PM Daily Market Commentary - 12/04/2014

davefairtex
By davefairtex on Fri, Dec 5, 2014 - 4:54am

Gold fell -3.20 to 1206.00 on moderate volume, silver rose +0.06 to 16.49 on light volume.  PM mostly traded sideways today, with silver modestly outperforming gold.  The gold/silver ratio dropped -0.46 to 73.14.

The buck made a new high briefly at 0830 EST, at the release time of the Jobless Claims report and a press conference by ECB Chairman Dragi, and then the buck started dropping; by end of day, USD was off -0.37 to 88.64.  Surprisingly, the dollar's drop didn't seem to help PM all that much.

Mining shares tried to rally today; GDX moved higher, but was stopped at its 50 MA, and it then fell back, closing down -0.26% on moderately light volume.  GDXJ dropped quite a bit more, losing -2.39% on moderate volume.  Miners just don't look all that great right now - maybe they are leading PM lower, or just perhaps this is about tax loss selling.  Its hard to know.  Regardless of the reason, traders just don't seem to be buying the mining shares right now - and the juniors are doing especially poorly.  The GDXJ:GDX ratio is looking distinctly bearish.  I always feel nervous when traders are reluctant to buy junior miners, because that's a clear sign of "risk off" in PM and it often presages a decline.

Bonds had a big day, with TLT up +0.84%; are they sniffing out weakness in equities?

SPX dropped ever so slightly, down -2.41 to 2071.92.  Technically, SPX is looking toppy right now, with the RSI-7 showing a bearish divergence and an MACD crossover, which suggests momentum is slowing down.  Yet with the VIX at 12.38, puts are cheap.  So with the technicals looking distinctly weak, and the puts cheap, my sense is, put buyers have just about given up - and that aligns pretty well with my own sentiment.  My feeling is, "it is useless to short this market."  Don't you feel this too?  Feelings are sometimes good contrary indicators - when technicals say one thing and your feelings say something else, sometimes it is the best thing to go against your own feelings.  Perhaps I will buy some puts tomorrow.

Commodities were flat today, closing +0.08%.  WTIC dropped -0.68 to 66.73, and Brent dropped -0.28 to 69.64.  Oil seems fated to make new lows, while the rest of the commodity group are at least moving sideways rather than down.  Oil can still mark a low if it manages to close above 69.75 - but that's $3 away right now.  Currently, the trend for oil is still strongly down, and that paints a picture of economic weakness and deflation that isn't great for PM.

Today was Draghi Press Conference day, where our friendly ECB chairman tried to sound like he was going to engage in money printing without actually committing to doing any printing.

http://www.ecb.europa.eu/press/pressconf/2014/html/is141204.en.html

Here's a chart of the ECB's balance sheet vs the US Fed's balance sheet.  Notice how the ECB's balance sheet started dropping at the end of 2012, while the Fed's balance sheet started growing at that same time.  When people say the ECB is printing money - all you have to do is look at the data.  They just aren't.

If they do, we'll see it in the data.  It will probably be good for gold if they do - but I'm not holding my breath waiting for the ECB to go nuts.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

17 Comments

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
Strong inverse correlation gold/Nikkei

This is an exhaustive (at least I'm exhausted reading it) article noting a strong inverse correlation between the Nikkei and gold since October 2012 when the BOJ began its aggressive "asset purchases."  The article goes on to discuss indications of physical gold shortages like GOFO rates and where physical gold is going based on Shanghai Gold Exchange (SGE) withdrawals, gross imports to India, holdings by ETFs and net changes in central bank holdings.

http://www.zerohedge.com/news/2014-12-04/inside-look-shocking-role-gold-...

Among the notable observations is gold demand by China for 2014 is about 2,000 tons not counting what was purchased by the PBoC.  The PBoC only reports its holdings once every six years.  The next report is scheduled for 2015 and, not surprisingly, is eagerly anticipated.

