Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/27_KWN_Weekly_Metals_Wrap.html
Saturday, July 27, 2013
Friday, July 26, 2013
Gold showing more signs of Resiliency
Gold was under pressure for most of the session today as the weakness in crude oil and most of the commodity sector - some of which was related to news out of China that their authorities were forcing curtailed manufacturing production - tended to undercut any inflation fears.
After the close of the pit session when the only thing that was open was the screen trade, the metal slowly garnered additional strength and began pushing higher. As I type this, it is now $4.00 higher on the day, a push of some $11 off the pit session close.
That, plus the fact that the HUI managed to claw its way back higher also towards the end of the session, is certainly constructive price action as it takes away any downside momentum edge that the bears had worked so hard to obtain here on Friday. It does seem that the usual Friday selling is appearing but enough players are willing to wait for this selling to make its appearance and then move in and ambush the shorts. That is certainly a change of pace from what we have been accustomed to seeing.
I am of the view that it is going to be difficult for the gold bears to take the metal down and keep it down UNLESS THE DOLLAR COOPERATES with them by moving higher once again. Today, was another day that saw a strong wave of dollar selling - this time accompanied by lower interest rates in the US Treasury market.
At this moment, for whatever reason, the Dollar seems to be running out of friends. Keep in mind that the recent strength in the Dollar was due to a couple of factors.
First was the rising US stock market in a low interest rate environment. Foreign money has been flooding into the US in search of yield and the US markets were the best game in town as far as many were concerned. All that foreign currency must be exchanged for US Dollars with which stocks can be bought and that has contributed to upward pressure on the greenback.
Second was the rising interest rate environment here in the US. Again, in a global economy in which many investors are starving for yield, the thinking has been that out of all the major economies globally, the US was perhaps the only one in which interest rates could be expected to move higher. The others were stagnant. That translates to more foreign inflows and more currency exchanges this time to be used to purchase US debt.
This week something seemed to change in that regards. My own suspicions are that traders are coming back to focusing on the upcoming circus of watching the US argue whether it should increase the size of its national debt faster or slower. Notice, I am not even talking about trying to reduce the damned thing.
This same impasse is what we went through late last year when the government was running up against the federal debt limit. Here we are right back there once again. I believe this is spooking those who might otherwise want to buy Dollars to invest in US Dollar based assets.
As long as this sentiment continues, and the Dollar moves lower, gold will garner dip buying support. If the Dollar were to somehow re-embark on its upward journey, gold would see more selling pressure.
As you can see on the gold chart, the price is oscillating around the zone created by the 40 day and 50 day moving averages. Bulls cannot take it out of the top of that zone yet but neither can the bears break it down. However, with the 10 day moving average turning higher and the 20 day as well, the technical momentum is beginning to shift more firmly in favor of the bulls.
Next week will be important then. If the bears cannot break it down early in the week, there is a good chance that the metal is going to break overhead resistance as some of these more stubborn shorts are going to begin looking to exit. We have already seen quite a bit of hedge fund short covering in this market based on the recent COT reports but there is still a fairly large contingent of them hanging in there and selling into rallies. That crowd is a pure technical analysis based one and if their computerized black boxes tell them to start buying, that is exactly what they are going to do.
I would say that as long as this week's low near $1297 does not give way, the bulls have short term control of the market.
I also want to note here that gold is back to knocking on the door of that very same level from which it plummeted $180 back in June when Chairman Bernanke started pretending he was suddenly a hawk and was boldly proclaiming his Tapering talk. Of course we all are keenly aware of his morphing back into the supreme dove of the Fed with his now famous "for the foreseeable future" comments in regards to the length of the current bond buying program.
Either way, the $1360 level is that level from which gold collapsed and here it is, a month or so later, and gold is right back up there as if nothing happened. That is why this upcoming week's Fed watch will be a key for this market.
One last thing to watch for next week, and I stated this in an earlier post, is the delivery process for the August gold contract and its subsequent price action. We will be watching to see whether it runs higher in price than the deferred contracts but even more importantly, whether the front of the board takes on a backwardation structure or not. If it does, $1350 should give way easily to confirm that and then $1360. If not, then we can put that to rest for a while again.
The mining shares are tracking the movement in gold quite closely this time around. The HUI is not breaking down but is holding steady and is trying to build up some steam to see if it can press higher. The key to a trending move in the HUI lies above the 290 level. Until then the shares are moving higher off a bottom that appears to be very solid and progressing into a range or consolidative type trade. I am sure that those long term holders of the shares are relieved to see some of their net worth recovering!
August Gold Par with October Gold
In continuing to monitor the gold spreads, I wanted to note that the August gold contract, which will be heading into delivery next week, has moved to now trading at par with the October gold contract based on the current sets of bids and offers. It is still discounted to the most active December however as well as the February 2014 and June 2014 contracts.
Here are the current sets of bids at this moment:
August 2013 $1321.30
October 2013 $1321.30
December 2013 $1321.60
February 2013 $1322.60
June 2014 $1324.70
Hopefully those who have more time on their hands than I do can monitor the delivery process more closely than I will be able to do and keep us posted on how that goes next week.
Price still needs to push through $1350 to get anything more exciting going. I cannot overemphasize this strongly enough. PRICE MUST CONFIRM ANY TALK OF SUPPLY TIGHTNESS.
The HUI is weaker today also and is not providing any support for the metal at this point in the trading game.
Next week traders will be focusing on the Fed once again.
News out of China derailed silver and especially copper today. It seems the authorities there are ordering factories to Cease and Desist overproducing. That is being interpreted by traders as meaning a further slowdown in growth for the biggest base metals user on the planet. The HSBC manufacturing purchaser managers index hit an eleven month low over there this week.
