The Curious Case of DrC

29
Mon, Jan 13, 2014 - 12:00pm

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

About the Author

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turd [at] tfmetalsreport [dot] com ()

  29 Comments

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mac
Jan 14, 2014 - 2:16am

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!!

TF
Jan 13, 2014 - 4:40pm

And the HUI clsoed above 210

Specifically 210.22

Can we hold for a day or two??

Orange
Jan 13, 2014 - 3:57pm

Just got in

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

Orange
Jan 13, 2014 - 3:54pm

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.

mel
Jan 13, 2014 - 3:40pm

Worth watching...Argonaut Gold

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

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

Clarkii Stomias
Jan 13, 2014 - 3:28pm

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 numbersshow 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
Jan 13, 2014 - 3:24pm

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?

Ripon2013
Jan 13, 2014 - 3:20pm

Dave Janda piece with Ed Steer

https://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.

Visit the FAQ page to learn how to track your last read comment, add images, embed videos, tweets, and animated gifs, and more.

Gamble
Jan 13, 2014 - 2:58pm

Detour gold

The dgc i bought in December is siring as well

just wish I had bought more , oh well!!

Levon
Jan 13, 2014 - 2:37pm

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.

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