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.

Panic Selling Hits Gold

Volume in both the gold futures market and the Gold ETF has seen a massive spike today as the downside breach of major chart support at $1525 has resulted in wave after wave of both long liquidation and fresh hedge fund selling.

The headlines are screaming today" Gold Enters Bear Market" with the move down through support sending the price off 20% from its peak.

It is interesting reading the various reports from the wire services as no one is quite sure what the catalyst for the sell off is other than the idea that inflation pressures are non-existent. Some keep pointing to continued outflows from the ETF with gold being sold off but the question is, who has been buying that metal?

With crude oil finally succumbing on its price charts, the majority of the commodity sector markets are all moving lower.

This has me beginning to wonder about something... I have mentioned time and time again, that both Dr. Copper and the equity markets cannot be correct in their assessment of the economy. Either the copper bears have it all wrong or the equity bulls have it all wrong. It CANNOT BE BOTH.

Copper is off over 2% today; crude is currently off 3%; Gold by over 4% and silver by 6% at one point. The CCI is down nearly a full percentage point also. The only thing that has kept it sinking even deeper is some mild strength in the grains which I do not expect to last long.

Additionally, the Japanese Yen is getting another one of those stupid "safe haven" rallies that it is prone to get whenever there is a panic out of commodities. Both it and the US Dollar are moving higher while the US bond market is currently soaring. The yield on the 10 year note is down to 1.73%.

So what does all this mean? Obviously the efficacy of both the Fed's QE3 and QE4 and the Bank of Japan's latest round of liquidity injection is failing to produce any signs of solid, sustained economic growth. They have certainly been goosing both respective equity markets higher. Just look at a chart of the Nikkei and the S&P 500! Perhaps however, more and more investors/traders are starting to see these periodic money blasts as nothing more than short-term drug injections for a drug addicted economy. In other words, could we be seeing a shift in sentiment towards these Central Banks and their policies? 

I think it is important to note here, that none of us have ever lived through anything remotely like this. Never have we seen an era of this magnitude of money creation against a backdrop of sovereign nation bankruptcies and meltdowns. What any sane trader will do under such circumstances is to draw on his or her knowledge and experience but that only takes one so far. The truth be told, all of us are learning how this is going to play out from one Act to the next.

The retail sales numbers today were very disappointing for the market. Think about this for a minute - we have been assured by many members of the FOMC recently that the economy is growing, albeit slowly, but steadily enough so that the Fed can begin to scale back its bond buying program later this year. Heck, just this morning, one Fed member, Rosengren by name, stated that there is underlying strength in the US economy and that he expects to see unemployment at 7.25% by the end of the Year.

Well why not? It does not take much to get that number down there if more and more people keep dropping out of the labor force! So the Fed keeps talking about this unemployment number like it really means something significant. It means nothing, not if the labor participation rate keeps imploding yet they have targeted it as if it is some magic numbers with magical esoteric properties that when once reached, implies all of our worries are now over. What a crock of horsesh*t!

But I ask myself the question, if the economy has this sort of underlying strength, why then is crude oil dropping lower and why then are gasoline prices  continuing to sink leading up to a time in which seasonally, we generally see them begin to rise? Why is copper closing in on the bottom of its trading range instead of moving higher as we would expect it to do if there was underlying strength in the economy, not only here but globally?

But more importantly, here in the US, interest rates refuse to rise with any lasting strength. Instead we see them continuing to hover around recent lows unable to gain much traction on the upside. Yes, I understand that the Fed is rigging the interest rate markets but if there were any true signs of solid strength, bond prices would be inching higher. They are not, at least not here in the US.

Perversely enough for the Bank of Japan, their bond market over there is in a huge state of turmoil. It has been roiling ever since the market digested the news of their massive government bond buying policy. What is happening is that while the Bank of Japan is trying to force interest rates lower and drive investors into higher yielding equities and other investments such as REIT's, interest rates over there have actually crept higher. The yield on their Ten Year note has risen to approximately 0.62%. That is up from 0.52% recently.

