Ted Butler: What Disconnect?

29 September 2018 — Saturday

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price chopped more or less sideways a few dollars either side of unchanged until shortly before 1 p.m. BST in London.  It began to head higher from there — and this rally lasted until noon in New York — and it inched lower until just before the 5 p.m. close, when it popped a dollar higher to end the Friday trading session.

The low and high ticks really aren’t worth looking up, but here they are anyway…$1,184.30 and $1,198.00 in the December contract.

Gold finished the Friday session in New York $1,192.20 spot, up $9.80 from Thursday’s close.  Net volume was very heavy at a bit under 302,000 contracts — and there was only 7,272 contracts worth of roll-over/switch volume on top of that.

The price pattern for silver was very similar to gold’s, except all the gains that really mattered were in by minutes after the 11 a.m. EDT London close, although the spike high tick of the day came around 1:15 p.m. in New York.  Then, like gold, it sagged a bit after 2 p.m. EDT in the thinly-traded after-hours market.

The low and high ticks in this precious metal were reported by the CME Group as $14.255 and $14.755 in the December contract.

Silver closed in New York on Friday at $14.64 spot, up 40.5 cents on the day.  Net volume was monstrous at just under 116,000 contract — and roll-over/switch volume in this precious metal came to only 2,837 contracts.

The price activity in platinum was very similar to gold’s as well, with the low tick coming around the Zurich open — and the big rally starting shortly before 8 a.m. EDT.  The high tick in platinum was place around 11:30 a.m. EDT — and it was sold quietly lower until 4 p.m. in the thinly-traded after hours market.  It then traded flat until the market closed at 5:00 p.m. EDT.  Platinum finished the day at $814 spot, up 5 dollars on the day, but was 13 bucks at its high tick.

Palladium rallied a few dollars in mid-morning trading in the Far East — and then traded mostly sideways until the COMEX open.  It jumped up a few dollars from there, but by 9 a.m. in New York, the price appeared to have been capped — and it was started on its downward price journey from there.  That ended a few minutes before 5 p.m. EDT.  Palladium was closed at $1,070 spot, down 11 bucks on the day — and 22 dollars off its high tick.  It certainly appears that a top is being set, interim or otherwise, in the palladium price.

The dollar index closed very late on Thursday afternoon in New York at 94.995 — and it began to quietly creep lower starting shortly after 9 a.m. China Standard Time on their Friday morning.  That lasted until minutes before 2 p.m. CST — and the ensuing ‘rally’ topped out minutes after 12 o’clock noon in London at the 95.37 mark — and then faded a hair until around 10:40 a.m. in New York.  It fell down to the 95.00 mark around 11:50 a.m. EDT — and it crept quietly higher for the remainder of the day.  The dollar index finished the Friday session at 95.19…up 19 basis points on the day.

Friday was yet another day where what was happening in the currencies gave no indication of what was going in the precious metals, as the correlation between the two was pretty much zero.

And here’s the 6-month U.S. dollar index chart — and the delta between the close on this chart — and the intraday dollar index chart above, was 45 basis points on Friday.

The gold stocks were up just under 2 percent by a few minutes before 10 a.m. EDT in New York trading.  They sold off a bit from there before chopping sideways until exactly 2:00 p.m. EDT.  From that juncture they sagged unsteadily into the 4:00 p.m. close of trading, as the HUI only closed higher by 0.79 percent.  I was somewhat underwhelmed.

The silver equities traded in a mostly similar fashion, except their respective highs came a minute before 2 p.m. in New York trading — and they also sagged a bit into the close from there.  Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed higher as well, but only by 1.94 percent.  I was very underwhelmed.  Click to enlarge.

And here’s the 1-year Silver Sentiment/Silver 7 Index courtesy of Nick Laird as well.  Click to enlarge.

Here are the usual charts from Nick that show what’s been happening for the week, month-to-date — and year-to-date.  The first one shows the changes in gold, silver, platinum and palladium for the past trading week, in both percent and dollar and cents terms, as of their Friday closes in New York — along with the changes in the HUI and the Silver 7 Index.

Here’s the weekly chart — and it was another down week for the shares, even the silver equities, as their performance failed to match the metal’s big gain on Friday.  In fact they had a pretty rough week overall, especially the share price action on Wednesday and Thursday — and the gold stocks outperformed them by a bit.  Click to enlarge.

