Gold & Silver Digest: 7/8/13

Adam Taggart
By Adam Taggart on Mon, Jul 8, 2013 - 5:49pm

The Gold & Silver Digest contains headlines of stories that members of this group deem relevant and/or interesting to precious metals enthusiasts.

If you have articles to submit for the next digest, please email them to me by clicking here.

7/8/13 6:26 PM EST US close metals price quotes from Finviz

Reuters: Gold rises on U.S. dollar's fall, bargain hunting

Gold rose 1 percent on Monday as a weaker U.S. dollar triggered bargain hunting after the yellow metal's two-day slide caused by concerns the Federal Reserve could soon start tapering its monetary stimulus.

Investors are also digesting news that hedge fund manager John Paulson's gold fund has lost 65 percent so far this year after the portfolio declined 23 percent last month.

Bloomberg: Gold Bear-Market History Signals Second-Half Hope After Rout

Investors in gold funds, whose value slumped a record $44.7 billion in the second quarter, may do better in the second half of the year if history is any guide.

Gains averaged 1.3 percent in the second half from 1981 to 2000, when gold endured a two-decade bear market, data compiled by Bloomberg show. First-half losses averaged 3.9 percent in the period. Investors sold 404.4 metric tons from exchange-traded products backed by the metal in the second quarter as prices tumbled into a bear market in April.

King World News:   Turk - Something Shocking Has Occurred In The Gold Market

Today James Turk warned King World News that something “shocking” has occurred in the gold market.  Turk also spoke about a key change in another market that KWN readers around the world should be aware of.  Below is what Turk had to say in this powerful interview.

Turk:  “There are two major events underway which everybody should be paying close attention, Eric.  The first one is rising interest rates.  You and I have already focused on this point to some extent, but we saw another huge surge in rates to a new multi-year high after the unemployment report on Friday, which is very telling.  We need to look at this rise in interest rates in relation to an economy that is barely crawling along.

Casey Research: Telegraphing the Turnaround in Gold

As of last Friday, gold has now fallen as much 35.4% (based on London PM fix prices) over 96 weeks. But if you're like us, you still recognize that the core reasons for investing in gold haven't changed. People who sold their gold recently made a shortsighted decision. Before too long precious metals will rebound—and probably in a big way.

But when? Does history have any clues about how long we'll have to wait for that rebound?

Seeking Alpha: COMEX Registered Gold Inventories Have Never Been Lower

We have covered the rapidly declining COMEX gold inventories in previous articles, but over this past week something very interesting happened - registered gold inventories hit their lowest levels ever.

This is something that is very relevant to investors who own physical gold and the gold ETFs (GLD, PHYS, and CEF) because any abnormal inventory declines may signify extraordinary events behind the scenes that would ultimately affect the gold price.

The Automatic Earth: QE, The Velocity of Money And Dislocated Gold

From time to time, it's nice to look at a series of graphs, and let them tell their thousand words worth - each - of stories. In this case, I started out looking at US monetary base at the St.Louis Fed website and it sort of went from there. Curious trends and intriguing numbers, beyond what I would have thought. To refresh memory and avoid confusion, first a few definitions: 

The monetary base - base money, money base - is the sum of currency circulating in the public and commercial banks' reserves with the central bank. The money supply - money stock -, on the other hand, is the sum of currency circulating in the public and non-bank deposits with commercial banks, a.k.a. the total amount of monetary assets available in an economy at any given time.

Forbes: Is Gold Really Worth $40,000 Per Ounce?

My mom – who is going on 95 years old – grew up on a farm in rural California.  Her home did not have electricity and she studied by kerosene lantern.  An uncle who lived in the city came for a visit and gave my mom and her two siblings a rectangular piece of paper measuring about 3 inches by 6 inches.  It had pretty pictures printed on each side.  Based on his demeanor, she could tell that her uncle thought it was a special gift and expected some level of reaction from her, her sister, and her brother.  But, there was none.  They held in their hands a novelty and they were more filled with curiosity than excitement.  My mom, her sister, and her brother asked, “What is it?”  Their uncle replied, “Why, that’s a dollar bill.  That’s money.”  The kids began to laugh, “Who are you trying to kid?  That’s not money.  Real money is made out of gold and silver.”  When my mom told me that story, it reminded me of one particular scene in the movie “Old Yeller.”

