Of Molehills, Mountains and Mining Peak Propaganda in Gold?

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Posted by Bel Suave Bel Suave

Another 'GOLDEN OLDIE! from the Storify vault /Jan 15 2015

The end of November and the opening days of December marked the end of yet another surge of hopes for the release of precious metals from their low price shackles.

The Swiss Gold Referendum, marketed by the gold bug media with dramatic –even apocalyptic - overtones,(one headline - Today May Mark the end of Western Monetary Dominance) proved a flop. Adding to that deflation of millennialist expectations, the failure of such supposedly explosive materials as "open interest on the Comex," "backwardation," & "GOFO rates" to ignite as predicted left goldbugs devoid of themes even remotely capable of supporting the usual optimistic narrative. But only temporarily!

You see, just as nature is said to abhor a vacuum, the goldbug media gets a fright from their followers crushed hopes - and anything else that might reduce or eliminate their hold upon the minds of that audience. In all cases, the arrival of a new wave of pumped up prediction and "staggering" events must follow the fizzling out of the old wave.

But the rapidity of the latest hopey-changey hokum's arrival surprises even seasoned veterans of this ebb n flow! Here we are, only days into the new month, and the next new entrant into the "smoking gun" category ‘of final nails in the bankstas' coffins' has arrived.... via Paul Mylchreest of Archer Daniel Midland. You could just about hear the signs of relief across all of the metals media blogosphere in the aftermath of this new arrival. Faith re-gained!

Checking out this post  http://www.zerohedge.com/news/2014-12-04/inside-look-shocking-role-gold-new-normal …

of Mylchreest's latest analysis of the gold market, we see all the elements of the bugs latest "Messiah" assignation - including the "John the Baptist" who brought the report to widespread attention; no less than Pumper HQ itself... TFMetals Report! Rather an ominous sign for a report hoping to be treated as a serious piece of financial analysis; but let's let that go for the moment, in order to engage with the report on its own merits.

First off, it would be appropriate to review the author through the lens of their previous work; Mr M is no stranger to the field of precious metals analysis - he has been steadily publishing quarterly reports on the subject for years now. These have found steady favor with the goldbug community, yet for other reasons than the accuracy of the analysts’ predictions!

If we look, for example, at the report of February 2013 - dedicated to the silver market - we can see that Mylchreest is a big fan of 'cycles analysis.' This method of interpreting historical trend lines and future trajectories has most recently been made famous(or infamous, depending upon one's perspective!) by a certain Bodhan Polony, who has assured us that will gold hit or break $2000 by the end of this year.

I can't speak to the validity of the various methodologies employed by those who swear by the theory of cycles, be it the kondratieff wave, or competing interpretations; but as an investor I can certainly address the issue of whether an analysis looks capable of guiding me towards profits or loss! In the case of Mr M, whose 2013 silver report boldly indicated major rises for aug -
"cycle based on the combination of two further statistically significant cycles in silver prices lasting 5.58 years and 31 years, respectively. The next peak in this combined cycle is forecast for July-August 2013, which would imply a new all-time high in the silver price in excess of US$50/oz (the current price is US$31.47/oz.).... 16 July 2013, is just over six months away. If we use Jack Gillen’s estimate of a 5.64 year cycle, the next peak is predicted as being just over a month later on 22 August 2013."

... many of us can still painfully remember, silver spent July and August, and many a month thereafter, lingering below $20! Of course, our cycles guru could have attached to his prediction the caveat that a cabal of greedy bankstas could conceivably kidnap the the sector and destroy the validity of the research - or something to that effect.But all such caveats, for some strange reason, in the world of precious metals analysis are post-rendered, as pathetic 'explanations' for the failure of one's predictions to meet reality, rather than pre-offered(proferred) in time to do anyone any good!

