25 March 2016 — Friday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
There was a bit of HFT-type sell-off activity in gold during the Far East trading session on their Thursday—and the low tick of the day came about an hour before London opened. The price crawled higher from there, but each and every attempt [3 in all] that gold made to break above its Wednesday close in the New York trading session was firmly turned aside, with the most obvious of the three coming a hour of so after the COMEX close.
The high and low ticks aren’t worth my effort to look up.
Gold finished the Thursday session in New York at $1,216.20 spot, down $3.40 from Wednesday’s close. I must admit that I was expecting worse. Net volume was extraordinarily light at just under 89,000 contracts but, as it has been all week, roll-over activity out of April was heavy once again.
And here’s the New York Spot Gold [Bid] chart so you can see these three sell-offs up close and personal.
The trading pattern in silver was very similar to gold’s, so I shall spare you the details. And also like gold, the high and low ticks in silver aren’t worth looking up, either.
Silver closed yesterday at $15.20 spot, down one whole penny from Wednesday’s close. Considering the lack of price action, net volume was pretty decent at just under 36,000 contracts.
Platinum followed a similar price pattern to both gold and silver yesterday. However, it got hit for an extra ten bucks in late afternoon trading in New York—and this precious metal finished the day at $946 spot, down 11 dollars on the day.
Palladium rallied a few dollars in very early trading in the Far East, but that wasn’t allow to last—and by shortly after the COMEX open, it was down ten bucks on the day. It’s low tick came at 1:00 p.m. EDT—and it’s attempted rally back to unchanged was met by not-for-profit selling shortly after 2 p.m. in after-hours trading. Palladium closed in New York yesterday at $573 spot, down 7 bucks from Wednesday.
The dollar index closed late on Wednesday afternoon in New York at 96.04—and then rallied in fits and starts to its 96.36 high tick, which came minutes after the 8 a.m. GMT London open. It began to head lower from there, but was rescued by the usual ‘gentle hands’ at the 96.03 mark just after 11:30 a.m. GMT. It ‘rallied’ about 25 basis points from that low, but began to weaken just before noon in London. It crept lower for the rest of the day—and appeared to need rescuing again around 2 p.m. in New York. It chopped sideways into the close after that save. The index finished the Thursday session at 96.13—up 9 basis points from Wednesday.
And here’s the 6-month U.S. dollar index chart, so you can keep track of this ‘gentle hands’ assisted rally.
The gold stocks opened flat—and then had a 2 percent up/down price spike going into the London p.m. gold fix. The low ticks of the day was set a minute or two before 10 a.m.—and from there they rallied until noon in New York. They chopped sideways in a very broad range for the remainder of the day—and the HUI closed higher by 2.01 percent.
The price action in the silver equities was very similar—and Nick Laird’s Intraday Silver Sentiment Index closed up 2.18 percent.
The CME Daily Delivery Report showed that zero gold and 16 silver contracts were posted for delivery within the COMEX-approved depositories next Tuesday. The only short/issuer of note was Canada’s Scotiabank with 10 contracts—and to no one’s surprise, I’m sure—JPMorgan stopped all 16 for its own account.
The CME Preliminary Report for the Thursday trading session showed that gold open interest declined by 24 contracts, leaving 28 still open. Silver o.i. in March dropped by 71 contracts, leaving 116 still around. JPMorgan didn’t let any more March contract holders off the hook yesterday.
After a decent withdrawal from GLD on Wednesday, I was somewhat surprised to see an authorized participant add 66,849 troy ounces yesterday. And as of 7:07 p.m. EDT yesterday evening, there were no reported changes in SLV.
There was a small sales report from the U.S. Mint yesterday, as they sold 3,000 troy ounces of gold eagles—and that was it.
There wasn’t much activity in gold over at the COMEX-approved depositories on Wednesday, as only 899 troy ounces were received at JPMorgan—and 9,449 troy ounces were shipped out, with most of the ‘out’ activity coming from Brink’s, Inc. The link to that is here.
It was very quiet in silver. Nothing was reported received—and only 60,555 troy ounces were shipped out the door, with all of that coming from Canada’s Scotiabank. I shan’t bother linking this amount of activity.
But it was busier over at the COMEX-approved gold kilobar depositories in Hong Kong on their Wednesday, as they reported receiving 2,001 of them—and shipped out 4,364. All of the activity was at Brink’s, Inc. once again—and the link to all that, in troy ounces, is here.
Once again, I have very few stories for you today, so there almost no editing for you to do at all.
