A Wild Tuesday in the Gold Market

25 March 2020 — Wednesday

YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM


The gold price began to head higher the moment that trading began at 6:00 p.m. EDT in New York on Monday evening, but it ran into ‘something’ in morning trading in the Far East — and it was sold quietly lower until about fifteen minutes after the 2:15 p.m. China Standard Time afternoon gold fix in Shanghai on their Tuesday afternoon.  A rally of some size developed at that juncture — and I was sitting watching the Kitco gold chart when it hit its Kitco-recorded $1,689.80 high tick of the day.  It ran into some serious price opposition at that point — and that lasted until about 11:10 a.m. in New York.  It began to head higher from there — and closed still in rally mode when trading ended at 5:00 p.m. EDT.

The low and high ticks were reported by the CME Group as $1,560.50 and $1,698.00 in the April contract…an intraday move of around $138 dollars.

Gold finished the Tuesday session in New York at $1,636.00 spot, up $84.80 on the day, which is the biggest one-day move I can remember since the Washington Accord was signed way back just before the turn of the century…more than twenty years ago now.  But surprisingly, net gold volume was very much on the lighter side at a hair over 210,000 contracts…but not surprising was the fact that roll-over/switch volume out of April and into future months was ginormous at a bit under 210,000 contracts.

The other big stand-out feature was the fact that the spot month closed 33 dollars lower than the April close — and that differential was 100 bucks at one point.  I’ll have more about this in The Wrap.

Silver’s rally at the New York open on Monday evening was far more robust, but you don’t need me to tell you that it ran into opposition by JPMorgan et al. plus their proxies in morning trading in the Far East.  Like gold, it was also turned lower shortly before 11 a.m. CST — and it was sold down until around 1:45 p.m. CST in Shanghai.  It began to head higher anew — and didn’t run into ‘da boyz’ until shortly before 11 a.m. GMT in London.  It was then sold lower into the 8:20 a.m. COMEX open in New York — and crawled higher from there until the market closed at 5:00 p.m. EDT.

The low and high ticks in silver were recorded as $13.22 and $14.33 in the May contract…an intraday move of $1.11.

Silver was closed in New York on Tuesday afternoon at $14.36 spot, up $1.09 from Monday.  Net volume was heavy, but like gold, not as heavy as one might expect under such circumstances at a bit over 93,500 contracts — and there was a hair under 18,000 contracts worth of roll-over/switch volume in this precious metal.

Platinum also took off higher at the 6:00 p.m. open in New York on Monday evening as well…ran into ‘something’ shortly after 9 a.m. China Standard Time on their Tuesday morning — and was sold lower until a minute or so after 2 p.m. CST.  It then crawled quietly, but somewhat unevenly higher until trading ended in New York at 5:00 p.m.  Platinum finished the Tuesday trading session at $708 spot, up 68 bucks on the day.

The palladium price stair-stepped its way higher until it ran into the same ‘something’ as platinum a few minutes after 9 a.m. in Shanghai.  From there it traded rather quietly and evenly sideways until it blasted higher a few minutes after 11 a.m. CET in Zurich.  That was capped an hour later until around 8:45 a.m. in New York.  It crawled rather nervously sideways until 1 p.m. EDT — and then crept quietly higher until a few minutes before the market closed at 5:00 p.m.  Palladium was closed at $1,874 spot, up 209 dollars on the day.

And you shouldn’t need me to remind you that heaven only knows what prices all four precious metals would have closed at if they’d been allowed to trade freely…which they obviously weren’t.

Using Tuesday’s closing prices for both gold and silver in the spot month, the gold/silver ratio  works out to 114 to 1.


The dollar index closed very late on Monday afternoon in New York at 102.49 — and opened down 35 basis points once trading commenced around 7:45 p.m. EDT on Monday evening, which was 7:45 a.m. China Standard Time on their Tuesday morning.  From that juncture, it stair-stepped its way lower until the 101.05 low tick was set around 11:05 a.m. in London.  It appeared to get rescued at that point — and the subsequent ‘rally’ lasted until a minute or two before 3:30 p.m. in New York.  The 102.21 high tick was set at that point — and it dropped unevenly lower from there until trading ended at 5:30 p.m. EDT.

The dollar index was marked-to-close on Tuesday at 102.04 — down 45 basis points from Monday — and 20 basis points higher than the 101.84 close recorded on the Bloomberg DXY chart below.

There was zero correlation between precious metal price and the currencies during the Tuesday trading session.

Here’s the DXY chart for Tuesday, courtesy of Bloomberg as always.  Click to enlarge.

And here’s the 6-month U.S. dollar index chart, courtesy of the good folks over at the stockcharts.com Internet site.  The delta between its close…102.25…and the close on the DXY chart above, was 21 basis points above the DXY spot price again on Tuesday.  Click to enlarge as well.