I have no idea what is going on with the Yen today. I can tell you that there is increasing talk about the upcoming US budget battle once again. Here we go with the now "normal" battle between those who believe the US is spending too much money that it does not have (count me in on this group ) and those who think it needs to spend more and raise taxes again.
By the way, did any of you who follow golf see that Phil Mickelson, who played perhaps the best round of golf of his entire career at last weekend's British Open in Muirfield, will end up paying nearly 61% of all this earnings out in the form of taxes! Something is horribly wrong when the state takes that kind of money from anyone. I have long said that if the tithe, (10%) was good enough for the Almighty to extract from His ancient people, then it should be good enough for puny, mortal man to extract. Apparently the state puts itself above God but then again, what else is new about that?
Here are the current sets of bids at this moment:
August 2013 $1321.30
October 2013 $1321.30
December 2013 $1321.60
February 2013 $1322.60
June 2014 $1324.70
Hopefully those who have more time on their hands than I do can monitor the delivery process more closely than I will be able to do and keep us posted on how that goes next week.
Price still needs to push through $1350 to get anything more exciting going. I cannot overemphasize this strongly enough. PRICE MUST CONFIRM ANY TALK OF SUPPLY TIGHTNESS.
The HUI is weaker today also and is not providing any support for the metal at this point in the trading game.
Next week traders will be focusing on the Fed once again.
News out of China derailed silver and especially copper today. It seems the authorities there are ordering factories to Cease and Desist overproducing. That is being interpreted by traders as meaning a further slowdown in growth for the biggest base metals user on the planet. The HSBC manufacturing purchaser managers index hit an eleven month low over there this week.
I have no idea what is going on with the Yen today. I can tell you that there is increasing talk about the upcoming US budget battle once again. Here we go with the now "normal" battle between those who believe the US is spending too much money that it does not have (count me in on this group ) and those who think it needs to spend more and raise taxes again.
By the way, did any of you who follow golf see that Phil Mickelson, who played perhaps the best round of golf of his entire career at last weekend's British Open in Muirfield, will end up paying nearly 61% of all this earnings out in the form of taxes! Something is horribly wrong when the state takes that kind of money from anyone. I have long said that if the tithe, (10%) was good enough for the Almighty to extract from His ancient people, then it should be good enough for puny, mortal man to extract. Apparently the state puts itself above God but then again, what else is new about that?
Monitoring some Gold Spreads
Sometimes a picture can be worth a thousand words so perhaps this graph of the spread between the delivery month August 2013 Gold and the most active December 2013 gold will help illustrate a point that I have been attempting to make in regards to the idea of backwardation in the gold market.
The spread is obtained by taking the price of the August gold contract and subtracting the price of the December gold contract from it. If the August is gaining on the December, the line on the graph will rise, as it is indeed doing.
I wish to note that I have stated several times in previous posts that the spreads in gold have indeed been tightening. That is worth monitoring; however, the market has not moved into a backwardation structure.
Now that August is entering its delivery period, we will get the chance to see if buyers of gold, who are using the Comex to source it, will indeed be willing to pay enough for it to take its price above that of the rest of the field.
Some have asked me in private emails why a market is generally in contango (the nearby months trade below the distant months in price). The reason is that the commodity in question, in this case gold, has to be stored. It also, in nearly all cases that I am aware of, must be insured against loss. Those are costs that are added into the price. Obviously the longer one has to pay storage costs each and every month, and the longer one has to insure it, the more the monthly premiums add up.
Those prices are added in by the futures market as it attempts to move the price structure of the board to line up with the current supply/demand dynamic that traders are working with.
As commodity markets are constantly in a state of flux, these spreads will change according to the changing views of players.
Generally speaking, and again this is a general tendency, markets that are in uptrends will display a tightening of the front month spreads. Gold is an unusual animal in the sense that it is not like cattle or corn or beans, etc, which are eaten and consumed, or copper which is used in electrical wiring, etc. Yes, there are industrial applications for gold which consume it in the sense of taking it out of bullion form , as well as jewelry demand, but for the most part, gold simply changes hands from one entity/person to another and is then stored elsewhere. In the case of jewelry, the gold is still there. It is merely in a different form.
I should note here that even as gold was imploding in price, these spreads were in the processing of tightening which is quite different than that which we can usually expect across most other commodity markets. More precisely, the spreads gave no indication whatsoever of the massive barrage of hedge fund selling and long liquidation which saw the price of gold collapse nearly $400 this year at one point.
I personally do not trade the gold spreads because they are more often than not, about as exciting as watching paint drying and quite frankly there are times that I do not understand what the heck that they are doing.
Here is another spread chart - this time it is the October Gold contract vs the December gold contract. Here too the spread is tightening but has not yet seen the October trading at a premium to the December
We'll continue to keep an eye on all this especially as August deliveries begin to occur. Remember however, spreads or no spreads, tightening or no tightening - the final arbiter is the ACTUAL PRICE ACTION on the board. Strong demand led bull markets consistently breach overhead chart resistance levels. When all is said and done, price alone matters because that is the collective vote of all market participants as to what the VALUE of anything is at any given moment. The market always has the last say!
By the way, as I am finishing up typing these comments, I see that Crude oil is breaking down more sharply once again. There were some analysts who were suggesting gold was gaining strength because of rising crude oil and unleaded gasoline prices which were incipient signs of inflation pressures building in the economy. As previously stated however, energy is just one shoe of the inflation boogey man; the other is food costs and those are sinking....
Either way, with crude moving sharply lower today and breaking downside chart support, with grain prices moving lower, today, at least for this day, wholesale food and energy prices are moving lower and that takes the inflation factor away from the minds of traders, again, at least for today.
The spread is obtained by taking the price of the August gold contract and subtracting the price of the December gold contract from it. If the August is gaining on the December, the line on the graph will rise, as it is indeed doing.
I wish to note that I have stated several times in previous posts that the spreads in gold have indeed been tightening. That is worth monitoring; however, the market has not moved into a backwardation structure.