In short, based upon Mr Mylchreest's recent track record, I would at this moment be extremely wary of entrusting any assets to his advice. But hey, that's just nutty ol me! Gold and silver bugs are a special breed of investor it seems; though a guy who is enjoying a fair amount of esteem in the investment world right now ALSO patterns his work on cycles-based reasoning, for some reason he is the devil incarnate to gold and silver bugs. Even though his record of predictions for the precious metals over the last three years was far superior to those of any of the 'most favored' gurus - go figure! Martin Armstrong fails to lie to his followers, and gets the tar n feather treatment. "Most favored serration" analysts give their readers just the opposite advice to what would make them money, and get invited back to the sound of trumpets and hallelujahs! It's a mad mad 'gold n silver bug' world!

Indeed, it seems worth asking - might there be something about too-close proximity to precious metals that alters one's mental equilibrium? The analyst

who authors srsrocco.com

, for example, used to be one of the steadier voices of sanity in the gold blogosphere. All that went out the window this year, in favor of some of the most egregious examples of pure pumper propaganda in an already overcrowded marketplace. Ironically, this one time well-grounded observer of metals and their markets once observed:

“ANAL-ISTS” or “ANAL-YSTS” and refers to those who always analyze things the same way, over and over again, ignoring data that is so obvious if one just steps back and thinks outside the box prison they have placed themselves in… They have a “one way out” blinders mentality."

How very tru dat! Yet the author of that quote now allows no one to outdo him in giving the bum's rush to any reality-based approaches to the conundrum of the markets' complete detachment from supply\demand dynamics - in favor of banging the 'badguy bankstas' manipu-drum over and over again, like the everready bunny.... till the supply of new and naive muppets fails to power any more over the top theatrics! One might suppose this sad case to be but an isolated incident of 'metallitis dementium' ...were it not for the existence of other equally apparent contractions of the same illness! Witness the work of another previously sedate and steady hand on the good ship GoldnSilver: c'mon down Rob Kirby!

Here's a guy with an unusually good grasp of derivatives - and therefore a great potential source of information about the murky world of gold futures - and au's increasingly dis-incarnate status as a paper trade. Always good to have on hand! However…
 http://www.youtube.com/watch?v=kid0ZIAngCs#t=30 …

/Rob Kirby-Physical Gold and Silver Contracts Default in 2014  https://www.youtube.com/watch?v=OrDuMZ-8srQ#t=12 …

/Rob Kirby- Significant Advances in Gold & Silver Prices within 3 Months Published on Jul 20, 2014

Yikes! In roughly the same span of time as our other-past-best-before-date former folkhero, Mr K goes from stellar to da cellar! A troubling coincidence, perhaps, you say – but surely nothing more than that! Well…. I present you with the case of Mr. Koos Jansen – former proprietor of the well esteemed ingoldwetrust blog. Up to six months or so ago, his posts were full of interesting facts and figures derived from his in depth study of the Chinese market. On occasion, he would avail himself of some observations on the wider geopolitical world in which to place these data points. You could see the trajectory of his thoughts coming from a safe basis in the real world, and appreciate a bit of extrapolation from that perspective. Most valuable resource!

Now Mr J labors as an inhouse scribbler for a Singapore bullion seller, occupying his time, like fellow fallen ANALYSTS, Alisdair MacLeod or Bill Holter, for example, by inventively casting about for news stories which will bring solace to the weary minds n wallets of the gold and silver world… whilst presumably encouraging same to stack the smack no maatter what the weather! It’s come to the point, in short order, that Koos now exchanges notes with uber-insider Harv E Organ about nonbreakingnews stories like

“Bastogne Bombshell: Belgium Set to Repatriate Gold Reserves!”
“Our country is investigating to repatriate all our gold reserves. The Belgium central bank has confirmed this to VTM-nieuws. This is all I could find for now. This post will be updated when more news comes in."

Kewl Koos! Drop us a line when you've got more! And why not update us on that story about gold mining on the dark side of the moon while you're at it -pays to keep the pot boiling!

