Tag Archives: Comex

Negative Rates, Money Printing and Gold

Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, , , , , ,

“As well as being modified by its specific supply and demand conditions, Gold’s time preference is essentially for its moneyness, represented by its use as a medium of exchange and store of value. The moneyness aspect links it to its exchange value for all commodities, and it is this aspect of gold’s qualities that should warn us that a backwardation in gold, emanating from negative dollar interest rates, will herald a general backwardation in commodities as well.” – Alasdair Macleod, Negative Rates and Gold

The “perfect storm” is forming that will push gold to record highs in U.S. dollars. In 2008 a near-perfect storm hit the global financial system that drove the price of gold to record level in just about every currency including dollars. The only missing ingredient back then was negative interest rates. The same financial excesses that caused the previous financial crisis have reformed only now they are much larger in scale. Most of the western hemisphere has already implemented negative interest rates. Now Trump has opened that Pandora’s Box in the U.S.

Chris Marcus of Arcadia Economics invited me onto this podcast to discuss the implications of Trump’s proposal and how it will affect the precious metals sector:

What’s Driving The Price Of Gold and Silver?

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Fear, Greed and Reality. Also Bill Murphy’s “Commercial Signal Failure,” which occurs when physical demand for deliverable gold and silver overwhelms the paper derivative short positions used by the western Central Banks to manage the price of gold and silver.

The naked short position in paper gold and silver is so big that any government or central bank with a substantial FX surplus could pull the plug on it by trading enough Treasuries, or even euros or yen, for real metal. Russia and China, among several other eastern hemisphere Central Banks are doing just that.

Silver Doctor’s James Anderson invited me to discuss the factors behind what appears to be a major move higher in the precious metals, possibly leading to the eventual geopolitical and financial systemic reset (Silver Doctors/SD Bullion):

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Don’t Let The CPM Group Feed You A Bag Of Brown Stuff About Silver

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The CPM Group and its proprietor, Jeffrey Christian, has operated as one of the “analytic” fronts for the western Central Banks’ paper derivative gold and silver manipulation scheme for many years.  Someone sent me the CPM Group’s latest commentary on silver in which it expresses the view that the price of silver will “fall dramatically” after the September silver contract “roll” on the Comex is over. You can read the brief report here:

CPM Market Commentary 2019-5, Who Is Buying Silver, It’s The Comex Shorts, 2019-08-28

To begin with, the paper price of silver is not being driven higher by short-covering on the Comex. In fact, the big banks/commercials, as well as the “other reportables” and retail traders per the last COT report added over 10,000 contracts to their short position last week. Let’s be clear on one thing, and the years of evidence supporting this is overwhelming, the only time “short covering” drove the price of silver higher was in early 2011 when the big banks were forced to scramble for cover and ran the price of silver close to $50.

The price of silver drops when the big banks short thousands of contracts in an effort to cap a price rally or drive the price lower.

CPM makes the argument that physical demand for silver is not a factor in the recent move higher in the price of silver based on demand for US Silver Eagles per the U.S. Mint report.  This assertion is an insult to the intelligence of anyone who studies the silver market thoroughly. U.S. retail investor silver eagle demand represents less than 5% of the amount of silver produced annually. Industrial demand plus jewelry/ silverware use accounts for roughly 75% of the amount of silver “consumed” annually. It can be argued that U.S. retail demand for coins has very little, if any, influence on the price movement in silver.

Finally, the “roll” of Comex silver open interest from the expiring front month to the next front month – in this case September to December – affects the price of silver maybe to the extent that a significant portion of the expiring front  month open interest does not “roll” out to December and instead sells outright.  First notice day is tomorrow, which means any account holding contracts must either roll or have its account funded to receive delivery of physical silver as early as this evening (the day before official 1st notice).

You’ll note in the report that Christian states that there’s “226.5 million ounces of September open interest to be rolled forward…” This is incorrect – egregiously incorrect in fact. As of Wednesday’s close per the CME’s open interest report, there were 91,109 contracts open in September. Anyone who’s traded Comex paper silver knows each contract represents 5,000 ozs. The o/i at the end of Wednesday was 97,109 contracts, or 485.5 million ozs of paper silver. In all likelihood at least 1/3 to a half of that – or more – will have rolled or sold by the close of Comex pit trading today.