The gold shares gapped up a whole bunch at the 9:30 open in New York on Tuesday morning — and then drifted lower until a few minutes after 10 a.m. EDT.  They traded unevenly higher for the remainder of the day — and put on a bit of a spurt in the last thirty-five minutes of trading.  The HUI closed higher by 13.73 percent…the biggest 1-day percentage gain I’ve ever seen.

The silver equities performed in an identical manner…almost to the tick, as Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed up 16.35 percent, which is also the biggest 1-day percentage move I’ve seen in this one as well.  Click to enlarge as necessary.

Nick is having issues with this chart…which is obvious — and he can’t fix it.  The trend is clear, but the closing number isn’t necessarily correct.  I’ve computed it manually — and that calculation shows that it closed higher by 15.65 percent.

Here’s Nick’s 1-year Silver Sentiment/Silver 7 Index chart, updated with Tuesday’s doji. The doji for this chart is computed from a different data source than the the above Intraday Silver 7 Index.  Click to enlarge as well.

Pan American Silver was the biggest gainer…up 23.46 percent, with First Majestic Silver hard on its heels…up 20.50 percent.  The big laggard was Peñoles…up only 5.86 percent.


The CME Daily Delivery Report showed that 377 gold and 64 silver contracts were posted for delivery within the COMEX-approved depositories on Thursday.

In gold, there were five short/issuers in total — and the only one that really mattered was JPMorgan…issuing 360 contracts out of its client account.  There were four long/stoppers in total — and the three biggest were JPMorgan, ABN Amro and Advantage, with 294, 40 and 38 contracts — and all for their respective client accounts as well.

In silver, the sole short/issuer was JPMorgan out of its client account — and of the six long/stoppers in total, the only two that counted for anything were Advantage and the CME Group, with 32 and 23 contracts…Advantage for their client account — and the CME Group for its own account.  It immediately reissued these as 23×5=115 one-thousand ounce Micro Silver Futures contracts.  The three long/stoppers for them were Morgan Stanley, ADM and Advantage…with 86, 20 and 9 contracts for their respective client accounts.

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

The CME Preliminary Report for the Tuesday trading session showed that gold open interest in March rose by another 355 contracts, leaving 386 still around, minus the 377 mentioned a few paragraphs ago.  Monday’s Daily Delivery Report showed that 21 gold contracts were actually posted for delivery on Wednesday, so that means that 355+21=376 more gold contracts just got added to the March delivery month — and those look suspiciously like the same contracts that are out for delivery on Thursday.  Silver o.i. in March fell by 18 contracts, leaving 106 still open, minus the 64 contracts mentioned a few paragraphs ago.  Monday’s Daily Delivery Report showed that 59 silver contracts were actually posted for delivery today, so that means that 59-18=41 more silver contracts were just added to the March delivery month.

Total open interest in gold fell by 12,723 contracts — and dropped by 5,469 contracts in silver.  Considering the big rallies in both on Tuesday, this was a bit of a surprise, although there could have been some short covering…but I suspect it was spread related in gold.  Ted’s the expert on this, but we won’t know for sure what it means until we see Friday’s Commitment of Traders Report.


There were more very large deposits into both GLD and SLV again on Tuesday.  In GLD, an authorized participant[s] added another 385,705 troy ounces.  In SLV another enormous amount was added, as an a.p. deposited 7,369,105 troy ounces.

The folks over at Switzerland’s Zürcher Kantonalbank updated their website with the goings-on inside their gold and silver ETFs as of the close of business on Friday — and this is what they had to report.  During the past week, they added 21,989 troy ounces of gold, plus 584,340 troy ounces of silver.

In other gold and silver ETFs on Planet Earth on Tuesday, net of any COMEX, ZKB and GLD & SLV activity, there was a net 67,501 troy ounces of gold withdrawn, but a net 2,442,229 troy ounces of silver was added.

Here’s the chart showing the stunning amount of silver deposited everywhere on Tuesday.  Click to enlarge.


There was a small sales report from the U.S. Mint.  They sold 10,500 troy ounces of gold eagles — and that was all.

To add to the physical retail shortage woes in the precious metals, was a note from Sprott Money yesterday — and that’s linked here.

There was a bit of activity in gold over at the COMEX-approved depositories on the U.S. east coast on Monday.  They reported receiving 5,787.180 troy ounces/180 kilobars [SGE kilobar weight] — and all that went into Delaware.  There was also 11,381.100 troy ounces shipped out.  Almost all of that 11,252.500 troy ounces/350 kilobars [U.K./U.S. kilobar weight] departed Loomis International — and the remaining 128.600 troy ounces/4 kilobars [U.K./U.S. kilobar weight] was shipped out of Canada’s Scotiabank.  The link to this is here.