Alright, I can see this is going to be a tough crowd. Nobody's going to admit that the dirth of reasoned, seasoned, INDEPENDENT voices active in the gold blogosphere nowadays is a sign of something slightly askew. So, let's swing back to the work at hand ... Mylchreest's latest report, in Part Two!

Of Molehills, Mountains and Mining

- Peak Propaganda in Gold? Part Two

Paul Mylchreest is a financial analyst who has covered a lot of ground in the last few years. He’s given us a geo-political perspective on Gold and Energy markets(The New New Great Game), taken a close look at those same topics through the lens of long wave cycle analysis, and given much attention to making sense, from disparate sources of information, of how and where gold flows, and who has how much of it! All good stuff, and presented in an engagingly fresh manner.

That said, we are, in all these reports, being given a bullish take on the metals markets and their future prospects – something which, at least till now, has been out of step with reality for more than three years running. Caution is implicit in the territory, but extra caution must be show towards analysts who's work has been predicated on 'underperforming' models!

Here, we are presented with the thesis that a large, leveraged long/short trade has been built up, long the Nikkei index and short gold. The more the Nikkei has risen, the more the gold price has been pushed down. Stepping outside of the cycles box, our analyst heads directly for another perennial favorite tool - the repo market - with which to excavate the hidden truth about gold and silver's suppression.

A wealth of chart data is provided, along with supporting arguments as to how the market completely missed a huge long/short trade which has helped to drive up the Nikkei and drive down the gold price for more than 2 years - and which gives Zerohedge the chance to indulge in one of their classic dramatic bait n hook headlines -

The Shocking Role Of Gold In The "New Normal"
All very compelling - at first glance! After all, -in light of the fact that all previous attempts to explain the terrible performance of gold and silver since 2012(including those advanced by our author!)have failed to hold much water, almost ANY new effort to fill in the gap between perception and reality is likely to be welcomed by an audience starved for something to nibble on other than stale and maggoty hardtack!

However, not far out of the starting gate, we run into problems of the type which usually occur when cause and correlation are confused apurpose.

• If we cast our minds back to September 2012, we had the announcements of “QE3” by the Fed and the “Enhancement of Monetary Easing” by the Bank of Japan (BoJ). The initial reaction of the gold price was positive, which was hardly surprising, although it turned out to be short-lived.

• The subsequent collapse in gold has been counterintuitive, especially when the demand for physical gold bullion has remained strong as we show.

This is an all too common theme on the part of gold trade analysts currently - something which fails to act according to their theoretical dictums.... usually some formulation of an Austrian economics-inspired "law".... is accused of being counter to 'common sense,' 'intuition,' or simple decency! In the ordinary, empirical world which demands solutions to problems, sooner or later it occurs to someone to challenge and/or rethink a premise, rather than continue to dismiss the phenomena which that premise fails to explain. But not, apparently, in the wacky world of gold n silver bugdom!

Just like Gertrude Shirks' or James Gillens' cycle theories were supposed to be a sure bet to explain the movements of metals, according to our author, these standard form explanations - of why money printing and money supply easements are bound to create inflation, and/or cause rise in hard assets values - appeal to him as bedrock foundations upon which to construct his arguments. Unfortunately, building upon quicksand seldom leads to a lasting structure!
As an example of the perils of creating models which are supposed to serve a purpose for which they are not suited, note the following comment from http://hotcopper.net/threads/long-nikkei-short-gold.2419180

"I am a sceptic when it come to other people's quant work, so I reconstructed the chart for myself. It isn't as clean, so Zerohedge may have been a little fast and loose with the date massaging, but the correlation is sufficiently high (-0.9332) for it to be interesting. However, before I got to excited, I conducted the same analysis on the correlation between gold and the S&P 500 over the same period:The correlation is also very high at -0.8736.

If Zerohedge is to be believed, it looks like there is a similar spread play going on between Gold and S&P 500. At this point, Zerohedge's hypothesis starts to look a bit stupid.

I think what we are looking at here is something specific to the gold market. It is probably the product of COMEX traders mirroring the equity markets."

