Tag Archives: Gold

Trust and Oil

By Monetary Metals

Monetary Metals on Trust, Gold and Oil

biiwii comment: Back in 2013 I commented about some lunatic portraying gold as having “spiritual value” and noted, among many other times over the years that “gold just is“.  Well?…

Soggy Dollars

First, there’s a word for someone who buys gold in the hope its price will rise. This word is not investor, but speculator.

Second, statistical anomalies cannot be asserted as proof of manipulation. Also, the article is giving the reader the blueprint for a no-brainer way to profit by the mistakes of the manipulators. If it were that easy, then people would be doing it.

Third, with gold there is nothing to trust. Gold just is.  Which is rather the whole point. If market makers are scalping for basis points, that may affect some hedge funds but it has no effect on you.

Can Investors Trust the New Gold Fixing?

Pure Gold

Contango works the same way in oil as it does in gold. Speculators bid up the price of oil in the futures market, and arbitrageurs buy spot crude to carry it for them. The basis keeps widening as this trade occurs. The only difference is that in gold, there’s always space in the warehouse. In the case of crude, storage capacity is finite, expensive, and (we assume) progressively more expensive. This article is written by someone who gets it.

Oil Prices Have Moved Into ‘Super Contango’

Gold Price Drop of 6 Nov

By Monetary Metals

Another Look at the Gold Price Drop of 6 November

The prevailing view in the gold community is that banks are speculators who bet on a falling price. To begin, they commit the casino faux-pas of betting on Do Not Pass at the craps table. When everyone wants the price to go up, the banks seem to want it to go down. Uncool.

In contrast to this view, ours is that the banks are arbitrageurs. They aren’t betting on price, they are profiting from the small spreads in between bid and ask, spot and future, future and Exchange Traded Funds.

We thought we would revisit the crash of Nov 6. Recall that our last look was at spot and futures. The quote on spot did not respond to the drop for 79 long seconds. We believe that this was a simply a delay in updating the quote, as spot quotes displayed by the data providers are indicative only. They are not tradeable.

This time, let’s look at the futures market and the leading gold exchange traded fund, GLD.

The Bid and Ask Prices of GLD and the Dec Future
Nov 6 GLD and Future, gold price

First, notice the time period of the graph. The whole thing occurs in just under a second, at 13:30:01 London time.

Second, note that this occurred an hour before the NYSE opens, so the bid-ask spread on GLD is much wider than normal.

Third, it’s fascinating to see the immediate aftermath of the crash. There’s even a brief period when the bid in the future appears to be above the ask. We are inclined to believe that’s an artifact of the quoting process. But perhaps, in the heat of the moment, the ask price fell below the bid. someone may have had nine nice long milliseconds to take the bank to the cleaners.

Fourth, after that period—around the :555ms mark—we see a relatively flat bid on GLD and ask on the future. So how do we explain the slowly but steadily rising bid on the futures? Our read is that once the selling pressure is over, the market returns to normal with the tight bid-ask spread being achieved by the bid rising near to the ask. We don’t have an opinion on the unstable ask on GLD. Perhaps the market makers were moving it around guessing where things would settle. There may have been some intermittent buying too, thus the upward pressure on the ask while the bid is table flat.

One last thing to note. It does appear as if GLD sold off first. In this data series, the bid and ask prices on GLD drop 24 milliseconds before the future reacts. However, we cannot rule out that this may be an artifact of the quoting process. GLD and futures trade on different exchanges, and it’s possible that the clock on one exchange server could be 25ms ahead of the other.

Silver vs. Gold; Still no Inflation Signal

By Biiwii

We harp on it all (and I do mean all) the time in NFTRH.  There is most likely no end to the commodity-adversarial deflationary phase until silver is bid higher than gold.  People intellectualize things that they see with their own eyes like rising costs in the economy, and think inflation is coming.  I think it is too, but market signals will tell when the market is ready.

As it stands, silver is getting bid down worse than gold and that has been a trend since the last inflation phase blew out in 2011.  There is no signal.

slv and gld, no inflation yet

You remember the end of the last cycle, I am sure.  It was called nearly to the week by Bill Gross’s short of the long bond (loudly broadcast across financial media) due to inflation expectations.  We had a different view; one that stated ‘maybe, but let’s tap the breaks for a moment and see if we can break the Continuum first…’ 

We didn’t.  We simply added the 2nd to last red arrow on said Continuum…

30 year yield monthly chart, an inflation barometer

Have a nice weekend folks.


