PM Daily Market Commentary - 2/10/2016

davefairtex
By davefairtex on Thu, Feb 11, 2016 - 3:36am

Gold rose +8.00 to 1197.40 on heavy volume, while silver climbed +0.05 to 15.30 on heavy volume too.  Gold was hit in Asia, dropping to 1181 where it found support and rallied right back, closing at the highs for the day.  Silver largely followed gold.

While gold initially looked as though it was heading into the decline I've been anticipating, the continued weakness of the US equity market, a new low in oil prices, and a failed rally in the buck all seemed to place a strong bid under PM in general and gold in particular.

Gold remains quite overbought right now, but in looking at the way prices are moving, as long as oil, the dollar, and the US equity market keeps falling, gold will continue moving higher, regardless of what numbers get printed on the various technical indicators.  I am pretty sure the commercials are loading up short here, but it isn't stopping gold from rising.  After market close in the west, gold has since blown through 1200 in Asia, and is currently trading at 1219.

Is this all the correction we're going to see for gold?  Wouldn't that be interesting, if true.  When the US equity market finally puts in a low, the price of gold will probably unwind quite a distance.  Of course its hard to know when that will happen.  US equities are not particularly oversold, so they could drop a ways before marking a low.

So what is going on with gold?  Clearly I am surprised gold didn't fall given how overextended it has become.  When something doesn't move according to what your model says, then your model needs to be re-examined.  Money is moving into gold in a big way.  Where might it be coming from?

After some research, I now trace the inception of the big move higher in gold (more or less) to the BOJ going negative - and the market's subsequent reaction to that event.

BOJ went negative at end of January.  When that happened, I assumed (as did everyone else) that the Yen would fall, and it did.  But then it almost immediately reversed and started to climb.  And it climbed, and climbed - and its still climbing.  In fact today it was up a huge +1.51%.  At the same time, the buck is falling, so is the NIKKEI, and so is the US equity market.  And 10 year JGBs have gone negative.  And gold is rising.  How does all that tie together?

Here is my guess: all the Japanese money sent into equities both domestically and overseas is coming back, and ending up in JGBs, of all places, as well as gold.  So the yen and JGBs and gold rises, while everything else tanks - its the "great sucking sound" of money in Japan going "risk off."  From a larger perspective, this looks like the market has just signaled the failure of Abenomics.  More importantly, this is also one of the first cracks in the belief in the power of central banking to fix problems.   BOJ wanted a weaker Yen, and a higher NIKKEI; it got a much stronger Yen, a falling NIKKEI, and a negative JGB rate.

I've always maintained that gold would rise when belief in central banking starts to crack.

http://www.ft.com/cms/s/0/e0cb1c50-cee5-11e5-831d-09f7778e7377.html

"The principal driver of negative JGB yields was the Bank of Japan’s deposit rate cut to -10bp, and the market now expects additional cuts during this year starting from as soon as the next Bank of Japan meeting,” he said. “This has contributed to a sell-off in banking stocks and a renewed flight to safety into government bonds.”

For Japan’s government, the appreciating yen looms as an uncomfortable development. A weak currency is one of the major hallmarks of Prime Minister Shinzo Abe’s economic revival plan, dubbed Abenomics. Investors now suspect Japan Inc’s assumptions of an average rate of Y117.5 against the dollar during 2016 could leave companies missing profit forecasts and force the BoJ and government into fresh action — if more is possible. “If a 20 basis points cut won’t stop the yen rising, what can the Japanese authorities do? That is the question the market is asking,” said Shusuke Yamada at Bank of America. Investors, especially foreign funds that poured into the Japanese stock market during 2013, are increasingly taking the view that the magic of the “Abenomics” growth programme has worn off.

I think its worse than that.  The 20 basis point cut led directly to a big rise in the Yen.  You can see this in the chart below.  Traders literally panicked out of risk assets, and ran to hide in JGBs, and for the first time in years - traders ran to hide in gold too.  Will another 20 basis point cut cause the Yen to rise further?  It just might.  And what might it do to gold?  Will the BOJ give up the negative rate campaign, or will they double down?

Silver isn't really where the story is these day.  Silver sold off along with gold, but found support on its 200 MA, and rallied back to mildly positive after gold moved back into the green.  I think silver is doing well to stay afloat amid falling oil and commodity prices.  Safe haven moves are gold's business, not silver's.

