By MoneyMetals / October 06, 2019 / www.marketoracle.co.uk / Article Link
Mike Gleason: It is my privilege now to welcomeback Craig Hemke of the TF Metals Report. Craig is a well-knownname in the metals industry and runs one of the most highly respected websitesin our space and provides some of the very best analysis on banking schemes,the flaws of Keynesian economics, and evidence of manipulation in the gold and silver marketsthat you will find anywhere.
Craig, welcome back, and thanks for joining us again. How areyou today?
Craig Hemke: Mike, my friend, it's always a pleasure. Thanks for theinvite.
Mike Gleason: Absolutely. Love to get you back onand thanks for the time. Well, the recent smash in the metals prices wasreminiscent to what we saw in the markets in 2016, at least in silver. Pricesran higher up to about $20 an ounce and then got hammered back down where theycontinued trading in a range between about $14 and $17 until this year'sbreakout. Do you think we'll see the metals once again be put back into theirbox here or do you think it will be different this time around? I guess that'sthe million-dollar question for silver bugs, what do you think?
Craig Hemke: That's the question everybody has to answer, right?Everybody has to answer that for themselves. Now, I have been, and then you andI have been discussing this all through the year, I've been forecasting thisyear to be like 2010. You recall those conversations, I'm sure Mike. Going backto late last year, all the talk was about rate hikes, right? And all theseven-figure sell side economists and analysts on Wall Street were talkingabout three to four rate hikes this year and I got in front of that and said,no, no, no. That's not going to be the case. All the political uncertainty,economic uncertainty, trade wars, all this kind of stuff, it's going to lead toa loss of confidence that ripples through the economy, not just at theindividual level, but at the business level, and you get this slowdown. Thecentral banks cannot afford a slowdown, which is why they've worked so hard tokeep the plates spinning for 10 years.
So, therefore they were going to reverse policy. You're going toget rate cuts instead of rate hikes. You're going to get more QE as well and inthe end it looks a lot like 2010 where we entered the year, everybody wastalking about great the economy was and there was green shoots and it was a oneoff that financial crisis, and bliss and joy and rainbow and Skittles foreverybody.
As it turned out there was some economic growth in 2010 untilabout the third quarter and then we began to slow. By the fourth quarter it wasnegative growth and we entered into a recession beginning in 2011. Of course,the Fed reverse policy, then began QE2. Anyway, anybody that's been the metalsfor the last decade knows what happens next point. Well, anyway, we're on thesame path. Like you said, we've been trapped in a price range for about sixyears until we finally broke out back in May. And again, this is followingalong the path.
Now, here's the thing. Is this 2010, or as you said, is it 2016because '16 saw many of the same underlying fundamentals, if you will. You hadthe Brexit thing, which is amazingly still talked about three years later, but2016 was all about a slowing economy, interest rates just collapsing around theglobe. We got over $10 trillion in negative yields for the first time and the10-year note got down to about 1.9, 1.7% even got close to 1.5.
Everybody thought, “Okay, here we go. This is bad.” And gold wasrallying, but then the economy recovered and then there was this theme put outthere when Trump was elected that, "Oh, now things are going to be greatand the dollar is going to soar and all this infrastructure spending and blah,blah, blah. The bond market's going to burst all." All that stuff whichdidn't come to pass but it reversed everything in 2016. So, ultimately toanswer your question, is this like 2016 or is it like 2010?
The bond market selloff last month got everybody worried thatthis was just like 2016. Interest rates started back up. Gold rolled over. Butnow here we are reality setting back in in October. We've had the PMIs thisweek which have shown both in the manufacturing and the service sectors, sharp,sharp slowdowns. We're going to get an employment report on Friday which islikely to come in poor but you never know the way they fabricate the numbers.At any rate, the Fed is going to cut again later on this month. Probably goingto have to cut again in December, so we're not, in my opinion, headed back likewe were in 2016. Instead we are headed forward like we were in 2010.