Gold’s “Commercial” Traders Are Different…

By Steve Saville

Gold’s “Commercial” Traders Are Different Because Gold is Different

[biiwii comment:  From Back to Our Regularly Scheduled (de) Programming“While there are some quality people out there writing and speaking about gold, others peddle simple answers for other people to consume. Their business is drama, not managing financial markets.”  Saville’s post is both simple and undramatic.  But that doesn’t sell as well, now does it?

In a typical commodity market the traders known as “commercials” are usually hedging their exposure to the physical commodity when they buy or sell futures contracts. For example, in the oil market the most important “commercials” include oil producers, who are naturally ‘long’ the physical commodity and often sell futures contracts to hedge this exposure, and manufacturers of oil-based products, who are effectively ‘short’ the physical commodity (by virtue of the fact that oil is one of their biggest costs) and often buy futures contracts to hedge this exposure. However, the gold market is different.

Some of the commercial traders operating in the gold market are traditional hedgers. Mining companies and jewellery manufacturers, for example. But given that the existing aboveground stock of gold dwarfs the annual supply of new gold and that the amount of gold that changes hands for store-of-value, investment and speculative purposes dwarfs the amount of gold bought/sold for more traditional commercial uses such as fashion jewellery and electronics, a reasonable and knowledgeable person would expect that traditional commercial traders would play a relatively small role in the gold market. A reasonable and knowledgeable person would be right.

In the gold market the dominant commercials are not traditional hedgers. They are also not speculators, in that they rarely take positions that rely on the gold price moving in a particular direction. They are spread traders, meaning that they make their profits by trading the differences in price between the physical and futures markets.

For example, if speculative buying of gold futures causes the futures price to rise relative to the spot price by a sufficient amount it will create an essentially risk-free arbitrage opportunity for a commercial to sell the futures and buy the physical, and if speculative selling of gold futures causes the futures price to fall relative to the spot price by a sufficient amount it will create an essentially risk-free arbitrage opportunity for a commercial to buy the futures and sell the physical. For another example, if gold buying by hoarders of physical gold causes the cash (physical) price to rise relative to the futures price by a sufficient amount it will create an essentially risk-free arbitrage opportunity for a commercial to sell the physical and buy the futures, and if the ‘dishoarding’ of physical gold causes the cash (physical) price to fall relative to the futures price by a sufficient amount it will create an essentially risk-free arbitrage opportunity for a commercial to buy the physical and sell the futures. In other words, commercial trading in the gold market is mostly about arbitrage.

The difference between commercial trading in the gold market and commercial trading in all other commodity markets is tied to gold’s long history as money. Strangely, many gold ‘experts’ assert that gold is different due to its dominant monetary and store-of-value roles, but then insist on applying a traditional commodity-style method of supply-demand analysis. Unsurprisingly, the result is a pile of hogwash.

A 14 Handle on Silver…

By Monetary Metals

A 14 Handle on Silver for Now

In gold terms, the dollar went up a small 0.15 milligrams gold. The price of the dollar in silver went up considerably more as a percentage, 0.08 grams to 2.18g. Most people would say that gold went down and silver went down (though we continue to ask why should the prices of the monetary metals be measured in terms of the unstable dollar).

As always, we’re interested in one thing: did the fundamentals change, or did speculators sell off a bit more?

We call such price changes unimportant. That is not to say that it doesn’t matter to someone betting on the price to move in the opposite direction! We’re simply saying that not all price moves affect the fundamentals. Some do, some don’t.

Continue reading A 14 Handle on Silver…

Gold Price Drop of Nov. 6

By Monetary Metals

[biiwii comment: “Attributing it to manipulation is just making up ghost stories around the campfire.”  But Keith, Ed Steer and GATA have got to keep the herd enthralled somehow and who doesn’t just love a good campfire story?

Gold Price Drop of 6 Nov: Drilling Down

The price of gold dropped abruptly Friday morning (Arizona time). How much of a drop? $10.30, as measured by the bid on the December future. How abruptly? That move happened in under a second.

