"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


Friday, October 31, 2014

Gold Bears Nail Hedge Fund Sell Stops

We have been chronicling with some detail the regular weekly Commitment of Traders reports for some time in many of the markets that I choose to comment upon. In those comments, I have noted the positioning of some the LARGE speculative forces as being on the LONG SIDE of gold.

Here is a graphic of the condition ( or better - what WAS the condition ) of all those SPECULATIVE longs in the market.

Note the HUGE NUMBER: It currently stands at 241,792 if you include option positioning.

By the way, just for comparison's sake, the total number of SPECULATIVE SHORTS in the gold market is a trifling 134,381. As you can see, speculators have continued to be stubbornly long in the gold market despite the deteriorating chart pattern and despite the deteriorating fundamentals for gold. By the latter, I am speaking primarily of the surging US Dollar and the fact that commodity prices in general are falling right along with the TIPS spread which is indicating the sentiment that inflation is of no concern at this moment.

Here is the point in all this... an examination of the chart shows that approximately 55,000 of those new long positions put on in gold near the $1200 are all completely underwater. That is where this selling is coming from. Once the TRIPLE BOTTOM at $1180 failed ( remember the old trading adage that, "TRIPLE BOTTOMS RARELY HOLD" ), the sell stops were activated and out they came.

Bears have been licking their chops to get to those for some time now. Today, they got them. With that level being the last line of defense in the sand for the gold bulls, speculative forces are going to be aggressive in going after gold from the short side now, just like they had begun doing in the silver market for some time. The carnage might just be getting started.

Interestingly enough, at the moment I am typing these comments, gold is down 2.96% compared to the HUI being down 5.42%. Guess what - that HUI-gold ratio that I have been charting, noting that it has reached levels last seen 14 years ago in the year 2000, is still falling lower. Gold is therefore either going to continue to move lower or the HUI Is going to have to move higher. Gold is overvalued, even after its fall today, compared to the mining universe.

Either that, or as I said yesterday, many mining companies are finished.


  1. All eyes will be on the Swiss gold initiative now as I can't see many reasons to be bullish gold now for the rest of the year.

    I find it hard to believe there will be a yes vote despite the early polls suggesting yes is in the lead.

    Apparently the Paypal account for donation to the yes campaign was frozen. There are far too many people with too much to lose to let this vote come out as a yes in my opinion. They should have asked for donations in bullion haha!

    I would personally love to see a yes vote, it would be a small victory for those of us against this central planning madness.

    1. Dominic;

      I don't for one moment believe that nonsense about paypal freezing that account. This guy promoting this stuff has no credibility neither does KWN which publishes that claptrap.

    2. Dan, if he was lieing he wouldn't be biting the hand that feeds as no one will donate now if they think the account is closed?

      Do you find it suspicious that this Japanese package comes exactly at the moment US QE ends.?

    3. Dominic;

      The same sort of falsehoods were being spread leading up to the Scottish independence vote. The "YES" side claimed that the "NO" side was doing it. Some in the gold bug camp sided with the "yes" side and attributed it to the "powers that be" trying to keep the little man under their thumbs.

      Turns out that the majority of Scots decided that independence came with a cost that they were not willing to bear and they voted it down.

      If this gold initiative were to pass, the Swiss National Bank would be unable to maintain its quasi-peg against the Euro. the Franc would rise in value making Swiss exports no longer competitive and hurting business and thus jobs.

      Like it or not we live in a monetary system that is what it is.

      One last thing - websites like zero hedge are where a great deal of this claptrap that passes for fact originate.

      Thing about this.. the same sites that loudly boasted and screamed:
      "the Fed has not stopped QE at all - they are clandestinely buying bonds through Belgium; they are giving money on the side to the big banks to buy Treasuries, etc" are now proclaiming:
      "NOW that QE has ENDED, the Bank of Japan, conspired with the Fed to replace the QE that the Fed took away"

      So which is it? Did the QE end or did it not end? If it did end, then why did they assert, with much bluster, that it never really did end?

      If it did not end, then why did the Bank of Japan conspire with the Fed to replace something which did not need to be replaced?

      These websites promoting this crap are run by charlatans, deceivers, quacks and flim flam artists and are like a modern pestilence.

    4. Dan

      Yes the Swiss franc would rise but a strong franc would increase foreign capital inflows would it not? So it's a double edges sword. Exports would lose out but the economy would benefit from greater investment from abroad.

