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PM End of Week Market Commentary – 6/13/2014

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  • Sat, Jun 14, 2014 - 02:16pm



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    PM End of Week Market Commentary – 6/13/2014

Happy Friday the 13th!

Today gold closed up +3.40 to 1276.60 on light volume, while silver was up +0.15 to 19.66 on moderately heavy volume.  Silver hit new highs today, and so did gold.  Both metals just seemed to slowly melt up during the NY session, closing relatively near the highs for the day.

Mining shares were down early in the day, with traders looking like they were taking profits, but then they rallied, with GDX closing up +0.33% on moderately heavy volume.  GDXJ had a big trading range but closed almost even, -0.44% on very heavy volume.  With buyers showing up to the miners after rallying all this week, I take it as relatively bullish sign.

For the week gold was up +24.20 [+1.93%], silver +0.66 [+3.47%], GDX up +6.49% and GDXJ up a massive +13.00%.

Over the past several weeks, the gold/silver ratio has dropped to 64.93, several points below where it was two months ago.  A dropping gold/silver ratio is generally positive for PM.


Last week it seemed that GDXJ was indicating good times ahead for PM and the miners.  It sure wasn't kidding.  GDX moved past three different moving averages just this week, with some decent volume on the up-days.  GDXJ did even better, moving strongly through its 50 and 200 MA on massive volume.  What's more, the 20 EMA of GDXJ is now crossing back above the 50, and the 50 is starting to curve higher as well.

Contrast GDX with GDXJ.  GDX did break out of its consolidation area, and on Friday it managed to squeak above its 200 MA, so far so good.  The volume is just ok for a rally, and it still hasn't surpassed its previous "lower high" – which means the GDX downtrend hasn't been formally ended, even though things are much improved over where they were last week, and GDX has more than recaptured its losses from the breakdown.

Compare this to GDXJ, which has moved way above its 200 MA, and moved past 2 previous "lower highs", conclusively ending its downtrend pattern.  Volume is absolutely terrific.

Conclusion: GDXJ leading GDX – we can see this even without looking at the ratio chart.  We saw the hints of this move last week when GDXJ:GDX started to break higher, and now we see the results this week.  Definitely, "buying the breakout" for GDXJ when it starts to lead GDX seems to have been a decent strategy this time around.

US Equities/SPX

SPX topped and fell back a bit, closing down -13 [-0.68%] to 1936.  Perhaps it was higher oil prices, or perhaps it was just time for the market to take one of its infrequent breaks.  Insurance is slightly more expensive, with the VIX closing at 12.18, but is still quite low by historical standards.


The buck moved higher, up +0.19 [+0.23%] to 80.62.  It looks like Draghi is being taken at least somewhat seriously, although momentum in the buck's move higher seems to have stalled a bit.

Rates & Commodities

TLT rallied, up +0.50% bouncing off its 50 MA three different times.  Yield is down to 3.14%.  An unexpectedly solid 30 year auction on Thursday helped bonds recover their footing.  A correction in the broader market should help bonds to rally, and of course a new high in SPX next week will likely be bad for bonds.

Commodities were largely unchanged this week, closing up +0.22%.  This hid a big move higher in oil (+3.87% to $106.77) and a medium-sized move lower in copper (-1.05% to 3.03).  China's stock market actually rose +2.28% this week, so that suggests that while there may be issues with warehouse receipts and copper (and other base metals), traders do not think it will affect the larger economy in China.  We'll see if they end up being right.

Physical Supply Indicators

* Premiums in Shanghai are down this week, dropping -2.68 to just +0.14 over COMEX.  Premiums have fallen with the rise in the metal, but delivery volumes have risen as well.  However, sellers appear to be outnumbering buyers at the SGE on the Au(T+D) (futures) contract, which suggests that Chinese traders are looking to get out of positions they have at the SGE.

* The GLD ETF remained unchanged, with 787.08 tons remaining.

* Registered gold at COMEX remains unchanged at 29.04 tons.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1277.10 and silver 19.69:

  PHYS 10.58 -0.46% to NAV [up]
  PSLV 7.84 +2.37% to NAV [up]
  CEF 13.84 -4.96% to NAV [up]
  GTU 44.54 -3.63 to NAV [up]

ETF premiums all climbed this week.  Western buyers are starting to get more interested in PM.

Futures Positioning

The COT report is as of June 11th.  Managed Money positions in gold remain more or less unchanged – they increased both long and short exposure, retaining their relatively high gold short position.  Producers reduced both long and short positions, remaining unchanged on net basis.

In silver, Managed Money covered 3.5k shorts, burned by the rise in silver off the 19 low.  Producers increased short positions marginally, remaining at a historically low net short position.

The short covering has started in silver.  Lets see where it goes from here.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term UP, medium term NEUTRAL, long term DOWN.

Silver: short term UP, medium term DOWN, long term DOWN

The rally in PM has moved the short term moving averages to UP, and with gold it has turned the medium term moving average to NEUTRAL.  Moving averages are signaling "early bullish".


