David Schectman

I have two good reasons to be optimistic about gold and silver. When prices rise, my portfolio rises and so does our business. I have a built-in bias to be pro-gold and silver and I also benefit when the stock market falls, the dollar falls and the economy falls. Andy Hoffman and Bill Holter would probably agree with me, but they wouldn't volunteer it. That doesn't mean our perception of the markets is skewed; it just means we have reasons to be pro-metals and there are more than enough facts to justify this view point.

I am fed up with all the anti-gold talk that is coming from the likes of Harry Dent, the Elliott Wave people, the chart mavens, the deflationists and Wall Street. That is a lot of hot air head wind to brace ourselves against. I say fundamentally, gold and silver should be selling now for much higher prices. The price says otherwise. I guess, in the short-term, "price" wins out. But I am not throwing in the towel. I like the set-up for gold and silver and my hope, and belief is that "price" will soon be on our side.

I have included several very uplifting articles for our readers today. We need all the good news we can muster. This is why we are so upbeat on gold and silver now.

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Quotes of the Day

There is a reason why the regulators seem to be finding that the big banks have manipulated every market except silver (and gold). In all the new findings and admissions of wrongdoing by the banks, there was no prior strong record of allegations that the banks were up to no good. Because of this, the regulators haven't been accused of overlooking and missing crimes that they should have caught long ago, even though the crimes couldn't have just started recently.

Another key difference to why the regulatory charges of manipulation in Libor and foreign exchange can't be made in COMEX silver and gold is that damage to outsiders is too easy to prove in the case of the precious metals. This means the flood of private lawsuits that would emerge should the CFTC find what most everyone knows already (that silver and gold are manipulated) would swamp the banks and the CME. Can't have that.

- Silver analyst Ted Butler, Butler Research, November 12, 2014

A little while back, I commented that I believed the big drop in the price of crude oil, by far the most important commodity in the world, was set off by futures positioning on the NYMEX and other derivatives trading exchanges. Specifically, I concluded that selling by technically motivated traders over the past few months was most responsible for the sharp drop in the price of crude oil, as well as the not coincidental price drops in silver, gold, copper, palladium and platinum.  I gave the documented quantities of contracts and equivalent amounts of material that were sold and can do so again on request.

What I have seen unfold over the past 40 years has been a steady progression of futures trading overwhelming actual supply and demand as the prime influence on price. I'm not suggesting that actual supply and demand don't matter to price, just that they have been pushed aside for extended periods by the influence of derivatives positioning. I discovered it in COMEX silver nearly three decades ago and have seen it creep into most markets currently. What I am saying is that in the "old days" (30 to 40 years ago) it was strictly supply and demand that determined price; but that we have evolved into a modern era of derivatives trading overwhelming actual supply and demand as the prime price influence.

- Silver analyst Ted Butler, Butler Research, November 12, 2014

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Today's Featured Articles

King World News (David Stockman On Monetary Breakdown & Skyrocketing Gold)

Greg Hunter (Weekly Update: WNW 166-Obama Care Fraud, Middle East Mess, Russia Patrols US Gulf)

Adrian Ash (Gold/Silver Ratio 2015: Can Silver Rise When Gold Falls?)

Casey Research ("Paper Gold" And Its Effect On The Gold Price)

Jonathan Kosares (Gold Capitulation? Not Likely)

Bill Holter

The Bottom Is In! 

November 17, 2014

This past Friday was a near carbon copy of the previous Friday for the precious metals.  Both were "outside reversal" days where the overnight and morning sessions were quite weak, only to bottom and then reverse to the upside strongly on very heavy volume by the day's end.  First, this type of action is almost unheard of for precious metals and has happened only a handful of times over the last 15-20 years.  Also, both reversals were quite large from the day's early lows to their final closes, the range was 3-4% which obliterated the long held "2% rule".  We have now seen this twice in exactly 6 trading days and both were on a Friday. 

I want to emphasize "FRIDAY" and put it in capital letters to boot.  Friday is the end of the week where there is no trading over the weekend.  (It is also the most important day to chartists where the charts cut off and print a close for the weekly period.)   Once business closes on Friday, participants are basically frozen in their position until Monday morning ...or until the market reopens.  Market participants obviously know this and either position themselves accordingly or square their books going into weekends, it has been this way since the beginning of markets.  That said and as you know, I am a believer that we will see a system wide "re set" and this will in most all likelihood occur over a weekend. 

