Sunday pre-game 6/23/2013

Footage from April 12, h/t ESPN

Emboldened that my first big trade since being choked out in April was a successful one (GLD and SLV puts when I predicted the updated chart from last week would break support after the Fed propaganda), I am now long 10 yr treasuries, long silver. Check out the ratio of yields priced in gold ounces (x10): unprecedented distance from 20-day EMA...




Note also that yields-priced-in-silver reached the same level as the metals bottoms of Jan 2011, right before the parabolic moves began.




The silver weekly chart is also at very long term support. Yeah, I can see it closing a week another 7.5% lower, but I'm liking the risk reward here. Hard to believe, but you could buy silver cheaper now than in the first quarter of 2008! 
Also consider gold in euros, at very strong support, which tells me that the metals may more or less stabilize here for awhile, at least on a weekly closing basis. 
And distance from 300 MA:



Let me also add, I don't see gold's ratio with crude going below the important level of 13.0

29 comments:

SugarLover said...

It's fascinating how charting and price moves often tie in with the real world mood.

I'd say the last month or so global risk appetites were at their highest, and very recently that has started to unravel. No surprise therefore that gold has been at its most unloved, and a capitulation scenario unfolds in the gold price.

And now we have events unfolding around the world that will start to shake that risk appetite out of the tree, a few I can think of: developing world unrest and leverage unwind causing currency issues; growing instability in Japan; growing tensions between the Axis of Evil (America/UK) and the rest of the world pissed off with invasions of privacy; China power politics causing the new leadership to show their muscle via forcing local lending schemes to fail; increasing issues in Europe with German elections forcing some issues, and the Greeks and others agitating for easier terms; ongoing economic slowdown and deteriorating social mood/optimism around the world but notably in America too...I could go on.

All of this adds up to a realisation that gold is an essential safe asset and is bought as a result; and also a realisation, and eventually the reality that QE is not going away, and in fact will be ramped up in the US and the UK.

All of this ties in with gold having a very good run as implied by the technicals posted here, led by the miners.

We shall see.

S Roche said...

I am asking that everyone re-read this post regarding the effects of collateral squeezes (QE induced) on gold prices...

http://www.alhambrapartners.com/2013/04/15/we-have-seen-gold-prices-act-like-this-before/

It posits that gold and gold receivables have a major role in the financial world, as collateral, and would explain why JGB Interest Rate Volatility mirrored gold prices recently and also why China's credit squeeze affected gold this past week too, rather than Bernanke.

Does anyone disagree? Thanks.

costata said...

S Roche

Thank you for that link. The correlations Alhambra highlights are thought provoking. You may have provided a missing piece of a project that I have been working on. Again, thank you.

duggo said...

@S Roche.

OK I've done what I was told to do and read the article. Can you explain to a thicko like me what it means in simple terms?

As for my previous question about the break-even retail price of a 1oz Gold coin (which no PM site has been able to answer) I note the following:-

Golden Minerals Company has suspended its Velardena mine. As it could only achieve operating cash neutrality assuming gold and silver prices of $1,600 per ounce and $30 per ounce.

So the mines seem to be closing down.

Don't know how this affects the article S Roche.

Anyway I read the "words" of the article but I didn't understand how this affects those nice round shiny things I've got stashed away. Good or bad?

What's the simple answer?

SugarLover said...

@SR,

Yes, it's no different that back in 2009/09 when credit crunched, and banks needed to raise cash they sold/leased gold to raise cash, as gold is always a liquid market with buyers happy to buy at lower prices.

I don't believe that's a factor in gold's decline from Oct 2011 to May 2013, but it may explain some of the recent damage, and perhaps what lies ahead.

Also, investors the world over (somehow) believe we are heading for a tightening cycle by the Fed, and so who needs gold when real rates turn positive. When tightening fails to materialise next year we'll be off to the races again, unless of course a gold crunch causes a freegolders dream to come true (hope so, but think not).

Duggo, the effect on your shiny things is that temporarily they are worth less on the market. Time to buy though, not sell!

roughness_everywhere said...

@Sugarlover, Duggo:

I absolutely loved SLs answer, its perfectly short and clear. :)
Re collateral/liquidity shortages, what do you think of this guys writings:
http://scottskyrm.com/market-commentary/

I am following him for some weeks now, and I hope he isnt fooling people because its pretty hard to get a second opinion on that stuff, at least for me....maybe someone here could point me to related articles/books from other sources?
It would be very much appreciated, as I am dying to get a grasp of the shadowbanking system - but hardly anybody else does in detail it seems...?

anyways, great blog guys - I for one especially like the numbers/charts/ratios-thingy :D

Funky Tape said...

