<![CDATA[Blog]]> https://silvergoldbull.com/blog/ Sat, 20 Sep 2014 02:59:11 +0000 Zend_Feed http://blogs.law.harvard.edu/tech/rss <![CDATA[Gold & Silver Weekly Recap: Bullish Glimmers Emerging From the Darkness]]> https://silvergoldbull.com/blog/pp-wr-2013-12-07/ Gold finished Friday up +5.70 to 1230.00 on heavy volume, silver was up +0.13 to 19.52 on moderately heavy volume.  The gold/silver ratio dropped -0.13 to 63.01.  GDX was down -0.05% on light volume, while GDXJ was down -0.95% on heavy volume, making a new year low.  Intraday gold set a new low of 1210, but rebounded rapidly back above its point of departure, which is a bullish sign.

On the week, gold was down -21.40 [-1.71%], silver down -0.48 [-2.40%], GDX down -7.27% and GDXJ down -11.11%.  While the metals were down on the week with gold making a new cycle low of 1210, the miners were absolutely clobbered, and the volume was heavy, with miners making new multi-year lows in the process.  Once again, miners are underperforming the metal.  The break below the June 2013 lows in the miners unleashed a flood of selling that has many miners selling at levels not seen since the lows of 2008, when gold was last trading at $700/oz.  Most of the week's price drop happened on Monday.  Some of the miners are yielding 9% - its unlikely they can keep paying this dividend with gold at these levels, but that just gives you a sense as to how far down these stocks have fallen.

The dollar moved down on the week -0.48% to 80.27.  The buck broke below 80.50 support on Thursday, but the move down is happening without any real enthusiasm.  At this rate, a re-test of USD 79 might be a month or so in the future.  While dollar weakness should be supportive of higher gold prices, such modest moves don't seem to be affecting gold at this time.

Physical Supply Indicators

* Shanghai gold premiums have risen; at 1530 CST Friday Shanghai physical gold closed at a premium of +3.60 to COMEX, up +3.69 over last week.  Based on this data, I conclude that the Chinese seem mildly enthusiastic about the low prices, but no more than that.

* The GLD ETF lost -7.50 tons of gold this week and is down to 836 tons.  In January, GLD had 1350 tons, which is a drop of 514 tons.  Its interesting to me that GLD continues losing gold even though premiums in Shanghai are not very high.  My guess: the gold is going elsewhere - perhaps India?  Note: to those who consider that gold is fleeing GLD simply because of dropping prices, I point you at SLV, whose price drop is even more dramatic, but has not suffered any substantial drawdown of silver from the ETF.

* Registered gold at COMEX rose +2.81 tons - up to 21.19 tons.  From what Harvey Organ has observed, the vast majority of Dec COMEX gold contracts were delivered to JP Morgan's house account.  This means: JPM was long gold, stood for delivery, and received gold bars which they put into their vault at COMEX.  One might speculate why this is, but to me the implication is straightforward: if registered gold at COMEX is increasing, there will be no COMEX default.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1228.10 and silver 19.47:

CEF 13.34 -6.03% to NAV [down]
PHYS 10.16 [bad data] to NAV [unknown]
PSLV 7.65 +0.62% to NAV [down]
GTU 42.44 -6.83% to NAV [down]

Discounts on the ETFs have increased (premiums have dropped) about 1% over the past week, and almost 2% for PSLV.  Something shook loose the PM ETF investors - perhaps it was that sell-off on Monday.

To my mind, without India, physical demand would seem to be neutral given the data we have.  India however has really stepped up efforts to suppress gold inflows; its more important than drug smuggling?  Seems curious to me.  Call physical demand positive this week.

Futures Positioning

The COT report - actually there were two updates this week - shows that for both gold and silver, the Producer category of COMEX trader is now at the most bullish they have ever been in the history of the timeseries, going back to 2006.  Producers have never been net long gold, even at the depths of the 2008 crash, but they are now.  These Producers have a decent history of picking the bottoms in gold.  It doesn't mean gold will jump higher starting next Monday, but it is very bullish long term.  Data is valid as of Tuesday - which incorporates data from the big drop on Monday.  You can see the spike higher in contracts coinciding with the drop in the gold price over the past few weeks.  On the other side of things, Managed Money has the lowest net-long reading they've ever been over the history of the series.  That's mostly because of a massive record-high short position - equal to what they had back at the June 2013 lows.

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

There is no change from last week.  Gold and silver trends are down in all three timeframes, with the price of both gold and silver both below all three of their moving averages.  This is bearish.

More Technical Indicators: RSI, MACD

RSI and MACD are two indicators I watch - most of the time they don't signal anything particularly actionable, but I believe they are both signaling something right now that is not showing up in my other indicators so I figured I'd mention them.

RSI is a calculation of how far prices have moved in a given direction over a period of time.  When RSI values are high, prices are said to be "overbought" and when RSI is low prices are "oversold."

Like prices, the RSI can display interesting patterns of its own.  There is a special pattern the RSI displays occasionally that helps to identify a possible trend change in the making.  When RSI starts to rise (it starts to show prices are  progressively "less oversold") at the same time the actual price is still falling, that pattern is called a "bullish RSI divergence."  That's what is happening now: gold's price is dropping, but gold's RSI-7 is actually rising.  This not a guarantee of a bottom, but its an indication that the velocity of the drop in price is slowing down - presumably leading to the possibility of a near-term rebound.

MACD is a group of different-length moving averages, with the MA crossings being potentially meaningful.  In this case, when the (fast) black MACD line crosses the (slow) red MACD line to the upside, that signals a possible trend change.  The more emphatic the crossing, the higher the likelihood of a valid trend change.  MACD has been decent (if a bit late) in signaling trend changes for gold.  For me, late isn't so useful, which is why I haven't mentioned it until now, but right now gold's MACD is quite close to a crossover, before the price of gold itself has started to rebound.

So in the gold chart below, we have a bullish RSI divergence, and at the same time, we are quite close to a MACD crossover.  At the same time, we're not far from gold's price crossing the 8 EMA.  All that stuff added together says - it wouldn't take much to get gold into rally mode.  Perhaps a $10 move, give or take.

Silver's MACD and RSI look quite similar to gold.

Summary

This week gold made a mockery of my comment about "stabilizing gold prices" from last week - gold was driven down to a new low of 1210 on some pretty heavy volume, and silver dipped momentarily below 19.

Looking at the various ratios and averages, gold and silver both remain in a moving-average downtrend in all three timeframes.  GDXJ:GDX is dropping (bearish), GDX:$GOLD has stabilized (at least after Monday), GDXJ:GDX is still dropping (bearish), while gold/silver ratio rose (bearish).  Trends and ratios are almost all bearish.

JPM receiving the majority of COMEX gold deliveries would seem to rule out any chance of a COMEX default.

The mining shares were clocked this week, making new multi-year lows on big volume.  We have to go back to 2008 to find prices this low.  Any buying of miners from last week was thrown right out the window driven most likely by a combination of tax loss selling and yet another leg down in gold prices.  What's our mantra?  Cheap gets cheaper...then it gets really cheap, and then the price drops some more.

At the same time, some other indicators point to a slowing of the downside momentum in gold - the MACD and the RSI.

We likely have only a week or two left of tax loss selling season.  After that, we will probably get a lift from The January Effect - which happens last week of December.  (Kind of like Black Friday is now being front-run by retailers starting it on Thanksgiving Thursday, such joy).

Physical buying seems modestly supportive for gold prices.

The COT report shows the Producer traders to be the most bullish about the price of gold ever.  Ever!!  And these are the traders that have successfully picked the low in the past.

And I have one additional observation I think is important.  Twice this week, while looking at the intraday price movement, I saw some big high volume spikes down being bought - and bought hard.  This is new behavior.  It sometimes doesn't show up in the daily charts, but its there intraday if you know what to look for.  The last time this behavior occurred was back mid-October, before gold ran up $100.  I put a lot of stock in this intraday indicator, as much as I put in the other TA I do, and it doesn't happen all that often.  And its happening now.

So while most of the TA is pretty bearish and the trend is overwhelmingly down, there are starting to be a collection of contrary hints - both in momentum, and in the intraday price/volume action, enough for me to suggest longer term buyers might consider picking up some physical gold at or around these levels.  If you are more willing to take risk, buying now might get you a better price - while someone more risk averse who wants to avoid the chance of yet another collection of down-legs in the price of gold should wait until the 8 EMA crossing.

As for when - my gut says we don't have too much longer to wait, assuming no massive market-moving news hits the wire.  Its odd, gold has no economic catalyst, and yet I see things that are lining up that is bullish.  Perhaps the price will bounce, and then the catalyst will appear.  Sometimes things work this way; the public is often the last to know.

Or maybe the goldbugs are right, the impending catalyst is really that "they" are down to scraping the last few bits of 1960s-era gold pried loose from the dusty corners of the western vaults to be melted down, recast to 1-kilo bars, and sent off to China, and we are not far away from the decades-in-the-making Great Gold Squeeze.  Call me crazy but I'd guess that bottom-scraping news wouldn't be kept from the bullion bank participants in the LBMA, and they'd want to get net long gold which...they seem to be doing as per the COT report...hmmmm...

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Sat, 07 Dec 2013 23:12:22 +0000
<![CDATA[There Is Too Little Gold in the West]]> https://silvergoldbull.com/blog/pp-2013-12-06/ Western central banks have tried to shake off the constraints of gold for a long time, which has created enormous difficulties for them. They have generally succeeded in managing opinion in the developed nations but been demonstrably unsuccessful in the lesser-developed world, particularly in Asia. It is the growing wealth earned by these nations that has fuelled demand for gold since the late 1960s. There is precious little bullion left in the West today to supply rapidly increasing Asian demand. It is important to understand how little there is and the dangers this poses for financial stability.

An examination of the facts shows that central banks have been on the back foot with respect to Asian gold demand since the emergence of the petrodollar. In the late 1960s, demand for oil began to expand rapidly, with oil pegged at $1.80 per barrel. By 1971, the average price had increased to $2.24, and there is little doubt that the appetite for gold from Middle-Eastern oil exporters was growing. It should have been clear to President Nixon’s advisers in 1971 that this was a developing problem when he decided to halt the run on the United States' gold reserves by suspending the last vestiges of gold convertibility.

