Market Snapshot: Gold & Silver Recover As EU Doubles Down

Tyler Durden's picture

S&P futures managed an impressive 2.5% rally today making it back to the closing level from last Wednesday (Bernanke-Day) amid merely average volume. The leaked rumors of the EU's octuple-down CDO^2 bet on themselves was enough to get the buy-the-rumor juices flowing and we rapidly squeezed higher. IG outperformed, ending the day notably tighter than respective equity and HY spreads would expect as even though risk seemed on, we did not see a mad scramble for high beta and HY bonds remained offered in general. Gold and Silver managed a huge bounce off intraday lows ending the day -1.5 to 2% while the dollar sold off into the close (as EUR rallied) to end the day unch from Friday. ES ended a little rich relative to risk-assets in general as the small cap short squeeze seemed to take-over.

While much hope was place in 'Operation Twist' having similar portfolio rebalancing effects as QE2, it is clear that the reach-for-risk is not occurring as up-in-quality remains evident with IG notably outperforming (in CDS and cash). HY kept pace with ES today as can be seen but single-names underperformed and HY bonds were net sold all day as both index arbitrage and unwinding macro hedges as long exposure is sold down helped HY optically.

TSYs sold off and steepened quite significantly on the day but even more so from early morning low yields to closing levels. 30Y yields increased over 15bps from low to high today - ending +9bps from Friday's close. 2Y and 5Y are now both 6bps or so higher in yield from pre-Bernanke, 7Y marginally higher in yield, 10Y only 4bps lower while 30Y maintains over 20bps of yield compression since FOMC-day.

There was a very strange move in HYG (the HY bond ETF) as the EU's SIV was announced. Significantly out of the ordinary volume surged as HYG jumped 1-2%. This move was unaccompanied by ES, S&P, JNK, interest rates, HY CDS, or HY bonds. It had the very strong feeling of someone being forced-in as perhaps margin calls or a short was squeezed to make uneconomical trades. The move is extremely evident when we look at it in the context of SPY, VXX, and TLT (which can be used to construct an arbitrageable opportunity).

 

The spike in 'Model' in the chart above shows the dramatic disconnect - as big as we have seen while following this framework and the profitable
convergence of that ETF arbitrage over the next hour or so. Given how wide HY spreads are and access to CDS markets, perhaps someone had been using HYG as their macro cover and as it broke resistance highs of the last couple of days and filled the gap up to Bernanke-Day lows, it was all they could take. Decent volume and net-selling in HY could also help explain as perhaps the ETF manager was forced to create units and had to buy what everyone was selling in cash? It remains a mystery but worth watching HY CDX and cash markets for any fallout (BWICs) - and we note a large VWAP order (to sell) at the close.

While HYG was an interesting sideline, Gold and Silver recovered from a disastrous early session and was the real show of the day. Silver was down over 16% in the early hours of the morning only to recover to down only 1.2% by the close. Gold managed to pull back from over 7% down to less than 2% down. Oil and Copper pulled into the green as risk was bid again in the afternoon but traded very much in sync all day long - though not particularly focused on FX volatility.

The dollar managed a wholly unimpressive 0.3% drop from Friday's close but the moves were not particularly high conviction even as EURUSD managed to creep back over 1.35 into the close as it seems levering up German taxes is good for the currency of choice. By the close, every major was stronger vs the USD with CAD and JPY the least strong of the pairs (and SEK the strongest).

All-in-all, the rise in S&P futures was impressive (though low volume as usual) and risk-assets in general followed suit for the initial move (as seen below) but as it wore on it seemed to become a combination of a search for Bernanke's Day bottom as well as a small cap short squeeze that drove ES notably expensive in the context of carry FX, gold, oil, TSYs, and credit. As we peaked, average trade size rose which always has the smell of professionals selling into strength but we have seen these kind of squeezes last longer than we expect before.

