PM End of Week Market Commentary - 1/24/2014

davefairtex
By davefairtex on Sat, Jan 25, 2014 - 12:43am

Gold finished Friday up +4.70 to 1268.80 on heavy volume, silver was down -0.10 to 19.90 also on heavy volume.  The gold/silver ratio rose yet again, 0.57 up to 63.76.  GDX was down -0.21% on moderately heavy volume, while GDXJ was off -2.26% on very heavy volume.  Gold finally broke through 1265 with the help of a falling dollar, but the move through resistance was quite modest even though volume was heavy.

For the week, gold was up +15.30 [+1.22%], silver down -0.41 [-2.02%], GDX +1.46% and GDXJ -0.87%.  Gold is continuing to rise, but its generally a bad sign when gold and the GDX is rising, while silver and GDXJ are falling.  This is a "risk off" configuration, and is generally bearish.

US Equities/SPX

The US equity market suffered a big loss on Friday, down -2.09% on high volume slicing through the 50 MA as if it weren't even there.  Not only did SPX close at the dead lows of the day, the futures continued dropping after the market closed.  This was the weakest market day I've seen in a very long time.  The volatility index (VIX) jumped spectacularly, which means traders are buying downside protection.  These sorts of fireworks suggest traders don't want to hold equities over the weekend, and particularly not in advance of the Fed meeting coming up on Wednesday.  Will the equity market move affect the FOMC actions?  That's an interesting question.  As with most markets, "its an escalator on the way up, but its an elevator on the way down." (i.e. losses tend to be more dramatic than gains).

Of all sectors I track, the gold mining seniors performed the best on Friday's equity market smash.  The worst were the homebuilders, who were off -3.11%.

A trader I respect suggests the time to go short equities is not now - instead, the technique is to wait for the inevitable bounce to some point of resistance, and then go short.  Just FYI.

Miners

Senior miners had a decent week, moving higher on pretty good volume.  The ascent seems to be slowing a bit, but on Friday they recovered from some relatively heavy losses, and the simple fact that the mining shares survived the massive selloff of the US equity market with only minor losses is - well - a minor miracle.  In the past, senior miners typically were caught in any SPX downdraft, but Friday they looked strong by comparison.  Up-day volume still surpasses down-day volume, and that's bullish.

Junior miners didn't fare as well - they appear to be showing a distribution pattern, and the fact that the juniors underperformed the senior miners is a bearish sign.  Still up-day volume is still higher than down-day volume, and that is bullish.

The USD

The dollar was down this week -0.82 [-1.00%] with most of the losses happening on Thursday.  The move in the buck was euro-driven, which moved up hard on unexpectedly good news from a French manufacturing index.  The dollar moving below its 50 MA is a bearish sign for the buck - but good for gold.

Strong moves like this in the buck help gold - at least they certainly did this week anyway.  From what I could tell, the primary catalyst for the gold rally on Thursday was the big move in the euro.

Rates & Commodities

The 10 year treasury rates continued dropping this week, and are down to 2.73%.  Dec 31 marked the high in 10 year rates - and when rates drop, bonds rally.  20 year treasury bonds have rallied even more strongly than the 10-year over that same period, and are now up 5.6% since Dec 31.  That's 18 months of interest payments gained in about three weeks.  It does not appear the bond market is worried about tapering.

Commodities overall continued to rise this week, closing at values not seen since October 2013.  There's no revolution happening here, but we are seeing steady improvement.  Oil particularly had a good week up +2.99%, and is back up to 97.  Higher commodity prices are generally positive for both gold and silver.

However, copper is this special commodity that silver tends to follow, and copper had a bad week, off -2.29%.  Copper appears to be largely driven by news from China which at least this week has been generally unfavorable.  This is likely pressuring silver.

Physical Supply Indicators

* Shanghai gold premiums dropped substantially this week; at 1530 CST 2014-01-17 Shanghai physical gold (the Au9999 1-kilo gold contract) closed at a premium of only $0.11 to COMEX, with the premium down -12.99 over last week.  Delivery volumes on Friday were massive for the AuTD contract, with volumes 230% greater than average.  Likewise, AuTD compensation is now being paid from longs to the shorts, which says selling is dominating.  It feels to me as if some big change happened in Shanghai on Friday - perhaps it had to do with the situation in the credit markets over there.

* The GLD ETF lost -6.59 tons of gold this week and is down to 790.

* Registered gold at COMEX remains at 11.51 tons, unchanged for the week.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1268.30 and silver 19.905:

    PHYS 10.56 -0.15% to NAV [up]
    PSLV 7.96 +2.55% to NAV [up]
    CEF 13.83 -5.20% to NAV [up]
    GTU 44.50 -5.33% to NAV [up]

Discounts on the ETFs declined across the board; PSLV in particular now has a nice premium.  I'm not sure why this is, given how poorly silver has been performing.

Physical demand is very mildly positive.  Shanghai appears to be undergoing a significant change in buying sentiment, gold is once again leaving GLD, and ETF discounts have fallen modestly, while COMEX is unchanged.