CRITICAL READS
Manufacturers on back foot: Durable-goods orders fall for third time in four months
U.S. orders for long-lasting or durable goods fell 2.8% in February — the third drop in four months — as every major industrial sector except for autos showed declines.
Economists polled by MarketWatch had expected a seasonally adjusted 2.9% decline last month, but the details of the report show widespread weakness that underscores why the economy has slowed since last fall.
A strong dollar, weak global economy and nosedive in the U.S. energy sector have dented demand for American manufactured goods. And there’s little reason to expect a big rebound anytime soon.
“Manufacturers continue to slide along the knife edge,” said Michael Montgomery, U.S. economist at IHS Global Insight.
This news item was posted on the marketwatch.com Internet site at 9:50 a.m. EDT yesterday morning—and it’s worth reading. I thank Scott Linn for sending it our way. Another link to this story is here.
Atlanta Fed GDP Forecast Tumbles to 1.4% to Justify Fed’s Downbeat Outlook on Economy
Some time in the second week of February, when the market was tumbling on, among other things, fears of a U.S. recession, the Atlanta Fed was scrambling to give the all clear signal on the U.S. economy when it surprised watchers by releasing a far stronger than consensus Q1 GDP ‘nowcast‘ of 2.7%.
Since then things have once again not gone quite as planned, and following the latest flurry of poor economic data, the Atlanta Fed just confirmed that the current U.S. economy is about as weak as it was when the Atlanta Fed first started estimating it at the start of February with a paltry 1.2% forecast.
As of moments ago, this is where we are now:
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 1.4 percent on March 24, down from 1.9 percent on March 16. After this morning’s durable goods manufacturing report from the U.S. Census Bureau, the forecast for first-quarter real equipment investment growth declined from 0.9 percent to -1.4 percent while the forecast for the change in inventory investment in 2009 dollars declined from -$9 billion to -$11 billion. The forecast for real residential investment growth fell from 14.6 percent to 7.8 percent after Monday’s existing home sales release from the National Association of Realtors and yesterday’s new home sales and construction cost releases from the Census Bureau.
In other words, the U.S. economy is once again rapidly deteriorating, which is precisely what the Fed wants now as it needs every possible economic cover to justify its recent flip-flop decision to lower the number of forecast hikes from 4 to 2. Expect even more economic “weakness” in the coming weeks as the Fed remains concerned that the S&P is just not high enough or, said otherwise, bad news is once again bad news.
This news item put in an appearance on the Zero Hedge website at 12:05 p.m. on Thursday afternoon EDT—and it’s the first contribution of the day from Richard Saler. Another link to this story is here.
Bullard Sees Case for April Hike as Inflation Set to Pick Up
Federal Reserve Bank of St. Louis President James Bullard said policy makers should consider raising interest rates at their next meeting amid a broadly unchanged economic outlook and prospects of inflation and unemployment exceeding targets.
“You get another strong jobs report, it looks like labor markets are improving, you could probably make a case for moving in April,” Bullard said in a Bloomberg interview in New York Wednesday, in which he criticized the Fed’s practice of publishing officials’ projections on the path of interest rates. “I think we are going to end up overshooting on inflation” and the natural rate of unemployment, he said.
Bullard said there was a “credible case” to be made to move in March. “We didn’t do it — so now we can look at April and see what the data looks like when we get to April,” he said.
The FOMC holds its next policy meeting on April 26-27. It won’t be followed by a press conference, which are only held at the end of each quarter. That has led investors to discount policy action at intermittent gatherings in the past.
Why anyone would take these clowns at the Fed seriously is beyond me. This Bloomberg story showed up on their Internet site at 1:12 p.m. Denver time on Wednesday afternoon—and I plucked it from yesterday’s edition of the King Report. Another link to this article is here.
A Scam Called Valeant: Why the Casino is Going to Blow — David Stockman
If you need evidence that Wall Street is a financial time bomb waiting for ignition look no further than the recent meltdown of Valeant Pharmaceuticals. In round terms, its market cap of $90 billion on August 5th has suddenly become the embodiment of that proverbial sucking sound to the south, having plunged to less than $12 billion by Wednesday’s close.
Needless to say, the cliff-diving pattern in the graph below provides evidence that the ticking bombs in the casino are of the neutron variety. In this case, the hotel may be still standing but the inhabitants have been ionized. On a single day last week, hedge funds lost $5.3 billion in value.