Charts: Bloomberg & Capital Context

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Deadpool's picture

hope you got your fair share

Libertarians for Prosperity's picture

 

 

Thank god I waited until silver collapsed to buy some SLV, instead of getting lured in at $35, $40 and $45 like all the goons did.  YTD gains in silver is 0%, so basically I didn't miss anything for the year.  When you add the huge premiums for physical, I bet everyone's cost average for the year is ~$40 or more. 

Not me!  Got some SLV at $28 this morning, and felt awesome about it.  No retarded premiums, no holes in the backyard, extremely liquid, and can sell it in a second by hitting the return key. I'll probably add a stop around $26.

SLV rules!  Now I'm a silver bug! 

To the moon!  Parity to Gold!  Ra! Ra! 

DoChenRollingBearing's picture

Will it be the Faux Libertarian or the Rolling Bearing who laughs last?  Hmm.

None of that SLV for me pal!  But, I did eat my own dog food and bought (physical) gold and platinum today.  Details below.

Bitchez!

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

I heard dog food is great "with some fava beans and a nice chianti":)

margaris's picture

I dont care about the price of silver... I bought at 35... so what?

Then was my monthly accumulation buy, and then is when I bought.

I dont care about the price... I am accumulating every month...

I bet I get more silver this way than you do... because I do not wait for cheap price to buy!

 

Wait... you bought SLV? Why do I even bother talking to you, lol...

GET PHYSICAL... do you want to stay a virgin your whole life?

Libertarians for Prosperity's picture

 

 

You don't care about the price of silver?  You just hoard it indiscriminantly?  

THAT'S REALLY WEIRD!

You belong in an Oliver Sachs book.

The Man who Mistook his Wife for a Silver Eagle. 

LeonardoFibonacci's picture

dude buy physical not paper silver.  SLV could backfire on you one day!

margaris's picture

An ounce of physical silver is an ounce of physical silver.

Get what you can while you can!

Why do you choose paper over metal? That just doesnt make any sense to me...

You are trading one paper for another... now thats just really silly!

Of course we all need paper money to live... but I would advice everyone to start accumulating something REAL for a change.

DIVERSIFY!

Long-John-Silver's picture

For every ounce of physical Silver in the market, 100 paper ounces of contract Silver is traded around SLV and all the other naked paper silver traders out there. The time is rapidly approaching when that 99% of the paper silver market evaporates leaving only 1% to divvy up between all the paper silver traders out there. The higher the volatility the closer that contorting trader comes to that fall off the cliff.  

duo's picture

real men use leverage...Oct 90 AGQ calls

JW n FL's picture

 

 

I am all for people using leverage to buy physical.

+1 from me.

duo's picture

If you going to pay the "collectable" tax rate for SLV gains, you might as well trade options using leverage and put less money at risk.

Either that, or hold CEF for over a year and file the IRS forms for a PFIC,  Form 8562, I believe.

JW n FL's picture

 

 

When I say physical..

I mean by the Box..

in 1 oz form..

so that I can have some walking around money, given some type of event renders paper (fiat) money useless.

"C"?

tmosley's picture

If you were playing Monopoly with someone, and they offered to give you a dollar for every 30 monopoly bucks, would you buy it?  If they offered you a dollar for every 300?  Every $3000?  If there was no other way for you to get dollars?

But you are so stupid, you probably won't understand the metaphor, or see the real world implications.

pupton's picture

Hitler when you sell you will have to pay capital gains taxes...when we sell physical nobody knows...

Dugald's picture

And when silver is eleven bucks an ounce....and no takers...will you still feel cocky??

tmosley's picture

Where do you trade that you can sell and get cash in your hand in thirty minutes?  Because I can do that with physical.  

Libertarians for Prosperity's picture

 

 

And you're the same guy who admits to paying 50% premiums.  Go sell your silver tonight to your goofy coin dealer in Armpit, Texas.  He'll offer you $25.  By the time you calculate the premium that you pay when you buy and the discount you get when you sell, you'll realize just how much retail arbitrage on physical screws you. 

I guarantee there are guys here at ZH (reasonably intelligent people) who paid >$50 (including premiums), and if they sold today, would get ~$25.  Huge loss! 

