SP 500 and NDX Futures Daily Charts - Pullback Say What?

Stocks were pulling back to key support levels today.

Let's see what tomorrow brings.

 

NAV Premiums of Certain Precious Metal Trusts and Funds

The gold/silver ratio has fallen from its extremes down to something less lofty but still on the high side.

PSLV premium has turned solidly positive. Will wonders never cease?  Let's see if gold turns positive as well.  I suspect this will not happen until gold has broken through overhead resistance, and a short squeeze gets underway.

The Central Trusts still lag a bit. As you know I have speculated that this may be because they have no redemption process.   Other than this, the metals there have what is considered the 'right kind' of pedigree and are audited twice a year with an external auditor.

"Central Fund's Gold and Silver Bullion is stored in the highest security rated treasury vaults at a Canadian chartered bank on an unencumbered, allocated and segregated basis."

COMEX Registered Ounces Fall To New Low, Total Gold Steady

“The tyrant is a child of Pride
Who drinks his sickening cup
Of recklessness and vanity,
Until from his heights he headlong
Plummets into the dust of hope.”

Sophocles, Oedipus Rex

Weighed, and found wanting.

Stand and deliver.

 

Gold Daily and Silver Weekly Charts

Retail Sales had stocks on the move higher while gold saw a bit of a pullback after its run higher.

Silver was relatively strong as it continues to play 'catch up' for the year.

Tomorrow we will see the PPI numbers.

Someone presented an argument that the price of gold went down so that the wiseguys could make better buys and ride it back up.

I think this is quite likely, but it is not the only or even the primary reason.  The wiseguys needed some sort of sanction to engage in such a profound market operation.  And making money on the side which they jigger prices goes without saying as a perk.    Few things in life are due to simply one thing or another, but have a buffet of motivations as they have a number of participants with their own motivations.

Much of this back and forth action in trend channels is the 'wax on, wax off' phenomenon, and the point of the Dr. Evil strategy is to disrupt a market to make money on both sides of that gimmickry.

But to disrupt the entire world market in a very visible way requires a bit more latitude than the average trading desk can provide. And understanding this helps one to interpret the data with a bit more insight. There is little doubt in my mind that some very big players found themselves 'staring into the abyss' when the Bundesbank asked for the return of the German people's gold. And this has long term implications. That the market operators were able to use this information for their own gains goes without saying. They are not charitable institutions. They always get to wet their beaks in the pool of official corruption.

Make of this rather obvious comment on the markets what you will. 

SP 500 and NDX Futures Daily Charts - Complacency

Typical summer day trading in stocks with light volume and plenty of games.

Carl Icahn took a largish position in AAPL, and then boosted the price of the stock by announcing he had taken a big position in APPL. Carl would like to see AAPL spur the growth of their stock price by using more of their cash to buy back shares.

Gold and Silver Performance From the Recent Bottom and Year To Date

I wanted to take a look at the relative performance of gold and silver from the bottom of the precious metals market which seems to have occurred around the end of June.

As you can see in the first chart, silver has recently outperformed gold, rising a little over 16% with gold rising 11%.

However if one looks at the year-to-date chart, gold is still outperforming silver by quite a bit, since it did not drop nearly as far in value.

Does this mean that one is better than the other? No, it just means that they are different, that they have different risk factors. Silver is much more volatile than gold, with bigger upside recoveries, but commensurately larger losses on price declines.

One needs to take this into account for your portfolio and your investment objectives. I tend to 'blend' the two metals in my overall portfolio, and hedge them against declines a bit differently.

Silver has a greater industrial usage than gold, which is more of a monetary play. Silver is also more favoured by a different category of investors because of its lower unit price, and greater storage and handling costs for the same monetary amounts.

For purely short term trading purposes silver is the 'hotter play' given its gearing to volatility, provided one is capable of 'timing the market.' 

Sometimes it takes on the nature of a religious debate, silver vs. gold, from those who have bought into the concept of precious metals.  Again, I think both have their functions and attractions, and their particular place in constructing a portfolio.   Most non-professionals don't 'get this' and that is what makes the markets interesting.

