"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, November 28, 2012

"Whack-A-Mole" Job on Gold takes it Down

Reading the wire feed commentary from early in today's session was another exercise in the cluelessness and lemming-like parroting that proceeds forth from the US financial media these days.

It was that nasty, infamous "FAT FINGER" once again that was initially blamed for the smashing avalanche of sell orders that crushed the gold price lower early in today's session.

Never mind the fact that the market did not immediately pop right back, which would have indeed been the case were there an actual trading error involved. The other annoying fact is that "fingers", fat or skinny or otherwise, have very little if anything to do with today's trading volume. We are talking about gigantic hedge funds and other large commercial interests, most of whom use some sort of automated computer trading platform which places orders for them. The only thing a "finger" is needed for is to beckon the servant to bring another glass of Chabliss to the hedge fund office crowd.

I am reading today's hit as just another bear raid on the gold market like so many other that we have seen over and over again throughout the last decade+ of the bull market in this metal.

The bears were caught flat footed last Friday when gold shot up through $1740 and then $1750 on light volume on a day in which a large portion of the usual trading contingent were still recuperating from their Thanksgiving Day dinner and were nowhere to be found on the trading floor or near their computers, which were probably not even turned on.

The surge, which was suspect to begin with, managed to get the bulls all revved up and had headlines about gold breaking out starting to proliferate. That of course was an enormous, "NO NO" to the bullion banks so in came the extra artillery and ammunition and the upstart bulls were summarily taken to the woodshed with a message being sent that no matter how much, how long, how often and many gazillions in Treasury notes, bonds and bills, along with agency debt or MBS's that uncle Ben and this merry band of alchemists decide to stuff into the Fed's balance sheet, gold will not be permitted to soar unchallenged to new heights. After all, we cannot have any votes of NO CONFIDENCE in this paper conjurers and their insanely destructive monetary policy.

More to follow later....

Those of you who follow the markets closely will no doubt have noticed that the HUI closed on its high of the session and basically moved straight up from the opening bell.

It looks to me that what happened was two-fold - first - an avalanche, and I do mean 'avalanche' of sell orders hit the gold pit in the first minute of pit trading. Volume estimates were more than 13,000 in one minutes time. That is simply enormous. That smashed the price down below $1730 which was where the sell stops were located. That selling then took prices town the gully towards $1700 where the bears were hoping to break it. They could not however as the market spent the rest of the session holding above that critical support level. Bargain buyers moved in.

Secondly - it looked as if there was a pretty sizeable spread unwind in the hedge fund ratio trade where they buy the metals and beat the snot out of selective gold shares. The unwind involves selling the metal and then buying back the shares. As I mentioned in last evening's post - the HUI-gold ratio had fallen to a  potential monthly close going all the way back to January 2002. At some point anyone who is playing that extremely profitable spread trade has got to lift it if they hope to capture any of those paper profits and actually realize them. Seeing that we have three trading days (now only 2) left in the month, some of the hedge funds want to book those profits to look good on those monthly statements that are going out.

Gold should garner good support above the 100 day moving average near 1694, a level which has not been violated since mid-August this year. If for some reason it fails to hold above that 100 day moving average, more fund selling will occur. Bulls will try to keep it from even reaching that level however as there appears to be a decent support level that has formed near $1704-$1705.

On the topside, the 50 day moving average is at today's high near $1740. Gold will need to climb back above that level to attract the momentum based buying crowd.

Keep an eye on the HUI - if the slap happy mood continues in the broader equity market, which by the way rallied on news of near permanent Federal Reserve buying of Treasuries and other assorted candies and nuts, not to mention more propaganda about some sort of deal to avert falling off the fiscal cliff, then the mining shares will probably correct some of this drastic undervaluation against bullion.

As a trader I have to go with what the market price action is telling me but as a student of world history and economics, I have to also shake my head in bewilderment that anyone with a thinking brain can believe the current crop of losers in Washington DC are going to do anything to actually get the US's fiscal house in order.

"Revenue increases" aka (tax hikes) will generate enough revenue to run the government for about 10 days if I did my math correctly. Meanwhile, just like they promised back during the Reagan era and the Bush I era, Democrats will mumble about cutting expenses but those pathological liars will spend and spend and spend until they guarantee the nation's bankruptcy and financial ruin.