Mike Gleason: We wanted to talk aboutmanipulation in the futures markets. You have been a leading voice on the topicfor many years. For a long time people seemed to ignore the evidence ordismissed the whole thing as a few “boys just being boys.” Isolated traderstrying here and there to rig a price in their favor. They mocked anyonesounding the alarm as conspiracy theorists. What's amazing is that still hasn'tchanged.
There have been several traders arrested or indicted. Banks havepleaded guilty. Evidence has come out of a scheme that involved multiple peopleon the trading desks of pretty much all of the major bullion banks. It went onfor the better part of a decade and it involved thousands of traders. We knowrookie traders underwent training from their superiors on how to cheat. Thefact is this fraud was long running, wide ranging and pervasive. Now theDepartment of Justice may use RICO laws to prosecute these bankers because itwas organized crime. What do you make of the people who are still claiming thefutures markets are basically fair and honest?
Craig Hemke: Well, there's a lot in your question that we probably needto talk about. I'll get to the Baghdad Bob newsletter writers in a second. TheRICO statutes are important because RICO statutes were written so that youcould get the Don of the mafia family, not just the assassin. The Don mightorder Jimmy No Knees to go take out Frankie the Tongue and then he does. Andthen maybe Jimmy No Knees is the guy that gets prosecuted. Well, the RICO lawsallow you to go after the Don and that's what we're seeing now. We had underguys, just simple vice presidents get convicted. And you've got this guy,Edmonds who's now been convicted, but he hasn't been sentenced yet. He'sobviously singing like a songbird and implicating his superiors. So, now theguys that have been indicted include this guy, Nowak, who was the head ofprecious metals trading for JPMorgan.
Eventually, this is probably going to lead up to Blythe Masterswho was Nowak's boss during the period in question that the Department ofJustice has been looking at… and then even beyond there perhaps, but look atit, whatever, that's fine… but where these Baghdad Bob types get lost, thesetraders, these Elliot wave counters, whatever, what they don't understand isthey just think gold is this thing, this dot that moves on the screen. Andeverybody cheats and everybody tries to spoof and help their trading desk andall that kind of stuff.
But man, gold and silver are different because these banks, theterm you use is correct, they are bullion
banks. What doesthat mean? They are the banks that are on the hook for maintaining the physicalmarket in London. Everybody knows there's no physical delivery in New York.This physical market, to what extent it's actually physical, it's not justunallocated gold getting shifted back and forth across the line in the vault,but they're the ones that are responsible. They're the one that are on thehook. They're the ones that have the leases that they have to match up almoston a daily basis. And so where the conspiracy lies that just that none of theselosers who just simply are generalists, that you know, they don't understandthese markets but they think they're know-it-all because they have to convincetheir dupe subscribers that they're know-it-alls.
What these guys miss out on is that the trading desks thatJPMorgan in this example, trading desk worked hand in glove with the physicaldesk in London. That's where the conspiracy is. So, say the physical desk inLondon has an order that they took a few weeks back and they've got to fill,they've got to get a ton, 50,000 ounces, whatever. And they've got to fill thatorder and they don't have it, right? So they've got to go buy it. Well, firstthey got to get that metal shook free, so, they’ve got to convince somebody tosell, but at the same time they might want to save a few bucks when buying thatmetal and so they get the desk in New York to rig the price lower.
The guy in London calls up Michael Nowak and says, "Mike,hey, I really could use price down $10 from here. Could you take care of thatfor me?" Mike gets Edmonds on the phone. They start spoofing away, boom.And you get these waterfall declines where we all sit back and scratch your headgoing, wait a second. Who in their right mind sells 10,000 contracts in 30seconds.
So anyway, to your newsletter writers, like you said, and yougot, you know who these buffoons are. Look, they've got so much invested, theygot their flag planted in the ground going back years saying, "Well,there's no manipulation," because if they admit there's manipulation inany market, their subscribers are going to go, "Well what's the point ofyour little wave counting service if there's manipulation? Geez, what good isthat?" So then they become like Baghdad Bob. I may be revealing my agehere, but folks that were around 15 years ago and they remember the second Iraqwar remember Baghdad Bob was that Iraqi defense ministry guy, right?
