Tuesday, February 26, 2013

"Game On" For Gold And Silver!

The emergence of technical fund and speculative short selling has created the finishing touches to a market structure set up that is good to go in gold and maybe in silver as well... The bottom line is that an important price low is being put in, if it has not been seen already. - Ted Butler
My corollary to Ted Butler's statement is:  outside of 2001 and October 2008, right now is currently the single best time to invest in the precious metals and mining stock sector over the course of this 12-yr - so far - bull market.  What makes now potentially more compelling than 2001 and 2008 is that the fundamental reasons for investing in this sector are stronger than at any time over the last 12 years.

Here's just one example:  back in 2001, the notion of a global currency debasement war was nothing more than the fantasy of gloom and doom conspiracy theorists.  Today, the world is in the middle of a currency war that intensifies with every official pronouncement that denies its existence (see the recent G-20 statement).

I wanted to follow up on my article last week that analyzed the Comex Commitment of Traders (COT) for gold futures. I had suggested the likelihood that the recent increase in the gold futures short position of the large hedge funds, and the concomitant large reduction in the net short position of the commercial traders (mainly the bullion banks), was a signal that this vicious price correction in gold/silver is nearly over.

The COT report released Friday (through Tuesday's cut-off day) was nothing short of stunning. I knew the hedge funds were piling onto the short side of gold and silver, and that's why the metals have been getting slaughtered recklessly like this. But the increase in the hedge fund gold short position is unprecedented, as far as I know.   You can read my latest analysis here:  Holy Hedge Fund Shorting

We probably won't see an immediate "V" type move here (although I wouldn't rule it out).  The large hedge funds have no choice but to defend their massive short position.  But as the physical market off-take intensifies - India and Asia have both been buying hand-over-fist over the last week (and that's physical off-take, not fraudulent paper contracts).  But, as the impending move higher builds momentum and pushes through key technical price points, the scramble by the hedge funds and small speculators to cover their unprecedented short position will ignite a move that will be explosive.


  1. Goldman, Banking, Washington, and Business Ethics: Cultural Observations from Two Smiths

    Corruption, facilitated by the credibility trap, is the biggest problem facing us today. That is the real entitlement. It is the belief of the elite that the power of their office is an achievement that gives them the right to lie, cheat and steal both for themselves and their friends.

    Although it is important to understand that they would be shocked and insulted if you used those words to describe what they are doing.

    Through a long indoctrination that starts sometimes in their families, but is most often affirmed in their schools and with their circle of friends, they learn to rationalize this sort of selective moral behaviour not as immoral but as 'the entitlement of success.' There are one set of rules for themselves and their friends, and another set of rules for the rest.

    The problem which the modern world has not yet grappled is how to react to the rise of a global elite, which considers itself the children of a power above national restraints, and a law unto themselves.

    Their success has been propelled by the dominance of Anglo-American financialization, and the rise of oligarchies in Russia, China, Latin America, and India. Countervailing power has been co-opted and subsumed.

    They are all supported by their fiat currencies and the ability to define and allocate value at will. They have a penchant towards globalization and deregulation, to the extreme detriment of local rule, and individual choice and freedom.


  2. Kudos Dave... it's been a very hard time to keep pounding away at the truth as the market goes against you, and me, and the truth. Today you have nailed it with utmost precision.. thanks for the work you do!
    1Kg Lunar Dragon

  3. I knew last week when the ultimate contrarian indicator Dennis Gartman was spewing his short position that gold must be getting ready to make a reversal. I know that mining has slowed due to rising energy costs and with increased physical demand I think by April we should see dealer premiums higher. Dave, I heard a number $1,400 is now what it costs a mining operation per ounce ?

  4. Negative real rates, QE to Infinity, huge short specs and increasing physical demand. Pretty good set up!

  5. With respect, perhaps it is not so much a currency war as a sequential currency debasement against gold by prior agreement. So most recently it was - what - 17% for Japan and now it's the UK's turn and after that maybe the Scandies and Swiss will get thrown a bone before the USD comes into play. The CAD doesn't get an official go because it's already doomed, permanently chained at the hip with the USD because otherwise Ontario would go even more bust than it already is. Of course this excludes outliers like Venezuela who weren't invited to the inner sanctum. So it's just a shell game to confuse people, with gold as the pea, that no one can keep track of. Except, of course, the prestidigitators.

