Inputs and comments

*Regarding what is going on with the COT report, Turd was kind enough to send us…

Hi, guys.
Bill, as you may be aware, info was delivered to the CFTC 11 months ago that proved the banks use offshore accounts to do their dirty work. No surprise there and equally no surprise that the CFTC has done nothing to stop this practice.

For me, the primary issue here is the counterintuitive nature of the selloff. The media leads people to believe its all about "taper" when, in fact, it began when The Fed announced QE8 back in September. Why would the metals go down while The Fed is printing $85B/month? Why would they then accelerate downward in April?

It has to be this BB positioning. Nothing else makes sense. The rally that began in mid-August of last year was heavily shorted by the banks, as per usual. However, QE8 was then announced in September, after the banks had already moved dramatically net short. Having felt the tremendously painful effect of covering into rising prices (April 2011 in silver and August 2011 in gold), the last things the BBs wanted was to try that again. Left with no other option, they painted the chart at $1800 and tilted price downward. Eventually, the momo-chasers jumped on board and the BBs were able to put the selloff on autopilot, especially after giving it a shove through $1525.

Are they almost done? This BPR suggests they're close...but they don't necessarily have to be. As long as they can use the liquidation of the GLD as a source of physical metal to cover sales to China et al, why not stand back and let the Specs did their hole as deeply as possible? Why not run price down to $1050 and move net long 100,000 contracts?

Again, timing all of this has, and will continue, to make me and anyone else attempting to call a bottom look foolish. In the end, however, we can all play Monday Morning Quarterback. We'll look back as gold charges higher through $1500 and then $1800 and say "Gee, it was so obvious this was coming". The CoTs and BPRs told us all we needed to know.
TF

*Dave from Denver on the COT report...

Hey Turd

I think I first noticed that the 4 or less largest traders of the "commercial" segment went net long about 3 or 4 weeks ago. But the COT structure starting looking bullish probably in last March. As Turd points out, and I pointed out in that email earlier, the trend has continued, with the Big 3 getting net longer every week since early June or late May. I also mentioned, as Turd points out, that Wed-Fri the trend likely extended even more.

Turd, I say "the Big 3" because the category is titled "4 or less biggest traders" or something like that. There's only 3 banks (plus two non banks) that operate gold vaults - JPM, HSBC and Scotia. I'm sure Brink's does not engage in futures trading. So my bet is that, unless Goldman is also in the mix of large commercials, it's those 3 banks.

I agree that there's a possibility that JPM/HSBC/Scotia may have set up off-shore entities that are shorting paper that get reported as hedge fund shorting. That's something we can never know for sure until this whole thing blows up and gets dismantled (that would probably require the collapse of the Government).

On the other hand, we know the big banks were net long in late 2001. On the assumption that the COT set-up is the same as the patterns of previous run-ups/corrections during the last 12 years, my bet is that the smart banks are positioning themselves with as big of a net long futures position as they can and when the market doesn't want to go down any further, they'll annihilate the hedge funds who are taking the other side.There's only one reason why the big Comex banks have positioned themselves long gold for the first time since the bottom of the 20 year bear market in gold.

I also think that the fact that the Fed felt compelled to engineer a hit like this on the metal - in conjunction with the Treasury/Exchange Stabilization Fund - tells us that something really ugly is coming at us, just like 2008 only much worse.