Silver Setup Classic 'Rope a Dope'

Muhammad Ali was the master of misdirection. He was so good at it the phrase “rope a dope” reflected his ability to lure his opponents into believing an illusion that setup their demise. Ali often feigned exhaustion on the ropes in order to exhaust his opponents against the counter attack in later rounds. Many a fighter, notably George Foreman in the Rumble in the Jungle, succumbed to this famous tactic.

If I didn't know any better, I would say Ali orchestrates paper market operations in the futures and options market behind the curtain. One can almost taste the "rope a dope" in silver (as well as gold other dead safe haven plays).

How? Those that lack a nature feel of the markets can use mathematics to reveal it. Silver recorded a DI reading of 94 as of 09/27/11. This is the second highest since the inception of the bull market in 2003. The highest DI reading was recorded in October 14th 2008 at 97. This reading preceded the $9.05 capitulation lows by two weeks.

Silver London P.M Fixed and the Silver Diffusion Index (DI)


The massive sell off in 2011 was a classic example of “rope a dope” executed on retail money. As of 9/20 nonreportable partication (WA) was 79%. This is fairly bullish. A week later, this participation, fell to the maximum low of 0%. In other words, retail money has been completely removed (wiped out) from the paper battlefield despite suggestion that control of the trend had been lost. This red spot shadow below illustrates the extent of the carnage.

Silver London P.M Fixed and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest


Now, the panic sellers are screaming "the bull is dead" from the sidelines. Unfortunately, Ali's "rope a dope" tactic works both ways. A DI reading of 94 foreshadows a 2008 style turn that will come to be viewed as shocking as it is unexpected.

Bullard: Fed will act if economy weakens further

QE to ∞ (infinity) = QE(1)+QE(2)+QE(3)...QE(n) as the economy weakness and social unrest organizes across the globe.







Headline: Bullard: Fed will act if economy weakens further

(Reuters) - The Federal Reserve will act if the economy weakens further and has the tools to do so, a top Fed official said on Friday.

St. Louis Fed President James Bullard said he expects the economy to grow modestly over the next year -- though the sluggish pace leaves it vulnerable to shocks.

"Should economic performance deteriorate, monetary policy will respond," Bullard said, according to slides of a presentation he was scheduled to make . "The Fed is not now, or ever, 'out of ammunition'."

With interest rates near zero, Bullard said, the Fed can support the economy through inflation and inflation expectations and asset purchases are a "potent tool".

Source: finance.yahoo.com

Gold Share Broke Out To New Highs

Any investor pessimistic about the gold stocks is not listening to the message of the market. What’s that message? Gold leads and the gold stocks follow. The most recent yellow box (green lined) illustrates this leadership. When gold stocks follow in the coming weeks/months will anyone but the talking heads be surprised? Let's hope not.

Source: Gold leading Gold Shares

The gold shares finally broke out to new highs in September. This effort was promptly rewarded by a big league takedown. Don't rush to proclaim the gold shares dead money quite yet. Paper operations only dislocate the short-term trend.

The gold stocks have broken out. They will recognized and be controlled by stronger hands during the next advance.

Gold and Gold Stocks Side by Side Comparison

Is There Blood In The Streets?

Fear is the key element to control. Panic, induced by fear, generates selling. Bouts of intense selling keep buyers disorganized just enough to prevent physical demand from overwhelming paper supply and maintain confidence in the old paradigm a little longer. Investors that recognize TA and money flows extremes, or what traders often refer to as recognizing and buying "Blood In The Streets" survive and prosper despite ruthless, organized takedowns.

COT money flows in the coming weeks should confirm and quantify the extreme nature of the current decline in gold, silver, and equity related plays.

A Technical Look "Blood In The Streets"

Arrow mark extreme speculative flushes during organized paper operations. The earliest inflection point would be October.

Gold 2x to Gold Ratio


The selling in silver, likely motivated behind the curtain, has been even more extreme. A two standard deviation decline of leveraged silver to silver ratio suggests not only an intense but also extreme speculative flush.

Silver 2x to Silver Ratio


Extreme selling, likely margin related, has been punishing the junior miners as well. Here the relative selling is approaching three standard deviations; three standard deviation setups are extremely rare.

Junior Gold Miners Index to Major Gold Miners Index Ratio


As a rule, extreme or “blood in the streets” tend to precede major inflection points. This, however, is usually recognized well after the fact by the public. Don't expect the organized takedown to subside until Friday's options expiration passes.

Gold Futures Advance As Biggest 3-Day Decline Since 1983 Spurs Purchases

This "long-term bull but short-term bearish" rationale never fails to boot the majority of investors from gold train. The secular trend for gold and silver looks good despite the headline fear and apparent "reputational damage."

A retest of the channel breakout represents normal technical action.

Gold, London P.M. Fixed (Gold) and Z Scores of Secular Trend


Silver, London P.M. Fixed (Silver) and Z Scores of Secular Trend


Headline: Gold Futures Advance As Biggest 3-Day Decline Since 1983 Spurs Purchases

“Although not many are yet prepared to dip their toes back in the market, there is a small but growing group who believe this pullback will prove to be a good buying opportunity,” Edel Tully, a London-based analyst at UBS, wrote in a report. “Gold needs to stabilize for now, after suffering a good deal of reputational damage with recent wild moves.”

Source: finance.yahoo.com

Gold Stupidity

Yeah, there's something else happening here too, capital has been flowing into gold since 2001 because it's NOT backed by governments and/or counterparty risk.

Rising food prices hit consumers at grocery checkout

46.2 million, or 15.1 percent of Americans, lived in poverty in 2010. This number, the largest increase in 52 years poverty estimates have been published, represents a 2.6 million from 2009.

