PM End of Week Commentary - 11/23/2013

davefairtex
By davefairtex on Sun, Nov 24, 2013 - 12:57pm

Gold finished Friday up +0.70 to 1242.40 on moderate volume, silver was down -0.14 to 19.82 on moderate volume.  The gold/silver ratio rose +0.47 to 62.70.  Gold traded sideways within a tight trading range.  Silver sold off modestly all day long.  GDX also sold off all day, dropping -1.24% on light volume, losing most of the gains from Thursday's rally.  GDXJ dropped -1.93% on moderate volume.

On the week, gold was down -47.20 [-3.66%], silver down -0.95 [-4.66%], GDX -7.79% and GDXJ -9.67%.  The weekly picture is one of almost unrelieved bearishness, silver down more than gold and GDXJ down more than GDX, with GDX dropping faster than gold.  All the ratios look bearish.  Both GDX and GDXJ are very close to breaking down - any move down below the June lows will likely lead to some more serious selling.

In addition, tax loss season fast approaches.  Mining shares have dropped 46% year-to-date.  Any hardy mining share investor who hasn't sold yet is probably sitting on some very large losses.

The USD

The dollar moved down -0.19% to 80.72.  After hitting the 50 week MA two weeks ago week, the buck seems to be drifting lower, but without any real intensity.  This week the buck seemed to be a non-factor for PM.

Physical Supply Indicators

* Shanghai gold premiums have risen; currently Shanghai gold is selling at a premium of +2.68 to COMEX, up +3.53 over last week.  While this is bullish, with gold at these levels I'd have expected Shanghai premiums to have risen more than they have.

* The GLD ETF lost -13.50 tons of gold this week and is down to 852 tons.  In January, GLD had 1350 tons, which is a drop of 498 tons.

* The COMEX is down to 18.33 tons, yet another a new low for the year.  COMEX registered is down dramatically from its April peak of 92 tons.

* I'm still working on getting historical closing prices for the Indian gold futures market (the MCX).

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1242.70 and silver 19.84:

CEF 13.46 -6.57% to NAV [down]
PHYS 10.27 -1.01% to NAV [down]
PSLV 7.89 +1.80% to NAV [down]
GTU 42.70 -7.37% to NAV [down]

Discounts on the ETFs have increased from 0.5% to 1.5%.  Physical ETF investors are bailing out once again and discounts are widening.

With the drop in the price of gold, physical demand is now clearly positive.

Futures Positioning

This week's COT report shows a further decrease in Managed Money net long positions (+8k contracts short -3k contracts long), while the Producers decreased their shorts by about the same amount (-11k contracts).   Producers have become even more bullish, while the Managed Money increased their bearish stance - Managed Money is getting close to the bearish stance they had at the June 2013 lows.  While this is not useful as a timing indicator, long term this is bullish.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term DOWN, medium term DOWN, long term DOWN

Silver: short term DOWN, medium term DOWN, long term DOWN

There is no change from last week.  Gold and silver trends are down in all three timeframes, with the price of both gold and silver both below all three of their moving averages.  This is bearish.

Summary

This week saw gold blow through two support levels, but Thursday and Friday there were signs of accumulation (and/or short covering) - on Thursday especially, with large volume on a day with very little price movement.  There was no particular news driving gold lower this week, except perhaps chatter about the likelihood of tapering coming at the upcoming December Fed meeting on the 18th.

With the decline in prices, Shanghai has returned to premium, gold departing GLD has accelerated, so all indicators suggest physical buying pressure is positive.

Futures positioning is increasingly bullish.  While not a timing indicator, managed money short positions are approaching that reached back in June when gold hit 1180.

Gold and silver both remain in a downtrend in all timeframes.  GDX:$GOLD is dropping (bearish), GDXJ:GDX is dropping (bearish), gold/silver ratio is rising (bearish) - it all looks pretty bad.

The mining shares sold off hard this week; 4 of 5 days were down, volume was moderate, and mining shares are right at their June lows.  Any sustained move through the June lows would most likely bring heavy selling to the beaten-up mining sector (-46% YTD).  With tax loss season almost upon us, this would probably lead to a significant capitulation in the mining shares.  This would lead to a good buying opportunity for those with cash towards the end of December, but it would be unfortunate for those already long the miners.

Gold's downtrend took another leg lower this week, although the accumulation (and/or short covering) observed (mostly Thursday) give a very modest sign of hope.  For that hope to be realized, confirmation is required - at a minimum, a close above Thursday's high of 1250 is necessary to get some relief from the short assaults coming from Managed Money.  If a confirmation is not forthcoming, then the downtrend in place will likely move gold towards its next support level of 1200.

