Figured it out

The metals charts look like death and I'd be surprised if they don't soon make new lows, but at least I've finally figured out when the next leg of the gold and silver bull market will begin. So let's get right to the opening pitch

Everyone is surely familiar with my "10-Year yields measured in ounces of silver" chart. My charts go back to 1990; the amount of silver you get every year for lending the Feddle Gummint your hard earned cash for 10 years has steadily been going down, but it started to descend really fast at the turn of the century. 

Just by quick inspection, it seems likely that the chart is now officially headed to the top of the diverging trend "wedge" ... meaning yields have quite a ways to rise, or silver has quite a ways to fall, or both. 

 In fact, every major leg of the bull market in gold starts when that top trend line is hit (see below; gold's chart is in the background, blue). Note also that corrections invariably begin whenever the lower trend line is hit.

 And it's almost like clockwork: 164.5% increase in gold as the yields-in-silver chart goes from top trend line to lower. To extrapolate, if gold closes a week at say $1150 by the time the top line is hit, that would mean it should go just past $3000 before the next correction.

And though this week marked the lowest closing gold price in 3 years (!!), a lower weekly close of $1150 seems likely (see log and linear weekly closing charts below)

So we all just need to patiently wait for that to happen. Sooner the better I say. (Worth mentioning: I believe Martin Armstrong has said gold at $970 before August would mean the bull market will resume.) 

At any rate the two GDXJ-ratio three line break charts just added new weekly bars. Zero reason for short-term bullishness, whatever you may read elsewhere.

I may take a short vacation.

Till next time,


answer2me said...
This comment has been removed by the author.
answer2me said...


Nice charts, love the 10 year yield comparison! Martin A. also says we will make a low this year and possibly a double low coming in next year before we resume the bull market in gold October 1 st 2015. Whadoya think?

Funky Tape said...

Thanks for the update GM.

As for Martin's analysis, he recently did a video on gold. Maybe you saw it? If not:

Really interesting to listen to him toggle trough his computer to get the levels. I've yet to figure out how the reversals are calculated.

FWIW, I see bearish price objectives for gold at $1110 and $16 for silver on the latest P&F charts I pulled. As far as fib levels, the 50% on the entire bull in gold from $253 to $1924 is at $1088. We already cut right through the 61.8 in silver at $21.50 so we're looking at $13.82 for the 78.6 for the whole move. Luckly number 13: max pain.

S Roche said...

Great stuff GMJ, thanks.

$970/$988 has 1976 written all over it. Be careful as to what Martin calls a bull market...I understand that means a new adjusted high from Jan 1980, ie $2,300+. Martin is the last man standing in that sphere.

S Roche said...

GOFO negative out to 3 months, this has meant fireworks in the past!!

Unknown said...

@S Roche Great find!! I usually check GOFO once a week. When is the last time it was negative? I can't find it going there at any time going back to 08.

S Roche said...


November 2008, after the lows and before that March 2001 - at the beginning of the bull market.

The LBMA web-site is showing May 22nd 1M Gold Forwards as negative but that looks to me like a typo, given May 21 and 23, I have written to them for clarification.

If history is a guide, this is big. In the past there has been massive volatility at this point, with surges and almost total retracements, but it has previously confirmed the low and the start of a major bull run.

Let's see!

Unknown said...

I see even in Nov of 08, GOFO only stayed negative for three days.

S Roche said...

Waiting for my h/t, their BBerg terminal was mis-quoting it all day:

STFU was first!

S Roche said...

GOFO 1M thru 6M negative!

S Roche said...

Jack Farchy from FT chimes in:

GM Jenkins said...

Nice job S Roche - you really got the ball rolling on that GOFO stuff. I see zero hedge gave you a hat tip. Wish you had made it a separate post!!

S Roche said...


Take it up with the ra...umm, Procheimian.

Yeah well I gave it some thought but decided I really don't know enough about this arcane part of the gold world. But, as luck would have it neither does almost (excl Farchey above and Bron and a very few others) anyone else who has written about it...incl some clueless US commentator who looked at Comex gold futures and wrote there is no backwardation.

However, I did get some congratulatory emails from fans around the world thinking that I wrote the ZH article (AIG 2011??!!), including one who outed me as (a) Tyler Durden.

Tonight will be fascinating to see if we can match 1999 and get negative rates out to 12 months.

GM Jenkins said...