I wasn't sure when sitting down to write this how I'd structure it, meaning give you evidence and lead to a conclusion or the reverse?  My conclusion is that we have hit a precious metals BOTTOM and are now reversing, the worst is over in my opinion!  I must confess, I called a bottom 2 days after the low in June of 2013, some 16 months ago ...which stood as correct until 2 weeks ago... I was wrong.  I did not in any way believe the $1,180 level in gold would be broken, it was.  That level was broken the day after the last FOMC meeting when 7 days' worth of global production was sold at 12:30 AM on the COMEX.  Clearly this sale was meant to "break the charts" and break the spirits of any remaining PM bulls.  It did break the charts and sentiment along with it.  I actually saw a bullish/bearish sentiment reading this past week at "0" bulls, I can't remember where I saw it but I can tell you in 30 years I have never seen this before in any market.

OK, here is what I see and what leads me to believe we now have a hard bottom in.  We had the two consecutive reversal Fridays and both on very big volume.  These can be considered "impulse waves" if you will.  The previous week's raid occurred just as the GOFO lease rates were again going negative (an impossibility in any normal market scenario).  Since then, the GOFO rates have gone further negative and have now seen two (possibly three, we will know on Monday?) record negative consecutive days.  GOFO rates should never be negative yet they are more negative than any time since 2001 when the gold bull market began.  Negative lease rates mean that the real metal is scarce which a direct contradiction to dropping prices is.  I will say this, while the COMEX can create 7 days' worth of paper gold and sell it while everyone is sleeping to "make" price, they cannot create real gold out of thin air to satisfy real leasing needs.  What I am saying is this, rates in the "real" market show gold as very scarce, NOT plentiful as price would suggest.

Another anomaly occurred this past Thursday and Friday.  Scotia was served 920 Nov. COMEX gold contracts on Thursday and another 462 Friday.  This is VERY strange and can only be explained as "someone either needs or wants gold...NOW!"  I say "now" because the November month is historically a very small delivery month, there are only a few days left and there were only 33 contracts open prior to these 920, and 462 being served.  This represents 92,000 ounces of gold, almost three tons and 46,200 ounces or nearly 1 1/2 tons.  In a contract that is going off the board in short order, for what possible reason would this ever be done?  Who is the ultimate buyer and why now?  We can't know "who?" we can only speculate on "why now?" but we do know one thing for an absolute.  Someone is desperate for gold and has to have it immediately!  I have never seen anything like this in the COMEX metals in the last 15 years happen even once ...but back to back day's smacks of something really different!  Stay tuned as I plan to write more about this anomaly and the GOFO backwardation in my next piece.

Other pieces to the puzzle include very high open interest for Dec. silver, still contracted for more than 7 ounces for each ounce represented in registered inventory.  Interestingly, the bullish consensus on the dollar has never ever been higher than it is right now, everyone has moved to one side of the boat.  Russia announced a doubling of their purchases over the last three months to 55 gold tons while China is averaging nearly this amount weekly ...and India looks to again be ramping up purchases.  We also have seen a rampage in Europe, particularly Germany where silver demand has recently been voracious.  So much so that many mints have gone "back order" including the U.S. mint suspending the sales of Silver Eagles.  Anecdotally, I would also like to mention the premiums on U.S. Gold Liberty coins has risen dramatically over the last two weeks, so much so that they now actually cost more than when gold itself was $30-$40 higher.  I understand, "they don't make these anymore" but dealers are being forced to raise what they will pay owners to entice product.  NONE of this is the action of a market where the thought process is "get me out now!"

As a backdrop, we still need to hear from the G-20 and what was decided there along with the Swiss vote at the end of the month and also the "nuisance" factor of ISIS announcing they will create their own currencies ...made of gold and silver.  We already know the APEC/G-20 meetings have respectively shown little U.S. respect as President Obama was pictured far from the center and (I mean no disrespect) between two women...followed by Mr. Putin being isolated by his lonesome for the G-20 photo.   I bring this up because China/Russia obviously knows the game of proper diplomacy, I can see no way a U.S. president would ever be treated like this unless something was afoot and close to being made public (I wrote about this in my "G-20 Massacre" article last week).  As for the treatment of Mr. Putin who now says he will leave the summit early, do the G-7 members really believe there is an upside to poking "the bear"?

As for the Swiss vote, this may be quite interesting as the banking powers that be seem to be putting a public full court press for a "no" vote.  If this was "no big deal," there would not be as much or as many efforts to "scare" the voters away from gold.  For that matter, the recent price action may be directly connected to this vote and is being used to scare the "yes" vote?  I mentioned the announcement of gold and silver currency by ISIS because this will also increase demand.  Please do not think the "timing" of their announcement was by any coincidence or by chance, they can see everything we do and understand precious metals are the Achilles Heel of the Western fiat systems.

