Ted Butler: Deliberately Looking Away

12 July 2019 — Friday

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price began to creep higher the moment that trading began at 6:00 p.m. EDT in New York on Wednesday evening, but obviously ran into ‘something’ around 8:20 a.m. China Standard Time on their Thursday morning, as the dollar index was in precipitous decline at that moment.  The selling pressure continued on and off all day long in all markets — and most of the decline that mattered was in by the 1:30 p.m. COMEX close in New York.  Its rally attempt in the thinly-traded after-hours market was totally negated, plus a bit more, in the last thirty minutes of trading before the market closed at 5:00 p.m. EDT.

The high and low ticks were recorded by the CME Group as $1,429.40 and $1,402.70 in the August contract.

Gold was closed in New York on Thursday at $1,403.20 spot, down $15.20 on the day, taking back most of Wednesday’s gains in the process.  Net HFT gold volume was very heavy at a bit under 342,500 contracts — and there was 63,000 contracts worth of roll-over/switch volume out of August and into future months.

The silver price also rallied until 8:20 a.m. CST on their Thursday morning — and was capped and sold a bit lower at that juncture as well.  It then proceeded to drift unevenly sideways until the COMEX open at 8:20 a.m. in New York — and JPMorgan et al went to work at that point.  From there, the silver price was handled in an identical manner as gold’s price, even in after-hours trading.

The high and low for silver were recorded as $15.345 and $15.12 in the September contract.

Silver was closed at $15.09 spot, down 11.5 cents from Wednesday.  Volume was slightly elevated at a bit over 55,500 contracts — and there was a bit over 5,200 contracts worth of roll-over/switch volume in this precious metal.

The platinum price chopped quietly and unevenly sideways until the 9 a.m. Zurich open — and it rallied a bit in morning trading over there.  But shortly after 1 p.m. CEST the price was headed lower and, like silver and gold, the price pressure was mostly done with by the COMEX close in New York.  Platinum was closed at $822 spot, down 3 dollars from Wednesday.

Palladium didn’t so much in Far East trading and, like platinum, began to head higher about thirty minutes after Zurich opened.  A new high price was set around 10:30 a.m. CEST — and shortly after that, ‘da boyz’ put in an appearance.  The low tick of the day was set a few minutes before 1 p.m. in New York — and it rallied a few dollars into the COMEX close from there.  It didn’t do much after that.  Palladium was closed at $1,542 spot, down 33 bucks from Wednesday.

The dollar index closed very late on Wednesday afternoon in New York at 97.10 — and then opened down 4 basis points once trading commenced at 7:45 p.m. EDT on Wednesday evening, which was 7:45 a.m. China Standard Time on their Thursday morning.  It continued lower from that point until those ‘gentle hands’ appeared at 11:20 a.m. CST on their Thursday morning.  It crawled a bit higher until 11:10 a.m. in London — and then rolled over.  The 96.80 low tick was set around 8 a.m. in New York.  The ensuing ‘rally’ took it to its 97.15 high tick of the day, which came fifteen minutes after the COMEX close — and it sagged a bit into the 5:30 p.m. close from there.  The dollar index finished the Thursday session at 97.05…down 5 basis points on the day.

The powers-that-be showed up in the precious metals market an hour before the dollar index bottomed out at around 11:20 a.m. in Shanghai — and it mattered little what was happening in the currency market after that.  So it’s a given that ‘da boyz’ didn’t want the precious metals to reflect that fact.

Here’s the DXY chart, courtesy of Bloomberg as usual.  Click to enlarge.

And here’s the 6-month U.S. dollar index chart, courtesy of the folks over at the stockcharts.com Internet site.  The delta between its close…96.67…and the close on the DXY chart above, was 38 basis points on Thursday.  Click to enlarge as well.

The gold stocks tried hard to rally on a couple of occasions in morning trading in New York, but finally gave up the ghost a noon EDT — and their respective low ticks came shortly before 2 p.m. when the dollar index hit its high tick of the day.  They rallied rather nicely into the close from there — and the HUI closed down 1.14 percent.

The silver equities opened down, but never came close to hitting unchanged on the day after that and, in general, followed an identical price path as their golden brethren.  However, they did rally a decent amount after the dollar index high tick that came about 1:45 p.m. in New York.  Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed down 2.17 percent, taking almost all of Wednesday’s gains with them.  Click to enlarge if necessary.

