Thoughts on Markets

Saturday, August 09, 2008

Drop in Precious Metals is Solely Due to Intervention

Today, I will give you two news items. These are important and quite accurate in my opinion. I have highlighted some important points in color.

From Bloomberg:


"Gold, Oil Ratio `Out of Whack' After Declines: Chart of the Day

By Claudia Carpenter

Aug. 8 (Bloomberg) -- Gold may outperform crude oil in the next six months as buyers in India, the world's biggest consumer of gold, stock up on the metal, according to Patrick Chidley, an analyst at Barnard Jacobs Mellet USA LLC.

Gold jewelry demand in India and Turkey was ``extremely strong'' in the past week, with sales to India the highest since this time last year as buyers took advantage of lower prices and rebuilt inventories, according to UBS AG. Gold has dropped 16 percent from a record in March as lower oil prices eroded demand for the metal as an inflation hedge and jewelry demand waned.

The CHART OF THE DAY highlights the ``black gold ratio,'' showing how much gold it would take to buy a barrel of oil. The ratio rose to 0.1538 of an ounce on June 12, the highest since at least 1950, and averaged 0.066 since 1970. Based on historical averages, if oil falls to $100, gold would go to $1,515 an ounce.

Gold traded at $862.65 an ounce as of 10:46 a.m. in London, while crude oil was at $118.05 a barrel in New York.

``This ratio is way out of whack,'' Chidley said from Stamford, Connecticut. ``As we've seen the oil price come off, that relationship could come back into focus and I see the relationship below 0.1 in the next six months with gold coming up. Indian jewelers have to come back to the market.''

The October-December period is the busiest season in India for jewelry sales, spurred by the wedding season and Diwali, the Festival of Light.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net"

Last Updated: August 8, 2008 06:08 EDT

From Casey's Daily Resource Plus:

"And then there's this... From Ed Steer:

In my commentary yesterday, I mentioned that I was less than thrilled with the sell-off in the early Friday morning markets in the Far East, as this sort of price action to the downside was virtually unheard of during those trading hours. As it turns out, it wasn't a good omen.

The selling started in earnest at 3:00 a.m. NY time on the Globex after Sydney closed and Hong Kong was the only market open. The bottom came at just over $850 in New York trading...which is a retest of the May/08 low. Will it hold? We'll find out next week.

Silver suffered a worse fate. The price broke through all support on Friday, as stops were tripped and margin calls went out and long positions liquidated. If you're a technician, the next level of support is around $13.75...however, technical analysis means squat in a managed market like silver and gold. Will the current price hold? Once again, we'll find out next week.

On Thursday, gold o.i fell a stunning 26,573 contracts as the liquidation continued. And silver, for the fourth day in a row, showed a rise in open interest of 1,592 contracts.

There are no shades of grey here. What's happening is that the '8 or less' traders...the bullion banks...are covering shorts, while the tech funds are pitching their longs...but they (the tech funds) are not going short. There were no signs of that whatsoever in the latest COT report...even though the o.i. in silver has risen the first four days of this past week. Something does not compute!

In gold, for positions held at the end of trading on August 5th, the tech funds in the Non-Commercial category decreased their long position by 19,757 and also covered 1,166 shorts, for a net decrease in long position of 18,591 contracts. On the other side of the ledger, the cartel closed out 12,008 long positions and a whopping 32,762 short positions for a net decrease of 20,756 contracts in their short position.

In silver, the tech funds sold 3,416 longs and 772 short positions for a net decrease in long position of 2,644 contracts...and the boyz went long an additional 2,006 contracts plus covered 2,390 short positions for a net decrease of 4,396 contracts in their short position. The latest COT report is linked here.

Ted Butler said that he was disappointed in this report. He was expecting much better. So was I, but as I've mentioned previously, it wouldn't surprise me in the slightest if the boyz didn't report everything that they should have...and I don't think they did. Silver is a case in point, as the COT shows nothing of the rapidly rising o.i. we've had this week against a back drop of precipitously falling prices.

Without question, there has been massive short covering by the Cartel since the Tuesday cut-off which won't be shown until the next COT report on August 15th. Along with the information that they withheld from this week's report, next Friday's offering should be quite something.

Ted Butler said that the only way that a sell-off like this can occur is if there is collusion amongst the largest traders in the Commercial category. He also said that you should never underestimate these crooks (especially when a bunch of crooks is this smart) when they're in the same room as you...and you should keep your hand on your wallet at all times. Everyone who has watched the precious metals markets for the last number of years, should have caught on to their tactics by now, but obviously some people have a learning disability. There is absolutely nothing free market about what we're witnessing right now...and there's absolutely nothing you can do about it, as the regulators and the mining companies just stand there with their hands in the their pockets while us shareholders get killed.

As I mentioned in my closing remarks yesterday...when the dollar 'rally' ends, then the next leg of the precious metals bull market will commence. I wasn't the only person that was deeply suspicious about this sudden resurgence in the fortunes of the US dollar. James Turk over at goldmoney.com was too. He discovered the reason why the dollar has a new lease on life. It's called 'intervention'. Needless to say, the precious metals were in a major rally at that time...and, of course, had their peak prices on exactly the same day the dollar bottomed...July 15th. The story is entitled "Mystery Solved" and the link is http://goldmoney.com/en/commentary.php#current."

By the way, if you like Marty Robbins as much as I do, go to this link and turn your volume up to hear some of his greatest hits. http://uk.youtube.com/watch?v=_zhHpsMezkA&feature=related

This is the last day of the week. Remember to prepare yourself by rest and prayer for the Lord's Day. "Do not neglect the gathering together of the saints as is the practice of some." We, as protestants tend to feel that a personal relationship with the Lord is all important. I do not say that it is not important, but we tend to neglect the importance of the church and corporate worship. There is a mystery about the grace that is dispensed through the church in corporate worship and through the sacraments. This grace is essential to the Christian life. I urge you never to neglect corporate worship and suggest that you make it an essential part of your Christian walk.

Best to each, Doug

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