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Gold’s Macro Fundamentals PDF Print E-mail
Written by Gary Tanashian: NFTRH   
Wednesday, 26 March 2014 09:13

This spike in short-term yields (2-year shown) is what harpooned gold last week and finally got it under control.

1

More importantly, this spike in the 2-year vs. the 30-year really hurt gold.

2

These spikes predictably came as the FOMC successfully managed to get the market thinking about an end to the damaging Zero Interest Rate Policy, ZIRP.

Interlude

Yes, it is that time again when the letter writer veers off course into a brain dump. You, dear long time subscriber, have heard this before. But for newer subscribers I feel a point needs to be made so that your expectations of this market report are well in line with its raison d’être.

This is not a ‘go gold!’‘got gold?’ style pump house. Simply stated, I would rather live in a world where I do not feel gold is a necessary asset class. I would rather live in a world where bureaucrats were not in control of interest rate functions and hence, to some degree in control of financial markets.

Under this interest rate manipulation, the concept of saving has been utterly torn apart in the United States via the now 5+ year old ZIRP. If you do not speculate, you do not profit. The problem is that the risks in speculation are rising with every lurch higher in the stock market and junk bonds, to name two of the primary beneficiaries.

So it’s everybody into the (risk) pool and everyone foolish enough to depend on savings… screw you. So I [omitted, not for public consumption] because I continue to unwaveringly believe that this big macro operation, going in one form and degree of intensity or another since 2001, is little more a than racket to be unwound.

But if the moment were to come when I feel we really are on the right track – and folks, withdrawing ZIRP [could] theoretically at least be considered one component of ‘on the right track’ – this market report would simply move on from the precious metals sector because frankly, I find it a strange place inhabited by some strange people.

The problem though is partially represented by the distortion built into this chart…

3

Something is just not right here. Long into an economic recovery and even longer into a bull market in stocks the Fed Funds rate (FFR) is still pinning T Bill yields to the mat. Now, the Fed Chief babbles about a rate hike out in 2015, “that type of thing”. Gold then reverses its ascent (it was ripe, given the Ukraine hype coming out of the gold ‘community’) on the implications of rising short-term yields.

Using the 2003-2007 bull market as a template, the FFR should have begun to rise in 2010. Now it is 4 years later than that and the Fed is talking about a rate hike out in 2015, “that type of thing”. Please. They are playing poker against the market and for now the market is not calling any bluffs.

Back on the Funda’s

So last week we had a group of interest rate manipulators meet for 2 days and then a press conference by the group’s leader. She “you know” intimated that the ideal timing to begin phasing out ZIRP would be approximately “you know” sort of like maybe 6 months after QE3 is entirely tapered. “You know”, if the economy is still strengthening then; that sort of thing.

Okay tell me now, who knows what the economy will be doing then? As things stand now last week was a negative for gold, which was in need of a correction. But the key question going forward will be whether or not these negatives will endure or go back to business as usual as FOMC day fades to background?

4

So the long-term / short-term interest rate fundamental dropped to its lowest point of the gold bear market last week. What can we conclude from that?

 

  • Gold’s fundamental underpinning took a hit.
  • When measuring the length of the sideways channel on the yield spread, we note that gold may have already discounted this drop as its price is much lower than it was in summer of 2012 when the spread first declined to 80.
  • The yield spread, driven down by a jawbone and a lot of market emotion and media hype last week is at a potential bounce point.

 

So fundamentally speaking, gold bugs want to see last week’s hysterics fade pretty quickly and by extension, the spread hold the support area (notwithstanding a day or two of down spiking for good measure).

If the market comes to believe that the Fed means business on the Funds Rate and 2, 3, 5 year yields continue to rise relative to long-term yields, it would be bearish for the price of gold. I make the distinction between “bearish for the price of gold” and ‘bearish for gold’ because price is a reflection of the value assigned to gold at any given time.

For as long as it lasts, a phase where the market perceives itself to be under the sound monetary stewardship of the Fed – regardless of sustainability – would be gold price bearish.

Of course last week may have been a flash in the pan, as the Fed got the respect it always seems to get from the market during the ongoing phase of stock mini mania and economic mini revival. There are other phases you know, when the market gives them the finger. That is out in the future.

Let’s watch the dust settle on the interest rate front and evaluate weekly.

