Gold Is Technically Set-Up As The Ultimate Contrarian Bet

People are going to see moves in gold that will shock them. Some of the advances will be spectacular, but right now people are focused on short-term weakness so they are missing the big picture. - John Embry, King World News LINK

The longer the bullion banks and hedge funds try to sit on the price of gold/silver, the more violent and extreme will be the eventual upside counter-move.  This market tendency has held tried and true for the entire 12-yr bull market in precious metals.

Much is being made in the financial media about the recent "huge" ongoing liquidation of gold from GLD and other gold ETFs.  But what is not being reported and discussed is the fact that, in the past, big GLD liquidations have preceded a massive run-up in the price of gold. In other words, when investors dump GLD, it's the ultimate contrarian bet.  I wrote an article for Seeking Alpha about this market fact:

the current drop in total ETF gold holdings is visually the largest on record. But in the context of the overall ETF gold holdings it is not significant. You can also see visually that when large drops in ETF holdings have occurred (late 2008, for instance), the drop correlates with a subsequent big move higher in the price of gold. Furthermore, the biggest liquidation of GLD began on February 20, when the price of gold was $1564. The price today is $1592. The point is, the price has actually climbed higher since GLD began heavily liquidating. This is actually very bullish, as the market has absorbed the 4 million ounces of gold liquidated from GLD while grinding higher. Makes you wonder who is buying the gold being liquidated.

You can read my entire here:  Gold: Currently, The Ultimate Contrarian Bet  You might be surprised by difference between the actual facts and what is being reported in the media.    In addition, The Got Gold Report published a report which comes to the same conclusion as I have, BUT it also points out that, while gold ETFs are selling out, silver ETFs are seeing big investor inflows.  Please note that in the past, this investor behavior was not present and it further reinforces the bullishness implied by the liquidation in GLD.

With the gold/silver ratio currently at 54 vs. its very long term average of 16, this verifies to me that the retail investor - the "little guy" - is beginning to understand the importance of investing in precious metals.  The fact that retail is selling gold and buying silver is a testament to the old adage that "silver is poor man's gold."

With only an estimated 2-3% of the public putting some money in to the precious metals sector, imagine what the effect will be when a lot more people figure out the truth about the dollar and start moving money into the precious metals sector.  Let's put this in perspective.  Assuming that the U.S. really has 8100 tonnes of unencumbered gold.  The current market value of this about $435 billion.  The total size of the U.S. retirement asset base is about $17 trillion.  If U.S. investors were to move just 10% of their retirement assets into gold, it would buy the entire amount of gold owned by the U.S. Government three times over.  Think about the price implications for gold/silver...

What's Going With Reported Economic News vs. Reality?

Today retail sales for February were released.  The number came in at a quite surprisingly robust 1.1% gain (annualized basis) over January.  Aside from the fact that the number has been put through the customary "seasonally adjusted" meat grinder, it's just not a credible number.  It is likely that the number includes a high inflation factor.  Given that a big part of the gain was a 5% jump in gasoline sales, and given that February's average gasoline price per gallon nationwide was at an all-time high for February, that would explain most of the "gain."

But, in fact, if you strip on the "seasonal adjustment" - the unadjusted actual number is buried in the report - it turns out that sales declined from Jan to Feb, the first month to month decline in 3 years. This makes more sense, as consumers are being squeezed by higher payroll taxes, higher gasoline costs, higher food costs (a whole roaster chicken the other day cost me $1/lb vs. .80/lb six months ago).  And the fact that consumer's disposable income is getting squeezed shows up in the Feb numbers for furniture sales (-1.6%), electronics (-0.2%) and sporting goods (-0.9%). 

Here's what John Williams (www.shadowstats.com) had to say about the matter: 

Reporting here of positive real monthly growth runs counter to various indications out of the business sector, including retailers, retail suppliers and those delivering product, and to indications of a build-up in unwanted inventories.  It also runs counter to the implications of constraints on consumption from the intense, structural-liquidity woes besetting the consumer.  Without real growth in income, and without the ability or willingness to take on meaningful new debt, the consumer cannot sustain real growth in retail sales or in the broader personal-consumption measure of GDP.  As usual, monthly reporting also is skewed meaningfully by seasonal-adjustment issues.

