What The Heck Happened Yesterday?

Knowledge without experience is not really knowledge...It finally dawned on me this morning how yesterday's manipulated Comex plunge was orchestrated, in reviewing the idea of the dollar losing 1.20 yesterday and gold losing $40. Doesn't make sense, right?

Here is my view on what happened. I base this on 9 years of trading, investing, researching and observing the precious metals market. This is an educated hunch based on experience. Recall that over the past 2-3 months, the large hedge funds have built a record short position in the euro and an offsetting long position in the dollar. For the past two months gold has been trading inversely with the euro and in near-perfect correlation with the dollar. The big banks, who are absurdly short paper gold, have built up near-record long positions in the euro and a short position in the dollar. You can find all the data which shows this using the COT (Commitment of Traders) report.

We know that big banks who are short an absurd amount of gold futures on the Comex like to ambush the market on low volumn, holiday affected trading days and do so by unloading an enormous amount of paper contracts as soon as the Comex opens. See my chart in yesterday's post. (Not) coincidentally, Canada was closed yesterday for a national holiday observance.

Yesterday the dollar started dropping off of a cliff at 3 a.m. NY time, but gold drifted higher until just after the London a.m. price fixing. From there it flat-lined until exactly the 8:20 NY time Comex open. Comex volumn was enormous from second it opened up until 11 a.m., which is when the largest part of the $40 drop occurred. I believe that the manipulating banks used massive sell orders to trigger stop losses (as per usual), as the hedge funds were scrambling to cover record short positions in the euro and their long position in the dollar. Why else did it take until the Comex open for gold to plunge, over 5 hours after the dollar had started plunging? Sorry Zerohedge, but that is not "asset liquidation."

That's what I believe occcurred yesterday, for the most part, and the bullion banks were helped by the fact that it was a pre-holiday, low volumn week and that Canada was closed. Having said all that, I've been wondering what it would take to break the euro/gold inverse relationship - and the corresponding dollar/gold correlation - once the dollar rolled over and started eventually to seek new lows. Yesterday may have taken care of most of that process. I actually expected to see more downside today in gold/silver, but gold has been relatively strong relative to the rest of the market. At least for today, it has moved inversely with the dollar.

BP/Gulf Disaster Update

As for the Gulf oil situation. I was chatting with a friend who is originally from New Orleans today and she said that her people down there are saying that everything being reported about the BP effort is complete b.s. She said that no claims are being paid and BP seems to be going to minimal effort and expense to work on cleaning the mess. She said they told her not to believe anything being reported in the media about BP's efforts - that it is a total media whitewash. She was recently in Pensacola, Florida and said the beaches are getting decimated with oil and that the oil is now hitting the beaches further east of Pensacola.

Anyone wonder why the worst ecological disaster in the history of the planet all of a sudden has been minimized in terms of reporting lately? Ask the guy in charge who most of us wouldn't put in charge of a hot dog stand...