The Precious Metals Rally in Unison

20 February 2019 — Wednesday

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price began to drift quietly lower about an hour after trading began at 6:00 p.m. EST in New York on Monday evening — and was down 3 bucks or so by 3 p.m. China Standard Time on their Tuesday afternoon.  The price turned sharply higher at that point — and except for a mid-morning siesta in London, it continued to power quietly higher right into the COMEX close.  The price didn’t do much after that.

The low and high ticks were reported by the CME Group as $1,323.80 and $1,345.00 in the April contract.  But it should be pointed out that because of the U.S. holiday on Monday, the low price quoted by the CME Group probably occurred on Monday at the London open, as this data for both Monday and Tuesday is combined.

Gold finished the Tuesday session in New York at $1,340.40…up $14.20 from Monday’s close — and $19.00 from Friday’s close.  Net volume was surprisingly low at a bit over 233,000 contracts — and there was about 11,500 contracts worth of roll-over/switch volume on top of that.  [Both these numbers are net of Monday’s volumes]

The price path for silver was mostly the same as it was for gold…at least until 10 a.m. in London.  Then it chopped a bit lower from there until a rally of some real substance began a few minutes before 9 a.m. in New York.  That rally was capped at the $15.975 spot mark around 1 p.m. EST — and it wasn’t allowed to do much after that.

The low and high ticks in this precious metal, which certainly includes Monday’s low tick data as well, was recorded by the CME Group as $15.715 and $15.98 in the March contract.

Silver finished the Tuesday trading session in New York at $15.955 spot, up 17.5 cents from Monday’s close, but up 20 cents from Friday.  Net silver volume was a bit under 54,500 contracts — and there was a bit over 31,500 contracts worth or roll-over/switch volume out of March and into future months in this precious metal.  [Both these numbers are net of Monday’s figures as well]

The platinum price traded a few dollars higher in Far East trading right up until 3 p.m. CST on their Tuesday afternoon.  It began to head quietly and unevenly higher from there and, like silver, was capped shortly before 1 p.m. in COMEX trading in New York.  It was sold down a dollar or so going into the COMEX close — and didn’t do much after that.  Platinum finished the day at $818 spot, up 14 dollars from Monday’s close.

Palladium began to head higher a bit over two hours after the precious metal market opened at 6:00 p.m. EST on Monday evening in New York — and that culminated in a ‘no ask’ event that occurred shortly before the Zurich open.  A short seller of last resort appeared in a flash — and it was all unevenly down hill until a few minutes after 9 a.m. in New York.  It rallied just as unevenly higher until around 2:20 p.m. in the thinly-traded after-hours market on Tuesday afternoon — and was sold a few dollars lower by 3 p.m.  It traded flat into the 5:00 p.m. EST close from there.  Palladium was closed at $1,461 spot, up 22 dollars from Monday’s close.  It was up $31 bucks at its pre-Zurich open high tick.  It was yet another day where the palladium price was not allowed to run away to the upside.

And just as a point of interest, the bid/ask spread in palladium in the spot market is 25 bucks at the moment.


The dollar index closed very late on Monday afternoon in New York at 96.80 — and didn’t do much of anything once trading began at 7:45 p.m. on Monday evening EST, which was 8:45 a.m. China Standard Time on their Tuesday morning.  That lasted until around 11:10 a.m. in London — and at that juncture, it jumped to its 97.09 high tick thirty minutes later.  The long slide lower began at that point — and that sell-off ended/was halted around 12:38 p.m. in New York.  From that point it crawled a few basis points higher into the 5:30 p.m. close.  The dollar index finished the Tuesday session at  96.52 down 28 basis points from Monday’s close — and 36 basis points from Friday.  Click to enlarge.

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

Here’s the 6-month U.S. dollar index chart, updated with the combined data from both Monday and Tuesday — and it closed yesterday at 96.35.  The delta between its close — and the close on the DXY chart above, was 17 basis points yesterday.  Click to enlarge as well.

The gold shares began to head higher at an every decreasing rate of ascent as soon as the equity markets opened at 9:30 a.m. in New York yesterday morning — and their respective highs were set about 3:20 p.m. EST.  The day-type traders took small profits at that point — and the HUI closed up a very respectable 4.40 percent.  Click to enlarge.

