Isn't it amazing how, if you leave your office for just one day, stuff just piles up. So we'd better get started before it's too late.
Fun & Games #1
It's clear now that Monday's huge rally in gold was based in short-covering, just as we postulated in the previous thread. Why cover Monday? It's all about the pending expiration of the Aug13 contract (next Wednesday) and the Aug13 options (tomorrow). That total gold open interest only fell 5,300 Monday also indicates to me that there was, indeed, some short call squeezing, too. Remember, if you are naked short the $1300 calls and price begins to move UP through $1300, you are left with two choices:
- Cover (buy back) those calls at a steep loss and close your position.
- Hedge your losses by buying an equivalent amount of futures contracts.
When combining the short covering (buying) with the options-related buying, you're left with a whole lot of buyers vs very few sellers and you get a $43 (+3.33%) UP day.
What happens next? You take yesterday to consolidate and kill some time and then you drop price back down today. This gives The Cartel an opportunity to execute the opposite of Monday:
- Entice some spec shorts back into the market.
- Squeeze any new longs and anyone who foolishly sold short the August puts, thinking it was free money right before expiration.
The key will be found in seeing just how far they can drop price back down. GOFO for one, two and three months remains sharply negative for the 13th consecutive day. Now you may be ready to write this off as meaningless (the usual Comex/Cartel apologists are emerging to gladly lead you down that path) but, before you do, I challenge you to pour through 25 years of LBMA data and show me where this has ever happened before. (https://www.lbma.org.uk/pages/index.cfm?page_id=55) Once you are satisfied that this is, indeed, unusual, have a go at deciphering why this is happening NOW.
Price continues to hover above $1330 as I type. Though down about $15 on the day, this is good. The 50-day MA for the August contract is at $1332 and we want gold to find support there if the trend has actually shifted back to positive/UP. If price slips below there, support should next be found near the $1321 lows of April 16. Staying above there would be very positive. IF we slip below there, I'd at least want to see gold maintain a 13 "handle". Falling back into the 12s would put off the rally/recovery indefinitely.
Though it remains in the low $20+ area, silver is interesting today. Take a look at these charts. Not only has silver been consistently catching a bid when it drops under $20, the daily chart now presents a pennant which looks to close sometime in the next week. The dominant trend is down some the likelihood of a downward resolution exceeds the likelihood of an UPside breakout. However, IF IT DOES BREAK HIGHER, and gets through $21 and the 50-day MA currently at $20.99, we can begin to get very excited about the permanence of the sub-$19 bottom and a return of the UP trend. Let's watch it very closely for the next few days.
Fun & Games #2
We first noticed this last week and wrote about it then. From Monday the 15th to Tuesday the 16th and then again the next day Wednesday the 17th, the GLD had nearly identical 1.5 metric ton withdrawals. (https://www.tfmetalsreport.com/blog/4846/gld-deception-reaches-new-level) In fact, all the way down at the ounce level, the withdrawals were identical. There were 48,310.51 troy ounces withdrawn on the 16th and 48,310.04 withdrawn on the 17th. Remember, we're told that these withdrawals are based upon "investor liquidations". So we're supposed to believe that in the completely random world of global investing, the exact same amount of shares were liquidated and tendered each day, leading to identical AP withdrawals of physical. Again, I may have been born at night but it wasn't last night.
Well, whaddayaknow? As if thumbing their collective noses at us, the exact same withdrawal happened yesterday...another 1.5 metric tonnes! Well, I shouldn't say the exact same. They were off by 0.0000613%. The actual ounces withdrawn were 48,307.29. Again, I'm sure this is completely legitimate. The idea that three identical withdrawals are made over the course of just one week...based solely upon slowing investor demand and liquidation...is perfectly rational and a statistical probability, maybe even likelihood. <heavy, dripping sarc>
What a joke this has become. The GLD has now seen its inventory fall by 31.12% YTD while the SLV has seen its inventory rise by 2% over the same time period. (If you really want to have some fun, simultaneously consider this metric and the statistical "anomaly" of the negative GOFO rates.) Perhaps the same GOFO disinfo providers will have a go at the GLD info while they're at it. That would be a very entertaining read. Maybe their little blogs would get some more followers.
Fun & Games #3
Speaking of statistical anomalies, this one cracks me up. Check out the latest ASE reporting data from the U.S. Mint. Keep in mind that The Mint has been reduced to reporting updated data just once per week. Another negative impact of "the sequester", I guess.
OK, let's throw out January. It is consistently the biggest-selling month of the year and January 2013 was the biggest sales month for ASEs on record. Let's look at the rest of the months year-to-date. We have a range of 812,000 ounces and an average figure of 3,500,333 ounces. In fact, four of the six months show total sales that fall just 4% or less from the average. And if you exclude April which no doubt reported higher sales due to the deliberate price smash of 4/12-4/16, the average gets even tighter. February, March, May, June and July total 16,915,000 with an average of 3,383,000. Using just these five months, the greatest deviation from average is June when sales fell 108,000 below the average or only 3.2%.
(And if you think I'm cherry-picking, I invite you to go back to previous years and look at the variability of the numbers: https://www.usmint.gov/about_the_mint/index.cfm?action=PreciousMetals&type=bullion)
Drilling down even farther...We are supposed to believe that the total sales difference between Feb and March was just 12,000 ounces (0.35%) and that, if The Mint fails to add to July's figure, July will come in at exactly 2,000 ounces less than May? Perhaps I'm reaching and jumping at shadows here but this all seems pretty fishy to me. And remember, the statute was changed last year to allow the production of ASEs at the discretion of the SecTreas. (https://www.law.cornell.edu/uscode/text/31/5112) No longer must The Mint manufacture as many ASEs "as the public demands". They must now only manufacture as many as "the SecTreas determines are sufficient to meet demand". Does it look to you that the SecTreas has determined that about 3.5MM per month is "sufficient"?
And now chew on this. The Mint is supposed to utilize first U.S.-mined silver as their primary source of bullion. Hmmm. That's good in theory but, in 2012, the U.S. only mined 32.6MM ounces (https://www.silverinstitute.org/site/supply-demand/silver-production/) and that was before the giant, Kennecott mine in Utah went offline after the massive landslide back in April.(https://www.silverdoctors.com/tag/kennecott-mine-collapse/) What will the U.S. produce in 2013? 28MM ounces? 30MM? OK but YTD, The Mint has already sold 28.5MM ounces. Do you see a problem here? Will Little Jack Lew soon determine that 3.5MM ounces per month are more than "sufficient" and cut back ASE production to 2.5MM or less? From where are U.S. manufacturers getting their silver if The Mint is going to suck up 2X U.S. mining supply this year?? What a conundrum...
OK, that's enough fun and games for today. As I close, I see that prices remain under pressure but right in line with the ideas laid out "fun & games #1" above. Keep the faith and remain alert. The rest of this month and into August will not be the usual "doldrums".