PM Daily Market Commentary - 5/20/2014

By davefairtex on Wed, May 21, 2014 - 12:12am

Gold closed up +1.70 to 1292.40 on moderately heavy volume; silver was up +0.06 to 19.40 on moderate volume.  Gold was hammered at 0820 EDT, stopping out a bunch of longs, but just an hour later it rallied hard, stopping out the shorts and traded sideways for the rest of the day.  Silver followed right alongside.

The World Gold Council released a report detailing gold demand for Q1 2014 - here's the link if you want to see what's up with the big picture in gold worldwide.  Lots of good information about premiums in various places, gold demand in the different sectors, and so on.  Headline number: gold demand unchanged vs. Q1 2013.  [Gold demand is actually seasonal, so it makes some sense to compare vs. same period last year].  Still, with prices down 21%, it seems that while gold demand in tons remained steady, gold demand in terms of dollars actually dropped.  The theory is, gold demand should be higher in tons if the price is 20% lower.

The buck closed up +0.03 to 80.10, trading in a relatively narrow trading range all day long.  It remains above its 50 day MA and appears to be consolidating - in preparation for a move higher, perhaps?

GDX closed down -0.09% today on very light volume; GDXJ was off -0.63% on light volume.  Miners don't appear to have much buying interest at all, and the GDX:$GOLD ratio is falling steadily lower.   Volume in GDX is falling also, suggesting declining interest.   GDX remains below all 3 moving averages, and is about to suffer a "death cross", with the GDX 50 MA about to cross the 200 MA within the next day or two.

SPX sold off today, driving down to its 50 MA and then rallying somewhat, closing off -12 to 1873.  The VIX still shows complacency (12.96!) but the picture for SPX from my perspective is looking weaker now.  It rallied for only two days, today's drop wiped out virtually the entire rally, and that 50 MA is now flat and - the chart just doesn't feel as strong as it did.  Some other technical indicators - especially on the weekly chart - are hinting at a bearish move in the offing, what is called "a bearish divergence on the RSI."  Tech-talk for a slowing momentum of the uptrend that sometimes isn't visible in the price chart itself.

But that downside insurance is still cheap.



davefairtex's picture
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Shanghai Delivery Volumes chart

Here is a possibly-interesting look at the shanghai gold delivery volume chart.  This chart is an amalgamation of three values - daily volumes on the spot Au9995 and Au9999 gold contracts, as well as the "delivery volume" of the Au(T+D) futures contract.  Its an attempt to sum up all the gold delivered on the SGE, and it was inspired by reading the World Gold Council report today.

I ran the values through a 20 point moving average to smooth out the volatility.   This gives you a sense as to how much gold (overall) the SGE is delivering.  The values are in "kilograms per day" - divide by 1000 to get "tonnes per day", which is right now about 20 tonnes per day.  Note this doesn't represent gold actually physically removed from the exchange, but just gold delivered to a trader's (allocated?) account.  Trader can then sell the gold if he wants, or he can walk off with the bars, or he can keep them in his account.

We do see that China gold delivery demand has fallen off pretty substantially from what it was in 2013, but it still remains in a general uptrend.  I had a vague sense that demand had dropped off, but I had never viewed the longer term demand chart.

Drop in Chinese gold demand: possibly due to default/deflation issues in China?  Seasonally right now is a weak period for Chinese demand (i.e. post-February), but the dropoff was pretty dramatic vs. last year.  Anyone else have any thoughts?

Perhaps this would be something useful to add to the weekly gold update.

Arthur Robey's picture
Arthur Robey
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Gold deliveries

Anyone else have any thoughts?

Nothing left to buy? Scraping the bottom of the barrel?

A total of 174,100 tonnes of gold have been mined in human history, according to GFMS as of 2012.[2]


Can anyone integrate the area under the curve?

davefairtex's picture
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Posts: 5685
integrating areas

So as much as I like math (I don't) I have to point out that this particular "delivery volume" calculation at shanghai isn't the number of kilograms of little gold bars carted off per day by individuals or companies.  Its the gold delivered into the accounts of traders at the exchange.  If those traders then sell their gold to other traders in the future, that too is counted as a "delivery".  In other words, there is lots of double-counting going on here.

So look at this data as an indicator or trend, rather than as an absolute number of kilograms.

Note: SGE does give us the "kilograms carted away" volume too, but that's a weekly number, it is no doubt a lot lower and I don't look at those pages just yet.  Sorry for not making that more clear.

Regarding the "no gold left" thesis - premiums are only barely positive, and the Au(T+D) contract has been swinging back and forth between "sellers dominate" and "buyers dominate" for a while now.  I did see a case after the 2013 gold crash where SGE was in a "buyers dominate" state and volume dropped to a very low value and that condition held for about a month post-crash - that was a case of "little or no gold at the exchange" for sure.  It was accompanied by high premiums - around $15-$55 over COMEX.  But that's not where we are now.  Now we're at +3 over COMEX.  There appears to be plenty of supply.  Just not nearly as many buyers.


DennisC's picture
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Back in the day...

For all you intellectually curious types out there, this is what I used to use, "back in day".

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