PM End of Week Commentary - 11/29/2013

By davefairtex on Sat, Nov 30, 2013 - 12:59pm

Gold finished Friday up +14.00 to 1251.40 on light volume, silver was up +0.42 to 20.00 also on light volume.  The gold/silver ratio dropped -0.61 to 62.57.  GDX was up +2.16%, while GDXJ was up +3.5%.  Although volume was light because of the half-day of trading in the US, it all looked good today.

On the week, gold was up +9.00 [+0.72%], silver up +0.18 [+0.98%], GDX +0.13% and GDXJ was flat.  The weekly picture is one of a potential reversal; miners on the daily chart have confirmed a reversal, while both gold and silver are lagging behind a bit.  The GDX breakdown below support was met with buying rather than increased selling.  Since a break through support is a logical point for traders to bail out, this is a positive sign.  Miners can sometimes act as an indicator for what happens in the metal, and this may be the case again.


The dollar moved down on the week -0.08% to 80.66.  The buck keeps drifting lower, and is forming a descending triangle on the daily chart, with the lower support line on 80.50.  A break below 80.50 would likely lead to a re-test of 79, its most recent low point.  Dollar weakness would be gold-price positive.

Physical Supply Indicators

* Shanghai gold premiums have dropped; at 1530 CST Shanghai physical gold closed at a discount of -0.09 to COMEX, down -3.17 over last week.  Many other sites have "Shanghai gold" selling at a substantial premium to COMEX - they are wrong.  SGE Au(T+D) (the contract requiring delivery of physical gold) closed Friday at 244.56 CNY/gram, or $1241.39/troy ounce.  At that moment on COMEX, Feb 2014 gold (the front month contract) was trading at $1241.50.  Can you get a $30 premium out of those two numbers?

* The GLD ETF lost -9.00 tons of gold this week and is down to 843 tons.  In January, GLD had 1350 tons, which is a drop of 507 tons.

* Gold at COMEX rose very slightly - 0.05 tons - up to 18.38 tons.  December is historically a big delivery month, and Friday was first notice day for December gold.  Currently, there are 31.38 tons (about 1M ounces) in contracts standing for delivery.  With only 18 tons available for delivery, unless some gold is deposited at COMEX or some of the people that want delivery back out, COMEX will have a problem meeting demand.  Typically people back out, but - if they don't, what then?  A COMEX default?  Before we get too excited, on average about 1% of the open interest ends up actually taking delivery - I'd estimate that to be about 235k ounces (7.3 tons).  That is 40% of the gold remaining at COMEX.  If things happen normally, COMEX won't default - this month.

* I'm still working on charting historical closing prices for the Indian gold futures market (the MCX).   Rough calculation: spot gold (in Mumbai) is 30,100 INR/10 grams, or about $1500/troy oz.  That's a premium of $249 over COMEX, or 20%!!  Even if we remove the 10% import tax (or 15% on jewelry) that's still a massive premium.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1238.00 and silver 19.70:

CEF 13.60 -5.08% to NAV [up]
PHYS 10.35 +0.16% to NAV [up]
PSLV 7.91 +2.87% to NAV [up]
GTU 43.35 -5.59% to NAV [up]

Discounts on the ETFs have dropped (premiums have risen) from 1% to 1.5% over the past week.  Physical ETF investors are coming back, and the Sprott funds are now both in premium.

While Shanghai premiums are modestly negative which is surprising given the drop in price, the drop in GLD inventory, the potential COMEX gold shortfall, and the absurd premiums in India are supportive of the gold price.

Futures Positioning

The COT report will be delayed until Monday due to the Thanksgiving holiday in the US.

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.


This week saw gold prices stabilizing, trading in a range generally between 1235 and 1255.   Gold dipped to 1226 at one point, but rebounded on good volume.  A close above 1260 is needed to get the ball rolling on a rebound.

Looking at the various ratios and averages, gold and silver both remain in a moving-average downtrend in all three timeframes.  GDXJ:GDX is dropping (bearish), GDX:$GOLD has rebounded (bullish), GDXJ:GDX is still dropping (bearish), while gold/silver ratio is unchanged (neutral).  Trends and ratios are mixed, but generally bearish - an improvement over last week's "totally bearish" situation.

The mining shares did unexpectedly well this week.  After dropping below the June lows, buyers appeared - although buying was modest, GDX didn't sell off in the way I was concerned it would.  It is still vulnerable, and if gold can close above 1260 and GDX continues being bought, we might have the start of something.

Even though Shanghai is slightly in discount, gold is still leaving GLD and COMEX has its big delivery month happening now, without much gold available in the warehouse.  And India's premium - 20% if my numbers are to be believed - is simply crazy.

The trend indicators still point lower, and the trend is a powerful force.  Gold needs to close above 1260 to get any sort of bounce going, and gold really requires a close above gold 1300 to indicate a possibility of an actual trend change.  If you are looking for a longer term trading signal, it is probably a good idea to let the buyers prove they really want to chase prices higher before jumping in and even that is no guarantee of a good outcome.  The number of failed bounces and rallies during this downtrend indicates the power of this trend, and trying to buy every bounce in a downtrend "because gold is cheap" or "because this is the low, I know it" is a recipe for fatigue, stress, and losses.

Could a move above 1260 signal that this is "the low"?  You bet.  But given the number of bounces that ended up with further price drops, its not something you necessarily want to bet the house & farm on.  If we get a breakout above 1260 on big volume, the odds improve.  If price limps weakly above 1260, the odds decrease.

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1 Comment

HughK's picture
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 764
meanwhile, back in the goldrums...

While bitcoin is on fire, it seems that gold has closed today (Monday) very close to the lows of June of this year, at $1218.40 according to  I'm not concerned about that as I'm not a hedge fund or an investment advisor competing for yield and clients.  In fact, the relatively low PM prices over the last year have been quite a blessing for me.  PMs are also low stress.  

Of course, I'm kicking myself a bit for not buying bitcoins after first learning about them at PP in the fall of last year, but I did actually check them out, and I just didn't grasp the concept well enough to be convinced to buy, I guess.  What really got me was the fact that so few merchants accepted them at the time.  Maybe I'll chase bitcoins higher at some point but probably not, as I prefer the simplicity of buying shiny, rare things that appear on the periodic table.



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