Some of the largest bond buyers are asking the question why they should lock up money for 10 years at such a pitiful rate of return, with the underlying currency imploding and with the Bank of Japan stating categorically that they are deliberately trying to induce a 2% inflation rate. In other words, it is a lousy deal for holders of fixed income. This is obviously going to pose quite a challenge to the Bank of Japan moving forward for if interest rates rise, it is going to work at cross purposes to their plans. They could end up being the only buyer of size for Japanese government debt which in effect would then be pure and unadulterated monetization.

I said all this to merely point out that something is out of kilter. My own view, and I have thus far been wrong about this, is that the global equity markets are in a bubble that is unsustainable and are being kept levitated solely by Federal Reserve (add in Bank of Japan) liquidity measures. If traders begin to doubt that these measures will actually solve any of the structural issues plaguing these economies, (too much debt), then what is left for these Central Banks to do next? I keep coming back to the facts that US poverty rates are increasing and the labor force is shrinking all the while the population size is increasing. Does that sound anything remotely like an economy with inherent strength?

Meanwhile the volume in gold trading today is enormous. There is a huge change of ownership taking place as hedge funds now move aggressively to short the market abandoning stale longs that are turning into losers (Pity Paulson here as the market is now going after him in earnest - they are going to try to bleed him to death - they might have gotten him today) and beginning to build a larger short position. The sharp bullion banks have been attempting to exit their shorts and move to the long side in anticipation of what is coming but they need large sell orders to do that. They are getting those today.

It is too early to call this as a final washout day but it has the makings of one. Thus far volume is running about 3-4 times its normal size! It might be in the range of over 300K by the time this session is over.The emotions are off the chart as FEAR and PANIC are on full display. The problem is that the damage on the technical chart is quite severe and unless we get one of these spike bottoms that gold is famous for, it is likely that gold is heading lower. If gold can sustain a "15" handle on it by the time the dust settles today, the gold bulls will have dodged a major, major bullet. If not, $1480 is up next. By the way, the 200 WEEK moving average is down near the $1433 level.

 
Keep an eye on that HUI; the mining stocks have been an excellent precursor to what gold is going to do next. So far, they continue to appear dead in the water with no bounce as I write this. That might change before the session is over. If it does, I will note it. At is now stands however, it is down to levels not seen since May 2009 - nearly three years ago! It has dropped below the lower tine of the pitchfork which I would not have expected it to do. Looking at this chart, you can see a support zone extending down to 275 and below that another tine of a pitchfork extrapolated. One has to hope that it holds here. A worst case scenario is now a complete retracement of the entire rally off the 2008 lows putting it back to the starting point of the QE programs by the Fed.

If the Bank of Japan stimulus and the Fed's QE cannot take this market higher, I am not sure what the catalyst will be. I do know it will be currency related. The big question I am trying to get an answer to is "when will investors lose confidence in the currencies of these western nations?" When they do, gold will reverse course.

The Western Central Banks are propping up a zombie and attempting to portray it as having life. So far, they are fooling the majority of investors. I prefer to use history as a guide however and that tells me that not a single thing has been solved even with a wall of money thrown at it.

Expect Asian Central Bank buying to become quite active. Traders - trade small in size and be careful - this is not the time to become a hero....

Gold Chart by Request

Here's a look at the latest after today's sharp selloff in gold. Note that the metal is approaching the support zone which has held it for some time now.

You can see that the former support zone between approximately $1592 - $1588 or so, turned into a resistance zone and attracted selling yesterday when gold failed to extend past it and back to $1600.

Central Bank buying out of Asia has been attracted to the metal on approaches to this lower support zone in time past. We will have to wait and see if that buying materializes again.

One thing I find quite ironic. Let me mention it and see if you do also. The Bank of Japan, has adopted the policy of its new Prime Minister whose stated goal when he ran for election was to deliberately produce a 2% inflation rate. That was for the express purpose of getting the Japanese economy out of the deflationary trap which has snared it for decades now. When you really examine that policy, all it essentially consists of is massive buying of all maturity ranges of Japanese government debt, along with some targeted buying of certain ETF's and some other financial assets. The scope and the size of this buying has various estimates that I have seen but it looks to be in the neighborhood of (US) $1.4 Trillion or so.

