"The HUI is the new Spot Price. REACTION!"

73
Sat, Aug 20, 2016 - 9:32am

On Friday, I posted a comment that our friend TF suggested would make an interesting weekend thread for group discussion. As a loyal soldier in the Fabulous Turd Army (a phrase that strikes fear in the hearts of Keynesians everywhere, most recently in the halls of the US Mint via FOI requests via our friend Koos Jansen) I am hereby submitting the idea as a thread for scrutiny, discussion, scorn, etc. This will be the extended version, with some extra stuff that Murphy (my pal and partner in fevered theorizing) and I have been throwing back and forth, both here and outside TFMR. In the immortal words of Hans and Franz, "Listen to me now, and hear me later":

1. I submit that spot price for gold and silver is dead. The markets have left it dying and bleeding on the side of the highway like roadkill. The actual value-setting mechanism for precious metals has become the mining indexes. Spot price, as TF has argued for years now, only "prices" what people are willing to pay for the paper derivative that tries to masquerade as gold and silver. It does not price actual gold and silver.

In the past, this might have been dismissed as just some semantic tic of goldbugs, but I argue that the markets... YES, THE BIG MONEY, INVESTING IN BILLIONS WITH A B, "WE ARE THE ONES WHO COUNT" MARKETS... are proving that they too now understand this to be the case. GLD in blue, HUI in green... Check it:

GLD is up 26% YTD. Fine, that's lovely. But the HUI is up 144% !! That is 5.5 times the rise in the so-called "price" in gold, a rise that is out of whack even given the "leaner miners, more profitable, etc etc" earnings potentials. The share price rise is outstripping those things, and more importantly, share price rises during times when spot price stays flat!!! Same with silver.

It has been fascinating to see capping, mini-beatdowns in spot price, and all increasingly ignored by big money... but they aren't buying GLD (as if those tons are actually physically there) and they aren't buying SLV. They sure as hell aren't standing for delivery on the Comex, which they know doesn't have the metal to deliver. Big money has become smart money, and is ignoring GLD, SLV, and Comex futures as flawed instruments! No, those billions are flowing into the miners. You can see it in the daily fluctuations as spot price gets knocked down, the miners dip briefly, then rise back up strongly. Spot price stays tepid and weak, because nobody wants to put big money into those flawed instruments!

2. On a daily basis, the HUI and other indexes trade like real things. Part of the discussion Murphy and I have had is based just on the way these things have traded, vs spot price. Admittedly, much of this is "feel" in a trading, chart watching sense of seeing the tick for tick stuff, but I suspect that the traders out there will know what I'm talking about. I would be very interested in hearing from others, pro or con, on this. But basically, here is what we are seeing: Spot gold and silver is doing the same old crap it always does, including the tricks to manipulate price that we are quite used to (i.e., spoofing bids to cap, large bunches of orders suddenly coming in out of nowhere to overwhelm the bid during globex trading to knock a cheap 4-8 dollars off gold, etc etc etc). You guys know the drill, the stuff that has become old hat since the Blythe Masters days- we've all gotten so used to it, its just "how the metals trade" including how, as TF constantly points out, usually the biggest input moving gold price is the dollar/yen cross.

Now, have you ever sat back and really thought about how truly absurd it is that the best, most pure store of value on the planet- the golden monetary metal, something that a billion Chinese and a billion Indians (especially during wedding season) and at least another billion people all told worldwide all hold precious, something held and owned by literally every major and minor Central Bank on earth - has its price usually set during daily trading by fluctuations between the dollar and the yen? The Yen! A currency printed like napkins by a mad Keynesian Kamikazi Kuroda whose country has been working on a "lost decade" for 22 years now? Whose aging population represents just 1.7% of the world ? And THAT is the major trading input setting worldwide gold price on a daily and weekly basis? Yup, thanks to the algos, the HFT inputs, and the deliberately directed leverage, that's largely how we determine the global price of this:

But wait! Over the last six months, and especially over the last three I think, what we have increasingly started seeing (not all the time, but more often) is that when stupid stuff happens to the gold and silver price, the HUI and other mining indexes shrug it off ! They are starting to trade like spot price would in a rational market! THAT is the sense I'm trying to convey from a traders perspective- it's not that they never go down, its that when they go down it is for reasonable reasons, not fakey "PM market" reasons. Look at the difference between silver over the last seven weeks, and the silver mining index SIL over the last seven weeks. Huge! Trust me, its been even more fun watching on a daily basis!

More to the point, the big money behind the mining shares seems to have seen behind the curtain... and the money is flowing rationally and moving markets. That money isn't flowing into GLD and SLV, AND its flowing into miners at times that occasionally have been quite at odds with the old "let's be tricksy with spot price" regime. It has been REALLY fun to watch.

