Mike Gleason: It is my privilege now to welcome in Craig Hemke of the TF Metals Report. Craig runs one of the most highly respected and well known blogs in the industry and has been covering the precious metals for close to a decade now and puts out some of the best analysis on banking schemes, the flaws of Keynesian economics and evidence of manipulation in the gold and silver markets.

Craig it's great to have you back and thanks again for joining us today. Welcome.

Craig Hemke: Hey Mike, it's always a pleasure. Thanks for the invite.

Mike Gleason: Well we've got some pretty good price action here over the last week or so in the metals, which was driven by that lackluster jobs report that came out last Friday. Now, I recall going back a couple of weeks and following your work there at TF Metals, you were looking for a sell off there at the end of August. And that's exactly what happened. You believed we would get a bounce back immediately following that and sure enough that's what we got. Kudos to you first off for your accurate calls there, but talk about the resiliency that we've seen in the gold and silver markets. And then share with us your thoughts on where we are technically here on the charts. Are we going to be stuck in this range, say $18.50 on the low end, $20.50 or $21 on the high end in silver and say $1,300 to $1,380 or so in gold?

Craig Hemke: Yeah, there's a lot going on. It's been an interesting summer as you know. We had the Brexit vote and just plummeting interest rates into early July. Then all of a sudden, we've got Kuroda, we call him crazy Kuroda, the head of the bank of Japan talking about helicopter money. That kind of put the kibosh on things in July. Then I thought maybe we'd rally, make all that stuff back in August, and we started August strong. Then we got all the Fed goons out there talking about live meetings and interest rate hikes and all this kind of jazz. And it’s really been a head wind for both metals all through August.

August is typically kind of a challenging time anyway because traders around the world are on vacation, whether it's some of the guys in New York that are out in the Hamptons, or the London guys are down in the south of France. But either way, volume was light and open interest was declining really all through August. But what's interesting now that we've turned the corner to September and everybody's back manning the trading desks again, we had that huge move on this past Tuesday. Open interest in gold surged by five percent in one day… almost 30,000 contracts. That's a pretty good affirmation that we're headed higher now that traders are actually back in the game.

And as we move through this month, I'd be stunned if there's some kind of rate hike. About the best we'll get out of the FOMC probably will just be more jaw-boning about how data dependent they are and how they're apt to raise rates still later this year. The same nonsense. I like where we are technically, though. A chart I put out for subscribers yesterday, actually put this on Twitter as well, is a silver chart that goes back, it pretty much covers all of this year. I think it's the last nine months. And it shows the price reaction in silver every time it moves back up and through its 50-day moving average. Which is a key short-term technical indicator of just kind of, and I don't want to call it relative strength, because relative strength is another technical indicator that everybody follows, but it's a sign of momentum. It's a sign of, I guess, positive intent for the future.

And when the moving averages in silver are positioned the way they are, which is all bullish, and price dips below that 50-day and then breaks back through it to the up side, it seems like it generates real significant momentum from the technical traders and hedge funds. And this chart seems to show that picture. When we first broke through the 50-day moving average at the end of January, the price immediately shot 12% higher in just the next two weeks. It went from about $14.50 up to $16. The price then came back down, actually the moving average kind of caught up with it, and in late April, it broke down through the 50-day again. It spent about maybe a week below there, but then once it broke back through the up side, price shot higher, 16% in three weeks.

Again, as these technical funds started buying paper silver again, and this positive, upside breakthrough. Then it came back down in late May and got below the 50-day again. It spent almost two weeks there, but then once it broke back through in early June, price then moved 23% in four weeks – Brexit kind of helping things along. Those plummeting interest rates we talked about, too.

Then in late August, we broke down through the 50-day again. Spent about two weeks. Put a perfectly rounded, symmetrical bottom below it. Now back on Tuesday, we broke back through it again to the upside. If history is any guide, silver, paper silver, may be ready to surge forward again somewhere 15-20% over the next month. We'll see. History doesn't always repeat, and what's that they always say about past performance is no indicator of future results. But this charge seems to tell you a lot. I think there's reason to be optimistic.

