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Overnight Paper Attack On Gold – Why This One Was Different
Once again there was an overnight “flash crash” in Comex gold futures trading. This time it occurred at 3:56 a.m. EST at one of the quietest trading periods of the roughly 23 hour electronic trading day. India has gone sleep. The Shanghai Gold Exchange has been closed for about 90 minutes and the London markets are just beginning to function. I guess someone decided it was a good time to unload close $500 million worth of paper gold into the Comex’s Globex electronic trading system (click to enlarge):
The graph above is the Comex August paper gold derivative, sometimes referenced as a “contract.” The $500mm million number is from Zerohedge and likely includes all the contract months. At exactly 3:56 EST a clearly motivated seller decided it was the best time to unload 2,741 August pieces of paper gold, driving the market down $4.50 instantaneously. If the gold were actually physically delivered into the buyer, that chunk would be 274,100 ozs, or roughly $360mm worth of gold. It’s doubtful that amount of gold is actually sitting in the Comex “registered” vaults (yes, I know what is allegedly reported to be in the vaults).
INTERESTINGLY, the very next minute, some entity BOUGHT 2,373 August paper gold contracts, nearly offsetting the amount of contracts sold. That’s why the price snapped right back up. Also interesting is the fact that the apologists on behalf of those manipulating the paper gold market were dead silent as to the source of this large sell – i.e. there were not any reported “fat finger” excuses.
The question I have is whether or not the flash crash sale was perpetrated to induce the hedge fund black algos to mechanically sell, assuming stop-losses were triggered, to enable the buyer to buy 2,373 contracts at a lower price. We know for sure, based on the recent COT reports, that the bullion banks are feverishly covering their short position, with the bank swap dealers now net long gold. Concomitantly, we know the hedge funds are dumping longs and going short.
Unfortunately, whoever decided to implement this operation strategically executed it one day AFTER the reporting cut-off date for Friday’s COT report. It’s a neat little maneuver the bullion banks have doing for years as a method of covering up their “tracks in the snow.” It will be impossible to analyze what occurred overnight when the COT report a week from Friday is released. The “winds” will have blown snow over the tracks.
That said, it certainly feels like there’s real buyers of gold and silver accumulating positions at these levels. I know from looking at the data on a daily basis that the Indians are actively importing gold currently. For now, it looks like the General Sales Tax “boogieman” was a non-event. China is actively buying, albeit it’s somewhat seasonally slow on the SGE.
What is of interest, at least to me, is the fact that the market has a bullish tone in what is normally one of the slowest seasonal periods of the year. In another month the Indians will be gearing up for their peak buying period. Also of note is that fact that U.S. retail coin buyers have ramped up their appetite considerably for silver eagles and, more of note, for some reason India is importing silver right now in unusually large quantities. I have not been able to track down a link yet, but yesterday Reuters referenced an article in the Economic Times hard copy edition titled, “Silver Imports May See Three-Fold Rise as Low Price Drives Demand.”
This Feels Like the Action in 2008 Right Before the Collapse
Doc asked me last minute to fill-in for Eric Dubin, who’s M.I.A. somewhere on the shoreline of southern France, on Silver Doctor’s Metals and Markets weekly podcast. Among other topics we discussed why the current trading action in the precious metals paper market feels very similar to trading in the spring/summer of 2008 – ahead of the great financial collapse crisis and why the Fed/bullion banks are making it obvious that they seek to scare investors away from buying precious metals with their “shock and awe” price-takedowns.
But one big difference between now and 2008 is that these “zip-line” vertical drops in the paper are being met with aggressive buying from the eastern hemisphere physical buyers, thereby limiting the size, intensity and duration of the price-hits.
As of the latest COT report release Friday which details the constituent trader positions through last Tuesday, the trader positions are moving toward a highly bullish set-up for gold and silver. In silver, the hedge funds are now net short silver futures and the swap-dealer segment of the bullion bank positioning is net long. In gold, the hedge funds have aggressively reduced their net long position and the swap dealers are long to a relatively large degree. Historically, this position shift has preceded major bottoms.
In the latest Mining Stock Journal, I present a silver producer who’s stock that was ruthlessly taken recently. I review the details in-depth, including my conversation with the CEO, and discuss why this is an opportunity to buy into a major producing company at irrationally low price level based on the facts of the situation. I also lay-out the call options I put into the fund I manage in large quantities to bet that my assessment has good probability of being correct. You can find out more about subscribing here: Mining Stock Journal info.