What is the methodology to induce inflation when we cut to the chase? Simple - drive the currency lower pushing the costs of imported goods higher while making Japanese goods much more competitive on the global market. Also, keep interest rates artificially at such extremely low levels that it spurs borrowing and thus consumption.

What has been the result for gold priced in terms of the Yen? Answer - it shot up to an all time high just yesterday.

Now turn your attention to the US here. What is the policy of the Federal Reserve? Buy enough government bonds to keep interest rates, both short and long term, artificially low in order to spur borrowing and thus consumption.

Somehow this is supposed to produce inflation in Japan without it being inflationary here. Okay - what is the difference? Well, the US Dollar is going higher and higher against a large basket of other majors. This is shortcircuiting the inflationary implications of a weaker currency and has thus far enabled the Fed to play the exact same game that the Bank of Japan is playing but without the same consequences.

Regardless, Gold in US Dollar terms keeps being sold by hedge funds while gold in Japanese Yen terms keeps rising.

I can note this divergence and apparent contradiction but quite frankly what irritates me to no end is to hear various talking heads, pundits and analysts, praising the Fed for its efforts and avoiding inflation in the process. Why praise them? The only thing preventing their policy (the exact same policy as Japan's) from knocking the Dollar into the same abyss as the Yen is the fact that the some of the other major currencies have stunk to high heaven.

With the US stock market moving higher alongside of the Dollar, foreign investors are chasing US stocks hoping to catch the move up and profit additionally from the Dollar appreciating against their own domestic currency - a DOUBLE BAGGER as we say. That is generating strong inflows of foreign currency to our shores creating yet another source of artificial demand for the Dollar.

I am not sure what will cause the US Dollar to reverse course but the US is at 100% Debt to GDP ratio with a growing federal budget and a looming entitlements crisis. We continue to read reports of various trade deals between China and some of its trading partners that call for direct exchange in their native currencies and so forth obviating the need for any US Dollar involvement whatsoever. The US fiscal house is in such serious disorder that it is screaming a warning at the top of its lungs and yet utter complacency prevails.

These things have a habit of continuing on merrily until one day they just don't. I do not know when that will be but I know it will be. Instead of giving this problem the serious attention it deserves, our leaders are instead fixated on homosexual marriage and gun snatching. Nero at least produced something constructive while Rome burned even if it was only a song on his fiddle. This current crop of leaders.....

Gold Knocked Back Down into Support

Another coordinated hit on the gold price in today's session. Goldman Sachs issues a "short gold" advisory on the same day that news breaks about Cypress having to sell gold to raise funds for its bailout requirement.

What is so perverse about all this is that I do not believe there is a thinking person on this planet that does not attribute this bubble rally in the US equity market to the Fed's massive doses of QE. Yet, when the FOMC minutes are released (that is another story all in itself as they were released yesterday) the stock market utterly ignores the comments from those on the FOMC who believe that the bond buying program can begin to be wind down later this year. Yet, those same comments, again, completely ignored by the equity markets, are supposed to be the catalyst for a huge smashing of the gold price. Come on already! Do they really believe that people are that damned stupid?

Show me one person who believes that were the Fed to pull the plug on the QE program that it would have NO EFFECT whatsoever on the equity markets and I will show you a talking rock! Yet somehow, miraculously, the stock market can completely ignore any talk of an early cessation of QE while gold is mauled! Yeah....

I suspect that Goldman needs to get long gold for what they see coming down the road and has to get the hedge funds and the public selling it so that they can take the other side of the trade for themselves.

I will send up a chart later on today as I am pressed for time right now but gold is back down into the zone that has attracted strong Central Bank buying previously.

Also, I should note here that silver held up fairly well today considering the mauling that gold received. It was only down 33 cents or so. Not bad given a $30 plunge in the price of the yellow metal....

The VIX is falling off the edge of the world into the abyss. There is no fear anywhere. Total and complete complacency rules.

Japanese Money Flooding European Bond Markets

The mystery, at least in my mind, of the rising Euro is now clear. Outflows of Japanese institutional money is pouring into the European bond markets in search of higher yield.

