Metals Manipulation - Or Simply Deleveraging? 20 comments
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On March 16th, I wrote an article about what I saw for the near future of gold/silver and the dollar. I said,
Gold and silver are at bullish extremes; the dollar is at a bearish extreme. In any normal time, we would expect to see a correction, probably violent.
We had it. Gold peaked at about $1030 on the 17th; the dollar hit a bottom at just under 71 the same day. On Friday the 5th of September, the dollar index hit just over 79. There was a 10% move in the last six weeks. That's a lot.
chart courtesy of INO.com
Oil hit a high of about $147 on Friday the 11th of July. On Sunday the 13th of July I posted the following,
Oil is about to crash for similar a reason. The only thing keeping it elevated at these prices is an impending war on Iran. If that takes place, $147 oil is going to look pretty cheap.
Oil crashed since then in the same way gold and silver did as the dollar rocketed. Must be manipulation? Yeah right. Either I'm the guy doing the manipulation since I called it to the day both times or there has to be another answer.
Investors love theories of manipulation. After all, manipulation can be anything so no one can disprove the theory. I have a couple of problems with manipulation. One is that even if it's true, it's noise, not signal.
Let's say you believe gold is being manipulated down and that's the only factor in its price. Gold closed at $803 on Friday, do you buy or do you sell? Me, I wouldn't touch a market with a ten foot pole if manipulation was the only factor in price. What? You think you can outspend the Fed? I don't think so.
Even if it's true, manipulation generates no clear buy or sell signals. Are financial markets manipulated? Are you kidding? Even the guys screaming about manipulation the loudest are trying to manipulate the market. All financial markets are manipulated, big deal.
The second problem I have with manipulation theories is what I call the green socks and the tiger problem. I'm wearing green socks and there is no tiger in the room. Both statements are perfectly true and both are perfectly meaningless.
Three banks have shorted more silver than ever produced since Christ was a corporal and silver has gone down. Saddam Hussein was a bad person and 3000 brave Americans died on 9/11. I'm wearing green socks and there is no tiger in the room.
Do you see the problem? When someone wants to confuse you, he tells you perfectly true and perfectly meaningless statements. I was just listening to a radio show where the speaker was convinced gold has been hammered down and the only reason was the Fed shorting gold.
If it was true, and it's not, it would be the most important buy signal in history. Here's why. All shorts have to be covered. If the Fed is short 10 trillion contracts of gold, you should get on your knees and thank Bernanke. Because if they shorted 10 trillion contracts, they have to cover 10 trillion contracts and that's going to drive the price of gold from here to Jupiter.
Manipulation exists and it's meaningless. But I have showed, both on March 17th and on July 14th that there are more valid signals. The most valid buy or sell signal that you can possibly get is emotion. When everyone is fearful, you should buy and when everyone is greedy, you should sell. It's that simple. Everyone hates hearing it but markets are not complex, they are simple. You should buy when things are cheap and you should sell when they are dear.
But what really did drive the price of the dollar and gold and silver and oil? Something beyond simple emotion had to take place. On September 3rd we posted a piece from the Guardian in England titled, "Ospraie fund to close after August hit" The article answered a lot of questions for those who actually understand what is going on.
The single most important number to any investor today should be the amount of OTC derivatives outstanding. The Bank for International Settlements posts updated numbers every six months. The latest numbers show $596 trillion dollars in derivatives. That's up from $460 trillion a year ago.
That's what's driving everything and that's what you need to understand if you are even going to survive in this market. Derivatives are highly leveraged investments in everything. People aren't going out of business because they made bad investments, they are going out of business because they were levereraged 30-1 up to 100-1. It would take less than a 1% loss for the FDIC to blow through all their capital. Is it going to happen? Of course, they are leveraged 130-1.
Ospraie was long gold, long silver, long oil, long natural gas and short the dollar. That's five different investments, right? Actually not. That's one investment; I'll call it the Anti-dollar.
Anyone reading this site knows I think the future of the dollar is grim and if you want to survive, you need to be invested in gold and silver and energy. That's the anti-dollar investment. It's one investment, not five. Ospraie was in the right place at the wrong time and way too highly leveraged. They lost $1 billion in a month from July to August. And what was really happening was $30 trillion dollars worth of Anti-dollar bets were being unwound, deleveraged.
That's what clobbered gold and silver and the metals shares. And ordinary investors understood it and stepped up to buy what was obviously on sale, gold and silver. That's why there was a shortage, deleveraging, not manipulation, caused artificially low prices.
So where do we stand today on gold and silver and energy and metals shares? I'm going to climb way out on a limb. I've talked to Bob Bishop last week and read what Bob Hoye has to say. I know that Eric Sprott and Rick Rule all agree. Metals and shares will be lower in a month. That's the time to buy.
I disagree. Someone sent me a monthly chart of the xau over gold a month ago and I follow it. The chart from Friday is below.
Since the XAU started in 1984, the very lowest ratio was last Friday at .1561, lower than the .1575 recorded in the summer of 2001. It was the low last Friday. So in the 8760 days between when the ratio began to be measured and today, Friday was the single most pessimistic day.
