• Knave Dave
    05/23/2016 - 18:16
    This past Thursday marked the one-year anniversary of the US stock market’s death when stocks saw their last high. Market bulls have spent a year looking like the walking dead. They’ve...

Silver (And Gold) Are Breaking Out Again

Tyler Durden's picture




 

Despite the utter deluge of "this won't last" explanations of why yesterday's surge in gold and silver is transitory (and nothing to worry about), the sell-side is staring agog this morning as the precious metals markets are breaking out to new cycle highs. While the CCFD unwinds appear the clearest driver, Yellen's aggressive inflationist bias, and unintended consequence of increasing supply destruction (as prices were manipulated below production costs) appear to be trumping any short-covering, opex-related reasons for the push higher.

PMs are breaking out again...

 

Much to the chagrin of the analysts:

NY Trader (via Bloomberg) - Gold Spikes on ‘Massive’ Hedge Fund Short Covering in NY

Spot gold touched $1,322.12, strongest since April 15, partly on buying led by leveraged accounts that included hedge funds, according to an FX trader based in North America.

Gold Spike Yday May Be Related to Quadruple Witching: BMO

Yday’s 3.3% spike in NY gold futures to $1,314/oz “may simply be a function of closing out or rolling over large futures and options positions” that are part of today’s so-called quadruple witching, when four futures, options contracts expire, writes BMO technical analyst Russ Visch in note.

 

He notes last “dramatic spike” in gold in March was during that month’s quadruple witching, after which gold retreated from nearly $1,400 to $1,240/oz

 

Says long-term downtrend in gold is “probably not” over

 

Watching for 200-DMA to turn higher, which wold increase the chances that a bottom is in.

SMRA - Be Skeptical Of This Gold Rally

Make no mistake; the latest data from the CFTC regarding Commitments of Traders reveals nothing to suggest that there was a cathartic level (i.e., a contrarian extreme) of disdain toward gold at the late May/early June lows. For this reason, we think the gold market lacks the psychological foundation for the recent rally to be the start of a major turnaround. Instead, as the chart below shows, gold is rallying as part of a predetermined pattern (triangle), with the primary source of inspiration for the late May/early June reversal being the yellow metal's extreme undervaluation vs. equity prices.

But it appears other factors are at play.

As CCFDs unwind..

Here's how that might work:

In the gold markets, the paper or synthetic 'demand/supply' dominates pricing as opposed to the non-precious metals which have at least a grain of fundamental sense to them still

 

Throughout 2012/2013 - as the gold CFDs were booming, Chinese demand for physical gold was soaring as the price plunged (due to the forward hedging required in the CFD transactions which pressured gold swaps/futures lower and thus dominated pricing)

 

As CFD unwinds hit en masse, these flows must unwind (cover hedges and ensure the underlying physical is there... and if not buy it)

 

This will pressure gold futures prices higher and because unlike in non-precious commodities where spot markets wag the tail of the futures markets - spot gold will likely be dragged higher also (as we know the demand for the physical has been high).

So unlike in the industrial commodities - where the CCFD unwind drives prices down as the image above shows, thanks to synthetic manipulation and domination of the paper gold (and silver) market, the opposite occurs in PMs.

... and perhaps most importantly, supply destruction is starting to bite:

Mining Company Is Canada’s Second Chapter 15 of 2014

 

Mining company Veris Gold, which listed debt of as much as $500 million, is the seco d Canadian business to file a Chapter 15 petition so far this year. Veris sought court protection in Nevada and Fox Rothschild is debtor counsel. While Canada was the biggest source of Chapter 15s in 2013, Brazilian companies are the biggest source of these cases this year.

Meaning less and less gold is produced as there is virtually no margin at current prices, which means supply will soon tumble or force more consolidation. The end result, far less supply even as demand from China, be it for funding deals or otherwise, continues to rise.

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 06/20/2014 - 10:40 | 4877824 TeamDepends
TeamDepends's picture

Happy days are here again.....

Fri, 06/20/2014 - 10:44 | 4877834 MeMongo
MeMongo's picture

Hey depend!

Don't start the circle jerk quite yet! These forkers don't like when shit don't go their way.

Fri, 06/20/2014 - 10:47 | 4877856 Winston Churchill
Winston Churchill's picture

They will try and force it down before quarter day.

If they can't ,it will be an even bigger tell.

Fri, 06/20/2014 - 10:50 | 4877868 ParkAveFlasher
ParkAveFlasher's picture

PMs are up, miners are down, and penguins fly.