One last area I'd like to address is sentiment from personal experience.  In all my years as a broker and since then writing, I have never seen the fear that has been recently prevalent.  I have never received so many e-mails and phone calls from fear the stricken as I have of late.  These past two weeks have topped the charts.  Even the die hard's are questioning their logic.  Never mind that demand far exceeds supply or that gold and silver cannot be produced for long at these prices, the fear has run rampant and blood is running through the streets (minds) of precious metals investors.

Please understand what is happening and why.  President Obama met with the leaders of finance last year and then suddenly gold and silver started to drop.  This in my mind was a last ditch effort to show the world "dollar is good, gold is bad".  It has worked ... so far, the only problem being "gold cannot be printed" and the West will at some point run out of metal to supply the buyers.  I did not take lightly "calling bottom" in June 2013 and I don't do so now.  That level held for 16 months until the most recent operation but it is what it is.  The action of the last two Friday's tells me that something has definitely changed and physical buyers are digging in their heels.  In my opinion, we will not trade at the current levels for long.  I will be surprised if the action from here is not "V" shaped and another impulse wave kicks it off.  Whether or not we have a market closure, holiday and "re set" I don't know but I do believe it is a likely scenario.  Any number of events could possibly be pointed to as ("but if such and such didn't happen we would have been fine") a reason.  There must be a "reason" for public consumption when in fact the "real reason" is simply an unworkable monetary experiment.

A Call to the Swiss

November 14, 2014

I'm writing Thursday night, with both Diana and Sylvie are deeply asleep. Last night was Sylvie's first in a real bed; so naturally, she roamed the house, woke us up and exhausted herself watching Mickey Mouse. Moreover, the sudden shift in temperature - from 70 degrees Sunday evening to ZERO Wednesday morning - has put Diana under the weather. Thus, I have all night to write of very important topics.

To start, I simply cannot underestimate the message of last month's "2008 is back, with one temporary exception." At this point, it's difficult to consider anyone truly believing financial markets aren't just manipulation machines for the handful of "elites" clinging to power, milking "the 99%" whilst doing so. I mean, look around your own environment and tell me if you believe things are "recovering" or regressing. Personally, this is the first time in memory I am consciously reducing my spending; not because I'm broke but out of the fear of what's coming. Fortunately, my mother taught me to be conservative; and thus, aside from the "financial defense" I employ in my investments - i.e., my home, and physical gold and silver - I am doing everything in my power to prepare for the worst. After all, I now have Sylvie's future to consider. The below headline, atop Yahoo! Finance no less, depicts exactly what I speak of - of not only the fraud that is U.S. economic data, but the desperation the vast majority are feeling.

Sadly, what is occurring in the home of the "reserve currency" is exponentially worse elsewhere, as the only markets collapsing more rapidly than oil prices are currencies. Which, contrary to relentless U.S. propaganda is NOT yielding "deflation." To that end, consider yesterday's comments from Tillman Fertitta, America's richest restaurateur.

Ben Bernanke was at Rich Handler's house and he says "there' no inflation." Well go buy something, whether at the grocery store, the drug store, the broom and mop store, and there is inflation everywhere. I have so many types of businesses so I buy everything from labor, to mops, to food, to shrimp, to stake and everything is more expensive. We are raising prices: that's why right now you pay more for an airline ticket, you pay more for a hotel room, you pay more for a pot of coffee. There is huge inflation going on right now.

-Zero Hedge, November 13, 2014

Regarding oil prices, we could not scream loud enough of the upcoming, catastrophic ramifications of the current, eerily 2008-like collapse - per last month's "crashing oil prices portend unspeakable horrors," when WTI crude was $84/bbl. Well, have a gander at what prices did today, amidst the so-called "recovery" TPTB are propagandizing. And no, it's not just oil prices collapsing, but all industrial commodities.

As I have written ad nauseum, based on a decade of experience as a Wall Street energy analyst, today's "shale miracle" has all the hallmarks of an historic investment bubble - particularly as its unsustainable foundation was funded principally by the Fed's artificially cheap money. Consequently and unbenownst to me until today, shale oil producers represent America's largest category of junk bond credits. And thus, as $70-$80 oil puts the vast majority of producers underwater, the risk of catastrophic financial collapse is "clear and present danger." To that end, this terrifying article states that at $60 oil, a daisy chain of defaults will threaten the entire high yield industry's solvency. Not to mention, the solvency of countless oil producing nations - such as Venezuela, whose bond market collapse suggests the first dominoes are about to fall.

Speaking of collapse, keep your eyes on the ball, as what we wrote in the "single most PM bullish factor imaginable" - i.e., proliferating global currency collapses - are rapidly expanding. The "dollar strength" we've warned of is taking on a life of its own as the entire world flees to the liquidity of the "reserve currency," as flawed as it is. Looking at the Japanese Yen trading above 116/dollar, we have never been more confident it will approach 200/dollar - yielding massive Japanese inflation - before it inevitably collapses. And the same goes for nearly dozens of freefallingcurrencies; which is why this article warning that the "rising dollar" threatens to destabilize the entire global financial system could not be more prescient.

