"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


Tuesday, May 27, 2014

Gold Gives up Ukraine Premium as Bears Growl

This past weekend's election in Ukraine has come and gone and the long awaited outcome has sent gold bulls packing - apparently the beginning of WW III did not commence as a moderate businessman received the nod from the majority of those who voted. Russia seems to be taking more of a conciliatory tone for now.

Combine that with a stronger Durable Goods number ( 0.8% gain in April and an upward revision to the March gain) ,  and a jump in the Consumer Confidence reading ( from 81.7 in April to 83.0) , and you could hear the umpire calling, "Strike 2". When news about decreasing Chinese gold demand (based on Hong Kong data )  reached the ears and eyes of market players, that was all she wrote for the yellow metal. Bulls jumped ship, bears got aggressive ( something that they have not been doing while Ukraine simmered on the back burner ) and the downside stops were reached. Once $1275 was breached, those stops were activated and the snowball began its downhill roll.

Throw in an option expiration day and the selling was fairly intense.

 I mentioned in my Friday comments that the still fairly sizeable grouping of speculators on the net long side of the gold market had me concerned. With falling GLD reported holdings, a sinking HUI and GDXJ, and a Fed talking quite a bit about their concern for the lack of inflation, it is rather remarkable that many specs were still bullish towards gold. As long as the technical charts held up, they were hanging in there over at the Comex, but today's breach of that key technical downside level near $1280, has now become a market factor insofar as it flips the gold market out of the recent range trade and shifts it more towards the POTENTIAL for a fresh trending move lower. Those speculative long positions are now deeply underwater ( especially those who foolishly chased the price higher fearing global war from the Ukraine crisis) and they are exiting as new shorts also move in. Losing bulls should be very thankful for those recently lowered margin requirements for gold as it might give them a wee bit more ability to hold onto losing positions should they so desire.

The saving grace for gold is that it happens to be near the cost of production for some mining outfits ( not all of them ) and that might serve to slow the downside momentum somewhat.

I can see the metal in a grinding move lower rather than a sharp fall as it slowly bleeds out speculative interest off the long side while meeting some increased physical buying from India and perhaps China. But as far as Western-oriented investment demand goes, that is not going to be there until investors believe that the bull market in equities is over or some fresh geopolitical event arises. As far as the majority of investors are concerned, the lack of inflation in a low interest rate environment with improving economic data is the perfect recipe for continued money flows into that asset class ( stocks ). Money managers are going to put money to work where it can produce returns - it is really that simple.

I would like to make one more point in this regard - again and again we get the chorus from the gold perma bulls that gold sentiment is lousy and that is a great reason to expect a bottom. The problem with this goofy theory is that the Comex positioning indicates the opposite - as I mentioned last Friday, every major group of speculators, whether it be the large hedge funds, the other large reportables or the small traders ( general public ) are NET LONG gold. How in the world can someone say with a straight face that gold sentiment is horrible and that is a reason to buy? It would be better to say that bullish sentiment towards gold is falling but remains positive. That would be more accurate. This is why that talk of a "capitulation bottom" is premature. That is the last hook that gold  perma bulls are now trying to hang their hats onto after their wrong-headed theories on negative GOFO rates and backwardation have collapsed.

My own view on this is that it would be much better for gold if the speculative category of traders actually moved to the NET SHORT Side of the market on the Comex. Then we might start having an intelligent discussion about "capitulation". Anything prior to that is just wishful thinking dressing itself up as market analysis.

Looking at the gold chart ( daily) you can see the loss of initial support near the $1280 level. That was followed by an additional breach of the next downside support level that came in near $1266 or so. The next level extends from $1260 - $1250.

The ADX is just beginning to rise indicating that the market has not yet entered a trending move lower but the potential does exist for such a thing. I am of the view, at the moment, the more likely outcome for gold is a steady grinding move lower, rather than a sharp leg lower. We'll have to see. A breakout of a trading range market, especially the longer the duration of the previous range trade, tends to bring about some big moves. The issue here is the level at which gold is already trading. As mentioned above, it is down near the cost of production of some miners. The problem is that the speculative forces are still trapped on the net long side of this market; the wrong side I might add. They are going to be exiting barring some unexpected geopolitical event but as price descends from the current level, it should attract some decent physical demand from the East. I guess the question is are these speculators on the long side going to only grudgingly throw in the towel and gradually get out or are they going to say, " I am done with this crap" and abandon the metal rapidly. I am leaning towards the former view at this point but as always, will respect the price action. If it is the former, the market will grind lower; If it is the latter, the market will drop very sharply.

In the meantime, let's just watch the price charts and let that guide us. I am especially interested in seeing what now becomes of the HUI and the GDXJ. The shares led the metal lower and should lead it higher when the time comes for a true bottom in the metal. The GDXJ is down over 5% as I type these comments while the HUI is not faring much better, losing over 4% right now.

Here is a chart of the GDXJ:

Note that the market GAPPED DOWN below a key support level that has been in place since April 22 of this year and has extended losses to the point that it is now trading at its worst level since early January. In other words, it is at an over 4 month low.