If all I have to worry about are some HFT'ers in Greenwich frontrunning me by 1/4th of a penny, I don't really care.  Sure as hell beats your 25% premiums. 

Mosley, you're so dumb, you sit on the teeeveee and stare at the couch.

 

 

Newsboy's picture

Sounds like troll blather to me. "Armpit Texas"? "T.Mosley dumb"? You get paid by the word for this stuff?

I got in on a silver pool at $29.45. My dealer trusted me to the afternoon. I paid an additional $3.50 per Philharmonic round. By the time I got in to pay at 4PM, silver was up by a dollar, reducing my premium to $2.50 per ounce. It was part of a purchase pool, a significant service, since physical silver is gone at these dip prices.

This is Austin Texas, People are not stupid. Lots of guns, places in the country stocked-up, and of course self-defense technology remains very popular and broadly disseminated.

I don't think you bought SLV. I think you bought a burger, fries and a shake, and the remains are sitting in front of you as you work.

tmosley's picture

Nice absudity there.  I SAID that I PAID a 50% premium for silver when spot was $8.  What part of "past tense" don't you understand?  And here we are, with conditions being tuned for a repeat of 2008, and you think it's crazy that premiums might go up?  Of course, you are so stupid that you don't understand that there is a fixed spread at coin dealers, and that that is the same no matter the premium.  If the Premium rises to ten dollars over spot, they will buy at seven dollars over spot.

The rest of your blather isn't even worth reading.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Ha! Ha!  Good luck getting real physical when an EMP weapon explodes over Colorado in December!

mayhem_korner's picture

@Libertarians for...

When you're finished polishing your stinger to a buff shine, know that lots of posters here bought Au at 3-digits, and some even bought silver at single-digit prices.

Marty Rothbard's picture

Just don't hold it until the rubes figure out SLV is a "PAPER" tiger.  By the way you are aiding and abetting JPM, and are thus evil by proxy.  When I sold my SLV last year, and went physical, I got silver bullion coins for $28 delivered.  I'd held SLV for some time.  Max Keiser convinced me to go physical.

doomz78's picture

you didn't get physical at 28 an ounce....   no, no, no.    You got slv.   That's a vehicle for the retarded.  A Fiat 500 with a clown nose with shit smeared on it's paint.  REAL physical silver still had a premium at 28.  I don't believe that you timed the market that perfectly anyways.  It''s easy to say that you got the best possible deal after the fact.  You are lying.  that just happened beatch.  Swallow it. 

Jehu's picture

Man I wanted in on silver... ya snooze ya lose. Kids can be expensive in so many ways.

Josh Randall's picture

Follow JPM's stock price as the Morgue has one more shot to get Silver down below it, before the Silver rocket runs and the physical price and paper price offically separate.

XenoFrog's picture

I was feeling pretty horrible about picking up another 30 ounces over the weekend @31 when I woke up and saw $26. Thankfully patience overcame panic.

Condolences about the crotch goblins.

UP Forester's picture

Yeah, I felt pretty horrible exchanging 250 FRNs for $10 of quarters and dimes.  First time I've been at that jeweler's shop since he was ripping us off as kids for baseball cards.

He had it comin'....

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Yes, but they are the best investment in the whole world.  No metals are as precious as a child especially the children of one smart enough to look out for their future by buying metals and getting out of fiat!

AustriAnnie's picture

And your kids will provide real "social security" in your old age!  Your loss in PM's now will repay you later!

RobotTrader's picture

Today could be a setup for a massive run in PM's.

Funny how the PM stocks have been woefully underperforming, well, now we know why.  The "big shakeout" has now happened, that is what they were pricing in all along.

DavidPierre's picture

"...massive run in PM's."

"Due to current market volatility, Sprott Money Ltd. supply of bullion products in Canada are temporarily unavailable. We regret the inconvenience this may have caused."

DoChenRollingBearing's picture

David Pierre, nice piece of news, thanks!  I always look forward to your comments, please comment MORE!

OK, Mr. Sprott..., OK...

That's why I don't mess with any "Paper Gold", ANY!

