A Friday Surprise…As Precious Metal Prices Jump Higher

26 January 2019 — Saturday

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price didn’t do much of anything in Far East trading on their Friday morning.  But once the 2:15 p.m. CST afternoon gold fix was done in Shanghai, the price began to develop a somewhat positive bias, which lasted until about five minutes before the COMEX open in New York…8:15 a.m. EST.  Then away it went to the upside.  The price was obviously capped around 10:25 a.m. the moment it looked like it might break above the $1,300 spot mark.  From that juncture it didn’t do much of anything until a minute or so before 4 p.m. in the thinly-traded after-hours market — and then it quickly jumped above $1,300 spot.  It traded relatively flat into the close from there.

The low and high ticks in gold yesterday were recorded by the CME Group as $1,278.90 and $1,299.80 in the February contract.

Gold finished the Friday session in New York at $1,302.60 spot, up $22.00 on the day.  Considering the size of the move, net volume wasn’t overly heavy at just under 203,000 contracts.  But roll-over/switch volume was monstrous at just under 102,000 contracts, which is not entirely surprisingly as the February delivery month looms large now.

And here’s the New York Spot Gold [Bid] chart, so you can see the minutiae of the price action during and after the COMEX trading session.  I was particularly intrigued by the quiet slow-as-molasses rally that began at 12:30 p.m. as the price crawled higher…which culminated in the price spike above $1,300 spot…but short of that number by 20 cents in the February contract — and I doubt that was the free market in action.

The silver price didn’t do much until shortly after 10 a.m. China Standard Time on their Friday morning.  It popped into positive territory by a few pennies at that point — and then really didn’t do much of anything until that same 8:15 a.m. EST that gold took off to the upside.  Silver obviously did the same — and its rally was capped a few minutes before 10:30 a.m. in New York…and it crawled a few pennies lower until 12:30 p.m.  Then, like gold, it began to creep higher — and that lasted until a few minutes after 4 p.m. in after-hours trading — and it didn’t do anything after that.

The low and high ticks in this precious metal were reported as $15.30 and $15.765 in the March contract.

Silver closed on Friday at $15.71 spot, up 41.5 cents on the day and, like gold, virtually on its high tick of the day.  Net volume was elevated, but not as high as one might expect, all things considered.  It checked in at 75,000 contracts — and there was a hair over 6,700 contracts worth of roll-over/switch volume in this precious metal.

The platinum price didn’t do much until 11 a.m. CET in Zurich on their Friday morning — and then it began to tick quietly higher from there.  Then, like gold and silver, it began to head sharply higher five minutes before the COMEX in New York.  The high tick of the day came shortly after the Zurich close — and it was sold down a few dollars from there — and didn’t do much after that.  Platinum was closed in New York on Friday at $816 spot, up 14 bucks on the day.

The palladium price was up about 4 dollars by 3 p.m. CST on their Friday afternoon, but began to slide a bit from that point until around 10:30 a.m. in Zurich trading — and back below $1,300 spot.  It crawled unevenly higher from there until  five minutes before the COMEX open.  It began to rally from there, but was hammered to its low tick of the day minutes later.  It only spent a few seconds there — and continued to blast skyward from that juncture.  That big rally ended shortly after the Zurich close, just like it did for platinum — and it crept quietly higher into the 5:00 p.m. EST close from there.  Palladium finished the day at $1,344 spot, up an impressive 41 dollars from Thursday’s close.

I’ll have much more to say about Friday’s price activity in the precious metals in The Wrap section further down.


The dollar index closed very late on Thursday afternoon in New York at 96.60 — and opened down about 12 basis points once trading began at 7:45 p.m EST on Thursday evening.  It continued to creep unevenly lower from there until a few minutes after 8 a.m. in New York.  Then the decline became far more robust.  The 95.74 low tick of the day was set minutes after 4 p.m. EST — and it added a small handful of basis points going into the Friday close.  The dollar index finished the day at 95.81…down 79 basis points.

Here’s the DXY chart courtesy of BloombergClick to enlarge.

Here’s the 6-month U.S. dollar index chart from the folks over at the stockchart.com Internet site.  The delta between its close…95.46…and the close on the DXY chart above, was 35 basis points on Friday.  Click to enlarge.

The gold stocks gapped up a bit over two percent at the open — and then crawled higher until shortly before noon in New York trading.  From that point, they crept quietly sideways for the remainder of the Friday session.  The HUI closed up 3.82 percent.

The price path for the silver equities was similar to the gold shares in most ways, but got sold down a bit starting around 1:15 p.m. in New York trading — and from minutes after 2 p.m. they traded quietly sideways until  the equity markets closed at 4:00 p.m. EST.  Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed higher by 3.86 percent.  Click to enlarge if necessary.