3. Is this real or just another tricksy trick? There is another possible permutation for these observations that is worth noting and discussing, though admittedly this is not for the faint of heart! Murph first pointed out to me months ago the strange juxtaposition of (a) the miners responding to every dip as strong as mustard gas, yet (b) short interest on the Comex growing and growing until it has reached epic proportions at times, though it has pulled back somewhat of late. Still, this is a possible scenario. As Murph recently said:

Furthermore it seems to me and maybe P4 as well, that tptb are doing it as planned. Keeping the short contracts at ridiculous, high levels while at the same time buying up miners.

How can the miners make these giant gains if the metals price stays so much lower percentage wise? Easy peasy, the big boys don't care. Some time in the future when they have enough longs in their dark pools they will cover their shorts and let the spot prices run.

Thus you have what I call the "Murphy two-step": Spot price suppression through absurdly huge short interest (150% of total worldwide yearly mine supply in silver, at one point, for the Comex alone... a single exchange leveraged something like 300 to one, paper to actual physical if memory serves) while gobbling up mining shares, then watch the magic of leverage work in your favor when those shorts are covered, price is allowed to run, and whatever losses are incurred are repaid ten-fold by the rise in your now massive mining stock positions! Tinfoil hat? Yeah, probably. I'm sure that powerful interests with the means, the motive, the opportunity, and the "get out of jail free" cards that come with certain connections wouldn't dream, in an era of zero interest rates and scarce yield, of creating a quarter-trillion dollar ten-bagger for themselves. Naw, that would be illegal.

Regardless, what we DO have is the makings of a major disconnect, as billions of dollars (like the Swiss National Bank, etc) are choosing to invest in gold and silver miners, all the while "price" continues to be set by the traditional flawed paper derivative dinosaurs. No matter what the mechanism or the degree of planning (conspiracy or free market), one thing seems to be certain: HUI is the new Spot Price.

About the Author

  73 Comments

R man J
Aug 20, 2016 - 12:59pm

Nice to see you again

Welcome back!

Aug 20, 2016 - 1:12pm

Ukraine

And yet, The War Party's sycophant media has always maintained USA/NATO = GOOD, RUSSIA = BAD!

This is precisely why we've posted the JBSFCs for the past 30 months.

Aug 20, 2016 - 1:17pm

fwiw

I just forwarded that link to John Batchelor, too. He's always been very gracious in the past so I'm hopeful that he'll see it and perhaps pass it along to Professor Cohen.

silverwhere
Aug 20, 2016 - 1:57pm

Look WAY UP

Let’s think about this Hamilton paragraph for a few minutes:

***

Gold stocks were the best-performing stock-market sector of the 2000s by far. Between November 2000 and September 2011, the HUI skyrocketed an astonishing 1664.4% higher! Great fortunes were won by smart contrarian investors. Over that same secular 10.8-year span, the benchmark S&P 500 general-stock index actually lost 14.2%.

***

So, over 11 years, the miniscule buy & hold PM crowd enjoyed watching their investments grow sixteen times. SIXTEEN TIMES your money in 11 years.

That was that early leg – a nice steady climb. Now what’s in store for us nutjob contrarians on this next steeper ascent? Well, well, well... maybe TEN TO TWENTY TIMES our PM bets in the next 5 years? Maybe? Possibly?

Phyz-only crowd: if you simply take 5 to 10 percent of what you’re currently allocating to physical purchases & buy yourself a handful of quality gold & silver stocks, you could be looking at doubling your PM wealth (considering my rough math, presented above).

Five years from now these guesstimate calcs will turn out to have been quite conservative. Look, if the juniors can lose 90% in five years, they most certainly can climb TEN TIMES just to get back to where they were in 2011. So the 10x is just to get back to the starting line...

How high is high? Look UP. Look WAY UP. 20 baggers from today will be commonplace.

JackPutter
Aug 20, 2016 - 2:32pm

As for miners representation of the "price" of gold

Above R Man J examines his strategy with a mix of physical metals and miners. This sort of exercise needs the sort of thought that Pining and Murphy have done to decide what is the right price. The miners by themselves would be just a derivative of the the asset of gold.

I believe it's a healthy thing to try and fit the price of miners to find the true value of PMs. (I own both) Yet the price of the miners may be influenced by economic perceptions, and a reflection on history. The miners as a category were a form of shelter through the depressions and recessions of the 20th century. We also have monetary distortions in this economic environment. This can be a very difficult assessment as THIS TIME IS DIFFERENT.

Our friend SRSRocco has been telling us about the sudden (In the history of the use of gold as money or 5000 years, 50 years is sudden.) loss of the EROI. We have energy perceptions that are distortions on our economy as well.

