Gold and Silver Rally to New Highs — and Their Stocks Close Lower

25 February 2017 — Saturday


After selling off a dollar or so once trading began in New York on Thursday evening, the gold price began to creep higher in morning trading in the Far East.  It then jumped up a few dollars staring around 2 p.m. China Standard Time on their Friday afternoon.  From that point gold began to rally a bit fast — and that lasted until a minutes after 9 a.m. in New York.  From there it was sold down into the London p.m. gold fix as a ramp job in the dollar index began about the same time.  Once the ‘fix’ was in, the gold price chopped quietly higher until 3 p.m. in the thinly-traded after-hours market — and from that point it was sold down a bit into the close.

The low and high ticks in gold on Friday were recorded by the CME Group as $1,248.80 and $1,261.20 in the April contract.

Gold finished the Friday session at $1,256.90 spot, up $7.60 from Thursday’s close.  Net volume was pretty heavy, whatever that means these days, at just under 198,000 contracts.

Here’s the 5-minute gold tick chart courtesy of Brad Robertson.  There was no volume to speak of in Far East trading until the pop in price starting around 23:00 Denver time on Thursday night, which was 2 p.m. Friday afternoon in Shanghai.  It never really dropped back to background volume levels after that — and with the real big volume spikes coming when the gold price got stepped on starting minutes after 7:00 a.m. MST, which was 9:00 a.m. in New York.  And except for the odd tick here and there, the volume never really returned to what I would call background levels after that.

The vertical gray line is 10:00 p.m. Denver time, midnight in New York — and 1:00 p.m. China Standard Time [CST] the following afternoon in Shanghai—and don’t forget to add two hours for EST.  The ‘click to enlarge‘ feature is a must.

The price action in silver was mostly the same as it was in gold, except for the fact that the price appeared to get capped at the $18.36 spot mark, after the post-p.m. gold fix rally.  It was sold down off its high by a bit, going into the COMEX close — and didn’t do much after that.

The low and high tick in this precious metal was recorded as $18.145 and $18.39 in the March contract.

Silver finished the Friday session at $18.325 spot, up 18 cents on the day.  Net volume was very light at a bit over 13,000 contracts, but gross volume was enormous at 136,455 contracts.  Roll-over/switch volume out of March and into futures months, mostly May, was off the charts.

Here’s the 5-minute silver tick chart courtesy of Brad as well — and with so little net volume, there’s not much to look at but, as always, the vast majority of it occurred during the COMEX trading session.  And after 12:00 p.m. Denver time/2:00 p.m. in New York, volume vanished.

Like for the 5-minute tick chart for gold, the vertical gray line is 10:00 p.m. Denver time, midnight in New York — and 1:00 p.m. China Standard Time [CST] the following afternoon in Shanghai—and don’t forget to add two hours for EST.  The ‘click to enlarge‘ feature is a must as well.

The platinum price was mostly similar to what happened with silver and gold prices.  It’s post-p.m. gold fix rally got capped in short order — and then it traded mostly flat until thirty minutes before the 5 p.m. close.  Then it jumped up a few more dollars.  Platinum finished the Friday session at $1,207 spot, up 20 bucks on the day.

It was mostly the same price pattern for palladium, at least up until minutes after 9 a.m. in New York — and when it got slammed lower, it got driven into the dirt right into the COMEX close — and was down a couple of bucks on the day at that point.  However it did mange to add a few more dollars in the thinly-traded after-hours market — and finished the day unchanged at $770 spot.  At its high, it was sitting at $783 spot.

The dollar index closed very late on Thursday afternoon in New York at 100.98… then rallied a few basis points back above the 101.00 mark in the early going in Far East trading, but began to head lower starting around 10:30 a.m. in Shanghai.  That decline continued, with the 100.66 low tick being printed at 8:30 a.m. in New York.   The dollar index ramp job began at precisely 9:00 a.m…with most of the gains that mattered in by minutes before 10 a.m. EST, which was the London p.m. gold fix.  It chopped unsteadily higher from there — and finished the Friday session at 101.14…up 16 basis points from Thursday’s close.

And although you can’t see it on the gold and silver charts above, their respective prices did not get slammed lower until a few minutes after the ramp job on the dollar index began.  This was just another intraday bear raid by ‘da boyz’…nothing else.

And here’s the 6-month U.S. dollar index chart — and you can read into it whatever you wish.

The gold stocks open up only about a percent — and began to head lower from there, with barely a backward glance.  They finished almost on their lows of the day, as the HUI closed down 1.32 percent.

The silver equities hung in there a bit better than their golden brethren, but starting at 12:30 p.m. in New York, they too succumbed to selling pressure — and the low tick was set at 3 p.m. EST.  They rallied a hair into the close from there.  Nick Laird’s Intraday Silver Sentiment finished lower by 0.40 percent.  Click to enlarge if necessary.

As you know, dear reader, I’ve been going on about the rotten share price action since my column on Wednesday, so today’s rant will make it four day in a row.  I have no idea why the share price action is so rotten, as it makes absolutely no sense at all.  It’s possible that ‘the powers-that-be are dicking with them, but I don’t want to go too far down that particular rabbit hole.

