You can bet your last nickel that the Commercial shorts of all descriptions in the Comex futures market in gold and silver were either covering, or going long themselves yesterday. -Ed Steer
The CME Group raised margin requirement on COMEX gold futures by 27 percent, the biggest hike in more than two and a half years and the second increase in the month. The CME increased the initial margin by 27% from $7,425 per 100-ounce contract to $9,450. And it increased the margin for hedging by 22% to $7,000 per contract, from $5,000. Increasing the margin requirement means traders have to put up more capital upfront to invest in gold via the CME, which puts a damper on market activity. Quite simply, a higher margin means they can buy less gold with any given amount of capital.
It’s as simple as that!
Backwoods Jack told me that all it would take to turn the economy around would be for Rick Perry or Donald Trump to beat Obama in next year’s election. My former partner, the “Franklin” in Miles Franklin, told me that a close associate of his, a very, very smart man, who has been reading the Miles Franklin report for a number of years and usually agrees with just about everything I write, now disagrees with me and my view that we have passed the point of no return. He says all it would take to turn things around would be for Rick Perry to win next year’s election.
Sorry to disagree with you boys, but Rick Perry will not right the wrongs. No one can, at this point. Things could get better, but “better” in this case only means not falling apart quite as fast. I say that you’ve got to simplify things in order to see them clearly. Forget all of the complicated and detailed blather that comes at you from all sides – simply put, we are spending $1.60 for every dollar that we collect in taxes. Politically, the most aggressive solutions might cut it down to $1.50 or even $1.40. But the problem is still there. As an analogy, it would be as if your family budget allowed for you to spend $1,000 and month, but then your wife began to spend an additional $600 every month on fancy clothes. In order to pay for the short fall, you had to take out a $7,200 bank loan to cover the cost of her purchases over the next 12 months. If by chance you reached a compromise with your wife, and she cut her purchases back to $400 a month, was the problem solved? It is only a matter of “time” before the problem will resolve itself. How long can we keep borrowing trillions to keep the jolly Ship USA afloat? Printing the money, Fed style (QE) buys time, but assures the ultimate destruction of the dollar.
Is there anyone out there who will balance the budget and be able to ignore the howls and screams from the low income and welfare voters? Is there anyone out there willing to let the country go through a depression to clear out the dead wood so we can start over again in a few years? It certainly isn’t Obama or Rick Perry or anyone I know of. So, face the facts – we will not grow out of this, but we may try to continue printing our way out of this, and you see the results of that course of that failed policy in the amazing price action of gold and silver.
But there is more to this. Keeping it simple, let’s say that Rick Perry (or whomever) gets into office and pushes through a new budget that cuts the deficit from $1.6 trillion to a mere $1.0 trillion. I don’t see that as a political alternative, but the fact is that means you have to raise $600 billion a year, either through tax increases, which takes $600 billion off the table that could have been used for new business expansion or purchases, hampering the economy – or going to the Fed and borrowing into existence another $600 billion fiat dollars – or some combination of both possibilities. Don’t bother to send me emails that find flaws in this logic because… I am painting a big picture generalization here. You don’t have to know the circumference of the earth, or the distance from the earth to the sun or the tilt of the earth’s axis to understand that there is day and there is night and the pattern happens with predictability. You don’t have to know exactly how much longer or shorter each day is during the course of the year. You still know that darkness follows light. It only takes a bit of logic and first hand experience to figure it out. Same is true with the direction our economy and currency are headed in. It is basically why I don’t care if Rick Perry or Joe Schmo gets elected. No one can fix the mess we are now in and the best you can hope for is more time (kicking the can further down the road) or a softening of the fall. If you sit back, by choice or by circumstance, and do not plan for this – but instead delude yourself into thinking that the next guy will be better than the last – you will not be pleased with the way this plays out over the next year or two.