Trends in motion tend to stay in motion, and the current trend is definitely down.

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12 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
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Posts: 5062
gold rebound

So gold was hammered in asia by the usual short assault, and 7 hours later the assault was bought.  This is the second time I've seen that happen in recent days, and that's a positive sign.  Its not a guarantee of anything, but it does say there are buyers out there at these levels, which is good news.

I've done studies of intraday chart patterns in gold specifically, and this particular pattern (which I call rebound above point of departure, on a high volume spike down) often heralds a low.  Not always, but often.  Its a positive sign.

Other bits of good news: silver is leading gold higher; while gold is still red on the day, silver is green.

We still need to see gold move and close above 1250 to confirm.

Jim H's picture
Jim H
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Posts: 2379
Miners getting Hammered...

NEM, SA, GG, TGD, putting in new 52 week lows.  No rebound in miners today.  Capitulation low coming?  Two more days until we see how many contracts stand for Dec. delivery... things will probably get worse before they get better.

Grover's picture
Grover
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Posts: 800
Tax Questions
davefairtex wrote:

With tax loss season almost upon us, this would probably lead to a significant capitulation in the mining shares.  This would lead to a good buying opportunity for those with cash towards the end of December, but it would be unfortunate for those already long the miners.

I'm not up on all the intricacies of the tax code. I know that losses in one stock can be used to offset gains in another, but I don't have a feel for the reasonable limits. For instance, gold is considered a collectible and any gains are taxed at 28%, but gains in GLD, the gold ETF are taxed the same as other stock gains.

So, if the miner stocks can be sold to offset big cap stock gains, can losses in GLD be used the same way? What about realized losses in physical gold?  As an example, if I bought physical gold at $1900 and sold at $1250, can I get a legal tax credit to offset gains elsewhere in my portfolio?

Grover

robie robinson's picture
robie robinson
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Posts: 1148
Grover

do you have physical for sale at 1250?  (insert smile)    robie

RocketDoc's picture
RocketDoc
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Posts: 8
silver musings

I had a salad and beer at the bar of Embassy Suites for lunch.  A slow day and I asked the two bartenders why a Presidential dollar was smaller than a Kennedy half dollar.  If a quarter is bigger than a dime and a half dollar is bigger than a quarter, why is the dollar so small?  They don't know.  I show them a silver dollar.  Cool! They've never seen one.  I show them a Silver Eagle.  Why is this "dollar" larger than this "dollar"?  Dunno.  What is a dollar?  They don't know.  I tell them a dollar was originally defined as 371 grains of silver but it no longer is.  One ounce has 437.5 grains so a silver dollar is approx 3/4 ounce of silver. A bullion dollar is one ounce of silver. That's why it's bigger.  "I never knew that....".   What is silver worth today?  "I don't know, a lot?"  What is a dollar worth now?  They look puzzled-- A dollar is worth a dollar? Exactly right, I say.  What is a silver dollar worth?  "A dollar?", they offer.  Of course, I say, so what would you rather have, a silver dollar or a $3.00 tip?  The coin is cool but they would prefer more money....

I am sure 95% of America would do the same.  Any foreigner would grab the silver dollar in a heartbeat.  I would have to say our little club of precious metal aficionados is a vanishingly small minority.

 

 

Grover's picture
Grover
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Nice Try, robie ;-)

robie,

Actually, I'm looking to buy. I just don't know exactly when.

I was trying to connect a few dots. I honestly don't know the tax implications. If miners can be sold at a loss to offset gains, why couldn't physical be sold at a loss to offset gains? If tax loss selling could drive miners down, couldn't it also drive the physical market down?

Physical is cheaper now than it has been the last few months. Will tax considerations be a headwind or tailwind for the rest of the year?

Grover

davefairtex's picture
davefairtex
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Posts: 5062
I'm not up on all the

I'm not up on all the intricacies of the tax code. I know that losses in one stock can be used to offset gains in another, but I don't have a feel for the reasonable limits.

Me either.  I know just the basics: overall your losses can be taken to offset your overall gains.  If you have more losses than gains, up to some limit those losses can be applied to ordinary income.  Last I checked the limit was $3k.

The bits about collectables, I have no clue.

