“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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


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Wednesday, November 5, 2014

HUI Long Term Chart


59 comments:

  1. dan, I can't think of a better way to show MASSIVE PHYSICAL CHINESE DEMAND than these two charts. they speak for themselves.

    ReplyDelete
    Replies
    1. buy the dip Hoosiers; the cost of production, blah blah

      Delete
    2. KID;

      Today, all the rage among the silver bugs was "the Mint sold out of Silver Eagles". Any day now, I swear....

      There are still a large number of big specs on the long side of this gold market and they are in the process of getting flushed.

      Delete
    3. Heard a commercial this morning talking about the "unprecedented" demand in China. And they said that the Chinese central banks "always know what they are doing and know where the price is going". LOL, seems like the more gold falls, the dumber and more desperate these whack commercials on the radio become.

      Delete
    4. With industrial demand and usage of Silver being at 50% of all yearly mined output, i'm not quite sure that coin buyers have much clout in pushing the physical market around.

      *this chart from a bullion pushing website shows coin usage at around 9% of supply.

      https://www.bullionvault.com/gold-news/files/silver-use-4-demand-sectors.png

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  2. Regarding the massive eastern buying.......

    One of the Biggest miners Barrick Gold released Q3 results last week and anyone interested in Gold should have a quick glance as there are a few little clues that point to the real situation in the physical market.

    The key point is that sales are DOWN!.

    **Quote**:

    The decrease in operating cash flow primarily reflects lower sales volumes and lower gross margins, partially offset by a decrease in income tax payments.

    http://www.barrick.com/investors/news/news-details/2014/Barrick-Reports-Third-Quarter-2014-Results/default.aspx

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    Replies
    1. Marvin M:

      Good stuff... very helpful!
      Thanks...

      Delete
  3. The Republicans won the senate because voters think that the economy is not recovering and is weak,

    gold is going down because investors think the economy is strong and does not need the Fed's support any more.

    Wonder who is right on the economy? Investors or Voters?

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    1. barneyb6;

      You are beginning to scare me.
      Gold is going down because the market is convinced that the biggest threat facing Central Banks is DEFLATION and not inflation.

      You have got to let go of your views and try to get in sync with the market or you are going to become a casualty on the trading floor or the investing floor.

      Delete
    2. Sorry to scare you Dan. ;)

      I agree deflation is clearly showing on the charts but how does one explain why the stock markets ignore the deflation trend as everything else falls in price?

      Investors must be thinking of an economic recovery is happening even as deflation is right in front of their faces?

      Delete
    3. Here are the 12 rules of Gold Buggism. Ask yourself if these apply to you. List is from Barry Ritholtz.

      1. Gold is a Currency: This is rule number 1. It is not a decorative or industrial metal, it is a permanent store of value, as dictated by Greeks in Lydia around 700 B.C. And, it shall be ever thus.

      2. The price of gold cannot fall, it can only be manipulated lower: When gold’s price falls, it is an unnatural act. It can only occur as the result of an international cabal of Central Bankers and politicians. Its a conspiracy, and we know who the guilty parties are.

      3. If the price of gold is rising, it is doing so despite enormous and desperate efforts by manipulators to prevent the rise: This is the corollary to the prior Rule of Gold manipulation. Gold runs up despite the overwhelming opposition to it.

      4. The world MUST return to the Gold Standard one day: It is inevitable that we will return to a Gold Standard. We all know this to be true. When we compare the size of the money supply to past amounts when there was a Gold Standard, we can derive prices of Gold in the $7,000, $10,000 even $15,000. Hence, we know its cheap even at $2,000.

      5. Central Bankers are printing money relentlessly, and this can only drive Gold prices higher: NOTE: You must ignore, for the moment, that Gold has not gone higher for the past 2 years as Central Banks around the world have ramped up QE. This only means that ultimately, Gold will go much much higher.

      6. Gold works whether the economy is good or bad: When we have a red hot economy, Gold is your hedge against inflation. When we have a bad economy, Gold is a safe harbor against collapse. It is a one way trade that never fails!

