Precious Metals Quiet as the Equity Markets Head South

25 October 2018 — Thursday

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price was up 3 bucks or so by around 10:30 a.m. China Standard Time on their Wednesday morning, but was sold back to unchanged very shortly after 2 p.m. CST on their Wednesday afternoon.  From there it traded flat until the noon silver fix was put to bed in London — and from that point it rolled over a bit until about ten minutes before the COMEX open in New York. It rallied five bucks or so by the afternoon gold fix in London — and gave half of that back by the COMEX close.  From there it rallied quietly but unsteadily back into positive territory — and closed almost on its high tick of the day.

The low and high ticks definitely aren’t worth looking up.

Gold finished the Wednesday session in New York at $1,233.20 spot, up $3.30 from Tuesday’s close.  Net volume was around pretty quiet at around 207,500 contracts — and roll-over/switch volume was only 4,784 contracts.

Silver’s high tick of the day, such as it was, came shortly before noon CST on their Wednesday — and it traded sideways from there before heading lower, like gold and platinum, starting at exactly 2:00 p.m. CST.  From there — and with some minor exceptions, the silver price followed the gold price activity, but the low tick came shortly after 3 p.m. in New York in the thinly-traded after-hours market.  It popped higher by a few pennies from there, before trading sideways until the markets closed at 5:00 p.m. EDT.

The high and low ticks in this precious metal aren’t worth looking up, either.

Silver was closed yesterday at $14.64 spot, down 5.5 cents on the day.  Net volume was fairly decent at a bit over 62,000 contracts — and roll-over/switch volume in this precious metal was 2,439 contracts.

The platinum price followed the gold price pattern very closely, except their was no post-COMEX close rally — and it finished down 2 dollars on the day at $829 spot.

The palladium price traded lower by 2 or 3 dollars in Far East trading on their Wednesday — and minutes before the Zurich open, it got kicked downstairs by a bunch of dollars.  It rallied a bit from there an hour or so later, but was sold quietly lower until around 10:30 a.m. in New York — and didn’t do anything after that.  Palladium was closed at $1,113 spot, down 15 bucks from Tuesday.

The dollar index closed very late on Tuesday afternoon in New York at 95.93 — and didn’t do much of anything until the 95.91 spike low tick was set at the 8:00 a.m. London open on the dot.  It blasted higher from there — and the 96.53 high tick of the day was set a few minutes before the COMEX open in New York.  It stair-stepped lower until minutes after 10 a.m. EDT, which may or may not have coincided with the afternoon gold fix in London.  It edged a bit higher until a minute or so before the COMEX close — and crept lower for the remainder of the Wednesday session.  The dollar index finished the day at 96.36…up 43 basis points from Tuesday’s close.

It was another day where what the price activity in the precious metals bore no relation to what was happening in the currency market.

And here’s the 6-month U.S. dollar index — and the delta between its close…96.18…and the close on the intraday chart above, was 18 basis points.

The gold stocks dipped a bit at the open — and then rallied into positive territory by a bit to their highs of the day, which came a few minutes after 10 a.m. EDT…which coincided with the New York low tick in the dollar index — and the high in gold during the COMEX trading session.  They chopped unsteadily lower from there — and finished just off their lows of the day.  The HUI closed down 1.78 percent.

The silver equities followed their golden brethren like the proverbial shadow on Wednesday, except Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed down 2.02 percent.  Click to enlarge if necessary.

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

The CME Daily Delivery Report showed that 30 gold and 32 silver contracts were posted for delivery within the COMEX-approved depositories on Friday.  In gold, Advantage issued all 30 — and the largest long/stopper was the CME Group with 21 contracts for its own account, which it immediately reissued as 210-ten ounce mini gold contracts.  ADM stopped 182 of them — and Advantage picked up the other 28. The second largest of the four long/stoppers was Morgan Stanley with 6 contracts for its client account.  In silver, JPMorgan issued 30 contracts — and Advantage the other two.  The only long/stopper that mattered was JPMorgan, which picked up 30 contracts.  All the silver 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 fell by 26 contracts, leaving 54 still around, minus the 30 mentioned just above.  Tuesday’s Daily Delivery Report showed that 32 gold contracts were actually posted for delivery today, so that means that 32-26=6 more gold contracts were added to the October delivery month.  Silver o.i. in October rose by 30 contracts, leaving 33 still open, minus the 32 silver contracts mentioned in the previous paragraph.  Tuesday’s Daily Delivery Report showed that only 2 silver contracts were posted for delivery today, so that means that 30+2=32 more silver contracts were added to the October delivery month.  Those are probably the same 32 contracts that are out for delivery on Friday.

