of mountains, molehills and mining - peak propaganda in gold?

8/10/2019 Of Mountains, Molehills and Mining - Peak Propaganda in Gold?

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Of Molehills, Mountains and Mining -

Peak Propaganda in Gold?

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

The Swiss Gold Referendum, marketed by the gold bug media withdramaticeven apocalyptic- overtones,(one headline - Today May Markthe end of Western Monetary Dominance) proved a flop. Adding tothat deflation of millennialist expectations, the failure of such supposedlyexplosive materials as "open interest on the Comex," "backwardation," &"GOFO rates" to ignite as predicted left goldbugs devoid of themes evenremotely capable of supporting the usual optimistic narrative. But onlytemporarily!

You see, just as nature is said to abhor a vacuum, the goldbug media gets afright from their followers crushed hopes - and anything else that mightreduce 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 tidal surgesarrival surprises even seasonedveterans 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 inthe bankstas'* coffins' has arrived.... via Paul Mylchreest of Archer DanielMidland. You could just about hear the signs of relief across all of the


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

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

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

I can't speak to the validity of the various methodologies employed bythose who swear by the theory of cycles, be it the kondratieff wave, orcompeting interpretations; but as an investor I can certainly address theissue of whether an analysis looks capable of guiding me towards profits or


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loss! In the case of Mr M, whose 2013 silver report boldly indicated majorrises for aug -

"cycle based on the combination of two further statistically significant cycles in silver priceslasting 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 pricein excess of US$50/oz (the current price is US$31.47/oz.).... 16 July 2013, is justover six months away. If we useJack Gillens 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 cyclesguru could have attached to his prediction the caveat that a cabal of greedybankstas could conceivably kidnap the the sector and destroy the validity ofthe research - or something to that effect. But all such caveats, for somereason, 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 thismoment 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 investorit seems; though a guy who is enjoying a fair amount of esteem in theinvestment world right now ALSO patterns his work on cycles-basedreasoning, for some reason heis the devil incarnate to gold and silver bugs.

Even though his record of predictions for the precious metals over the lastthree years was far superior to those of any of the 'most favored' gurus - gofigure! Martin Armstrong fails to lie to his followers, and gets the tar nfeather treatment. "Most favored serration" analysts give their readers just theopposite advice to what would make them money, and get invited back to


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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-closeproximity to precious metals that alters one's mental equlibrium? Theanalyst who authors srsrocco.com, for example, used to be one of thesteadier voices of sanity in the gold blogosphere. All that went out thewindow this year, in favor of some of the most egregious examples of purepumper propaganda in an already overcrowded marketplace. Ironically,this one time well-grounded observer of metals and their markets onceobserved:

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

How very tru dat! Yet the author of that quote now allows no one to outdohim in giving the bum's rush to any reality-based approaches to theconundrum of the markets' complete detachment from supply\demanddynamics - in favor of banging the 'badguy bankstas' manipu-drum overand over again, like the everready bunny.... till the supply of new and naivemuppets 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 apparentcontractions of the same illness! Witness the work of another previouslysedate and steady hand on the good ship GoldnSilver: c'mon down RobKirby!


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Here's a guy with an unusually good grasp of derivatives - and therefore agreat potential source of information about the murky world of goldfutures - and au's increasingly dis-incarnate status as a paper trade. Alwaysgood 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 Publishedon Jul 20, 2014

Yikes! In roughly the same span of time as our other-past-best-before-dateformer folkhero, Mr K goes from stellar to da cellar! A troublingcoincidence, perhaps, you saybut surely nothing more than that! Well.I present you with the case of Mr. Koos Jansen former proprietor of thewell esteemed ingoldwetrust blog. Up to six months or so ago, his postswere full of interesting facts and figures derived from his in depth study of

the Chinese market. On occasion, he would avail himself of someobservations on the wider geopolitical world in which to place these datapoints. You could see the trajectory of his thoughts coming from a safebasis in the real world, and appreciate a bit of extrapolation from thatperspective. 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 BillHolter, for example, by inventively casting about for news stories whichwill bring solace to the weary minds n wallets of the gold and silverworld whilst presumably encouraging same to *stack the smack* nomaatter what the weather! Its come to the point, in short order, that Koos


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now exchanges notes with uber-insider Harv E Organ aboutnonbreakingnews stories like

Bastogne Bombshell: Belgium Set to Repatriate GoldReserves!

Our country is investigating to repatriate all our gold reserves. The Belgium centralbank has confirmed this to VTM-nieuws. This is all I could find for now. This postwill be updated when more news comes in."

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

Alright, I can see this is going to be a tough crowd. Nobody's going toadmit that the dirth of reasoned, seasoned, INDEPENDENT voices activein 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 PartTwo!

Part Two Of Molehills, Mountains and Mining

- Peak Propaganda in Gold?


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Paul Mylchreest is a financial analyst who has covered a lot of ground inthe last few years. Hes given us a geo-political perspective on Gold andEnergy markets(The New New Great Game), taken a close look at those sametopics through the lens of long wave cycle analysis, and given much

attention to making sense, from disparate sources of information, of howand where gold flows, and who has how much of it! All good stuff, andpresented in an engagingly fresh manner.