Mike Gleason: Sure. There's nothing to see here,right? “Nothing to see.”
Craig Hemke: Right, exactly. There were all these, the American tanksare coming at him from every direction. Every morning he'd get up and say,"Oh no, everything's fine. Don't worry about it. We're good. No, the greatleader's got everything under control." Well, he was so vested in sayingthat it didn't even matter how patently false that was. He was going to keepsaying it because he couldn't turn around at that point and that's what thesecats are doing.
Who cares? I mean, seriously, I can't believe I've just wastedtime talking about it. Who gives a darn what some of these guys have to say? Itdoesn't matter. It doesn't matter what some newsletter writer, Elliot wavecounter says. It doesn't. What matters going forward is that one, this news isgetting out. The Department of Justice is on the case. The authorities inLondon are on the case.
Eventually, this is going to get to the point where it's just nolonger worth the trouble for the bullion banks to stay in this business. Sowe're headed in that direction. Outside of that, what really matters is thatthe global economy's in the tank. The U.S. economy continues to slow. Thecentral bankers are reversing course, and this demand for gold in all its formsis only going to continue to grow in the months ahead.
Mike Gleason: Some of the recent news here overthe last month has been the Fed's work in the repo markets injecting billionsand billions of dollars into that overnight lending market and it doesn't seemlike it's had that much of an effect on the price in the various assets whetherit's the stock market, although it has taken it on the chin here this week,maybe it's a lag effect there, but certainly metals have not rallied like youwould have expected. What do you have to say about all that?
Craig Hemke: Well, there's a little bit of that I guess on the safehaven, if you want to call it that bit in the bond market. And again, I can'tstress enough how important lower rates are and rising bond prices are tosustaining this rally in gold. Again, it was when the bond market kind ofrolled over with a very sharp correction in early and mid-September, that goldrolled over too. And so getting the bond market chugging back in a bullishdirection is important to getting gold chugging back as well. And there aresome key technical levels that gold's going to cross sometime before the end ofthe year that's going to really generate its own bit of excitement. But at theend of the day it's all about the bond market and so you've got these liquidityconcerns and people worried about what this might mean until you get to kind ofa safe-haven bid.
And we're seeing the two-year note as an example, rally harderthan the 10-year note. Now the 10 year's all the way back down to 1.55. It was1.90 at the last Fed meeting not even three weeks ago. The two-year note hasfallen even further. It was 1.80 and now today is like 1.37. So, think aboutthat… the Fed cuts, the Fed funds rate tries to say that they're now neutralbecause at the time they cut the Fed funds to 1.90 and that's what the 10-yearwas. The two year was 1.80. Basically you had a flat yield curve from overnightafter 10 years. Well, in the two or three weeks since, you've got 1.90 Fedfunds and now you've got 1.40 two-year and 1.50 for a 10 year.
That assures you, provided things don't completely turn in thenext couple of weeks, that assures you the Fed's going to cut again at the nextFOMC which is around about Halloween four weeks from now. In fact, the odds ofthat are now 92% but it also means you're probably going to get another Fed cutin December. Well, you go back two weeks ago we were told the Fed's now neutraland that was reason why gold was going to keep going lower and all this kind ofstuff. Well it's not.
Getting back to your original question, Mike, this liquiditything is a real concern. The Fed with their policies over the last couple ofyears, has sparked a really kind of a dollar shortage crisis, if you will, andit's revealing itself in all these different ways. One of them is this need nowfor almost a permanent repo facility. They are going to act to create moredollars to try to fend in this off because what else can they do? And again,you put all those pieces together and you realize, "Oh, you know what? Ithink I need to buy the dips because prices are going higher, not lower forgold.”
Mike Gleason: Speaking of that, what are some ofthose key technical levels that you're looking for to maybe be taken out laterin this, later in the year? What are you expecting for metals over the lastquarter?