And here’s Nick’s 1-year Silver Sentiment/Silver 7 Index chart 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’s much improved from last week, with most of the gains coming courtesy of the big price moves in all four precious metals yesterday.  Gold and its shares outperformed silver this past week.  Click to enlarge.

Here is the month/year-to-date chart — and things are certainly different here.  Palladium is way up month/year-to-date, but the other three precious metals haven’t been allowed to do much.  The silver equities have outperformed month/year-to-date, but not by any amount that matters.  That will change as time goes along.  Click to enlarge.

Until we get into February, the month-to-date and year-to-date charts show the same data, so I’m not posting the latter until then.

With still no COT or Bank Participation Reports, it’s impossible to tell what’s really going on under the hood — and what JPMorgan may or may not be doing on the short side.  Ted has been commenting recently on the big increases in open interest in gold, which are out of all proportions to the price action, at least up until yesterday — and he’s wondering what that’s all about.  This is one of many reasons why not having a COT/BPR Report to look at is so damn frustrating.

Then, of course we have this DoJ investigation into JPMorgan’s price management scheme in the precious metals, which is still ongoing.  We’ll just have to wait and see how things turn out with that.  But it’s a good bet, as Ted said in one of his recent commentaries, that there are most likely “talks going on at the highest levels between the DoJ and JPMorgan“.

However, with the ‘non-essential’ government employees now heading back to work, most likely on Monday, there’s a remote chance that we might get a COT and Bank Participation Report next Friday.  But I wouldn’t bet any money on that outcome — and we’ll just have to wait and see on that as well.


The CME Daily Delivery Report showed that zero gold and only 5 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.  In silver, ABN Amro issued all five — and in the long/stopper category, Goldman picked up 2 contracts…as did Advantage — and JPMorgan picked up the remaining contract.  All contracts, both issued and stopped, involved their respective client accounts.  The link to yesterday’s Issuers and Stoppers Report is here.

So far this month there have been 560 gold contracts issued and stopped — and that number in silver is 819.

The CME Preliminary Report for the Friday trading session showed that gold open interest in January dropped by 5 contracts, leaving 48 still around.  Thursday’s Daily Delivery Report showed that 5 gold contracts were actually posted for delivery on Monday, so the change in open interest and deliveries match.  Silver o.i. in January rose by 2 contracts, leaving 358 still open, minus the 5 contracts mentioned in the previous paragraph.  Thursday’s Daily Delivery Report showed that 3 silver contracts were actually posted for delivery on Monday, so that means that 2+3=5 more silver contracts just got added to the January delivery month.

I’m still wondering out loud about these remaining 353 silver contracts [1,765,000 troy ounces] that are still open for delivery in what’s left of this month.  With Monday and Tuesday’s COMEX deliveries already assigned, that leaves only Wednesday and Thursday for whoever the short/issuer is [I’m guessing HSBC USA] to step up to the plate and deliver.  But why they’re taking this right down to the wire is anyone’s guess.

And, once again, there was another monstrous increase in gold open interest in the Preliminary Report…15,425 contracts.  But a lot of that could certainly be associated with Friday’s price action.


There were no reported changes in either GLD or SLV on Friday.

There was a tiny sales report from the U.S. Mint yesterday.  They sold 1,000 troy ounces of gold eagles — and that was all.

Month-to-date the mint has sold 62,500 troy ounces of gold eagles — 22,500 one-ounce gold buffaloes — 3,931,000 silver eagles — and 25,600 one-ounce platinum eagles.

There was a bit of activity in gold over at the COMEX-approved depositories on the U.S. east coast on Thursday.  There was 1,999.970 troy ounces reported received at Delaware — and that was it.  This amount was within an eyelash of 622 kilobars, either U.K./U.S. or SGE kilobar weight.  The link to this activity is here.

It was a lot busier in silver, of course…as 1,471,963 troy ounces were reported received — and 649,199 troy ounces were shipped out.  In the ‘in’ category, there was one truckload…593,629 troy ounces…received at HSBC USA — and another truckload…600,835 troy ounces…dropped off at CNT.  The remaining 277,498 troy ounces ended up at Brink’s, Inc.  In the ‘out’ category, there was one truckload…620,399 troy ounces…shipped out of CNT — and the remaining 28,800 troy ounces departed the International Depository Services of Delaware.  The link to all this activity is here.

There was some activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday.  The took in 700 of them — and shipped out 462.  All of this action was at Brink’s, Inc. as per usual — and the link to that, in troy ounces, is here.


