Sunday metals pre-game, 6/16 [update]

Gotta be honest - I still can't get a read on these markets, so I'm still not playing.  Yes, we're near long term support, not only in dollars but in euros (see below), so in the past I'd be aggressively long here, no doubt. But since the major chart damage of April, I'm not at all confident any trends or support lines of the past decade matter that much.

I *am*convinced that until GDXJ (down 4.5% this week) and its ratios start to recover, any bullishness is simply unwarranted, so I'll keep watching those charts. I found it encouraging that Mish Shedlock is bullish on the miners (see "Mish buys a basket of miners"), as he's no permabull or metalstard, but a cautious and savvy investor (and a damn good commentator on the passing scene).

So here's the euro gold chart, daily and weekly:



Gold in dollars hasn't even had a legitimate dead cat bounce since April and is standing on the edge of a precipice staring into the abyss. 

***Here's the updated weekly log chart, with the critical support seemingly on the verge of giving way, especially with the FOMC propaganda ahead.

But at least palladium has kept the ball in play since the September 2011 crash in all the metals, making higher lows every 6-12 mos.


37 comments:

Jovan said...

Any reason to believe Mish is good at market timing? Is he good at capital management or just as a commentator/writer?

For me anybody is just a contrarian indicator until proven otherwise. :)

costata said...

GMJ,

What if anything do you make of the graph in this post I picked up at Dollar Collapse?

http://goldsilver.com/article/comex-options-interest-in-super-high-gold-prices-by-end-august/

Thanking you in anticipation.

SugarLover said...

Re the miners, I just read a comment typical of many, expecting inflation in bread and eggs, but coupled with:

'mining stocks and silver drop like a stone.'

Some folk just don't seem to get how the gold price/miners share price move in tandem, and that a falling gold price eventually leads to a new miners bull run, as marginal mines have to shut down, and new projects are delayed, eventually leading to genuine shortage of product. Of course many of these deluded souls expect freegoldesque outcomes in the very near future, rather than a more normal outcome. One year they will be right, but not this year.

One wonders how their credibility will be affected when the outcome is more of the same we've been seeing for 13 years in this old gold market. They do love to spout as though they're experts in this field.

Baloney most of it.

duggo said...

"Gotta be honest - I still can't get a read on these markets,"

What's to read? They're rigged.

If you're still chasing the Dragon then you need rehab.

Warren James said...

Any takers that pushing the gold price down was a required tidal action to help manage the surge up from the fed announcements? My guess is we're back to 1400 very shortly.

Am expecting more bloodshed in miners. If this system is dying I wish I could help it on its way - this death-throe stuff is really starting to annoy me (die already!).

duggo said...

I'm not a trader (but I used to be)

(trader:- a person blindfolded that likes walking through a mine-field.)

I only buy the real stuff. (Gold)

I've recently started buying real Silver again. In France you can buy "real money" that was issued for a short period half a century ago. The 50 franc Hercule which has 27 grams of Silver and the 10 franc Hercule 22.5 grams of Silver. You can buy these from your "friendly" coin shop for spot if you have the cash and they know you.

Better value, more attractive and more resilient than any modern day Silver coin. They were actually in circulation for a while.

Advice:- If I'm buying Silver then the "bottom" is not in yet.

GM Jenkins said...

Jovan, I think Mish is a decent market timer - he called the end of the housing bubble to the month (basing it off the Time cover, but still), and was on point during 2008 w/r/t crude, the dollar, treasuries. To his credit, he was by no means encourgaing people to pile into gold during the 2011 run-up, despite being a gold bull and Austrian.

Thanks for the chart costata. (Apparently lots of August calls for $1900.) I completely ignore the COT reports (commercials were net short for the longest time while price rose, why can;t they be net long during a long bear phase?), but this does pique my interest.

I agree with your points, SL. I've always said, if gold recovers its old trajectory, silver and miners should outperform. Those who think otherwise are betting on this time being different. Maybe one time it will, say if gold blasts through $2000 on legitimate currency crisis fears, but I'm not seeing that happening anytime soon.

duggo, I totally agree with you the markets are rigged, which is probably why I can't get a read on it. But ... Eppur si muove. I think.

SugarLover said...

Apart from this place, which attempts to cut through all the crap.

Jeanne d'Arc said...

After today's developments, this is worth a repost, I think...

pity the gold bug.

S Roche said...

Anyone else think that Bernanke being puzzled by the 10yr action is another of his amazing series of stupid gaffes?

Warren James said...

@S Roche, I'd guess it was just part of MOPE, and that some academy awards for acting would be in order. I find the idea of them not knowing what's going on more unbelievable than the idea of a shortage of silver.