Forebodingly, the ADX is now beginning to rise indicating that the potential for trending move exists. That trend is however down. Bears are firmly in control with the -DMI registering the highest reading in nearly two months.

The HUI has lost chart support at the bottom of its range as well. It reached a low today right on top of a support level that runs back to December of last year. If that does not hold it, it is probably going to drop below 200. That would essentially wipe out any gains in the index for the entire year.

Silver had best thank copper today that the red metal is bucking the trend towards lower prices. Silver remains caught between following copper and following gold. It is hanging around that $19 level which is becoming more and more technically significant. It is a lot like the $1280 level in gold. The more the price held near that level but failed to extend higher, the greater the damage inflicted if/when that support level fails. Until silver can scale the $20 barrier and REMAIN FIRMLY above that level, it is vulnerable.

Interest rates remain subdued as bonds actually ticked up some despite the new all time high in the equity markets and the improving economic data. What seems to be at work in the US Treasury market is that traders are becoming more and more convinced that some sort of monetary easing is going to be coming the way of the Eurozone with lower rates resulting over that way. This is causing those who want to own bonds to increase ownership of US Treasuries due to the higher yields in what they consider to be a tame inflationary environment. In other words, money is flowing to where it can capture the best yields and with many thinking that the US economy is improving at a better pace than the Eurozone, money is flowing to the US.

That is boosting the Dollar at the expense of the Euro, which initially moved higher after the election results there this past weekend. Those results should prove interesting to see how or if they are going to influence policy coming out of Brussels. Nationalism is on the rise as many Europeans from their respective countries are airing their discontent with being governed by a far-away group of unaccountable bureaucrats. I maintain that the experiment is eventually going to fail there simply because the idea of creating a melting pot of the various European nations modeled around the United States is not possible. Here in the US we share a common heritage, a common culture ( at least we did at one time ) and to a great extent a common Judeo-Christian set of shaped values. No such unifying factors exist in Europe. I would dare say that this weekend's election is a watershed moment for the Eurozone. Is it the high tide in a counter centralization movement or the start of something greater? Time and events will make it clear for us.

Given Europe's past history of warfare and conflict, along with the terrible loss of human life and suffering, it is easy to understand the desire to never again see the rise of nationalistic tendencies that are of such strength, that they foment war among some of the population there and among some political leaders. However, a shared set of traditions, religion, culture, language, etc., is necessary to bind people together. How that can ever be successfully implemented, except for the use of force and that only for a generation or two at best, escapes me.

The Russell 2000 is rebounding nicely today on that positive economic news moving up over 1.1% as I type this. Risk is back on today and that has investors upbeat as they chase equities higher. As you can see, it is quite a ways off of its best level this year but it has officially moved out of "correction" territory ( down 10% or more from a peak) and has actually generated a mild buy signal. I will be most interested in how this index closes not only today, but especially this week. A push through 1160 or so should be accompanied by another all time high in the S&P 500.

Here is the S&P 500 chart ( weekly )
This incredibly uptrend continues. The last time the trending move higher was interrupted was back in October 2011, two and a half years ago!

Switching gears to the grains - they were beaten with the proverbial ugly stick today, especially soybeans which have been on a tear higher of late. Today, beans came back down to earth. The bean market has been a classic example of traders moving prices depending on what factor that they want to focus upon on any given day. When the focus shifts to the tight supply of ending stocks, the market rallies. When the focus shifts to the upcoming new crop and the potential for a massive crop, the price falls. Back and forth; up and down, it has gone. Today, the focus is on the great planting progress that traders are expecting to see in this afternoon's crop progress report and the relatively beneficial weather the planted crops are experiencing.

I realize farmers want the highest price for their crops  - and who can blame them? - as those prices determine their economic welfare. But for the sake of the livestock industry, the poultry industry and the average consumer, I do hope that this year's crops are large ones. Rising food prices are tough on us all but they impact the poorest among us as those are the ones with the least amount of discretionary income to spend. A large harvest of corn and beans, along with wheat, and falling gasoline prices would be of immense help to the average consumer.

Corn is in a trending move lower as indicated by the daily price chart. Same goes for wheat. Beans, both old crop and new crop, had been trending higher. That might change however if we get some downside follow through in either the July or the Nov's. So far, retracements lower in price have been eagerly bought. Whether or not that pattern is going to continue is up in the air at this time.

By the way, the US Dollar is closing on a key overhead resistance near 80.80 basis the USDX. The Euro continues moving lower towards key support near 1.35. It could not maintain its footing at initial support near the 1.366 level. There is some mild support on the chart near 1.3590. If it fails there, it will more than likely test 1.35 - 1.348. That is a big level from a technical analysis perspective. The Euro might very well have seen its best level in a long time if it fails to hold there. All eyes on going to be on this upcoming ECB meeting in June.


