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Guest Post: Gold Fails To Obey Script
Submitted by Pater Tenebrarum of Acting Man blog,
Selling Both the Rumor and the News Turns Out Not to Work …
In our interim update on gold a few days ago we wrote:
“It seems possible that news of a budget and/or debt ceiling deal could send gold prices even lower, but the likelihood of that happening is actually not as pronounced as it would have been if prices had risen during the current period of uncertainty.
Usually either the rumor is bought and the news are sold, or vice versa. Cases of 'sell the rumor and then sell the news as well' are generally fairly rare.”
It should be remembered in this context that gold was supposed to follow a certain script in the context of the debt ceiling debate, written by Goldman Sachs analyst Jeffrey Currie and given the placet of analysts at virtually every mainstream bank:
“Once we get past this stalemate in Washington, precious metals are a slam dunk sell at that point,” Currie said. “You have to argue that with significant recovery in the U.S., tapering of QE should put downward pressure on gold prices.”
The markets rarely make things that easy, although one must of course keep in mind that the action over a few trading days cannot yet be called conclusive with regard to the medium term trend. In this particular case, shorts thought they had received an invitation to shoot fish in a barrel, but the market evidently decided otherwise.
Gold, December contract daily – following a false breakdown, the contract shot higher upon the budget deal resolution - click to enlarge.
As the above chart shows, while the especially smart bears who thought they could break gold below short term support by selling over $600 million notional on GLOBEX prior to regular COMEX trading hours had their clock cleaned, the bulls cannot yet claim a decisive victory either. Still, they have won an important battle. Here is a close-up of the action:
December gold, 30 minute chart – click to enlarge.
The biggest positive is in our view the 'false break' highlighted above. Selling thousands of contracts in the 'off hours' has this time not been enough to actually break support. When a market isn't going down when it 'should', it often goes up instead. This is an excellent example for this rule. However, bullish traders require some follow-through buying at this juncture to produce a decisive trend change. There is strong lateral resistance in the 1340-1350 area, and it needs to be overcome to pronounce the trend truly changed.
Interestingly, as can be seen in the chart of 1 month GOFO (gold forward rate) by Societe Generale below, the gold forward rate has once again turned into negative territory in the London market. While this is not quite as significant as some people have asserted in light of extremely low LIBOR rates, it is still remarkable – moreover, negative GOFO rates always tend to provoke rallies in the gold price in the short term. There simply are no exceptions to this rule we know of.
Normally, gold is lent out in order to obtain collateralized dollar loans at a very low interest rate, as the lease rate paid on gold is deducted from LIBOR in these transactions. The situation actually reverses when GOFO is negative, as then whoever is on the other side of the trade actually pays for obtaining the temporary use of gold. Why would anyone want to do that?
We believe the answer has to do with the fractionally reserved gold system involving unallocated gold accounts (i.e., irregular gold deposits). According to what must be considered quite credible estimates, the leverage employed can be as high as 100:1 – which is to say that unallocated gold accounts are backed by only a single ounce of gold per 100 ounces deposited.
The remainder of the deposits has been employed by bullion banks for their own business purposes – it is essentially fractional reserve banking, only it is using gold as the underlying currency. So what happens when delivery demands or demands to move gold from unallocated to allocated accounts exceed the amount of physical gold actually at hand? One way to satisfy such delivery demands in the short term is to borrow gold. So we suspect – although we cannot prove it – that this is why GOFO has turned negative.
1 month GOFO turns into negative territory again – click to enlarge.
We also like that Thursday's rally was greeted with incredulity all around. A friend sent us the following smattering of quotes from the mainstream financial press. We especially like the guys who just know that the 'gold bull market is definitely over':
“The markets had anticipated a last-minute compromise of this kind," says a note from German investment bank and bullion dealers Commerzbank. "What is more, this also means that the scaling back of Fed bond purchases will be further postponed. A renewed sell-off of precious metals thus failed to materialize."