And here are three charts from Nick that shows the unhappy news.  The first one shows the changes in gold, silver, platinum and palladium for the past week, in both percent and dollar and cents terms, as of Friday’s closes in New York — along with the changes in the HUI and Silver Sentiment/Silver 7 Index.   The Click to Enlarge feature really helps on all three.

And the chart below shows the month-to-date changes as of Friday’s close.

And here are the year-to-date changes…

The CME Daily Delivery Report showed that 65 gold and 13 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.  In gold, Scotiabank was the sole short/issuer — and the three largest long/stoppers were HSBC USA, JPMorgan and the CME Group itself, with 24, 18 and 20 contracts respectively.  The 20 contracts for the CME Group were all in 10-ounce bar form, as 200 ten-ounce bars were posted for delivery in the 10 Troy Oz Gold Futures on Tuesday.  In silver, JPMorgan issued 12 contracts out of its client account — and Canada’s Scotiabank stopped all 13.  The link to yesterday’s Issuers and Stoppers Report is here.

The CME Preliminary Report for the Friday trading session showed that gold open interest in February dropped by 637 contracts, leaving 65 still open…minus the 65 contracts mentioned above.  Thursday’s Daily Delivery Report showed that 638 gold contracts were actually posted for delivery on Monday, so that means that 638-637=1 gold contract just got added to the February delivery month.  Silver o.i. in February declined by 54 contracts, leaving 13 still left — and as per the above paragraph, those will be out for delivery on Tuesday.  Thursday’s Daily Delivery Report showed that 16 silver contracts were actually posted for delivery today, so that means that 54-16=38 February contract holders opted out of the delivery process.

The February delivery month is now done.

For the month, there were 6,023 gold contracts delivered — and in silver that number was 614.  In silver for the month, all of JP Morgan’s activity only involved its client account.  It didn’t do any business for its own account in February…but it did stop 771 gold contracts for its own account.

Silver open interest for March showed a drop of 14,631 contracts yesterday, leaving 17,893 still around.  I expect we’ll see another decline of about that amount in Monday’s Preliminary Report.

For the second day in a row there were no reported changes in either GLD or SLV.

And, once again, there was no sales report from the U.S. Mint.

I don’t recall such a slow sales month that we’ve seen so far in February.  Month-to-date the mint has sold only 24,000 troy ounces of gold eagles — 14,500 one-ounce 24K gold buffaloes — and a piddling 765,000 silver eagles.  There are only two business days left in the current month, so to say that retail sales are beyond awful, is being kind.  It certainly makes a lot of difference to sales numbers when JPMorgan isn’t around to buy every ounce of silver that can’t be sold to John Q. Public.

Even before I could send an e-mail off to the Royal Canadian Mint yesterday morning, I got an e-mail from Steve Higgins, their Director of Storage and Refining Solutions.  We’d met in Vancouver at the Cambridge Resource Conference in January — and I’d been keeping in touch.  I’d spoken to him at that time regarding the Q3 report from the mint — and in his e-mail to me on Friday morning he said…”Hi Ed, Financials are being released today. Sorry for the delay. Best, Steve“.

From page 10 of their third quarter financial statements, I extracted this data, which I’ve edited lightly for clarity purposes…

Bullion revenues for the 13 weeks/Q3 ended October 1, 2016 decreased 32{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} to $465.4 million from $684.1 million in the same period in 2015.

Sales of gold coins, mostly Gold Maple Leaf (GML) coins, declined 40{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} to 201,000 (2015 – 336,500 thousand) ounces. Sales of silver coins, mostly Silver Maple Leaf (SML) coins, declined 36{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} to 6.1 million (2015 – 9.5 million) ounces. The recent decline in revenues and profits is attributed to less demand in Q3 compared to prior year’s near-record level.

During the first 39 weeks of this year, ending on October 1, 2016, Bullion Products and Services revenue increased 4{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} to $1,521.1 million from $1,461.8 million in the same period in 2015. Sales of gold coins, held steady to 682,200 (2015 – 679,400) ounces while sales of silver coins, increased 2{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} to 25.8 million (2015 – 25.2 million) ounces. Bullion results in 2016 remained strong as a result of the high demand during the first half of the year in North America for bullion core and custom products.

I said way back in October of last year, that I wouldn’t be at all surprised if the Royal Canadian Mint’s sales of gold and silver maple leafs cratered in Q3, as that’s when JPMorgan stepped away from the buying gold and silver eagles from the U.S. Mint.  The sales numbers shown above, certainly proved that to be the case.

There wasn’t much gold movement over at the COMEX-approved depositories on the U.S. east coast on Thursday.  There was 32,150.000 troy ounces/1,000 kilobars [U.K./U.S. kilobar weight] received by JP Morgan — and nothing was shipped out.  The link to this activity is here.

In silver, there was 578,834 troy ounces received, all of which went into Canada’s Scotiabank.  There was 538,435 troy ounces shipped out.  With the exception of 8,951 troy ounces shipped out of Delaware, the rest came out of CNT.  The link to that activity is here.

Over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday, they reported receiving 1,487 kilobars — and shipped out only 248 of them.  As usual, all this activity was at Brink’s, Inc. — and the link to that, in troy ounces, is here.

There weren’t really any surprises in yesterday’s Commitment of Traders Report for positions held at the close of COMEX trading on Tuesday.  There were, as expected, increases in the Commercial net short positions in both gold and silver.

