PM Daily Market Commentary – 1/28/2014
Gold closed down -5.60 to 1250.80 on heavy volume, silver down -0.17 to 19.50 on moderate volume. Gold/silver ratio rose yet again, +0.28 to 64.13, a new cycle high for the GSR. Silver continues its under-performance, and is showing no signs of a putting in a bottom. Gold traded mostly sideways today, hitting its low point of 1248.20 right at the time of the London PM Fix (10:00 EST) flushing 4500 contracts worth of longs, and then rallying modestly into the close.
In a study I did of intraday trading activity, gold typically moves down in the 15 minutes prior to the London AM and PM fixes. The effect is very pronounced – it is consistently the worst time to buy gold of any period during the 24 hour trading day by a factor of 4. So if you see gold dip around 10 AM EST, its that London Gold Fix manipulation (really – I'm not sure what else I could call it) happening once again. Moves like this don't happen every day, but over the course of 7 years of trading data, it certainly happened often enough to be picked up by my study.
The USD rallied modestly today, +0.07 [+0.08%] to 80.64. It is slowly moving back up to its 50 MA.
GDX closed up +2.23% on moderate volume; GDXJ was up +2.74% on heavy volume. Mining shares followed gold lower at 10:00, and then rallied for the rest of the day closing at the high and significantly outperforming the metal. On a day with gold down to have GDX rallying with reasonable volume is definitely a bullish sign. Perhaps this is a sign that the distribution period in the miners will be brief. I suggested watching for the 50 MA to act as support, but mining shares didn't make it down that far – GDX didn't even make it as low as its 20 EMA. Maybe all we get is a two-day dip in the miners.
Then again, if gold drops dramatically, miners will most likely follow gold lower.
Tomorrow at 14:00 the Fed will release its FOMC meeting notes. Its a dice-roll to buy in advance of the meeting. That said, the current miner ratio indicators are bullish, with GDXJ:GDX improving slightly and GDX:$GOLD looking solidly bullish, and this suggests to me that dips should be bought. The only fly in the ointment is SPX, which appears to have found a bottom and will most likely rally tomorrow – a move up through SPX 1800 would confirm a (temporary) low is in place for SPX. In the recent past, "good for equities" has been "bad for miners and gold."
All of this could be up-ended by the FOMC, however, so watch the market at 14:00. A friend of mine suggests that the initial move following the minutes release is often a head-fake. Often prices of all sorts of things jump around like the EKG of a patient having a heart attack right after the release. This is the alleged "free market" at work. I am personally really tired of this happening every six weeks – I wish they'd just shut the Fed down – except for FRED, the Fed's data service, which I think is generally excellent.
I new to this sight and the group but interested in learning about precious medals particularly silver. I see that the current price is $19 an ounce but my question is where is the most reputable resource to by it from and what is the minimum amount required to make a purchase? Thank you in advance and I look forward to learning from everyone!
gold typically moves down in the 15 minutes prior to the London AM and PM fixes. The effect is very pronounced
Any thoughts as to why the preferred direction is down?
Any thoughts as to why the preferred direction is down?
I can make up stories as to why – but that would just be for entertainment, because I really don't know.
Presumably, that particular direction enables the bankers to make money somehow. 🙂 Anyone going through the effort to predictably distort the market on a daily basis has to be doing it for a reason. Now, I don't know enough about the mechanics of how they can skim from hammering the price before the fix, so I can't answer the question you really are asking – what is their mechanism for cashing in on this move.
And likely it wasn't every day. Just some days. I certainly don't notice it happening every day. Why some and not others? Perhaps it was done to enhance profitability of (unknown) derivative positions that were based on the value of the fix on certain days. But again, I'm just guessing at the mechanics of how. The why I'm pretty certain of.
Even on average, though, this behavior was egregious enough so that even in the face of the overall gold market rising during the period [1-1-2007 through 1-28-2014, $639 to $1255], if you'd bought 15 minutes before the fix, and sold at the moment of the fix, you'd have lost $407 over the course of the entire gold bull market. Still – that's 1825 trading days, so you'd get poor at about 23 cents per day. Tough to make money shorting gold during that time period with a 10 cent spread on both ends.
