PM Daily Market Commentary - 7/2/2015

davefairtex
By davefairtex on Fri, Jul 3, 2015 - 1:40am

Gold fell -2.60 to 1165.20 on moderately heavy volume, and silver rose +0.13 to 15.65 on moderately light volume.  Gold sold off steadily starting in Asia and London, only to rally sharply immediately following the Nonfarm Payrolls report at 0830 EDT, which came in unexpectedly soft, pushing gold back up to almost even and printing a hammer candle.  Silver looked stronger - moving sideways during London and rallied along with gold following Nonfarm Payrolls.

Gold made a new low today, hitting 1155.80 before managing to recover.  Absent the rally from the Nonfarm Payrolls report, gold would have looked quite ugly today - test of 1140 would have been virtually guaranteed.

Silver started looking a bit better today, trading mostly sideways at the same time that gold sold off.  Silver then shot higher following Nonfarm Payrolls, but was unable to hang on to all of its gains.  Still, it avoided making new lows, and the gold/silver ratio actually fell -0.79 to 74.45, which is positive.  Silver needs a close above 15.85 to put in a swing low.

Mining shares rallied strongly today, happily confounding my expectations for further selling.  GDX rose +2.03% on moderate volume, while GDXJ climbed +2.76% on moderate volume too.  Neither ETF was able to recover the loss from yesterday's selloff, but the reasonably strong bounce-back is definitely a positive sign, especially given that gold actually closed down on the day.  If miners start outperforming gold again, that's a positive sign for PM.  However, it is only one day.  Step #1: swing low.  Step #2: cross 9 EMA.  We are still waiting for step #1.

The dollar fell today, dropping -0.22 to 96.29.   I blame the Nonfarm Payrolls report for the drop in the buck, since there was a -0.60 down spike right around 08:30 EDT.  Market could be projecting a reduced likelihood of a rate rise if payroll numbers are weaker.  Likely, the falling dollar helped gold recover.

SPX (US equities) tried to rally today and failed, dropping -0.64 to 2076.78 printing a doji on the day.  A relatively bearish Factory Orders report at 10:00 EDT helped push prices lower; it was a sign that manufacturing will continue to be weak in the near future.  VIX rose +0.77 to 16.79.  Today was the last time traders could buy puts prior to the resolution of the Greek referendum because of the 4th of July holiday weekend.  Today was also a potential short entry point; a doji is not a particularly bullish candle to see after a weak two-day rally following a huge sell-off.  I could easily see the fallout from the Greek referendum causing further selling in equities.

Bond ETF TLT rose +0.33%.  Bonds chart still looks weak.

The CRB (commodity index) rose +0.22%, trying to rally but largely failing.  Over the medium term, commodities continue moving sideways, the strong supply-related ag performance offset by weak energy, flat base metals, and relatively weak PM.

Platinum and palladium have both managed to pop above their respective 9 EMA lines in the past few days.  Both metals are looking stronger than gold.

WTIC (west texas crude) tried to rally and failed, losing -0.37 to 56.50 and printing an inverted hammer candle on the day.  Oil made a new low on the day, and traders now appear to be selling rallies.

Some PM components are starting to look a little better: silver, palladium, and platinum.  Miners put in a good day, but gold remains weak.  For quite a while now we have been waiting for a catalyst that causes the COMEX gold buyers to appear.  So far - still waiting.

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20 Comments

davefairtex's picture
davefairtex
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more selling in Shanghai

After attempting to rally today, SSEC continued selling off and is now down about 4% making yet another new low today.  That's a 28% drop off the highs.

My guess is, a large number of margin loans are being unwound.

What was the government thinking by encouraging a stock market bubble?  Perhaps a bunch of insiders in government - and their friends and family - were looking to sell shares they owned at a big mark-up.  Everyone loves a bubble.  Until it pops, of course.

Popping bubbles are deflationary.  Margin loan money vanishes from the money supply, and everyone's balance sheet shrinks because of falling stock prices.

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Trun87114
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Floor for silver?