The miners encountered some relatively heavy selling in the morning, but found support on the 9 EMA.  Once gold started to rally back, the miners followed along; GDX rose +2.33% on heavy volume, while GDXJ climbed +1.42% on moderate volume.  As with gold, this might be the extent of the miner correction, if capital flows keep on the way they are going right now.

Platinum rose +0.10%, palladium climbed +1.15%, and copper continued falling, losing -1.13%.  This sketches out the relationship between PM and industrial metals - copper now is back in a downtrend.

The buck attempted to rally today but failed, dropping -0.16 to 95.94.  While the net change on the day wasn't particularly substantial, the buck did hit a high of 96.77; the fall from the highs was fairly large, and this paralleled gold's drop to 1181 and its subsequent rally back to 1197.

SPX tried to rally today along with the buck, but it too failed - along with the buck, and oil.  SPX fell just -0.35 to 1851.86, but it was up as much as 30 points earlier in the day.  Traders clearly didn't want to hold SPX overnight - much of the selling came in the last hour of trading.  VIX fell -0.25 to 26.29.

It is interesting.  The US is acting a bit like an oil exporter - with US equities and the dollar moving alongside oil prices.

JNK fell -0.16%, pushed lower by the drop in oil prices.  JNK is now bumping along its lows, still signaling risk off.

TLT continues to climb, rising +0.88% on the day, making a new high, signaling risk off even more strongly.  Rates across the yield curve have plummeted; the 20 year is now at 2.13%, 30 year at 2.53%, and the 10 year is at 1.71%.  While we are not currently in any danger of a "yield curve inversion" (where short rates are higher than long rates) - which historically signals recessions - that's only because short rates are also very low.

CRB fell just -0.11%, not much changed on the day.

WTIC fell again today, dropping -1.02 [-3.60%] to 27.33, making a new multi-decade low, breaking below the level set just four weeks ago.  The drop in oil came after a bullish-looking Petroleum Status report - the one that comes out at 10:30 Eastern - which showed a modest drop in oil inventories.  While the happy headline number initially caused a big spike higher in oil, traders found something bad under the covers - distillate demand was down substantially, which bodes ill for crude demand going forward.  After the initial spike higher, oil quickly lost its gains, and sold off for the rest of the day, closing at the dead lows, dragging the buck and US equities down also.

At this point I believe that gold's rally over the past two weeks is about declining confidence in central banking over in Japan.  That's a big deal.  What more can the BOJ do?   They've bought bonds (a LOT of bonds) and they've now gone negative, and the yen is rising, money is rushing into JGBs (!) and fleeing the Nikkei, exactly the opposite of what the BOJ's action was intended to create.  This, then is the power of the market revealed.  The BOJ has spent the most money of any central bank in the world (relative to GDP) trying to impose their will on the market.  Their tricks have - apparently - stopped working.

That's a big deal.

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34 Comments

HughK's picture
HughK
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Tech watch continued (XLK)

Thanks, Dave, for the recommendation to use the XLK ETF as a barometer of tech stocks instead of the NASDAQ.  The top ten holdings of XLK are here.

Yesterday, XLK rose by 0.21% and seems to have printed a shooting star, which I interpret as a bit bearish:

The fact that US stock futures for today are looking pretty bad also makes me think that tech will continue its fall today.

Dave and everyone, if this is not a shooting star candlestick or I've made some other mistake, please correct me! I realize that shooting stars should normally be found after a more sustained uptrend, but it was my best guess.

Cheers,

Hugh

davefairtex's picture
davefairtex
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tech problems

Looking at the NQ futures contract, it appears that the last few days have just been a dead cat bounce.  I'm going to guess that the NDX will drive through its low today.  It appears that the selling isn't over yet.

Jim H's picture
Jim H
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Here's where it gets tough....

Gold is up $40 overnight.  Unprecedented in recent history.  If you are not fully invested already.. do you have the balls to buy more now?  Buy any now?  Buy miners now?  

Do you wait for a pullback?  Will there be a pullback?  Here's where it gets tough.      

lambertad's picture
lambertad
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I bought some miners and physical

I figured by the time I start hearing about gold on the MSM and how it's the trade of the year, well then I think that's all I need to say about that. I've been a buyer for years, and I still think gold, silver, the miners are at a discount from where they will be when people really start to figure this out. I guess I can always get screwed buying a big spike in price, and I have in the past, but I could also get screwed by not buying and letting it go to $1300 and then buying. 