That said, we are, in all these reports, being given a bullish take on themetals markets and their future prospectssomething which, at least tillnow, 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 towardsanalysts whos work has been predicated on 'underperforming' models!

Here, we are presented with the thesis that a large, leveraged long/shorttrade 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 anotherperennial favorite tool - the repo market - with which to excavate thehidden truth about gold and silver's suppression.

A wealth of chart data is provided, along with supporting arguments as tohow 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 than2 years - and which gives Zerohedge the chance to indulge in one of theirclassic dramatic bait n hook headlines -

The Shocking Role Of Gold In The "New Normal


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All very compelling - at first glance! After all, -in light of the fact that allprevious attempts to explain the terrible performance of gold and silver

since 2012(including those advanced by our author!)have failed to holdmuch water, almost ANY new effort to fill in the gap between perceptionand reality is likely to be welcomed by an audience starved for somethingto nibble on other than stale and maggoty hardtack!

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

If we cast our minds back to September 2012, we had the announcements ofQE3 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 thedemand for physical gold bullion has remained strong as we show.

This is an all too common theme on the part of gold trade analystscurrently - something which fails to act according to their theoreticaldictums.... usually some formulation of an Austrian economics-inspired

"law".... is accused of being counter to 'common sense,' 'intuition,' orsimple decency! In the ordinary, empirical world which demands solutionsto problems, sooner or later it occurs to someone to challenge and/orrethink a premise, rather than continue to dismiss the phenomena whichthat premise fails to explain. But not, apparently, in the wacky world ofgold n silver bugdom!


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Just like Gertrude Shirks' or James Gillens' cycle theories were supposed tobe a sure bet to explain the movements of metals, according to our author,

these standardform explanations - of why money printing and moneysupply easements are bound to create inflation, and/or cause rise in hardassets values - appeal to him as bedrock foundations upon which toconstruct his arguments. Unfortunately, building upon quicksand seldomleads 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 fromhttp://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 chartfor myself. It isn't as clean, so Zerohedge may have been a little fast and loose with thedate 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 betweenGold 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 isprobably the product of COMEX traders mirroring the equity markets."


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That people have been manipulating precious metals markets for sometime is a pretty certain conclusion to come to. It takes either a quaint kindof faith in authority or a large degree of cynical posturing to argueotherwise 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 forgetting the credit or blame for precious metals lack of luster, it lacks muchsubstance. It should be noted here that I am not calling out PaulMylchreest for misreading or misunderstanding the way the gold tradeworks in relation to derivatives. I AM saying that, ultimately, there are

better candidates, and that models which reflect patterns common todifferent elements of the financial world as per the example quoted aboveare not to be confused with models which undertake to explain thereasons for those patterns.

There are, indeed, currency pairs trading in high volumes, with gold as oneof 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 2011highs. I hope to explore the topic in the near future, after studyingadequately the present example of *what not to do* when extrapolatingdata collected from different parts of the whole market. For that valuablelesson alone I value Mylchreest's latest work - and deconstructing it here iscertainly not to call it a profitless exercise!.

However, if one starts off building a case by citing a provable fact - forexample - Gold, and we are specifically referring to physical bullion, is also the only

financial asset which has no counter-party riskthere is no lee way built in toones argument to allow for welding to it a supposition which is NOTprovable factfor example, from the same paragraph by Mr. Mylchreest


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That alone should make it increasingly sought as a hedge in a credit bubble driven bymonetary stimulus undertaken on a rolling basis by central banks.

What gold should doaccording to this or that economic theory - is a greatdeal 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 hasbeen the ruin of many an investor of late!

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

If we look at the price relative performance of the premier silver miners on both sides ofthe Atlantic, Fresnillo in Europe and Pan-American Silver in North America, they aretrading 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 therisk/reward in buying these shares look very favourable

with which that report ends, and ask yourself whether the logical structureof that argument led to profitable investments on the part of those whoaccepted its conclusions. Of course, it did not. Nor did silvers subsequenthistory play out in any way similar to one which would justify the heavybuy signal which that report gave it. Does that mean that Mylchreest


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should be hung and quartered by investors angry with the advice? Ofcourse not. Wrong calls are a part of every analysts portfolio.

Does it mean that his advice should be regarded in the future as whollysuspect? Of course it does not. Mylchreest has done, and likely willcontinue to do some good workin a field where good work is notnecessarily 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! Whileinformed speculation is a valid and necessary part of analysis, the patternexposed by study of Mylchreests calls shows him to be capable of largelyignoring good data in favor of poor, or at least, incomplete data. Or asLawrence 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 onstatistics being manipulated, perhaps subconsciously, to support pre-conceived theories

There is strong reason to believe that some very large players areinfluencing the precious metals markets in ways which allow them to bothprofit mightily and do so with negligible risk. The back story on this veryreal manipulation needs be exposed; yet, because it runs counter to the

currently fashionable narrative which holds the attentionand hopes- ofmetal investors, there appears to be little appetite for that task within theanalytic community.


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In a subsequent follow up I hope to get started on doing just that notbecause I feel particularly well equipped to handle the job, but rather,because it seems that no one who ISso equipped seems willing to put theirqualifications to the test! As it happens, I have none whatsoever, and thus

equally, nothing to lose for trying!

of mountains, molehills and mining - peak propaganda in gold?

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