That people have been manipulating precious metals markets for some time is a pretty certain conclusion to come to. It takes either a quaint kind of faith in authority or a large degree of cynical posturing to argue otherwise at this point. However…While the repo market represents a huge element of financial risk taking, and is a large part of the current financial structure, as a candidate for getting the credit or blame for precious metals lack of luster, it lacks much substance. It should be noted here that I am not calling out Paul Mylchreest for misreading or misunderstanding the way the gold trade works in relation to derivatives. I AM saying that, ultimately, there are better candidates, and that models which reflect patterns common to different elements of the financial world as per the example quoted above – are not to be confused with models which undertake to explain the reasons for those patterns.

There are, indeed, currency pairs trading in high volumes, with gold as one of those pairs - from which a case can be built out of the data that goes far to explain some of the mysteries of the metals' climb down from 2011 highs. I hope to explore the topic in the near future, after studying adequately the present example of what not to do when extrapolating data collected from different parts of the whole market. For that valuable lesson alone I value Mylchreest's latest work - and deconstructing it here is c
ertainly not to call it a profitless exercise!.
However, if one starts off building a case by citing a provable fact - for example
- “Gold, and we are specifically referring to physical bullion, is also the only financial asset which has no counter-party risk”… there is no lee way built in to one’s argument to allow for welding to it a supposition which is NOT provable fact – for example, from the same paragraph by Mr. Mylchreest – “That alone should make it increasingly sought as a hedge in a credit bubble driven by monetary stimulus undertaken on a rolling basis by central banks.”

What gold should do –according to this or that economic theory - is a great deal different that what it may do! Such welding jobs are intrinsically shaky; when applied to investment advice, the combination can be fatally flawed. Trusting too much to economic ideologies in place of cold hard fact has been the ruin of many an investor of late!

In the same February 2013 report on silver, our analyst stated in his concluding paragraph,

“If we look at the price relative performance of the premier silver miners on both sides of the Atlantic, Fresnillo in Europe and Pan-American Silver in North America, they are trading far below their peaks reached in 2011.”

Straight, unadorned truth that was. Now consider the followup sentence
”The possibility of a new cyclical high in the silver price later in 2013 makes the risk/reward in buying these shares look very favourable”

with which that report ends, and ask yourself whether the logical structure of that argument led to profitable investments on the part of those who accepted its conclusions. Of course, it did not. Nor did silver’s subsequent history play out in any way similar to one which would justify the heavy ‘buy’ signal which that report gave it. Does that mean that Mylchreest should be hung and quartered by investors angry with the advice? Of course not. Wrong calls are a part of every analyst’s portfolio.

Does it mean that his advice should be regarded in the future as wholly suspect? Of course it does not. Mylchreest has done, and likely will continue to do some good work – in a field where good work is not necessarily the norm.
With all that said, does anything in this report, or any of his previous ones justify treating it like the second coming? No, of course it does not! While informed speculation is a valid and necessary part of analysis, the pattern exposed by study of Mylchreest’s calls shows him to be capable of largely ignoring good data in favor of poor, or at least, incomplete data. Or as Lawrence Williams wrote, in a Mineweb piece a few years back,

“The big problem, though, with much of this kind of analysis is that the analysts and observers are working with a mixture of real and assumed figures. It thus tends to rely on statistics being manipulated, perhaps subconsciously, to support pre-conceived theories”

There is strong reason to believe that some very large players are influencing the precious metals markets in ways which allow them to both profit mightily and do so with negligible risk. The back story on this very real manipulation needs be exposed; yet, because it runs counter to the currently fashionable narrative which holds the attention – and hopes- of metal investors, there appears to be little appetite for that task within the analytic community.
In a subsequent follow up I hope to get started on doing just that… not because I feel particularly well equipped to handle it, but rather, because it seems that no one who IS so equipped seems willing to put their qualifications to the test! As it happens, I have none whatsoever, and thus equally, nothing to lose for trying!