Fri, 06/20/2014 - 10:55 | 4877888 Pladizow
Pladizow's picture

Armstrong: If a braek out low doesnt occur this year, it will be pushed off into 2015.

Fri, 06/20/2014 - 11:04 | 4877923 flacon
flacon's picture

VIX = 10.34, miners are DOWN, silver is up.... I'd short silver here for a short term smack-down. 

Fri, 06/20/2014 - 11:21 | 4878014 gh0atrider
gh0atrider's picture

Well it's a nice morning to be flying out to a gold mine....

Fri, 06/20/2014 - 11:25 | 4878033 ilion
ilion's picture

Has anybody figured out who actually bought this $0.5 billion worth of gold yesterday?

Gold chart here is just impressive though.

Fri, 06/20/2014 - 12:11 | 4878190 thisisjustarand...
thisisjustarandomusernameicreatedforzerohedge's picture

I thought the China missing metals warehouse scandal was bearish...

 

Now it's bullish?

Fri, 06/20/2014 - 12:44 | 4878332 TheReplacement
TheReplacement's picture

Commodities bearish.  Precious bullish.  This has been covered extensively.

Fri, 06/20/2014 - 11:04 | 4877925 Dr. Engali
Dr. Engali's picture

Yeah. yeah....And if it doesn't happen in 2015 it will happen in 2016. That's some piss poor analysis there. Pms have been and will continue to be manipulated  until the system breaks down. These moves mean nothing to a physical buyer other than it gets more expensive to purchase.

Fri, 06/20/2014 - 12:16 | 4878209 walküre
walküre's picture

In the meantime, keep loading up the boat.

Time and again bankers have proven predictable to do one thing and one thing only. They pull money out of their ass, from thin air or whatever we'd like to call it. The economy is not generating enough revenue to support government at all these levels.

Massive government layoffs or reductions haven't been put in place (yet). Nobody is serious about reducing government largesse least of all the banks which depend on the debt and resulting paycheques for themselves.

Inflation is going up everywhere and there's not a darn thing the banks or government can do about it. They can talk up interest rates hikes but in a world where investors are starving for yield, they know they can't really afford to pay more than they're paying now.

Defaults or haircuts a la Greece, Cyprus, Spain, Portugal, Italy, Argentine and on and on the list goes..

Fri, 06/20/2014 - 11:05 | 4877933 Flakmeister
Flakmeister's picture

If not then, then 2016....

Fri, 06/20/2014 - 11:15 | 4877981 Spastica Rex
Spastica Rex's picture

What if a prison has been built around us, and now we can't get out?

Fri, 06/20/2014 - 11:20 | 4878006 Jack Napier
Jack Napier's picture

We all live in a multitude of prisons. First, your skin. Second, the universe. Third, your perception of this universe. There are merely varying degrees of oppression depending on scope.

Fri, 06/20/2014 - 11:20 | 4878010 WillyGroper
WillyGroper's picture

A bit late on that one.

LOL

The conundrum is even if one could escape, where is "less" worse?

Fri, 06/20/2014 - 10:55 | 4877891 DoChenRollingBearing
DoChenRollingBearing's picture

The past two days mean little IMO.  Physical gold, held still for a long time, is its highest and best use.

Do what the Old Money has done for generations, buy gold and hold on to it!

Fri, 06/20/2014 - 11:06 | 4877939 bobby02
bobby02's picture

Yeah, it's a fucking conspiracy:

Q1-14 sales: $35.6 mil

Q-14 net (loss): ($14.3 mil)

 

"cash costs per ounce declined from $1,509 in Q1-13 to $1,283 in Q1-14"

 

"At March 31, 2014 the Company had a working capital deficiency of $ 177.3 million (December 31, 2013 – $167.1 million) and an accumulated deficit of $ 459.4 million (December 31, 2013 – $445.6 million). On January 28, 2014, the Company received a Notice of Default under the terms of the Senior Secured Gold Forward Facility held with Deutsche Bank AG. The Notice of Default arose from the failure of the Company to deliver the required gold as at December 31, 2013 and subsequent months until March 31, 2014 or pay the cash equivalent of the gold delivery shortfall as required under the Agreements."

 

Fri, 06/20/2014 - 10:56 | 4877869 nope-1004
nope-1004's picture

Good analysis, but someone bought 5 bil worth of futures before market open yesterday.  To me that's someone wanting volatility and short term yield, shooting the PM's up through resistance creating a "break out".  May not necessarily be a commited long.  JPig games it on the way up for 5-10% and will short it on the way back down, all in a matter of weeks.

100% criminal market.  Long term PM's are a stong buy, but I've seen these short term gyrations all too often.