Although down for the month as well, these charts aren’t all that bad, as precious metal prices bottomed during September — and a lot of the loses up to that point have been mostly regained.  This chart would certainly be a lot happier looking if last week’s share price action had been better.  It should be noted that everything gold outperformed everything silver by a hair, but that’s mostly because of the lousy price action during this past week.  Click to enlarge.

The year-to-date chart continues to be wall-to-wall red but, once again I will point out that the silver equities continue to outperform their golden brethren — and not by inconsequential amounts, either.  This fact clearly shows that silver — and its associated equities, are going to vastly outperform their golden cousins when the next big rally is allowed to get underway.  That certainly didn’t apply to this past week’s price action, but the chart below shows the overall ratio much better.  Click to enlarge.

It’s too soon to say how these rallies that began yesterday will turn out as time goes along.  I must admit that the huge volumes — and the rather anemic price action in the shares, did not make my heart go pitter-patter.  But this past week was the last week of the third quarter — and I’m sure there was a lot of book-squaring going on by the numerous precious metal mutual funds as the quarter wound down.


The CME Daily Delivery Report showed that 772 gold and 145 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.  In gold, the big short/issuer was JPMorgan with 730 contracts out of its in-house/proprietary trading account — and in very distant second place was Merrill with 30 contracts out of its client account.  There were ten long/stoppers in total, with the largest being HSBC USA with 390 contracts for its own account.  In second spot came JPMorgan with 234 contracts for its client account.  Morgan Stanley came in third with 80 contracts…68 for its own account, plus another 12 for its client account.  In silver, the largest of the four short/issuers by far was International F.C. Stone with 113 contract from its client account.  In distance second place was ABN Amro with 20 contract from its client account as well.  There were three long/stoppers in total.  JPMorgan picked up 96 contracts for its client account — and Advantage stopped 45 contract for is client account.  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 October fell by 344 contracts, leaving 4,059 still open, minus the 772 contracts mentioned just above.  Thursday’s Daily Delivery Report showed that only 1 gold contract was posted for delivery on Monday, so that means that 344-1=343 gold contracts vanished from the October delivery month.  Silver o.i. in October dropped by 32 contracts, leaving 189 still around, minus 145 mentioned in the previous paragraph.  Thursday’s Daily Delivery Report showed that 30 silver contracts were actually posted for delivery on Monday, so that means that 32-30=2 silver contracts disappeared from October.


There were no reported changes in either GLD or SLV yesterday.

There was a fairly decent sales report from the U.S. Mint on Friday.  They didn’t sell any gold eagles, but they did sell 1,000 one-ounce 24K gold buffaloes, plus another 465,000 silver eagles.

For the month of September, the mint sold 20,500 troy ounces of gold eagles — 11,000 one-ounce 24K gold buffaloes — and 2,897,500 silver eagles.  September was the biggest silver eagles sales month since January by far…but wasn’t even close for gold eagle/buffalo bullion coins.

There wasn’t much activity in gold over at the COMEX-approved depositories on the U.S. east coast on Thursday.  Only 881 troy ounces were received — and 2,039 were shipped out.  I shan’t bother linking this amount.

The only physical activity in silver was a truck load…600,172 troy ounces…that was dropped off at CNT.  Nothing was shipped out.  The really big activity was in paper transfers, as an eye-watering 11,064,887 troy ounces were transferred from the Registered category — and back into Eligible.  There were four depositories involved in this — and the numbers are so huge that if you wish to see them, the link to all that activity is here.

There was some decent activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday.  They reported receiving 3,000 of them — and shipped out 263.  All of this activity was at Brink’s, Inc. of course — and the link to that, in troy ounces, is here.


New Zealand subscriber Kae Lewis sent me this photo a week ago that I thought worth sharing — and I’ll her do the talking here…

Hi Ed — Here is something that may interest you.  This is a photo I took several years ago at Australia’s Ballarat Gold Museum (a fantastic place if you are ever in the area). It shows a replica of the Welcome Nugget discovered in 1858 in Ballart, Victoria.  It was 69 kg and sold for AU$10,500 at the time. 