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 800
Only Human

Dave,

I'm surprised you don't have the entire tax code memorized after working for the CIA, GS, and being TDY from the LBMA. [Note: This is in reference to an "admission" Dave posted here: http://www.peakprosperity.com/comment/160767#comment-160767. You have to be careful about these humorous admissions. People don't forget the juicy parts and don't remember key details. You brought a smile to my face - thanks.]

If anyone out there has deeper understanding of the way gold is treated in the tax code, I certainly would appreciate a quick note. If you just want to PM me, I'll redact any reference to you and repost for everyone else. Thanks,

Grover

Denny Johnson's picture
Denny Johnson
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Posts: 348
Grover........I have no

Grover........I have no professional qualifications, but do my own taxes and have researched this a bit thru the years.

My understanding  is that the ETF GLD is taxed at the collectable rate and that CEF, GTU, PHYS, and PSLV are taxed at the regular rate, but that holding CEF, GTU, PHYS, or PSLV requires an annual filing of of a simple form 8621 w your taxes.

I have no tax experience w 'collectibles'.

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
from the penalty box
Denny Johnson wrote:

Grover........I have no professional qualifications, but do my own taxes and have researched this a bit thru the years.

My understanding  is that the ETF GLD is taxed at the collectable rate and that CEF, GTU, PHYS, and PSLV are taxed at the regular rate, but that holding CEF, GTU, PHYS, or PSLV requires an annual filing of of a simple form 8621 w your taxes.

I have no tax experience w 'collectibles'.

I can't say for certain but I think you are correct Denny.  Years back when I was investigating options for investing in paper PMs, this information factored into my decision to stay away from GLD (among about 20+ other reasons).

P.S.  Hopefully, the censorship process on this post won't take too long and you'll find it posted before commencement of a new tax year.;-)

davefairtex's picture
davefairtex
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Joined: Sep 3 2008
Posts: 5062
importance of checking the data

Harvey Organ today included an article that claimed premiums in Shanghai today were $33.  My calculations show that the premium is substantially lower.  Why the difference?

First, the article:

http://harveyorgan.blogspot.com/2013/11/nov-252013gld-loses-another-33-tonnes.html

DEMAND IN CHINA remains robust as seen in Shanghai gold premiums. Closing wholesale premiums continue to strengthen, gold closed at a $33 premium at $1,265.69 (see table below) today, up from a $11.25 premium at $1,265.69/oz on Friday.
Next, my process for checking.

First, the Shanghai daily open/high/low/close data for today is found here:

http://www.sge.sh/publish/sgeen/sge_price/sge_price_daily/10866.htm

Closing price (in CNY/gram @ 15:30 in Shanghai) for today 11/25, on the Au(T+D) contract (the one that actually requires delivery - "physical gold") was 243.35.  Do the math, and we end up with:

0.1631 CNY/USD x 243.35 CNY/gram x 31.1034768 grams/troy oz = $1234.50 USD/troy oz.

But the poster said the Shanghai price was $1265.69.

So where did the poster get his data?  Bloomberg.  His screenshot of the bloomberg screen says exactly what he reports - Shanghai gold appears to be $1265.69, at a time when COMEX gold was 1231.50. However, digging a bit further, we notice the quote in CNY/gram on the bloomberg screen is 247.95, not the 243.35 price we got from SGE as the closing price for Au(T+D).

Is it possible bloomberg was reporting a different instrument than Au(T+D)?  Or maybe bloomberg was reporting a quote from an entirely different time?  The timestamp on the Shanghai gold quote was 7:00, while the other gold quotes were all stamped as after 10:00.  Regardless, it seems likely that bloomberg was reporting bad data, for the purposes of assessing the premium of "deliverable gold in Shanghai" over COMEX.

So to calculate the premium accurately, you have to get the COMEX 1-minute data and find the COMEX price at the moment Shanghai closed.  1530 Shanghai time = 0230 EST.  Looking at my 1-minute COMEX data, I see the price at the COMEX at 0230 EST today was 1230.10.

So, the Shanghai premium as of the close in Shanghai was 1234.50 - 1230.10 = $4.40.

If you suffered through all this detail, congratulations!  Hope your eyes didn't glaze over.

Bottom line: Shanghai premiums weren't $33 today, they were more like $4.40.  If it sounds too good to be true, it usually is.

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 800
Tax Selling Information - Tanks

Denny, ao,

Thanks for the information. I was just trying to build a case that gold could suffer the same fate as the miners if tax loss considerations are needed to balance gains in other stocks. Dave has mentioned this a few times concerning late December selling.

Grover.

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