To put it in le mode de cuisine, gold is the meat, and silver is the sauce and the spice.  Too much of either can spoil the outcome. 

But most often the particular mix is a matter of taste.

Gold Daily and Silver Weekly Charts - Stand and Deliver

The metals popped nicely today, even while stocks were wallowing in a low volume slump because of fresh evidence of a lack of a global recovery out of Japan.

The area just above and through 1360 will be key resistance as should be evident on the gold chart.

I have included the economic calendar below. Each piece of data will help to sway traders with regard to the big 'taper debate.'

SP 500 and NDX Futures Daily Charts - Dog Days

Weak Japanese GDP had the markets back on their heels at the open, but there was a low volume, gradual rise through the day.

More economic news this week may stimulate some real action.

Gold Daily and Silver Weekly Charts - Slouching Through August Delivery

There was intraday commentary on the gold inventory situation and Bullion Heading East here.

I doubt that we are in a normal market correction or even a bear market in the precious metals.  Instead what we are seeing is tied intimately with the inability to repatriate Germany's sovereign gold from its custodial holders, without a seven year wait.

The drops in COMEX registered gold suggest higher prices and a trend change is probably coming. I documented the latest big drop in inventory late last night here.

The German Federal Elections are coming next month on 22 September.  Just in time for Oktoberfest!  Zicke zacke, zicke zacke, hoi hoi hoi!

Peer Steinbrück, the Bundesministerium der Finanzen, or BMF, is running against Angela Merkel.  I think we have a number of would be "BMF's" running around Wall Street, these past ten years.

Remember Herr Steinbrück?  He has been in the café before, as we show in the old cartoon below, with some recent topical adjustments.

I wonder if the question of Germany's missing gold will be raised.

Let's see what happens.  Only fifteen or so days of August delivery to go, excluding weekends.

Speaking of which, have a pleasant weekend.  See you Sunday evening.

Dramatic Depiction of a Certain Bullion Bank's Highly Anticipated August Gold Delivery Victory Tour from Zurich to Munich, where they have used the proceeds of their commodity trading to achieve the rentier's dream: a corner on the Toiletten market at the famed München Oktoberfest.

Vielen Dank an alle dem deutschen Volk für das Gold!

SP 500 and NDX Futures Daily Charts

The markets crept into the weekend with what we had forecast would be a quiet week with little in the way of economic news.

Next week should be more interesting, barring exogenous events, given the economic calendar which is included below.

Have a pleasant weekend.

GLD Shares, COMEX, And Bullion Heading East

Yesterday a reader asked me to comment on a recent article from a blog that I happen to like which asserted that these large and recent declines in gold bullion inventory on the COMEX and ETFs are merely a sign that gold is now in a bear market, and that investors were simply liquidating positions.

I looked over the blog's argument, and after subtracting much detail that while technically correct was extraneous to the proposition, came to the conclusion that the basis for the argument was that if one is simply looking at bullion levels in the COMEX and maybe GLD, you could point to the fact that they were increasing while the price of gold was rising, and are decreasing now while price is decreasing.  QED.

The problem I have with this argument is that if it were true, if the disgorgement of gold from GLD and the COMEX was just a result of investor disenchantment, then the market should be awash in cheap physical gold.

Unlike debt paper assets, physical gold does not simply disappear when it is liquidated. You may see some paper gold evanesce as leverage is unwound, since it really has no substance of its own, and is merely a rehypothecation of many claims on the same physical bullion.  But actual metal has to go somewhere.

This is why the evidence of scarcity of bullion in the markets in Asia and the Middle East has been so important.  And also the change to net buying, instead of steady selling, of gold bullion by the central banks, which is a phenomenon very new, relatively speaking.  Indeed it is something we have not seen in over twenty years. 

And this is why the leasing of gold for temporary use and even outright selling is important, and therefore the negative GOFO rates, as they point to the scarcity for near term delivery of gold and possible imbalances in longer term obligations.  And of long lead times on retail purchases, and large delivery flows on other exchanges that are not largely paper markets like the COMEX.