  1. Hi Dan,
    Can you comment on the price of production in gold and silver, specifically, do you have a good source for this information? I see it all over the map.
    Is there a price relative to the average cost of production that will start to affect production in a way that affects supply/prices?
    You may have addressed this already, but I'd also like to hear your take on the purchase of treasuries by Belgium, whether that should be considered by the market and whether it is being considered. Thanks Dan

    1. Gregory;

      It matters and it doesn't matter. It matters only over the LONG HAUL but not over the short haul. In order to matter, the cost of production for enough miners out there would have to drop to the point that it is no longer profitable for them to dig it out of the ground. Now, can you imagine how long that would take for a decision to be made by a company whose business model revolves around the production of nothing but a metal? Mines would have to be shuttered, people laid off, expenses cut,. etc.. That would not happen rapidly and it certainly would not happen because gold briefly falls below the cost of production for certain mining interests.

      They are not going to wake up one morning, look at the price screen, see a low gold price that suddenly appeared and immediately announce steps to shutter mines.

      What would have to occur to actually reduce production would be a fall in the gold price that drops below the cost of production for that particular mining company, and remain there for some time with no much likelihood that the prospects for higher prices are going to appear anytime soon. Then you might finally see some shut ins and fall offs in production.

      That is what Mark is saying and I agree with that assessment. The key is demand at the level of supply that exists. If the demand is very strong, exceeding available supply at the lower price, the price will move higher. I have no idea when or even if that might occur anytime soon and guess what? No one else does either - in spite of their hubristic claims to the contrary.

      On Belgium - I already did comment on that on one of my recent posts. I mentioned that any speculation as to why it is purchasing Treasuries is just that - a big fat guess. No one knows why. I suspect it had to do with an attempt to weaken the Euro at the expense of the Dollar but that too is just a guess. We will have to wait until the data for June comes out, sometime in August, when Treasury revises the various blocks of buying and attributes them to the country of origin instead of the country where the purchase was handled or transacted.

    2. That makes sense, I suppose they have to have some reserve capital to even be in that business (apologies to Mark). I imagine it would be different in just about any other market, where there is no gigantic stock of the goods already in the marketplace. A tight market couldn't last for years producing under cost.
      If that's correct, would things play out differently for silver were it to drop below? I know it's mostly a byproduct, so production costs may be largely irrelevant, but I think the actual reclamation costs are included in the average production cost.

      Since no countries in Europe have the means to buy the treasuries, doesn't it have to be the IMF or the ECB? And what does that say about tapering (is it really happening?) Is the market paying any attention to the fact that treasuries only seem to be clearing as they are because of this new buyer? Take Belgium out, and instead of 2.55 on the 10 year would we be any higher, or is there loads of marginal demand? If it wouldn't affect the bid much, that begs the question as to why it is happening at all - why not just let the primary dealers buy it all? I will look for your other post.

    3. This comment has been removed by the author.

    4. According to Citigroup research, 98% of gold miners are burning cash at 1320oz. http://www.ibtimes.com/gold-miners-face-high-hurdle-production-costs-top-spot-prices-many-1412778

      Unless all in production costs can be significantly trimmed this will eventually be a problem because all over the world, gold is reaching peak production. In 1995, for instance, 22 gold deposits were found that contained more than 2 million ounces each.In 2010, there were only six such discoveries. In 2011, only one. And since then, for 2012, 2013 and thus far for 2014, not one single 2-million ounce deposit has been found. Nevada is home to almost three-quarters of U.S. gold production. Gold production in Nevada has plunged fully one-third since 1998.Overall, ore grades have plunged more than 35 percent since 2001. As such, I will be adding to the physical insurance in my portfolio for the LONG term and staying out of the paper trading casino.

    5. Gregory;

      My advice is to wait until August before drawing any conclusions about what might be going on with Treasury buying out of Belgium.

      Additionally, don't make the mistake of falling into the trap that the only buying of US Treasuries that matter is foreign based. US based institutional funds, hedge funds and other large investors buy the bulk of Treasuries ( 60% to 40% I believe is the approximate ratio of domestically owned Treasury debt compared to Foreign owned US Treasury debt). It has been a while since I looked at that number but that is roughly what it was a few years back.

      Domestic demand for US Treasuries has been strong recently. Also, if what I suspect is true about what is happening in the Eurozone, many large European groups that want to own sovereign debt are buying US Treasuries ahead of what they think is going to be a move by the ECB to lower interest rates there or engage in some sort of monetary stimulus measure come this June.

      Dig through my posts and see if you can find the one I did recently detailing some of this stuff back when the gold bugs first started up with this Belgium stuff. They said the same thing back some years ago when it was the Caribbean banking Centers doing all the treasury buying, Back then these same people claimed it was the Fed secretly buying Treasuries through those banks located there. Find out later that it was large hedge funds, etc....

      They are always going to come up with a reason for the Dollar to collapse. If a Dollar crisis were to occur, we would see it begin on the charts.

  2. Cost of production probably doesn't matter. The price could grind lower for years and years, just like in 1999 - 2001, and gradually many of the "penny stock" mining companies will simply give up the ghost and fail.

  3. To quote from the missive:
    Combine that with a stronger Durable Goods number ( 0.8% gain in April and an upward revision to the March gain) , and a jump in the Consumer Confidence reading ( from 81.7 in April to 83.0) , and you could hear the umpire calling.."

    QED: QEx has been a roaring success ( ?)