Consider the following - the yield on a 10 year Japanese government bond has fallen to 0.525%. Yes, that is not a typographical error. If you buy one of those things, you are locking money up in an IOU for TEN YEARS to obtain a half a percentage point of interest. If that is not bad enough, the underlying currency is also freefalling in value. Now, who in the world would want to do that besides the monetary authorities in Japan who are becoming and likely are going to end up staying that way, as the largest, if not sole buyer of Japanese government debt?

Believe it or not, with all the massive problems in Spain and Italy, the yield on the Spanish 10 year bond has now fallen to its LOWEST level in a year. Italian bond yields are down to 4.36%! Dow Jones is reporting that last Friday and this Monday, the yield on the 10 year notes of France, the Netherlands, Austria and Belgium hit RECORD LOWS! This is Japanese money fleeing into European bonds.

Now here is what is even more mind boggling - the Bank of Japan's own data shows that Japanese institutions hold a gargantuan $6.34 TRILLION of domestic government bonds! This is not a tide of money, it is a tsunami looking for yield!

Bubble in the US stock market? Yes, in my opinion but the bubble is going to get even bigger. Heaven help everyone of us on the planet when this man-made disaster finally reaches its crescendo!

UNLEASH THE KRAKEN.... here it comes..... where is Perseus going to come from?

Yen Gold Scores All Time High

Currency Debasement = Higher Gold Prices. Any questions?

By the way, if you think this is something, you should see what is happening to crude oil prices in Yen terms. The Japanese political and monetary leaders are certainly doing their best to kill deflation over there. Pity the average Japanese citizen whose stock portfolio is looking great while their standard of living is dropping into the toilet.

Commodities catching a Bid today

The overall tone of the commodity complex is firm in today's session as the CCI is up. From what I can see, some of this is tied to news out of China that inflation is relatively tame. This has traders breathing a sigh of relief that there will be no raising of short term rates anytime soon in China. Traders are already fearful enough of slowing growth so the last thing that they want to hear coming out of China is anything that might dampen what economic growth there is.

The second main thing is the Chilean copper strike at the giant state owned mine, Codelco. Chile produces approximately 1/3 of all global copper and thus anything that might interfere with the supply piques traders' interest. The immediate result of any strike will be to alleviate concerns about the rising stocks of the red metal at the LME, one of the main factors behind the grind lower in copper prices as hedge funds have noted that and have been heavy sellers of the metal. We are seeing some short covering occur in there.

There has been a subsequent spillover effect on silver also as a result.

Further aiding the rise across the commodity spectrum has been the weakness in the Dollar brought on by strong buying of the Euro. I am not sure what the strength in the Euro is all about. I only know that I want no part of it. Maybe there is some thinking that all the problem nations, Cyprus, Portugal, Greece, etc. will drop out of the thing leaving the stronger nations behind. Who knows what these guys are thinking anymore? As I have stated previously again and again, a long term trade to this modern generation of mindless gnats is 60 minutes.

There is also a bit of strength in the grains today as shorts cover recent extremely profitable trades while they wait for tomorrow's USDA report. It would not surprise me to see a bearish report to be quite honest although some traders, after having been burned and buried by the last report, are no doubt heading to the sideways preferring retreat as the better part of valor until they can see what numbers the bean counters over there will spit out this time around.

A comment on Silver - it has managed to pop to $28 today on the heels of all of the above - the big test for the bulls however will be to take the metal firmly past that level and hold it there. Right now, traders are still interested in selling rallies. If copper continues to firm however, they might have some second thoughts about the wisdom of doing that. Strikes are dangerous things to trade however. They can end as quickly as they begin and when that happens, traders have a nasty habit of turning around and looking at each other while they say, "what the hell is the market doing way up here?" You know what happens after that!

As usual, US equity markets are higher. What else is new? I am noting however weakness in the Russell 2000 today. That, and the Transports are also weak. Hmmm......