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

The CME Daily Delivery Report showed that 5 gold and 20 silver contracts were posted for delivery within the COMEX-approved depositories on Monday.

In gold, the three short/issuers were ADM, Advantage — and ABN Amro.  Two long/stoppers were JPMorgan and Advantage, with 3 and 2 contracts.  All contracts, both issued and stopped, involved their respective client accounts.

In silver, the only short/issuer worth mentioning was Advantage, with 19 out of its client account.  HSBC USA was the biggest of the four long/stoppers, picking up 7 more contracts for its in-house/proprietary trading account.  Morgan Stanley and JPMorgan came in second and third with 6 and 4 contracts for their respective client accounts.

The link to yesterday’s Issuers and Stoppers Report is here.

The CME Preliminary Report for the Thursday trading session showed that gold open interest in July dropped by 55 contracts, leaving 22 still around, minus the 5 contracts mentioned a few paragraphs ago.  Wednesday’s Daily Delivery Report showed that 57 gold contracts were actually posted for delivery today, so that means that 57-55=2 more gold contracts just got added to July.  Silver o.i. in July rose by 9 contracts, leaving 550 still open, minus the 20 contracts mentioned a few paragraphs ago.  Wednesday’s Daily Delivery Report showed that 3 silver contracts were actually posted for delivery today, so that means that 9+3=12 more silver contracts were just added to the July delivery month.


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

And there was no sales report from the U.S. Mint, either.

The only in/out activity in gold over at the COMEX-approved depositories on the U.S. east coast on Wednesday was 424 troy ounces that was shipped out Manfra, Tordella & Brookes, Inc.  I won’t bother linking this.

There wasn’t much happening in the physical market in silver, either.  Nothing was reported received — and only 16,507 troy ounces were shipped out.  It came out of two different depositories, so I’m not going to break down these amounts.  If you want to check, you can click on the link.  But there was a big paper transfer out of the Registered category — and back into Eligible over at CNT…1,382,379 troy ounces worth.  I’m sure that Ted would think this peculiar transaction was silver that JPMorgan’s clients now own from July deliveries — and was transferred back into Eligible because of the cheaper storage cost associated with that category.  The link to this activity is here.

There was a tiny bit of activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Wednesday.  They didn’t report receiving any — and shipped out only 40 of them.  That activity was at Brink’s, Inc. — and  I won’t bother linking this, either.


Here are two charts that I just dug up on Nick Laird’s website.  The first shows the transparent silver holdings of all known ETFs, depositories and mutual funds as of the close of business on Thursday, July 11…going back 20 years…compared to the spot price of silver over those same twenty years.  And as you can tell, we’re at a new record high…1,050,566,000 troy ounces of the stuff — and that’s despite the punk price action of the underlying precious metal since the May 1, 2011 high tick, as shown in the blue trace in the chart below.  Click to enlarge.

And here’s the same chart for gold over the same 20-year time period — and it certainly has a different look to it — and it’s also got a ways to go to get back to its old high.  Click to enlarge as well.

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


CRITICAL READS

Albert Edwards: The U.S. is About to Take Global Currency War to a Whole New Level

It is rare for Wall Street analysts to break the echo chamber of the intellectual Trump #resistance – after all, “Orange man crazy, his tweets make no sense” remains all the rage among those who are paid 7 figures for their (mostly wrong) economic insight; it wouldn’t look good if Trump, breaking through the barriers of political correctness and obfuscation, exposes “deep” economic and financial truths on twitter. For free.

One person who has no fear in defying Wall Street convention is also one of its biggest perma-bears (which it comes to equities, and the opposite for bonds), SocGen’s Albert Edwards, who in his latest letter brings attention to the barrage of recent tweets from President Trump indicating that “his tolerance for the strong dollar has just about run out.”

As we observed roughly two weeks ago, the dollar had resumed its rise even ahead of the stellar payrolls report, largely due to the prospect of yet another round of Draghi “whatever it takes” jawboning and even easier ECB policy – sending eurozone bond yields to record lows.

So as the global economy falls ever closer towards outright deflation, Edwards predicts that “the global currency war will explode into life. Countries will fight to avoid deflation in the next recession and competitive devaluation will be the tool of choice.” Indeed this was the solution Ben Bernanke suggested in his famous 2002 speech about how to avoid ending up like Japan, to wit:

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today (ie 2002), it’s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40% devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 % in 1932 to -5.1% in 1933 to +3.4% in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation.”