Could investors get more pessimistic? Of course they could. But I did a radio interview with Al Korelin on August 14th and he asked when we would see a low on gold. I told him on the air it would be the next day. And while we can't know if it's the low until some time passes, gold hit a low of $772 on August 15th and hasn't been lower since.
There are a lot of things that affect the price of gold. Manipulation is not one. Deleveraging is very important. I wrote about it in energy last month. The 9,000 hedge funds are far too highly leveraged. When commodities go through perfectly normal and desirable corrections as gold and silver and the dollar did, those who are too highly leveraged are going to lose their shirts in the deleveraging process now ongoing.
This is going to create total fear. But total fear also means total opportunity if you are listening to the signals and not to the noise. I happen to really like Bob Bishop and I have a world of respect for Bob Hoye and Eric Sprott and Rick Rule. But I have to respect them even when they are wrong. They are wrong today. I said gold and silver were going to crash in March. Well, they are going to rocket. Right now, this month.
Look at the following chart. What does it say?
chart courtesy of MRCI
Yesterday, Sunday September 7th, the US government announced formal nationalization of Fannie Mae (FNM) and Freddie Mac (FRE). A big reason was that the Bank of China was screaming like a stuck pig because they are sitting on $1 trillion in Fannie Mae and Freddie Mac bonds and treasuries. What does that mean for gold and for the dollar?
Here's what to consider. Let's say a nice couple in Miami with an income of $100,000 bought a $600,000 home two years ago with a $500,000 mortgage guaranteed by Freddie Mac. Those are all perfectly reasonable numbers.
The husband lost his job and now they can't keep up with the mortgage payments and are in foreclosure. The house is now worth $400,000. The government steps in to help. But who do they help and how? The couple really couldn't afford a $500,000 mortgage on an income of $100,000 in the first place and the husband is now collecting unemployment. How can the government help them? It can't.
The house is now worth only $400,000 with a loan against it of $500,000. How can the government help?
Answer: they can't. The government should let the homeowner lose the house they can't afford and the bank lose the money they shouldn't have loaned.
But the US government doesn't want anyone to feel any pain, much less the Bank of China that loaned us every cent to pay for a useless war in Iraq. So the government is going to bail out Fannie Mac and the Bank of China. At your expense.
The US government isn't collecting enough taxes to pay for all the money they are spending; we are $100 trillion in debt. So they are going to print dollars until they are totally worthless. Fannie Mae and Freddie Mac will pay off their bonds that the Bank of China owns.
In Zimbabwe dollars.
March 17th was the best day this year to be selling gold. Any time now at all would be a great time to place another Anti-dollar bet. Don't think you need to wait. There is something really bad about to happen. I am not sure what it is. But it's going to rocket gold and kill the dollar.
Disclosure: none
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This article has 20 comments:
Thanks for the great 321gold.com website.
Of course the SEC would not think of applying it to other sectors such as commodities and precious metals. Might hurt their friends.
Seriously, who would object if the government forced the price of bread lower?
Actually, you're wasting your own time because I'm sure by now people just skip your posts. You can't spell and you don't make any sense or valid arguments on the intended subject. Nobody gives a sh*t what you made today....
Just put out some false rumor and reap the benefits!
The fact is.....it is VERY difficult to find silver. Difficult to find gold. And I have it on good authority that the large dealers are getting American and Canadian gold and silver.....from Europe. In other words, the vacuums are sucking up all the available gold and silver bars in the world from wherever they can get it.
Paul and Dork will find themselves on the wrong end of the trade eventually, the questions is how far will they go before they are stopped out. And who cares.
All year long has been this degree of randomness of "bad things happening."
The XAU/Gold ratio I did not realize was at such an extreme. Will be very interesting to see how it all plays out.
Truly enjoyable read. I happen to believe that what has happened in metals lately, is a combination of both manipulation and de-leveraging. But like green socks (really?) and no tigers, it doesn't matter.
What concerns me most is that a lot of us are having great difficulty buying at these bargain prices. I've got to say, I now consider buying the precious metals ETF's a mistake. The haircut that I'd have to take
to unwind these positions and buy actual bullion would be painful to say the least. I share your spider-sense that something big is about to happen.
So what's the move? Buy, ETF's, options, futures, physical or all of the above?
We are comforted by the second chart in the above article which points out to business cycle believers that the gold price bottom is neigh as of October 2008.
Since the start of the 1900's, USA politicians and their agencies have always favored printing more fiat US $'s for any and all reasons.
My fox hole buddy is cheered up by the thought that, as happened in the summer of 2008, government agents will soon be by with packets of 1000 bills for each of us.
Of course, we are stuck out here without food or transport and can't get to a store to buy anything much less gold bars.
Good luck.
Take POSSESSION of PHYSICAL GOLD/SILVER! In your particular case, it may be "painful" at the outset, but in the final analysis, you will be LIGHT YEARS ahead. More importantly, you will be assured that what you paid for IS WHAT YOU HAVE IN YOUR HAND, er SAFE, not
some piece of paper that you wouldn't want to use to wipe yourself! (Sorry for the graphic display).