In silver, the Commercial net short position increased by 3,206 contracts, or 16.0 million troy ounces of paper silver, which brings the commercial net short position up to 102,233 COMEX contracts, or 511.1 million troy ounces.

They arrived at this number by purchasing 3,275 long contracts, plus they added 6,481 short contracts — and the difference between those two numbers…3,206 contracts…is the change for the reporting week.

Ted said that the Big 4 increased their net short position by a further 2,000 contracts — and he attributes all of that increase to JP Morgan, which he says brings their short position up to about 28,000 contracts.  The ‘5 through 8’ large traders increased their short position as well — and by about 1,800 contracts.  Ted’s raptors, the commercial traders other than the Big 8, actually reduced their short position by around 600 contracts.

Under the hood in the Disaggregated COT Report, it was all the Managed Money traders, plus more…as they added 5,670 long contracts, plus they added 404 short contracts, for a totally weekly change of 5,266 contracts, which was much more than the 3,206 contract increase in the Commercial net short position.

Once again this is proof positive that it’s the interplay between the commercial traders on one side — and the Managed Money traders on the other, that is determining price.  The traders in the other two categories don’t matter one whit.

The COT Report for silver continues to get uglier with each passing week — and it has obviously deteriorated even more since the Tuesday cut-off.  Here’s the 9-year COT chart for silver — and the click to enlarge feature is more than useful.

In gold, the commercial net short position rose by a fairly hefty 11,776 contracts, or 1.18 million troy ounces of paper gold.  The commercial net short position in gold now stands at 13.96 million troy ounces.

They got to that number by selling 1,813 long contracts, plus they added 9,963 short contracts — and the sum of those two numbers is the change for the reporting week.

Ted says that the Big 4 traders only increased their short position by about 600 contracts, which certainly wasn’t a lot.  The ‘5 through 8’ large traders actually decreased their short position by around 3,600 contracts — and Ted said that was probably due to the fact that a Managed Money trader fled the short side during the reporting week.  Ted’s raptors, the commercial traders other than the Big 8, did all the heavy lifting, as they decreased their long position by a very hefty 14,800 contracts.

Under the hood in the Managed Money category, it was all a Managed Money show [and more] as well.  They added 6,900 long contracts, plus they covered 7,517 short contracts, for a total weekly swing of 14,417 contracts.  Once again, what the traders in the ‘Other Reportables’ and Nonreportable/small trader categories did, was mostly irrelevant.

Of course, there’s certainly been more Managed Money long buying and short covering since the Tuesday cut-off — and the commercial traders, acting as short buyers and long sellers of last resort, are only happy to take the other side for fun, profit — and price management purposes.

Here’s the 9-year COT chart for gold — and the click to enlarge feature for this chart is a must as well.

As I just stated, the commercial short position in gold has most likely deteriorated markedly since the Tuesday cut-off,  but we’re still miles away from a bearish configuration in gold.  Unfortunately, the same can’t be said for silver, as it’s COMEX futures market configuration is simply butt-ass ugly.

I look forward to what Ted has to say about all this, as his commentary should be regarded as definitive.

Here’s Nick Laird’s “Days to Cover” chart updated with yesterday’s COT data for positions held at the close of COMEX trading on Tuesday.  It shows the days of world production that it would take to cover the short positions of the Big 4 — and Big ‘5 through 8’ traders in each physically traded commodity on the COMEX.  These are the same Big 4 and ‘5 through 8’ traders discussed in the COT Report above.  Click to enlarge.

For the current reporting week, the Big 4 are short 151 days of world silver production—and the ‘5 through 8’ traders are short an additional 56 days of world silver production—for a total of 207 days, which is approaching seven months of world silver production, or about 503.0 million troy ounces of paper silver held short by the Big 8. [In last week’s report the Big 8 were short 199 days of world silver production. – Ed]

In the COT Report above, the Commercial net short position in silver is 495.1 million troy ounces.  So for the second week in a row, the commercial net short position is larger than the short position held by the Big 8 traders — to the tune of 511.1 – 495.1 = 16.0  million troy ounces…give or take.  What that means in plain English is that Ted’s raptors, the commercial traders other than the Big 8, have finally gone net short in silver, after being net long for what seemed like forever.  This is never a bullish sign.

In my conversation with Ted yesterday, he pegs JP Morgan’s short position at around 28,000 contracts, or 140 million ounces, which is up from the 26,000 contracts/130 million ounces they were net short a week ago.  140 million ounces works out to around 57 days of world silver production that JPMorgan is short.  That’s compared to the 207 days that the Big 8 are short in total.

The approximate short position in silver held by Scotiabank works out to around 53 days of world silver production.  For the first time in ages, JP Morgan is back as the number one short holder in silver in the COMEX futures market.

The two largest silver shorts on Planet Earth—JP Morgan and Canada’s Scotiabank—are short about 110 days of world silver production between the two of them—and that 110 days represents 73 percent of the length of the red bar in silver in the above chart.  The other two traders in the Big 4 category are short, on average, about 20 days of world silver production apiece.  The four traders in the ‘5 through 8’ category are short, on average, 14 days of world silver production apiece.

The short positions of Scotiabank and JP Morgan combined, represents more than 50 percent of the short position held by all the Big 8 traders combined.  How’s that for a concentrated short position within a concentrated short position?