I'm no TA expert, but it sure looks to me like silver has developed a fairly hard floor at about 15.55.  I'm on my iPad and can't paste a pic but check out this one year chart:

https://www.bullionvault.com/silver-price-chart.do

 

 

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thc0655
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Oh no!

Oh no! Not a floor in silver (or gold either).  I have been accumulating "dry powder" for gold and silver waiting for the stock market collapse to drag gold/silver down temporarily as happened in 2008. $10 or $12 for silver would be OK with me.

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Time2help
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Re: Oh no!

Perhaps you should take a look at this primer Tom...

davefairtex's picture
davefairtex
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silver floors

Whenever you want to see the big picture, pull back to the monthly chart and it will be hard to miss.

In the case of silver, its not what you want to hear.  The "floor" you see at around 15 has only been there for the past 8 months.  Before that, the floor was around 18 and that floor lasted about a year.  Before that, the floor was about 26, and that floor lasted about two years.

How long will the current floor last?  Will silver also break through it?  It certainly could.  While I believe the market should turn in the near future in silver, it might break below 15 before it does this.  Then again, it might not.  Unlike the banksters we don't have the inside scoop so we have to wait for the market to tell us.

If this stuff were easy, we'd all be rich on our very own islands somewhere.  :-)

I want to see that long downtrend line broken to the upside before I start to imagine that "the low for silver is in."

Jbarney's picture
Jbarney
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People are buying

So I was finally able to get down to my local coin shop.  With the garden and summer and all it is hard to get away....well I wasn't in for long, and I don't know the guy behind the counter personally, but he told me that people are buying.  He didn't give any real indication that more people have STARTED to buy....but up here in Vermont, we are a pretty small part of the market.

Anyway....there is interest. 

I don't care if it stays at 15 for another half a year....goes down to twelve...or ascends up into the 20s....I am buying when I can....

I think it is going to be worth MUCH more in the future.

 

Jason

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Nate
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People ARE buying
Jbarney wrote:

So I was finally able to get down to my local coin shop. 

Today I visited my local coin shop (California).  This week was the best week ($ wise) that the dealer has ever had.  He said it has been non-stop people in the shop, and business is so good he will be open tomorrow on the fourth. 

He indicated the ratio between gold and silver sales is 2/3 gold and 1/3 silver (on a dollar basis).  FWIW, most of the buyers are not familiar with junk silver, indicating to me they are new to the PM world.

Nate

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Arthur Robey
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An incomplete thought.

I was going to say that lack of readies in the middle class is depressing the price of silver, by Nate has modified that thought to " The silver market must be small indeed that so little excess cash can make the market seem active. "

Perhaps gold and silver are just a back eddy in the mighty torrent of liquidity.

I'll let that thought sit there for a while. I'm sure that it is not complete.

davefairtex's picture
davefairtex
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people are buying

JBarney, Nate-

Thanks for the local coin shop reports.  Silver definitely is a whole lot cheaper than it was, that's for sure, and its nice to hear people are taking advantage of the move.  And if we assume solar will continue to be built out, there will be an ongoing demand for more silver.  I think you are right, in 10 years from now, it will most likely be worth a lot more than $15.  If/when we get a reflation, it could be in the hundreds.

My post was only to say that if people imagine "the bottom is in" and "there is a floor" under the current price, its just not true.  It could easily drop further, and according to trend, it is more likely than not that it will.  Trends in place tend to remain in place, and prices tend to follow the prevailing trend often for longer than people expect.

Look at bitcoin.  A few years ago Bitcoin "was cheap at $1100" and now its four times cheaper at $250, bouncing around in a range of $200-$250.  Things can drop farther than you expect, and there is no absolute price floor under anything - including cost of mining, etc.  Mentally, just be prepared for that, and don't get bent out of shape if price drops below "the floor."  Because it just might, especially if we have a deflationary accident and/or a massive dollar rally - the one Tom is waiting for with bated breath!

I really do think silver will rally in the near future based on the COT report, but even saying that, I'm not trying to suggest "the bottom is in."  That deflationary accident/USD rally has me cautious.