The recent Western Australia nugget was 3.2 kg, containing 2.11 kg of gold worth about AU$110,000 today.  If we assume that both nuggets contained about the same amount of gold, 66%, then the Welcome nugget contained about 45 kg gold.  If they had kept it until today, it would have sold for AU$2.3 million. — Kae

By the way, dear reader, Kae has a website devoted to the early history of gold mining in New Zealand — and I found it fascinating reading.  If you’re interested, the link to her website is here.


The Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday, show another smallish decline in the Commercial net long position in silver — and an increase in the net long position in gold.

In silver, the Commercial net long position declined by 3,448 contracts, or 17.2 million troy ounces of paper silver.

They arrived at that number by reducing their long position by 1,108 contracts, plus they added 2,340 short contracts — and it’s the sum of those two numbers that represents the change for the reporting week.

And, as usual, the Big 8 category is still chock full of brain-dead Managed Money traders.  Because of that, the positions of the Big 4 and Big ‘5 through 8’ commercial traders are pretty much irrelevant.

Under the hood in the Disaggregated COT Report, the weekly changes were made almost exclusively by the Managed Money traders, plus a bit more.  The brain-dead/moving average-following Managed Money traders reduced their short position by 3,692 contracts — and the value investing Managed Money traders added a further 376 contracts to their long position.  It’s the sum of those two numbers…4,068 contracts…that represent their change for the reporting week.  The difference between that number and the Commercial net short position…4,068 minus 3,448 equals 620 contracts…was made up as it always is, by the traders in the other two categories.  The ‘Other Reportables’ decreased their long position by 1,807 — and the ‘Nonreportable’/small traders went the other way, increasing their net long position by 1,187 contracts.

Here’s the snip from the Disaggregated COT Report for silver that shows the above changes.  Click to enlarge.

The Commercial net long position in silver is down to 6,573 contracts, or 32.9 million troy ounces of paper silver.  Ted pegs JPMorgan’s long position at somewhere between zero and 3,000 contracts.  He commented that the changes in the Producer/Merchant category were a bit difficult to interpret this week — and I’m sure he’ll have more to say in his weekly commentary today once he’s had a chance to “sleep on it“.

Here’s the 3-year COT chart for silver — and it’s yet another week where not too much should be read into these minor weekly changes.  This week’s slight deterioration was probably associated with silver’s penetration of its 20-day moving average on Tuesday.  All, if not more of that was reversed during the Wednesday and Thursday trading sessions.  Click to enlarge.

Of course it’s what happened in silver on Friday that was the talk of the town yesterday.  Without doubt, the brain-dead Managed Money traders were covering short positions and perhaps going long — and it’s a safe bet that Ted’s raptors, the small Commercial traders other than the Big 8, were selling long positions for big profits.  It’s unknown if the JPMorgan and the other Commercial traders were involved in yesterday’s price run-up or not.  We get a new Bank Participation Report next Friday — and that should clarify things.  But their are still two more days left in the reporting week…Monday and Tuesday — and anything can happen between now and then.


In gold, the Commercial net long position increased by 5,389 contracts, which I was very happy to see.  That’s 538,900 troy ounces of paper gold.

They arrived at that number by reducing their long position by 3,389 contracts, but they also reduced their short position by a hefty 8,778 contracts — and it’s the difference between those two numbers that represents the change for the reporting week.

Like for silver — and for the same reasons, the positions of the Big 4 and Big 8 commercial traders are so contaminated by the presence of many Managed Money traders, that the data is irrelevant.

Under the hood in the Disaggregated COT Report, the Managed Money traders didn’t do much during the reporting week.  The brain-dead variety added 1,823 short contracts — and the value-oriented Managed Money traders added another 609 contracts to their long position.  It’s the difference between those two numbers…1,214 contracts…that represents their change for the reporting week.  The real activity was in the other categories, as they made up the difference between what the Managed Money traders did — and what the commercial traders bought…5,389 minus 1,214 equals 4,175 contracts.  The traders in the ‘Other Reportables’ category decreased their long position by 5,590 contracts — and the small traders in the ‘Nonreportable’ category went in the other direction, increasing their long position by a net 1,415 contracts.

Here’s the snip so you can see it for yourself.  Click to enlarge.

The commercial net long position in gold is now up to 7,080 contract, or 708,000 troy ounces of paper gold which, in the grand scheme of things, isn’t very much.