      7. Gold will survive after the world economy crumbles: Gold is the ultimate currency, as it has a value that will survive even after the whole world tumbles around you. Get yourself some gold coins and a Glock and you will be just fine when the whole world goes to shit. We welcome the era envisioned in the movie Mad Max.

      8. Never admit that Gold is essentially a sucker’s bet: Never discuss how in the last century, gold has run up only be to trounced in repeated massive sell offs (always blame rule #2 for this). Do not discuss how this has happened in 1915-20, 1941, 1947, 1951-66, 1974-76 1981, 1983-85, 1987-2000 and 2008.

      9. Gold is a rejection of government, and their control of fiat money and finance: There are no printing presses that produce gold, it is finite, natural and God created. How much we scrape out of the ground each year is limited, and the only variable to the old equation. (Just ignore Man’s natural tendency to organize into to City-States over the past 12,000 years).

      10. All Gold discussions must contain ominous macro forecasts: Your description of why Gold is going higher must consist of spurious correlations, unprovable predictions, and a guarded expectation of bad things in the future. Avoid empirical data at all costs.

      11. Gold is always rallying in one currency or another: Sure, it may be down 30% in Dollars, the reserve currency it is priced in, but you can always find a currency falling faster than it does and claim you own it in that denomination. Last week, it was up in Japanese Yen. This week, it is up in Zimbabwe dollars.

      12. China & India know the value of Gold; the Western world does not: The massive buying of gold by consumers in Chindia reflects the culture, intelligence and investing savvy of the people in these countries. The West doesn’t get it, and it is their loss.

      Delete
    4. Thats quite the list that guy thought of Eric.

      So if even a couple of those in the list apply to someone that chooses to invest in gold they are a gold bug huh?

      Delete
    5. barneyb6;

      Are you a newcomer to this blog? the reason I ask is because for the last few years, I have been writing, repeatedly, over and over again, to explain why stocks are rising.

      It has to do with a near zero interest rate environment. Stocks are the only game in town for large sums of money to flow into and to obtain some sort of decent yield.

      Delete
    6. No I have read your excellent blog over the years Dan, just not as frequently in the past. These are more interesting times now to read peoples opinions on markets.

      Thanks for the reply on stocks, seems they will even ignore deflation and just keep buying hoping the market goes higher to gain a yield.

      Delete
    7. I agree with some of Eric W's goldbug list. But I think he's missing something in between the sell-offs. During healthy financial times gold is a portfolio drag. It will underperform everything. It's real role is as insurance as we all play in the credit playground for a few decades then all of a sudden the asset that didn't matter, MATTERS a lot.

      I'm looking at a gold as a way to short general equities in the long run with the Dow/gold ratio probably going below unity. Sounds crazy with the state of things now. Here's something crazier: how about the Dow:Gold:HUI ratio all reaching 1:1:1. "God no," you say, "that would make miners horrifically overvalued.: Damn right!
      But look how undervalued they are now. Absolutely stupid cheap.

      Delete
  4. Quite ugly. The only "positive" on the HUI chart is that there appears to be some support at the 11 year low....

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  5. BTW -- America is NOT yet in a state of all out deflation. We are actually experience disinflation to low inflation. The economy can still grow in this state. In fact, I predict that the economy will grow as we continue through our "Great American Energy Revolution" --- which will also keep inflation in check. According to Deutsche Bank, a $10 fluctuation in oil prices translates to a 25 cent fluctuation in the retail price of gasoline. Each penny of increase or decrease in the price of gasoline equates to $1.4 billion in household energy consumption. Low oil prices would amount to a massive stimulus package for American consumers. AND going forward, the ability of the United States to add “energy superpower” to its long list of superlatives — agricultural superpower, technology superpower, demographic superpower, entrepreneurial innovation superpower etc — has a huge amount of embedded economic value.

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    1. Oh wow Eric, you are even using the terms that these Fed guys just make up like disinflation or low inflation.

      Is there a list for "Fed bug" as that might apply to you?

      Delete
    2. If the deflation in the oil price continues the American energy revolution will have to be put on hold as frackers will go out of business without profits.

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    3. Lol Fed bug. I like that. So drunk on the koolaid that CNBC might just have him on. Likely to call the top.