I love Dave's analysis and I read it every morning and it's often the first thing I do when I wake up, so thanks for that Dave. With that said, I'm sure Dave has been wrong predicting pullbacks and moonshots and the best you can do is take the odds I guess - Dave says it's over bought and the RSI says it is, hence it's most likely overbought. That doesn't mean a whole bunch of other people aren't piling into the trade in a mad dash to get out of other assets. Stuff can stay overbought for a while before it gets oversold. 

With that said, this is probably me rationalizing ahead of time the hit I am going to take when this gold tear gets sold and I take a loss for a couple months. 

Best of luck in your decision. 

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dryam2000
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Boring Advice.....
Jim H wrote:

Gold is up $40 overnight.  Unprecedented in recent history.  If you are not fully invested already.. do you have the balls to buy more now?  Buy any now?  Buy miners now?  

Do you wait for a pullback?  Will there be a pullback?  Here's where it gets tough.      

Deploying capital is usually best done in a completely unemotional and logical fashion.  It's all about managing risks in a diversified way.  We would all like to think we can time the market at least to a small degree.  If you aren't one of the market insiders your chances of successfully timing the markets is slim to none.  I always recommend sticking to a long term plan of ongoing dollar cost averaging, ongoing diversification, and ongoing risk management.  My instincts tell me that any time there is a big move in prices either way, then things tend to regress towards the mean at least a little bit.

Having said all of that, when it comes to people's long term plans they should ask themselves if various markets closed off tomorrow because of some systemic issue whether it be 1/2 of California falling into the Pacific, a bank holiday, war, etc. are they currently positioned today to see things through?

Biggest thing.....don't make an emotional decision.

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Capt Debtcrash
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Looking forward to your Commentary Tonight

Interesting day, can't wait to see your thoughts tonight. 

 

lambertad's picture
lambertad
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Dollar Cost Averaging

DCA is a great way to invest, especially if you are investing as the money comes in, but what if you've got cash on hand, say $30,000, you are in no risk of losing your job and are otherwise well prepared for rough times. You can still use dollar cost averaging, but to me it makes more sense to invest more money at lower prices (in general) than it does to invest an equal amount of money each month as prices continue to rise (true DCA). You can still use your same schedule (15th of each month), but deploying more capital at lower prices seems like a better way to go. So if gold goes back down to 1100/oz, instead of investing say $1,000, you could buy $1,500 worth. If it goes back up to 1400/oz, then you buy $800 worth instead of your normal $1,000. 

I'm not sure if this makes sense, but it does to me. Anyone else use this strategy or am I missing something?

Jim H's picture
Jim H
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What I am doing

I had about 25% cash left in the IRA I use for PHYS/PSLV and miners.  Noting that this IRA is by no means the entirety of my exposure to PM's, I just upped my IRA exposure to a few miners and PHYS.. down to 20% cash.  After all these years holding on and continuing to average in, I am comfortable being close to fully invested in PM's.  Up $48.50 on Gold as I type.    

Franklopez's picture
Franklopez
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recent action

likewise, I eagerly await, read and appreciate The daily commentary.  Thank you Dave.

My two cents is that this move will surely reverse hard soon. The RSI (7) that Dave mentions is more overbought now with Gold at 1240 than at any time in the last 20yrs except for Dec 2009! And that was a monster bull market, not the downtrend we are in lately. The RSI has never come close to these levels in any previous bear market rally. Maybe the bear market is over you say? Personally I doubt any new bull market starts on action like this. This is an overdone fear based move and I'm betting it reverses soon.

However, after the next pullback should be an excellent entry point because something has changed in the psychology now. Now the mainstream will have witnessed the rally and taken note..

 

 

Jim H's picture
Jim H
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This really is the question..

As Frank says,

My two cents is that this move will surely reverse hard soon. The RSI (7) that Dave mentions is more overbought now with Gold at 1240 than at any time in the last 20yrs except for Dec 2009!

There is no fundamental reason why Gold should not keep going up.  That being said, TPTB still have the ability to affect price through the paper market mechanism.  I view what is happening right now as a controlled retreat of sorts..  one of the scenario's I have suggested does not relate to the charts or the RSI, but rather the idea that at some point in the near future, the FED is going to have to shift gears away from tightening back to some new form of accommodation.  When that happens, I would not be surprised to see a coordinated attack on the Gold price.  Such an attack, meant to suggest that the market has faith in the central bank and applauds their new moves, would be much more effective if it comes after a big move up.. what with the market being overbought and all  : )

I will be sitting tight.. and if the scenario I paint does come to pass... that's what the rest of the cash is left for.  Maybe then I go in with even more leverage (i.e. NUGT, JNUG) for the rest.      

davefairtex's picture
davefairtex
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having the guts

Do I have the guts to jump in when gold is extremely overbought?

