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PM End of Week Market Commentary – 9/19/2014

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  • Sat, Sep 20, 2014 - 10:46am

    #1

    davefairtex

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    PM End of Week Market Commentary – 9/19/2014

On Friday gold dropped -9.00 to 1216.90 on heavy volume, while silver was crushed, dropping -0.73 to close at 17.79 on very heavy volume.  While gold made a new low by a few bucks, silver broke below its 2013 PM crash low of 18.17, and once that happened the buyers just vanished.  Silver closed almost at the dead lows for the day.

A big problem with silver is that its long term chart looked bad going into the week – the long term descending triangle revealed a trend of steadily dropping buy-side interest.  This, combined with new highs by the buck, and yet another drop in commodity prices caused the silver longs to just throw in the towel.  That's how I read it anyway.

On Friday mining shares fell also, with GDX off -2.03% on very heavy volume, and GDXJ finally falling below support and losing -3.56% on heavy volume as well.  Silver's big plummet caused the gold/silver ratio to skyrocket, closing up +2.21 to 68.40, a new high.

For the week, gold was down -14.60 [-1.19%], silver dropped -0.83 [-4.46%], GDX off -5.51% and GDXJ down -3.07%.  GDX was the big loser, with silver in second place.

The USD

Yet another strong week for the dollar, closing up +0.62 [+0.74%] to close at 84.86.  Previous high was 85 last seen June 2013.  A break above 85 – and the next resistance level is around 88.  If the dollar does break out above 85, I believe it will continue to drive PM lower.

PM is definitely reacting to moves in the buck; when the dollar corrects, PM stabilizes and even rallies, while when the buck breaks out, PM continues to fall.  Things don't move in lock step, but this is in general how the market is currently reacting.

Helping the dollar skyward was the falling Euro, which dropped -1.50 [-1.16%] and is right at long term support.  As we have seen with silver, dropping through long term support can cause disciplined traders to toss the offending position over the side, which would move the buck higher – likely pushing PM and commodities lower still.  As a trader friend of mine would say, there is "a lot of air" between the 128 level and the next reasonable stopping point just north of 120.

Ordinarily I'd say the chances of a good bounce off support would be high at this point, but given how sustained the drop in the Euro has been – there must be some major force moving capital out of Europe.  The risk is, it may well just continue and if it does, that will drive the Euro right through support, causing the buck to break out.  I feel risk of this is higher than normal right now.  The currency moves have been strong and steady in the last few months.  Something is definitely afoot.

After breaking 95 support last week, the Yen seems to be in a free-fall vs the buck, down -1.57% this week.  Since its peak in October 2011, it is down almost 44%, with most of that coming in the past two years.  As a reference point, the Fukushima disaster happened in March 2011.  If you are a traveller from Japan, everything in the US is 41% more expensive than it was just two years ago.  Now THAT's inflation!

To add insult to injury, the JGB 10 year is yielding 0.55%.  Why on earth would you leave your money in Japan if you can move it offshore, avoid the massive loss in purchasing power, and earn a larger return?

Below is a chart of the BOJ's % ownership of the total outstanding Japan sovereign debt.  This is likely why rates remain low, yet the exchange rate move shows that money is clearly fleeing Japan.  For reference, Japan's Debt/GDP is 238%.

Miners

Mining shares continued dropping this week, with GDX off -5.11%, while GDXJ was off only -3.07%.  GDX is being sold hard, and is more or less in free fall after the FOMC minutes release on Wednesday, and GDXJ, after grimly holding on for so long has finally broken support and is also starting to sell off.

If gold somehow manages to stop dropping (which likely depends on what happens with the buck), we could expect GDX to find support at its May/June lows.

US Equities/SPX

SPX broke to a new high on Friday but could not hold its gains, resulting in a failed rally.  On the week SPX was up +25 [+1.25%] closing at 2010.40, while the VIX dropped to 12.11.  US equities are starting to benefit a bit more from the continued dollar rise vs last week, but they seem to be having a bit of trouble moving higher.

Rates & Commodities

Bonds may have put in a low this week, with TLT up +1.08%, printing a nice hammer candle.  All the gains came on Friday, when TLT moved up a big 1.27%.  If you were Mrs Watanabe (http://www.investopedia.com/terms/m/mrs-watanabe.asp), and you bought TLT back in October of 2011, you would receive over that period: a 10% capital gain, 9% in interest payments, and a 44% gain from the exchange rate move.  Contrast that with the JGB return of 1.5% – total! – over that same period!  Perhaps you too would be "buying the dip" when TLT drops 6%.