At first, the price of gold in the spot market did not react. This caused what looks like a massive backwardation (recall that the cobasis = Spot(bid) – Future(ask)—if the future drops relative to spot, that is backwardation). See the graph of price overlaid with the Dec cobasis.

forensic gold crash Nov6, gold price

The cobasis briefly hits a peak around 11% (from its “normal” level, currently in temporary backwardation, around 0.5%).

The whole cobasis spike is over 79 seconds later. The spot price is finally updated and the giant apparition of backwardation is banished.

We are not London bullion market insiders. However, we would bet an ounce of fine gold against a soggy dollar bill that this backwardation was not actionable. That is, it represents a delay in updating a quote rather than an offer to let you decarry your gold and pocket nearly $17 an ounce (we would love to hear stories to the contrary).

There are enough serious problems with the dollar, and the gold market is hardly in a state that could be called normal. So let’s not make this molehill into a mountain. One commentator asserted that the spot market did not “believe” the futures price.

The fact is that the event began in the futures market. It propagated to the spot market subsequently. Attributing motives is just guessing. Attributing it to manipulation is just making up ghost stories around the campfire.

14 Handle on Silver…

By Monetary Metals

A 14 Handle on Silver, Again

What’s the difference between the Supply and Demand Report 1 November and the Supply and Demand Report 8 November? Just a minor punctuation change. Last week, we asked (rhetorically) if silver would have a 14 handle again.

This week, the market answered. Why yes, yes we can!

Silver closed the week, trading at $14.78. This is down $0.76 from last Friday and almost 20 cents under our fundamental price from that date. The price of gold also dropped, $52. This is quite a discount to what we calculate as its fundamental price.

Continue reading 14 Handle on Silver…

Post-Jobs; Gold-, Goldman+

By Biiwii

I was out all morning and just got back to the huge ‘jobs’ festivities at +271,000 with USD springing upward and interest rates continuing an alignment that is very adversarial to gold (all yields up, but short-term yields up stronger than long-term yields).  Gold bugs who wanted to see this coming, did.

Also, I might add that my best performer is one giant Vampire Squid, which was featured, improbably enough, as an NFTRH+ highlight last week for those who were positive on interest rates.  We also noted the Bank index as a pro interest rate play in NFTRH.

Here are the daily and weekly charts from the + update.  The target zone was 200 to 202 so I am going to hang on to it a while longer.

goldman sachs daily chart

goldman sachs weekly chart

GDX Drops Almost to Target (14 to 14.50)

By Biiwii

The build up in gold and especially silver’s CoT commercial net short positions (and corresponding over bullishness by large and small specs) was troubling.  So too was a meeting of interest rate manipulators last week (never goes well for Team Honest Money).  Combine the two and the anticipated correction hit the gold sector.

A problem I have had is that it usually takes weeks to unwind a terrible CoT situation.  Since my tin foil hat is in the shop for repairs I cannot chase around those that may or may not be manipulating gold and silver.  I play it straight.  But it sure did seem like a convenient buildup into the FOMC’s word play and tough guy act and sure enough, we had post-FOMC pukage in the metals and miners.

Now however, GDX has dropped to NFTRH’s target zone (14 to 14.50) in quick time.  The only way CoT is going to have proved (come Friday) to have unwound the bearish alignment that quickly is if indeed gold and silver were purposefully gooned up in what we might call a focused and coordinated operation.  i.e. wax on, wax right the hell off again.

Whatever, for now I covered my silver and gold miner shorts very profitably but am in no hurry to get bullish and add to my small group of ‘relative quality’ miners until I get a better read on the CoT situation.  May even short again.  Who knows?  I am going to let the market tell me, not the other way around.

gdx daily chart, gold and silver

I understand that the miners can (and should) lead gold in a bullish phase.  Here is the daily view of GDX-GLD looking pretty good.

gdx vs. gld daily chart

And it had better look pretty good because the long-term (HUI-Gold) looks pretty horrific.

hui-gold ratio monthly chart

So maybe the miners are done with their correction and ready to lead the still struggling metals.  Then again, maybe not.  All I can tell you is that if the rally resumes (we have HUI 150’s open) this will have been the quickest smack down and recovery in recent memory.  It would also be a ripple in the bear market’s character.  It’s interesting to say the least.