Fri, 06/20/2014 - 10:58 | 4877903 explosivo
explosivo's picture

That's a very interesting idea. I personally hope it's true, because I want PMs on sale for as long as possible.

Fri, 06/20/2014 - 11:15 | 4877985 TVP
TVP's picture

Very good point.

This may be a classic pump & dump.

 

Then again, if we see ten straight days of this, it may not be.  

Fri, 06/20/2014 - 11:28 | 4878044 ParkAveFlasher
ParkAveFlasher's picture

We haven't seen two straight days of "this"!!

Fri, 06/20/2014 - 13:02 | 4878392 crazybob369
crazybob369's picture

You're right on target about JPigs. They let the PM's go up just enough to squeeze some of the shorts and make a few mil. They could just step aside and let gold rise to its correct market value and make billions on their long gold positions, but their Master Lords won't allow it because it would expose the $'s worthlessness. Also, they are still massively short in silver (thanks to Bear Stearns), so they can't let gold rise to fast because silver would follow it up like a lost puppy, and they would lose their shorts (get it? sorry couldn't resist).

Fri, 06/20/2014 - 12:11 | 4878189 Lordflin
Lordflin's picture

Absolutely right... Options expire next week. If metals clime through that, or even hold their own, perhaps. A better indication will be a solid breakthrough of major overhead resistance... Somewhere between 1360 and 1370 for gold and 22 for silver.

Fri, 06/20/2014 - 17:19 | 4879257 MeelionDollerBogus
MeelionDollerBogus's picture

No such thing as overhead resistance.
#1 sell contracts for gold that doesn't exist
#2 drop margin requirements to go long
#3 once too many are margined long, raise margin requirements.
As if this wasn't obvious by now.

Fri, 06/20/2014 - 10:51 | 4877872 DaddyO
DaddyO's picture

I wouldn't get all giddy just yet.

Once, the war really gets rolling and scarcity is the watch word of the day, then and only then would I start to anticipate an earnest run in pm's

Until then it is just another page in the script to placate the masses and keep them lulled into the stupor of this false economy.

Full Disclosure: I own pm's aplenty and have for years, even before it was fashionable.

DaddyO

Fri, 06/20/2014 - 11:03 | 4877921 Beam Me Up Scotty
Beam Me Up Scotty's picture

"Full Disclosure: I own pm's aplenty and have for years, even before it was fashionable."

Oh, you shouldn't have said that here.  Now EVERYONE knows you have PM's.  You better run, not walk to the nearest boat dealership and have a boating accident, STAT!!  =)

Fri, 06/20/2014 - 11:12 | 4877969 DaddyO
DaddyO's picture

Apperantly, you missed my post about the horrendous jon boat accident I had several years ago.

I know where it capsized and will mount a recovery effort when the price of pm's exceeds the costs of reclaiming them from the deep.

DaddyO

Fri, 06/20/2014 - 15:27 | 4878974 Miffed Microbio...
Miffed Microbiologist's picture

Actually my favorite was what someone posted a while back. Get hundreds of coke cans and bury them all over your property with a dildo in each. As they scan and dig each one up looking for your stash, it will remind them what dick heads they are. Mr Miffed was captivated by the idea. We knew it would be easy to procure the coke cans but when it came to the dildos, the cost, the neighbors seeing boxes of such things shipped to our home and the strange flag by the NSA, we decided to nix it.

Miffed;-)

Fri, 06/20/2014 - 17:14 | 4879243 MeelionDollerBogus
MeelionDollerBogus's picture

WOW.
I missed that original post.
I'm in like Flint on this one (especially considering that last mention over the sybian)

Fri, 06/20/2014 - 17:54 | 4879324 Miffed Microbio...
Miffed Microbiologist's picture

Ok that was too funny and I have hot coffee up the nose. I should have told you after looking at that picture I couldn't figure out how to use it. I was too embarrassed to ask you so I showed it to Mr Miffed for an explanation. Damn near bust a gut laughing. "You mount it my darling" You should have seen my shocked face! So, here's my question. How does 2 men ( assuming you are one) know about this and I am clueless? I can't speak for Mr but I'm suspicious you are really Flakmeister! ;-)

Miffed;-)

Sat, 06/21/2014 - 02:32 | 4880111 StychoKiller
StychoKiller's picture

You could always carve some broomstick pieces to look like phalluses, just be sure to add some nails to each Coke can as well!