Commodities dropped once again, off -1.58%, breaking below the lows set in December 2013.  Dollar up, commodity index down.  Commodities broke below their 2013 lows during the same week that silver broke below its 2013 crash lows.  Not a perfect correlation – but its not bad either.

Oil was mixed this week; WTIC was down -0.38 to 91.77, while Brent rose +1.38 to 98.39.  Both Brent and WTIC are still looking to form a low, and its not clear just yet if it has done so.  Both WTIC and Brent weekly charts look relatively weak and/or unsure – there are no definitive "nice hammer candles" in oil as there is with the long bond.

Physical Supply Indicators

* I could not calculate SGE premiums this week – they changed their website around and I need to update my code.  As of Wednesday, premiums were +5.72 over COMEX.  Deliveries of spot gold over the past few weeks have also climbed as gold has dropped in price.

* The GLD ETF lost -11.96 tons, with 776.44 tons remaining.

* Registered gold at COMEX remained the same, with 31.44 tons remaining.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on September 19) of 1218.60 and silver 17.88:

  OUNZ 12.16 -0.04% to NAV [neutral]
  PSLV 7.28 +4.82% to NAV [up]
  PHYS 10.06 -0.65% to NAV [up]
  CEF 12.58 -7.58% to NAV [down]
  GTU 41.75 -7.35% to NAV [down]

ETF premiums were mixed, with the two Sprott funds gaining, and the two non-deliverable funds losing.  My interpretation is that the physical delivery option in the Sprott funds is substantially more attractive, especially for silver.  The spread is huge: +4.82 for PSLV, and -7.58% for CEF, and it has widened as prices have fallen.  This suggests to me that the fall in the paper markets are now outstripping the demand for actual (deliverable) metal.  Someone is buying the dip, and is using PSLV to do it.

Futures Positioning

The COT report is as of September 16th, when gold was trading around 1235 and silver around 18.70.

The COT reports are starting to become interesting.  Managed Money added 14.9k shorts, and dropped -5k longs, moving closer to a "historical bullish indicator" level for gold.  Based on this week's bearish price action, I'm guessing that next week's COT report will show Managed Money about where they were in December 2013.  Producers haven't changed as much, closing 5.8k short contracts – ringing the cash register on their hedging positions.

In silver it is even more interesting.  As of Tuesday, Managed Money is even closer to its December 2013 historically bullish level – and after Friday's Earth-Shattering Silver Kaboom, they are likely well into new territory of short interest.  Managed Money added 5.2k shorts, and dropped -757 longs.  If Managed Money adds another 6k shorts by next Tuesday, we'll be where we were back in December 2013, right at the lows for silver.  This hints that we are approaching a turning point – at least the conditions are setting up for such an event anyway.

That said – I have one caveat: blindly buying because of this COT report is risky given how strongly and consistently the dollar has risen.  If the dollar breaks above 85, PM could just continue moving lower, regardless of how historically short the COT report says Managed Money is.  With the right type of prodding, historically short can always get even more historically short!  Another trader saying, I'm afraid.  They come from having a large number of surprising, unexpected events happen to us, "against all the odds", and it almost always seems to involve losing money.

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

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

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

Down.  Moving averages are all pointing down.

Summary

This week gold dropped, and silver broke down out of its long descending triangle; as a result, traders capitulated selling silver hard.  GDX is in free fall, and even the surprisingly resilient GDXJ has finally succumbed to the pressure and is starting to sell off again.

From the moving average perspective, gold and silver are bearish in all timeframes.  The gold:silver ratio jumped +2.27 to 68.40, a new cycle high.  GDX:$GOLD dropped hard and looks more bearish, but GDXJ:GDX has risen and actually looks bullish – it is the odd man out.  SIL:$SILVER moved sideways, and still looks bearish.

The COT reports this week saw Managed Money loading up short in both silver and gold, and it is my guess after this week's price action that Managed Money will be holding historically high levels of short interest in both gold and silver – although we have to wait a week before the evidence appears.  This indicates to me that we could be approaching a turning point in the near future, since Managed Money tends to be leaning short the most at a time when the market is at its lowest point.

Shanghai premiums are up this week, GLD tonnage dropped, and the Sprott ETF premiums were up.  Physical demand continues to pick up.  It is definitely positive right now.

The Euro and the Yen are causing problems for PM priced in dollars, as well as with oil, and other commodities, which also continue to make new lows.  While that COT report suggests we are nearing record short interest in both gold and silver, if the dollar keeps rising, Managed Money will keep piling on the shorts, and PM probably will continue dropping – as will the rest of the commodities.

My suggestion: wait for the dollar to show signs of a reversal, just in case this is some 2008-style move in progress.  If the buck moves to 90 off some horrid European Lehman-style event, we could see gold – well, we could see gold a whole lot lower.  That's what the correlations are telling me right now.

But once the dollar reverses, everything will be aligned for a strong move higher.  When that happens, it should be an excellent buying opportunity…

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  • Sun, Sep 21, 2014 - 05:16pm

    #2
    hammer6166

    hammer6166

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    Silver paper/physical

"This suggests to me that the fall in the paper markets are now outstripping the demand for actual (deliverable) metal."  The word "demand" may be tripping me up.  I think you are saying that there is a ~12% premium spread between "physical" (+4.82 for PSLV) and "paper" (-7.58% for CEF). Did I read that right?

A few postings this week here at PP have foretold of physical delivery problems. I haven't been able to find any current indications there are delays with physical delivery. Has anyone experienced a delivery delay recently?

  • Sun, Sep 21, 2014 - 11:00pm

    #3

    Arthur Robey

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    Stirling Job Dave.

Something is definitely afoot.

Concur: Conjecture- Europe is about to be crushed between the USA and Russia/China and their affairs are in a complete muddle. So the money flees to the Centre.

Someone is buying the dip, and is using PSLV to do it.

Who would have the means? JPM/FED?  Max Keiser says that someone has massive naked shorts to cover. Or is that old news?

I shall wait out until this thing hits tippity bottom. (O Great Vacillator). But that is as stupid as thinking that you can bail out of a bubble before everyone else. Pure hubris.

I am scratching my head trying to remember why the dollar is a debt instrument and therefore a claim on the Real wealth. If all these dollars are flooding back into the USA, that means that the dollar denominated value of all things good has to rise. Further it means that Big Ag is poorly served (Export competitiveness). I should imagine that there is a lot of lobbying going on at the moment for the FED to "Do Something". But what?

In the meantime someone is making out like bandits. My guess is that he dresses in pin stripe suits.

 

  • Mon, Sep 22, 2014 - 06:19am

    #4

    davefairtex

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    paper & physical

hammer6166-

No, I'm not saying the premium is 12% for physical vs paper.  🙂  However when you look at it as the spread between delivery vs non-delivery ETFs among ETFs that have a strong reputation for holding title to actual metal, then yes it does seem to be a 12% spread.  Delivery ETFs are holding their value far better.

Before the crash, PSLV had about a 3% premium, with CEF maybe -5%.  After silver broke 18.17, PSLV premium moved higher while CEF's premium broke lower.

In the past, I haven't seen PSLV premiums actually rise during a metals crash – really, ever.  It usually plummets, right alongside CEF.  Paper PM holders historically bail out during a metals crash.  But the PSLV holders didn't this time around, which got my attention.

This is something new, and it says clearly there are traders/buyers willing to pay a premium for guaranteed access to physical delivery, at least today anyway.

PSLV is decent sized but not massive – it contains about $900M in silver, or 49M oz, 6% of annual mine supply.  It wouldn't take JPM to cause the premium move in PSLV.

Arthur-

Your intention to "wait for the bottom" before buying is admirable.  Actually identifying the bottom is a task that is fraught with peril, and has occupied generations of traders and countless man hours devising schemes for identifying said bottoms!  Reading tea leaves, examining entrails, and poring over charts, none of it results in a sure thing.  But the attempt is worth making – it surely beats the strategy of buying silver "because its cheap."

Why is that?  In a long downturn, cheap becomes cheaper, gets even CHEAPER, becomes "the cheapest in four years", then it progresses to "it can't possibly get cheaper than this", right before it drops some more, confounding all prognosticators who finally give up and scream manipulation – right as it hits its low and bounces.

  • Mon, Sep 22, 2014 - 09:07am

    #5

    davefairtex

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    possible silver low

Early in asia trading silver sold off hard, hitting 17.32 at one point on some really high volume.  It has since rebounded all the way back to 17.70 – a whole lot better showing than we saw on Friday.  Buyers are starting to appear.  That doesn't mean we're out of the woods, just that I'm seeing actual sustained buying today as opposed to Friday's price action which was really bearish.

If silver can close the day at or above 17.80, its a positive sign.  But I am getting ahead of myself…

  • Mon, Sep 22, 2014 - 12:10pm

    #6

    Arthur Robey

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    Harvey Organ

I hate to be an optimist but if Harvey has this thing pegged, I cannot see the Gubmint letting me get away with my ill gotten hoard.

Dec this Year China runs out of silver and demands delivery.