There was a deposit in GLD yesterday, as an authorized participant added 56,762 troy ounces of gold.  And, for the second day in a row, there was a sizeable withdrawal from SLV, as an authorized participant…most likely JPMorgan exchanging shares for physical metal…took out 1,315,261 troy ounces.

There has been 4.13 million troy ounces of silver withdrawn from SLV over the last two business days.

There was no sales report from the U.S. Mint.

The only activity in gold over at the COMEX-approved depositories on the U.S. east coast on Tuesday was a withdrawal of 13,848 troy ounces from JPMorgan.  The link to that is here.

It was another very busy day in silver, as four truck loads…2,409,394 troy ounces…was reported received, but only 136,159 troy ounces were shipped out.  The folks over at Brink’s, Inc. picked up three truck loads…1,807,627 troy ounces…and JPMorgan picked up the other one, totalling 601,776 troy ounces.  In the ‘out’ category, there was 105,853 troy ounces shipped out of Canada’s Scotiabank — and remaining 30,305 troy ounces departed CNT.  The link to all this activity is here.

Another day — and yet another record high amount of silver in JPMorgan’s COMEX depository…147.9 million troy ounces.

There was very little activity in the COMEX-approved gold kilobar depositories in Hong Kong on their Tuesday.  Nothing was reported received — and only 22 were shipped out of Brink’s, Inc.  I shan’t bother linking this.


Here are two charts that you are more than familiar with, but I didn’t have space for until Thursday’s column.  They show the total amounts of gold and silver that is held in all known depositories, mutual funds and ETFs as of the close of business on Friday, October 19.  On a net basis for the reporting week, there was 315,000 troy ounces of gold received — and 2.11 million troy ounces of silver.  The click to enlarge feature helps with both charts.

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


CRITICAL READS

JPMorgan Warns of $7.4 Trillion in ETF Selling During Next Downturn

When it comes to sleepless night involving the great unknowns locked in the Pandora’s box that was created by central bankers and which will be unleashed during next financial crisis, one nightmare is among the most recurring: what happens when the ETFs, which have been buying stocks for the past decade, begin to sell?

The answer, according to JPMorgan, would be nothing short of catastrophic.

According to a new report from JPM equity strategist, Eduardo Lecubarri, passive investing (i.e., ETFs and index funds) – which was not a big driver of equity returns in the last recession as it accounted for less than 30% of the AUM in actively managed funds back then, “should bring big selling pressure to large caps and US small and mid caps during the next downturn“, Lechubarri writes, as a result of the staggering increase in Passive AUM over the past decade which, as a % of active AUM, has nearly reached parity, and was around 83% as of 2018; Passive AUM is widely expected to surpass Active AUM over the next two years.

How much selling pressure? JPMorgan calculates that some $7.4 trillion in stocks would be subject to forced selling by passive funds during the next downturn.

This is something worth noting at this late stage of a cycle given that passive investing seems to be trend following, with inflows pushing equities higher during bull markets, and outflows likely to magnify their fall during corrections” Lechubarri warns.

Lecubarri also notes that passive investing is far more skewed to Large-Caps than what their market caps would command, “making this asset class far more exposed to momentum selling during market downturns.”

This article showed up on the Zero Hedge website at 2:28 p.m. EDT on Wednesday afternoon — and I thank Brad Robertson for sending it along.  Another link to it is here.


Investors Redeem $15BN From Hedge Funds in September as Outflows Accelerate

With hedge fund redemption pressures – as a result of what has been largely abysmal performance by the 2 and 20 crowd in both Q3 and 2018 – frequently cited as one of the potential culprits for the recent swoon in markets…today we got confirmation of just that, when the latest eVestment Hedge Fund Asset Flow report indicated that investors had removed an estimated $14.72 billion from hedge funds in September pushing Q3 net flows into negative territory with an estimated $5.71 billion leaving the industry in Q3. As a result of September’s spike in outflows, year-to-date net flows are now flat after being stubbornly in the green for much of the year despite what has been another deplorable performance year for hedge funds. As a result, on September 30, total industry assets sit at $3.310 trillion.

And while the overall hedge fund industry is still growing, it’s not growing from new allocations. Over the last three years,  investors have removed over $100 billion from the industry, but performance gains have offset these losses, at least until now: overall asset increases cannot hide the fact that over the last twelve quarters, investors have been net redeemers in eight of them. Growth is stagnant, and returns have not been making an impact on investors to broadly return, especially since they have been largely negative.

This 1-chart Zero Hedge story was posted on their website at 11:46 a.m. EDT on Wednesday morning — and it’s the second in a row from Brad Robertson.  The chart is worth a look.  Another link to it is here.


Why the Information Revolution Failed — Bill Bonner

What we have here, the old-timers would say, is a bubble looking for its pin. It could be earnings. It could be trade. It could be the next rate hike. We don’t know what the pointy object will be.

