The Curious Case of DrC

As the new week begins, I thought it might be fun to take a longer look at the recent price trend in copper. You'll note that, as of late, there has been a rather stark divergence from gold and silver.

Let's start with a broad generalization:

  • She'll very likely dump you as soon as a better looking guy with more money comes along

Oops. My bad. That's a generalization about broads. What I'm looking for, instead, is a broad generalization...

  • Gold = precious metal
  • Silver = precious and industrial metal
  • Copper = industrial metal

As a group, these three items only share one, major defining characteristic...they are metal. Other than that, they are separate entities with different histories, uses, demand fundamentals etc etc. Don't tell that to the algo WOPRs, though. These machines trade these metals as if they are all the same. Don't believe me? Take a look at the past five years of gold plotted with copper:

Note the correlation from 2009 through the price peaks in August of 2011. Then note the ridiculous 1:1 correlation in the red box. Again, what are the similarities of copper v gold that make the correlation this precise? There are none and this is not just random, either. This is a clear picture of the destruction and distortion that computer-driven markets bring.

Now look, however, at the blue circle and the divergence that has recently appeared and has accelerated over the past six weeks. What do we make of this? Two possible scenarios (both of them good):

1) This is a 25-year, monthly chart. Note that, generally, the copper price line is above the gold price line during metals bull market periods and below the gold line during bear market periods. With copper now "ahead" of gold again, have the metals begun the next phase of their bull market? You know that I've been claiming for months that gold and silver are tracing out massive Double Bottoms from which they will re-start their bull markets in 2014. The recent price action in copper lends me optimism that I will be proven correct:

2) We've been following closely the delivery action in Comex copper. Do you remember what happened in December? Where every previous month in 2013 had seen a vigorous pace of deliveries, ranging from 2,000 contracts to 7,000 contracts, December 2013 saw only 549 even though nearly 6,000 stood at First Notice Day. We attributed this to the massive Spec short position in copper being unable to deliver and thus forced to cover (buy) the contracts back in illiquid conditions. This buying led to a 10% rally in price that has so far held into January. (By the way, this dynamic is continuing as the Jan14 contract still shows 1,500 in open interest but, through Friday, only 42 deliveries.) The result has been this divergence on the metals charts which you can clearly see on the yearly charts below where gold and silver are shown as candlesticks and copper is shown as lines.

On the charts above, really only two things can happen:

  • Copper can collapse back down toward 310-320 while gold and silver stay right where they are.
  • Copper can hang in there or even extend its rally which, at some point, history informs us will drag gold and silver higher. Already, if the exact 1:1 correlation had been allowed to continue, the current price of copper implies $24 silver and $1400 gold.

So, let's continue to watch the action in ole DrC very closely. Early last week it appeared ready to fall hard toward 320 but it then reversed and is continuing to find the 330 level to be pretty important support. If the rally picks up again and price ever closes ABOVE 340, look out.

Finally, here are you current charts of gold and silver. Price is hanging in there nicely though both metals continue to be repelled from their 50-day moving averages near $1250 and $20.25. Whatever. Just stay patient. Last year was brutal and we all want prices to recover quickly so we can flip a collective finger at all the AGAs. However, major bottoms are not formed overnight and we are in the final stages of completing one which we have been working on for nearly seven months. Waiting just a little while longer isn't going to kill anybody.

Have a great day!

TF

29 Comments

Owtovit's picture

1

1

Why DrC higher when BDI indicates lack of shipping......ergo no-one has dosh for goods so goods not selling or being made....

http://www.zerohedge.com/news/2014-01-13/baltic-dry-index-crashes-18-2-days

Turd Ferguson's picture

Mentioned this last week...