SilverSeek: Silver HFT Program

High Frequency Trading or HFT is a form of rapid algorithmic trading performed by computers and executed directly into financial markets, typically without human intervention.

Recent estimates have indicated that upwards of 70 percent of futures and equities trading volume is now being executed by algorithmic trading programs that are often run by large fund managers and financial institutions.

SilverSeek: Changes in Silver Part 3: So Who Is Buying?

With photography gone, and PV not plugging the gap, where is silver seeing the strongest demand...?

FOR ALL ITS monetary and investment history, silver is by far an industrial metal today.

The industrial sector consumed close to 466 million ounces of silver in 2012 according to the Silver Institute. Add what's left of photographic demand, and you get to 524 moz, some 62% of total fabrication.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

20 Comments

sand_puppy's picture
sand_puppy
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Jim H, come out of retirement...

and help explain what is going on with gold futures, here.  It is complicated enough that I rely on you (and a few others) to explain it to me.

http://www.zerohedge.com/news/2013-07-09/golden-backwardation-rabbit-hole-gets-deeper-subzero-gofo-slide-accelerates

Thanks!

sand_puppy's picture
sand_puppy
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Gold Futures price went negative yesterday

An article yesterday and again today on zerohedge points out that the price of gold 3 months from now is MORE than the price of gold today.  This is very unusual and has only happened briefly a few times in the last 20 years.  Though I'm entirely untrained in economics and finance, I have been trying to get an understanding for what this means is happening in the world.

The goldbug subscription newsletter, LeMetropole Cafe, "Dave from Denver" (a hedge fund manager and frequent contributor) offered an explanation that was simplified enough that I could understand it:

The GOFO is the interest rate that you would pay to borrow dollars and use gold as collateral for the loan. Obviously with collateral like gold, the interest rate you pay to borrow dollars would be lower than if you were borrowing the dollars unsecured. If the GOFO is negative, it means that someone is willing to lend you dollars AND pay you interest in exchange for use of your gold as collateral. It's really someone borrowing your gold with interest and putting up dollars as collateral

The only reason this would occur is if someone desperately needs to get their hands on gold but thinks they'll be able to return it within the time frame of the loan - out to three months in this case.
 

So this is another pointer to depleted inventory in the bullion banks.

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Grover
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More or Less
sand_puppy wrote:

An article yesterday and again today on zerohedge points out that the price of gold 3 months from now is MORE than the price of gold today.

sand_puppy,

If things are operating correctly, it should cost MORE in the future. It currently costs LESS. That is "bacwardation" and is highly unusual. Last time it happened was in 2008. It tells me that folks would rather hold gold in their hands now than take the risk that someone won't deliver as promised in the future.

There's lots of conflicting signals out there now. Some are predicting the price will drop to 750. Others are saying that this correction is long in the tooth. I drilled 3 holes in my crystal ball and use it for bowling. Even there, it has a hard time finding the pocket. Go figure.

Tomorrow (Wednesday) the Fed releases their minutes of the last meeting. http://www.usatoday.com/story/money/markets/2013/07/09/stocks-fed-minutes/2503151/ If the minutes generally confirm the tapering story, I expect the price to drop again. If the minutes backpedal, it could move up to resistance. It all depends on what the big boyz think the other big boyz think. It really doesn't matter what we think.

Normally, the summer gold/silver sale season ends in August. I'll reserve my prediction until January 2014 when the procrastinator's club releases their predictions for 2013. I guarantee accuracy.

Grover

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davefairtex
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its not the news, it's the market's reaction that matters

When looking at markets - not just gold, but any market that is in a downtrend - and trying to gauge whether the bottom is in or whether the downtrend is still in place, we need to not only look at the news but just as important, the market's reaction to it.

There are four possibilities (well, there are more than that, but I'm simplifying):

1) Fed minutes are bullish for gold; gold rises [expected outcome]

2) Fed minutes are bullish for gold, gold drops [a surprise]

3) Fed minutes are bearish for gold, gold rises [a surprise]

4) Fed minutes are bearish for gold, gold drops [expected outcome]

We don't get any new information from cases #1 or #4; the downtrend may well still be in place, but since these are expected outcomes and so we can't learn anything new.