While Edwards is hardly the first analyst to suggest that the U.S. will intervene directly in devaluing the dollar – BofA did so three weeks ago  – the SocGen strategist is certainly the one to present the most comprehensive case why what may be the final lap in the race to the currency bottom has just begun.

This very worthwhile article was posted on the Zero Hedge website at 3:07 p.m. EDT on Thursday afternoon — and another link to it is here.


“Disastrous” 30-Year Auction: Foreigners Flee as Bid-to-Cover, Indirects Plummet

There is just one word to describe the just concluded sale of $16 billion in 30-Year Treasury bonds: disastrous.

From top to bottom, today’s auction was a sh*t show, starting with the high yield of 2.644%, which was not only higher than last month’s 2.607%, but it was a whopping 2.6bps tail to the 2.618% When Issued, one of the biggest rails on record.

The bid to cover was also dismal, tumbling from the already low 2.316 to just 2.129, far below the 2.25% 6-auctiona average, and the lowest since November.

Finally the internals were borderline “failed”, with Indirects (foreigners) clearly sitting out today auction, and taking down just 50% of the final allotment, far below last month’s 60.8%, and the recent average of 58.9%, and more importantly the lowest since February 2015. And with Directs taking down 16.8%, or above the 14.6% recent average, it left Dealers taking down 33.2%, the most since last November.

Overall, this was as close to a failed 30Y auction as we have seen in years, and the response was instant, sending the entire curve spiraling higher, and the 10Y spiking by 2bps in a manner of milliseconds.

This brief 2-chart Zero Hedge story put in an appearance on their Internet site at 1:34 p.m. on Thursday afternoon EDT — and another link to it is here.


Deutsche Bank Facing DoJ Probe Over 1MDB After Goldman Throws it Under the Bus

When it rains inside the halls of Deutsche Bank, the flood is biblical.

Just when it seemed that the biggest (if not for long) German bank, already reeling from the biggest mass layoffs since Lehman, couldn’t possibly bear any more bad news, along comes the U.S. government with yet another potentially criminal investigation, this time over Deutsche Bank’s involvement with the sprawling, multi-billion dollar Malaysian development fraud scandal that toppled a prime minister, crippled Goldman Sachs stock and stretched from Hollywood to Wall Street.

According to the WSJ, the DOJ is investigating whether the German bank violated foreign corruption or anti-money-laundering laws in its work for the 1Malaysia Development Bhd. fund, or 1MDB, which included helping the fund raise $1.2 billion in 2014 as concerns about the fund’s management and financials had begun to circulate.

So how did Deutsche Bank get thrown into yet another scandal? It turns out that DB was snitched out by former Goldman banker, Tim Leissner, the man who was ground zero in the original 1MDB scandal, and who ended up costing Goldman billions in dollar in market cap as its stock tumbled last year as its role in the biggest Malaysian corruption scandal got exposed, and according to some, cost Lloyd Blankfein his job. As it turns out, Leissner is now cooperating with authorities, and among his “good Samaritan” duties decided to throw the one bank that has more dirt on it than Goldman: Deutsche Bank. As we have reported extensively in the past, prosecutors have been investigating similar issues at Goldman, where Leissner, a former managing director, pleaded guilty last year and admitted to earlier helping siphon off billions of dollars from the fund.

For those who are unfamiliar, a quick rundown of events: 1MDB, a sovereign wealth fund, turned into a major global scandal after billions of dollars were drained from it between 2009 and 2014, leading to multiple government investigations and the downfall of former Malaysian Prime Minister Najib Razak who was especially close with former U.S. president, Barak Obama.

This news item showed up on the Zero Hedge website at 7:21 a.m. EDT on Thursday — and I thank Brad Robertson for sending it along.  Another link to it is here.


Forget ‘Hawks” and ‘Doves.’ We Need a Level Monetary Playing Field — Judy Shelton

Judy Shelton is an economist and the author of “Money Meltdown: Restoring Order to the Global Currency System.” President Trump has announced that he plans to nominate her to the Federal Reserve Board.

More than a decade has passed since the devastating global financial meltdown. Ben Bernanke, Federal Reserve chairman at the time, described it as “the worst financial crisis in global history, including the Great Depression.” The 2008 debacle’s economic and political repercussions are still playing out, with damaging effects on social cohesion.

