything outside that box of thinking. He does have a very interesting story regarding gold and how it helped save his life.
If gold closes this week at this level or lower, the odds are that it will move lower—especially with the momentum indicators I’m looking at. The other fly in the ointment is that the conventional markets are breaking down and will slide a LOT further. There are some juniors that have bottomed out and I’m starting to purchase. Some of the bigger boys have further to move down. GDXJ broke down today and will probably move lower. When this is over, there will be tremendous opportunities. THIS GOLD BULL IS NOT OVER.
I don’t know about the conventional markets sliding a LOT lower, a little more, yes, but it almost is acting like it wants to retrace from here. But your gold thesis holds water with me, as I am praying that it can recover to $1560 by the end of the week because this momemtum is looking like the Titanic rolling over.
Hi Mark; good to hear from you. The dollar is going higher (I think I said that a couple of weeks ago)—It’s breaking out as we type. The conventional markets on my charts look horrible. The Dow should hit 12,400 the end of the week or the first part of next week and then rebound a little. The path of least resistance is down for the markets. There are some charts that I’m watching that’ll give me a good indication when the down movement in gold is over. I hate to sound negative, Mark, but I just look at the technicals and call it the way I see it. I wish it wasn’t true but I’ll turn bullish when the info is objective.
Nope, that is the best thing to do. Call it as you see it. I have to admit, I am a little too bullish on gold and was not expecting this steep of a decline. I was looking at the dollar today and it looks like it is breaking out strong, could see 84, but that 82 area may see a little resistance unless Japan decides to blow up, then the dollar index will surely move up to 86. But with the dollar getting stronger, a flight into treasuries, foreign stocks breaking down hard, we may see a less dramatic drop in the markets than we think. I don’t know but thanks for your input.
Oil is getting the iron rod taken to it this evening.
Anyone heard of the “9 year cycle in Gold”? What are your opinions?
another guru article that just throws confusion into the camp. there are a lot of bloody bull gurus right now. I feel particular sympathy for Alf Fields and Jim Sinclair but there are others…including me.
I suppose we all have to do SOMETHING while we wait for the sunrise surprise (gold + $100 some fine day) so commenting on blogs serves a useful purpose. I’d luv to see Jenny’s bottom and $1100 would be okay too
Uncle Bob joined the parade of bottom callers:
“We are at a major bottom in gold and gold shares. The fact that some of the biggest names in the business are telling investors to bail out or keep their hands on their wallets if they’re tempted to buy is a buy signal. If you have a hundred people in a room and every single one of them was a bear, the next trade would be up because you would have run out of sellers. The fact that the volume is so low speaks volumes all by itself. There are no buyersâ€”only sellers, and we’re about to run out of those. When that happens, the very next trade will be up.”
Again, another bottom caller! I like Bob and his thoughts on the sector generally but he has been wrong on several occasions and yet only highlights the times when he was right, funny that.
His idea when the last seller is done, then we go up, is of course valid, but that can happen from any price point so its not all that useful an argument.
Watch and listen to the above, it is NO BS
At the risk of sounding simplistic, HSBC and JPM Chase have huge trading desks trading the precious metals with millions of capital. These traders are paid a salary and bonus. They go for the big bonuses and could give a rip which way they trade. Further, politicians call in-ask for favors periodically and they are given the right answers albeit, maybe only temporarily. We know of a big bank with $30 million on the line in gold spreads running from $1950 to $2600 with most of it expiring on the August futures. My guess is its one or both of these big boyz getting ready for a huge rally to skim the cream once again. You cannot fight them as they are among the best, have huge capital and have impeccable connections. I think to trade it in futures or shares you can only follow them technically. Gold appears based today Wednesday but did post $1526.70; under our do or die 1535 price point. Last price at 109PM NYC time, gold is 1539.30 on the June most active futures. Silver is 27.44 last with a low of 27.18. Price of 26.48 was an old low and a line in the sand. Silver’s trading range is 26.48 to 36.48 on Bollinger Bands. My instincts tell me a floor is in but you never know. We are on the verge of something nasty in Greece and then all bets are off in either direction. -Traderrog
traderrog, no offense but please would the commentators in this sector just quit trying to call a bottom. Everyone has failed so far and the more bottom calls we get, the further the price of gold will fall as everyone hasnt thrown in the towel yet.
As soon as everyone quits trying to call the bottom and begins projecting much larger downside targets, only THEN will the bottom actually come and nobody will even notice at the time.
I agree Robert.
This cause people to buy to much and to early, not leaving powder for another day
Thia is a problem I have as well going in to son and not pasting myself.
This is a gane of utter patience and nerves. Greed will kill you.
Lord Bless Joe
Joe…..ditto on the greed…
The market can and will remain irrational longer than you can stay solvent..
Why fight the Cartel? You can’t beat them, so join them….
Sit back have a beer and let them bring the whole thing down..
Why buy gold at 1900 when you can buy it for 1000?
Don’t whine about frankly, adapt to it…
That’s exactly how we should do it too. That’s why having dry powder makes this thing do darn exciting.
Peter is suuuch a cheapskate! I’ll mail an evelope containing 100 trillion dollars to youknowwhom if gold hits 255 before 2500.
Thank you for the sensible crutiqie. Me and my cousin were just preparing to do a little research about this. We grabbed a book from our area library but I think I learned better from this post. I am very glad to see such wonderful info being shared freely out there
Yep, the folks on this site are great!