MODERATOR

I don't put a lot of weight into the BDI...but...the complete collapse since the first of the year is certainly interesting. From 2247 to 1512. That's 33%!

http://ycharts.com/indices/%5EBDIY

philly's picture

Thurd

Thurd...my 2nd in a row...and it looks like my reverse psychology ploy might actually be working! Alas, Ag price can rise all it wants because I don't have enough to feel good about selling any of it off! Is there actually a point at which you do have enough to feel like it's okay to make a profit off the "extra"?

rnrjimmy's picture

Fourth

fourth
fôrTH/
number
adjective: fourth
1.
constituting number four in a sequence; 4th.
"the fourth and fifth centuries"
Levon's picture

More on a few miners

YTD performance so far:

Sunridge Gold - up 30%

Timmins Gold - up 23%

Aurcana - up 63%

Tax loss buying should pay off in spades this year.

These are just a few but you will never hear about any of them in the MSM until they are up hundreds of percent and then it will be what a bubble they are.

Unreal how they cap gold at $1250

SlobberingBull's picture

Chart question

Turd,

Thanks for this post.  A question, why does the volume on the daily charts show much higher levels since around the start of November?  Is it a chart scaling or weighting setting?  Just curious.

Turd Ferguson's picture

The bases are the Feb and March contracts

MODERATOR

These became the "front month" contracts once the Dec13s went into delivery in December. As such, their volume takes off as they become the actively-traded contracts...at least until the end of January for the Feb14 gold and the end of February for the Mar14 copper and silver.

Response to: Chart question
Turd Ferguson's picture

Above the 50-day MAs

MODERATOR

Both metals are above and holding. Now, can they stay and extend or will a Terrible Tuesday cause them to fall back?

SilverX3's picture

As usual, Turd your ability

To aptly spot and interpret historic trends and make rational future price predictions - all for $10/month is a joke!! Best bargain for the quality of analysis no one will find elsewhere on the blogosphere hands down.

mel's picture

Osisko Mining

Anyone who was holding Osisko Mining OSK.TO has to have a smile on their face today..

http://stockcharts.com/h-sc/ui?s=OSK.TO&p=D&yr=0&mn=6&dy=0&id=p37005772511&a=303723427

Turd Ferguson's picture

Thank you

MODERATOR

smileyNow, please go forth and tell everyone you know to join! smiley

Turd Ferguson's picture

Hmmmmmmmmmmmmmmmmmmmmmmmm..............

MODERATOR

With the HUI pressing on toward critical resistance at 210 (now 206.55), here's a look at Turd's old pal, EXK. Hmmmm....

SilverX3's picture

Turd, do you still expect a Terrible Tuesday

As per your Saturday podcast? Do we go back down to $1240/20.00 before going back up?

Btw - I agree with your "broad" generalization wink

Jim H's picture

Denver Dave says that the Osisko buy offer is a turning point

Goldcorp knows where the price of gold is headed and this why they are buying Osisko now.  They also probably know that the window of opportunity to buy 30 million ounces of gold in the ground at this price is quickly closing.  In other words, this deal marks the turn in the massive gold and mining stock sell-off of the last two-plus years.  While I expect Goldcorp to sweeten its offer, don't get caught up in the details of this transaction and miss the big picture:  the bottom is in and gold is back on track to resume the upward trajectory it was on in 2011.

http://truthingold.blogspot.com/2014/01/goldcorp-offers-to-buy-osisko-mining.html

More and more markers are lining up... PHYS starting to get raided... Bron starting to actually sound a little bit bullish in his own special way (we might run out of coins... but it doesn't mean there is a strain on phys.. just not enough blanks... yuk, yuk)    here is the link:  http://goldchat.blogspot.com/2014/01/coin-shortages-and-rationing-are-in-our.html

India "scrap" counts going up... probably a means by which the jewelers are trying to launder the smuggled Gold, etc, etc, etc....   the beach ball is popping out of the water a bit more.   

boomer sooner's picture

Time to put some cash to work

Time to put some cash to work in retirement account. Called Raymond James about 10 minutes after the open and tripled up on GDX, GDXJ.
Asked the order taker what he thought the overall market would do, flat for the first quarter and then move higher. He said earnings were looking good. I asked, like Alcoa?, him-yes. I cracked up and said thanks.
Been holding gdx, gdxj for 2 years and figured time to make a stand. Up while the market is down is nice for a change. No time to pick and choose, so have to play with a net. Figured between those two and phys, should be good. Fool or no? Oh, and vix calls in play acct.