But Donald J. Trump is hoping the two never meet. No one has more to lose… and no one will fight harder to keep the two apart.

This morning, The Wall Street Journal reported:

“President Trump escalated his attacks on Federal Reserve Chairman Jerome Powell, saying the head of the nation’s central bank threatened U.S. economic growth and appeared to enjoy raising interest rates.

In an interview Tuesday with The Wall Street Journal, Mr. Trump acknowledged the independence the Fed has long enjoyed in setting economic policy, while also making clear he was intentionally sending a direct message to Mr. Powell that he wanted lower interest rates.”

Even now, two years after the beginning of a “normalization” cycle, the Fed is still lending at rates near or below the level of consumer price inflation.Most economists would say it’s time to take away the punchbowl. But there’s our president with a bottle of gin to spike it up a bit. Mr. Trump is either an economic genius… or a complete imbecile.

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


James Grant: If Interest Rates Normalize the National Debt Will Cost More than the Military

James Grant, of Grant’s Interest Rate Observer, recently gave a wide-ranging interview to WealthTrack in which he discusses his outlook on credit markets and his concerns about the massive buildup in debt that has occurred over the last decade.

James Grant:

It took rates exactly ten years to go from 2.25% in 1946 to 3.25% in 1956. Now already, we have gone on the ten-year from 1.375% to 3%. So rates have more than doubled in the course of two years. So the tempo… now would seem (to be) a bit more brisk… Mortgage activity has been dampened. Companies that have borrowed at floating rates are now having to re-budget. You know the federal government has got some debt and it has been paying the most concessionary rates. I think less than 2% on average. So, if the interest bill for the federal government were to go back to… 6%… on $18 or $20 trillion of market holdings, the interest bill would surpass the defense budget… Look at the number three (3% interest rates), of course it’s a small number, and it is small as measured against the evident rate of inflation. So, since the past 50 or so years, the 10-year treasury security has yielded something like 2.7% in excess of the rate of inflation on average… So the rate of inflation now is generously reckoned at… 2%… that would make the 10-year yield not at three-ish but at four-and-a-half-ish or higher and I think that would truly bite… People say, for that reason, it can’t happen. We cant afford that. Well, just because it would be inexpedient doesn’t mean it can’t happen.”

This 26:46 minute video interview with host Consuelo Mack was posted on thesoundline.com Internet site on Wednesday sometime — and although I haven’t had the time to listen to it, it’s a good bet that it’s very much worth your time.  I thank Brad Robertson for pointing it out — and another link to it is here.


In Major Concession, Trump Will Allow Iran to Remain Connected to SWIFT

In a stark reversal from its position just days earlier, the Trump administration is expected to allow Iran to remain connected to the SWIFT banking system the Washington Examiner reports, in what amounts to a major concession to European allies who have been pressuring senior U.S. officials to keep this key lifeline to the Islamic Republic open.

As recently as this weekend, Reuters reported that in order to further isolate Iran from the global financial community, Treasury Secretary Mnuchin said that the U.S. Treasury was in negotiations with the Belgian-based financial messaging service SWIFT which intermediates the bulk of the world’s cross-border dollar-denominated transactions, on disconnecting Iran from the network. Washington has been pressuring SWIFT to cut Iran from the system as it did in 2012 before the nuclear deal.

The latest reversal comes as a result of ‘ongoing talks between top U.S. officials and European allies “who have been pressuring the Trump administration to take a softer line on Tehran” ahead of the Nov. 4 implementation of new sanctions on Iran.

This news item was posted on the Zero Hedge website at 6:33 p.m. EDT on Wednesday evening — and another link to it is here.


Central Banks to Increase Gold Buying for First Time Since 2013

Central banks are set to increase their purchases of gold in 2018 for the first time in five years as eastern European and Asian countries seek to diversify their reserves.

Net purchases of gold by central banks are forecast to rise to 450 metric tonnes this year, up from 375 tonnes in 2017, according to consultancy Metals Focus Ltd. That will be the first increase since 2013, when banks boosted their holdings by 646 tonnes, the most for several decades.

With just over two months of the year left, it’s more likely that the projection will be raised than lowered because central banks generally seem interested in purchases, according to Junlu Liang, a senior analyst at London-based Metals Focus.

Official sector purchases are likely to remain healthy, as a result of ongoing efforts to diversify reserves among emerging market countries,” Liang said in a weekly note. “Indeed, in spite of purchases by a number of central banks in recent years, the share of total reserves that their gold holdings account for remains arguably low, especially when compared to that seen across western countries.”

