October 31st, 2014
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Bullion Shakedown Stampedes the Ignorant

by Rick Ackerman on March 1, 2012 12:01 am GMT · 34 comments

Although yesterday’s Congressional testimony by “Helicopter Ben” Bernanke was fundamentally meaningless, it caused gold and silver prices to take a spectacular dive. They got hit after the ‘Nank, prevaricating as usual, said the central bank wasn’t rushing to crank up a QE3 stimulus.  While this may be true as far as it goes, it belies the fact that the money spigots have been wide open for years and will remain so, probably, until the financial system collapses. More on that below.  Concerning the savaging that precious metals received, they are all but certain to recover, since the forces that have been driving them steeply higher for more than a decade are still very much in place.

Even so, it could take at least a few weeks for gold to build a new base for a shot at $2000, and silver for a push into the mid-$40s. In the throes of yesterday’s brutal, deftly engineered shakeout, Comex gold dropped $104, or nearly six percent, in just a few hours. The April contract hit an intraday low of $1688 after trading as high as $1793 the day before. As for Silver futures, they suffered their worst single-day loss since September, falling $3.76, or 10 percent, from intraday high to low. Mining stocks fell in sympathy, lopping three percent from the value of the Gold Bugs Index (HUI) and five percent from GDX, an index that tracks the shares of junior miners.

Although Silver futures fell harder than gold in percentages terms, the technical damage was worse in the latter. Notice in the chart above that April Gold’s plunge exceeded two prior lows on the daily chart. This created a bearish “impulse leg” of daily-chart degree, according to our proprietary Hidden Pivot Method of analysis, and it is the worst such damage we’ve seen since December. Silver, on the other hand, did not exceed even a single prior low on its daily charts, although the move was decisively impulsive on hourly charts. It remains to be seen whether silver’s relative resilience will pull gold back up, or instead, silver gets dragged lower by gold. [Click here for a free trial subscription if you want to sample our round-the-clock analysis, updates and detailed trading recommendations.]

Dump Your Gold, Please!

So what else did Helicopter Ben say?  Most crucially, as far as the financial sociopaths on Wall Street were concerned, he “stopped short of signaling further bond purchases,” reported Reuters. In Wall Street-speak, this means there will be no “QE3,” at least not in the foreseeable future.  Of course, it will not have dawned on his Capitol Hill inquisitors, nor on the morons who bring us the news, that the Fed is already running the loosest monetary policy in the sordid history of central banking.  How else could T-bill yields be running close to zero, even as long-term rates fall toward 2%? Do the aforementioned sociopaths and morons even understand that virtually unlimited quantities of money are being made available by the Fed to the European Central Bank at almost no cost?  Evidently not.  In any event, gold and silver dove yesterday as though the West, China and Japan had embraced Greek-style austerity. Yeah, sure. If you are so foolish as to believe the Fed is moving away from stimulus, there are plenty of investors eager to buy your gold and silver at distress prices.

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{ 34 comments }

Seawolf March 1, 2012 at 12:08 am

Move along, nothing to see here. Just another end of month , in your face take down.

Why no mention March 1, 2012 at 3:44 pm

That’s what I was thinking.
So Rick, this is nothing to do with options expiry day?

RidetheWave March 1, 2012 at 1:00 am

Rick,

Your punch-line is perfect:

“Yeah, sure. If you are so foolish as to believe the Fed is moving away from stimulus, there are plenty of investors eager to by your gold and silver at distress prices.”

That’s why the richest investors in gold, silver, and mining stocks need to live by my phrase evolved from Sinclair’s perfect logic on this sector. My saying is you “Buy the hurl, and sell the curl”.

As you rightly suggest today’s action suggested a lot of weak-wussy/Johnny Come Lately longs who continue to buy gold, silver, and miners the wrong way (e.g. buying the breakouts) just got punked again for that brilliance (sarcasm).

For me, I am glad they donated to my get wealthier fund today at such “great discount prices”. We all, who consider ourselves strong PM longs should give them thanks, if we bought as I did.

Regards,

RTW

SD1 March 1, 2012 at 1:29 am

There are two sides to this … more actually. Everyone continually talks about China and how they are buying PM’s, but China seems to disappear with far too much regularity on these stupid shakedowns.

I wonder why that is.