And the irony of it all is that the U.S. economy, contrary to relentless propaganda, NOT "stronger" than the rest. Even its expertly "cooked" economic data is rapidly heading toward the 2008 realm of ugliness, and what corporate America has been telling us is equally terrifying. And this is before the dramatically negative impact of the dollar surge has been fully felt.

Our earnings per share guidance assumes several important factors, including the (weak) economic conditions in several of our largest markets, and a highly promotional holiday season.

-Charles Holley, Wal-Mart CFO

I could devote pages to today's "trading" farce as the PPT executed a blatantly obvious DLITR or "don't let it turn red" algorithm on the "Dow Jones Propaganda Average," whilst capping and attacking PMs each time they threatened to rise - particularly at the age-old "cap of last resort" at 12:00 PM EST, and the "crybaby attack" time of 2:00 PM EST. However, I don't so I'll delete the rest of my charts and articles - other than this one depicting the S&P 500 as the world's most expensive equity market - to focus on today's extremely important primary topic.

Which, of course, is our "call to the Swiss" to save themselves from the tyranny of their evil Central bank - which in just 15 years, sold the nation's soul for the sole purpose of power. Most of the Swiss gold was sold at the lows a decade ago, whilst the nation's reputation as a financial powerhouse was destroyed by devaluing the Franc, pegging it to the dying Euro, and allowing U.S. politicians to infiltrate its proud tradition of privacy. Since that faithful day three years ago, the Euro has plunged 16% against the dollar, the SNB's balance sheet has nearly tripled, and Switzerland's GDP growth has averaged a measly 0.4% per quarter. In other words, Switzerland has NOT "gained market share" from the weak Franc and NOT experienced deflation. Sure, their rigged CPI hasn't changed much, but the fact that a referendum to raise the minimum wage increase to an astonishing $25/hour should tell you all you need to know about the Swiss cost of living.

As far as we're concerned, the SNB is the "evil Empire" - led by its de facto Darth Vader, President Thomas Jordan; who every day is giving speeches about the "horror" Switzerland will face with a gold-backed currency and neutered Central bank. Unlike the Star Wars analogy, however, the Swiss have an opportunity to destroy the empire with the pen rather than the sword. Or, more accurately, the voting booth. With just two weeks before November 30^th, polls are decidedly mixed with "no" propaganda not only dominating the media, but the "yes" movement constrained by legal gimmickry such as freezing a Pay Pal account where international donations were arriving.

Fortunately, no matter of propaganda will likely influence the Swiss - who aside from being the world's most financially savvy population, are well attuned to the nuances of the direct democracy process. Sure, the Cartel is doing everything in its power to "influence" them by smashing PM prices. However, they clearly can't control the Euro's plunge to the abyss; and quite obviously, the Franc's surge toward the 1.2 peg rate indicates increased investor "betting" on a yes vote.

Essentially, the Swiss have a unique opportunity to not only "fight its Fed," but decisively beat it. And if they do in fact vote yes, they just may acquire a meaningful amount of gold before it permanently "sells out." And this, as dying Western "leaders" like the U.S. and UK sit on the sidelines, and Germany begs the Fed to return its long ago sold, leased or swapped metal.

And thus, for the sake of all freedom-loving people the world round, we issue this "call to the Swiss" to not only save themselves, but catalyze an empowerment of the worlds' masses; that like the Catalonians, they too have the ability to institute change - and in this case, protect themselves from the inevitable Central bank created global currency collapse.

PROTECT YOURSELF, and do it NOW!

Call Miles Franklin at 800-822-8080, and talk to one of our brokers.  Through industry-leading customer service and competitive pricing, we aim to EARN your business.

David Stockman On Monetary Breakdown & Skyrocketing Gold - kingworldnews.com

November 15, 2014

Today David Stockman warned King World News that the global monetary breakdown is going to intensify and this will lead to a skyrocketing gold price.  KWN takes Stockman's warnings very seriously because he is the man former President Reagan called on in 1981, during that crisis, to become Director of the Office of Management and Budget and help save the United States from collapse.  Below is what Stockman, author of the website contracorner, had to say in his powerful interview.

Eric King:  "David, you're thoughts on the gold market as there is all of this massive money printing all over the world.  It really is unprecedented."

Stockman:  "Yes.  It's leading to a breakdown of the monetary system, not to the classic hyperinflation, which causes a flight to gold in the initial instance....