The trading pattern for the silver equities was virtually identical…except all the gains that really mattered were in by shortly after 11 a.m. EST in New York trading.  Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed higher by 3.89 percent.  Click to enlarge if necessary.

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

I normally save these next two charts for the weekend, but just for fun, here are the month-to-date and year-to-date charts for “all of the above” as the of close of trading on Tuesday.  Click to enlarge for both.

The CME Daily Delivery Report showed that 90 gold and zero silver contracts were posted for delivery within the COMEX-approved depositories on Thursday.  The three short/issuers in gold were Morgan Stanley, Advantage and ADM…with 51, 29 and 10 contracts…all out of their respective client accounts.  The only two long/stoppers that mattered were JPMorgan with 71 contracts…64 for its client account, plus 7 contracts for its own account.  Advantage was in distant second spot with 18 for its client account.  The link to yesterday’s Issuers and Stoppers Report is here.

The CME Preliminary Report for the Tuesday [plus Monday] trading sessions showed that gold open interest in February rose by 84 contracts, leaving 678 still around, minus the 90 mentioned just above.  Friday’s Daily Delivery Report showed that 72 gold contracts were actually posted for delivery today, so that means that 72+84=156 more gold contracts just got added to February.  Silver o.i. in February remained unchanged at 1 contract still open — and zero silver contracts were posted for delivery today.


There was yet another withdrawal from GLD on Tuesday.  This time an authorized participant took out 18,897 troy ounces.  But there was a deposit in SLV, as an a.p. added 938,016 troy ounces.

There was a small sales report from the U.S. Mint on Tuesday.  They sold 1,500 troy ounces of gold eagles — and 222,500 silver eagles.

There was no in/out movement in gold over at the COMEX-approved depositories on the U.S. east coast on Friday.

It was exceedingly quiet in silver, as only 5,033 troy ounces were received — and only 72,830 troy ounces were shipped out.  I’m not going to bother breaking these amounts down, but if you want to check yourself, the link is here.

Over at the COMEX-approved gold kilobar depositories in Hong Kong on their Friday and Monday, they reported receiving 50 of them, but shipped out 3,106.  All of this activity was at Brink’s, Inc. — and the link to that, in troy ounces, is here.


Here are two more charts that Nick Laird passed around on the weekend.  These show Turkey’s gold and silver imports, updated with January’s data.  As you can see, the didn’t do much that month, as they only imported 8.6 tonnes of gold — and a paltry 1.3 tonnes of silver.  Nothing much to see here, although their past imports have been very impressive in both metals at times.  Click to enlarge.

The Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday, January 29, showed the expected increase in the commercial net short positions in both gold and silver.

In silver, the Commercial net short position increased by 7,530 contracts, or 37.6 million troy ounces of paper silver.

They arrived at that number by adding 1,073 long contracts, but they also increased their short position by 8,603 contracts — and it’s the difference between those two numbers that represents their change for the reporting week.

Under the hood in the Disaggregated COT Report, the Managed Money traders made up some, but not all of the change in the Commercial net short position.  They increased their long position by 3,230 contracts — and reduced their short position by 1,516 contracts.  It’s the sum of those two numbers…4,746 contracts…that represents their change for the reporting week.

The difference between that number — and the Commercial net short position…7,530 minus 4,746 equals 2,784 contracts.  That difference was made up, as it always is, by the traders in the other two categories…the ‘Other Reportables’ — and the ‘Nonreportable’/small traders.  Here’s the snip from the Disaggregated Report so you can see these changes for yourself…if you’re interested.  Click to enlarge.

The big banks in the ‘Producer/Merchant’ category went short about 3,200 contracts during the reporting week, which is a bit less that the 4,300 contracts that the ‘Swap/Dealer’ category went short, so the big banks were somewhat more careful about going short than the ‘Swap/Dealers’.

The Commercial net short position in silver is back up to 72,462 COMEX contracts, or 362.3 million troy ounces of paper silver…still firmly in bearish territory.  The Big 8 traders in silver are short 49.4 percent of the entire open interest in COMEX silver, which is unchanged from the previous COT Report.

Ted estimates JPMorgan’s short position at around 21 to 22,000 contracts…up one or two thousand contracts from the last COT Report.

