"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


Wednesday, February 29, 2012

Bernanke tries talking down Commodities

Today was Fed Chairman Bernanke's chance to testisfy before the Congress' Financial Services Committee. Here is a quick synopsis of his comments as I see them.

"The economy is getting better based on what we can see of the employment numbers but it is not growing at a fast enough clip to justify any immediate change in our accomodative monetary policy. The uptick in hiring has been helped by this policy and any change to it at the present time is not warranted. Real Estate is still a concern. Us fiscal condition is dire and faces a serious challenge at the end of this year. Inflation is not a concern although temporary rises in energy prices bear monitoring".

There you basically have it.

Based on this testimony, gold and silver were murdered. The supposed reason? - We are told that traders were expecting QE3 to be imminent and were disappointed because the usually dovish Bernanke did not sound quite as dovish as before. Thus the metals were hammered mercilessly lower.

Excuse me - but as a trader who watches these markets each and every day for more hours than I would prefer anymore, I have not seen any analyst explain the reason for the  heretofore rally in the metals as traders EXPECTING AN IMMINENT QE3 program to launch.

The reason for the rally has been expectations by the market that Central Banks would keep the liquidity spighots open for the foreseeable future (near zero interest rate policy coupled with QE out of Europe and the UK) and thus create an environment in which there was little opportunity cost for buying the metals. This has been generating RISK TRADES in which traders/investors buy both stocks and commodities and generally sell off the Dollar, which was particularly pronounced after a rush back into the Euro once traders were convinced that the immediate fallout from the Greece debacle was past.

Comments this morning trying to explain the sell off in gold mentioned the failure of the metal to make it through the $1800 level and downside stops as the culprit but ironically they are deathly quiet in regards to silver, which only yesterday had staged a MASSIVE UPSIDE BREAKOUT on strong volume out of a congestion zone. Yet today we saw a nearly 8% wipe out in silver which completey erased yesterday's breakout and then some.

My thinking AT THE MOMENT is that Bernanke and company were watching the commodity complex begin to accelerate higher once again as a result of their free money policy and began getting extremely nervous particularly as energy prices were rocketing higher. This is an election year and one thing that the boss cannot stand for is having to deal with that pesky issue of unhappy drivers bitching and complaining about the outrageous cost of filling their gas tanks especially since he and his crew are doing as much as they can to shut down drilling on public lands and offshore.

If one basically states that the economy is doing better - not out of the woods yet but better - and all the hedgies are leveraged to the gills because the FED GAVE THEM THE GREEN LIGHT TO DO EXACTLY THAT when it first announced that it would keep this near zero interest rate policy out to the end of 2014, then it is a simple matter of throwing a bit of uncertainty in that regards to generate a bout of selling. Toss in the same permabears as always capping at the highs of the day and the algorithms did the rest of the work as the stops were picked off.

In the meantime today's wild move in silver was a daytrader's/scalper's heaven. As said before, there are no worse traders on the planet than the hedge funds. Those guys could not trade their way out of a wet paper bag if their lives depended upon it.

In watching both of these metals, it does seem that we are now getting a bit of stabilizing in here around midday.

Gold and silver shares as usual are going nowhere. They made it just to the bottom of the critical resistance zone that I noted on the chart yesterday at the gap region 555-560 before going Kerplunk.

Interestingly enough, the long bond is down a full point right now as I write this. I am keeping an extremely close eye on this market. As stated yesterday, I refuse to believe ANY talk about an improving economy as long as the bond market does not start a solid downtrending move.


  1. Dan - one thing you forgot to mention is March delivery in silver, and the cartel trying to shake out any remaining weak hands standing for physical.

    To me, this is yet another sign of the tight physical situation. Once delivery for March is over, the cartel will start to cover. Buying opportunity of a lifetime.