No, I do not.

I'm not seeing any increase in big-bar premiums.  This isn't a "running out of gold" situation.  Its buyers at COMEX that have just decided they want to own a whole lot more (paper) gold.

Three cheers for the naked longs, buying paper gold on 95% margin!!

 

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sand_puppy
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Limitation of the RSI indicator
 
What is 'Relative Strength Index - RSI'

A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula:

RSI = 100 - 100/(1 + RS*)

*Where RS = Average of x days' up closes / Average of x days' down closes.

--------------------------------

So the RSI is a relative momentum indicator showing whether stock price is stampeding at the same rate and direction as other stock prices.

In the setting where the global situation is changing rapidly, this does NOT look like an indicator I would look to for guidance.

bubbagreen's picture
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Computer's opinion?

Dave, I very much value your excellent commentary on the markets.  Your commentary previously included notes stating that your computer was long oil or short SPX, etc.  I'd noticed that you had stopped mentioning your computer models.  I was curious as to whether you were still using some computer modeling.  Don't get me wrong, your "human" analytics is still what I value most.

Mark Cochrane's picture
Mark Cochrane
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For all of the rational discussion..

I think that the operating principle so far today is F-E-A-R

Jim H's picture
Jim H
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different lens

Dave writes from his perspective on planet Dave,

Do I have the guts to jump in when gold is extremely overbought?

No, I do not.

I'm not seeing any increase in big-bar premiums.  This isn't a "running out of gold" situation.  Its buyers at COMEX that have just decided they want to own a whole lot more (paper) gold.

Three cheers for the naked longs, buying paper gold on 95% margin!!

The fact is the bullion bankers have already run out of Gold.. they are running on fumes to keep the Western-based paper Ponzi alive.  Let's use the London non BOE vaulted Gold as a proxy for the current, "London Gold Pool".  Note that it has been running down at a fairly constant rate over the last three years, mostly likely because this is where the deficit, WW consumption vs mine supply, is coming from.  Note that the buffer completely runs out this year.  Barring some successful effort to get the savers of India to hand their physical Gold over to the banks for some kind of paper.. the buffer is gone.  

  LBMA-and-BoE-Holdings-AU-01.png

 

https://www.bullionstar.com/blogs/ronan-manly/central-bank-gold-at-the-b...

I do not view this the same as Dave.  What's happening today has to be, at least to some extent, the bullion banks being unwilling to create enough new paper Gold contracts to meet demand.. hence controlled retreat.  We will know better after we see the open interest numbers.. which I assume Dave will address after the data is in.  

Gold up $61 as I write... absolutely unprecedented.  Stuff is breaking.  I have no guts.. only the strength of will that goes with the knowledge that we live in a world of obfuscation, where Gold is leased, derivatized, and otherwise fractionally reserved to a degree that is unprecedented.  What's happening today is not the crazed action of a bunch of paper longs... it is either the inability of TPTB to hold the price where it was anymore based on their insider view of physical demand, OR it's the setup for the FED to reverse course, IMO     

Jim H's picture
Jim H
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Kitco just broke...

when all else fails,  pull the plug...

HughK's picture
HughK
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Core savings v. calculated gambles

Many of us have some important percentage of our core of savings in an elementally stable form.

And, some of us also have some money that we might call lottery ticket money, meaning that we gamble (err, I mean invest) it in hopes of outsized gains, in a way that is at least a little bit more prudent than actually buying lottery tickets.

For those doing the latter, now the question is, when is the best entry point for the next conversion of cash to another lottery ticket?  My gut tells me to go for it now, but my gut likes to take a lot of random walks, some of which have turned into random swims underwater.

So, I'll wait until there's a good technical entry point for my next lottery ticket.  Until then, the core savings aren't going anywhere.

davefairtex's picture
davefairtex
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how I use RSI

Eh, so SP, if we assume all markets have cycles, both short term and longer term, RSI can be a handy indicator for helping to understand if we're closer to the top of a cycle, or closer to the bottom.