    1. Wolf;

      One must learn to check their opinion at the door when trading/investing. Fighting the tape accomplishes nothing except to make the one doing so much poorer.

      I am not arguing the merits of bond buying by the central banks. Personally I find it repulsive because it is not true capitalism. But there is not the least thing either one of us can do about it so that means remaining realistic and understanding how the majority of other market participants are going to react to things.


    2. Dan: Ok; my attempt at being cynical of the Fed backfired.

      You are right; cannot fight the tape ( Zweig, Weinstein, et al--
      now you know my age bracket).

      Three dangerous behaviors: interpolation, extrapolation and correlation. More QE = More deflation = lower PM prices: correlation bad idea.

      Two of us had lunch on Sat at a restaurant called Maggiano's: cost me 3 oz of pure Silver Eagles (and the wife does not even drink alcohol ). A few pieces of eggplant parmigian over a bed of pasta: one silver Eagle. Something foes not compute here. I am not sure which is more valuable from a longer term standpoint: an ounce of pure Silver or a pasta dish.

      Keep up the good work.

    3. Wolf;

      Maybe the lesson in this is that we should all start stacking pasta!
      I wonder how long one can store that stuff before it goes bad, if it does???

      All the best to you pal!

  4. It's quite amusing watching the pitiful doomer crowd with their heads exploding in frustration once again. The markets are grinding higher, the miners are in the toilet after the early year suckers rally, and the metals themselves look to be headed lower as well. Can't wait to check out the new set of "sky-is-falling" headlines over at KWN and more complaints about the "evil manipulators" driving gold down. But I'm sure the miner/metal rocketship to "da moon" is just around the corner, waiting to launch imminently.

    The doom kool-aid drinkers deserve to be wiped out.

    As always, thanks Dan for your insightful and brilliant commentary and analysis!

    1. budfox;

      thanks for the kind words. It is very sad my friend because they are duping real people with real dreams and real financial needs who have been snared by this stuff and have had their financial well being absolutely wrecked on the rocks as a result. Like I have said many times, these doomers with their one-sided view of the markets always attract enough followers so that they guarantee themselves a salary or income for their wrong-headed prognostications and prophecies no matter how often that they are wrong. Imagine having a trading track record like these cult leaders possess and trying to have to live off of that? They would have all starved to death by now and have gone away but alas, they get paid for their useless newsletters and fanatical websites where they continually delude their followers into following them instead of the voice of the larger market.

      Very, very, very tragic. A plague of devouring locusts is all that they all. the wreckage they leave behind is the lives of others.

    2. As always your words are sincere and show concern for the welfare of others. Contrast that to the comment you replied to.

      Here's the breakdown: Name calling, neener neener neener, obviously sincere hope that others are left destitue, kiss up to the host.

      Is this typical of posts here? Who are these people? I've spent A LOT of time on ZH, seen lots and lots of rucks, and a fraction of the poisonous venom I've seen here in a week.
      Why do some people take glee in the apparent misfortune of others? Isn't there a name for that mental condition? Some people with whom B*ttf*x (he opened the door) disagrees with may lose some money (assuming they sell their gold) and he's doing a little dance of glee and retribution? If you ask a psychologist, you might be told that this behavior, when clearly premeditated, is called 'psychopathy'. (Ask one, B*ttf*x. Don't take my word for it.) Or, charitably, they might ascribe it to severe immaturity with a psychotic undercurrent (someone disagreed with me, now I want to see them ruined!!!!!!! F*CK THEIR FAMILIES!!!! NO, I am NOT a petulant child, MOTHER!!!!!!!!)(conversation I imagine preceded this posting in the B*ttf*x household).

    3. Name calling, neener neener neener, obviously sincere hope that others are left destitue, kiss up to the host.

      are you on medication, or should you be?

    4. Gregory, not sure I understand your post right, but the anger here appearing sometimes comes from :
      - paid services and newsletter from people who pretend to be gurus but have no idea where the market is headed, to compare with this blog being free and having nothing else to sell ( not a free blog style tip of the iceberg to make you buy more stuff behind).
      - the constant "armageddon" tone used by some of the "free" blogs of the gold community, which is scaring people so much that they often overreact by buying too much gold, and then spend years to regret it.
      - the fact that the victims of this are not mere speculators looking for an edge, but people looking for safety and a secure place to keep their long term savings from harm. They are vulnerable as they have generally no experience of markets and trading.

      I think the anger is legitimate when some (S O M E) of those people know perfectly what they are doing and keep misleading those folks anyhow with their big scary headlines.
      The anger is not targeted at the folks who bought too much PMs waiting for the imminent collapse, but at the gold bug puppet masters, and I think it's fair to have some fun at some of them (I mean James Turk is a fantastic example of that, I don't hesitate to name him here, you just have to follow his track records).
      Some people I trusted still recently I'm not even sure of 100% because of their association with other so called analysts who have consistently been wrong in the recent past and advertise a lot on the web so that you subscribe to their very expensive paid forecast services. That plus a few remarks on this blog which made me feel uneasy and reconsider that after all, I don't know any of those people enough to defend or blame them.