Here’s the 3-year COT chart for gold — and although an improvement from last week, it barely represents a rounding error in the grand scheme of things.  Click to enlarge.

The price action on Wednesday and Thursday would certainly show a further increase in the commercial net long position as of the close of COMEX trading on Thursday.

Of course the price action on Friday has certainly changed things.  As Ted pointed out the phone yesterday, it’s a given that there was Managed Money short covering — and raptor [small commercial trader] long selling.  As to what the commercial traders were up to in gold and silver yesterday is the big question mark, as the prime price-fixing entity, JPMorgan, is no longer short.  They may still be controlling the price from the long side to a certain extent, as they have long positions to sell if they so choose.  But until Ted has a look at next Friday’s Bank Participation Report, anything I say about the internal changes in the COMEX futures market, would be wild-ass speculation at best.

In the other two precious metals, the Managed Money traders in palladium added 2,901 long contracts, plus they also increased their short position by 621 contracts.  As as I said earlier, it certainly appears that this current rally in palladium has run its course for the moment — and only the continued interference by ‘da boyz’ prevented the palladium price from blowing sky high over the last month or so.  In platinum the brain-dead Managed money traders reduced their short position by 7,765 contracts — and the value-oriented Managed Money traders reduced their long position by 1,161 contracts…for a net change of 6,604 contracts.  Platinum broke above and closed above its 50-day moving average during the reporting week — and that certainly accounts for the big short covering by the Managed Money traders.

In copper, it broke above and close above its 50-day moving average this week as well.  That was reflected in the trading activity too, because the Managed Money traders decreased their short position by 10,414 contracts, plus they added 5,208 long contracts…for a weekly net change of 15,622 contracts.  That’s a lot.

It’s way too soon to speculate on how the current price rallies in both gold and silver will turn out.  Despite its rally on Friday, gold is still 6 bucks below its 20-day moving average — and although silver is well above its 20-day, the all-important 50-day moving average has yet to broken to the upside.


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 COMEXClick to enlarge.

But, like the COT Report itself, the chart above is basically irrelevant at this point, as well — and for the same reason.  Except for Scotiabank — and maybe one or two U.S. banks…not including JPMorgan…the positions of the Big 4 and Big 8 traders is mostly made up of the brain-dead/moving average-following Managed Money traders now.

For the current reporting week, the Big 4 traders are short 106 days of world silver production—and the ‘5 through 8’ large traders are short an additional 64 days of world silver production—for a total of 170 days, which is a bit under 6 months of world silver production, or about 396.8 million troy ounces of paper silver held short by the Big 8.  [In the COT Report last week, the Big 8 were short 174 days of world silver production.]

The Big 8 commercial traders are short 38.9 percent of the entire open interest in silver in the COMEX futures market, which is down a hair from the 39.6 percent that they were short in last week’s COT Report.  And once whatever market-neutral spread trades are subtracted out, that percentage would be something close to 45 percent.  In gold, it’s 32.2 percent of the total COMEX open interest that the Big 8 are short, unchanged from the 32.2 percent they were short in last week’s report — and a bit over 35 percent once the market-neutral spread trades are subtracted out.

In gold, the Big 4 are short 35 days of world gold production, which is up 1 day from what they were short last week — and the ‘5 through 8’ are short another 18 days of world production, which is unchanged from what they were short the prior week, for a total of 53 days of world gold production held short by the Big 8 — which is up 1 day from what they were short in last week’s report.  Based on these numbers, the Big 4 in gold hold about 66 percent of the total short position held by the Big 8…which is up 1 percentage point from last week’s COT Report.

The “concentrated short position within a concentrated short position” in silver, platinum and palladium held by the Big 4 commercial traders are about 62, 61 and 73 percent respectively of the short positions held by the Big 8.  Silver is down one percentage point from the previous week’s COT Report, platinum is up one percentage point from a week ago.  Palladium is down 2 percentage points from last week’s COT Report.

I don’t have all that many stories for you today.


CRITICAL READS

Upsidedown World: Junk Bonds Set For Record Winning Streak as High Grade Suffers Worst Year Since 2008

For the latest confirmation of the upside down market, look no further than corporate bonds where the riskiest, CCC-rated junk bonds are set to make a positive return for the 3rd consecutive year, the longest winning streak since records began in 1997.