It’s not like you can’t do something about it – you may not be able to change the outcome, but you can improve your chances to avoid many of the consequences. Andy Hoffman gets it, he really does. And here I thought I was the only guy (other than my son) who was fully into physical gold, silver and a few select mining shares. Andy goes even further – he only owns ONE stock, a junior gold mining company named Scorpio Gold and the rest of his money is in physical gold and silver. Andy and I may not be able to change the world, in spite of the fact that we both shout out the same story, hoping to reach as many people as possible, but we can improve OUR own finances and give ourselves and our families a safer and softer landing when rapidly rising inflation and continued dollar debasement ravage most dollar-based portfolios. It is as simple as that.
Gold finally made the headlines yesterday morning in the Minneapolis Star Tribune. I could have counted on the fingers of one hand the times it has happened for the past decade. They published a Bloomberg article stating that “The Gold Bubble Has Burst.” How typical! The “financial” reporters who write this crap are a joke. They know absolutely nothing about gold and only come out of the closet to present the bear’s case. Now, I will make my case – mark my words, gold will be at a new all-time high and most likely over $2,000 by year’s end!
These so-called “experts” write that gold was a “scare trade” and suddenly, in the space of 24 hours, investors are no longer fearful of a collapse of the economy, the revolts in the Middle East, the critical situation facing the banks (look at Bank of America) or the European Union’s problem with Greek, Italian and Spanish debt, gold is no longer needed in their portfolios. What kind of nonsense is this? As far as I can determine, absolutely nothing has changed. None of the issues or problems have gone away. Gold and silver were hit because today is an option expiry day. Gold and silver were hit so that the large bullion banks, JPMorgan and HSBC could cover a truckload of their underwater short positions. This is the same thing that happens over and over and over.
Andy Hoffman (Ranting Andy) called me yesterday morning and placed a gold order with spot around $1706. I think he made a great call. Andy got the bottom just right! My take is that gold will rebound no later than Monday and we probably have seen the bottom around the time that Andy placed his order, at 8:30 AM Thursday.
You have just seen a 10% pullback in gold, which is minor in the overall scope of things. Silver has retraced a bit over 11%. Again, no big deal. The smart buyers (like Andy) understand that you buy on every dip (if you have the funds). Any of you who are thinking about selling your metals out of fear are either not paying attention to what I have been writing for eons, or you are listening to the wrong people, i.e. Gartman, Schmidt and even Larry Edelson who tries to turn you into traders. You do NOT sell your core physical positions out. If you need to sell anything, sell your mining shares or other forms of paper gold and silver, but do not sell your physicals.
Gold is still UP $143 an ounce in the past 30 days, even after two days of “correcting.” Silver is down a couple of bucks at $40.81, but even so, it is up 115% in the last 12 months.
During the mad years of the 90’s when the internet stocks and dot.com stocks were going up for years, one hardly heard a peep about the stock market being in a bubble. But every time gold or silver jump a bit the media screams “bubble,” and “sell, sell, sell.” Folks, open your eyes and stop driving yourself crazy. The bull markets in gold and silver are alive and well.
Take heed of Jim Sinclair’s sage advice:
Selling Against The Angels Expected
My Dear Friends,
I am amazed at the day later geniuses that send out dire warnings on gold. Selling against the upper two Angels was obvious. There is no top in gold.
Kenny places the odds at 50/50 that yesterday’s low was the low. He says that if it was not then the low is not far below.
I have never seen such capitulation among people especially in outrageously undervalued gold shares. Pros were dropping dead today. In bullion you had to walk close to the building to be safe from the golden flyers.
I have told you time and time again that gold will be violent in its exponential stage. What you have seen is nothing compared to what is to come. Truth be known, this kitchen is going to get hotter by the day so if you cannot handle the heat sell partially at each Angel until you have cut yourself back to the sleeping well size position.
For heaven’s sake stop barfing into weakness. Stop selling weakness and buying strength. That is a kindergarten type error.
Stop the margin. It will kill you. Stop watching every tick. That is certain to make you crazy.
You will in the future be very sorry you sold down to a sleeping position at Angels, but stopping pain is not an illogical purpose.