Of course, having a sense that something bad is about to happen is nothing more than an emotional reason to purchase an investment, an approach I disagree with. Although the author repeats the stock market advice to buy on fear and sell on greed, in the case of gold perhaps it is better to sell on fear and buy on greed (in the total market) because the asset classes are negatively correlated.
Oh, and we can all do without the fluff about how the author was right on three separate occasions. Guru worship is perhaps the only worse investment strategy than trading on emotion. He could just as easily be wrong THIS time. If he didn't liquidate all his PM's at the peak, he was at least wrong there.
Dave
Sept 11 - Gold hit $730 this morning - down some $70 from Sept 9 - Any comments on that?
$880 gold and XAU at 103 .. ok, so is this not the most extreme disconnect ever?
For just one example of many, he highly recommended Petaquilla Minerals PTQ (and Petaquilla Copper PTC) on Sept 11th 2008 at C$3.03 at his 321Gold site (see archives). Shortly thereafter he was warned in numerous emails by several shareholders (Stockhouse.com PTQ Message Board) that President/CEO Richard Fifer of PTQ/PTC was a criminal in hiding wanted on a bench warrant for embezzling hundreds of thousands from Spain as the former Governor of Cocle (he was forced to resign), funding prostitution houses in Penonome, etc., mining without permits, accusations of insider trading/ exposed for share dilution granting and exercising tens of thousands of options on a regular basis for years, etc.! And yet Mr. Moriarty did nothing to warn his readership about management's unethical, criminal activities right after giving PTQ/PTC Fifer management such a glowing recommendation! (see Moriarty's article!)
Mr. Moriarty then claimed in an email to never have received ANY FORM OF PAYMENT OF ANY KIND for his endorsement of Petaquilla Minerals and Petaquilla Copper! Yet immediately after the glowing recommendation to buy, Mr. Moriarty put up a banner advertisement for Petaquilla! He lied! And Moriarty continues to pump stocks like this one! Petaquilla management was soon embroiled in a law suit with Inmet for breach of contract, then the High Court of Panama ruled that Petaquilla was in violation of the law mining without a permit, President Fifer was also brought up on charges of insider trading on Canadian exchanges. President/CEO Fifer still has the embezzlement charges pending and a court date is yet to be set. Petaquilla Minerals PLUNGED FROM C$3.03 ALL THE WAY DOWN TO C$0.34, AN ASTOUNDING 89% LOSS. MR. MORIARTY WHEN CONTACTED BY EMAIL REFUSED TO ACKNOWLEDGE HIS BLUNDER. Not once in over a year has Mr. Moriarty warned his readership of the corruption in management that he has known about all that time.
This is just one example of many! When Mr. Moriarty has been contacted by email for comments, he has responded with foul, disgusting language and flat out lies. Therefore, PLEASE BE WARNED: MR. MORIARTY IS A STOCK PUMPER! ANYONE WISHING TO CONTACT ME FOR A COPY OF HIS EMAILS, PLEASE INQUIRE AT sparker1957@gmail.com. We are organizing a class-action law suit against 321Gold and Mr. Robert J. Moriarty for receiving payment (directly or indirectly) in exchange for recommending companies with criminal management (such as Petaquilla Minerals) that he was fully aware of. Not only was Mr. Moriarty fully aware that Petaquilla Minerals was run by a criminal management team, but in his reply email that I'm in possession of forwarded from a Stockhouse member, Mr. Moriarty boasted that criminal management is the best to be running a company! Yes, I know, unbelievable, but I can forward you this legitimate email with permission from our attornies that are in charge of the pending class-action suit.
If you have purchased any stocks on the recommendation of Robert J. Moriarty of 321Gold and have lost money, and/or recieved any helpful emails, please contact me, Scott Parker: sparker1957@gmail.com to help us take this unscrupulous, incompetent stock pumper out of business and out of circulation. Thank you very much!
Scott Parker
Anyone here, a member or management at SeekingAlpha that questions my intentions concerning the above post for the purpose of helping investors to profit and to avoid charlatans that lose us money, here is a sample email sent by Robert J. Moriarty of 321Gold nine (9) days after HIGHLY recommending PTQ/PTC and PTQ/PTC Management and AFTER being supplied with numerous web sources apprising Moriarty of President and CEO Fifer's criminal background:
(Please be advised that Mr. Moriarty has a very foul mouth!)
Re: Petaquilla Minerals
From: Robert J Moriarty (bob@321gold.com)
Sent: Wed 2/20/08 10:46 AM
To: ...... ..... (.......@hotmail.com) / Source Protected
"Go away. . .
"If crooks weren’t allow to run mining companies, we wouldn’t have mining companies. The biggest and best are run by crooks and everyone in the industry gets it except you."
Go away and crawl back under your rock. I don’t care if your mommy bought you a keyboard for Christmas, you didn’t know shit when Kitco was posting and your don’t know shit now. Start your own website but be sure to teach your dog to read first. That way you know at least one pair of eyes will read it and care. No one else will.
You are blowing smoke so fuck off.
Bob