Bearish News

Another round of Fed gasoline to errr, prime the pump? Nobody could have seen this coming.

From Tyler at ZH, quoting FOMC:

The only section that matters: “Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation…”

Precious metals react. Kitco News via Forbes:

Gold futures, already fortified by Europe’s continuing debt woes, got an extra shot in the arm Tuesday afternoon when minutes of the most recent meeting of Federal Reserve policy-makers showed at least some members are willing to consider further stimulus.

Silver also got a bump from today’s somehow-surprising news that QE3, or some other form of money printing, is still a very real possibility (inevitable, some say). Remember that the Fed’s Jackson Hole meeting is coming up next month, and Bill Gross says it is likely QE3 will be officially endorsed then.

Live 1d silver chart via Kitco.com:

Gold Daily and Silver Weekly Charts – La Douleur du Monde – Most Likely to Go Super Nova

By Jesse of Jesse’s Cafe Americain

“It appears that there is an undeliverable force heading towards an unmanageable object.”

At some point the shysters will lose control of the monetary papier-mâché which they have created. And the subsequent reaction could be epic, with the almost inevitable force of nature, like a tsunami rolling in.

Only a few people understand this. So it could be quite the surprise to many.

In the meantime the bankers and politicians are scrambling for the goodies pouring out of the financial piñata which they cracked open in the financial crisis.

The banks have plenty of gold to lease into the bullion banks, and then on into the markets and as collateral for leveraged paper obligations. But they are running out of silver, which causes me to believe that the silver cartel will break first, and will lead the way higher, as it has been doing.  A handful of Too Big To Fail Banks seem to be short more silver than can possibly be delivered without incurring terrific losses, even by today’s distorted standards.  From the looks of it, it appears that there is an undeliverable force heading towards an unmanageable object. Further complicating matters is the possibility of a magnitude 9.6 sovereign debt earthquake in the markets.

Unless there is some forced settlement, some draconian government intervention, silver appears to be a leading candidate for the manipulated market most likely to go super nova.

If the equity market does not fall apart over Greece et al., I would imagine that the trading desks will try to stand on the metals until a little closer to quarter end, then its elevator going up. But watch out for a Greek related problem. I am not sure how the markets might react to this if it really is another Lehman like event. So as you might expect I am running a paired trade, and net short into the close.

The dollar chart is a big problematic. I can make a scenario for a break either higher or lower from the chart. I think we will know the move when it comes, but predicting it in advance is a dicey thing, except for the broken clocks.

If the sovereign default situation goes badly there *could* be a liquidation selloff that would impact silver, and to some extent gold. This is why I am holding paired trades that are short stocks and long bullion. I further adjusted the risk downward today, and lengthened the shorts.

Re-published with author permission.

Guest post by Jesse

The miners were rallying with stocks and the metals today, as one might expect.

In the short term the markets will move on the Greek debt situation, the FOMC monetary policy decision tomorrow, and to some more individual extent the Russell 2000 rebalancing on Friday.

Gold looks to be on the verge of breaking out. Let’s see if they can do it. A great deal will depend on macroeconomic and political events in the short term.

I have included a second gold chart which shows the chart formations should the breakout be confirmed after the July Comex options expiration, and the sturm und drang which follows for a few days afterward.

JP Morgan may wish to plug in a new ‘cost of doing business’ item in their budget for the commodities trading group.  And Ben may need to keep a little ‘walking away’ money at hand for his cronies.

FT
JPMorgan settles SEC charges for $153m
By Kara Scannell in New York
June 21 2011 19:01

JPMorgan Chase agreed to pay $153.6m to resolve US Securities and Exchange Commission civil fraud charges that it misled investors in a mortgage-related security it constructed for Magnetar, an Illinois hedge fund.

The SEC charged JP Morgan with failing to disclose to investors in the collateralised debt obligation, a security linked to mortgage-backed securities, the role played by Magnetar.