Headline: Rising food prices hit consumers at grocery checkout

By Susan Salisbury, The Palm Beach Post

12:00 AM EDT, September 19, 2011

Michele Leibowitz, a Palm Beach Gardens mother of four, has no problem summing up what she thinks about rising food prices at the supermarket. "It's ridiculous. Earlier this year, I was spending $200 a week on groceries. Now it's closer to $250," said Leibowitz, while shopping at Walmart.

She singled out milk and cream cheese as items that have gone up the most in price, and she's right.

Beef, veal, pork, eggs and such dairy products as butter, milk and cheese have seen the biggest increases in the past year, said Richard Volpe, an economist with the U.S. Department of Agriculture.

The price of groceries rose 5.4 percent from July 2010 to this July, according to the USDA's latest report.

Food prices increased less than 1 percent between 2009 and 2010, the lowest food inflation rate since 1962.

Now the rising cost of energy, the weaker dollar and growing global food demand are driving the price.

Source: sun-sentinel.com

Mailbox

Ephrem,

2011-2012 and 2008-2009 represent two points in time within the evolution of the sovereign debt crisis.

It all depends on which equity markets. Weaker markets that did not make new highs in 2007, such as many countries within the Euro zone, most likely have not seen their reaction lows. These lows should be established by 2012. The stronger market markets will continue chopping as capital increasingly shifts from the public and private sector. This transition will gain momentum by 2012, thus, providing a floor for the equity markets (stronger market first) across the globe.

Gold and silver will bottom when the paper fuel runs within a window of opportunity based on TIME (cycles).

Regards,

Eric

Hi Eric,

Hope you are doing well. Thank you for posting your analysis on silver and gold. What a take down in silver, jeesh. Your analysis of a bearish set up was probably expecting it:)

I know youve mentioned several times that the euro is going to go due to germany not wanting to constantly bail out greece. The markets seem to interpret this as another liquidity problem and has paniced once again. Youve mentioned several times that this is not 2008 but it surely feels like it but on a grande scale: Do you think the lows have been made in the market and the precious metals?

Cheers,

Ephrem

Timing The Turn In Gold and Silver

Gold's already bullish setup will become even more concentrated (bullish) as price declines. Forced liquidation through panic and margin hikes have a setup known as 'blood in the streets' in precious metals.

The key to timing the 'mini panic of 2011' will be silver. Watch for a shift in money flow concentration from bearish to bullish as the headlines spin panic for the stooges (see chart below). Gold and silver, becoming more statistically concentrated each day, will turn when the paper fuel has been consumed, stooges have been carried from the battlefield, and TIME favors the transition. This date is approaching fast.

Silver London P.M Fixed and the Silver Diffusion Index (DI)

Hello Eric, last time gold and silver got clobbered around May you were very specific about how the trend would change around the end of June (you were correct).

Do you see any such dates now when this can bottom.

Thank you again Eric

Aurelio

China 'launches gold vending machine'

China with its size and growing wealth will consolidate a good portion of the world's gold supply.

Headline: China 'launches gold vending machine'

BEIJING — China, already the world's second largest bullion consumer, has installed the country's first gold vending machine in a busy shopping district in Beijing, state media said on Sunday.

Shoppers in the popular Wangfujing Street can insert cash or use a bank card to withdraw gold bars or coins of various weights based on market prices, the People's Daily said on its website.

Each withdrawal is capped at 2.5 kilograms (5.5 pounds) or one million yuan (about $156,500) worth of gold, the report said.

Gold vending machines already exist in Britain, the United States, the Middle East and Europe.

The machine was launched Saturday by the Beijing Agricultural Commercial Bank and a gold trading company, the report said.

They plan to install an unspecified number of machines in secure locations such as gold shops and upmarket private clubs.

Source: google.com

Interview with Jim Rogers

Trade wars expand and intensify as history seems destined repeat around a common theme.

Interview with Jim Rogers

Gold Has Players And Stooges

Leveraged money flow through 9/20 which ignore the huge liquidation days on Thursday and Friday suggest the following:

First, last week's panic sellers were nothing more than the "stooges" in the game. Commercial traders have been aggressively increasing their net long position (long less short) since early August 2011. Net long as a percentage of open interest has increased from -40% as of 8/2 to -26% as of 9/20. Last week's sharp decline most certainly allowed them to increase their net long position (reduce their shorts) under the cover of panic with a smile on their face.

Gold London P.M Fixed and the Commercial Traders COT Futures and Options Net Long As A % of Open Interest


Second, while the paper operation flushed weak hands and punished the long-term holders, it has also provided an opportunity to quietly accumulate an extremely bullish and rare money flow setup. The configuration of BULL, BULL, BULL in the chart below says it all. Even before last week's vicious paper attack, gold was displaying statistically concentrated money flows across multiple time frames. The panic decline most certainly thinned the herd (retail money in particular) and concentrated this setup even further.

Leverage Money Flow Table:


Technically Observations

(1) GLD closed at 159.90.
(2) Support levels to watch 164.91, 159.96, 153.85
(3) The spike in volume through 8/8 gap represents a break of support with force. This does not necessary imply continuation to the downside. Price, like a cork in water, can pop above and below this zone for days/weeks. Volume must contract during a test of this gap to confirm it as support.
(4) Leverage money flows (see above), the tail that wags the dog for gold, will help time the turn.

Gold ETF (GLD)

Silver Getting Tossed Like A Cork In A (Paper) Ocean

Silver is getting tossed around like a cork in a (paper) ocean. Next week's COT money flows should provide important information as to the execution of the decline from behind the curtain.