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    4. Regarding WTI in regards to the TA perspective of 10%=correction, 20%=Bear. By that measure, we are in bear territory, no? Not so great for inflation.

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    5. and this from the hard-hitting jornalists at USA Today....."Faced with falling market share, especially in the U.S., Saudi Arabia has reduced crude prices for U.S. refiners by about $2 a barrel since August, including a roughly 40-cent cut Monday, says independent oil analyst Philip Verleger. More significantly, the world's largest oil producer has given no signal it intends to pare back production to stabilize prices.

      Saudi Arabia's hard-line position is reminiscent of stances it took in the early 1980s and late 1990 as it lowered prices in efforts to increase its market share amid weak global demand.

      Tom Kloza, chief global analyst for the Oil Price Information Service, predicts Saudi Arabia ultimately will scale back production, but not before U.S. crude falls to about $70 a barrel and gasoline prices dip as low as $2.75 a gallon. Next year, Kloza estimates, gas prices will remain unusually low amid weak global demand, peaking at $3.25 a gallon."

      Delete
    6. Yes the "Fed bug" would seem to be the opposite of the "Gold bug" then, in that the "Fed bug" believes endless money printing will not create any problems in the markets.

      Investors will just stay in a paper currency no matter how much money is printed by a country would seem to be what the "Fed bug" worshipper type believes.

      Delete
    7. how did G&S perform in the early 80's (post-81)...argh. Not so good. Let's temper our expectations and hopes some, i would think.

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    8. Fed can't do as much as POO (Price Of Oil) does to effect inflation. Also, gold can be as flimsy as paper if nobody cares about it.

      Delete
    9. If the Fed starts another QE that will reverse the dollars up trend and make oil more expensive in the US again.

      Delete
    10. In regard to oil, there is something called "supply" and "demand". Have you ever heard of that? The oil boom in America is drastically increasing the oil supply as a near equivalent of a Saudi Arabia was added to the market. Perhaps that has something to do with falling prices.

      Regarding the Fed, I am actually economically conservative. I think it is silly to try and grow an economy via monetary policy. But I also try to live in the real world and deal with reality. Just because you do not get your way, it doesn't make it right or ethical for you to resort to alarmism. You keep talking about Fed policy and seem to be quite afraid of it - thus you buy gold. BUT the problem is that you do NOT understand what the Fed is doing. Your preconceived notions (you learn from ZH) are all completely false.

      Delete
    11. Problem is the state of the debt container is full. US needs higher nominal income to service it. Falling prices and incomes would be nice if everyone wasn't levered.

      Delete
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  7. Two things are readily apparent to me, and from these I deduce a third

    1. All of the geopolitical events we have experienced - Ukraine, ISIS, Ebola, Chinese gold purchases, unseasonably bad weather, Gaza etc - have not been sufficient to support the price of Gold, much less of Silver

    2. The macroeconomic landscape - Taper/Abenomics, Inflation/Deflation, negative GDP growth / 4%+, higher rates, currency wars etc - also appear net-net to have provided no support for Preciious Metals, which are of course not the only commodities heading South for the Winter

    from this I deduce that none of the popular memes - either individually or collectively - is likely to provide a lifeboat for the precious metals, and my observation of the charts ("painted" or otherwise, manipulated or not) tells me that we are now firmly in a downtrend with no immediate indication of when or why it will stop, much less reverse. In these circumstances, whilst I am not necessarily a distressed Seller, I am not minded to make further purchases or to "keep stacking", because I sense that, whether or not Precious Metals are valuable assets, there may be far better opportunities to purchase at significantly lower prices in the near future

    Am I alone in forming that view, and does it mean I am a GoldBug or a FedBug or an internet Troll, or trying to talk the market down? Someone yesterday write that my jokes are getting tired and lame: please accept my apologies, but what I am trying to express is not humour (or ridicule) but exasperation, and, yes, I too am finding being exasperated a bit repetitive these days

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  8. "There are still a large number of big specs on the long side of this gold market and they are in the process of getting flushed."

