Over the last 15 years I have come to realize just how much disinformation and simply bad information there is available to readers of financial matters. Much of what you watch and hear is simply wrong. People wonder why they consistently lose money and it's simple. The best-informed investor is the most profitable investor. But that's not in terms of quantity of investing information; it has far more to do with quality of investing material. Listen for the signal and learn to ignore the noise.
If you reduce investing to the financial atom level, it really has to do with money flow. Money always flows from weak hands into strong hands. That's something you should have learned in kindergarten. The smart money buys at bottoms and sells at tops. The dumb money sells at bottoms and buys at tops. I've heard that 70–90% of investors lose money and if the number is accurate, that's why.
So anytime you make an investment, forget location, management and balance sheet. Look to see what the smart money is doing and what the weak hands are up to. Do the opposite of what the dumb money is doing. That makes you the smart money automatically.
Nowhere is this truer than with commodities. The amount of disinformation is absurd. No matter if you worship at the house of God the Father, God the Son and God the Holy Gold, metals are an investment first and a religion last. Those who claim gold and silver are religions have no more credibility than any other TV Bible Thumpers. They want your money and they want you ignorant. An ignorant people can never grow rich.
So when you hear about gold derivative time bombs, naked short selling, bullion banks and Comex defaults, you know that you are listening to the scammers. There is no such thing and they know it.
If you take a gander at the numbers for derivatives from the BIS, you can easily see that interest rate derivatives totaled $384 trillion at the end of December 2015, while gold derivatives only totaled $286 billion. While $286 billion sounds like a big number, compared to interest rate derivatives, gold is less that 2/3 of 1%.
In other words, a "Bullion Bank" front running interest rates by 1 basis point would have to manipulate gold by $13.40 an ounce to accomplish the same thing. And that just doesn't happen. One basis point is tiny and $13.40 moves in gold are far larger in context. In short, banks don't give a damn about the price of gold or silver. Why should they with interest rate derivatives being 134 times bigger than gold derivatives?
Let's take a look at the COTs and see what they tell us. As I said before, anyone talking about Bullion Banks being short gold doesn't know what they are talking about. The CFTC reports producer merchant or processor/users. Those are the commercials not Bullion Banks.
Mining companies are commercials as are jewelry manufacturers. While mining companies naturally want the price of a commodity to go up, manufacturers want prices to go down. So the producer/merchant or commercials are actually net neutral. One side gains as prices go up, the other side gains as prices go down. The main function of the commercials is to take the other side of the trade when speculators enter the market. Remember, commodities are a zero sum game. There are no naked short sellers. For every purchaser there is an equal and opposite seller.
This is extremely important to understand. Commercials rarely drive the market; speculators drive the price. Lots of people are constantly talking about how short the commercials are when in fact it is the speculators going long that is determining what markets do.
How do we know this just by looking at facts? Well, if the market is going up and commercials are getting shorter, they can't possibly be driving the market. After all, how do you make price go up by selling anything? You can't.
Lets look at what actually happens as money flows from weak hands into strong hands or from dumb money to the smart money. Gold hit about $1,047/oz in the middle of December 2015. Go back to what you learned when you started kindergarten. Who buys at lows? That's right, as prices go down the smart money buys, the dumb money sells. As prices go down the buyers are smarter and smarter, the sellers are dumber and dumber. If you walk into your Corvette dealer and he quotes you $70,000 for your dream car and you tell him, "No, I want to wait until prices go up before I buy," he will automatically know he is dealing with the dumb money. Smart money buys on sale, dumb money buys after prices go up. That's just as true of Corvettes as gold.
Examine what you have done as an investor at lows. Are you buying or selling? That will tell you if you are the smart money or the dumb money. In late December of 2015 the COTs were more favorable for gold and silver than they had been since 2001. The number of contracts was down and the weak hands were selling with both fists. The strong hands or smart money was buying.
If all you know is that money flows from weak hands into strong hands or the dumb money gives the smart money everything they own, you know everything you need to know to invest. You don't have to worry about Deutsche Bank or the IMF or what the Yen is doing. All that information is noise, not signal. When the weak hands go to record short positions, you are going to have at least a very strong rally. And people who know how to interpret the COTs told us exactly that.
"The Commitments of Traders numbers are more favorable for gold than they have been for 14 years, going all the way back to 2001. Silver is not quite as positive but still positive. We are perfectly positioned for a bull phase even if you believe gold and silver are in some kind of permanent bear market."
We are in the opposite sort of market today. As speculators increased their long positions to a record in both gold and silver those buying have gotten weaker and weaker. Those shorting have gotten stronger and stronger. You will hear tales about how the shorts are getting hurt to the tune of billions of dollars but how could that possible happen? The shorts are the strong hands at tops. The longs are the weak hands at tops.
Eventually some external event will take place that all the parrots will blame for a drop in the price of gold. Of course, it will have nothing to do with the drop. It's the longs getting weaker and weaker until some total twit decides that he needs to buy gold at the very top. "If it's gone from $1047 to say $1400, it must be safe to buy," he thinks.
When that day comes, the scammers will start screeching about how gold and silver are manipulated and the prices are being suppressed. But all that is happening is that once more the weak hands or dumb money has delivered the profits to the strong hands and smart money.
If you want to profit in your investments, you have to educate yourself and learn to ignore the experts, the gurus and all the other fools. Do some education and learn to make your own investment decisions. I believe we are in the midst of what will eventually be the biggest boom in gold and silver in history. In 1980 it was the bulls that lost money. In April of 2011 when silver almost touched $50 an ounce, the manipulation/conspiracy clowns were telling people to buy. Some people were warning investors about the dangers of investing at tops.
"The daily bullish consensus on silver is 96% as of Wednesday the 20th of April. On January 21st of 1980, the very day of the top, the bullish consensus was 94%. How many of the silver uberbulls are suggesting that maybe the record high bullish consensus is suggesting a very dangerous time to start buying? The answer is damned few because they have an agenda and their agenda doesn't involve them knowing what they are talking about. As long as they tell investors what they want to hear, they will be very popular."
When you get tired of being the dumb money, go to Amazon and spend $6.49 and learn what not to do and how to actually become the smart money. It's called Nobody Knows Anything. It's the cheapest good financial advice you will ever read.
Bob and Barb Moriarty brought 321gold.com to the Internet almost 14 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. He holds 14 international aviation records.
Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.
Disclosure:
1) Statements and opinions expressed are the opinions of Bob Moriarty and not of Streetwise Reports or its officers. Bob Moriarty is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation or editing so the author could speak independently about the sector. Bob Moriarty was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.