It’s a fair assumption that retail money with its tendency to concentrate their position at the wrong time have been carried from the (paper) battlefield on a stretcher. The red circle in the chart below illustrates their concentrated bullish bet as of 9/13/11. Retail money's effort to invert paper control, i.e. turn bearish into bullish setup, was unsuccessful.

Silver London P.M Fixed and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest


Couple technical observation after today's decline:
(1) Silver has tested the upper channel, once resistance, as support. This is obvious in the monthly chart. This is normal bullish action.
(2) RE(E)'s* higher low and price's lower low represent a nonconfirmation of price and bullish divergence for far. The divergence can be seen in the daily chart below.

*REV(E) measures the energy within a trend.

Monthly Silver ETF:


Daily Silver ETF:

Captial Is Flowing Into Gold

Capital flows set the direction of secular trends. Linear up trends have been broken to the upside in many if not all global currencies. In other words, capital is flowing in gold at increasing rates across the globe. This is something to remember when the short-term orientated media likely characterizes today's action as a gold "pounding".

USD Gold


Euro Gold


Swiss Franc Gold


Yen Gold


Loonie (C$) Gold


Kiwi (A$) Gold


Real Gold

Extreme Chops Are Tough

Extreme chop or "according style" consolidations reflect the voilence inherent in the trend. They are often tough manage and experience. The current consolidation, nevertheless, remains in tact despite today's painful drop.

Extreme chops are as much time as price dependent. When TIME is right, the market will once again reflect the reality that global policy makers have no choice but to continue down the path of currency depreciation. Currency depreciation, which is diverting an increasing portion of global capital flows into gold, continues to one of the few, if not only, politically viable solutions to the world’s growing debt and social burdens.

Turn off the trading screens and follow next week's money flows to reveal the true movement of capital in gold.

Gold ETF

Federal Reserve launches Operation Twist

QE(n) has yet another injection with a catchy name - Operation Twist. Perhaps its name was derived from the condition of policy makers' underwear after reviewing the latest economic trends?

Headline: Federal Reserve launches Operation Twist

NEW YORK (CNNMoney) -- The Federal Reserve announced 'Operation Twist' Wednesday, a widely expected stimulus move reviving a policy from the 1960's.

The policy involves selling $400 billion in short-term Treasuries in exchange for the same amount of longer-term bonds.

While the move does not mean the Fed will pump additional money into the economy, it is designed to lower yields on long-term bonds, while keeping short-term rates little changed.

The intent is to thereby push down interest rates on everything from mortgages to business loans, giving consumers and companies an additional incentive to borrow and spend money.

Source: money.cnn.com

Public Schools Face the Rising Costs of Serving Lunch

Higher prices, budgetary cuts, and more federal regulation(s) will be a deadly cocktail for public schools.

Headline: Public Schools Face the Rising Costs of Serving Lunch

The federal government is making school meals more nutritious this year, but also more expensive.

Under a little-noticed provision of the child nutrition bill signed by President Obama in December, which brought more fresh produce and less whole milk to cafeterias nationwide, school districts are required to start bringing their prices in line with what it costs to prepare the meals, eventually charging an average of $2.46 for the lunches they serve.

Though the law suggests that prices go up by a maximum of 10 cents a year, the town of Seymour, Conn., raised its prices by 25 cents, after years without increases; the new prices, $2.25 a day for elementary school pupils, $2.50 for middle-school students and $2.75 for high school students — are listed on the district’s Web site, just under the words, “Welcome Back to School!” In Suffolk County, on Long Island, the president of the Board of Education at the Riverhead Central School District — which also raised prices by a quarter a day, or 12.5 percent for most students — said that parents had cornered her and other officials at supermarkets, gas stations and before meetings, questioning the increase.

“All we could tell them was we really had no choice,” said the president, Ann Cotten-DeGrasse.

Officials are already bracing for a backlash as the increases pile up.

Source: nytimes.com

Probabilities of Expected Outcomes Favor Higher Gold Despite Pessimism

Let's consider the following:

(1) Spreading activity tends to increase at trend inflections.

Gold London P.M Fixed and the Commercial Traders COT Futures and Options ZScore Weighted Average of Long & Short As A % of Open Interest


(2) Connected money is aggressively accumulating behind the curtain.

Commentary: Headline fear hides gold's bullish money flows

Discipline traders/investors act based on body evidence to formulate probabilities of expected outcomes. Magic crystal balls do not exist. Probabilities despite general pessimism towards gold continue to favor higher prices.

U.S. housing starts drop underscores economic woes

It sure does.

Housing Starts And Change YOY:


Headline: WRAPUP 3-U.S. housing starts drop underscores economic woes

WASHINGTON, Sept 20 (Reuters) - New construction of U.S. homes fell more than expected in August, dragging on economic growth and keeping pressure on President Barack Obama to do more to help the sputtering economy.

Housing starts dropped 5 percent, the most since April, to a seasonally adjusted annual rate of 571,000 units, the Commerce Department said on Tuesday.

Economists polled by Reuters had forecast groundbreaking activity would fall to only a 590,000-unit rate in August. Housing starts are at less than a third of their peak during the housing boom.

"The housing market is not only bad, but still missing low expectations," said Sal Catrini, a managing director for equities at Cantor Fitzgerald & Co in New York.

Source: reuters.com

Venezuela Decrees Nationalization of Nation’s Gold Industry

Nationalization of the gold and oil industry means a severe reduction in capital flowing into Venezuela and lower standard of livings for Venezuelans.

Headline: Venezuela Decrees Nationalization of Nation’s Gold Industry

Sept. 19 (Bloomberg) -- Venezuelan President Hugo Chavez ordered the nationalization of the gold industry and gave companies 90 days to form joint ventures with the state as he seeks to boost control over the nation’s metals producers.