Also discussed is the divergence between gold and silver holdings in ETFs and by the COMEX since 2012, and the impacts of that divergence on the gold and silver markets.

I would be very interested in Dave's, Jim's, Chris's and Adam's observations.  There's a lot of meat to chew on

Doug

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
I've read about the inverse

I've read about the inverse correlation to USD/JPY, but haven't tracked it down.  Quick glance looks like there may have been something to it, but in the past month it seems to have vanished.  Possibly, the trade is being unwound?  Just in time for a big fuss to be made over it!  :-)

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
Stripping 24-hr credit actions

I wonder if it would be useful to strip out 24-hour credit transactions, and then view them separately as impulses to the actual movement?

Then there are institutional operations, and those could be stripped out as well, to see other operations.

Here's what I mean: repeatedly, I see a signal one day, and then a completely inverse signal, 24 hours later. I have to assume, then, that that was a credit operation: the buyer or shorter had 24 hours to buy back what they had sold, or sell what they had bought.

(there is such a structure in Palladium 3-day, right now).

I think it would be interesting to see how Gold did without those in the graph, but rather with those as a downward or upward 'stress' trigger labeled to the side.

But there's also another structure: the institutional buyer who repeatedly buys (or sells) at the same time each day for several days. Again, if we separated this out, we would get a better idea of who was buying (and why) and who was selling. Once we had that info, we could better analyze the base graph, and in addition could also better recognize when there were likely to be multiple buys or sells over several days.

To do any of this, you take a fast fourier of the data, separate out the 22-26 hour bands, and take the inverse fourier of each.

Someone who was not mathematically inclined could possibly ship the data into a .WAV file, and thence to a sound filtration program, and 'damp out' the appropriate frequencies, and output the resultant .WAV file back to graphical form.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
Gold and Japanese investors?

that JPY/USD corellation seems very interesting. It implies that until the BOJ went on Abe's QE credit buying spree, it was buying gold when it sold USD, and buying USD when it sold gold.

Maybe not directly; maybe indirectly -- that Japanese were buying gold.

Not only that, but it implies that the BOJ was a significant player, and is no more.

I really think that correllation bears some research to figure out what happened, and what it means.

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2237
"Cliff notes" summary of article

Hi Doug-

   I saw that article on ZH, and it was honestly too long and in depth for me to want to tackle.  But I did find a "cliff notes" summary (and subsequent short analysis) of the article from a commenter on http://www.silverdoctors.com/jim-willie-oil-crash-to-accelerate-the-coming-global-financial-crisis/ .  So FWIW:

"...I agree this is a great article and copied / pasted this comment from a poster on Zero Hedge which seems to be the Cliff Notes Version:

[From ZH commenter:] 'The big boys are borrowing gold and using it as collateral to play the Japanese stock market.

Since the Japanese government has pledged to flood the market with yen, the stock market is shooting for the moon.

Meanwhile all the gold dumping is driving the price of gold down.

If you take the chart of the Nikkei (stock market) and flip it over, it lays right on top of the gold chart.

In other words they are driving gold down and the stocks up, and profiting on both trades.

Because they are short gold and long the stocks.' [End from ZH commenter]

This probably explains my problems with those supposed GURU’s which state they have an insider or Voice giving them the deep dark secret details on the gold market.  Why didn’t they know this?  Instead we find out from someone that’s doing hard analysis and figured this out on their own.  In my view it just shows that many of these supposed GURU’s are just B.S. artists because if they really had an insider or voice that knew what was going on they would had blown this whistle on this a year or two ago.  Case closed!  The flip side is now the gig’s blown and everyone knows about it you can bet your sweet behind they will need to change the game and change it quickly.  BTW: Isn’t Japan the 2nd largest T-Bill holder in the world?" 