Issued before the debt-limit fix, "Resistance lies between 1301 and 1307," said Scotiabank's technical analysis Wednesday night, pointing to gold's 50% retracement of both its 2008-2011 uptrend and this year's June-August rally.
Longer-term, however, "Desire to buy gold as a hedge against the consequences of monetary policy has diminished," reckons Credit Suisse analyst Tom Kendall, who in February announced the "beginning of the end of the era of gold".
"When you've got other asset classes, equities in particular, doing so well, then it's hard to divert investments out of them and into something like gold, which is falling."
A lot of gold," agrees Robin Bhar at Societe Generale, also speaking to Bloomberg today, "has been held for speculative purposes, investment and a store of value, and that's less of a reason going forward.
"If you sell your gold and put your money into equities, other fixed-income assets or real estate, you're going to show a return. The gold bull market is definitely over."
But "although the US has managed to avert a default," counters Nic Brown's commodity team at French investment and bullion bank Natixis, "[it] has clearly lost some credibility" with foreign creditors led by China. Not only did Washington's behavior annoy T-bond holders, says Natixis, "a concrete long term solution has once again failed to emerge."
(emphasis added)
And so it goes – we are going to keep these quotes for reminiscence purposes.
Gold Stocks
Yesterday the HUI gapped up above its 20-day moving average. We have become a bit wary of such gaps, but want to point out that the action so far looks quite similar to what happened in early July. Even today's pullback is reminiscent of the action following the gap up in July.
Whether the similarities will continue we cannot say, but we do like the fact that the index has done what it was expected to do in view of the wedge-like decline that preceded the recent rally.
HUI daily – now we have an MACD buy signal as well, tentative though it may be – click to enlarge.
Also worth noting is that in spite of gold's very strong rally, the HUI-gold ratio continued to improve somewhat:
HUI-gold ratio still improving – and the recent move to new lows is beginning to look like a false breakdown as well – click to enlarge.
So here we have another 'false breakdown' in terms of the ratio of gold stocks to gold and obviously it would be quite encouraging if it manages to hold up.
Conclusion:
As before, we cannot yet say whether a trend change is definitely in the bag. However, considering how absolutely dismal sentiment on gold is, considering the many similarities to the 2008 'retest' that could be observed recently (back then, gold was also declared 'dead' by the mainstream) and given the fact that for a change, the gold market has not acted in the way that was widely expected, it continues to make sense to look for more signs of a trend change to emerge.
Ideally declines should continue to be kept in check by support at $1275, while any rally that manages to exceed the $1350 level on a closing basis and confirmed by the gold stock indexes can probably be interpreted as a sign that the short to medium term trend has finally reversed for good.
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Goldbugs never quit!
Neither do paperbugs it seems and they have an infinite supply.
And goldbugs have been at it 4000 years. When will they learn?
The negative GOFO is due to physical metal shortage - amazing given there is 5 billion oz. of gold above ground.
Here is what is happening at the LBMA which is giving the unallocated paperboys trouble:
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/18_Maguire_Predicted_Gold_Surge_-_Now_Says_West_Is_Collapsing.html
Snip:
"Last Friday, as gold was headed into the lows, I reported a major sovereign ‘spot purchase’ to KWN. Remember, we said it was about 90 tons (of gold) being accumulated, some of it at $1,270. You and I were literally speaking on the phone as gold was making the lows. But that sovereign order had been patiently waiting for weeks and it finally filled.
These trades fly under the radar sometimes because they are initially just a foreign exchange trade, and it’s just part of a major paper gold shuffle in London every day. But it’s only when these paper gold buyers have the audacity to turn up at a PM fix in London and demand the physical gold that alarm bells are triggered.
The bullion banks are then forced to buy at market to fill these orders, and there is no bullion bank I know that can turn up that kind of supply overnight. That’s why we saw 1 - 3 month GOFO rates spike negative once again mid-week. As these orders stood for delivery, it actually forced gold into backwardation again. And it’s going to happen each and every time the gold price is now pushed lower."
King World News? Damn, when did they turn bullish on gold?