After subscribing to Brent Cook for 3 months, I was underwhelmed. Resubscribed to you a few weeks back and sure am glad I did so. You are one the few straight shooters still out there. Keep up the great work. I think we are right on the cusp of a serious market break, thus the war drums. – subscriber “Chris
The First Horse Out Of A Burning Barn Gets Scorched The Least
From a Short Seller’s Journal Subscriber: I just read the piece on Denver homes and the idea of taking a lower price. $100,000 less jumped out. We are selling our overpriced turkey in the clouds in a posh area of Nevada where stupid money goes to die.
Our contract price is $115,000 less than an appraisal done 4 months ago. All the realtors think that prices in the hills will continue upwards. I know better and locales like this are primed for a very ugly drop. That’s our reason for taking $115,000 less than appraisal value
The first horse out of a burning barn gets scortched the least . Thank you for that tip Worth the price of the newsletter times 10 or 20…
[Note: He’s referencing the July 9th issue of Short Seller’s Journal, in which discussed the high-end housing areas in Denver with respect to nothing moving but that a $100k price drop by the first seller will move that house and then re-price the entire market. Homes are like junk bonds – they go from being “illiquid” on the offered side to being “illiquid” on the bid side until someone initiates “step-function” pricing to force the first real trade and define where the bid side cares]
FYI: $CMG closed at $395 today. I recommended shorting it in the May 2nd issue at $475. That’s a 17.8% unannualized ROR in about 10 weeks. The subscribers who bought puts did even better…
Wall Street: It’s More Corrupt Than You Can Imagine
If you rely on a Wall Street salesman to help you make your investment decisions, then you are a total idiot and you deserve what you get if you lose your shirt – from the interview below
SilverFarm.org invited me on to his podcast show to talk about what it was like to be a trader on a Wall Street institutional bond desk in the 1990’s. Back then corporate “social/political correctness” was in an infancy but the compliance and risk management departments were still enforcing rules, regulations and risk standards. Today, if you offend someone with a remark, certain behavior, or even look at them the wrong way, you lose your job; if you violate securities laws, you get a bigger bonus – if you violate securities laws, compliance looks the other way.
In the interview below, I discuss the real life illegalities that I witnessed occurring while working on Bankers Trust’s junk bond sales & trading desk. We got away with numerous illegalities that pale in comparison to the laws violated today at time when rule of law was enforced. Now, the financial rewards involved from breaking the law on Wall Street is many multiples of the rewards in the 1990’s and the laws are never enforced.
If the latest issue of the Mining Stock Journal I feature a stock that extraordinarily oversold and irrationally undervalued relative to the risk associated with the event that drove the stock lower in price. The latest issue explains why this is an incredible opportunity to take advantage of irrational fear and lack of real due diligence by analysts and bloggers: Mining Stock Journal subscription info.
Regarding your thoughts on this stock: this is why I subscribe to your MSJ – excellent analysis – subscriber, “Rob”
The Gold Industry is in a Deep State of Dysfunction, Delusion and Denial
Stewart Dougherty is back with scathing commentary about the big mining companies – Barrick, Newmont, Goldcorp, etc – and their unwillingness to fight the obvious intervention in the gold and silver markets by western Central Banks and Governments.
While the Fed and other Deep State puppets have floated subtle memes that there is a noble purpose behind the control of gold, such as to support the dollar and preserve confidence in their (disintegrating) financial and monetary system, these are nothing but contrived and coagulated lies designed to cover up the biggest financial crime in history. – Stewart Dougherty
In 1980, the Financial Deep State realized that there existed an extraordinary opportunity for serial plunder and profiteering: the manipulation of the gold and silver markets. They immediately mobilized to exploit it.
During the subsequent 37+ years (we are now well into the 38th), the Deep State manipulators have criminally looted the gold and silver markets, pocketing astronomical profits for themselves in the process, all of which have come from real victims on the other sides of their fraudulent trades. While literally billions of people worldwide have been financially damaged by this crime, many of them severely, not one of the perpetrators has spent so much as ten seconds in jail for the global looting spree they have conducted. This is because precious metals price fraud is a state-sponsored crime.
While in this article we will concentrate on gold from here on, the exact dynamics we describe also apply to silver. The only difference between the two is that the price carnage in silver has been far worse than it has been in gold, on a percentage basis.
