Don’t Short This Dog

By Keith Weiner of Monetary Metals

This week, the prices of the metals mostly moved sideways. There was a rise on Thursday but it corrected back to basically unchanged on Friday.

This will again be a brief Report, as yesterday was a holiday in the US.

Below, we will show the only true picture of the gold and silver supply and demand fundamentals. But first, the price and ratio charts.

The Prices of Gold and Silver
gold and silver prices

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It moved sideways this week.

The Ratio of the Gold Price to the Silver Price
gold-silver ratio

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The Gold Basis and Cobasis and the Dollar Price
gold and the us dollar

The price was unchanged, but the basis is up slightly and cobasis is down (i.e. gold became slightly more abundant). This is not the news dollar shorters (i.e. those betting on the gold price) want to see.

Our calculated fundamental price is all but unchanged around $1,360.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
silver and the us dollar

In silver, the basis is basically unchanged but the cobasis went up a bit. The silver market got just a bit tighter, and our calculated fundamental price is up more than 30 cents to about a quarter above the market price. Not exactly “bet the farm with leverage territory”, but definitely not “short this dog” either.

Watch this space. We have some exciting data science to reveal soon.

Roses Are Red and so’s Been EURUSD’s Trend

By Elliott Wave International

Learn what indicator foresaw the euro’s recent reversal to a one-month low

According to mainstream financial wisdom, market trends are driven by news events much in the same way a lover’s heart is controlled by Cupid’s arrow. A “shot” of positive news lifts prices; a “shot” of negative news hurts them.

Simple, right?

Not exactly. See, we believe the main force driving market trends is that of investor psychology, which unfolds as Elliott wave patterns directly on the market’s price chart. These patterns are not beholden to the current news cycle, and therefore, often run counter in nature to the mainstream outlook for future price action.

Take, for instance, the euro’s recent performance. On January 31, the euro was on cloud nine, having started the month at a 14-year low only to end it at a two-month high.

“Why the Euro is a Buy?” asked one January 31 news source.

And, according to the mainstream experts, the answer included a raft of positive economic data released on January 31, such as:

  • Eurozone inflation soared to its highest level since February 2013
  • Euro area’s GDP rose at a faster pace than the U.S. for the first time since 2008
  • Euro area registered its lowest unemployment rate in 7 years
  • The U.S. dollar suffered its worst January in 30 years

Also in the euro’s favor was supportive political rhetoric expressed on February 1 by U.S. President Trump’s top trade advisor, who on that day called the euro “an implicit Deutsche mark that is grossly undervalued.”

Everything was coming up red roses in the euro’s fundamental backdrop.

But, according to the analysis our Currency Pro Service posted on February 2, a major bearish development was underway in the EURUSD’s technical backdrop — namely, the end of an Elliott second wave, and start of a powerful wave 3 decline.

“EURUSD poked to a new recovery high before closing lower when compared to Wednesday. The possible reversal day might signal the second wave recovery is finally at an end. An impulsive decline would bolster that idea…

“A decline beneath 1.0620 would signal the turn might have occurred.”

So, what happened next?

Well, despite the rosy fundamental backdrop, the EURUSD indeed turned down (falling euro, rising dollar), plunging rapidly to a one-month low on February 14. Here, the next chart captures the dramatic decline:

Now, the February 14 Currency Pro Service reveals whether ample evidence is in place of a bottom — none of which, by the way, comes from the day’s news.


Free eBook
Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success

Learn how to put the power of the Wave Principle to work in your forex trading with this free, 14-page eBook. EWI Currency Pro Service editor Jim Martens shares actionable trading lessons and tips to help you find the best opportunities in the FX markets you trade.

Get free, instant access

This article was syndicated by Elliott Wave International and was originally published under the headline Roses Are Red… and So’s Been EURUSD’s Trend. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Silver Futures Market Assistance

By Keith Weiner of Monetary Metals

This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday. Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again?

This will again be a brief Report this week, as we are busy working on something new and big. And Keith is on the road, in New York and Miami.

Below, we will show the only true picture of the gold and silver supply and demand fundamentals. But first, the price and ratio charts.

The Prices of Gold and Silver
gold and silver prices

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It fell this week.