The hedge fund helped select mortgages included in the CDO, named Squared, and was betting against them. The SEC alleged that investors were told that an independent firm, GSC Capital, had selected the portfolio.

JPMorgan agreed to settle and reimburse investors in the CDO without admitting or denying wrong-doing. The settlement also requires JPMorgan to change how it reviews and approves offerings of certain mortgage securities.

Visit Jesse’s Cafe, where he blogs daily. Published with author permission.

Guest post by Jesse (highly recommended reading -Adam)

Gold Daily and Silver Weekly Charts – and Le US Douleur – More Volatility Ahead for Silver

Silver was hit harder as the US equities fell, and gold maintained some resilience.

The intraday moves had the character of bear raids and sharp selling in size, rather than steady liquidation.

Notice that the dollar too was weaker today, although it remains in a short term uptrend.

The number of contracts standing for May delivery of silver ROSE today according to Harvey Organ. The Comex delivered no actual silver, but the trading desks offered plenty of paper, as overall open interest rose again.

Someone asked me what it might be like if the Comex was unable to meet its deliveries, and there was a  cascading effect to the metals encumbered by counterparty risk in the two big ETFs, if they were hit by a wave of redemptions as large shareholders sought to lock in supply.

I did not see their scenario of multiple days of up limits until the market clears, simply because it seems to be a few large members important to the exchange who seem to be ‘holding the bag’  in this case.  Market solutions are for the little people and relative outsiders like the Hunt Brothers.

Rather, I would anticipate a declaration of force majeure, and a forced settlement in cash and shares of SLV, which themselves are probably representations of bullion rather than the metal itself.   I do not know what the rationale for this might be, and it is not quite clear to me that they would even need one except for cosmetic purposes.

When you have power and have learned to use it with ruthless hypocrisy, the only thing you need to respond to is a greater force of power that calls you to accounts. This is one of the great lessons from the recent financial crisis.  When the government and the regulators do not uphold their responsibilities, fraud becomes fashionable.

The Comex has about 32 million ounces of deliverable silver on their books, and they are dragging out the delivery process each month, as virtually no new inventory becomes available to replenish their supply.

I was a little shocked that the parabolic rise in price and  the subsequent calculated smackdown in conjunction with the increased margin requirements shook no new significant inventory loose for the dealers, only more paper profits. Customer withdrawals continue as well, with almost 3.5 million ounces leaving this month.

However it transpires, if it does, it will be memorable.   I am looking at the supply and demand as the numbers are published, and not at anything esoteric or private.  So I would imagine that the CFTC and the least sophisticated traders in the market can see the same things unfolding.  I hear things from time to time about back room discussions about the resolution of all this, and have to work to separate them from the tide disinformation, of which there is quite a bit more than you might imagine.  People are very concerned about a potential shock to the credibility of the system.  Of course, they may be utterly out of touch with current reality.  Trust is in short supply, and the natives are growing restless.

Rumours, and disparaging talk, and theoretical discussions are well and good, but as they say, show me the money, or in this case, the bullion.

Where is it, how much of there is it, and what are they going to do when and if the supply of silver bullion drops below 30 million ounces deliverable, which is really a pittance given the size of the market? A silver futures contract on Comex is 5,000 ounces, and so that represents a mere 6,000 contracts.  There are a total of 123,000 contracts open today.  Last Friday the volume was an eye popping 126,000 contracts!  This at times seems less a market, and more a game of musical chairs, or a shell game.  And if the allegations are true about the LBMA,  and their leverage, then what we have here may be a recipe for a severe market dislocation.

And this is why I expect the silver market to remain highly volatile, with some amazing moves ahead, both up and down. And stretchers perhaps, to carry out some players from the pits, as they get caught offside in high frequency moves, and an increasingly disorderly trade. And this due to the failure to reform the financial system.

And for us, the smaller investors, caution is advised.