The central banks of Poland and Hungary have surprised the market by adding to their gold holdings for the first time in many years. Whereas Hungary’s 10-fold increase of its gold reserves looks to be a one-off strategic purchase, Poland has made incremental additions for the last three months, suggesting the policy could continue, according to Liang.

This gold-related Bloomberg story falls into the “a day late — and a dollar short” as there’s nothing really new here. This is a retread of the gold-related stories that have been showing up on the Internet over the last two weeks. Nice photo, though!  It was posted on their Internet site at 5:23 a.m. Pacific Daylight Time on Wednesday morning — and I ‘borrowed’ it from a GATA dispatch.  Another link to it is here.


The PHOTOS and the FUNNIES

Today’s ‘critter’ is the goblin shark…a rare species of deep-sea shark. Sometimes called a “living fossil”.  This pink-skinned animal has a distinctive profile with an elongated, flattened snout, and highly protrusible jaws containing prominent nail-like teeth. It is usually between 3 and 4 m (10 and 13 ft.) long when mature, though it can grow considerably larger. Goblin sharks inhabit upper continental slopes, submarine canyons, and seamounts throughout the world at depths greater than 100 m (330 ft.).  Needless to say, photos of this fellow are a little hard to come by — and the ‘click to enlarge‘ feature only helps with the first shot.


The WRAP

It was a nothing sort of day on Wednesday, as not much happened in the COMEX futures market, although platinum and palladium were sold lower.  The only interesting thing was the quiet rally in gold that began once the COMEX closed yesterday afternoon.

But the most notable thing outside of that, was the fact that with the dollar index screaming higher, one would have thought that JPMorgan and any other interested parties would have used that cover to blow precious metal prices to the downside.  That didn’t happen — and what little correlation there was, was very slight.   I’m not sure if anything should be made of that, but I thought it worth pointing it out.

Here are the 6-month charts for all Big 6 commodities — and as I said two paragraphs ago, there’s not a lot to see.  The ‘click to enlarge‘ feature only helps with the first four charts.

And as I type this paragraph, the London open is less than ten minutes away — and I note that the gold price crawled unevenly higher once trading began in New York on Wednesday evening — and its current high tick came at the 2:15 p.m. CST afternoon gold fix in Shanghai.  It’s lower by a bit now — and up only $2.20 an ounce.  It’s been the same for silver — and it’s only up 5 cents currently.  The platinum price spent most of the Far East trading session up a couple of bucks — and it’s up a dollar at the moment.  And after trading flat until shortly after 9 a.m. CST in Far East trading on their Thursday morning, the palladium price was sold lower.  It’s off it low tick by a bit, but still down 7 dollars as Zurich opens.

Net HFT gold volume is coming up on 50,000 contracts — and there’s 1,037 contracts worth of roll-over/switch volume in this precious metal.  Net HFT silver volume is already 12,300 contracts — and there’s only 185 contracts worth of roll-over/switch volume on top of that.

The dollar index dropped a handful of basis points shortly after trading began at 6:00 p.m. EDT in New York on Wednesday evening.  It traded flat for many hours after that, but then headed lower once again starting around 1:35 p.m. CST on their Thursday afternoon.  The dollar index is currently down 15 basis points about thirty minutes before the London open.

The equity markets in New York began to head south in a most serious fashion yesterday — and it’s best summed up in this Zero Hedge headline…”Markets In Turmoil: S&P, Dow Erase 2018 Gains As NASDAQ Crashes Most Since 2011“.  The opening paragraph…”Not a flesh wound anymore“…says it all.  Of course the warnings of a major equity market crash has been widely disseminated by many market pundits, including the IMF over the last several months, so what’s going on right now should come as no surprise to anyone.

And as I post today’s column on the website at 4:03 a.m. EDT, I see that ever since the afternoon gold fix in Shanghai, silver and gold prices have been continually sold lower.  The powers-that-be now have gold down $2.00 on the day — and silver is only up 2 cents.  Platinum was hit the moment that Zurich trading began — and it’s down a dollar.  But the long knives came out for palladium shortly before 10 a.m. in Zurich — and it was smashed lower — and that precious metal is was down 21 dollars at its low tick, but is now down ‘only’ 17  bucks currently.

Gross gold volume is now up to 75,000 contracts — and net of roll-over/switch volume, net HFT gold volume is around 72,300 contracts.  Net HFT silver volume is now up to around 17,400 contracts — and there’s still only 233 contracts worth of roll-over switch volume in that precious metal.

The dollar index decline that began in early afternoon trading in the Far East was turned higher about 20 minutes before the London open — and it’s down only 1 basis point as of 8:30 a.m. BST in London.

It could be a wild day in the markets in New York today — and nothing will surprise me when I roll out of bed later this morning.

See you here tomorrow.

Ed