PM Daily Market Commentary - 10/22/2013

davefairtex
By davefairtex on Wed, Oct 23, 2013 - 12:36am

Gold closed up +24.60 to 1340.30 on moderately heavy volume, and silver closed up +0.47 to 22.69 also on moderately heavy volume.  The gold/silver ratio dropped -0.14 to 59.06, and it looks to be trending lower, a bullish sign.  Gold broke out at 0830 at the time of the Nonfarm Payrolls report, smashing through 1331 resistance and sending 8800 contracts of shorts running for cover in one big spike up.  Apparently the market was surprised at how few new jobs were created - only 148k versus an expected 155k-240k (it didn't look all that bad to me, but what do I know?).  Bad news appears to be good news for gold.  And here I thought No Taper would already be baked into the (market's price) cake.   Silver broke out at the same time, and the USD dropped as well in the expected dance of price action.  Gold continued higher and closed near the highs for the day, just below its 50 day MA, while silver closed above its 50 MA.  Both metals have broken the "higher lows" pattern characteristic of a downtrend with today's moves.  The good volume accompanying the move is also bullish.

The buck was hammered by the Nonfarm Payrolls report, and continued dropping for the rest of the day, closing near the lows, down -0.45 [-0.56%] to 79.24.  The buck has some strong longer term support at 79, which it looks to be testing relatively soon.  The dropping dollar is most likely helping PM.  Conversely, the euro is at 137.82, making new cycle highs, and no doubt making the Germans nervous about their exports.  A break of the buck below 78 would likely move the euro into the 140s.  Their central planners over in Europe would not be happy with this outcome; a logical point for them to "encourage" a trend change via a well-timed policy action would be in the support zone of 78-79.

GDX had a terrific day, gapping up at the open above 25 resistance, moving higher in the first hour, and then more or less holding onto its gains through the close; GDX was up +4.37% on heavy volume, and GDXJ was up a big +6.28% also on heavy volume.  GDXJ is now moving up more rapidly than GDX, a bullish sign which we haven't seen happen consistently since the late August highs.  GDX:$GOLD ratio is climbing steadily as well, and GDX is approaching its 50 MA; a close above the 50 would add to the current bullish picture.

Oil continued lower, closing around 98 down -1.4% on very heavy volume.  I keep worrying oil will drag silver down, but - so far, no problem.  Oil is off $14 from its late-August highs.  Perhaps copper's move up (+1.02% today, and a modestly bullish price chart) is helping silver out more than oil is hurting it.

The picture today was - well bullish, I can't find a single bearish note in today's price and volume action, it was a picture perfect day.  Next resistance point for gold: $1353, a previous high we hit at end of September on the way down.  For silver 23.50.

7 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
COMEX default and the pillaging of GLD

We had a debate here a few months back where some suggested the COMEX was in imminent danger of running out of gold, and there was little that could stop this event from happening.

TF had an interesting commentary last Friday on how GLD was losing gold, and how quite similar tonnages of gold were appearing at the COMEX, refilling the coffers of the banks there. 

His article:  http://www.tfmetalsreport.com/blog/5167/pillaging-gld

Again, to me it is abundantly clear. The GLD is being consistently and regularly pillaged by the bullion banks as they desperately search for gold to settle their obligations.

If we look past the adverbs, we might conclude that a COMEX default is - most likely - not going to happen as long as gold remains within GLD.

That said, the converse of the statement may be true also.  If and when GLD runs out of gold, things could get very interesting over at the COMEX.  GLD still has 878 tons, so this isn't an imminent threat, but it is something to keep in mind.

westcoastjan's picture
westcoastjan
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Posts: 571
new article from Eric Sprott - open letter to gold bigwigs

http://www.sprott.com/markets-at-a-glance/open-letter-to-the-world-gold-council/

Oliveoilguy's picture
Oliveoilguy
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Posts: 578
Eric Sprott's Letter

Interesting letter. Well worth a read.

Once the ETF investors have been successfully scared out of their positions, some true price discovery might come into the Gold Market.  Price manipulation cannot go on forever.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
eric sprott and supply

I've always found the gold supply arguments by Sprott to be pretty interesting.  I do not think it is a useful trading/timing tool, but if the supply/demand situation remains the way it is, the situation must be resolved by increasing prices at some point in the future.  That's just how markets work.

The problem with timing is the sheer amount of aboveground supply for gold - it is measured in decades.  An estimated 170k tons of gold exists, against a 5k ton per year demand.  How much gold has already been leased by central banks, how much gold remains available to be leased, it is a world with zero transparency, and that lack of information doesn't seem to be an accident.  Its enough to make one a conspiracy theorist.  If we knew those numbers, we could forecast when a price break would be likely to happen, but we don't - so we can't.

As people in China and India grow more prosperous, they will buy more gold - same with Thailand and Vietnam.  And a much higher percentage of gold buys in asia are physical.  Culturally, trust in government is low, and the virtues of portable stores of wealth independent of inflating national currencies is particularly attractive.  I see demand only accelerating in asia, as long as increasing prosperity trends remain in place.