Condign justice, some might say, for the likes of rank gamblers like William Ackman (Pershing Square) and Jeffrey Ubben (ValueAct Holdings) who lost $700 million each that day. The fact that they have successfully promoted themselves for so long as masters of the universe, however, is the real moral of the story.
The financial markets and media have been so corrupted by central bank bubble finance that they did not even recognize that Valeant was a monumental scam and that Ackman and Ubben are snake oil salesman in $5,000 suits. Presently it will become clear that the hedge fund hotels are heavily occupied by many more of the same.
David doesn’t hold anything back in this rant that appeared on his Internet site yesterday. It’s on the longish side, but definitely worth reading if you have the time—and/or the interest. I thank Len Bridger for bringing it to our attention. Another link to this commentary is here.
Dutch central bank president says ECB monetary easing at its limit
Dutch Central Bank President Klaas Knot, who has voted against recent monetary easing by the European Central Bank, said on Thursday that the measure had reached the limit of its effectiveness.
Knot said further bond purchases by the ECB would encroach on a ban on financing government spending that is enshrined in its charter.
At a press conference in Amsterdam, he said that, while further easing was technically possible, “the question is whether the added value of doing more is worth the side effects“. “I have my doubts,” he added.
He cited a list of problems caused by quantitative easing including financial bubbles, “an unhealthy hunt for yield, rolling of problem loans, increasing wealth inequality, and an addiction to low interest rates“.
This Reuters news item, filed from Amsterdam, showed up on their website at 9:01 a.m. on Thursday morning EDT—and I thank Brad Robertson for sharing it with us—and he in turn found it over at the Zero Hedge website. Another link to this story is here.
Europe is now drowning under the cost of welfare bills
When she isn’t shipping in more Syrian refugees, or trying to find new ways to destroy the Greek economy, the German Chancellor Angela Merkel is fond of quoting an alarming statistic: Europe accounts for just 7pc of the world’s population, and 25pc of its GDP, and yet it also accounts for a massive 50pc of its welfare spending.
The point is an important one. Europe’s welfare spending is out of control, and is on a scale that is both lavish and unaffordable compared with the rest of the world. There is a problem, however. Neither she, nor any other political leader in Europe, has the will to do anything about it.
Eurostat, the statistical agency of the European Union, has this week published updated figures on the total welfare bill across Europe. It is rising, and in some countries is getting up to a quarter of national output. Meanwhile, the percentage of spending on stuff like infrastructure or education, which increase an economy’s potential output, is falling.
This article appeared on the telegraph.co.uk Internet site very early Wednesday evening GMT—and it’s the second story that I borrowed from yesterday’s edition of the King Report. Another link to this news item is here.
Japan’s Central bank’s operations underscore lack of options
The Bank of Japan is taking a new tack with its open market operations, focusing on holding down interest rates rather than expanding the money supply in what may be an indicator that it is running out of ideas to promote inflation.
Open market operations offer a clear picture of the central bank’s intentions. The BoJ’s main goal is achieving its 2% inflation target. Until recently, the bank had tried to boost prices by pouring large amounts of money into the market, aiming to spread it to the real economy.
“Expanding the money supply has no effect,” a BoJ official said of these two methods for lending money cheaply. “But pushing down interest rates is meaningful.”
These operations signal frustration within the central bank at the lack of a deep fall in short-term rates since the negative-rate policy was introduced. A market player commented that the BoJ’s unwillingness to tolerate positive short-term rates came through loud and clear.
This story was posted on the asia.nikkei.com Internet site very early on the Thursday morning Japan time—and it’s the third and final story that I found in yesterday’s edition of the King Report. Another link to this news item is here.
Lessons from the Mississippi Bubble — Edward Chancellor
This year marks the 300th anniversary of the start of an economic project in France which posterity knows as the Mississippi Bubble. The brainchild of an expatriate Scot, John Law, this scheme has been hailed as the most ambitious economic experiment prior to the establishment of the Soviet Union in 1917. Like Lenin’s creation, the short-lived Mississippi Bubble burst in spectacular fashion. Central bankers around the world are currently embarked on a mission not altogether different from Law’s, making lessons revealed by his failure particularly relevant today.
As the effectiveness of monetary policies has come into question, central bankers in Japan and Europe have acted with a Law-like vehemence. Above all, the collapse of the Mississippi scheme shows that when central banks inflate bubbles there is no painless “exit” – Law’s Banque Royale had to continue printing money to sustain the bubble.