If markets do not have cycles, then RSI is most definitely useless.

Definitely, there is something really interesting going on.  Bank issues, negative interest rates, plus oil price drops, and at least at the start, short covering, and a cross of the 200 MA in style.

What's not to like?

Franklopez's picture
Franklopez
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probabilities

Of course RSI is only one thing to look at. But this price action is fairly rare, Every pop in the last few years gets our hopes up and then smashes them in the following few months. I've just seen it too many times, the shorts pile on again and they must be salivating at the chance once this run starts to fade. Its virtually straight line parabolic now on a monthly chart @ $1257! What goes up....

 

davefairtex's picture
davefairtex
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fear

Mark-

I agree 100%.  This current gold up-cycle is about fear.  We all felt it back in 2008.  Fear, then hope because of someone in authority is doing "something", and then fear once again because that "something" ended up not working.

And who knows, there probably is some official intervention during the more sensitive times.  If I were in charge of ESF/PPT, that's what I'd save my dry powder for.  Not random daily "I hope I can push the market higher" moves by buying futures, but intervening when it counts - when their computer tells them they have a relatively high percentage chance of the intervention working based on 25 years of institutional intervention experience.

Any bets we get some interesting official activity this weekend?  I wouldn't have an unhedged long GC contract over the weekend.  Not when price is this extended.

Goldbugs will blame official intervention, but its a cinch that most of the formerly-sidelined gold buyers have almost all committed their cash by now...and that really would be a good time to unload short...you can call it "managed retreat", or you can call it "commercials going short at the top of the cycle."  The result is the same.

davefairtex's picture
davefairtex
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my computer

Bubba-

So my computer turned out to have some limitations; that is, its opinion about turning points is only really valid at end of week because of this weekly RSI indicator I used in conjunction with a daily chart during training.  Long story short: at end of week it can be trusted, but for turning points mid-week, it sometimes tells lies, so I'm now a bit cautious as to when I refer to what it says.

So with that in mind, as of right now, computer is still long gold, and it has been this way since Jan 29.  I trust it a bit less for the miners (based on the fact it didn't learn all that well how the miners behave), but it is still long miners too - although it did start to get iffy after the swing high.

Short oil, short equities, long treasuries, short USD.  All kind of what you'd expect.

Franklopez's picture
Franklopez
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last post

Last point, the main positive to take from this episode is that however far the pullback goes when it comes, the dip will be bought this time. Theres just no way the mainstream can stick to their "gold will fall in rate hike cycles" narrative anymore. The proof is in the books now... when the going gets tough, they are flocking to Gold. Like I said, this rally is a turning point in the psychology towards gold. Be ready with your dry powder when the pullback comes, I hope its a new era from there!

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Jim H
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Official intervention

Dave said,

Goldbugs will blame official intervention, but its a cinch that most of the formerly-sidelined gold buyers have almost all committed their cash by now...and that really would be a good time to unload short...you can call it "managed retreat", or you can call it "commercials going short at the top of the cycle."  The result is the same.

Years of official intervention has gotten us to where we are today... a market where the current price is much lower than it would otherwise be were it to balance the physical supply vs demand.  Certainly there will be cycles within the overall trend... but the last few years have been characterized by hyperactive paper intervention in order to create the (false) impression that paper fiat is good money, and Gold is not.  That era is in the process of ending.  There will be ups and downs.... but today is punctuated equilibrium if you ask me.  This is exactly the kind of move that will leave the most participants behind.....      

Jim H's picture
Jim H
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More on those paper Gold Comex buyers....

They are trying to play catch up with the physical buyers...  PHYSICAL will eventually become the dog again.. and Comex will revert to being the tail. 
 

http://www.zerohedge.com/news/2016-02-11/lines-around-block-buy-gold-lon...

BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.

Rob Halliday-Stein, founder and managing director of the Birmingham-based company, said takings today had already surpassed the firm’s previous one-day record of £4.4m in October 2014.

BullionByPost, which takes orders of up to £25,000 on the website but takes higher amounts over the phone, explained it had received a few hundred orders overnight and frantic numbers of phone calls this morning.

“The bullion market has been building with interest since the end of last year but this morning things have gone bananas,” said Mr Halliday-Stein. “Some London banks are placing unusually large orders for physical gold.”

London-based ATS Bullion added it had been inundated with orders for the past week. The firm has sold 4,000 gold bars and coins since February 1, a 40pc rise on the same period a year ago when it sold 1,500.