Now that August is entering its delivery period, we will get the chance to see if buyers of gold, who are using the Comex to source it, will indeed be willing to pay enough for it to take its price above that of the rest of the field.
Some have asked me in private emails why a market is generally in contango (the nearby months trade below the distant months in price). The reason is that the commodity in question, in this case gold, has to be stored. It also, in nearly all cases that I am aware of, must be insured against loss. Those are costs that are added into the price. Obviously the longer one has to pay storage costs each and every month, and the longer one has to insure it, the more the monthly premiums add up.
Those prices are added in by the futures market as it attempts to move the price structure of the board to line up with the current supply/demand dynamic that traders are working with.
As commodity markets are constantly in a state of flux, these spreads will change according to the changing views of players.
Generally speaking, and again this is a general tendency, markets that are in uptrends will display a tightening of the front month spreads. Gold is an unusual animal in the sense that it is not like cattle or corn or beans, etc, which are eaten and consumed, or copper which is used in electrical wiring, etc. Yes, there are industrial applications for gold which consume it in the sense of taking it out of bullion form , as well as jewelry demand, but for the most part, gold simply changes hands from one entity/person to another and is then stored elsewhere. In the case of jewelry, the gold is still there. It is merely in a different form.
I should note here that even as gold was imploding in price, these spreads were in the processing of tightening which is quite different than that which we can usually expect across most other commodity markets. More precisely, the spreads gave no indication whatsoever of the massive barrage of hedge fund selling and long liquidation which saw the price of gold collapse nearly $400 this year at one point.
I personally do not trade the gold spreads because they are more often than not, about as exciting as watching paint drying and quite frankly there are times that I do not understand what the heck that they are doing.
Here is another spread chart - this time it is the October Gold contract vs the December gold contract. Here too the spread is tightening but has not yet seen the October trading at a premium to the December
We'll continue to keep an eye on all this especially as August deliveries begin to occur. Remember however, spreads or no spreads, tightening or no tightening - the final arbiter is the ACTUAL PRICE ACTION on the board. Strong demand led bull markets consistently breach overhead chart resistance levels. When all is said and done, price alone matters because that is the collective vote of all market participants as to what the VALUE of anything is at any given moment. The market always has the last say!
By the way, as I am finishing up typing these comments, I see that Crude oil is breaking down more sharply once again. There were some analysts who were suggesting gold was gaining strength because of rising crude oil and unleaded gasoline prices which were incipient signs of inflation pressures building in the economy. As previously stated however, energy is just one shoe of the inflation boogey man; the other is food costs and those are sinking....
Either way, with crude moving sharply lower today and breaking downside chart support, with grain prices moving lower, today, at least for this day, wholesale food and energy prices are moving lower and that takes the inflation factor away from the minds of traders, again, at least for today.
Thursday, July 25, 2013
Gold Backwardation Misinformation
Let me preface this short missive by stating that this is pretty much a rehash of a comment I posted in the comments section below one of my recent articles in response to some erroneous information being supplied by a particular reader.
I also wish to state that this is in no ways meant to be singling him out for any sort of ridicule or mockery in any fashion. We have enough of that stuff that goes around these days. He is however, symptomatic of those who continue to greatly err on the subject of backwardation and thus I thought it best to put these comments up as a general post in the hopes of a more widespread dissemination.
I am also glad to see that my pal Jesse over at his website, (which is listed here as one of my favorites ) has also done the gold community a great service by attempting to also define this term and dispel some myths surrounding it. I would urge my readers to check that out when you can.
http://jessescrossroadscafe.blogspot.com/2013/07/gold-backwardation-when-good-people.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29
Here are the comments I posted earlier today repeated in their entirety with some fresh additions.
Thanks as always for your comments. What I am actually saying however is that backwardation is not happening at all on the Comex, not even for a few minutes. I was using absurdity to illustrate the absurd.
For example - here is the latest series of bids for the August, December, February and June gold comex contracts in order as of this snapshot.
August 2013 $1324.2
December 2013 $1325.1
February 2014 $1326.1
June 2014 $1328.4
As usual I am sitting here and have been watching this all morning as well as a goodly portion of last evening's trade and not once has any nearby contract had a bid higher than a back month.
There is no backwardation occurring on the Comex at this present time for any time interval whatsoever.
I am attempting to teach folks about this so as to prevent the spreading of more disinformation that so frequently afflicts the gold bug community. This is the reason why more often than not, many of them get discredited and end up doing disservice to their cause.
The reason why some contracts occasionally have a last trade price higher than a more distant month is because the more distant months are not trading as frequently because there is no liquidity in those months.
when you have a volume of trade of 182,000 in a nearby versus 2,085 in a more distant February for example - there are going to be times when the last trade price of a more distant month might be at a discount to a nearby. That is merely a function of low liquidity. If you want to see where the contract might trade IF AN ACTUAL TRADE OCCURRED, you have to look at the Bids and Offers and see where those are currently sitting.
In the time it took me to type the above comments, here is now the latest series of bids...
August 2013 $1325.3
December 2013 $1326.3
February 2014 $1327.4
June 2014 $1329.7
Again, notice the market is in contango at all times. There is not a single instance of backwardation.
This might help dispel any confusion about this current misinformation going around but in all honesty, I doubt it. Most gold buys are pretty closed mind about this stuff having made up their minds beforehand, truth be damned.
Here we are now in the Asian session this evening as I post these new set of comments and here is a new set of bids for those same contract months at this moment:
August 2013 $1334.70
December 2013 $1335.30
February 2014 $1336.20
June 2014 $1338.20
Once again, NO BACKWARDATION....
Why am I making a big thing out of this? Perhaps because I try to be a stickler for truth. I have been in this industry now as a private trader for more than 2 decades. In that span, I have seen enough charlatans, quacks, con artists, flim flam mans, and what have you. I have also seen a proliferation of misinformation abounding now that anyone with a keyboard and an internet connection can suddenly dub themselves an "expert analyst".
