PM Daily Market Commentary - 5/8/2014

davefairtex
By davefairtex on Thu, May 8, 2014 - 9:14pm

Gold was almost unchanged, closing down -0.10 at 1289.60 on moderately heavy volume.  Silver dropped -0.15, closing at 19.18 on moderately light volume.  Gold had a modest trading range, while silver just steadily dropped all day long.  Silver looks destined to test 19 support, while gold looks a bit stronger, although I'd be surprised if this was the low for this cycle in gold.

The dollar had a crazy trading range, being pounded down below 79 briefly at 0830 EDT - at the time of the Jobless Claims report release.  However, it spent only half an hour below 79, and then it rallied up 0.60 points, a big move, closing up +0.21 to 79.47.  On the charts, this looks to be quite a good bullish reversal signal - a successful test of support for the buck.  For it to mean anything longer term, we need to see the buck rally above its 200 day MA, however.  The buck doing well generally is bad for gold.  Generally, but not always.

The miners tried to rally and failed, selling off a bit.  GDX was down -0.17% on light volume, while GDXJ was down -0.48% also on light volume.  Traders were uninterested in picking up miners after yesterday's moderate sell-off, which isn't bullish.  Perhaps they are waiting to see a more emphatic bottom in gold.  I'm waiting for that too, actually.

The US equity market rallied up to 1890 and then stopped; the sellers then took over, driving the overall market back down, closing down -3 to 1876.  Volume was only moderate.  Failed rallies like this are generally bad signs - that is because traders who have a bearish outlook and also have large positions to unload tend to sell rallies, and today's rally attempt by SPX was definitely sold.

If we ever get a correction, it will be interesting to see if some of the equity money runs to PM.

Oh - one more thing.  Yesterday I found out that one of my data sources was bad, specifically the one giving me CNY (China/Yuan) data, which means my calculation for the premiums in Shanghai was off.  This may get Jim thinking I'm working for the Cartel again - in that the premiums are much lower than I thought previously.  It does make sense though, given how lackluster the buyers for gold have been.  Reduced physical buying in China ends up providing less support to the COMEX prices.  Anyhow, now I'm using delayed data from FRED, which means my premium data is delayed by 3 days.

I'm happy to provide more details if you are interested.

 

9 Comments

hammer6166's picture
hammer6166
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Posts: 26
Shanghai Premiums and Discounts

Hi Dave,

Thanks for updating the chart with more accurate data.  It appears the currency conversion was off in both directions. Using the new data source, not only were premiums lower, but the periods where there were discounts essentially disappear (except for the discounts in Feb-Mar 2014).  I'm comparing to your earlier post here:

http://www.peakprosperity.com/discussion/85297/pm-daily-market-commentary-4242014

It appears the $12 premium level shown may have to be adjusted up to about $15 or is there too much noise for this to be useful unless premiums are much higher?

Thanks again,

Brian

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davefairtex
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off in both directions

Brian-

That's a good observation.  So good, I had to run off and look at a longer term chart to show more perspective.

Note: the data from Shanghai is a bit suspect for a couple of days, so I deleted two data points (one with a premium of $79, another showing a premium of $210) by hand.

As you pointed out, -10 isn't a great indicator anymore.  Premium still does go negative, but much less so.  And its interesting how things got really volatile with gold & premiums starting at the end of 2012 through most of 2013.

Based on 2013 premiums, things don't look so good right now.

Jim H's picture
Jim H
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SGE Silver Premiums back to highs

http://www.ingoldwetrust.ch/wp-content/uploads/SGE-silver-premium1.png?f...

Here's what Dave Kranzler says about Silver, and manipulation in general;

http://investmentresearchdynamics.com/is-something-big-brewing-in-silver/

The precious metals market is, by far, the most manipulated market in the world.  The Fed really doesn’t have much of a choice because if gold and silver were allowed to trade freely, it is highly likely that the dollar would have been rejected as the world’s reserve currency a couple of decades ago.  Anyone who refuses to acknowledge that the gold and silver markets are highly manipulated is either completely ignorant of the facts or is a sociopathic liar.

While gold is highly manipulated, silver is supremely manipulated.  I published a Seeking Alpha article on Friday that goes over the reasons why I believe that silver is getting ready to make a big move:   Is Something Big Brewing In Silver?

Because the extreme degree of manipulation makes it impossible to assign a time-table to the next big move that is coming, I do believe that the Fed’s ability to keep a lid on the metals at their current trading levels is running thin.

Ultimately, when the history books are written, the extreme manipulation of gold and silver – and the related fraudulent leasing and hypothecation of the Fed’s custodial gold – will be seen as the greatest scandal in the history of the U.S.

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davefairtex
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completely ignorant

Hmmm...sounds like I need to look at SGE premiums for silver!

davefairtex's picture
davefairtex
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SGE silver premiums

Ok, after writing some code to process silver contracts, it turns out that there are a number of them.

Ag99.99, Ag99.9: these are thinly traded - not every day has trades - in 2013, a month would go by with only one trade.  Volume is often very low.  I wouldn't trust premium calculations based off these contracts.