As a consequence of the unrelenting gold price manipulation, gold has been thrust into two severe bear markets that have lasted for more than 27 of the past 37 years, or more than 72% of the time.
The first bear market ran from 1980 until 2001, during which the gold price was savaged from $850 to $250 in nominal dollars, a plunge of 71%. Inflation-adjusted to today’s dollars, the carnage was even worse: it collapsed from $2,674 to $344, an 87% implosion.
In 2001, in the midst of unprecedented (at the time, but far worse now) economic, financial and monetary pressures, gold embarked on a ten year rise to a nominal (although not inflation-adjusted), all-time high of $1,925. The Financial Deep State had its hands full then with other, more pressing matters (such as keeping its global financial and monetary Ponzi schemes from disintegrating), and was forced to take its eyes off of the gold ball. It is impressive what gold can do when it is freed from the chains of greed, looting, and official corruption.
By 2011, after employing its signature techniques, including rampant counterfeiting and reporting fraud, the Deep State had returned the errant financial genies to their poison bottles, and was able once again to focus its attention on its favorite, most profitable crime: precious metals price rigging.
For the 6+ years since, gold has been slammed into a second major bear market, during which its price has been crushed from $1925 to $1050, a collapse of 45%. It has recovered somewhat to $1210 at the time of this writing.
During the entire 37+ year period, and particularly during the 27+ years of outright price annihilation, the major gold miners have done precisely nothing to expand the market for physical gold via advertising, direct marketing or any of the other proven demand-creation techniques. They have also done nothing to support gold’s price in any way, or to take action against the criminal price manipulators.
The industry’s sole innovative effort during this period was to have its association, the World Gold Council, get behind a gold ETF, GLD. The management of this ETF was…
Illinois On The Brink? The Whole Country Is On The Brink
The biggest problem facing Illinois is the public pension fund problem. I don’t care what the “official” number is for the degree to which it is underfunded. I can guarantee that even without marking-to-real-market the illiquid investments like private equity funds, derivatives, commercial real estate trusts and other assets that do not have truly visible markets, collectively the public pension system in Illinois is at least 60-70% underfunded. Then apply a realistic assumed actuarial rate of return on assets, which would be lower than the current assumption (likely 7.5% ad infinitum) and the underfunding goes to 80%. The problem is unsolvable without a complete and drastic restructuring.
I was in a Lyft ride today and the driver happened to be from the northwest suburban area of Chicago. There’s a lot bad things happening in that State that are not reported in the mainstream media. All road public road work has been halted except toll roads. The gun violence has worked its way from the South Side up through downtown into the Gold Coast neighborhood and is winding its way north. This is making it a dangerous place to live and is driving the price of things like home insurance up, although some companies still offer good deals – you can find what I think are the cheapest plans for IL here.
He said that his old house at peak prices in northwest burbs was worth over $500k. The current resident has it offered for $250k. Housing and real estate prices are plunging. He has a good friend who consults with Sears and the expectation is that SHLD could file bankruptcy any day (Short Seller Journal subscribers were shown this idea on April 2, 2017 at $11.49 – it’s been as low as $6.20 since then).
It’s not just Illinois. The entire system is crumbling beneath the surface. As long as the mainstream media isn’t reporting the truth, the “truth” can’t be that bad, can it? The truth is worse than any of us can possibly know.
There’s a 1%/99% in this country that’s different than the assumed meaning for that term. For 99% of the population, economic reality and systemic truth has been covered up and kicked down the road for so long that this segment of the populace is willing to believe there may well be a such thing as a “free lunch.” To 99%’ers, it’s inconceivable that the grim-reaper could or ever would show up to collect. Of the 1%, a small percentage not part of the insider elite can see most of the truth and can imagine that the whole truth is far worse than what can be perceived from publicly available information. The balance of the 1% are the insiders.
I stated in 2003, after watching the tech bubble collapse and the housing bubble inflate, that the inside elitists were going to keep the system propped up with printed money and easy credit until they had swept every last crumb of middle class wealth off the table and into their own pockets. I also said that nation’s retirement assets would be last crumbs remaining. Enabling pension underfunding is another form of debt used to confiscate wealth. That’s why the catastrophic underfunding of pensions was allowed to persist.
For purposes of my analysis, anyone who does not have enough money in the form of cash in hand to buy a Federal politician or buy the direct phone number to the Oval Office is “middle class.” There’s plenty of douche-bags running around with assets worth 8-figures but they don’t have enough spare change to buy their way in to the elitists’ card game.
