"...for people who have put some cash aside you are looking at opportunities being served to you on a golden platter.”
"'Friday was a 4.88 standard deviation move in the price of gold. For simplicity's sake let's call it a five standard deviation move. Statistically we get a five standard deviation move approximately once every 4,776 years. So we should not expect another move like this out of the price of gold until May 17, 6789. ... Currently the two-day price change in GLD is 16.65, which can be converted to just over eight standard deviations. I wanted to share what this comes to, but the table I use only goes up to seven standard deviations. Let's just say the sun is expected to burn out first.'"
- Russell Rhoads, CFA of the CBOE Option Institute
April 16, 2013 - 1:19pm
There is no doubt that we are at a critical juncture in gold and silver and the first order of business is to drill down to how and why prices plunged so much Friday and Monday. Certainly, more commentary (mostly on gold) is being written about the precious metals currently in regards to the price weakness than I can remember. Unfortunately, much of the analyses and commentary is wide of the mark, in my opinion. But the great thing is that everyone interested in what just took place with gold and silver prices can decide for themselves from the multitude of opinions offered as to what makes the most sense.
For me, explaining what took place is easy, since the price plunge occurred in the confines of how I analyze gold and silver. First, what exactly did happen? Basically, a neutron price bomb was detonated in certain NYMEX/COMEX markets that selectively targeted gold, silver, copper, platinum, palladium and crude oil prices. On just about every other market, like stocks, bonds, currencies, grains, meats, soft commodities yesterday was non-eventful pricewise. The importance of this distinction that only selected markets experienced unusual price weakness is that it eliminates many general knee-jerk explanations about prices being impacted by broad macroeconomic factors. How could broad economic factors influence certain commodities and not the stock or currency markets? Looking deeper, the commodities experiencing price weakness all have different supply/demand fundamentals relative to one another, so as to eliminate the possibility that all those unique fundamentals changed yesterday in synch. Commodity fundamentals change glacially; it’s impossible for the supply/demand equation of many various commodities to change overnight.
So, if it wasn’t abrupt change in the fundamental story in the various separate markets that were hit to the downside yesterday, then what the heck accounted for the steep declines in price? Stated differently, what was the common denominator present in the markets that plunged? The most visible common denominator was that the various big price declines occurred on the NYMEX/COMEX markets owned and run by the CME Group. But the most important common denominator was the nature of the buyers and sellers across all the markets that got smashed. Without exception, in any market that declined significantly, the big net buyers were the traders classified as commercials and the big net sellers were those traders classified as non-commercials, largely technical trading funds. Not only was this true yesterday, it has been true on every single big price decline throughout history, according to US Government data (COT reports).
This may seem elemental, but I ask you to contemplate this anew. In the highly-charged emotional state of significant price declines, it is tempting to accept fabricated stories as to what may be the cause of the declines. Because of that, it is more important than ever to rely on the known facts and only that which can be substantiated. COT data have and will show without question that the commercials are always the big buyers and the technical funds are always the big sellers and there was no exception this time. Once you know who the big buyers and sellers are (which is the beauty of the COT), only then can you proceed to the how and why of the big price declines.
Armed with the certain knowledge that in every market that declined substantially the big buyers were the commercials with the big sellers as the technical funds, how and why fall into place. Why is real easy – in order to make money. The way one makes money is by buying low and selling high, although not necessarily in that order. For instance, JPMorgan the big concentrated short seller and manipulator of silver and other markets, has made a boatload of money, many hundreds of millions of dollars, by short selling at higher prices than the prices they have been buying back at. I don’t begrudge JPMorgan for making large trading profits if they were doing so legally, but that is not the case. The trading profits being made by JPMorgan and the other commercials are as far from legal as is possible. That’s the only plausible conclusion a reasonable person could reach when answering the last open question – how do they do it?