Blog Archives

September 25th, 2013

9/25/2013

COMMODITIES CORNER

It's last week all over again. The gold sector was at an important decision point last week. The Market Vectors Gold Miners Fund (GDX) was sitting right on support. A bounce higher would likely kick off the start of a new intermediate-term rally for the gold sector. A break below support would cause a retest of the June lows.

One way or another, gold stocks were set up for a big move. And the Federal Open Market Committee (FOMC) meeting was the catalyst. GDX exploded higher last Wednesday after the Fed announced it would continue its quantitative easing program. The decision to keep throwing $85 billion worth of freshly printed bills into the financial markets every month was enough to boost the gold sector by 9%. GDX bounced solidly off support. It closed back above its 50-day moving average (DMA) and the pattern remained consistent with the action we saw as gold stocks bottomed in 2008.

All the sector had to do to confirm its new uptrend was to avoid giving back too large a chunk of those gains over the next few days. We could then pile into the gold sector aggressively, with complete confidence that the intermediate-term rally we've been looking for over the past few weeks was finally underway.

But gold stocks never make it that easy. By the close of trading on Monday, GDX had given back all of last Wednesday's gains and then some. So we're back to the same conditions we had just before the FOMC announcement last week. GDX is sitting on an important support level. It either bounces from here, rallies back above the 50-DMA, and kicks off a strong rally similar to what happened in late 2008 or it breaks below the recent low around $25 and heads back down to retest the June low at about $22. Here's the updated chart.

It's decision time for gold stocks. GDX either holds support right here and bounces, or it fails. Either way, the move is going to happen within the next few days.

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A Low-Risk, High-Reward Gold Trade Right Now

9/24/2013

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COMMODITIES CORNER

Gold is more hated right now than it’s been in years… and I love it. We have the perfect setup for a great trade in gold. Your upside is 70%-plus in the next year. Your downside risk is just 9%. A risk-versus-reward setup just doesn’t get much better than that!

The last time gold was even close to this hated was back in 2008 and it soared 71% in the following 13 months. This time around, it could go even higher. You see, gold is even MORE hated than it was in 2008. The clearest measure of how hated gold has gotten is what real traders are doing with real money; and the real money has bailed on gold.

A couple of months ago, the Commitment of Traders report showed that “large speculators” – hedge funds,
were more bearish on gold than they have been in years. Take a look at the chart below. You can see how these large speculators bailed out:

Large speculators became extremely bearish on gold a few months ago. But in late June, the position started to reverse, around the same time gold bottomed. Gold bottomed at less than $1,200 per ounce. Today, gold is up but not dramatically – at around $1,300 per ounce. This could be the start of a new uptrend.

So gold is HATED. And it has a bit of an UPTREND in place. These are two of the three things I look for in an investment. (The third thing I look for in an investment is “cheap.” But it’s almost impossible to put a fair value on the price of gold.) This is about as good as it gets for placing a trade in gold.

We have incredible upside potential here… Remember, gold soared 71% in 13 months the last time we saw a similar setup. And gold is even more hated today than it was back then. Here’s what you should consider doing...

I suggest putting on a 12-month trade in gold, right now. Buy today, and sell next September. You could pocket 70% or more. To protect your downside risk, set a stop loss at gold’s June low.

The easy way to make this trade is through SPDR Gold Shares (GLD), the big gold fund. GLD’s June low was around $116. So if shares of GLD close below $116 any time in the next 12 months, sell the next day for about a 9% loss. On the flip side, a 70% gain in gold would put shares of GLD well above $200. Those are great trading odds.

There is an excellent setup for a low-risk, high-potential-upside trade in gold right now. Don’t miss it.

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A MAJOR DOWNTREND IN FOOD PRICES

9/17/2013

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COMMODITIES CORNER

Good news for anyone worried about grocery bills: U.S. farmers are sitting on a bumper crop this year. In recent months, we've noted that contrary to what most folks believe, commodity prices are in a long sideways market.

There's a good reason for this. When commodity prices rise, companies respond by ramping up production. The latest example is three major U.S. crops: corn, wheat, and soybeans. Prices for these commodities jumped in 2012 after a major drought hit the Midwest. But this year, the farm belt is expecting a record corn crop.

Good weather is also boosting the outlook for this year's wheat and soybean harvests. As you can see in today's chart, the result is a big downtrend in the price of these crops. Corn prices are down nearly 40% over the past year. Wheat and soybean prices are both down more than 15% in the same time frame.

Prices for each of these crops are back around the same levels as five years ago. U.S. farmers are helping keep food prices down and that's good news for everyone.

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A Low-Risk, High-Reward Gold Trade Right Now

9/17/2013

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COMMODITIES CORNER

Gold is more hated right now than it's been in years... and I love it. We have the perfect setup for a great trade in gold. Your upside is 70%-plus in the next year. Your downside risk is just 9%. A risk-versus-reward setup just doesn't get much better than that! Let me explain.

The last time gold was even close to this hated was back in 2008 and it soared 71% in the following 13 months. This time around, it could go even higher. You see, gold is even MORE hated than it was in 2008. The clearest measure of how hated gold has gotten is what real traders are doing with real money and the real money has bailed on gold.