Here’s the 3-year COT Report, updated with the above data.  Click to enlarge.

Based on the price action during the reporting week since the January 29th cutoff, we’ll probably see a further increase in the Commercial net short position as of the Tuesday, February 5th cut-off, but hopefully not nearly as much as we saw in this report.  That data will be released by the CFTC on Friday.


In gold, the commercial net short position rose by a fairly chunky 26,532 contracts, or 2.65 million troy ounces of paper gold.

They arrived at that number by reducing their long position by a very healthy 33,356 contracts, but they also reduced their short position by 6,824 contracts — and it’s the difference between those two numbers that represents their change for the reporting week.

Under the hood in the Disaggregated COT Report it was, like in silver, the change in the commercial net short position was only partially made up by the Managed Money traders. They increased their long position by 21,109 contracts, but surprisingly enough, they also added 4,922 short contracts — and it’s the difference between those two numbers…16,187 contracts…that represents their change for the reporting week.

The difference between that number — and the commercial net short position…26,532 minus 16,187 equals 10,345 contracts.  That difference was made up by the traders in the other two categories, as the ‘Other Reportables’ added a net 8,902 long contracts — and the ‘Nonreportable’/small traders made up the rest, also went long by a net 1,443 contracts.

Here is the snip from the Disaggregated COT Report, so you can see these changes for yourself.  Click to enlarge.

And also like in silver, the big banks in the ‘Producer/Merchant’ category didn’t go nearly as short in gold as the traders in the ‘Swap Dealer’ category during this reporting week…so they’re being more cautious shorting this precious metal as well.

The commercial net short position in gold is now back up to 11.86 million troy ounces, which is far more bullish than it is market neutral.  The Big 8 traders are short 38.7 percent of the entire COMEX open interest in gold which, as Ted pointed out on the phone yesterday, is a big jump from the 32.5 percent these same traders were short in the previous COT Report.

Here is the 3-year COT chart for gold, updated with that week’s data. Click to enlarge.

And, like for silver, I expect more commercial selling and Managed Money buying when the next COT Report shows up on the CFTC’s website on Friday.  But I’m not expecting the numbers to be quite as ugly as the ones in this report…touch wood.

I have very little for you in the way of stories today.


CRITICAL READS

Hobson’s Choice — Jeff Thomas

Thomas Hobson owned a large stable of horses in Cambridge, England in the early seventeenth century. As he had some forty horses in his stable, prospective customers assumed that they’d maximise their possibility of choice there, if they needed a mount.

However, each potential customer was told by Hobson that he could rent the horse in the stall closest to the door, or rent none at all. This approach allowed Hobson the ability to assure that none of his horses would ever be overused. But, in the bargain, it gave him control over his clientele.

Henry Ford used Hobson’s choice very effectively. He created his inspired “car for the multitude” in 1908. His market share increased enormously. Then, in 1913, he discovered that that black paint dried more quickly than any other colour. Black cars could be produced more quickly and were therefore more profitable. So, beginning in 1914, he eliminated all colour choices for his popular Model T cars. From then on, he said, “Any customer can have a car in any color as long as it is black.”

Like Mr. Hobson, he gained control over his customers by minimizing their choices.

This very interesting and very worthwhile commentary from Jeff showed up on the internationalman.com Internet site on Monday sometime — and another link to it is here.


Trump warns Venezuelan military to abandon Maduro or “lose everything

U.S. President Donald Trump on Monday warned members of Venezuela’s military who remain loyal to socialist President Nicolas Maduro that they are risking their future and their lives and urged them to allow humanitarian aid into the country.

Speaking to a cheering crowd mostly of Venezuelan and Cuban immigrants in Miami, Trump said if the Venezuelan military continues supporting Maduro, “you will find no safe harbor, no easy exit and no way out. You’ll lose everything.”

Maduro retaliated late on Monday that Trump’s speech was “nazi-style” and said he acted as if he were the owner of Venezuela and its citizens his slaves.

Trump offered strong backing for Venezuelan opposition leader Juan Guaido, whom the United States, many of Venezuela’s neighbors and most Western countries have recognized as interim president of Venezuela.

