Equities Crushed/Dollar Index Falls/Precious Metals Capped

11 October 2018 — Thursday

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price chopped quietly sideways in Far East trading on their Wednesday, but equally quiet selling pressure began shortly after the London open.  The low tick of the day was set around 8:35 a.m. in New York — and it edged unevenly higher for the rest of the day…including the after-hours trading session.

Despite that ‘rally’, gold traded within a ten dollar price range on Wednesday, so I won’t bother with the low and high ticks.

Gold finished the day at $1,194.40 spot, up $5.30 from Tuesday’s close.  Net volume was fairly decent at 235,000 contracts — and there was about 14,250 contracts worth of roll-over/switch volume on top of that.

For the most part, the price activity in silver was generally the same as it was for gold…but only up until around 9:25 a.m. in New York.  It was sold down hard from there — and the low tick of the day was set around 10:45 a.m. EDT.  From there, it edged quietly higher into the 1:30 p.m. COMEX close — and wasn’t allowed to do much after that.

The high and low ticks in this precious metal were recorded by the CME Group as $14.455 and $14.255 in the December contract.

Silver was closed on Thursday at $14.265 spot, down 9.5 cents from Tuesday.  Net volume was  very close to 59,900 contracts — and roll-over/switch volume was only 1,876 contracts in this precious metal.

The platinum price spent most of the Far East trading session higher by a few dollars, but that changed as soon as trading began in Zurich.  It was sold down a bunch of dollars from there until until 11 a.m. CEST — and chopped very quietly and unsteadily higher until it managed to make it back to unchanged by the COMEX close in New York.  It didn’t do much after that.  Platinum finished the Wednesday session at $923 spot, unchanged from Tuesday.

Palladium also traded a few dollars higher in the Far East yesterday — and that lasted until 11 a.m. in Zurich.  But instead of getting sold lower like platinum at that time, palladium rallied to its high of the day about an hour and twenty minutes later.  An hour after that, it was sold quietly lower until its low tick was set right at the Zurich close.  It rallied into the COMEX close from there, but was sold back into the red in the thinly-traded after-hours market.  Palladium finished the Wednesday session at $1,062 spot, down 4 dollars from Tuesday.  And as you may have already observed, it didn’t close down on the day without help.

The dollar index closed very late on Tuesday afternoon at 95.69 — and then began to drop unevenly lower once trading began at 6:00 p.m. EDT on Tuesday evening a few minutes later.  That tiny sell-off lasted until 9 a.m. China Standard Time on their Wednesday morning — and it then chopped sideways until a minute or so before the London open.  It rallied up to the 95.77 mark by around 11:20 a.m. BST — and sort of hung in there until 8:30 a.m. in New York.  Then down it went.  The 95.37 low tick was set around 12:30 p.m. EDT.  It rallied unsteadily from there until shortly before 4 p.m., before rolling over into the close from there.  The dollar index finished the Wednesday session at 95.46…down 23 basis points from Tuesday.

And here’s the 6-month U.S. dollar index — and the delta on its close, compared to the close on the intraday chart above, is 28 basis points.

The gold shares opened unchanged — and then were sold down to their respective lows around 10:20 a.m. in New York trading.  About thirty minutes later, they were in rally mode — and their respective highs were painted a few minutes before 3 p.m. EDT.  They sold off a bit from there into the close.  The HUI finished up 1.68 percent.

The silver equities opened down a bit — and their respective lows came shortly before 11 a.m. EDT.  Around 11:25 a.m., the were heading higher — and they rallied very unsteadily from that point until the 4:00 p.m. close.  They didn’t quite make it into the green on Wednesday, but they gave it a good effort.  Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed lower by only 0.18 percent.  Click to enlarge if necessary.

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

The CME Daily Delivery Report on Wednesday was almost a carbon copy of Tuesday’s report, as it showed that only 1 gold and 1 silver contract was posted for delivery within the COMEX-approved depositories on Friday.  In gold, R.J. O’Brien issued and JPMorgan stopped.  In silver, ADM issued — and Advantage stopped.  All contracts issued and stopped involved their respective client accounts. The link to yesterday’s Issuers and Stoppers Report is here.

