Precious Metals Slow Motion Lottery Ticket
The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Wednesday, April 7th, 2010.
Is there a precious metals mania on deck directly ahead or will another deflation scare, which could curb demand for gold and silver, bail out the bureaucracy yet again. Indeed the bureaucracy seems to have nine lives in this regard, with gold and silver still trading at half their respective inflation adjusted values running all the way back to 1980. Of course there is a different way of viewing this, where the bureaucracy's level of desperation to maintain the party atmosphere an unbridled fiat currency monetary system will sponsor can be measured by the London OTC Metals Exchange (LBMA) running paper promises to physical ratios at 100:1, which to a conservative mind is the definition of insanity. Because you see this means the entire economy is a 'house of cards', which is in fact the reality of the situation, a suicide mission courtesy of an emboldened bureaucracy riding high on gold's back all these years.
And even today, freshly after being exposed in widely followed news venues (although suppressed in the mainstream media), the bureaucracy's price managers are at it again at present, attempting to make precious metals look like crap against just about anything else that moves, not the least of which being their latest round of debt auctions scheduled for up until Thursday, where afterward gold and silver will be allowed to rise again, given at a slower rate than stocks preferably. What is happening here is the bureaucracy's price managers are attempting to defuse any plans Asian wise guys might have to run the bullion banks with physical delivery orders. They want to make it look like any such action at this time would be ill timed and risky, especially with prices threatening to take off again. (How many fingers, Winston?)
Precious metals prices threatening to take off is also why the Treasury has delayed officially announcing China as currency manipulators, this, at a time when China - US relations are becoming increasingly stressed, and the bureaucracy is vulnerable to losing control of trade in gold and silver due a botched CFTC meeting last month that may have finally opened Pandora's Box. The upshot of all this is it has brought the bureaucracy's fraud in the precious metals markets front and center, which is of course the biggest fraud in history. So all we need is for the US to come an officially declare China a currency manipulator, and this will green-light wealthy Chinese speculators acting with the approval of their government to come into the physical gold and silver markets to incite squeeze, which of course would expose the Western banking cartel for being the currency manipulators they are - on a far greater scale. (i.e. in keeping gold and silver down all these years in support of king dollar, artificially low interest rates, etc.)
The bureaucracy is not stupid however - far from it - which is why they had the CFTC meeting on position limits in the metals markets now, with equity markets already stretched, in the hope any follow-through buying would be minimized. The key is in the dollar ($), where at present it's tracing out what appears to be an a - b - c correction, poising to make another 5-wave advance. This observation increases the likelihood that not only will the April option expiry prove pivotal (from equities up to down), but also, it brings the potential Princeton Economics (Martin Armstrong) Pi turn date falling on this week (or thereabouts) into a bright light considering this is suppose to be a stock market high based on this model. (i.e. meaning this turn would prove both lasting and profound in terms of percentage losses.) This is what they are hoping, that a correction in equities into summer would minimize any buying. (i.e. seasonal weakness in stocks would keep things contained.)
In this regard, and as a further example of how precious metals are managed, silver had a missed up day yesterday, meaning it should have advanced with stocks and commodities, but instead was flat. What's more, this was aggravatingly surprising given gold was up as well, after reversing an overnight attack from JP Morgan and Goldman traders located in London that is designed to bring the trade in weak for the start of US trade. This attack was rebuffed however, because like James Turk thinks, silver looks good to increasing numbers of people in knowing physical constraints in the market are bound to matter at some point. What's more, when it does matter, and although it might still take time to get into such a position with the banking cartel allowed to continue doing whatever they please, the gains will likely come very fast, with silver heading up to 1980 nominal price highs like a race horse once it's out of the gate. (i.e. closes above $21.) And then it will be off to 1980 inflation adjusted highs, north of $100. So hang in there you bulls, as your day is coming, with both gold and silver effectively being slow motion lottery tickets that appear poised to pay off in the not too distant future.