And, I went and ate my my own dog food today, buying gold (when spot was $1601, I paid $1686, so call it a 5% premium) and a Proof Platinum Eagle (Rocky R, feel free to email me!).  

Fear not!  The future of gold is better than ever.

What, anyone believe that Europe or the USA has FIXED anything?  BWAHAHAHAHA!

DavidPierre's picture

DoChen:

Ask ... Ye shall recieve.

How my friend Jack, from up north of me, sees things.

"The volumes of over the counter sales and purchases of silver went through the roof. Although much silver was offered we sold far more, so much so; we had to book orders for shop inventory twice on Friday.

I would have made a third booking had I been able to get through to one of my suppliers. As a vendor, when your inventory is being sold below cost it is vital to book new inventory on the basis of the current price. Failure to do that could result in serious losses being realized if you end up replacing the sold inventory at higher prices. Consequently it creates a great deal more work when trading in a falling market. As if that wasn't enough, my XRF testing unit arrived and required receiving.

My first order was with Kitco and it took at least fifteen minutes to get through to an corporate account agent. I was also told that most retail customers were unable to get through to book orders due to the volume of calls. My second order about an hour later was for a different product I deal with a private vendor for. Fortunately I have a cell phone number and was able to reach him.

By the end of the day most of my booked orders were presold and I will have to order more on Monday.

My shop is in Red Deer Alberta and we had buyers driving up from Calgary which is 150 km ( ~100 miles) away because the vendors there, one of which is a major RCM distributor; were all sold out of bullion bars.

We buy silver maples, eagles, and philharmonics for a dollar over spot and pay full spot on smaller bars so we tend to get a lot of material offered since I know of no other vendors in Alberta paying over spot from the public.

There is a steady flow of offered bullion as people sell for many different reasons. They could be stale longs, doing estate planning or just taking profits. The lower silver prices brought a few panic sellers in but it was remarkable how many buyers took advantage and bought.

That is the biggest difference in attitude I see in the holders of specie since opening in 2004. Another very positive aspect of this correction is the number of new buyers who are eager to enter the market at current price points.

On another note.... Thursday night I had a conversation with my friend who has a high ranking connection in Norway. The Norwegian Central Bank is very concerned about the demand for Kroner. Norway is not a participant in the Euro and there are those who are taking positions in their currency causing it's value to appreciate. Norway is a resource exporter with oil as it's largest source of revenue. That oil is mostly sold in for US dollars which have fallen against the Kroner causing a squeeze on royalty revenue and oil profits.

Norwegian financial authorities were looking at controls to dampen speculative demand but the IMF has requested they hold off until a more COMPREHENSIVE PLAN INCLUDING ALL OR MOST WESTERN CURRENCIES CAN BE IMPLEMENTED. Apparently banks proprietary trading desks realize their greatest revenue from FX and related derivatives and any locks or restrictions have to take that into account.

My friend was told that should the US dollar or Euro move out of an acceptable exchange rate draconian measures would be implemented. A deal was also made that would see the Euro supported as more bad news emerges from European countries with debt issues.

My friend's source still prefers silver rather than gold for financial protection. His concern is that of punitive measures being put into place to contain demand should the public start buying gold in earnest. He also extrapolated that to smaller countries facing political pressure for holding "too much" gold. In spite of his caution I still favour gold over silver or platinum group metals.
Clearly things are not well in "fiat moneyland".

When the banking holiday arrives it's a safe bet that it will involve more than those in one nation or region."

www.lemetropolecafe.com

Manthong's picture

Um.. maybe that means that Mr. Sprott does not care to part with inventory at current levels.

Just sayin..

DavidPierre's picture

Manthong:

Whom shall ye believe ?

"Just sayin.."

Sprott Money President Larisa Sprott today tells King World News today that the coin and bullion dealer's silver supply was temporarily wiped out by huge demand prompted by this week's huge decline in silver future's prices.

An excerpt from the interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_Dai
lyWeb/Entries/2011/9/23_Sp...

"In Bangkok the gold market has gone berserk.

Thailand has a very strong gold culture with gold shops virtually on every main street where one can purchase gold bars on demand until recently.

