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Traders Resolve Tested PDF Print E-mail
Written by Eric Coffin - HRA Advisories   
Thursday, 10 April 2014 08:52

Just when you thought it was safe to go back into the market the gold price and junior resource stocks drop and nervous traders declare the sky is falling yet again.

I’m not thrilled by the market action of the past two or three weeks but I also don’t think the basic narrative has changed.   The gold price has corrected but I don’t think its rolled over unless it gets quite a bit lower.  Likewise, the correction in the Venture Index is not large compared to some of its larger brethren and well within the bounds of what one would see as part of a larger bullish advance.

It’s still very quiet on the news front and this is one issue that needs repair before a strong bull run develops.  Most companies just raised money so it will take time for them to start reporting from the field.  That will help carry things forward and new discoveries and new ideas will help even more.

Most of what I’m seeing is still recycled.  I think traders want some new ideas and the companies that deliver those can generate the sorts of gains that remind traders why they play resource stocks.  I think they will come but first we need to see a renewed advance that calms down investors.  Brokers and traders need to see more green on their screens before they are willing to pay up for untested ideas but I think that day is coming soon.


Did I mention I hate geopolitical gold price spikes?  I believe I did.  I made that comment in the last issue that was released just after a Crimean referendum that generated a wholly predictable result.

Gold topped immediately afterwards and continued to fall for the next two weeks notching a cumulative loss of over $100 before finding support around $1280.  This has gold bugs and resource stock traders back into a (so far) mild panic.  The question is whether metals and the producer and explorer stocks can get some near term traction and continue their advance.

I expected a pullback after the Crimean vote but was surprised by the strength of it.  The political situation seemed co clear cut to me that I couldn’t convince myself that there was that much gold buying based on the Ukraine.  Apparently there was.  It’s mindboggling to me that traders who paid the slightest attention to the doings of Vladimir Putin in the past 15 years expected any other outcome.  Things are still tense in the Ukraine but I expect it to fade as an above the fold political story.

Russia will probably complete an annexation in everything but name over the coming weeks and months.  As long as Putin has total control of the logistical routes in and out of the Crimea I doubt he cares what the name on the map is. This was about winning and, so far, he’s won.

Where there may be tension is other eastern European states that want to continue to move away from Russia.  Will the EU and NATO back them up or will Putin be allowed to strong arm them too?  I hope for the former but political cynicism makes me fear the latter.

Of course the Ukraine was only half the story.  Fed chair Janet Yellen had her own impact on the markets since the last issue.  Off the cuff comments during the post Fed meeting news conference freaked out the markets and tanked the gold price.  Here again, I find it a bit crazy that traders are still reacting to potential changes in QE taper and interest rate increases.  Yellen has made it abundantly clear that decisions will be based on economic readings.  She seems to understand better than Wall St that some of the improvement in the employment situation is statistical sleight of hand.  The unemployment rate has dropped as much or more due to declining participation as new jobs.

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That’s not to say my thoughts about the taper have changed.  I think it’s baked in the cake that we get $10 billion monthly reductions until its unwound. There would have to be an enormous change in the readings to alter it and I don’t see that happening.  Most of the blather surrounding Fed meetings is less important than Wall St is trying to make it out to be.

The combined effects of Fedspeak and the Ukraine are amply demonstrated in the above gold chart.  Bullion fell all the way back to $1280 before finding recent support a popping back above $1300.

While I’m comfortable the longer term uptrend is in place it’s important that gold hold current levels.  US retail gold traders are spooked but that can change quickly if a new uptrend is established, especially if NY markets are weakening at the same time.

I noted in a recent Special Delivery that physical demand in China has been more resilient than expected, with demand in the first two months of 2014 up 40% year over year.  The real shift in Chinese demand came after the gold price plummeted last March.  We need a couple of more monthly data points to convince skeptics.  Those skeptics pointed to gold prices on the Shanghai market losing the premium to western prices but that moderated in the past few sessions. Large volumes of gold being imported by China should make the Shanghai market more liquid and naturally reduce divergence between prices on other markets.  It may be that too much is getting read into falling premiums anyway.

The chart below displays the Venture Index from the start of the year.  We may have put in another bottom a few sessions ago, before the gold price itself.  I take that as a positive sign though I’d still like to see more volume.  If this does turn out to be an interim bottom it would be pretty mild compared to the normal post-PDAC drop.  That again would be a positive sign for the market through the rest of the year.

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Base metals stabilized before gold thanks in part to a mini stimulus package announced by Beijing.  Both copper and iron ore have seen nice bounces but both are also slated to go into surplus later this year regardless.

Copper wouldn’t need much supply disruption to bounce higher but my comments about potential for sales of metal used as loan collateral remain.  I’m more positive than I was a couple of weeks ago but still cautious.  The good news so far is there is little sign of panic in the Chinese market.  Short term interest rates have dropped again recently and there has been a lot of rotation into emerging markets, both debt and equity.  Much of this is hot money that can turn on a dime but it’s not matching up to the Wall Street narrative.