This is actually true for both "fix" times – the AM fix at 0515-0530 EST, and the PM fix at 0945-1000 EST. "the worst 30 minutes of the day" for gold – both periods down -$400 over the course of the 8 year period I studied.
The two best periods of the day: immediately after the PM fix at 1000 EST ($282) and at the open in Asia at 1800 EST ($214).
Others more experienced than I will probably answer your question as well, but here's a start:
Blanchard seems to be a fine source for a variety of items, especially if you want to buy in small quantities. For example, you can buy a minimum of 20 1 oz. silver coins (e.g. American Eagles or Canadian Maple Leaves), at the price of just around $500 at present. What I don't like about Blanchard is that their sales reps. seem to be instructed to push pseudo-collector's coins, such as the St. Gaudens 1 oz. coins. Don't fall for that trick unless you're planning to become an expert in numismatics.
CMI Gold and Silver has a much larger minimum….but I don't recall exactly how much. I have the impression that they're better for larger quantities and sizes, such as 100 oz. bars, but you might call both companies to see what's available.
Two other things:
1. It's worth comparing the sale price and the buyback price, as the companies will tend to buy back whatever they sell. This spread is an important factor, and obviously eats away a certain amount of any increase in value, when it comes time to sell. I'd ask for the sale price and the buyback price in the first phone call at both companies, then you can see the percentage you have to gain just to break even.
2. Taxes. The capital gains taxes on silver and gold in the US is 28%, as they are considered collectibles. That's compared to a probably 15-20% capital gains tax for stocks (for most income brackets). Here is a source for a comparison of sales/VAT and cap. gains taxes for PMs in a few different countries. One way to avoid this is to buy shares in a PM ETF and file some tax paperwork.
I expect all of this has been covered at PP many times before, and I'd be interested to see any links to old posts regarding physical PM purchases as well as any new comments, as there are many members here who have been doing this for quite some time, and who have considered this from many more angles than have I.
The Fed in Bernanke's last meeting (I earlier suggested it was Janet Yellen's first meeting – incorrectly) decided to taper purchases by 10B starting next month.
As always, its the market's reaction to the news rather than the news itself that is important.
So what's the market's reaction? Gold actually rallied on the news, as did the miners, as did bonds. Some miners have even broken out to new highs on the day. And bonds made new highs too.
Think about that for a moment. The Fed reduced its money printing, and gold went up.
This tells me we should probably be buying the dips in gold and the mining shares, at least until this behavior changes. Tapering is no longer driving gold.
Mere speculation on my part, but perhaps the banks' motives are not profit-driven but rather are meant to nudge the gold market in a particular direction, i.e. down? If so, at who's behest? BIS? Fed? ECB?
Occam's Razor, etc.
Thanks for your always interesting, well written daily market commentary. Question for you?
You say, "gold typically moves down in the 15 minutes prior to the London AM and PM fixes". Wouldn't that mean it is the worst time to sell, rather than buy, gold. What am I misunderstanding? Regards, Jan
To me there is a striking similarity between the other types of brief daily manipulation (LIBOR, Forex) which have been shown conclusively by now to be executed by the banks in order to benefit the banks' other positions and this AM/PM fix manipulation. That's where I'd apply Occam's Razor. Or maybe the Duck Equivalence Theorem: if it looks like a temporary manipulation, and it quacks like a temporary manipulation…
One little additional factoid I forgot to mention: in the periods immediately AFTER the PM fix were quite positive, meaning, the plunge at 1000 EST was temporary in nature and it was mostly recovered by the end of that period. That was not true for the AM fix, however.
I'm not sure whose orders the banks would be following in order to move the market lower for 15 minutes. My guess is, its a bonus-padding scheme, a short term skimming operation with very little risk. Just like all the other ones that have come to light recently. If it looks like a skim, and it quacks like a skim…its probably not a shadowy conspiracy headed by the BIS.
Buying at 09:45 and selling at 10:00 every day you would have lost money – $407. Buying at 10:00 and selling at 10:15, you would have made money – about $280. Per ounce, not including commissions and spreads.
In other words, you are correct. Buying gold at 10:01 AM is a statistically good time to buy gold.
Hugh thanks this helps a lot!