The Big 8 are short 48.3 percent of the entire open interest in silver in the COMEX futures market — and that number would be around 55 percent once the market-neutral spread trades are subtracted out.  In gold it’s 37.3 percent of the total open interest that the Big 8 are short.

In gold, the Big 4 are short 39 days of world gold production, unchanged from last week — and the ‘5 through 8’ are short another 18 days of world production, which is down from 19 days from the prior week, for a total of 57 days of world gold production held short by the Big 8.  This is the lowest I can remember it being in a very long time.  Based on these numbers, the Big 4 in gold hold about 68 percent of the total short position held by the Big 8.  How’s that for a concentrated short position within a concentrated short position?  At least it’s not quite as bad as silver in that regard, but close enough to be considered the same, which is outrageous.

The “concentrated short positions within a concentrated short position” in silver, platinum and palladium held by the Big 4 are about 73, 74 and 71 percent respectively of the short positions held by the Big 8.  All these percentages are virtually unchanged from last week’s COT Report.

I don’t have all that many stories for you today — and I do have the odd one that I’ve been saving for today’s column for the usual reasons.


JCPenney’s store closures could push hundreds of dying shopping malls over the edge

A tidal wave of store closures is about to hit the U.S., and the result could be catastrophic for hundreds of lower-tier shopping malls.

JCPenney announced Friday that it would close up to 140 stores in the next couple months.

That follows decisions by Macy’s and Sears to close a collective 218 stores in the first half of the year. Other mall-based stores including American Apparel, The Limited, Bebe, BCBG, and Payless have also recently announced that they are shutting down all or most of their stores.

The rate of closures is higher than in previous years, signaling a new reality for the retail industry that consists of far fewer stores, and ultimately fewer shopping malls.

Most of the stores that close will likely be located in lower-tier shopping malls – those referred to in the industry as B, C, and D-level malls. These shopping malls are already struggling, and many contain storefronts that have already gone dark.

This news story put in an appearance on the Internet site yesterday evening sometime — and it comes to us courtesy of Swedish reader Patrik Ekdahl.  Another link to it is here.

New Home Sales Disappoint As Median Home Price Rises 7.4{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e}

“Soft”, survey and optimism-based, data may (still) be euphoric, but when it comes to “hard”, actual economic data, moments ago the Census reported the latest disappointment when it comes to New Home Sales, which rose to 555K in January, missing expectations of 571K, and up 3.7{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} from a downward revised 535K in December. The data for all three prior months was revised lower (Dec from 536 to 535), November (598 to 575 and October 571 to 568), as US housing remains unable to capitalize on so-called economic recent strength.

More troubling, however, is that one decade after the last housing peak, new home sales are well below half their peak hit in 2005.

Total months’ supply in January was unchanged, at 5.7 compared to 5.7 in December.

Despite the miss, both New and Existing home sales continue to rise, although if mortgage applications are any indication, sales of housing are due for a sharp pullback in coming months.

This 3-chart Zero Hedge article showed up on their Internet site at 10:12 a.m. EST on Friday morning — and another link to it is here.

Trump to FBI: Find Leakers Now!

U.S. President Donald Trump is putting added pressure on the FBI to find those responsible for leaking secret information about his administration’s phone calls, demanding that the agency identify the leakers “now.”

In a set of tweets on Friday, President Trump stated that, “The FBI is totally unable to stop the national security “leakers” that have permeated our government for a long time. They can’t even find the leakers within the FBI itself. Classified information is being given to media that could have a devastating effect on U.S. FIND NOW.

The tweets come on the heels of reports that the FBI confirmed to the Trump administration that the story of the President’s ties to Russia are false, although the agency has refused to say so publicly.

On Friday, it was reported that the FBI denied any substance behind a New York Times article claiming that Trump’s aides were in touch with Russian intelligence services. The article relied on unnamed FBI officials, claiming that the agency is investigating several people from the President’s inner circle, who were known to be in contact with Moscow spies. However, all those mentioned in the NYT piece, denied any contact with foreign intelligence services and said they are not aware of being investigated by U.S. counterintelligence services.

This news story was posted on the Internet site at 9:51 p.m. Moscow time on their Friday evening — and was updated at 5:45 a.m. Moscow time on their Saturday morning, which was 9:45 p.m. EST on Friday evening in Washington.  I thank Roy Stephens for sharing it with us — and another link to it is here.

The Chickens Have Come Home to Roost — Judge Andrew Napolitano

Last week, The Wall Street Journal revealed that members of the intelligence community — part of the deep state, the unseen government within the government that does not change with elections — now have acquired so much data on everyone in America that they can selectively reveal it to reward their friends and harm their foes. Their principal foe today is the president of the United States.

Liberty is rarely lost overnight. The wall of tyranny often begins with benign building blocks of safety — each one lying on top of a predecessor — eventually collectively constituting an impediment to the exercise of free choices by free people, often not even recognized until it is too late.

The chickens have come home to roost. In our misguided efforts to keep the country safe, we have neglected to keep it free. We have enabled a deep state to become powerful enough to control a powerful president. We have placed so much data and so much power in the hands of unelected, unaccountable, opaque spies that they can use it as they see fit — even to the point of committing federal felonies. Now some have boasted that they can manipulate and thus control the president of the United States by selectively revealing and concealing what they know about anyone, including the president himself.