We are at the point where the last crumbs are being swept off the table. It looks like Illinois will be the first to fall but there will be several others that follow. Part of the motivation by the Fed/Government to hold up the stock market like it has been doing is to keep the big State pension funds propped up for proper looting – like a prize-fighter being held up under the shoulders after passing out in order to deliver more punches to the face.
I suspect the time at which the system will be allowed to collapse is not too far off. The only question for me is whether or not the “Mad Max” scenario engulfs the country before the outbreak of World War 3…
Amazon Prime Day! What Does This Mean?
Amazon stock is up $6 in pre-market trading because it’s…”Prime Day!” But what does this really mean? It means AMZN will burn more cash selling and fulfilling commodity products with free 2-day shipping. But it will likely get another $20 pop in its stock because “Prime Day” revenues today will grow X% over 2016’s “Prime Day.”
Am I the only person in the world who has figured out that AMZN’s e-commerce operating income margin is nearly zero? Does anyone besides me know that AMZN’s non-North American e-commerce business loses money on an operating basis? The numbers are posted in its 10-Q every quarter. North America and ROW combined last quarter AMZN’s e-commerce business did a whopping 0.3% operating margin. At least that’s 0.3 higher than Blutarsky’s grade point average in “Animal House.” Short Seller’s Journal subscribers know this because I show them the numbers – Wall Street’s institutional investor clients do not know this because these market “professionals” can’t be bothered with doing actual research).
AMZN has already been crowned as the new “grocery killer” by the Jim Cramers of the world. It’s amazing that he can make this assertion without having ever looked at AMZN’s real numbers. In fitting irony, the opposite of Cramer’s assertion is the truth based on real world numbers. Walmart, Target, Bed Bath etc have 3-5% operating margins that they can “play” with to attack AMZN’s e-commerce model.
Is AMZN “killing” brick-n-mortar or are the healthy brick-n-mortars going after AMZN’s e-commerce business?
Go onto Walmart’s website. It’s now offering 2-day free shipping on millions of SKU’s without any requirement to pay money up front to join a “club.” I was wondering by Bezos decided to offer low-income people a big discount on Prime memberships. He knew Walmart was going to offer 2-day free shipping to that retail demographic without a “club membership” requirement. Guess what Jeff? WMT can afford to ship for free. Your company cannot. It doesn’t cost much extra for WMT to offer 2-day shipping because it can fulfill most orders from store inventory in the same county or city or neighborhood from which the order was placed. AMZN can not do that.
Walmart is more than 3x the size of AMZN and it is many times more profitable. BBBY’s e-commerce business last quarter grew 20% year over year. I got news for Cramer and all the robotic Wall St. analysts, and the lemmings who slavishly worship both: Walmart, Best Buy, BBBY and TGT have room to subsidize sales even more and still operate profitably. AMZN does not. If you don’t believe me then look at the SEC-filed number yourself.
Stay tuned…there’s more…two major category-killer discount grocery chains from Europe are expanding aggressively in the United States and Microsoft is cutting back on certain of
its operations to focus on its cloud enterprise business. AMZN’s AWS business will be attacked aggressively by MSFT, ORCL, GOOG and IBM. The price of cloud computing will eventually approach zero. Did anyone out there realize that AMZN’s cloud margins decline every quarter?
Happy Amazon Prime Day! AMZN will lose money on just about every item sold today. I guess that’s a great reason to celebrate…
Paper Gold And Silver – A Tragic Reflection Of The U.S. Financial System
Dave, just a moment for some feed back on your Short Seller’s Journal. I just placed an order for 1oz gold eagles thx to my profits off Tesla and BBBY, thx as always. – subscriber email received today – Short Seller’s Journal information
Wow. The hedge funds are almost net short silver contracts again, having had their algos steered into that predicament by the bullion bank market manipulation. The fraudulent paper short position in both gold and silver – but especially silver – is many multiples larger than the available supply of physical metal that is supposed to legally back commodity derivatives. This is evident from the Comex disclosures.
We have no idea what the total net short position would be including LBMA forward contracts and OTC derivatives. That the entities who are paid by the public to prevent this continue to allow and enable this massive fraud is a tragic commentary on the current U.S. economic, financial and political systems.