    Buffett as a leading indicator
    By Martin Hutchinson

    Warren Buffett's political pronouncements are intellectually vacuous hot air, yet I suspect he retains excellent investor's instincts about the future trajectory of the US economy. So when he manifestly overpays in a US$28 billion acquisition of the food producer H J Heinz, we should listen and ponder what the deal tells us about where we are going. On cool reflection, the answer to that question is manifestly a survivalist one. For Warren Buffett it's clear: when Cash is Trash, Beans are Queens!

    In addition, Buffett will have little control over the investment; he is to leave the operating management to 3G Capital. One can understand the rationale for this. His saintly reputation in left-of-center circles would be severely dented if he were personally responsible for firing tens of thousands of unsuspecting US Heinz workers while relocating the entire operation to some low-wage hellhole.

    With over $40 billion of cash at the last balance sheet date (some of it tied up by insurance commitments) Berkshire Hathaway would be especially vulnerable to such an outcome. It would lose money in real terms on its short-term bonds and would be forced to recognize capital losses on its holdings of long-term bonds as interest rates rose. If it diversified its holdings into "inflation-proof" US equities, it would find their value eroded also, as corporate profits fell with rising debt costs and price-earnings ratios declined from their current high levels - as they did in the late 1970s.

    The most obvious hedge against this eventuality would be to buy gold and silver. However, Berkshire Hathaway suffers from the problem that its purchases would be large enough to distort the relatively thin gold and silver markets. With the world's annual gold mine production being only around $150 billion, any attempt to shift a substantial portion of Berkshire Hathaway's holdings into gold would push the metal's price into an upward spiral.

    There is however a simple alternative: the shares of gold and silver mining companies. These have wildly underperformed gold and silver prices in the past two years and are now heavily undervalued, unless you think precious metals prices are about to collapse.


  7. Dave, I love your blog and check it daily, but I have been hearing from everyone that a bottom is in for 18 months or so. I REALLY hope you are right as the last 18 months have been rough, especially with my mining stocks where I am down over 50%, which has been gut wrenching and flat out depressing. I cant wait to get out of mining shares but no sense in doing it now.

  8. @ Anonymous. Hang in there, you'll be vindicated, just hold on tight. What's -50% when 50+++ % are in the cards over the next few years? You're right where the puck will be going, so hang on, as am I.

    ps. Great work dave, as always. Love your blog.

  9. Funny world: Goldman Sachs analysts said that gold will not go higher than 1615$/oz within the next 3 months and it took only 48 hours and gold goes to this target :-) How professional are the guys from Goldman Sachs? What is their aim if they say: "Dont buy gold"

  10. Jim Sinclair - Gold Will Now Be Released To The Upside

    Eric King: “Jim, there are a great many pieces discussing the COT report, can you talk about that?”

    Sinclair: “I’m just going to ask you a question and give you a definitive answer: The question is, do you really believe the people (banks) who manipulated LIBOR are absolutely, totally, and completely honest on the figures that they render to the CFTC on the position of traders (COT)? The answer is, of course not....

    “Everybody in the trading industry, even those who should know otherwise, puts so much faith in looking at what they think is the commercials’ confessional. They believe they can read, through the COT, the commercials’ intentions. That’s just total nonsense. We’re living in a new normal, and one part of the new normal is that fabrication is a virtue.”


  11. Grand Old Parity

    I am a capitalist and a lifelong Republican. I believe that, in a meritocracy, some level of income inequality is both inevitable and desirable, as encouragement to those who contribute most to our economic prosperity. But I fear that government actions, not merit, have fueled these extremes in income distribution through taxpayer bailouts, central-bank-engineered financial asset bubbles and unjustified tax breaks that favor the rich.

    This is not a situation that any freethinking Republican should accept. Skewing income toward the upper, upper class hurts our economy because the rich tend to sit on their money — unlike lower- and middle-income people, who spend a large share of their paychecks, and hence stimulate economic activity.


  12. http://moneymorning.com/2013/02/25/does-the-heinz-deal-mean-warren-buffett-has-become-a-doomsday-prepper/

    "...if Buffett thinks it's politically incorrect to buy gold, that's his own misguided hang-up.

    Personally, I'd rather own a few gold bars than a case or two of ketchup."

  13. Is there a gold and silver exchange in albuquerque nm? It would be really nice for me if there was...