High CPI

We start off by discussing how “transitory” became “temporary” in Fed Speak a week or so ago, and now it appears CPI was higher than anticipated.

And gold fell.

I made a comment last night on someone posting that it appears there are no algos on news that actually has gold going up. Meaning, it appears there’s an algo programmed to hit gold no matter what, and in cases of good news for gold, the pin is pulled – then a day or two later the grenade goes off. It is somehow trying to gaslight people into thinking certain news isn’t good for gold.

This is the new economy I live in. The first 44 years of my life, I thought we lived in a free market. The last 20 months or so has educated me on a lot of how things really are. And, it’s a shame. My country was built on the “free market” system, but time after time in my country’s history, you see big companies leverage political connections to take abusive power which leads to manipulated markets. What mostly comes to mind here is the 1880s with the railroad which led to the Sherman Antitrust act of 1890.

However, all you need to do is continue on with time, and you see the manipulations. Oil, gold, Fed, silver, big tech, big pharma.

Now, if you can sort of understand HOW the manipulation works and plug in to how this moves, you might stand a chance of profiting from it.

Real rates continue to plummet, and somehow gold is stuck in a rut. Then you hear the excuses…”the DXY had a bounce”…”the 10 yr ticket up .03%”. All bullshit. Yes, these things move – but the root issue is that you have gold’s price determined by a paper derivative. People are using this and arbing opportunities back and forth with the FX markets.

They aren’t “selling gold”. They are moving money around rapidly to different markets making a nickel at a time on millions of robot trades. All they do, all day long, is print money with this.

The big problem with this system is that it relies on the paper markets.

What happens when physical is less available? The paper charade comes crashing down.

I want to have another futures discussion with Jim Hunter down the road. Any of you have any follow up questions to his Palisades interview, send my way. I have a TON I’d like to follow up with. Essentially, I’d like to have a discussion and represent the angry silver and gold bugs – meaning, I’d like to try and have him interpret things we see so we can better understand. For example, on one hand he was extremely complimentary to Ted Butler – but on the other hand he discusses banks doing lots of hedging for mines. Many would argue mines aren’t hedging anymore and Butler’s key position is the banks have “concentrated shorts” over 330 million ounces suppressing the price. So these types of things I’d like to unpack in a discussion. No right or wrong, just get a beer at a bar with him, so to speak, and unearth all of this stuff.

Gold sentiment looks great

Now, I have seen first hand so many of my followers post things about being disenchanted from the metals. Capitulation appears to be what I see, and I could not be more bullish at the moment. I’m waiting for this handle thingy to develop over the next 1-2 years or so, and it’s going to be an exciting time. One thing I had seen though, which is of interest to many of you thinking about capitulation, is that the market doesn’t work on your timeline. My long term holds are just that – but my trades are probability based, and somewhat like a casino, it’s a bet. Trades are bets. Don’t bet more than you are willing to lose.

Likewise, I think the best thing I’ve learned in that time is trying to find good entry points. It doesn’t mean the market cannot fall more, but to me, you minimize downside risk by buying at extremely low RSI and maximize profits when selling at extremely high RSI. Rick Rule talks about trying to get the meat and potatoes in the middle. You and I as amateurs try and time the lows and highs to maximize our trades. A billionaire like Rule doesn’t need to do that.

That all being said, let’s take a look at the July gold sentiment out there. Gary Wagner seems to have the lead, but Happy Hawaiian is the dark horse here as gold has inched its was to $1815 from $1760 or so just a few weeks ago. A pop here could have him winning bragging rights over many highly paid professionals.

The big deal was the Michael Oliver interview with Patrick Karim I heard last night. This is not a TA chart-based thing. I mean, it sort of is, but not. Rather than just looking at price action, Oliver uses a “momentum indicator” where he looks at the price minus the 200 day, or some gauge like that to get the moves from the mean. This reveals oscillators that were near-perfect. It reveals channels and support/resistance that are not seen on the price charts. THESE are the type of bells and whistles I’ve been looking for.

And with it, it appears silver is about to pop “like bitcoin”.

If any TA out there has not watched this, I beg you to do so. It might have you looking at your price charts completely differently now. TA alone on price is not something I believe in as a religion. I like to use the RSIs, and I do believe in the channels and triangles and all of that – but you cannot deny that once you see the momentum indicators, THIS is the macro driver of the item for the big picture. Meaning, you might not capture things on short term trades, but this would indicate going long in silver right now is a very good idea for a longer term hold.

You do seem to have SOME change of opinion midway through the month, with the ghost of Leslie Nielson, AKA Mr. Billy B. reporting that Gary Savage may be “cautiously optimistic”.