This is a perilous state of affairs, brought about by the maniacal passion for surveillance spawned under George W. Bush and perfected under Barack Obama — all with utter indifference to the widespread constitutional violations and permanent destruction of personal liberties. This is not the government the Framers gave us. But it is one far more dangerous to human freedom than the one from which they seceded in 1776.

This absolute must read commentary by Judge Andrew Napolitano showed up on the Internet site on Thursday — and for length reasons, decided it should wait for today’s column.  I thank Judy Sturgis for pointing it out.  Another link to it is here.

Pablo Escobar’s son reveals his dad ‘worked for the CIA selling cocaine’ – media silent

Juan Pablo Escobar Henao, son of notorious Medellín cartel drug kingpin, Pablo Escobar, now says his father “worked for the CIA.”

In a new book, “Pablo Escobar In Fraganti,” Escobar, who lives under the pseudonym, Juan Sebastián Marroquín, explains his “father worked for the CIA selling cocaine to finance the fight against Communism in Central America.

The drug business is very different than what we dreamed,” he continues. “What the CIA was doing was buying the controls to get the drug into their country and getting a wonderful deal.

He did not make the money alone,” Marroquín elaborated in an interview, “but with U.S. agencies that allowed him access to this money. He had direct relations with the CIA.”

Notably, Marroquín added, “the person who sold the most drugs to the CIA was Pablo Escobar.”

No surprises here.  The British were the heroin/cocaine drug-runners in the early-to-mid 19th century — and the CIA took over starting around the time of the Vietnam war.  This amazing and very worthwhile story showed up on the Internet site within the last week — and I thank Judy Sturgis for her second contribution in a row to today’s column.  Another link to it is here.

Doug Noland: Risk On/Risk Off Face-off

At this point, Europe remains at the epicenter of The “Risk On”/“Risk Off” Faceoff. Major European equities indices reversed lower into this week’s close. After trading to the highest level since 2015, Germany’s DAX index dropped 1.6{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} during Thursday’s and Friday’s sessions. Italian equities fell 2.2{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} this week, and Spanish and French equities posted modest declines. The European Bank Stock Index (STOXX 600) dropped 3.2{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} this week, trading to the lowest level since early-December. Notably, Italian banks sank 5.8{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e} this week, boosting y-t-d losses to 10.4{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e}.

Through the eyes of the global bond market, something just doesn’t look right. And while this week’s Treasury and gilt yield declines were curious developments, the real action continues to unfold in Europe. German bund yields declined a notable 12 bps this week to 0.18{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e}, the low since December 29th. Even more intriguing, German two-year sovereign yields sank 14 bps this week to a record low negative 0.96{f02ffe5e8b39fd7974c2720d01ccf381ddc9ebb4164215842085b3c57e4f642e}.

The French versus German two-year sovereign spread traded as high as 49 bps this week, the widest since the tumultuous summer of 2012. This spread widened 11 bps for the week (to 43bps), and has doubled thus far in February. The Italian to German 10-year spread widened 12 this week, back to a two-year high 201 bps. The Spanish to German 10-year spread surged 18 bps this week to a seven-month high 151 bps. After beginning the year at 37 bps, the French sovereign Credit default swap (CDS) traded Thursday above 70 for the first time since August 2013.

Markets clearly fret approaching French elections (first round April 23, second May 7). National Front candidate Marine Le Pen is widely expected to win the first round but then lose in May’s two candidate runoff. After Brexit and Trump, markets are this time around less willing to take things for granted. Le Pen is running on a far right platform that includes exiting the EU, returning to the French franc and adopting various “France First” measures. Having watched post-Brexit and post-Trump non-turmoil, perhaps French voters will disregard what has become routine fearmongering.

Doug’s weekly Credit Bubble Bulletin showed up on his website shortly after midnight EST this morning — and another link to it is here.

Le Pen Aides Met UBS, BlackRock, Barclays to Explain Euro Exit

Top advisers to French presidential candidate Marine Le Pen have met with strategists and analysts from BlackRock Inc, Barclays Plc and UBS Group AG, among other firms to explain their economic program and plans to withdraw France from the euro.

While such meetings are common for campaign officials from mainstream parties in France and other European countries, this is the first time Le Pen’s National Front has been approached, the candidate’s chief economic adviser Bernard Monot and her business aide Mikael Sala said in interviews. In the last seven months, they have met with analysts from British and American financial institutions in Paris, Brussels and Strasbourg at the firms’ request.

The interest from financial markets underlines how seriously financial analysts take the possibility that Le Pen may win power in the euro zone’s second-largest economy. Polls have shown her holding a lead in the first round of voting for more than a year, though all surveys predict that she will also lose the run-off ballot on May 7.

These strategists see that Le Pen may be the next president of France and they are doing their due diligence,” Monot said. “They’re very much looking for a detailed account of our plans.

This Bloomberg article showed up on their website at 11:52 a.m. MST on Thursday morning — and was subsequently updated about six hours later.  Another link to it is here — and I thank Patrik Ekdahl for bringing it to our attention.