The gold community in particular seems to be plagued with this sort of thing, far more than any other commodity complex. Yes, we have them in the grains as well with the constant spreading of misinformation, falsehood and assorted 'rumors' that just so happen to line up with the position that those who are propagating have taken in the market that they are attempting to either talk up or talk down.
When it comes to the topic of backwardation, I explained the significance of that last evening in a response that I wrote in the comments section.
here are the key highlights from that post:
It (BACKWARDATION) that that the commodity is in a serious short supply which is not able to keep up with current demand levels. What the futures board then does is to move into backwardation to entice sellers to part with the metal RIGHT THEN AND NOW instead of holding onto it later in hopes of a better price in the future.
That is done by pushing the price higher ( in the nearby months) ABOVE The back months and taking away the incentive to hold or store the particular commodity.
...
A market with a true supply shortage will REMAIN THAT WAY all the way into the closing bell and will maintain that structure for as long as is necessary for the current shortage to be alleviated.
Based on this fact - gold is not in backwardation and has not been at any time whatsoever on the Comex during the entire time this backwardation talk commenced and picked up some gullible followers.
Look, I get it - those who are advocating for honest money ( as I am ) and who are generally bullish gold all the time ( I am not) , without exception, even as it is plunging, will latch hold of any sort of story that can be construed as strongly bullish because it CONFIRMS THEIR BIAS TOWARDS THE LONG SIDE of the metal. That is not hard to understand as it is human nature. However, to try to present something as factual when it is in fact, incorrect, is what causes me to take a stand against it.
Gold does not need a campaign of misinformation to define it is honest money. What too many seem to forget is that outside of the gold community, many other investors/traders do not share their view of the metal.
Let's be blunt, for those in that group, gold is an asset that throws off no yield whatsoever. Thus, they had better have a good reason to take investment capital and allocate it into the metal. If they are getting decent returns on their investments elsewhere, and have no concern whatsoever about inflationary issues, they are not going to buy gold. It really is that simple. We who favor honest money must come to terms with the fact that an extremely large portion of the global investment community does not share our views about the value of the metal.
As far as any "Panic" to buy gold (this is how some are now defining the current state of the gold market as they peddle the backwardation nonsense), the futures board simply does not confirm that by its present contango structure. We just came off what I would describe as a near "panic" in the corn market back when the March contract expired and when the May contract expired. That was a true case of backwardation.
I put far more credence in the withdrawals of the Comex warehouse inventories and the GOFO rates. By the way, Dave, my buddy in Denver, whose website is also linked to here at my site, has done good work on this topic. But, as I have written before and will do so again - without a true backwardation structure in the gold futures market, those things alone are not a sufficient reason for me as a trader to rush in an take a long position in gold. I need market price confirmation and chart pattern confirmation.
One last thing - too many people are erroneously defining the word "backwardation" by confusing it with the term "basis".
As I have already defined it, backwardation is a structure or condition of the futures market that occurs when the price of the nearby contract is trading above the more distant month contracts. It is a signal of a tightness in supply at current demand levels.
BASIS is an entirely different matter. Some are claiming that because the SPOT MARKET CASH PRICE of gold may be, at some times, higher than the nearby futures contract, that the market is in backwardation. AGAIN, It IS NOT.
What a strong basis means, ( when the cash market price is above the futures market price ) is that demand for that commodity, be it gold or soybeans or wheat or whatever, is STRONGER THAN AVAILABLE SUPPLY at THAT PARTICULAR LOCATION.
We see this all the time in the grain markets. I also see it occur at times in the various direct markets for hogs as well as some of the individual packers buying cattle in Nebraska or Kansas or Texas.
There are times in the grain markets that one elevator will be paying higher prices for grains than the nearby on the board because of logistical issues such as a flooded river, etc., which is making it difficult for the grain to get to their location. They will then have to offer incentives to get it there. That does not necessarily mean that there is a world-wide shortage of that grain; it does mean that as far as that location goes, there is a shortage. The strong price being offered is the incentive to give sellers every reason to try to get their product to that elevator operator.
My friend John Brimelow publishes an excellent "Gold Jottings" report where he is perhaps the best in sourcing the cash market prices for gold in India and elsewhere in the Far East. John will report on whether the spot price for gold is at a premium or at a discount. That is a good gauge to demand IN THAT LOCATION OR AREA however and it does not necessarily translate to the same thing here in the US or elsewhere in Europe for example. Heck, there are times when buyers in India are paying huge premiums over the world price of gold elsewhere. That does not mean gold is in backwardation. PERIOD!
When we do however see a STRONG BASIS PLUS a BACKWARDATION STRUCTURE ON THE FUTURES BOARD, then we have the real deal.
I also want to echo something that Jesse mentioned in his nice piece on this; those who keep crying up backwardation in gold had better damned well be careful that they do not get what they are wishing for. As one of the posters here has said, gold at $50,000 or silver at $500 means that I do not want to be living anywhere near civilization. The sheer chaos, fear, breakdown in society, etc. are not the things that I wish for no matter whether gold goes up or not.
I am already fearful enough about the state of our nation, its gargantuan level of indebtedness, its moral decay, its hedonism and lack of work ethic, its dumbing down, and its corrupt monetary system without having to worry about MAD MAX BEYOND THE THUNDERDOME coming to a city or town near me!
Gold owners and buyers - just lighten up a bit... life consists of far more than the last price of gold, or silver for that matter. Family, Friends, Faith - these are far more important... do not let the means to an end become your reason for existence or happiness.
I also wish to state that this is in no ways meant to be singling him out for any sort of ridicule or mockery in any fashion. We have enough of that stuff that goes around these days. He is however, symptomatic of those who continue to greatly err on the subject of backwardation and thus I thought it best to put these comments up as a general post in the hopes of a more widespread dissemination.