I’m also very interested to hear any interviews from Bubba Horowitz this week. A few weeks ago, I heard him on a Kitco interview (when gold was like $1770) say that he was short gold on paper, long in the metal, but he was bearish at the moment. He said that if gold popped up quickly over $1800, that would not be good, but a “stair step approach” that could take it over $1800 and hold would be bullish.

I plan on doing this again for August and updating this the last week of July, so if any of you see interviews where they may give short term sentiment for gold please send my way.

Silver metrics

This moves into the silver metrics I updated, mostly to show that:

  1. Media attention has gone from mockery to now sort of trying to understand the movement. There was some ridicule on the “$1,000 silver” number, but this was a cherry picked number from some that is not the root of the movement. Still, it talked about the 123k apes and the objective to buy physical. This attention in mass media is now the cover needed by the JPM of the world to let silver run long – they can then blame the run up in price on the WSS movement and allow the banks to make stupid profit. The root problem many miss here is the WSS crowd isn’t playing the futures game, and they made mention of the silver options for Sept.
  2. Oliver talks about $28 as the launching into orbit number. John Lee of Silver Elephant had $27.50 as the number – Oliver mentioned the next time hitting this is when all bets are off. Lee may have had the right price range, but Oliver showed with his momentum indicator this next effort will be the amount of tries needed to break up.
  3. Open Interest is wayyyy down in silver over 6 weeks. I know the gold people talked about “squaring the books” for Basel 3 with reducing OI. We are seeing this in silver, now. While gold gets all of the attention, silver is in the exact same boat as gold. Why? I have showed my picture many times that Basel 3 talks about “all balance sheet items”. There was a section for gold, but it never talked about a “tier 1 asset” as Maneco had pointed out. Rather, it is treated the same as a risk-free asset, in a sense. Silver OI was over 905 million ounces on May 26th, and now at 775m oz. Additionally, you are seeing hundreds or thousands of contracts now being sent to EFP for Sept, whittling down Comex OI by offloading this to LBMA, and perhaps settlement with removal of silver from SLV if needed. However, this OI is leaving the building. Interesting. I had talked at one point the risk associated with having 900m oz in OI and only 115m in the COMEX registered. Jim Hunter had talked about how easy it is to move items from the eligible to registered. However, in all of my readings and interviews I’ve seen, the eligible may not be owned by the banks to sell. It could be SLV holdings? Could be Elon Musk holding and using it as a storage facility. You have to use REGISTERED for risk purposes, and this had almost an 8:1 OI to registered number. Now, one might suggest “it’s easy just to settle in cash”, but most under this umbrella aren’t realizing the COMEX is delivering real metal more than it ever has before, by a LOT, and many of the buyers coming in now WANT the metal. If you then are short hundreds of millions of ounces and all of these people WANT METAL, there’s a MASSIVE, MASSIVE risk of the price going hockey stick overnight when all of the people who have futures contracts (on margin) who may not GET the metal, then go into the spot OTC market looking for hundreds of millions of ounces – thus shooting futures contracts prices vertical overnight – THIS is the short issue I warn about. Sure, they can settle in cash, but I bought 1,000 contracts at $26 and UBS is selling it to me. Price goes bananas on OTC and we wake up a week from now and price is $36. That is a $50,000,000 loss UBS would need to absorb to settle in cash. I believe this is the risk I’m discussing when you CANNOT settle in metal that you do not have, but are faced with then having to fire cash out. Reducing OI with much less in registered is the ONLY WAY to reduce that exposure. Which ultimately means less overall paper shorting. Combined with TV exposure, this appears to be carving the path for much higher prices now, to be blamed on WSS.

Options play update

Weekly, I’ve brought you my options play update to follow along. I’m not Einstein with trading – the concept here was to do call options, show people HOW I do them, WHY I do them, and WHEN I do them. It is not investment advice. In fact, in my writings and videos I BEGGED people not to do it. This is the post that kicked it off about 3-4 weeks ago.

What I saw was an EXTREMELY oversold RSI on gold, and not on any real news. No fundamentals had changed. I had heard rumblings CPI was continuing higher. So, I did a bunch of call options. The idea was there was a perhaps 50% downside risk, but a 7x upside potential gain.

I had also done some research to show what happened the last 10 times gold was THAT oversold, and all 10 times it went over 70 RSI in roughly 2 months, with 2 of the 10 taking 100 days. Meaning, IF the past was an indication of the future (it is, until it isn’t), then I had an 80% chance of this move going to 70+ RSI inside of about 2 months. This led me to buy some cheap GDX options for 3 months. Within a few days, gold had not moved, but the miners flushed out. Wasn’t expecting that. Crushed my soul.