Not only have the lowest quality junk bonds, those rated CCC or lower, generating respectable absolute returns of 5.8% YTD, they have also outperformed higher quality debt with a 1% total return so far this month, according to Bloomberg and ICE data. Additionally, the lowest rated junk bonds have also outperformed the broader junk bond index, which has returned 1.9% YTD.

And while the key contributor to the outperformance of lowest-rated bonds is demand for, well, higher yielding paper as investors continue to chase returns, a key structural issue has been the lack of HY supply, which at $150 billion YTD is the lowest since 2009.

Meanwhile, as investors scramble for any paper that promises a material yield, regardless of underlying fundamentals, investment grade corporate bond returns have, in the worlds of Bloomberg‘s James Crombie “fallen from darling to deadbeat.”

As Crombie summarizes these trends, “investors are like all others – they pursue returns. That means more money chasing a limited supply of increasingly risky bonds, and probably an uglier end to this credit cycle.”

This very interesting story appeared on the Zero Hedge website at 3:13 p.m. EDT on Friday afternoon — and I thank Brad Robertson for sending it along.  Another link to it is here.


One Step Closer to Recession — Jim Rickards

As you know by now, the Federal Reserve raised interest rates again yesterday, its eighth increase since the rate hike cycle began in 2015.

In his post-announcement press conference, Jerome Powell cited a strong economy, low unemployment, solid growth, etc. He said that “It’s a particularly bright moment” for the economy.
Barring significant developments, the Fed may raise rates again in December and perhaps three times next year.

Meanwhile, the Commerce Department announced this morning that second quarter U.S. GDP expanded at a 4.2% annualized rate, confirming the earlier estimate.

On the surface it might look everything is great, that it is a particularly bright moment for the economy. But if you take a hard look behind the numbers, a different picture emerges.

This commentary by Jim was posted on the dailyreckoning.com Internet site on Thursday sometime — and another link to it is here.


Joe Saluzzi: The Markets Are Still Way Too Vulnerable to a Sudden Liquidity Disappearance

Joe Saluzzi, co-founder of Themis Trading LLC, outspoken exchange expert, and author of the excellent exposé Broken Markets, returns to give us an update on the state of high frequency trading — otherwise known as HFT.

In the past, Saluzzi has been a vocal critic of the dominant and parasitic role HFT algorithms play in today’s financial markets, siphoning off profits at the expense of the “dumb money” (i.e. retail investors) while undermining the integrity and stability of exchanges. Front running, spoofing, flash crashes — HFTs are the culprits behind them.

Saluzzi actually has some positive developments to note: namely that the obscene profits the HFTs used to make (i.e., steal) are moderating as the arms race in the industry has escalated and the players are increasingly competing with each other. Also, the SEC appears to be moving much faster now towards putting some material constraints in place.

But the unfair advantages that HFTs enjoy, as well as their threat to market stability, are still very real. If we don’t continue to fight to bring them under control, we risk a vicious downdraft during the next big market crisis should the algos instantly exit in a panic.

This 48:30 minute audio interview [complete with a full transcript] with host Chris Martenson, showed up on his peakprosperity.com Internet site on Monday — and for length reasons, had to wait for my Saturday column.  I must admit that I haven’t listened to it yet, but it’s certainly on my ‘to do’ list this weekend.  I would think that everything you wanted to know about high-frequency trading will be in this interview — and another link to it is here.


Doug Noland — Portending an Interesting Q4

It may have been subtle, but there was some quarter-end market action that might just portend an interesting Q4. There was the 32 bps one-week surge in Italian yields, along with the 8.3% drop in Italian bank stocks. The European (STOXX600) Bank index was down 3.0% in the final week of the quarter, with Japan’s TOPIX Bank Index dropping 2.0%. Curiously, especially with Treasury yields trading at highs for the quarter, U.S. Bank stocks (BKX) sank 4.7% this week. The Broker/Dealers were down 3.1%. There was, as well, the return of concern for tightening global dollar funding markets. The fourth quarter starts Monday, with various indicators pointing toward an important tightening of financial conditions.