The Mississippi’s lessons are especially relevant to contemporary China. The People’s Republic today, like the French monarchy in the early 18th century, is attempting to mix modern financial practices with old-fashioned despotism. Confidence is coerced rather than earned. Over the past twelve months, the People’s Bank of China has inflated a stock market bubble, and then attempted a price-keeping operation when the market sagged. In emulation of Law, the People’s Bank is now proposing that banks’ non-performing loans be converted into equity. Just as Law attacked sceptics by forcing down the value of the coinage and attempting to prevent capital flight, Beijing is bolstering capital controls and manipulating the offshore currency market to deter capital outflows.
As in France during the Mississippi years, China’s money supply has grown rapidly in recent years relative to other countries. Several well-known investors are making a similar bet to Cantillon against the Chinese currency. Capital flight may yet bring down China’s fragile financial system, just as it toppled Law’s over-ambitious scheme three centuries ago.
This longish commentary by Reuters correspondent Edward Chancellor is definitely worth reading. It appeared on their Internet site on Wednesday sometime—and it’s the second offering of the day from Richard Saler. Another link to this short essay is here.
Australian gold miners are starting to embrace hedging amid strong prices
Newcrest confirmed on Thursday a portion of the gold produced at the Telfer mine in Western Australia had been hedged until June 2018.
Located in the remote Great Sandy Desert region of Western Australia, Telfer has often been an expensive mine to run, relying largely on fly-in fly-out workers.
Its profitability has traditionally been sensitive to Australian dollar gold prices.
Hedging expert Sean Russo said miners were taking hedges for their individual needs, and the recent string of hedges was not a sign that miners were convinced gold prices were set to fall.
Richard Saler sent me this hedging news story yesterday. It appeared on The Sydney Morning Herald‘s website at 6:29 p.m. AEDT on their Thursday evening. In my e-mail exchange with Richard, I had this to say—“It’s mine specific—and I can see their reasons. The miners are acutely sensitive to hedging now—and will only do it when it makes good economic sense—and this is certainly one of those rare cases where it’s a smart move.” Another link to this article is here.
India’s temples hold about 4,000 tonnes of gold
That estimate of 3,000-4,000 tonnes with temples was made by this newspaper after talking to such places, to bankers, bullion analysts and research reports. These would be in the form of coins, jewellery and gold articles. Temples also have diamonds, given as offerings; there’s no segregated value-guess on this.
One suggestion that came while talking to benkers and analysts was that it would be worth having a central exhibition centre, with high security, for antique jewellery. Tourists, for one, would like a look and temples could earn from this.
Here are estimates of gold reserves with some of the country’s richest temples. This excludes any surface plating or more of gold.
This gold-related story, filed from Chennai, put in an appearance on the business-standard.com Internet site at 10:35 p.m. IST on their Thursday evening—and it’s a story I found on the Sharps Pixley website last night. Another link to this news item is here.
The gold correction is in: Will it last? — Lawrie Williams
As we come up to the Easter holiday and trading gets thin, the opportunities for traders to manipulate precious metals prices up or down become easier and for the moment, those who would like to see prices lower are in the ascendant. Whether gold goes into free fall and loses all its gains achieved so far this year is the big question on gold investors’ lips. We don’t think so. But its not something that can be totally ruled out.
The gold price has indeed been volatile over the past couple of days. It shot up on news of the Brussels bombings – and then the momentum turned against it and it started trending downwards. It has since lost over $50 from its temporary peak bringing it back through various bearish trigger points.
It will be interesting to see the effects on the gold ETFs in reaction. The biggest of them all – SPDR Gold Shares (GLD) – has remained unmoved at 821.66 tonnes for the past three days – the highest level since mid-December 2013. However the consistent upwards path does seem to have come to a halt, which could prove to be ominous for gold investors. The gold holdings of GLD perhaps remain the best guide to sentiment in the U.S. which, for the moment is effectively where the spot gold price is set.
This short commentary by Lawrie showed up on the Sharps Pixley website yesterday sometime—and another link to this story is here.
Five Years That Changed Silver Forever — Ted Butler
While I have closely researched the silver market for more than 30 years, uncovering more original findings (including silver’s price manipulation) than anyone, I fully admit that I did not immediately see the monumental change that began to occur five years ago. This astonishing development that had begun in 2011 did not come clear to me until late 2013.
I discovered that the largest U.S. bank, JPMorgan Chase, began to accumulate massive amounts of physical silver starting in 2011 and has continued that accumulation to this day. All told, I believe JPMorgan has acquired somewhere between 400 and 500 million ounces, the largest privately held stockpile of silver in history.