However, case #2 is an unexpected outcome - it tells us with a high degree of certainty that the downtrend is still in place.  Market should rally on good news.  If it doesn't, that's a bad sign.

Likewise, case #3 is an unexpected outcome - even more so because if we are cautious we should be assuming the downtrend remains in place.  Case #3 gives us a strong clue that the selling is likely exhausted, and that we might start to assume that a bottom is in place.  If you want to hope for something, hope for this outcome: bearish news from the Fed, and a bounce in gold.  Even better if the initial reaction to the Fed's news is a high volume spike down, followed by a recovery, and a close higher on the day.

This I would call a divergence of news and the market.  Divergences from expected outcomes are really key bits of information.  For instance, release of awesome earnings numbers for a given company, and a drop in the stock price for that company.  That's the sign of a top.

 

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Grover
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Tape Tracker

Dave,

I'm looking forward to your interpretation of today's market action. Apparently, 6 of the FOMC voting members think QE should be tapered. Fifty percent is about as tepid as it gets. Is that overall bullish or bearish? I see it as slightly bearish. They're talking about it and it is gaining steam. The market responded with a short lived spike upwards and has recently settled near the day's lows. The market is still open. We'll see what Bernanke's Q&A do. In Bernanke's ideal world, interest rates would stay low, housing and equities would go up, and PMs would be destroyed.

Grover

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davefairtex
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short term PM outlook

Fed minutes could best be summarized as mixed.  No clear majority for tapering, no clear timeline.  Call it neutral.  In other words, "no news."  Bernanke press conference "clarification" interpreted as distinctly more dovish.

PM Market's reaction on minutes was initially positive, only to sell off back to flat.  However the market's reaction to the press conference was dramatic.  The buck sold off really hard - down 2% in one day.  This is a huge move, as it wiped out perhaps 50% of the dollars move up over the past month in a few hours.  Coming at a time when the dollar has been steadily rising for weeks, this probably indicates a reversal in trend, which will help PM.

Gold broke and held above the important resistance level of 1267.  Clearly part of the move was due to the buck, but it also appears that nervous shorts are starting to cover.  I'd interpret this as bullish.  Next area to watch: 1310-1321.

Silver tried, but could not break 20.  This is not so bullish.  I always like silver to be leading gold to the upside, but this hasn't been happening for a while now.  Its an improvement to be sure, but for the bull move in PM to be confirmed for me, I want to see silver leading gold with a bit more vigor.

Prior to the press conference, I would have said "PM market continues down, led by silver."  After the press conference - gold has cleared its first resistence level of 1267, while silver seems to be lagging.  A reversal in the dollar uptrend will definitely help.  Perhaps we'll see some shorts being pressured tomorrow.  Cautiously optimistic.

Trader Dan is somewhat more bullish than me; he thinks Bernanke was incredibly dovish - easy money for the forseeable future - and suggests we watch gold miner prices tomorrow for clues, which I think is a good idea.

http://traderdannorcini.blogspot.com/

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Jim H
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And now a word from our fundamentals....

Ah, supply vs. demand - what a pesky concept when you are a cabal of bankers trying to keep the competition (Gold, the oldest money) from looking too attractive.  Of course, a huge part of it's attractiveness is that its scarcity integrity is insured by mother nature, whereby no man can make Gold, and the rate at which it can be mined is pretty well understood (and decreasing, due to energy costs and ore grade degrade).  So what is going on right now you ask?

From the high view, the banker's ponzi scheme to control Gold via leveraged paper proxies is failing.  Across the range of visible Gold vault stores, inventories have been depleting rapidly and regularly for most of 2013.  The GLD ETF has been continously raided by the authorized participants (read Bullion banks) who buy and retire shares, mainly on price drops, to use as a store of last resort of deliverable Gold.  The idea that a falling price must mean that nobody wants Gold is hard to back-up when increasing Eastern demand for Gold is so easily demonstrable via a chart of Shanghai exchange deliveries, and continuing central bank purchases.

Shanghai chart  --->    http://www.marketoracle.co.uk/Article41330.html  

http://seekingalpha.com/article/1537442-comex-registered-gold-inventorie...

http://jessescrossroadscafe.blogspot.com/2013/07/brinks-is-being-drained...