It was very busy in silver, as 1,783,075 troy ounces was received — and 1,241,114 troy ounces was shipped out.  In the ‘in’ category, two truckloads…1,197,888 troy ounces…was dropped off at CNT — and the other truckload…585,186 troy ounces…arrived at Canada’s Scotiabank.  In the ‘out’ category, one truckload…600,153 troy ounces…departed Scotiabank — and half-trucks…322,493 troy ounces and 314,372 troy ounces…were shipped out of HSBC USA and CNT respectively.  The remaining 4,094 troy ounces left Delaware.  There was a bit of paper activity, as 15,540 troy ounces was transferred from the Registered category and back into Eligible at Delaware — and 4,999 troy ounces made the opposite trip over at Canada’s Scotiabank.  The link to this activity is here.

There was very decent activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Monday.  They reported receiving 545 of them — and shipped out 2,279.  Except for the 580 kilobars shipped out of Loomis International, the remaining in/out activity was at Brink’s, Inc.  The link to that, in troy ounces, is here.


Byzantine Empire, Tiberius II. Constantine, 578-582, Solidus

Mint: Constantinople   Material: Gold   Full Weight: 4.49 grams

I have a very decent number of stories, articles and videos for you today.


CRITICAL READS

U.S. Services Economy Collapses at Record Pace, Signal 5% GDP Plunge

Following disastrous PMI prints across Europe (and China last month), preliminary March U.S. Manufacturing and Services data was expected to plunge notably into contraction (having already tumbled in February).. and they both did…

  • U.S. Manufacturing PMI dropped to 49.2 (contraction) – a 127-month low – from 50.7 (dramatically better than the expected drop to 43.5 – thanks to the farcical ‘bullishness’ of longer supplier delivery times).
  • U.S. Services PMI crashed to 39.1 from 49.4 – a record low. Click to enlarge.

Steep rates of manufacturing contraction were signalled for production and new orders, both of which fell to the greatest extent since 2009, with many firms linking this to the escalation of preventative measures following the outbreak of COVID-19. Some companies have reported having to shutdown and give refunds where orders could not be fulfilled in time.

Driving the downturn in services output was a steep fall in new business. The decrease in sales was the quickest since data collection began in late-2009, as both domestic and foreign client demand weakened. Companies highlighted challenging conditions across the services sector, especially in travel and tourism and other consumer-facing industries.

It’s Global…with the U.S. Composite Index crashing to 40.5 – a record low…Click to enlarge.

This story was posted on the Zero Hedge website at 9:54 a.m. EDT on Tuesday morning —  and I thank Brad Robertson for sending it along.  Another link to it is here.


This is the Fear Chart that the Smart Money on Wall Street is Watching

The chart that tells you how all of today’s economic troubles are going to end is not the bar graph of new deaths from coronavirus in Italy versus deaths in the U.S. It’s the chart that shows the number of potential deaths among the banks and insurance companies that have gorged themselves on risky derivatives and serve as counterparties to each other in a daisy chain of financial contagion.

The chart above is why the Federal Reserve is throwing unprecedented sums of money in all directions on Wall Street. Because despite being a primary regulator to these massive bank holding companies, the Fed has no idea who is actually in trouble on derivative trades, other than looking at a chart like the one above.

The chart above also justifies the Democrats refusing to sign off on the fiscal stimulus legislation that would have given U.S. Treasury Secretary Steve Mnuchin a $500 billion slush fund where the names of the recipients of bailouts could be withheld from the public.

In January 2007, prior to the last financial crisis, Citigroup’s stock was trading at the split-adjusted level of $550 a share. At yesterday’s stock market close, Citigroup’s stock price was $35.39. If you are a long-term shareholder in Citigroup, you’re still down 94 percent on your principal, not including dividends. After receiving the largest taxpayer and Federal Reserve bailout in banking history during the Wall Street financial crash of 2007 to 2010, Citigroup did a 1-for-10 reverse stock split to dress up its share price. In other words, if you owned 100 shares of Citigroup previously, you now owned just 10 shares at the adjusted price. If Citigroup had not done that, you would have seen a closing price yesterday of $3.54 cents instead of $35.39.

Citigroup is not alone in loading up on derivatives again. Together with JPMorgan Chase, Morgan Stanley, Goldman Sachs and Bank of America, these five bank holding companies now control a notional (face amount) of derivatives amounting to $230 trillion, representing 85 percent of all derivatives held by U.S. banks.

This worthwhile commentary put in an appearance on the wallstreetonparade.com Internet site on Tuesday morning — and I found it embedded in a GATA dispatch.  Another link to it is here.