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Jbarney
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Dave....

Hi Dave,

No problem....you didn't need to clarify, although it might have helped for someone just getting into the market.  I think getting in at the bottom would just be a matter of luck anyway.  However, the technical bottom, from my perspective....we are close enough.  Silver is down from $49 in 2011 to $15.50 now.  Big money is starting to get back in.....

I think I share some of CM's weird fascination that so many people still have faith in things paper at this point.  I love it during a podcast when he states that if he is in a party with a 100 people maybe 1 of them has some physical silver at home.  It is a small market and I have to imagine that people are looking at the high four years ago.....thinking low is getting close....close enough for me anyway.

I just wish I had more cash to put into it right now.  When it does start to move up....I'll wish I had a lot more cash available at $15.

 

Happy 4th of July everyone.

 

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theordore
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Is the pattern of trading prices in PM paper misleading us?

     Please allow me to go back to a key question concerning last week's trading, on Monday at least.  Price gaps in various sectors told you that the stock market was reacting to the developments in Greece; but in gold and silver all we had was a nice bounce on Sunday.  In theory PM is where you go to buy stuff when fear rises concerning the functioning of the financial system. What explains the "silence" of gold and silver on Monday, to say nothing of all week?
     I read a long and fairly learned article on this very question today.  The  author proclaims that his analysis of "primary data" indicates that the derivatives market in PM has  been effectively cornered by a handful of big traders.  They are in effect the ringmasters behind the price movements that we see, he claims.
     Being a Compleat Idiot in the PM business and the associated markets, I dare not offer any comment as to whether this analysis is right or wrong; but I will say that if it is right, we may be fooling ourselves in thinking that traditional technical analysis lessons and principles will help us much to understand what is happening in the PM price patterns that we see.   
     This remark applies to trading PM paper, however, and not to acquiring the hard metal.  In addition to the stories reported above concerning brisk buying of silver, I have read that some dealers in the hard metal in the gold market are having trouble getting access to supplies.  
     Perhaps the key lesson in all of this is the following:  there is indeed serious investor concern about what is unfolding in Europe; but don't look for supporting evidence in the trading of PM paper.

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davefairtex
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paper vs physical debate

theo-

In theory PM is where you go to buy stuff when fear rises concerning the functioning of the financial system. What explains the "silence" of gold and silver on Monday, to say nothing of all week?

So here's the thing.  Let's imagine there are a handful of big bank traders out there whose goal it is to corner the market in gold.  They can push prices in the "paper market" to wherever they want them to be.

Now if physical buyers really believe that gold is a refuge, and the big bad paper boys push prices lower, then the physical buyers will get to buy their gold for that new low price.  Pretty soon, nobody will want to sell any actual metal for that low price, and premiums will start to appear.  Price will diverge - physical will become more expensive than paper.

That's not happening.  China has a $8 premium right now, but back during the gold smash of 2013, that premium went as high as $40.

There is still a sufficient supply of physical gold out there at the current paper market price.  We can't know who is providing it - it might be central banks emptying their faults - but at least at present, premiums don't indicate any sort of shortage.

I do believe that the big banks yank prices around in the short term in order to harvest money from the market.  The evidence supports this claim, at least in my eyes anyway.  Do the big banks operate an infinitely powerful price suppression mechanism that will work in every circumstance?  No.  I don't believe that's true.

So getting back to your question: why the "silence" in gold?  Because nobody really cares that much.  Or rather, not enough people care.  Otherwise we'd be seeing premiums explode higher, as they did in 2013.

People in Greece see cash as a refuge - Euros, specifically.  They see a choice: Euro, or Drachma.  They pick Euros - paper Euros.  Gold is not required, since they view the Euro as safe (and far more useful) than gold.  After all, they can pay debts, rent, buy food, etc with Euros.  Even though Euros are arguably a worse bet (the Euro is down more than gold in recent years) they still pick Euros.