You know what I absolutely hate about the price of gold and silver? 90% of the price action happens in a 3 - 5 minute span. It's retarded. Imagine if the S&P dropped 2% in 3 minutes! Or the Dow Jones dropped 600 points in 5 minutes.... EVERY MONTH.
while any rally that manages to exceed the $1350 level on a closing basis and confirmed by the gold stock indexes can probably be interpreted as a sign that the short to medium term trend has finally reversed for good.
Nope.
When the LBMA is levered 100:1 paper to physical gold and the Comex is levered 60:1 paper to physical gold, you can trade as much as you want and set the price wherever you want.
The issue is the physical drain behind the scenes from those who understand the fraud of these exchanges. This time has a very limited span before the metal is gone and the final trades are settled in paper.
The Shanghai Gold Exchange is levered 1:1 paper to physical metal and they are going to delivery more than 2,000 tonnes of gold bars from that exchange alone this year.
$134,000 Gold Price.....when THEY, not you, are good and ready!
http://twoshortplanksunplugged.blogspot.com.au/2013/10/134000-gold-price.html
And where's that wanker Jim ("Gold will never go below $1600 after Cyprus") Sinclair been? It's awfully quiet out there in gold-pumping land....
Eat the rich.
Just cos you got the POWER, that don't mean you got the RIGHT.
-
Gold bugs are too busy bashing Bitcoin lately to notice their rocks are losing value by the minute. "BUT WHAT IF THE GRID GOES DOWN"
Value is different from price unless you are a whore.
When the Governments own all the Gold, all the people are slaves with no rights.
When the people own all the Gold, they have no need for Government and live in peace and prosperity.
You choose.
Whenever it goes down, it's always "blatant manipulation", but when it goes up, it's because it's natural and the way it should be. Because gold went up for 12 straight years or whatever, it is just not allowed to pull back some. The gold pumpers say so.
While my crystal ball is cracked, I can think of over $17 TRILLION reasons why Au/Ag is eventually gonna go much, much higher!
The whole financials around gold are so positive that it is only this bizzaro suppression that is keeping it down. Hence, up is down, in is out, right is left, a circle is square. But the fundamentals are sssoooo strong for gold.
Eventually things revert to the mean and the world will be sane again.
Time to strap on a spine and do what the numbers say to do.
Liked the article, but think it is a big mistake predicting rallies in gold, as there is just too much paper power waiting to smash it on the futures market.
Sorry boys and girls, gold investing is a marathon, not a sprint.
The QE DOW, S&P, Nasdaq orgy is going to go on Yellin style until the final Neo-keynes load is fired. The goal is to get alternative investors to sell out, take their clothes off, and join the orgy.
Until then, They will do all they can to molest gold, the Chinese helping out, as they are the greatest beneficiaries.
I don't even read the pro gold sights anymore, as they're short term predictions are so off base. I wish king world news etc. would stop all the gold hyper ball too.
The only ones not hyperventilating over gold is the Chinese.
Keep buying, and turn off news. All of it! (Except ZH)
The paper dumps are not having nearly the same effect on prices like they did in 2011 and 2012.
Conclusion: Buy all major dips.
GNBI:
ou are correct.
We re-programmed the algos with a long bias.
The bots are now on our side!!!!!
Long live gold!!!!
Grinand, that could be in part because the price has been beaten down close to extraction costs. It breaks $1200 and we are there and you can buy physical and tell your grandchildren you bought the bottom.
Wall Street and the smartphone generation are being conditioned out of thinking about PMs as a store of value.
However, in Asia that line, that concentrated stream of ill-advised bullshit, is not gonna flush. The Indians and the Chinese have seen enough history to cover 25 Amerikas. The Emperor of China was issuing fiat currency when Euroland was a forest. They have seen much more and they know how this game ends.
Yes, the economy is awesomely groovy. Jobs, good paying ones, are all around us. Farmers are doing well, education is up! Gold? Pesky relic! Wall Street is honest, no corruption by the Banksters! JP Morgan settles for 14 BILLION FRNs...so all is perfect with our financial system. Or not....