Postscript (current, 3.25.14)

So tell me, what was China doing late last week and early this week as gold got harpooned? Did gold suddenly decline because of the much hyped ‘China demand drop’? Did supposedly massive physical demand suddenly dry up on the spur of a moment? There’s always a seller on the other end of that demand you know.

Ukraine hyperbole unwound and that was expected to take something off the top. But chasing funnymentals like China, physical demand (vs. COMEX shortages) and Ukraine around is what got the gold community in trouble in the first place.

There is no debate, real interest rates jumped last week and gold got clobbered. There are other key fundamentals as well. Unfortunately with the media just pumping out story after story it is no wonder people get so confused.

 

NFTRH is a serious market management service (including ‘in-week’ technical updates), and is a value at only $29 per month (or 10%+ savings on an annual subscription).

 
Gold Price Volatility & Investing With a Reasonable Degree of Confidence PDF Print E-mail
Written by Stewart Thomson - Graceland Updates   
Tuesday, 25 March 2014 06:01
  1. There are very few price areas where risk capital can be invested in gold, with a reasonable degree of confidence that a “significant low point” will be established there.
  2. In my professional opinion, those price areas are major HSR (horizontal support and resistance) zones.
  3. These key HSR zones are most apparent on the weekly and monthly gold charts.
  4. Please click here now. Double-click to enlarge. On this monthly gold chart, note the buy-side HSR in the $1227.50 area. Even when the gold price “arrived” in this key area, it still declined about $50 further, to $1180.
  5. When there is no major buy-side HSR in the current price area, it is very difficult to make accurate predictions about the next major rally.
  6. Long term technical oscillators on that monthly chart suggest that the big rally from the $1227.50 HSR zone can continue, but without major buy-side HSR in play now, it’s a bit of a crapshoot to guess when a sustained move higher will commence.
  7. As gold rallied into the $1390 area, Indian gold dealers began mentioning the possibility of a dip towards the $1300 area. Their bids appear to have diminished in the $1360 - $1390 zone.
  8. While hedge funds kept buying near the highs, they generally use a lot of leverage. They have to exit the market quickly when it declines. Without heavy support from physical dealers, gold tends to experience violent intermediate trend sell-offs around key Western fundamental events like FOMC meetings, comex option expiry, and US employment reports.
  9. On that note, please click here now. That’s a snapshot from the CME website of the comex April gold option contract. Those options expire tomorrow (March 26).
  10. While there are lots of call options outstanding, there are also many put options with a $1300 “strike” price. Put option holders profit if the price of gold is well below their strike price on expiry day.
  11. Deep-pocketed banks that hold the other side of that trade are likely to be buyers of gold futures contracts in this general price area, in an attempt to prevent put option holders from making large profits.
  12. Please click here now. That’s the daily gold chart. There is minor trend HSR at $1308, $1300, and $1280. Gold is currently trading above all three of those prices.
  13. Because of the severe drawdowns that many gold market investors have experienced over the past few years, emotions can run very high on any disappointing sell-off, like the current one.It’s important for investors to fight those emotions and maintain their focus on the big picture.
  14. It’s likely that Indian dealers are already beginning to come back into the gold market, and that should reduce price volatility almost immediately.
  15. Please click here now. That’s a daily chart of the US dollar versus the Indian rupee. The dollar broke below key HSR yesterday.
  16. Breakdowns that occur on low volume tend to be significant, and that’s the case here. A major decline in the dollar against the rupee would increase the amount of gold that Indians can buy.That’s bullish for gold.
  17. Please click here now. That’s the daily silver chart. Note the stokeillator, at the bottom of the chart. The lead line is at about 20, which is where decent minor trend rallies can begin.
  18. While Indian dealers have reduced their gold imports over the past year due to government red tape, they have increased silver imports quite significantly. Silver is my favourite metal right now, and a Narendra Modi win in the upcoming Indian election could help silver prices recover quite nicely. Modi has been weighed in silver by local dealers, and he is endorsed by all the major Indian bullion associations.
  19. Please click here now. That’s the daily CRB (general commodity index) chart. The RSI oscillator become massively overbought. I highlighted that with a red circle. The overbought condition has now dissipated.
  20. Note the position of the stokeillator at the bottom of the chart. It suggests a general commodity rally should start very soon, but that rally is likely to be only a minor trend move. In the commodity sector, and especially in gold and silver, some patience is currently required, but I don’t see anything to be overly concerned about.
  21. Generally speaking, most technical indicators are oversold on commodity index monthly charts, but a little overbought on the weekly charts. They are generally “almost oversold” on the daily charts.
  22. Emotionally, that’s a very tough situation for investors. Commodities can rally a bit now, but they are unlikely to begin a fresh sustained intermediate trend higher until the weekly chart indicators approach oversold levels.
  23. Please click here now. That’s the daily GDXJ chart. The stokeillator lead line is at 25, and the price is near the main uptrend line. A rally seems imminent. Most investors in the gold community are junior stock enthusiasts. The good news is that even if GDXJ fails to rally significantly, many individual issues should bounce nicely higher.
  24. Once tomorrow’s option expiry day is out of the way, and physical dealers in India are back in the market, the current price volatility should lessen. The gold market is probably just days (and maybe just hours) away from regaining the “steady as she goes” type of price action that it exhibited on the rally from $1180 to $1290!