Fri, 06/20/2014 - 10:51 | 4877876 TeamDepends
TeamDepends's picture

That's why it is time to celebrate!  They are clearly losing control.  Take Shrillary C. for instance (please), she is sinking like a stone!  They whack PMs again (one last time)- great, we back up the truck.  May you live in interesting times!

Fri, 06/20/2014 - 10:56 | 4877895 DoChenRollingBearing
DoChenRollingBearing's picture

Ha ha!  But, point taken, we are living in interesting times.

Fri, 06/20/2014 - 11:05 | 4877922 Squid Viscous
Squid Viscous's picture

what? her probablility of being the next "commander in chief" (LOL!) went from 96% to 94.5%? ... wow that's exciting

Fri, 06/20/2014 - 13:03 | 4878393 snr-moment
snr-moment's picture

The only 94.5% about her is needing another round of Botox within the next 6 months.

Fri, 06/20/2014 - 11:12 | 4877967 Cattender
Cattender's picture

i have only bought Silver (so far) this year. is it stupid??? that is what they want you to FEAR!!! HAHAHAHA!!!!

Fri, 06/20/2014 - 10:45 | 4877842 Mi Naem
Mi Naem's picture

"While the CCFD unwinds appear the clearest driver"

Clark County Fire Department
Fri, 06/20/2014 - 12:06 | 4878167 Modern Cimmerian
Modern Cimmerian's picture

Seriously, any unusual acronym should be defined (written out expanded) at least once in a goddamn essay, when it is first used.  No, we don't need FBI or GE defined, but CCFD is not on the tip of every reader's tongue.

I realize that this means something about the Chinese rehypothecation of metals in warehouses but can't place what the damn letters really mean.

Fri, 06/20/2014 - 13:14 | 4878440 Alea Iactaest
Alea Iactaest's picture

Fuck you. Once upon a time this was a financial site. If you can't do the most modest of due diligence to follow this shit then GTFO. Seriously. You also would understand (or at least be familiar) if you had read even a few articles over the last couple of weeks.

Maybe you don't have the brain power to hang out, or maybe you're just another lazy-ass welfare fuck. Either way, figure it out or go back to the sandbox.

 

 

 

ok. rant over.

Sat, 06/21/2014 - 07:56 | 4880239 Mi Naem
Mi Naem's picture

Translation - I want to have sex with you because, unlike me, you do not live here all day long and are not a financial gnostic familiar with obscure abrreviations that the careless authors are too lazy to define. 

 

Fri, 06/20/2014 - 13:38 | 4878518 Bemused Observer
Bemused Observer's picture

Hey, shhhh! Do what I do...google it. Then come back here and pretend you knew what they were talking about the whole time...
Otherwise they will just chew you up and spit you out.

Fri, 06/20/2014 - 10:45 | 4877843 cro_maat
cro_maat's picture

Wait... No 8:30 AM slamdown is now a breakout?

Fri, 06/20/2014 - 10:51 | 4877866 Grande Tetons
Grande Tetons's picture

Yes. 

Imagine you are some battered housewife. Everyday your hubby comes homes and kicks the shit of you.  However, every once in awhile the fucker passes out at the bar and does not arrive for the ass whoppin. Those are the good days. Welcome to the world of investing in pms. 

Fri, 06/20/2014 - 10:59 | 4877905 MeMongo
MeMongo's picture

Point taken, but damn what a brutal analogy:-)

Fri, 06/20/2014 - 11:14 | 4877979 barre-de-rire
barre-de-rire's picture

so far so good

Fri, 06/20/2014 - 11:03 | 4877920 Bemused Observer
Bemused Observer's picture

But every once in awhile that meek little housewife surprises everyone, and hubby finds himself on fire in his own bed...

He never saw THAT coming...

Fri, 06/20/2014 - 11:04 | 4877927 Beam Me Up Scotty
Beam Me Up Scotty's picture

Or, his dick is laying on the floor 8 feet from the rest of his body.

Fri, 06/20/2014 - 11:20 | 4878005 Bemused Observer
Bemused Observer's picture

Actually, Lorena Bobbitt drove around with it awhile, then tossed it out the car window into a field...And they FOUND it, re-attached it, and he went on to do porn.

So maybe this time IS different...Lol!

Wishful thinking...When Mr. Dollar is buckled over, clutching his bleeding groin, the Fed will not be able to wisk him into surgery to repair the damage this time. They won't even be able to locate the missing member...it will be hauled away by critters and eaten. No glorious porn career awaits...

Sat, 06/21/2014 - 02:35 | 4880114 StychoKiller
StychoKiller's picture

"FrankenPenis™" FTW!

Do NOT follow this link or you will be banned from the site!