Mike Gleason: What have you heard from your sources in terms of physical buying? We've seen retail demand tick up a bit here over the last week or so. But overall it's continue to be modest since silver rose several dollars back in June. On the other hand, there appears to be good institutional and big money buying that is keeping prices supported. What are you seeing with investment demand, ETF inflows, et cetera? Anything noteworthy there?

Craig Hemke: Yeah, and that's the thing. A lot of folks like to hang their hat on the retail buying, the data from the U.S. Mint and all that stuff. But that's really just a fraction of what's going on. Now it's an interesting indicator, and it's not something to just simply be written off and ignored, but it's just one anecdotal data point. It's not something that you can say, "Well, okay, just because Mint sales are down, everything's going to hell."

Far more important is global wholesale demand at the sovereign wealth funds and at the central bank and large institutional investor level. If anything tells you or explains why it is that the banks have been unable to raise price for the last six months, it's that. There's all kinds of purported analysis out there now. It seems like everybody that can type on a keyboard is suddenly a Commitment of Traders analyst. As if that holds all the clues. And I think most folks that read my site understand that, again, it's just part of the picture, it's not the be all end all. And frankly, we were worried about the Commitment of Traders report back in February because it was reaching extremes again just like we've seen in 2013, 14, and 15 that led us to be very worried that the bank were just setting everybody up for another wash and rinse cycle.

But instead price has continued to move higher. And in fact, it's moved higher now since Valentine's Day in a pretty steady channel upward. And I can tell you, if the banks were able to raid the price and flush all these specs out, they would have by now. And the reason why they can't is that underlying physical demand because the banks, which are the market makers on the COMEX, which are the ones that are all these net short contracts there, they're the same banks that actually are in charge of physical delivery, having to make physical delivery as bullion banks in London. And that physical bid, that wholesale physical bid is what keeps them from knocking the price down too far because they know what their order book looks like, and they know that if they take the price down to $1,200 or $1,250, that the demand for physical is going to explode. And they don't have the physical to fulfill those orders. And that's why price has not been rated for the last seven months.

A lot of, it just seems to be a lot of, too many analysts out there look solely at the COMEX and they do their little waive counts and all this other jazz and they think that that's the whole picture. That's far from the whole picture. The global gold market is incredibly complex. There's all these moving parts for people to try to somehow decipher and make sense of. To just simply look at the price and apply a bunch of lines to it and try to say that's where it's going misses a lot of the subtlety of what it takes to really analyze the whole market. Physical demand is a key component. Not on a daily basis, but it does prohibit the banks from raiding price.

One last thing to this, Mike. Again, why is it then that the physical demand is so strong? Gosh, I write a couple times a week to remind my subscribers that negative interest rates is the most positive fundamental for physical precious metal ownership that we've ever seen. We've never seen anything like it before. Again, why is that? Well because the argument against physical precious metal ownership is it just collects dust. It's a pet rock. It sits there and doesn't do anything. Well, that beats the pants off paying your bank one percent. Right? And we've seen, now, these stories just in the last couple weeks about safe ownerships and safe sales in Europe just going through the roof. That's what all this lore on cash is about. Even Ken Rogoff, the renowned economist, Harvard trained, is out there saying, "We got to eliminate cash." So why are they floating all those travelers, because if they can eliminate cash, then the average guy is not going to have any choice but to keep his cash in the bank. And the bank, they can charge you one or two percent for that privilege.

Anyway, all of that augers then for physical ownership of gold and silver instead. That fundamental is what is seeping through, even at the wholesale level, and that's what's keeping price from being raided. Boy that was a long answer, Mike. I apologize, but I hope that all made sense.