Continue reading on King World News.

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WNW 166-Obama Care Fraud, Middle East Mess, Russia Patrols US Gulf - usawatchdog.com

By Greg Hunter On November 14, 2014

 

 

By Greg Hunter's USAWatchdog.com

 

It's official. Obama Care is a series of enormous lies that were crafted by Democratic leaders. They all knew Obama Care was a lie, and they voted for the lies. Now, there are new revelations from one of its chief architects, MIT economics professor Jonathan Gruber, who was caught on videotape repeatedly explaining how the lies were formulated and why. Gruber basically said it would not have passed if Democrats told the truth about the bill, and he also calls the American voter "stupid." This is the biggest policy fraud ever perpetrated on America. It is fraud because it involves trillions of dollars in taxes, co-pays, premiums and subsidies. It was fraud crafted by Democratic leaders, and it goes all the way up to the President because Gruber had a meeting with Obama in the White House. The Supreme Court is going to be hearing a challenge on subsidies for Obama Care, and I can't see how the clearly documented and confessed Obama Care lies are not going to help kill this law. Oh, and don't expect much coverage from the mainstream media because it is mostly ignoring this revelation. It is only the biggest policy lie ever, but I guess that is not a story if you are used to lying by omission. CBS did cover the story, but only after the New York Times finally reported the Obama Care lie.

 

The Middle East is a mess and it is getting messier. Remember the White House telling us there would be "no boots on the ground" in Iraq a few months back? Well, the President just sent 1,500 troops to back up the folks he already sent. I cannot see any clear strategy or plan for Iraq. Meanwhile, the Islamic State is making peace with some of its al Qaeda brothers and are teaming up against the Assad regime in Syria. Now, the question is: Will the U.S. continue to bomb them? The Islamic State also wants to start using gold and silver as currency. In other news in the Middle East, Iran has come out with a plan to "eliminate" Israel. That plan was tweeted out by Iran's Supreme Leader. I guess this was an answer to Prime Minister Netanyahu, who said a few weeks ago that Iran was the biggest threat to the world. This is not the kind of talk you hear just before peace breaks out.

 

The ongoing war in eastern Ukraine is heating up again with charges of military escalation flying on both sides. The U.N is openly worried about total war in Ukraine. This conflict is far from over, and it appears the ripple effect is spreading globally. Russia is stepping up its flights of strategic bombers to include patrols of the Arctic Circle and the Gulf of Mexico. Russia is also reportedly stockpiling gold in preparation for what it calls "economic war." In case you haven't noticed, there is an ongoing economic war between the West and Russia, and there is a big G-20 meeting next week in Australia. I don't think the U.S. dollar is going to fare well at this meeting.

 

Finally, some big banks were caught again rigging another market. This time, it is the currency market, or Forex. JP Morgan and Citi are the American banks involved, and once again, just fines for the fraud. This is more than a $5 trillion a day market. The fines against all the banks total little more than $4 billion, which is a rounding error in a market this huge. But wait, after years of rigging every market under the sun, LIBOR, stock, bond, housing, gold, silver and now the currency market, there may be some criminal prosecutions!!! Please, I'll believe it when I see it.

 

Join Greg Hunter as he analyzes these stories and more in the Weekly News Wrap-Up.

 

Video Link

 

Obama Care Lies, Middle East Wars, Banker Fraud Goes Unpunished

 

Gold/Silver Ratio 2015: Can Silver Rise When Gold Falls? - www.bullionvault.com

Friday, 11/14/2014 12:47

The Gold/Silver Ratio has hit 5-year highs. Analysts say that makes silver cheap.

SILVER looks cheap right now, and not only because it has dropped 70% in Dollar terms over the last three-and-half years, writes Adrian Ash at BullionVault.

That, says Yahoo Finance, is the view of smaller private investors, apparently "wedded to [the] idea that the Fed is going to destroy the Dollar" even as QE ends and rate-hikes are next.

But a growing number of professional analysts also say silver is cheap, and very cheap compared to gold. Cheap enough to make buying it over the heavier metal - or even "ratio trading" the precious pair, shorting gold and going long silver - an attractive play.

The core idea is that the long history of gold and silver as monetary metals still lingers, and their prices still track each other very closely today. So first up, UK consultancy Capital Economics. The drop in both precious metals is overdone, they think, but the Gold/Silver Ratio is really out of whack. Because as both metals have sunk in price, silver has fallen too fast, sending the relative value of gold to 5-year highs near 75 ounces of silver per 1 ounce of gold.