After all, the new arrangement was: America issued the petrodollars to pay for the oil, which were then recycled to Latin America and other countries in the West’s sphere of influence through the American banks. The Arabs knew exactly what was happening; gold was simply their escape route from this dodgy deal.

The run on U.S. gold reserves leading up to the Nixon Shock in August 1971 is blamed by monetary historians on France. But note this important passage from Ferdinand Lips’ book GoldWars:

Because Arabs did not understand bonds and stocks they invested their surplus funds in either real estate and/or gold. Since Biblical times, gold has been the best means to keep wealth and to transfer it from generation to generation. Gold therefore was the ideal vehicle for them. Furthermore after their oil reserves are exhausted in the distant future, they would still own gold. And gold, contrary to oil, could never be wasted.

According to Lips, Swiss private bankers, to whom many of the newly-enriched Arabs turned, recommended that a minimum of 10% and even as much as 40% should be held in gold bullion. This advice was wholly in tune with Arab thinking, creating extra demand for America’s gold reserves, some of which was auctioned off in the following years. Furthermore, Arab investors were unlikely to have been deterred by high dollar interest rates in the early eighties, because high interest rates simply compounded their rapidly-growing exposure to dollars.

Using numbers from BP’s Statistical Review and contemporary U.S. Treasury 10-year bond yields to gauge dollar returns, we can estimate gross Arab petrodollar income, including interest from 1965 to 2000, to total about $4.5 trillion. Taking average annual gold prices over that period, ten percent of this would equate to about 50,500 tonnes, which compares with total mine production during those years of 62,750 tonnes, over 90% of which went into jewellery.

This is not to say that 50,000 tonnes were bought by the Arabs; it could only be partly accommodated even if the central banks supplied them gold in very large quantities, of which there is some evidence that they did. Instead, it is to ram the point home that the Arabs, awash with printed-for-export petrodollars, had good reason to buy all available gold. And importantly, it also gives substance to Frank Veneroso’s conclusion in 2002 that official intervention i.e., undeclared sales of significant quantities of government-owned gold was effectively being used to manage the price in the face of persistent demand for physical gold as late as the 1990s.

Transition from Arab demand

Arabs trying to invest a portion of their petrodollars would have left very little investment gold for the advanced economies. As it happened, U.S. citizens had been banned from holding bullion until 1974, and British citizens were banned until 1971. Instead, they invested mainly in mining shares and Krugerrands, continuing this tradition by using derivatives and unbacked unallocated accounts with bullion banks in preference to bullion itself. This meant that, until the mid-seventies, investment in physical gold in the West was minimal, almost all gold being held in illiquid jewellery form. Western bullion investors were restricted to mainly Germans, French, and Italians, mostly through Swiss banks. The 1970s bull market was therefore an Arab affair, and they continued to absorb gold through the subsequent bear market.

By the late-nineties, a new generation of Swiss investment managers, schooled in modern portfolio theory and less keen on gold, persuaded many of their European clients to reduce and even eliminate bullion holdings. At the same time, a younger generation of Western-educated Arabs began to replace more conservative patriarchs, so it is reasonable to assume that Arab demand for gold waned somewhat, as infrastructure spending and investment in equity markets began to provide portfolio diversification. This was therefore a period of transition for bullion, driven by declining Western investment sentiment and changing social structures in the Arab world.

It also marked the beginning of accelerating demand in emerging economies, notably India, but also in other countries such as Turkey and those in Southeast Asia, which were rapidly industrialising. In 1990, the Indian Government freed up the gold market by abolishing the Gold Control Act of 1968, paving the way for Indians to become the largest officially-recognised importers of gold until overtaken by China last year.

Lower prices in the 1990s stimulated demand for jewellery in the advanced economies, with Italy becoming the largest European manufacturing centre. At the same time, gold leasing by central banks increased substantially, as bullion banks exploited the differential between gold lease rates and the yield on short-term government debt. This leased gold satisfied jewellery demand as well continuing Asian demand for gold bars.

So, despite the fall in prices between 1997-2000, all supply was absorbed into firm hands. When gold prices bottomed out, Western central banks almost certainly had less gold than publicly stated, the result of managing the price until 1985, and through leasing thereafter. This was the background to the London Bullion Market Association, which was founded in 1987.

The LBMA

In 1987, the unallocated account system became formalized under London Bullion Market Association (LBMA) rules, allowing the bullion banks to issue gold IOUs to their customers, making efficient use of the bullion available. The ability to expand customer business in the gold market without having to acquire physical bullion is the chief characteristic of the LBMA to this day. Futures markets in the U.S. also expanded, and so derivatives and unallocated accounts became central to Western investment in gold. Today the only significant bullion held by Western investors is likely to be a small European residual plus exchange-traded fund (ETF) holdings. In total (including ETFs), this probably amounts to no more than a few thousand tonnes.

The LBMA was established in 1987 in the wake of the Financial Services Act in 1986. Prior to that date, the twice-daily gold fix had become the standard pricing mechanism for international dealers, whose ranks grew on the back of the 1970s bull market. This meant that international banks established their bullion dealing activities in London in preference to Zurich, which was the investment centre for physical bullion. The establishment of the LBMA was the formalization of an existing gold market based on the 400-ounce "good delivery" standard and the operation of both allocated and unallocated accounts.

During the twenty-year bear market, attitudes to gold diverged, with capital markets increasingly taking the view that the inflation dragon had been slain and gold’s bull market with it. At the same time, Asian demand initially from the Arab oil exporters but increasingly from other nations led by Turkey, India, and Iran ensured that there were buyers for all the physical gold available. Mine supply, which benefited from the introduction of heap-leaching techniques, had increased from 1,314 tonnes in 1980 to 2,137 tonnes in 1990 and 2,625 tonnes by 2000. Together with scrap supply, London was in a strong position to intermediate between a substantial increase in gold flows to Asian buyers, and it was from this that central bank leasing naturally developed.

Gold backed by these physical flows was the ideal asset for the carry trade. A bullion bank would lease gold from a central bank, sell the gold, and invest the proceeds in short-term government debt. It was profitable for the bullion bank, governments were happy to have the finance, and the lessor was happy to see an idle asset work up some extra income. However, leasing only works so long as the bullion bank can hedge by accessing future supply so that the lease can eventually be terminated.

Before 2000, this was a growing activity, fuelled further by Swiss portfolio disinvestment in the late 1990s. As is usual in markets with a long-term behavioral trend, competition for this business extended the risks beyond being dangerous. This culminated in a crisis in September 1999, when a 30% jump in the price threatened to bankrupt some of the bullion banks who were in the habit of running short positions.

Post-2000

Bull markets always start with very little mainstream and public involvement, and so it has proved with gold since the start of this century. So let us recap where all the gold was at that time:

  • Total above-ground gold stocks were about 129,000 tonnes, of which 31,800 tonnes were officially monetary gold. Of the balance, approximately 85-90% was turned into jewellery or other wrought forms, leaving only 10-15,000 tonnes invested in bar and coins and allocated for industrial use.
  • Out of a maximum of 15,000 tonnes, coins (mostly Krugerrands) accounted for about 1,500 tonnes and other uses (non-recovered industrial and dental), say, 1,000 tonnes. This leaves a maximum of 12,500 tonnes and possibly as little as 7,500 tonnes of investment gold worldwide at that time.
  • After Swiss fund managers disposed of most of the bullion held in portfolios for their clients in the late 1990s, there was very little investment gold left in European and American ownership.
  • Frank Veneroso in 2002 concluded, after diligent research, that central banks had by then supplied between 10-15,000 tonnes of monetary gold into the market. Much of this would have gone into jewellery, particularly in Asia, but some would have gone to the Middle East. This explains how extra investment gold may have been supplied to satisfy Middle Eastern demand.
  • Middle Eastern countries must have been the largest holders of non-monetary gold in bar form at this time. We can see that 10% of petrodollars invested in gold would have totalled over 50,000 tonnes, yet there can only have been between 7,500-12,500 tonnes available in bar form for all investor categories world-wide. This may have been increased somewhat by the addition of monetary gold leased by central banks and acquired through the market.

It was at this point that the second gold bull market commenced against a background of very little liquidity. Investment bullion was tightly held, the central banks were badly short of their declared holdings of monetary gold, and from about 2004 onwards, ETFs were to grow to over 1,500 tonnes. Asian demand continued to grow (led by India), and China began actively promoting private ownership of gold at about the same time.

Other than through physically-backed ETFs, Western investors were encouraged to satisfy their demand for bullion through derivatives and unallocated accounts at the bullion banks. There are no publicly available records detailing the extent of these unallocated accounts, but the point is that Western demand has not resulted in increased holdings of bullion except through securitised ETFs. Instead, the liabilities faced by the bullion banks on uncovered accounts will have increased to accommodate growth in demand. Therefore, the vested interests of the bullion banks and the central banks overseeing the gold market call for continued suppression of the gold price, so as to avoid a repeat of the crisis faced in September 1999 when the price increased by 30% in only two weeks.

Where are the sellers?

Price suppression can only be a temporary stop-gap, and there has never been sufficient supply to allow the central banks to retrieve their leased gold from the bullion banks. Therefore, Frank Veneroso’s conclusion in 2002 that there had to be existing leases totalling 10-15,000 tonnes is a starting point from which leases and loans have increased. There are two events which will almost certainly have increased this figure dramatically:

  1. When the price rose to $1900 in September 2011, there was a concerted attempt to suppress the price from further rises. The lesson from the 1999 crisis is that the bullion banks’ geared exposure to unallocated accounts was forcing a crisis upon them; if they had been forced to cash-settle these accounts, the gold price would almost certainly have risen further, risking a widespread monetary crisis.
  2. Through 2012, Asian demand, particularly from China, coinciding with continued investor demand for ETFs, was already proving impossible to contain. In February this year, the Cyprus bail-in banking crisis warned depositors in the Eurozone that all bank deposits over the insured limit risked being confiscated in the event of a wider Eurozone banking crisis. This drove many unallocated account holders to seek delivery of physical gold from their banks, forcing ABN-AMRO and Rabobank to suspend all gold deliveries from their unallocated accounts. This was followed by a concerted central- and bullion-bank bear raid on the market in early April, driving the price down to trigger stop-loss sales in derivative markets and subsequent liquidation of ETF holdings.

