A Broader Perspective

525
Tue, May 14, 2013 - 11:37am

Time is short but I do have something interesting for you to consider today.

Look, there's a lot going on that will make tomorrow's gold (and silver) "market" different from yesterday's. Regardless, I still believe it's useful to look at yesterday's market in order to forecast where we might be going based upon where we have been.

Today, we're going to look at the Continuous Commodity Index. https://en.wikipedia.org/wiki/Continuous_Commodity_Index. Here's a little background info from the Wiki page:

"The 17 components of the CCI are continuously rebalanced to maintain the equal weight of 5.88%. Since CCI components are equally weighted, they therefore distribute evenly into the major sectors: Energy 17.65%, Metals 23.53%, Softs 29.41% and Agriculture 29.41%. While other commodity indices may overweight in certain sectors (e.g. Energy), the CCI provides exposure to all four commodity subgroups."

So, first, let's look at a 25-year chart. Some of you may not even have been alive at the start of this chart. Personally, I was just graduating from college and chasing my then-sweetheart to San Francisco. (That's an interesting story but we'll save it for another day.) The point is: This chart covers a lot of ground and time. Therefore, it is to be respected.

Notice that for the first half of the chart, the action is sideways. From 1988 to 2002, the index fluctuated in roughly a 50-point range. Though there was some action in individual commodities from time to time, overall the sector was a real yawner. The sideways action actually goes back even further, to the early 1980s, when interest rates were raised to choke the money supply and curb inflation. So, for roughly 20 years, commodities in general sucked.

Then what happened? The debt-induced easy growth of the 90's finally popped in 2001 and it has been off to the races for commodities ever since. Sure there have been pauses and corrections along the way but there also been periods of blowoff, parabolic rallies, too. In the end, though, the trend has remained. Here, see for yourself:

So now let's look a little closer. On the five-year, weekly chart below, you can see where we currently stand. Of course, I've tried to draw the trendline as accurately as possible but it's impossible to show exactly where it currently lays. Needless to say though, we're pretty much right on top of it. So there are three things to consider:

  1. First and foremost, is this 11 year bull market in commodities over? Did commodities go sideways for 20 years only to have a bull market end after just 10 years? Look at it another way...Have the fundamental conditions which prompted this bull market changed? Are the Fed and other central banks about to embark on a Volcker-esque tightening spree?
  2. Could commodities in general (and, by extension, gold and silver) bounce and rally right here and right now, just like they did the on the last two occasions they encountered the main trendline in late 2008 and mid 2012?
  3. Are commodities about to over-shoot again, similar to the circled area on the monthly chart above? If so, could a final drop toward 500 or even 475 be in the cards? IF that were to happen, what would be the short-term impact on the price of gold? Of silver? Would you finally capitulate/panic and sell or will you rely on your answers to the questions posed in point #1 above?

OK, gotta stop there but that should give you plenty to think about and discuss for a while. Have a great day and let's hope that CIGA BoPolny/BoPelini/BoDiddley/BoJackson is proven correct.

TF

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  525 Comments

Gold Dog
May 14, 2013 - 5:58pm

CONFESSION TIME!!

I have not yet mailed the last of the contest winnings.

They are in the packages and as Scarlett so famously said in "Gone With the Wind"...."Oh fiddlesticks, I will worry about it tomorrow!"

No bullshit, I will mail them tomorrow.

Your friend,

Dog

PS- Those kids DID half kill me.....what a blast!

PPS- I will wear my Big Yellow Hat to the Post Office. Chicks dig it! "Do you know Turd? Tee Hee......."

Dobocop
May 14, 2013 - 6:03pm

last date he will post publicly???

Ugh... makes maybe two calls, and now wants to start a subscription service?
The May 10-13 call wasn't much of one to begin with, I kinda hope we see a smash tonight with the decreasing lease rates .

AlexCojones
May 14, 2013 - 6:05pm

Gold Dog at The Indy Car Races - "Memorial Day"

Gold Dog: love how you have engaged the folks here with your Easter-Egg-Silver hunt and insight.

