PM End of Week Market Commentary – 5/23/2014
On Friday gold closed down -1.10 to 1293.00 on heavy volume – silver was down -0.02 to 19.47 on light volume. Gold slowly tracked lower, was hammered hard at 0820 EDT stopping out 3500 long contracts, but rebounded into the close. The trading range was relatively narrow, but once again upon being hammered, gold's downspike was bought, which I consider to be positive. Silver behaved similarly, but rallied more strongly into the close.
Gold continues to form its wedge pattern – usually these patterns lead to exciting moves in one direction or another. While moves below 1290 seem to be well bid, moves above 1300 are currently equally well sold. This situation will resolve itself – the only question of course is, in which direction?
For the week gold was mostly flat +0.20 [+0.02%] , silver +0.11 [+0.59%], GDX down -0.47%, and GDXJ down -0.60%. Gold's wedge pattern continued moving sideways and its trading range is compressing, silver is slowly improving, while the mining shares are continuing to dribble lower on light volume.
SPX has moved higher off last week's test of its 50 day MA, scoring a new all time closing high on Friday of 1900.53. SPX was up +1.21% this week on declining volume. Declining volume is not what you want to see on a breakout higher, but that's where we are with SPX.
Other clues: the Nasdaq outperformed this week, up +2.47%, and a lot of the former high fliers are starting to rebound with some more enthusiasm than they showed last week. The tech stock ETF (XLK) broke to new highs. Also, the VIX cratered, dropping to 11.36; it hasn't been here for more than 14 months. That was way back when SPX was at 1500. Remember when we thought that was high?
GDX basically moved sideways with a modest downward bias this week. There was no improvement that I could detect, and the GDX:$GOLD ratio also continued lower too. GDXJ looked much the same. The only thing remarkable about the miners this week was just how little traders cared about the sector – volume was quite low.
The buck moved higher this week, spending the first few days consolidating and the last two on a breakout, closing up +0.32 [+0.47%] to 80.43. The dollar's rally on Friday stopped right at its 200 MA. At this point, the buck's 50 MA has turned higher, and the buck looks to be in a medium term uptrend. This suggests to me that money is flowing to the US – both equities and also US treasury bonds.
Rates & Commodities
TLT corrected this week, off -0.74% but seemed to find support once again on its 20 EMA. With the correction in the euro causing the USD to rally, US treasury bonds look attractive.
Why on earth would people be buying the 10 year US treasury bond at 2.54%? Well, the entire eurozone core (Germany, France, Belgium, Austria, Finland) has bonds yielding less than that – 1.41% in Germany, to 1.97% in Belgium – and so by comparison, US treasury bonds look good. Would you rather have your money in France yielding 1.82%?
As a money manager, if you see the dollar rallying and you can get 70 basis points more yield by selling France, what's not to like?
Commodities are slowly drifting lower, this week off -0.11%.
Physical Supply Indicators
* Premiums in Shanghai dropped a bit, off -0.96 to +2.02 over COMEX. They're still positive, but not by much.
* The GLD ETF lost -5.09 tons this week, and has 776.89 tons remaining.
* Registered gold at COMEX rose by 0.08 tons to 25.15 tons.
* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1293.10 and silver 19.35:
PHYS 10.71 -0.50% to NAV [up]
PSLV 7.76 +2.25% to NAV [down]
CEF 13.85 -5.23% to NAV [down]
GTU 45.84 -4.20% to NAV [down]
ETF premiums are mostly lower this week, some (PSLV, GTU) by a fair amount.
The COT report is as of May 20th. Not much happened this week regarding futures exposures; both Managed Money and the Producers reduced exposure on both the long and the short side but only by a few thousand contracts. Overall positioning remains bullish.
Moving Average Trends [20 EMA, 50 MA, 200 MA]
Gold: short term NEUTRAL, medium term DOWN, long term NEUTRAL.