This play then is what led to me putting together my gold sentiment indicator above. I was seeing really good things for a 3-6 month window, and I wanted to then put all of that together to show you what I’m seeing on a macro side of things.

Then, you start seeing things like that posted by Tavi Costa, and you feel you may have guessed correctly. Guess is a good word here – I’m not a professional trader and won’t pretend to be one. But when Tavi posts this….you think things are looking good!

He put this out about a week or so after I posted what I had seen…

Now, he is a pro, and he probably had 43 other indicators before he posted, but this lets an amateur like me have some confidence I saw the right trade on the early side.

Then this…

Which make my SILJ options look like gold.

So where am I with these? Here’s the tracker. Gold is recovering nicely, but miners are slower to come back. If you look at Tavi’s thoughts above, my SILJ options below look to be very nice in a short amount of time.

With these, I was banking on a 50% risk down. Some of these I let run too far, but didn’t want to get stopped out.

If you look to see where I bought these on a gold chart (not the SILJ items), you can see the red circle. I drew a blue line across. So most of my options are still getting killed, but gold is equal to, or higher than, when I bought the options. I have SOME time decay, but what you are seeing is underperformance with the miners to price of gold. We saw them exit a week after the drop, and more last week. Yesterday, we saw SOME strength coming in to the miners with no net change in metals prices. A few more days of an up trend and we could see miners come back big, I get even, and then I have a strong 5-7 weeks of gains. That’s the idea at least. I wasn’t banking on the drop in miners soooo much after gold price leveled.

Deflationists missing key point

I believe in a great deflation coming, like all of them. But it’s NOT being caused by deflation, it’s being caused because of inflation, and the lies about it existing for the last 40 years. Because of this, interest rates were allowed to artificially be suppressed – by a lot – for a very long time. If you lie about inflation, then the risk indicators show “clear skies” which then have more people interested in bonds and with this, props up prices.

If, one day, the inflation lie is revealed, this will overnight lead to a re-rating of the bond yields. Why? Who wants to hold a 1.2% 10 year when inflation is 10%? The CPI just showed over 5%, again, but the yearly rate is about 10% with the MoM at .9%.

My suggestion is that people will sell the hell out of bonds, and with this, rates will launch into orbit. As rates increase, the stock market gets crushed.

Desperate to prevent rates from going too high in order not to default, full on Yield Curve Control is deployed to cap rates. Meanwhile, inflation is running away.

THIS then has the bond market in sell off mode. Stock market in full on sell off mode. Metals in sell off mode – margin calls initially crush the metals as paper gold/silver sold to cover margin debt. Rates climb and overnight this strangles any lending to the housing market. Artificially high prices on cheap interest rates disappears, evaporating the 24% YoY price increase, and perhaps taking property lower. Massive stock market hit leads to layoffs and 10%+ unemployment. This, at perhaps the same time more COVID cases for the delta or lambda or whatever variant – is coming. Another lockdown? $3 trillion more in emergency spending? Tenants getting evicted. Houses default. Banks crushed.

The deflationary event is not due to things being deflationary now, it was due to 40 years of trying to hide inflation to juke interest rates lower by removing just about anything in the CPI that would indicate price rises for “dinner table inflation”

The cat is out of the bag.

Then I see this from Steve St. Angelo. I don’t mean to pick on him. It seems like I do. I’m a big fan of his and agree with 95% of his stuff. Loved the visual of burning down forests to make metals in the middle ages.

He wants to point to this to show that inflation isn’t here. It’s actually deflation and this lumber thing was a transitory effect. I believe it was Michael Oliver (again) who pointed out in an interview that Lumber was a one-off, and should not really be part of the whole “inflation” argument because this was juked by rich people moving out of cities and building houses in the suburbs during COVID. Meaning, lumber in this case was a temporary supply/demand issue with lots of temporary housing demand as people re-located out of cities.

However, he points to this move up and back down as sign of transitory inflation, and how the inflation will pass – he contends like some of the deflationists like Rickards that we are in a massive period of deflation and this is evidence of it.

What Steve and Jim need to tell me is how you go from 40 years of deflation to then suddenly having a high inflation narrative?

To me, it appears that inflation is here, and a TRANSITORY DEFLATION I wrote about is about to happen when the interest rates shoot up when inflation is realized by the markets as not being temporary. When the reality of the joke of the CPI gets out to the masses, they cannot un-see their groceries going up 5% per month.

There may be items like lumber that retreat due to certain circumstances. But the PIN that causes the issue is inflation. Everything will get re-priced, and with that, there will be a lot of selling of “over priced” things to find “value things” that rise well with inflation.

The key point is the upcoming deflation is a transitory period of inflation that has been going on, and not being reported. Why? To juke interest rates lower so we can borrow more and spend more.