And now of course, as mentioned by Sandpuppy above, the GOFO rate is signalling EXTREME shortages of 400 oz. bar stock;

http://truthingold.blogspot.com/2013/07/gofo-explained-and-why-its-now-v...

One of the most interesting bits of anecdotal information I have heard recently that confirms much of what seems to be going on comes from Hong Kong-based hedge fund manager William Kaye in this KWNews interview, which I highly recommend listening to;

  http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/10_Willi...

He basically states that contacts at the Hong Kong Haraeus Gold refinery have indicated to him that bars are coming in with Western central bank markings (specifically Bundesbank) and are being melted and remarked for shipment to China.  This is of course why Germany can't get it's Gold back from the FED.. at least for 7 years.. because it does not physically exist any longer in the giant leased and rehypothecated ponzi scheme that is today's Gold market.  Also note in this interview some very specific discussion of a conundrum that has been noted here at PP.com before - why GLD is getting drained, but not Sprott's PHYS?

Supply and demand is a bitch.  Supply is almost out, and demand is increasing around the world.  The Gold ponzi is going to come off the rails soon.  The level of distrust for paper Gold is growing and palpable.  As well, as of this writing, Davefairtex is getting his wish for a proper trading signal.. Silver is leading Gold hard, up 3.5% vs. Gold's 1.8%.    

    

 

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Hrunner
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Excellent PM Analysis, surpising PMs not beaten

Dave, excellent analysis, thank you for your thoughts. 

Yesterday, I was very surprised since the metals seemed to always get beaten down after FOMC minutes, regardless of their actual content. 

CoT structure remains extremely bullish, see tfmetalsreport.com commentary.

I expect the following:

No change in QE, with perhaps window-dressing with rotation out of MBSs (are there really anymore MBS left for the Fed to buy???) and rotation into long terms.

If any of the following happen, expect more, not less, QE: 

1)  Unexpected big loss in jobs and increase in the unemployment rate, say back up to >7.8.  The last cheery jobs report was a smokescreen (how many bartenders and hotel greeters can this economy support- I think we're just about done with temp job boom, esp re Obamacare delay)

2)  10 Y UST cracks 3%.  This is an ongoing trainwreck.  This cannot happen.  It will damage the U.S. balance sheet, unfortunately for political Ben, before 2014 elections.  Also raises the possibilities of interest rate derivative melt downs which are in the 100s of trillions, and pushes big banks to insolvency (public and gross insolvency, I mean, since most are already insolvent were they to fairly value assets).  Even now, I expect the Fed is accelerating/ furiously buying 10Y with both hands to push the yield down and calm the market.

3)  Housing market meltdown.  How many more houses can Hedge Funds and Private Equity buy?  With the melt up in interest rates (a by-product of increasing 10Y), these guys, who have been propping up the housing market, not Ma and Pa Kettle, will become sellers (i.e. flippers).  Fed will not like this!  Wealth effect and all that jazz.

4)  GDP meltdown to around 1.0% (or less).  This is a real possibility, GDP for Q1 already revising downward, plus USA trade balance is deteriorating, with 45 billion deficit last month alone.   Disturbing jobs picture overall.  Consumers running out of cheap credit, re-fi opportunities, gas prices going up, all point to a decreased spending and deflationary environment.  If MENA decomposes, and Brent >120 per barrel, things get worse even more quickly.

5)  Stock market meltdown.  This seems less likely for the immediate future, but I think Chris' analysis is sound re a late summer, to fall breakdown, and realize that 1)- 4) could trigger and amplify via a feedback loop with the stock market.

The Fed's strategy all along, bless their little hearts, has been to keep pulling levers to simply buy time until "something happens" to turn things around.  No one seems to be really sure of what that "something" is- is it some energy technology breakthrough?  Massive Oil deposits in Antarctica?.

But I believe they are very committed to buying time, and at the same time, are getting ever-more concerned about causing more harm than good, and realize there is an end to this road.

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westcoastjan
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davefairtex's picture
davefairtex
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proper trading signals; a.k.a. how to lose less money

My model with all these situations is, all the whisper stories about incipient COMEX defaults, etc, etc, are all just noise that, if taken seriously, might convince you to stand in front of a runaway train.  Until these stories are backed up with leveraged longs bellying up to the bar and leveraged shorts running for cover, they should be treated as interesting gossip, and nothing more.  Dan Norcini agrees with me (or maybe, I agree with him - he's much more experienced than I am).  I mean, why on earth stand in front of the train when its coming right at you because some random guy says GOFO rates are doing this, Bundesbank Gold Bars are Showing Up in Hong Kong, gold is running out, Random Goldbug Story Of The Day, when you can wait for the train to stop, reverse direction, then just hop on when it's going your way?