Meh, price is everything.

Speaking of price, silver with an $18 handle and gold following right down with it inching toward $1230.

Check out platinum. Lost it's 2011 support and the sellers are heavy. Nothing but air below. Damn.

Jovan said...

@GM Jenkins,

PM Miners should decline further, I guess Mish is not that good of a market timer after all. :)

Warren James said...

$1230 hit.

If anyone can look me in the eye and tell me this is 'normal market behavior' then please do. Even at some point the whole 'hey its oversold right' has to kick in and give a dead cat bounce. Its like someone pulled out the plug and finally all the fetid water is going down the drain.

Let it all burn.

SugarLover said...

@Warren,

Who knows?

But remember back in 1975/1976 the gold price dropped around 48%, and there was no major paper shenanigans back then. Then it went up by 800% or so.

So, 48% down from $1900 is $988!

I'll start to get those freegold feelings when we're down below $1,000.

Thinking of 'the market', they can see disinflation happening across the board in commodities, and they think they can see global tightening (Europe/China/US) and they are also seeing rates rise back into positive real territory.

Who needs gold (the market thinks) in that scenario, who needed it when Volcker did his thing?

Trouble is, the market is wrong about much of this, especially the view that the Fed and others are just going to sit by and let debt deflation happen.

One thing, only one thing, is very certain. These gold prices are a screaming bargain, fill your boots with physical (but don't wait too long, just in case the freegolders are finally correct!).

Bron Suchecki said...

Crazy market and terrible timing for me - currently in Melb doing some presentations to clients and a stockbroker (arranged a few weeks ago) - looks like some tough meetings in the next two days.

I think some spec traders have sensed the market's weakness and pressing it hard but at these prices mine output will reduce and provide some support.

SugarLover said...

In Bron's comment is encapsulated the dichotomy of the current gold market, which at some point hopefully will be resolved.

On the one hand Bron mentions 'spec traders' who presumably deal solely in futures and other bits of paper, and on the other hand we have mines reducing output and the expectation that supply will tighten which will support the market.

Is there any common ground between these two markets anymore, and therefore the price, or is the price solely a paper thing? Of course the same applies to things like copper too, where massive paper financing deals have hidden supply in China, and apparently that is being unwound right now, so physical trumps paper it would seem.

Gold is touted as the other extreme, where paper disguises both huge supply and of course distorts the price lower.

The uncertainty leads me as agnostic as to where this ends up and when, but many are certain now is the time for a disconnect.

Interesting times indeed.

S Roche said...

So, it seems the Chicoms were buying on credit, (or using all that gold as collateral), and are now liquidating, or their positions are being liquidated for them.

On the blog side of things it appears STFU's non-profit policy puts it ahead of the curve.

The common thread: Gonzalo Lira

http://www.debtdeflation.com/blogs/debunking-economics/

S Roche said...

Sry, forgot this link:

http://www.tfmetalsreport.com/comment/325928#comment-325928

Funky Tape said...

Last day June metals contracts today. Get out, start fresh?

http://www.cmegroup.com/trading/metals/precious/silver_product_calendar_futures.html

Tony said...

JDA said,

"I mentioned a few weeks ago that gold would probably settle somewhere between $1100 and $1300. Where exactly it will stop will become clearer as we get closer, obviously...

...If you want me to pull a figure out of my arse, I'd say $1230. But we'll have to wait and see."

Judging by the day's events, I'm guessing that figure in your arse is probably a lot closer to $1100 than $1230.

duggo said...

OKI all the geniuses and gurus that follow Screwtape Files
I posed the question "What is the break-even retail price of a 1oz Gold coin like a Krugerrand."
Any number of people (at other sites as well) offered long convoluted explanations about how it really couldn't be defined. In other words they didn't have a clue but wanted to look as though they might know what they were talking about.

Anyway, here are two articles that come close to setting the base-line for Gold.

http://seekingalpha.com/article/1346991-the-true-all-in-cost-to-mine-gold-complete-2012-figures.

http://www.zerohedge.com/news/2013-06-26/gold-drops-below-its-average-cash-cost

So bearing this in mind I shall make a stab at $1300.

The price may go lower short term but the effect will be that coins and mines will start disappearing.

The price of a Krugerrand to day is $1294.13.

The strange thing about Gold is that mines are the weakest hands. People that hold REAL Gold are usually strong hands. So why is Gold strange? Because unlike any other commodity or precious metal Gold holders do not sell when the price goes down and they do NOT sell when the price increases.

SugarLover said...

Gold followers may find this of interest (no FG followers need not bother though).

http://www.acting-man.com/blog/media/2013/06/In-GOLD-we-TRUST-2013-Incrementum-Extended-Version.pdf

SugarLover said...