I am also glad to see that my pal Jesse over at his website, (which is listed here as one of my favorites ) has also done the gold community a great service by attempting to also define this term and dispel some myths surrounding it. I would urge my readers to check that out when you can.
http://jessescrossroadscafe.blogspot.com/2013/07/gold-backwardation-when-good-people.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29
Here are the comments I posted earlier today repeated in their entirety with some fresh additions.
Thanks as always for your comments. What I am actually saying however is that backwardation is not happening at all on the Comex, not even for a few minutes. I was using absurdity to illustrate the absurd.
For example - here is the latest series of bids for the August, December, February and June gold comex contracts in order as of this snapshot.
August 2013 $1324.2
December 2013 $1325.1
February 2014 $1326.1
June 2014 $1328.4
As usual I am sitting here and have been watching this all morning as well as a goodly portion of last evening's trade and not once has any nearby contract had a bid higher than a back month.
There is no backwardation occurring on the Comex at this present time for any time interval whatsoever.
I am attempting to teach folks about this so as to prevent the spreading of more disinformation that so frequently afflicts the gold bug community. This is the reason why more often than not, many of them get discredited and end up doing disservice to their cause.
The reason why some contracts occasionally have a last trade price higher than a more distant month is because the more distant months are not trading as frequently because there is no liquidity in those months.
when you have a volume of trade of 182,000 in a nearby versus 2,085 in a more distant February for example - there are going to be times when the last trade price of a more distant month might be at a discount to a nearby. That is merely a function of low liquidity. If you want to see where the contract might trade IF AN ACTUAL TRADE OCCURRED, you have to look at the Bids and Offers and see where those are currently sitting.
In the time it took me to type the above comments, here is now the latest series of bids...
August 2013 $1325.3
December 2013 $1326.3
February 2014 $1327.4
June 2014 $1329.7
Again, notice the market is in contango at all times. There is not a single instance of backwardation.
This might help dispel any confusion about this current misinformation going around but in all honesty, I doubt it. Most gold buys are pretty closed mind about this stuff having made up their minds beforehand, truth be damned.
Here we are now in the Asian session this evening as I post these new set of comments and here is a new set of bids for those same contract months at this moment:
August 2013 $1334.70
December 2013 $1335.30
February 2014 $1336.20
June 2014 $1338.20
Once again, NO BACKWARDATION....
Why am I making a big thing out of this? Perhaps because I try to be a stickler for truth. I have been in this industry now as a private trader for more than 2 decades. In that span, I have seen enough charlatans, quacks, con artists, flim flam mans, and what have you. I have also seen a proliferation of misinformation abounding now that anyone with a keyboard and an internet connection can suddenly dub themselves an "expert analyst".
The gold community in particular seems to be plagued with this sort of thing, far more than any other commodity complex. Yes, we have them in the grains as well with the constant spreading of misinformation, falsehood and assorted 'rumors' that just so happen to line up with the position that those who are propagating have taken in the market that they are attempting to either talk up or talk down.
When it comes to the topic of backwardation, I explained the significance of that last evening in a response that I wrote in the comments section.
here are the key highlights from that post:
It (BACKWARDATION) that that the commodity is in a serious short supply which is not able to keep up with current demand levels. What the futures board then does is to move into backwardation to entice sellers to part with the metal RIGHT THEN AND NOW instead of holding onto it later in hopes of a better price in the future.
That is done by pushing the price higher ( in the nearby months) ABOVE The back months and taking away the incentive to hold or store the particular commodity.
...
A market with a true supply shortage will REMAIN THAT WAY all the way into the closing bell and will maintain that structure for as long as is necessary for the current shortage to be alleviated.
Based on this fact - gold is not in backwardation and has not been at any time whatsoever on the Comex during the entire time this backwardation talk commenced and picked up some gullible followers.
Look, I get it - those who are advocating for honest money ( as I am ) and who are generally bullish gold all the time ( I am not) , without exception, even as it is plunging, will latch hold of any sort of story that can be construed as strongly bullish because it CONFIRMS THEIR BIAS TOWARDS THE LONG SIDE of the metal. That is not hard to understand as it is human nature. However, to try to present something as factual when it is in fact, incorrect, is what causes me to take a stand against it.
Gold does not need a campaign of misinformation to define it is honest money. What too many seem to forget is that outside of the gold community, many other investors/traders do not share their view of the metal.
Let's be blunt, for those in that group, gold is an asset that throws off no yield whatsoever. Thus, they had better have a good reason to take investment capital and allocate it into the metal. If they are getting decent returns on their investments elsewhere, and have no concern whatsoever about inflationary issues, they are not going to buy gold. It really is that simple. We who favor honest money must come to terms with the fact that an extremely large portion of the global investment community does not share our views about the value of the metal.
As far as any "Panic" to buy gold (this is how some are now defining the current state of the gold market as they peddle the backwardation nonsense), the futures board simply does not confirm that by its present contango structure. We just came off what I would describe as a near "panic" in the corn market back when the March contract expired and when the May contract expired. That was a true case of backwardation.
I put far more credence in the withdrawals of the Comex warehouse inventories and the GOFO rates. By the way, Dave, my buddy in Denver, whose website is also linked to here at my site, has done good work on this topic. But, as I have written before and will do so again - without a true backwardation structure in the gold futures market, those things alone are not a sufficient reason for me as a trader to rush in an take a long position in gold. I need market price confirmation and chart pattern confirmation.
One last thing - too many people are erroneously defining the word "backwardation" by confusing it with the term "basis".
As I have already defined it, backwardation is a structure or condition of the futures market that occurs when the price of the nearby contract is trading above the more distant month contracts. It is a signal of a tightness in supply at current demand levels.