Well, other than that, Mrs. Lincoln, did you enjoy the play?

Finally, just to beat this dead horse into the ground, www.zerohedge.com posted a nice summary of the economic outlook released by the Business Roundtable, a consortium of leading corporate CEO's:

expectations for higher Sales, CapEx, and Employment are as bad as they have been since early 2010. CapEx, the much-vaunted miracle driver of revenues this year, is below Q4 2009 levels of expectation...

Here's the LINK   As you can see, the "seasonally adjusted" number released by the Census Bureau is completely inconsistent with real world data points.  The same holds true for recently released home sales, construction spending and employment numbers.  More on housing soon, as I'm working on an in-depth piece that explains why the housing market is rolling over again.

The Orwellian fog being blown over our system is getting worse.  We learned just the other day that the Dept of Defense has removed all data from its website related to drone strikes in Afghanistan:  LINK  Wonder what else the Government is hiding from us?

There's no question the Government is working overtime to try and juice up our "confidence" in the economy by manufacturing bullish economic numbers and printing more and more money and funneling a significant amount of it into the stock market via the banks.  Makes you wonder just how bad things really are, given that the Fed is buying 50% of all new debt being issued by the Treasury...

They Did It Again: There's No BS Like BLS

The character of what’s in this gold market is so different from the bull market of the 1970s.  The bull market of the 1970s was mostly traders and some central banks, but there wasn’t a huge sovereign interest...What you are dealing with now is China and Russia, who are doing what they are doing in terms of accumulating gold because they know the end game.  The manipulators of the market will come face to face with that physical reality.  When they mess with these markets now they are playing with China and Russia.  - Jim "Mr. Gold" Sinclair (LINK)

The statistical magicians at the Bureau of Labor Statistics (BLS) managed to manufacture a headline grabbing non-farm payroll report that added jobs in February beyond anyone's expectations - or even imagination.

The headlines suggested that our economy in February added 236,000 jobs.  And unemployment fell to 7.7%.  But, once again, when you dig through the details, the facts are not surprisingly significantly different than the hype.

If you review the trading pattern of the S&P 500 and gold/silver futures, you'll find that the SPX spiked and gold/silver did a waterfall when the headline number hit.  Over the next 90 mintues, the SPX faded hard and the metals and the mining stocks hit their highs of the day.  Why, you might ask? Because the market had digested the analysis as I'm laying it out just below and adjusted accordingly.

To begin with, and most significantly, the statistical magicians use an "adjustment" to the numbers with something they dreamed up called "the birth-death model."  Briefly, this model guesstimates the number of jobs that would have been created and deleted - on a net basis - by guesstimating how many new businesses opened and closed during the month.  According the BLS, this number was 102,000 in February, adding that many theoretical jobs to the monthly not seasonally adjusted jobs number.  Then the BLS does its seasonal adjust hocus pocus and spits out the headline number.

You can see where the new businesses supposedly opened up last month, creating 102,000 jobs here: LINK.  All service-based industries highly dependent on either consumer disposable income or Government spending.  Does it make any sense whatsoever that leisure, hospitality and business service businesses started up, given that the consumer is getting squeezed both by increased payroll taxes AND record gasoline prices for the month of February?

Here's the distribution by industry of the jobs supposedly created by the economy overall, including the birth-death adjustment for February:  LINK  You'll note that retail trade supposedly added 24,000 jobs in February.   But how can this possibly be true when we know that retail sales have been coming in nearly flat on a nominal (with inflation) basis and negative on a real (inflation-adjusted) basis?  Not only that but I posted a piece several weeks back which highlighted the massive number of store-closings that would occur this year by many of largest, national chain retailers.  How can that retail trade number have any credibility whatsoever, given this?  14,000 jobs created in manufacturing.  Manufacturing what?  Printing presses for the Fed?   Professional and business services at 73,000 stands out as a serious outlier.  This is almost 1/3 of the total jobs gains in both the BLS headline calculation and the in the birth-death model plug.  I would love to see the back-up inputs for that number.

