Powell Speaks: The Precious Metals Get Hit

01 August 2019 — Thursday

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price had a bit of an up/down move in Far East trading on their Wednesday — and the high tick of the day was set at the London open.  It was sold down a couple of bucks during the next thirty minutes — and it then traded flat until 9:45 a.m. in New York.  From that juncture, there was varying degrees of price pressure applied to the price until ‘the word’ came down from the Fed.  The dollar index soared — and the gold price got smacked.  But it’s obvious that there were bouts of buying interspersed with the selling pressure, but JPMorgan et al…if they were involved at all…won out in the end.

The high and low ticks in gold were reported by the CME Group as $1,441.90 and $1,422.40 in the October contract — and $1,447.80 and $1,428.20 in December.

Gold was closed in New York on Wednesday at $1,413.40 spot, down $17.00 on the day.  Net volume in October and December combined was around 401,500 contracts — and there was just under 15,000 contracts worth of roll-over/switch volume on top of that.

The silver price was sold quietly lower staring around 8:15 a.m. China Standard Time on their Wednesday morning — and that lasted until minutes before 11 a.m. CST.  It didn’t do much from that point until the 2:15 p.m. afternoon gold fix in Shanghai — and it was mostly down hill from there until minutes after 12:30 p.m. in New York.  It rallied a bit from that point until Powell spoke — and you know the rest.

The high and low ticks in silver were recorded as $16.60 and $16.31 in the September contract.

Silver was closed yesterday at $16.23 spot, down 31 cents from Tuesday.  Net volume was extremely heavy at a bit under 97,500 contracts — and there was just under 8,800 contracts worth of roll-over/switch volume in this precious metal.

Palladium was up 6 bucks by the 2:15 p.m. afternoon gold fix in Shanghai on their Wednesday afternoon — and a slow decline began at that juncture that lasted until around 1 p.m. in Zurich.  It then traded flat until the afternoon gold fix in London — and was back at its high of the day by exactly noon in New York.  The serious engineered price decline began at that point — and that was aided by the Fed news — and its low was set shortly before 4 p.m. in the thinly-traded after-hours market.  It popped higher by a couple of dollars shortly after that — and then didn’t do anything going into the 5:00 p.m. EDT close.  Palladium was closed at $862 spot, down 7 dollars from Tuesday.

The palladium price was up 15 dollars by around 8:40 a.m. CST on their Wednesday morning — and it didn’t do much of anything until 2 p.m. CEST/8 a.m. EDT.  It rallied until noon in New York — and then received the same treatment as platinum for the remainder of the day.  Palladium was closed right on the $1,500 spot price mark…up 5 bucks from Tuesday.

The dollar index closed very late on Tuesday afternoon in New York at 98.05 — and opened down about 2 basis points once trading commenced at 7:45 p.m. on Tuesday evening, which was 7:45 a.m. China Standard Time on their Wednesday morning.  The index was pretty moribund in Far East and London trading, but starting a bit after 10:50 a.m. in New York, it had a 15 basis point up/down move that lasted until the smoke went up the chimney at the Eccles Building.  The dollar index attempted to blast higher at that point…probably short covering…but ran into the usual ‘gentle hands’ that prevented it from blowing sky high.  The 98.68 high tick was set at 4:20 p.m. EDT — and it sold off a bit from there going into the 5:30 p.m. close.  The dollar index finished the Wednesday session at 98.52…up 47 basis points from Tuesday’s close.

Even a cursory glance shows that the gold price was pretty much wired to what the dollar index was doing starting at 2:00 p.m. in New York when Powell opened his pie hole.  But before that time it was obvious that other forces were at work to ensure that silver and gold were down on the day before ‘The Word’ came down. Nothing was left to chance yesterday.

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

And here’s the 6-month U.S. dollar index chart, thanks to the folks over at the stockcharts.com Internet site.  The delta between its close…98.26…and the close on the DXY chart above, was 26 basis points on Wednesday.  Click to enlarge as well.