NY markets saw new highs again but things have looked shakier in the past few sessions.  The selling is concentrated in the momentum sectors that helped drive those markets to records in the first place.  That is not a bad thing. Even bulls were getting nervous about how high prices were getting.

The big danger is that momentum stocks overshoot to the downside when they roll over.  It’s too early to tell but if selling accelerates we could get our 10% plus correction in a hurry.

Junior stocks can withstand weakening major markets if the gold price keeps moving up and the selling is not too abrupt.  Resource stocks at least have the advantage of being undervalued.

Even with calm markets and a higher gold price, juniors desperately need news flow.  That takes money.  February was better for fund raising on the Venture (35% year over year and 120% above January) but things cooled off some recently.  The improvement was even better on the main TSX board (58% yoy for Q1, much of that resource issuers).

The financing window is still open a crack and a couple of weeks of decent junior markets would allow for more placements.  That will give companies the means to start generating meaningful news again.  For the new bull market to stay and grow we’ll need news flow. Stay tuned for companies putting new money to work and looking for new audience.

Eric Coffin

Hard Rock Analyst

HRA Advisories


The HRA–Journal and HRA-Special Delivery are independent publications produced and distributed by Stockwork Consulting Ltd, which is committed to providing timely and factual analysis of junior mining, resource, and other venture capital companies. Companies are chosen on the basis of a speculative potential for significant upside gains resulting from asset-based expansion. These are generally high-risk securities, and opinions contained herein are time and market sensitive. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable we in no way represent or guarantee the accuracy thereof, nor of the statements made herein. We do not receive or request compensation in any form in order to feature companies in these publications. We may, or may not, own securities and/or options to acquire securities of the companies mentioned herein. This document is protected by the copyright laws of Canada and the U.S. and may not be reproduced in any form for other than for personal use without the prior written consent of the publisher. This document may be quoted, in context, provided proper credit is given.

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'Fixed Income Only Positive Return Asset Class in 2014" PDF Print E-mail
Written by Mike Shedlock - Global Economic Trend Analysis   
Thursday, 10 April 2014 08:45

30-Year Treasury Yield Headed to 2.50%' Says Steen Jakobsen

I don't believe the growth estimates of the IMF and neither does Steen Jakobsen, Chief Economist of Saxo Bank.

Steen goes one further and calls for the yield on the 30-year long bond to drop a minimum of 150 basis points to 2.5%.

From Steen via Email

2014 started with high expectations on growth. The IMF, World Bank and ECB were falling over themselves to upgrade growth forecast for 2014 in early January but by now Q1 growth in the US is expected to come in at +1.9% after the initial +2.6% advertised by the pundits in late 2014 (Bloomberg December 12th, Survey).

The IMF forecast is despite Q4 revised considerably down from 4.1% to 3.2%, ending at 2.7% in final count. (37% drop from early to final number).

This apparently was entirely due to weather....

But the fixed income market seems to have a different opinion: This is my long term chart which have maximum one signal per year.

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....continue reading HERE




Gold & Silver Speculation PDF Print E-mail
Written by Keith Weiner - Monetary Metals   
Thursday, 10 April 2014 07:43

There is a stark difference between the states of the markets for the monetary metals. The number of open futures contracts in gold is low, while in silver it’s high. First, let’s look at the data and then we’ll discuss what it means.

Here is the graph showing the open interest.


The picture is clear enough. Since the beginning of fall, the number of gold contracts has blipped up and down and now there are somewhat fewer (-3.7%). Meanwhile, the number of silver contracts has gone up substantially (+39%).

Now let’s look at the ratio of gold contracts to silver contracts, going back to 2010.


There is an unmistakable downward trend since the middle of 2010, almost 4 years ago. Then, there were about five gold contracts for every silver contract. Today, the ratio is down to two.

OK, but what does this mean?

Open interest is a proxy for speculative interest. This is not simply because contracts are created by buying, and destroyed by selling. You can’t assume that contracts are created and destroyed as the price moves. To see why it doesn’t work that way, look at the stock market. The price of a stock can move all over the place, but there need not be any change to the number of shares outstanding.

In the futures market (unlike in the stock market), the number of contracts changes continually. Contracts are added or removed by the computer software that operates the market. When you buy or sell, an existing contract may be transferred from one party to another, or a new one may be created.

It’s complex, but in essence if you want to buy a contract just when else wants to sell, the contract will change hands. It works similarly if you want to sell short, right when someone who is already short wants to buy.

By contrast, if there is no current owner of a contract to sell it to you, when you want to buy, then a new contract must be created. Who sells, who takes the short side of this contract? It can certainly be someone else wants to speculate on a falling price. There are always (well, usually) traders who go short silver. However, I don’t think that this is the full explanation of the data shown in these two graphs.

I favor a theory of arbitrage. If it’s profitable to buy metal in the spot market and sell a future against it, then someone will take this trade. This short seller is a source of unlimited contract creation, if it’s profitable.

It’s called carrying the metal. If you carry, then you make a small spread—without price risk. This spread is called the basis—the price of the future minus the price of spot metal. Or, more precisely, basis = Future(bid) – Spot(ask), because you must pay the ask when you buy the metal, and accept the bid when you sell the future.