If the US and Helicopter Ben are manipulating gold prices, it would seem they are doing so with China’s blessing.

“Engineered shakeout?”

Of course it was.

And China had every bit as much to do with it as the US.

Stop blaming the US for everything bad with gold.

Gold has gone global.

How sad that we place our hopes in a Chinese regime that would still be stuck in the dark ages were it not for the help of American corporations, who invested billions (if not trillions) into that country and their economy.

Seawolf March 1, 2012 at 1:56 am

The Chinese and the Indians are very price sensitive and so they do not have to be in on the takedowns. They just wait for them to occur. These takedowns are almost on a schedule; end of month, just ahead of Fed meetings, unemployment report day, middle of month if no fed meeting that month. Do you think that breaking through important resistance levels in both god and silver and then a serious takedown at the end of the month was just coincidence? This was telegraphed three days ago.

RidetheWave March 1, 2012 at 2:08 am

SD1 – the Chinese are great traders. They will talk a market down to load the boat with the best of them. Or they will not show their strong hands until they are good and ready. They are great trend followers of the big trend but they don’t buy high and sell higher. They too, “buy the hurl” but I really don’t think they will be “selling the curl” to anyone.

SD1 March 1, 2012 at 2:34 am

Agree with both comments, seawolf and Ride. Nevertheless, I am sure the Chinese knew well ahead of time Ben’s topic of the day. Aside from gold having gone global, so too, have politics. It disappoints me that it is always the US that gets the blame for these shakedowns. As much as the US may owe China, China also OWES the US and owes BIG TIME! The shakedown today was indeed engineered, and it was brought to us today from several governments, not just one. All I read anymore is how China is now in control of gold and how this is all good for gold bugs. If that’s the case, it certainly didn’t stop today’s blatant manipulation. Just because the US no longer controls gold doesn’t mean someone else doesn’t. And if it’s China, you can rest assured they don’t give a rat’s ass about anyone but themselves and will do whatever they deem fit.

mario cavolo March 1, 2012 at 8:03 am

When referring to China here, we should differentiate between the institutional/banking/govt level influencing gold vs. the consumers. It must be the case as SD1 suggests that the rich, top end govt folks are greedy, self-serving bastards no matter what country we’re referring to.

On the severe decline, again do we remember that so much of this trading is by HFT machines and that in today’s world the idea of simple “profit taking” reaches new heights of volatility simply because the trading networks are now running on a much more connected global level, triggering lots of stops, etc. not necessarily anything so nefarious? ….

I am aware of several advisor calling for this latest rally in gold to be a last leg up bear rally before it and silver start heading back down….so lots of folks have been watching for the failure and then…whammo…

Meanwhile, what I notice on the chart is that the last two times gold had a sharp leg down breaching two previous lows, both times it continued down below 1600…we’ll see…M

Rich March 1, 2012 at 1:57 am

Rick, I do not know of any better ST market timer or market journalist and you can quote me on that.

Big4 of course are short precious here, but still long Treasuries…

Rich March 1, 2012 at 2:55 am

Silver Point and Figure Target flipped up to $58 new high. although it may go lower first:

http://stockcharts.com/freecharts/gallery.html?%24silver

Seawolf March 1, 2012 at 3:12 am

Silver would have to drop to 26 to take out the 58 price objective. A drop to 30 and a reversal there would give a very bullish pattern. We shall see what happens.

Grass Ranger March 1, 2012 at 5:12 am

“Do the aforementioned sociopaths and morons even understand that virtually unlimited quantities of money are being made available by the Fed to the European Central Bank at almost no cost? Evidently not.”
Indeed!! Even while the media attention was focused on Bernanke’s BS session with Congress, the European Central Bank was loaning 700 billion dollars to 800 banks in Euro zone.
No QE? Baloney.

Cam Fitzgerald March 1, 2012 at 2:02 pm

Yes, Grass Ranger good point. As I have noted before, a devaluation of the Euro generally moves contrary to the dollar. A large Euro devaluation can therefore trigger a large positive move in USD. And what would that do to the price of Gold……?

You could bet on it. Gold was going down for the count.

