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

Jan 13, 2014 - 12:03pm

Mentioned this last week...

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%!

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

Owtovit
Jan 13, 2014 - 12:09pm

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....

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

rnrjimmy
Jan 13, 2014 - 12:10pm

Fourth

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

philly
Jan 13, 2014 - 12:13pm

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"?

Levon
Jan 13, 2014 - 12:14pm

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
Jan 13, 2014 - 12:31pm

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.

SlobberingBull
Jan 13, 2014 - 12:51pm

The bases are the Feb and March contracts

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.

Jan 13, 2014 - 12:53pm

Above the 50-day MAs

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

SilverX3
Jan 13, 2014 - 12:58pm

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
Jan 13, 2014 - 1:02pm

Osisko Mining

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

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

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