The CME Preliminary Report for the Wednesday trading session showed that gold open interest in October dropped by another big amount…this time 695 contracts, leaving 1,423 still around, minus the 1 contract mentioned just above.  Tuesday’s Daily Delivery Report showed that 1 gold contract was posted for delivery today, so that means that another 695-1=694 gold contracts vanished from the October delivery month.  Silver o.i. in October fell by 1 contract, leaving 4 still open, minus the 1 contract mentioned in the previous paragraph.  Tuesday’s Daily Delivery Report showed that 1 silver contract was actually posted for delivery today, so the change in open interest and the deliveries match.

I pointed out this rather unusual delivery situation to Ted, which he had already noted, of course — and he said that, surprisingly enough, the October delivery month in gold has turned out to be rather ‘sticky‘.  He didn’t say anything about it in his mid-week commentary yesterday, but it’s a given that he will on Saturday if things haven’t changed a lot by then.


Yesterday’s change in GLD was an eye-opening surprise, as an authorized participant added a very hefty 273,851 troy ounces gold.  There were no reported changes in SLV.

The folks over at the shortsqueeze.com Internet site updated their short position data for both SLV and GLD as of the close of trading on Friday, September 28 — and this is what they had to report.  The short position in SLV declined from 6,948,700 shares/troy ounces, down to 6,577,000 shares/troy ounces…which is a drop of 5.3 percent.  The short position in GLD increased from 1,207,710 troy ounces, up to 1,273,730 troy ounces, which is up 5.5 percent from the prior reporting period ending September 15.

There was a respectable sales report from the U.S. Mint yesterday.  They sold 3,000 troy ounces of gold eagles — 500 one-ounce 24K gold buffaloes — and 260,000 silver eagles.

There was some activity in gold over at the COMEX-approved depositories on the U.S. east coast on Tuesday.  Nothing was reported received, but 25,196 troy ounces was shipped out of JPMorgan.  The link to that is here.

It was another big day in silver, as 804,404 troy ounces were received — and another 1,854,132 troy ounces were shipped out to parts unknown.  In the ‘in’ category, there was one truck load…604,216 troy ounces…received at Brink’s, Inc. — and the remaining 200,187 troy ounces found a home over at Canada’s Scotiabank.  The big ‘out’ movement was two truck loads…1,269,554 troy ounces…that was shipped out of CNT.  The rest of the ‘out’ activity was split up between three different depositories…Delaware, HSBC USA — and Scotiabank.  If you want to check out the amounts, the link to all this silver activity is here.

There was activity over at the COMEX-approved gold kilobar depositories in Hong Kong.  They reported receiving 500 of them — and shipped out 2,167.  All of this action was at Brink’s, Inc. of course — and the link to that, in troy ounces, is here.


Here’s a chart that Nick Laird passed around yesterday afternoon.  It shows gold withdrawals from the Shanghai Gold Exchange, updated with September’s data.  And during that month, there was 188.1 metric tonnes taken out.  Lawrie Williams over at Sharps Pixley has a few comments on this — and they’re linked here.  Click to enlarge.

I only have a tiny handful of stories for you again today.


CRITICAL READS

Why Did All this Money-Printing Not Trigger Massive Inflation? — Wolf Richter

I was asked two important questions in this mind-boggling era of QE: The Bank of Japan has monetized 50% of its national debt; so why has there not been a surge of inflation? And why can’t the Fed restart QE and do the same without triggering inflation?

“Inflation” can be a lot of things. Here we’re not talking about “monetary inflation.” We’re talking about price inflation – when the currency loses its purchasing power. There are several types of price inflation that are accounted for separately, including:

  • Consumer price inflation
  • Wholesale price inflation
  • Wage inflation.
  • Asset price inflation.

The questions were about consumer price inflation; but the answer lies in asset price inflation.
It’s true that despite QE globally – not just in Japan – there has been relatively little consumer price inflation in the countries whose central banks perpetrated it. But it has caused enormous asset-price inflation. We call it the “Everything Bubble” where practically all asset classes globally have become ludicrously inflated.

This interesting and worthwhile commentary by Wolf showed on his Internet site on Tuesday sometime — and it’s the first of two in a row from Richard Saler.  Another link to it is here.


Has the derivatives volcano already begun to erupt?

The risk remains that dollar credit will seize up globally, with disastrous consequences for countries that have to borrow dollars to cover deficits

The cure for the last crisis always turns into the cause of the next one. The economies of southern Europe – Greece, Italy, Spain and Portugal – nearly collapsed in 2011, and Europe’s monetary authorities responded with negative interest rates.