It is widely assumed that the unexpected rise in demand for bullion that resulted from the April take-down was satisfied through ETF sales, but an examination of the quantities involved shows they were insufficient. The table below includes officially reported demand for China and India alone, not taking into account escalating demand from the Chinese diaspora in the Far East and from elsewhere in Asia:

 

 

These figures do not include Chinese and Indian purchases of gold in foreign markets and stored abroad, typically carried out by the rich and very rich. Nor do they include foreign purchases by the Chinese Government and its agencies. Despite these omissions, in 2012, recorded demand from these two countries left the world in a supply deficit of 131 tonnes. Furthermore, ahead of the April smash-down in the first quarter of this year, the deficit had jumped to 88 tons, or an annualised rate of 352 tonnes.

Demands for delivery by panicking Europeans in the wake of the Cyprus fiasco could only provoke one reaction. On Friday 12th April, 400 tonnes of paper gold were dumped on the market in two orders, triggering stop-loss sales and turning market sentiment bearish in the extreme. Western investors started to think about cutting their losses, and they sold down ETF holdings to the tune of 325 tonnes in 2013 by the end of May. However, this triggered record demand among those who looked on gold as insurance against currency and systemic risks.

Later that year, in July, Ben Bernanke told the Senate Banking Committee he didn’t understand gold. That was probably a reference to the April gold price smash orchestrated by the central banks and how it unleashed record levels of demand. It was an admission that he thought everyone would follow the new trend by acting like portfolio investors, forgetting that if you lower the price of a commodity, you merely unleash demand. It was also an important admission of policy failure.

Since those events in April, someone has been supplying the market with significant quantities of gold to keep the price down. We know it is not Arab gold, because I have discovered through interviewing a director of a major Swiss refiner that Arab gold is being recast from LBMA specification bars into one-kilo .9999 bars, which has become the new Asian standard. Arab gold does not appear to be being sold, only recast, and anyway, it is only a small part of their overall wealth. We also know from our long-term analysis that any European gold bullion is relatively small in quantity and tightly held. There can only be one source for this gold, and that is the central banks.

I discovered that there was a discrepancy in the Bank of England’s custodial gold of up to 1,300 tonnes between the date of its last Annual Report (28th February) and mid-June, when a lower figure was given out to the public on the Bank’s website. This fits in well with the additional amount of gold needed to manage the price between those months. Furthermore, the Finnish Central Bank recently admitted that all its gold held at the Bank of England was “invested” i.e., sold and further added that the practice “was common for central banks.”

Bearing in mind Veneroso’s conclusion in 2002 that there must be 10,000-15,000 tonnes out on lease and loan from the central banks at that time, one could imagine that this figure has increased significantly. Officially, the signatories of the Central Bank Gold Agreement, plus the U.S. and U.K. own 20,393 tonnes. A number of other central banks are likely to have been persuaded to “invest” their gold, but this is bound to exclude Russia, China, the Central Asian states, Iran, and Venezuela. Taking these holders out (amounting to about 3,000 tonnes) leaves a balance of 8,401 tonnes for all the rest. If we further assume that half of that has been deposited in London, New York, or Zurich and leased out, that means the total gold leased and available for leasing since 2002 is about 12,000 tonnes. And once that has gone, there is no monetary gold left for the purpose of price suppression.

Could this have disappeared since 2002 at an average rate of 1,000 tonnes per annum? Quite possibly, in which case, the central banks are very close to losing all control over the gold price.

In Part II: The Very Real Danger of a Failure in the Gold Market, I discuss why the Chinese are buying so much gold and why the Reserve Bank of India is trying to suppress gold demand. I show that gold is substantially undervalued and why that undervaluation is likely to correct itself spectacularly, precipitating a financial crisis.

Click here to access Part II of this report (free executive summary; enrollment required for full access).

Alasdair Macleod, PeakProsperity.com contributing editor
Peak Prosperity

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Fri, 06 Dec 2013 18:23:45 +0000
<![CDATA[Gold & Silver Weekly Recap: An Important Stabilization?]]> https://silvergoldbull.com/blog/pp-wr-2013-12-04/ Gold finished Friday up +14.00 to 1251.40 on light volume, silver was up +0.42 to 20.00 also on light volume.  The gold/silver ratio dropped -0.61 to 62.57.  GDX was up +2.16%, while GDXJ was up +3.5%.  Although volume was light because of the half-day of trading in the US, it all looked good today.

On the week, gold was up +9.00 [+0.72%], silver up +0.18 [+0.98%], GDX +0.13% and GDXJ was flat.  The weekly picture is one of a potential reversal; miners on the daily chart have confirmed a reversal, while both gold and silver are lagging behind a bit.  The GDX breakdown below support was met with buying rather than increased selling.  Since a break through support is a logical point for traders to bail out, this is a positive sign.  Miners can sometimes act as an indicator for what happens in the metal, and this may be the case again.

The USD

The dollar moved down on the week -0.08% to 80.66.  The buck keeps drifting lower, and is forming a descending triangle on the daily chart, with the lower support line on 80.50.  A break below 80.50 would likely lead to a re-test of 79, its most recent low point.  Dollar weakness would be gold-price positive.

Physical Supply Indicators

* Shanghai gold premiums have dropped; at 1530 CST Shanghai physical gold closed at a discount of -0.09 to COMEX, down -3.17 over last week.  Many other sites have "Shanghai gold" selling at a substantial premium to COMEX - they are wrong.  SGE Au(T+D) (the contract requiring delivery of physical gold) closed Friday at 244.56 CNY/gram, or $1241.39/troy ounce.  At that moment on COMEX, Feb 2014 gold (the front month contract) was trading at $1241.50.  Can you get a $30 premium out of those two numbers?

* The GLD ETF lost -9.00 tons of gold this week and is down to 843 tons.  In January, GLD had 1350 tons, which is a drop of 507 tons.

* Gold at COMEX rose very slightly - 0.05 tons - up to 18.38 tons.  December is historically a big delivery month, and Friday was first notice day for December gold.  Currently, there are 31.38 tons (about 1M ounces) in contracts standing for delivery.  With only 18 tons available for delivery, unless some gold is deposited at COMEX or some of the people that want delivery back out, COMEX will have a problem meeting demand.  Typically people back out, but - if they don't, what then?  A COMEX default?  Before we get too excited, on average about 1% of the open interest ends up actually taking delivery - I'd estimate that to be about 235k ounces (7.3 tons).  That is 40% of the gold remaining at COMEX.  If things happen normally, COMEX won't default - this month.

* I'm still working on charting historical closing prices for the Indian gold futures market (the MCX).   Rough calculation: spot gold (in Mumbai) is 30,100 INR/10 grams, or about $1500/troy oz.  That's a premium of $249 over COMEX, or 20%!!  Even if we remove the 10% import tax (or 15% on jewelry) that's still a massive premium.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1238.00 and silver 19.70:

CEF 13.60 -5.08% to NAV [up]
PHYS 10.35 +0.16% to NAV [up]
PSLV 7.91 +2.87% to NAV [up]
GTU 43.35 -5.59% to NAV [up]

Discounts on the ETFs have dropped (premiums have risen) from 1% to 1.5% over the past week.  Physical ETF investors are coming back, and the Sprott funds are now both in premium.

While Shanghai premiums are modestly negative which is surprising given the drop in price, the drop in GLD inventory, the potential COMEX gold shortfall, and the absurd premiums in India are supportive of the gold price.

Futures Positioning

The COT report will be delayed until Monday due to the Thanksgiving holiday in the US.

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

There is no change from last week.  Gold and silver trends are down in all three timeframes, with the price of both gold and silver both below all three of their moving averages.  This is bearish.

Summary

This week saw gold prices stabilizing, trading in a range generally between 1235 and 1255.   Gold dipped to 1226 at one point, but rebounded on good volume.  A close above 1260 is needed to get the ball rolling on a rebound.

Looking at the various ratios and averages, gold and silver both remain in a moving-average downtrend in all three timeframes.  GDXJ:GDX is dropping (bearish), GDX:$GOLD has rebounded (bullish), GDXJ:GDX is still dropping (bearish), while gold/silver ratio is unchanged (neutral).  Trends and ratios are mixed, but generally bearish - an improvement over last week's "totally bearish" situation.

The mining shares did unexpectedly well this week.  After dropping below the June lows, buyers appeared - although buying was modest, GDX didn't sell off in the way I was concerned it would.  It is still vulnerable, and if gold can close above 1260 and GDX continues being bought, we might have the start of something.

Even though Shanghai is slightly in discount, gold is still leaving GLD and COMEX has its big delivery month happening now, without much gold available in the warehouse.  And India's premium - 20% if my numbers are to be believed - is simply crazy.

The trend indicators still point lower, and the trend is a powerful force.  Gold needs to close above 1260 to get any sort of bounce going, and gold really requires a close above gold 1300 to indicate a possibility of an actual trend change.  If you are looking for a longer term trading signal, it is probably a good idea to let the buyers prove they really want to chase prices higher before jumping in and even that is no guarantee of a good outcome.  The number of failed bounces and rallies during this downtrend indicates the power of this trend, and trying to buy every bounce in a downtrend "because gold is cheap" or "because this is the low, I know it" is a recipe for fatigue, stress, and losses.

Could a move above 1260 signal that this is "the low"?  You bet.  But given the number of bounces that ended up with further price drops, its not something you necessarily want to bet the house & farm on.  If we get a breakout above 1260 on big volume, the odds improve.  If price limps weakly above 1260, the odds decrease.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

Peak Prosperity
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]]>
Sat, 30 Nov 2013 22:30:45 +0000
<![CDATA[ Gold & Silver Weekly Recap: Hope Glimmers At the End of Another Rough Week]]> https://silvergoldbull.com/blog/pp-wr-2013-11-23/ Gold finished Friday up +0.70 to 1242.40 on moderate volume, silver was down -0.14 to 19.82 on moderate volume.  The gold/silver ratio rose +0.47 to 62.70.  Gold traded sideways within a tight trading range.  Silver sold off modestly all day long.  GDX also sold off all day, dropping -1.24% on light volume, losing most of the gains from Thursday's rally.  GDXJ dropped -1.93% on moderate volume.