The Ratio of the Gold Price to the Silver Price
gold-silver ratio

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The Gold Basis and Cobasis and the Dollar Price
gold and us dollar

Again, we see a higher price of gold (shown here in its true form, a lower price of the dollar) along with greater scarcity (i.e. cobasis, the red line).

This pattern continues. What does it mean?

First, it means the price of gold is being pushed up by buyers of physical metal. Not by buyers of futures (which would push up the basis, and reduce scarcity).

Second, if it continues too much more, it means nothing good for the banking system. There is one force that can make all the gold in the world—which mankind has been accumulating for thousands of years—disappear faster than you can say “bank bail in”. The force is fear of counterparties, fear of banks, fear of currencies, fear of central bank balance sheets… fear of government finances.

We want to emphasize that the gold basis is not signaling disaster at the moment. It is merely moving in that direction, for the first time in a long time. It has a ways to go yet.

Our calculated fundamental price is up another $40 (on top of last week’s +$40). It is now about $130 over the market price.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
silver and us dollar

Note: we switched to the May contract, as March was becoming unusable in its approach to expiry.

In silver, the story is a bit less compelling. The scarcity of the metal is holding, as the price rises. However, scarcity is not increasing.

Were we to take a guess, we would say there is some good demand for physical, and the price action had futures market assistance.

While the market price moved up 44 cents, our calculated fundamental price moved up … 46 cents.

U.S. Exorbitant Privilege at Risk?!

By Axel Merk

If the road to hell is paved with good intentions, American’s exorbitant privilege might be at risk with broad implications for the U.S. dollar and investors’ portfolios. Let me explain.

The U.S. was the anchor of the Bretton Woods agreement that collapsed when former President Nixon ended the dollar’s convertibility into gold in 1971. Yet even when off the remnants of the gold standard, the U.S. has continued to be the currency in which many countries hold their foreign reserves. Why is that, what are the benefits and what are the implications if this were under threat?

Let me say at the outset that the explanation I most frequently hear as to why the U.S. dollar is the world’s reserve currency – “it is because of tradition” – which is in my opinion not a convincing argument. Tradition only gets you so far – it ought to be policies and their implementation that guide investors.

Wikipedia’s definition of exorbitant privilege includes:

“The term exorbitant privilege refers to the alleged benefit the United States has due to its own currency (i.e., the US dollar) being the international reserve currency.[..]

Academically, the exorbitant privilege literature analyzes [..] the income puzzle [which] consists of the fact that despite a deeply negative net international investment position [NIIP], the U.S. income balance is positive, i.e. despite having much more liabilities than assets, earned income is higher than interest expenses.”

In the context of today’s discussion, I would like to focus on what I believe may be the most under-appreciated yet possibly most important aspect of the so-called exorbitant privilege: what makes the U.S. so unique is that it is de facto acting as the world’s bank. A bank takes on (short-term) deposits and lends long-term, capturing the interest rate differential.

Continue reading U.S. Exorbitant Privilege at Risk?!

The Wrath

By Doug Noland

Credit Bubble Bulletin: The Wrath

It’s not the first time that a non-farm payrolls rally wiped away inklings of market anxiety. Coming early in the month – and on Fridays – the jobs report typically makes for interesting trading dynamics. By the end of another interesting week, the timely reemergence of “goldilocks” along with Trump The Deregulator were propelling stocks higher. Long forgotten were Monday’s “Stocks Fall Most in Month…” and “Trump Rally Hits Speed Bump on Immigration Concern.” Indeed, markets were grateful to let a number of developments slip from memory.

It’s still worth mentioning a few indicators that were beginning to lean away from “Risk On”. Prior to Friday’s jump, the powerful bank stock rally had stalled. The BKX was down almost 2% from Thursday to Thursday (Italian and Japanese banks down 3.4% and 2.9%). Small cap stocks have underperformed, with the Russell 2000 down slightly y-t-d as of Thursday’s close. Many “Trump Rally” stocks and trades have recently underperform. Equity fund flows were negative for three straight weeks. In high-yield debt, the rally had similarly lost momentum. Also noteworthy, Treasuries rallied only tepidly on Monday’s equity market selloff. European bonds continue to trade poorly (Greek yields up 33 bps; French spreads to bunds widened another 10bps). This week saw bullion jump $29. The dollar Index is now down 2.5% y-t-d.

