"This is my favorite time of the year and I'm in a great mood for receiving this year" - Mike Greenberg, Mike and Mike in the Morning on ESPN.I'm in a great mood right now to receive any news whatsoever that the CFTC is going to crack down on the illegal manipulation that has been going on in gold and silver futures trading on the Comex for a couple decades now. But I know that won't happen - just ask the customers of MF Global what they think about the willingness of the CFTC to enforce the law. And so the saga of the United States of Banana Republic continues. I'm really excited to receive the eventual newscast that shows Jon Corzine walking away from his MF Global crime with little or no consequences.
I don't want this post to be a rant about the Government's complicity with the massive manipulation of the markets, especially gold and silver, but anyone who does not understand that this plays a big factor in the short term movements of gold and silver is unequivocally a complete idiot. The golden truth is that on a longer term basis, the manipulation doesn't work other than to scare the shit out of most people and keep them from taking advantage of the enormous wealth-building opportunities it presents. Here's a quick comment from Ted Butler on the matter - I've included a chart below that shows the technical aspect of the market Butler describes:
What I didn’t explain in my weekend commentary on Saturday was that the next logical downside trigger point in gold for selling by the technical funds and traders was the 200 day moving average ($1610). This particular moving average had not been broken in gold for almost three years, back to when gold was under $900. The longer a moving average remains unbroken, the more significance it holds to technical traders. This level has now been broken as well, encouraging those holding gold on technical or price movement grounds to sell. This selling begets other selling as fear of further losses resonates through the market as prices plunge. The price declines step up demands for more margin, prompting further long liquidation.Here's a 6-year daily chart of the Comex gold futures continuous contract:
Given human nature and our collective demand for easy to understand explanations for why prices are falling there will be, for sure, all manner of supply/demand explanations given to justify the price rout. But there have been scant signals from the real world of supply and demand to account for the decline in gold and silver prices. At the core, this is strictly another COMEX-commercial rig job. That it has been highly successful for the commercial crooks is unfortunate in many ways, but encouraging in other ways. The proof that it is another COMEX rig job is fairly easy to demonstrate in past and future Commitment of Traders Reports (COT), as the commercials are always big buyers on these price smashes. We have only gone down in price so that the commercial could buy. It’s not possible that the commercials can always be big buyers on such declines for any other plausible explanation. That the CFTC sits by, even though it has been armed with new anti-manipulative regulations is as shameful as it gets.
THAT, my friends, is a snapshot of one of the most perfect bull market charts that you will ever see. You really couldn't make one up that was better. The red line is the 200 day moving average (200 dma) to which Butler refers. You'll note that the corrections in 2006 and 2008 on a percentage basis were much worse than what we are in right now. That's not to say that I'm calling a definitive bottom here, but the data suggests that IF gold does break the 200 dma to the downside, it doesn't stay there very long. I have been lucky enough to start adding to my positions every time this happens in the last 11 years and feel that it's a bit more than luck that it's worked out for me.
Now we've all heard the Dennis Gartmans and CNBC retards and others proclaim the end of the gold bull market. I can't tell you have many times I've heard that in the last 11 years. I remember vividly when gold ran thru $350 in early 2003 and started to correct. Robert Prechter of Elliot Wave fame issued a definitive warning that the gold bull market was over and gold was going to fall back to $50. Hmmm...The common theme between Prechter and Gartman is that NEITHER of them manage a fund or commit their own money. They make a lot of money selling newsletters with shitty advice in them to ignorant financial advisers and frightened, lemming investors. Neither of them has any skin the game.
Here's a "technical" chart that you won't find in Gartman's letter but I will give it to you for free. Unfortunately Eric Hommelberg does not freely publish his work anymore but he follows a metric known as Rgold. This is the spot price of gold divided by the 200 dma of gold. The chart I have only shows 2004-2008, but you'll note that whenever the Rgold metric goes above 1.20 it is a definitive "sell" signal AND whenever it goes below 1.00 it is a definitive "buy" signal. Right now that measurement is .93. .93 = BUY with both hands. Here's the chart:
I have several articles to cite in my argument that gold is likely close to reaching a bottom in this price correction, which actually began at the end of April. To keep this post reasonably short, I'm going link the articles with very little commentary.
The highly respected Peter Grandich has issued a $1mm bet challenge to Dennis Gartman, Jon Nadler and Jeffrey Christian - three morons who routinely issue doom warnings about gold and yet who are always wrong in their market calls. None of them have skin in the game but Grandich is giving them an easy opportunity. Please read this link in its entirety - Grandich has arranged for a law firm to set up an escrow account if any of these three dopes decide to show some conviction behind their drool: LINK
Zerohedge has posted an excerpt from a Citicorp market research report that explains why they see gold going anywhere from $3400 to $6000 over the next two years. They cite technical as well as the usual fundamental reasons for this. This is very significant because it is the first time in 11 years that a large, Too Big To Fail Wall Street bank has issued a bullish call like this on gold: LINK (no, this isn't the end of a bubble because Citi has become bullish - there's still 10 other Too Big Big To Fails that are extremely bearish on gold).
This could be one of the best signals yet that gold is getting ready to form a bottom and turn around: the sentiment index as measured by Marketwatch's Mark Hulbert is registering very high levels of negativity. Please note that Hulbert points out this contrarian indicator is right more often than it's wrong, which means that the negativity of investors toward gold is actually very bullish: LINK I can confirm this measurement because there's been an usually high number of commentors lately on this blog who are thinking about dumping their holdings. I will buy what they sell.
Whenever I need a little "conviction-check" - some "couch time" - with regard to my fear levels, I like to spend time reading what Jim Sinclair has to say. Eric King made it easy with this interview of Sinclair. Please note that he thinks this high volatility in gold right now indicates that gold will go higher than he expects. This quick interview is well worth reading: LINK
Finally, please keep in mind that ALL the fundamental variables that are driving the gold bull market keep getting stronger by the day. Congress and Obama are getting ready to pass a huge spending bill which extends the payroll tax cuts and extends jobless claims. This means that the spending deficit for 2012 will be much larger than projected back in September and the amount of debt the U.S. Treasury has to issue will be even greater than projected when the debt ceiling was lifted. Expect another debt limit ceiling extension fight before the November 2012 elections or just after. This means that Fed will be forced to roll the printing presses or the Government will not be able to fund all of this new debt issuance. Hell, we didn't even have debt ceiling limits and massive deficit spending and high unemployment as problems when the gold bull market began. As these problems get worse, the case for gold going several multiples higher from here gets better.
One more thing to think about: how many of you have financial advisers calling you to tell you that it's time to sell your gold? How many of you have advisers calling you and telling you it's time to buy or add? I would bet my last nickel that over 90% of all advisers are calling and telling their clients to sell. I would also bet that those are the very same advisers who advised their clients to stay away from gold for the last 11 years. If I had an adviser like that, I would hang up the phone and find a new one.