Mike Gleason: Absolutely. And certainly we talked about or we heard some talk coming out of the Jackson Hole summit about how they were talking about both negative interest rates being a good thing for a lot of these central banks around the world. We're not doing it here yet, but it's maybe a good idea. Maybe you'd want to ban cash at the same time because you can't really do negative interest rates effectively without doing that. And of course, that would be a fantastic environment for higher metal prices. You have to think. Now in today's markets, practically nothing matters except the guesswork around what a handful of central planners at the Fed might do with interest rates. It's pretty sad to say that almost nothing else seems to move prices. And it isn't just the metals markets that are obsessed with monetary policy, bond markets, currency markets, equities, all of them are hanging on just about every word Janet Yellen and her comrades are saying.

Now, most Americans have no idea just how managed our markets have become. But you have to think, Craig, that a day of reckoning for all of this intervention is approaching. Talk about how you expect this to end and what some of the signals might be that the system as we know it is starting to unravel?

Craig Hemke: You're right. The markets are really, frankly, a sham at this point. And there's multiple reasons why… every muttering of a Fed governor or somebody from the ECB or the Bank of Japan… the reason why that matters is because these markets, that I call a sham, are nothing but computers trading things back and forth. There's very little human input. When I first became a stock broker 26 years ago, there were actually people buying mutual funds and buying 200 shares of Coca-Cola because the fundamentals look strong. That kind of thing. But now, 80 to almost 90% of the volume on the New York Stock Exchange is just these high frequency trading computers swapping things back and forth at light speed, clipping each other for fractions of a penny. It's a massive scam.

So the Fed knows this. And so if they want to pump up their stock market, which is obviously one of their key indicators, and everybody from Yellen back to Greenspan has talked about the “wealth effect,” about having people feel real good about themselves and go buy a new refrigerator because our 401k's going up. So if they want to pump up the stock market, they know they can do that simply by getting these high frequency trading machines to do what they want them to do. The argument against a federal or a central bank stock market intervention manipulation is, "Oh you can't do that. It would take trillions and trillions of dollars." Either that's a very naïve statement for someone to make, or they're simply trying to mislead people and carrying the water for the central banks.

Central banks can easily manipulate the stock markets just simply by manipulating the inputs of these high frequency trading machines and getting them to either buy or sell whatever market that they want to see move. In this particular case of the stock market is clear, for anybody that wants to pull up the charts, that these trading algos, these high frequency trading machines that buy index futures on the stock market and move it up or down... One of the clear things they follow is the dollar/yen, relationship between the U.S. dollar and the yen. If you're Janet Yellen or one of her goons, and you want to see the stock market go higher, then all you have to do is jawbone your way into talking up the dollar to weaken the yen. That's all it takes. And then the machines do the rest.

That's why we've seen so many V-shaped recoveries in the stock market over the last two years. Just as soon as it's looking like it's going to go all to hell, all the sudden it bounces straight back up. Well, that's again the Fed saying something to get the machines to do what they want them to do.

Same thing is true in a paper metal market. I'll just kind of spin off in a different direction for a second. We've been conditioned to believe that that's actually the price of gold. No doubt, there's some physical metal that changes hands at the spot price, and the spot price is largely determined by the derivative trading. But what's a fallacy of it all is that that's somehow a fair price. What that futures price is is the price of the derivative itself. It's the price where the HFT machines are, what they're willing to pay for the derivative, and the price at which the banks are willing to sell the derivative to them. But it's not an actual exchange of gold at that price. So the price moves basically on the supply and demand of the derivative. Not of the supply and demand of gold.

As I mentioned earlier, there's some restrictions to the banks because they actually do have to settle physical at that price. But nonetheless, the whole thing's a shame. So at the end of the day, your question is, "How do you know when it begins to fall apart?" I would say when we being to see a breakage of the machines not doing what the Fed or the ECB or the Bank of Japan wants them to do. If all the sudden, interest rates are spiking, that would be, "Well, wait a second. They don't interest rates to spike." That would be something. If all the sudden, you see the stock market really beginning to move down against the long term trend of what's been happening in the yen, that would be something. You really have to monitor those internal things for signs of, I guess, the system breaking.