Craig Hemke: Well, on the daily chart, let's start there, because we'vehad now a series of two lower highs and lower lows. There's a trend line therethat anybody can see. In fact, there's a pennant on the daily chart that webounced off the lower band back on Monday. First, we got to get above on aclosing basis, probably $1,530 to 35. How soon that happens, anybody's guess,but it's going to happen. More important is that kind of the long-term look ofthese charts, explain that why in just a second. And the long-term it's extremely
positive.When you get a weekly close in the front month contract, which is now December,you get a weekly close above $1,550. Now we tried twice at the end of Augustand in early September and we traded above there intra week but we can neverclose above there.
The significance of closing above there is that level held as afloor for 19 months at the end of that previous bull market. And so a move backabove $1,550 on a weekly closing basis would really open a lot of eyes. So, nowto the point, why does that even matter? "Manipulation, that doesn't matter.Make TA worthless," and all that stuff. Yeah, look, you may think that,whatever, but I can assure you again we get back to these people that don'tthink there's any manipulation at all.
You think this is a regular hedge fund manager, institutionalmoney manager, pension fund manager, whatever. They look at this stuff. Theylook at charts. They look at price trends. They look at the data they get ontheir screen at the end of every quarter, at the end of the year that says,"Here's the best performing sector," and then all of a sudden youlook at chart and you go, "Wow, look at this. This gold, not only are theminers, is the best performing sector in the precious metals and hard assetsdoing great. Now look at the breakout on this chart back above $1,550… oh mygosh, I better start putting some money there."
And it's when that money starts to flow into the sector, allthese trillions of dollars that have been created by the central banks in thelast 10 years, we get just a little piece of that and we're going to see thingsthat are going to blow your doors off. And what I mean by that is, again, I'msorry for these long-winded answers, Mike, but had too much coffee today.Here's the thing. I got this little nugget from Rick Rule when I did a littlepanel with him, I don't know, a couple months ago.
Everybody knows, you know, everybody hates the sector. You'veseen the Grant Williams thing about how nobody cares, and everybody hates thesector and that's absolutely true. Over the last 40 years, the amount of globalasset allocation to the precious metals in all their forms, whether it's themetals, the futures contracts, there weren't ETFs 40 years ago, that kind ofthing… but there were mining shares. It ranged from high of 8% back in 1980 toas low as one half of 1% really each of the last couple of years. Now you gotto figure that's about as low as going to go. The median is 2 1/2%.
No, I don't know if we'll get back, who knows, but let's justsay we do, just for fun. We go back to 2 1/2% global asset allocation, theprecious metals, which doesn't seem to be very much. We're at one half of 1%.That would mean five times the investible assets, dollars, euro, yen, whateverlooking for a home. Looking for an investment in the sector so they can getsome exposure, whether that's futures contracts, ETFs, unallocated metal, somemint or the mining share… you get five times the amount of cash chasing reallya finite number of investment opportunities, prices are going to go up.
It doesn't matter what your little wave counts says or somecycle or whatever, knock yourself out. You just get a wad of cash chasing afinite number of assets, prices go up. I mean that's just how it works. And sothere's some importance to breaking these technical milestones. There's importancein keeping this trend going because it begins to feed on itself. And that'sreally what I expect to happen. Maybe not right away later this year, there'sonly three months left, but certainly next.
Mike Gleason: Yeah. Obviously the self-fulfillingprophecy of the technical side of things, it matters because people think itmatters as you say.
Craig Hemke: Yeah, no, that's true. And see that's the funny thing.Look, I do, you can call it technical analysis, really it's more of amanipulation analysis because we know the banks use the technicals against thetraders to try to flush them out by breaking a moving average or paint thechart with a head and shoulder top or whatever. But what's so odd, and here Iam talking about these wave counters again, but look, when I broke into thebusiness in 1990 there was some validity to a technical analysis, maybe on asmall scale because everybody was looking at the same charts and like you said,it becomes kind of a self-fulfilling thing. If everybody's looking at the pricein a pennant, in a wedge, in a moving average and all that kind of stuff in asmall, little market and it breaks out and everybody moves at once then it kindof becomes self-fulfilling.