A couple of months ago, the Commitment of Traders report showed that "large speculators" – hedge funds – were more bearish on gold than they have been in years. Take a look at the chart below. You can see how these large speculators bailed out:

Large speculators became extremely bearish on gold a few months ago but in late June, the position started to reverse, around the same time gold bottomed. Gold bottomed at less than $1,200 per ounce.

Today, gold is up... but not dramatically – at around $1,300 per ounce. This could be the start of a new uptrend. So gold is HATED and it has a bit of an UPTREND in place. These are two of the three things I look for in an investment (The third thing I look for in an investment is "cheap." But it's almost impossible to put a fair value on the price of gold.).

This is about as good as it gets for placing a trade in gold. We have incredible upside potential here. Remember, gold soared 71% in 13 months the last time we saw a similar setup. And gold is even more hated today than it was back then. Here's what you should consider doing...

I suggest putting on a 12-month trade in gold, right now. Buy today, and sell next September. You could pocket 70% or more. To protect your downside risk, set a stop loss at gold's June low.

The easy way to make this trade is through SPDR Gold Shares (GLD), the big gold fund. GLD's June low was around $116. So if shares of GLD close below $116 any time in the next 12 months, sell the next day for about a 9% loss. On the flip side, a 70% gain in gold would put shares of GLD well above $200.

Those are great trading odds. We have an excellent setup for a low-risk, high-potential-upside trade in gold right now. Don't miss it.

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Don't Miss This Chance to Buy Silver

9/17/2013

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COMMODITIES CORNER

By Jeff Clark

The financial markets are sometimes generous with second chances. But they're stingy with thirds. So traders looking to get in the silver trade should take advantage of last week's pullback and use it as a second chance to buy the metal.

When we last looked at silver in August, the price had just broken above its 50-day moving average (DMA). That signaled a change in trend from bearish to bullish. And it kicked off an intermediate-term rally in the price of the metal. But the price had moved up too fast. Silver was overextended and bumping into resistance. It was due for a quick drop lower to retest its 50-DMA from above. Here's what we advise
you to do.

If you're not in the silver trade yet, give the metal a chance to pull back and work off its current overbought condition. Then start buying on any move near $21 per ounce. Traders got the chance to buy Friday morning. But if you slept in, you missed it. Silver traded as low as $21.42 per ounce in early morning trading. But by the end of the day, the selling dried up. Buyers stepped in and the metal ended the day at $22.28 per ounce.

Anyone prepared to buy as the metal came down and tested its support line was sitting on a 4% profit by the end of the day. Take a look at this chart...

The chart now shows a series of higher lows. The 50-DMA (the blue line) has turned higher and was tested as support on Friday. It held. So now silver should be headed higher, and the price should work its way toward the $28 resistance target we pointed out last month.

Traders who missed last Friday's "second chance" to get into the silver trade now have a choice to make. They can jump in and buy silver right now – just a little above the 50-DMA. Or they can cross their fingers and hope for a third chance to buy. But like I said earlier... the market is stingy with third chances.

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JP Morgan's Gold Manipulation

9/17/2013

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COMMODITIES CORNER

I was picking my way through some commentary that Miles Franklin dropped into my in-box yesterday, and I found this wonderful quote that he ripped from Ted Butler's column on Saturday, and since it's now in the public domain, here it is!

I know that some have questioned how it could be possible for gold to decline so much in price if JPMorgan held a long market corner. The answer is clear, once you remember that prices only fall sharply in order to enable JPMorgan to buy. Near the bottom in gold prices at $1,200, JPMorgan was long 85,000 contracts.

On the subsequent $250 rally, JPM sold off and closed out nearly 30,000 contracts of their long gold market corner, booking and realizing $350 million in profits. Now JPMorgan has decided to buy more and has cratered gold prices by more than $100 in order to re-buy as many new gold contracts as they can.

JPMorgan is not concerned that the market may have temporarily gone against their existing gold corner as they continue to buy as many contracts as possible. JPM wouldn't have any problem in meeting margin calls as it is presently structured; because it rests upon unlimited funding. When you look back at this year, it is crystal clear that JPMorgan made $3 billion in buying back big short positions in gold and silver and actually flipping their short corner in COMEX gold to a long corner that they've already milked for a $350 million profit recently, and so far. - Ted Butler, September 14, 2013.

I also got a charge out of something that Barry Ritholtz wrote on Sunday afternoon about the fact that Larry Summers had withdrawn his name as a candidate for Fed Chairman, and I thought it was right on the money. I thank readers "Jim and Elena" for sending it our way.

"Here’s what President Barack Obama‘s statement on Lawrence Summers‘s decision to withdraw his name from consideration to be the next chairman of the Federal Reserve would have looked like after 40 milligrams of Sodium thiopental":

“Earlier today, I spoke with Larry Summers and accepted his decision to withdraw his name from consideration for Chairman of the Federal Reserve.

Larry was a critical contributor to the radical deregulation that was one of many causes of the worst economic crisis since the Great Depression. It was in no small part because of his lack of expertise, false wisdom, and inept leadership that the economy crashed and burned and even today is still failing to be to back to its full growth potential.