Don't know where you get your info from but the average farmers net wealth has increased by over 2 million dollars in the last 6 years. I don't know why this is never reported but it's a fact. Some of this is based on farm land values increasing 500% since 2005, some of it because ag prices have tripled with only marginal increases (in terms of percentage) of input costs. The rest of your diatribe seems angry and no doubt based on poor performance of your "wise, superior investments" that must by doing poorly because the markets won't follow your brilliant analysis.
First rule in trading; the markets always right. If you fight that rule, you'll soon be parted with your cash.
Second rule in trading; most assets rise in price over time, if you plan on swimming against that current, you'd better expect to have your streangth (wealth) drained away.
What the heck, a commentator making sensible points..am I still on zh?
Some of this is based on farm land values increasing 500% since 2005
Will this hold when the Fed stops pumping newly printed dollars into MBS?
Second rule in trading; most assets rise in price over time
Only if you measure them in fake money. Check out the performance of your beloved real estate during the last 10 years:
http://pricedingold.com/investment-real-estate/
You may enjoy this:
http://www.ritholtz.com/blog/wp-content/uploads/2011/04/2011-Case-SHille...
So this chart is telling me that if you assume the average house in 1890 costs 100,000/ $18.94 = 5279.83 Oz of gold Take that gold and multiply it by todays price 5279.83* $1,300 = $6,863,779 should be the price of the average house. If you would have saved your gold you could have bought alot more house.
According to the spin meisters it is ALWAYS the end to the bull market in gold
Eric Sprott: "Gold And China To Dominate The World."
Eric Sprott is very bold with his call for Gold at $2400 next year. He stands his ground and continues to talk about overwhelming demand for physical Gold from China. According to Erik, investing in the right Gold and Silver equities provides the opportunity of a life time for wealth creation now.
Now after the Debt Ceiling can is kicked down the road for a few weeks without resolving anything, investors will be back to the analysis of the real economic situation. We can forget about Taper until the next year at least with the looming circus entertainment Debt Ceiling Increase 2.0. Default is avoided, but the damage is done. We are very positively surprised by the amount of US Dollar negative articles in the mass media these days. The story about the End of the Reserve Currency of Choice - US Dollar is making its way to the surface now.
Last week US Dollar has printed the closing below the all important 0.80 level and is now below the 200MA. Gold on its part is in the break out mode, finally and has painted the set of very interesting charts.
http://sufiy.blogspot.co.uk/2013/10/eric-sprott-gold-and-china-to-domina...
I'd be happy with $1,600 by end of Q1/14..
By the way this URL seems like spam and the content looks like it's been stolen from KWN.
The paper fraud is ending as the physical is running out. All thats left is debt and worthless paper promises.
The gains to be seen in the physical are going to astound...
Its over Bitchez, got physical ???
The S&P 500 is up 20% YTD and gold is down 20% ytd. This with QE4eva confirmed.
The bad guys are winning. It is what it is.
But thats the score at halftime fonz
Patience, my good man !!!
I am comforted by my stack... not the paper price.
I'm in no rush my man. Whatever is going to happen is going to happen. I just want to roll with it as best I can, whatever it is.
You mean 7th Inning Stretch?
The current FOFOA post is, I would say, a must-read for anybody trying to understand what the hell is going on in the 'gold' market and how you can have this supposed strong Asian demand for physical gold, yet at the same time see continually weak 'gold price'. Anybody who is having trouble grasping the concept of 'paper gold' vs real gold, and how 1 can go up while the other goes down (the actual mechanics of it, in today's financial system, not just the general principal) should give this a read, it's as good an explanation as I've seen.
http://fofoa.blogspot.com/2013/10/gold-as-forex-currency.html
Thank you. I was IP banned from google and having difficulty finding it.