On the week, gold was down -47.20 [-3.66%], silver down -0.95 [-4.66%], GDX -7.79% and GDXJ -9.67%.  The weekly picture is one of almost unrelieved bearishness, silver down more than gold and GDXJ down more than GDX, with GDX dropping faster than gold.  All the ratios look bearish.  Both GDX and GDXJ are very close to breaking down - any move down below the June lows will likely lead to some more serious selling.

In addition, tax loss season fast approaches.  Mining shares have dropped 46% year-to-date.  Any hardy mining share investor who hasn't sold yet is probably sitting on some very large losses.

The USD

The dollar moved down -0.19% to 80.72.  After hitting the 50 week MA two weeks ago week, the buck seems to be drifting lower, but without any real intensity.  This week the buck seemed to be a non-factor for PM.

Physical Supply Indicators

* Shanghai gold premiums have risen; currently Shanghai gold is selling at a premium of +2.68 to COMEX, up +3.53 over last week.  While this is bullish, with gold at these levels I'd have expected Shanghai premiums to have risen more than they have.

* The GLD ETF lost -13.50 tons of gold this week and is down to 852 tons.  In January, GLD had 1350 tons, which is a drop of 498 tons.

* The COMEX is down to 18.33 tons, yet another a new low for the year.  COMEX registered is down dramatically from its April peak of 92 tons.

* I'm still working on getting historical closing prices for the Indian gold futures market (the MCX).

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1242.70 and silver 19.84:

CEF 13.46 -6.57% to NAV [down]
PHYS 10.27 -1.01% to NAV [down]
PSLV 7.89 +1.80% to NAV [down]
GTU 42.70 -7.37% to NAV [down]

Discounts on the ETFs have increased from 0.5% to 1.5%.  Physical ETF investors are bailing out once again and discounts are widening.

With the drop in the price of gold, physical demand is now clearly positive.

Futures Positioning

This week's COT report shows a further decrease in Managed Money net long positions (+8k contracts short -3k contracts long), while the Producers decreased their shorts by about the same amount (-11k contracts).   Producers have become even more bullish, while the Managed Money increased their bearish stance - Managed Money is getting close to the bearish stance they had at the June 2013 lows.  While this is not useful as a timing indicator, long term this is bullish.

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

There is no change from last week.  Gold and silver trends are down in all three timeframes, with the price of both gold and silver both below all three of their moving averages.  This is bearish.

Summary

This week saw gold blow through two support levels, but Thursday and Friday there were signs of accumulation (and/or short covering) - on Thursday especially, with large volume on a day with very little price movement.  There was no particular news driving gold lower this week, except perhaps chatter about the likelihood of tapering coming at the upcoming December Fed meeting on the 18th.

With the decline in prices, Shanghai has returned to premium, gold departing GLD has accelerated, so all indicators suggest physical buying pressure is positive.

Futures positioning is increasingly bullish.  While not a timing indicator, managed money short positions are approaching that reached back in June when gold hit 1180.

Gold and silver both remain in a downtrend in all timeframes.  GDX:$GOLD is dropping (bearish), GDXJ:GDX is dropping (bearish), gold/silver ratio is rising (bearish) - it all looks pretty bad.

The mining shares sold off hard this week; 4 of 5 days were down, volume was moderate, and mining shares are right at their June lows.  Any sustained move through the June lows would most likely bring heavy selling to the beaten-up mining sector (-46% YTD).  With tax loss season almost upon us, this would probably lead to a significant capitulation in the mining shares.  This would lead to a good buying opportunity for those with cash towards the end of December, but it would be unfortunate for those already long the miners.

Gold's downtrend took another leg lower this week, although the accumulation (and/or short covering) observed (mostly Thursday) give a very modest sign of hope.  For that hope to be realized, confirmation is required - at a minimum, a close above Thursday's high of 1250 is necessary to get some relief from the short assaults coming from Managed Money.  If a confirmation is not forthcoming, then the downtrend in place will likely move gold towards its next support level of 1200.

Trends in motion tend to stay in motion, and the current trend is definitely down.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

Peak Prosperity
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]]>
Sat, 23 Nov 2013 16:34:29 +0000
<![CDATA[Gold & Silver Weekly Recap: Cross-currents galore]]> https://silvergoldbull.com/blog/pp-wr-2013-11-16/ Gold finished Friday up +2.80 to 1289.60 on light volume,  silver was up +0.02 to 20.77 on light volume.  The gold/silver ratio rose +0.02 to 62.09.  Gold traded down slightly in europe but rallied modestly in NY and climbed higher into the close.  Silver followed gold, but looked weaker.  GDX sold off all day, dropping -1.71% on moderate volume, losing most of the gains from Thursday's rally.  GDXJ was down a bit less, -1.21%, on light volume.

On the week, gold was mostly unchanged +0.60 [+0.05%], silver down -0.73 [-3.40%], GDX -0.62% and GDXJ -0.06%.  In this picture silver is seriously lagging - the outlier - perhaps it was the bad influence of copper (off -2.7% on the week) which broke support and is looking unhappy.  Copper is an industrial metal, silver has a split personality (half industrial, half monetary), while gold is almost entirely monetary.  So when copper has a bad week, it sometimes drags silver down along with it.  And when copper drops, its definitely not a sign of inflation.

The USD

The dollar retreated this week, closing down -0.49% to 80.88.  Apparently Janet Yellen's announced desire to continue the QE program was only mildly dollar negative.  Certainly the USD didn't sell off too dramatically after hearing what she had to say - it would seem that most of her testimony was already baked into the cake.

The dollar right now seems to be less of a factor in gold.  Its retreat from 81.50 may be providing modest support for gold, but it certainly isn't driving PM prices the way it was over the past few weeks.

Its too soon to say if the buck has topped out, but it is possible.  On the weekly chart, the buck appears to have run into resistance at the 50 week MA.  If it can't move above that, then it will likely turn back downhill.  After all, the medium term trend in the buck is still down.  And if it drops, it will likely be gold-price positive.  And a break below 79 would likely be quite positive.

Excess Reserves

One of the intriguing things Janet Yellen talked about at her hearing was the possibility of lowering the rate the Fed pays banks on their Excess Reserves - the place where most of the QE money goes to hide after it is used to buy bonds from the bankers.  If that rate were lowered far enough, the bankers might actually have some incentive to move that money elsewhere.  Where might they move it?

Most likely it would run to something else that looks like reserves - like short term treasury bonds, bank deposits at another bank, or it might even be used to pay down debt.  Might the banks actually lend it out to consumers?  I suppose if consumers wanted loans, they might.  But if consumers wanted loans right now, there's nothing stopping the banks from lending it to them.  I get the sense that the Fed itself doesn't really know what will happen, that they see this as yet another lever they could pull, they are flying by the seat of their pants, and that we'll all get to figure out together what happens once they decide to try this latest experiment.

My belief is that most likely, it will further lower short rates.  Perhaps 3-month treasurys will drop to 0.00% or maybe even negative values rather than  yielding 0.08%.  I doubt it will result in more loans in the real economy.  How will it affect gold?  My guess: if it affects gold, it will be positive.

Physical Supply Indicators

* Shanghai gold premiums have risen vs last week; currently Shanghai gold is selling at a discount of -0.85 to COMEX, up +3.57 over last week.

* The GLD ETF lost -2.71 tons of gold this week, dropping back down to 865 tons.  In January, GLD had 1350 tons, which is a drop of 485 tons.

* The COMEX lost -1.61 tons of registered gold this week, and is down to 18.26 tons, a new low for the year.  COMEX registered is down dramatically from its April peak of 92 tons - down 80%.  The December COMEX contract is about two weeks away from first notice day and there are 166k contracts active.  Typically 1% of contracts ask for delivery, which is about 1660 contracts or about 5.16 tons of gold.  Assuming "the normal thing" happens in the upcoming delivery months, at this rate the COMEX will be empty of gold in about 3 delivery months - perhaps 6 months from now.  Of course, if more than 1% stand for delivery, it could happen a lot sooner than that.  That's something to keep an eye on.

* I'm working on getting historical closing prices for the Indian gold futures market (the MCX) - hopefully by next week - which should let me chart the Indian premium to COMEX.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1287.50 and silver 20.75:

CEF 14.10 -5.87% to NAV [down]
PHYS 10.67 -0.71% to NAV [down]
PSLV 8.33 +2.82% to NAV [unchanged]
GTU 44.76 -6.23% to NAV [down]

Discounts on the ETFs have mostly dropped, some significantly.  Sprotts funds haven't changed much, but CEF and GTU have dropped more substantially.

Physical demand is a mostly positive picture.  COMEX registered declined yet again, GLD lost some gold, and Shanghai is more or less flat.  India is a positive.  Looks like there is modest pressure from physical demand.

Futures Positioning

This week's COT report shows a massive increase in Managed Money short positions.  The shorts increased by 27,730 contracts, doubling the total MM short exposure to 54k contracts.  This is really a huge increase.  Something similar happened in silver too - Managed Money increased short exposure by 7k contracts, up almost 40%.  Likely this helps explain the big move down in both metals.  Producers remain quite bullish.

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

There is no change from last week.  Gold and silver trends are down in all three timeframes, with the price of both gold and silver both below all three of their moving averages.  This is a bearish configuration.

Summary

This week saw gold largely unchanged.  1280 support failed, but gold found support at 1260 and rebounded.  Volume on the bounce was below average for a rebound, which is not supportive of a continued move up.

With Janet Yellen apparently less interested in tapering than Ben Bernanke, one would assume tapering is off the table, but it does not seem that gold is convinced of this.  Either that, or tapering is only part of what was driving the COMEX traders to sell and/or go short.

The buck retreated from 81.50, and that led the bounce in gold by a couple of days.  Continued dollar weakness should help gold, and most likely the path of least resistance is down, given the dollar remains in a medium term downtrend.

With Shanghai flat and gold leaving the various repositories and India importing even with all the taxes, I conclude that physical buying pressure appears to be positive right now.

Gold and silver both remain in a downtrend in all timeframes.  While gold has bounced off 1260, silver is now apparently being dragged down by copper, and the gold/silver ratio has risen sharply over the last week.  Silver weakness and the pressure from the PM downtrend that is currently in place is bearish.

The mining shares are continuing to show signs of accumulation; Friday was a bad day, but by and large miners have done better than gold and silver in recent weeks by a modest amount.  This I would interpret as cautiously bullish.

Overall - it looks like there are forces pulling gold in both directions at the moment.  While one might expect a dovish Fed Chairman to be seriously positive for gold, the response from the market has been modest, seemingly barely able to counteract the forces of the current downtrend.  As a result, we might well end up with a market that chops along support here for a time while it figures out where it will go in the longer term.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

Peak Prosperity
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]]>
Sat, 16 Nov 2013 22:54:07 +0000
<![CDATA[Gold & Silver Weekly Recap: Miners & Metals Diverge]]> https://silvergoldbull.com/blog/pp-wr-2013-11-09/ Gold finished Friday down -18.20 to 1289.00 on heavy volume, while silver dropped -0.16 to 21.50 also on heavy volume.  The gold/silver ratio dropped -0.40 to 59.95.  Gold traded sideways right up until the Nonfarm Payrolls report at 0830 EDT (unexpectedly good news for payrolls: good economic news = bad news for gold), after which it dropped $25 in 30 minutes eventually touching a low of 1280, cascading lower while the dollar raced higher.  Silver followed gold down, but was not as hard-hit.  Gold rallied modestly at end of day.  GDX was initially hit hard by gold's plunge, but in the afternoon in NY it rallied hard into the close, ending the day up +0.58% on moderately heavy volume.  GDXJ was up +0.73%, on heavy volume.  Mining shares moved in distinct contrast to the metal - GDX buyers most definitely showed up, and chased prices higher.  The metals were bearish, but miners were bullish.

Contrast gold with miners in the following two charts:

 

On the week, gold was down -26.30 [-2.00%], silver down -0.36 [-1.65%], GDX +0.83% and GDXJ -1.10%.  Miners clearly outperformed metal this week and even printed a possible reversal candle on Friday (requiring confirmation by a close above GDX 24.30), which is an interesting change of behavior from last week.  The only piece absent from the possible reversal is heavy volume - GDX volume on Friday was only moderate.  The more pieces that are in place, the more likely the signal is accurate.

Still, when you have two related instruments, and one gets bought while the other is sold, that's a divergence in behavior.  They both can't be right.

The USD

The dollar moved up +0.66% this week.  This was driven primarily by economic news releases, with the buck bought whenever unexpected good news appeared.  This looks similar to last month's pre-Fed taper worries.  Although various polls suggest economists don't think the Fed will taper at this upcoming Fed meeting, the market's reaction to economic news releases suggests the concern over tapering remains.

Dollar buyers have continued to push the buck higher this week, and at the same time, gold has continued falling.  Dollar up, gold down continues to be the paradigm.  Resistance points for the buck include 81.80 (the 200 MA) and 82.70, the most recent high set on Sep 8.  The buck has broken its downtrend pattern of a lower highs with the break above 81, and has now reversed.

Bonds - Rates, Tapering and The Fed

The 20 year treasury was crushed Friday, dropping -2.41% which is a huge move in just one day.  This move blew through its 50 day MA and broke the pattern of lower highs that had characterized the bond rally started late August.  As a result of bond prices dropping, long term interest rates rose (that's just how bonds work).  The 10 year treasury yield (TNX) jumped 13 basis points to 2.74%.  A few more days like this, and we'll see the 10 year rate back up at 3%.

Why do we care?  Gold and silver are both reacting badly to positive economic news likely because of renewed speculation regarding taper/no-taper.  So are treasury bonds.  When gold plummeted on the Nonfarm Payroll report on Friday, at that very moment the 30 year treasury bond futures sold off too.  And while people speculate that the Fed might be beating down gold through some sneaky program in the shadows, the Fed shows its concern for lower bond rates by openly buying $85 billion in bonds every month!

So the Fed cares a great deal about bonds.  And my guess is, if rates continue to climb with every bit of good news because of this "taper possibility", the Fed will - most likely - try and jawbone rates back down again.  In the past, they have sent out a flock of Fed Presidents to accomplish this goal.  They will end up giving talks whose collective message will be, "Oh my no, we are not going to taper at this point."

The impact?  If they are believed by the market, it will lead to a drop in rates.  However, as a side effect, it will most likely provide a lift to gold.  We may not have to wait until the Dec 17-18 Fed meeting to get the answer to the tapering question.

Bonds are why I think "the Fed is in a box."  Every time tapering seems like it might be a possibility, rates rise, which keeps the Fed Finger on the print button.

Physical Supply Indicators

* Earlier in the week, gold premiums in Shanghai rose briefly to flat, and then dropped again to discount by Friday.  Currently Shanghai gold is selling at a discount of -6.02 to COMEX, down -1.64 over last week.

* The GLD ETF gained +2.10 tons of gold this week, rising to 868 tons.  In January, GLD had 1350 tons, which is a drop of 482 tons.

* The COMEX lost -2.15 tons of registered gold this week, and is down to 19.87 tons, a new low for the year.  COMEX registered is down dramatically from its April peak of 92 tons.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1287.40 and silver 21.47:

CEF 14.52 -4.99% to NAV [up]
PHYS 10.70 -0.44% to NAV [up]
PSLV 8.62 2.82% to NAV [up]
GTU 45.35 -4.99% to NAV [up]

Discounts on the ETFs have fallen/premiums have risen - very slightly, but surprisingly.  Normally when PM prices fall, discounts for these ETFs rise, but not this week.  This tells me that PM-savvy ETF buyers are more interested in buying than selling at these levels.  Perhaps - the weak hands that normally get flushed out of the PM ETFs on price drops have already sold?

Physical supply is still a mixed picture.  COMEX registered is still declining, but GLD gained gold with Shanghai in discount.  India is likely a positive.  Let's call it a wash.

Futures Positioning

Finally updated through Nov 5, the COT report shows that Producers decreased their longs and increased shorts substantially.  They are now net 30k short, a drop of 20k contracts from the last time we saw them on October 18th.  The configuration of the Producers futures holdings are still bullish, but less now than before, mostly because of a loss of longside exposure.

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

There is no change from last week.  Gold and silver trends are down in all three timeframes, with the price of both gold and silver both below all three of their moving averages.  This is a bearish configuration.

Summary

This week saw another leg down for PM - a rising dollar and "good economic news" are causing trouble for gold and silver.  Support for gold is 1280, with resistance at 1320 and 1360.

With no inflation on the horizon (18 months of bank credit deflation in the eurozone, plus continually dropping commodity prices have removed inflation from the equation), this leaves the market with taper/no-taper as the driver for PM prices.  And so with every bit of good news, the market sees increased odds of tapering, which drives gold prices lower.

Gold seems closely linked to the dollar.  And with the dollar in an uptrend, the dollar shorts are bailing out with every unexpectedly positive economic release, while gold is dropping.  If the good economic news keeps coming, the buck will likely keep moving up, and gold will keep moving down.  Trends once set in motion, tend to stay in motion.

Shanghai is trading at a discount to COMEX, gold is returning to GLD, but gold is still leaving COMEX.  I conclude that physical buying pressure appears to be more or less neutral at this time.

Chart-wise, PM is showing no sign of a reversal.  Its in a downtrend in all timeframes, and is showing no signs of stopping its downward move.  Buyers in COMEX futures and GLD shares just haven't showed up enough during the recent set of downside moves.  Silver is doing better than gold, which is bullish, but both price charts show no signs of a reversal, and the last few days have seen heavy volume.

However, this bearish picture for PM is ruined by the price action in the mining shares.  Normally when gold drops, the mining shares have heart failure, roll over and die.  But this week, mining shares actually ended up for the week, during which gold had dropped 2%.  What's more, at end of week, traders actually wanted to take mining shares home over the weekend.  This is bullish, especially given that gold is behaving badly.  We have to wait for Monday to figure out if this is predictive of the gold price, but its an intriguing end to a Taper week.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

Peak Prosperity
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]]>
Sat, 09 Nov 2013 19:38:40 +0000
<![CDATA[Gold & Silver Weekly Recap: Rising Dollar Weighing on Prices]]> https://silvergoldbull.com/blog/pp-wr-2013-11-02/ Gold finished Friday down -7.20 to 1315.30 on 1352.50 on moderately heavy volume, while silver dropped -0.05 to 21.86 on moderate volume.  The gold/silver ratio dropped -0.21 to 60.17.  Gold was sold starting in the afternoon in asia through mid-day in NY, being particularly hard-hit after the 1000 EST ISM report release, touching a new low of 1305.  It rallied back above the departure point of the ISM plunge, which is a positive sign.   Silver moved hardly at all during the day, trading within a tight range.   Miners were crushed, with GDX off -4.06% on heavy volume, while GDXJ was down -3.14% on moderately heavy volume.  Both closed near the lows of the day.  The ratio GDX:$GOLD looks to be on its way to retest its low, which is bearish.

Gold has dropped 4 of the past 5 days, on moderate volume, at the same time the USD has rallied for the past 5 days.  I don't think this is a coincidence.  The current linkage is, dollar up = gold down.

On the week, gold was down -37.20 [-2.75%], silver down -0.73 [-3.23%], GDX -8.51% and GDXJ -12.25%; all components more or less wiped out the gains from last week and then some.  There's no good news here.

The USD

The dollar moved up +1.94% this week, which is a pretty big move - this was driven by the euro, which fell -2.3%, an even bigger move.  Was the dollar move based on some magical chart support line at 79, or were there so many dollar shorts that there was just nobody left to sell, and so the price eventually had to reverse?  Or was it some political factor we're not aware of?  It is hard to know.

Last week the buck was getting no love, this week it is up 5 days out of 5.  See the chart below - the buck fell until it got closer to 79, the rate of descent slowed, stopped, the buck printed a doji (last Friday), and then the reversal occurred this week.  We can see that the buck is now back above its (falling) 50 day MA, and the 20 EMA is starting to turn up.  A close above 81 and the rally in the buck starts to look more serious.  Intraday on Friday, the dollar rally stalled out at 80.87, right around the previous "lower high".

This would only be a matter of academic interest if the price of gold weren't inversely tied to the movements of the buck.  This inverse dollar-gold correlation has only been solid since Oct 15th, but it seems to be pretty clear at the moment.