@answer2me - the pattern on the above charts indicates a v-like bottom in gold once the yield-ratio chart starts moving from the lower line to higher. This week is a tiny downwards blip before i would guess metals continue to fall and/or yields go up for one final blow out. But if the pattern changes this time around, I think Martin A's double bottom predition is more likely thn serious downward price movement from here; i.e. i think gold will correct more through time than price from here if it has to, and a weak rally before another scare down to these levels over the next few years seems like a high if not max pain scenario for the many who haven't been shaken out of their positions yet

Thanks for the link FT

Keep us posted SP, that's why we pay you tha big bucks.

S Roche said...

and Izabella Kaminska at the FT

h/t Kid Dynamite

S Roche said...

@Warren James

From the comments to the above article:

"The current goings on in gold and oil spot and forward prices are IMHO what happens when 'dark inventory' is liquidated."

I think you better send a team in a dark helicopter to bring this Chris J Cook in for questioning.

Bron Suchecki said...

Not sure what CJC means by that statement as just about the entire gold market is dark - apart from futures warehouses and ETFs, all the gold is off market!

S Roche said...

I think if Warren just brings him in and takes it from there.

Meantime, Adrian Ash has chimed in:

Anonymous said...

S Roche,

when you tweeted something like "GOFO is negative - this might be the bottom", I replied that we don't know whether the people who borrow gold (and lend dollars) in these swaps that price GOFO, are after the paper gold or whether they borrow the gold in order to allocate.

I said this in order to alert everyone to the fact that GOFO may just represent a paper dollar for paper gold swap. I did not mean to imply that the London gold price wouldn't rise if it was paper. Quite the contrary, I think that the London price is largely the trading of paper (how else would you be able to move more than 2700 tonnes per day?). So, yes, everyone who is waiting for a rising London gold price is in effect hoping that paper gold becomes more popular.

However, this is not what I am expecting, and this is not what's going to be exciting. What would be exciting is that the gold price continues to drop, but demand for physical gold to increase. Yes, that's both possible at the same time, and it leads to a loss of (physical gold) reserves at the banks. I said to S Roche "Watch GLD" because this is where I think we would see it.

The following question is for Bron and Kid Dynamite and everyone else who think they understand the mechanics of GLD and SLV.

Since December 28, 2012, the gold price has dropped by 24.5% from $1664/oz to $1256/oz while the silver price has dropped by 35% from $29.95/oz to $19.37/oz. That's roughly comparable, but with silver hit more seriously than gold. The inventory of GLD and SLV has behaved rather differently though:

SLV inventory is almost unchanged, up 2% from 9925.6 tonnes to 10124.98 tonnes.

GLD inventory is down 30.5% from 1350.82 tonnes to 939.07 tonnes.

How do you explain the different behaviour of GLD versus SLV inventory?

If you cannot, then I am claiming that you haven't understood neither these instruments nor the gold and silver markets. Well, I do think there is one who does understand what is happening here, but I am not going to mention his name so my posting hopefully won't be quarantined to the crackpots' asylum in a different thread.


S Roche said...

Hi Victor,

Yes, I thought that was your point regarding the uncoupling of physical and paper gold. I have moved away from regarding this concept as being probable but have largely kept it to myself up til now. I cannot see the gold trading world walking away from a profit opportunity, however I know that you have precedent on your side but I regard the attempt to maintain a fixed price then as unlike the floating price today. We shall see.

As to GLD and SLV I have read that GLD has a much higher percentage of institutional investors, (who must show quarterly returns), and therefore the selling of one and not the other makes practical sense to me.

All the best,

S Roche said...

Hi Victor,

I found Bron's comment in the Screwtape Freegold pages comments:

"GLD and SLV behave differently because GLD has 50% institutional investors and SLV is at around 20%. That different mix of investor types has to be a factor."

Bron Suchecki said...

Last time I looked Reuters was reporting institutional holdings of GLD at 50% and SLV at 20%. That is probably based on quarterly filings so may be out of date, or pre-date the April price smash.

ETF prices stay in line with other markets (eg futures) by two mechanisms:

1. Buyers and sellers adjusting their bid and ask prices of their own accord in response to price changes in other markets. If a grocer hears of a bananna crop failure he immediately adjusts his selling price up, he doesn't wait for demand to arrive to buy up all his banannas. Investors sitting with bids of $1320 in an ETF aren't going to sit there and wait to get hit if they see futures drop to $1200, they will just kill their $1320 bid - ETF price drops.

2. If the above doesn't happen quick enough, then the. arbitrage mechanism is there to scalp the mismatch. It also comes in where the bid and ask depth is mismatched and people are desperate (ie bidding/asking above/below).

So if SLV is composed of a lot of retail buyers then it is possible that any selling by desperate holders was met by investors believing the silverbug memes, with both setting their (reducing) prices based off Comex pricing, thus no net liquidations.

