"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Sunday, February 9, 2014

China Gold Stats

Dow Jones is reporting this evening that the China Gold Association has provided some numbers detailing both Chinese gold demand and production for 2013.

According to the Association, Chinese gold output rose 6.2% on the year reaching 428.16 metric tons.

That continues the trend of China being the world's largest gold producer for the last seven years.

Chinese gold consumption hit a record 1,176.4 tons in 2013 - that was up 41.4%.

Chinese gold jewelry was up 42.5% to 716.5 tons while gold bar demand rose 56.6% to 375.7 tons.

My take on this is that it continues to underscore that demand from Asia, particularly China has been robust and looks to remain that way, especially on dips lower in price.

Western based investment demand is still the missing ingredient in the gold equation. If the Dollar continues to weaken, gold should be able to breach overhead technical price chart resistance levels but that will entail the inflow of hedge fund monies back to the long side of the gold market. We will continue to monitor the reported holdings of GLD to get a read on this.

There seems to be enough concerns about the both geopolitical concerns and monetary/currency/credit issues to keep gold from breaking down in price at this time but it still lacks a catalyst to kick it into a strong uptrending move.

Will we get one? We'll see. Keep an eye on the commodity complex as a whole. If hedge funds begin to view commodities as undervalued in relation to equities, they will return to the buy side across the sector although they will tend to be a bit more choosy as to which markets they will embrace. Specific demand/supply factors will be more closely scrutinized rather than the strategy they took back when QE was first introduced. That consisted of buying everything in sight in the commodity complex no matter what it was.

Higher beef and pork prices are a given this year. Soybean prices have been sneaking higher even in the face of a record S. American harvest expected. Corn, which was one of the worst performing commodities last year, has picked up in price somewhat while coffee prices have shot up sharply. Sugar has been bouncing around a bottom for some time now. We all know what natural gas and heating oil prices have done this winter.

It could very well be that the old adage: The best cure for low prices is low prices" may be at work again as demand is picking up for some of these low priced commodities.

I remain leery of the "February break" as it is a fairly regular occurrence across the commodity sector but as to its specific timing, it is difficult at times to read its arrival. Sometimes it comes early; sometimes it comes late. And to answer a question from a reader, yes, it does tend to affect the precious metals as well.

Based on the price action of some of these individual commodity markets, the break may have already occurred. I simply am not sure but am waiting and attempting to discern from the price action across the sector whether we have seen the "break" or not.

Just to repeat a warning I posted the other day in a column - traders - be careful in the commodity sector right now as many markets are treacherous. Action has been of the whipsaw nature and can really damage you if you are not alert and nimble. Whatever you do - do not remain too dogmatic but rather stay flexible and above all, humble!


  1. Dan,

    We can only watch force of the 'breakouts'. No force = higher probability of false breakout. Reaction rallies can be very profitable, but they reverse quickly.

    I be watching the setup in the dollar and Yen. The real threat as 2015 approaches is flight of capital. This could be hard to read in the US if the public starts wearing stocks never decline blinders.

    Have a good day!


  2. GDX/GLD ratio has climbed from a world record low of .19 to .20 today.

    Last time it hit .20 back in October, it rolled over to new lows.

    Need to get up to .22 just to match the extreme lows reached in March 2009.

    TRX and this ratio seem to be trading in lockstep, except TRX is getting weaker and weaker as time goes on.

    One clue to watch is if these weaker stocks start outperforming, then the gold stock bulls may have a chance of riding a decent rally for more than a few weeks.

    1. Mark- GDX:GLD closed for a world record low of .173 Dec 3-5 - so it's about what 15% higher than W.R.L. I prefer $HUI:$GOLD ratios because you can go back farther. The Dec low was about .155. I don't have the spreadsheet on me, but I believe the 2000-2001 ratio low was about .145. I use that as my benchmark.

      But that said, I take your point on all the moon shot talk, opposite of humility, hubris. Nice portfolio you have, by the way!

  3. Hello,

    - Gold is bumping again under the 38% Fibo retracement at 1277. If we get through, my next target is the 50%, at 1307. Meanwhile, I'm dynamically managing my long position and have sold 25% of it at 1276.

    - silver is in this range 19 $ - 20.60 $, and here as well, I've sold 50% of my long silver position (2 contracts, couldn't sell less :)), because I took it at 19.10 with a stop loss just under 19, so with more than 1 $ of gain, it was time to take some quick profit. I like to secure some quick profit sometimes, which repays for the small risk trades I'm making on other things.

    - SP is back up under 1800...good I sold 1/3 of my short at 1740. It was a one day panic, and my stop loss above 1790 was activated, but that first 1/3 sell with profit ensure that I suffered no loss on the trade.

    Standby at the moment,

    Have a nice evening,

  4. Perfect environment for Yellen intro tomorrow. Super low interest rates, stocks like TSLA soaring, crashing natural gas prices, weak employment.

    1. Mark - no doubt there'll be hijinks tomorrow. I have been conditioned to quiver in my boots whenever a Fed Chair opens her mouth. The HUI ran out of gas right at resistance 225 resistance today, WTI double top?/stalling out exactly at Dec 30 high, Copper running with his tail between his legs as soon a he tagged 200DMA today. It wouldn't take much to tip it all back down tomorrow. I wouldn't count on tomorrow being the break out day for Gold, miners & commodities...

      I bought some insurance late today against a setback tomorrow. That said, I think there are interesting developments in the mining sector: obviously the buyout of OSK.to, SSRI reversing and up over 25% from its low point on news GG/ABX mine purchase, some juniors having incredible streaks (MGH), and RGLD up about 45% off its december low and trading overbought/RSI above 70 for two periods in 2014. Obviously, it won't continue unless gold breaks up out of its range. Secondly, this is Wild West stuff--not the "utilities of tomorrow" widow & orphan bonafides that the pundits were touting miners to be 2-3 years ago. But you're preaching to the choir.

  5. It's been a remarkable ride since early December precious metal stocks particularly. Probably time for a breather but there is still no belief and so few along for the ride thus far that this could keep going. If there is a pull back just another great buy opportunity if deep enough perhaps the final bottom. Governments need to inflate soon or deflation will wipe out debt and assets world wide. Gold will retain value either way.

  6. http://i58.tinypic.com/2ahsldf.jpg

    Hi Dan,

    If gold strengthen when USD weakens, then I keep being optimistic regarding gold, as long as EUR/USD is above 1.3480.
    Eur is the largest component of USD Index.
    And on this chart, it is clearly climbing the various Fibonacci levels, one by one. Last one about to be validated is 1.3480.

    Take care,

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