I say 'not too distant future' in not knowing whether next week's options expiry will produce a lasting reversal in stocks, which would have an impact on precious metals prices due to the $ likely gaining traction again if this were to occur. As it stands right now, sentiment is still very bearish towards stocks, evidenced in the high and still rising open interest put / call ratio for the SPX options series on the S&P 500, seen below. (See Figure 1)
And predictably, speculators cannot help themselves from buying more puts on what they view as ridiculous prices in tech (see NDX ratio below), which because of this might get even more ridiculous if the NASDAQ / Dow Ratio breakout into bubble territory we have been discussing for some time (See Figure 2) were to occur once again. While this is not suppose to occur from a psychological or historical precedent perspective, any further strength in tech against the blue chips would trigger the unthinkable - another trip on the light fantastic for big cap technology issues that would power the broads higher in manic fashion. Impossible? It's exactly that sentiment that can enable such an outcome in our faulty and fraudulent markets, this and all the liquidity coming out of bonds (latent inflation) few are factoring into the equation (growth rates in the M's are crashing so observers think such an outcome impossible) to fuel a short squeeze. (See Figure 2)
Further to this, and another factor most speculators are not factoring into the formula is the fact the permabulls that normally populate the gold market have faded recently evidenced in a rising open interest put / call ratio on the gold trust GLD, which is bullish from a sentiment perspective. This has undoubtedly helped gold of late, especially with all the bullish news surrounding the recent CFTC meeting. (See Figure 3)
Unfortunately however, as per usual, and the bain of all precious metals investors because the bureaucracy's price managers use these idiots month in and month out to keep a lid on prices, put / call ratios for precious metals shares are falling again, and in jeopardy of scuttling the rally moving forward. Now according to Ted Butler the paper precious metal markets have never looked better, that being the cartel is not shorting, the whole thing being ridiculous of course. Be that as it may, it's still possible gold (precious metals) still have room to run, however if it cannot close above $1145 this week, and then $1161 by early next week, with options expiry next Friday, the risk of a correction the following week would be heightened if equities begin to tumble, and the $ rally. (See Figure 4)
There is one caveat in this regard, the put / call ratio for the Gold Miners Index (GDX) ETF has not crossed over like that of the Philadelphia Gold and Silver Index (XAU) yet, and could still hold up. I don't place a high likelihood on this in knowing the investing population well, so increasingly, it's looking like the broads had better hold in and / or the run on physical supplies had better get going, or precious metals prices could suffer temporarily. (See Figure 5)
Special Note: Figure Source: Schaeffer Research
I say 'temporarily' because even if stocks (and everything else) turn lower post options expiry the week after next, such weakness should not be more than a garden variety correction, ranging somewhere between 10 and 20 percent. What's more, with the TNX now 4%, it's natural to expect some volatility in knowing fragility of the real economy. So it vital gold starts to move higher impulsively once again after the 30-Year auction is concluded tomorrow at 1:00 pm EST. If it does not, the breakout it's attempting at $1135 will fail, and prices will fall back.
Past this volatility however, seasonally gold does very well in May. So until proven otherwise, one should expect more gains next month once this volatility is over, Princeton Economics Pi turn time or not. In this regard it's important to remember this is an economic confidence timing measure, where it could just as easily apply to the bond market breaking down. What's more, the precious metals bull needs the bond market to break in order to refocus participants strategically, where we expect increasing capital flows from debt to gravitate towards gold and silver as they light up in price. Positive market action begets more positive action, especially in the case of gold in an increasingly uncertain world.
And it's this increasingly uncertain world that should keep the rubes shorting stocks, which at a minimum could keep stocks going sideways for some time, drawing the fast money to precious metals increasingly. Most people are not expecting stocks to move sideways, so the net result of all the speculation in coming months should be a sideways move in the broads. This will give precious metals a chance to do their thing, as not only would such an outcome facilitate general liquidity needs required to send prices higher, if the broads go sideways aggressive traders will be drawn to precious metals, kicking in the afterburners of the move as it potentially goes parabolic.
This is enough speculation on my part for one week. I will be back next Tuesday after having a chance to catch up on my sleep, taxes, etc.
See you then.