The government will hold at least 55 percent of any joint ventures, according to a decree in today’s Official Gazette. The decree sets a royalty rate of 10 percent to 13 percent and says that all Venezuelan gold production will be sold to the state.

Chavez first announced the nationalization of the industry and plans to repatriate Venezuela’s foreign gold reserves on Aug. 17. Petroleos de Venezuela SA, the state oil company, is forming joint ventures with both state and publicly traded companies to operate mines including Las Cristinas, which Chavez confiscated from Canada’s Crystallex International Corp.

Source: businessweek.com

Gold Miners Becoming Land Bank Cash Machines

The miners will do a lot better than this in time. Soon the public will come to realize the miners as land bank cash machines. While the gold train has clearly left the station, it's hesistant on the tracks in recent weeks has booted even more passengers.

Many investors will jump on the gold train late and close to the final destination, thereby, ensuring their place as the ultimate bag holders of the great secular bull. The gold shares are picking up steam in September, but few notice with so many screaming for a top. Watch dividends rise and history repeat with little media coverage and fanfare.

S&P Gold (Formerly Precious Metals Mining)*


Headline: Hecla Introduces Silver-Linked Dividend Policy

COEUR D’ALENE, Idaho--(BUSINESS WIRE)-- Hecla Mining Company (“Hecla”)(NYSE:HL) is very pleased to announce that its Board of Directors has adopted a common stock dividend policy that links dividend payments to Hecla’s average quarterly realized silver price in the preceding quarter.

The initial quarterly dividend under the policy is expected to be $0.03 per share of common stock ($0.12 per year), if Hecla’s average realized silver price for the third quarter is $40.00 per ounce. All dividends, including those in the third quarter, would increase or decrease by $0.01 per share ($0.04 annually) for each $5.00 per ounce incremental increase or decrease in the average realized silver price in the preceding quarter. Subject to Board approval, it is expected that the initial quarterly dividend under this policy will be declared and payable before the end of the fourth quarter and will be based on average realized silver prices during the third quarter 2011. The table below provides an overview of the new dividend policy.

Source: finance.yahoo.com

Behind the poverty numbers: real lives, real pain

Standard of livings continue to fall across America as many simply do not have the resources to cope with rising unemployment and falling purchasing power created by currency devaluation. A record 46.2 million live in poverty. Unfortunately, it will get worse before it gets better because easy solutions to the growing problem of public debt failure do not exist.

Headline: Behind the poverty numbers: real lives, real pain

At a food pantry in a Chicago suburb, a 38-year-old mother of two breaks into tears.

She and her husband have been out of work for nearly two years. Their house and car are gone. So is their foothold in the middle class and, at times, their self-esteem.

"It's like there is no way out," says Kris Fallon.

She is trapped like so many others, destitute in the midst of America's abundance. Last week, the Census Bureau released new figures showing that nearly one in six Americans lives in poverty — a record 46.2 million people. The poverty rate, pegged at 15.1 percent, is the highest of any major industrialized nation, and many experts believe it could get worse before it abates.

The numbers are daunting — but they also can seem abstract and numbing without names and faces.

Source: news.yahoo.com

Moody's stays negative on states, local governments

The risk of default at the state and local level is real and largely ignored by mainstream media. American history is riddled with numerous examples of municipal default.

Headline: Moody's stays negative on states, local governments

(Reuters) - Even though the recession officially ended more than two years ago, the still-weak U.S. economy and a pullback in federal support means the outlook for states and local governments remains negative, Moody's Investors Service said on Monday.

The two sectors of the $3.7 trillion U.S. municipal bond market were originally branded with negative outlooks by Moody's in 2009 as tax revenue tanked.

The rating agency noted that revenue collections have improved, but not enough for states to completely replace federal stimulus funding that ended in June. Another reduction is expected as Congress wrestles with ways to reduce the U.S. deficit.

"The determination of both political parties to reduce project federal budget deficits is certain to result in reduced funding for federal programs run by the states," Moody's said in a report.

States also face pressures from Medicaid, the healthcare program for the poor, and big unfunded employee pension liabilities. In addition, there is the prospect of potentially having to bail out fiscally troubled local governments, Moody's said, pointing to situations in states such as Alabama, Michigan, Pennsylvania and Rhode Island where bankruptcy has been eyed by cities or counties.

Source: finance.yahoo.com

Loonie Accumulation

Smart money is quietly accumulating the Loonie.

Canadian Dollar (FXC) And Canadian Dollar Diffusion Index (DI)

Headline Fear Hides Gold's Bullish Money Flows

Connected interests (commercial traders) have not only covered their short position but also increased their long positions dramatically since early August. Commercial traders' longs positions as a percentage of open interest has increases from 29.8% to 35.2% over the past six weeks. This trend and reading, second highest of 2011, set a bullish tone for gold despite growing fears induced by the recent technical consolidation.

Commerical traders' highest long allocation for 2011 has been 35.5%. This reading, registered on 5/17 when gold was trading at $1478.50, preceded a sharp rally. It's also important to note that the level of short-side participation is much smaller today than 5/17. In other words, today's bullish setup has the potential to be far-more explosive.

Gold London P.M Fixed and the Commercial Traders COT Futures and Options ZScore Weighted Average of Long & Short As A % of Open Interest

Cautious consumers pull back on retail spending

I find no disagreement with the headline below. The downward acceleration of gold adjusted retail sales suggests trying times ahead not only for the US households but also economy. Consumption, representing over 70% of GDP, is a key driver of US economic growth. The pressure to do something domestically is mounting.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change


Headline: Cautious consumers pull back on retail spending

WASHINGTON (AP) -- U.S. consumers grew more cautious last month amid wild stock market swings, zero job growth and heightened concerns that the economy has weakened.