Just be as Careful and Alert as a Jason Bourne . . . or an Alex Cojones, at the "Memorial Day" race.

Be damn alert for anything, ANYTHING suspicious, i.e Craft/ Drill/ black SUVs/ wrap around shades, earpieces, etc

Just Saying.

AC

tyberious
May 14, 2013 - 6:06pm

Silver to Gold Ratio Shows

Silver to Gold Ratio Shows that Silver is the Place to be

Mark J. Lundeen

//us[dot]mc1629[dot]mail[dot]yahoo[dot]com/mc/compose?to=Mlundeen2[at]Comcast[dot]net" target="_blank" rel="nofollow">Mlundeen2[at]Comcast[dot]net

May 10,2013

Here is the silver to gold ratio, or the number of ounces of silver one ounce of gold can purchase. At the close of Friday's trading an ounce of gold was worth 61.55 ounces of silver; that is a lot of silver, but not as much silver as an ounce of gold could purchase from 1987-1998 during the glory days of Alan Greenspan's stock market bubble.

For your information, rising markets for both gold and silver can in the main be identified by seeing the SGR decline. When the prices of gold and silver are falling, typically the SGR increases. This makes silver a leveraged play on gold during both bull and bear markets. As we are now in a precious metals bull market, and with the ratio now over 60, silver is an especially attractive investment! But markets being what they are today: regulated, the ratio may increase from here, but I doubt we will ever see a SGR of 70 ever again.

The thing I find interesting in the SGR's chart is the difference in the SGR during the credit crisis of 2008 and the current rise since late April 2011. From March 2008 to January 2009 the SRG shot up from around 50 to over 80 ounce of silver to one ounce of gold. Nowhere else in this chart can we see such a large increase in the SGR in such a short time. Well, Wall Street and Washington whacked the old monetary metals markets during their mortgage crisis, especially silver, which declined 57% from March to October 2008. Five years ago, gold fell only 29% during the credit crisis.

The thing I notice currently in the SGR; even though it has increased by 30 ounces of silver since late April 2011 (two years ago), the latest selling panic of 12 & 15 April only resulted in an increase of three ounces of silver in the ratio. What happened three weeks ago is almost a non-event on the ratio's plot line, and that seems a bit odd to me. The majority of the current increase in the ratio (from 50 to 58) occurred from last September to April 5th. For all the horrible market sentiment currently circulating in the gold and silver market, I would have thought the latest drive-by shooting from Wall Street would have had more impact on the silver gold ratio than just three ounces. It seems the current action in the silver gold ratio is confirming the many news stories of rising global retail demand for gold and silver since mid-April.

What I'm watching for now is for the SRG to reverse in the months to come, and then test its lows of late April 2011 when it declined to 33 ounces of silver for one ounce of gold. If this happens this year, and it may, investors in silver will have twice as merry a Christmas for 2013 as will investors in gold.

But all that depends on the assumption that gold and silver are in a bull market. Currently, there are lots of experts who now claim that the precious metals bull market is now over. That "experts" are saying this is true. But what is also true is that most of these same "experts" have been warning the public about gold since 2001 when an ounce of gold could be purchased for only $255 an ounce. Little noticed in the financial media is that Gold has risen over 600% since then.

Okay, so gold is up big since 2001. However gold was up over 600% in August 2011. But today it is up only 500% from 2001, and to lots of people that means that gold is going the wrong way - down. Well, I don't care what lots of people think; lots of people think the stock market is now in a bull market as the Dow Jones has increased 29% above its 2000 high, and 7% above its 2007 high. Gold and silver have vastly outperformed stocks and bonds in the past twelve years for the darn good reason that global central banks are determined to save the global financial system by destroying the currencies they issue.

All Americans need to know if they should exit stocks and bonds and buy gold and silver can be seen in the chart below. Sometime in the not too distant future, the US dollar's ability to function as an economic asset will fail because of Doctor Bernanke's unending program of quantitative easing seen below. In the many thousands of years of monetary history, governments have regularly destroyed their money one way or another. However holders of gold and silver have survived and prospered in the aftermath.