Silver: short term DOWN, medium term DOWN, long term NEUTRAL
The moving averages stayed relatively constant again this week. Both 200 MAs are flat, the 50 MA's are both pointing downhill, and the 20 EMAs point downhill but are flattening. The first stop on the trend change will be when price rises above the 20 EMA; the next, when the 20 EMA crosses the 50. So far, we're not there yet.
Gold continues to find support at the 1280-1290 support zone, but attempts to rise above 1300 are met with selling, keeping gold within its narrowing trading range. Silver improved modestly, while the miners continued meandering lower on light volume.
Looking at the various ratios and averages, gold's moving averages remain unchanged, looking mildly bearish, silver's 50 MA continues solidly downhill while its 20 EMA is flattening. GDX:$GOLD dropped further, while GDXJ:GDX showed slight improvement, but still remains bearish. The gold/silver ratio is moving slowly off its highs, but at 66.41 is still elevated.
On the COT report, nothing much changed this week.
Shanghai premiums remain very modestly positive, GLD tonnage dropped, and ETF premiums fell. Physical demand seems neutral.
Not much changed from last week – things look mildly bearish, but it would not take much of a change in either direction to send PM off on a new strong trend.
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So I quote Armstrong because he makes the most sense to me. Executive Summary: don't confuse the banks incessant front-running and trading against clients with manipulating the trend. They're not the same thing at all. One is risk-free and makes your bonus larger, while the other won't do a thing for your bonus and is quite risky.
Here's an article he wrote recently on banks & manipulation – I was going to synopsize it, but its all on point, so I couldn't edit much:
… little by little the truth is coming out ever since the LIBOR scandal hit. Both Greg Smith and myself have stated that the banks trade against clients. They have kept track of client positions and trade against them typically front-running them all the time. This has been HOW they make money .
There has been a HUGE clash between the various conspiracy groups. On the one hand, there have been the Goldbugs who want to pretend gold’s decline is purely a manipulation and that is the ONLY reason they are wrong. Then there are those who claim it is the Global-Elitists who control everything from wars to whatever for some dark sinister objective they really cannot articulate. Between these two extremes lies the simple truth – it has always been immediate profits trading against clients. That is standard. Being a major hedge fund manager I speak with experience, not visions, speculations, and claims. To be a REAL hedge fund manager, it was like playing a poker game. It is not as simple and just picking up the phone and say buy or sell. That is for individuals – not big money.
When I had to hedge Platinum for Onassis and was the largest position in the market, everyone knew what you had and watched every move. If I wanted to sell platinum, I had to first buy some gold and then silver to create the impression I would be a buyer. The banks would move the spreads in anticipation I would buy. Then I would sell and take the small loss in the gold and silver to get off the platinum I needed to sell. The banks were ADVERSARIES – never brokers who EVER protected my interests.
This is the way the industry worked. These manipulations of LIBOR to gold and currencies that are now starting to be revealed demonstrate this front-running manipulation of markets that has been trading against client positions. They DO NOT manipulate markets counter-trend NOR do they manipulate markets to force something like gold lower perpetually with no immediate profit. The argument that they are hugely short perpetually is not real. They care about bonus checks, not systemic manipulation with no end goal.
Do not confuse front-running as flawless perpetual manipulation. If these people were that all-powerful, (1) they would not get caught as Merkel said the only difference between the East German Stassi and the USA’s NSA was that the Stassi never got caught., and (2) they would not constantly require bailouts.
Banks are front-running manipulators looking for guaranteed trades – not professional traders taking on risk. Risk is for fools, as they say. This is why they need bailouts because when you front-run and rig the game, you do not need risk management.
UK Financial Conduct Authority has fined Barclays £26 million for manipulating “the setting of the price of gold in order to avoid paying out on a client order.” The sell orders in gold that seem to come as if out of nowhere, have been front-running covering on the client’s order. Slam gold hard, you then buy the low on the client’s order, and the metal then rallies back. This is typical.