And the absolutely incredible fact that a request for the return of Germany's sovereign gold from the custody of the Fed was flatly denied, and put off for seven years.   If gold is in such disfavor that tonnes of it are being abandoned as a consequence by the market, why can't Germany have its gold back?

People who only watch a few familiar metrics and draw conclusions from them may be experts in them, and they may be right. But in times of dramatic sea change, it often pays to cast one's eye across the broader horizon, towards foreign shores, to see if the receding of the ocean is something more significant than the simple ebbing of the tide.

Now, one might wonder, could the funds and the bullion banks in the gold market, who must surely be aware of what is happening behind the fog of their opacity, act in such a short sighted manner as to ship the gold east to be melted down and held closely in the vaults of strong hands, and in the private caches of the many, not likely to return?  And yet still continue on in their game of leveraged ownership and price rigging?  Is this not a recipe for a future disaster?

Is there any doubt, after all that we have seen in the past ten years, that betting on the foolish and often destructive greed of the Anglo-American bankers offers something less than long odds?

You are right, we don't know what is happening with certainty.   I surely do not.  And this is why we must try to keep looking for some alternative explanations and additional data.  But one has to sort this puzzle out with all the available data, and not just from a few sources, especially those under the management of the same old group of Bankers and Traders.

The best way to address this is not to dismiss or even ridicule those who are seeking information and asking some very good questions. The most effective response is increased transparency and disclosure of data that is often unnecessarily hidden from public view so that the powerful can gouge a few more easy dollars from them by manipulating information and gaming the system.

It is the inability of money to flow freely without undue fees, distortions, and interference, and the commensurate problem of assessing risk, that is at the heart of the inability of our unreformed system to recover.

Unfortunately that difficulty in measuring risk is in the nature of an economy that has become founded in secrecy and an undue concentration of power, governed by foolish people whose primary concern is their own personal greed, almost to the point of madness, and to hell with the consequences.  And if something should go wrong, well, the public is there to take the burden for them.

Weighed, and found wanting.

Stand and deliver.

"GLD Is Collapsing Its Shares And That Gold Is Being Shipped Directly To Asia"
By Tekoa Da Silver
August 9, 2013

I had the chance to reconnect with a source in the bullion management business, whose operations deal on a direct basis with the shipping desks at the GLD. While remaining unnamed at this time, it was a powerful conversation, and he was quite liberal in sharing thought.

Speaking to what his group is hearing from the main GLD custodian [HSBC], he noted that, “GLD is collapsing in [terms of] the number of share issuance, and [is] being redeemed…we are hearing from my end…that the GLD main custodian has been collapsing it and redeeming it, and that gold is just being shipped via their shipping desk directly to Asia.”

He further added that, “It is quite clearly a major establishment using their shipping desk to ship gold bullion, and potentially having it re-smelted down in Singapore, Hong Kong, etc. It (the gold) is moving.”

When asked his thoughts on the potential for a short-squeeze down the road as all this gold moves east, he concluded by saying, “Anything that can go down as hard as [gold] has, can obviously have a dramatic short squeeze at some time…at the end of this market [I expect] you will have a ridiculous squeeze.”

While much is left unanswered in the public domain regarding this year’s mysterious clearing out of physical gold from Comex warehouses, it would make sense for such events to occur right before a massive run-up in price—whether it be through freely traded markets or by governmental decree...

Read the entire article here.

Related:
GLD May Be in the Eye of the Gathering Storm.
Tonnes of Gold Removed From the COMEX and Major ETFs Since January 1
Stand and Deliver: How Germany Disrupted the World's Gold Market

This chart below comes from expert analyst Ned Naylor-Leyland via Mr. T. Ferguson's excellent Metals Report blog.

I am not closed minded when it comes to coincidence. But after several of them, all in essentially the same direction, things tend to get a bit disquieting, suggesting that a closer examination is warranted.

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, in private conversation, September 1999

How much should the people be expected to sacrifice to save a reckless and unrepentant few? Their homes, their health, their pensions, their children?