California’s Public Employees Retirement System Just Lost a Stunning $69 Billion in One Month

In what is likely to become a trend around the country, California’s Public Employees Retirement System just watched $69 billion go up in smoke as the coronavirus panic has gripped global markets.

CALPERS total fund balance is now about $335 billion, down from a record high of $404 billion only one month ago. CALPERS administers pensions for about 1,500 local governments around the state, as well as California state employees, according to the Sacramento Bee.

The California State Teachers’ Retirement System doesn’t publicly report its value as often, but likely suffered similar losses. As of the end of February, its balance was about $243 billion. If it were to have fallen by the same amount as CALPERS, it would likely be somewhere near $200 billion now.

The losses stand to have a profound impact on California, as cities, counties and schools will have to pay CALPERS more in upcoming years to make up for the losses. This will, in turn, put pressure on state and local government to raise their already astronomical taxes even higher.

With more loses to come.  This news item, which certainly comes as no surprise, put in an appearance on the Zero Hedge website at 6:25 p.m. on Tuesday evening EDT — and another link to it is here.


The Chances of a Greater Depression Are Increasing By the Day” Warns Dr. Doom

The shock to the global economy from COVID-19 has been both faster and more severe than the 2008 global financial crisis (GFC) and even the Great Depression. In those two previous episodes, stock markets collapsed by 50% or more, credit markets froze up, massive bankruptcies followed, unemployment rates soared above 10%, and GDP contracted at an annualized rate of 10% or more. But all of this took around three years to play out. In the current crisis, similarly dire macroeconomic and financial outcomes have materialized in three weeks.

Earlier this month, it took just 15 days for the US stock market to plummet into bear territory (a 20% decline from its peak) – the fastest such decline ever. Now, markets are down 35%, credit markets have seized up, and credit spreads (like those for junk bonds) have spiked to 2008 levels. Even mainstream financial firms such as Goldman Sachs, JP Morgan and Morgan Stanley expect US GDP to fall by an annualized rate of 6% in the first quarter, and by 24% to 30% in the second. US Treasury Secretary Steve Mnuchin has warned that the unemployment rate could skyrocket to above 20% (twice the peak level during the GFC).

In other words, every component of aggregate demand – consumption, capital spending, exports – is in unprecedented free fall. While most self-serving commentators have been anticipating a V-shaped downturn – with output falling sharply for one quarter and then rapidly recovering the next – it should now be clear that the COVID-19 crisis is something else entirely. The contraction that is now underway looks to be neither V- nor U- nor L-shaped (a sharp downturn followed by stagnation). Rather, it looks like an I: a vertical line representing financial markets and the real economy plummeting.

This longish commentary by Noriel Roubini was posted on the Zero Hedge website at 4:25 p.m. EST on Tuesday afternoon — and another link to it is here.


Mortgage Massacre Latest Casualty: $10 Billion m-REIT MFA Can’t Meet Margin Calls

First, its was AG Mortgage Investment Trust which on Friday said it failed to meet some margin calls and doesn’t expect to be able to meet future margin calls with its current financing. Then it was TPG RE Finance Trust which also hit a liquidity wall and could not repay its lenders. The, on Monday it was first Invesco, then ED&F Man Capital, and now the mortgage mayhem that erupted as a daisy-chain of mortgage REITs suddenly imploded, has taken down MFA Financial, whose crashing stock was halted after the company reported that “due to the turmoil in the financial markets resulting from the global pandemic of the COVID-19 virus, the Company and its subsidiaries have received an unusually high number of margin calls from financing counterparties, and have also experienced higher funding costs in respect of its repurchase agreements.”  Click to enlarge.

As a result of this liquidity run, at the close of business on March 23, 2020, “the Company did not meet its margin calls.”

Further, on March 23, 2020, the Company notified its financing counterparties that it does not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic.

How much money are we talking about here? Approximately $10 billion: “The company’s aggregate obligations under its various financing arrangements is about $9.5 billion.”

And since its only other alternative is immediate Chapter 7, the company said that it is in discussions with its financing counterparties with regard to entering into forbearance agreements.

There will be a lot more bodies floating to the surface before this all over.  This Zero Hedge story put in an appearance on their website at 3:36 p.m. EST on Tuesday afternoon — and another link to it is here.  Then there’s this ZH story from yesterday afternoon headlined “$14 Billion Commodity Broker Facing Crushing Margin Calls After Mortgage Hedges Go Wrong“.


The ‘New’ Federal Reserve as Garbage Can For All Capitalist Debt

Yesterday, the Federal Reserve crossed its latest liquidity free money Rubicon. It announced it will provide unlimited credit–and assume the bad debts, not just of banks, shadow banks, and wealthy investors but for what it called ‘Main St.’