BASIS is an entirely different matter. Some are claiming that because the SPOT MARKET CASH PRICE of gold may be, at some times, higher than the nearby futures contract, that the market is in backwardation. AGAIN, It IS NOT.
What a strong basis means, ( when the cash market price is above the futures market price ) is that demand for that commodity, be it gold or soybeans or wheat or whatever, is STRONGER THAN AVAILABLE SUPPLY at THAT PARTICULAR LOCATION.
We see this all the time in the grain markets. I also see it occur at times in the various direct markets for hogs as well as some of the individual packers buying cattle in Nebraska or Kansas or Texas.
There are times in the grain markets that one elevator will be paying higher prices for grains than the nearby on the board because of logistical issues such as a flooded river, etc., which is making it difficult for the grain to get to their location. They will then have to offer incentives to get it there. That does not necessarily mean that there is a world-wide shortage of that grain; it does mean that as far as that location goes, there is a shortage. The strong price being offered is the incentive to give sellers every reason to try to get their product to that elevator operator.
My friend John Brimelow publishes an excellent "Gold Jottings" report where he is perhaps the best in sourcing the cash market prices for gold in India and elsewhere in the Far East. John will report on whether the spot price for gold is at a premium or at a discount. That is a good gauge to demand IN THAT LOCATION OR AREA however and it does not necessarily translate to the same thing here in the US or elsewhere in Europe for example. Heck, there are times when buyers in India are paying huge premiums over the world price of gold elsewhere. That does not mean gold is in backwardation. PERIOD!
When we do however see a STRONG BASIS PLUS a BACKWARDATION STRUCTURE ON THE FUTURES BOARD, then we have the real deal.
I also want to echo something that Jesse mentioned in his nice piece on this; those who keep crying up backwardation in gold had better damned well be careful that they do not get what they are wishing for. As one of the posters here has said, gold at $50,000 or silver at $500 means that I do not want to be living anywhere near civilization. The sheer chaos, fear, breakdown in society, etc. are not the things that I wish for no matter whether gold goes up or not.
I am already fearful enough about the state of our nation, its gargantuan level of indebtedness, its moral decay, its hedonism and lack of work ethic, its dumbing down, and its corrupt monetary system without having to worry about MAD MAX BEYOND THE THUNDERDOME coming to a city or town near me!
Gold owners and buyers - just lighten up a bit... life consists of far more than the last price of gold, or silver for that matter. Family, Friends, Faith - these are far more important... do not let the means to an end become your reason for existence or happiness.
Down goes the Dollar; Up goes Gold
Gold was firm for the entirety of today's New York session after encountering a round of selling in Asian trade last evening. Additional downside momentum was seen following on the heels of yesterday's retreat from chart resistance but dip buyers moved in above psychological round number support at $1300, never allowing it to test that level.
If we wanted to see whether or not those dip buyers were going to make their appearance in Asia, we got our answer.
The market dipped down to as low as $1308 and then moved quickly higher last evening with the buying continuing at a steady pace into Europe and New York.
Late this afternoon, and I am still unclear as to what the exact reason for the sharp selloff was, the US Dollar came under rather intense selling pressure, in spite of the fact that interest rates had been rising for most of the session. The Yen, the Euro, the Aussie, the Swissie, it did not matter - all of them shot upward in a fashion that was reminiscent of their performance that day earlier this month when Bernanke gave his now famous comment about QE continuing "for the foreseeable future". I must have missed some comment from some Fed governor or something but either way, something lit a fire under the Dollar bears.
As the Dollar imploded lower, gold caught another gust of wind and jumped with the result that the metal put in a $30 range from top to bottom and now goes into Asian trade with upside momentum, the exact opposite of yesterday's status! As I said yesterday:
"She loves me; She loves me not; She loves me; She loves me not".
Here we go again.
While the HUI was up, it's performance was rather lackluster given the sharp thrust higher in the metal.
Now we face the Friday Follies once more to see whether or not gold gets its usual beating on that day or if it can mount a counter rally. For the metal to generate some further upside, $1350 needs to be cleared.
By the way, take a look at the following 2 hour composite chart I put together comparing the price action in gold to that of the US Dollar... Can you say the words. " MIRROR IMAGE IN REVERSE"?
Note that as the Dollar gets whalloped, gold shoots higher. Gold is back to acting as the ANTI-DOLLAR.
If we wanted to see whether or not those dip buyers were going to make their appearance in Asia, we got our answer.
The market dipped down to as low as $1308 and then moved quickly higher last evening with the buying continuing at a steady pace into Europe and New York.
Late this afternoon, and I am still unclear as to what the exact reason for the sharp selloff was, the US Dollar came under rather intense selling pressure, in spite of the fact that interest rates had been rising for most of the session. The Yen, the Euro, the Aussie, the Swissie, it did not matter - all of them shot upward in a fashion that was reminiscent of their performance that day earlier this month when Bernanke gave his now famous comment about QE continuing "for the foreseeable future". I must have missed some comment from some Fed governor or something but either way, something lit a fire under the Dollar bears.
As the Dollar imploded lower, gold caught another gust of wind and jumped with the result that the metal put in a $30 range from top to bottom and now goes into Asian trade with upside momentum, the exact opposite of yesterday's status! As I said yesterday:
"She loves me; She loves me not; She loves me; She loves me not".
Here we go again.
While the HUI was up, it's performance was rather lackluster given the sharp thrust higher in the metal.
Now we face the Friday Follies once more to see whether or not gold gets its usual beating on that day or if it can mount a counter rally. For the metal to generate some further upside, $1350 needs to be cleared.
By the way, take a look at the following 2 hour composite chart I put together comparing the price action in gold to that of the US Dollar... Can you say the words. " MIRROR IMAGE IN REVERSE"?
Note that as the Dollar gets whalloped, gold shoots higher. Gold is back to acting as the ANTI-DOLLAR.