      The uk and us don't peg their currency's against the Euro do they and our economy's haven't collapsed.... Yet :).

      Conspiracy theories aside you may not agree with everything ZH punishes but for all the claptrap as you call it there are plenty of brilliant articles on there too and they did predict the Japanese reponse.

      Whether you hate sites like that or not surely you don't believe it's a coincidence that Japan QE increases right at this moment?

      Look at equities today. Off to the races when everyone knows that equities should be tanking now with no QE and fears if deflation. Aren't there elections coming up in the US too? Coincidence again?? I'm just joining up the dots.

      One last point I always like to look at incentives. There are many powerful institutions that have a massive incentive to ensure the Swiss initiative fails. We know how greedy humans can be. Once again why would Von Greyerz lie about Paypal as it would surely stop would be doners from contributing money to the yes campaign.

      Oh thanks again for the blog. Always a good read!

    5. Euro went from .85 to 1.45 and German exports went up.

      It's a Keynesian falacy.

  2. Thanks Dan.

    It's kind of funny how all the talk of a collapsing USD is no longer a subject being brought up by the doomers these days.

    1. Crazy eh... The USD is magical. It has solved the age old problem of resource scarcity.

  3. USDA reports 3K head of cattle trade in Kansas at $168 #cashcattle.

    This $166 area in LCz has been the battleground on every pullback this week.

    Harmony gold sent workers home on furlough.. it would be good to weed out the poor companies in precious metals, especially the hyped up juniors that really had nothing, as it costs $1bil USD or so to build a mine.

    inflation not:

    it's always said that hedge funds report monthly, so today is 'window dressing' and 'position squaring' to explain moves.

    everybody workn for the weekend!

  4. This looks an awful lot like freegold. Paper gold is burning. Physical will dry up as the speculators keep betting on the price of their contracts. And that price is conceivably zero.

    1. News headlines and blog posts .Buy as much (gold ) as you can. Back up the truck. I have seen that time and time again. Where does the money come from to back up the truck , you backed up the truck at 1900,1800,1700,1600,1500,1400,1200. You cant back up the truck again if you are broke.

    2. Futures contract pricing is for peasants. Central banks don't buy on the comex. Neither do they mark their holdings to it. So when the price of comex futures contracts on a non deliverable commodity goes to zero, the peasants will get the same pricing as the central banks.

    3. @ Jasper
      Way to contribute

      Just because someone bought @ 1900 1800 1700 1600 1500 1400 1200 doesn't mean they are broke. If someones been able to buy @ 1900 1800 1700 1600 1500 1400 1200 then maybe they can keep buying at 1000 800 ....

    4. Matt deHaan;

      spoken like a true believer.
      Do you have any idea how utterly ridiculous you sound? I guess in your world, the idea of buying something at 1900 and watching it go to 800 means little.

      my goodness....

    5. I guess it depends on your perspective. Backing up the truck, I agree, thats lousy. But my point is, just because someone bought at those levels doesn't mean they are broke. Sounds like sour grapes to me.

      True believer, sure. If buying physical, a little at a time (with some recognition/variation of buying a little more when prices are low and little less when prices are high) is part of someones long term plan then how can you call that ridiculous?

      How much is the car worth that you bought in 2000?

    6. Matt deHaan;

      I will bet that there are guys and gals on this site who do buy some physical gold on some dips from time to time. Again, not a single thing is wrong with that as we are not gold haters here, but view gold as insurance.

      I share no disillusion about the efforts of the Central Banks to keep their respective economies afloat. I am the first to admit the amount of liquidity they are supplying is breathtaking. What I am saying, and I think I have tried to make myself very clear here, is that there is a big difference between sound planned purchases of the metal as part of one's portfolio diversification and the crap that passes for "analysis" among way too many gold bug sites.

      What is especially sad is that many of those people are very angry, understandably so, because they are over 50% invested in gold/silver and are getting obliterated to the point where many of them, unless they are young, will probably never live long enough to recoup their losses from "back the truck up Nellie and load her up because these are bargain basement prices never to be seen again".

      Those clowns advocating that nonsense said that at $30 silver and $1500 gold and kept saying it all the way down. Anyone who followed that lunacy is probably broke by now.

      Again, that is different from what I think you are advocating. Thanks for clearing that up. I read your first post and came away with the idea that you were among that group that was following the loons.

