Screwtape Files: November 2013

GLD Added 6½ Tonnes in October 2013

Late reporting on this ... Last month (October), there was a substantial addition to the GLD inventory (523 bars), the size of which stood out because it was the first 'add' after a sequence of 'removes' but compared by amount to other 'adds' for this year, it only ranked 6th largest.

Quick comparison charting all currently known 2013 GLD additions.

An avid reader of "Harvey Organ's Daily Gold & Silver Report" (who shall remain unnamed) brought to my attention an interesting Harvey Organ footnote (my bold emphasis):

Hello friends,

No new conclusions, but an update is due.

Gold and silver continue to look awful, as I predicted. The weekly three-line break charts that I've been using to gauge bull vs. bear cycles in gold ($INDU:GDXJ) and silver (GLD:GDXJ) continue to add weekly bars, also as expected.

I had a thought the other day that gold and silver may continue to fall even as the present bearishness increases, because most of the PM-bearishness that pervades the finance world seems to be of the short term variety. Everyone and his mother seems to be expecting (or at least not ruling out) a blast off in the long term. Perhaps the bull market won't recover until the long term bulls (like me, for example) start to change their tune. It'll take much lower prices, though, (and protractedly lower prices, I should add) for me to lose my confidence in gold's fundamentals. I liked costata's comment from my last post:

If the sovereign bond fails, a "forty story building" of derivatives collapses. Stick gold at much higher prices under it and the building holds up.

Seems like gold at new highs is the long term path of least resistance for the financial elite to maintain their position at the top of the food chain. Not an ideal path for them (or the central banks would already be manipulating prices higher), so it will be drawn out, maybe on the order of a decade, but will we end up with some kind of financial "reset", with gold playing some kind of vital role? I still think so.

On the topic of sovereign bonds, weeks ago I noted the breakout from the bullish pennant in the 10-year yield vs. silver ratio. It's been up over 10% from my last post and looks to keep rising ...

... and rising, perhaps until the ratio hits the green dotted wedge, which has uncannily coincided with lows in gold:

Nothing has really changed from last week, but I figured I'd post updated versions of charts. Gold needs to recover quickly or it's looking to me like $1000 will be tested soon.

So it's looking my interpretation from 3 weeks ago was correct: we merely had a short bull cycle in gold (~3 months) within a major 2 years (and counting) downtrend ... and that bull cycle is over. I suspected last week's action was a bull trap, and it looks like my suspicions were well-founded. Like clockwork, the 144-day MA was touched immediately on Monday, but it was all downhill from there.

Because I'm looking for a sign that the major post-August-2011 downtrend is over, at this point I much prefer weekly closing charts to daily candlesticks. Baked into the weekly closing cake is some clue about what the biggest players are willing to hold going into a weekend. Perhaps as a consequence, with the exception of the post-QE-3 rally last autumn (also ~3 months), the 20-30 week MA ribbon (green, below) has been stout resistance. Note that gold finished the week right below it:

So, it seems to me the downtrend will continue ... although more or less sideways action here is also possible (surely fundamentals must matter somewhat??). Perhaps gold will remain stagnant till the spring, making a double bottom on a monthly closing basis where the blue trend line crosses the 38% Fib line? Of course, even if that scenario holds true, there could still be a lot of intra-month volatility.