The Russian Enemies of Trump-Putin Détente:  John Batchelor Interviews Stephen F. Cohen

As we are beginning to expect from a single week’s political news from Washington, and Russia too, we have a fresh monumental news week discussed in this podcast. Washington now has both a new national security advisor and a “new peace plan from Ukraine”.  Allegedly the latter was delivered, according to the New York Times, in a sealed envelope to right inside the White House to an office near the previous National Security Advisor, Michael Flynn’s old office. The Times, digging its own financial grave a little deeper reports in the article that the offer from Ukraine includes “for Ukraine to get back Crimea and to agree to lease Crimea to Russia”. The Russian response to this “Saturday Night Live skit” (Cohen’s description) was predictable and even hilariously disdainful. Cohen continues with more (outrageous) examples of how the N.Y. Times has escalated the condemnation of Trump and his changing policy positions about Russia. More positive news, however, is President Trump’s choice of Lt. General H.R. McMaster, a very experienced and combat decorated (1991 Iraq War) serving officer and author who has been in the past an outspoken critic of American foreign policy.

Cohen then develops on the theme that the media, like the N.Y. Times is creating a kind of “thought control” campaign directed against anyone who would have a contrary position from the war party (Deep State). He labels this as an “Orwellian Stage” in the devolution. The Russians looking on have seen this all before under the Soviet system and comprehend the process. But Russians are polarized similarly to Washington. Cohen describes how they look upon the chaos in the Trump regime and their nationalists faction (perhaps correctly) consider détente unlikely and even unwelcome. This debate continues to polarize and to create problems for Putin who represents the middle position of it all. Cohen proceeds to develop an argument that Putin is faced with a common Russian political conclusion that détente has resulted in catastrophes for Russia. The collapse of the Soviet Union was seen as proof of this, and that the chaos of Washington does not reassure at all. The loss of Flynn as national security advisor is also seen as a real failure – as many Western pundits agree. Cohen disagrees and states his reasons.  If Trump wants détente (and Cohen believes he does) he describes what could be done and why.

I tend to agree with Cohen that Flynn is not the disaster that ordains his defeat. His new choice for national security advisor seems to be a solid choice, and opens up opportunities for Trump’s own civil war with his opposition. Trump needs to shore up a power base with the armed forces. The deplorable background realities to this are almost twenty years of constant war for the U.S. resulting in very poor morale in the armed forces, a huge neglect of veterans (a seriously high suicide rate is reality), and a failing military weapons advantage. By picking his national security advisor from the military (who has likely seen the end of his military career in accepting the position) Trump has perhaps begun the process of getting the military on his side and dividing his political opposition to some extent. He can continue this process with policies like:

1.  funding the support of neglected veterans ( a budget-friendly policy which will also be very welcomed by his   electorate supporters),
2.  increasing funding for maintenance of the existing military weapons and infrastructure,
3.  budgeting new expenditures for new weapons,
4.   reforming the draft process (most soldiers are from the lower income classes and small towns).  This is very important given that in order to really drain the swamp of Washington may likely have to involve a push from the armed forces.

This 40-minute audio interview appeared in my Wednesday column, but did not include the above executive summary.  I said on Wednesday that it would appear in Saturday’s column as well — and here it is.  I thank Ken Hurt for the link, but the biggest of THANK YOU always goes to Larry Galearis for the always excellent executive summary — and another link to the audio interview is here.

Trump calls Chinese ‘grand champions‘ of currency manipulation

President Donald Trump declared China the “grand champions” of currency manipulation on Thursday, just hours after his new Treasury secretary pledged a more methodical approach to analyzing Beijing’s foreign exchange practices.

In an exclusive interview with Reuters, Trump said he has not “held back” in his assessment that China manipulates its yuan currency, despite not acting on a campaign promise to declare it a currency manipulator on his first day in office.

Well they, I think they’re grand champions at manipulation of currency. So I haven’t held back,” Trump said. “We’ll see what happens.

During his presidential campaign Trump frequently accused China of keeping its currency artificially low against the dollar to make Chinese exports cheaper, “stealing” American manufacturing jobs.

But Treasury Secretary Stephen Mnuchin told CNBC on Thursday he was not ready to pass judgment on China’s currency practices.

This Reuters story, filed from Washington, appeared on their Internet site at 7:20 a.m. EST — and I found it in a GATA dispatch yesterday.  Another link to it is here.

Beijing Responds to Trump Charge China Is a “Grand Champion at Currency Manipulation

This morning China responded Trump’s accusation, when Beijing said it has no intention of using currency devaluation to its advantage in trade, which presumably excludes China’s August 2015 devaluation which unleashed a period of acute market volatility. Chinese Foreign Ministry spokesman Geng Shuang said he hoped the United States could “fully and correctly” view the exchange rate issue.

Quoted by Reuters, Shuang said “China has no intention of seeking foreign trade advantages via an intentional devaluation of the renminbi. There is no basis for the continued devaluation of the renminbi,” he told a daily media briefing in Beijing.

Geng said there was no basis for the continued devaluation of the renminbi and he hoped “the relevant side can fully and correctly view the renminbi exchange rate issue.” And yet, earlier this month, China’s SAFE, or main fX regulator, said the economy still faced weak global demand and financial market volatility caused by expectations of further interest rate rises by the U.S. Federal Reserve, implying that every move higher in U.S. rates will likely lead to a weaker Chinese currency.