Here are two charts that Nick Laird passed around on Thursday evening that I just didn’t have the space for in my Friday missive, so here they are now.  In Friday’s column I posted the gold and silver import charts for India for November.  Once Nick had that data, he was able to update his “Silk Road Gold Demand” chart using India’s import data for that month.  Updated with November’s data, it shows that 291.8 tonnes was imported by these five ‘Silk Road’ countries during November…which was more than all the gold mined on Planet Earth that monthAnd since the beginning of 2005 these two bar charts-in-one shows that these five countries have imported 33,029 metric tonnesClick to enlarge.

Of course, not included in this chart is the stealth gold accumulation that China has not reported.  I expect that when their updated gold holdings are announced by their central bank at some point in the future, the total ‘Silk Road’ imports will jump by an eye-opening amount.

This second chart is a derivative of the first one.  It shows the annual gold demand by these same five Silk Road countriesSo far in 2018 they have reported importing 3,060 tonnes of the stuff…with one month’s worth or reporting still left to go.  Click to enlarge.

So where is all this gold coming from that’s being imported by these five Silk Road countries you ask?  And what about the considerable demand from the rest of Planet Earth.  These are very good questions, aren’t they???


The Derrynaflan Chalice is an 8th or 9th-century chalice, that was found as part of the Derrynaflan Hoard of five liturgical vessels. The discovery was made on 17 February 1980 near Killenaule, County Tipperary in Ireland. According to art historian Michael Ryan the hoard “represents the most complex and sumptuous expression of the ecclesiastical art-style of early-medieval Ireland as we know it in its eighth- and ninth-century maturity.”

The area known as Derrynaflan is an island of pastureland surrounded by bogland, which was the site of an early Irish abbey. The chalice was found with a composite silver paten, a hoop that may have been a stand for the paten, a liturgical strainer and a bronze basin inverted over the other objects. The group is among the most important surviving examples of Insular metalwork. It was donated to the Irish State and the items are now on display in the National Museum of Ireland.

The hoard was probably secreted during the turbulent 10th to 12th centuries, when Viking raids and dynastic turmoil created many occasions when valuables were hidden. The early and later 10th century is marked by a particular concentration of hoarding in Ireland.  Click to enlarge.

It was another quiet news day on Friday — and there’s no commentary from Doug Noland this week, either.


CRITICAL READS

Congress Clears Stopgap Bill To End Government Shutdown, Trump Sends Warning

As expected Congress easily advanced the three-week funding bill, and is is now headed to Trump’s desk where he is expected to sign it later Friday.

However, President Trump had the last word before he signs the bill, lashing out at those who claim he folded:

So, whether its Ann Coulter or Nancy Pelosi, we suspect someone got up Trump’s nose and we suspect that in three weeks, he will not quickly forget it.

This seventh update of this Zero Hedge story appeared on their website at 7:47 p.m. on Friday evening EST — and I thank Brad Robertson for sending it along.  Another link to this very long commentary is here.


How Venezuela Reached the Edge of Chaos — Bill Bonner

When we left you yesterday, it looked like the government of Venezuela was in a fight for its life.

The Venezuelan economy is falling apart, with 1,300,000% inflation and a mass exodus of the population. And a political rival of President Nicolás Maduro has proclaimed himself the legitimate president and gotten almost immediate recognition from the U.S.

This provoked a countermove by Maduro, who gave U.S. diplomats 72 hours to get out of town. It also led to a show of force and solidarity by the country’s military – who stood shoulder to shoulder proclaiming their everlasting loyalty to Maduro.

They will stand by him until the end… or until they change their minds, whichever comes first.

The top brass has gotten rich from Maduro’s government; they get first dibs on oil revenues… and, some say, the illegal drug money, too.

Bloodsuckers, dictators, and the Deep State do not give up easily. They owe their power, money, and status to the incompetents currently running the country. They’re not about to stand aside and let another bunch of incompetents take it away.

This commentary from Bill showed up on the bonnerandpartners.com Internet site early on Friday morning EST — and another link to it is here.


China Quietly Announces Quasi QE to “Keep Ponzi Scheme Afloat

On Thursday, to little fanfare, China’s central bank announced its latest liquidity injection scheme, which many analysts saw as a quasi Quantitative Easing program and a potential precursor to full-blown QE.

Just like QE in the U.S., where financial system liquidity was boosted by the Fed injecting reserves into banks in exchange for sales of Treasurys and MBS, which fungible liquidity was then used for a variety of purposes including directly investing in risk assets as the JPM London Whale fiasco demonstrated, the PBOC announced that it will allow China’s primary dealers to swap their holdings of perpetual bonds for central bank bills, and directly use those bonds as collateral to access certain PBOC liquidity operations.