Fuck Google. Here, serve yourself:
https://duckduckgo.com/
https://ixquick.com/
https://startpage.com/
https://gibiru.com/
http://yacy.net/en/
So it All Works Until It Doesn't.. the Question is what will it take to Pull aside the Curtain
It's not necessary to do anything to pull aside the curtain. The wizard has made many threats and promises that can never be fulfilled. The curtain will be seen for what it is when interest rates rise to the point that the wizard has to default.
Gold prices are behaving perfectly on script. Physical gold is being removed from the weak hands at approximately industry's cost. I would argue that we are seeing a gigantic negotiated settlement between China and the U.S.
This bank vault purchase story is key (and hey, despite my rants on the spin here this site does provide the best information) as it allows the U.S. no excuses for selling gold over to the Chinese for bonds. Despite what WE are told the Fed values gold and will never sell.
It's perfect poker.
Soooo, the sheeple at the table are being herded into selling their gold. Like a good broker GS is right there to help the big client. Cunts.
I'm sick of your doomer shit Teddy.
+1,000,000,000,000
You really sre the Fonz, ehhhhhhhhhhhh.
ty, made my day :)
This bank vault purchase story is key
It is very key. China can begin purchasing gold and other physical assets right in the U.S.!! Nice safe TEMPORARY spot to hold it until it finds its way to the airport (even China knows not to trust the banks!!, just buy its vault!!). China can spend some of those USD reserves right in their homeland. Maybe China can buy a miner or two while it's at it. I wouldn't expect China to let that vault stay full for too long.
I understand that a new, Chinese made, one directional turnstile has been installed in the tunnel between the Federal Reserve vault and the Ch(ase)inese vault.
Pardon me for the added editorial but, the real game begins when the Chinese go to get up from the table with all of the sheeple's gold. If WE are awake we won't allow this to happen (but I'll leave that for Ron Paul, Jesse The Body Man, Rottin' Roddy Piper, and Alex Jones).
The only way 'we' can stop it is to provide a real market for physical gold - actually get at least some measurable percentage of the population to understand why money needs to be backed by something and buy the real thing - as a statement, as real insurance against financial catastrophe, etc... Unfortunately, almost nobody (outside some of the people here) get the difference between real gold in your hands and GLD, futures, options, etc. and any time I'm out I see a lot of 'cash for gold' and 'we buy gold' signs, but I have yet to come across a 'we sell gold' sign. I'm betting most people wouldn't know how or where to buy real gold, in the unlikely event that they somehow got the idea of WHY buying a little real gold might be a good idea.
When I see lots of "we sell gold" signs, I'll be selling mine.
Ron Paul, Alex Jones, Jesse, and Roddy Piper...all in a battle royal or even a cage match. Yeah, that'd be COO-L!
High Any body who reads the chart can easily explain .. even after truck loads of short .. the gold has a strong support at 1280-1295.. which means its creating a strong base here and further by dec .. will be back on the bulls .. its consildation time and time to buy.. expect gold to sky rocket in 2-3 years .. when all the paper currency r used for toilet tissues ...
How uch of the downward pressure over the last 18 onths you think is maybe legit, from people trying to rotate out of "paper gold" into physical, which is hard to get? Maybe some real-wrld softness in price due to die-hard goldbugs dumping paper? Just a thought.
The East is rotating into physical, on a scale never before seen. Its beyond sad how the West has entered into financial ruin...
hey akak, this one's for you (no doubt you're lurking):
http://youtu.be/lD-5GrK7Y28
Banzai version:
http://youtu.be/Sxer4mTxZyE
See here. http://www.worldcomplex.blogspot.ca/2013/10/gold-vs-usd-one-year.html
It's close to where it began its run-up to $1900.
i try to never use the words 'gold' and 'trend' in the same sentence.
...you just did.
hey, i said i tried.
...are you sure you said, "tried"?
(ya, I'm bored)
Well, the daily is holding on the short intermediate term downtrend line, as the MACD crosses relative to the volatility index, juxtaposed against the relative volume on both sides of the VWAP, when the RSI crosses and we see divergence on the weekly, then we can extrapolate that the demand for physical relative to the supply of volumetric open interest cogents has an effect on the algo's which are delineating the trend reversal matrixes which are being held at support by the zero hedge stackers as it bumps up against the Bollinger bands within the third Elliot Wave and the parabolic SAR.