Given that the central bank of the United States had more influence than any other government institution over the creation of money and credit in the lead-up to the disaster, it is important to be able to include the Fed in discussions of how best to safeguard financial stability and promote productive economic growth. Questioning the Fed’s infallibility in making monetary policy decisions should not be interpreted as an attack on its “independence” but rather an honest effort to stir much-needed debate.

One major aspect of monetary policy that has not received sufficient examination is the international role of the U.S. dollar and how trade flows are affected by interest-rate policies implemented by the world’s other major central banks. Central bank actions are a powerful force driving exchange rates among leading currencies, which helps explain why financial markets obsess over every syllable in statements by central bank officials.

History can be especially informative when it comes to evaluating the relationship between optimal economic performance and monetary regimes. In the 1930s, for example, the “beggar thy neighbor” tactic of devaluing currencies against gold to gain a trade export advantage hampered a global economic recovery. Yet today little attention is focused on the role of the differential interest-rate policies pursued by central banks in causing the currency shifts that alter the terms of trade among competing producers in world markets and raise tensions among trading partners.

This worthwhile commentary/opinion piece appeared on The Washington Post‘s website at 5:02 p.m. EDT on Wednesday afternoon — and I found it in a GATA dispatch yesterday.  Another link to it is here.


Central banker with too much gold wants Treasuries instead

With trade wars and sluggish growth making goldbugs of central bankers around the world, one country wants to buck the trend.

The central Asian nation of Uzbekistan is unwinding decades of isolation, opening its economy and modernizing its markets after the death in 2016 of Islam Karimov, the country’s ruler for the previous quarter-century. Currency controls have been rolled back, the government debuted Eurobonds in February, and now central bank Governor Mamarizo Nurmuratov is looking to buy U.S. and Chinese sovereign debt as he diversifies the nation’s $26 billion of international reserves away from the yellow metal.

We want to buy U.S. paper and the debt of other countries, including China,” Nurmuratov, 59, said in an interview in St. Petersburg, Russia. “The share of gold is near 50%, but in the future it can be lower.

That’s at odds with the pattern elsewhere as policy makers from China to Poland snap up the precious metal to safeguard against the possibility of global recession and mounting geopolitical stress. While Uzbekistan currently scoops up all the gold produced locally and its holdings have been increasing in recent years, Nurmuratov’s reform plan envisages a shift to investing in the sovereign debt of other nations and a reduced share for the metal in the reserves.

Let’s see if he actually does it.  So far, it’s all talk.  This Bloomberg item was posted on their website at 1:09 a.m. PDT on Thursday morning — and was updated about three and a half hours later.  I found this story on the gata.org Internet site — and another link to it is here.


Ted Butler: Deliberately Looking Away

There are two great evolutions underway in the world of commodities that, while in full view, are misunderstood or overlooked by most observers. So important are these two developments that they threaten serious market upheaval when they are addressed, as must inevitably occur.  Most remarkably, indisputable data published by the primary federal commodities regulator, the CFTC, prove beyond a doubt both occurrences are underway, even as the agency, along with the U.S. Department of Justice, refuse to confront what is a clear violation of U.S. commodity and antitrust law.

The two developments in focus include a broad artificial pricing scheme, or manipulation, affecting a wide swath of commodity markets and a more specific price manipulation involving JPMorgan in silver and gold.  The illegal pricing schemes did not evolve overnight, but over a multi-decade period of time. That’s one of the main reasons why so many have failed to appreciate what has occurred – it has been a gradual process. So gradual that, like a frog not jumping out of a pot of water being heated slowly, market observers and regulators alike have come to accept as normal the dramatic and illegal change in the price discovery process.

Simply put, commodity prices are now set and determined by excessive speculation in derivatives contracts by a handful of large traders and not by changes in actual commodity supply and demand. Derivatives contracts are entered into by two parties, a buyer and seller, and include futures and options contracts traded on listed exchanges and contracts traded over-the-counter, where futures contracts are called swaps. In essence, derivatives contracts are simply paper bets on price in the future and only rarely involve the physical delivery of the underlying commodity.

The problem is that the derivatives bets have become so large in the aggregate and so concentrated by the small number of traders engaged in them that they have come to take control of prices away from changes in physical supply and demand. The word “derivative” means derived from and derivatives’ pricing is supposed to be derived from the underlying host physical commodity markets. It was never intended that derivatives trading would become so large and concentrated among a relative handful of speculators that derivatives trading would dictate prices to the underlying host physical markets.  That’s akin to the tail wagging the dog. Yet that’s precisely the absurd state to which commodities have evolved.