“It’s been crazy – it’s been the best week since 2012. We’ve had people queuing round the block,” said Michael Cooper of ATS Bullion, a family run firm that trades online and also from an outlet in the West End.

Jim H's picture
Jim H
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1.60% on the 10 year... oh my...

So much for the FED tightening.....

davefairtex's picture
davefairtex
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why gold now vs gold in 2008

Here's a thought.  Gold could be behaving differently now vs 2008 because traders (and people) really don't like the idea of jumping into bonds that yield so very little.  A 10 year bond that yields nothing, vs gold that yields nothing - seems like gold is the hands-down winner in that contest.

Back then, we had 3 month treasury bills yielding 5%.  (Anyone remember that?)  Now, they yield 0.2%.  And those bonds in Europe all have negative yields.

And negative bank rates make things look just that much worse.

In short, for a "flight to safety" in such a situation, gold looks pretty good compared to the alternatives.

And the more negative the rates go, the better gold will look.

And if cash is taxed, the better gold will look.

Interesting.

I'm pretty much convinced that the BOJ going negative kick-started this whole thing.

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davefairtex
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ex cathedra

Jim-

They are trying to play catch up with the physical buyers...  PHYSICAL will eventually become the dog again.. and Comex will revert to being the tail.

Or maybe not.  You can't know what the future will hold, any more than I can.

Goldbugs have this habit of making definitive pronouncements about the future as though they were the Pope speaking Ex Cathedra.  It just smacks of hubris to imagine you know how things will turn out.

I'm guessing you pick it up from the guys you read.  A fair number of them talk that way.

Maybe that's what happens when you're wrong about the trend for 4 years running.

 

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AaronMcKeon
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Feeling Slightly Reassured

I was quickly approaching my total desired allocation in gold so I recently decided to take a break from my weekly purchases because I felt like we were heading into a short-term top, but I have to tell you - with Chris issuing alerts and everything else I'm reading about possibly imminent bank failures in Europe I am so tempted to buy more.  Hearing Dave's commentary makes me feel a bit more secure in my thinking but when I look today and see it another 4% up I start getting nervous again.

Maybe I'm just rambling.  My trigger finger is getting itchy.

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M-ole
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Maybe nearing a pullback in gold?

Jesse at http://jessescrossroadscafe.blogspot.com/ seemed to indicate in today's post that $1270 might be a good target for gold in the short term.

I've been watching the webinars at stockcharts.com recently and saw the one from yesterday from Erin Heim which seemed to indicate $1300 to be a good point to take some profits (hope I am remembering correctly).

Anyway, buy and hold in gold hasn't worked well for me in the past for gold (and miners), so I am probably going to take some profits in the near term and wait for a pullback in a couple of months to jump back in (actually, probably will start buying DUST and JDST to hedge my investments in gold/silver miners after this run-up).

Anyway, I recommend the webinars at stockcharts.com (take a look at the recent one featuring Tom McClellan, in particular, which I thought was quite informative).

I've also found the videos posted by IGold Advisor to be very helpful (as the visual approach helps me to see the points being made regarding the gold (and miners) markets. Here are some links -

https://www.youtube.com/channel/UCjG_4Kg7ZWWs8o7EnfnDc9Q

For those interested in mining stocks, check out the new IGold Power channel that is now just starting -

https://www.youtube.com/channel/UCQEFYtJrRKo4bnqzgZRlnFA

Hope that helps. :)

M-ole's picture
M-ole
Status: Member (Offline)
Joined: Sep 10 2009
Posts: 15
I should add that recent

I should add that recent articles posted in zerohedge, along with the preponderance of market guru emails that have appeared in my inbox recently, all seem to suggest that a true global market meltdown is in progress...

So, what does that mean for gold? (or, perhaps more importantly, for your inverse ETFs that you purchased to hedge against this possibility? [I don't do options]) ...

Gold may be going to $5000 (as per Rob McEwen and others, see http://investingnews.com/daily/resource-investing/precious-metals-investing/gold-investing/rob-mcewen-mining-gold-price/) or perhaps even higher.

So, I think I'll wait to see how things go tomorrow, or maybe even next week, before making any rash decisions ... 

My ultimate goal being to join Daffy Duck some day -

Or even Bugs ... at Pismo Beach -

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Curves

Ignoring the Y axis the shape of spot gold and spot silver on Kitco  look the same. 