Certainly not seeing it yet, and that may not happen for a while. They've kept this place spinning for six years. Maybe they can keep them going for six more. In the meantime, I'm just perfectly content stacking my physical gold and silver because I know in the end, these uneconomic systems that are just a sham and illusion like this, they just can't go on forever. And we'll patiently wait for that end to come.

Mike Gleason: When we had you on last, the Shanghai Gold Exchange was a newly formed entity. You believed the formation of that new exchange had a lot to do with the strong start to the year for gold and silver. How's that going? Is it continuing to have an ongoing impact in the metals markets? Give us the latest there. Talk about the importance of this for folks who may have missed our discussion about it last time.

Craig Hemke: I believe it is, Mike. A lot of folks thought, "Hey, as soon as this comes online," and it came on in late April, "oh this is going to wreck everything." I guess there was a potential for that, but I think in the more grand scheme of things, it is another brick in the foundation that the Chinese are building for an alternative monetary system the next time things break down. As the largest creditor nation to the U.S., when everything went in the toilet in 2008, I think the Chinese sat back and went, "Whoa, wait a second. Time out here. We got to come up with something different." And they've spend the last eight years trying to internationalize RMB. They've got all these now direct currency swaps going. They've got the gold exchange going. They've got the silk road that they're developing. All these different things that a foundation of this alternative system that they're going to offer either out of the blue or the next time the dollar based system collapses.

And the Shanghai gold exchange and that fix is all part of it. It didn't change things. It didn't collapse the London system overnight, but the fact that it is a truly physical market creates the potential for significant arbitrage out of the paper markets of London and New York. And that, like that wholesale physical demand, is really keeping these banks in check, because if they crush the paper price and the Chinese don't mark down their price the next day, you get a big, huge, wide gap… you could have a 10, 20, 30, 40 dollar an ounce gap, which is immediately going to be filled by buying gold in London and then shipping it to Shanghai and settling it there. And that's just going to drain whatever gold is left in London and the little bit of gold that's in New York. And so that, too, just like that physical demand we talked about earlier, is really putting the kibosh on any plans that the banks would have for business as usual… or what we've seen forever – sucking in the specs and then blowing them all back out in a wash and rinse cycle. And then starting the thing all over again.

Everybody's been expecting that since February and it hasn't happened. That Shanghai gold exchange is part of the reason why.

Mike Gleason: It does seem like we're moving a little bit towards maybe a more true and transparent system. And like you said, it keeps them in check, and if nothing else, that's a good thing we're moving in the right direction here it appears. Now as we begin to close here, Craig, what are you looking for over the remainder of the year in the metals? Do we grind sideways as the election years and the central planners try to keep the system afloat in order to protect the status quo? Basically, how do you see the year playing out here over these last four months?

Craig Hemke: Well, in the very short term… we need to recognize that back in August, when trading volume was light, there were attempts to break the price down. There was a day back, it was about two weeks ago, now a little over two weeks ago, you may have seen this Mike, ZeroHedge wrote about it, where price was raided. It wasn't much, it was about $10 in about a second, but it broke the gold price down through its own 50-day moving average. That was the goal. The price had been riding that thing for about a week, and then in two separate orders, one for 1400 contracts and one for 1,200 contracts, one second apart, Nanex caught it. We know that this is what happened. Price was smashed for eight dollars, it got priced below the 50-day. And then we went from $1,345 down to about $1,305 over the next couple of days. But now we've since reversed. I think any rational person realizes that there's no rate hike coming. And thus, you've had this rally now over the last couple days. We're at $42 in three days. Silver was up $1.50 in four days.