If we use GLD's holdings as a proxy, the resolution to this might be a year or two in the future.  That's well within the timeframe of the buy-and-hold physical gold buyer.  As long as no massive deflationary collapse occurs, based on current production prices and demand levels and trends, the price at these levels seems pretty reasonable.

And if something happens to get western investment/hedge fund money back into the picture, things would look very positive.

And if GLD turns out not to have as much gold as they claim, resolution could happen more quickly than we expect.  My indicator for this situation would be if premiums in Shanghai expand, and yet the gold inside GLD stops dropping - and perhaps the gold inside the Sprott funds starts to drop, and the premium on the Sprott funds starts to increase.  If nobody in the marketplace is taking advantage of the GLD/Shanghai arbitrage, it will be because they can't.

 

Jim H's picture
Jim H
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Joined: Jun 8 2009
Posts: 2385
GLD inventory and extrapolation to zero

DaveF said,

And if GLD turns out not to have as much gold as they claim, resolution could happen more quickly than we expect

Finally, some level headed reasoning from DaveF!  I have been on a self-imposed boycott of adding commentary here based on the lack of level headed reasoning, and in fact the persistence of DaveF's Gold-negative reasoning on a website that purportedly exists in part to warn folks about the unsustainability of our debt-based fiat currency.  Whether Dave is self-correcting here relative to his comment yesterday where he started to build the straw man argument that GLD had to go to zero before Gold would rise again, or he was prodded by Adam or Chris.. I don't care.  I only care that the "Gold market analyst" that the owners of this website have blessed is reasonable in his argument and rhetoric, and I find this post reasonable.

My commentary for today regards Chris' mention of the Cantillon effect during the podcast with Alasdair.  Chris is right on in this regard, and the idea deserves a little more focus as it gives us the opportunity to connect some dots.  From Wikipedia;

Cantillon suggested that inflation occurs gradually and that the new supply of money has a localized effect on inflation, effectively originating the concept of non-neutral money.[65] Furthermore, he posited that the original recipients of new money enjoy higher standards of living at the expense of later recipients.[66] The concept of relative inflation, or a disproportionate rise in prices among different goods in an economy, is now known as the Cantillon Effect.

link:  http://en.wikipedia.org/wiki/Richard_Cantillon

The highlight is mine.  Cantillon suggests that the first signs of inflation will be localized to those "goods" in the economy that are favored by the first recipients of this newly printed money.  Now, let's look at some related news;

http://www.bloomberg.com/news/2013-10-20/london-home-prices-rise-an-unsu...

Values in the U.K. capital surged 10.2 percent, or 50,484 pounds ($82,000) from the previous month, to an average 544,232 pounds, the property-website operator said in a report today. Estate agents in inner London reported a “buying frenzy” reducing the available stock to nearly nothing, it said.

 

So that's high end housing.. in banker-centric London....  what about Art and Collectibles?

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/23_A...

For people who follow the various auctions at Sotheby’s or Christie’s, the amount of money they are getting at these auctions for fine art is unimaginable.  We are seeing astonishing 100% gains in just 6-to-8-months, in many cases, for fine art.  These art pieces are flying out of the auction houses at stratospheric prices.

So, people don’t understand, and they wonder to themselves, ‘What is happening here?  Is this because people are making such incredible amounts of money?’  Here is the answer:  We are seeing money coming in from Russia, China, as well as other nations, but the reality here is that these people want to hold tangible assets. 

Remember, this is the ‘smart money.’  They know what is coming and they want to acquire things that will hold their value.  Nobody is making genuine Monet’s anymore so it is a very elite and limited market.  The reality here is that governments can’t manipulate prices of fine art like they do with prices of assets which compete as currency for the masses such as gold and silver.

So we are seeing incredible inflation in fine art and luxury goods.  But this is very telling because it’s going to move down the food chain, into other key markets such as gold and silver, and it is also the type of thing you see before a massive inflation begins.”

                                                                                   You have been warned......

westcoastjan's picture
westcoastjan
Status: Platinum Member (Offline)
Joined: Jun 4 2012
Posts: 571
article from Jesse's

http://jessescrossroadscafe.blogspot.ca/2013/10/us-dollar-valued-in-gold...

From the article:

Nick impishly added in a note that the US defaulted on its gold obligation in 1933 and 1971, a 38 year gap. And it has been 42 years, so we might be due again.

I am not a great believer in cycles. But I am a confirmed believer in what Thomas Mann called the stupidity of cleverness as being among the worst forms of foolishness. It is the capability of knowledge, but without wisdom and sound judgement.

westcoastjan's picture
westcoastjan
Status: Platinum Member (Offline)
Joined: Jun 4 2012
Posts: 571
another interesting read on the manipulations...

http://rt.com/op-edge/us-debt-gold-price-threats-481/

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