The gold shares were sold lower the moment that trading began in New York at 9:30 a.m. on Wednesday morning.  That sell-off lasted until around 12:35 p.m. EDT — and they rallied until the 2 p.m. Fed news.  After a slight dip, they continued their rally.  But around 2:40 p.m. big selling pressure appeared — and the gold stocks were sold lower by a substantial amount.  The HUI closed down an eye-watering 5.52 percent, which was certainly out of all proportions to the sell-off in the underlying precious metal.

The price action in the silver equities was almost the same as it was for the gold shares, but by around 2:20 p.m. EDT, the silver stocks were almost back at unchanged.  Then sellers, who were obviously not out for the best price they could get, sold in a panic…like they did in the gold equities…and Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed lower by 4.97 percent.  Click to enlarge if necessary.

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

Since yesterday was the last trading day in July, here’s Nick’s month-to-date chart so you can see how things fared.  Yesterday’s Fed news certainly took its toll.  Click to enlarge.

The CME Daily Delivery Report for Day 2 of August deliveries in gold showed that 2,773 gold and 188 silver contracts were posted for delivery within the COMEX-approved depositories on Friday.

In gold, there were nine short/issuers in total, but the only two that mattered were HSBC USA and JPMorgan.  The former issued 2,301 contracts out of its in-house/proprietary trading account — and the latter issued 373 contracts out of its client account.  There were also nine long/stoppers — and the three largest were Citigroup picking up 1,093 contracts for its own account…JPMorgan stopped 952 contracts for its client account — and ABN Amro stopped 484 contracts for its client accounts as well.

In silver, there were only two short/issuers…ABN Amro and Advantage…issuing 132 and 56 contracts from their respective client accounts.  There were four long/stoppers…JPMorgan with 97 contracts for its client account…ABN Amro with 41 for its client account as well…Macquarie Futures with 27 for its own account — and Advantage picked up 23 contracts for its client account.

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 August fell by 2,149 contracts, leaving 6,551 still open, minus the 2,773 contracts mentioned a few paragraphs ago.  Tuesday’s Daily delivery Report showed that 800 gold contracts were actually posted for delivery today, so that means that 2,149-800=1,349 gold contracts vanished from the August delivery month.  Silver o.i. in August declined by 509 contracts, leaving 553 still around, minus the 188 mentioned a few paragraphs ago.  Tuesday’s Daily Delivery Report showed that 697 silver contracts were actually posted for delivery today, so that means that 697-509=188 more silver contracts just got added to August — and I would suspect that those are the same 188 silver contracts that are out for delivery on Friday.


In Tuesday’s column I reported that there were no deposits in either GLD or SLV on that day — and there weren’t.  I also check the deposits into the other silver and gold mutual funds, ETFs and depositories on Nick’s website on a daily basis now — and long after the business day was over — and I had checked Nick’s website, SIVR reported a deposit of 12,555,673 troy ounces…twenty-one truckloads…a truly staggering amount.  That brings the 4-week total silver deposits up to 62.8 million troy ounces.  I will be more careful next time — and start checking Nick’s website much later at night.  I thank Ted Butler for pointing this out.

There was a withdrawal from GLD yesterday, as an authorized participant removed 47,159 troy ounces.  There were no reported changes in SLV.  There were also no meaningful deposits in the other silver ETFs, either.

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

For the month of July, the mint sold 5,500 troy ounces of gold eagles — 500 one-ounce 24K gold buffaloes — 1,224,000 silver eagles — and 57,000 five-ounce ‘America the Beautiful’ silver coins.

There was a bit of activity in gold over at the COMEX-approved depositories on the U.S. east coast on Tuesday.  They reported receiving 30,672 troy ounces — and shipped out only 1 kilobar…32.150 troy ounces.  Most of the ‘in’ activity was the 25,002 troy ounces that was received at Brink’s, Inc. — and the remaining 5,669 troy ounces was dropped off at Delaware.  The 1 kilobar shipped out…U.K/U.S. kilobar weight…departed Manfra Tordella & Brookes, Inc.  There was also a paper transfer of 12,561 troy ounces from the Eligible category and into Registered.  That amount was split up between Delaware and Scotiabank — and the link to all this is here.