However, they have played this game in both directions. When I say a rally is manipulated, the Goldbugs hate me because all rallies are real. I warned on the Buffet silver deal that they were taking silver from $3.5 to $7 and then were going to slam it. This is what they have done for decades. However, it has always been within the trend. Gold’s decline is NOT unusual and follows the typical 13-year rally.
At the core of this behavior is the laser-like focus on short term advantage above everything else. This dovetails nicely with Chris's observation that the amount of long-term planning on energy in this country is vanishingly small. Our nation's thinking, both in politics as well as finance, focuses almost entirely on the nearest term goal possible: the next election, or the next bonus check.
Anything beyond that time horizon might as well not exist, for all practical purposes.
It just makes sense to me. It all fits.
I agree with Armstrong entirely if we constrain ourselves to just the universe of economic players. These are the banks and they will do whatever it takes to make money including screwing over clients, cheating, and breaking laws.
But I am curious as to why Armstrong suddenly has forgotten all about the non-economic players (i.e. central banks and/or governments) which he used to write about rather extensively in his prison days?
Non-economic players don't have 'make money' at the top of their personal lists. For example, the Fed will buy up debt instruments, against the prevailing market rates of interest or trends, in order to set short or long term interest rates.
They bought up gobs of mortgage backed paper, probably the trashiest of the lot, without much of an interest in whether they were going to make money off of them.
The interest of the Fed in these purchases was to 'save the system' and 'fix bank balance sheets' – a couple of outcomes that had/have nothing to do with making money.
Is it unthinkable that the Fed, et al., also have an interest in seeing the price of gold telegraph certain messages (e.g. stability and money printing is not hurting anybody so we can keep doing it, right?)?
To me it's perfectly reasonable to think that the Fed has its interested fingers in the prices of nearly everything it considers important.
So the final market price we see in any big market is the sum of central bank actions and those of the economic players,
That is, it's neither Armstrong nor the GATA camp that are 'right,' instead they are both part right, and therefore each are actually wrong.
At least that's my view.
I agree Chris. I always thought the Fed's raison d'etre was to interfere in the market!
WildlifeTracker; thanks again for the Silver Charts.
So I hear you saying three things.
1) the Fed thinks gold is a critical indicator to the world of the soundness (or lack thereof) of fiat money.
2) the Fed has the will to do whatever it takes to successfully manipulate such critical indicators
3) the Fed has the ability to carry this out.
And of course when I talk about "the Fed" I'm referring to today's Fed, 40 years after the gold standard ended, when (most likely) no institutional memory exists from anyone who had any influence in the process of managing the standard way back when. That Fed is not the same Fed that existed in 1972.
So as to points #1 & 2. I believe the Fed used to care about gold, but today, it really doesn't. All things being equal, sure they'd rather not have gold go nuts. They probably also want oil prices to keep from going nuts too. But to my mind, those are "would be nice" goals rather than something so critical it requires them to generate a secret, extremely well-funded program with the goal of doing "whatever it takes" to manipulate gold down. Bottom line, I don't believe they are as motivated as you think they are. Today.
Point #3. Ability. We do have an excellent case study in an extremely well-funded manipulation project that the Fed has embarked upon that can shed some light on the Fed's ability to manipulate trend. Namely, long rates – their stated goal is to buy bonds in order to keep long rates down. They've spent 3 trillion dollars in this attempt, in addition to almost endless jawboning. How has that well funded and explicit effort turned out?
Over the past 18 months, not so well. Before that, it looked to be working fine. So the answer is – sometimes it works, and sometimes it doesn't. Which suggests to me that the answer really is "no." The way I read the above chart – when the mortgage rates wanted to drop, they dropped. When the rates wanted to rise, they rose, regardless of what the Fed wanted, or what the Fed did with their balance sheet, or what they said. The market was larger than the Fed.
So not only do I question the intensity of their present motivations regarding gold, I also question their ability to manipulate trend. We have a clear example where their motivation is quite intense, they've thrown an unprecedented amount of resource at the problem, and it has resulted in a very iffy result. They have not been able to successfully manipulate trend over the past 18 months, not even with a 1.5 trillion dollar pricetag.