But by ‘Main St.’ it doesn’t mean consumers or households. It means that virtually any capitalist financial enterprise that has bad debt it can now dump it on the Fed. In today’s announcement of its latest ‘lending facility’, as it is called, the Fed declared it would ‘support’ small business loans, student loans, auto securitized loans, and credit card debt. But that does not mean the Fed will ‘support’ consumers and assume their loans. Oh no! It means it will support the financial lenders making such loans for students, auto purchases, credit cards and small businesses.

It means these lenders can now dump their bad, defaulted, or otherwise non-performing debt from credit cards, auto loans, student or small business loans on the Fed. The Fed will eat it for them, and add it to the Fed’s own $4 trillion plus indebted balance sheet–soon to rise to $8 trillion or more.

What are markets for at all if The Fed now backstops everything?

This brief commentary showed up on the Zero Hedge Internet site at 2:55 p.m. on Tuesday afternoon EDT — and another link to it is here.


After 350% Jobless Jump, Norway Unemployment is Worst Since WWII

Norway’s unemployment rate shot up to the highest level since World War II, as the economic shutdown brought on by the coronavirus sends the richest Nordic economy into shock.

The number of Norwegians seeking unemployment benefits rose almost 350% in the past two weeks, after companies temporarily laid off tens of thousands of workers to cope with the loss of demand triggered by the spread of the virus. Registered unemployment is now 10.4%, which is the highest on record for the measure.

The development in the Norwegian labor market over the past two weeks has no historical precedent,” Sigrun Vageng, the head of the Norwegian Labour and Welfare Administration, said in a statement.

The figures, now published on a weekly basis, underscore the rapid deterioration of the economy. The situation has already led the central bank to resort to two emergency rate cuts and threaten to intervene in currency markets to fight a panic-driven sell-off of the krone.

The Norwegian government has vowed to do everything it can to support the economy, and has so far presented measures totaling about 280 billion kroner ($25 billion), ranging from deferred taxes to higher unemployment benefits and loan guarantees.

This Bloomberg story appeared on their website at 6:44 a.m. PDT on Tuesday morning — and it’s the first offering of the day from Swedish reader Patrik Ekdahl.  Another link to it is hereGregory Mannarino‘s post market close wrap for Tuesday is linked here — and I thank Brad Robertson for sending it.


No Respite for the Wicked, Pompeo Unleashed — Tom Luongo

There are few things in this life that make me more sick to my stomach than watching Secretary of State Mike Pompeo talking. He truly is one of the evilest men I’ve ever had the displeasure of covering.

Into the insanity of the over-reaction to the COVID-19 outbreak, Pompeo wasted no time ramping up sanctions on firms doing any business with Iran, one of the countries worse-hit by this virus to date.

It’s a seemingly endless refrain, everyday, more sanctions on Chinese, Swiss and South African firms for having the temerity in these deflating times to buy oil from someone Pompeo and his gang of heartless psychopaths disapprove of.

This goes far beyond just the oil industry. Even though I’m well aware that Russia’s crashing the price of oil was itself a hybrid war attack on U.S. capital markets. One that has had, to date, devastating effect.

While Pompeo mouths the words publicly that humanitarian aid is exempted from sanctions on Iran, the U.S. is pursuing immense pressure on companies to not do so anyway while the State Dept. bureaucracy takes its sweet time processing waiver applications.

Pompeo and his ilk only think in terms of civilizational warfare. They have become so subsumed by their big war for the moral high ground to prove American exceptionalism that they have lost any shred of humanity they may have ever had.

The guy is a raving psychopath, dear reader.  This commentary/opinion piece put in an appearance on the strategic-culture.org Internet site on Monday sometime — and I thank Brad Robertson for pointing it out.  Another link to it is here.  Then there’s this related news item from ZH that’s headlined “At the Moment U.N. Chief Urged ‘Global Ceasefire’ to Stop COVID-19, Pentagon Held War Games Aimed at Iran” — and that’s from Brad as well.


Jim Rickards: economic freeze is here, get gold, silver if you can — and get ready

We are potentially entering an “Ice-9” situation where the entire world may “freeze” over economically, said Jim Rickards, best-selling author of “The Road to Ruin” and “Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos.”

If you shut down the New York stock exchange, and I can’t sell stocks and get cash, I’m going to sell my money market funds or redeem my money market funds. Then you’ve got to shut down the money market funds industry, and then people say ‘OK, I’ll go to the banks or the ATMs,’” he said. “And then you’ve got to shut down the banks so the point is, it spreads from exchange to money markets, to brokerage accounts, to banks, and you end up shutting down the entire system.”