  2. Good for you Willydog! With Open Interest at 3262 contracts March for Feb 28th I think you may be right. They needed to shake the banana tree and to reintroduce an element of doubt. Who knows, maybe some of the financial writers will start writing about this "fix". Is this a "can kick"? or are they just simply passing the buck? At any rate it seems quite clear that they have their petal to the metal - or to put it another way - they have their foot to the floor and the precious metals just happen to be there. The ratio of SP to Gold has climbed again - so their relative world is working for the moment. Maybe Jim Sinclair will advise some of his wealthy friends to just take the metal and avoid what no longer seems to be a fair game.
    This open interest to works out to 615 tonnes. Perhaps Trader Dan can tell us if this a large take off versus other months - and does anyone know how much their inventory in silver.

  3. Hi Dan, thanks as always...do the charts have any suggestion as to when the bleeding might stop at support...so i can look forward to letting my zsl shorts go and BTFD?

  4. Looks like the cartel raid is over... at least for now - they got the crimex longs standing for delivery to capitulate- mission accomplished. Now onto globex and recovery (cross your fingers).

    Tom - as per Turd - 4500 contracts were sent for delivery either in January , or last March (forget what he said). If OI is down to 3000 range, then the cartel has accomplished their mission and should be taking their foot off the gas. With Sprott draining phyzz from the miners, and the crimex vaults empty - they don't have much of a choice but to shake the tree hard, verrry hard - as people have smartened up to their games.

    Furthermore, if it's true that the cartel was pitching in shorts yesterday, then their risk managment team must be shitting a brick right now with their activity today on the short side, which would give further support for them to cover sooner rather than later.

    The key thing is how quick the specs jump back on the bandwagon, and if the DXY has put in a meaningful reversal or not.

  5. When is last date for delivery notice? Is that today?

  6. The last couple of huge price raids...had the selloff continued into overnight/overseas?

  7. So today is first notice day but if they accomplished their objectives by shaking enough from weak hands, it's probably unlikely that they keep hammering the prices down.

    That said, if the overall equity markets take a hit, PMs can do likewise.

  8. Incredible take down of GOLD down $95! Have not seen this in YEARS!

  9. Been reading JS and DN since 2004 and holding since then. This type of move is rare, my insurance policy is in tact and I don't have to renew each year. Will sleep well tonight on my $7.00 silver and $300.00 gold. Yawn another day in paradise.

  10. Bubba Silverman

    very nice entries there..i though mine were not that bad either at $17 and $560

    I too no longer sweat these cartel-cftc raids but I am now thinking to get one after this $100 smack

    so lets go stack the smack

  11. Hi Dan
    I have been convinced that the feds has their magic fingers on the chart buttons and they can place it exactly where they want , up or down as it necessitates.
    When they want to lower the price of dollar they inflate against gold, when they want to bring the dollar up they sell gold. They have enough from Libya 144 tons when leveraged 1/100 that is 14400 tons that will last them for a while until they get Lebanon+Syria gold (300+26 leveraged to 32600 tons) which will last them another 4-5 years.
    Remember when we broke down from 1900$/oz was exactly the night Tripoli fell down and we never looked back, if it was not for the Libyan gold we would be now 2500-3000$/oz.

  12. Hi Dan
    You refer to crude (paragraph starting "My thinking". Interesting that crude and grains were flat / up on the day.
    best regards

  13. It was a very nice idea! Just wanna say thank you for the information you have shared. Just continue writing this kind of post. I will be your loyal reader. Thanks again.

    Free Commodity tips

    Best Regards,
    Gurleen Singh

  14. If one basically states that the economy is doing better

    commodity tips|mcx tips, and yesterday had staged a MASSIVE UPSIDE BREAKOUT on strong volume out of a congestion zone.and more site are
    mcx tips provider,
    commodity tips provider,
    free commodity tipas

  15. Who would prove those graveless love and lives? Snow kept falling over the village,quiet as ever.And the young hid themselves behind the rs gold birch wood.The bad news came at the other afternoon.Her love laid down his life on the battlefield.Quietly she came to the birch wood,waiting there each day on tiptoe.She said he'd just lost his way in the land far away.


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