Once again, as we have seen time and time again, gold responds to powerful fundamental factors and begins moving sharply higher only to be stopped dead in its tracks at the phony, corrupt paper gold market known as the Comex gold futures pit. One look at the price chart is all that is needed to see the vile footprints of the feds showing themselves precisely at the $920 level again.
Truth be told the monetary authorities and the current administration have no clothes and investors around the world know it and are voting with their feet. Recklessly mortgaging our nation’s future with spending that reaches levels that can only be called obscene is not the answer to this problem. Creating an artificial value for paper “assets” that have NO VALUE is laughable for its sheer illogic but tragic in the fact that so many will blindly herald this “solution” as workable. You can take a pig, clean him up, put a bonnet on his head, spray him with perfume and call him a daisy but he is still in fact a pig. So it is with the OTC derivatives stew of poisoned alphabet lettered SIV’s, etc. It is worthless crap, dung, manure, carrion, buzzard-bait, excrement, etc. Call it what you want but the fact remains that the US monetary authorities will mortgage our nation’s future for generations by attempting to throw good money after bad down this stinking rat hole that they are digging. In the meantime, sit on the price of gold and keep the citizenry ignorant of the firestorm coming their way. I see the horrific blazes that our friends down under in Oz are enduring as a type of symbolism of the raging inferno which is going to engulf our financial system.
The One’s Treasury Secretary Tim Geithner, reveals his much heralded plan to get the banks lending again and the entire market greets it by spitting in his face. What else can they do – demonize anyone and everyone who dares to question this rotten piece of legislation called a stimulus bill or who cries a “halt” to this nation’s headlong march into European-styled socialism. Where is the revenue supposed to come from to fund these trillion dollar deficits? How many generations will end up paying for this? What is the effect going to be on this nation’s future and particularly our beloved dollar?
My good friend Bill Murphy and his faithful brother-in-arms, Chris Powell over at GATA have spent the better part of almost a decade now working diligently to reveal the manipulation of the gold price by the feds in conjunction with the bullion banks. The quality of their tireless work speaks for itself and the evidence they have gathered is more than compelling for all but the most willfully closed-minded. My small contribution has been in observing the strange price action in gold as a long-time professional trader who is familiar with patterns and price behavior across a wide variety of different commodity futures markets. Gold simply does not “behave” like any market that I have watched and traded; that is indisputable as far as I am concerned. I am not the only professional to have noticed this.
For nearly 5 years I detailed weekly in chart form and in written analysis form the shenanigans of the commercial shorts, aka the bullion banks, as revealed by the CFTC Commitment of Traders report that is released each Friday. Time and time again, just like I mentioned in yesterday’s commentary at $920, the selling in gold at critical technical junctures, has been exclusively originating out of the bullion banks as evidenced by a massive build up in the commercial short position even in the face of some of the strongest fundamentals that one could ever expect to see in any market. Rarely if ever was there the least bit of FORCED commercial short-covering even as gold would experience its occasional extreme spike higher. I have NEVER seen a market make a parabolic blow off run or an extreme spike higher in which commercial short covering was not involved to some extent. The reason for this is quite simple – it is related to margin calls on positions that go deeply underwater. Regardless, the footprint that the machinations of the bullion banks leave in the market is easily visible for anyone trained in reading price charts.
Some of you might have noticed I no longer send the COT charts up like I once did but merely make reference to them in my commentary and remark about the changes in open interest and the technical resistance levels being enforced by this increasingly blatant price capping. Rather than answering the many emails that query me about my reasons for no longer doing so on a regular basis, let me simply say that I have reached the point where I feel it is nigh to useless to expose it any further. We all know what is going on and we all know who is doing it and we all know why they are doing it, unconvincing protestations of the non-believers to the contrary. Their entire argument consists of the following: “Gold cannot be manipulated because the feds would never do such a thing”. Sure – and they would not deliberately distort the CPI data, overstate the jobs numbers, understate the federal budget deficit, put a value on valueless crap or the overstate the true rate of economic growth either. I have nothing but contempt for those that are too stupid to believe the evidence before their own eyes. They should be regarded as officialdom’s “useful idiots”.