But, these guys still treat this technical analysis as if it alloperates in a vacuum. I see on Twitter everyday people try to say, "Well,wave three of sub wave Z microwave X means that we're going to go down to$1,330 (in gold).” I'm like, "Not if the bond market keeps rallying."I mean these things don't happen in a vacuum. They don't happen independently.You can't look at gold on the chart and go, "Well I've got this wave countand that's it." No, no.
If the employment report shows a contraction in jobs on Fridayand the bond market rallies 10 basis points, it doesn't matter what your sillylittle wave count said was going to happen. In 2020, man, with everythingconnected by computer and everything done by pre-programmed algo and all ofthis cash sloshing around the planet, and the central bank intervention and allthis kind of stuff, you simply cannot use your little tools from 30 years agoto try to make predictions about where things are headed. It just doesn't ...I'm sorry. Here I am just ranting. I apologize, Mike.
Mike Gleason: No problem. It's well put. It's adifferent market now than it was a decade or two ago and people do need torecognize that. Well, we'll leave it there for today, Craig. Thanks very muchfor your time. Before we go though, let's hear more about the TF MetalsReport
and have you tell people what it is that they'll find if theyvisit your site.
Craig Hemke: Well, thank you Mike. It's really a community like noneother in that we've got people from all around the world, of all differentpolitical stripes, and net worth categories and all that kind of stuff. But weall interact. The first rule of the site is treat others how you want to betreated, so it's not like your standard website where people blast away and thetrolls show up and just try light threads on fire and that kind of stuff.
And so the real value is the interaction amongst the membersthere. I do my analysis, my podcast every day, post every morning, and then tobe a part of that it's 12 bucks a month, so it's 40 cents a day. So, it's notlike some exorbitant thing like these newsletter writers charge. And I want tostress, what's really important here is that people need to understand howthese things all relate here in 2019 and now heading into an election year andall that stuff and the efforts that the central banks have made since 2009 tomake it appear that they've got control. To make it appear, "Oh, no,everything's fine, man. The banks are all re-liquefied. Everything'sgreat."
No, it's not. No, it's not. And it was all due to eventuallycome to an end and you can't keep the plate spinning forever and that's wherewe're headed now. The economies are slowing globally and the central banks aregoing to react with the only tools that they know. That's why gold is rallying.That's why silver is eventually going to move to catch up. And it's just vitalthat people understand this so that you don't go, you don't see $20 silver andthink, "Yippee, I can finally sell all the silver
I boughtsix years ago," and what, get dollars for it? And then what are you goingto do with those dollars, man? Every smart holder of dollar reserves in theworld is selling dollars and buying hard assets. I'm talking like the RussianCentral Bank and the Chinese and the Indians and the like. These are the kindsof things we talk about at TF Metals Report
. And I think, like Isaid, if we can keep you focused on the big picture, then I think it's worththe 40 cents a day.
Mike Gleason: Yeah, absolutely. Highly recommendit. We look at it very closely in our office here. It's fantastic information.You have a great way of connecting those dots and showing people how things areso inter-related and connected and parsing through all that and I think peoplejust heard that here in this discussion and I hope they'll check it out.
Well, thanks again, Craig. Appreciate all the time. Have a greatweekend. Keep up the great work there at TF Metals Report
, andwe'll talk to you again down the road. Take care.
Craig Hemke: Mike, it's my pleasure. I look forward to seeing whereprices are the next time we talk.
Mike Gleason: Well, that will do it for thisweek, thanks again to Craig Hemke. The site is TFMetalsReport.com,definitely a fantastic source for all things precious metals
and awhole lot more. We urge you to check that out so you can get some of the verybest commentary on the metals markets that you will find anywhere.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2019 Mike Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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