Massive Put Option Buying in GLD

News late in the session today, after the close of pit trading at the Comex, revealed a surge in the number of put options being purchased on the gold ETF, GLD. That news seem to further undercut the price of the metal after it had managed to claw its way back above the $1500 level to end the pit session.

Once the news hit about the GLD put options, the price just sank and sank and sank to the point where it not only reached an initial downside support level at $1480, but went right through it, trading as low as $1476 before the damned bell rang to finally close the screen trading and end the miserable session.

Based on what I can see at this point from those put option purchases, these guys are now looking for $1400 gold. Also adding to the mix of things is news that the CBOE Gold VIX (yes, there is even a VIX for gold) added 39% today, a record one day increase in percentage terms. It seems as if gold owners are now looking to purchase insurance on their insurance. How in the hell did we ever get to this place?

One thing I want to point out is what I feel is yet another contradiction in terms. Just this week, gold, priced in terms of the Japanese Yen, put in a 33 year high (possibly an all time high, I am not sure). Why did it do that? Simple - the Bank of Japan, in conjunction with the current political leaders of Japan, have embarked on a very public, very up-front, not at all covert policy, of deliberately debasing their currency in order to generate inflation of 2%. In effect, they are going to debauch the Yen in order to funnel everyone and their dog into Japanese stocks and real estate.

Now what do you think Japanese bond holders/potential buyers are going to think of all this? Why they are obviously quite concerned because they are buying or holding financial assets that throw off a fixed rate of return which is practically zero when their own political and monetary leaders have made it clear that they are going to follow policy which makes those same financial assets worth less than they currently are trading for, not to mention that the currency in which they are denominated is going to lose its value at the same time.

So here is what happened as a result. The yield on the Japanese 10 year bond went from 0.52% to 0.63% this week. How? Holders of these government bonds decided to get rid of some of them. The supply was larger than the demand and thus the price of the bonds fell meaning the interest rates went higher. The reason that they decided to sell bonds was based on expectations of inflation while holding a fixed rate investment.

Yet, at the same exact time that these Japanese institutional holders/buyers of government bonds are expecting inflation to pick up, gold in yen terms, after making a fresh 33 year high, completely does an about face and falls so sharply that, if the month of April were to close of this Friday, it produced a BEARISH DOWNSIDE REVERSAL pattern on its price chart after just having made a brand new high two days ago. I ask you, does any of this make the least bit of sense to anyone with a mind that can analyze and deduce things? How do we go from being concerned about inflation and a currency debasement to a mere two days later, throwing away anything that remotely looks like gold if we are Japanese investors?

Here is the chart...see if you can figure this out. My brain is no longer able to do so. In the world in which I try to live, 2 + 2 = 4. In this brave new financial world in which we live, it equals 5. Then again, maybe we will see this thing climb higher next week and spare us all from having to retake mathematics.

If the big boys and their elite pals were trying to cook up an opportunity to get long the gold market by shifting the largest speculators on the planet into selling, they have managed to do just that.

The Commitment of Traders report of this week is useless since it captured none of this drastic selling that occurred today. My guess is that, based on the volume of trading that occurred today, we have seen a further build in the hedge fund net short position in silver and are very close, if not there already, to seeing the hedge funds actually net short gold for the first time in a decade.

I never thought I would live long enough to see a world in which the very concept of money has been rendered so utterly meaningless. Money, the way I learned it, was a store of value. If "money" can now be created out of thin air, in unlimited quantities, with ZERO implications, repercussions or consequences, then we have indeed entered a new era in which prosperity can be created by a Central Bank, independent of manufacturing or any capital industry whatsoever and in which governments are unlimited in the amount of that money that they can spend. We have also seen the very notion of a bear market in stocks rendered completely obsolete. From this point forward in history, stocks will never go down and debt in itself has been transformed into an non-entity.

In short, every single thing we have ever learned from history is no longer applicable. Modern economics, monetary matters, etc. are need to be updated to reflect the new reality of Central Bank dominance. Pity John Law, he lived and died a few centuries too early. He was a man ahead of his time and a true genius, and would have been sainted had he only lived long enough to sit on the board of the FOMC.