Retail sales were flat in August. At the same time, wholesale inflation leveled off. The latest data could give the Federal Reserve more impetus to adopt additional stimulus next week.

"The combination of those two reports sets the stage for, and warrants, additional action by the Fed," said Michelle Meyer, an economist at Bank of America Merrill Lynch.

Wall Street looked past the weak retail sales data. Growing optimism that European leaders would be able to contain their debt crisis drove stocks higher. The Dow Jones industrial average closed up 140 points for the day.

In August, consumers spent less on autos, clothing and furniture, the Commerce Department said Wednesday.

Source: finance.yahoo.com

Gold Is Slowly Breaking Its Chains of Control

Gold's price behavior and leveraged money flows continue to reflect a market that's breaking its chains of control. Experienced traders can 'feel' a change rhythm within the trend.

Mathematics also confirms a market in transition. The subtle downward shift of the regression line within the scatter plot of price change to the composition of leveraged money flows represents the decay in the paper control (see chart below). Connected interests, while still influential in setting price, are slowly losing their ability to play the heavy hand during speculative up phases.

Scatter Plot: Net Long As % of Open Interest (NL%OI) for Commercial Traders vs 6-Week Natural Logarithmic Change in POG Since 2002

Gold's Luster a Bright Spot in Tough Economy

Tycoons understood the value of gold during panics. Today's global financial panic exceeds that of 1893 by many orders of magnitude.

Headline: Gold's Luster a Bright Spot in Tough Economy

"Times are hard," said Virginia Rodriguez, a hospital technician and mother of two, explaining why she has used earrings, rings and a gold cross and chain bequeathed by her grandfather in exchange for loans of nearly $1,000.

The jewelry has been pledged as collateral to Provident Loan Society of New York, which operates from an austere limestone structure on Manhattan's Park Avenue South. Created amid the Panic of 1893 by tycoons such as J.P. Morgan and Cornelius Vanderbilt, business has surged during the most recent climb in gold prices.

On Wednesday, gold settled at $1,823.50 per troy ounce. Prices are up 28% so far this year, at a time when other coveted commodities such as crude oil and copper have fallen in 2011 and the Dow Jones Industrial Average has dropped 2.8%.

Source: finance.yahoo.com

ECB to provide banks with dollar loans

Here we go again, QE(n) to infinity on a global scale. Since the problem is not liquidity but rather (failing) debt, capital will continue flow out of Europe into various safe havens. As long as return of capital takes precedence over return on capital, gold will be one of many safe haven destinations.

Headline: ECB to provide banks with dollar loans

FRANKFURT, Germany (AP) -- The European Central Bank announced plans Thursday to provide banks with dollars in three medium-term loan operations through the end of this year.

The ECB said it had decided to launch the three-month loans in coordination with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank.

Banking stocks have been hurt recently on fears that they were having trouble getting short-term loans from each other. These central bank loans would relieve that pressure.

Markets and the euro currency were already up before the announcement, but were further buoyed by the news.

Coming on top of mounting hopes that Greece will not be defaulting on its debts anytime soon, the news has helped ease concerns over the impact of Europe's debt crisis on banking stocks.

Source: finance.yahoo.com

China to 'liquidate' US Treasuries, not dollars

The Chinese certainly can their marginal purchases of US Treasuries, but partial or complete liquidation could prove difficult in the real world. For starters, to whom do they plan to sell? Also, how could they execute large sales without alerting the market of their intentions? The market is very efficient at front-running liquidation efforts.

Headline: China to 'liquidate' US Treasuries, not dollars

The debt markets have been warned.

A key rate setter-for China's central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.

"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.

"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."

"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.

Source: blogs.telegraph.co.uk

To my knowledge, this is the first time that a top adviser to China's central bank has uttered the word "liquidate".

Robert

The Real World Is Becoming Expensive For Most Americans

The real world, hampered by the inability to eat iPads or other small electronic devices, is growing more expensive each day.

CRBFoodstuffs And Year-over-Year (YOY) Change


Headline: Consumers, restaurateurs feel pinch of rising food prices

Sue Lednicky has been a wary observer of grocery prices' recent steep climb.

"It's getting ridiculous to buy food," she said. "It's painful. I was just complaining about the price of a gallon of milk at the grocery store," where she found 1 percent selling for $3.09.

It's doubtful Todd Clore would argue.

"In dairy products, the swings have been more dramatic over the past couple of years," said Clore, owner of Todd's Unique Dining in Henderson. "We used to be in single-digit percentages, where it would go up 5 (percent) to 8 percent. Now, it's swinging 15 (percent), 20 percent sometimes."

Their statements are borne out by the University of Wisconsin, which reported that the national average price of a gallon of whole milk rose from $3.30 in January to $3.65 in July.

Source: lvrj.com

Gold Stock Train

Anyone still waiting for a bullish signal/sign from the gold stocks is doing one or more of the following:
(1) Not looking,
(2) Have the chart upside down,
(3) Not listening to the message of the market.

The red arrow represents the next stop for the gold stock train. The train will be reaching maximum capacity as it approaches. Right now, good seats are readily available.

Amex Gold Bugs Index (HEUY):

Consolidation Within A Secular Trend Cannot Be Problem Solved

Another consolidation within a secular down trend of the US Federal budget (i.e. Jim's Formula) cannot be embraced as problem solved. Why do you think gold is rallying? It's all about confidence. Confidence already weak and teetering on the edge will be tested again once the consolidation pattern breaks to the downside. The previous break in early 2008 foreshadowed the onset of the sovereign debt crisis.