As I chronicle history’s greatest financial Bubble, I’ll take note of this week’s developments in the Judge Kavanaugh Supreme Court confirmation hearings. Thursday’s hearings were nothing short of incredible – incredibly dramatic, emotional, tragic and disturbing. Our country is being torn apart – and the tearing has turned more unambiguous and heinous. Ramifications for what is unfolding in society, politics and geopolitics are as profound as they are far-reaching. But with stocks right at all-time highs, what’s to fret about…

It was a week that pitted Democrats and Republicans in Washington, with vitriol and differences that appear more irreconcilable than ever before. There was also President Trump speaking at the United Nations, with world representatives either laughing “with” or “at” the leader of the free world. And it’s this confluence of division, contempt and hostility in the face of an increasingly fragile global Bubble that has me deeply concerned. A global crisis in the current backdrop would make 2008 seem like a walk in the park.

This week’s Credit Bubble Bulletin from Doug is definitely worth reading — and it was posted on his Internet site in the very wee hours of Saturday morning.  Another link to it is here.


The Public Burning of Brett Kavanaugh — Bill Bonner

Yesterday morning, the yard crew were putting up a stake on the Capitol lawn and laying around it a supply of tinder.

It was to be a small fire… hot and slow.

Brett Kavanaugh was duly tied to the post with his eyes wide open… neither offering an apology nor appealing to God for redemption.

The first match was struck when Christine Blasey Ford took the oath and began her “high-stakes testimony” to a panel of grave-looking senators, each pretending that the fate of the nation hung in the balance.

Ms. Ford played along, citing the “civic duty” that required her to tell what happened to her in a suburban bedroom 36 years ago.

Ms. Ford says Mr. Kavanaugh tried to ravish her. Mr. Kavanaugh denies it. Obviously, one of them is bearing false witness.

And the august committee, along with the entire nation, was invited to spend another 100 million hours of its most precious and most irreplaceable resource – time – guessing which.

This interesting commentary by Bill put in an appearance on the bonnerandpartners.com Internet site early on Friday morning EDT — and another link to it is here.


Argentina Hikes Rates to 65% as Peso Plunges to New Record Low

It appears the market is willing to test BCRA’s mettle as it pukes pesos down to a new record low against the greenback and pushes towards the bottom of its new “no intervention” band.

The new record low is now 41.54/USD…

While not ‘allowed’ to intervene directly until 44/USD, Bloomberg reports that Argentina just hiked its Leliq rate to 65%.

The sharp drop follows Thursday’s 2.8% decline and comes despite the IMF agreeing on Wednesday to increase its bailout package to the Latin American country by an extra $7.1bn.

Paging Christine Lagarde…

This incredibly tiny 1-chart Zero Hedge new item showed up on their website at 10:24 a.m. EDT on Friday morning — and it’s another offering from Brad Robertson.  Another link to it is here.


Italian Stocks Crash Most In 2 Years, Bond Yields Soar Amid Budget Deficit Liquidation Panic

After yesterday’s last minute decision by Italy’s ruling coalition to boost the country’s 2019 deficit to 2.4% of GDP, a number that challenged Brussels and its demands for a deficit no greater than 2.0% and made a mockery of the finance minister’s insistence on a funding hole no greater than 1.6% of GDP, we said that it was only a matter of time before the market freaked out as Italy is now on collision course with Europe, and that time came this morning when traders dumped Italian assets with the bathwater, as Italian equities, bank stocks and bonds all tumbled in unison after deputy premier Matteo Salvini vowed to “press ahead” with the controversial budget plan including a deficit that would be three times larger than the deficit under the previous administration.

Italy’s FTSE MIB stock index tumbled to session lows, down 3.7%, after opening sharply lower and failing to find a floor so far; this was the biggest intraday drop for Italian stocks since June 2016, with several banking stocks halted limit down.

The worst performing sector were Italian banks, with the FTSE Italia All-Share Banks Index falling as much as 5.3%, most since May; the biggest decliners were Banco BPM -6%, UBI -4.7%, UniCredit -3.9%, Intesa -3.5%, with most of them being halted, limit down amid the selling chaos.

The bond market was not spared, and Italy’s 10Y bond was taken to the cleaners as the relentless selling sent the yield some 36bps higher to 3.25%…

This news story showed up on the Zero Hedge website at 6:27 a.m. on Friday morning EDT — and I thank Brad Robertson for his final contribution to today’s column.  Another link to it is here.