Last week I asked, would dollar buyers show up.  They did.  Will they keep buying the buck, pushing it through resistance and into a new longer term dollar rally?  If so, given the current inverse dollar-gold correlation, it could get ugly for gold.  And the miners - when gold sneezes, the mining shares roll over and die.

Inflation: Commodities & Oil

The commodity complex, led by oil, continued dropping this week.  Oil is now at $94.60, off $17.40 from its high set at the end of August, which coincidentally was gold's last high as well.  While oil and gold don't move in lockstep, anyone thinking about buying COMEX futures or GLD based on an "inflation hedge" thesis is bound to be more reluctant to buy when the price of oil continually plummets, which it has been doing now for the past two months.

Again, what you and I think - and how often we read Shadowstats and imagine how GAAP deficits must inevitably lead to hyperinflation (in 2014!) - we don't matter.  Its the big money, bank prop desks, hedge funds and pensions who trade in GLD and COMEX futures.  They move prices in the daily/weekly timeframe, and their indicators are not reading inflation.

Political Factors & Confidence

A number of different sources I read are suggesting the next debt limit struggle will be much more placid than the one we just went through.  The mainstream Republicans don't seem to be lining up behind the idea of another shutdown; when the US Chamber of Commerce starts to talk about rethinking support for Republican candidates, you know you have a problem.

There's another interesting story too, this one from the Chief of Staff (via Martin Armstrong) of a libertarian-leaning Republican Congressman suggesting its unlikely the next debt ceiling fight will result in a shutdown:

http://armstrongeconomics.com/2013/11/02/another-debt-showdown-coming-in-washington-next-year-dont-bet-on-it/

Credible sources here in Washington have shared a chilling back-story that took place involving the President and congressional leaders of both parties as the clock ticked down to the Treasury running out of cash earlier last month.  It seems that more than one creditor nation, led by the Chinese, indirectly telegraphed a willingness to take very draconian measures in response to a ‘debt default’ – apparently even if coupon payments were made on outstanding debt owed to them.  Those measures were set to go way beyond being financial, and were said to be credible in nature.

At least one senior Republican scoffed at the threat, but relented when briefed by (at least nominally) non-political figures in the national security community.  That explains why, in part, the whole stand-off ended with a whimper and not a bang.

My belief is, the gold price is at least partially tied to confidence.  If our creditors were credibly threatening retribution if we didn't stop the political funny business and pay our debts - which would make sense - it would follow that once this became known to Big Money and it became more clear that the Republicans have relented and decided to go along, money would shift into the dollar and away from gold.  Confidence in the buck would increase, and that the perceived need for gold as a safe haven would decline.  And that's what we are seeing in the price action.

This is all speculation, of course.  None of us are on the phone calls with the bankers & hedge funds where this all gets passed on; all we can do is watch prices, which will reflect the eventual movement of money from sector to sector.  While we aren't part of the inner circle, if we don't remain stuck to our stories of "what we think must happen" then we might just be able to see the tracks of the well-connected moving their money around based on their inside information.

Physical Supply Indicators

* Premiums in Shanghai - well, they were discounts all this week, reaching a low of $-10 vs COMEX on Tuesday.  The falling price of gold caused premiums to rally a bit, closed the week at a discount of $-4.38, a change of +2.89 over last Friday.

* The GLD ETF lost -5.70 tons of gold this week, dropping down to 866 tons, the loss coming on Friday.  With Shanghai in discount - my explanation is Indian gold demand, although as with all of this stuff, its just a guess.  In January, GLD had 1350 tons, which is a drop of 484 tons.

* The COMEX lost -1.47 tons of registered gold this week, and is down to 20.48 tons, close to the year low.  COMEX registered is down dramatically from its April peak of 92 tons.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1315.30 and silver 21.87:

CEF 14.71 -5.12% to NAV [down]
PHYS 10.92 -0.55% to NAV [down]
PSLV 8.77 +2.70% to NAV [up]
GTU 46.27 -5.09% to NAV [down]

Premiums on the ETFs have mostly fallen, but not substantally.  PSLV's premium actually rose, which is surprising to me - and bullish.

Physical supply is once again a mixed picture.  Shanghai remains in discount.  COMEX registered is declining, and GLD lost gold even with Shanghai in discount.   So China pressure is off, India is most likely up - from smuggling - and at the COMEX, gold is once again leaving.

Futures Positioning

Producers decreased their longs and increased shorts; producers are about 10,000 contracts less bullish than before, which is a drop of perhaps 5%.  Managed money increased their long exposure by a similar amount, but these values are valid through October 22 only - so they missed this week's downturn.

This is the sort of activity that we want to see; managed money going long, helping to push up the futures price.  That said, I doubt that held true this week, given the price action.  We will know more with next week's COT report.

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

This last week has seen all moving averages turn down - silver short and medium term, along with gold short term.  Gold's stay above its 50 day MA was brief, as was silver.  Things are looking distinctly more bearish this week vs last week.

Summary

This week was as bearish as last week was bullish.  Some market commentators imagine a possible Taper happening starting in December.  I personally don't see it, but the market doesn't listen to me.  The only bullish indiction I saw was a gold spike down that was bought on Friday, but that rebound was modest, and not conclusive.  The gold/silver ratio was neutral.  All the rest of the indicators looked bearish: GDX:$GOLD, moving averages, volume - all of it.

The buck looks to be strengthening.  A close above 81 will likely lead to more trouble for gold.  Politically, my guess is we won't see another shutdown, which should reduce any confidence-driven gold buying.

Inflation isn't happening.  Other commodities are selling off, dropping prices of all the inputs that influence prices of the "real stuff" we buy.  This is a bearish influence on PM.  Nobody buys what they perceive to be an inflation hedge when there are no signs of inflation.

Tax loss season is approaching.  Unless gold decides to rally soon, things will likely get worse for mining shares, as longer term holders bail out in order to offset gains elsewhere.  This will be bearish for miners, since they are down heavily on the year.  It might provide a good buying opportunity last week of December, however.

Physical gold buying is a mixed bag again this week - in China they are selling, while in India, buying still seems quite strong.  With GLD and COMEX losing gold, net physical buying is likely a positive influence on price.

Once again this week, I think where gold goes depends a great deal on what the dollar does.  The buck is showing signs of a reversal; if it continues up, gold will likely move down, especially since there are no other catalysts on the horizon to move the price of gold higher.  Three weeks ago, gold found good support at 1250-1275; if the buck continues to move up strongly in the coming week, we may well see those levels tested again.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

Peak Prosperity
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Sat, 02 Nov 2013 22:48:10 +0000
<![CDATA[Gold & Silver Weekly Recap: Bullish Momentum Building]]> https://silvergoldbull.com/blog/pp-wr-2013-08-29/ Gold finished Friday up +6.20 to 1352.50 on moderate volume, while silver dropped -0.12 to 22.59 also on moderate volume.  The gold/silver ratio rose +0.59 to 59.87.  After being sold in asia down to 1335, gold rallied during the NY session to a new high of 1356.40, which it mostly held into the close.  Silver during that same timeframe dropped much more significantly, and didn't rally back as strongly.  While both gold and silver closed above their 50 day moving averages, silver was definitely looking weaker overall.  Miners were down early, and then rallied as gold made its new high.  GDX was up +0.73% on light volume, and GDXJ +0.83% on moderate volume.

Gold has risen 3 of the last 5 days, with low volume on the down days, and higher volume on the up days.  That's a bullish picture.  It has now closed two days in a row above its 50 day MA, and is parked right under resistance at 1352 after breaking through momentarily on Friday.

On the week, gold was up +36.40 [+2.77%], silver up +0.67 [+3.03%], GDX +7.96% and GDXJ +12.44%.  You can see from the relative percentages that the GDX:$GOLD ratio is climbing (GDX up more strongly percentagewise than gold) as is the GDXJ:GDX ratio.  Both of these are bullish indicators.  The gold/silver ratio is down slightly [-0.16] on the week, providing us no signal.

On the longer term weekly chart, GDX may have possibly put in a double bottom, although for that signal to be valid it requires confirmation, which would be a breakout of GDX above  31.  If that breakout occurs, it could generate a great deal of buy-side interest from the longer term trader group.  We're a ways away from that yet, and it would likely require gold to break above 1425 to move GDX above the 31 level.


Miners are getting a bit more respect this week, with traders seeming to be more willing to hold mining shares overnight.  When sentiment changes from "selling the rallies" to "being afraid of missing out on next day's upside move", that's a good sign.  That said, continued happy upward progress on GDX depends entirely on gold.  A modest move down in gold on Wednesday led to a flurry of high volume selling in GDX.  Just looking at the percentages, a 2.77% move in gold netted a 7.96% move in GDX.  That works in reverse as well.  Miners are high-risk high-reward, the junior miners even more so.

Goldcorp, Mining Costs, and Mine Supply

A big mining company, Goldcorp, reported earnings on Thursday.  They are seen as one of the better large gold producers in the world, so I use them as a baseline for how mining is doing overall.  Realized gold prices for 3Q 2013 were $1339/oz (down 26% from 3Q 2012), all-in sustaining costs are $992/oz (up 24% from 3Q 2012), and gold sales are up 5.5%.  Going forward, they see all-in sustaining costs ranging from $1050 to $1100/oz (up 6-11%).

If we project this more widely across the industry, it says the industry paid a lot in terms of margin in order to expand production modestly.  With gold down significantly, that's unlikely to be repeated.  Gold will cost about $1100/oz to mine next year, with cost inflation being at least 6-11% per year.  If price drops below $1100/oz, then gold production will steadily decrease over time as exploration projects are cut, and as higher cost gold mines are put on care & maintenance.  I have read about that happening now, actually; what were profitable mines at $1600 gold are losing money at $1350.

Goldcorp also reported that the Mexican royalty on mining could push their tax bracket in Mexico to the mid 40% range.  It wouldn't lead them to close any mines, but it would make them think twice about developing new ones.  Opening a new mine requires a time horizon of 15-20 years; if you imagine taxes are just going to keep going up and up, why spend your shareholder dollars opening a mine in such a place?  Argentina is another such country where taxes and policies are making the mining companies think twice about expansion.  Project this across countries and mining companies worldwide.  As countries search for new sources of income to fund their various spending plans, this will end up decreasing supply.