@Tony,

re JdA's arse, I'm going for a brief pierce through $1,000, maybe down to $955 intraday, then that's it.

Me and my bullion dealer need to have a little chat right then!!

Tony said...

@ SL,

A pierce though $1000 would be psychologically damning. Let's watch and see...

By the way, I came across this 1967 quote from former Secretary of Agriculture, Ezra T. Benson (you'd think he penned it last week--it's quite eery):

"The pending economic crisis that now faces America is painfully obvious. If even a fraction of potential foreign claims against our gold supply were presented to the Treasury, we would have to renege on our promise. We would be forced to repudiate our own currency on the world market. Foreign investors, who would be left holding the bag with American dollars, would dump them at tremendous discounts in return for more stable currencies, or for gold itself. The American dollar both abroad and at home would suffer the loss of public confidence. If the government can renege on its international monetary promises, what is to prevent it from doing the same on its domestic promises? How really secure would be government guarantees behind Federal Housing Administration loans, Savings and Loan Insurance, government bonds, or even social security?

"Even though American citizens would still be forced by law to honor the same pieces of paper as though they were real money, instinctively they would rush and convert their paper currency into tangible material goods which could be used as barter. As in Germany and other nations that have previously traveled this road, the rush to get rid of dollars and acquire tangibles would rapidly accelerate the visible effects of inflation to where it might cost one hundred dollars or more for a single loaf of bread. Hoarded silver coins would begin to reappear as a separate monetary system which, since they have intrinsic value would remain firm, while printed paper money finally would become worth exactly it's proper value--the paper it is printed on! Everyone's savings would be wiped out totally. No one could escape.

"One can only imagine what such conditions would do to the stock market and to industry. Uncertainty over the future would cause the consumer to halt all spending except for the barest necessities. Market for such items as television sets, automobiles, furniture, new homes, and entertainment would dry up almost overnight. With no one buying, firms would have to close down and lay off their employees. Unemployment would further aggravate the buying freeze, and the nation would plunge into a depression that would make the 1930s look like prosperity. At least the dollar was sound in those days. In fact, since it was a firm currency, its value actually went up as related to the amount of goods, which declined through reduced production. Next time around, however, the problems of unemployment and low production will be compounded by a monetary system that will be utterly worthless. All the government controls and so-called guarantees in the world will not be able to prevent it, because every one of them is based on the assumption that the people will continue to honor printing press money. But once the government itself openly refuses to honor it--as it must if foreign demands for gold continue--it is likely that the American people will soon follow suit. This in a nutshell is the so-called 'gold problem.”

SugarLover said...

@Tony,

Interesting.

Ezra was both a doom-monger as well as a poor timer of monetary matters, such as the dollar's demise and gold's ascendency.

I'll say no more ;)

SugarLover said...

Meanwhile, in these boring markets, gold is down 2.3%, and the HUI is up 2.3%.

Tony said...

SL said:

"I'll say no more ;)"

Is that a promise? ;)

SugarLover said...

Only on that post.

You'd miss me, admit it.

AdvocatusDiaboli said...

Hi SL,
yes, read the "In Gold we trust" report.

Just when I read the analysis, that this downbreak is statistically only possible every 5000yrs, therefore we are now safe, I look at the price of gold today......

boaaaaa, again, how fast 5000yrs can pass while reading :D

Seriously, I'm not angry nor desperate nor do I say it will not recover, but I'm just done with this stuff, never ever buy an ounce of this yellow shit again, because I guess lot's of other people will have the same feeling before this is over.
Greetz, AD

P.S.
In Germany the BundesBank mints coins with 100€ face value (1/2oz), so maybe when it hit's face value we talk again ;D

GM Jenkins said...

Long 10 yr, long silver, down ~8%. Ugh. Closed the trade today, looks like might've been the right move.

Fix the system said...

I am calling it. The bottom in silver is in.

GM Jenkins said...

Note to self: when making a trade based on a weekly chart, wait till Friday.

Could this be the bottom? GDXJ was up 10% earlier. Maybe.

Slow Loris Larry said...

(Posted this on the previous thread by mistake, so here it is on the current one.)

Just up!

Trader Dan Norcini (http://www.traderdannorcini.blogspot.com) just posted a most interesting 'theory' deduced from his reading of Friday's COT Report, titled 'Mining Companies Appear to be Engaging in Hedging Activities once Again'.

That title says it all, but the lengthy post is certainly worth absorbing in detail.

I should also include Trader Dan's earlier post on Friday, 28 June:
'Heavy Call Option activity in GLD', which is also worth your time to read (as ussual).

SSL