Wednesday, July 24, 2013
Housing Number Trips up Gold
Today's strong new home sales number caught gold bulls off guard, as it once again fanned the flames of "TAPERING" talk after Bernanke had put that to rest for a while. Traders had been expecting the recent rise in interest rates on the long end of the curve to impact new home purchases. When the number came out better than expected, it set off a wave of selling in the foreign exchange markets with all of the major currencies dropping off against the US Dollar.
The reason? - the talk shifted back yet again to the US being the only major global economy in which long term rates were expected to rise. If those higher rates did not apparently impact the all-important real estate market, so the thinking goes, then rates have room to work higher and the Fed can indeed taper sooner rather than later again.
"She loves me; She loves me not; She loves me; She loves me not". We may see the exact opposite tomorrow for all that any of us know. Once again, we are back to FED-WATCHING. Sigh.....
The proof of this was the sharp selloff in the Treasury markets that dropped the long bond down over a full point and also sent the yield on the Ten Year Note back above the 2.5% level once again. It is currently up above 2.60% as I type these comments.
A rising US Dollar and rising interest rates sent gold lower with the market retreating from the zone near the 50 day moving average and thus unable to build on its gains from Monday and Tuesday of this week. Interestingly enough, the HUI is down quite sharply today (nearly 5%) surrendering all of its gains from yesterday and coming quite close to matching this week's low. It is still trading above that breakaway gap however. We'll have to wait and see if some dip buyers come in later this afternoon. For now, some of the shorter-term oriented metals bulls have been spooked out.
Silver is struggling to hold its gains above that key $20 level. If it can do that and do it convincingly, it can be construed as a moral victory for the bulls considering the sharp selling that is hitting the soybean market and a large number of other commodities in general. That macro trade of selling commodities in the face of a rising dollar picked back up again today with that housing report. If that trend continues tomorrow, it is doubtful that silver is going to be able to stay above $20. It needs help from a "buy commodities" theme and that is difficult to see if the Dollar does not weaken right away.
Crude oil looks as it is breaking down on the charts but there has been a rash of fund type buying supporting that market and whether or not that crowd is ready to give up on it just yet is unclear. From what I can see of the chart, if the price breaks below $104.25 or so, we could see a fair number of downside stops being hit with some of the funds exiting the market.
Moving back to the Dollar - it is not down quite as hard against the Euro as it is against the Yen today. Some of that is due to the fact that some economic data out of Europe was decent today. That is tending to hold some support under the Euro for the time being although the general theme of Dollar buying is dominating today's forex trade.
We'll see how Asia reacts on this retreat in the gold price this evening. I should note that while the spreads on the futures board are fairly tight, the futures board is not in backwardation. Thus there is no signal being given from the futures market itself that there is any shortage of gold at this time. That could change however but for now, nothing doing.
If gold is going to continue moving higher and not experience a deeper setback, it will be imperative that the price find support near the $1300 level if it does dip lower. Failure to hold there and it will see $1280. To generate a renewal of the upside momentum, $1350 needs to be cleared.
The reason? - the talk shifted back yet again to the US being the only major global economy in which long term rates were expected to rise. If those higher rates did not apparently impact the all-important real estate market, so the thinking goes, then rates have room to work higher and the Fed can indeed taper sooner rather than later again.
"She loves me; She loves me not; She loves me; She loves me not". We may see the exact opposite tomorrow for all that any of us know. Once again, we are back to FED-WATCHING. Sigh.....
The proof of this was the sharp selloff in the Treasury markets that dropped the long bond down over a full point and also sent the yield on the Ten Year Note back above the 2.5% level once again. It is currently up above 2.60% as I type these comments.
A rising US Dollar and rising interest rates sent gold lower with the market retreating from the zone near the 50 day moving average and thus unable to build on its gains from Monday and Tuesday of this week. Interestingly enough, the HUI is down quite sharply today (nearly 5%) surrendering all of its gains from yesterday and coming quite close to matching this week's low. It is still trading above that breakaway gap however. We'll have to wait and see if some dip buyers come in later this afternoon. For now, some of the shorter-term oriented metals bulls have been spooked out.
Silver is struggling to hold its gains above that key $20 level. If it can do that and do it convincingly, it can be construed as a moral victory for the bulls considering the sharp selling that is hitting the soybean market and a large number of other commodities in general. That macro trade of selling commodities in the face of a rising dollar picked back up again today with that housing report. If that trend continues tomorrow, it is doubtful that silver is going to be able to stay above $20. It needs help from a "buy commodities" theme and that is difficult to see if the Dollar does not weaken right away.
Crude oil looks as it is breaking down on the charts but there has been a rash of fund type buying supporting that market and whether or not that crowd is ready to give up on it just yet is unclear. From what I can see of the chart, if the price breaks below $104.25 or so, we could see a fair number of downside stops being hit with some of the funds exiting the market.
Moving back to the Dollar - it is not down quite as hard against the Euro as it is against the Yen today. Some of that is due to the fact that some economic data out of Europe was decent today. That is tending to hold some support under the Euro for the time being although the general theme of Dollar buying is dominating today's forex trade.
We'll see how Asia reacts on this retreat in the gold price this evening. I should note that while the spreads on the futures board are fairly tight, the futures board is not in backwardation. Thus there is no signal being given from the futures market itself that there is any shortage of gold at this time. That could change however but for now, nothing doing.
If gold is going to continue moving higher and not experience a deeper setback, it will be imperative that the price find support near the $1300 level if it does dip lower. Failure to hold there and it will see $1280. To generate a renewal of the upside momentum, $1350 needs to be cleared.
Tuesday, July 23, 2013
Late Session Surge in Gold Conquers 50 Day Moving Average
The strong rally in gold was yesterday stopped dead at the key 50 day moving average. Many of the big funds closely track this average. If they are short, they tend to sell against it; it they are short and price exceeds it, more often than not, they will cover. Additionally, if they are long, you may see them adding to existing longs.