It is never enough, because the financiers will always need more, or more properly, crave more. So change must come, before there is any sustainable recovery.

COMEX Registered Gold Drops Another 63,000 Ounces - Check, Check

They can't resist splashing the pot.

Weighed, and found wanting.

Stand and deliver.

Gold Daily and Silver Weekly Charts - GLD May Be In the Eye of the Gathering Storm

I spent some time rereading the prospectus and some recent filings of the SPDR Gold ETF today. 

A reader had asked me a question this morning about a statement I made yesterday about the squeeze on physical bullion and how it may intensify if gold rallies. I said that GLD has to start adding back some of the bullion it has disgorged at some point, and many of those 400 oz. bars may likely have headed east, not to return.

The reader said, 'why can't GLD just refuse to add the gold back?'

It is not the management of GLD's decision to make. I had to go back and read the prospectus and some recent filings to remind myself why.

GLD essentially acts as a trustee, with very light obligations and therefore a small management fee. It is primarily an organizer for the bullion banks and other brokers, who as 'Authorized Participants' make the decision to increase or decrease the amount of gold held in the GLD ETF and the number of unit shares outstanding.

The current Authorized Participants according to GLD's most recent filing are Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA LLC, RBC Capital Markets Corporation, Scotia Capital (USA) Inc., UBS Securities LLC, Virtu Financial Capital Markets, LLC and Virtu Financial BD LLC.

GLD is a creature based largely on arbitrage and self-regulation of a variety of market participants and custodians. HSBC acts as primary custodian for the gold in their allocated and unallocated accounts. An Authorized Participants can add or redeem gold from the holdings of GLD in 100,000 unit tranches.

Although it can be confusing, I sometimes refer to 'GLD' as the collective action of the Authorized Participants in arbitraging the price and inventory. And I am not the only one.  I know its sloppy, but that's what it is. Earlier this year a spokesperson  for GLD itself made the same type of statement about their intention with regard to share/bullion ratios, and I quoted it indirectly.

But it is correct to say that this is a 'group thing' based on market equilibrium, arbitrage, and counterparty trust.  I am sure they do not have to meet about or discuss it, because in theory the information is all conveyed by the market and their access to real time inventory data.  I do not think all this information is shared equally among market participants.  There is an 'intraday indicative value' with the symbol PHYS.IV.

The Authorized Participants have the ability to sell the units short, although they could achieve a similar equilibrium by shorting or buying in an associated market like the COMEX or the derivatives market for example.

It is this function that provides the lever for the arbitrage. If retail demand pushes the price of GLD above its Net Asset Value based on its bullion and units, the Participants who know this figure intraday can sell shares short to match it to the price of gold and buy bullion if they wish as a hedge. Or tweak the spot price in the futures market by performing essentially the same buy and sell functions.

If they wish to cover these shorts, they may deposit a 100,000 unit tranche of gold back into the ETF and use those shares received in return to cover the short. Or they may buy back in the open market if the price has dropped below the NAV. If they wish to reduce the amount of gold in the GLD account they can redeem units in 100,000 unit tranches.

Off hand I could not say if the ETF unit shorts are borrows or naked.  I suppose it is like anything else these days.

I know this is a simplification, and there is an interesting dynamic going on since these same Authorized Participants are sometimes 'major players' in the COMEX where the price of spot is essentially set intraday, in addition to the LBMA twice daily price fixes.

If you wish to read this further here is a link to the GLD filings. Some web sites such as VictortheCleaner also provides further commentary, although I might not call GLD the central bank of the bullion banks because of GLD's structural passivity.

In reviewing things, I have come to a tentative conclusion that if this system of balancing risks should fail, a counterparty failure is more likely to occur first with GLD rather than in the COMEX or LBMA, although this might be a matter of a same day occurrence.

So if the price of gold starts going higher, and the shorts cover in the open market, they have little other choice in their arbitrage than to buy gold eventually and add units to the ETF to bring the NAV back into equilibrium with price.