Now with the recent price slam down you have to get a queuing ticket and wait for two to three days to obtain your bars.

Strange the price is collapsing as demand for physical has soared here in Thailand !

I admire the great work GATA is doing in the fight for honest money."
www.lemetropolecafe.com

Manthong's picture

Heck, Apmex hasn't been asking me for any green boxes back yet and I don't see scarcity locally.

As of last week, Bill Haynes on KWN  hasn't noted a supply problem yet. 

I hope it dries up one of these days.. I don't doubt it will in Asia first.

Maybe it's a bit thin up in Hoserland, too.

Sprott's OK.. I own his ETF's.

They ain't getting my physical for a long time, it's the only real money anymore.

I'd like to get some of my fiat back from his diggers. though.

http://www.insidermonkey.com/hedge-fund/sprott+asset+management/238/#/

 

PaperWillBurn's picture

I doubt that but I'm checking on it just in case. I live in BKK when I'm not at work. Gold shops are on every street. It's hard to imagine having to wait to obtain gold in Thailand. The physical market is large and everywhere.

PaperWillBurn's picture

Actually to confirm or deny this I am going to have the wife go to tesco(a grocery store) and buy a 1 baht bar (15.244 grams of 96.5%) common size in Thailand. I'll report back.

Al Huxley's picture

That was a pretty violent selloff last week. I'd say it'll take a while to recover. Sure did a good job of crushing sentiment in the sector, though. Would be just like the miners to break all established patterns and just launch from here.

ZeroNuclear's picture

A shipwreck containing 200 tonnes of silver worth about £150m
has been found in the Atlantic - the largest haul of precious metal ever discovered

http://www.bbc.co.uk/news/uk-15061868

Shipwreck of SS Gairsoppa reveals £150m silver haul

mixle's picture

Damn you beat me to it!

MsCreant's picture

Man, I have been looking for that boat, I am so greatful, really, thank you so much. I will, of course, give you a cut for your trouble!

MsCreant's picture

I had some guns too, did you find them?

Dr. Gonzo's picture

150 million Euro ain't that much money. Multiply that sum by another 1.5 million and that's how much fiat it would take to bail out Europe...and that might not even be enough...and that doesn't even count the U.S.

Pegasus Muse's picture

I wonder how much of this silver has been lost due to reaction with hydrogen sulfide and/or sulfur dioxide or bacterial action given the metal has been immersed in a soup of dissolved salts and tiny critters for 70 years.  Any biologists or chemists out there?

Snip ----

"Silver is particularly susceptible to the effects of the sulfide radical. This is best demonstrated by the formation of tarnish on silver objects that are exposed to sulfur in any form, particularly hydrogen sulfide and sulfur dioxide, which can convert to sulfuric acid.

In a marine environment, with its abundance of soluble sulfates and oxygen-consuming, decaying organic matter, sulfate-reducing bacteria utilizes available sulfates under anaerobic conditions to form hydrogen sulfides as a metabolic product. The hydrogen sulfide reacts with the silver to form silver sulfide. The overall reaction proceeds in the same process as described earlier for iron:

2Ag + H2S >> Ag2S + H2

In anaerobic marine environments, silver sulfide (Ag2S) is the most common mineral alteration compound of silver (North and MacLeod 1987:94). It is commonly reported from shipwrecks in the Caribbean and Australia and constitutes the most prevalent corrosion compound on silver objects from marine sites. Most marine-recovered silver artifacts have a thin sulfide surface layer, which has removed some surface detail, such as inscriptions, marks, and stamps. A large percentage of the artifacts, however, are completely converted to sulfide; others have only minimal metal remaining."

--- Snip

http://nautarch.tamu.edu/crl/conservationmanual/File13.htm 

Shineola's picture

Excellent research, Peg! 

 

BTW, how would this sulfide radical effect the body of Osama Bin Laden?  :)

Panafrican Funktron Robot's picture

You're assuming he's dead and/or ever really existed and/or was actually dumped in the ocean.  This is a big assumption.