This 25:40 minute video interview was conducted before the Fed unleashed unlimited liquidity in the market.  It was posted on the kitco.com Internet site last Thursday — and I thank reader “Zoey” for sending it our way.  Another link to it is here.


Goldman Sachs Tells Clients it is Time to Buy Gold — the “currency of last resort

The current coronavirus-induced economic and financial market turmoil is seemingly the perfect environment for gold.

We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policy makers act to accommodate shocks such as the one being experienced now,” said analysts at Goldman Sachs led by Jeffrey Currie.

Yet while the yellow metal GC00, 1.222% has done far better than other assets, it has slipped 2% over the last month.

The Goldman analysts, with a 12-month price target of $1800 an ounce, said that is about to change, thanks to the Federal Reserve’s aggressive bond purchase plan unveiled on Monday, in which the U.S. central bank said it would buy as many Treasurys and mortgage-backed securities as needed to keep financial markets running smoothly.

We are beginning to see a similar pattern emerge as gold prices stabilized over the past week and rallied [Monday] as the Fed introduced new liquidity injection facilities with this morning’s announcement,” they said.

The analysts that said with the Fed easing funding stresses, focus will likely shift to the large size of the Fed balance sheet expansion, increase in developed market fiscal deficits and concerns about the sustainability of the European monetary union.

We believe this will likely lead to debasement concerns similar to the post [Global Financial Crisis] period,” they said.

This story appeared on the marketwatch.com Internet site at 8:36 a.m. EDT on Tuesday morning — and another link to it is here.  I thank Brad Robertson for sharing it with us.


The Gold Market is Breaking Down“: Gold Spreads Explode as LBMA Warns of Liquidity Problems

[T]he spot/futures price divergence discussed last night and further described here,  has exploded…Click to enlarge.

… and on Tuesday morning the divergence that was barely noticeable late Monday has blown out to unprecedented level, with gold futures decoupling and trading far above spot prices.  Click to enlarge.

The near record spread is the widest seen in four years.

As Kitco notes, just before noon EDT, one price vendor was showing spot metal was trading at $1,612.10 an ounce while at the same time showing the Comex April futures were at $1,654.10 an ounce – a spread of $42 an ounce. It was much wider earlier in the day, when as Kitco adds, “nearby futures were more expensive than deferred, a sign of strong demand in any commodity market.

I’ve never seen that before,” said one gold trader who has been in the market for 30-plus years. Some contacts reached by Kitco suggested the discrepancy is an evolving story that is still unfolding, with traders trying to figure out what’s happening.

Earlier in the day, the London Bullion Market Association, the world’s most important authority for physical gold and its transfers, issued this stunning statement to Kitco:

The London gold market continues to be open for business. There has, however, been some impact on liquidity arising from price volatility in Comex 100-oz [ounce] futures contracts. LBMA has offered its support to CME Group to facilitate physical delivery in New York and is working closely with Comex and other key stakeholders to ensure the efficient running of the global gold market.”

In short, the unprecedented scramble for physical metal coupled with continued liquidations among levered players, while refiners remains offline, appears to be fracturing the gold market from within.

Saxo Bank’s head of commodity strategy, Ole Hansen, observed that a lock-down is occurring in two biggest gold hubs in the world, New York and London,  so many traders are working from home. “This has caused a breakdown in the marketplace“, he said.

There is no price discovery in the market right now,” he said Tuesday morning. “If you need to borrow gold in the OTC [over-the-counter] markets right now, you are going to pay a king’s ransom.”

It’s pretty obvious that something is not right in the gold market…in both paper and physical — and I’ll have more about this in The Wrap.  This Zero Hedge news item showed up on their Internet site at 3:54 p.m. on Tuesday afternoon EDT — and it comes to us courtesy of Swedish reader Patrik Ekdahl.  Another link to it is here.  Then there’s this ZH story from early Tuesday morning headlined “It’s Selling Like Toilet Paper“: If You Haven’t Bought Physical Gold Yet, It’s Probably Too Late” — and I thank Fred Ehrman for that one.


CME is asked to change gold delivery rules amid coronavirus lock-down, sources tell Reuters

The London Bullion Market Association (LBMA) and several major banks that trade gold have asked U.S. exchange operator CME Group Inc to allow gold bars in London to be used to settle its contracts to ease disruption to trading, sources said.

The gap between gold futures on the CME’s Comex exchange in New York GCc1 widened above London spot prices XAU= by as much as $70 per ounce — or 4% — on Tuesday.

The two usually remain within a few dollars of one another, and the gap skewed trading in the London market, causing activity to fall.

Traders feared shutdowns of air travel and precious metal refineries due to the coronavirus outbreak will make it harder to ship bullion from London to the United States to meet contractual requirements.

