As mentioned in my previous piece, the last hour of trading on Friday was ominous and leads me to believe we will see “gap” openings in all directions very soon. Since then, the markets have bounced back but unconfirmed on extremely low volume. Zerohedge had a neat chart depicting the dichotomy of the markets versus the real economy, ignore this at your own risk!
First, what are “gap” openings and why should they occur? A gap is when a market opens up and begins with a higher price than the previous day’s high, or in reverse, it opens down and lower than the previous day’s low. We saw this in spades when the Swiss just two weeks ago removed their peg with the euro. In this instance, the Swiss rose and the euro fell in the neighborhood of 30% within minutes, NO trading even occurred for the first 15% or more of the move.
Before speaking of what I believe we are about to see, please keep in mind some of the ramifications of these “gap openings” should or when they occur. A gap opening means there is NO TRADING between “here and there”, meaning you are stuck with your position until the market actually opens and you have no way to correct a mistaken position. Gaps will lead to huge gains for some and huge losses for others. Think of it if you will as a transfer of wealth with a caveat. As I have mentioned so many times before and as we just recently saw with the franc/euro cross, sometimes the moves are so big that some participants go bankrupt. If you have traded with a partner who is bankrupted …you will not be able to collect YOUR winnings! It is just this phenomenon which I believe is about to take over …everywhere and in all markets!
Because the system is now more leveraged than ever before in history, “volatility” will spawn more volatility. This is because everything financial on the planet is being carried with margin (leverage). Margin is a good thing if you are positioned correctly, it is a killer if you are not. If a market goes against you (especially if it “gaps” against you) while you only have 1% or 2% margin carrying a position, you can lose EVERYTHING and then some (maybe even your net worth) without even being able to trade! Market participants on the wrong side will be “forced” into either buying or selling to close their positions.
Leverage (derivatives) have been used to “price” markets and “make” the reality. Derivatives have been used to push interest rates down (many even negative), hold up stock markets, and in general paint a picture that all is well. What if “all isn’t really well” and assets, currencies, etc. are all mispriced? What if Mother Nature’s pricing of assets is really far away from current pricing? I believe this to be the case. In a recent interview of Jim Willie, he speaks for an hour about this and other topics. He sees the dollar dropping 30% or more, gold moving higher by five or sixfold moves. He sees some bonds going bidless until much higher interest rates are found. He also believes that banks, brokers and insurance companies will fail …with your savings and investments going down the drain with them! This barely scratches the surface of what he spoke of.
OK, some of you may say “none of that can ever happen, Jim Willie is a sensationalist with no evidence whatsoever”. Well, I personally believe most of what he says is correct. I do believe we will have major gaps, market and banking closures, new currencies and massive defaults. Most of what he is predicting stands to reason because of the leverage and lack of collateral in the system. Geopolitically speaking, the world is already fracturing away from the U.S., the dollar and “non settlement” …and toward real settlement, toward truth and toward gold.
Maybe he (and I) are not 100% or even 80% correct. What if we are mostly wrong and only 20% of what we see coming actually does come to pass? What then? In my opinion, if only 20% of what we see coming does actually come to pass, it will be the equivalent of the Great Depression of the 1930’s. If what comes to pass is only 50% of what I expect, it will be hell on Earth and for quite a long time.
We have already seen one major “reset” between the euro and Swiss franc come in the form of a gap. I firmly believe we will see a huge gap higher in both gold and silver in reaction to what is to come. I believe we are about to find out “it has all been one big and all encompassing lie”! The economic numbers are clearly a lie. The stock and bond markets are where they are because of freely printed money leveraged by derivatives to force pricing. GATA has provided reams of evidence that central banks are in all markets, all the time. Using simple 2+2 math tells us that Western gold cannot be anything close to what is claimed because the East is importing too much of it. What do you think this “truth” would spawn?
The East only wants “truth”. They want fair trade and real settlement which is why they are converting dollars into gold. Whether it be Greece or some other trigger to uncover the truth, it’s coming and may already be knocking on the door. Puny Greece is only $350 billion worth of debt but levered it is in the $ trillions yet it will not take even a fraction of this to tip the system over. We have gone 6+ years where “mark to market” has been abolished, this is truly what Greece is all about. If their bonds were to become marked to reality, the banking system implodes. Currently, Greek bonds are considered tier one capital, clearly this collateral is bottom shelf swill which cannot and will not ever perform.