US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:



Headline: U.S. posts $134.15 billion August budget deficit

(Reuters) - The United States racked up a $134.15 billion budget deficit in August, the U.S. Treasury said on Tuesday, marking a sharp increase from a year earlier that was due mainly to calendar shifts of payments and one-time adjustments in the August 2010 period.

The cumulative deficit for the first 11 months of fiscal 2011, which ends on September 30, came to $1.234 trillion, down slightly from $1.260 trillion in the same period of fiscal 2010.

The White House on September 1 forecast the federal deficit at $1.316 trillion for fiscal 2011, compared to an actual fiscal 2010 deficit of $1.293 trillion.

Source: reuters.com

Deposit Flight at European Banks Raises Risks

Money is flowing from European deposits to gold and a lesser degree US Dollars. This is the reason why early US bond shorts must have deep pockets. Money always flees when confidence is shaken. If it's shaken badly, and old-fashioned bank run will emerge without warning.

Headline: Deposit Flight at European Banks Raises Risks

European banks are losing deposits as savers and money funds spooked by the region’s debt crisis search for havens, a trend that could worsen economic and financial conditions.

Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months. Meanwhile, European Union financial firms are lending less to one another and U.S. money-market funds have reduced their investments in German, French and Spanish banks.

While the European Central Bank has picked up some of the slack, providing about 500 billion euros ($685 billion) of temporary financing, banks are cutting lending, which could slow growth in their home countries. They’re also paying more to keep and attract deposits -- or, in the case of Italy, selling bonds to retail customers for five times the interest they offer on savings accounts -- which will erode profitability.

Source: bloomberg.com

Silver's Bearish Paper Setup Likely To Produce A Bullish Outcome

When paper control of the trend falters, bearish setups can turn unexpectedly bullish. Look no further than gold as example of this inversion. Gold's DI was turning bearish in July 2011. Then sovereign debt crisis intensified and the gold market rallied despite the negative paper setup.

Gold London P.M Fixed and Gold Diffusion Index (DI)


Could the loss of paper control in gold spill over to the silver market? If it does, a setup inversion or bearish setup produces a bullish outcome, is quite possible.

Silver London P.M Fixed and the Silver Diffusion Index (DI)


Open interest or participation in silver has been dramatically reduced since April 2011. These reductions are illustrated as toilet flushings in the chart below. Participation “flushings” are bullish and have preceded all the major rallies since 2001.

Silver London P.M Fixed and the COT Futures and Options Open Interest Stochastic Weighted Average



Eric,

I understand the long term technicals are favorable for silver but what about the short term technicals? How close are we to a set up like the gold difusion index you showed today which makes gold look like it is ready now ?

I sense more sideways till way into Nov...is that possible?

Thanks,

Denny

Moody's cuts French banks, eurobond talk lifts markets

Tick/tock goes the Euro zone time bomb

Headline: Moody's cuts French banks, eurobond talk lifts markets

PARIS/BRUSSELS (Reuters) - Moody's cut the credit ratings of two French banks on Wednesday because of their exposure to Greece's debt, highlighting growing risks to Europe's financial sector from a deepening euro zone sovereign debt crisis.

But the euro and European stocks were lifted by an announcement by the head of the European Commission that it would soon present options for issuing a common euro zone bond, despite huge political hurdles especially in Germany.

The ratings agency's one-notch downgrade of Societe Generale and Credit Agricole came hours before the leaders of Greece, France and Germany were to hold a video conference on measures to head off a potential Greek default, which has prompted rising global alarm.

China added its voice to U.S. concerns over Europe's apparent inability to stop debt contagion from spreading, while Indian and Brazilian officials said major emerging economies were discussing increasing their euro sovereign holdings.

Source: finance.yahoo.com

The Pressure To Do Something Is Increasing

Loan demand continues to weaken across the board in 2011. The only exception is commercial and business loan growth. This sub sector, however, accounts for less than 14% of total bank credit. Loan allocation to the all-important real estate sector has fallen to 37.5% from a high of 42% in late 2009. Also, consumer and home equity loan growth, the main driver of leveraged spending in America, point to a clear peak in 2010; The bolded green boxes illustrate their high water marks. Continued decay from these high water marks and the stickiness of cash asset allocations above the 2008crisis highs will only fan the fire “to do something” in the coming months.

Break down of Total Bank Credit For US Commerical Banks:

Silver Has Been The Clear Winner

Silver still has a very high ceiling.

Silver, London P.M. Fixed (Silver) and Z Scores of Secular Trend


Headline: Since 9/11, It Has Paid to Own Silver, Gold and Oil

If on September 11, 2001, you sold stocks and bought crude oil, silver and gold — as many people did — and then held those things for the next decade, you’d have done really, really well.

A chart posted by Bespoke Investment Group yesterday illustrates this starkly.

The best performing asset class of the past decade has been silver, up more than 900%, from $4.16 an ounce to nearly $42 at last check. Gold has been a healthy second, up nearly 568%, from about $272 an ounce to about $1854.

Crude-oil, which everybody expected to be a big winner after Sept. 11, has gained, though not as much as gold and silver, rising 225%, from less than $28 a barrel to about $86.

Source: blogs.wsj.com

Nothing Has Changed!

Smart money has been accumulating gold at the expense of dumb money since mid August. Perhaps it’s different this time in that retail money has finally turned the tables on connected money (interests) by sending gold lower? Short-term declines against the secular trend and unconfirmed by leverage (money flows) are nothing more than noise masquerading as trend information. Nothing has changed.

