Tuesday, October 5, 2010

The Move In The Metals Isn't About Japan's Rate Cut and QE Announcement

Japan announced a renewed zero interest rate policy and a quantitative easing initiative designed to jump-start its economy and presumably drive the yen lower vs the dollar in order to stimulate exports.  Here are the details via the NY Times:  LINK

While gold did jump in price when this news hit the tape around 12:45 a.m. NY time, interestingly most of the overnight move in gold and silver did not occur for another three hours, when London opened:

(click on chart to enlarge)

Just as interesting, while the yen initially dropped vs. the dollar, it is now trading higher vs. the dollar than when the news hit the tape.  The spot dollar plunged  is now well below the 78 level:

(click on chart to enlarge)

I don't know about anyone else, but I find this market response quite interesting and it's not what I would have expected - at least initially - if someone told me that the Bank of Japan was going to ramp up the currency wars like this last night.

Actually, I would have expected gold to pop, but I also would have expected to see the yen plunge vs. the dollar, at least for the short term.

So what is going on here?  I believe the market is responding to what it believes will be the U.S. Fed's "counter-measures" to Japan's move last night.  In fact, Japan's QE proposition is actually quite small (including the bank lending pool announced, it's not much more than $400 billion) compared to the first round of QE of roughly $1.7 trillion in total by the U.S.  It is my view, in conjunction with the speech issued last week by the NY Fed's William Dudley (who is also a former Goldman Sachs partner, meaning he is plugged into the policy channels if not creating them outright), that the U.S. is getting ready to announce, in some form, an even larger stimulus program next month. 

The precious metals market and the US dollar index are thus behaving in a manner which is consistent with the expectation by the market that the Fed/Obama Admininistration will respond to Japan's currency war shot with an even more powerful shot across the bow of its own.

As I write this, gold and silver continue to spike higher.  The big banks who are short gold and silver via leveraged paper positions are going to get annihilated here.  The "spikes" in prices are coming in "waves" that reflect the waves of nausea and vomiting that are occurring with the traders on the Comex/LME who are managing absurdly excessive paper shorts.  Today may be the day that these traders are carted off the metals exchanges on GATA stretchers.


  1. There is also the possibility for another false flag operation to divert the attention of the masses away from their own economic demise.

    Joe M.

  2. it could also be about "who owns the house collateral" or the physical vs paper tug of war, or inflation is real, or several other issues you, Midas, Jim S and Jim T, Dan N et al have been kicking around for a bunch of years.

    And all the reasons seem to be converging now.

  3. I'll give B.O. some credit for the move:

    "I realize that we are facing an untenable fiscal situation" - Barrack Obama, yesterday

  4. Dave,

    I should have taken your advice a year ago and liquidated my IRA, taken the tax hit and bought PMs. Well, being a slow learner, I suppose better late than never.

    Do you see any pull backs in the near future where there would be a good time to purchase physical? I know we are heading into the high buying season for global demand, but waiting for early next year could spell disaster if the price keeps going up at this rate.

    Any ideas are welcome.


  5. Dave,

    I have a question regarding junior miners. I have a scottrade account & a think or swim account. I tried to open an account with Euro Pacific so that I could buy foreign stocks on the actuall exchange they trade on instead of adr's. They just passed new regulations which means you need $25,000 to open an account with them. Previously there was no minimum. Thank you Obama. Regardless I want to buy some of these miners but don't know if I should buy the pink sheet or over the counter versions they are selling. Am I being paranoid or am I correct to want to own the real shares?? Do you know of a way to buy the real shares without having a large sum of money. I have $10k i'm looking to invest in them. Any advice would be much appreciated. Thanks for your time and love the blog! Cheers!

  6. Great post, I am borrowing it tonight!

  7. Thanks gyc - mi casa su casa! Pats looked tough last night.

  8. Hey JD. Thanks for your feedback!

    Essentially, a lot of pink sheet/otc bulletin board stocks are actually listed on the TSX or Vancouver exchanges. In those cases it's irrelevant as to whether you have to buy into the pink sheet security. In fact, thankfully that's an option.

    In terms of pure OTC pink sheet stocks, it's really a case by case basis. There is a lot of fraud on the pink sheets but there's also a lot hidden gems. You really have to due your due dili. Silver Dragon, SDRG, for instance is a hidden gem. They are actually working on a TSX listing.

    If you have any questions, just post the companies/symbols and I'll let you know if I know anything about them.

    I like SDRG a lot. I would also recommend Eurasian Minerals ESMNF/EMX.TO. They are in the process of doing a financing with warrants at $2.50 and as soon as that deal closes and prints, I think the stock will pop over $3. It is one of the best junior risk/return plays I have come across in 9 years.

  9. Hey anonymous. Never too late to save your IRA wealth by cashing out now and paying the vig.

    In terms of whether we get a pullback or not now, I have stopped trying to forecast chart patterns. I'll leave that to the "experts" like Prechter and Gartman (note the extreme sarcasm).

    What I do know is that gold is going a LOT higher between now and when the bull is finally over. What the path in between looks like is anyone's guess.

    My best advice would be too unload your IRA and start "legging" in to your metal purchases. As James Turk recommends, by a portion every month. That way, if we get a day when the cartel smashes this stuff, you have cash ready to buy more.

    Back in July when the cartel hammered this stuff down to $1150, we bought almost every day for our fund. I paid $1200 for some and managed to get some at $1160. Plus a few days in between. Same deal with silver. BAck in early Feb I managed to grab some silver eagles just over $15. Now I could care less if silver corrects 20%.

    That's the best way I know how to do it. Anyone who tells you any differently is selling snake oil.

  10. Todd Harrison of Minyanville had this cool chart showing where gold is related to other "bubbles":

    Still some room, yes?

  11. This link will work:

  12. Guys, sorry if I don't get anymore comments posted until tomorrow morning. The woman of my dreams is coming over and I'll be off-line til manana...

  13. It's now way past tomorrow morning. You must be having a good time!

  14. LOL. I was tied up with the fund for most of today. I have material for several posts this week, just a matter of carving out the time to get something written.