I would say that silver is looking like a monetary metal to the market, not an industrial  one. 

That's no insight. 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Dave's pulpit

Well Dave.. who really has a pulpit here at PP.com?   It ain't me.  A small following.. maybe.. but not a pulpit. 

That being said I do think it is important to air our differences.  I have been wrong many times over the past years in my prognostications, but in retrospect it has always been due to my underestimating the lengths that TPTB will go to in order to maintain the potemkin village ponzi markets. 

I have been trying to use more data recently.. to help folks understand the nature of the physical flows, and how they relate to the Comex.  I attached the London data from an older (Sept. 2015) Bullionstar blog post earlier in this thread... and wouldn't you know it, one of the commentators from Planet Jim, Koos Jansen, has just posted a new expose on the nature of the physical Gold flows out of London --> China.  Koos shows pretty clearly how London has supplied Chinese demand in service to the paper Comex market smashing, which ramped up in 2013.  

https://www.bullionstar.com/blogs/koos-jansen/london-was-bleeding-184t-o...

I find this chart just stunning.  See how London built up Gold, then released into the 2013 paper smash.  

UK-Gold-Trade-vs-SGE-Withdrawals.png

  Here is Koo's conclusion.  Again, note that we can equate the old, failed London Gold Pool to what Koos now calls the, "London Bullion market floating supply";

How much gold is left in London? We can make a rough estimate, although we don’t know how much of this residual is in weak or strong hands. Research by Ronan Manly from BullionStar and Nick Laird from Sharelynx pointed out there were roughly 6,256 tonnes of gold in London in June 2015. However, of this total at least 3,779 tonnes is monetary gold owned by central banks around the world stored at the Bank Of England (BOE), which is not for sale. The remaining 2,477 tonnes in non-monetary gold was potentially for sale (note, this number included 1,116 tonnes that was allocated as ETF gold in London at the time). In any case, we know now that from June until December the UK net exported 390 tonnes of non-monetary gold, which leaves approximately 2,087 tonnes in non-monetary gold in the UK as of 31 December 2015. Assuming the People’s Bank Of China hasn’t purchased some of this gold and covertly exported it to Beijing in the past months.

As long as London is selling gold and China is buying the price can go down. However, if London stops selling (or becomes a buyer) the price can make a reversal. Possibly, we’re reaching the end of the London Bullion Market floating supply suggesting the price of gold is escalating on physical shortages.

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

Jim-

My Ex Cathedra comment was entirely about style, not about substance.  I enjoy your substance and your data.  The style that suggests infallibility - "this future event will happen - guaranteed" - that was my only beef.  It feels like you are trying to "will" that future into existence, along with the rest of the goldbug community, by making these absolute statements.  I try hard to just see how events are unfolding.  I try my best to let the future take care of itself.

This latest post I very much like, although I'd like to see stocks as well as flows.  200 tons per month is a fair amount, but how much is left?  I don't have a sense given that chart.  Goldbugs are big on flows, but they sometimes focus less on stocks.  (As in, COMEX daily volume vs COMEX open interest).  It tends to make me suspicious.  Often when I dig down, I realize they don't include the stocks numbers because that makes things look a lot less impressive, and that would trigger less fear in the potential buying community.

Koos is not yours alone, I claim him too.  He's a goldbug-with-data who always tries to put things in context.  I have found him to possess real intellectual honesty, which I very much admire.

It is kind of funny how this whole thing works.  I have always maintained that when shortages start to appear, price will adjust rather than the COMEX defaulting.  Now here you are, saying exactly the same thing - prices are adjusting due to possible shortages.

Note: the article doesn't describe actual shortages.  Rather, it talks about less gold floating around London. Still, if true, I could believe that would drive higher prices.

If/when the China debt thing explodes and USD/CNY plummets, gold will become a lot more expensive for them.  It will be interesting to see if they increase, or decrease their gold purchases.

Just FYI: GLD rose by 14 tons on today's big move higher.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
nice graph, Jim

Jim, correct me if I'm wrong, but if your graph is correctly interpreted by your statement, then additional implications of your graph would include:

A July-Dec 2014 resmash, and a resmash that began four months ago and is either ongoing, or done.

The evil part of me hopes that it is ongoing, and the price rises just mean that they have lost all control (and are taking mounting losses). But realistically, I would think that the price rise indicates that the minismash is done.

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