Note that BB market makers are in the ETF markets setting their bids and asks and may well be filled on both sides by retail investors, rather then retail seller being matched with a retail buyer. That is also how the ETF bids/asks are maintained inline with Comex.

KD has a better handle on price formation on exchanges than me, I'd be interested in his view but I doubt it involves elaborate FOFOAish explanations.

Kid Dynamite said...

Victor -

I'm guessing that i'm the only one reading this thread who actually analyzed the data of GLD and SLV vs their respective NAVs in the weeks following the 4/12 selloff.

what I found was that GLD spent significantly more time below its NAV than SLV did: the data matched the normal arbitrage theory.

another way to say this is that GLD is a leader in the decline of gold price - everyone owned it (no - i realize that your barber and your cabbie didn't own it yet) - but it was overowned on a bad fundamental "money printing" thesis that has cracked. no one complained on the way up when massive GLD inflows accumulated massive amounts of physical - which is why it's so funny that they make up conspiracy theories and end of the world scenarios when that trade is unwound.

i'm not going to continue this conversation here, as I'm going away and won't have access to the comments, but I also don't think that any of the "GLD's GOLD IS BEING RAIDED" folks understand that their theories about manipulating prices lower in order to buy GLD and redeem it are utterly embarrassing: creations and redemptions are done via unallocated, as you know. Thus, such machinations would be wholly unnecessary: one could just buy unallocated gold and request allocation.

Kid Dynamite said...

here's a reply I made to Milamber on one of my own threads on this topic which I think explains it better than I just did above:

"we normally think of rising prices and rising demand being associated, right? that's why we say that it's "normal" to see inventory expansion as a result of arbitrage during rising prices: if there is excess demand for shares.

HOWEVER, there are lots of ways to trade these assets, right? not just the ETFs.

so, what the DATA is telling us, is that the gold selloff was "led" by GLD (GLD was being sold very hard and very fast, which is why there was so much arb-related redemption, as we'd expect!)... this doesn't mean that GLD selling caused the crash in the price of gold (although it certainly seems that they contributed), but that *GLD sellers were more aggressive than sellers of other gold instruments* ! (there, I finally said it simply!)

contrast that with silver: SLV sellers were not more aggressive than sellers of other kinds of silver, so SLV didn't trade as cheap as GLD did, and you didn't see the same redemptions.

I actually looked at the data for the last two weeks this morning, and found that GLD spent roughly twice as much time trading below NAV as SLV did... which "supports" my explanation.

It's still surprising that SLV saw almost no redemptions so far throughout this period, in my opinion.

to your other questions: why did GLD inventory rise from sep 2011 to Dec 2012? perhaps because everyone was piling onto the bad Q.E. thesis and seeking gold exposure through the easiest means: buying GLD ??? GLD demand was greater than demand for other gold "proxies", even though prices were falling. when that happens, you get creations (inventory adds).

which brings us to this year: the data tells the story that GLD was being sold a lot harder and a lot faster (evidenced by redemptions) than gold was at first... eventually, gold caught up! all of that AP selling (in response to GLD arbitrage) eventually flowed through and overwhelmed demand...

you asked "what are the APs doing with it?" they're selling it!! that's why the price is going down! that's why the "China raiding GLD's inventory" stories are also laughable: raiding of inventories and massive demand does not cause price to plummet.

and I know you won't make the mistake of confusing retail and wholesale demand, like the rest of the PM commentators all over the internet do..."

Unknown said...

I doubt the AP's are selling it. They are much more likely just selling futures to hedge the larger inventory.

Bosco said...

Maybe someone can help me out on this GLD vs SLV debate or this GLD tonnage drain thing. Let's say GLD. In a world of 150K+ tonnes of above ground gold available, why are we so obsessed with a 300-400 tonnes of gold movement in GLD over the past few months? What's the big deal here?

And I found it funny that people that put high importance onto it are those that say gold is monetary metal with so high of a stock-to-flow ratio that annual supply and demand figures do not matter much in its pricing and now they think a 400 tonnes movement in GLD is important then?

OR put it this way, SGE YTD has delivered 1000+ tonnes of metal, isn't that a bigger deal for the market then this petty GLD? OR the fact that Hong Kong has a net inflow of 2000+ tonnes of gold in the past 4.5 years (this is excluding those that went through to China by the way)? Is that a bigger news item here.

Anonymous said...

Thanks Bron and Kid for your response.

So SLV used to have 20% institutional investors and GLD about 50%. This sounds plausible (at least one or two quarters ago) if I think of Paulson and Soros, for example.