The only thing I'm worried about is that pesky gap that is not filled!
<sarc>
I don't know about Tenebrarum's track record, but these guys have been pretty good on both gold and silver:
http://eideticresearch.com/uploads/2/8/3/4/2834543/gold_rigidity__fibs_s...
Amazing how much hand-wringing there is over the "price" of gold over such a trivial span of time (i.e. weeks, months, or even a year or two).
The fundamentals point to significant appreciation, as they have for some time now. The blatant manipulation of the paper price has been obvious all along (though I agree with Al that the recent FOFA article sheds specific light on aspects of it). Disastrous policies continue full-speed ahead. Fiat currencies continue to be degraded at a breathtaking pace. Stock markets are inflated to historic levels. Essentially nothing has changed, and yet so many seem to be fretting.
It's not if, but when, and the latter ain't too far off.
Gold is like the harem mistress of the Sultan who does not have his favors today as she is blond and he likes brunettes and red heads. And, she tends to be the constant victim of harem intrigues concocted by that Harem chief eunuch Dimon of JPM.
But, she could have her day with a vengeance. Only trouble; like all blonds there is this reputation that clings to her like a pervasive perfume of being a barbarous relic who forgets her script when she presents at court.
Dumb but so beautiful and forever young never a wrinkle on her fair face!
Unfortunately, it's actually the US taxpayer who got their "clocks cleaned" in the gold smackdown as WE are responsible for these attempted market busting actions of the Fed. Meanwhile Bernanke and Greenspan get their salaries and pensions regardless.
That's what nailed a lot of traders this time. The stock markets rallied hard for a week before the deal, on deal "rumors." Once the deal was announced, stocks rallied even harder. So stocks didn't follow the script either.
In the Netherlands, i saw 2 "we buy gold" shops closing in the past month, in my town. They popped up like mushrooms, went down like icecubes in the sun.
Only thing I want to know is....right now what reasons are most likely to make foreigners no longer want to hold $Dollars, i.e significantly reduce their holdings? Given all the printing (for 4 years,) the deception that is The Fed, the debt ceiling farces, the lobbying corruptions and legal exemptions from prosecution that politicians give themselves, the scale and regularity of banking frauds, (you know there'll be another one in a week's time...,) etc. Why would any decent minded "state" want anything to do with America?
I appreciate many foreign states ape America and so have a vested interest in continuing to copy them, however stupid! Because if they tried to "de-Americanise" they would likely have to restore their own currency to a gold standard or have to face the difficult consequences of appearing to have an "economy in a vacuum?"
As both reserve currency and petrodollar the world is forced to hold $USD. One of the few 'knowns' among Central Banks is that you don't want to be the first guy to come clean. While it is unlikely that a partcipant would crash things on purpose 'rat bastards' are in charge after all -- and if there's one trait about a gang of rats it's paranoia about how much cheating the other 'rat bastards' are up to.
The taper was designed to be Helicopter Ben's obligatory return of Fed policy to neutral for the incoming Fed Chair (may I coin a phrase? The New Neutral, ha!) and so not a big surprise to the other central bankster rats.
The un-taper was clearly a 'rat bastard' move. So the 'rat bastarding' has begun!
I suspect the Italians maybe the ones to jump first. Their govts are chaotic and more scared of their people than other states. They do not like the idea of austerity at all and are quick to march. Plus their public debt levels are too large for the ECB to handle. I doubt they'd get away with a bail-in? So will be under increasing pressure to inflate those debts away. Italy has gold reserves with which it could leave the Euro. (But, sadly, I doubt its phyzz is in Italy!) However, I'm looking for things to unravel there first.
The cartel has a problem....the holders of physical gold now are all strong hands....and wont be selling, even at an extra $100
They are looking at the $1900 level, before the official take down.