Finally, Zerohedge did a nice job pointing out some more inconsistencies with the "quality" of the BLS number.  The number of full-time jobs declined by 77,000 and the number of part-time workers rose by 27,467.  Also, the number of multiple jobs holders rose by 340,000.  Either people who can get them are taking more than one job because they're struggling financially or the employment number as calculated is completely bogus.  Either way, it's not a healthy number.  Here's the LINK

On another note, an interesting occurrence has surfaced in the precious metals and mining stock bounce that we've had this week.  The best moves during the trading day for this sector have been occurring when the Dow/SPX sell-off.   I bring this up because someone sent me an interesting chart that suggests that the Dow/SPX have a high probability of selling off severely:

 (click on chart to enlarge)

I apologize to whomever devised this chart because I don't know whom to credit.  But, having said that, this chart shows the relative value of the S&P 500 based on price-earnings multiples.  You'll see that when relative p/e's get up to where they are now, the stock market tanks - hard.

The reason I mentioned that gold/silver/mining stocks were "decoupling" from their correlation with the equity markets is that I've suggested privately to colleagues that the next big move in the precious metals sector might occur with the metals/miners moving in the opposite direction of the stock market.  In fact, the tremendous gains that occurred after October 2008 started when the Dow/SPX started tanking hard into the end of 2008 thru March 2009 and the precious metals/mining stocks - starting  in October 2008 - spent the next 3 1/2 years ramping up to new all-time highs (silver up to its 1980 all-time high).

Have a great weekend.

I SERIOUSLY CAN NOT BELIEVE THAT THE

ATTORNEY GENERAL OF THE UNITED STATES, ERIC HOLDER, JUST SAID THIS - UNDER OATH IN FRONT OF CONGRESS:

"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute...it will have a negative impact on the national economy"  - Eric Holder, Attorney General, United States of America, 3/6/2013  LINK

Think about what Holder just said there for a moment.  He just said that the banks can get away with whatever they want because if the law is enforced upon them, it might hurt the economy.  

This is truly mind-blowing.  Basically, the Attorney General of the United States has said that the big banks are completely above the law.  There's nothing left for us to do.  Eric Holder has officially turned this country over to the big Wall Street banks. 

This means that Obama and Eric Holder have COMPLETELY FAILED to do the job they are elected to do.  Which is to uphold the Constitution and Rule of Law. 

The United States is OFFICIALLY a Banana Republic governed by The Rule of Banks.

Can You See It Coming? "Fund'Em"

By the time most people see the giant systemic "two-by-four" being swung at their collective heads, it will be too late to duck - Dave in Denver, circa 2005...That systemic two-by-four is getting a lot closer - Dave in Denver, 3/5/2013

A long-time colleague sent me an article about a former Countrywide Mortgage employee turned whistle-blower.  The whistle-blower was completely amazed that Angelo Mozilo, Countrywide's CEO and the country's pioneer in the massively fraudulent mortgage bubble, was never put on trial.  Not only that, but the whistle-blower's $3+ million court case award for wrongful termination from Countrywide/Bank of America was recently overturned by California's Appellate Court.  You can read about just how corrupt Countrywide was and other sordid details here:  LINK

My response to the above article was this:

Don't hold your breath on the Judiciary Committee hearing of Holder.  Holder will be well rehearsed and we already know what the questions will be.  Don't forget, Holder is the guy who wrote the Marc Rich pardon letter that Clinton signed as he was walking out of the Oval Office for the last time.

This country is completely corrupted from State legislatures to the Supreme Court.  Look at that verdict overturn in the article.  Corrupted court system.  The apparatus has been put in place, for those in a position to do so, to steal everything before the country collapses.   IRA/401-k's are next.

The bottom line is that the citizens of this country are ultimately to blame.  Guys like us sit around and dig up the evidence, yet we do nothing.  95% of the middle class could give a shit. They're robotic drones who basically go through the day lapping up what's fed to them and losing themselves in prime time garbage tv.

Anyone who thinks our system can be saved is hopelessly naive or tragically ignorant.