      One thing is sure : doubt everything you read, including this blog, but that's what Dan mentioned recently himself right here. Make up your own mind and if you are looking for safety, consider not putting all your eggs in the same basket.

    5. Thanks Hubert. I get that. Perhaps Dan knows some of these people and knows they are talking a book they don't buy themselves. But absent that, I'm inclined to give them some slack. If these were normal times, no, but in monetary terms these are unprecedented times.
      Most of the people who post here may not think that gold is likely to rise in the near term, but appreciate that it is an insurance-like asset, and see that there is a need to defend one's assets against the central banks. Many goldbugs are driven by greed - they want to make a profit on their investment, like anyone else who has capital. And also by ignorance (which people like Dan are addressing), they don't know what else to do in a system they are convinced (with some valid reasons) is corrupt. They are mostly animated by a lack of faith in a system that really does abuse the average productive citizen. You and I both see them as just people. But somehow the average goldbug has become an object of hatred for some who post here (see budfox post, above). I get the animus towards any dishonest peddlers, but I don't see how anyone musters up that level of rancid contempt for people with whom they disagree about a matter that is not life and death.
      I quit a job once because staying on would have meant dealing with a company that supported Goldline. Had it been Apmex, no problem. I don't like scummy businesspeople either.

      Regarding my rant above, I say what I think because I don't like bullies, which include people who kick others when they're down (see above) and also those who talk the susceptible into being fleeced. We're on the same page, I believe. You're probably just used to the kind of infantile, angry venom I reacted to above, I'm not, at least not in a civilized forum. And when a bully appears, I don't think you play kiss-kiss with them.

      People like Brit are interesting specimens. He's more of a rambler, something's pent up and wants to come out, but it's ill-formed and immaturely presented, so it makes little impact except as a kind of mental masturbation. But specifically as seen here, I find it interesting that people like him have zero problem with the rantings of clear psychopaths, but when someone takes the piss out of the psychopath (with no greater venom or violence, usually), they wonder if someone crazy has suddenly appeared. No, someone sane has simply spoken up.
      I'll probably ignore these people from now on, it's too time-consuming. I've said my peace, and it won't move them one billionth of a micrometer. It wasn't for them, it was for me and for others. Catharsis and pest control.

    6. Greg

      Your lack of self-awareness borders on hypocrisy, and if you cannot see from your pattern of childish and abusive comnents that you are probably the most extreme example of the behaviour you claim to dislike, then others surely can

      "I dont like you. Dont make me prove it." "Neener neener neener", "psychopath" .... "i will take the piss out of you" ~ what part do remarks such as these have to play in an adult discussion of precious metals?

      Take the plank out of your own eye!

    7. one picture says it all


  5. "Cost of production probably doesn't matter".
    I'm not sure this can be an accurate statement about any market. If gold traded below the average cost of production for much of that 1999-2001 period, that probably helps to explain the rebound.
    Here's CNBC on costs and production: http://www.cnbc.com/id/100851209
    Here's a ZH article where they get it right, from Apr 2013 pegging support around $1300 because of rising costs of production.

  6. Nothing would be funnier than if General Jim had to do a secondary to keep his own company alive.

    After berating many CIGA's from dumping "high quality gold juniors"

    Seems like the stock is already pricing that in by falling off a cliff, about to break to fresh 4-year lows.

    But the guy I really feel sorry about is Richard Russell who advised his clients to stay out of stocks and pile into GDX and GDXJ over 18 months ago before the crash.

    60-years of credibilty pretty much wiped out.

    1. Every newsletter writer makes bad calls. I wouldn't worry about Richard Russell's credibility. He had a bullish call on gold in 2002-03. Gold was $250, its now $1265. Who exactly hasn't made a bad call in their career. I hope I can think as clearly as he does when I hit 90. As far as Sinclair, he has forgotten more about the markets, than we will ever know. That being said, he went to far with all his predictions on gold. He also has a hard time ever admitting he is wrong.Having experts on his site predict times frames as to when gold and silver would bottom. Very harmful. I think the one that bothered me the most was Bo Polny's prediction last year, which Sinclair had on his site. In the end, Sinclair will probably be right about Gold. I know he said it's possible gold could reach $50,000. If that happens, we're all in trouble.

    2. Here is Jim proclaiming a new bull market and a 1979 style ralle. In 1993!


      Im not sure what Jim has forgotten about the markets but its clear to me that Jim doesnt know diddly squat about the future price of anything.

      Maybe he was right already, in the end, in 2011.

  7. This constant risk on market rising cannot continue forever and the longer it goes on and the more it rises the bigger the eventual correction will be, as we have seen with the price of gold. If China has a hard landing or if all the sabre rattling that seems to be happening all over the globe at the moment turns into something much worse then the fall will be dramatic.

    I think the current fall in gold will be the final capitulation and then we will see a rebound, especially if yield keeps being driven down, but only time will tell. In the meantime I bought the dollar today as that may be a good bet for the next few months (I am UK based) as Europe is a shambles at the moment. The experiment has failed for all the reasons Dan has outlined above and many more!