In any case, Geng returned Trump’s “compliment” saying “If you must attach the label ‘grand champion’ to China, then I think China is a grand champion. But we are the grand champions of economic development,” by which he clearly meant central planning, fabricating economic data, bailing out insolvent SOEs and injecting record amounts of unsustainable debt.

This Zero Hedge article was posted on their website at 8:21 a.m. on Friday morning EST — and another link to it is here.

New Zealand Earthquake creates new dive chances on sunken Soviet ship Mikhail Lermontov

Go Dive Marlborough owner Brent McFadden says the 7.8-magnitude earthquake has created a new diving environment on the Mikhail Lermontov.

A Soviet cruise liner resting on the seabed of the Marlborough Sounds has “parted company” with its top three levels after the earthquake last year.

The force of the 7.8-magnitude earthquake caused extensive changes to the wreck of the Mikhail Lermontov, which sank in Port Gore on February 16, 1986.

Go Dive Marlborough owner Brent McFadden, who has dived the site thousands of times, first saw the changes on a trip days after the disaster.

The top three levels of the 155-metre long ship, the jewel in the crown of the Soviet cruise fleet, had been sliced off by the movement and force of the water.

Here’s another story that had to wait for the weekend.  It was posted on the Internet site at noon on Thursday local time.  I thank my daughter Kathleen for sending it our way — and another link to it is here.

Floating With Leviathans in the South Pacific

The South Pacific archipelago of Vava’u, which consists of 61 islands, is an annual stop each fall for migrating pilot and humpback whales and their newborn calves.

The first few days, we didn’t see a single whale. But you get a long way with determination. We saw a group of pilot whales first — seeing them is very rare. They’re fast and about twice the length of humans. The next day, we saw a few humpbacks. They did a swim-by, which is like a minute in real time but felt like an eternity in the water. Later that day, I saw a mother and her calf, between 4 and 5 weeks old. It seemed as if he was looking at me. He was really curious, and he came so close that I couldn’t keep him in one frame. The mother stayed out of the frame. I don’t think she saw me as a threat.

We had a really magical moment the next day when nine whales had a heat run. A lot of male whales blow huge bubbles to show off. All you can do is hold your breath; I did a free-diving course to train for this. At one point, there were eight males showing off for one female. If you have ever wondered what it would be like to be as small as a mosquito, that was it for me. All of a sudden, whales are coming from the left and the right. We decided that I would just shoot while my swimming partner, Falanisi Tongia, pulled me in the direction I wanted to go. The whales were breaching and changing direction and slapping their tails. The tail that propels the whale has an immense power; I was wearing a full-body wet suit with the idea that if I was knocked unconscious, I would float.

This very excellent photo essay came with no dateline.  It was posted on The New York Times website — and I thank Patricia Caulfield for finding it for us.  Another link to it is here.

Gold cuts through $1,250 level, silver through $18 — Lawrie Williams

Trading this morning in Europe saw gold surge comfortably through the $1,250 psychological level – a target it had not been able to achieve with any consistency of late – it is sitting at $1,255 as I write having briefly touched $1260 in the spot markets, but fell back a few dollars when New York opened.  Perhaps even more significant was silver’s breach of the $18 level – $18.29 as I write.  That had been another sticking point for the metal during periods of strength over the past few weeks.  Whether the precious metals will be allowed to hold these levels once COMEX trading kicks in in strength in the U.S. remains to be seen!

So what has happened to generate this additional pricing strength?  Perhaps the beginnings of the realisation in the U.S. – as it’s the U.S. currently driving the gold price – that President Trump for all his slew of Executive Orders, is unlikely to be able to ‘fix’ the American economy quickly, nor is any resulting infrastructure spending likely to kick in until much later in the year – if then.  He has also been making it clear that he is looking for a weaker U.S. dollar, which could see a delay in any Fed interest rate rises as higher interest rates could presage a rise in the dollar index if other key areas and nations like Europe and Japan don’t follow suit – and there’s no indication that they are likely to.  U.S. unemployment figures are not helping either with a rise in the unemployment percentage while political uncertainties at home and abroad are increasing the safe haven attraction of precious metals.  To an extent this has been expressing itself so far this year with a rise in gold holdings in the big gold ETFs, although it is perhaps worth pointing out here that the holdings in the world’s largest gold ETF – SPDR Gold Shares or GLD – have remained static for the past working week.  One suspects that if the gold price gains seen so far today hold when U.S. markets open we may well see some renewed purchases into GLD.

This brief commentary by Lawrie appeared on the Sharps Pixley website on Friday morning GMT — and is worth reading.  Another link to it is here.

ROSS NORMAN – A Response to The LME Issue

Visualize the scene — a man in the open seas and struggling.

His fate is inevitable and the only uncertainty is whether he dies by drowning, or is taken out by the increasing number of sharks that are circling. In the scheme of things it is immaterial, nature will take its course. He spies a small swimmer moving confidently past and he declares “if I can stand on his shoulders I will be saved“. That insanity, in a nutshell, is the position that the LME finds itself in, if Andy Home’s article is accurate.

