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.

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