Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

i'm interested in your thoughts on yesterdays UST sale by Ben. was this part of OpTw since he was selling short term bonds the proceeds of which will be invested in longer term UST's? what perverse effects on the markets do you think this will have?

I have to say, bonds aren't my main focus. As financial asset class, government bonds especially didn't make the grade for me. With that said, here's my view:

It certainly seems to fit the OT purpose. With selling pressure on the short end, rates will rise there. Sure, the long end rates will be kept low, but is that worth the increasing outlay requirements that have simply been pushed ahead? The Fed holding long-term bonds reduces the institution's maneuverability if prices decline. What is the exit strategy, if there is one?

Keeping long end rates depressed is causing structural stress, not just distortions - how many more deals will be entered under the assumption of low rates which will blow up instantly if those rates ever rise? Instead of a manageable crisis when the rates can no longer be held down, the Fed is further restricting its ability to handle the situation - even with unlimited QE as an option. It's a lose-lose situation.

Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

you've said its money, an asset, and a real asset over the life of this thread. i see differences in each of those categories which i've said all along is the cornerstone problem with how you look at gold. which is it?

Any asset can function as money when better or more convenient options have been exhausted. Gold is a real/physical asset whose primary function serves as money.

When I call gold an asset, it can be assumed that I mean: a real, tangible, effectively indestructible, counterparty-less, turn it around in your hand and see it for yourself, value imbued throughout history, closest thing to abstract representation of money in the physical world, absolute best physical option for use as both store of wealth and metric of value, won't kill you or disappear in a puff of smoke, consistent asset.

Real estate requires maintenance, paper burns in flame, wheat can be eaten, oil is highly toxic, rocks are very common and manufactured tools don't have the same value for everyone. Maybe gold could be called a real derivative? Productivity and wealth created by the use of other assets and labor flow into it, yet it's still a physical object with decentralized control and ownership; the original Bitcoin.

I'm going to quote this next time.

Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

Quote

Quote from: cypherdoc on October 06, 2011, 12:44:35 PM

glad you brought this up. a more sophisticated analysis of the volume show an increasing volume on the days of selloffs. this means there are more interested sellers.

I'm sure you won't mind sharing the methodology for this "more sophisticated" analysis.

no more sophisticated than yours. go back and check out both daily gold and silver charts. on the down days the volume spikes are higher than on up days. that means more sellers than buyers in aggregate helping to drive the price down.

Huh? More sophisticated than what was presented, but not more sophisticated? Either there's an apparent contradiction, or I'm reading all of that wrong. Not important. Here's what is:

Since September 26th, volume has been declining overall. The 144-day MA was breached on an intraday basis (not really important in regard to volume, just pointing it out as a landmark). It was retested on the 29th. The volume on the 29th was low compared to the two strong down days that week - the 26th and 28th. Volume remained low for the next two days as gold rose from about $1,600 to almost $1,680.

Then on October 4th, the volume was higher than during the past three up days, yet the close (the only price that matters for market players that matter) wasn't able to breach even the prior day's close. In other words: volume on the down days may have spiked higher than on the up days, but the price remained higher than the previous down day - the opposite of what increasing volume on a decline should do if the decline weren't exhausted; also indicative of strong buyers being active instead of momentum followers.

The price has continued to drift higher even as overall volume resumed its descent. With very little volume and price continuing to move higher, increasing volume will be necessary to reduce price the higher it rises.

For the week ending today, October 7th, looking only at the price gives a heavy picture. It's reasonable to expect further gold price drops in the immediate future. Combining price with volume, the direction is less certain, throwing almost a 50/50 chance. This is where open interest is critical, despite the fact that it's only the OI for the COMEX futures. For as long as it remains the dominant futures exchange, it is a basis for overall global market trading comparison.

As discussed yesterday, the open interest has been declining gradually - almost no forced or panic liquidation since the end of last month, and even that wasn't very significant in size. That measured decline is normal, whereas a sharp drop would be leveraged players being squeezed out or underwater longs cutting losses. What this means is that it's virtually a certainty the remaining contracts are what form a normal baseline for the market, like hitting bedrock while digging through topsoil. Further liquidation of size is therefore simply not in the cards.

From analysis above, it's easy to see that price is important, but it is only one metric. It's a representation of capital flow. Volume is necessary to determine the overall strength of capital movement. Open interest provides a measure of how much movement is left. It's entirely possible to use only the latter two as trading guides (V & OI), but then you wouldn't have any way to know how much you gained or lost when closing a trade.

In the middle of a move, it's possible to use the above three factors to gauge how far the shift can go in either direction. When at extremes, they show the buying and selling ranges. I prefer certainty over just getting the "feel" of a market. The way I see it, advanced price chart analysis in the form of Elliott waves and such (beyond trendlines and Fibonacci levels) are attempts at extrapolating the interplay of volume and open interest from the price itself. That makes sense for equities and other asset classes, but why bother with divination when those values are readily available for commodity markets?

SLV from the GGR:

The price was decimated, yes. The volume during the knock-down was much less than it was during the hit in May. If taking into consideration when the price drops occurred that caused the gaps, a bevy of questions arise. Looking from the opposite side, again there wasn't much buying at all needed to stop and partially reverse the selling pressure.

I haven't bothered looking into direct numbers or proxies to open interest for GLD or SLV. Again, it's a situation where the data is available for the actual asset so why complicate and confuse matters by calculating all manner of indicators from the ETF?

Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

i never said "only" look at price. other pieces of info are helpful of course but i still think price is paramount. as an example: the entire stock mkt rally from 3/09 ws a low volume rally with higher volume spikes on selloff days. if you were short and refused to follow price vs volume, you got killed. this was the greatest rally since 1932; a doubling in price for massive gains. i've learned over the years not to fight the tape as long as several confirmatory factors line up as you're suggesting. real investing means taking all available info into acct both technical and fundamental.

Overwhelming reliance upon price movement for explanation spoke loudly. It's good to see other elements of your analysis being clarified upon.

So does the relatively low recent volume suggest shorting the market? Personally, whether the markets go up or down doesn't matter - strong, dividend-paying (preferably international) companies being held for the long-term won't go belly up just because of a market rout.

Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

just be sure to take into acct Ponzi Dynamics. Foss is right; theres no way a price chart can crash so quickly in so short a time unless these dynamics are in place.

I will if you can explain how gold itself is a Ponzi scheme when it promises nothing nor returns anything. What is the dollar, if not a Ponzi scheme - a promise that pieces of paper have exchangeable value even though the material itself has no unique physical properties?

Here's a rough estimate of Ponzi math:
(Artificially Decreasing Supply) + (Rising Incentivized Demand) == (Rising Prices)

The artificial aspect is an intentially forced restriction or flooding of supply (think diamonds). Incentive can be the promise of xyz% gains or that an item of greater value can be redeemed in its stead.

Gold is being produced, refined and distributed as fast as possible around the world. Its demand is being driven not by a desire for the metal itself, but exposure of the fraudulent nature in the existing monetary system.

Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

this is where data can't help you. sure the data looks good and lines up for your case and this is where i think my housing analogy of lines of buyers can be helpful. at some point you have to resort to your underlying thesis: is gold money or just another asset, ie, tail of the USD dog? what is the role of Bitcoin here longterm? this is where we can agree to disagree.

Wait... are you advocating faith? Where are these lines of buyers for gold? You're right that the decision comes down to the individual. This entire thread has been an excellent opportunity to test theories, assess assumptions and reaffirm conclusions; not to mention it's been entertaining as well. Thanks!

Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

come on now. all you've put forward is a slew of Comex data backed by tomes of bullish interpretation. i could argue you have tunnel vision in regards to the gold data w/o a worldwide view. the price charts are important and i've backed my interpretation up with a slew of general economic data into which gold interplays.

Really? Does the archivist need to kick into gear and post several examples of US-centric perspective against numerous links showing global gold demand?

The latest information posted was good... and it was all US Fed and US-based exchange information. Where is the worldwide view? Wait, I think there was one chart on China.

I'd written this before getting down this far in your reply:

"... open interest is critical, despite the fact that it's only the OI for the COMEX futures. For as long as it remains the dominant futures exchange, it is a basis for overall global market trading comparison."

COMEX data is representative of 24-hour, global trading. It is a proxy, like SLV is a price proxy for silver - not perfect, but a good start; some of the information is also unavailable elsewhere, and is still largely transparent by comparison to other sources and methods. In the same manner, the US Fed data is a good start for getting a handle. It's important to look at the whole pie, of which the US holds a decreasing share. Thus its broad relevance, as well as that of its data (both US Fed and COMEX), are declining.

The rest of the world still needs to eat and have functioning economies. As everyone else catches up to a stagnating western world, the top 1% will have to expend much of their 75-80% of overall wealth in order to keep from falling all the way down. Socialism has nothing on wealth redistribution by capitalism in action on grand scales. Except for the pain, death and destruction parts - socialism (or centralized government by any other name) takes the cake on those, but I digress.

I welcome questions and efforts at finding holes in my arguments (which were built by learning from some of the greats, not entirely due to a miraculous lone exploration). At least offer a stronger assessment than "what does this look like". If you can trade the short-term using cycle analysis, keep doing that. Just don't get rid of your physical metal - accumulate more.

Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

didn't you say several times that the once the avg Joe comes to the party the price will skyrocket?

Yes. Where is he? Busy working, unemployed, going back to school instead of reading all about gold and finance?

You have to keep things in perspective: we are in the thick of things, on the front-lines of financial warfare. We're discussing topics that even a lot of traders might have difficulty grasping. How many people actually are where we are? Why are there so many who willingly pay for advice and explanations like ours? Where are all the other traders whom have made a tidy profit? We're part of a very small segment of the total population.

Step into another's shoes and it becomes easy to understand the rationale, if not the emotional resistance to comprehension. Joe Sixpack has probably heard the rumblings by now, but he still has barely an idea what's really wrong or why.

Imagine him at the beach, when the water suddenly starts rapidly receding way further than normal. Being tsunami experts instead of financial gurus in this scenario, we'd be speeding away from the shore while the average fellow remains, probably even after being warned of what's coming. Whether he stays because of curiosity, normalcy bias or any other reason, he will only recognize what's happening when it's too late. Even highly educated people are susceptible to this if they don't have the wherewithal to fathom these titanic shifts in such an abstract concept as finance (or blinding themselves based on erroneous assumptions as Bear Stearns and Lehman "geniuses" did).

Quote from: cypherdoc on October 07, 2011, 01:27:13 PM

b/c Iseree said so. Wink

LOL - well, that changes everything.

Enjoy the weekend!