Turd Ferguson's picture

We'll discuss that today

MODERATOR

But tomorrow should be a Happy Tuesday. Why? Total gold OI is now UP 19,000 just this CoT week. Most likely Spec covering/buying and Banks supplying the new paper. To hide some of their selling, we'll often get a Happy Tuesday in this case.

We'll see...

s1lverbullet's picture

@ Turd

Bought EXK a couple weeks ago when you mentioned you thought it was a good buy.  Got a big grin on my face today, thanks!

Turd Ferguson's picture

Thank you for posting that

MODERATOR

Thank you for posting that utterly incoherent "research" piece from Barclays. Astonishing that this Gayle Berry person even has a job.

1) If this was a "short-covering rally", total open interest would be declining. Instead, gold OI is UP over 23,000 contracts or 6% YTD.

2) Take another look at the charts posted above. So Gayle Berry says that copper is going to head higher but gold is going lower? That would seem to fly in the face of 25+ years of history.

What a worthless shill. 

Levon's picture

I bet

That one could buy some long term puts on Yelp, Facebook, Linked In and in a year from now be a very camper.

Clarki Stomias's picture

RE: Thank you for posting that

Yeah, I just posted it on Pining's entry regarding MSM hit jobs as well, because it is RIGHT in line with his entire thesis.

___________

And to add to that, the writer of that Barclay's article had a conflicting argument literally within two consecutive paragraphs.  Made me giggle. (My emphasis in bold below).

"Another downer is the outflow outlook for exchange-traded products. Preliminary 2013 numbers show outflows of 886 tons, nearly a third of total holdings since the beginning of the last year, says their research. If gold prices drop below the $1,200/oz, the ETPs will come under further pressure. Barclays sees gold prices at $1,205 this year, and $1,150 for 2015.

As for silver, a big downside risk is the lack of silver ETP liquidation and Barclays estimates show 5kt of current holdings are loss-making and if those crystalize, prices could suffer “sizeable downside pressure.”"

Okay so what your saying is:  Gold ETF draw downs are bearish for Gold.  And at the SAME TIME.  The LACK of silver ETF draw downs is bearish for silver.  Okay.  Thanks for the airtight argument.

Hell, this isn't just egregious analysis, it's grammatical illogic.  Where's a good editor when you need one?

Gamble's picture

Detour gold

The dgc i bought in December is siring as well 

just wish I had bought more , oh well!!

Ripon2013's picture

Dave Janda piece with Ed Steer

http://www.davejanda.com/operation-freedom/sunday-january-12-2014

its the second segment, nothing new but always nice to hear an educated, rational discussion on

our state of affairs.

Gamble's picture

Physical silver or gold

Hey turd I know u probably went over this but maybe refresh us .

any preference on physical silver over gold ? 

And about how much percentage wise in relation to total assets?

mel's picture

Worth watching...Argonaut Gold

This one might be worth a look....Soared through the 20 and 50 dma today....

http://stockcharts.com/h-sc/ui?s=AR.TO&p=D&yr=0&mn=6&dy=0&id=p26388421044&a=291146402

Orange's picture

Very Odd

Tried to listen to the podcast just added, and it won't let me in.

States:

The full content of this page is available to gold members only. To subscribe and get full access to "Turd's Vault," click here.

I will try a few things to see if it clears, however if others have issues, perhaps you can post them.

Orange's picture

Just got in

Not sure why, however I did a reset and cleared cache. Logged out and came back in without any issues.

Turd Ferguson's picture

And the HUI clsoed above 210

MODERATOR

Specifically 210.22

Can we hold for a day or two??

mac's picture

copper is...important - good point!

The MSM info seems too confusing ..."there is an oversupply", then "there is no copper in warehouses"....

I think China now plays the paper game, they are not desperate like 5 years ago. They are buying the LME.

China needs alot of Copper. They can manipulate price, until they can't and have to pay up. Seems this is happening in most commodities lately.

This manipulation cannot last. EM's are gonna grow!!

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