Still, holders of the old monetary metals may not prosper as they believe they should in the coming economic reality made manifest by the greed and ignorance of the current "best and the brightest" who now control our world. But like the boom times, economic busts don't last forever either. So, I figure that it may not be until the upswing off the bottom of the coming bear market before investors in gold and silver will see the full benefit of purchasing gold and silver today. After all, what good is money, real or digital dollars from the Federal Reserve if all the stores in town are closed for business? I'm not saying it will get that bad, but it could for a while if you believe what Lord Keynes said about monetary inflation:

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

- Lord John Maynard Keynes

And the above chart of the Federal Reserve's balance sheet is exactly what Lord Keynes was warning about!

The plots for gold's Bear's Eye View (BEV) and step sum in the next chart look interesting. What is a BEV plot and step sum? The Bear's Eye View is exactly what it says it is; the market as Mr. Bear sees it on the blue plot (left scale) below. Mr. Bear sees the market in percentage terms, specifically the 100% that is all that separates each all-time high from a total wipe out in an asset's valuation. Investors in Lehman Brother shares discovered this in 2008. Lehman may have been up several thousand percentage points since the beginning of 1980's bull market, but it took a loss of only 100% for Mr. Bear to convert billions dollars into something much less than a penny on Lehman's shares.

This means that Mr. Bear doesn't care an iota about gold's gains, as each new all-time high for gold since 1969 in the BEV plot above is converted into a big fat zero, as that is what Mr. Bear thinks of each bull market's new all-time high - ZERO. All Mr. Bear cares about is how much of a percentage he can claw-back from the bulls' gains. So, with a BEV plot we are observing correction-declines within bull markets (periods when there are lots of BEV Zeros), and bear market declines from a bull market's Terminal Zero (TZ = a bull market's last all-time high). The BEV plot shows that in 1999, Mr. Bear clawed back 70% from the bull market high of January 1980.

One point gold's BEV plot makes very clear that is not apparent in gold's price chart is how easy it has been to make money in gold since 2001, just buy it and hold it. Since 2001, gold has risen from a 70% bear market bottom with little of the massive volatility that was present in the gold market during its 1969-80 bull market. Unlike four decades ago, none of the current bull market's correction has exceeded 30%. This is something the Dow Jones cannot say for its 1982-2000 bull market as it saw a 36% decline in October 1987.

In fact since 2001, most of the time the price of gold has been within 10% of its last all-time high, as we can see below when we begin gold's BEV plot series in 1999 at the actual gold bear market bottom. The fact is, if you were aware that gold frequently saw deep corrections during its 1969-80 bull market, and so didn't freak out when gold declined less than 30% as it did in 2008, and now 2013, plus turned off CNBC anytime they covered gold as an investment, then holding gold since 2001 has been as easy as holding onto blue-chip stocks from the beginning of their bull market in 1982 to 2000.

Returning to gold's BEV & Step Sum chart from 1969 to today (two charts up), let's look at gold's step sum (Red Plot Right Scale). The step sum is simply the sum total of the daily ups and downs in the price of gold. Up days are +1, down days are -1, and the step sum plot is the sum total of all the positive and negative 1s. This makes the step sum plot a single item A-D line for the price of gold that is useful to see what market sentiment expects of future market trends. Amazingly, in both bull and bear markets there are about as many up days as there are down days. But usually the step sum has a slight bias to the upside in bull markets, and to the downside in bear markets. But this is not always so, and that is what makes a step sum useful.

Two charts up we see gold from 1987 to 1996 was trending down as its step sum trended sideways. This created a step-sum bear box, where market sentiment (the step sum) was disagreeing with its price trend (market reality). Someone was wrong, and usually in a step sum bear box it is the price trend that has it right. In late 1996, gold's step sum began its bear market catastrophic collapse as the gold bulls finally gave up, and this is clearly seen in the bear box. On a price basis, the bear market in gold ended on 19 July 1999 when gold saw its deepest decline from its January 1980 high: $253.70, or a 69.27% bear market bottom. But gold's step sum still needed three more years to complete its collapse, which it did on 31 May 2001, with gold at $265.30.