Like I said, FWIW...you guys who actually read/digested the article will have a better understanding of whether this is a fair summary and analysis of the article than I.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
FT-GLD

I can't help but to get a kick out of your post Michael... as an analytical chemist (think FT-IR, FT-NMR, etc.) and engineer I fully understand the data transformations you are proposing... but it just strike's me as ironic that one would ever need to apply such complication to the Gold market.  My main criticism of the POV of bloggers like Bron Suchecki is that he basks in his understanding of the financialized Gold markets... to the point where he rubs it in your face;  It's complicated and you wouldn't understand it.  

This is the same modus operandi that the elites use on so many fronts relating to money... calling money printing, "quantitative easing", etc.  And while financialized or paper Gold is complicated... it is purposefully so, and the purpose is, in the end, to obscure from view the true and simple supply vs. demand dynamics, while allowing for price to be manipulated.  No signals for the sheeple.  Sheeple yawn and stop reading when the words quantitative easing, or Fourier transform appear in any event and turn ESPN back on.  

And yet, for money, the opposite is really true;

http://en.wikiquote.org/wiki/Banking

  • The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.
  • The process by which banks create money is so simple that the mind is repelled.

Now that GOFO has receded on queue (it's only right that it did since Dave was somewhat conciliatory to me regarding it's predictive value  frown) we should acknowledge that the publication of GOFO will actually cease in January, as pesky data series often do (think M-3 money supply, ended March 2006).  Nonetheless, the Global run on physical Gold continues... here is what one of my favorite new bloggers had to say reflecting on the most recent bout of backwardation;

So all things being equal the modern day banker should much rather borrow US dollars than gold.  The fact that demand for borrowing gold presently exceeds the demand for borrowing US dollars (GLR > LIBOR) means there is some other reason to borrow spot gold which can only be called a convenience yield (i.e. some motivation (fear) to hold, finance and store gold now, rather than rely on a claim for future delivery). In oil that can make sense if a supply disruption is feared (geopolitical unrest) because your future delivery may never arrive and you have on-going needs to use your oil, but with gold future delivery should never be in question UNLESS you start to believe gold is going into hiding and won’t be for sale at any price in the future.  In other words a severe backwardation can mean that demand for fiat currency is plunging and gold is being re-monetised unofficially by large swathes of the global economy who are buying with the intention of never selling (sounds like the Swiss gold referendum which was quashed by orthodox central bankers).  We’re not there yet in the West, but the discussion is still worth having.

https://goldmarketmacro.wordpress.com/2014/12/04/gold-backwardation-is-n...

"Remonetised unofficially"..... There's some overcomplicated language that really strikes a cord with me.... I am indeed a serial (and unofficial) remonetiser!  Got Gold?    

       

    

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
yen crashing, Nikkei through the roof

Thanks for the link Pinecarr. This is the link to the chart of Nikkei (inverted)/gold.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014...

Interesting that the yen would diverge so sharply from gold when it did while the Nikkei maintained the correlation. Why did the yen pick that moment to collapse? Is that when Japan announced they are all in on QE? So many questions, so little time, such a poor memory.

Doug

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
kicks are fine, but what are we seeing?

I understand you may think such things are necessary, but it seems to me that if you really want to understand a market, you decompose it into identifiable structures, and then determine what is triggering those structures, and how they behave.

Then you look at what is left, and rinse and repeat.

By doing this, you can model the behavior, and forecast it.

Then, as unexpected events occur, you look at what caused them, and adjust your model accordingly.

You won't be able to model everything. But the more you know about a signal, the better you can extract energy from it.

As per a previous day's conversation, I am not interested in the short-term, daily fluctuations. I am more interested in seeing what develops long term. But to help filter those out, it might be helpfU to employ a ... um, for want of a better mathematical term... a (let me coin this phrase) 'filter'.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
Doug... analytical chemist

Doug, as an analytical chemist, do you think that you could develop a process to identify a particular battery type -- start with alkaline batteries, and develop a process to completely and safely recycle its components? And then move on to others (NiCad, NimH, mercury, SLA, Li-ion, LiFEPO4, etc)?