It was pretty busy in silver, as 1,685,318 troy ounces was received — and 636,497 troy ounces shipped out.  All of the ‘in’ activity was at CNT.  In the ‘out’ category, there was 365,940 troy ounces that departed HSBC USA — and the remaining 270,557 troy ounces was shipped out of Canada’s Scotiabank.  There was also a big paper transfer from the Eligible category — and into Registered…1,382,118 troy ounces…and that happened over at CNT.  I suspect that this transfer has to do with August silver deliveries.  The link to all this activity is here.

There was no in/out activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Tuesday.


The Watlington Hoard is a collection of Viking silver, buried in the 870s and rediscovered in Watlington, Oxfordshire, England in 2015.

The hoard is made up of silver – 186 coins (some fragmentary), 15 ingots and 7 pieces of jewellery, including arm-rings – and a scrap of gold. It was buried after Alfred the Great defeated the Great Heathen Army led by Guthrum in 878, forcing the Danes to retreat north. The hoard was rediscovered by James Mather, an amateur metal-detectorist, in 2015 and subsequently excavated.

The period in which the hoard was buried saw extensive warfare between the Danish and Anglo-Saxon kingdoms, and is of considerable interest to historians. The coins, which were minted by Alfred the Great and Ceolwulf II, have “the potential to provide important new information on relations between Mercia and Wessex” in the 9th century, according to Gareth Williams, a curator at the British Museum. Some of the coins show the two kings sitting side by side, in a style known as the “Two Emperors”, after Roman coins of the 4th century. These coins would have been intended to make a statement about political cooperation between the two men.  Click to enlarge.

I only have a small handful of stories/articles for you today.


CRITICAL READS

Chicago PMI 2019 Collapse is the Worst in Over 30 Years

Despite some rebounds in regional Fed surveys, Chicago PMI has fallen for five of the seven months so far in 2019, collapsing in July to 44.4 – the second weakest since the financial crisis.

This is the worst drop since the financial crisis.  Click to enlarge.

This was dramatically below the 49.5 lowest analyst estimate.

Only two components rose month-over-month and New orders, Employment, Production and Order Backlogs all contracting…

This is the worst start to a year for Chicago PMI in at least 30 years…Click to enlarge.

Time to cut rates!!

This news item appeared on the Zero Hedge website at 9:53 a.m. on Wednesday morning EDT — and another link to it is here.


One and Done? A Stunned Wall Street Reacts to Powell

If one had to summarize Powell’s press conference, in which he was so dazed and confused after facing a barrage of questions forcing him to explain just why he is cutting rates now when in the Fed’s own words the U.S. economy is doing great and “confidence is rebounding“, and just what a mere 25bps “insurance” cut will achieve that it was painfully uncomfortable to watch, it was with the following two quotes:

  • POWELL: THIS ISN’T THE START OF A LONG SERIES OF RATE CUTS

… but

  • POWELL: I DIDN’T SAY IT’S JUST ONE RATE CUT

And as markets shook, stunned by Powell’s revelation that today’s rate cut was just a “mid-cycle adjustment“, with the Dow Jones plunging briefly by over 400 points as hopes for an easing cycle were promptly dashed, Wall Street analysts sent out their hot takes of what Powell just did and said. Courtesy of Bloomberg here are some of the most notable responses, besides today’s winner from Chris Rupkey of course:

This Bloomberg story, with the Zero Hedge spin on it, appeared on the ZH website at 5:22 p.m. EDT on Wednesday afternoon — and another link to it is here.


Companies are ramping up share buybacks, and they’re increasingly using debt to do so

U.S. companies are on pace to break another record for share repurchases in 2019, using a combination of cash and debt to push the total to close to $1 trillion.

For the first time since the financial crisis, companies have given back more to shareholders than they are making in cash net of capital expenditures and interest payments, or free cash flow, according to Goldman Sachs calculations.

The level of buybacks to free cash flow hit 104% for the 12 months ending in the first quarter of 2019, the first time that number has topped 100% during the economic recovery that started in 2009. In 2017, the level was 82%.

Goldman projects buybacks for S&P 500 companies to total $940 billion, a 13% increase over the previous year and a new high for a number that has continued to increase through much of the post-financial crisis period. Total buyback executions among all companies this year were up 26% through mid-July.