As Treasury Secretary, he helped to pass the Commodity Futures Modernization Act. This turned derivatives into a unique financial instrument with no oversight, reserve requirements, mandated disclosures, or listing minimums. The CFMA all but guaranteed that Derivatives would eventually implode. Summers further contributed to the crisis by Summers by overseeing the repeal of Glass Steagall. With this firebreak between Wall Street and Main Street effectively removed, the financial conflagration of 2008 spread from Wall Street to every corner of the economy.

Further, his terrible advice and lack of insight is in large part the reason we see so little progress being made today — the lack of economic growth, the concentrated bank power, the still dangerous financial system and of course, the sub-par job creation.

I will always blame Larry for the way he damaged my presidency. To anyone who may seek his guidance and counsel in the future, please don’t make the same naïve errors I did.

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Yesterday in Gold and Silver

9/12/2013

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COMMODITIES CORNER

Except for a little price excitement between 9 a.m. and noon in Hong Kong yesterday, it was pretty much a nothing sort of day for gold. The low of the day came just after 12 o'clock noon in London, and the tiny rally going into the Comex open wasn't allowed to get far.

The gold price closed at $1,365.80 spot, up $2.50 from Tuesday's close. Net volume was extremely light, about 104,000 contracts.

You can be forgiven if you mistake the silver chart for the gold chart, or vice versa; as they look identical. And, like gold, the tiny rally that began at the noon silver fix in London, didn't get too far once trading began in New York.

Silver finished the Wednesday session at $23.215 spot, up 24.5 cents from Tuesday. Net volume was a very quiet 34,500 contracts.

Both platinum and palladium made rally attempts in Far East trading on their Wednesday morning, and neither got far. Platinum then got sold down the moment that Zurich opened, and that continued until late in the Comex trading session in New York. Palladium ran into a price ceiling at the $700 spot price mark, before getting sold down when trading began on the Comex. Here are the charts.

The dollar index closed on Tuesday afternoon in New York at 81.83. When it opened in Far East trading on their Wednesday morning, it rallied up to 81.93 by 2 p.m. local time in Hong Kong, then it was all down hill until the 81.46 low at 1:30 p.m. in New York. After that, the index didn't do much, closing the Wednesday session at 81.53, which was down 30 basis points from Tuesday's close.

The gold stocks more or less followed the gold price. They opened up about one percent, but immediately got sold down two percent, with every rally attempt after that also meeting with an eager seller. However, the upward bias remained intact into the close, and the HUI finished up 0.67%.

The silver stocks followed a virtually identical chart pattern as gold, and Nick Laird's Intraday Silver Sentiment Index closed up 0.71%.

The CME's Daily Delivery Report showed that 13 gold and 7 silver contracts were posted for delivery on Friday within the Comex-approved depositories. There were no reported changes in GLD, and as of 9:22 p.m. EDT there were no updates posted for SLV.

The good folks over at the shortsqueeze.com Internet site updated the short positions for both GLD and SLV as of 31 August. SLV showed an increase in its short position of 18.94 percent, which translates into an additional 2.53 million shares which were sold short because there was no metal available to deposit when the original transaction[s] was/were done, so the authorized participant was forced to short the shares in lieu of the real deal. I would bet a fair chunk of change that the deposit into SLV that was reported on Tuesday, 964,058 troy ounces, was made by an authorized participant [read JPMorgan Chase] to cover part of that short position.

The 15,880,700 troy ounces/shares currently sold short [in total] in SLV as of this report, represents 4.5 percent of the outstanding shares of SLV, or around 500 metric tonnes. Using past as prologue, this is not an outrageous amount. But the fact of the matter is that there should be zero short position in any hard metal ETF. Can you imagine the hue and cry if CEF or PSLV did an offering, got the cash, and then didn't buy/deposit all the metal they said they would? Shareholders would burn Eric Sprott and Stephan Spicer at the stake; after they got out of jail for fraud, that is. But nobody bats an eyelash when this happens in SLV or GLD. [Now you know why I wouldn't touch either of these ETFs with the proverbial 10-foot cattle prod.]

There was only a tiny increase in the short position over at GLD. This new report showed 2.68 percent. But the total number of GLD shares sold short is about 10 percent of all the outstanding shares issued in GLD, over 3 million troy ounces of gold in total, almost 100 metric tonnes. This is an outrageous amount. Why the GLD fund managers allow this situation to exist is beyond me.

Before laying this issues aside, dear reader, let me ask this question. What would the silver and gold prices be by the end of the trading day today if the authorized participants had to go out and purchase real metal in the open market to cover their portion of the outstanding short positions in both these ETFs, especially silver? And you wonder why Ted Butler is screaming about the permanent short positions in both GLD and SLV. It's out and out fraud. There were no reported sales from the U.S. Mint yesterday.

Over at the Comex-approved depositories on Tuesday, they reported almost no activity in gold. None was reported received, and only 482 troy ounces were shipped out. It was pretty quiet in silver as well on Tuesday. Only 116,244 troy ounces were received, and 40,237 troy ounces were shipped out the door for parts unknown.

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