Manipulation: gold, silver, brains

Today's lesson: manipulation of stocks and metals is a daily event.  It works as people do not actually know why they buy or sell other than other people are buying or selling.  I used to pay attention to talking heads and, sometimes, they are in the stream and can predict its direction.  Usually, opinion is generated by big houses and the markets themselves, then press releases to to media and you have a new environment.

We are told gold is dead.  Why?  Because others say gold is dead.  This is a fun way to bet, but it doesn't mean anything.  Read below and "bet" accordingly, which to me means buy silver and peanut butter. But, I repeat myself.

Large institutions have driven down prices in order to keep away from insolvency.  If silver takes off, for example, Morgan Stanley is looking at a failure. In drops like this, it can clean up the mess it inherited after the last economic collapse.  However, it is still in a precarious position.

From Anglo-Far East gold guru:

Capitulation - Part 2

The price of gold is currently trading more than 4.5 standard deviations below its 50-day moving average.

 I have previously made reference to the fact that many analysts who live and die by their charts are saying gold's story is all over. In honour of their opinion let's consider a couple of contrary charts.

The chart above shows the daily overbought/oversold reading for gold based on the number of standard deviations it traded above or below its 50-day moving average.  Last week I detailed the events around the 1975 sell off where real gold was dropped into the market and indeed here we are in 2013 with an even deeper low than back then albeit by a whisker and accomplished amazingly with no actual metal getting dumped if that makes any sense. We now have a reading that shows gold is the most oversold since 1975.

Given the other end of the spectrum at positive 4 or higher which is an area where gold's price resides much of the time, you do the maths on where gold's price would be when it eventually slingshots the other way. I repeat my question "have the fundamentals of the world's financial system been fixed such that currency, the banking system and governments be trusted and gold dispensed with or do we need to remain vigilant to events still unfolding?" 

The slingshot in 1975 was breath-taking and quite aside from the correction from $200 odd to $119.00 and then its bounce to $850.00 plus, it's standard deviation measure spent the last half of the decade firmly in positive territory. The current price of gold is in the high $1300.00's and negative 4.5 on standard deviations below the 50 day moving average. Consider that carefully and this moment in time when you look back in a few years as to what you were doing and deciding regards being led by the crowd or seeing the big picture?

A good friend and astute banker sends me an email last week asking would I like to go halves in a short position in gold as in a big one. He cites the risk of further downside over the next 3-6 months as justification so let's consider the current position in the trader's camp

In the latest CFTC Commitmentof Traders report it's been noted that Comex gold short positions have grown to a newall-time high of 79,416 shorts. In fact short positions in gold have risen 25% over in the last three weeks. Now with the greatest of respect to all those astute analysts that may or may not be correct to a further capitulation, my question to my good friend was why would you want to chase a falling knife after its already dropped so far and risk getting cut? I watch my kids fight over the baking bowl as to who gets "licking the spoon rights". Frankly as a mature adult I would rather just wait for the cake to bake and have a nice big piece thank you! What would you prefer- lick the spoon or eat the cake as to buying or adding more?

Why anyone would want to go short or look at their current holdings in gold/silver as a glass half empty is amazing and testament to the power of human emotion to make decisions and judgments on sight versus fact.

I may wince at the way metals and shares are getting hammered but I am encouraged when I look at the facts, consider history, review the way governments have and are behaving and I make my decisions based on that. As the late Bob Chapman would say "you go long and stay long". That is the way to really cash in on a long term secular gold bull market. Leave the traders to slaughterthemselves!

Duncan Cameron
Senior Relationship Manager
Anglo Far-East