Give me Facts or at least Logical Opinions
Better yet, give me both.
Someone wrote me yesterday. She has a favorite author she follows and she wanted to know what I wanted from authors. I told her it was pretty simple, I will post anything that is factually correct and/or the opinions are logical. That is, if it might be valuable to my readers. The best of all worlds would be where logical opinions are backed up with facts. The worst of all worlds is when a piece is filled with disinformation and utterly lacking in any logic. There are a lot of those around.
I'm like all readers; I will read through a piece until I gag. Then I stop and find something else to peruse. Today I opened my email and saw a piece talking about the Comex open interest. I managed to make it about a third of a way into the first sentence before I felt sick. Please gag me with a spoon. The author started his piece with some rambling about defending long held short positions by the "Comex Banks."
I hate it when people simply invent new concepts that are utterly irrational. Comex is an exchange, not a bank. How could anyone confuse Comex with a bank? What the hell is a "Comex Bank?"
Did this guy just make this up or is he so ignorant of how commodity exchanges work that he wants to share his ignorance with the world? It got a whole lot worse from there. After barfing for a few minutes, once my system was cleaned out, I continued just to see if it could possibly get worse. It did.
One of the earliest writers we posted on 321gold.com is Steve Saville of The Speculative Investor . The guy is simply brilliant and well worth the cost of $240 a year. For that you get two commentaries a week filled with good and valuable information about markets in general, the dollar, gold and specific recommendations. Like Bob Hoye and Adam Hamilton, Steve Saville pretty much gets it right. We are always pleased to post him. Not that we do it very often because he is really lazy and dilatory in sending us pieces, hint, hint.
He does have a free blog where he comments on subjects such as A critical juncture for gold and Making stuff up, two of his latest free blog entries. You need to bookmark the free blog and go there on a regular basis.
Steve Saville wrote an interesting blurb on the COTs and what really happened a few weeks back. What goes on is almost exactly the opposite of what our makeup artist said. You can read how the COTs really work from Steve's vantage point here.
Here is how the COTs work from my perspective. Contrary to our fledgling GURU and pending expert, it is not the commercials that initiate new futures contracts; it is usually the small speculators. The banks pretty much don't bother trading metals futures, contrary to popular view. They make a market for the commercials. The interest rates derivatives are 100 times bigger than the gold market; why would banks give a damn about such a tiny market? It's not even chump change; it's far too small to be chump change.
We know that small speculators are trend followers. They want to buy at tops and sell at bottoms. The more gold goes up, the more excited they get. Likewise, the more gold goes down, the more negative they get. So it is perfectly natural that when you approach a market top both the number of contracts outstanding and the number of small speculator longs is high, many times even a new high. That's where we are right now, a new record high in the number of outstanding contracts in gold.
Commodities, unlike the stock market, are a zero sum game. For every contract, there is one buyer and one seller. That's how we know there is no such thing as a naked short because logically in a zero sum game, if you had naked shorts, you would also have to have naked longs. No one has plucked that concept out of thin air the way they did naked shorts.
Small speculators are the weakest of weak hands. As markets climb for month after month they start getting frothy at the mouth and want to climb onto the train at the very last possible stop. They also are the first to bail out.
Contrary to the article filled to the brim with nonsense, the banks by and large don't trade for their own account unless they are clipping cents off of trades by hedging futures against cash positions. The banks are obviously strong hands as are the commercials.
Why would a gold producer panic at the possibility of higher prices for the commodity they trade? They may be short gold and from the perspective of the person on the long side, they are losing money compared to the long but all the rest of their gold is going up in value. That's why the commercials cannot and never will panic. They are the commercials; higher prices are always in their best interest.
That's not the same issue as happened with Barrick ten years ago. Barrick hedged gold at the very lowest prices in memory and did cover but that was a function of their poor financial planning. Commercials typically respond to demand from small speculators on both the long and short side. They respond to demand, they don't create it.
The weak hands are rushing into gold and silver now. We know that because of the size of their small speculator long position. They will be the first to panic in a correction that we all know will come one day soon.
It's popular to believe that the banks want to manage and control the paper price of gold. If you want to get people to sign up for your website and pay you the big bucks, you feed them this sort of nonsense and rubbish.
When it comes to gold and banks managing the price, frankly my dear, they don't give a damn.