I bring this up because Charles Hugh Smith hits the cover off the ball with an article in which he outlines some of the key sources of "energy" fueling that two-by-four being swung at our collective heads:

At ~18% of the labor force employed part-time, those 50% grads who do not obtain full-time private employment outside health care must compete for the 1 of 5 jobs in the labor force that are part-time, implying that no more than 59-60% of college grads will obtain ANY employment under current labor market conditions, leaving ~40% of grads with no prospects for earning purchasing power.

Is it a surprise why student loan delinquencies have begun to soar? How will the housing market grow with as many as 40-50% of high school and college grads unemployed, underemployed, or unemployable?

From my experience, perhaps as few as 10% of the population know the information above. Most in the top 10% don't know because they are largely unaffected and thus don't care and will not be persuaded that they should care until they have to (i.e. when their children experience the aforementioned conditions).

This is a MUST-READ article that you should be able to knock off tonight in between a couple commercial breaks during "American Idol:"  The Hollowing Out Of Private Sector Employment
 
    

Sit Tight And Be Right

Big movements take time to develop... Men who can both be right and sit tight are uncommon. - Jesse Livermore

If you look at a long term chart of gold, you'll see it's forming a giant "wedge" formation:

 

You can see the price of gold "basing" in the $1525 - 1550 area.  We know based on the huge import premiums vs. the world spot price in India, China, Indonesia, Viet Nam and other Asian countries, that the big physical buying countries are aggressively buying gold on every price dip.  This is physical gold that is removed from the global trading supply and disappears into Central Bank and private vaults.

At some point, the paper trading markets in NY and London will not be able to contain the free market forces of supply and demand.  In this country, February was a record sales month for U.S. Mint silver eagles.  

I wrote an article for Seeking Alpha which discusses a very important technical indicator that has always worked in periods of "extreme" highs and lows.  You can read about that and another indicator that is signalling that this current price correction is nearly over:  Patience Will Be Rewarded

Finally, downward "wedge" formations like the one above almost always "resolve" with a big move to the upside.  Typically, the size and duration of the move higher is proportionate to the length of the base of the wedge. 

Friday Humor - This Is So Incredible You Couldn't Make It Up

     
We see huge orders from China, which are even bigger than the size of buying before the Lunar New Year...Demand from Indonesia was also robust, thanks to a stronger rupiah that kept domestic prices low.  - Singapore-based bullion dealer LINK

Rather than add more analysis about why this is the best time to step into the precious metals market since 2001, I thought I'd take a break and let everyone see for themselves how incredibly pathetic our Congresspeople are.

I will make one point of note first.  What is occurring right now is the hedge funds are recklessly trying to push the precious metals sector lower in order to try and maximize their gains on their record long short position in paper Comex gold futures:  Record Hedge Fund Short

But just like the hedge funds recklessly pushed AAPL to $700, they are recklessly trying to push the precious metals sector lower.  How well did the AAPL stunt work?  Let's look:  since September 21, AAPL stock is down 40%.  Gold is down 12.3%.  The precious metals sector is going to do the upside what AAPL did to the downside when the hedge funds start to cover.  I guarantee it.

Now for our dear pathetic Congressmoron, Maxine Waters.  Apparently Maxine somehow got through the educational system with out having to pass math and English..  According to Maxine, the "secrestration" cuts are going to cause 170 million job losses.  Don't believe me?  Watch for yourself:



"Secrestration?"  I'm sorry, can someone tell me what that word means.  I can't seem to find it in the Oxford English Dictionary.  In fact, I can't even find it in my Scrabble Dictionary and that dictionary has imaginary words in it.  Maybe someone has a copy of an Ebonics dictionary and it's in there...As for pathetic Maxine's math.  170 million jobs?  According to the most recent BLS employment report, the total number of jobs in the economy is 143 million.  Hmmmm....like I said, you can't make it up.

It reminds of the joke about the high school spelling bee.

Teacher:  "Maxine, please spell "before."
Maxine:  "B-E-F-O-R-E"
Teacher:  "Very good, now use it in a sentence."
Maxine:  "Two and two be four"

Have a great weekend.