So did Japan. Europeans and Japanese pay to hold cash or own 10-year German government bonds, which means that every pension fund and insurer will fold in a finite time horizon. They responded by exporting more, saving more, and buying American assets that still pay a positive, if low, real yield.

Hedging the foreign exchange risk in this half-trillion-dollar per year business has exhausted the balance sheet of the global banking system. That explains a large part of the jump in the U.S. 10-year note yield to 3.2% last Friday from 2.85% in early September. Hedging the foreign exchange risk in these massive flows created a derivatives mountain, and it has started to spew smoke and lava.

Banks are rationing foreign-exchange swap lines, making hedges so expensive that German and Japanese investors can no longer afford to buy U.S. bonds. If the foreign bid for U.S. debt dries up, the cost of financing America’s $1 trillion annual budget deficit will rise, and so will interest costs around the world.

The mechanics of hedging trillions of dollars of capital flows are complex, but the economics are simple. Germany and Japan together export half a trillion dollars a year of goods and services more than they import. America imports more than half a trillion dollars of goods and services more than it exports.

This long — and somewhat involved commentary is certainly worth reading if you’re prepared to spend the necessary time on it.  This article put in an appearance on the Asia Times website at 4:33 p.m. Hong Kong Time on their Tuesday afternoon, which was 4:33 a.m. in Washington — EDT plus 12 hours.  I thank Richard Saler for pointing it out — and another link to it is here.


How Berlin Forgot the Crimes of the Soviets — Bill Bonner

For the first time in seven years, this week, the 10-year Treasury note yield topped 3.25%. This number is probably the most important number in modern capitalism. It tells us the “risk-free” price of money… which is to say, it tells us the cost of borrowing money, or more abstractly, the price of the future.

The more you borrow today, the more time you will have to take away from tomorrow to pay it back. Eventually, you run out of time… and out of luck.

To put that in more concrete (or wood and plastic) terms, the higher your mortgage rate… the longer you have to work to pay for your house.

The bulls say rates are moving up because the economy is so strong (people are borrowing and spending because they see things getting better). Maybe.

But we see no evidence of it. Instead, what we see is a business expansion at the end of its life expectancy… a bull market in stocks that is way past its ‘sell-by’ date… and a huge pile of debt ready to come down on our heads as rates increase.

In short, we see a delusional economy that is quickly running out of time.

This interesting commentary by Bill was posted on the bonnerandpartners.com Internet site very early on Wednesday morning EDT — and another link to it is here.


China gold demand may be faltering — Lawrie Williams

Chinese gold demand, as represented by gold withdrawal figures from the Shanghai Gold Exchange (SGE), slipped in September from the same month a year earlier, but remained above the corresponding 2016 figure.  The cumulative figure for the year to date remains higher than that of a year ago after nine months, but only by just over 3%.

Perhaps this is not too surprising as latest reports out of China, as reported by Bloomberg, in an independently produced PMI type survey, suggest that Chinese business confidence has dropped to the lowest level in its seven-year history in September.  This is presumably a factor as the U.S. and Chinese governments imposed new rounds of tariffs on each other’s exports, escalating the Trump Administration initiated trade war.

It’s probably too early to tell if this suggests the start of an ongoing downturn in gold demand – we will need to see another few months’ figures yet to be sure. The September figure was still around 10% up on the 2016 amount and the nine months cumulative total is still up on a year ago, but the lower September withdrawals could be a sign that Chinese gold demand is beginning to turn down with the economy.  Only time will tell.

This gold related news item from Lawrie showed up on the Sharps Pixley website on Wednesday sometime — and if you remember, I have the chart of the SGE gold withdrawals for September that he speaks of, posted further up in today’s column.  Another link to it is here.


The PHOTOS and the FUNNIES

No ‘critter’ shots today.  Instead, I have this…

Below are three photos of the treasure of Nagyszentmiklós…an important hoard of twenty-three early medieval gold vessels, in total weighing 9.945 kg (about 22 lbs).  They were found on 3 July 1799 by two Bulgarian farmers, in the vicinity of Sânnicolau Mare in what is now, western Romania.  They date from the 6th to the 10th centuries…and the quality of craftsmanship is stunning.  Click to enlarge.