John Jay March 1, 2012 at 5:19 am

If they can’t take em up, they’ll take em down!
Where ever the most profit points, that is where it they will send it.
I am sure the algos can read the tape better than those of us with shallow pockets.
And if they get it real wrong, they can always clean out the customer accounts and be made whole again!
That’s some business!
Anyway, by my charts, silver and crude bounced off the lower band of a Hi/Lo moving average on daily charts for them. Gold missed doing the same on a weekly chart by $20. Oh well, after all, tomorrow is another day!

fallingman March 1, 2012 at 6:21 pm

Man, you cut to the chase JJ. That’s some business indeed.

Bradley March 1, 2012 at 8:41 am

For my part, I was thinking that we might see weaker gold prices for the last couple of weeks of Feb, with the GLD working back to the mid to high 150’s, and complete a head and shoulders pattern, (which started last Sept.), and then work higher.

It sure scares the heck out of me to see it happening so quickly however. I guess that is the point…

Chris T. March 1, 2012 at 1:05 pm

far from it, rather:

Indians finally decided its was ridiculous putting ones wealth into baubles around one’s neck and that investing it in rupees into a thriving economy is the way to go

or

physicists finally discovered that you can turn lead into gold (non-radioactive Au that is)

or

Bernanke is honest and wise, if he says it, well then…
———
But the best part of Ben’s musings is the typical: we need austerity but not too much lest we endanger this fragile recovery BS.
Just what the morons in Congress and the W.H. need to shave about 100B off the next years’ spending increases and yell mission accomplished, paradise is around the corner

Makes the comment from some days back (forget by whom) that things must go to hell before anything of substance will change ever more the only outcome.

DanX March 1, 2012 at 1:24 pm

No such thing as manipulation in the PM markets? Hummm.

Cam Fitzgerald March 1, 2012 at 1:55 pm

Well I am not optimistic that Gold is going anywhere special anytime soon. The way I read the tea leaves is that there is a much better likelihood of 1500 gold than 2000 gold for the foreseeable future. If the masters of the universe had chosen to shake down gold at any other time I might not feel that way but this kind of damage does affect the charts and leave the suggestion open that prices will pull back to the prior low. But that’s show biz, man. Gold is a proxy for the lack of faith in the currency expressed by so many and so defeating it is job one. Do not be surprised to see gold prices falling below 1500.00 just to make the point very clear that speculating against the dollar and the Fed will earn you a little punishment for your lack of faith.

Benjamin March 1, 2012 at 2:48 pm

“It remains to be seen whether silver’s relative resilience will pull gold back up, or instead, silver gets dragged lower by gold.”

Indeed, there’s no way to say for sure. About the only certain thing is that the game which has distorted the gold/silver ratio all these years will keep going until the financial system is kaput. But I just don’t think that will be happening in the next couple quarters.

Anyway, while killing some time the other day I came across something fascinating, concerning a certain film director’s views on gold. Anyone interested should look up Rob Ager’s analysis “Stanley Kubrick’s Gold Story”, on YouTube.

Cam Fitzgerald March 1, 2012 at 3:07 pm

And an interesting tibit from China. Developers are now allowing first time home buyers the option of purchasing a new home with only 10% down. The developer will front the other 20% as required and extend easy repayment terms to help new buyers enter the market.

This has been taking place in the cities of Nanjing, Shenzhen, Guangzhou and Wuhan amongst others showing the practice is becoming widespread.

Shanghai property prices meanwhile declined 12% month over month in February alone (ouch) while residential home prices fell in 72% of the cities tracked nationally making it a 20% increase over the number of cities reporting declines in January.

The numbers show that the housing deflation is swiftly gathering momentum while the strategy of developers suggest some are very anxious to move property.

Is zero down financing really that far away?

http://www.bloomberg.com/news/2012-03-01/china-s-february-home-prices-fall-most-in-19-months-on-curbs-soufun-says.html

Mario cavolo March 1, 2012 at 6:36 pm

This is very good Cam, we’ve finally got a China article here in the msm with some juice and guts illustrating both sides of the equation to help understand state of China’s real estate…. Many more subtle and fine points in this bloomberg article help us see how much flexibility there is and the moves that can be made in response as the situation unfolds… 1. Developers subsidizing the 30% govt banks min downpayment…that’s a first!.. a big shift. 2. Note it states Shanghai “new” property prices are down 12% , makes sense as it is those same over leveraged developers who are doing the price dropping because they,ve got loans coming due, yet the vast majority of those new homes are located outside the 3rd ring road, not central urban area of the city. Existing city location haven,t budged and I,ll continue suggesting that they will fall quite less, about 1/3 as much as the largest decliners. 3. The govt itself still sticking to their many tight price suppressing policies to let some air out; declines are what they want and are creating design …it’s not the govt banks who have yet reduced down payments to 10-20% from the current 30-50% levels…