Since May 2001, gold's price and step sum trends have risen steadily, except during the 2008 credit crisis, and now since August 2011 to today. But during the credit crisis, gold's step sum did decline as its price fell 29%, if not by much. However, since August 2011 gold's step sum has broken with its price trend by trending sideways for over a year and a half now, forming another bear box seen in the short-term chart below.


The question now is whether or not gold's step sum intends to collapse or not. A net 15 down days this summer to 260 would do it, and the price trend would not necessarily have to go down to accomplish this beneficial technical action. But gold and silver bulls are always damn stubborn. It took the gold bulls eight years before they ran up the white flag in the 1987-96 bear box.

Well, we can only play the cards we are dealt with, and currently with market sentiment, as measured by gold's step sum stuck in neutral, I believe the low of April 15 will hold as the bears in the paper-gold futures markets must be exhausted after April. It is a bull market after all, and ultimately bears don't prosper in bull markets. But there might not be much excitement in the gold market for us bulls until we once again see more net up-days taking the price of gold up with its step sum as we see in the chart from January to August 2011. If gold is in a bull market, and it is, in time we will see this happen, and silver will prove to be more profitable than gold as the SGR descends to new bull market lows in its own good time.

I Run Bartertown
May 14, 2013 - 6:08pm

US Energy

Take with a grain of salt...for one SRS has given us much that brings this into question, and for two, it's the BBC.

https://www.bbc.co.uk/news/business-22524597

Over the next five years, the US will account for a third of new oil supplies, according to the International Energy Agency (IEA)...The US will change from the world's leading importer of oil to a net exporter.

"North America has set off a supply shock that is sending ripples throughout the world," said IEA executive director Maria van der Hoeven...The surge in US production will reshape the whole industry, according to the IEA, which made the prediction in its closely-watched bi-annual report examining trends in oil supply and demand over the next five years.

The IEA said it expected the US to overtake Russia as the world's biggest gas producer by 2015 and to become "all but self-sufficient" in its energy needs by about 2035.

Gold Dog
May 14, 2013 - 6:13pm

Thanks Alex

Our behavior is such that we probably wouldn't even notice if they pulled a "Black Monday" on us!

YF,

D

Monedas
May 14, 2013 - 6:22pm
AlexCojones
May 14, 2013 - 6:27pm

"Gangster State America" - Being a Bit Harsh, Don't You Think?

Former Reaganite PCR took on the Neocon junta, which got him banned from the MSM forever. Playing no favorites, PCR now lambasts our current cabal. Perhaps this was linked here before but I liked a couple of his quotes regarding GOLD.

"What the Federal Reserve has done in order to maintain its short-run policy of protecting the "banks too big too fail" is to make the inevitable reckoning more costly for the US economy. . . . Another irony is the benefactors of the banksters sale of the gold leeched from the gold ETFs. Asia is the beneficiary, especially India and China . . . . Again we see that institutions of the US government are acting 100% against the interests of US citizens. Just who does the US government represent?"

Psychopaths always represent themselves, Paul

Gangster State America

May 14, 2013 - 6:29pm

Uh oh, just saw my Newfie neighbour

(and trust me, she would be offended if I didn't call her a Newf) walking down the street wearing a Sens jersey.

Back into the illusion, suckered by many inches of plasma saturated with bright colours.

And speaking of illusions, Go Sens Go!

tyberious
May 14, 2013 - 6:29pm

U.S. Banks Buy Gold Futures

U.S. Banks Buy Gold Futures in Dramatic Position Change

HOUSTON – We thought we would share with our readership an important change in the positioning of large U.S. banks in the monthly futures-only Bank Participation Report (BPR) issued by the Commodity Futures Trading Commission (CFTC). The most recent report was published Friday, May 10 for positions as of the close on Tuesday, May 7.

The main reason we are going to the trouble of doing this short report is that there is a surprising dearth of accurate information about the new data available on the Web.

One of our members forwarded to us some coverage by others which we found utterly useless and inaccurate (showing a preconceived bias on the part of the author), so perhaps this report will provide some clarity for those who closely follow the CFTC commitments of traders reports as well as the positioning of banks in futures.