    Thanks Dan, this is a key point.
    I'll be looking for your comments about this week's COT reports :)
    For sure I reinforced my short positions when we broke 1180.
    Maybe I'll even add up a bit more, precisely because of that.
    I think we should realize this bear movement can also continue because not only bulls are on the run but bears are pushing their advantage. Many bears may have been on the sidelines before we broke 1180, and now they are getting in the market on the short side.

    ReplyDelete
  9. It's axiomatic that the HUI will continue to drop until gold forms at least a temporary bottom (as it did in Nov 2000). I can't imagine that the HUI:GOLD ratio will improve until this next bottom is established. So with support at best 1050, but in all likelihood 1,000 w/ a spike low under 1,000 gives HUI levels of 131, 125, 112.5.

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    Replies
    1. Axiomatic probably too strong a word. Should have phrased it "Likely"

      Delete
  10. Inflation seems to me to be contained in the stock market, created via the QEs low rates and the printing. The price of oil is declining seeing support at about 65. This is deflationary, and may have a slight silver lining by beginning to create a more attractive environment for investment in the US because the manufacturing and transport of goods and services are comparatively less expensive. With a strong dollar the price of fracking may not be as bad as thought to make a profit because we are sending fewer strong dollars to Saudi Arabia to purchase their oil. These dollars can be used to create jobs and upgrade infrastructure here in the US. At this time the US needs a sound immigration policy in this environment that would allow educated motivated workers to come to a place that will be more prosperous in the near future. Not a policy that will just create more trough feeders. The US also needs a tax policy that would enable a repatriation of US profits sitting overseas, so that they can take part in 21st century America. Also the income tax code needs to be simplified to help the earner keep more and pay down debt and save to invest in their own future. Gold too plays a role here. If all the QE money (inflation) begins to exit the indexes, corrects to perhaps S&P1600, and finds another container like gold it will NOT be released into other areas that may cause inflation to begin to spike. This set up could happen before the next bull, like the one that lasted from @ 1980 - 2000. The massive printing can not simply be allowed to be released because there is no answer to that problem. Its a tall order, but could possibly work.

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    Replies
    1. I completely agree - except regarding your point on "money printing". It was not printing and there is nothing to release into the economy.

      And per this point: "enable a repatriation of US profits sitting overseas" this would be huge! There are $trillions over seas waiting to come home. With a new Congress - a Bill will be passed to address this issue.

      Delete
    2. I may be totally wrong on this, I have been in the past, but here is how I see it. At the discount window stands GS that is able to barrow at near zero from the FED. GS has a client The Florida Teachers Union Pension Fund (FTPF) that wants to barrow a $1 billion at 1.5%. GS tells the FED and they print a note for a billion to shore up its Pension Fund, then the FED puts a $1 billion bond on their books that yields 1.5%. GS then lends the note to FTPF for 2% in the form of margin. Then GS buys equities with the note, for a commission of course, and puts them into the FTPF portfolio. The debt is on the FEDs books, GS makes out and FTPF is shored up with other peoples future liability; the bond on the FEDs books. 'Spredin da wealth'. Oh, and the indexes go up, or actually inflate. The inflation is contained in the indexes. This is what happened from QE1 and beyond. If this is not the way it was handled, where can one point and see an additional $5 trillion in our country? It should be very easy to point to. Like a bran new i95 on the east coast. Instead it was used to shore up political supporters of the administrations flailing pension funds and boondoggles like Solindra. The release into the economy would occur if the equities are sold and the money instead of paying off the margin at GS is instead distributed to the pensioners through the pensions liability to the members. Some of the Lump Sum packages are staggering in these Union and Municipality pension deals. Some estimate that the total lability is well over $100 trillion for the combined pensions in the US, and it isn't there. The $5 trillion was just a temporary buy off at the expense of the people who received nothing.

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    1. Heard that nonsense for 3 year now. I disagree, people are stupid and you just proved the point.

      Delete
  12. Paper Poppet

    how do YOU measure value, and whatever it is, wouldnt you rather have more if it by waiting until the price drops?