Craig “Turd Ferguson” Hemke invited me onto his weekly subscriber podcast show to discuss the trading action in gold and silver, the catastrophe otherwise known as the Federal Reserve and the slow-motion train wreck occurring in the stock market:
TO LEARN MORE ABOUT THE MINING STOCK JOURNAL OR SHORT SELLER’S JOURNAL – CLICK IN IMAGE:
Non-Farm Payroll Propaganda – Aka Fake News
“If you tell a lie big enough and keep repeating it, people will eventually come to believe it.” Joseph Goebbels
I dislike giving the employment report any acknowledgment because the report is constructed for the purposes of political expedience. But I can’t help posting a few comments because, once again, the non-farm payroll report for June showed significant growth in sectors of the economy for which real world business economic reports showed economic contraction. The headline number purports that the 222k new jobs were created in June. This wailed on the consensus estimate of 170k.
The Government attributes 16k in new jobs to the construction industry. How can this possibly have been the case when construction spending declined 4.4% on a quarterly basis for April and May? Moreover, housing starts have been declining for the past few months, including June. Unless there’s a new model for running a business, contracting economic activity is accompanied by payroll cost-cutting. The number is just not credible. Same with retail, for which the Government wants us to believe that 8100 jobs miraculously were created despite the fact that retail stores are being closed at one of the fast rates in history.
Then there’s the nefarious “birth/death” model, which guesstimates the number of jobs created by new companies started in June net of jobs lost from new businesses closed in June. I have news for the Bureau of Labor Statistics: new business formation, according to Gallop, is at a 40-yr low. Furthermore, potential business owners are less likely to risk borrowing money for a new business when the cost of borrowing is increasing. This may be due to the fact that more people are interested in creating a new modern bookkeeping business that could help aid those new businesses. Nevertheless, some new businesses are looking to start their adventure in the market. While some new business owners may forgo borrowing money; others may venture into the borrowing world to start their business. These owners may find that using a cheap accountant service could help to keep them on top of their expenses and ensure that their business stays afloat. As for the guesstimation on the number of jobs created by new companies? Maybe the BLS statisticians forgot about the Fed interest rate hikes and forgot to plug the higher cost of capital in to their new business formations blender. The B/D model attributes 102k new jobs from new businesses net of business deaths. To convolute their reporting Hmmm…23k of those came from construction…need I say more?
The above commentary is a preview of this week’s Short Seller’s Journal.
TSLA Down 19% – $72 – In Eight Days
In my opinion, the ride down will be worth the pain and blood-loss of sticking with a short bet on TSLA, which is why I continue to buy small quantities of put options that have been expiring worthless. I know at some point I’m going to catch a $100+ reversal in TSLA stock which will more than make-up for the small losses I’m enduring in the puts while I wait for that occurrence. Using puts protects me from the unknown magnitude of upside risk from shorting the stock. Plus, I don’t have make a “stop-loss” decision because I don’t have the theoretic “infinite upside” loss potential that I would face shorting the stock. With my loss capped, I can hang on to the puts through expiration. With a stock like TSLA, often a stop-loss exit is followed up by reversal to the downside, leaving the short-seller without a short position.
As we saw on Friday, TSLA stock can reverse to the downside quite abruptly and sharply. I can guarantee that some number of shorts covered as TSLA was soaring over $370, leaving them with no position when the stock reversed, closing at $357. I don’t want to recommend specific puts to use but I can recommend giving yourself at least four weeks of time. If I were putting on a new put position today, I would probably buy a very small quantity of the July 7th $340-strikes. If TSLA sells back to the $310 area before expiry, which could easily happen as $310 is where the last 2-week push up in price began, the puts would have an intrinsic value of $30. The current cost is about $10.
TSLA reminds me of Commerce One (CMRC), a B2B internet company that went from $10 to $600 in a very short period of time in late 1999 – 2000. It eventually went to $0. I shorted and covered small quantities of stock starting around $450. I was fortunate to have been short from the high $500’s when it finally topped out a $600. The volatility of this stock was extraordinary but persistence and “thick skin” paid off.
The above commentary is from the Short Seller’s Journal. Subscribers who liked the idea have been short TSLA June June 12th, when the stock opened at $359. You can’t time the top or bottom with a stock like TSLA, but you can make a lot of money if you get 2/3’s of the ride down. You can learn more about the Short Seller’s Journal here: LINK
YTD General Electric has been one of the 3 worst performing Dow stocks. I presented GE as a short idea In the January 29th issue. I said it would be a boring but no-brainer short. So far it’s down 17.5% from that issue. This has more than doubled the return on an SPX long position in the same time period. Maybe it’s not so boring…