But Christian uses the big numbers to make the situation sound extremely bearish for silver. It’s not. In fact, it will be interesting to see how many contracts will be left standing after today.  Liquidation of September silver contracts by hedge funds (“managed money”) is likely causing the price decline in silver and gold today.  We’ll know for sure tomorrow when the CME o/i report is released. I would not be surprised if more the 50% of the September o/i has liquidated today.

The amount of silver designated as available for delivery (“registered”) as of Wednesday was 91 million ozs.  If just 20% of the open September silver contracts stand for delivery (which is unlikely) the Comex will have a supply problem. However, in all likelihood, most of the open contracts after today’s close will either liquidate – if they are not noticed – or agree to settle in cash (an EFP or PNT). The bottom line is that the September/December “roll” will  have little to no affect on the directional movement of the silver price.

Jeffrey Christian’s CPM Report on silver is little more than  fear propaganda which is woefully short on  facts and long on fairytale-based analysis.  He concludes that “weak investment demand created short positions on the Comex and weak investment demand suggests that prices will not continue to rise.”  Not one letter of one word in that assertion contains even the smallest shred of truth.  Certainly just the flow of capital into the various silver ETFs over the summer contradicts Christian’s absurd claim.

What is driving the price of silver higher? Physical demand from India and China.  Both countries are implementing large-scale solar power build-outs.  Furthermore, India’s population has shifted a considerable amount of demand from gold buying to silver purchases since the Government raised the import duty on gold bars.

Similarly, China’s consumption of silver has likely soared after the Government restricted the supply of gold into the SGE in order to “feed the beast” –  i.e. what is likely massive unreported gold accumulation by the PBoC.  It’s impossible to track China’s real demand for gold and silver since 2014, when the Government opened up Shanghai and Beijing for gold and silver importation.  The amount of metal that flows through those ports is not published by design.

In truth, the inexorable rise this summer in the price of gold and silver is being driven by enormous physical demand not from retail minnows but by large entities primarily in the eastern hemisphere which are accumulating an enormous amount of physical gold and silver. Certainly “footprints” in the snow on the LBMA would support this conclusion.  Do not be bamboozled or scared into selling your physical gold and silver or your mining stocks by charlatans like Jeffrey Christian.

Gold, Silver, Mining Stocks: Get Ready For A Huge Ride Higher

Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, ,

Bullion Star released a graph Tuesday that showed Switzerland exported 90 tonnes of gold to the London gold market (U.K.) in July, which dwarfed exports to India and China.  Bloomberg’s spin on the data was that the gold was needed for ETFs.   Of course, as is typical, the Bloomberg “journalist” likely regurgitated “information” that came from a  source rather than fact-check.

But fact-checking shows that the number of tonnes of gold in GLD, by far the largest gold ETF, increased by only 23 tonnes during July from 800 to 823.  Assume the much smaller gold ETFs took in the same amount collectively – an estimate that is more than generous, and ETF gold flow accounts for less than 50% of the gold  exported to London.

Alternatively, a more likely explanation is that large quantities of physical gold are needed on the LBMA to feed an enormous buyer or buyers in London. This would explain what has become routine “V” shape moves in overnight gold futures trading, as the price of gold shrugs off repetitive attempts to push the price lower after Asia closes and LBMA forward and Comex futures trading replaces the physical gold markets in the eastern hemisphere.

This amount of gold imported by the London gold market also reflects the tight supply that has persisted for quite some time. The presence of a large physical buyer(s) would explain the relentless move higher in the price of gold (and silver).

This chart shows the  US-dollar price of the gold/HUI ratio. When I started to look at this sector back in 2001, gold was re-testing $250, which it hit after the Bank of England dumped half of its gold (400 tonnes) onto the market in 1999 (gold hit $253 on July 20, 1999). The HUI index was around 50 when I began to delve into the sector. This chart sourced from The Felder Report, with my edits, shows how cheap the mining stocks are relative to the price gold:

The ratio of the HUI index to gold has ranged from just over 0.6 in 2003 to the 0.10 it hit in December 2015. I predict that if the price of gold moves over $2000, we could see the HUI/gold ratio converge on 1.0. As the price of gold moves above the average cost for a mining company to pull gold out of the ground, every dollar higher the price moves adds a dollar to the income and cash flow of producing mining companies.

While the mining stocks in general have had a strong move since the end of May, “gold fever” and “mining stock fever” have not infected the general investment audience – yet. As an example, over the last two months of 2008, the HUI doubled (150 to 300). Gold was around $800. From mid-January 2016 to mid-August 2016, the GDXJ tripled. Since the end of May, the GDXJ has moved up 46%. An impressive move to be sure but it has long way to move to match the 2016 move in eight months.