So rising taxes at the same time with declining ore grades - if you are a buy-and-hold investor, it would seem to be critical to pick a gold mine in a location that won't be apt to raise taxes on your mine.  As to where that might be - don't ask me!  Canada might be ok, but everywhere else?   My gut tells me, gold mining is becoming increasingly high risk from a tax perspective.  If you resent being a Real Estate Tax Donkey because of property taxes, just imagine being the owner of a gold mine.  Your "mine property tax" just went up to 10% per year; have a nice day!

Long term, this state of affairs can't help but be bullish for the price of gold, but substantially less bullish for mining companies depending on where the gold mines are located.  And that mining cost inflation; how much is due to declining ore grades?  That I don't know.  The cost inflation number is likely a mix of labor, energy, and ore grade, but its not a modest rate, projected forward 10 years.

So looking 5-10 years ahead, I don't think the big play is in gold mines, given the trends we know will play out over time.  Mines are just too subject to confiscation/tax policy changes by government, and too dependent on energy.  Sure confiscation policies kill off future exploration, but it seizes money today for hungry governments unwilling to consider cutting the spending that gets them elected.  And as we know, governments are all about staying in power today.

However in the shorter term, owning mining shares will most likely lead to 100-200% gains if gold regains 1800, so for me they are hard to ignore.

The USD

The dollar dropped -0.52% this week to 79.26, moving ever closer to the 78-79 support zone.  It is approaching a critical juncture.  A violent move through 78-79 would most likely push gold above 1425.  I believe at this point, the dollar and gold are relatively closely connected - perhaps not from the standpoint of intraday charts and algo bots buying gold when USD drops, but from an overall "dollar concern provides impetus for COMEX/GLD gold buying."  That heavy dollar sell-off/gold rally immediately after the resolution of the government shutdown really sticks in my mind as a key turning point.

The USD is now trending down in all three MA timeframes; 20 EMA, 50 MA, and just this week, the 200 MA started turning down.  USD remains below its 20 EMA.

Trends in motion tend to stay in motion, but within that medium-term (daily chart/6 month) dollar downtrend we can expect to have short term multi-week rallies.  I would expect at least a brief rally on or near 79.  Most likely, traders will start to buy the buck at that level, but if their buying is not sufficient to cause that bounce and the dollar plows through the 78-79 zone, it is quite bearish.

Of course, that would put the euro into the 140s; the EUR/USD closed the week at 138.03.

Again, just like gold, the buck needs the buyers to show up in order to stem its multi-month downtrend.  With the Fed seemingly engaged in No Taper through March, will buyers appear?  Will the Europeans help with some ... well-timed banking bail-in/resolution issue?  All we can do is watch.  But if the buck rallies, I suspect gold will correct.

Physical Supply Indicators

* Gold moving above 1350 has pushed Shanghai premiums to negative values - gold in Shanghai is now trading at $-7.27 under COMEX, down -9.24 this week.

* The GLD ETF lost -10.21 tons of gold this week, dropping down to 872 tons.  In January, GLD had 1350 tons.  At this loss rate, assuming GLD contains all the gold it claims to have, GLD will be empty of gold in about 18 months.

* The COMEX lost  0.72 tons of registered gold this week, and is down to 21.99 tons.  COMEX registered has tracked sideways for the past few months, but it remains down significantly from its April peak of 92 tons.

There are allegations that some of the gold delivered to COMEX is not in fact gold but paper or some other kind of non-gold-fraudulent deposit, the evidence being "a round number of ounces" showing up in the delivery reports.  Gold bars always vary in size, so a round number of ounces delivered would certainly seem to be a suspicious event.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1351.60 and silver 22.54:

CEF 15.26 -4.40% to NAV [up]
PHYS 11.23 -0.44% to NAV [up]
PSLV 9.01 2.41% to NAV [up]
GTU 48.04 -4.09% to NAV [up]

Premiums have risen/discounts have shrunk, some substantially.  Both GTU and CEF have reduced discounts by at least 2%, and PSLV premium is up by about 1%.  During rallies, premiums expand/discounts drop.  The opposite happens during downtrends.  If you want some gold price exposure, a paper gold ETF with a deep discount to NAV is one nice way of getting $100 of gold for $94.  Of course if you buy when there's a premium, you're paying more than $100 for $100 in gold, which seems less good.

* More stories this week on Indian gold premiums - smuggled gold is selling at a $50 premium, shops don't have gold to sell to their customers, gold coins are being melted down to resell as (higher margin) jewelry, kilos of gold found in an airplane bathroom on a plane bound for India, and so on.  No hard data but a lot of anecdotes.

Physical supply is a mixed picture.  By my calculations (using the SGE Au+TD contract requiring delivery, and COMEX gold prices as of 0330 EST) Shanghai has moved significantly into discount, as one might expect given the rising gold price and the historical chart pattern.  COMEX registered is tracking sideways.  GLD lost gold even with Shanghai in discount.  That surprises me a bit, and makes me wonder where that gold is going.  India comes to mind.  So China pressure is off, India is most likely up - from smuggling - and COMEX looks low but not getting any worse, at least officially.  Here's a chart of Gold & Shanghai Premiums, with Shanghai premium in red:

Futures Positioning

As of this writing, there was no COT report available.  The next one should be quite the event.

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 UP, long term DOWN

Gold this week moved from medium term DOWN to NEUTRAL, and the gold price has now closed above its 50 day MA for two days in a row.  These are both bullish signs.

If we are feeling particularly bullish this week, we could imagine if trends continue, a modestly-rising 50 day MA would cross the falling 200 day MA sometime in late December/early January.  That would be a big deal from a technical standpoint - that crossing is called a "golden cross" and is a signal for the longer term buyers to jump into the water.  This would provide more buying pressure from longer term disciplined western COMEX/GLD buyers.  However, price needs to stay near or above the 50 MA for this to happen.

Summary

COMEX/GLD gold buying continued this week fairly steadily, only mild selling occurred, and that was at low volume.  Somewhat poor economic news contributed to the overall feeling of "No Taper" post shutdown resolution.  Gold and silver are both above their 50 day moving averages.  Silver is starting to underperform gold.

Those who imagine "gold manipulators could strike at any moment" to the downside ignore history; such assaults happen most often when the price of gold is in a downtrend, not in an uptrend.  In my experience, when gold is in an uptrend, the reverse usually happens: the sudden moves tend to be in the up direction.  And in an uptrend, any "assault" that gets bought is yet another confirmation of the trend.  So if you want to trade, its probably best to focus only on trends and prices and not so much on theories that tend to induce fear.  Fear paralyzes decision making, and tends to make you doubt the signals when they do show up. 

Mining share sentiment seems to be fragile-but-improving; mining shares are no longer closing near the lows and/or selling off after an initial rally.  GDX closing the week near the high was a good sign.  Perhaps it negates the alarming selloff that happened on Wednesday.

Physical gold buying is a mixed bag - in China it has turned to selling, while in India, buying seems quite strong.  Let's assume GLD is the tie-breaker; with gold leaving GLD, physical buying is likely a positive influence on price.

Futures positioning most likely remains bullish but with no COT report, all we can do is guess.

Last week I asked: "will futures buyers chase gold higher?"  They did just that.  Next week I'm watching the dollar.  I believe that a continued move downhill in the buck most likely leads to higher gold prices.  In some sense, I think gold right now is about dollar sentiment & confidence, as expressed in exchange rates with other currencies.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

Peak Prosperity
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Sun, 27 Oct 2013 20:44:24 +0000
<![CDATA[Peak Prosperity: The Fed Can Only Fail]]> https://silvergoldbull.com/blog/pp-fed-can-only-fail-2013-10-25/ The basic predicament we are in is that the current crop of leaders in the halls of monetary and political power do not appear to understand the dimensions of our situation.

The mind-boggling part about all this is that it's not really all that hard to grasp.

Our collective predicament is simply this: Nothing can grow forever.

Sooner or later everything must cease growing or it will exhaust its environs and thereby destroy itself.  The Fed is busy doing everything in its considerable power to get credit (that is, debt) growing again so that we can get back to what they consider to be "normal."

But the problem is -- or the predicament I should more accurately say -- is that the recent past was not normal.  You've probably all seen this next chart.  It shows total debt in the U.S. as a percent of GDP:


(source)

Somewhere right around 1980, things really changed and debt began climbing far faster than GDP. And that, right there, is the long and the short of why any attempt to continue the behavior that got us to this point is certain to fail.

It is simply not possible to grow your debts faster than your income forever. However, that's been the practice since 1980; and every current politician and Federal Reserve official developed their opinions about 'how the world works' during the 33 year period between 1980 and 2013.

Put bluntly, they want to get us back on that same track and as soon as possible. The reason?  Because every major power center, be that in DC or Wall Street, tuned their thinking, systems and sense of entitlement during that period. And, frankly, a huge number of financial firms and political careers will melt away if/when that credit expansion finally stops.

And stop it will; that's just a mathematical certainty. It's now extremely doubtful that the Fed or DC will willingly cease the current Herculean efforts towards reviving this flawed practice of borrowing too much, too fast. So we have to expect that it will be some form of financial accident that finally breaks the stranglehold of failed thinking that infects current leadership.

The Math

As a thought experiment, let's explore the math a little bit to see where it leads us. After all, I did just say that a poor end to all this is a "mathematical certainty", so let's test that theory a bit. I think you'll find this both interesting and useful.

To begin, Total Credit Market Debt (TCMD) is a measure of all the various forms of debt in the U.S. That includes corporate, state, federal, and household borrowing.  So student loans are in there, as are auto loans, mortgages, municipal and federal debt. It's pretty much everything debt-related.

What it does not include, though, are any unfunded obligations, entitlements, or other types of liabilities. So the Social Security shortfalls are not in there, nor are the underfunded pensions at the state or corporate levels. TCMD is just debt, plain and simple.

As you can see in this next chart, since 1970 TCMD has been growing exponentially and almost perfectly, too (the R^2 is over 0.99 for you science types):

I've pointed out the tiny little wiggle that happened in 2008 - 2009 which apparently nearly brought down the entire global financial system.  That little deviation was practically too much all on its own. 