The silence of gold also suggests that the rest of the world assumes that the sky will not fall if Greece drops out of the zone.  This may not be true - but it appears that is what the market is saying.  Perhaps its just Greek Crisis Fatigue: the boy who cried wolf.

Again, if there was a vast horde of physical buyers out there cleaning out the shelves with the evil bankers suppressing price in the paper markets, we'd be seeing premiums explode and shortages develop.  We aren't seeing that.

Of course once we do see serious premiums develop (and by that I mean premiums on the big bars, not on the small coins), then that's the sign of the apocalypse!  COMEX default here we come!

Here at PP, I believe we're ahead of the curve.  Until we have bail-ins, capital controls, and paper currencies are no longer available as safe havens, physical gold won't be all that interesting to the market at large as a safe haven.  For the last 40 years, traders have been trained as follows: if you see a problem in Euros, buy Dollars.  Problem with Yen?  Buy the Aussie Dollar.  The free flow of capital worldwide for 40 years has trained everyone to behave in a certain way, and so they do.  Even with the existential threat to the Euro, traders are buying German paper assets rather than gold, because if there is a breakup, they assume they'll end up with the DMK which will be a strong currency.  There is an implicit assumption that capital will still be able to move around.

Once the flow of capital becomes substantially less free - and by that I mean in places other than Cyprus - then physical gold will once again become much more interesting.  But we aren't there.  Capital can still move freely around the world.  Until that changes, we will remain ahead of the curve.

That's the "safe haven" component of gold.  The "inflation hedge" component to gold is still active, but given our current deflationary pressures, that helps explain gold's 4 year downtrend.

drbost's picture
drbost
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Is Citigroup the PM manipulator?

A question from an uninformed member of this group...A just-posted analysis of recent data on Zerohedge points out that Citigroup's PM derivatives holdings increased from $3.9 billion to $53 billion this last quarter (http://www.zerohedge.com/news/2015-07-04/why-did-citigroups-precious-met...).  Does this information indicate that Citigroup is responsible for manipulation of PM prices?

theordore's picture
theordore
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Paper vs physical

You've provided some wonderful context Dave, with a big investment of your time.  This is greatly appreciated and I will in due course provide another little piece of meaningful support to PP.

One precious implication of your info is that from your service we will be able to know when premiums begin to 'move and shake'  to a degree that suggests something serious is underway within the PM markets.  So, thanks again.

And also, thanks to the BIg Boys for allowing us Little Sheeple to still buy junk silver at prices we can afford!

 

 

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Jim H
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Junk Silver Availability

Theordore,  I use the Texas Precious Metals inventory (in stock vs out of stock) view as a real time indicator of stress in the Silver supply system.  In the last week they ran out of their proprietary rounds (for the first time since Nov. 2014), but then were able to restock.  They have been out of Austrian Philharmonics, which tend to be the lowest premium gov't minted coin.  My main point though is that they are completely out of all forms of 90% "junk" Silver.  Texas is a good company to deal with as they only will sell you what they have in stock and can ship almost immediately.  My next door neighbor just received a 100 oz. Canadian mint bar from them... felt good in my hands (I have only coins... but that includes some 1Kg Perth Mint big boys : )  

  https://www.texmetals.com/products/silver-coins?p=2 

Another important tell that Dave posted above is this;

PSLV 6.14 +1.93% to NAV [up]

PSLV has languished at negative or near zero premium for much of the last few years... but now it's coming alive again.  Unlike the SLV or GLD, the Sprott funds are not engineered, "tracking funds" that will continuously (attempt to) track the price of the underlying.  If there are not enough sellers of shares, you will not be able to  get any unless you hit the bid.  PSLV has been known to sport a premium > 20%, so watch this space.  

My thesis is that Silver is near the breaking point in terms of underlying supply vs. demand, at today's (manipulated) low price.  I think that the market will break (more items "out of stock" and higher premiums) if either of two events happen;

1)  Another naked shorting price dip... if the price dips into the $14's.. Silver would fly off the shelves so fast that the opportunity to actually get even cheaper Silver will have passed.. the premiums will rise and the price will effectively go back up (regardless of what Comex says). 