Gold London P.M Fixed and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest

Hello Eric, you have mentioned money flows are moving into gold shares. The gold shares as well as gold are getting hit hard. Do you still see the positive pattern in the gold shares? Any idea why gold is tanking considering everything that is happening?

Thank you for your great work.

Aurelio

Copper's Price Action Hides Bullish Money Flows

Copper has been sliding based on growing fears that the global economy is slowing. Connected interests, nevertheless, continue to aggressively accumulate into weakness. A diffusion reading of 97%, a maximum bullish reading is 100%, quantifies their buying resolve.

Copper (JJC) And Copper Diffusion Index (DI):


Headline: BASE METALS: NY Copper Slides On Gloomy Economic Outlook

NEW YORK (Dow Jones)--Copper futures slumped Friday as a new economic stimulus proposal by U.S. President Barack Obama and a drop in Chinese inflation didn't outweigh the drag from outside markets as investors continue to shed risky assets due to worry that the U.S. or Europe may be slipping toward a recession.

Copper for December delivery, the most actively traded contract, was recently down 11.1 cents, or 2.7%, at $4.0325 a pound on the Comex division of the New York Mercantile Exchange.

Obama late Thursday proposed a $447 billion package of tax cuts and spending designed to boost the flagging U.S. economy and cut unemployment. But the highly anticipated announcement failed to increase investor demand for risky assets such as stocks and commodities, as the overriding concern for many traders remains the recent slowdown in global growth the widening European debt crisis.

U.S. equities markets fell early Friday, industrial bellwether crude oil was sharply lower, and investors piled into the U.S. dollar as a refuge. Copper is sensitive to the economic outlook because of its widespread uses in manufacturing and construction, and the metal has tracked equities and currencies this week as proxies for global growth expectations.

Source: online.wsj.com

Gold Shares Climbing the Wall of Worry

Has anyone noticed the rotation into the gold stocks since July 2011? My guess is that media-dependent thinkers have missed it.

Gold Miners Index to S&P 500 ratio:

Jim Sinclair Discusses Recent Drivers of Gold Price

Stocks Lower on Euro Debt Crisis Fears

Newton once wrote that a body in motion tends to stay in motion until acted on by an external force. This same observation applies to long-term market trends. As long as the stock to bond ratio remains below the red trend line, headlines will explain stocks weakness in terms of worry about the European debt crisis. An external force acting to change the trend will be applied soon.

Large Cap Total Return Index (LCSTRI) to Long-Term Government Bonds Total Return Index (LTGBTRI) Ratio and Z Score of Secular Trend


Headline: Stocks Lower on Euro Debt Crisis Fears

U.S. stocks plunged Friday, threatening to erase the week's gains, as rising fears about fallout from Europe's debt crisis overshadowed President Barack Obama's plan to revive the U.S. job market.

Shortly after markets opened, the European Central Bank said that be a key official had resigned for personal reasons. Juergen Stark, the bank's top economist, is seen as an advocate of higher interest rates. Published reports said he opposed the bank's extensive purchases of debt issued by heavily-indebted member nations.

Stark's resignation might be a sign of deepening disagreement over how to solve Europe' economic problems.

Source: finance.yahoo.com

The red metal looking red hot again

Agreed. The money flows confirm it.

Headline: The red metal looking red hot again

Copper may not have the cachet of gold, but the lowly, industrial metal could shine just as brightly in the months ahead.

The price of copper (HG-FT4.05-0.10-2.35%) hit a record high of $4.60 (U.S.) a pound in February before the Japanese earthquake and weak economic data snapped the rally. But some commodity experts expect the metal, which closed Thursday at $4.10 a pound, to climb higher by year end as shortages intensify.

Source: theglobeandmail.com

Central Banks Buying Gold

Bolivia is the latest central bank to join the gold buying bandwagon. Falling global supply as local demand increases translates into severe shortages if price is not allowed to equilibrate demand. How many times have the US mint suspended coin sales this year?

Headline: Bolivia Central Bank to Buy Local Gold Output to Boost Reserves

Bolivia’s central bank will buy gold from local producers to boost its international reserves, the Andean country’s Vice President Alvaro Garcia Linera said today.

Bolivian President Evo Morales enacted a law authorizing the bank to buy gold through state mining company Empresa Boliviana de Oro, Garcia Linera said in a speech broadcast by La Paz-based television station Bolivision.

The bank will pay miners the same rate as traders who sell the gold to Brazil and Peru, Garcia Linera said. Bolivia’s central bank has increased its international reserves 10-fold to $11 billion since 2005, he said.

Bolivia produced 6 metric tons of gold last year, down 14 percent from 2009, according to the Mining Ministry.

Source: bloomberg.com

Greek backsliding sparks euro exit talk

The exit stage left of weaker Euro members, driven by market forces, has become a real possibility - dare I say an inevitable outcome. Euro and Swiss gold are sending a clear message for those capable of reading between the lines. Greece’s departure will open the exit door for Portugal, Spain, Ireland, and, yes, even Italy. Bond shorts must remember that Europe must crumble before the wolf pack organizes itself against another sickly prey called United States.

Headline: Greek backsliding sparks euro exit talk

Anger at Greece’s failure to meet fiscal targets that are a condition for its international bailout is nearing breaking point in Berlin and other European capitals, with senior politicians now talking openly about the possibility of Athens exiting the euro zone.

Horst Seehofer, the head of the Bavarian Christian Social Union (CSU), was the first prominent figure in Germany to suggest publicly that Greece might eventually be forced to leave the 17-nation single currency bloc in an interview in the Bild newspaper on Wednesday.