The rise in buybacks has had a twin effect on corporate balance sheets, both drawing down cash and increasing leverage. It also represents a more-of-the-same trend that has come despite the $1.5 trillion tax cut passed in late 2017. The record cut had spurred hopes that companies would eschew the buyback formula that has helped generate the longest bull market run in Wall Street history and instead lead to more investment in equipment and personnel.

This article was posted on the cnbc.com Internet site late on Monday morning EDT — and it’s something I found in yesterday’s edition of the King Report.  Another link to it is here.


The ‘Collateral Damage’ of ECB’s QE Worries Top German Judges

Germany’s top judges again seem troubled by the European Central Bank’s €2.6 trillion ($2.9 trillion) asset purchase program, openly saying the plan’s “collateral damage” harms regular people.

The Federal Constitutional Court judges in Karlsruhe asked highly critical questions about the program during two days of hearings this week. Several times the jurists mentioned how low interest rates caused by the ECB policy harms savers or raise real estate and rent prices.

We’re wondering if the ECB shouldn’t take these effects into account when making its decision and to also communicate how it does that,” court President Andreas Vosskuhle said. “We’re not talking about a few euros. This is about people’s livelihood.”

But the ECB’s controversial asset-purchase program, dubbed quantitative easing, has been a long-standing concern for the top court since 2015, when the case was first filed. The judges in 2017 asked the European Court of Justice for an interim ruling aimed at limiting the ECB’s leeway, the European Union tribunal rejected the restrictive reading of the law suggested by their German counterparts.

While the euro-area central bank stopped net purchases at the end of last year, ECB President Mario Draghi has said that the current environment may make it necessary to renew and even expand the program. Germany’s participation is critical for the success of QE as the country’s own Bundesbank is biggest buyer of debt under the program.

This article showed up on the bloomberg.com Internet site at 5:54 a.m. PDT on Tuesday morning — and it comes to us courtesy of Swedish reader Patrik Ekdahl.  Another link to it is here.


Why the CFTC is the most important regulator you’ve never heard of

Last week, I had the honor of becoming the new Chairman of the Commodity Futures Trading Commission. The CFTC regulates U.S. derivatives markets — including futures, the vast majority of swaps, and certain types of options. These markets see over $4 trillion in notional activity in the U.S. each day. Many Americans have probably never heard of the CFTC, but the sheer size and utility of these markets make it among our most important regulators.

Derivatives are critical for setting the prices of countless goods and services we depend on — from groceries to gasoline to home mortgage interest. In addition, American farmers, manufacturers, and a host of other businesses rely on these financial products to hedge their price risks. Today the CFTC and the derivatives markets are at a crossroads.  More than a decade after the financial crisis, the agency is still working to implement Dodd-Frank, which established a framework for regulating swaps. But we must not allow our response to the last crisis to plant the seeds of the next, nor let it smother innovative technologies. Instead of taking the “ready, fire, aim” approach all too common in Washington, I am building the CFTC’s agenda with an open mind. In addition to combating fraud, abuse, and manipulation, I am thinking carefully about two sets of issues: resolving unfinished business and preparing for the unwritten future.

This is why one of the most critical responsibilities of the CFTC is supervising CCPs on a daily basis. American CCPs are undoubtedly the strongest and most resilient in the world, and they need to stay that way. That is also why we are closely monitoring Brexit. Brexit will result in Europe’s largest financial hub leaving the EU with the likely consequence of European authorities losing jurisdiction over London-based CCPs. The EU recently passed legislation to retain that oversight. However, if misapplied, the law could direct foreign regulators to rewrite the rules for American CCPs.  Despite the hyper-partisanship in Washington, there is virtual bipartisan unanimity that such an outcome would be a non-starter. Finally, the CFTC must issue long-awaited rules to limit derivatives positions that help unscrupulous traders corner commodity markets. The trick will be making sure these rules do not strip those markets of the flexibility needed to perform their fundamental risk-management functions.

This opinion piece by the new CFTC chairman Dr. Heath Tarbert, appeared on the foxbusiness.com Internet site on Sunday sometime — and Ted was more than happy that positions limits in commodities trading appears to be back on the table with this new Chairman.  I found this article in his mid-week commentary yesterday — and another link to it is here.


The PHOTOS and the FUNNIES

Having exited Paul Lake Road on May 25, we were half way down to the valley floor when I stumbled across a pair of mountain bluebirds…a photo of which appeared in yesterday’s column.  Here’s the same male, now perched on top of his bluebird box.  The second shot was my WTF moment of the day…a helmeted African guineafowl.  What it was doing here was beyond me.  The last time I saw this bird was in the Black Hills of South Dakota back in August of 2017!  The last shot of two horses was taken from the exact same spot from where I took the guinea fowl photo.  They were in a pasture just to the left of the bird.  Click to enlarge.


The WRAP

Well, the news from the Fed wasn’t exactly what the markets were expecting yesterday…or were a lot of other people…including this writer.

Yes, the 25 basis points cut in interest rates was there, as expected.  They also announced an end to quantitative tightening…QT…two months ahead of schedule.  That leaves the Fed’s balance sheet much higher than it was in 2008.

But it was the other verbiage in his comments — and in his press conference afterwards, that rattled nerves.

The result appeared to set off a short-covering rally in the dollar index, along with a sell-off in the precious metals and their associated equities.  Whether or not the heavy hand of JPMorgan et al was involved, it’s not possible to tell, but I highly suspect they were, especially considering it was the last trading day of July as well.

We’ll have to wait a bit to see how things sort themselves out as the dust settles in the days and weeks ahead.

Here are the 6-month charts for all four precious metals, plus copper and WTIC.  Of course none of the price activity on the Fed news appears on these charts, because it happened after the COMEX close.  They’ll show up on these charts shortly after the COMEX close today.  Click to enlarge.

And as I type this paragraph, the London open is less than a minute away — and I note that after a brief tick higher at the 6:00 p.m. EDT open in New York on Wednesday evening, the price pressure began in gold once again, with the current low tick coming around 8:45 a.m. China Standard Time on their Thursday morning. It has just revisited that low — and is currently down $7.70 the ounce as London opens. ‘Da boyz’ have pulled out all the stops in silver — and although it’s off its low tick, it’s still down 24 cents. It was down about 32 cents at one point. Platinum and palladium haven’t been spared, either…with the former down 12 bucks — and the latter by 10…as Zurich opens.

Net HFT gold volume in October and December combined is already around 72,000 contracts — and there’s 1,300 contracts worth of roll-over/switch volume in this precious metal. Net HFT silver volume is a bit under 16,500 contracts — and there’s 1,291 contracts worth of roll-over/switch volume out of September and into future months.

The dollar index jumped up 8 basis points once trading commenced at 7:45 p.m. EDT in New York on Wednesday evening, which was 7:45 a.m. China Standard Time on their Thursday morning. It then soared up to its current 98.93 high tick by around 9 a.m. CST…up 41 basis points at that juncture. It has chopped mostly sideways since — and is up 38 basis points as of 7:45 a.m. BST in London/8:45 a.m. CEST in Zurich.


With the Fed meeting out of the way, we now have the jobs report on deck on Friday — and regardless of what’s in it, I expect that interested parties will be there to move the precious metals market in response to them.

Although it may be a bit too soon to tell whether or not this is the beginning of another one of those patented ‘wash, rinse, spin…repeat’ cycles that JPMorgan et al are now infamous for.  But judging by the way they are leaning on the precious metals in the thinly-trader Far East market this morning, it has all the hallmarks of it.


And as I post today’s missive on the website at 4:02 a.m. EDT, I note that all four precious metals were up a tad shortly after the London/Zurich opens…but all have been rolled over to new lows today, except for silver. Gold is down $8.20 the ounce — and silver is down 28 cents. Platinum is down 13 bucks — and palladium is now down 12…as the first hour of Zurich trading ends.

Gross gold volume in October and December combined is about 100,000 contracts — and minus what little roll-over/switch volume there is, net HFT gold volume is around 97,000 contracts. Net HFT silver volume is a bit over 21,000 contracts — and there’s 1,459 contracts worth of roll-over/switch volume on top of that.

The dollar index is off its current set of high ticks, although not by much — and as of 8:45 a.m. in London/9:45 a.m. in Zurich, the index is still up 35 basis points.

That’s it for another day — and I’ll see you here tomorrow.

Ed