This is an unbelievable dog named Faith that can walk on two legs!
American - English Idiom: "Have a dog in the fight"
Idiom Meaning - To have a stake in the outcome of the problem at hand or to opt out of being expected to assist.
Someone wanted to know my take on the outcome of Goldhog Day, so here it is.
First of all, I view today's (quote-unquote) "gold" market as a two-legged dog. It has only two legs of support: private support (what we could call "the paper gold bull market" or private demand for paper gold from mostly metals, commodities and currency traders and dealers) and official (CB) support. I don't consider the demand for physical gold to be a leg of support for today's "gold" market. It has been more like a baseball bat to the "gold" market kneecap for quite a while.
Think of it like this: The position that lends the most support to today's "gold" market is "long paper gold and short physical gold." This was the position of Western gold bugs during the early 90s—trading in their physical for paper gold:
Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:
The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that is going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all ) The problem for the CBs was that the third world has kept the gold market "bought up" by working thru South Africa! To avoid a spiking oil price the CBs first freed up the public's gold thru the issuance of various types of "paper future gold". As that selling dried up they did the only thing they could, become primary suppliers! And here we are today.
The reason for "keeping the price of gold down to free up Western physical gold" was simply to prolong the $IMFS until the euro launch date. But once "that selling dried up" and the CBs became "primary suppliers", there was no longer a need to keep the price of gold down. At that point it was better if it went up!
FOA (8/22/01; 05:18:54MT - usagold.com msg#98)
The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it.
FOA (11/3/01; 14:39:16MT - usagold.com msg#129)
…any massive rise in physical gold values cannot be priced into "derivative gold" without crashing the system… This paper gold market will be cashed out at prices far below real bullion trading…
When I talk about support for today's "gold" market, don't confuse that with price. Always remember that the ultimate supportive position is long paper/short physical. So it is possible to support "the market" at a low price by selling tonnes and tonnes of physical gold. Likewise it can be supported by buying "tonnes and tonnes" of paper gold, which tends to raise the price of "gold" and "stretch" the physical supply.
Again, the two legs of support are the "gold" buying public and the CBs. The actual "use" (hoarding) of this particular commodity (physical gold) is not supportive of today's "gold" market, it is a major threat. And when I put "gold" in quotes, that means all the various paper that tends to move together with the $PoG constituting the entire precious metals sphere as we understand it today. I'm not just talking about a strictly defined type of paper gold. It is also helpful to exclude physical gold demand when conceptually thinking about today's "gold" market since it is a threat rather than a supporting element of that market.
Even though I said not to confuse support with price, the rising $PoG is, in fact, the only thing holding today's "gold" market together. That is, the buying of tonnes and tonnes of paper gold which raises the price of paper gold thereby "stretching" the physical supply is the main action being taken by one or both of the two supporting legs (private traders and/or CBs) that is holding today's "gold" market together.
On 8/22/01 FOA wrote:
"Both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to!"
And this is what we, in fact, saw:
Wednesday, August 22, 2001 - GOLD AT $276
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
Prior to that, "gold" had been range-bound for two decades.
FOA (08/09/01; 10:27:19MT - usagold.com msg#93)
"everything to do with a gold bull market"
This not only has "everything to do with a gold bull market", it has everything to do with a changing world financial architecture. And I have to admit: if you hated our last one, you will no doubt hate this new one, too. However, everyone that is positioned in physical gold will carry this storm in fantastic shape. This is because the ECB has no intentions of backing their currency with gold and every intention of using gold as a "free trading" financial reserve. None of the other metals will play a part in this.
Clearly, the coming drastic constriction in dollar financial trade will trigger a super "print press" response from the Fed. They will not be pushing on a string; rather picking up the ball of twine and throwing it! All the while using the old 1980s "monetary control act" that opens their use of monetizing almost anything and everything. They won't be adding reserves to the banking system in the future; rather buying any and all debts from anyone that needs fresh cash. Believe it!
The new "world financial architecture" (to use FOA's term) or the "fully-fledged Freegold paradigm" (to use Ari's) will be "assertively rolled forth" only after these two legs of *support* for the old "gold" market are gone. Whenever that happens, I personally envision the price of "gold" free falling very low before trading is halted, but that will be only the effect, the climax of a chain of events or the denouement of today's (quote-unquote) "gold" market. So if we want any kind of advance warning, however brief it may be, I think we should pay close attention to the sentiment of those two legs of support.
And this is the basis of what I called my two "indicators", the FPI and Goldhog day. Those are just silly names that I made up to explain what I think could be a potentially predictive snapshot of the sentiment of these two very different legs of support. The FPI is a snapshot of private support and Goldhog day is a snapshot of CB support. And the timing of Goldhog day is based on a specific theory about the MTM practices of the ECB. This is why I said in my Dec. 26th post that it was just something I was "watching for the next week and a half. It could be a signal of sorts, but I wouldn't put too much stock in it." In other words, take it with a big grain of salt!
For the FPI (or Freegold Puke Indicator) I'm gauging the sentiment of a very narrow band of the market, a segment that we could call the "swing producer" of private support for today's "gold" market. Forget the permabulls (most of the precious metals community) and the permabears (most of the MSM and mainstream investment community) and look for technical traders who have been bullish on gold for most of the last decade but who are always on alert for the top, preferably someone with substantial influence and financial weight.
I have found a good bellwether for my own purposes in this regard, and here are some of the things he has been saying over the past two weeks (paraphrased):
"Gold sentiment is off the charts low right now. It will be interesting to see how low the HGNSI (Hulbert Gold Newsletter Sentiment Index) will go after Friday's (yesterday's) action."