Source: theglobeandmail.com

Risk On versus Risk Off

Hemorrhage vs liquidity phases influence more than gold and silver market. The trend in stocks, bonds, commodities are all influenced by the direction of global money flows as defined by risk on versus risk off.

Source: facebook.com

The Commodity Bull Has Not Ended

Do not confuse a pause with top in commodities.

Spot Commodity Prices: CRB Spot Index (1947 - Present);
16-Raw Industrial Spot Price (1935-1947);
Great Britain Wholesale Price of All Commodities (1885-1935) and Trend Z Scores


Gold continues to shrine relative to commodities. The CRBSPOT to Gold ratio has broken the 2009 lows. This suggests another down phase in progress.

Spot Commodity Price Index (CRBSPOT) to Gold Ratio

If you’re looking for bubbles, don’t look at gold coins

The physical and paper markets do not support the bubble top in gold argument often presented by media. The talking heads will become gold's biggest supports towards the end of the mania stage. Today's skepticism suggests that gold still has a long way to run.

US Mint Coin Sales (oz) and Spot Price of Gold (USD)


Headline: If you’re looking for bubbles, don’t look at gold coins

Once again, the evidence above does not imply any definitive conclusions as to whether gold is or is not a “bubble”. Instead, it points to one particular aspect of demand for gold -- the behaviourally anchored, longer-term demand for gold coins as wealth preservation tool for smaller retail investors. Given the state of the US and other advanced economies around the world since January, 2008, U.S. Mint data does not appear to support the view of a dramatic over-buying of gold by the fabled speculatively crazed retail investors that some media commentators are seeing nowdays.

Source: theglobeandmail.com

Gold Leading The Gold Shares

Any investor pessimistic about the gold stocks is not listening to the message of the market. What’s that message? Gold leads and the gold stocks follow. The most recent yellow box (green lined) illustrates this leadership. When gold stocks follow in the coming weeks/months will anyone but the talking heads be surprised? Let's hope not.

Gold and Gold Stocks Side by Side Comparison:


Headline: Mining stocks – On the runway, ready for take-off

September 5, 2011 – Gold has been rising faster than the price of mining stocks. Here are some statistics to prove this point.

In the twelve months ending August 31st, gold has risen 46.5%, but the XAU Index of precious metal mining stocks climbed only 17.7%. By itself, that is a good rate of return for mining stocks, but not what one would expect given gold’s appreciation over this period.

The current year-to-date results are even more telling. Gold has risen 28.7% this year, compared to a -3.8% loss in the XAU Index.

In the last two months, gold has risen 21.7%, while the XAU Index climbed 8.4%. You might notice from these results that the XAU Index is finally starting to show some relative strength compared to its year-to-date results, which is one sign that things may be turning in favor of the mining stocks. Here is another.

The following chart simply measures the difference between the annual rate of change of gold and the XAU Index at each month end. So for example, using the 12-month results ending August 31st reported above, the last point plotted on this chart is 28.8%, which reflects gold’s outperformance over this period.

Source: fgmr.com

Astronauts' tracks, trash seen in new moon photos

Gold was $63.91/oz and Made in the USA was still stamped on the world's best products.

This August 2011 image made available by NASA shows paths left by walking astronauts, single lines, and lunar buggy tracks, parallel lines, from the 1972 U.S. Apollo 17 moon mission. NASA's Lunar Reconnaissance Orbiter made this and other photographs of lunar landing sites from 13 to 15 miles above the moon's surface.

Source: news.yahoo.com

Obama to propose $300 billion to jump-start jobs

QE(n) or infinite liquidity includes both monetary and fiscal injections.

Headline: Obama to propose $300 billion to jump-start jobs

WASHINGTON (AP) — The economy weak and the public seething, President Barack Obama is expected to propose $300 billion in tax cuts and federal spending Thursday night to get Americans working again. Republicans offered Tuesday to compromise with him on jobs — but also assailed his plans in advance of his prime-time speech.

In effect, Obama will be hitting cleanup on a shortened holiday week, with Republican White House contender Mitt Romney releasing his jobs proposals on Tuesday and front-running Texas Gov. Rick Perry hoping to join his presidential rivals Wednesday evening on a nationally televised debate stage for the first time.

Lawmakers began returning to the Capitol to tackle legislation on jobs and federal deficits in an unforgiving political season spiced by the 2012 presidential campaign.

Adding to the mix: A bipartisan congressional committee is slated to hold its first public meeting on Thursday as it embarks on a quest for deficit cuts of $1.2 trillion or more over a decade. If there is no agreement, automatic spending cuts will take effect, a prospect that lawmakers in both parties have said they would like to avoid.

Source: news.yahoo.com

Swiss Central Bank Move 'Huge Mistake': Jim Rogers

Huge yet predictable mistake intended to regain control of an accelerating trend. Three taps and out of the Swissie’s lower trading channel is the market’s way of saying “good luck with that” in a sarcastic tone.

Swiss Franc (SWF) And Swiss Franc Gold


Headline: Swiss Central Bank Move 'Huge Mistake': Jim Rogers

The Swiss central bank's decision to set a limit on how much the Swiss franc can appreciate against the euro is "a huge mistake," investor Jim Rogers, chairman of Rogers Holdings, told CNBC.com on Wednesday.

On Tuesday, the Swiss National Bank set a minimum exchange rate of 1.20 Swiss francs for the euro, pledging to buy other currencies in unlimited amounts to defend the target.

Analysts said this was an endurance contest by which the SNB wanted to take the shine off the Swiss franc's safe haven status, in a move that roiled markets.

The move "will work for a while, but the market will have more money in the end than the SNB," Rogers, who was the co-founder of the Quantum Fund with George Soros, told CNBC.com.

Source: cnbc.com