Or to do the same with lightbulbs?

Because I've often thought that we are massively throwing away precious metals, and contaminating our environment at the same time; and if one can develop a process to massively recycle /reclaim the most problematic stuff, then one should be able to work straight on to mining trash mountains.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
Doug... analytical chemist

Doug, as an analytical chemist, do you think that you could develop a process to identify a particular battery type -- start with alkaline batteries, and develop a process to completely and safely recycle its components? And then move on to others (NiCad, NimH, mercury, SLA, Li-ion, LiFEPO4, etc)?

Or to do the same with lightbulbs?

Because I've often thought that we are massively throwing away precious metals, and contaminating our environment at the same time; and if one can develop a process to massively recycle /reclaim the most problematic stuff, then one should be able to work straight on to mining trash mountains.

This could start with computer-aided sorting, and then go so far as various chemical and physical separation methods, right down to using arrays of scanning/tunneling microscopic manipulators to separate out and aggregate specific ions.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
Michael

You must have me confused with someone a lot smarter than me. Chemistry was my worst subject in HS and I never pursued it beyond that. But, you are right that a lot of metals are locked up in landfills and I have read that mining them is the subject of some research. There's a lot of silver in them thar discarded cell phones.
:)

Doug

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
Jim H, not Doug

I'm sorry, Doug, yes I did confuse you with Jim H, who said he's a analytical chemist.

And don't feel bad about doing badly in chemistry; it's incredibly difficult (and truth be known, dangerous in the lab).

phecksel's picture
phecksel
Status: Silver Member (Offline)
Joined: May 24 2010
Posts: 204
Ok, this is making my head

Ok, this is making my head hurt.

Fourier transform and data to wav back to data again?

It's either a free market and seldom able to predict consumer movement, or it's a manipulated market... neither one is easily predicted by fancy statistics :)

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
Free market AND predictable

Okay, the fourier transform and filter is nothing more or less than your stereo's dynamic balancer.

Make the high notes play loud (high pass), or the low notes (low pass) or the medium violin notes (band pass).

Do the same to stock graphs, except eliminate the 24-hour junk. Or look at it specifically.

That was what I was saying.

The reason is that I keep seeing credit based buys and sells that reverse themselves 24-hr later.

Just because the total market is entropic, doesn't mean that some parts aren't predictable.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
MR- A cheap way of taking the

MR-

A cheap way of taking the cyclical oscillations out of time series is a simple moving average.  For instance, if you have monthly data on the MTS (treasury statement), here's what it looks like as raw data.  You can kinda see the pattern here, but its a bit painful, and its particularly hard to spot changes in the trend.

Since the oscillations are regular (depending on tax receipts both quarterly and annually), year over year things should be the same.  It being a monthly series, I chose a 12 point MA.  See what that does:

Perhaps this approach helps.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
gofo

Jim-

I'm actually sad that GOFO didn't continue its plunge lower.  It would give me something interesting to watch and to talk about.

After reading your links, my sense is that GOFO is at a minimum a measure of "gold available for lease at the LBMA" - assuming the GOFO rates aren't being rigged as with LIBOR and certain other FOREX rates so banks can make money.  Could we say that very roughly when GOFO drops, there's more demand for leasing than supply?

I guess my conclusion is, some people want to buy gold, others want to lease it - and still others are content with buying a COMEX future.  A lease rate rising (GOFO dropping) doesn't suggest that buyers are more enthusiastic, or that supply of non-leased gold is getting short.  Only the premiums on physical gold sales indicate that.

Its still an interesting indicator.  Either central banks are leasing less gold, or more people want to lease gold, or there is less gold in the hands of people wiling to lease, or people who own gold are more reluctant to lease it out.

All that said - it is hard to tell what combination of these things is the reason for the move in the rate.

Denny Johnson's picture
Denny Johnson
Status: Gold Member (Offline)
Joined: Aug 13 2008
Posts: 348

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments