A Contrarian’s Delight

“I believe that banking institutions are more dangerous to our liberties than standing armies.”

  • Thomas Jefferson

For many commentators there are two distinct camps in the Precious Metals markets: Investors in bullion vs speculators in the paper market. These two markets are pulling in opposite directions; most media hypes, the political class and their bailed out banks and brokers are on one side and the people of America and the rest of the world are on the other.  The few of us who understand Austrian, Free Market Capitalist economics, think it is only a matter of time before derivatives and the paper Gold and Silver markets (the COMEX) fail completely and the price of Gold and Silver will then skyrocket; driven by worldwide physical demand. The two ends of the market must be resolved along the lines of the true long term forces of economics. Paper Fiat money will always eventually end up at its true value, zero.  If you want to see a clear picture of what is about to happen, take a look at what is happening to BITCOIN, which is probably a large reason why Gold Bullion has not yet exploded to the up side. If you want to believe that Bitcoin is a better long term store of value and that the governments and central bankers of this world will allow this to go on much longer than you don’t know history. And still believe in Pipe Dreams. Bitcoin’s downfall is inevitable, since it does not solve any of the Governments, their central Banks or the people’s problems.

Prices are going up. Unemployment will continue to increase and we have not had the necessary market clearing correction for the financial bubble created by our Federal Reserve System since Volker. The current Treasury plan is a disgrace; a bailout of reckless Government spending running wild and unchecked. We no longer have a working government. We have a President that runs the country by Executive Order. That, my friends, is how a Fascist State is run: Have we become a Fascist State?

Central bankers and banks provide little if any direct debt relief to borrowers and financially stressed households, which will eventually get some relief but will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown.

  • The Eurozone will soon begin breaking up.
  • The US will fall back into recession which will become a depression.
  • A military conflict with Iran and maybe China will soon bubble over into a shooting skirmish at a minimum, if not all out war.
  • Foreign markets, like China and Japan as well as most of Europe have already begun to show the initial signs of imploding.

I am not going to say I told you so... but I have, more than once. China has morphed into the same kind of Socialist, central planned economy as Europe, Japan and the US. Therefore, they are succumbing to the exact same economic stresses as the rest of the industrialized world. Their limited capitalism that they initially employed with much early success has fallen into the same corruption, crony capitalismand central planning trap as the rest of the industrialized world. Plus China’s particular problem of a 1.4 trillion over population will soon be made much worse as they move from a limit of one child per family into a two child per family limit.


It’s important to know what types of investments to avoid. Treasuries, or in fact any dollar denominated debt, needs to be avoided because again, either you are not going to be paid back at all or you are going to be paid back in money that doesn’t buy very much. Earning 1% in the face of 5 to 9% inflation is definitely a losing proposition. Forget about the rating agencies. Their opinions are not worth the paper they are written on. So you have to protect yourself. Gold, Silver and commodities in general are obvious ways to go.  Just like the market crash of 1973-74, stocks were considered the sure way to go until they weren’t. Then there was the Real Estate Bubble, but like every other bubble, that too blew up when the only solutions governments can think of are massive printing of (Fiat) money.

“A fool and his money are soon parted.”

The phony Fiat money can only last so long.   No one wants to talk about the tragic plight of real (inflation adjusted) incomes that have been in decline for decades. Orders for big ticket items fell once again in October - Great Economy AYE! That in the face of a unanimous consensus for improvement for the November report, which has also just declined and yet the markets continue to rise. We are rapidly approaching that time when “A fool and his money are soon parted.”

Dollar Confidence and Money Velocity

Money velocity can be defined simply as GDP divided by money supply. Since the financial crisis, (M2) money supply has grown by over 45%. During the same time period, GDP grew by only 13% to 14%. So, velocity had to increase substantially - and it did. Even though more dollars were spent and our GDP increased, the GDP increase wasn’t anywhere near the growth in the money supply: That’s the definition of inflation.

Right now, more dollars exist than ever before and dollars are still being created faster than growth. Therefore, the dollar has to be at its lowest point since the start of its creation. And it is and will continue to fall in real terms until these circumstances change.

For what it is worth, while Gold got pummeled again, Gold stocks did not. Both bullion and their respective stocks are oversold and any sustained Gold increase will shoot their stocks up as they are now in stronger hands and will not capitulate so easily as in the past. Also, the manipulators are running out of ammunition and are coming under much closer scrutiny.

There is one thing about much of the recent commentary that leaves me puzzled. As factual and graphic as the descriptions of the extreme changes in COT positions in COMEX Gold and Silver are, particularly this year, I am a bit taken aback by the lack of discussion as to what may be the reason for the extreme changes. It is one thing to accurately portray the changes in positions and even to label the current set up as being strongly bullish for the price in the future but apparently, quite another to explain why the changes are occurring. It is the “why” that completes the picture that concerns me the most.

Missing most is the question of how the heck did the commercials (mostly JPM) manage to buy more Gold and Silver contracts than ever before on the biggest price decline in history? JP Morgan bought 150,000 COMEX Gold contracts flipping a short market corner of 75,000 contracts a year ago into a long market corner of similar size today and 25,000 Silver contracts on the most severe price decline in decades. Unless JP Morgan is the greatest trader in history, logic dictates that the bank cheated in some way. Yet the question of how could this be is never asked, even when the manipulation is obvious and is described folks in the know in great detail.

The good news is that the question of how JP Morgan came to dominate Gold and Silver will be asked more frequently in the future because it has to be asked by anyone with the slightest concern for cause and effect. Then it will be a very short distance to understanding that there is no legitimate answer. There’s an answer all right, just not a legitimate one. This is why I believe that JP Morgan has remained mute in the face of growing allegations of wrongdoing. That’s also why I am sensitive to JPM buying more Gold under the table over the past month because it suggests we may be near the end game where the bank, not able to justify its positions, instead looks to end its death grip on the market in their attempt to recoup some of its losses incurred from 2000 to 2011.

The important point is that this is a spectacular set up for higher prices to come. The price decline has lasted so long that the market seems conditioned for further sell-offs. More are concerned about the next dollar or so to the downside in Silver instead of the next ten or twenty dollars to the upside. The fact is that we are structured to go up big time instead of going down based upon what JP Morgan and the commercials have achieved this year and month; to say nothing about the price being below the realistic cost of production for many if not most Silver and Gold miners.


Prices drop, public buys more, suppliers produce and sell less. This is a set up for higher prices for both Gold and Silver. Elementary my dear Watson!

The technical funds, which are heavily short, have amassed their record Gold and Silver short positions at average prices not far above current prices. The 62,000 Gold short contracts and 20,000 Silver short contracts sold since October 29 have an average price of as much as $40 or $50 higher in Gold and a dollar or more in Silver above where we closed on Friday. That’s not a large price margin for turning a profitable open position for the tech funds into a loss, based upon recent price volatility. Almost certainly, a price move back to where we were on October 29 ($1,340.00 in Gold and $22.50 in Silver) would result in all the new tech funds shorts added since then to be bought back or attempted to be bought back (based upon past tech fund behavior). I’m not talking any big deal; just a move to where we were 6 weeks ago.

That’s why I am more concerned with how JP Morgan will behave on the next rally. Having not added any Gold on the move down from $1,340.00, JPM wouldn’t seem to be in position to begin to sell until those prices are achieved. And in Silver, it has always been the case that the next (as in every previous) Silver rally will be determined by what JPM adds in new COMEX Silver shorts.  Now, more than ever, that is the only question that matters. We still may go lower temporarily, but rather than focus on that, it makes more sense to me to try to comprehend just how much longer JP Morgan’s up until now Silver manipulation can last.  JPM holds two corners; one in the Gold market and one in the Silver market.  I own a sizable Silver position because of what I think will be the coming Silver shortage.   JP Morgan will be forced to end its death grip on both the Gold and Silver markets in the not too distant furure.. 

The Gold market has been very kind to us over the last decade, so I would like to paint a rosy picture for gold in 2014, but I hesitate to become overly bullish just yet. Gold and Silver need to remain above the June lows and rally above their June highs and stay in higher ground in order to restore investor confidence. I suspect that this will not happen and that they will penetrate those June lows in a move that could lead to a ‘final’ capitulation low somewhere in the neighborhood of $1100 to 1150. But once Gold and Silver break decisively above their June highs, all the manipulators will be caught with their pants (shorts) down and it will become our turn once again:  $6,250 by 2017 here we come!

Based on cyclical analysis, technical analysis, fundamental analysis and portfolio analysis, the bottom for Gold could have already been made. But most likely will require on more selloff with one to three months still ahead of us.

The HUI 30 Day Stochastic moved to a new Buy signal Friday, December 27th. But some of our other indicators still remain on a Sell Signal, so these are now at odds with one another giving a neutral signal. The bottom in precious metals and mining stocks could coincide with the coming major top in stocks that would complete the Jaws of Death pattern.


The conclusion to be drawn with respect to the trend is still down for the time being. Where we have shown a positive “spin” on the character of price behavior at the current lows, that is still where price is, at the lows. One cannot be bullish right here, but right now, I am. As to buying physical Silver, I am looking at a price level that will not be revisited in the next few generations. Price may still go lower somewhat, but what the Federal Reserve is doing to destroy Fiat currency and the economy makes asking the question of to buy physical or not to buy a very easy one. However, it is virtually impossible for me to predict what the manipulators will do in the very short run. But for me, I am still accumulating Silver on any further sell offs in Gold and looking for any clear signs of a bottom in Gold. Once Gold bottoms, its rise will be something spectacular.  I am looking for a maximum ($100) further downside and $2000+ upside in the not too distant future.


Stocks were continuing to inch their way higher as an upside breakout is underway, we are in that final rally leg to complete the Jaws of Death pattern (that I have been speculating on, over the last year or so; and bring an end to a multi-century Grand Super Cycle degree Bull Market). This rally leg could be the last leg and be quite powerful based on news, sucking in the last of the Bears as most of my short term trading indicators are very overbought. This is also a traditionally bullish season of the year. Yet waiting for perfection is usually a fool’s game. Technically that final rally may have already been completed, so Don’t get too cute. BE PREPARED!

Gold has formed a Head and Shoulders top with a downside price target of $1,150 or maybe $1,000. Once the final bottom arrives, a significant rally up will then begin. Gold should then streak for $2,500 to$3,000 an ounce or more because it will be entering a large degree wave 5-up. Wave fives are typically the strongest and largest waves for precious metals. Silver will most probably follow Gold as it usually does. With a potential further $100 down vs a $1500 to $2000 upside. You tell me what is the preferred strategy?

Precious Metals Stocks                   

The HUI 30 Day Stochastic and purchasing power indicators remain on a sell signal, supporting the need for more decline in precious metals and mining stocks before a major bottom arrives. But anyone trying to pick the absolute bottom in a manipulated market is playing with Fire. But then so are the manipulators. The Next Major Move is UP! Is it not obvious that we are closer to the low than the beginning of a new selloff?

Remember, patience is the number one prerequisite if you want to become a successful trader, especially if you are a Contrarian.



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Aubie Baltin CFA, CTA, CFP, PhD.

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This letter/article, like all my others, is for education purposes only and is designed to help you make up your own mind; not for me to make it up for you. Although I include recommendations from time to time, being a bi-monthly publication, it is not meant to be a trading letter. Only you know your own personal circumstances, so only you can decide the best places to invest your money and the degree of risk that you are prepared to take.

Gold is one of the most recycled substances in the world.

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