Now debts are climbing again, at a quite nice pace. That's mainly due to the Fed monetizing US federal debt just to keep things patched together.

As an aside, based on this chart, we'd expect the Fed not to end their QE efforts until and unless households and corporations once more engage in robust borrowing. The system apparently 'needs' this chart to keep growing exponentially or it risks collapse.

Okay, one could ask: Why can't credit just keep growing? 

Here's where things get a little wonky. But if you'll bear with me, you'll see why I'm nearly 100% certain that the future will not resemble the past.

Let's start in 1980 when credit growth really took off. This period also happens to be the happy time that the Fed is trying to (desperately) recreate.

Between 1980 and 2013 total credit grew by an astonishing 8% per year, compounded.  I say 'astonishing' because anything growing by 8% per year will fully double every 9 years.

So let's run the math experiment as ask what will happen if the Fed is successful and total credit grows for the next 30 years at exactly the same rate it did over the prior 30.  That's all. Nothing fancy, simply the same rate of growth that everybody got accustomed to while they were figuring out 'how the world works.'

What happens to the current $57 trillion in TCMD as it advance it by 8% per year for 30 years?  It mushrooms into a silly number: $573 trillion.  That is, an 8% growth paradigm gives us a tenfold increase in total credit in just thirty years:  

For perspective, the GDP of the entire globe was just $85 trillion in 2012.   Even if we advance global GDP by some hefty number, like 4% per year for the next 30 years, under an 8% growth regime U.S. credit would be twice as large as global GDP in 2043(!)

If that comparison didn't do it for you, then just ask yourself: What exactly would US corporation, households and government borrow more than $500 trillion for over the next 30 years? The total mortgage market is currently $10 trillion, so might the plan include developing an additional 50 more US residential real estate markets?

More seriously, can you think of anything that could support borrowing that much money? I can't.

So perhaps the situation moderates a bit and instead of growing at 8%, credit market debt grows at just half that rate. So what happens if credit just grows by 4% per year? 

That gets us to $185 trillion, or another $128 trillion higher than today -- a more than 3x increase:

Again, What might we borrow (only) $128 trillion for over the next 30 years? 

When I run these numbers I am entirely confident that the rate of growth in debt between 1980 and 2013 will not be recreated between 2013 and 2043. With just one caveat: I've been assuming dollars remain valuable. If dollars were to lose 90% or more of their value (say, perhaps due to our central bank creating too many of them?), then it's entirely possible to achieve any sorts of fantastical numbers one wishes to see.

Think it could never happen?

Conclusion (to Part I)

This is the critical takeaway from all the math above: for the Fed to achieve anything even close to the historical rate of credit growth, the dollar will have to lose a lot of value.  I truly believe this is the Fed's grand plan, if we may call it that, and it has nothing to do with what's best for the people of this land. Instead, it's entirely about keeping the financial system primed with sufficient new credit to prevent it from imploding.

That is, the Fed is beholden to a broken system; not anything noble.

In Part II: The Near Future May See One of The Biggest Wealth Transfers In Human History, we dive fully into the logic why GDP growth is very unlikely to support the rate of credit expansion the Federal Reserve wants (more accurately: needs). And what will happen if it indeed doesn't? A lot of painful, awful things -- but central among them, a currency crisis.

Amidst the ensuing unpleasantness will be an awakening within today's hyper-financialized markets to the huge imbalance now existing between paper claims and ownership of real things. A massive wealth transfer from those with 'paper wealth' (stocks, bonds, dollars) to those owning tangible assets (the productive value of which can't easily be inflated away) will occur -- and quickly, too.

Suggesting the key objective for today's investor is answering: How do I make sure I'm on the right side of that wealth transfer?

Click here to access Part II of this report (free executive summary; enrollment required for full access).

Peak Prosperity
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Fri, 25 Oct 2013 16:53:43 +0000
<![CDATA[Gold & Silver Weekly Recap: Buyers Finally Showing Up]]> https://silvergoldbull.com/blog/pp-wr-2013-10-19/ Gold finished Friday down -3.70 to 1316.10 on light volume, while silver was up +0.05 to 21.92 also on light volume.  After the big move Thursday, gold and silver seemed content to track mostly sideways within a narrow range.  Miners were off slightly; GDX down -0.49% GDXJ down -1.31%, both on light volume.  Within the PM complex it seemed to be a day of rest.

On the week, gold was up +43.50, silver up +0.59, GDX +5.77% and GDXJ +5.34%.

While GDX did well this week and miners are definitely responding to gold's move, it appears they are doing so with some skepticism.  Closing at the highs doesn't happen, mostly any big move in mining shares results in same-day profit-taking, and it appears that traders in mining shares are in a wait-and-see mode regarding PM pricing.  If gold continues up its likely this sentiment will likely change in time - but from what I see right now, sentiment in the miners remains poor.  It is likely that SPX moving to new highs is helping to keep sentiment low.  As with every market, SPX buyers will keep buying dips until that stops working, and that will keep money flowing into that area rather than the unloved mining shares.

Last week we were focused on gold's alarming break of support at 1275, this week we saw a test of 1250, and a high volume rebound.  If we look at the chart, we see that the amount of time spent below the 1275 level was quite brief, and this suggests to me that there are buyers waiting to scoop up COMEX futures and GLD shares whenever it dips below that level.  Without a bear raid into that zone, however, it is much more difficult to know such things - so we can thank the bears for performing this test for us.  At the end of this week, we see gold breaking and closing above the 7 week downtrend line.  We still need to see a close above 1331 to end the pattern of lower highs, but with the bullish move off 1251 it would seem this is more likely than not to occur.  We may at last have a trend change.

The dollar dropped 1% this week to 79.68 after a few weeks of moving sideways following the Fed No Taper announcement.  It seems the dollar has figured out which way it will go - and that is continuing downhill, which it has done since hitting 85 back in early July.  Looking at the longer term weekly chart, the buck has some significant support around the 78-79 area, but a break below that could lead to quite the selloff, since there is a lot less support once that level is broken.  A dropping dollar is usually bullish for both gold and silver, and on Wednesday night the falling dollar may well have been the trigger for the big gold rally.

However, is important to understand that the buck doesn't move in a vacuum all by itself.  To get the buck to move below 79 will involve the Euro moving above 137, which may well elicit some sort of response by the Europeans.  These days everyone wants their currency to be weak in order to promote exports, and the Euro breaking above 137 into the 140s would most likely make the Germans quite uncomfortable.  It would not surprise me to see a new banking crisis erupt in Europe if the Euro were to move too much higher (I.e. if the buck were to break below 79).  There are lots of banking issues left unresolved over there, and the regulators can pick a country to jump on - the way they did with Cyprus in early 2013.  Mario Draghi picks up the phone, calls the Central Bank of Slovenia, and tells them: "its time to clean up your banking system - TODAY."  Slovenia is my favorite candidate for this - they are small and not well known, and while Spain and Italy also have banking problems, but I'm just guessing they're a very expensive nettle that the Europeans are unwilling to grasp at this time.

Physical Supply Indicators

* Gold moving back above 1300 has dramatically reduced Shanghai premiums - they are now only $1.98 over COMEX, down -12.05 this week.  If gold rises further, it will be interesting to see if Shanghai actually moves seriously into discount.

* The GLD ETF lost -8.75 tons of gold this week, down to 882 tons.  In January, GLD had 1350 tons.  At this loss rate, GLD will be empty of gold in two years.

* The COMEX lost  0.04 tons of registered gold this week, and is down to 22.70 tons.  COMEX registered has tracked sideways for the past few months, but it remains down significantly from its April peak of 92 tons.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1314.40 and silver 21.91:

CEF 14.56 -6.22% to NAV [up]
PHYS 10.87 -0.94% to NAV [up]
PSLV 8.68 +1.44% to NAV [up]
GTU 45.68 -6.26% to NAV [up]

Premiums have risen - discounts have shrunk - any way you slice it money is flowing back to the physical ETFs with the rebound in PM prices this week.

* I have read stories of Indian gold shops charging 10% premiums, but I don't have any actual daily data to back this up.  It remains an anecdote that I would love to get confirmed by regularly reported data, the way I can for Shanghai.

So using the data I do have, I'd say physical pressure especially from China is down significantly, COMEX has not lost any gold for a few months now, and GLD seems like it loses gold everytime Shanghai is in premium.  It will be interesting to see if GLD loses any gold next week with the premium now almost flat.

Futures Positioning

Once again, there was no COT report this week and last week due to the government shutdown.  The report next week will cover a three week period.

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

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

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

The big move in PM flipped the 20 EMA on both gold and silver from down to up this week.  Price for both gold and silver are above their respective EMAs, which is also bullish.  The price of gold vs the 20 EMA has been a pretty good indicator of trend for gold, so I'd say the moving averages are confirming what the candlesticks have been saying: short term is back to bullish again, within a longer term (200 MA) downtrend - gold's 200 MA is at 1442 right now, to give you a sense.

Summary

Gold's support break last week was met with several attempts to break the market down further.  Each of these attempts were met with buying - buyers finally showed up whenever the price dropped below 1275.  And then after the government shutdown/debt limit crisis was averted (for the moment) on Wednesday night, and various Fed members suggested there would be no tapering because of the chaos from the shutdown, gold raced higher while the buck plunged.

Miners are moving up and have broken their respective 20 EMAs, and the GDX:GLD ratio is finally turning up.  However miners have trouble closing at the day highs, and it would seem that the gold miner traders are quite quick to take gains whenever they appear.  When this behavior changes, it will be a bullish sign, but right now mining shares appear to be very much in a show-me sort of mood.

Physical gold buying seems to have backed off with gold back above 1300.

Futures positioning most likely remains bullish but with no COT report, all we can do is guess.

It is possible we have a catalyst for a move higher in COMEX futures and GLD shares at this point.  The gang at the Fed has now twice found a reason to avoid tapering - reducing the rate of increase of its balance sheet.  There is a saying in Japan: if something happens twice, you can be sure that a third time will come soon.  With a government budget crisis baked into the cake 3 months from now, I imagine that the Fed will once again find a reason to avoid "rocking the boat."  Will futures buyers chase gold higher?  A close above gold 1331 is the next signpost to look for.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

Peak Prosperity
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