Again, my model is that price (yes, the collection of "paper prices") tells us a lot more than we think it does, especially for these sorts of things.  That's because the well-connected insiders have a much better idea than some random goldbug on zero hedge just what the gold supply really is, and when it really starts to get iffy, you can just bet these guys will front-run the action by piling into the various paper vehicles that will make them bucketloads of paper money.  Which it turns out, spends just as well as real money does.

They can't help themselves, that's just what they do.  And the footprints of their actions will show up in price/volume data.  As to why PHYS isn't getting stripped of gold - perhaps its more expensive for them to take delivery from PHYS than it is from GLD.

Again, I think it might all mean something - we may get a default someday, supply might really run out - but it won't come as a bolt from the blue.  It's not like a natural disaster, or a terrorist attack, not some unexpected action by a mysterious outside entity.  The guys on the inside have access to all the information.  So someone on the inside will definitely see it coming.  This is something that is talked about every single week.  Every day, if you read harvey organ.

Here's a thought.  If you were JPM, and you read all these goldbug sites, and you could see the goldbugs were getting all hot and bothered about this or that, it wouldn't be too difficult to reinforce their belief systems by (say) keeping gold out of the COMEX vaults "just for fun" - in order to create a buzz, to get other buyers onboard to reinforce your net long position.

Think about it.  If JPM really needed gold at COMEX, they'd just suck it out of GLD and drop it into COMEX and its all fixed in days.  The breathless waiting for the COMEX default?  Not gonna happen until GLD is empty.  My opinion.  Heck were I at JPM, I might just do it for fun, just to yank their chains.

I try and divorce my buying and selling from the goldbug tinfoil hat story of the day, although since I am a huge fan of conspiracy theories I make sure to keep abrest of the latest ones.  But I want to wait until the leveraged players have decided to step in, so I don't get run over.  We might be at such a point right now.  Lots of stuff is coming together.  I'm actively buying again.  That's not to say gold will now promptly rally to $5000...just that the odds are improving that the 6 month downtrend may be at an end.

The move in silver is looking decent.  Let's see it close above 20 today and I'll be feeling much better about all of it.  If $gold:$silver closes below its 50 day moving average (currently 62.80), that's when I'll really start to think things have turned around.  Definitely the stars & moons are aligned; the big banks are no longer net short, PM and miner sentiment is horrible, we hit Peak Taper yesterday which caused the buck to tank (though it is creeping back up again), and hopefully now its time for a PM bounce.

Probably instructive to watch the miners too.  So far they're doing well, but its only first hour.  We have to wait and see how they close to be sure.  I'd also like to see the CEF discount drop back to 0% too.

 

Jim H's picture
Jim H
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Of Goldbuggery, Conspiracy Theory, and "random guys" stories..

DaveF,  It's one thing to talk about the traders perspective, vs. my own efforts to put my long term savings in the right place... as these are two different goals, and we may want to approach them differently.  BUT, most of what I presented was hard data.. and the only thing I mentioned that was word-of-mouth (From Kaye) I clearly labelled as anecdotal. 

1)  As of the last few months, the Shanghai exchange is physically delivering the equivalent of world available mine supply monthly.  DATA

2)  GOFO is not some random guy's story.. it is GOFO, and the last several times it dipped negative marked major bottoms in the Gold price.  DATA

3)  All visible inventories are depleting... granted that we cannot see what is going on outside of the system.  This is DATA.  

4)  Not mentioned above is the fact that India has enacted strong capital controls to try and squash Gold demand

http://blogs.reuters.com/india/2013/06/28/indias-love-for-gold-and-the-g...

DaveF said,

As to why PHYS isn't getting stripped of gold - perhaps its more expensive for them to take delivery from PHYS than it is from GLD.