AgT+D: these are futures contracts, just like AuT+D.  Volume is large, but its not cash silver and the volume doesn't represent actual delivered silver but rather just open interest in a future delivery.

Here's the chart of AgTD premiums - it doesn't look like China's premiums are as predictive of the lows in silver as they are for gold.  However, this is my first stroll through this data, so I can't vouch for its correctness.  Perhaps someone with another source for SGE premiums vs COMEX silver can eyeball it and make sure I don't have a bug of some sort.

My gut says, China is a big player in gold, especially in the last 3-4 years, but less so in silver.

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davefairtex
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kranzler's silver case

Reading his article, it all hung together.  Right up until I checked some of his data.  Take a look at his chart talking about COMEX eligible silver and its alarming drop.  I momentarily thought "ooh, maybe its a buy opportunity, this looks exciting."

But when I zoomed back just to make sure, this is what I saw: 3700 tons of silver remain in COMEX eligible.  There IS a dip to be sure, but - do you think COMEX is going to run out of silver anytime soon looking at this chart?  I wonder why he just decided to show you 2013, instead of the broader perspective?

Now I'll be frank - that COMEX chart of his made me feel manipulated.  Then I wondered, why just look at eligible silver, why not look at registered?  That's where the goldbugs fix their eyes when talking about gold.  So I did.  Do you see an tightening of supply of silver in the registered silver vaults at COMEX?  1500 tons, and rising.  Yeah, not so much.

And so putting the SGE chart in context, they've lost 240 tons of silver out of a total of 570 tons.  With 1500 + 3700 tons sitting at COMEX, I'm just guessing that the silver vanishing at SGE doesn't matter all that much.  As much as the SGE is a massive gold player, it seems to be a tiny silver player, just based on inventories alone.

And lastly, you have all those silver eagles.  42 million ounces seems like a lot.  It is a lot - in fact, it is 1300 tons.  And on the margins, that does help support the price.  But the remaining silver in COMEX eligible could supply about three years worth of eagle production - you know, the warehouse that had the "massive dip" this past 3 months.

Given I have silver, I wish, I really wish this guy were on target.  But - I don't see it.  Perhaps if the trend continued for another year, we'd have something.  It would help if some silver mines started to shut down, too.

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Jim H
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Kranzler's chart

Dave,  I agree that Dave K's chart is not a very credible way to present his case.  His case though is a short term trend change... so maybe there is one.. still hard to tell. 

There's lot's more to it than this question of 120M ounces in Comex.  The fact is, the commercial net short position is almost this big;

http://www.caseyresearch.com/gsd/edition/john-hathaway-if-oil-doesnt-get...

In silver, the Commercial net short position improved by 3,007 contracts, or 15.0 million troy ounces.  The Commercial net short position is down to 20,349 contracts, or 101.7 million ounces.  Ted says that JPMorgan's short side corner in the Comex silver market is still around the 20,000 contract mark, which means that they hold virtually the entire Commercial net short position in silver all by themselves.  How outrageous can you get?

Exactly why the metals, Gold, Silver, Platinum, and Palladium should be among the five most shorted commodities on earth, relative to days of production represented... should make anyone wonder what is up.

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davefairtex
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Posts: 5418
most shorted commodities

JimH-

I have to say, I have no idea why these metals are "the most shorted on earth" - relative to production.  Is that an important metric?  Will it help us predict where things are headed in the short-to-medium term?

I know there is very large desire to figure out why things aren't behaving the way we think they should be, and to then (presumably) appoint a scapegoat.  "THIS is the indicator that PROVES manipulation!"  And who knows, maybe it is.

But it doesn't help me forecast.  I want to look for correlations that let me understand how to better predict price movements.  For gold, I think Shanghai premiums are fairly decent, at least some of the time anyways.  I don't have the perfect values or levels, but the correlations are pretty good.  Every now and then the premiums put out a strong signal and those strong signals do seem to work.

For silver, so far I don't have anything.  I want to see charts that don't focus on proving manipulation, but rather focus on showing us when reversals have happened in the past and correlating that with some other situations (short interest, volume, price activity, etc) that could give us clues as to what might happen next.

Regarding Kranzler, since he runs a "long precious metals fund", I can definitely understand why he's so enthusiastic about the whole manipulation thing.  It absolves him completely of any ...  judgement issues in his decision making in his job.  "The Dog Ate My Homework."  Or in this case, "The Fed Ate My Customer's Money."  It may be true - perhaps the Fed did eat his customer's money.

But I have to say, its not like the rest of the commodity index was rising like crazy, and PM alone was getting pummeled.  There were clues, to someone paying attention.  Say, a professional running money for clients.  For me, I regret every moment blaming a scapegoat, allowing me to take my eye off the trend and the other, correlated assets that were also dropping at the same time.   The whole "Fed Ate My Money" exercise was a waste of my time & energy that was better spent actually noticing what was happening.

It has been a tough 3 years for PM, that's for sure.

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davefairtex
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Posts: 5418
here's an indicator

This indicator is not perfect, and I'm not sure if it is triggering right now, but it does look as though silver is much closer to a low than it is a high.  For what that's worth.  The last two times it spiked, we didn't get much of a move higher however.

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