You blame the loss of GLD inventory on institutional investors selling. If this were true, why then is SLV inventory up if they used to have 20% institutional investors? Yes, 20% is less than 50%, but silver is down more than gold and Paulson still owns quite a bit of GLD and hence hasn't sold it?

Secondly, do you really believe that the small retail investors are the strong hands here and the institutional ones the weak hands?

Am I the only one who finds these arguments fishy?


Bosco said...


No, I think those are very weak argument, if at all logical.

Gary Morgan said...

'Secondly, do you really believe that the small retail investors are the strong hands here and the institutional ones the weak hands?'

My observations:

Retail silver investors are never going to sell, from SLV or other vehicles, or the real thing. That is obvious from any cursory reading online. The tin-hat brigade. They will buy more SLV as the price drops too.

Retail gold via GLD on the other hand is Western hot money (rather than the strong hands who buy allocated physical), in and out quickly, looking for a trade only.

Institutions hold ALL asset classes for ever decreasing periods of time, again, it's just a trade to them. They have been dumping GLD, and no doubt SLV too, but are minority holders.

These obvious facts VtC you cannot see. I have an idea why, but I will not mention it here.

VtC, do you REALLY believe that the small retail investors are the weak hands here and the institutional ones the strong hands?

Finally, to those who run this place, nice to nice you let VtC get away with this:

'Well, I do think there is one who does understand what is happening here, but I am not going to mention his name so my posting hopefully won't be quarantined to the crackpots' asylum in a different thread.'

VtC, who is a 'crackpot' is all just a matter of perspective, a very subjective matter. 9/11 theories anyone?

AdvocatusDiaboli said...

IMHO KD provided so far some of the best and most valuable approaches&explanations, thanks KD (even if you get tired of explaining it over&over again).

I am just wondering: Did any of those "look, the GLD inventory is being raided" crackpots ever showed any kind of proof of trucks parking infront of the vaults loading up the yellow?

Besides, does GLD publish any kind of physical deliveries, in terms of physical real removal by real customers instead of "dark bullion" being shifted inside the bullion banking?
Greets, AD

Warren James said...

@AD, Publishing information about physical bullion deliveries would never be done, when you think about the very first set of repercussions (not all observers have academic interests). rgds, Warren

S Roche said...

@SL re Crackpot: Context is important, try explaining GOFO at a dinner party and you get to join the club, apparently. I don't mind hypotheses exploring the unknowable as entertainment, if one has time for that.

Bron Suchecki said...

Victor, silverbugs are far more passionate than goldbugs. I've just checked Nick's site and all of the silver ETFs and silver balances of GoldMoney and Bullion Vault have held up.

Compare that to GoldMoney and Bullion Vault's gold, which has peaked and dropped off circa 10%, not as much as GLD and the other gold ETF, but there is a drop off just the same.

So even in GM and BV you have the silver/gold difference in behaviour. I doubt BBs are coatchecking gold in GM and BV.

Occam's razor.

costata said...

In order to explain the difference between the behaviour of retail investors and institutions I wonder if we need to look beyond "nominal loss aversion". One of the reasons why retail money tends to sell its winners and hang on to the losers.

Whereas institutions make more dispassionate decisions (in theory at least) about what they buy, sell or hold. I'm also wondering if margin calls are a more important issue in GLD than SLV.

S Roche said...


I think that you have to acknowledge that most institutions bought gold purely because the price was going up, as many are selling it now because it has been going down. For many, they never were committed in any way to the ideas behind why gold was going up.

Also, I think there are many reasons why gold rises and falls in price and not all of them are known, or if known, acknowledged or accepted as being price drivers.

Many institutions have sold, and are still selling, because they believe that the whole bull-market rationale for gold was that money-printing leads to inflation and now they believe this has been disproved, best represented in the work of Cullen Roche (no relation):

An excerpt: "It’s abundantly clear by now that the many hyperinflation and even high inflation theories following the various government policies after the financial crisis, have been entirely wrong."

You will find that in his article (one of many) about money supply at the above link.

and Mark Dow: for his

general views on gold, and specifically his views of May 12:

and April:

Where he re-iterates his views first expressed in June of 2012. These views have gained currency.

Many US investors, whether institutions or individual Macro-Tourists, have been selling gold because they think that the thesis was inflation, and that the thesis has been shown to be wrong.

At the moment, I rather like the view from Grantham's office in April this year, essentially that everyone's view was wrong then (on the way up) and is wrong again now:


costata said...

S Roche,

Thanks for the links. So the institutions investment thesis for gold changed, they sold out and the herd moves on.