Last point. If we assume the Fed has cared about gold ever since that famous memo in the early 80s from Volcker where he talks about manipulating the gold price, and the apparently successful suppression of gold from 1981-2000, we have to ask ourselves a question: why did the 2000-2011 bull market ever happen? If they were such capable manipulators, and they cared so much for decades, why on earth did gold pop 700% over the 2000-2011 timeframe? Did they just start caring at the top of the cycle in 2011? That is an awfully convenient explanation, and one that runs counter to the storyline that "the Fed has always cared secretly about gold." Either one, or the other is true – not both.
To me, Occam's Razor suggests – cycles happen, and the cycles are beyond the power of the Fed to control. Gold rises, and the Fed can't stop it. Gold drops – and the Fed deserves none of the "credit."
I honestly think the Fed would really like to have the power to manipulate trends in everything, especially if such power came for free. Problem is, the evidence shows that they just can't, not even in areas where they're willing to explicitly throw trillions at the problem, and the failed attempts to manipulate trend end up being quite expensive.
Great argument Dave. Everything in nature function's in cycles and humans have only created an extension of the natural cycle-defined system. William Cronon defines the human world as "second nature," rather than first or primary nature which we recognize as trees and wildlife. The basic natural functions and forces are the same for both of the defined natures.
I imagine manipulating a market could be compared to culling wolf populations to build moose populations. Culling wolves only disrupts established boundaries defines by the wolves. For every wolf removed, two more opportunity searching wolves will take its place. It's like removing a bucket of water out of an ocean.
In that chart I posted earlier there looks to be a cycle established in silver demand which appears to be correlated with silver pricing. Much like the wolf and the moose populations on Isle Royale. Great insight Dave. Thanks
I appreciate reading all of these well-thought out ideas about money flows and valuation and confidence and GDP statistics as an assumed yardstick of a person's contribution/received value and what the Fed is doing and what the GDP is doing and all of that good stuff. however, an important factor is missing in the analyses but that affects these conclusions. As the (bankers/politicians/economists etc) parasites who produce no wealth but just steal progressively assert new tax laws upon the wealth producers and by tagging the wealth that flows their fiat system rachet up the pressure, local community resilience REMOVES wealth and wealth producing activities from their oversight. The economic analyses assume that everyone cycles all their production and consumption through the parasite wealth extraction (tax/usury) systems. However, to the extent that resilient communities succeed, this is NOT true. the parasites dont TAKE and the people KEEP. You can argue GDP all night and statistics, but a resilient community member is enjoying a high quality life that is NOT MEASURED by your graphs and statistics.
This is an important trend that may dominate the real story. When neighbors create food, energy, services etc for each other and become sufficient, they enjoy something like 30% increased retention due to lack of tax. In other words, resilient communities dont feed the parasite government and bankers (the "financial services industry" portion of our economy is already up to 19% and siphons this 19% of the economy by "financial" gaming, which resilient communities OPT out of. Furthermore, government parasitic collections are also a large load on non-resilent communities (resilient communities may be 20-30% ahead in this regard as well). If everyone could become a member of a resilient community, the GDP and other yardsticks will have much less meaning and the parasites will wither.
A successful life going forward would be to drop out of the banking/government system altogether and live a primarily DIY life at the resilient community level. Such person does not exist from the view of the GDP number crunching banker/government parasite. The wealth produced and consumed is not counted. The economic analyses then only pertain to an imaginary subset of reality. Maybe Greece is an example in this regard.
Here's a great piece of psychological/social analysis that helps me understand why this whole crazy Fed system can keep going. The author explains why "confidence" is so important for the Fed and TPTB and why predicting when a loss of confidence (and a system reset) might occur is so impossible. However, he does discuss what forces might intervene and cause everyone to suddenly realize the King has no clothes and bring the whole tawdry carnival to an abrupt end.
Happy Hunger Games!