Once the process of re set comes to pass, Gold and silver will be seen as the ultimate tier one capital with no risk whatsoever of default. The West either has the gold or we do not. Betting that we do and finding out this is also part of the lie (it is the very core of the lie!) will be a disaster. The most important “gap” to your well being is not “being” in a position where you nor any of your assets can default. The truth, when it does come out will come quickly, most likely faster than you can move. The world has seen “lies” in the form of fiat currencies and asset bubbles many times before, but never one that completely encompasses the entire world. Each and every single time the truth came out, “honest money” was the ONLY place to be for safety. I assure you, “this time is not any different”! Markets beginning to gap in various directions will be your guide that the re set is in progress!
Again Bill a thought provoking piece.
However, I cannot help but think we our flogging a dead horse.
We our preaching to the converted here. It appears that too many just will not believe what you described here until it hits them squarely between the eyes.
(Once the process of re set comes to pass, Gold and silver will be seen as the ultimate tier one capital with no risk whatsoever of default.)
These words speak of 5000 years of history.
Only at least some precious metals is the only possible safety net.
Today to me feels like an ominous day..
Chaos seems close at hand.
Just call it a GUT feeling.
maybe so but it is at least out there for anyone willing to read it and act on it.
Bill, I believe what you portend in your article, will in no doubt occur. But first, the deflation that is occurring presently must complete it’s bottoming, which has a ways to go yet.
After this bout of deflation will come inflation on steroids.
As with all inflation it will start out slowly and then end with a bang, in what Ludwig von Mises described as a “crack up boom”. He also foretold this many years ago:
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved”.
It is now much too late in the credit expansion game, to avoid the coming currency catastrophe involving ALL fiat currency.
“all inflation” doesn’t start slowly, “most” does. In the current scenario, it very well could be overnight which would include MASSIVE gaps.
Yes, maybe wrong choice of word “ALL” but what is the crux of the matter, is inflation by what degree?
The end result being a complete and utter destruction of fiat currency, which will be a globally catastrophic event of biblical proportions. Historical times in which to live and witness.
my point was that inflation itself will be a “gap” this time and most like be an overnight event.
Who is going to stockpile commodities in the current environment ?
Answer : nobody.
Hoarding gold and silver maybe (for easterners). Inflation in consumers prices and wages in fiat terms never.
Very interesting piece. I’ve noticed these gaps many times and wondered why they occur. Is it because insiders are executing trades before the rest of us slobs have a chance to do the same? Or is it because the price simply gets reset from a previous close based on new events/information? Or none of the above?
because buy and sell orders are imbalanced.
Bill what is your opinion of SDRs.
To me this is just another fiat system run by the same untrustworthy bunch.
In Sydney there is a rock face called The Gap.
People jump off to commit suicide !
As an aside I was once in a hog spread and one month went limit up and the other went limit down…in opposite directions to my trade. Double whammy !!
Covered it with opposing trades in further out months but it still hurt.
Gaps do not occur very often on monthly charts BTW.
Great Article again Bill…
Gaps and wild price swings reminds me of a trader back in 2008 when the wheat market was going wild. It moved over $2.00/bushel in 15 min. He woke up that morning with a net worth of 9 million…two million in the commodities market. In 15 min…he had a 30 million dollar margin call…was liquidated, and filed bankruptcy.
Imagine waking up in the morning..worth 9 million..and coming home in the afternoon and having to tell your wife we are 21 million in the hole? You are correct in saying if the guy on the other side of the trade goes bankrupt?…how do you get paid on the winning side.
Love your articles…
p.s. My trading system went short the dollar today…first time in over 7 months it went short.
thanks Rodger, “gaps” are the future, just don’t fall into one!
“The gold price” seems more and more counterintuitively ridiculous with every passing day the past couple weeks. With all kinds of problems blowing up, tensions and with comprehensively rigged markets and statistical propaganda being ever more exposed, why is the “price” FALLING?
