Friday, July 2, 2010

What The Heck Happened Yesterday?

Knowledge without experience is not really knowledge...It finally dawned on me this morning how yesterday's manipulated Comex plunge was orchestrated, in reviewing the idea of the dollar losing 1.20 yesterday and gold losing $40. Doesn't make sense, right?

Here is my view on what happened. I base this on 9 years of trading, investing, researching and observing the precious metals market. This is an educated hunch based on experience. Recall that over the past 2-3 months, the large hedge funds have built a record short position in the euro and an offsetting long position in the dollar. For the past two months gold has been trading inversely with the euro and in near-perfect correlation with the dollar. The big banks, who are absurdly short paper gold, have built up near-record long positions in the euro and a short position in the dollar. You can find all the data which shows this using the COT (Commitment of Traders) report.

We know that big banks who are short an absurd amount of gold futures on the Comex like to ambush the market on low volumn, holiday affected trading days and do so by unloading an enormous amount of paper contracts as soon as the Comex opens. See my chart in yesterday's post. (Not) coincidentally, Canada was closed yesterday for a national holiday observance.

Yesterday the dollar started dropping off of a cliff at 3 a.m. NY time, but gold drifted higher until just after the London a.m. price fixing. From there it flat-lined until exactly the 8:20 NY time Comex open. Comex volumn was enormous from second it opened up until 11 a.m., which is when the largest part of the $40 drop occurred. I believe that the manipulating banks used massive sell orders to trigger stop losses (as per usual), as the hedge funds were scrambling to cover record short positions in the euro and their long position in the dollar. Why else did it take until the Comex open for gold to plunge, over 5 hours after the dollar had started plunging? Sorry Zerohedge, but that is not "asset liquidation."

That's what I believe occcurred yesterday, for the most part, and the bullion banks were helped by the fact that it was a pre-holiday, low volumn week and that Canada was closed. Having said all that, I've been wondering what it would take to break the euro/gold inverse relationship - and the corresponding dollar/gold correlation - once the dollar rolled over and started eventually to seek new lows. Yesterday may have taken care of most of that process. I actually expected to see more downside today in gold/silver, but gold has been relatively strong relative to the rest of the market. At least for today, it has moved inversely with the dollar.

BP/Gulf Disaster Update

As for the Gulf oil situation. I was chatting with a friend who is originally from New Orleans today and she said that her people down there are saying that everything being reported about the BP effort is complete b.s. She said that no claims are being paid and BP seems to be going to minimal effort and expense to work on cleaning the mess. She said they told her not to believe anything being reported in the media about BP's efforts - that it is a total media whitewash. She was recently in Pensacola, Florida and said the beaches are getting decimated with oil and that the oil is now hitting the beaches further east of Pensacola.

Anyone wonder why the worst ecological disaster in the history of the planet all of a sudden has been minimized in terms of reporting lately? Ask the guy in charge who most of us wouldn't put in charge of a hot dog stand...


  1. The open interest on the gold comex , Wednesday night was 605,792. The silver comex was 127,990.
    Any OI above 600,000 is highly unstable for the cartel and they must, can and will attack the market.

    The dollar has rolled over and another round of QE is needed to keep the politicians in place for November elections. The alternative is to play the patriotic card and attack Iran. Both options are highly bullish for the gold price.

    The cartel needs to reduce the OI prefereably making money through a liquidation in weakness. If this can not be achieved they will buy back their positions over the summer and prepare to short again into the autumn rise. To go into a rise with this level of OI is not good for them they need to restack the deck, however this is achieved.

    The question is did the sell downs breakdown the OI?, if they didn't they are winding themselves deeper into the paper bag they have traded themselves into. The way out is through buying back their positions to retreat to higher ground before attacking in the late autumn before or just after the voting. If OI fell they will do more of the same to get liquidation in weakness.

  2. Agree in general with your analysis. Gold o/i dropped 15k yesterday. The banks were covering like crazy.

    The problem facing the banks is that big strategic hedge funds are starting to move into the gold game. It will take higher levels of o/i to cap the the market and the big bank short selling will have diminishing marginal returns.

    Compounding that is the rapidly growing movement in the big money communicating of taking physical delivery of metal.

    We are transitioning into a market in which the physical realities will overpower the paper fraud.

  3. have you followed the story at:
    BP “claims czar”: No compensation for most victims of oil spill
    By Tom Eley
    2 July 2010
    Kenneth Feinberg, appointed by the Obama administration to oversee distribution of a BP-financed escrow account for victims of the Gulf oil spill, has made clear that there will be sharp limitations on those who can receive compensation.

    Among those not entitled to compensation from the $20 billion fund, according to Feinberg, are fishermen who operated on a cash basis and tourism and home owners “not directly affected” by the oil spill. These sweeping exclusions will likely bar the majority of the spill’s victims from any compensation.

    and what about this giant Skimmer?
    A Taiwanese-flagged vessel, named “A Whale,” which is 3 1/2 football fields long and looms 10 stories high – outfitted with 12 vents on either side of its bow, which experts hope will be able to suck up as many as 21 million gallons of oil-tainted water each day in the Gulf of Mexico oil disaster – has offered its services in the attempted clean up.

    SO will the President expediate all the paperwork and necessary stuff to ALLOW this skimmer to deploy in US waters?

  4. Hi Dave,

    To balance the power of this Banking Cable don't you think some sovereign power has to rise up.

    It looks like from Europe Germany & France & from Uresia China & Russia are capable of doing this.

    Though in current situation we don't know who is with who.

    I have one query regarding comex trading.
    Is it possible for China & Russia to buy Gold through Comex route? offcourse through dummy participant. They can stand for physical delivery despite draining down paper trading price of Gold.

    I am from India & I some how feel that slowly but surly our Political & Monetary system is influence by Banking Cartel.

    What' your observation?

  5. The Gulf Oil Volcano is change you can believe in!!!

    Joe M.

  6. Greetings India. Thanks for posting your comment!

    Regarding India, it has been my observation, rightly or wrongly, that India remains largely independent of the U.S., ECU, Russia and China. I do not believe that India is influenced by the U.S./Anglo banking cartel. I may be wrong.

    One indication of this was India's move to take back its 200 tonnes of IMF-pledged gold in exchange for fiat dollars. To me this was very significant.

    I believe India is an emerging power to watch. Obviously India has nukes. I believe sometime down the road that India will ally with China/Russia/Middle East.

    China for sure can buy gold on the Comex. The Comex does not have enough gold to be of interest to China at this point in time. Plus it is a very visible venue. China is trying to accumulate very quietly and secretly in order to keep the price lower. In fact, I would argue that they LOVE the bullion bank cartel manipulation of the price. I look at what is going on right now as a massive transfer of gold from the west to the east, made easier and more cost-effective by U.S. Government stupidity and arrogance.