  8. One more thought is that every dog has his day. I recall two of the UKs greatest fund managers, Antony Bolton and Neil Woodford going against the markets and being attacked at the time, but they were both proved right in the end. With AB it was investing in smaller companies when everyone else was in large caps and with NW it was not investing in Tech stocks in the 90's. Anyway we will see if the next 5 years brings a turnaround and what people will think then about having exposure to gold and gold stocks. I have to say not anyway near 100% as that is just asking to be smacked down and has to be stupid advice, but it has its place in any portfolio.

  9. low volume in the stock market together with the stock buy backs by companies who are issuing more debt to make those purchases is causing the market to levitate. I know the "all is well cult" will not like this statement but it is what it is. I'm staying out of the casino until the dust settles

  10. GDX/GLD ratio plunged below .185 for only the second time in history, now sitting at 5 month lows and now making an attack for the world record December 2013 lows.

    Stay in the System.

  11. I posted this great interview with Jim Rickards at the very end of the last write up, but I wanted to post it one more time early on in this article for those who may have missed it. He talks about currencies, Treasuries, and gold manipulation with documented proof so do your own diligence and draw your own conclusions. If nothing else, it is very insightful.


  12. Looks like yet another breakaway gap down tomorrow as the gold contract is undergoing intense liquidation in Asia. GLD holdings are like to plummet to new lows, as nobody wants to own gold, they all want to jump back on the growth stock bandwagon now that the correction is officially over.

  13. Dan,
    As I said a few weeks ago, when the gold pundits got excited when gold was over $1,300. If it weren't for Ukraine, gold would be trading between 1240-1270. With the lousy action in the gold stocks last week, lower highs in gold, and after Putin said he would recognize the new Ukrainian government, plus the elections being held successfully over the weekend, not a big surprise that gold got smashed today and didn't hold 1278. I'm very interested to see the reaction of the stock markets, bonds and gold after the ECB meeting on 6/5. I think Draghi will cut interest rates, but won't do any form of QE. Has the US stock market ever had a bull run of 5 years, reaching new highs,on declining volume in the NYSE, Dow, and S&P? Very strange. I know you speculated on why bond yields are going down, but it's very strange with the fed taper, the economic numbers being decent, and the stock market reaching new highs that yields are falling. The bond market is sending us a message, and I think there is more to it than people looking for higher yields because of the potential easing in Europe.

    1. Bobbo;

      yes, I would be surprised to see the ECB do some sort of QE at this juncture but an interest rate cut would not surprise me. We have to see what kind of economic data we get between now and that upcoming meeting from over that way.

      from what I can see of the Velocity of Money, it is still falling. If you throw in falling commodity prices out down the road as some of the futures markets are signaling, that might be one explanation for the lack of rising rates here in the US. Also, the 10 year Treasury inflation indexed note is trading flat. There does not seem to be much if any concern about inflationary pressures here in the US.

      My own view is that the slack in the labor markets is behind this. Consumer wages are flat and that is a big factor in the falling Velocity of Money in my view. Something will have to give on that front, ( employment ) in a much bigger way before the market will become concerned about inflation. At least that is how things low for now. As you know, that could change quickly but for now, it is pretty much how the broader market is looking at such. UItra low interest rates, no inflation and rising stocks. pretty amazing stuff if you ask me. Not sure how long that party can continue but folks should enjoy it while it lasts.

  14. option expiry day mini puke … next case … ! hehe

  15. GDX YTD 6.5% GDXJ YTD 7.5% SPX YTD 3% … hehe … just don't get the bear feast , normally a good buying indicator … you guys on fire today … enjoy !

    1. Anon;

      Perhaps you might want to change your starting point a bit...

      12/31/2009 GDXJ - 89.57
      5/27/2014 GDXJ 33.23

      10/31/2008 HUI 193.87
      5/27/2014 HUI 207.27

      10/31/2014 S&P 500 967.25
      5/27/2014 S%P 500 1909.25

      Sadly, most of the people that bought gold stocks anytime near 2008 - 2009 are now barely breaking even on those. Unless they were nimble enough to trade in and out of them, (Most did not because they were told that gold was getting ready to go to $2500 or higher ). Anyone who bought them anywhere near 2011, have been obliterated.

      In the meantime, they have missed out on some incredible opportunities because they keep listening to some "gurus" out there who keep telling them that the end is near and has been now for the last few years.

      Do you honestly believe that a mere blip on the screen of the GDXJ from its start of the year near 32.65 to its present 33.23 is much consolation for those who bought it back in 2011 when the index was up at 160!

      Same goes for the HUI ending last year at 197.70 and currently trading a lousy 10 points higher. How about those who bought into the sector back in 2011 when it was up over 600 but who did not sell when the index broke down technically in the spring of 2012? If nothing else they should have at least gotten out of some of those holdings in early 2013 when the index fell below support once again, this time near the 400 level. The index has fallen over 50% alone since then.

      The reason why so many did not get out and at least liquidate some of their gold share holdings, when the charts were clearly telling them to do just that, was because they were listening to the same people who were telling them the same thing back then that they are still saying now - " ignore the charts because the sector is manipulated by the powers that be. Gold is going much higher in multiples and you want to be on the bull train when it leaves the station because if you sell them now, it will too late to get back on".