      Keep in mind the perspective from which I am writing. I have no axe to grind either for gold or against gold. Personally I hold it but I do have an axe to grind against flim flam artists, deceivers, pretenders, charlatans, fools and outright immoral people in some cases, who have bilked others out of their life's savings and have prospered even as their victims have had their lives ruined as a result. That angers me and I think, or at least I hope, any morally decent person would feel the same way.

      To wreck someone's life and profit off of their misery is wicked. It is one thing to make a wrong call as a trader. I run some bad trades all the time. But I try to get out quickly and keep from getting ruined. that means I have to admit, first to myself, that I am wrong for the time being.

      It is entirely another thing, and this is the problem with the gold cult and especially its leaders, to keep at it over and over and over again never admitting error and continuing to give the impression that one is infallibly correct. and if not, it is only because some "evil cartel messed with my otherwise perfectly correct prediction and made it come out wrong".

      Unsubstantiated wild claims, designed to give the impression that the one making the claim is somehow privy to information that the rest of us do not, and cannot normally possess, is rampant in the gold cult. I am speaking primarily of some huckster who is now famous as a "whistleblower" and who continues to spew his venom of reckless lies about "substantial gold buying" as if that means that gold is going higher as a result. Instead the market collapses leaving those who believed his falsehoods with big losses as he meanwhile peddles his worthless newsletter or service.

      Such people are like a cancer that eats at the heart of those who actually believe that gold has value and should be held in one's portfolio. It gives all of us a bad reputation who do advocate holding some gold but worse, it utterly RUINS financially those who think that this deceiver can do no wrong.

  5. I think the people who dream of an alternative world where central banks didn't exist and that mankind would be light years ahead of where it is are somewhat involved in a fantasy situtation that only dreams of positive outcomes and no negative consequences.

    Just to be clear...I do not think the Fed or global CB policy is the greatest thing in the world. I acknowledge the imbalances and volitility it causes in many ways that effect most of us.

    But like TD said, it is what it is and we're stuck with CB's and their effect on the global economies for better or worse.
    If CB's never existed right up to this moment I can almost gaurantee that some folks would be clamoring for some centralized banking system if all they ever experienced through history were smaller private banks.
    I think the core issue is that lots of folks have a problem with almost any banker on any level because they're perceived to be controlling others hard earned money.
    It boils down to an issue of trust and suspicion and vulnerability.

    I can see and appreciate both sides of the argument of those who are tired of the CB system in place and those who see it as a never ending banking institution that negatively effects their lives.

    However, we're stuck with them because they're not going away anytime soon. I see the railing against them as a waste of energy while also recognizing where people are coming from but only to a certain extent.

    We're never going back to some simple form of banking (ie. the1800's for example) and some simpler way of life that some fantasize about.
    There's no turning back the clock although there is a sizeable doomer contingent on the 'bug sites that almost seem to lust for some cataclysmic reset that exists soley in their dark fantasies.

  6. I understand that DPH

    I just don't believe that this 40 something year old bond bull market can last forever. Or even for another 10 years. Why did interest rates ever go up in the 60's ? If they could stay low forever , they would have stayed low then.

  7. Just listen to a Keynesian like Ben Bernanke. He says that he can stop money velocity inducing capital flight (Inflation) in 15 minutes and that interest rates won't go up in his lifetime.

    1. Best to take ben seriously.

    2. I'll take Greenspan seriously instead. Those who know it the most hate it the most. Greenspan said 2 days ago to buy gold. Greenspan is interesting in that he's seen both sides of it. He knows Austrain and Keynes. Bernanke is just a delusional acedemic

  8. Could someone help me understand why gold went down today denominated in yen? o Wouldn't gold go up in Yen or do I have it wrong and the action the BOJ took today was gold bearish in yen terms?

    1. People have emotions that are stronger than the classical gold/commodity relationship.

      Your now seeing that world wide in the PMs and in the miners.

      Fear and Greed rule all.

    2. Silverwood, you are completely right and in my opinion gold should be up against all currency's as the race to the bottom continues. The only one that can't be counterfeited is gold although unfortunately paper gold can be traded and this is a form of contrfeiting I guess.

      Give it time. Gold will bottom soon and equity markets will top at least in real terms, and then it could get interesting. Right now fundamentals mean nothing. Gold breached it's long term support with a mysterious $20 drop overnight and that's all was needed to bring in all the computer generated momentum selling.

  9. Gold down across all the currencies not just yen


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