Futures Positioning

The COT report is as of January 21st.  Not much has changed since last week; Managed Money covered short 1500 contracts, while Producers both increased short positions and long exposure, staying about the same in terms of net exposure.  Producers remain net long (a very unusual and bullish situation), while Managed Money short exposure is still historically high, providing fuel for the short-covering rallies that occur as gold rises above the various resistance levels.

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

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

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

Silver's short term moving average changed from UP to DOWN this week, and it closed below its 50 MA as well.  Silver is not looking great. At the same time, gold's 20 EMA crossed the 50 MA to the upside, which is bullish for gold, and gold's price remains above its 50 MA.

Summary

This week we saw mining shares diverge - seniors rising, while juniors underwent distribution.  Overall we can say momentum has slowed.  Gold continued rising, while silver dropped - another divergence, bearish and a change from last week.

Looking at the various ratios and averages, gold and silver both remain in a moving-average downtrend in  medium and long term timeframes, and silver dropped below its 50 MA as well.  GDXJ:GDX remains bullish but suffered a hit this week, while the picture remains clearly bullish with GDX:$GOLD.  The gold/silver ratio is now clearly moving higher, which is bearish and is another indicator of silver's relative weakness.

Gold managed - just barely - to close above its previous cycle high of 1267.50, which officially marks the end of gold's medium term (5 month) downtrend in the minds of the technical traders.

Shanghai is no longer in shortage - premiums have dropped back to flat, and deliveries suggest a pattern of selling rather than buying.  COMEX registered remains unchanged, but GLD's tonnage resumed dropping.   ETF buyers were modestly positive this week.  Physical demand is mildly positive.

Gold's uptrend remains firmly in place, silver is looking iffy, and the slowing momentum in mining shares suggest we might see some sort of retracement in PM prices in the near term.  But that doesn't account for...the fun-filled FOMC meeting coming up next Wednesday, on January 29th.  I'm guessing the meeting will move PM prices - but in which direction?

 

9 Comments

KennethPollinger's picture
KennethPollinger
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JPMorgan and Comex

Does this post mean anything to anybody?  From SRSrocco.

 

RECORD ONE-DAY WITHDRAWAL OF GOLD FROM JP MORGAN

Posted: 24 Jan 2014 02:05 PM PST

Comex Gold Inventories 12414

In a surprising change from its inventory build over the past few months, JP Morgan had the largest one-day withdrawal of gold ever.  JP Morgan had 321,500 (exactly 10 metric tons) withdrawn from its Eligible category today.

In just one day, JP Morgan lost 22% over its total gold stocks at the Comex.  Total gold inventories at JP Morgan declined from 1,459,027 oz yesterday, to 1,137,527 oz.

Also, there was another 32,150 oz of gold withdrawn from Scotia Mocatta’s Eligible inventories.  This is quite interesting as the removals from both JP Morgan & Scotia Mocatta turn out to be exactly 10 metric tons (JP Morgan) and 1 metric ton (Scotia) for a total of 11 metric tons.

Furthermore, there are only 357,139 oz of gold in the Registered Inventories at the Comex.  February is going to be a big delivery month and it looks as if there may not be the available metal to satisfy delivery requests.

It seems as if 2014 may be the year that the Financial System finally falls over the cliff.

 

 

davefairtex's picture
davefairtex
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JPM's big gold withdrawal

There are two types of bars - kilo bars destined for asia that are measured quite precisely to be one kilo, and other sorts of bars (COMEX bars, and LBMA "good delivery" bars) that are much more variable in size.  The round numbers of gold may well just be kilo bars.  I know some commentators imagine this is just paper gold or fraud, but the kilo bar explanation could be valid too.

Gold is definitely running low at COMEX in terms of registered gold - gold able to be used to deliver on a COMEX GC contract.  Is this just a game the bankers are playing, or does this signal the end of the world?  Or is the gold just more useful somewhere else?

February will be an interesting month for COMEX deliveries.

KennethPollinger's picture
KennethPollinger
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Is this true??

Something tells us the next few days will see matching withdrawals from JPM's gold vault, which at last check was OFFICIALLY OWNED BY THE CHINESE???????

And for those wondering how JPM's total gold holdings look over time here it is:

JPM%20total%20holdings_0.jpg

Jim H's picture
Jim H
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Dave's comments re: China demand

Dave,  Your comments above seem to be suggesting that China demand is waning...  you said;

Likewise, AuTD compensation is now being paid from longs to the shorts, which says selling is dominating.

and later in the report you said;

Shanghai appears to be undergoing a significant change in buying sentiment

I appreciate that you are watching these various signals... but to me the main signal to watch is the physical withdrawals... and these remain incredibly robust... during the week you are talking about, physical withdrawals were the fourth highest ever;

Again an astounding trading week on the SGE; from January 13 – 17, 2014 physical withdrawals from the SGE vaults accounted for 60 tons of gold, year to date 159 tons. Although withdrawals are down 25 % from the previous week, the amount is still well above weekly global mine production.