After finding a bottom at 1240, gold steadily climbed higher this week, moving up towards first resistance at 1280.  Volume remains low, and so the move higher looks a bit unconvincing.  Not so the move in silver, after bouncing off 18.75, it has rallied and managed to recover everything lost in the drop two weeks ago and then some, on generally increasing volume.

Looking at the various ratios and averages, both gold and silver's EMA 20 has started to turn up, giving off an "early bullish" signal.  Medium and longer term momentum still remains down.  Gold/silver ratio has continued dropping, causing the ratio's 20 EMA to move below its 50 MA, bearish for the ratio, but bullish for PM.   GDX:$GOLD is rallying strongly, moving above all 3 moving averages, and looking bullish.  GDXJ:GDX has rallied most strongly of all, reaching almost to that ratio's high set back in February.   The picture of a trend change in progress is clear.

The COT reports this week showed Managed Money starting to cover short in silver, and positions largely unchanged in gold.  In silver, all that short covering will provide the fuel for the initial move higher, and that should drag gold higher along with it.  That's the theory anyway.

Shanghai premiums are more or less flat, GLD tonnage is unchanged, and ETF premiums were up.  Physical demand seems neutral.   June is known to be a weak month for gold.

Trends are showing early bullish, leading indicators are definitely bullish, miners are doing well as is silver, with only gold looking sluggish.  Lets see how the next phase plays out.  I wouldn't be too surprised to see PM take a rest next week, especially the hyperactive junior miners.


  • Mon, Jun 16, 2014 - 08:05am



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    FT story

What do you guys make of this story in the FT:

that central banks are pouring many trillions directly into the equity markets, including PMs?

I always thought the Fed's money was laundered thru the TBTF banks by their bond buying. This suggests they're running the world's biggest prop-trading desk!

  • Mon, Jun 16, 2014 - 01:21pm



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    here’s the original source for that news story


That's an awesome story.  However – big surprise – a bit of hyperbole surrounds it.

The numbers the original report used wasn't "many trillions", it was "at least one trillion into publicly traded equities in recent years" and that estimate counted not only central banks, but also sovereign wealth funds and public pension funds.

BOJ has been buying equities on and off for years, just FYI.  And we know CBs are buying gold.

Original report here:

Central banks around the world, including in Europe, are buying increasing volumes of equities as part of diversification by official asset holders that are now a global force on international capital markets. This is among the findings of Global Public Investor (GPI) 2014, the first comprehensive survey of $29.1tn worth of investments held by 400 public sector institutions in 162 countries.

The report, focusing on investments by 157 central banks, 156 public pension funds and 87 sovereign funds, underlines growing similarities among different categories of public entities owning assets equivalent to 40% of world output. It is published by the Official Monetary and Financial Institutions Forum (OMFIF), a global research and advisory group, with the support of DZ BANK and Quantum Global Group.

In the aftermath of the financial crisis, different forms of ‘state capitalism’ have come to the fore, the report says: ‘Whether or not this trend is a good thing may be open to question. What is incontestable is that it has happened.’

The assets of the overall survey of 400 GPIs comprise $13.2tn (including gold) at central banks, $9.4tn at public pension funds and $6.5tn at sovereign wealth funds.

One of the reasons for the move into equities reflects central banks’ efforts to compensate for  lost revenue on their reserves, caused by sharp falls in interest rates driven by official institutions’ own efforts to repair the financial crisis. According to OMFIF calculations, based partly on extrapolations from published central bank data, central banks around the world have foregone $200bn to $250bn in interest income as a result of the fall in bond yields in recent years. This has been partly offset by reduced payments of interest on the liabilities side of their balance sheets.

GPIs as a whole appear to have built up their investments in publicly-quoted equities by at least $1tn in recent years.

The publication outlines investment by organisations as diverse as the People’s Bank of China and State Administration of Foreign Exchange (SAFE), Japan’s Government Pension Investment Fund (GPIF), Swiss National Bank, Norges Bank Investment Management (NBIM), China Investment Corporation (CIC) and Californian Public Employees Retirement System (CalPERS).

It includes, too, Bank of Korea, Malaysia’s Khazanah Nasional, Public Investment Corporation (PIC) of South Africa, Temasek of Singapore, Australian Government Future Fund, New Zealand Superannuation Fund, Canadian Pension Plan Investment Board (CPPIB) and Ontario Teachers’ Pension Plan (OTPP).

The financial centres of Frankfurt, Hong Kong, Kuala Lumpur, London, Johannesburg, Mauritius, Qatar, São Paulo and Toronto are supporting the study.

The report coincides with the opening in London of the secretariat of the International Forum of Sovereign Wealth Funds (IFSWF), previously headquartered at the International Monetary Fund in Washington.

The report will be launched at City Hall in London on 17 June, as well as in other cities including Hong Kong on 17 July, Toronto on 16 September and in Washington on 22 September.

The study recommends broad categories of public investors should adopt the IFSWF-administered Santiago Principles on transparency and accountability. It outlines suggestions on how to channel large-scale long-term funds into investment areas like infrastructure, energy and transport around the world, emphasising the need for co-investment, partnership and knowledge-sharing among diverse investment organisations from the public and private sectors.

‘The size and over-arching nature of transactions make necessary an intermingling of expertise and a pooling of risk. Combining expertise in emerging market and infrastructure investments by sovereign funds and pension funds is just one area with great potential.’

In the field of corporate governance and responsible equity ownership, the report recommends public investors should step up engagement with private sector shareholders to ensure appropriate stewardship.

The study contains articles on GPIs by 64 authors from 56 institutions in 32 countries. Among the highlights are contributions from Tarek Al-Wazir, Hessen minister of economics; Franco Bassanini, chairman of Cassa depositi e prestiti;  David Cameron, British prime minister; Heung Sik Choo, chief investment officer, Korea Investment Corporation; Jingdong Hua, Vice President and Treasurer, International Finance Corporation; Boris Johnson, mayor of London; Thomas Jordan, President and Chairman, Swiss National Bank; Jin Liqun, honorary chairman, International Forum of Sovereign Wealth Funds; Elias Masilela, chief executive, Public Investment Corporation of South Africa; Azman Mokhtar, managing director, Khazanah Nasional; Linah Mohohlo, governor, Bank of Botswana; David Murray, inaugural Chairman, Australian Government Future Fund; Adrian Orr, Chief Executive Officer, New Zealand Superannuation Fund; Ipumbu Shiimi, governor, Bank of Namibia; José Filomeno de Sousa dos Santos, chairman of the board of directors, Angolan Sovereign Fund; Anselmo Teng, chairman, Autoridade Monetaria de Macau; Amando  Tetangco Jnr., governor, Bangko Sentral ng Pilipinas; Edwin ‘Ted’ Truman, senior fellow, Peterson Institute for International Economics; Fiona Woolf, Lord mayor of London.

The survey emphasises the two-edged nature of large volumes of extra liquidity held by GPIs. These assets have been built up partly as a result of efforts to alleviate the financial crisis, through foreign exchange intervention by central banks in emerging market economies or quantitative easing by central banks in the main developed countries. But deployment of these funds on capital markets can drive up asset prices and is thus a source of further risks. ‘Many of these challenges [faced by public entities] are self-feeding', the report says. ‘The same authorities that are responsible for maintaining financial stability are often the owners of the large funds that have the potential to cause problems.’

The study highlights how a recession-induced decline in interest rates in the major reserve currencies – the dollar and the euro – has had a seriously negative effect on the profitability of reserve holdings by central banks, adding to the drive for diversification. Some central bankers fear the need for government finance to support their budgets may strain on their own independence.

The report adds that GPIs can be increasingly expected to have their behaviour and performance measured against wider public goals. The challenges go well beyond the pressures on western central banks caused by extension of their responsibilities into wider policy areas such as fiscal matters. ‘Asset managers may face efforts to influence their investments in areas like infrastructure or social security systems. Public investors of all categories may be called upon to take part in global and regional safety nets, such as through reserve asset pooling, working alongside institutions like the International Monetary Fund.’ It concludes: ‘Public asset managers need better to understand and manage the political fields into which they will inevitably be drawn.’

For further details on the Global Public Investor 2014, including invitations to launch presentations, please contact Liisa Vainio at [email protected].

  • Tue, Jun 17, 2014 - 06:57pm



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    Omfif report

Thank you for this comprehensive response.  I presume the Fed's balance sheet is included in the $29T number, but if so I would expect the "added at least 1T in recent years" would be much higher.  It still begs the question as to whether the Fed itself owns any equities directly (other than MBS).

  • Wed, Jun 18, 2014 - 04:14am



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    omfif report


Ha just to be clear, my "comprehensive response" was a cut & paste of the report summary, not my own work.  Sorry I didn't indent it property.

The neat thing about that report is, it doesn't NEED to be our Central Bank buying equities to explain why the equity market has just continued moving higher.  It only needs to be someone else's Central Bank. Switzerland perhaps.  Or Japan.  (Both have acknowledged buying equities with their reserves).  Or China. Or a Sovereign Wealth fund.

Does our Fed own equities?  At this point its just a question for the conspiracy-minded, of which I am one.  Assuming the leaders at the Fed don't want to actually be breaking the law and their balance sheet is legitimate (and these guys are paid like bureaucrats, not bankers – there's no big payday for them to justify taking such a risk):

In english: Treasury holdings + Liquidity Swaps + Reverse Repos + MBS Holdings + Other Loans + Other Assets.  (I excluded a bunch of stuff from the 2008-2010 era – Maiden Lane assets, TALF, etc)

So, "Other Loans" is right now about $183 million.  "Other Assets" is $24.9 billion.  There's not a lot of room in there for a big equity position.

Now they might have lent money to a firm to do their work for them, or they might have lent treasury bonds to a firm for the same purpose, but taking a long term risk position in equities directly counter to their charter puts them in a sticky situation.  Is $200k/year enough money to risk doing something that?  If it goes wrong, they could easily be thrown under the bus by a pissed off Congress.

If I were the Chairman I'd have to think long and hard before signing up to be an even bigger hedge fund manager than I already was, taking the risk of breaking the law, while getting zero reward for it.

Bonds – they already do and know, and are legally allowed to do.  Equities – its another kettle of fish entirely.

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