The juniors are even cheaper than the producers. This is because, as the price of gold moves higher, value of the gold (or silver) in the ground for juniors with a resource becomes worth even more to potential acquirers, especially juniors who have projects in close proximity to mining companies with operating mines and infrastructure. At some point, larger mining companies will either have to start buying juniors or face being acquired by even bigger mining companies. Assuming the price of gold/silver continues to move higher from here, I believe we’ll start to see a lot more acquisition activity before the end of the year.

The Remarkable Resiliency Of Gold And Silver

Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, , , ,

The price of gold continues to hold up under the enormous selling in the paper derivatives markets on the Comex and LBMA.  This morning’s price attack is a good example:

The chart above shows December paper gold in 5 minute intervals. Typically the price of gold is taken lower leading up to the a.m. London “fix,” in which the “price fix” process is characterized with heavy offerings.  Lately the price bounces after that. And of course there’s the obligatory price-smack when the Comex floor trading commences (8:20 a.m. EST).  Check that box.  Then the “hey can I tell you the good news” item hit the tape about 4 minutes after the NYSE opened.  The hedge fund algos spiked the S&P 500 futures and dumped paper gold.

For the better part of the last 18 years, when this type of “market” action occurs, gold is down for the count. Not only does the initial “fishing line” sell-off hold, but the gold price moves lower throughout the day.  This snap-back action in the gold price after a price attack since early June is unique to the way gold (and silver) has traded over the last 18+ years.

Gold is at or near an all-time high in most fiat paper currencies except the dollar. This summer, however, it would appear that the dollar-based valuation of gold is starting to break the “shackles” of official intervention and is beginning to reflect the underlying fundamentals.  On the assumption that gold can continue to withstand serious efforts to push the price back below $1500 (the net short position in gold futures held by Comex banks is near a record high, for instance), we could see $1600 or higher before Labor Day weekend.

This price-action in gold is being driven by enormous flows of capital into both physical gold and gold “surrogates” or “derivatives.”  Yes, GLD is a derivative of gold – a device used to index the price movement in gold.  The action over the last two months is more remarkable given that the increased excise tax on bullion imports into India has largely stifled import demand beyond what gets smuggled into the country (in excess of 300 tonnes annually).

I have been told my someone who claims to be in a position to know that there’s a buyer of massive amounts of physical gold and silver on every dip in price and that’s what is driving the resiliency of the precious metals.

Make no mistake, even if by chance of a miracle a “trade agreement” is reached between China and the U.S., the underlying economic fundamentals globally have already deteriorated into a recession. And it’s getting worse. It has nothing to do with tariffs.  For the primary cause, research the amount of debt outstanding now vs.  2008…

Moreover, the randomness of unforeseen news events causing sudden market sell-offs and precious metals rallies is starting to occur with greater frequency. This is driving the flight-to-safety move into the precious metals. The mining stocks have lagged relative to the risk-adjusted percentage move since early June in gold and silver. I do not expect that to last for long…

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Is the Federal Reserve losing control of the gold price?

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For the majority of the last 20 years, the western Central Banks, under the direction of the BIS, have been able to use the precious metals derivatives markets to “manage” the price of gold.  As long as counterparties who are “synthetically” long gold and silver are willing to settle the derivatives trade in cash or ETF shares, gold derivatives can be created in infinite quantities and used to keep a lid on the price of gold.

But since late spring, it seems that the attempts to use the paper gold and silver markets on the Comex and LBMA to drive the price lower have been met with aggressive buying.  For now the only explanation is that a large buyer  (or maybe several) may be accumulating physical gold/silver, which is preventing the price managers from indiscriminately printing and flooding the market with paper derivative contracts to drive the price down.  The tail may no longer be wagging the dog.

My friend and colleague, Paul Craig Roberts wrote this commentary about the possibility that the physical gold market is taking away:

After years of being kept in the doldrums by orchestrated short selling described on this website by Roberts and Kranzler, gold has lately moved up sharply reaching $1,510 this morning. The gold price has continued to rise despite the continuing practice of dumping large volumes of naked contracts in the futures market. The gold price is driven down but quickly recovers and moves on up. I haven’t an explanation at this time for the new force that is more powerful than the short-selling that has been used to control the price of gold.