Both parties are not one bit interested in reducing spending and putting the nation on a path towards fiscal sanity. The only difference between them is that the Democrats will ruin the nation faster than the other group.

By the end of the next four years, we will be more than $21 TRILLION in DEBT. chew on that one for a while and weep for your children and grandchildren who will, or already are, enslaved to the debt that this current crop of shortsighted political fools have saddled them with.


  1. Great post Dan, spot on, very sad though, difficult to make a buck, trading silver ideas on how to deal with the manipulation of the metals? thanks Steve

  2. So if silver gets taken down, you think it's normal market action but, if gold gets the same treatment, it's 'manipulation'? I'm not sure I understand... :-s

    Surely just a case of bulls getting ahead of themselves in light, holiday, trading (as you say yourself) followed by a perfectly anticipated correction when the volume comes back?


    1. that is indeed common sense, JdA, but blaming it on evil bullion banks has much better sizzle to it.

    2. JDA - I made no comments regarding silver so I have no idea what in the world your comment is even referring to. Secondly, I am a professional trader and I know a takedown when I see it. If you do not believe that, fine with me but that is my opinion of why gold was hit today. You are of course welcome to start your own blog and opine for all the world to read.

      My view is that the monetary authorities have been attempting to manage or control the rise in the price of gold for more than a decade now. GATA has explained the mechanism quite well and it needs no further explanation from me. You either believe it or you don't. I happen to believe it.

    3. Dan - the silver comment was in relation to this, a post of yours that I respect enormously.

    4. Here is an explanation by a very experienced market analyzer:

      "There was no flash crash nor fat finger in gold yesterday. It was not one entity. Nor was there inordinantly large sell orders at the opening. The sales were stoploss selling by nervous longs post-options expiry, coupled with other selling. Options expiration the day before had led some funds that had previously bought December calls at prices below Tuesday's close to exercise their calls, converting them into December futures at the close of business Tuesday. Funds would not want to hold those futures but would want to capitalize on their profits, so they sold them Wednesday morning at the opening, in some instances placing sell orders Tuesday afternoon to sell at the opening Wednesday with their brokers.
      > The way the orders entered the market makes it was clear that they were from many investors who have stopped believing all of the bull shit churned out by gold promoters about how gold prices MUST rise due to monetary accommodation or other mis-construed economic factors.
      > Also, the selling was across asset classes and commodities. The selling in gold at the opening was less than one percent of the volume traded yesterday morning in Comex gold...."

      Sounds reasonable. Dan especially, or anyone, care to respond?

    5. actually, that middle paragraph about "BS churned out by gold promoters" I should have left out since it's not constructive but merely reactionary. I personally believe the market is manipulated for the reasons and by the mechanisms described by GATA et al. I just like to hear from the other side, too, and not being a trader, I want to know how reasonable this sounds to experienced market participants.

  3. Dan,

    No question it was a "whack a mole day". I am sure all the big bullion banks were summoned late last nite from the bat phone at the "white house" or more likely from Tiny Tim's
    Tiny Phone. It is so disgusting the kind of world we live in. Yes, the markets are rigged and everyone knows it. Still, it is kind of fun watching the HUI stay green today. Someone forgot to short the miners. Oh, that is right they have already overdone that one. Yes, I have survived the continuous beatings and have broken even this year, though my sanity is somewhat suspect. I probably should make this comment on Turds pages, but...Hi Ho Silver and Gold and the Miners. Come on lets start hearing that Christmas Song "Silver and Gold"...well you know Burl Yves was my hero even when I was a youngster. Even the mass media cannot filter out the next debt ceiling increases, but I am sure the CNBC's, CNN's, ABC's will state something like a "temporary mild increase in order to keep the important Government (cops, school teachers, busses, transit operators,etcc) operational. Money is a DEAD SERIOUS game that they(FEDS, GMEN, BANKS) are complicity engaged in. They are going to bankrupt all of the citizens of this once great country. Tax increases, regulation increase, inflation, low job opportunities, decreasing pensions, decreasing SS, Medicaid..It is the end game our new leader is taking us faster..faster to Kaboom. Financial kingpins will attempt to fire up their jets and fly away. I am sure there are plenty of Americans ready to hunt them down and give them a good old American West trial and hanging. The gallows manufacturing might be a good start up.

  4. Good as always. But while the fat-finger story i can find even somehow plausible, no matter how improbable, but if i read as reason for the selloff about a certain economic outlook, or the fear about the fiscal cliff as the reason, i can only laugh:

    This fear or this recognition took place within ONE SINGLE MINUTE. Nobody held a speech. No news. Nothing. And in this minute from 15:20-15:21 CET 13000 (thirteenthousand!) gold contracts are dumped!

    Not over several hours, not over one day of "fear", not over one week, no! The fear of the well known fiscal cliff emanates in one single minute!

    This is so stupid, that it hurts and it's hard to believe, that professional and highly intelligent traders, who watch the volumes on the futures, do mindlessly repeat this utter nonsense (bespokeinvest.com).

    Also for me the intention is clear: to create the impression, that Gold and Silver were not safe havens.

    Additionally i think there is another reason:
    For my taste, there is way too much silence in the mainstream media about the FOMC on 12.12...

    Since Operation Twist will end soon and the Fed has run out of short duration papers, the $45 bn. of demand that would vanish for the long duration bond, would send the rates higher - much higher! And this would kill the housing bubble they are trying to inflate again.

    Therefore they need to monetize this amount and therefore i expect on 12.12. QE4ever becoming increased from $40bn to $85 bn.

    And since this will give the PMs a huge boost, they must keep them in check NOW. They always have done.
    If they would allow 1750 to fall now, then 1800 would be blown away on 12.12. as being nothing and it would become almost impossible to draw a double top @1900.

    But if they could keep it below 1750 until 12.12. then they can manage the ascent much better.

    And as we know since 2001, when financial repression began, it's not about denying any ascent of the PMs, it's about controlling it!
    The sheeple must keep their faith in the paper currencies, while they are being debased to the bottom.

  5. Addendum:
    The 7000 contracts ZeroHedge mentions happened in the March'13 contract. In the December contract 13000 were dumped in this minute...

    I'm wondering how a person like Bart Chilton can look into the mirror without becoming sick every day. I would do, if i would have to play the "good cop" in this disgusting game.

  6. We the people are the rightful masters of both Congress and the courts, not to overthrow the Constitution but to overthrow the men who pervert the Constitution.
    Abraham Lincoln

  7. Dan, thanks for yet another great call. Last Friday's run-up in PM prices was a bit disconcerting to me as I was anticipating the closing of a deal this week that would allow me to convert a large number of FRNs into physical metal. Your post from last Friday, in which you warned that the sharp move up might not be real, turned out to be spot on. I must confess to being ecstatic as I watched today's beat-down and in fact I would love to see the sellers show up again during tomorrow's session. If events take place as scheduled in my little world tomorrow, I will be one of the happy value buyers of physical metal. Thanks again to you Dan for doing what you do, and special thanks to the fat-fingered boyz at the hedge funds and bullion banks for the price discount on my metal purchase.

  8. Thank you for this post. I was even more surprised that Pd was able to surpass last days close after such a raid – in fact: almost every small raid on Pd leads to higher prices shortly after... Very interesting!

    Pt was strong too – Could it be that there are not as many ETF with "physical" Pd/Pt that can be leased and sold or does anybody have an explanation for this strength?

  9. Collusion (Definition)
    Improper secret agreement between two or more entities, to defraud or deprive others of their property or rightful share, or to otherwise indulge in a forbidden, illegal, or illegitimate activity.

    Dan, What I find unbelievable is the fact that NOBODY is dealing with this collusion. IF Microsoft or Apple were colluding with their competitors you would see big headlines and all the medias talking about these unacceptable secrets agreements where the only losers are the consumers... So why don't we see anything about the collusion designed to trash the price of gold? Is it because we are dealing with government's officials? Because the medias are own by a few already colluding with governments all over the world?

    Could you please tell me why traders like you are not saying: "Lets it. We don't play your game anymore... We refuse to be part of these manipulations... "

    Check what the judges are doing in Egypt...

    Thank you for your opinion.

    1. This comment has been removed by the author.

    2. Hubert,
      the judges in Egypt are profiting from the status quo - as they are in the US. Therefore they support it. Mursi is threatening the status quo, therefore he has enemies in the establishment. They are not defending the law, it's a fight about power.