What Capital Economics calls the more "normal" ratio of 60 would, on flat gold prices, take silver back up to $20 per ounce by end-2015 as gold rallies to $1200 on their forecast. Because silver is primarily an industrial metal, it could then rise again to $23 in 2016 on "any economic recovery". But gold, being relatively useless to industry while loved by consumers and investors, is seen trading shy of $1400 two years from now.

Trouble is, that "normal" level of 60 is an average of only the last 20 years. Longer-term averages in the Gold/Silver Ratio are lower - much lower. So either silver is deeply undervalued against gold today, or the underlying trend in the Gold/Silver Ratio points higher because the world is choosing to price gold more highly over time.

Physically, the earth's crust contains perhaps 20 times as much silver as gold. Global mine output last year was at a ratio of 8-to-1. But at market prices, here's how the Gold/Silver Ratio has moved in the last 100 years.

Bullion Vault

Continue reading on BullionVault.com.

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"Paper Gold" and Its Effect on the Gold Price - www.caseyresearch.com

Casey Research

Many argue that the net long-term effect of such orders is neutral, because every position taken must be removed before expiration. But that's actually not true. The big players can hold hundreds of contracts into expiration and deliver the gold instead of unwinding the trade. Net, big banks can drive down the price by delivering relatively small amounts of gold.

A few large banks dominate the delivery process. I grouped the seven biggest players below to show that all the other sources are very small. Those seven banks have the opportunity to manage the gold price:

Casey Research

Casey Research

This chart shows that an amazing 98.5% of the gold delivered to the Comex in October came from just three banks: Barclays; Bank of Nova Scotia; and HSBC. They delivered this gold from their in-house trading accounts.

The concentration was even worse on the other side of the trade-the side taking delivery. Barclays took 98% of all deliveries for customers. It could be all one customer, but it's more likely that several customers used Barclays to clear their trades. Either way, notice that Barclays delivered 455 of those contracts from its house account to its own customers.

The opportunity for distorting the price of gold in an environment with so few players is obvious. Barclays knows 98% of the buyers and is supplying 35% of the gold. That's highly concentrated, to say the least. And the amounts of gold we're talking about are small-a bank could tip the supply by 10% by adding just 100 contracts. That amounts to only 10,000 ounces, which is worth a little over $11 million-a rounding error to any of these banks. These numbers are trivial.

Note that the big banks were delivering gold from their house accounts, meaning they were selling their own gold outright. In other words, they were not acting neutrally. These banks accounted for all but 19 of the contracts sold. That's a position of complete dominance. Actually, it's beyond dominance. These banks are the market.

My point is that this market is much too easily rigged , and that the warnings about manipulation are valid. At some point, too many customers will demand physical delivery and there will be a big crash. Long contracts will be liquidated with cash payouts because there won't be enough gold to deliver. I saw a few squeezes in my 20 years trading futures, including gold. In my opinion, the futures market is not safe.

The tougher question is: for how long will big banks' dominance continues to pressure gold down? Unfortunately, I don't know the answer. Vigilant regulators would help, but "futures market regulators" is almost an oxymoron. The actions of the CFTC and the Comex, not to mention how MF Global was handled, suggest that there has been little pressure on regulators to fix this obvious problem.

This quote from a recent Financial Times article does give some reason for optimism, however:

UBS is expected to strike a settlement over alleged trader misbehavior at its precious metals desks with at least one authority as part of a group deal over Forex with multiple regulators this week, two people close to the situation said. ... The head of UBS's gold desk in Zurich, Andr� Flotron, has been on leave since January for reasons unspecified by the lender....

The FCA fined Barclays �26m in May after an options trader was found to have manipulated the London gold fix.

Germany's financial regulator BaFin has launched a formal investigation into the gold market and is probing Deutsche Bank, one of the former members of a tarnished gold fix panel that will soon be replaced by an electronic fixing.

The latter two banks are involved with the Comex.

Eventually, the physical gold market could overwhelm the smaller but more closely watched US futures delivery market. Traders are already moving to other markets like Shanghai, which could accelerate that process. You might recall that I wrote about JP Morgan (NYSE:JPM) exiting the commodities business, which I thought might help bring some normalcy back to the gold futures markets. Unfortunately, other banks moved right in to pick up JPM's slack.

Banks can't suppress gold forever. They need physical gold bullion to continue the scheme, and there's just not as much gold around as there used to be. Some big sources, like the Fed's stash and the London Bullion Market, are not available. The GLD inventory is declining.

Casey Research

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Gold Capitulation? Not Likely - www.usagold.com

If you're waiting for capitulation in the gold market, don't hold your breath - An argument for why the bottom in gold will come with a whimper, not a bang and why the mainstream media might be looking for capitulation in the wrong place.

by Jonathan Kosares

ca�pit�u�la�tion noun \k?-?pi-ch?-'la-sh?n\

When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

Having just finished reading the umpteenth article on gold going to $700 an ounce on a wave of panic selling reminiscent of the 1987 stock market crash, with 'complete despair with even the most ardent of gold bugs', I found myself again shaking my head in disbelief. This is what you get, I suppose, when you have a CNBC stock shill analyst covering the gold market.