My response to this has been quite simple – forget complaining to the authorities – do you really expect them to do anything about it? Why should they? It is in their interest to see gold underpriced – for now! Maybe I will be pleasantly surprised but the cynic in me doubts it. If you really want to see an end to this farce, you have to strip the bullion banks of the armor on which they rely – and that means one thing and one thing only. You have to take the physical gold out of the Comex warehouses by standing for delivery in large size and forcing the bullion banks to deliver the gold. You have to keep doing this again and again and again until you literally break their backs and call their bluff. The truth is the big players, the big hedge funds with tens, or in some cases hundreds of millions of dollars at their disposal, have gone AWOL in this battle. The gold market is really not that large – do the math. The Comex officially states that it has some 2.8 million ounces of gold in its registered category. At the price of $900 that is a little over $2.5 billion. The thing is that were even half of this gold taken out of the warehouses through the delivery process, the paper shorts would be effectively finished. Legitimate hedgers would not have a problem since they could deliver against the hedge when the cash transaction was consummated. We have no problem whatsoever with bona-fide commercial hedgers. However, so-called commercial hedgers who are in reality speculators would be served notice that they stood a very good chance of being assigned if they failed to cover their paper shorts going into the delivery period. No gold to deliver and they are forced to go and get it somewhere.
I said all this because once again, now for the last three business days, there have been ZERO deliveries. I might be tempted to say that gold owners are holding onto their gold and refusing to sell it at current levels and that is why there are no deliveries but neither are there any longs standing for delivery either. There are 3100 longs left in the February contract so the drama is not yet over but the open interest in the February contract has been steadily declining since we went into the delivery period two weeks ago. It is obvious that the longs who have been bailing out are not standing for delivery. Over 1000 of them have sold out since Monday of last week without asking for any gold. This is not the way to beat the price rigging bullion banks.
Some of you by now have heard or viewed the video clip circulating on U-Tube by Rep. Paul Kanjorski. Do you think anything has really changed since then? The more I learn about such things as this the more set my convictions toward gold become. Like most of you who read this site, I do not welcome a soaring gold price since I understand the horrific conditions that will entail a rise to such lofty heights in the yellow metal. I much prefer the placid waters of sound monetary policy, good fiscal policy, and an economy based on savings and capital investment in which citizens, corporations and government live within their means. The fact is however we must play with the cards dealt to us and those cards are not currently giving us much choice but to attempt to protect our wealth from the dangers we see coming. For 8 years now, those of us who have been recommending gold to our friends and neighbors have been insulted by elites as “gold bugs”, cranks, whackos, nut jobs, etc. Yet in spite of their insults, we have been proven to have been correct in our views and have had our warnings confirmed by events. Sadly I fear that the worst still lies ahead of us as the feds will just worsen matters by their disastrous meddling.
I do not wish to discourage those who want to see if they can get the CFTC to do their job – please, by all means attempt to put pressure on them to do so. But why rely on bureaucrats whose loyalties can be divided when we have it within our own power to end the charade.
In the meantime those who want to play the paper game, had best learn not to chase prices higher but to buy into weakness, alongside of the bullion banks, and sell into strength when the momentum chasing hedge funds are getting their bids sucked into a black hole.
Technically, resistance remains intact for gold at the $920 level. Longs will have to muster enough strength to kick the bullion banks out from behind that wall. Further resistance lies above that level near $930. Support is first at yesterday’s low near $890 and then at technically significant $880.
Gold managed to move back above the 10 day moving average which turned back up after today’s strong move higher. The rest of the major moving averages continue moving higher as well- all friendly for the intermediate trend.
The HUI and the XAU, although higher today and shrugging off pressure from the puking broader equity markets, still cannot break through overhead resistance. The HUI needs a close above 310 and the XAU above 130-131 to give the indices a chance to begin a trending move higher.
The Dollar is higher today as risk aversion is back in meaning that the yen is also higher while the commodity currencies are lower. Back to the same old drill it seems.
Bonds are moving strongly higher and have managed to move above the 10 day moving average. They are deeply oversold and it appears that buying came in and was able to push them back up above the 100 day moving average after they managed to close right at that level late yesterday afternoon. Breaking down below a major moving average and then moving back up and closing above it is oftentimes a buy signal for short term oriented traders. Failure to have held above the 100 day and the 200 day was a certainty. Rallies still look to me to be selling opportunities as guys who did not want to sell into a hole will be looking for a place to get short.
Interestingly enough, Platinum made it back over the $1000 level today. Crude oil looked to be fairly strong early in the session but has now faded and broke below $39. It is still within a wide trading band between $50 on the top and $35 on the bottom. Copper is lower so there appears to be a great deal of confusion in the commodity markets this morning. Unleaded gasoline is higher with natural gas lower with the grains also moving a bit lower today.
I want to caution you that the bullion banks are trying to induce a spec long side liquidation by stalling the price move at $920. Open interest was down slightly yesterday coming in near the 350,000 level while volume was relatively modest with a mere 100,436 contracts trading hands. Considering the extent of the downmove yesterday, it is encouraging to see the lack of downside volume. It tells me that for now there is little enthusiasm for the sell side among the spec camp. That attitude will need to remain in force to defeat the obvious capping effort taking place.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini