Speculator Confidence, The Social Mood, And Precious Metals Investing

I missed this story, which was posted over the weekend at jsmineset.com. If it is too technical for you, I can sum it up pretty easily: floor traders walking off the floor is one more hit to investor/speculator confidence.

I realize that gold and silver are going nowhere at the moment, and, worse yet, the mining shares have been a disaster. But in the long run, the kind of lack of confidence displayed below by floor traders is telling. As I have written elsewhere, confidence can be likened to a snow packed hillside before an avalanche. Everything looks just fine, but then comes the one shot, or the one breeze blowing the wrong way, or whatever, and then the whole hillside comes crashing down. And it comes crashing down with all of the determination only an avalanche can bring.

I want to be consistent: precious metals and mining shares can move higher for all sorts of reasons, not necessarily those having to do with doom and gloom. Yet, one very important long term fundamental underpinning this market is that people’s faith in Wall Street and the monied power is and has been going away. This is just a fact.

There is an opportunity here; but above all, this lack of confidence demonstrates that an age of realism is upon us when it comes to everything from investing to political thinking. Like the late 1970s (which in many ways was not as bad as today, at least in hindsight) there comes a time when people no longer believe those trying to call the shots, they no longer trust the casino, and this lack of trust leads them to make a move to real assets that can only be stopped with drastic measures (how drastic remains to be seen). We seem to be a long way away from that moment right now. But you just never know what might come up at you out of the blue.

“Local traders in the CME Group Inc. (CME)’s Eurodollar options pit walked off the job today to protest a block trade yesterday.

‘These guys that stand in there all day and make prices would have loved to participate in that particular price, but they weren’t able to,’ Rocco Chierici, a broker at R.J. O’Brien & Associates on the floor of the Chicago Mercantile Exchange, said in a telephone interview.

Prices for the block trades of options on Eurodollar futures were higher than offers in the pit, which wouldn’t be allowed in open-outcry trading, Chierici said. Local traders buy and sell for their own account and in the process help add liquidity to a market. Block trades are privately negotiated transactions that are conducted outside the normal pit or via computer-based trading systems used by exchanges.

‘There are rules that prohibit that in the pit, but you can circumvent the pit’ in a block trade, Chierici said. ‘I believe they wanted to make the point that the system is not fair.’

Six block trades totaling 215,200 options traded at 8:11 a.m. Chicago time yesterday, according to CME Group’s website. The trade was rolling positions from April contracts, which expired today, into June contracts.’ ”