"The more Turk and KWN talk, the lower gold goes. Gold is heading below $1,550."
"Gold sentiment right now is suicidal."
"10 years in gold is enough. I'm selling 100% of my gold over next 3 months."
He believes that the secular "gold" bull market of the past decade has ended and a new secular bull market in the dollar and the S&P 500 has begun. And that's why I said that my FPI had "fired".
It is impossible to know which of the two support legs were responsible for the rising price of "gold" at any given point during the last decade, but I think it's safe to assume that the private (trader) leg carried at least its fair share of the weight most of the time. But there have been a few instances of "support" that seemed counterintuitive or at least "eyebrow-raising".
I presume a fundamental difference of motivation between these two legs. The private (trader) leg supports the "gold" market when it thinks it can make a profit in currency terms. The official (CB) leg supports the "gold" market for a purpose other than profit. That purpose I presume to be the prolonging of the status quo in the absence of sufficient private (trader) support.
All of the instances of curious "support" that have raised my eyebrows occurred during or after the financial crisis of 2008. Granted, I have only been watching since 2008, but even so, there is evidence that this is when "it" began. Take the GLD puke indicator for example. Notice that they began in September 2008:
What makes the GLD puke indicator interesting is that the price of "gold" tends to levitate following a puke. I do realize that there are theories and explanations for why this happens and I'm not going to get into mine in this post. But I did want to point this out as an example of several instances of curious "support" that began in 2008.
The other three instances were the Nov. 2008 bottom in "gold" which I mentioned in my New Year's post, the June 2010 MTM snapshot described in this post and the mysterious "eleventh hour levitation" mentioned in this post. The latter two being associated with the ECB's MTM practices are what gave me the idea for Goldhog day last May.
To my mind there are three prerequisites for a valid Goldhog day. First, we must have a prior FPI firing indicating low private (trader) support, especially from the swing producers. Second, we need a gold price that's significantly lower than we'd expect it to be just prior to Snapshot day given the uptrend of the last decade. And lastly I think it needs to be either a mid-year or year-end Snapshot day, not March or September.
Last May my FPI fired and the price of "gold" was very low for the June Snapshot day which was still 45 days away. But then the price levitated into range by early June which suggests private (trader) support was more likely than official (CB) support, technically invalidating June 29th as a true Goldhog day. So yesterday was our first-ever true and valid Goldhog day!
Someone asked whether the ECB takes their snapshot from the AM or PM fix at the LBMA. The answer is that they take their own snapshot during the day. Sometimes it is close to one of the fixes while other times it is not. For example, last September it was almost the same as the PM fix. The PM fix was €1,377.278 and the ECB's snapshot was €1,377.417. But in June and March the ECB's snapshot was actually lower than both the AM and PM fixes. On June 29th the AM fix was €1,248.012, the PM fix was €1,260.448 and the ECB snapshot was €1,246.624, which is why I picked €1,246 for my Goldhog day prediction.
The actual gold fixes yesterday were €1,254.323 in the AM and €1,262.932 in the PM. We won't know until Wednesday what the ECB snapshot was, but I'm going to guess €1,257. It certainly didn't hit my low of €1,246, so I can't make a decisive call. But I can explain my take on it.
Here are all of the MTM snapshots beginning in 2008 along with the percentage of "gain" or "loss" from one quarter to the next, and also for semiannual periods:
Notice that yesterday was the largest quarterly "loss" by a longshot, which is significant. But I'm focused more on the semiannual periods because, as I mentioned before, there are indications that the mid-year and year-end snapshots might be more important to central bankers (for whatever reason) than the other quarters. One indication is the more frequent dips from quarter to quarter versus semiannual dips, and the other indication is that the two instances of "curious support" occurred at mid-year and year-end snapshots. So take it for whatever it's worth, but there it is.
If we had hit my low of €1,246 this time, notice that it would have registered as a negative number in the far right column, or a "loss". But it wouldn't have been the first one. There was another semiannual decline of -1.1% from January to July in 2011. But this time would have been significantly different from 2011.
The difference would have been that in 2011 there was a huge dip in the price between January and July. So even though July came in slightly lower, it still represented a massive levitation to get there. This time was the opposite. There was a huge rise between July and January so, even though it's flat for the past half-year period, it represents a huge decline (i.e., lack of support) to get to where it is today. Can you see the difference from a CB Snapshot day perspective?
But we didn't get there, even though we came remarkably close. I never thought that anyone would intentionally take the price down. My point, instead, was that if it did happen to fall that far without hitting even official (CB) support, that would be a significant indication to me in support of my other reasoning for 2013 being the year of the window.
As it turns out, the euro price of "gold" did find some support at €1,254. Was that official (CB) support or private (trader) technical support? To be honest, to me it still looks like the two "fundamental" legs of support for today's (quote-unquote) "gold" market are possibly gone. And as I said, normally I couldn't care less about the price of "gold", but I think that my "bellwether" might just be right, that the decade-long bull market in paper gold might be over. If so, look out below!
And if you think this whole post sounds like pure speculative gold-hog-wash, that's because it is! :D That's what you get if you want me to do timing. As I said, take it or leave it, but if you take it be sure to take it with a huge grain of salt.
So what's my take on the outcome of Goldhog day? I say it still looks like "game on" for 2013, Year of the Window!
LBMA’s Best Gold Forecaster Hochreiter Says Bull Market Over
By Claudia Carpenter (Bloomberg) - Jan 7, 2013