Of all the things I specifically, and Miles Franklin generally, seek to accomplish, the most important is to empower you to understand the “enigmatic,” and at times flat out counter intuitive nature of today’s 100% manipulated “markets.” By doing so, we will have accomplished two birds with one stone; by not only educating of why Precious Metals are the world’s most undervalued assets, but how you can take advantage of “the Cartel’s” machinations to best insure your portfolio. And equally importantly, to prevent you from fearing you have done something “wrong”; and thus, avoid being seduced by the relentless anti-PM propaganda seeking to scare you away.
To that end, it’s days like yesterday’s “Deutsche Bank Destruction” that test one’s mettle “to the max.” And hopefully, you responded to it with wise, informed investment decisions. Also, to realize that it’s one thing to own “paper PM investments” – like mining shares, which plunged 10% yesterday; or ETFs like GLD and SLV, which can be, and typically are, sold during panics like yesterday, with the “click of a mouse.” And another thing entirely to hold physical gold and silver, which fell by just 3%-5% – which unlike paper financial accounts, doesn’t disappear when prices decline; and oh yeah, involves time and effort to sell – thus, detracting you from making rash decisions under duress. Irrespective, hopefully your choices yesterday were the right ones – and equally hopefully, Miles Franklin played a small part in guiding your thinking.
As for what occurred, it was what I categorize as a blitzkrieg, “named storm” attack. That is, a blatantly orchestrated Cartel attempt to destroy sentiment, via a massive, egregious raid with naked shorted paper gold and silver. In this case, I’ve deemed it the “Deutsche Bank Destruction,” assuming the imminent collapse of the “world’s most systematically dangerous institution” was the primary reason for attempting to scare people from history’s best safe haven assets. Although frankly, it could just as easily be related to one or more other potential events, such as next month’s Presidential election, expanding military aggression in the Middle East, plunging economic data, or anticipated inflationary monetary policy, to name a few. Or, for that matter, simply to push prices further from the Cartel’s “ultimate lines in the sand” of roughly $1,375/oz for gold – representing the downtrend line created by six 2011-13 named storm attacks; and $20.40/oz for silver, representing its 50-month moving average.
To that end, the one thing I assure you of is that it wasn’t due to “bad news” – which frankly, no longer exists in the Precious Metal realm. To the contrary, each day features more and more “PM bullish, everything-else-bearish” news flow – such as the myriad political, economic, and monetary events discussed in yesterday’s “fresh, bullish news.” To the contrary, never in my nearly 15 years in this sector have I seen more reasons to own PMs; and conversely, less reasons to be “scared away.”
That said, the MSM will surely cite numerous “reasons” for the decline; as, in Bill Murphy’s immortal words, “price action makes commentary.” In other words, falling hook, line, and sinker for the Cartel’s propagandist goals – like, for instance, yesterday’s speech by non-FOMC voting member Jeffrey Lacker. Who, like Janet Yellen six weeks ago, in citing the “case for a rate hike has strengthened” before again failing to follow through, claimed monetary policy should be per-emptively tightened to avert surging inflation. This, after the Fed has done not a thing during the 10 months since the core CPI rose above its 2% “target”; in a world where the primary inflationary catalysts, medical costs, rent, insurance, education, and taxes, cannot possibly be materially influenced by monetary policy. Other than insurance, that is, which can only be “saved” via dramatic rate hikes which, if implemented, would utterly annihilate what’s left of the third longest, LOL, “expansion” in U.S. history. And oh yeah, stock and bond markets trading at record high valuations, as we head into what will unquestionably be the worst downturn since the Great Depression. Only this time, debt loads across all sectors, public and private, are at all-time highs, sporting unprecedented “leverage” via the Wall-Street-synthesized “weapons of mass financial destruction” known as derivatives. Of which, none other than Deutsche Bank has the largest exposure, with “fortress balance sheet” JP Morgan not far behind.
That said, even if this were actually the reason for yesterday’s PM plunge at, what do you know, the COMEX open, it makes little sense logically, given that economic data has weakened considerably since the Fed failed to raise rates last month, whilst the expanding Deutsche Bank and Monte Paschi crises make it nearly impossible for the Fed to do anything. And oh yeah, when interest rate fears were far more powerful in late August, following a far more intense round of “imminent rate hike” propaganda – as if a measly quarter point rate hike would have any negative impact on PM demand in the first place – the lowest gold and silver prices fell to were $1,320/oz and $18.80/oz, respectively.
To that end, why anyone would believe the Fed would raise rates a week before the election – of which, money market “odds” are currently 24% – is beyond me. Let alone in December, where such “odds” have been50%-60% for the past month, given the freefall speed of economic data, and the financial market implosion that would likely result, if last December’s rate hike aftermath is any indication. Not to mention, the resultant surge in the dollar’s exchange rate, which would all but destroy what’s left of corporate earnings, after having already declined for six straight quarters. And oh yeah, the big pink elephant in the room, of the massive debts that would become more difficult to service – such as those of the world’s largest debtor, the U.S. government; and the “emerging markets” that would see their effective debt dramatically multiplied by a surging U.S. dollar.