Throughout most of the session day, gold was consolidating its recent gains. There was some chatter that some physical market demand, notably out of China, had eased off and that had some short-term oriented longs booking profits after realizing some nice gains. That selling, combined with some fresh short selling was serving to hold the metal in check throughout most of the session. Late in the day however, as the mining stocks caught another gust of wind higher, the metal surged upward breaking the 50 day moving average.
In the process, it also pushed past a band of overhead horizontal chart resistance. You can see that on the chart below.
This is getting interesting. We have both of the shorter term moving averages (10 day and 20 day) now moving higher in sync. The 10 day has not yet completed a bullish crossover of the downtrending 50 day moving average but barring a collapse in the price, looks to soon do that. That has not occurred since last July, which was the last time we witnessed an UPSIDE CROSSOVER of the 10 day above the 50 day. Stay tuned on this one as it could possibly happen this week. That would trigger some further fund buying.
Just like they led the metal to the downside, the mining shares are currently leading the metal to the upside. Gains have been very strong the past few days in the sector as shorts are being forced out and new buyers are coming back in.
That breach of the gap region noted on the chart sent the bears scurrying for cover yesterday and to further compound their misery, bulls pushed them up some more. The result has been a new gap above a previous gap which was a heavy resistance level. That is a bullish sign.
for the sector to begin a trending move to the upside of some duration, it will necessitate further gains but particularly a push past 290 where pretty good selling pressure can be expected. For the short term however, the bulls are back in control while bears are regrouping looking for a fresh spot at which to try selling again.
As long as the US Dollar is the whipping boy of the Forex markets, as it has been of late, bears will have their work cut out for them. We might very well be seeing the market shift back to focusing on the budget battle once again in the US. The government will be up against its borrowing limit soon and that means more of the usual crap that comes out of Washington. You know what I mean:
"we cannot cut anything because it will slow down the economy or put people back on the streets without any food or shelter, blah, blah, blah and more blah".
Meanwhile, my kids and yours will be the ones paying for all this profligacy and vote buying. As a matter of fact, my grandkids and yours will be paying for seeing that it is the size that it is.
At least those who own the mining shares can breathe a bit of relief that their net worth has stopped declining and has actually reversed somewhat.
The grains were whalloped today, as they should have been. The bulls in there have been killing the crop every damned day with too much rain, not enough rain, too cold, too hot,. etc,... meanwhile the crop looks to be improving with the return of milder weather and more moisture during the key pollination stage. Soybeans in particular were whacked pretty hard today which might have put a bit of pressure on silver. Still, the grey metal managed to keep its footing above the $20 level meaning that we should see some nervous shorts the next few days. For silver to get something more positive going, it will take a closing push through $22.50 at a bare minimum. At least it has stopped going down. Now if we could just get rid of the damned annoying radio commercials about how the price is going to double and skyrocket before you can blink....
Throughout most of the session day, gold was consolidating its recent gains. There was some chatter that some physical market demand, notably out of China, had eased off and that had some short-term oriented longs booking profits after realizing some nice gains. That selling, combined with some fresh short selling was serving to hold the metal in check throughout most of the session. Late in the day however, as the mining stocks caught another gust of wind higher, the metal surged upward breaking the 50 day moving average.
In the process, it also pushed past a band of overhead horizontal chart resistance. You can see that on the chart below.
This is getting interesting. We have both of the shorter term moving averages (10 day and 20 day) now moving higher in sync. The 10 day has not yet completed a bullish crossover of the downtrending 50 day moving average but barring a collapse in the price, looks to soon do that. That has not occurred since last July, which was the last time we witnessed an UPSIDE CROSSOVER of the 10 day above the 50 day. Stay tuned on this one as it could possibly happen this week. That would trigger some further fund buying.
Just like they led the metal to the downside, the mining shares are currently leading the metal to the upside. Gains have been very strong the past few days in the sector as shorts are being forced out and new buyers are coming back in.
That breach of the gap region noted on the chart sent the bears scurrying for cover yesterday and to further compound their misery, bulls pushed them up some more. The result has been a new gap above a previous gap which was a heavy resistance level. That is a bullish sign.
for the sector to begin a trending move to the upside of some duration, it will necessitate further gains but particularly a push past 290 where pretty good selling pressure can be expected. For the short term however, the bulls are back in control while bears are regrouping looking for a fresh spot at which to try selling again.
As long as the US Dollar is the whipping boy of the Forex markets, as it has been of late, bears will have their work cut out for them. We might very well be seeing the market shift back to focusing on the budget battle once again in the US. The government will be up against its borrowing limit soon and that means more of the usual crap that comes out of Washington. You know what I mean:
"we cannot cut anything because it will slow down the economy or put people back on the streets without any food or shelter, blah, blah, blah and more blah".
Meanwhile, my kids and yours will be the ones paying for all this profligacy and vote buying. As a matter of fact, my grandkids and yours will be paying for seeing that it is the size that it is.
At least those who own the mining shares can breathe a bit of relief that their net worth has stopped declining and has actually reversed somewhat.
The grains were whalloped today, as they should have been. The bulls in there have been killing the crop every damned day with too much rain, not enough rain, too cold, too hot,. etc,... meanwhile the crop looks to be improving with the return of milder weather and more moisture during the key pollination stage. Soybeans in particular were whacked pretty hard today which might have put a bit of pressure on silver. Still, the grey metal managed to keep its footing above the $20 level meaning that we should see some nervous shorts the next few days. For silver to get something more positive going, it will take a closing push through $22.50 at a bare minimum. At least it has stopped going down. Now if we could just get rid of the damned annoying radio commercials about how the price is going to double and skyrocket before you can blink....
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