    The US Mint is not a significant player in the bullion markets - this is just a trinket stall for sentimental fools and delusiional fantasists: generic Silver is readily available in abundance. Last week the Royal Mint in the UK ran out of its 2014 edition 1/40 oz Gold Britannia, but since then Gold has tanked. Thats because the 1/40 iz Gold Britannia is a novelty item restricted to a 10,000 piece limited edition, not because Gold is scarce, the LBMA is about to default, or The End of the World is Nigh (again)

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    1. @Paper
      -Google "Leveraged ETF Decay."
      -DUST/NUGT are trading vehicles not investments.
      -Action in DUST was as to be expected +10.8% exactly inverse -3.6% of GDX
      -JDSAT up over 20%, awesome.

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    3. Are you really that stupid?
      DECAY
      http://pragcap.com/why-investors-still-lose-money-trading-leveraged-etfs

      Delete
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  15. Step #1, ignore 95% of the jibber jabber on the internet.
    Step #2, don't fight the tape.
    Step #3, you win.

    ReplyDelete
  16. Poppet

    I can buy ANY amount of Gold Bullion I could ever reasonably desire at less than 2% over live spot, 24/7 or face to face (I have been there) without any quibble whatsoever

    https://www.bullionstar.com/buy/product/gold_pamp_cast_100g

    You are just plain WRONG and you urgently need to get over yourself and wise up, fast. The Real World is not the way you would like it to be - deal with it already!

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  17. I see a EURUSD chart and it just plummeted from 1.254 to 1.241

    Not seeing any ECB/Draghi news just yet.

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    1. Draghi announced preparations for new measures to stimulate

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    2. Thanks EW. Let's see if it's more than words this time around.

      Delete
  18. export sales #Wheat: 9.77 mil bu; #Corn: 18.83 mil bu; #Soybeans: 59.28 mil bu...this rallied beans into the pause.
    wheat that number is very poor, brazil bought none.

    Shivering in the Midwest now? Don't look at next week. Arctic #cold outbreak ahead.

    Cattle futures tumble on fears of consumer push back, hogs ease on expectations of rising supply, stronger dollar threatens to derail exports.

    CL failed at those twin lows in 79's yesterday, ES new all time high off the 8:30ET econ data, USDX lookn at the 88 round number.

    2 to go...cheerio!

    ReplyDelete
  19. Wow, the sheer # of posts here tells me that many are experiencing serious pain on this downward PM cycle.

    No need to read the tea leaves, once the comments are down to less than 10 per post, we've likely hit the bottom. :)

    Thanks again Dan for showing us all the facts.

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  20. futures 101 says mom & pop are always wrong:
    The U.S. Mint said on Wednesday it has temporarily sold out of its American Eagle silver bullion coins following "tremendous'' demand in the past several weeks.

    futures 101 says markets bottom when nobody is bullish and the volume dries up:

    Dan mentioned the psych 15 round number, then there is a former low at 14.66 silver.

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  21. I don't follow mining shares, but my general impression is that the sector has been under pressure for some time. Perhaps someine can correct me, but my presumption is therefore that the share prices of most if not all miners will be lower now than in 2013

    Imagine my surprise, therefore, when the following banner ad appeared on Zerohedge earlier today, promising to tell me which the "bargain" stocks were in 2013
    http://subscribe.wealthdaily.com/47427?gclid=CJK_jOOd5sECFfLJtAodnEkA8g

    Now, forgive me if I sound cynical, but is suchninformation notbin any case useless, insofar as I am unable to magically buy (or short) those "bargain" stocks even if I wanted to? Equally, whilst I have no idea whether these particular stocks were already tipped durjng 2013, or have simply been picked with the benefit if hindsight, surely what I am looking for is some indication of what are cinsidered "bargains" in November 2014 (and hopefully some explanation why)

    In the circumstances, therefire, I unfortunateky won't be subscribing: please feel free to call me a FedBug or a Troll or a Shill if that adds a little pep to your portfolio


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  22. oh, by the way, the Zerohedge headline for tha artticle (in case you want to subscribe) was QE5 - Silver will soar even though Silver wasnt mentioned in the article and my understanding is that QE5 is off the agenda fir the time being. Anyhow, it makes a catchy headline, so maybe that was all that was intended

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