Wrong Dave.. and I think you know it.  As one who seems to speak for the banks..oops.. I mean for the validity of the connection between the current Gold price and the supply vs. demand structure, you should know that the reason banks don't buy and redeem PHYS shares is because they cannot do so in the dark.. Sprott being Sprott he would immediately shine a light on this.  They pull from GLD because they can do so without us knowing who is doing the draining from the much bigger GLD pond.  When the next wave of Gold interest hits, there will be many fewer GLD shares available to sap up this investment demand.  GLD inventory going down means Gold is going into strong hands.. less investable Gold is available.  I don't know how much of the remaining GLD inventory is actual real Gold vs. promises of Gold held by sub-custodians (read the prospectus!) but I would submit that GLD will be "empty" long before the bar count goes to zero.  When the bubble finally comes, when Gold is not just owned by 2%, but desired by the entire 10% that actually have money saved... then the SHTF.  I have no idea when that day comes, but the tracks are there to say we are approaching.        

 

Jim H's picture
Jim H
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Even Jeffrey Christian agrees that Gold supplies are tight!

Even our favorite (not) anti-Goldconspiracist, Jeffrey Christian, can't come up for any excuses for the negative GOFO rate other than tightness (I guess he is another "random guy");

http://www.wealthwire.com/news/metals/4921

"There has been some [gold] borrowing interest recently," the FT quotes Swiss bank UBS's precious metals strategist Joni Teves.

"It's related to the demand for physical," with premiums in Shanghai continuing to hold $40 per ounce above London's benchmark.

"As wholesalers, refiners and retailers of investment products are scouring for the metal to make physical products," agrees consultancy CPM Group's head Jeffrey Christian, speaking to Reuters, "some of them are actually borrowing the gold in advance."

After falling into negative territory for the first time in 5 years on Monday, the forward rate offered by London bullion banks fell further to -0.12% on 1-month swaps today.

The offered rate is paid to borrowers who are willing to swap cash for gold bullion, and so bear the cost of storage and lost interest payments for the period of the swap.

Data from trade association the London Bullion Market Association show gold offered rates were last negative – meaning that gold owners are demanding payment, rather than offering it – in November 2008, after the collapse of Lehman Brothers.

 

davefairtex's picture
davefairtex
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stories vs price

Jim -

In my world there are stories, and there are prices.  Prices always win, because they involve real money.  When you are trying to figure out "should I buy", it is usually wiser to let price movement drive your decision.  Unless, of course you are paying for your gold with something other than money.

Stories include things like GOFO rates, GLD tons evaporating, COMEX inventory levels dropping, Shanghai deliveries, China imports via Hong Kong, India taxes on gold imports, investor sentiment, COT reports, yada yada.  The fact I call them stories doesn't mean they aren't true - it just means they are something other than prices.  You don't pay for your little gold bars with stories.  These stories may, eventually, at long last, three years from now, drive prices.  Or they may drive them tomorrow.  Or they may not.  But I do read all the stories, and I find them all quite interesting.

You can use the stories to inform your trading, but if the price is plummeting the was it was a few weeks back, 2 months back, 3 months back, and 4 months back, if you follow a story or two and buy without regarding price movement, its quite dangerous to your wealth.  Sentiment bottomed a few months back - worst since 2008.  If you had bought on that story, you'd be quite unhappy today.  Same thing with the COT report.  Producers least net short since 2008.  Tragically, price didn't cooperate with the story.  Dammit, must be manipulation!  Story should drive prices!  [BTW, that's such a common mistake people make, its not even funny.  "But earnings were great, why is the price of the stock dropping?  The market must be rigged!"]  GOFO rate is yet another story.  Interesting, but best not let it distract you from watching the prices.  If price of gold drops through 1180, that GOFO story won't feel quite so comforting.  "Boy, I never imagined GOFO rates could be negative for that long.  That never happened before..."  Oh goodie, something else that "never happened before" that causes me to lose money.  "Real estate never drops on a nationwide basis."  Anyone remember that story?  It was true too - at one time.  Didn't do much to slow home price drops when they happened.

Price movement right now look more positive.  I hope this continues.  I'm making trades based on my assessment that odds are improving.  Its probably premature.  But if prices don't continue recovering, I won't be screaming about manipulation, because I know stories don't drive prices.  Supply & demand (yes, paper supply and demand - leveraged money) drives prices.  Leveraged money drove prices up from 2001-2011, and it drove prices down 2011-2013.  That's the market we have.  And as we know, we buy in the market we have, not the market we might want or wish to have at some future date.