Now the challenge for the banks is going to be containing things, especially when we get to the FOMC week after next. I think it concludes, what, on the 21st, Wednesday the 21st I think that's right? If price starts making new highs, gold starts trading up about $1,370, $1,380, especially some weekly highs on, you're going to get a big rush. A lot of open interest came out in August with contract expiration and delivery. We had 30,000 come back in back on Tuesday. We're still 70,000 contracts below the peak that we saw back in early July. If those 70,000 buyers, if you will, if those 70,000 longs come back into gold, and surge it higher, you'll probably get another 70,000 longs. And the banks will really be playing defense if this positive momentum gets generated.

Silver, it's back above its 50-day as we said. If it starts making new closing highs up near $21, it should easily go to $22. It'll encounter stiff resistance there, just as gold has been encountering stiffer resistance in the high 13's. However, I have thought, and we've talked about this at TF Metals Report since the early summer, that the ultimate goal for this year, not by New Years Eve, probably closer to thanksgiving, early December, is something up near $1,500, and silver up in the $24, $25 range. If you go all the way back on the charts, and a lot of folks who've been trading metals for a long time will remember that $1,525 in gold held as support for 19 months from the fall of 2011 into the spring of 2013. And the area around $26 held in silver. And then the price started to roll over and it came down, it was hugging that level in April of 2013. When the smash of all smashes occurred on the 12th and 15th of April of 2013.

Gold was hit for $200 in two days. Silver was hit for almost $5 in two days. So that is your ultimate resistance level. Once gold trades back above $1,525 and silver trades back above $26, it's going to be a frenzy again, like we saw in 2011. Though I'd love to see that happen next week, keeping things in check and understanding the forces aligned against this, my goal is just to get there or get close to there sometime this year. We've been talking about something in the high 14's that 15 is your goal before the end of the year, and something $24, $25 in silver. Then we'll just see what 2017 holds.

Mike Gleason: Well after seeing the metals limp into the finish line the last few years and really struggle at the end of the year it would be a welcome sight for metals investors and certainly a very encouraging sign if we could build on what has been a solid, solid year to this point.

Well wonderful insights, Craig. We always enjoy hearing from you and look forward to the next time and we’ll have to catch back up before long and get your thoughts on how 2016 unfolds over the final couple of months. Now as we close here any final thoughts you want to leave us with, and then if you would please also let people know more about the TF Metals Report as well.

Craig Hemke: Mike, one thing I might add, too, because a lot of folks, I see it on Twitter and things like that, "Oh boy, as soon as they hike rates, gold's done." Just a reminder that the price bottomed at $1,050 and the GLD alleged inventory bottomed at whatever it was, 600 some-odd metric tons on December 17th of last year. The day after the Fed hiked their Fed Funds rate. And from there, we're now up, what, 25-28% in price? But this idea that a Fed Funds rate hike is somehow the doom for gold, well recent history doesn't necessarily prove that out. Just wanted to make sure everybody keeps that in mind as we go through the end of the year.

But yeah, we talk about this stuff on a daily basis. The site itself is something I'm really proud of because it's populated with people who are all kind of looking out for each other. We realize that this current system's on its last legs. Nothing lasts forever, and dollar hegemony and the dollar reserve currency status isn't going to last forever either. And so we're all preparing for that. Most of the site is free, but if you want daily analysis and a daily podcast and some of the other stuff we do, it's a whopping 40 cents a day, 12 bucks a month and I encourage everybody to check it out. TFMetalsReport.com.

Mike Gleason: Well excellent stuff once again. Thanks so much, Craig. I hope you enjoy your weekend.

Craig Hemke: Hey, Mike, same to you. And thanks for having me on.

Mike Gleason: Well that will do it for this week. Thanks again to Craig Hemke, the site is TFMetalsReport.com. Definitely a fantastic source for all things precious metals and a whole lot more. We urge everyone to check that out, and you'll want to check it out regularly for some of the best commentary on the metals markets that you will find anywhere.

Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.