2)  Increased Geo-politcal and Geo-monetary (aka Grexit) uncertainty.  My own anecdotal view is that more folks are waking up.. my neighbor has yet another 100 ounce bar on order, and a friend at work just received another Silver monster box last week.  More people are waking up to the simple fact that you get no interest on your money in a bank, yet you DO have risk... as evidenced by the lines of folks trying to get THEIR money out of Greek banks. 

           

 

davefairtex's picture
davefairtex
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PSLV premium

I saw that move too Jim, wondered what it meant.  PSLV took a dip during the time Sprott was campaigning to take out CEF; one possibility is that perhaps his bid has failed, and so now the premium is back.

In looking at PSLV:$SILVER, I see that it hit a low point in May, and has been steadily climbing since then.  It doesn't look like a buy-the-dip reaction, its just more of a steady rebound for the premium.

On a brisk drop down to $14, I agree, silver premiums would pop.  I make my usual suggestion: after such a drop, buy PSLV with the money you mentally have allocated to buy your silver.  Then, once the coin premium settles down, sell PSLV, take the cash, and go buy your actual silver that same day.  That way you lock in the $14 price w/o having to pay the premium.  Minus taxes, of course.

You could also do the same thing with (gasp) an SI futures contract.

If you did that, you'd be using futures as they were intended to be used by fundamental participants - to lock in a future price for something you plunk down (a percentage) of the money for today.  Even better, your counterparty would be one of those naked paper shorts that get all this bad press from the goldbug community!

Now how cool would that be?

davefairtex's picture
davefairtex
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Koos Jansen - "gold price doesn't move"

theo-

Koos Jansen asked much the same question you did.  He thinks its paper market rigging; his informal surveys suggest that physical demand is up, but as of right now there is no actual shortage of gold or silver.  If we assume that the shorts are keeping the pressure on - which is a reasonable enough assumption during this particular bout of turbulence - this will all work out great up and until the metal runs out and shortages start to appear.

I honestly don't think its quite time for PM just yet.  It still feels like "this is just Greece" rather than some indicator of Bad Things in the Offing For Us All.

Anyhow - on to Mr Jansen....

https://www.bullionstar.com/blogs/koos-jansen/global-financial-turmoil-gold-price-doesnt-move/

I’ve asked Torgny Persson, CEO of BullionStar.com in Singapore, and CEO of LibertySilver.se and LibertySilver.ee in Europe, about the recent sales dynamics at his bullion shops. This is what he told me:

- Precious metals demand in the last week leading up to the Greek referendum has been about 150 % higher than normal both in terms of order quantity and order volume. This is true for Bullionstar.com as well as for LibertySilver.se and Libertysilver.ee

- Based on my conversations with the western world’s leading refineries and precious metals wholesalers, they have experienced similar increases in the last week.

- There’s however no shortage of gold or silver at this point although bottlenecks in minting capacity may soon lead to prolonged delivery times if the demand is kept up.

theordore's picture
theordore
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Gold price doesn't move

Thanks Dave and Jim for all that precious insight, sitting here as a total Newbie in PMs.   I've noted your cautions about expecting much from PMs in the short run, and that's no issue for me.  The key is to have one's assets spread around in different places that 'authorities' cannot capture easily.

Also thanks to the link to a reliable source of the hard stuff.

 

hammer6166's picture
hammer6166
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Junk and other premiums

One nice feature of comparesilverprices.com is it tracks price and premiums for 1 day, 30 days, and 1 year. A few graphs from JM Bullion are shown below (I've bought from them before). JM Bullion appears to have junk for sale. APMEX appears to have run out but has mostly restocked (many "back in stock" notices).

For a $100 face value bag, the jump in premiums is noticeable:

 

For generic 1oz rounds, not much of a jump:

 

American Silver Eagles appeared to be unaffected:

 

theordore's picture
theordore
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Junk and other premiums

Thanks for this helpful info., Hammer.. .

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