"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 27, 2013

Three Little Words

"Some Time Soon".

Those words were uttered by Chairman Bernanke this morning in the second day of his bi-annual testimony before the Congress, this time speaking before the House of Representative Committee.

The phrase was in reference to The Fed's plan to review its exit strategy from the QE program. Note that the Chairman did not say anything about actually ending the program; he merely stated that the Fed would review its exit strategy sometime soon. This should not be news for it really is innocous on the surface; however, it just goes to show how incredibly sensitive gold is to anything related to this bond and mortgage-backed securities buying program.

What Bernanke stated was that the Fed will be discussing their exit strategy. They are already in discussions about that as was evidenced by the FOMC minutes that came out last week. So what? Any responsible Central Banker must of course be reviewing these things unless they are completely oblivious to the potential for severe fallout from the creation of what will end up being nearly $3.5 TRILLION by the end of this year when you combine QE1, QE2, QE3 and QE4.

Bernanke spoke to this topic yesterday when he addressed the weighting of the potential risks associated with this degree of QE against the costs of not doing QE. In his opinion, the risk of not doing the bond buying program outweighed the costs of the harm done to the economy ( in his opinion of course). He went on to speak about the aid the program gives to those buying cars, houses, etc, as opposed to the harm the Fed is inflicting on savers. He also spoke to the harm done to those who are unemployed by doing nothing.

In short, you can get a glimpse into the nature of the discussions taking place within the FOMC over all this but it does seem pretty clear that the doves are still in ascendancy in regards to QE and the current monetary policy.

Why this would derail gold is therefore unclear, especially if the reason it did rally yesterday was due to a widely expected continuation of the QE program. As far as I can read this, the Chairman did not offer any changes of note to his comments of yesterday.

Part of what we are seeing in gold (and nearly all of the other markets) is the confusion, uncertainty and lack of clarity as to where all this "boldly going where no man has gone before" adventure in monetary policy by the Central Banks of the West is leading. Is it "RISK ON" and full speed ahead with the hugely leveraged carry trades or is it time for the sidelines? Are interest rates going lower or will they move higher? No one really knows because of the speed at which sentiment can shift globally.

The problem for gold has been and continues to be, the mining sector as evidenced by the HUI. It did manage to fill the first downside gap on its daily chart yesterday but could not even manage a decent close INSIDE THAT GAP. Simply put, the mining sector is so weak, even though it is so oversold, that it is undercutting any strength in the bullion. As I type these comments this morning, the S&P 500 is up nearly 1.3 % while the HUI is down nearly 1.8%. It is that bad.

Yesterday I spoke about these spike lows and how dangerous that they are to trade because of the extent of the price swings that produce them. Here today we are seeing what happens to markets that plunge, reverse sharply higher only to plunge again. I want to repeat what I said yesterday" "TRADE SMALL OR NOT AT ALL". There are times to be aggressive and there are times to be cautious. This is a time to be cautious. Do not be foolish with your trading accounts. Please listen to this as I am trying to prevent some of you from taking foolish advice and getting harmed in the process.

So what if you do not manage to grab an exact bottom or exact top in the market. Guess what? the market will be there tomorrow and the next day and the day after that. You can always wade back into the water once the sharks stop stirring it all up. If on the other hand you like playing Russian Roulette with your trading account, please by all means, throw caution to the wind and go ahead and jump right into the market. All I can say is that you had better be fast on the buy or sell trigger and have a very large trading account that you can be content with as it becomes a very small trading account.

By the way, for the last time, gold is NOT IN BACKWARDATION. Those who keep pushing this nonsense are going to end up hurting many of you who blindly jump into the gold market to buy the futures only to have your rear ends handed to you as the market is doing today.

BAck to the HUI, I need to see this index trading through and above 390 to suggest a longer term bottom has been made in the shares. That will tell us that sponsorship has returned to this sector. Right now there is valued based buying but it cannot force the sector higher by itself. It needs momentum based buying and that is simply not here right now. maybe that will change soon. I do not know and truth to told, neither does anyone else. We are all just watching and trying to read the tea leaves in a very cloudy cup.

For example, if you would have told me two days ago, when the news of the Italian election outcome hit the wires, that stocks would be oblivious to the potential for real harm to occur across the Euro Zone, I would have said that you were blindly optimistic. Yes, stocks cratered on that news as the RISK TRADES were jettisoned with contempt yet here we are, two days later, and the S&P 500 has practically made it right back to the closing level of Friday's trade last week. In other words, the Italian election results, which struck a sharp stinging rebuke to the complete complacency that has enveloped the minds of traders/investors, never happened. We all just imagined that it did. Can you see what I mean by either trading small or not at all.

Closing words, be extremely careful right now. This is not a time to try being a hero lest you end up becoming a zero.


  1. Thanks Dan
    My huge losses in the tech bubble taught me many things. One was to do my best to listen to people that have my best interest and you certainly do. it continues to amaze me that all you offer here and at KWN is offered for free. You are clearly an experienced and expert trader so I know I listen and I would definitely take your advice over most. I am sorry that your site and another site are not getting along. That is the way it goes I guess.
    Thanks again for having our back.
    best wishes

    1. Lisa;

      Thanks for the kind words. They are appreciated. When I first began writing on the markets and on gold, I did so in order to help others understand this business and hopefully to avoid losing money or at the very least, watching their retirment accounts disappear. Money earned over a lifetime is too precious to waste and there is no worse snake pit that exists than the financial markets. They are designed to separate the small fish from that wealth of theirs and to transfer it into the hands of the sharks.

      I do not make a dime maintaining this web site as you can see by the fact that there are no google ads cluttering it up. I therefore do not have any motivation to be sensational merely to draw traffic here to increase revenues since there are none!

      In the past I have had to deal with a group of self-appointed COmmitment of Traders experts whose sole purpose in life it seemed was to spook small speculators out of their gold positions whenever we saw a build in the hedge fund long category. Those guys were then, and remain today, as a plague on the gold community.

      Now in recent times, it is disturbing to me to see far too many in the honest money camp, whose constant refrain is to "buy waterfalls" causing people to take reckless risks with their trading accounts. They seem to relish in the idea that when speculators are throwing gold out the window and playing it from the short side, that this is now somehow wildly bullish.

      It is one thing to buy physical gold when the price breaks sharply lower. It is another to blindly and wildly buy a highly leveraged futures contract. In the case of the former, a little guy may buy some bullion coins only to see the price move lower. NO worries, he or she has their insurance and is attempting to preserve their wealth. On the other hand, anyone who buys a leveraged futures contract without assessing the market conditions or the price charts, may very well witness their entire trading account wiped out.

      Leverage is dangerous stuff and the best lesson anyone can learn in trading is to RESPECT THE HARM IT CAN DO TO YOU.

      My motto is better safe than sorry. It is not as glamorous as the courageous bull who wildly charges in and buys the futures market in the midst of an avalanche of selling, but then again, it is much more conducive to one's staying power and to a long career as a trader!

      Good trading to you Lisa.

  2. Thanks Dan

    You are for me as a voice crying out in the wilderness of this great casino they call investing!!

    I am one of those who is trying to hang onto their retirement nest egg.

    You are much appreciated!


  3. After today, there can be no question as to the might and power of Ben Bernanke, the "Master and Commander".

    To wit:

    1) The stock market correction has now been completely erased and the Dow is within 150 points of lifetime, record highs despite the worst economy ever.

    2) After a brief period of the 10-year yield rising over 2%, "fear" instantly collapsed it back down to 1.96% in a blink. The average 10-year yield has now been below 2% for a world record 10 consecutive months.

    3) Worried about inflation? Forget about it. Mere "words" instantly crashed the CRB Index to take out the January lows and now sits at fresh lows for the year, thanks to collapsing oil and grain prices.

    4) Currency wars? No adverse impact whatsoever. Market participants are celebrating by dumping GLD, SLV, CEF, etc. and buying more XRT, XLY, and all the rest of the consumer "Glam" ETF's.

    The facts remain the same.

    We are in the midst of the greatest central banking miracle ever recorded. Running trillions of deficits, yet there are no consequences.


    And the world continues to lap up U.S. paper dollars and Treasuries as if there were an acute shortage.

    And essential commodities are being chain-sold as if they were in abundance.

    I mean really, this is one for the record books.

  4. It really looked like a V-Bottom in Gold and a great opportunity to jump in after yesterdays spike upward after so much pain. Unfortunately, I am already underwater from bottom picking and then doubling down trying to repeat my prescient 2008 market bottom. I am a cash only buyer now. I have followed a few pedigreed pundits for some time and found out that it is almost impossible to tell where the metals market is going in the short term although it is fun and exciting to try. I enjoy your commentary very much and wanted you to be more of a cheerleader at times but now I am thankful for your prudence.

  5. Im not a trader but have come here in the past to hear what you have to say. Like Ken P I have wanted a little more positiveness in your writings and have at times been irritated by your very honest assessments. However, of all the sites out there yours is, I believe the most accurate. Im a slow learner. Keep up the good work Dan!

  6. Must be getting close to bottom based on Michael and Ken's post.

    They came here to hear more broken clock / catch a falling gold knife bullish commentary and got a true traders view.

    The fact that they are admitting that Dan was not a pessimist when he warned over the last few weeks that the charts were broken and could likely go lower and did finally sounds like conciliatory capitulation from broken clock gold bulls who have finally got religion and a schooling in why the tape is right and it is the trader that is often wrong. No manipulation to blame. The blame is always on the trader.

    The tape is and always has been right. There is no manipulation to blame but your own manipulation of your mind to think manipulation is the reason for your losses. It is those who think such ways that are manipulating their self view away from their own poor investment choices through rationalization and blaming others.

    Now that many of these folks are washed out or near broke, and have conceded with a yellow flag evidenced in the tone I am hearing, can we move on and up.

    Almost all the hopium is out of the gold bug bottle. Yay!

    1. As I say, im not a trader - I dont trade. I'm an ordinary bloke looking to protect what little value I do have in what I believe to be an inappropriate and broken system. I like to keep an eye on the fundamentals which from what I can gauge appear to be extremely negative long term. I dont agree with your comment that there is no manipulation, given that humans are naturally greedy and will do anything for personal gain - at all levels. Dan as a trader has great insight into "the moment" and this is what I have come to respect and use to make sense of things I see. Long term however, I do believe that given the chaos that is unfolding precious metals offer the best form of value protection.

  7. There is commentary by Legacy COT/Desegregated COT analysts tthat its the Managed Money category(usually long only Hedge Funds) manipulatively shorting gold, not the Commercial category (who are usually on the short side, and represented in the main by a small group of well known banks). I could perhaps believe that the Commercials might be able to "manipulate" the market, since, through whatever signals they use, getting a tight knit small group of players to act in unison is logistically feasible. But how would multiple Hedge Funds manage to coordinate their raids?

    Then theres the question of the accuracy of the make up of the COT reports - are all paricipants reporting themselves accurately to the CFTC (that is, as to their "category" - eg, can a Commercial trade through the back door of a Hedge Fund, and report itself into the Mananged Money category)? Miscategorizing would play havoc with the analysis of the COT reports.

  8. Dan,
    You really a person of great quality and I have always known that. I have been reading you since 2003 and have learned many of things about the game of trading from your work. I really would be honored if you checked out my writings and some day I hope to have a conversation with you.
    Thanks for all you do!

  9. Dan, thanks for sharing your insight into the markets as you see them. I am not a trader, but have some physical gold and silver, so I am always interested in what and where the market might be going.

    This paragraph intrigued me the most:

    "Part of what we are seeing in gold (and nearly all of the other markets) is the confusion, uncertainty and lack of clarity as to where all this "boldly going where no man has gone before" adventure in monetary policy by the Central Banks of the West is leading. Is it "RISK ON" and full speed ahead with the hugely leveraged carry trades or is it time for the sidelines? Are interest rates going lower or will they move higher? No one really knows because of the speed at which sentiment can shift globally."

    (Star Trek fan myself) The key words for me are; "the speed at which sentiment can" change and with lighting speed I will add. Sentiment changes and now were up, oh no, now were down.

    Hold on for the ride, and I am sure you have said it. I am waiting, like a lot of folks, to see the gold market take off a again. Boy will that feel good!

  10. Thanks Dan!
    your valuable posts are really helping to navigate in these murky waters (where Fed is leading us)


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