By directly intermediating in the market, and effectively backstopping securities issued by local banks, this measure will increase the appeal of perpetual bonds to be issued by banks making them riskless for all intents and purposes, which can then be used to bolster capital cushions and thereby help relax a key current constraint on credit supply.

In other words, the PBOC just unveiled a roundabout way of injecting even more “risk-free” liquidity directly into the system, or as Rabobank’s Michael Every (more below) writes “Chinese banks, desperate for cash to keep the Ponzi scheme afloat, can issue perpetuals that nobody in their right mind would want to hold; and the PBOC will swap them for its bills.”

Wow!  This longish news item was posted on the Zero Hedge website at 11:37 a.m. EST yesterday morning — and it’s another offering from Brad Robertson.  Another link to it is here.


Maduro Denied in Bid to Pull $1.2 Billion in Gold From Bank of England

Nicolas Maduro’s embattled Venezuelan regime, desperate to hold onto the dwindling cash pile it has abroad, was stymied in its bid to pull $1.2 billion worth of gold out of the Bank of England, according to people familiar with the matter.

The Bank of England’s decision to deny Maduro officials’ withdrawal request comes after top U.S. officials, including Secretary of State Michael Pompeo and National Security Adviser John Bolton, lobbied their U.K. counterparts to help cut off the regime from its overseas assets, according to one of the people, who asked not to be identified.

The U.K. followed the U.S. and other countries on Wednesday in recognizing Juan Guaido, the National Assembly leader, as the legitimate president of Venezuela. Maduro, an authoritarian ruler who’s overseen the country’s collapse into economic chaos, refuses to give up power, though, and has the backing of the military.

The U.S. officials are now trying to steer Venezuela’s overseas assets to Guaido to help bolster his chances of effectively taking control of the government. The $1.2 billion of gold is a big chunk of the $8 billion in foreign reserves held by the Venezuelan central bank. The whereabouts of the rest of them is largely unknown. Turkey, though, has emerged recently as a destination for freshly mined Venezuelan gold. The U.S. is leading an international effort to persuade Turkey — which is a key Maduro backer, along with Russia and China — to stop being a conduit for these gold shipments.

Why am I not surprised, dear reader.  If I were any country holding gold in either the U.K. or the U.S…I’d want it out right now.  This Bloomberg story put in an appearance on their website at 11:11 a.m Pacific Standard Time on Friday morning — and was updated about four and a half hours later.  I found it on the Sharps Pixley website — and another link to it is here.


The PHOTOS and the FUNNIES

This sequence of photos is from The Guardian — and courtesy of Patricia Caulfield.  This series is headlined “The best of 2018 wildlife photography awards“.

This first shot is entitled: “Warriors Who Once Feared Elephants, Now Protect Them” by photographer Amy Vitale.  The caption reads “An elephant shows younger orphans how to take a dust bath at Reteti elephant sanctuary in northern Kenya. Orphaned and abandoned elephant calves are rehabilitated and returned to the wild at the community-owned sanctuary.”

The second photo is entitled “Rescuing the Night Gardeners” by Doug Gimesy.  It’s captioned “Doug documents one of the largest bats in the world, the grey-headed flying-fox, raising awareness around its importance as a keystone species and pollinator in the ecosystem and highlighting some of the stresses they face. This rescued and orphaned flying fox is feeding on the pollen of a flowering eucalyptus tree.” Click to enlarge.


The WRAP

Today’s pop ‘blast from the past’ is one that I’ve not hear since it first came out as a big hit for Neil Sedaka back in 1974…forty-five years ago, but who’s counting!  It’s a classic — and it’s most unfortunate that they don’t write music like this anymore.  The link is here.

Today’s classical ‘blast from the past’ dates from 1875.

Norwegian composer Edvard Grieg (1843-1907) was one of the definitive leaders of Scandinavian music — and his influence was great. Although composing many short piano pieces and chamber works, the work Grieg did for Henrik Ibsen stood out.

Peer Gynt, Op. 23, is the incidental music to Ibsen’s 1867 play of the same name. It premiered along with the play on 24 February 1876 in Christiania (now Oslo).   It was, as his Grieg’s wife wrote later, a “triumphant success” — and Grieg lived long enough to be recognized as Norway’s greatest classical composer.

Later, in 1888 and 1891, Grieg extracted eight movements to make two four-movement suites: Suite No. 1, Op. 46, and Suite No. 2, Op. 55.  It’s the last movement of Suite No. 1 that everybody knows, but the rest of the works are beautiful as well — and I’ve known them since I was a child.  The link is here.


So, what happened yesterday, you ask?