"More Pain Ahead for Gold Bugs", was another headline. The assault against gold has...wait for it...reached mania levels, with price predictions that border on outrageous finding their way into financial headlines daily. Does this sound familiar? It does to me. The last time this happened was when gold was charging past $1800 in a swirl of a US credit downgrade and full throttle QE. Calls for $2500, $3000, $5000 and more in the gold price littered the mainstream press. The consensus was that the gold bull market would top out in a blaze of parabolic glory. Everybody loves a good bandwagon (especially, I'm learning, the mainstream financial press - see current position on gold), and even the most ardent of gold bears were on board. But as it turned out, gold came off its highs at $1920, and traded within about a 15% band of that high for the next 16 months. Hardly a parabolic blaze of glory, and a top, that while obvious in retrospect, was rather subtle at the time.

Back to the present. The almost painfully redundant prediction I keep seeing regarding the gold price is that 'when gold bottoms, you'll know it, and its going to be painful.' In other words, complete and total capitulation. But is capitulation a realistic future for the gold market, or is the notion nothing more than the latest buzzword of a biased, shortsighted mainstream financial media?

My answer, as you'd likely expect, is the latter.

As the definition cited at the beginning of this article notes, capitulation is marked by complete abandonment of an asset class to the point of panic selling, causing massive downward volatility in the price. But that characterization fails entirely to factor in the mentality of the physical gold owner, and the mentality of countries like China and India, where the role of physical gold ownership is innately understood, not questioned.

The average gold owner isn't going to bother going to his safe deposit box to pull out his physical gold to sell because the price is dropping. To him, gold is insurance. Despite new stock market highs and steady stream of 'all's well' news, in his estimation, the world hasn't changed enough to warrant selling his monetary insurance. If anything, to the asset preservation minded investor, dropping prices seem like a good opportunity to supplement his or her holdings - in fact as the price dropped just recently, mints around the world reported an explosion in gold and silver bullion coin sales (see US mint figures here).

Health insurance - Wealth insurance

Here is a little story to put this into context:

A guy walks into his doctor's office for a physical exam. After all the tests come back, the doctor sits him down and tells him, "Congratulations, you're in excellent health. Keep a healthy diet and continue to exercise and you'll likely stay that way." The patient remarks, "That's great!" and proceeds to pull out his cell phone and immediately dial away. The doctor, trying not to appear irritated inquires, "Can't this wait?" The patient replies, "No, this is great. You just said I'm in perfect health, right? Well there's not a moment to lose. I'm canceling all of my health insurance immediately! This is going to save me a fortune!"

Nobody would do this. Why? Because you own insurance to protect against the things you cannot plan for - for the things that do not show up in the tests. Similarly, gold is wealth insurance. To say that the average believer in gold will one day capitulate because of a falling price is akin to saying the average person would cancel his or her health insurance after a successful well visit to the doctor.

The more I read, the more I realize that those reporting in the mainstream financial media have basically no understanding of the mentality of the gold owner (either as private individuals or as nation-states). They live in a fairytale world where P/E ratios and cash flow models are infallible value metrics, and anything that can't be valued through these methods must surely be worthless. They try to pigeonhole gold as a risk asset, and predict its performance accordingly. So in a way, I can't blame them for calling for a capitulation in gold. To them, it is logical. But I have a question for these opinion makers: Do you even know why stock owners 'capitulate'? Because when the bottom starts to fall out, their scared out of their minds that their pieces of paper are going to be 100% worthless!!! - A fear, mind you, that is rooted in historical reality.

By contrast, the average gold owner owns gold specifically because he knows that it will NEVER go to zero!

China shares the same sentiment toward gold, begging the question: Why in the world would a country that has been steadily acquiring metal over the past decade suddenly capitulate and drain their gold holdings because of a falling price? They wouldn't, unless of course Gordon Brown was their prime minister. If anything, they'd acquire more, and you can bet China is licking its chops at the prospect of any such 'capitulation'. Whether or not they can find any metal to buy if this happens is another story altogether.

Speaking to that point: Did you also know that if gold does go to $700, it will be approximately $500 below mining production costs, and almost $700 below all-in costs for the major producers? Did you also know that with the falling price and the already committed assets and manpower, mines are now mining their highest-grade ore just to stay profitable? Many mining analysts believe that we are right smack dab in the middle of peak production for gold mines, right now. It doesn't take a PhD in Economics to see that $700 an ounce is not the kind of price that can sustain a stable supply/demand paradigm.