The WRAP

I’m not sure what should be read into Tuesday’s price action in the precious metals.  It was surprising to watch gold crawl quietly higher in the thinly-traded after-hours market on Wednesday.  It was equally surprising that JPMorgan manhandled the silver price in such a fashion.  But as a result of that, there was most likely more Managed Money short selling — and Commercial buying.  How much can only be speculated at — and since yesterday’s price action occurred the day after the cut-off, it won’t be in tomorrow’s COT Report.

And, once again, there was very little correlation between what was happening in the currencies versus what was going on with precious metal prices…or even the equity markets yesterday.  As Ted said in his mid-week commentary yesterday…”gold and silver prices are strictly set by paper dealings — and are therefore, manipulated“.  Wednesday’s trading action was yet another case in point.

Here are the 6-month charts for all four precious metals plus, copper and WTIC.  You should carefully note that the rally in gold that occurred after the 1:30 p.m. COMEX close, does not show up on Wednesday’s doji because it came after the COMEX close — and that’s the cut-off for these charts.  It will show up in today’s doji.  WTIC took a bit of a hit yesterday because of the “biggest crude build in 20 months“.  The ‘click to enlarge‘ feature only helps with the four precious metal charts.

And as I type this paragraph, the London open is less than ten minutes away — and I see that the gold price didn’t do much for the first two hours and change once trading began at 6:00 p.m. EDT in New York on Wednesday evening. It sank a few dollars at that juncture — and has been chopping sideways since — and is currently down $1.10 the ounce. Silver’s rally attempt on Wednesday evening ran into ‘something’ almost immediately — and it has been chopping sideways about 2 cents below unchanged throughout Far East trading on their Thursday. It was has rallied a bit since the afternoon gold fix in Shanghai — and is currently down a penny. Platinum ran into some selling pressure an hour or so after the market opened in New York yesterday evening — and its current $814 low tick [down $9] was set during the Shanghai lunch hour on their Thursday. It has ticked a bit higher since, but is still down 5 bucks. The palladium price has been trading mostly sideways, with its smallish gains in Far East trading all disappearing by 2 p.m. CST. It’s sitting back at unchanged.

Net HFT gold volume is already a bit over 60,000 contracts — and there’s only 1,231 contracts worth of roll-over/switch volume in this precious metal. Net HFT silver volume is coming up on 11,800 contracts — and there’s 1,046 contracts worth of roll-over/switch volume on top of that.

The dollar index began to stair-step lower the moment that trading began at 6:00 p.m. EDT on Wednesday evening in New York. The current 95.19 low tick…down 27 basis points…came a minute or two before 12 o’clock noon China Standard Time on their Thursday morning — and it has been chopping quietly higher since, but is still down 11 basis points about thirty minutes before the London/Zurich opens.

Well, yesterday’s carnage in the equity markets in the U.S…plus the follow-on bloodbath in the Far East and Europe, certainly wasn’t allowed to manifest itself in precious metal prices. Not even a lower dollar index helped, as the powers-that-be/JPMorgan have the precious metals in lock-down mode at the moment.

There was a bit of a pop at the London open this morning as you’ll see below, but so far they haven’t done much, as neither gold nor silver has been allowed to get a sniff of their respective 50-day moving averages as of yet.

But, as I’ll keep pointing out, the set-up in the COMEX futures market in both gold and silver is still off-the-charts bullish — and the only thing keeping prices from blowing sky high is JPMorgan.  They’re controlling things from the long side at the moment — and obviously whatever event or moment they’re waiting for, hasn’t occurred or arrived yet.

And as I post today’s column on the website at 4:02 a.m. EDT, I note that all four precious metals jumped up shortly after trading began at their respective opens. Gold is currently up $2.80 — and silver is now up 8 cents…but both ran into ‘something’ very shortly after their respective prices took off to the upside. Platinum rallied too, but it’s still down 2 dollars — and palladium is up 3. Both of their tiny rallies ran into ‘resistance’ as well.

Gross gold volume is something over 87,000 contracts — and net of roll-over/switch volume, net HFT gold volume is around 84,500 contracts. Net HFT silver volume is about 18,200 contracts — and there’s 1,074 contracts worth of roll-over/switch volume in this precious metal.

The dollar index ‘rally’ topped out exactly at the 8:00 a.m. London open — and has been heading lower since — and is down 16 basis points as of 8:30 a.m. BST.

That’s all I have for today — and I’ll see you here tomorrow.

Ed