As for your proof-by-speaking-emphatically that PHYS doesn't cost more than GLD to receive delivery, I'm afraid I require a bit more than simply your "no it doesn't" argument.  If you want to really wipe my eye, go off and figure out how much it is to receive delivery on a basket of GLD, and then figure out how much it would be to get the same amount of PHYS.  Then you can come back and tell me I'm oh-so-wrong.  But I'm betting you won't do that, because it requires more effort than simply firing off a "no it isn't" paragraph.  I actually don't know the answer, but I did hunt down how much it costs to take delivery of PHYS, and it certainly wasn't free, which was the basis for my speculation.

If we finally get our Commercial Signal Failure, nobody will be more happy than me.  [Ok, I can't speak for everyone's relative happiness worldwide; let's just say I'll be plenty happy].  But I don't conflate that possible future happiness with making trading decisions based on stories about the likelihood of such things being in the offing.

I must say I'm constantly amused you feel that I "seem to speak for the banks."  I know I'm an apostate in the Church of Gold for suggesting price movement rather than stories should primarily guide your purchasing decisions and that manipulation doesn't explain all downward movement in the price of PM.

But that's ok.  I'm comfortable with that.

 

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1755
Cartoon on the flight of physical gold to the east

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5059
PM positive signs today

Miners moved up well, closed well, moved up more rapidly than metal.  First day like this is likely just short covering, with the miners playing catchup to PM.  However, volume on many miners was just average.  Usually on a rally like this, volume should be significantly above average.  The fact that volume wasn't stellar does weaken the signal.

Silver poked above 20, and indeed closed at 20.11 after market close in NY.  Silver outperformed gold, dropping the Gold:Silver ratio to 63.8, below its 20 day EMA.  Both are very good signs.

Gold didn't move above where it reached after yesterday's press conference.  At least it held its gains, which we'll say is mildly positive after a $35 day yesterday.  1300 is the next stage.

GDXJ:GDX ratio is improving (juniors lead the seniors on the way up), but only mildly.

Buck closed about where it ended yesterday after Bernanke press conference.  That's a good sign - the mild dollar rebound was sold.  Given the massive move yesterday, I'll call that positive.

In other words, a good day, with mostly positive signs.  At this point, I'd call a gold breakout above 1300 a decent probability buy signal, as would be silver on a move up through 20.

Best case scenario: banks, who are likely net long right now, decide to buy a bunch of futures contracts overnight in asia, pushing through when resistance is light, getting even longer, and pushing up the value of the mining stock they no doubt have a lot of, squeezing the mining shorts again.

It could happen.

p.s.  One positive story I've seen both last week and this week is a whole collection of mining stock downgrades by brokerage firms.  Call me cynical, but these guys are great at downgrading stocks at or near the dead lows.  Just another story that suggests a bottom may be near.  One wonders sometimes if the analyst downgrades are the signal for their prop desks to load the boat.

We_Have_An_Anomaly's picture
We_Have_An_Anomaly
Status: Member (Offline)
Joined: Mar 28 2012
Posts: 3
Gold bottom...

The Goldbugosphere is absolutely bubbly with talk of us having made a bottom.  Therefore, I expect a completely soul crushing raid to be imminent. 100% consensus on anything is always 100% wrong. 

Ive got my stink bids in on SLV. I will turn that into physical once the dealers stop their Goldbug enabled price gouging. 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Just remember anomaly...

For every Goldbug, there are 99 Paperbugs.  This "100%" consensus you speak of is amongst the 1% that own or even care about Gold.  If you look at the action on relative premiums between the US Comex, where relatively little physical changes hands, vs. the SGE, where much more physical gets delivered... you can get a glimpse into the stress the bullion bankers have created in their operation to drive the price down and exit their shorts;

http://www.zerohedge.com/contributed/2013-07-12/shanghai-gold-silver-vol...

Premiums on gold futures on the SGE yesterday closed at a $12.90 per
ounce over COMEX spot - COMEX at $1,283.30/oz and SGE at $1,296.30/oz.
Overnight the premium on the SGE rose sharply and is now at $35.94 -
COMEX at $1,275.30 and SGE at $1,311.14/oz (see ‘Gold Futures’ in table
below).