But Maduro, who won a second term last year in an election that critics denounced as a sham, retains the backing of Russia and China and control of Venezuelan state institutions, including the security services.

America will never be a socialist country,” he said.

Trump wants to boost support among Florida’s Hispanic voters as he looks ahead to his re-election campaign in 2020, when Florida is again expected to be an important swing state.

This news story was posted on the france24.com Internet site at 1:32 a.m. CET on Tuesday morning, which was 7:32 p.m. in Washington on Monday evening.  I thank Roy Stephens for sending it our way — and another link to it is here.  Here’s a parallel piece from the rt.com Internet site that’s headlined “‘They want to enslave us!’ Maduro slams Trump’s ultimatum & ‘Nazi-style’ attack on socialism“.  I thank Larry Galearis for that one.


Trump’s Venezuela gamble is turning out to be a beaten docket — Finian Cunningham

Trump’s bid for regime change in Venezuela is starting to look like a fatal overreach. With the South American country’s military remaining firmly loyal to President Maduro, embarrassing questions loom over U.S.’ dubious game plan.

It is not just Washington’s reputation that will take yet another grievous hit. So too will those European states which have shamefully rowed in behind the tawdry attempt at destabilizing a sovereign nation.

U.S. President Donald Trump was asked by reporters at the weekend if he had a “plan B” for Venezuela if President Nicolas Maduro does not stand down soon, as Washington is demanding. With his typical bluster, Trump said he had several backup options.

But, despite his bravado, it looks like Trump’s bet on effecting regime change in Venezuela is a losing venture. The U.S. seems to be increasingly desperate to salvage its plan to topple the government in Caracas.

This commentary from Finian put in an appearance on the rt.com Internet site at 3:44 p.m. Moscow time on their Tuesday afternoon, which was 8:44 a.m. in Washington — EDT plus 8 hours.  I thank George Whyte for pointing it out — and another link to it is here.


The Crumbling Chinese Market — Jim Rickards

A Chinese financial and economic crisis has been in the forecasts of many analysts for years, including my own. So far, it has not happened. Does this mean China has solved the problem of how to avoid a crisis? Or is the crisis just a matter of time, set to happen sooner than later?

My view is that a crisis in China is inevitable based on China’s growth model, the international financial climate and excessive debt. Some of the world’s most prominent economists agree. A countdown to crisis has begun.

As I explained above, China has hit a wall that development economists refer to as the “middle income trap.” Again, this happens to developing economies when they have exhausted the easy growth potential moving from low income to middle income and then face the far more difficult task of moving from middle income to high income.

The move to high-income status requires far more than simple assembly-style jobs staffed by rural dwellers moving to the cities. It requires the creation and adoption of high-value-added products enabled by high technology.

China has not shown much capacity for developing high technology on its own, but it has been quite effective at stealing such technology from trading partners and applying it through its own system of state-owned enterprises and “national champions” such as Huawei in the telecommunications sector.

This commentary from Jim appeared on the dailyreckoning.com Internet site on Monday sometime, but was only posted in the clear on Tuesday.  Another link to it is here.  There is a companion piece on China from Jim that was posted on the dailyreckoning.com Internet site on the same day — and it’s headlined “China Snared in “Middle-income Trap”“.


Bernstein Quants Join Bulls on Gold Sector as Cycle Darkens

For all the attention lavished on gold for its relative durability during this global dash into risk, the real story could be the companies digging it out of the ground.

A growing chorus of big names — including everyone from the quants at Bernstein to Pictet’s multi-asset team — is turning increasingly bullish on miners as late-cycle angst and industry shifts make conditions ripe for a prolonged rally.

Mining shares have gained at more than twice the pace of bullion this year, even as the metal hit a 10-month high on Tuesday, and the evidence suggests they can outperform the physical metal in an economic slowdown. Over the last 10 years, they traded with a correlation of 0.8 and a beta of 1.8 compared to gold. That means the two moved in lockstep, but when gold rallied investors who bet on miners were rewarded with a return about 80 percent larger.

At Bernstein, quantitative strategists led by Inigo Fraser Jenkins are seeing a laundry list of reasons to like gold and gold miners just now. They’re adding both, but see a tactical case for shares of metal producers in particular.