I suggest again it is very possible we are heading toward the next Taiwan/japan type market booms fed by similar loosening policies that are coming; let,s note those both imploded spectacularly! I just suspect that if this is the similar course of monetary expansion that China will follow, and indications are that is indeed the case, then said implosion is many years-5-10 plus down the line. Again, barring some other external financial crisis event which will cause widespread ruin globally…

Cheers, Mario

Cam Fitzgerald March 1, 2012 at 7:11 pm

Maybe we are both seeing some of the comedy in that article Mario. The writer has left the impression that the housing correction was engineered. This is what the government wanted all along, you see, and so therefore they are now succeeding spectacularly. Hell, it’s a controlled implosion of prices that is needed to decelerate an overheated economy! Kind of similar to how the Professionals take down derelict buildings. We can’t make this stuff up. But seriously, even the Washington policy wonks were not bold enough to tell the American people that the housing crash was done on purpose or that is was for their own good!

Tom March 1, 2012 at 4:31 pm

I wonder if DO begged Big Ben so he could come back and crow how he was right again about gold.I think Big Ben’s speech might have had little to do with the sell off.I offer this as an alternative explanation.
http://www.fmxconnect.com/fmxmetalsconnect/post/2012/02/29/FMX-7c-Gold-Options-Report-ndash3b-February-29-2012.aspx

gary leibowitz March 1, 2012 at 5:53 pm

I think you are over analyzing the move in Gold. It should be treated like a commodity. Granted it’s not consumed but it is used as a hedge against calamity and an ever weaker dollar. The ironic part is that as equities spike higher, so has commodities. You must see a disconnect from this pattern to conclude gold will do well as equities fall off the table.

I have an interesting theory that might explain where we are headed.

The Fibonacci theory has been used to try and define micro and macro moves in all asset classes. There is however a twist to this theory called the Contracting Fibonacci Spiral that calls market tops. Using Fibonacci numbers, along with the idea that we are in a contracting spiral, there will be a point of singularity that is fast approaching. The dates corresponding to a Fibonacci contracting number only calls the market tops. Using the Fibonacci sequence, 1, 1, 2, 3, 5, 8, 13, 21, 34 we can see that the number 21 could refer to the range between 1966 and 1987. 13 years later brings us to 2000, 8 years later to 2008, and 5 years later to 2013. The singularity number would refer to the date of 2020. If this is a true representation of where the next tops will reside you can see that the tops gets squeezed from 2013 to form a top in 2016, then 2018, 2019, 2020. As each contracting Fibonacci number is reached there will be more violent moves in a shorted time frame. It makes sense if you think the debt problems of today will not be resolved over the next 8 years.

The theory also states that at each Fibonacci number the tops will be higher than the previous top. The percentage gain however will be less each time. In between each top there will be a 40 to 50 percent drop to its lows. Since the subsequent numbers are getting smaller each time the moves will become more condensed. It will become close to impossible to time these moves going forward past the 2016 date. This theory only predicts the tops, not the timing of the subsequent drops.

Interesting hypothesis that if true, will coincide with the socio-economic events that have unfolded since 2000.

Now to relate this theory to Gold. Since gold rose 4 fold from 2000 to 2008, the subsequent rise should be less than 4 fold. Meaning early 2013 should see Gold below 4,000/oz. I suspect it will be considerably lower. Since each new high will move at a smaller percentage rise the final top for Gold should be somewhere around 7 to 8,000/oz. by 2020.

Just another take on Gold.

fallingman March 1, 2012 at 6:40 pm

“…the Fed is already running the loosest monetary policy in the sordid history of central banking. How else would T-bill yields be running close to zero, even as long-term rates fall toward 2%? Do the aforementioned sociopaths and morons even understand that virtually unlimited quantities of money are being made available by the Fed to the European Central Bank at almost no cost? Evidently not.”

EXACTLY.

THIS is the key point and so few seem to get it.

