"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, June 20, 2013

Gold Crushed in Europe - Further Carnage in the US

Europe wasted no time in responding to the Fed's comments when trading commenced over there as an avalanche of selling swamped over the gold market crushing the metal below support levels that continued to give way in succession. As stated in yesterday's missive - institutions want no part of the metal right now as there are hardly any players who see the least signs of inflation on the horizon. Never mind that the costs of so many basic services and goods are rising - those are not caught in the government's numbers nor is the fact that consumer wages remain stagnant.

The economy may be improving in the minds of some but cash strapped consumers are finding their disposable income shrinking meaning that borrowing is going to have to increase if they hope to maintain their "quality of life". While the Fed wants inflation and is dreadfully terrified of deflation, they do not seem to be having much success at inducing the former yet most Americans all seem to realize that everything they depend upon for life is going up in price. Odd isn't it?

I am not sure whether the tail is wagging the dog or the dog is wagging the tail but one can see the interplay between what is going on in the equities and what is going on in the bonds. As the bonds sink, rising interest rates send worries down the spines of the equity crowd which is creating a sort of vicious feedback loop.

Keep in mind, according to my view, the entire US stock market rally has been nothing but a Fed-induced, artificially created bubble which has sent stocks to ridiculously high levels based on the anemic strength in the economy. If the sentiment, that one has to buy every dip in stocks, begins to come into question, then an awful lot of highly leveraged one way bets are going to begin coming unwound. When I see movements of this magnitude, I know some players, big players, are in trouble and are getting mauled.

About the only thing moving higher today is the US Dollar. There was some strength in the front month July hog contract but given this environment, one wonders how long that is going to last. Bellwether copper was kicked in its rear end and of course the readers of this site know all too well what has happened to gold, and especially to silver.

Silver is an inflation play, pure and simple. If there is no inflation in the minds of these big institutions, then there is no reason to own that metal and even more reason to short it. That is what they are doing having broken it down below a support level that I thought would prove a much tougher nut to crack that it did.

This is so eerily reminiscent of 2008 although this time around, the bonds also are proving to be no safe haven as they were back then. As a matter of fact, it looks as if CASH is the place that investors are running into for the moment.

The Australian Dollar, always a fairly reliable harbinger of the broader commodity complex, was pummeled today especially once the news that China's growth had slowed. Along that same line, the GSCI, or Goldman Sachs Commodity Index, was also beaten with an ugly stick.

We will have to see whether one or two days of this is enough to clear the air and bring some stability into these markets but with the excessive amount of margin debt and with extremely large trades going awry, anything is possible.

I will get some analysis and a chart up of gold later on today. Let's just say for now that losing support at $1300 was a big deal, a very big deal. Judging from the massacre occurring in the gold and silver mining shares, we are seeing a complete rout of even some of the long term bulls. The HUI looks like it is now poised to drop all the way to 200, pretty much back to where it was 5 years ago during the depth of the 2008 credit crisis.

Apparently the laws of economics have been discredited as it is entirely possible to create Trillions in paper currencies with no impact whatsoever. The monetary history books are all going to have to be re-written to reflect this.


  1. I hate to say I told you so, but I told you so.

    1. @Unknown: Yep. You were bloody right man.
      History books have to be rewritten. Printing Money does solve everything, and in this time stopping the printing press is VERY EASY. Its all electronic bits and bytes. All the money pumped into the system can be extracted withing seconds. Its all digital. Wonderful isn't it?

  2. Well..unknown..perhaps you would like to share with us where to put our money next?

  3. Donate to charity...

    I mean for real if you really have to use blog as a source of investment advice (no offense meant Dan) and advice of pretty much anonymous people i wonder how in earth did you come to have excess money... You know the one about the fool, the money and parting...

    For me its very simple there are levels of "value" with air/water/food/safety of the family being far above the rest then it comes to "What do i do with excess...?" Then you get into stuff like farmland, house, rural location and lifes little comforts like electricity, wind powered generators, water pumps, foodstuffs? Later on you get to coins, bars and the rest of the "rocks" which do nothing but sit somewhere in the dark (currently) loosing value (or so the market says). Later still you get behind a PC see little day charts, candlesticks and long forum posts which in grand scheme of things mean diddly squat...

    So in short my advice? Buying lotto ticket is much less stressful then trying to trade markets and with such an attitude i'm pretty sure more profitable (aka loose less :) ).

  4. Hey Sharac

    You hit the nail on the head when you mention buying a lotto ticket.
    Wall Street with the help of the almighty USD and the FED have turned the entire planet into their personal casino.

    Not to fear, the PPT will ensure that tomorrow the DOW will rally back most of what was lost today.
    When you have the reserve currency you can do whatever the hell you want.

  5. I'm actually going to start scaling in, and will be taking a 25% position for my latest allocation.

  6. Wow Willydog you are a brave soul. I think this can be the 2008 moment. Yeah, they will walk Ben out on that long plank again and tell him to tell us it worked, but this time it will really work. Until I see that, I am ducking. Gold led the stock market to slaughter from Oct 2008- to the final washout in Mar 2009. If, this is the case, then no scaling for awhile for me. I am just going to hold my position and scale in when the KABOOM hits.
    As for now I like watching the funnies, you know Rachel Madow and the CNBC crowd trying to get these guys saying what a wonderful time to buy? LOL..
    Greece will be in flames, and all the PIGS yields skyrocketed today. Not ready for any scaling yet, but maybe you are right. Too volatile for my blood.

  7. "As a matter of fact, it looks as if CASH is the place that investors are running into for the moment."

    Is everyone being herded into cash because, despite all the QE effort of the past 5 years, the banking system is still in such a desperate need of capital that it's now time for "bail-in"?

    1. Gill,
      If global meltdown keeps clawing, and bond yields accelerate, maybe you hit the nail on the head. I talked my mom into getting enough to survive 2 yrs just in case. I know the banks are sitting on large cash reserves. Seems so odd but Greece denied bailout and the yields are spiking similar to the beggining of the meltdown in late 2008. China yield curve is inverted, no way to determine ours because of FED. Just crazy times.

  8. Check out the table at http://www.ino.com in the right column. Check out the percentage volatility changes in stocks in the top column. Nikkei got battered yesterday too LOL. Yikes, look at the bonds and commodities too. Tomorrow it will be even better, or at least within a week guaranteed LOL. The new abnormal- testing the new normal in the wind machine one by one...
    Got gold?

  9. http://www.zerohedge.com/news/2013-06-19/china-interbank-market-freezes-overnight-repo-explodes-25
    There are bubbles within the oriental express.


Note: Only a member of this blog may post a comment.