London is a key gold storage centre, where thousands of tonnes of metal underpin trading, but it uses 400-ounce bars which must be melted down and recast as 100-ounce bars to be accepted by Comex in New York.

The LBMA and executives at major gold-trading banks asked CME to allow 400-ounce bars to be used to settle Comex contracts, said the two sources, both of whom were involved in the discussions.

No one was immediately available for comment at CME after Reuters contacted the company via phone and e-mail.

The rule change would obviate the need to reshape and transport metal, meaning it could remain in vaults in London while ownership is transferred. If this happened spot and futures prices could converge and markets trade normally, sources said.

This Reuters story, filed from London, was picked up by the nasdaq.com Internet site — and I found it on the gata.org Internet site.  Another link to it is here.  The follow-on story to this headlined “CME resolving physical gold squeeze with delivery of 100-ounce, 400-ounce and 1-kg bars” — was posted on the kitco.com Internet site on 9:22 p.m. EDT on Tuesday night — and I found this story on the gata.org Internet site as well.


Dutch ABN AMRO abandons gold investors

ABN AMRO leaves gold investors disappointed, as the bank closes all weight accounts for gold, silver and platinum. Approximately 2,000 customers who have precious metals in their weight account at the bank have to sell them before April 1. If they fail to do so, ABN AMRO will sell their positions at the current market price. The bank cannot guarantee that they will sell the precious metal at a favorable price.

This decision comes at a particularly unfavorable time for gold investors. At the same time the bank is pointing its customers to the exit, a run on physical gold has started. Investors who thought they were well positioned with their precious metals at the ABN AMRO can now join the long queue of people who want to buy gold now.

ABN AMRO’s weight accounts arose from an acquisition of Hollandsche Bank Unie (HBU). This bank handled the trade and storage of precious metals from its office at Coolsingel in Rotterdam. In 1967, the shares of this bank were taken over by ABN, which later merged with Amro bank. When ABN AMRO merged with Fortis in 2009, HBU was sold to Deutsche Bank. Customers were then given four years to physically deliver or sell their precious metals.

The termination of these weight accounts marks the end of a history that goes back to the founding of the Hollandsche Bank Unie in 1914.

This interesting story showed up on the geotrenlines.com Internet site very early on Wednesday morning Central European Time — and I found it in a GATA dispatch last night.  Another link to it is here.


South Africa’s Mining Industry Is About to Come to a Standstill

South Africa’s iconic mines, from the ever-deepening gold shafts on which the economy was founded to massive iron ore pits and rich platinum seams, are about to go silent.

From midnight Thursday, all but a few coal operations needed to fuel the country’s power stations are expected to be included in a nationwide lock-down aimed at containing the coronavirus. The sweeping shutdown is unprecedented in the 150-year history of South Africa’s mining industry, which today employs more than 450,000 people.

President Cyril Ramaphosa is moving quickly to curb the virus spread as infections threaten to spiral out of control in a country with an already strained health system and rampant unemployment. The army will help police to enforce the lock-down, with grocers, pharmacies, banks, filling stations and other essential services allowed to remain open.

Producers from Harmony Gold Mining Co., the nation’s biggest producer of the precious metal, to top platinum miner Sibanye Stillwater Ltd. said they’re bracing for earnings hits as mines move to care and maintenance, an industry term for when production stops but essential services like underground water pumping continue. Anglo American Plc said it will review the detailed regulations on the lock-down when they’re published, including for potential exemptions.

This would be unprecedented in the history of mining in South Africa,” said Roger Baxter, the chief executive officer of the Minerals Council South Africa, the main industry group. “There were certain times when components of the industry were closed, for example during the second world war, but this is unprecedented.

This Bloomberg story from Tuesday was picked up by the finance.yahoo.com Internet site — and I found it on Sharps Pixley.  Another link to it is here.


The PHOTOS and the FUNNIES

We were up fairly bright and early on September 2 — and decided to explore the town of Valemont before heading home to Merritt.  I had passed through the place countless times — and had only ever stopped for a snack, gas…or a bathroom break.  It was a cute — and very well maintained small town, with most of it tucked out of sight in the trees on the east side of the Yellowhead highway.  The first shot is of a creek that runs through the town — and into the Canoe River…which is the most northerly tributary of the mighty Columbia River.  I wanted to see where the Canoe River emptied into Kinbasket Lake…held back by the Mica Dam.  The second shot, taken from the bridge shows the river at its confluence — and the third photo looking in the opposite direction…upstream and in the general direction of Valemont.  There’s a huge difference in these two photos as I’m shooting into the light source on the first one — and my back to it in the second. The last photo is of the bridge itself…mostly used for logging purposes up until 2006 when the last lumber mill in the town closed.  Click to enlarge.