We didn't start the fire! (Oh hang on- I think we did)

  • Tue, Sep 23, 2014 - 01:22am

    #7

    KennethPollinger

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    Harvey is something else

He seems to make a lot of sense, no Chris, Adam??????

Your thoughts on this info would be appreciated.

Harvey certainly suggests a good rationale for some of the global hotspots–US seemingly pushing for war–as a cover up on all this? or to circumvent the outcome?  Dec 22 here we come!

  • Tue, Sep 23, 2014 - 07:10am

    #8

    davefairtex

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    just how important is gold?

So Harvey has been talking about an imminent COMEX default and GOFO rates for a long time now.  No default has happened.

As a goldbug (and I suppose I am one too), you have to figure out for yourself, "just how much does gold matter to the rest of the world?"  That level of importance drives the enthusiasm the Central Planners have for manipulating prices, engaging in conspiracies, and the rest.

If gold is the single most important monetary thing ever, then those Central Planners will move heaven and earth to keep the price of gold low.

If its not that important – if, lets say, those central planners are much more focused on credit creation and debt, then the likelihood of them moving heaven and earth to restrain the price of gold is not so high.

Occam's razor suggests our current central planners are almost entirely focused on three things: credit creation, debt, and currency exchange rates.  That's what they talk about, that's what they (quite visibly) spend their money on, and that seems front and center of the dialog.  Sometimes, things are exactly the way they seem to be, a Purloined Letter right there in plain sight.

Now then, will this 40 year experiment of an unbacked currency complete with debt bubble work out satisfactorily?  I say no, it won't.  It will eventually blow up.  At that point, having wealth stored in gold will be quite a useful thing – among the many sorts of "real assets" one can possibly own.  But until that final denouement, I believe our central planners will be focused on credit, debt, and currency rates because those are the powerful levers they have used to control the economy for the past 40 years.

These levers have worked for them for decades, so they're going to keep pulling on them until catastrophe strikes.  And gold will remain an afterthought right up until then.

At least that's my view anyway.

Harvey believes the monetary world (including the attention of our Central Planners) revolves entirely around gold, so his viewpoint makes sense – from that perspective.  I just don't share his belief system.

  • Tue, Sep 23, 2014 - 07:26pm

    #9

    KennethPollinger

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    Dave, As usual . . .

your insight about Harvey is very useful.

Harvey's belief system: the monetary world (including central planners) revolves ENTIRELY around gold.

YOU see the central planners focused on 1) credit creation, 2) debt, and 3) currency exchange rates.  Does this equal YOUR belief system?, or just what you observe?

Harvey seems to be in sink with Rickard's hypothesis of the importance of gold, especially to China, and possibly Russia: eg., The Big Reset, by Willem Middelkoop.

Can we add a 4th above: gold/silver rates?  The non-visible focus of the suppression hypothesis? to round out and maybe balance our insight??  

Thanks for the time to respond before and perhaps, now.  Ken

  • Tue, Sep 23, 2014 - 09:13pm

    #10

    Jim H

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    Gold and Silver

Dave said,

Occam's razor suggests our current central planners are almost entirely focused on three things: credit creation, debt, and currency exchange rates.  That's what they talk about, that's what they (quite visibly) spend their money on, and that seems front and center of the dialog.  Sometimes, things are exactly the way they seem to be, a Purloined Letter right there in plain sight.

Dave, you are either completely enveloped by the psy-ops, or you are a part of it.  Gold is the most important of all exchange rates… because Gold is the money that they cannot print.  Your lack of admission of the truth of manipulation will cause many who read you to lack the will to develop a position in Gold and Silver in the face of the onslaught of propaganda, of which the $$ price is only a part.  

  http://srsroccoreport.com/silver-vs-copper-manipulation-the-tale-of-two-metals/silver-vs-copper-manipulation-the-tale-of-two-metals/

  

The world has been BAMBOOZLED to believe in a FAIRY TALE, a DELUSION, and a PONZI SCHEME that will all end badly.  The real value is found by holding investments that store wealth.  Paper assets today are mostly future liabilities with a BIG SUCKER stamped across each one.

For the price of silver to fall 51% compared to copper’s 22%… SOMETHING FISHY THIS WAY BLOWS.

Why?  Because silver suffered a 103 million oz structural deficit last year, while Copper still had plenty of warehouse stocks in reserve.  So, the world continues to consumes its remaining cheap above ground silver stocks as if there was no tomorrow.

At some point, the LIGHT will go off and the world will wake up to the fact that GOLD & SILVER are stores of value and not stupid pieces of metal regurgitated by the NITWITS on the financial media.

Unfortunately, there won’t be much silver to go around at this point…. and there LIES THE RUB.

 

   

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