      Does that sound familiar? It sure does to me my friend. tragic consequences because this is their life's earnings that we are talking about.

  16. Thanks for replay , I don't know Dan … I said this before and I am being truly honest … I wasn't listening to any of these gurus when I got involved in gold , and neither I was after the major take down in April last year … I was caught , and I am just trading the heck out of certain gold equities , thats what i do . If you are going to tell me with a straight face that , all these so called gold gurus are to be blamed because of ones misfortunes in the market , then what happens when the stock market crashes like it did in 2008 , just to point out the last one , and all these stock markets gurus from CNBC just to name one culprit , were telling people to buy all the way down to the bottom … ? What do you have to say to the guy who didn't listen to you , or anybody , and bought MUX at 1.80 in december last year , and sold it at 3.50 this year ?? or the guy who bought a contract in december and still holds it ?? by now , I hope , everybody has learned that , what ever you hear from any analyst , is just another tool . The markets are what they are ,what about the people who bought the stock market at the top in 2007 , 2012 , . In my opinion , and this is my opinion , if I you tell me to pick between buying INTC here or AEM … I tell you AEM , hands down … Look back , and you don't need to go that much back , and you will see that what has happened to gold , can very easily happen to any asset class … You have your reasons to believe that gold should not go up , based on your findings and experience …. but I didn't hear you , get this vicious towards gold before April last year . Once April happened , the damage was done , we start a new book . Now , to keep on being so bearish on gold at this point , I say its too late for that . You were caught wrong footed in january , you must admit , I have no idea wether you did well or not , and thats not the point , but you did miss a hell of a rally all the way up to 1390 from 1200 , nothing wrong with that , but to get so bearish , when we have hit a double bottom , gone up to 1390 , and now we are in the 61 % fibo retracement , after the horrendous year we had , you still looking for capitulation !? that guy turd , or what ever his name is , will never capitulate for obvious reasons … he makes a living out of talking bull shit ! it doesnt really matter wether he is right or wrong , he only cares about is 25.99 and he is not saying anything you can easy figure out , or find it in the paper … there are soooo many of them , from semiconductors to biotech to real estate … enough of it now ! who cares ? people get massacred in the stock market all the time … according to zero hedge , i know you don't like them , but we can not dispute that the last people to buy aggressively was retail , my sister who is a doctor was asking me yesterday what names should she buy in the stock market … TO HOLD FOR THE NEXT 5 TO 10 YEARS !? sounds familiar ??… Is this stock market in your opinion a trust worthy stock market ?? … We have had ZIRP now since my mother was a teenager … what about the people who is getting a big ZERO for his money for the last 10 years ? No , I refuse to trust my money on what ever the hell , Jannet Yellen and her gang , or Dragui , or Abe , or King Hussein decide to do next with their monetary policy … the model is broken . Some criminals that are still running free , finally fucked it up in 2008 and with it they destroyed the whole of US and European finances . If I am going to blow my money away , I rather doing it playing gold , oil , commodities in general , rather than buying Tesla , Fuck that … no way in heaven or hell , I would buy any of this high beta stocks, I missed the chance when the party started , and thats that . As always Dan with all respect , nothing personal . Best . A

    1. Anon;

      Investing is a very tough business because things change so often in ways that very few, if any, can ever foretell in advance. That being said, I think investors, even those with a long term time frame, should still check their investments every week but at least as often as once a month and see if their choices are breaking down the price charts and if they therefore need to cut their losses and move the money into something that might perform better.

      Most folks do not have a set point at which they will admit that a choice has gone bad. In trading, we have a technical support level which if violated, we give up on that trade as a loser and move on.

      Might I suggest that you counsel your sister to take a more active role in checking her portfolio from time to time? I am sure that as a physician she is someone who pays great attention to detail. I realize that she is busy but that same sort of attention to detail should be directed at protecting her life's savings. If she is unable to devote a bit of time to that, at least once a month, then a good money manager might be an answer for her to help her out. After all, those guys are paying attention, or at least they should be, to the markets every day and should understand when various sectors are falling into and out of favor.

      Hope this helps out some Anon. Very best of success to you ( and her!).


    2. Thank you , this year doing much better than last … ! you just need to get the pulse … and you are half way there … as for my sister , whose peer group's money represent a big bulk of the market that normally get peeled off their money , I told her to forget about the stock market , to go buy herself some gold , and invest a small portion in GDXJ … I m sure she ll be fine … Best success to you too .

  17. Hi Dan,

    Thanks for your continued work, it is much appreciated.

    I would like to know what physical buying in India and China would have to do with moving the price of gold. The majority of your article speaks of 'speculative technicals' moving the price and I agree, so how does physical buying move the price?



    1. Realist News Canada;

      I am of the view that a price chart is really a visual that illustrates demand and supply. whenever strong demand comes into a market, it shows up as a support level on that chart. Whenever supply comes into a market, it shows up as resistance.