The dollar swaps, the “low rates till 2014″ promise, and the inflation rate targeting (inflation is too LOW, don’tcha know) all necessitate the conjuring of brand new clownbucks and lots of ‘em.

All the Fed did was throw a little misdirection into the mix and shuffle the pea to throw the slowest of the slow off the scent.

So, just because they don’t officially announce a bond buying program with specific dates, times, and amounts, it isn’t QE3? Absurd.

But the sad thing is that the deception has worked!

That said, this was another takedown by Morgan, et al, Just gives us cheaper prices, so I’m fine with it. Was positioned for it.

Morgan sold short 10,000 contracts into the Bernanke’s non-comments. As if they didn’t know what was coming. Morgan literally created the Fed and, for all intents and purposes, they ARE the Fed. They paint the tape, suck people in, choose an event that will provide them some cover, and then BAM, they lower the boom. It’s good to control a central bank.

Bottom line: The day the Fed steps away from monetary stimulus for real is the day the markets crash. Like everybody with a quarter of a brain doesn’t know this.

A.N. March 1, 2012 at 7:25 pm

While the Bernank was lying to everyone about there not being a need for more QE, he was pumping about 800BUS$ of no interest money into the EU. Check it out. Coordinated QE on a truly global scale.

gary leibowitz March 1, 2012 at 8:18 pm

Yes thats why to bet against this market in the short term is to go against the Fed. I am more and more convinced we will see a stellar year before it comes down again.

Jill March 2, 2012 at 1:19 am

Agree, Rick and Fallingman and Gary. It’s Worldwide Weimar, this year at least. for the stock market. Although the government and the Fed Primary Dealers don’t like the PM’s to go up, but only the stock market, all they can do is a shakedown every once in a while in the PM market. You can’t stop a bull market in the long run.

mario cavolo March 2, 2012 at 8:55 am

,,,,,but with interest rates at zero-ish which may persist for another decade japan-style, why would everyone sell out of the stock market?…Its not particularly overvalued is it..?…I remember the old Charles Given’s pitch…stocks go up when interest rates go down and vice versa. So unless we see interest rates start climbing/bond decline, equities are a relatively decent place to keep a chunk of your asset portfolio.

Now, what a bunch of crap I just wrote. Our cash right now is in all cash, a little gold and at these levels, I am scared to death to put a chunk of my portfolio in index’d equities, yettttt I have been dead wrong on that score since 666, eh? Who’s the dummy?

Meawhile, if I did put a chunk of my portfolio in equities, it would definitely be well-chosen 4-9% dividend payers….that’s hard to argue with.

Cheers, Mario

Robert March 1, 2012 at 9:06 pm

This was all Ron Paul’s fault…. :)

He had to pull that Silver Eagle out and mention to BennnyB about the increasing purchasing power of silver versus gasoline, and there went the silver price… lol

Although the Silver to gas ratio is still hanging tough about 10:1 even after yesterday’s smackdown:

http://stockcharts.com/h-sc/ui?s=$silver:$gaso

Robert March 1, 2012 at 9:16 pm

I am on record as declaring that the Fed will not engage in any obvious and in your face bond buying unless and until the Treasury begins feeling pressure to hold successful auctions.

QE used to be synonomous with cash stimulus, but soon the Fed will be printing and buying Treasuries in order to maintain its interest rate suppression goals.

What does everyone make of Plosser from the Philly Fed coming out and declaring that he thinks rates will rise before 2014…?

Bernanke had no sooner told Congress that rates would stay low and Plosser was issuing his press release that they wouldn’t…

Interesting- when the Federal Reserve openly contradicts itself it is never accidental – they are expecting people to bet money on both sides of the scenario, so that they can decide which side they can/will crush for the maximum benefit to the Fed itself…

Blatent thievery.

redwilldanaher March 1, 2012 at 10:29 pm

As noted already, QE3 was started long ago and as per Bloomberg courtesy of ZH they are no longer keeping the CB purchases of US Equities a secret:
http://www.bloomberg.com/news/2012-03-01/israel-to-begin-investing-reserves-in-u-s-equities-today-1-.html

With a nod towards Rick’s Headline, this truly is the golden age of Absurdism, Surreal Absurdism actually. Oh and the Great Global Ponzi Players Theater.

Rich March 2, 2012 at 12:24 am

Sell GS<122?…

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