You can read the rest of PCR’s analysis here:  Is The Fed Losing Control Of Gold

Gold / Silver May Be Breaking Free From Manipulation

Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, ,

The price of gold has rejected numerous attempts by the banks to hammer the gold price below $1400 using paper gold derivatives on the Comex and the LBMA. I have not seen gold behave with such resiliency in the last 19 years when the Comex banks have an extremely large short position in Comex paper.

The action in the price of gold is signalling that large buyers are accumulating a lot of physical gold. This is preventing the banks from using the Comex as a manipulative tool. Based on historical preferences, I highly doubt the buying is coming from the hedge funds, who have been content playing in the paper gold sandbox of the Comex.

Per the World Gold Council numbers, which are notoriously understated, Central Banks have purchased 374 tonnes of gold in the first half of 2019. This is the highest level of CB gold purchases in over 50 years. Note that western Central Banks – specifically the Fed, ECB, BoE and BoJ have been notably absent from the buying frenzy. The buying has been led by China, Poland and Russia.

“With governments everywhere itching to increase spending without raising taxes and as the global economy sinks into a trade and credit-cycle induced recession, budget deficits will fuel monetary inflation at a faster pace than seen before. Re-learning that gold is sound money is now the most urgent priority for all those charged with responsibility for other peoples’ investments.”

The quote above is from Alasdair Macleod’s must-read essay titled, “The Reasoning Behind Gold’s Breakout.”  The article dispels the common “Fake news” myths about gold. It would be a great article to read for Warren Buffet, who believes that gold “just sits there doing nothing.” Of course, students of gold and history know that gold has outperformed the Dow since 1971. Macleod revisits the math behind this fact.

If you are looking for mining stock ideas to take advantage of the emerging bull market move in gold and silver, please consider my Mining Stock Journal.  In the latest issue released last night I review a popular silver stock that I believe is overvalued and I present a high risk/high return junior exploration stock that is relatively unknown but has 10x potential. You can learn more about this newsletter here:  Mining Stock Journal information.

Gold, Silver, Mining Stocks Are A Coiled Spring

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Currently gold and silver are behaving in a way that I have not seen since late 2008. The gold open interest on the Comex is near a record high (657,776 on July 11, 2016). The Comex banks continue pile into the short side while the hedge funds pile into the long side. However, every attempt to start a “waterfall” type sell-off is met with buying. Several attempts to take gold below $1400 this week have been thwarted. Silver all of sudden started moving higher manically. Based on the data I see daily, India and China are not participating in the buying. At least overtly. It feels like someone “big” is out “there” accumulating gold.

Phil Kennedy of Kennedy Financial put together a roundtable discussion with Bill Murphy, Dave Collum, Rob Kirby and me to discuss our thoughts on the gold market:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a miniumum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

It Looks, Sounds And Smells Like A Gold Bull Market

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Gold tends to perform the best when the real rate of interest (interest rates minus the real inflation rate) is negative. For now, the Central Banks have been able to contain the movement of gold in order to prevent the price from doing what it should be doing when interest rates are negative.

With that enormous amount of negative yielding debt globally, and Treasury yields in the U.S. heading south quickly, from a fundamental standpoint there’s a high probability we have started the next big move higher in gold. Silver will eventually “catch up” and begin to outperform gold. That said, get used to a higher level of price volatility in the precious metals sector. Keep a core position but sell rallies and buy sell-offs if you want to trade the volatility. Otherwise, sit tight and be right.

The Prepared Mind invited to its podcast to discuss a wide range of issues from precious metals to geopolitical problems. Here’s Part 2 (click to view Part 1):

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a miniumum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

A Predictable Gold Price Attack – Now What?

Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, , ,

Today’s attack on gold and silver was one of the most predictable in my 18 years of involvement in the precious metals sector. On Wednesday just before the close of the NYSE, I loaded up at-the-money puts on NUGT that expire today. I sold them right after the open for home run trade. The sector has been grinding higher since the first hour of trading, which is bullish.

Trevor Hall and I discuss the recent move up in gold (and the new move below $1400), silver expectations, and the increasingly positive investor sentiment toward the junior mining sector. We also share a few stocks which we have likened over the first half of 2019 along with a few disappointments. You can listen to the discussion by clicking here: MINING STOCK DAILY  or on the graphic below:

The Mining Stock Journal  covers several mining stocks that I believe are extraordinarily undervalued relative to their upside potential. I also present opportunistic recommendations on select mid-tier and large-cap miners that should outperform their peers.  In response to subscriber requests, in the latest issue released Wednesday  I presented an initial opinion on Great Bear Resources. You can learn more about this newsletter here:   Mining Stock Journal information.