This longish commentary from Ted, which is definitely worth reading, was posted on the silverseek.com Internet site at 9:58 a.m. EDT on Thursday morning — and another link to it is here.


The PHOTOS and the FUNNIES

Here are the last three shots from my dirt road excursion into the back country about 16 kilometers/10 miles northeast of Merritt on May 12.  The first shot is of another wild flower that one finds growing in profusion around here in the spring/early summer — and that’s the wild lupin.  The second photo is of that same red barn that appeared in a photo in Thursday’s column, except this one is from much closer in — and taken from the opposite side of the valley…looking generally south — and down the valley that I’d just come from.  The third shot was taken from the exact same spot as the second one, except in this one, I’m looking southwest — and that red barn/farm is just out of frame on the left-hand side of the photo.  That’s Nicola Lake in the distant background.  Click to enlarge.


The WRAP

I think perhaps of all the things a police state can do to its citizens, distorting history is possibly the most pernicious.” — Robert A. Heinlein


It was certainly obvious, at least to me, that JPMorgan et al were bound and determined to take back as much of the gains from Wednesday as possible during the Thursday trading session — and for the most part, they were successful.  But as I’ve said before, the tide has definitely turning against them on all fronts — and at some point it won’t really matter what they do.  However, for the moment, they’re managing to keep a lid on things.

Here are the 6-month charts for the four precious metals, plus copper and WTIC — and there really isn’t a lot to see.  Click to enlarge.

And as I type this paragraph, the London open is less than a minute away — and I note that the gold price has been wandering quietly around above the unchanged mark since trading began at 6:00 p.m. EDT in New York yesterday evening, but has edged higher in the last hour — and it’s up $4.80 the ounce at the moment. It’s much the same in silver — and it’s up 2 cents. Ditto for platinum — and it’s back at unchanged currently. But ‘da boyz’ are still working on the mega-long Managed Money traders in palladium — and they have that precious metal down 7 bucks as Zurich opens.

Net HFT gold volume is a bit under 49,500 contracts — and there’s 3,7044 contracts worth of roll-over/switch volume out of August and into future months. Net HFT silver volume is nothing special at a bit over 6,100 contracts — and there’s only 208 contracts worth of roll-over/switch volume on top of that.

The dollar index opened up 3 basis points once trading commenced at 7:45 p.m. EDT on Thursday evening in New York, which was 7:45 a.m. China Standard Time on their Friday morning — and hit its current high of the day a few minutes later. It has been crawling quietly lower since then, but off its low tick by a bit at the moment — and as of 7:45 a.m. BST in London/8:45 a.m. in Zurich, the index is down 12 basis points.


Today, around 3:30 p.m. EDT, we get the latest and greatest Commitment of Traders Report for positions held at the close of COMEX trading on Tuesday.  As I said earlier in the week, I’m expecting to see some decline in the commercial net short position in silver, but wasn’t about to hazard a guess in gold.

In his mid-week commentary on Wednesday, silver analyst Ted Butler had this to say about what we might expect: “As far as what to expect in Friday’s COT report, gold and silver prices finished moderately lower over the 4 day reporting week, with the highest volume day being Friday, July 5, when prices sold off sharply. Since silver did trade below two of its three key moving averages (the 100 and 200-day) that day and gold did not approach any of its key moving averages, I would imagine more managed money selling and commercial buying to have occurred in silver proportionately. As far as numbers of contracts, at least 5,000 in silver and, hopefully, more. As always, I’ll try to draw a bead on what the über-crooks at JPMorgan may have been up to, since this is their world.”


And as I post today’s column on the website at 4:02 a.m. EDT, I see that the gold price has risen a bit more during the first hour of London trading — and is up $6.30 currently. It was up 8 dollars at one point. Silver is now up 4 cents. Platinum is now up 2 dollars — and palladium is down by 6 bucks as the first hour of Zurich trading ends.

Gross gold volume is around 75,500 contracts — and minus what little roll-over/switch volume there is, net HFT gold volume is about 64,500 contracts. Net HFT silver volume is around 7,900 contracts — and there’s still only 213 contracts worth of roll-over/switch volume on top of that.

The dollar index began to head a bit higher starting at 8:15 a.m. BST — and as of 8:45 a.m. in London/9:45 a.m. in Zurich, it’s down 8 basis points.

Have a good weekend — and I’ll see you here tomorrow.

Ed