Numerous MSM commentaries suggested gold and silver’s plunge were catalyzed by a “surging dollar” – when in actuality, its modest rise, of roughly 0.3%, wasn’t even statistically significant; particularly as it was focused principally on two currencies, the Pound (which plunged to a 31-year low, following the announcement of a formal BrExit timeline); and the Yen, which fell 1% because Japan is, for lack of a better description, a basket case. The Euro, warts and all, didn’t even rise significantly when the fake rumor, already refuted, of the ECB considering “tapering” QE hit the tape, and most other currencies were essentially unchanged.
The dollar index – which by the way, has had no material correlation with PM prices for the past decade – has traded between 92 and 100 for the past 12 months. Thus, yesterday’s close of 96 is right in the middle of that range, refuting the ridiculous notion, promulgated by no less than Zero Hedge itself, that it “surged.” And oh yeah, when it’s last interim peak of 97.5 occurred in late July – just before July’s “imminent rate hike” propaganda was refuted – gold and silver were trading at…drum roll please…$1,320/oz and $19.50/oz, respectively.
And then there’s Deutsche Bank, which surged Friday following a moronic rumor of an impending DOJ settlement, despite the fact that DB executives have yet to even address the matter. Not to mention, if they in fact were to settle for $5.4 billion, would likely be a disaster, given that essentially every Wall Street firm, just last week, suggested a settlement of just $3-$4 billion would wipe out most of its reserves. Well, yesterday’s “rumor” that DB is considering a capital raise should tell you all you need to know about its true, imploding financial situation; and irrespective, if a mere $5 billion is enough to make or break a company with more than $200 billion of assets, consider just how ugly its “off balance sheet” financial situation actually is. Clearly, the IMF has done so, in deeming Deutsche Bank the world’s “most systematically dangerous” institution; just as FDIC Vice Chairman Thomas Hoenig did three years ago, in deeming it “horribly under capitalized.” And trust me, if Deutsche Bank actually does a major capital raise – which likely, could only get done if Central banks covertly fund it – it would massively dilute the stock. Likely, pushing it below $10/share in the U.S. – and certainly, €10/share in Europe; triggering the equity conversion of $5+ billion of “CoCo” bonds, which would cause the price to plunge further.
As for the PM attack itself, arriving simultaneously with the U.S. cutting off diplomatic ties with Russia, and horrific economic data like the below chart of collapsing
…it represented the fourth time in the past two weeks that massive paper sell orders – quite obviously, naked shorts – were unleashed at the 8:20 AM EST COMEX open, as capture by these damning screen shots. By day’s end, gold was down $42/oz, and silver $0.95/oz, despite no other market materially moving. In other words, a perfectly executed named storm attack.
That said, it caused both metals to become severely “oversold,” for what it’s worth, at levels well above their respective 200 day moving averages of $1,254/oz and $17.05/oz – which just happen to be where they were trading prior to the BrExit vote. In other words, nearly all the post-BrExit gains were erased yesterday, despite the fact that its hideous political and economic ramifications are playing out just as feared. To that end, I ask you to determine if PM prices can possibly trade below those levels for long, given all that has occurred since, and all that appears like in the coming months.
That said, my firm belief is that, whatever the “reason” the Cartel had for launching such an egregious paper raid – which, by the way, resulted in one of Miles Franklin’s busiest days of the year, due to investors buying the gift from heaven dip – it will unquestionably be met as all such raids have since the financial crisis. Which is, with massive physical buying, just as occurred in 2008, 2013, and 2015. This, at a time when demand is already hovering around all-time high levels; with production actually declining; above ground, available-for-sale inventories paper thin; and oh yeah, the world’s political, economic, and monetary fabric tearing apart. In other words, such a blatantly obvious raid will have its own, self-perpetuating ramifications; in my view, in very short order. That is to say, if anything, the time “they” bought with yesterday’s raid will likely be extremely fleeting – and the sentimental impact, amidst a massive, global PM bull market, extremely ephemeral. So please, my friends, look at the situation as objectively as possible, and make the correct decision how to proceed.
P.S. As I’m about to hit print, the ADP September employment report came in way below expectations, at 154,000 versus the expected 170,000. Keep in mind, Friday’s “most important ever” NFP report has a current consensus estimate of 168,000, compared to the 120,000 estimate by Markit, the company that puts out the U.S.’s (abysmal) PMI manufacturing and service reports. If it’s the disaster it should be – election-related data-goosing notwithstanding, all hope of a December rate hike will instantaneously die, never to be re-animated.