Friday, November 16, 2012

Look Out Above?

When too many investors are rushing for the doors at once and everyone is looking down, it usually marks a turning point for a market that has been dropping pretty quickly.  The precious metals and mining stocks have been in a sharp decline since September 21 for the miners per the HUI and since early October for gold and silver.  This week I've witnessed several seasoned metals and mining stock investors capitulate and either exit their positions completely or put on hedges.  The time to put on a hedge was a 3-4 weeks ago.  Although this isn't necessarily the absolute bottom, the probabilities are that - barring some unforeseen exogenous event that hammers all the markets - we've seen 80-90% of the downside movement.

Brief interruption here.  I've been saying for weeks now that Capitol Hill would figure out a way to avoid the Fiscal Cliff by kicking it down the road.  It turns out that the can is sitting in front of the White House and Obama's leg is in a backswing:  This means more debt, more printing and higher prices for gold and silver...

At any rate, with regard to the current price correction in gold and silver and hammering of the mining stocks, I'm not saying we've bottomed, but I will go on record saying that the worst is over based on indicators I've observed over the last 11 years in this market.  I'm cutting and pasting some comments that I sent earlier to Bill "Midas" Murphy at

The most significant indicator is the number of seasoned and unseasoned metals market participants who have either bailed on their positions or put on fear hedges. Just yesterday a long time silver futures trader I know, who recently began trading the mining stocks and who goes by fairly sophisticated technical signals, announced she had bailed on her stock positions on Wed. Another fellow I know announced that he had hedged his bullion with puts on GLD. Quite frankly, I can see getting scared out of the miners, but it's clearly late in the game to be buying puts on gold and he clearly does not have the access to information which shows that India has been buying gold in the low 1700's and China buys hard anytime gold below $1700, thereby putting a floor under the gold market (we pay a lot of money for this particular research).  If you are going to hedge positions, you need to do it BEFORE the top is in, otherwise the drop happens so quickly you miss at least half the move before you capitulate and hedge near the bottom - been there, done that.

Finally, I'm getting several comments on my blog of newer gold market players who are pissed off, taking shots at guys like Embry and Turk and dumping their positions. This is usually a perfect indicator that a bottom is near. I usually don't post most of these comments because they are abusive and profanity-laced, but if you're curious at a sampling, I posted one from last night along with my response.

I also sent Bill this:  Part of the action this week in metals has been influenced by it being the "roll" period, when the front month longs either have to sell, take delivery or roll to the next front-month. Usually during the roll period the open interest declines and the cartel uses this as an opportunity to hit the market. Yesterday, however, was different. Yesterday was an unusually large roll from Dec gold to Feb gold, 17,212 dropped from Dec but 17,281 added to Feb. In addition, another 1,330 added to June gold. A big drop from the front month accompanied by an outright increase is rare - beyond my recollection when the drop from the current front month is this large.

Same deal in silver. 4,268 silver carts dropped from Dec and 5,386 added to March, silver's next front month. The silver o/i increased to 1,263. The open interest in silver is 145k. As Dan Norcini pointed out the other day, something different is occurring right now. Despite the big cartel-led sell-off in silver over the past 6 weeks, the silver open interest has persisted in the 140k area. Historically the o/i has been liquidated down to 100k or less in pullbacks like this. Furthermore, for those intimidated by the 140k o/i, my partner pointed out that the high in open interest since we've been keeping track of it - going back to around 2003, was 189,151 back on 2/19/2008 with silver at $17.53. That leaves a lot of room for the specs to add longs and drive the price a lot higher.

So before anyone gets worried about what seems to be high open interest in silver and that big COT liquidation run is coming, they better examine the facts. I really get sick and tired of all of the misinformation between tossed around, especially by gold/silver site aggregators, bloggers and blog commenters. As I said earlier, I'm not officially saying this pullback is over, but it sure is starting to smell like it could be...

As always, the market is governed to a large degree by random probabilities. Measuring the past is a function of math - a science. But taking those results and projecting them forward is where the "art" of money management and market speculation takes place. Based on past market behavior and the probabilities associated with those behaviors, I would bet that the risk of getting short/hedged right now and missing a big upside move is greater than the risk of the bottom "falling out" from here. Have a great weekend!