Beijing Bows to U.S. Pressure: China Top Refiner Halves Iranian Oil Imports

China’s top refiner Sinopec is halving its oil imports from Iran as of September, bowing to pressure from the United States, which is seeking to bring Iranian oil exports down to zero with the sanctions returning in November, Reuters reported on Friday, quoting people familiar with the issue.

Sinopec will reduce its imports from Iran to around 130,000 bpd, based on Reuters calculation on the prevailing supply contracts between the Chinese company and the National Iranian Oil Company.

China has previously stated that it would not stop buying Iranian oil despite U.S. efforts to have the Iranian exports down to zero. But Beijing is also said to have agreed not to increase its oil purchases from Iran. Iran, for its part, is keen to keep its single biggest oil customer – China – when U.S. sanctions on Iranian oil exports kick in.

Analysts have so far assumed that China will keep buying Iranian oil and be pretty much the only certain meaningful customer of Iran, because the other major buyer, India, is even more hard-pressed by the United States to wind down purchases from Tehran.

Sinopec – listed in Hong Kong, but more importantly, also in New York – is now facing direct pressure from the United States to curtail Iranian oil imports.

This news item was posted on the Zero Hedge website at 8:50 p.m. on Friday night EDT — and another link to it is here.


Nyrstar profit warning highlights zinc’s disconnects: Andy Home

Belgian zinc producer Nyrstar issued a profits warning last week, citing “adverse market conditions”.

The company, which last year produced over a million tonnes of refined zinc, is feeling the pain from the dramatic price collapse of the last six months.

London Metal Exchange (LME) zinc hit an 11-year high of $3,595.50 per ton in February. It is currently trading at $2,525 after touching a two-year low of $2,283 in August.

Retreat turned into rout as zinc got caught up in the broader LME sell-off, speculative players using the base metals complex to vent their trade war angst.

The resulting price implosion has opened up a disconnect with zinc’s internal supply-demand dynamics.

Right now the zinc price is suggesting that a wave of new mine supply is crashing along the supply chain.

It isn’t. The supply response to two years of rising zinc prices is only just starting.

Zinc, like copper and the other Big 6 commodities, have caught Ted Butler’s “silver disease”.  The Managed Money traders have taken over this metal as well.  Ted links this article in his commentary below, but I wanted to make sure that you at least skimmed it before reading what Ted has to say about it.  Filed from London, this Reuters story was posted on their Internet site at 7:31 a.m. EDT on Monday — and another link to it is here.


Ted Butler: What Disconnect?

Sometimes things that are obvious truths can appear before us that we have trouble seeing; along the lines of being too close to the trees to see the forest. It’s not that we can’t see what’s directly in front of us, but rather that we just can’t put what we see into proper perspective. To be sure, this failure to fully comprehend what we can clearly see is not caused by any lack of intelligence and may, in fact, be due to too much knowledge and experience in a given field.

A case in point is a recent article by the top-notch Reuters commodities analyst, Andy Home. To be sure, I’m not using the term “top-notch” loosely, as I find Home to be among the very best in his field. And I can’t help but feel that his knowledge and experience are precisely what is blinding him to something staring him squarely in the face. I would ask you to take the time to read his article about zinc from a few days ago that’s linked here.

Home points out that the price of zinc seems to be disconnected from its fundamentals in that there has been no expansion of supply and no special falloff in demand. Yet zinc prices have cratered, down around a third from price peaks set earlier in the year. If this sounds familiar, it should – this is essentially the same story in a whole host of base and precious metals, including copper, gold, silver and platinum.

To Mr. Home’s credit, he does point out that speculative hedge funds have ramped up short sales in the active London futures market (zinc is hardly traded in New York) and highlights that these funds have shorted over a million tons of zinc, fully 25% of total open interest. Home attributes the fund short selling to fears of the escalating trade wars, but these funds are the same technically-motivated momentum traders that have built up record short positions in copper, gold, silver, platinum and other metals. As such, they are watching and reacting to moving average penetrations and are not involved in any complex trade negotiation analysis.  Mr. Home does say that as a result of this speculative selling that zinc prices have imploded, creating a disconnect between the price and supply/demand fundamentals.

The problem is that Mr. Home is missing the obvious, namely, that the selling by the speculative hedge funds is setting the price, not just in zinc, but in every other metal as well. This is the same obvious truth missed by virtually everyone else as well, including the mining companies and the regulators. The simple proof of this is that zinc and other metals prices would not have declined sharply (imploded in Home’s words) and there would be no “disconnect” if this excessive speculative short selling hadn’t occurred.