U.S. Banks Net Shorts Fall to Lowest Since Summer, 2008

Let’s start this review with our comments shared with GGR Subscribers on Sunday, May 12. After mentioning that the combined commercial traders – the Big Hedgers, which includes the U.S. banks in the Legacy COT reports – had reduced their collective net short positioning for gold to the lowest since the 2008 panic and at a “very fast pace,” we said:

“An aggressive pace of LCNS reduction with none more aggressive than U.S. banks. The Bank Participation Report (not to be confused with the weekly Legacy COT report, which is separate) shows that over the past month U.S. banks covered or offset a whopping 24,855 (60%) of their net shorts (from 41,666 to just 16,781 contracts net short). The number of U.S. banks reporting falls below 4, a tell. We have not seen the U.S. banks show so low a net short position since they briefly went slightly net long in the summer of 2008 during the panic.”

So in just one month, as gold fell a net $123.45 or 7.8% (from $1,575.67 on April 2 to $1,452.22 May 7), U.S. banks covered or offset 60% of their net short bets on gold, down to an extremely small 16,781 contracts net short. We have to go all the way back to the June 3, 2008 BPR to find a time when the U.S. banks, including bullion banks, showed a lower number of net short bets held.

In fact, in that June 2008 report the U.S. banks were actually net long gold then by 5,381 lots. (But as the graph below clearly shows they would not stay net long. By the next monthly report in July they had put on an amazing 82,228 contracts net short in just one month.)

Below is a graph showing the nominal net short positioning reported by U.S. banks to show it visually.




Interestingly, the U.S. banks net short positioning did not decline because they were reducing their short bets. Instead, 21,653 contracts of the change is attributable to the banks adding long contracts to their positioning for just this past month. They were not dumping their short contracts so much as adding longs in other words.

In just the five reporting months since December 4, 2012 as gold declined a net $245.10 or 14.4%, U.S. banks' net shorts fell from 106,393 to 16,781, a plunge of 89,612 lots or a whopping 84.2%.

The net effect is clear to see in the graph above on a nominal basis. As gold fell down to test the $1,300s U.S. banks very strongly reduced their collective net short positioning and came within a whisker of becoming actually net long for the first time since the 2008 panic.

To standardize the results and show that there are no material anomalies in the data above, we compare the U.S. banks' nominal net position with the total COMEX open interest in the graph below. From December 4 to last Tuesday, May 7, as gold fell from near $1,700 to as low as $1,321 before settling at $1,452, the U.S. banks’ net short positioning fell from a significant 24.5% to a miniscule 3.8% of all COMEX contracts open .




Clearly the U.S. banks, presumably including U.S. bullion banks, are not, that's not, positioning as though they believe there is a great deal more downside left in gold futures.

If they did or do believe that gold could probe even lower than the $1,320s, they are not positioning for it in COMEX futures. That does not necessarily mean they are "right," but it is a window into how the largest, best funded and presumably the best informed traders of gold futures on the planet - the U.S. banks - are positioning, both for their own book and for their clients.*

It is rare to see the U.S. banks put on 21,000 or more long contracts in a month.** We have to believe that the U.S. banks would not have done that unless they meant to reduce their collective net short positioning in a relative hurry.

(A long contract benefits if prices rise. A short contract benefits if prices fall.)

* The U.S. bullion banks trade for their own account and for clients, which include a broad cross section of businesses in the gold trade (large bullion dealers, large holders of physical metal, jewelry merchants and manufacturers, producers, some refiners, bullion management firms and other middlemen, etc.).

** This is the largest increase in our records going back to 2006. Before this report the largest one month increase in U.S. bank longs was with the September 2, 2008 report, when the U.S. banks reported adding 17,567 lots with gold then about $805. By the following report, on October 7, gold had moved 9% higher to the $880s.

(Source for data CFTC for bank positioning, Cash Market for gold, GGR.)

https://www.gotgoldreport.com/2013/05/us-banks-buy-gold-futures-in-drama...

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