The LME has found itself in an invidious position – through a combination of greed and mindlessness, it sold out to an Asian exchange, who on their side clearly did not understand what they were buying – and they massively overpaid … to the enrichment of a modest few. Generosity towards either side is hard to engender. The HKeX are now trying to milk the LME vigorously to recoup a dividend, but are unable to do so because the members are in revolt over higher fees – and correspondingly volumes are in sharp decline (but rising in Asia). The CEO has gone and the exchange is vulnerable. Meanwhile new alternatives are springing up. The sharks smell blood.

The idea that the LME might be saved by moving into precious metals has no merit. And if it did, it would merely pass our market into the willing hands of the Asians. In short, the LME are exporting their cancer.
Well the LME launches yet another foray in precious metals in June and perhaps it will have more success after numerous failed attempts over the years. Ordinarily one might think they would be cautious over the reputational damage in launching another failed contract, but drowning men aren’t choosers. The notion that precious metals would migrate towards an institution that has gotten itself into uncharted territory does not fill me with confidence. And if they were successful … who’s interest would be being served… ???

Well, dear reader, I posted a story yesterday about the LME cutting the bullion banks in for 50 percent of any profits for this new precious metal contract that launches in June — and here were my comments on it…”It’s obvious from this preemptive action, that they could see that their new exchange would have been stillborn.  So, in order to prevent that embarrassment, they had to offer a hefty financial incentive for the bullion banks to use it.  Fifty percent of the profits sound like an embarrassingly large amount — and smacks of desperation.”  Ross Norman is much closer to this action that I — and I can see that my thoughts on this were right on the money.  And if my memory serves me correctly, Ted Butler gave it a big thumbs down when he first heard of it as well.

This commentary by Ross showed up on the Sharps Pixley website yesterday.  It’s not overly long — and definitely worth your while.  Another link to it is here.


Green Turtles in the Rays” by French photographer Greg Lecoeur, one of the winners in the “Portrait” category of the Underwater Photographer of the Year 2017 contest. Lecoeur commented “During a diving trip to Tenerife, I came across these green turtles. It was early morning and the sunbeams pierced the surface. After a little while, the turtles were circling around us and it was a great opportunity to photograph them.  Click to enlarge.


Today’s pop ‘blast from the past’ is one that I posted quite a while ago — and I ran across it on youtube this week — and now I can’t get the tune out of my head.  It was the only big hit by Marty Balin after he broke away from Jefferson Airplane/Starship and went on his own in 1978.  The song was featured on his 1981 album, Balin.  The link is here.

Today’s classical ‘blast from the past’ is one of Mozart‘s most famous symphonies — and it’s the first time I’ve ever posted one.  This is certainly one his best know — and you’ll recognize it right away.  It’s his ‘Great’ G minor Symphony No. 40 KV550 which he composed sometime between June 26 and the end of July 1788…during which time he also completed the 39th and 41st symphonies!  Here’s the Boston Symphony doing the honours under the baton of Maestro Leonard Bernstein.  I’d guess the recording is from the 1980s — and the link is here.

And as added bonus, reader Scott Kauffman sent me a link to an all classical music radio station that you can listen to on the Internet as you sit in front of your computer…and the link to that station is here.

Although I was certainly happy to see the precious metal do better yesterday, I was not at all impressed by the fact that it took a ‘rally’ in the dollar index to enable ‘da boyz’ to drive their respective prices lower into the London p.m. gold fix.  Without that event, which certainly didn’t look free market to me, the prices of gold, silver and platinum would have certainly finished higher than they did.  And why palladium was singled out to get beaten into the dirt for the second day running, is a total mystery to me, at it was rallying nicely along with the other three precious metals until the ramp job in the dollar index began at 9:00 a.m. in New York yesterday.

Here are the 6-month charts for all four precious metals, plus copper — and as you can see, both gold and silver have broken out nicely, although gold has yet to make it above its 200-day moving average.  The click to enlarge feature helps a bit with the first four charts.

As Ted made crystal clear in his quote in yesterday’s column, the dichotomy between silver and gold as far as COMEX futures positioning, couldn’t be more stark…with silver now wildly bearish — and gold still very bullish.  As to how this is going to resolve itself in the short and medium term, is unknown.

Ted put it this way in his weekly review last Saturday…”I can faintly recall instances in the past where the market structures in gold and silver parted ways temporarily, but none quite like now.

So we wait some more.

To add more intrigue to the above, one only has to look at the absolutely miserable performance of the precious metal equities over the last couple of weeks.  To say that it has been abysmal is being kind — and a few of the explanations I’ve heard on the Internet over the last couple of days just don’t cut it with me.  As I said in my comments on the HUI and Silver 7 Index in the first part of today’s column, I have no rational explanation for their behavior…and the only alternative explanation that I can come up with involves a red pill and rabbit hole, so I shan’t go there.

But thinking back to the distant past, ten years ago or more, an inexplicable divergence between the precious metal prices and their underlying equities such as we see before us now, has always ended badly.  And as I say at moments like this…I’d love to be proven spectacularly wrong about that…but I must admit that, combined with dichotomy between gold and silver in the futures market, I’m on ‘Red Alert’ for that possibility.

Throw into the mix the fact that we are living in the most gargantuan economic, financial and monetary bubble the world has ever known — and the danger signs are everywhere.  Only the world’s central banks are keeping this whole thing aloft for the moment.  We already know by now, as they certainly do, that this will end at some point — and in tears.

Let’s see what happens on Monday — and I’ll see you here on Tuesday.


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