I fully realize that the actions of a very very small coterie of manipulators, speculators and paper traders are taken into account when arriving at a price. Obviously the remaining miners are still marketing their product with the Comex and similar exchanges too.
Yet physical offtake is soaring (apparently) and there is every fundamental reason imaginable out there to give up yield-seeking and stat wealth-preserving!
Yes, there IS gold “manipulation” but, contrary to mainstream media belief it is *not* being perpretrated by “rogue traders”, “fat fingers”, or daily price fixings. It is INSTITUTIONAL: the structure of the gold pricing mechanism and the inflated supply of fractionally-reserved paper gold constitute a GOVERNMENT-BACKED SYSTEM.
I can only hope they run out of available physical within my lifetime but, with almost every government worldwide in on extend-and-pretend, this can go on for a very very long time…
YES Kredit, you do get it!
Bill, in response to your hypothetical gold scenario posted yesterday. what of silver? What if there’s more available silver than stackers are lead to believe like? The latest from SRSROCCO showing Us mint Ag vs Au eagle sales is staggering to say the least. Idk something to think about. With a natural ratio of 9:1, & a fraudulent ratio of 70:1 or so, how they have come this far with this is beyond me.
via derivatives and derivatives alone. There is definitely NOT more silver floating around because most all of it is “used”.
Already, 83% of silver mines in Mexico have shuttered. It’s interesting that no one believes the prediction and research of the USGS that ponders a planet with no accessible or easily mined silver within 10 years. Just look at the ever declining ore grades mined YOY for the past 3 decades. Silver is the buy of the millennium.
the 82% number is a total misnomer, may be true of total mines but the production is down a very small fraction of this. That said, YES, it IS the buy of the millennium!
In the end folks mother nature will win out.
There is a large industrial demand for silver. That demand will need to be filled. Mining interest have reduced their production and it will take years to increase production sufficiently to meet the increasing demand.. Increasing demand in part due to people looking for real value assets.
Yes. the manipulation dance does continue but it simply cannot go on forever.
Patience will win out.
As Bill has suggested there is limited real supply floating around.
…and new uses being discovered every single day.
when borrowers stop borrowing lenders stop lending.
When this occurs the ponzi of the debt based society goes into a tailspin.
Yes we the West are great manipulators. We can sell swamp land in Florida to desert dwellers.lol
What we cannot do however is convince the world to finance our over indulgences forever.
This is when the rubber hits the road. 2015
2015 is when PM.s regain their true status and their value gets reset.
Bill, Unfortunately I can poke no holes in tonight’s missive.Thanks again for clearly laying out the fundamentals. The sentence in the last paragraph that says “The most important “gap”… is a clear thought for all to consider. As other readers have mentioned you are preaching to the choir. I am happy to be in the choir.
someone’s got to sing, right?
Paul Craig Roberts follows up on my last night question, ” MAY NATO TANKS INVADE GREECE TO ENFORCE EU DEBTS?” He suggests assassination of the Greek Government. You have said, Bill, that this is for all the marbles. Of course, I and thousands of others would like to know your thoughts. Not that our speculations will influence the outcome. If I were President of Greece I’d be hiring 10,000 Chinese Mercenaries to live with me.
yes, they are living dangerous lives.
Dollar had a nice gap down today. I saw they have the price of gold now tied to the dollar. Also the 6-8mts chart of the dollar shows the MACD has turned negative. The EURO is also at a historical double bottom, so I think the Euro will go back up along with oil and the dollar will fall. Seems like when they print a currency, that currency tends to rise for some strange reason..lol! These crooks may take gold down with the dollar too, to try and mask their con. They did the same thing with the Euro and the Yen, now the last dirty shirt is pegged to the price of gold.
…but, they cannot print gold!
Unfortunitly, Jim Willie does not understand China’s gold and currency infrastructure. He also does not understand China’s Banking systems. Zhou Xiaochuan is the Governor of both the Peoples Bank of China and China’s Treasury. The significance of this is that 100% of the gold contained within the Treasury can and is being used as collateral for the printing of the International Chinese Yuans. The only way that foreigners are able to purchase gold is by the Shanghai International Gold Exchange with Yuans. The 26 bilateral currency swaps are Peer to Peer between foreign central banks and the Peoples Bank of China, and they have specific Yuan limits. There are currently 12 Chinese Currency Exchange Hubs in major financial centers. Each Hub is assigned to a major Chinese bank for clearing the foreign exchange transactions. These Hubs have independent authority to reject the acceptance of selected USD/FRNs for exchange to Yuans. This policy restricts unlimited sales of Chinese gold. No Yuans, no gold. If China does not want to reward bad behavior by holders of toxic USD/FRNs, then they are not required to sell China’s gold for any foreign currency.