      In the western world the national banks and their Plutocrats in the parliaments ARE the establishment, they are the regime. So there is no need to fight Bernankes or Draghis manipulations. Ben in fact is doing what he can to keep the regime alive.

      The hard lesson to learn is to understand, that there is no law without power. The law is ALWAYS, and always has been, on the side of the power!
      Stunningly it was Adolf Hitler who explained this to the Germans for the first time. While in the plutocratic regimes they are telling the people the lie, that there was something like justice.
      The nice stories about justice are just to make the sheeple believe in the rigged system.

      IMO there is no hope for a peaceful change:

      Sadly they control all mass media and the international propaganda agencies, so any real liberation movement would be immediately be portrayed as evil and we would fall victim to this propaganda and we would be against it, although maybe it even would be the medicine for the desease!

      It's definately hard for US-americans to accept this hard truth, but nevertheless to recognize and accept this truth is the prerequisite to develop the slight chance, to remove this regime from power and get their country back.

      Personally i think, that the power of the Plutocrats has grown that much and the modern ways to control and manipulate the masses are so sophisticated (they still operate with Goebbels in their demonizing propaganda, but Goebbels didn't hide anything or didn't lie, while THEY use modern psychological tools and weaponry), that there IMO is only one chance:

      Their system must collapse and from the chaos with incredible much luck a few right minded and honest leaders from the mid of the people must win.

      But since the Plutocrats always play on both sides, and very early infiltrate political movements, the chances are not high.

      This "elite" has been collecting their power over almost 400 years! And with the won WW2 they have entered the global stage (1948 at the foundation of UNO one of their protagonists claimed: "we will get world government, either by agreement, or by subjugation").
      Imagine the concentration of power and money after 400 years of worldwide expansion and success and how tiny the chances of us sheeple have become.

      Even more, since 90% of the sheeple even don't recognize the plutocratic world domination, don't even believe how the international masters of money are ruling them ("conspiracy theorist!"), how should be there any chance?

      Short speech short: The masses too dumb, to get rid of these powers anymore and since their propaganda knows that, it doies everything it can, that the sheeple do not unite behind a leader who is clever enough and has understood how these forces operate and declares war on them.
      "We want freedom!"
      Yes, sheeple, you deserve it. Don't follow the dictators, they are evil!
      Follow our path of freedom, we chain you with money as debt you are too stupid to understand how it works and gives us our power and always more of the world and you don't even will recognize it! You will LOVE your freedom...

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  11. Dan,

    I have to disagree with your idea that the debt will be passed on to our future generations. I think the debt will be soon be wiped clean. The Dollar is inevitably doomed to be devalued into oblivion and the debt, both public and private, will just disappear for the most part. The entire world fiat-based financial system will of course also die a deserved death. From the chaos a new stuff-based monetary system will emerge. It will be generations before the world will trust fiat currency again.

    The debt load of the Western World is already well past the point of no return. None of it will ever be repaid in real terms. You can't blame the US for milking this cow until it finally drops dead. The real losers will be China and the rest of our creditors. Unfortunately, the unprepared US citizens will also be ruined, but at least their debt will also be gone.

    My advice, to those that will listen, is to buy physical assets with your dollars while you can. If needed, borrow whatever you can afford in order to purchase those assets.

    1. own_quality, I can not disagree more with you. In particular when it comes to China. The goal of China has been -and still is- to take the number ONE spotin the world- and they are getting close to their goals.
      The US are more and more isolated both on the economic and monetary levels. Of course the country has enough power to wipe out the world but nothing else. Check the bi-lateral agreements between countries and you see that China is always part of it. The resources have been bought by China and the Chinese leaders have played the US government so well that the US elite doesn't see the finale picture... Greed and arrogance? You bet!!
      The sad part is the price the future generations will have to pay not only through taxes... but mainly through a fall in the standard of living AND the trauma due to the loss of supremacy in the world. This could lead to a civil war and all the new laws passed by the President and the Congress are the signs that this option (civil war) is a real possibility.

  12. what a load of rubbish. gold has been in a bull market since $250 so all this conspiracy talk is hogwash

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