Gold Daily and Silver Weekly Charts - Reuters Says Gold Demand Outpacing Supply

"The current dislocation indicates that holders of gold futures have begun demanding delivery. But because of the large amount of leverage in the market, participants are not able to deliver on their obligations."

Reuters, Gold Futures Hiccup Indicates Demand Outpacing Supply

This is not news to anyone who has been frequenting this café.  But it is nice to hear it from another source.

The market structure in gold and silver is truly fascinating, particularly if one is looking slightly cross market at the mining sector.

One would hope that the miners would not be driven back into hedges by short term cash requirements at this price level, as they may find it to be fairly uncomfortable in the intermediate term.

And I would not be likely to invest longer term in a miner that was hedging its future ahead of what looks to be the next leg of the bull market. 

That is almost as bad as having a money manager keeping you short into what looks like a very risky set up to the upside. Not my cup of tea.  I wonder if we will see a limit up day or two before this is over. I cannot remember the last time that occurred.

There was commentary on the levels of registered gold at the COMEX that you may find to be of interest.

The market structure indicates that someone is going to be left 'holding the bag' on the short side. But who can say with any certainty given the growing divergence between the paper pricing and the physical reality?  We are in a currency war after all.

The Gold Forwards were negative for the tenth straight day.   Listen to this, and understand what it means. 

In their article about the 'hiccup in gold futures indicates that demand is outstripping supply' for physical bullion Reuters goes on to say:

"A dislocation in the gold futures market indicating that demand for physical delivery of the metal is now far outweighing supply has intensified in recent weeks, increasing concern in the market that the change may not be a momentary blip and participants may have become over-leveraged."

I think this deserves some serious attention.   I would not care to be short the metal, and face any requirements to have to deliver on demand.  It could prove to be costly. 

But again, these markets are so twisted that I don't think it is too much to say that almost anything can happen.  A 'crash' in equities would put a dent in almost any asset sector demand.   But those tend to be less probable events that are amenable to some rudimentary insurance for those with shorter term horizons. 

Have a pleasant weekend.  See you Sunday evening.

SP 500 and NDX Futures Daily Charts - Divergence Continues While VIX Drops

"I listened carefully to yesterday's Bernanke speech. He seemed ill at ease and almost stumbling. I truly believe that Bernanke is confused and even frightened by the results of all his manipulations. But what he's most confused about is the poor results he's been getting from both the economy and the markets. Bernanke appears to me to be a man trapped and confused by his own unorthodox tactics."

Richard Russell July 18, 2013

Bernanke is bewildered by the power of the credibility trap, and the ensuing unresponsiveness and inattentiveness of the Federal government to the problems of the people and the real economy. At least that is my opinion, and I could be wrong.

The divergence between finance and the real economy continued. The SP 500 closed at another new high, even as tech floundered due to poor financial results in the leaders.

VIX has now dropped to levels in which it could once again be a productive hedge against a market decline.

Chris Hedges On the Real News

The Real News is featuring Chris Hedges to inaugurate a new series called Reality Asserts Itself.

Here is part two of a seven part series. Part one is an introduction to Hedges himself.

I don't always agree with Chris Hedges of course. If we did, one of us would probably be superfluous.

I find his ideas and observations to be thought provoking, even where I might not agree because I prefer different approaches or methods of achieving what could be similar objectives.

There is nothing wrong with that sort of divergence. Indeed, I find a diversity of thought and methods, within some fairly well established historical bounds of human decency, albeit too often violated for the sake of a false necessity or expediency, to be the most successful ways of achieving significant results in the real world.

But difference is anathema to the minds of the ideologues and true believers of whatever position on the political and social spectrum, left or right.    And this is why they almost always resort to involuntary conformity of thought, and become increasingly intolerant of the other.

COMEX Registered Gold Falls To Another New Low Ahead of Option Expiration and August Delivery

Registered gold on the COMEX falls to another new low for this bull market, to below 30 tonnes.

I enjoyed the perspective Harvey Organ put on it this evening.

"Tonight, the Comex registered or dealer inventory of gold lowers again and remaining below the 1 million oz mark to 950,441.152 oz or 29.56 tonnes.

This is dangerously low especially when we are coming up to the August delivery month.  Remember in June we had almost 31 tonnes of gold stand for delivery."

Perhaps I am missing something but one has to wonder what goes through someone's mind who is short into a market structure such as this, wherein the ability to deliver into demand appears to be increasingly impractical. Do they think that they are operating on insider information? Are they?

Or is this just another example of reckless disregard, fostered by large bonuses playing with other people's money?

If gold starts to run, the ensuing rush to the exits could be rather impressive.

Nick of Sharelynx.com does a rough calculation of the open interest/registered or dealer's gold. The number of owners per ounce is up to a bull market high of 46 claims for every ounce registered as deliverable.  There is a chart of this below.

Granted that this is not a realistic expectation, that everyone would stand for delivery, but it is an interesting metric that shows the relative balance between paper claims and physical reality.  No wonder the Gold Forwards have been negative for the past nine days. 

Let's see what happens. Confidence in the US commodities business has been racked by scandal after scandal, from price fixing to the theft of customer accounts. Little enough effort seems to have been made to reform it, to make it more transparent and efficient in price discovery.  The attitude seems to be that if you don't trust the markets, so what?

I am not saying that they will not be able to finesse their way through August.  There are plenty of ways to do it, higher prices being the text book example.  But one has to wonder how long they can keep this up, especially if the storms in the currency markets start blowing come November.

Stand and deliver.