There are more than 36,000 joint venture US companies in China. The Chinese government demands long-term financial stablity for these companies, and therefore China will not change the conversion exchange rate rapidly. This means that the only way that you will see US$2,000 or more per ounce of gold is by the US Government to cause the USD to depreciate. China will peg their Yuan to gold, which means that Gold will be removed from the futures market, and be fixed for the next hundred years. No more inherent debasement of gold-backed currency over the long-term.
I do not see really what you are saying is in opposition with most general Jim Willie’s claimds ?
It is very evident that RD has not read or listened to Jim Willie when he suggests that China’s gold hoard should allow the Chinese to increase the price of gold 2 or 3 times. An instant Gap of US$2,400 per ounce of gold should bankrupt most of the 36,000 US joint venture companies in China as well as most global economies. His recommendations for a new US Dollar are also not well thought.
Victor, I personally believe we will have a reset, as for gold, whether the Chinese mark gold up or the dollar collapses, gold will go MUCH higher in terms of dollars.
This is indeed not I have understood from JW but English spoken is quite tough for me, much easier to read it.
Besides, I have not understood that JW implied that because of the massive chinese gold hoard, they could double the gold price in USD term, they could do (if they want) it because they have the Financial power and reserves to do it.
Moreover, please provide more evidence that a doubling gold price will bankrupt these 36000 companies.
China cuts bank reserves to ‘keep economy stable’
February 4, 2015
“The People’s Bank of China (PBOC) decided to cut banks’ reserve requirement ratio (RRR) by 50 basis points to 19.5 percent. The move, effective Thursday, is the first such cut since May 2012. This will lower the amount of deposits that each lender is required to hold as reserves.
However, Larry McDonald, the senior director at Newedge USA, told CNBC Wednesday that the new announcement does mark a change in direction from the bank, compared to its strategy at this point last year. He explained that the PBOC had been more worried about the country’s credit markets and had tried to curtail risk, but were now appearing to be more dovish.
“They have completely reversed course,” he said. “It’s a sign of global central bank panic,” he added, with other central banks also producing similar moves in the last few months in the face of global deflation and growth downgrades from organizations like the World Bank.”
This report and Bill Holter’s comments illustrate that the Orwellian logic that extreme debt is a positive measure of the wealthy state of the US economy. The major global central banks have a Reserve Requirement Ratio (RRR), which exceeds a negative 1,000% instead of a positive 19.5%.
Larry McDonald claims that China’s PBOC 50 basis points reduction is a sign of “panic”.
“Larry McDonald claims that China’s PBOC 50 basis points reduction is a sign of “panic”.” …it may well be?
Chinese are playing the paper game very well and must surely prepare the gold game in the next chapter.
When is THE question…
“when” they do not get delivered upon.
Still a “when” question !
A that’s certainly not for now with still stellar us manufactured numbers.
“with still stellar us manufactured numbers”. I can only laugh.
By manufactured I mean “doctored” !
However it still enough to put the king dollar machinery and worldwide dérivatives pedal to the metal which crush systematically gold/silver.
Me thinks the old rule that all gaps will be filled may be permenantly broken.
It’s such a relief to be totally physical and no longer “playing” the mkts. Nothing but the old rooster awakes me now.
that was my point!
And a point well made because it soaked right into this old, unsophisticated stock farmer livin’ the dream in the heart of “fly-over” country.
Please read: “The Way home or face The Fire”.
Malachi 4:1 For, behold, the Day cometh, that shall burn like an oven; and all the proud, yea, and all that do wickedly, shall be stubble: and the day that cometh shall burn them up, saith the “I AM” Lord of hosts, that it shall leave of them neither root nor branch (nothing).
I am a believer.