But please remember that quantitive data like this is merely another "conspiracy story" and that the US Comex price action will always be telling you the true state of supply vs. demand.  That being said, they certainly could smash the price again if so inclined... I am just not sure that will happen now that JPM is actually buying Silver;

     http://www.tfmetalsreport.com/blog/4830/why-jpm-hoarding-silver

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5059
bubbly bottoms

Anomaly -

I agree with your sentiment overall, but I'm not entirely sure how much focus I'd place on the blogosphere as an indicator - even a contrary indicator - for anything.  They were wrong all the way down, and who knows - maybe the clock stopped for 2 years might be right again just by accident and repetition.

Its the leveraged longs I want to focus on.  They drove the market up from $300, and drove it down from $1900, so I believe they are the "swing vote" in the whole affair.  Them, and those much-maligned paper shorts.

At mid-day it's looking like some profit taking is happening, but let's watch and see how we close.

EDIT: Holy handgrenades, is it possible that even Jim has noticed that leveraged players actually matter?  :-)

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Leveraged players determine the price of Gold on Comex

They certainly do.  And we can be free to speculate on whether some of those players are playing with their own money or house money, or care whether they lose money at all.  Eventually though, the activity on the Comex, if it becomes too extreme in its disconnect from the fundamentals of supply and demand... the thermodynamic laws of (real ,aka Gold) money scarcity will into play again.  Since Anomaly wanted to discuss the consensus, and I turned the focus to the Paperbug (aka hedge funds, etc) consensus on Gold, I wanted to post this chart, which pretty much answers the question of what the Paperbugs think... this representing the non-bullion bank investors;

Wowee... all time high negative sentiment as expressed by leveraged non-commercial, non-Bank players shorting Gold (that they don't own).  

The hedge fundies have sure been busy buying out the short positions previously held by the Bullion bankers... I wonder what that's all about?  The central/bullion bankers seem to have really played these dumb momo's... 

Well, I think Trader Dan Norcini explained the motivations for whole operation pretty well in a seminal piece back in 2011;

  http://traderdannorcini.blogspot.com/2011/03/why-central-banks-of-west-h...

The only reason that gold has a sustained price rise is because of a lack of confidence in the monetary system. It does not rise sharply because of such things as jewelry demand or industrial demand - it rises when fear, distrust, doubt, suspicion and uncertainty over Central Bank policy reigns. It rises when REAL interest rates are negative and investors understand the insidious process of currency debauchment practiced by these monetary authorities is underway. It thus cries aloud and issues a warning to those who can hear it and what it shouts displeases many Central Bankers because they are among those who while they despise its message, are all too keenly able to hear that message.

Thus the messenger,the prophet, the oracle, must be silenced or at the very least, his message blunted, toned down, trivialized by whatever means possible. The mechanism employed to do just this is a subject for another time and place. Suffice it to say for now, without the efforts by the monetary officials of the West to discredit gold, it would be trading considerably higher. Even at that however, the ancient metal of kings refuses to go quietly and docilely into the night. It will yet have the final say.

Final say coming soon to an empty allocated Gold storage vault near you. 

http://bullionbullscanada.com/gold-commentary/26280-the-fraud-and-conspi...

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Drunk drivers at Indy

DaveF, Jim H.,

Having watched the proceedings from a distance, I thought I would inject an analogy comparing your world views that seems apt.

We're all looking a drunk teenager who is driving around Indianapolis Motor Speedway at 130 mph in a '75 Monte Carlo thinking it's great fun. 

DaveF is staring at the front wheels, estimating the vehicle's speed minute-by-minute, maybe using sophisticated GPS gadgetry to precisely localize his every position, with binoculars and face recognition software trying to get a fix on the drivers face and level of confidence and if he's at all sober, in order to place a bet on whether he crashes into Turn 4 on the current lap.

I'm (perhaps Jim H. too) up in the stands, no sophisticated tools, just my eyes looking at a car weaving around a racetrack at high speed, saying "man, that guy's going to crash, no way am I betting on him making the next Turn, or the one after that.  I'm simply betting that he's going to crash tonight, I don't see anyway he makes it through 20 laps without crashing."

Maybe I'm wrong.  Maybe a miracle happens and he drives around 20 more laps without crashing.  But I don't want to be on the side of miracles when it comes to money.

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