The dollar/yen has for a while now been a key market indicator. After trading as low as 101.2 on election night market drama, Trump-induced king dollar euphoria had the dollar/yen surging to almost 119 by early January. The dollar/yen traded down to almost 112 on Thursday, to a two-month low. And similar to Treasuries, the dollar/yen these days struggles to participate during “Risk On” days. Trading slightly higher Friday, the yen jumped 2.2% against the dollar this week.

Continue reading The Wrath

Gold and Silver Divergence

By Monetary Metals

This week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when the prices are rising. Everyone knows that the price of silver is supposed to outperform—the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it so.

This will be a brief Report this week, as we are busy working on something new and big.

Below, we will show the only true picture of the gold and silver supply and demand fundamentals. But first, the price and ratio charts.

The Prices of Gold and Silver
gold and silver prices

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It rose slightly this week.

The Ratio of the Gold Price to the Silver Price
gold-silver ratio

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The Gold Basis and Cobasis and the Dollar Price
gold and the us dollar

Do we have rising price of gold, up $25 (i.e. falling dollar, from 26mg to 25.5mg gold)? Yes. Do we have rising scarcity of gold (i.e. the cobasis, our measure of scarcity)? Why yes, we do.

This resumes the pattern that began the last week of December. The price of gold made a low of $1,127 (i.e. the dollar made a high of 27.6mg). Since then, the price of gold has been rising (i.e. the dollar has been falling) while the scarcity of gold has been rising.

Not a lot. Not Defcon 5, gold is going to spike to $10,000 (i.e. the dollar is going to crash to 3mg gold). Not a big obvious crisis-looking sort of move. Just a gradual move from -100bps to -68bps. What makes it significant is that it occurred with rising price. Gold is becoming scarcer as its price rises.

So far, this move has been driven by buyers of physical metal.

Our calculated fundamental price is up $40 to stay about $100 over the market price.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
silver and the us dollar

In silver, there is quite a bit more volatility in the basis. And though the March cobasis is up, farther contracts do not show the same move.

Our calculated fundamental price did move up a bit—15 cents. However, it did not keep up with the market move. So now it’s basically even with the market price. It turns out speculators did think that silver ought to outperform gold, and they tried. They caught up to and passed the buyers of physical metal.

We note that in the futures market, the open interest in gold turned down sharply starting last week. However, silver open interest diverged, and continued to skyrocket.

LMBA 2017 Forecasts (for the US Dollar)

By Bron Suchecki of Monetary Metals

Every year the London Bullion Market Association (LBMA) surveys the top precious metals analysts of bullion banks and consultancy firms for their forecasts for precious metal prices for the year ahead. We look at things a little differently, and would say that the analysts are forecasting the value of the US Dollar, priced in gold (or silver). This year the analysts are generally bearish on the Dollar, with an average forecast of 25 milligrams of gold, down 5% from the value of the dollar at the start of this year.

The aggregated forecasts assembled by the LBMA have a fair history of accuracy, as the chart below demonstrates. It shows the actual average value of the Dollar as a line against the lowest (bottom of the navy bar), highest (top of the dark cream bar) and average (where navy and dark cream bars meet) of the forecasts . Note that these charts are of the analysts’ yearly averages – see the survey for more detail on each analysts’ high and low range.

au_lbma_dollar_2017

Again, this year the range of forecasts is quite tight, indicating more consensus among the analysts about the direction of the US Dollar. The most pessimistic analyst is Joni Teves of UBS (the 2016 forecast winner), who sees the US Dollar averaging 23.04 milligrams during 2017, whereas Bernard Dahdah from Natixis is the most optimistic, thinking it will average 28.02mg of gold. For reference, the dollar is currently 25.84mg gold.

The LBMA analysts are less accurate when looking at the US Dollar in silver terms but this year their range is tight so they must be confident. William Adams of Metal Bulletin Ltd has the lowest average at 1.54 grams of silver while Bernard Dahdah sees the average at a high 2.06g. The dollar is currently 1.78g silver.

ag_lbma_dollar_2017

If you want to look at things back-to-front, you can find the survey here, where they present the forecasts as if it is the value of gold and silver that is changing. Crazy, huh? We plan to release our own predictions soon, in our Outlook 2017.