What this means is that the future price of silver is now destined to move far higher in price than anyone can imagine. I wasn’t looking for something to come along that would supersede my already ultra-bullish outlook on silver, but that is what occurred. That’s because the obvious motive JPMorgan has whenever it acquires a large investment position is to profit on that position to the greatest degree possible. And since JPMorgan is now in position to profit enormously when silver prices soar, that means anyone holding silver will profit as well.
This absolute must read commentary was part of Ted’s mid-week commentary on Wednesday—and it ended up in the public domain yesterday morning Denver time on the silverseek.com Internet site. Like you, dear reader, I’m just waiting for that day—and as Ted has said over the years, you won’t have to ask which day it is, as it will be self-evident when it arrives.
Another link to this must read essay is here.
The PHOTOS and the FUNNIES
The first photo is of an Hawai’ian Goose, or nēnē—and it’s the official bird of the state of Hawai’i. This one was photographed wandering around an older pahoehoe lava flow. The Hawai’ian name nēnē comes from its soft call. I’m very familiar with this bird, as I’ve seen quite a number of them on the Big Island—and they sound exactly as their name implies—and I laughed the first few times I heard it, because it has to be one of the strangest sounds I’ve ever heard coming out of any goose species that I know. The second photo is of a totally harmless western terrestrial garter snake. We have the common yellow-striped garter snake here in Western Canada.
The WRAP
As I mentioned on Saturday, the key 50 day moving averages in gold and silver have been racing higher and combined with today’s sell-off, the distance to a downside penetration of the averages is narrower today than it has been in months. I don’t care a whit about these moving averages, but the technical funds seem to be governed by them and that’s why I mention them so frequently. Unless the technical funds decide suddenly to radically alter their basic methodology, the probabilities favor that they will be aggressive sellers as and when the moving averages get penetrated to the downside.
If that plays out, then we revert to “The Count” mode in which we try to measure the maximum probable extent of technical fund selling and commercial buying. For a number of reasons, this promises to be a particularly tricky count, probably because it may be the last count (where have you heard that before?). I recognize that I am suggesting a short term down into a long term up, but you should not rely on that. Instead, look directly at the reason behind the suggestions, namely, that such a move would seem to benefit the bad guys.
It is possible that the flushing of the technical funds may have started on Wednesday, but that is less important than the potential extent of the flushing. We are, in many ways, at historical extremes in negative COT readings. In fact, Friday’s report is likely to set new extremes in the total commercial net short positions in both silver and gold for this year’s price advance. Because so many technical fund contracts were bought on the price move up, that suggests nearly as many could be sold on the way down. Complicating matters is the role that JPMorgan plays in all this. If JPM covers enough of its short positions quickly, silver prices could surge before a complete technical fund flushing. In any event, I would refine my guesses for this week’s increase in the total commercial net short headline number to between 10,000 to 15,000 contracts in gold and 5,000 to 7,000 contracts in COMEX silver futures. — Silver analyst Ted Butler: 23 March 2016
I must admit that I was more than surprised how little price/volume activity here was in either gold or silver yesterday. I’d forgotten that today is Good Friday, so I suppose it’s possible that ‘da boyz’ took yesterday off to make it a 4-day long weekend.
Nothing has changed since yesterday’s report, of course—and with the exception of whatever liquidation occurred on Wednesday, we’re still ‘locked and loaded’ for a continuation of the price decline that appeared to have begun on Wednesday.
But, as Ted pointed out in his quote above, this engineered price decline—when it finally does manifest itself in its entirety—may be different than the others that have preceded it. That’s certainly within the realm of possibility of course, but I wouldn’t bet the ranch on that—and I’m sure that Ted wouldn’t either.
Here are the charts for all four precious metals as of the close of trading on Thursday. It should be noted that despite the lack of price activity, JPMorgan et al were careful to close all of them at new lows for this move down.
I note that the GLOBEX/COMEX did not reopen for trading at 6 p.m. EDT last night, so it’s a given that the precious metal market won’t be trading today anywhere on Planet Earth. If that’s the case, then my Saturday column will be a short one—and will include whatever stories I have, plus a discussion of the latest Commitment of Traders Report.
I was surprised when Ted said that there would be one, considering the fact that most of New York and Washington will be shut tight for the holiday. But if it turns out there isn’t one, then my Saturday column will be a quick read.
That’s all I have for today.
Happy Easter—and I’ll see you here tomorrow.
Ed
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