Let’s take a look at the gold basis and silver basis for the Dec 2014 contract, from early fall through today.


The profit to carry gold has been steadily falling. It began at 0.35% (annualized), when the duration was 15 months. It was hardly the stuff of legends—or getting rich quick—even last October. That meager margin has been steadily eroding, and is now 0.1% for 8 months. Suffice to say that gold carry has offered little or no opportunity to make money. Therefore the gold carry trade has not been a big source of contract creation.

The profit to carry silver, by contrast, has not much changed. It’s still around 0.5% (annualized) or more. This is far more attractive than gold, and probably more attractive than other opportunities in our zero-interest world. Therefore, the silver carry trade has created many silver contracts.

What drives the basis spread? Speculators, when they buy a future, drive up its price just a little bit. This is the inducement to the arbitrager to buy a bar of metal and sell the future to the speculator. The arbitrager carries metal, to provide a service to the speculator. He is the one who “converts” (I use this term carefully, in the full context defined here) metal to paper, a bar to a contract. He’s ready, willing, and able to deliver that bar should the speculator have the cash to demand delivery.

The long and short of it (to make a tired cliché into a dreadful pun) is that in gold, there just is not much speculation, and therefore no profit to be made carrying the metal, and therefore when a buyer occasionally comes to the market his demand can be satisfied by a previous buyer who is selling a contract.

However, in silver buyers are running at a much more torrid pace. They’re too numerous to be satisfied by the occasional seller. They bid up the price of the futures, which makes it attractive for arbitragers to carry silver and sell them the contracts they desire.

Incredible as it may seem, at the low price of $20, speculation in silver is rampant. Market participants are trying to front-run a big price move. Due to rumors or gut feel or for whatever reason, they are expecting not only that silver will outperform gold, but that the silver price will rocket to a much higher price. Their frenetic buying of futures has pulled a lot of silver into carry trades.

Maybe hoarders will all of a sudden increase their appetite for silver metal that they will take off the market and bury. If so, the silver futures speculators will be proven right, and they will make a lot of dollars (money is a different story entirely).

I would not recommend that anyone bet his hard-earned money on a maybe. The data—both open interest and basis—show that the buying in the silver market is primarily speculators. They cannot sustain a higher price forever. They are merely trying to front run a higher price driven by hoarders. If hoarders don’t come in, the speculators will be forced to capitulate. When that happens, watch out below.

The neutral price of silver is in the $16’s today. If the price overshoots as far to the downside as it is now stretched to the upside, we could see silver with a 12 handle.

© 2014 Monetary Metals.

Stock Trading Alert: New Uptrend Or Just A Quick Bounce? PDF Print E-mail
Written by Paul Rejczak - Sunshine Profits   
Thursday, 10 April 2014 07:30

Uncertainty Following Yesterday's Move Up

The U.S. stock market indexes gained between 1.1% and 1.8% on Wednesday, retracing some of their recent move down, as investors reacted to the FOMC Minutes release, hoping for prolonged easy monetary policy. The S&P 500 index trades higher within its March-April consolidation, after bouncing off the support at around 1,840-1,850. The bounce was not that much of a surprise, as we have stated in our yesterday's forecast: "(...) a downtrend reversal cannot be ruled out - the market is at the support of 1,840-1,850, marked by March consolidation, among others". The resistance remains at 1,880-1,900. There is no clear short-term trend, as we can see on the daily chart:

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Expectations before the opening of today's session are negative, with index futures currently down 0.2-0.3%. The European stock market indexes have been mixed so far. Investors will now wait for the Initial Claims data announcement at 8:30 a.m. The S&P 500 futures contract (CFD) has bounced off the support at 1,830-1,840. There is some intraday resistance at around 1,865. For now, it only looks like a correction within downtrend. The resistance remains at 1,875-1,890, as the 15-minute chart shows:

larger chart

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The technology Nasdaq 100 futures contract (CFD) has followed a similar path, bouncing off the support at 3,480-3,500. The nearest important resistance is at the psychological 3,600. The market remains in a month-long downtrend, as it keeps establishing lower lows and lower highs:

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Briefly: In our opinion no speculative positions are justified.

Our intraday outlook remains neutral, as the market may retrace some of yesterday's move up, extending its month-long fluctuations, and our short-term outlook is neutral:

Intraday (next 24 hours) outlook: neutral
Short-term (next 1-2 weeks) outlook: neutral
Medium-term (next 1-3 months) outlook: neutral
Long-term outlook (next year): bullish

Concluding, yesterday's move up looks corrective and there have been no confirmed signals of a new short-term uptrend so far.

Thank you.

Sunshine Profits




Shocking Charts : Silver Set For $70 Surge PDF Print E-mail
Written by King World News   
Thursday, 10 April 2014 07:19

UnknownThese are charts that the big bullion banks follow closely in the gold and silver markets, as well as big money and savvy professionals.  David lays out the roadmap for a stunning advance in the price of silver, and also reveals some fascinating points about this bull market in silver.

...view more large charts & commentary HERE

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10 April 2014 ~ Michael Campbell's Commentary Service


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