Where they may find the suitable 400 oz. bars to do that is another question altogether. And the fiduciary responsibility for GLD is spread across a range of participating custodians, subcontractors and brokers.

Weighed, and found wanting.

Stand and deliver.

SP 500 and NDX Futures Daily Charts - JPM the New 'Bad Boy' of Wall St

Stocks played the complacency trade today and bounced a bit within the narrow ascending range that has marked their price action since mid-July.

The storied "America's Bank," JP Morgan Chase, with its fortress balance sheet, was a weak player today as more news emerged about investigations and lawsuits for their dealing in various markets. And this despite reporting a 'perfect' trading record for the first half of this year. Is this what happens when good boys go bad?

"JPMorgan reported it is under investigation by the Justice Department in six separate areas; being pursued by multiple state attorneys general; Congress; at least five federal agencies; regulators around the world including the European Commission, the UK’s Financial Conduct Authority, the Canadian Competition Bureau, and the Swiss Competition Commission.

In addition, in a trial in Italy, two of its employees were “found guilty of aggravated fraud with sanctions of prison sentences, fines and a ban from dealing with Italian public bodies for one year.” In the same matter, JPMorgan was fined €1 million and ordered to forfeit profit from the transaction of €24.7 million."

Read the entire article by Pam Martens here.

One can only wonder.

COMEX Deliverable (Registered) Gold Declines By Almost 60,000 Ounces

Since last Friday the registered gold in the COMEX warehouse has declined by almost 60,000 ounces to a new recent low of 875,710 ounces.

Total gold including eligible gold stored by customers in COMEX warehouses but not offered for sale holds steady at around 7 million ounces.

There was a transfer of about 6,445 ounces of customer gold from HSBC to JPM. But this was not deliverable gold as indicated on a popular website, but merely a transfer of eligible ounces from one warehouse to another.

I noted today that about 8,300 ounces of gold bullion in 400 oz. bars was redeemed from the Sprott Physical Gold Trust. Gold in this form is ready for delivery to Asia. I cannot imagine why else someone would go through the redemption process unless there was an immediate need for physical gold.

Given the amount of bullion actually being offered for sale at the COMEX, higher prices seem to be indicated in this delivery cycle with a little over 200,000 ounces worth of contracts standing for delivery, at least for now.

GLD lost about 4.5 tonnes of bullion due to paper induced selling. At some point when the price of gold turns and GLD must start adding bullion back the pressure on physical supply could be interesting.

But why debate or belabor this any further?  Hit the paper price again if you dare, with the government of India doing all that it can already to stop the flow of gold into that country, and the gold forward rates negative over twenty days as the search for deliverable gold at these prices is becoming increasingly desperate.  

People wish to protect at least some portion of their wealth from opaque counterparty risks.

Weighed, and found wanting.

Stand and deliver.

Gold Daily and Silver Weekly Charts - It's Been A Long Time Coming

"Gottes Mühlen mahlen langsam,
mahlen aber trefflich klein
Ob aus Langmut er sich säumet,
bringt mit Schärf' er alles ein."

Friedrich von Logau

As I noted earlier today there was a drawdown, most likely a redemption, of gold bullion in the past week or so of about 10 million dollars worth of gold bullion from the Sprott Physical Gold Trust.

I am informed that Sprott utilizes the highly prized 400 oz. bars that are the standard in Asia, versus the 100 oz. bars common used on the COMEX. Apparently someone wanted the actual bullion badly enough to go through the delivery process.

Let's see how the bullion inventories go during this August delivery month.

As you may recall I have had a stawman theory in the back of my mind that some major player with a good insight into the global supply could manage to create a corner in the gold bullion market without necessarily executing it on the COMEX, which is hard to do because they would be quick to declare force majeure.

But with the tightness of supply and the protracted negative lease rates for gold there appears to be some sort of squeeze going on with drawdown in inventory at COMEX and allegedly at the LBMA.

I would hate to be holding that bag, for the return of leased gold or other contractual obligations for example.

The wind of change is blowing a hurricane.

Weighed, and found wanting.

Stand and deliver