Silver Speculators Gone Wild

By Keith Weiner of Monetary Metals

This week, the prices of the metals had been up Sunday night but were slowly sliding all week—until Friday at 7:00am Arizona time (14:00 in London). Then the price of silver took off like a silver-speculator-fueled-rocket. It went from $16.68 to $17.25, or 3.4% in two hours.

What does it mean? We don’t know. We would bet an ounce of fine gold against a soggy dollar bill that no one else does either. The old stories of silver shortage or manipulation have no power to explain this move. Why not? Because they are old. The explanation would have to say that earlier in the day there was a reason for silver to trade well under $17 but as of that moment, it was urgent that the metal trader well over $17.

As often occurs, once the move hits certain levels on a price or momentum chart, that’s all it takes. It’s of no use to say that in the long run this will be just another blip of noise. In the heat of the moment, these 60-cent moves are exciting.

Below, we will have an intraday silver chart that shows clearly something that is almost never available to the public. We have a plot of the basis against price. If other theories are right (e.g. manipulation, shortage) this chart should show nothing of interest.

We are at no risk of that. 🙂

But first, the price action and regular basis charts.

The Prices of Gold and Silver
gold and silver prices

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It fell this week.

Continue reading Silver Speculators Gone Wild

The Trump Weak Dollar Report

By Monetary Metals

The action favored bettors this holiday-shortened week (Monday was Martin Luther King day in the US), with the price of gold up 13 bucks and silver up 26 cents.

We noticed a worrisome remark by newly inaugurated President Trump. The strong dollar of the past 20 years, he said, is not good for American competitiveness. Let’s just tackle this straight on. Actually, we will address three distinct issues.

First, Trump said, “our companies can’t compete with China now because our currency is too strong.” Keith is old enough to remember long before the current scare about China, the scare was about Japan. Japan was going to bury American companies, and buy up America. Or so we were told. It would be interesting to look at the yen during this time, to see if it was falling and giving Japan some of the competitive advantage that Trump theorizes should occur.

As it turns out, it’s exactly backward. From a low of 0.33 cents in 1976, the yen rose to nearly 1.3 cents by the mid 1990’s.

Of course, this makes sense to everyone but benighted economists. How could draining away the savings of the people and businesses give any advantage? That is what currency devaluation really means. A loss of everyone’s savings. Poof.

This brings us to the alleged strong dollar. On January 22, 1997—exactly 20 years ago—the dollar was worth about 89mg gold. Compare to Friday, when it was just under 26mg, a loss of 71%. Orwell would be proud at this new meaning of the word strong!

Of course, no one any more believes in any kind of objective standard. The dollar, they think, should be measured by the euro, pound, and yen. And they, in turn, are measured against the dollar. It’s a neat little trick, a sleight of hand, to distract attention from wholesale theft.

Finally, we have Trump advisor Anthony Scaramucci, who said the rising dollar will “have an impact internally in the US”. He spoke of “reaching out for lower-class families and middle-class families.”

To reaching for… that is a good visual for this. The government will reach for their savings!

Fortunately, under the current structure, the president does not have the power to push the dollar down. Heck, the Fed has been trying to do that for years, and has not been succeeding. However, this is a worrying development that bears close watching. Can anyone—including Trump—say what he might do?

Below, along with the fundamentals, we show a hint of what’s coming soon at Monetary Metals. But first, the price action.

The Prices of Gold and Silver
gold and silver prices

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It fell a bit this week.

Continue reading The Trump Weak Dollar Report

Currency Chaos

By Tim Knight

This is going to be just a quick [post]. Equities are nicely in the red for a change, with the ES down 9 as I’m typing this.

0117-es

Apparently Trump’s comments that the dollar is too high has sent a bit of chaos into the world, and one dark spot for me is a very strong gold market. I’m not so sure I’m going to hold on to that DUST position anymore, but we’ll see.

0117-gc

The big surprise, just hours ago, is that Theresa May announced that for some reason the will of the British people was going to be subjected to a vote by both houses of Parliament, which might mean the entire BREXIT thing could turn out to be a non-event, thus the pound is soaring.

0117-gpb

Lastly, as mentioned, the dollar is taking it on the chin, with particular weakness vis a vis the Japanese Yen.

0117-usd