  1. Not like you Dave to miss this sort of news to busy fighting windmills on the site if you ask me.

    CME, the biggest operator of U.S. futures exchanges, cut initial margins on COMEX 100 Gold Futures 18.5 percent to $7,425 a contract from $9,113, but left maintenance margins for the yellow metal unchanged.

    The exchange operator trimmed maintenance margins to trade silver to $11,000 per contract,
    from $12,500, and initial margins to $12,100 from $16,875 per contract.

    Maybe the Crooks at the COMEX can't get out of their short positions because of the physical bind. Are they getting ready to pump and then dump? How high will they go before they suck all the newbies in and really get shot of the short position once and for all?

    1. No I saw that news when it hit the tape Thurs night. I'm still trying to make sense of them of lowering the initial and keeping the maintenance the same. I don't think the theory that it's designed to suck in more longs and then hit the market, forcing margin calls is credible. I think they're trying to bring the initial margin more in line with that of other volatile commodities.

  2. Losses on bailed out banks and lies about public debts.

    These losses haven’t been recognized but are there. They are real. They are simply being papered over by officially sanctioned acounting rules. But should the tax payer ever try to sell its stake in these moribund money-pits the losses would surface. No bank would be fooled by the pretence for the simple reason that they are using the same trick themselves. What the government really needs is an idiot. Someone stupid enough to buy a rotten bank. Now who could they possibly find?

    Spain has the answer. Spain had exactly this problem with its own Frankenbank, Bankia. Bankia was sewn together from the decaying parts of Spains deceased Caja system. Once Bankia was created, the government was desperate to privatize it.

    To that end the newly appointed head of Bankia, Mr Rato, stood up and said, that Bankia was, I quote from the official Press release,

    solid, healthy and with a vast capacity for generating resources, a factor that has already proven its values on the market .

    The Bank even posted a €44 million profit. Bankia, through its network of Caja branches then aggresively sold its shares to its own customers. 120 000 of them bought the lies. You can read more about Mr Rato, Bankia and the rot in Spain in The Eurofiscal Corruption Contest – The Spanish Entry.

    Since then, Bankia has posted a €7.05 billion loss for the first nine months of this year. As for the poor people who bought Mr Rato’s lies, well the shares they bought have lost 70% of their value since listing in 2011.

    So there is the answer for the UK government.

  3. The Life of Greece's One Percent

    Patera's background no doubt helps her keep a level head. People with enough money have no need for conspiracy theories. But what are rich people doing for their country?

    Greek President Karolos Papoulias once said: "Everyone acts in accordance with their patriotism." Peter Nomikos says that Greeks are horrible citizens but enthusiastic patriots. The 33-year-old investor from a ship-owning family is actually trying to do something for his country. He has founded an initiative called "Greece Debt Free," which aims to help Greeks buy back their debts. This is an impossible undertaking not only because it involves the astronomical figure of roughly €300 billion, but also because three quarters of this debt is held by public creditors rather than being traded on the open market.

    By August, donations to Nomikos' initiative had surpassed €2.5 million. The figure is constantly updated on the "Greece Debt Free" homepage. As of Monday morning, the sum lay at €2,510,072 -- or almost exactly where it was three months earlier.

  4. Dave,
    Sad to see the Elway clip taken down. I would que that up every time I visited this site just to see his s*** eating grin!! A real player, that kid!

    1. LOL. You can youtube it. I love that clip. The expressions on Elway's face is priceless. If he had Shanny as his coach his whole career he'd have every passing record in the book and probably 5 Super Bowl rings.

  5. Thanks for such an intelligent summary.

    Am using this AB transition to accumulate watchlist stocks a little bit at a time because one never knows when it ends.

    Thanks for your intelligence.



  6. It's funny that Jim St Clair was saying the same thing about some PM investors struggling to keep the faith. Think about it, the transition from failing fiats to sound money is not going to be a casual stroll through the park. Manipulation, fear, greed, panic, confusion, etc are all part of the transition. The next few years will be even crazier than what we've seen. Keep an iron hand on the tiller. Keep up the good work Dave

  7. Phyzz is where it's at! I can't believe anyone at this point would trust the US gov't and the Fed with their future! PM's equal zero counterparty risks! Got Phyzz yet? It's a no brainer! As far as speculation, if you get burned, you deserve it! Those who are serious about a future have already taken advantage and are sitting tight and thank God for all the talking heads and MOSTLY GOD, in Jesus' name for a position LONG before the SHTF!