Precious Metals

The fundamentals of the platinum and palladium markets are beginning to receive market attention and not before time. The positive supply demand dynamics are leading to increased investment demand as seen in the ETF data and Chinese demand rising again due to both industrial and jewellery demand.

It's been a wild ride in gold ($60 range) and silver ($2.50 range) in the last 2 days but for now, the precious metals have dropped back to unchanged from Friday's close.

If you develop your beliefs about gold and silver by sourcing mainstream media news, everything you believe about gold and silver will always be wrong.

All major US cash equity indices closed an odd shade of 'green' today which some have called 'red' - though only marginally and Treasuries ended the day practically unchanged (with 10Y +1bps). But the real action took place away from these two asset-classes. Precious metals were monkey-hammered at their open overnight but staged a miraculous recovery leaving gold with its best gain since June 2012 (didn't hear too much about that on TV?). Credit markets notably under-performed - never managing to get into the green on the day. VIX rose over 0.5 vols to close back above 13%. On the bright side, only a few more hours until Tuesday...

UPDATE 1: Chatter of a potential US downgrade from Moody's is being blamed (but that news out hours ago)

UPDATE 2: Silver futures trading volume 82% higher than 100-day average

While the mainstream media will likely be loathed to mention it, gold and silver are surging higher. Gold has retested $1400 and Silver $23 on no news... so it seems the demand for 'cheaper' precious metals was enough to warrant a 4.6% rally off overnight lows in gold and 12.5% in silver amid heavy volume in futures markets...

While the overnight collapse in precious metals has been notably retraced, the media is unable to take its eyes off the ball that the status quo is shaking focusing on the demise and what that must mean for the future. Well, it seems, the Indian finance minister is very clear. Speaking in New Delhi P. Chidambaram explained his lack of surprise at the increase in gold imports in April (as physical demand exploded amid falling paper prices) adding:

• *CHIDAMBARAM APPEALS TO PEOPLE TO CONTAIN PASSION FOR GOLD, and
• *CHIDAMBARAM: MORE STEPS PLANNED TO CURB GOLD IMPORTS IF NEEDED

So China/Hong Kong is importing near record amounts of the precious metal into reserves and India is not only seeing demand but enough to warrant further government intervention... makes perfect sense that (paper) prices should be falling - or are the planners plans backfiring once again? As we noted here, as long as the price suppression of paper gold prices continues, don't expect any notable changes to these demand trends.

It’s painfully clear for all to see that the majestic United States is now firmly caught in the rapacious stranglehold of financial elites which have completely captured it in a grotesque gamed monetary process.  Our country’s once idealistic and industrious free market economy has been hijacked and is undeniably being fraudulently and overtly financialized by the craven clutches and maniacal machinations of a contemptible self-seeking banking class. They have become nothing more than avaricious parasites disgustingly feeding from the grand trough of our treasured human ingenuity and self-respecting industry.

We commented as it happened that last night's jawbone-inspired flash-smash in USDJPY which triggered what was evidently a major liquidation in gold and silver at the margin was a buying opportunity for the precious metals and sure enough, gold has recovered all of its losses and silver is close.

QE Halt Would Be 'Too Violent' for Market: Fed's Fisher

A quiet day unfolding with just Chicago Fed permadove on the wires today at 1pm, following some early pre-Japan market fireworks in the USDJPY and the silver complex, where a cascade of USDJPY margin calls, sent silver to its lowest in years as someone got carted out feet first following a forced liquidation. This however did not stop the Friday ramp higher in the USDJPY from sending the Nikkei225, in a delayed response, to a level surpassing the Dow Jones Industrial Average for the first time in years. Quiet, however, may be just how the traders at 72 Cummings Point Road like it just in case they can hear the paddy wagons approach, following news that things between the government and SAC Capital are turning from bad to worse and that Stevie Cohen, responsible for up to 10-15% of daily NYSE volume, may be testifying before a grand jury soon. The news itself sent S&P futures briefly lower when it hit last night, showing just how influential the CT hedge fund is for overall market liquidity in a world in which the bulk of market "volume" is algos collecting liquidity rebates and churning liquid stocks back and forth to one another.

In case the complete disconnect of paper selling from physical hand-over-fist buying (see this chart to explain all the gold activity in Q1 which can be summarized in two words: paper liquidation) were not enough to send the price of precious metals to zero, then news that quite soon gold mining companies in one of the world's largest producers of gold may be going out of business, leading to a collapse in physical product, should be sufficient to really send precious metals well into negative territory. The only question will be if the GDX gets there first. Reuters reports that South Africa's National Union of Mineworkers said it would seek pay rises of up to 60 percent from gold and coal producers, raising the prospect of fresh strikes as firms battle higher costs and falling prices in an already heated labor climate.

Those hoping for a slew of negative news to push stocks much higher today will be disappointed in this largely catalyst-free day. So far today we have gotten only the ECB's weekly 3y LTRO announcement whereby seven banks will repay a total of €1.1 billion from both LTRO issues, as repayments slow to a trickle because the last thing the ECB, which was rumored to be inquiring banks if they can handle negative deposit rates earlier in the session, needs is even more balance sheet contraction. The biggest economic European economic data point was the EU construction output which contracted for a fifth consecutive month, dropping -1.7% compared to -0.3% previously, and tumbled 7.9% from a year before.  Elsewhere, Spain announced trade data for March, which printed at yet another surplus of €0.63 billion, prompted not so much by soaring exports which rose a tiny 2% from a year ago to €20.3 billion but due to a collapse in imports of 15% to €19.7 billion - a further sign that the Spanish economy is truly contracting even if the ultimate accounting entry will be GDP positive. More importantly for Spain, the country reported a March bad loan ratio - which has been persistently underreproted - at 10.5% up from 10.4% in February. We will have more to say on why this is the latest and greatest ticking timebomb for the Eurozone shortly.

I think it's indicative of a problem when, half-jokingly, the vernacular increasingly being used in the popular media includes: being "Corzined" and "Cyprus'd". The former meaning having your money stolen from or via the equities market, and the latter being theft directly via the banking system.

Back on April 25, in the aftermath of the latest epic precious metals takedown, we reported that something odd had happened: overnight, total Eligible gold held in the vaults of JPM dropped by 65%, or 260.8k ounces in one day, to a record low of only 141.6K ounces. Contrast that with the 2 million Eligible ounces the JPM vault at the basement of 1 CMP held when it reopened. Since that moment, many were curious if this may not be the start of the proverbial "run on the vault", and whether JPM's COMEX holdings could actually run out, and if so what happens then. And finally: is the dramatic plunge in gold related to any of this (and certainly to the Bundesbank's repatriation of NY Fed gold for the next five years)?  In the ensuing days, JPM's Eligible gold fluctuated in a tight range, until today, when another 22,780 oz were withdrawn from Blythe Masters' metals cellar, bringing JPM's eligible gold to a fresh record low of only 137,377 troy ounces.

But it gets worse...

Yesterday saw a lot of extreme volatility moves around the world. Most of them stemmed from Japanese actions - JPY plunging 3 big figures in 18 hours, JGB limit down and biggest yield spike in years against a JGB implied volatility collapse, NKY smashing exponentially higher - but there was also an unusual action in precious metals. While price has been notably set back in the last two days, yesterday saw the largest addition to IAU and GLD ETF holdings in 7 months (following a 10 million ounce reduction from mid-February highs). For equity investors, if this is considered a normal, calm operating environment for putting your capital to work, enjoy.