Capitulation more likely with the paper gold market shorts than physical metal owners

Moreover, if there ever were to be a capitulation in the gold market, it would come in the paper market, where traders of the metal treat gold as a number on a screen rather than a wealth preservation asset. BUT THERE'S ONE HUGE PROBLEM WITH THIS! The traders (especially at the institutional level) are overwhelmingly SHORT! Not to mention that many would argue these short positions - and their inherently limitless supply - are actually one of the primary catalysts when gold declines in the first place. So simply put, how can there be capitulation amongst the speculators when the vast majority of the speculating volume is on the short side of the market to begin with?! If anything, when the downside proves resistant, your capitulation is going to come at the exhaustion of the shorts, not the longs.

Don't believe me: Check out these graphs/commentary on current futures positions in the market. Charts courtesy of the CME group.

USA Gold.com

Graph Commentary: The above graph shows the net long/short positions of the producer/merchant/processor market participants.

Producer/merchant/processor/user is an entity that predominantly engages in the production, processing, packing or handling of a physical commodity and uses the futures markets to manage or hedge risks associated with those activities. While this segment of the market is always for more short than it is long, it is worth noting the increase in the gap between the shorts and longs from the beginning of the year to present. Moreover, the aggregate number of longs is about half of what it was at the beginning of the year.

USA Gold.com

Graph Commentary: The above graph shows the net long/short positions of the Managed Money positions in the market. A "money manager," for the purpose of this report, is a registered commodity-trading advisor (CTA); a registered commodity pool operator (CPO); or an unregistered fund identified by CFTC. These traders are engaged in managing and conducting organized futures trading on behalf of clients. Put simply, this is the best representation of 'the public'.

 

While still slightly more long than short, it is worth noting that the short positions are over triple where they were at the beginning of the year, or even as recently as the beginning of August. Put another way, the managed money market is three times as short as it was 12 weeks ago! Also very telling is the rapid increase in shorts at the beginning of September, coinciding perfectly with the near top seen in gold in the mid $1320's and the decline we've experienced ever since.

 

USA Gold.com

Graph Commentary: The above graph represents the Swap Dealer net positions within the market. A "swap dealer" is an entity that deals primarily in swaps for a commodity and uses the futures markets to manage or hedge the risk associated with those swaps transactions. The swap dealer's counter parties may be speculative traders, like hedge funds, or traditional commercial clients that are managing risk arising from their dealings in the physical commodity. In other words, we're talking about the big boys.

Again, always short more than they are long, especially near the interim top in gold back in July, I was actually taken aback by the trend differences here when compared to the Managed Money market. Clearly, the gap between short and long at the swap dealer level has closed considerably from where it was over the summer. In fact, as of November 4^th, Swap Dealers are representing more long contracts and fewer short contracts than they have had at any point this year. November 4^th also happens to be the day that gold bottomed (for the time being) at $1140.00.

Makes you wonder, who has it right?

When adding the data from all three of the market segments together, the futures market is about 4.5 million ounces more short than it is long. To give that some context, that is akin to being short 140 tonnes of gold, or just over 5 billion dollars worth of the yellow stuff - paper yellow stuff that is. As recently as a month ago, the gap was closer to 200 tonnes and $7.5 billion dollars.

When we talk of capitulation, I reiterate a thought I posed earlier. It appears in these reports, especially when focusing on the Managed Money positions, that the herd money is on the short side, not the long. Look no further than the obvious spike in retail short positions in just the last three months. It seems to me that these shorts are actually the weakest positions in the market, and the ones most likely to 'capitulate' when the trade doesn't go their way. You might even say, that is what's happening right now. As I put the finishing touches on this article, gold has stormed back $30+ intraday, and is pushing back toward the $1200 level.

All told, I can't say if this is the bottom in gold or not, but I'm inclined to think that a massive panicked wave of selling is as outrageous at the $700/ounce predictions associated with it.

Here's my call:

Whether it's already behind us, or it comes next week, next month or next year, the gold market will bottom with a whimper, not a bang, and every one of these financial pundits will miss it. The one thing they always seem to overlook is that the herd can, and will, run in either direction, and when that occurs, these same pundits will find themselves ironically returning to square one with their predictions.

Jonathan Kosares, USAGOLD Executive Vice President of Sales & Marketing, graduated cum laude from the University of Notre Dame with a dual major in Finance and Computer Applications. He has been with the firm since 2002.. He is the moderator of the USAGOLD RoundTable series, has authored numerous articles on the gold market and manages client activity for the high net worth division as well as the USAGOLD Trading and Storage Program.

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