Doesn't seem to phase these guys however as they are pushing the Dow and the S&P 500 higher. My thinking at this point is why not just take the Dow to 16,000 and the S&P 500 to 1600 and get it over with.  The bears are not permitted to get any downside due for national security reasons so they might as well  just take the market higher into bubble territory all the while they shout out loud how cheap stocks still are.

And for those who might be wondering, Yup, the VIX is lower once again. NO FEAR.... Party Hearty.

Silver Showing some potential Bullish Divergence

Bullish and Bearish Divergences in Technical Indicators are becoming increasingly more common nowadays because of the nature of the Fed induced volatility which brings wild swings in price and then periods of uncertainty or confusion as traders attempt to sort out what the latest round of either verbal or outright intervention into the marketplace brings with it.

I have written at length about the woes of silver due to hedge funds playing it along with copper, from the short side of the market. Last week's break of significant technical support down at the $28 level brought in even more hedge fund shorts.

However, silver is showing some signs of bullish or positive divergence which merit watching. For those who are newer at this, bullish divergences occur whenever a technical indicator fails to produce a new low while the underlying commodity is in the process of making new lows. In other words, the commodity and the indicator are diverging.

In the case of bullish divergence, the technical indicator has been moving lower but note that the lows it is making are successively higher than the previous lows in the indicator even as the metal has been moving lower and making successively lower lows in the process.

Keep in mind that bullish divergences are often times mere continuation patterns so never buy a market based solely on a divergence. What will make things interesting however is if silver prices can climb back above broken support now turned resistance at that $28 level and HOLD ABOVE it.

Downside momentum is slowing even as traders have been selling rallies in silver so any sign of an overhead resistance level giving way is going to induce some of the shorter term oriented shorts to book some good profits.

Let's keep an eye on this.

One thing to also watch, last week's low near $26.50 is now a critical support level. If it fails to hold, a test of round number support near $26 will happen almost immediately. That MUST hold to prevent a drop to $24.

I must admit that it is difficult seeing these precious metals continuing to move lower with the massive Bank of Japan stimulus package and the rotten jobs number of last week serving to reinforce the idea of QE3 and QE4 continuing to last throughout the remainder of this year, but there are real concerns about the efficacy of these stimulus measures. After all, when we consider the fact that by the time QE3 and QE4 reach the month of December of this year, a total of $3.5 TRILLION will have been conjured into existence as the sum all four Quantitative Easing programs. In spite of where we currently are in this money creation binge, job hiring seems to have stalled out.

Let's face it, consumers without jobs cannot engage in spending sufficiently large enough to provide any serious or solid economic growth. Oh, yes, they can use government benefits to purchase goods and services but not at a size sufficient to jolt this economy higher. More importantly, the VELOCITY of MONEY needed to spur inflation is simply not there.

One has to wonder what exactly will be the trigger or catalyst that is needed to shake off the deflationary psyche among the hedge funds towards commodities in general and get them to begin anticipating inflation. It is more than evident that the stock market rally is nothing else but a spectacular display of PAPER ASSET INFLATION brought about by the Fed's unlimited paper dollar creation schemes. As stated repeatedly now at this site, that money is almost exclusively ending up in US equities in the desperate chase for yield in a ZERO INTEREST RATE environment. It has bypassed commodities for the most part even after QE3 and QE4 were both announced and them implemented.

As we watch the mining shares sinking further into the red nearly day after day after day, one begins to wonder at what point the shorts are going to say, "ENOUGH" and finally ring the cash register. There is an old saying in trading, "Bulls make money; Bears make money; but Pigs get slaughtered".

By the way, copper is getting some buying coming into it on the heels of a strike in Chile. That is serving to prop up the red metal in spite of growing warehouse stocks. We are seeing some of that buying of the red metal spilling over into silver, at least in Asia this evening.

I am continuing to monitor the yield on the Ten Year note to see if traders are showing any signs of anticipating an outbreak of inflation. So far nothing doing.

There is a very gradual uptrend on the yield showing up on the chart that has been underway since summer of last year, but I personally will not be impressed that longer term yields are going solidly higher unless I see this chart consistently remaining above 2.0 percent and that is just a bare minimum to be quite honest that would get my serious attention.