I’m still trying to get a handle on this.  As I’ve been mentioning the last few days, the February delivery month in gold is coming up hard later next week — and normally roll-over activity out of that month and into future months is not only heavy, but prices are normally subdued or are being engineered lower ahead of options expiry.  I was lulled into some sort of complacency about this, as this was the outcome I was expecting.

As I said in The Wrap in Friday’s column…”With the February delivery month only a week away, I’ll be very  surprised if see any big price changes between now and then…especially to the upside…unless something comes along from out in left field.  If there are going to be any price surprises, I expect it would be to the downside.  But if the commercial traders were really serious, they would have started that engineered price decline long ago — and not left it to the very last minute…so to speak.”

I’m uncertain as to what might have come out of “left field” yesterday, but at precisely the same moment…about five minutes before the COMEX in New York yesterday morning…all four precious metals took off higher — and I’m not sure whether it was short covering, or the usual Managed Money buying — and commercial selling.  But whatever it was, it had nothing to do with supply/demand fundamentals…because it was, as Ted Butler said on the phone yesterday…”strictly a paper affair in the COMEX futures market.”

Some said it was the fall in the dollar index, which was already down 22 basis points as of 8:00 a.m. EST in New York yesterday morning — and that decline had made no difference whatsoever to precious metal prices.  But it was at that juncture the dollar index began to head lower with a vengeance — but all four precious metals didn’t begin to rally [in synchronized fashion] until around fifteen minutes after that.

Others said it had something to do with the next week’s FOMC meeting.  Or maybe JPMorgan, with the DoJ on its tail, is no longer active in the futures market in the precious metals — and yesterday’s price action was the first sign that the remaining commercial traders were having trouble keeping the Managed Money traders in line.

But whatever the reason, it came like a bolt of lightening out of clear blue sky.

Is the start of something more serious?  I certainly hope so, but don’t know for sure.  Except for palladium, supply/demand fundamentals have made no difference in the price of the other three precious metals…only COMEX futures market positioning has had any effect.

Someday supply/demand fundamentals will make a difference, particularly in gold at some point.

If you spent any time at all looking over the “Silk Road Gold Demand” chart further up, you should have noticed that for most of the last six years in a row, the demand from these five countries alone has more than eaten up all the gold that is mined every year.  The rest of the world’s gold demand has to becoming from somewhere…scrap, or central bank vaults, as there’s no other place.

And not included in that demand is the amount of gold currently going into the various gold ETFs world wide for the last many months.  Of course China’s central bank has been buying up gold on the Q.T. for years.  How much remains to be seen, but I expect…as I said further up…it will be an eye-opening amount.

And what about the 25-odd million ounces of silver that’s been withdrawn from SLV alone in the last four months?  According to Ted, large amount of silver have been taken out of  the Central Fund of Canada — and a few other silver funds as well.  On top of that, he says that SLV is owed around 10 million ounces — and most likely a lot more after Friday’s price action.  Where’s that going to come from?

At some point the physical market has to overwhelm the paper market — and I’m wondering out loud if yesterday’s price action was the first signs of that.  We’ll know soon enough I would think.

Here are the 6-month charts for all four precious metals, plus copper and WTIC.  And because the highs of the day in most of the precious metals occurred after the COMEX close, that data doesn’t appear on their Friday’s dojis.  It should be noted that copper had a pretty big up move as well.  Click to enlarge for all.

As for the economy and the financial system, it’s already over that proverbial cliff, but nobody wants to admit it.  The usual happy talk from the wiener roast at Davos was conspicuously absent this year– and in its place were a lot of dark mutterings.

There was also a Zero Hedge story about the possible end to QT…quantitative tightening…in the not-to-distant future.  It’s headlined “Fed Considering Earlier End to Quantitative Tightening” — and I didn’t post it in the Critical Reads section, as it was way too long and rather technical.  But if you want to wade through it, the link is here.

If that turns out to be the case, once the Mr. Market gets a whiff of that, then the U.S. dollar will crater — and the bull market in precious metals, plus the entire commodities complex, will be on in earnest.

All paper Ponzi schemes come to an end at some point, either by circumstance or design.  This paper Ponzi scheme…which has been around since 1971 for gold — and since 1987 when the stock market crash was halted by the powers-that-be…is getting very long in the tooth.

So when the Davos boys are hinting that darkling shadows are lurking, it’s safe to assume that some sort of economic and financial ugliness will soon come shambling forth.

Maybe Friday’s precious metal price action was a foreshock of what’s to come.

I’m done for the day — and the week.

Enjoy what’s left of your weekend — and I’ll see you here on Tuesday.

Ed