Special Offer For Money Talks Readers: Please send me an Email to This e-mail address is being protected from spambots. You need JavaScript enabled to view it  and I’ll send you my free “Yellowcakes Versus Silver” report. Some analysts believe that uranium stocks could outperform all market sectors in 2014, while others believe silver stocks are the better play. I’ll show you why I own both sectors, and which stocks I’m focused on now!

 

Thanks! 

Cheers

        St

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Discounted Canadian Precious Metals PDF Print E-mail
Written by Fred Piard - YPA Finance   
Tuesday, 25 March 2014 04:26
imagesSummary:
  • Gold & silver prices are consolidating for a couple of weeks.
  • Central Fund of Canada & Central Gold Trust offer a better discount than last month.
  • Trying to arbitrage this discount might not be a good idea.

Gold is in correction mode for two weeks, and silver for one month. Seasonality is not supportive any more for precious metals (read here). The fundamental picture remains unclear: inflation stays low, production prices are not a safe way to estimate a bottom, and the concentration of future contracts by a few major players has not changed. Miners are following the move down (GDXGDXJ). I wrote here in February that it was a bit premature to call for the end of the precious metals bear market. One month later, gold is still above its 200-day simple moving average, but silver fell back below.

My aim here is not to make a prediction, but to show investors where they can find the best value for their money. It might be or not a good time to invest in precious metals, however there is no bad time to buy reasonable amounts as insurance. The next table shows discounts, premiums and real metal allocated for some Canadian funds on 3/24/2014. They are an alternative to ETFs likeGLDSLVPPLTPALL.

Data: 3/24/2014 on close

Tickers

+Premium -Discount

Annual Fees

% of NAV in bullion*

Central Fund of Canada

NYSE:CEF

TSX: CEF.A

-6.4%

0.45%

99.3% (gold 58.4%, silver 40.9%)

Central Gold Trust

NYSE:GTU

TSX: GTU.UN

-5.6%

0.35%

97.8%

Sprott Physical Gold Trust

NYSE:PHYS

TSX: PHY.U

-0.29%

0.35%

99.3%

Sprott Physical Silver Trust

NYSE:PSLV

TSX: PHS.U

+1.9%

0.45%

99.4%

Sprott Physical Platinum & Palladium Trust

NYSE:SPPP

TSX: PPT.U

+2.95%

0.5%

100%

*complement is in certificates and cash assets.

CEF and GTU discounts are up since last month, providing an additional safety margin in case metal prices fall lower. Sprott funds are less attractive. An arbitrage, for example buying GTU and shorting GLD, is not a so good idea. Discounts in CEF and GTU have been oscillating between 4% and 8% for two years. At the end, borrowing costs might eat the profit and possibly more.

 

About Fred Piard

In his first book Quantitative Investing (Harriman House), Fred explains how you can build yourself robust portfolios with simple and powerful strategies. A book on statistical fundamental analysis is planned for Q4 2014 (same editor).

Fred shares his portfolio positions and market outlook in a weekly newsletter (ypafi.com).

He holds a PhD in computer science, an MSc in software engineering, an MSc in civil engineering, and is self-taught in finance. For two decades, Fred has been a consultant for companies and public agencies in various sectors and countries.

 
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Page 13 of 316
Greg Weldon
17 April 2014 ~ Michael Campbell's Commentary Service

We are pleased to introduce a new feature to the Inside Edge with the first of a regular contribution from Greg Weldon. Greg's video and...   Read more...

 
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