This must read commentary, which is Ted’s mid-week commentary from Wednesday, appeared on the silverseek.com Internet site at 10:57 a.m. Denver time on Friday morning.  It’s definitely worth reading — and another link to it is here.


The PHOTOS and the FUNNIES

Today’s ‘critter’ is the ribbon-tailed astrapia.  It’s distributed and endemic to sub-alpine forests in western part of the central highlands of Papua New Guinea.  It’s the most recently discovered bird-of-paradise. The tail feathers of the male can be over a meter in length.  Click to enlarge.


The WRAP

Fear is the condom of life.” – Oscar winning director Alejandro Gonzalez at the 2015 Academy Awards


Today’s pop ‘blast from the past’ is one that I’ve featured on several occasions before.  The first version of this tune not only became part of the hippy culture back in 1967…it also defined it in some ways.  Since then, it has become an enduring classic.  I remember it all too well, as the group recorded it with our very own Edmonton Symphony Orchestra way back then.  The link to that recording is here.  The group is still around — and Gary Brooker is still belting it out 51 years later.  Here he is live with the Danish National Concert Orchestra in Denmark back in 2006.  The intro is the same, but the orchestration is dramatically different — and much better, in my opinion.  The link to that version is here.

Today’s classical ‘blast from the past’ dates from 1798 when Ludwig van Beethoven was 27 years old.  It’s his Piano Sonata No. 8 in C minor, Op. 13, commonly known as Sonata Pathétique.  At one point in my piano-playing career…around Grade 8 music…I attempted to learn this piece, but it turned out to be light years beyond my skill level.  The sheet music of this work runs about 19 pages — and page one is linked here.  Here is Ukrainian-born Valentina Lisitsa doing the honours — and the link to the youtube.com video is here.


So, was yesterday’s price action in gold and silver the start of the big move or not?  As I said at the end of COT commentary above, it’s just too soon to know for sure.  We’ll just have to see how things play out in the days ahead.

Although palladium is hugely overbought, there’s good reason for that…but it and platinum are basically side-shows to what may happen in the only two precious metals that count.  And, of course, the big unknown is what will JPMorgan do — and will they step in as short sellers of last resort if/when things really get out of hand to the upside, because they certainly may at some point.

And as I’ve also pointed out in today’s column, what was happening in the currencies yesterday had no bearing on what was going on in the COMEX future market in any of the precious metals.

Here are the 6-month charts for all four precious metals, plus copper and WTIC.  When you look at yesterday’s price action in gold, it doesn’t stand out at all, so the move in that precious metal hasn’t really started, as it’s still below its 20-day moving average — and the silver price has yet to breach its 50-day.  So their respective rallies are still in their infancy at the moment.  The ‘click to enlarge‘ feature helps a bit with the four precious metal charts.

With the 3-ring Kavanaugh circus going on in Washington these days, the deep state has been pretty much preoccupied with that — and Syria has been put on the back burner, at least for now.  But it has not gone away — and the place could still ignite at any moment…helped along by the U.S.’s allies in the Middle East.

And nothing has changed with the financial situation in the U.S…or in the rest of the world, either.  It got saved back in 2008/09 by the world’s central banks, led by the Federal Reserve, but they won’t be big enough to save it the next time things to go sideways — and the danger signals are everywhere.  The voices crying out that all is not well are not only becoming more numerous, they’re starting to come from the upper echelons of the financial world — and becoming more strident as well.

With that as a backdrop, I’m just sitting her watching how these budding rallies in silver and gold will turn out.  To me, that’s all that matters — and I’m sure that in a lot of ways you feel the same.

The price management scheme in commodities that British economist Peter Warburton wrote about back in April 2001 is very long in the tooth after all these years.  Combine that with the fact that JPMorgan has exited stage left in its short positions in all four precious metals during the last few months. Plus, according to Ted Butler, they have amassed 750 million ounce of physical silver — and about 20 million ounces of gold.  So the benefit to them of having continued low prices in these precious metals, has certainly passed it’s “best before” date.

I will be watching the New York open on Sunday evening with great interest.

That’s all I have for the day — and the week — and I’ll see you here on Tuesday.

Ed