This is going to be a really interesting week. There is no doubt that physical stresses are affecting the paper "market" and it will be quite fun to follow the action as the week progresses.
Let's cut to the chase. By linking gold to the sharply-falling yen, WOPR algos have driven the paper price of gold to the point at which the bullion banks are having difficulty sourcing physical metal to meet demand. This is seen on the GOFO chart below. Note that today brought another new 15-year low in the one-month rate. Also note that the two-month and three-month also made new lows for this current period of "backwardation".
If I am correct in this analysis, then we should begin to see a divergence in the algo-generated link between gold and the yen. Is this the case? I don't know, you tell me.
So it appears that we have found a floor down near $1140. That is likely the price where physical can no longer be delivered at the paper price because it was near there that the gold-yen link first began to fray. However, price hit that level back on Wednesday, November 5. Go back up and look at the GOFO chart and note that rates immediately surged even lower the next day. And look at what since happened to price....the divergence which has caused gold to rally nearly $50.
Now, here's the deal. If physical gold was not extremely tight and/or if demand was not continuing at a torrid pace, we would have seen GOFO levels rise back toward 0.0000% in the days that followed. Look at what has happened, instead! As mentioned above, rates have gotten "worse".
So, let's put some of these coincident, anecdotal data points in place:
- Gold-yen link showing signs of breakage after lockstep movement since June
- GOFO rates continuing to plummet to most negative in 15 years
- Rapidly rising Comex gold open interest. UP over 25% in less than three month. UP 8% in just the past 7 days. UP another 3,600 contracts on Friday's preliminary report.
- Sudden demand for 920 November gold deliveries on Thursday followed on with another 460 on Friday. That's 138,000 ounces of Comex gold for immediate delivery, not waiting for December.
All of this adds up to a very interesting and exciting week ahead.
Of course, the primary technical target for gold...should it break free of the yen...remains $1180. On the chart below, I've drawn the line in blue because it is neither support nor resistance right now with price so close. IF PRICE CAN CONTINUE TO RALLY, we will watch for it to interact once again with the primary, long-term trendline that we've been following since May of 2013. As you can see below, that line is currently near $1230.
I know that everyone is curious about silver, too. Let's start with the GOOD NEWS. One of the rules of my TA is that price will almost always come down and "ride" a trendline that it has recently broken. Back in June, silver finally broke through the long-term trendline that went all of the way back to the highs of April 2011. The line was so sharply downward-sloping that this was inevitable at some point and it also made the similarly inevitable attempt to get price back below the line that much more difficult. "They" tried, however. "They" also failed. As you can see below, price came down and did, in fact, ride the line before bouncing away. This is a very good sign.
In the short-term, though, I wouldn't get all hot and bothered just yet. Price is still stuck in the down channel that has contained it since July. Once price decisively breaks out, then I'll get optimistic. Once price establishes a toehold back above $18.20 with a couple of weekly closes, then I'll get wildly optimistic and begin buying with both hands. Until then, I watch and wait.
Just four links for you on your way out today. First, two of our favorites met to discuss the metals last week...Eric Sprott and Chris Martenson. You should definitely give this a listen. http://www.peakprosperity.com/podcast/88731/eric-sprott-global-gold-demand-overwhelming-supply
And Jim Quinn has an excellent new piece out this morning. Please be sure to read it: http://www.theburningplatform.com/2014/11/16/what-the-fed-has-wrought/
I was on with Dr. Janda again yesterday: http://www.davejanda.com/guests/turd-ferguson/sunday-november-16-2014
Finally, you likely know by now that I find the topic of "end times" and eschatology to be fascinating. NOT that I believe that we are in the end times. We might be. We might not be. I just find it an interesting subject. To that end, I found this article interesting. I must admit, however, that if I were Commander-in chief, I would have already unleashed a Dresden-style carpet bombing of the place just to show these MF-ers who's really in charge...http://www.brookings.edu/blogs/iran-at-saban/posts/2014/10/03-isis-apocalyptic-showdown-syria-mccants
As I close, gold and the HUI are unchanged though silver and crude are both down. Meh, whatever. As stated above, this is going to be a really interesting week. Check back often.