This strong demand could be related to the Chinese Lunar year, which is celebrated on January 31, 2014. SGE withdrawals in the first three weeks were up 60 % compared to the same period in 2013.

cmartenson's picture
cmartenson
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Gold Withdrawals at JPM
KennethPollinger wrote:

 

Also, there was another 32,150 oz of gold withdrawn from Scotia Mocatta’s Eligible inventories.  This is quite interesting as the removals from both JP Morgan & Scotia Mocatta turn out to be exactly 10 metric tons (JP Morgan) and 1 metric ton (Scotia) for a total of 11 metric tons.

Hmmmm... what stands out obviously is that the withdrawals are exactly 11 metric tonnes, done in two precise withdrawals.

It seems unlikely that this is due to the summation of ordinary deliveries, so it speaks instead of some form of institutional delivery.  GLD perhaps?

We should cross check these withdrawals against the ETF inventories as one possible explanation.  Alternatively, it could be gold that is being bought officially?  I could imagine them doing it 'by the tonne' as well.

Of course, if I had a few billion $ to my name, I, too, would order up my gold specifically from JPM and Comex and by the tonne just for the fun of it, so perhaps we're dealing with a billionaire who likes to poke things with sticks?

Jim H's picture
Jim H
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what Andrew Maguire said Friday on KWN

But gold broke out yesterday, and we ended up with the strongest fix of the year in London.  What was significant about this is that we saw 5,900 shortly-to-expire February Comex contracts, which is over 18 tons of Comex contracts, these are front-month futures and they were bought directly at the fix in order to meet what was reported to me as a 15-ton wholesale order.  This was in addition to the normal physical buying.

link:  http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/1/24_Maguire_-_Stunning_Physical_Gold_Buying_Terrifies_Shorts.html

I guess we have to treat this as anecdotal.. but when we assimilate the big picture.. with China (see my link to Koos Jansen's latest SGE delivery report) sucking up the equivalent of the world's mine supply, and the rest of the saleable float stressed from the last two years of heavy demand WW... well, one can just imagine that this Gold is going into strong hands somewhere.  Whether the 15 ton order mentioned above is a billionaire, or a sovereign doesn't really matter... demand is demand.  Physical is physical, and the world is waking up to the true nature of the paper Gold game.  The paper Gold game is in the process of unraveling and the black swans are circling in the form of these developing nation currency crises.

Realizing that for the average American, dollars are in fact scarce.. the truth is that, at the highest level, Gold is scarce, and dollars are not.    

Rik Green's picture
Rik Green
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Posts: 6
A couple cents re: COMEX gold inventory

A large withdrawal from eligible inventory is significant because it has been removed from the system.  That gold must now be assayed by an approved COMEX assayer in order to once again be eligible to settle COMEX futures contracts.  So whoever withdrew that gold is not planning to use it to settle COMEX contracts anytime soon.   Thus there is now less metal available to sell or short which is very bullish.

Last year 13,910 February contracts filed for settlement on first notice day.  Open interest has been 10-20% less this year.  Even if only 7,500 Feb contracts file on first notice day this year (Jan 31st) it will be an exciting month with less than half that amount currently in registered inventory (370,137 ounces).  Owners of eligible may be able to demand a high price to whomever needs registered gold during by the end of February.

Note that gold contracts are settled with warrants that are evidence of registered gold ownership.  Eligible gold can easily become registered by attaching a warrant.  Physical delivery or movement of gold is not necessary to settle.  

The COMEX Daily Gold Inventory Report is by depository; not owner.  JPM could own gold at the other depositories and vice-versa.  Also the same gold could be used to settle multiple futures contracts during the settlement period.  The owner (warrant holder) could buy and then sell to another who then sells it and so on during the month.  

 

 

davefairtex's picture
davefairtex
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china - fine up until friday

I was seeing good demand in China right up until Friday, when something changed.  This "something changed" storyline of mine had to do with a spike in deliveries along with a drop in premiums, married to the compensation going from shorts to longs.

Here's the relevant chart - its a bit complicated, but if you puzzle through it, perhaps you can see the same thing I did.

Black Line: AuTD delivery volumes - spiked to 31k kilos Friday.  Volume is directionless, so we need other clues to fill in the story.

Blue Line: direction of sales: longs bailing out.  When that blue line is high, that means there are more buyers than sellers.  When the blue line is low, that means there are more sellers than buyers.  The move down in the blue line, again on Friday, said - more sellers than buyers.  This provides us direction: selling.

Red Line: Premium over COMEX.  The drop in premiums reinforces the picture of "more sellers than buyers".  A premium drop suggests selling.

So, big volume spike + switch to "more sellers than buyers" + premium drop = people dumping gold at SGE.  But only Friday.

This could be people bailing out of their AuTD speculative positions due to China's monetary issues.  Do you have an alternate explanation that fits the facts I've presented?

pierreapienaar's picture
pierreapienaar
Status: Bronze Member (Offline)
Joined: May 21 2013
Posts: 44
Chinese and Gold

The Chinese are very clever. Low Gold price suits them, but what we don't know how they acquire gold, without showing a lot of interest. 

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