The WRAP

It was one heck of a trading session on Tuesday.  I got an e-mail from subscriber John Brimelow around 3 a.m. EDT as I was coding my Tuesday column.  He’s a gold market guru out of London asking me if he was seeing things, as the April contract was selling for 9 bucks over the current spot price.  He wasn’t, as I could see it too.  And that spread was went as wide as $100 during the Tuesday trading session — and the spot price closed 33 bucks lower than April on Tuesday!  There were a lot of stories on the Internet about this yesterday — and I’m not going to go into it very deeply.

Needless to say, I was on the phone to Ted about this shortly after I got up.  He said what was going on was “impossible” — and had never seen anything like it all his years as a spread trader.  He didn’t trust anything that was coming out of the LME as they’re opaque as you can possibly get — and less than truthful.  I asked him if this was to discourage the April contract holders from rolling into future months — and he said no…emphatically not, as that sort of arbitrage encouraged roll-overs instead. Hopefully he’ll have something to say about it in his mid-week commentary this afternoon, as I’d really like to know.

But I will speculate.  Based on the information that has come out since Ted and I spoke, I suspect that the COMEX was going to have delivery issues on First Notice Day in April gold, or at some point early in the delivery month — and that they jacked up the prices in the next two delivery months to encourage/entice any April contract holder that might consider standing for delivery, to roll over instead.  Making them an offer they couldn’t refuse, if you get my drift.  I await the final word on this from Ted.

But make no mistake about it…’da boyz’ were there to make sure things didn’t get out of hand to the upside any of the precious metals on Tuesday.  If they hadn’t, we would have seen precious metal price closes for the history books in a short covering rally for the ages.

Here are the 6-month charts for the Big 6 commodities.  Gold blasted above — and closed well above, it’s 50-day moving average yesterday.  I would think that it was “all the usual” suspects going short against the Managed Money traders as they piled in on the long side.  But volume was pretty light, so I shan’t cast that opinion in stone.  Of course silver and platinum are still nowhere near any moving average that matters, but palladium closed above its 200-day moving average by a hair.  Both copper and WTIC closed a bit higher as well.  Click to enlarge.

Yesterday, at the close of COMEX trading, was the cut-off for this Friday’s Commitment of Traders Report — and even with all five days worth of dojis in the reporting week to look at, I’m not going to hazard a guess as to what that report will contain.

Ted said that there appeared to be all kinds of strange stuff going on during the COMEX trading session in New York on Tuesday — and I know he’ll have something to say about it in his mid-week commentary later today.  I’ll borrow a few salient sentences for my Friday column.


And as I post today’s efforts on the website at 4:02 a.m. EDT, the London open is less than a minute away — and I see that all four precious metals’ rallies starting at 6:00 p.m. in New York on Tuesday evening ran into ‘something’ at various times during morning trading in the Far East.  Gold’s current high was set a few minutes before 8 a.m. China Standard Time on their Wednesday morning.  It was sold lower until shortly after 9 a.m. CST — and has been trading quietly and unevenly sideways-to-lower since.  It’s now down $28.30 the ounce.  Silver’s rally was capped and turned down a few minutes after 8 a.m. CST — and it was sold lower until shortly before 11 a.m. CST — and, like gold, has been trading quietly sideways-to-lower since — and ‘da boyz’ have it up only 4 cents as London opens.  Platinum’s rally was capped at the same time as silver’s — and that sell-off lasted until 9:30 a.m. CST.  It has been creeping quietly higher every since, but has rolled over in the last fifteen minutes — and is only up 12 bucks.  Palladium’s initial rally ran into ‘something’ about 8:40 a.m. in Shanghai.  It was sold lower until shortly after 11 a.m. over there — and then didn’t do much until the 2:15 p.m. CST afternoon gold fix.  It began to rally anew at that juncture — and is higher by 51 dollars as Zurich opens.

Gross gold volume is about 86,500 contracts — and net of current roll-over/switch volume out of April and into future months, net HFT gold volume is around 45,500 contracts.  Net HFT silver volume is a bit over 18,500 contracts — and there’s around 2,100 contracts worth of roll-over/switch volume in this precious metal.

The dollar index opened down 45 basis points at 101.59 once trading commenced around 7:45 p.m. EDT in New York on Tuesday evening, which was 8:45 a.m. China Standard Time on their Wednesday morning.  Its current high tick was set around 8:52 a.m. CST — and it has been wandering very unsteadily lower since — and as of 7:45 a.m. GMT in London/8:45 a.m. CET in Zurich, the index is down 53 basis points.  That decline is obviously not being allowed to manifest itself in either gold or silver.

And at the London open, the April price for gold is about 47 dollars higher than then the gold price in the spot month.  Wow!


That’s all I have for today, which is more than enough — and I’ll see you here tomorrow.

Ed