There is another perception that we often run into that needs to be considered. Whe I examine Bitcoin or any other cryptocurrencies, the reference to value is the ever constantly shortening measuring stick of the US Federal Reserve Note. (FRN) precious metals are held in the same light to a varying degree.

When we speak of value as in; the time value of money or the value of a manure pile (a name for this community?) in the garden and such. The FRN is a distorting tool of thieves. We need some way of expressing value other than this tool of distortion. If the US dollar is backed by the "The full FAITH and CREDIT" of the USA then we're in trouble. It leads us to perception as the only thing making our currency even tradable.

What is the world image of the USA right now? What product are we bringing to the world? What ACTIONS can the USA be CREDITED for? Is there FAITH in how the USA will function in the future?

I find this whole situation to be very troubling. I think that the "price" of the miners can't be a proxy for the value of the precious metals because there are too many distortions. I find that a physical ounce (or 30 grams as China goes) has a value that will always be there, and the price of it never to be determined.

This is not a recommendation to buy.

*edit* I had to add a zero to the use of gold 5000 years, not 500.

Lugnut
Aug 20, 2016 - 2:53pm

Good thinkin'

Happy to have some thinkers on here (besides Turd that is). Thanks for the info and making the rest of us exercise the gray matter.

Dyna mo hum
Aug 20, 2016 - 3:33pm
Orange
Aug 20, 2016 - 3:52pm

Just another observation

Check out the gold to silver ratio with the prices of gold and silver on the debt clock. Bottom right.

currently sitting at about 9 or the ratio it is currently being mined at.

https://www.usdebtclock.org/index.html

silver at $880.58 per ounce.

Don't know if these prices are related to fiat supply but the fact that it is at the mined supply is interesting.

AIJ
Aug 20, 2016 - 4:15pm

SDR / Willie / Rickards

Willie talks about a gold trade note which replaces the dollar-world reserve currency ( which then becomes a national currency / which become greatly devalued )

Rickards talks about the SDR which replaces the dollar-world reserve currency ( which then becomes a national currency / which become greatly devalued )

With China on board with the SDR and the G20 meeting in China on Sept 4th and the launch date of the 5 currency SDR including the Yuan on Sept 30th , It looks like Rickards just might be right?

I think the up and coming Labor Day interview of Willie by Craig should be a very interesting one.

My questions to Jim Willie:

  • Jim, where does the SDR stand in relation to your idea of a gold trade note?
  • Are the two concepts contradictory?
  • Could both the SDR and GTN function together?
  • How do you feel about Gold and Silver stocks currently in light of the massive rise in price since Jan 1st?
  • Do you still believe the PM stocks are an unwise investment?
  • Do you think it would be wise for you to be nice and polite to your subscribers?
Revelation21.21
Aug 20, 2016 - 4:49pm

Today 's article and photos

Pining,

How did you get Turd's permission to use his baby pic?

Looks like he's saying, " Don't give me that sh*t about COT, Mr . Harvard know it all ! "

Subscribe or login to read all comments.

Contribute

Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

Key Economic Events Week of 8/5

8/5 9:45 ET Markit services PMI
8/5 10:00 ET ISM services PMI
8/6 10:00 ET Job Openings
8/8 10:00 ET Wholesale Inventories
8/9 8:30 ET Producer Price Index

Key Economic Events Week of 7/29

7/30 8:30 ET Personal Inc/Spending & Core Inflation
7/30 10:00 ET Consumer Confidence
7/31 8:15 ET ADP employment
7/31 2:00 pm ET FOMC Fedlines
7/31 2:30 pm ET CGP presser
8/1 9:45 ET Markit Manu PMI
8/1 10:00 ET ISM Manu PMI
8/2 8:30 ET BLSBS
8/2 10:00 ET Factory Orders

Key Economic Events Week of 7/22

7/23 10:00 ET Existing home sales
7/23 10:00 ET Richmond Fed Manu Idx
7/24 9:45 ET flash Markit PMIs
7/25 8:00 ET Count Draghi/ECB policy meeting
7/25 8:30 ET Durable Goods
7/25 8:30 ET Wholesale Inventories
7/26 8:30 ET Q2 GDP first guess

Recent Comments

by Blythesshrink, 9 min 3 sec ago
by seneca sam, 36 min 30 sec ago
by bullion only, 56 min 2 sec ago
by brolgaboy, 1 hour 27 min ago
by seneca sam, 1 hour 41 min ago
by Mintmoondog, 2 hours 56 min ago

Forum Discussion

by HappyNow, 5 hours 49 min ago
by NW VIEW, Sep 22, 2019 - 9:01pm
by SteveW, Sep 22, 2019 - 11:58am
by sierra skier, Sep 22, 2019 - 10:55am
by atarangi, Sep 22, 2019 - 4:09am
by atarangi, Sep 22, 2019 - 3:03am