I think you are on the money with your observation about the misunderstanding about the forces that drive gold. Charles Hugh Smith has done a couple of good posts pointing out the lack of correlation between gold and just about anything else you can point to (including the US dollar index).

I have read several of the writings of Cullen Roche. I read a couple of the posts from Mark Dow that you provided links to just to make sure that he was in, more or less, the same camp. It's familar territory for me.

At the FOFOA blog I was involved in some lengthy exchanges with members of the MMT and debt deflation camps who made similar assertions about my/our lack of understanding of the manner in which money is lent into existence by banks.

I'm familiar with circuit theory/endogenous money but it's hard to shake these guys from their belief that anyone who anticipates hyper-inflation is simply an inflationista who believes in the money multiplier myth.

They also appeared to think that, like many of the hard money goldbugs, some of us didn't get the memo about the end of FRB based on reserve requirements and the evolution of the Basel rules toward risk weighting and capital adequacy.

This often resulted in people talking past each other rather than communicating. The FOFOA stalwart 'JR' in an argument with an MMTer even posted links to statements by Ben Bernanke where Bernanke made it crystal clear that he was targeting the interest rate curve with his policies and addressing a (perceived) liquidity problem not attempting to kickstart a "money multiplier" that the Federal Reserve itself acknowledges doesn't exist.

While the velocity of money is so low it makes sense that the general price level will be reasonably tame even if prices in some sectors and/or asset clasess are overheating. Clearly there are other factors involved as well.

After a while it became depressing going around in circles on this stuff.


S Roche said...

Thanks Costata,

Cullen is MRT, not MMT, I like that he runs his own race.

They could all be wrong if it becomes evident that all markets are giving off false signals because of ZIRP and malinvestments: then more QE is needed not less.

The present signals are just as consistent with that, as there is "no inflation", because the central bankers real fear is deflation. Plosser was on about that this week.

FWIW, I'm expecting a retest of the lows, but with a higher low, (sorry, I don't have a feel for exactly which recent low will be retested), as the bears feel they have everything, including a better understanding of monetary policy, on their side; and, with each previous instance of negative GOFO there was a pretty savage retest of the lows as the bears that caused negative GOFO in the first place are not at all focused on that sort of minutiae, they sell gold because it goes down. Same as they bought it when it went up.

In any event, I will be watching it closely over the next two weeks as I want to be very long when the bears get run over.

Gary Morgan said...
This comment has been removed by the author.
Gary Morgan said...

Gofo views here. Interesting, complex.

S Roche said...


Thanks, that GOFO piece by Adrian Ash is circulating a lot...

In regard to Cullen Roche, and Mark Dow, I didn't provide their links to create a debate on the merits of what they say,(or invite ad-hominem attacks), but to provide examples of the reasoning behind an emerging institutional view on gold. Yes, they may well be wrong, as most views on gold are.

I hope you can see the irony of your repeatedly calling Cullen Roche a lightweight anonymously from the sidelines. One staple of trading life I have found pretty reliable, which I share with you out of nothing more than the goodness of my heart: Don't trade alongside Mr Angry.

S Roche said...

In relation to institutions:

"Money managers withdrew $1.42 billion from gold funds in the week ended July 10, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Total outflows from commodity funds were $1.68 billion, according to EPFR."

That's a pretty heavy weighting towards gold.

milamber said...

Man, Im out of pocket for a week & all hell breaks loose :)


p.s. writing this comment so I can subscribe comments because there is still no way to get STFU comments emailed to me unless I subscribe :)

Motley Fool said...


That is a viable explanation, and I am quite fond of Occam's razor. :)


Motley Fool said...

Kid Dynamite

I liked your explanation but it has an implicit assumption I disagree with.

That is, that paper gold and physical gold will be indefinitely fungible.

Sure, it is true at present, and that is supportive of your position, however, have you considered that if it is false in future, your perspective on present action does not stay valid?


Bron Suchecki said...

Re the insitutional interest in GLD, see

"Commerzbank’s commodity strategists pieced together the last week’s 13F portfolio disclosures to show that no fewer than 75% of redemptions from the biggest gold ETF were undertaken by reporting institutional investors. ... It’s in keeping with what we already knew about the torrid outflow of money from the institutional-investor favorite, the SPDR Gold Trust, versus the slower outflows from iShares Gold Trust (IAU), which trades at about one-tenth the price and is thus preferred by many smalltime investors."

S Roche said...

Good find Bron, May 17!

Bron Suchecki said...

Old bookmarked article I finally got around to reading. Knew I bookmarked it for a reason.

Kid Dynamite said...

@Motley Fool -

please email me on my blog's contact page if you'd like to continue this discussion.