      Demand for physical gold, if it is strong enough, will firm the price at a certain level on the physical gold market. Paper traders can see that and will come in and buy the futures. Also, those big commercial players who need long side hedge coverage, such as those who might need to buy gold for making jewelry as an example, will see that and take sizeable long positions in the futures markets to mitigate the risk of rising gold prices.

      Not sure if this makes sense to you but once that big buying surfaces in the physical world, it shows up in the paper world. Sometimes the paper market can move the physical market and sometimes it is the other way around. Depends on whether the demand is linked to investment reasons, etc.


  18. Guys investing in gold are the biggest "hope" traders.

    They don't trade on technicals, they trade mainly on hope.

    Truly a losing strategy for most people.

    I feel sorry for the poor people who have been massacred in the popular gold funds these days. And the guys running them must be taking on huge liquidation orders as everyone is running for the hills.

    No wonder we haven't heard from a lot of those managers on KWN, they are too busy saving their own hides from total extinction.

    Even General Jim is probably on the ropes, after making a foolhardy bet of putting everything he has into gold. Luckily, he didn't sell his house so at least he still has that.

    1. Interesting Mark...just how many HOPE TRADERS...the key word being ....TRADERS... do you know?
      If they trade Gold on HOPE...then surely they must also trade Wheat, Oil, Beans etc. on HOPE.
      If they are still solvent and trading on HOPE...then shucks...maybe it's the way to go...right ??

    2. Dean Baturine;

      Mark is always getting picked on at this blog so let me offer a bit of defense for him, not that he needs it as he can hold his own.

      I believe he is saying that from a technical standpoint, there is no reason to buy gold, nor has there been since April 2013 when gold broke through chart support and entered a bear market. Since then, gold has experienced some bear market rallies, but the intermediate term trend has been lower. That means, those buying gold have had to "HOPE" that it would go higher because there was nothing on the chart to provide a technical reason to buy it, other than the most shortest of time span trades.

      When or if I buy wheat, or oil, or beans, I do not buy them because I am "hoping" alone that they will go up. I buy them because the chart is telling me to buy them, Of course I "hope" that they will then rise in price. But if they do not, and the trade goes sour, then I do not hang onto a losing trade "hoping" that the price will go back up. I get out and wait for another opportunity to buy them again or I actually go short. Sometimes I do nothing.
      Make sense?


    3. The problem with Mark's comments is that he specifically says that Gold investors are the biggest hope traders. That's absurd. I'm sure there were many tech investors in 2000 who ignored technicals and rode the tech and internet stocks all the way down and lost approx. 80% of their value. Dan I know you get on many of the gold sites for their hype, but this happens in all markets, just not gold. I'm sure you take it more personally with the gold sites, as you mostly trade in commodities. But their were plenty of hype artists, ie: Henry Blodgett, and crooks.ie: Jack Grubman and Worldcom during the tech bubble. The analysts back then said this time was different, and the Nasdaq wasn't in a bubble. No different than the gold pundits saying Gold was going to $2500.

  19. HI Dan
    Yep, it does make sense.
    You would have to be bold to buy gold in the last year. I simply have a core position that I hold..trying to trade it would be foolhardy. This is not what bothers me.

    The future I see for my children and grandchildren is bleak at best. The debt load my kids have is enormous...everything from their TV, the furniture, the house and the cars in the driveway are all debt.
    Mom staying at home with the children isn't even a remote consideration.
    They have no choice, when they die they will leave behind nothing but debt.
    We are all being herded into the Fed sponsored Casino, at some point they will block the exits and burn it to the ground with everyone in it.
    This is why the frivilous comments on how rampant debt fuelled consumerism and unlimited money printing is somehow good and honourable...there is nothing funny about any of this.
    Goddamn the Fed and their wall street thugs.

  20. Hi Dean,

    In many ways I see the world like you although I am more hopeful for the future. I think the Fed is simply trying to keep the music playing as long as it can. They have been buying us time to prepare for a transition away from a dollar dominated world. Look at the bright side, because of a commodity style, leveraged paper gold market you can buy the best wealth reserve the world has ever known (physical gold) for $1300 an ounce.

    I think whether one takes on personal debt or plays in the wall street casino is still a choice and I wouldn't worry about the massive USG debts being passed on to our children because there is no intention of ever paying them back. The debt will be inflated away as it always has been in the past.

    1. Hi Gene

      They are buying us time but very few are using it to be prepared.
      The government can either inflate debt away (or simply default) but I have read that it is not so clear cut and easy for individuals.

      If you as an individual are indebted they will relentlessly pursue you for the rest of your life...no matter where you are.

      You are bang on about the wealth reserve..it's on sale. If you buy any now....you will be attacked and vilified.

  21. Even when I was a broke 23 yr old I never felt right if I didn't have a little cash or some saleable asset stashed away. My father saw some rainy days in his life and always taught me to be prepared for them. Maybe a storm is coming or perhaps the weather will hold for a while. I have about half of my savings in PG and half in cash with a little risk money in the equity markets.

    I don't really care if i am vilified for buying PG. Maybe in a few months I'll be carrying on like Mark.... on second thought I would never act like him.


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