One of the key strategic themes that underlies our outlook is that we think there is a low return outlook across asset classes,” the strategists wrote last week. “The practical issue of holding gold is the lack of yield, or an ability to value it in a conventional way. So for portfolio managers of equity and multi asset portfolios an attractive alternative might be to hold the equity of gold miners.”

This Bloomberg story showed up on their website at 4:15 p.m. Pacific Standard Time on Sunday afternoon — and I thank Richard Saler for sharing it with us.  Another link to it is here.


The PHOTOS and the FUNNIES

Here are three more photos of the Nicola Valley.  This branch of the valley, just west of Merritt, is called Sunshine Valley by the locals.  The fall colours really give life to these pictures — and the Nicola River, which at this point contains all the water from the Coldwater River, is featured in all three.  Click to enlarge.


The WRAP

I was certainly happy to see the precious metals rally yesterday, but I was not at all enthused by the fact that gold open interest blew out 25,000+ contracts as shown in Tuesday’s Preliminary Report.  Part of that volume could have been spread trades…hopefully.  However, open interest in silver only increased by something less than 4,000 contracts — and I expect both of these numbers to be trimmed by some unknown amount when the Final Report from the CME Group is posted on their website later this morning in New York.

We’re back in an oversold position in both gold and palladium as of yesterday’s closes, however I’m not sure that makes much difference at this stage of the game.  All we can do is wait it out and see what happens.

Here are the 6-month charts for all four precious metals, plus copper and WTIC. It should be noted that Tuesday’s price dojis on all these charts also contain the price data from Monday as well when New York was closed.  Click to enlarge for all.

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 anything for the first couple of hours once trading began at 6:00 p.m. EST in New York on Tuesday evening. It began to rally at 9 a.m. China Standard Time on their Wednesday morning — and that lasted for a couple of hours before the price was capped and turned quietly lower. At the moment, gold is up $1.70 an ounce. Silver followed an almost identical price path as gold — and it’s currently up 3 cents. Ditto for both platinum and palladium, with the former up 1 dollar — and the latter by 13 as Zurich opens. Palladium was up 24 bucks at it 11 a.m. CST high earlier in the day.

Net HFT gold volume is pretty healthy already at just under 52,000 contracts — and there’s only 1,055 contracts worth of roll-over/switch volume in that precious metal. Net HFT silver volume is very healthy as well, at a bit over 14,500 contracts — and there’s 2,369 contracts worth of roll-over/switch volume on top of that.

The dollar index opened about unchanged once trading began around 7:45 p.m. EST on Tuesday evening in New York, which was 8:45 a.m. China Standard Time on their Wednesday morning. It sank to its current low tick [such as it was] at 10:28 a.m. CST — and then quietly rallied back into positive territory for a bit. But then it rolled over starting at 3:12 p.m. CST — and as of 7:45 a.m. GMT in London, the dollar index is back at unchanged on the day.

So where we go from here is unknown.  But as Ted has pointed out…the precious metal market certainly has a different feel to it over the last three months since the DoJ made the conviction of that ex-JPMorgan trader public.  It remains to be seen whether or not this all ends in the same old way, or if it’s really different this time — and the commercial traders get overrun.

And as I post today’s column on the website at 4:02 a.m. EST, I note that gold is now up only 90 cents an ounce — and silver is up 4 cents. Platinum and palladium haven’t done much in the first hour of Zurich trading, with the former up 2 dollars — and the latter by 13.

Gross gold volume is pretty chunky at around 64,500 contracts — and minus what little roll-over/switch volume there is, net HFT gold volume is about 58,800 contracts. Net HFT silver volume is now up to a bit under 16,000 contracts — and there’s already 4,289 contracts worth of roll-over/switch volume out of March and into future months.

The dollar index has been chopping sideways for the last hour — and as of 8:45 a.m. GMT in London/9:45 a.m. CET in Zurich, it’s down 1 whole basis point.

And as I mentioned in this space yesterday, we get the minutes from the U.S. Fed’s most recent meeting this afternoon — and on Thursday we get the same data from the ECB.  Not only will it be of interest to see what they had to say…but also how the markets reacts to this data…or should I say, allowed to react to it.

That’s it for this missive — and I’ll see you here tomorrow.

Ed