But then I was wrong about the direction of the gold price, even in the small scope of this comments section, so not many should listen to me.

I think at this point, Jeanne should show her bottom, hoping others can join me in this appeal.

S Roche said...

Thanks WJ, you may well be right. He has been taking lessons as the bottom lip doesn't quiver much any more.

What a crazy world.

Bell Curve recommend short gold positions looking for about $1300 and unless silver gets going above $22 soon they see $11-$15...so, the weight of money is bearing down.

Bill Gross called Bernanke out on BBerg TV, Zero Hedge have the link.

Yeah sure, Jd'A should share.

Warren James said...

The tide is going out. $1310.
Let me guess - all this nonsense will be done in another 10 days or so. Thank God - this month has dragged on far too long.

Jeanne d'Arc said...

Will be more than happy to give you a glimpse of my bottom. When it's ready...

But, unlike some other commentators, I'm not so vain as to think that calling a 'bottom' means that much anyway. I think more in trading ranges. I mentioned a few weeks ago that gold would probably settle somewhere between $1100 and $1300. Where exactly it will stop will become clearer as we get closer, obviously.

But gold's beginning to get more attractive for me, certainly.

If you want me to pull a figure out of my arse, I'd say $1230. But we'll have to wait and see.

JdA

S Roche said...

Jd'A,

Umm...thanks for sharing, I think.

I'm thinking it's 1976 redux.

Tony said...

@ duggo

Thought you'd appreciate this tweet I saw:

"The only one getting rich drawing lines is an architect"

costata said...

GMJ,

"Thanks for the chart costata. (Apparently lots of August calls for $1900.) I completely ignore the COT reports (commercials were net short for the longest time while price rose, why can;t they be net long during a long bear phase?), but this does pique my interest."

There are visible long positions in the FX market as well. There is also a not-so-easily visible long position in GLD as well.

Are there any visible longs in the gold mining stocks?

These BBs apparently have cojones made of steel. Perhaps the next pay day is an epic smack down in the gold miner stocks.

duggo said...

@Tony

Architects probably suffering too. I always thought it was the guys at the City of London and Wall Street drawing "lines" up their noses that were the only ones getting rich.

duggo said...

Dear Screwtape experts. What is the cost of Gold and Silver production. When I say "production" I mean the point where a nice shiny bar or coin is available for sale?
I know various people have had a stab at the question but the "geniuses" that follow Screwtapes must have good idea. Maybe Bron for example. Or perhaps Bernanke (I know he's a regular reader)

We surely must be near the point when all the mines pack it in and Perth Mint etc goes into mothballs.

Tony said...

@ duggo

Here's an opinion from Dan Norcini...one of the few bloggers out there that still merits some respect:

"There are various estimates out there that are being tossed out but the general consensus for most gold producers is somewhere between $1200 - $1250 an ounce or so. Obviously, this is painting with a very broad brush as some producers have lower costs than others and some higher costs, but for a ballpark number, it is probably pretty good."

http://traderdannorcini.blogspot.com/2013/06/gold-cost-of-production.html

SugarLover said...

So Tony, if and when the price of gold gets down to those levels and mines are shutting down around the world, what do you think will happen?

In previous cycles the gold price has responded to the tightness by moving upwards quickly. That's what I think will happen.

Do you think differently this time, and if so why?

I noticed that copper broke down to a lower low, so a summer of deflationary pressures is possible.

Funky Tape said...

Sugar - /HG did have that little baby tail down a few tics lower than the recent lows, but it still hasn't taken out the 2011 lows nor 3.00 proper. I'm definitely in the camp that a pierce below would be a failed move leading to a fast move up.

What's interesting is platinum has closed lower on a weekly basis than it's 2011 lows. But it's not really even trending, just trading that same 1375 to 1725 range. Boring.

If I were awake last night, I would have bought that 1268 gold low. Do a volume layover on the weekly going back 10 years and you can see no participation right in that spot. Gold literally spent a whole 3 weeks trading between about 1260 and 1300 in Aug, 2010. And 1309 was the backtest support springboard that led to the run 1900+.

Definitely with J'dA on the 1230 and change inflection point. I have 1237, actually.

Tony said...

SL,

Great question. If I were to guess what's going to happen to the mining sector, I suppose it largely depends on the duration of gold staying below that price threshold and the supply-demand dynamics of the markets.

If prices stay below the profitability threshold and demand sinks, your scenario certainly seems plausible. Then again, using history to predict future events works until it doesn't.

All I can say is, the upcoming summer months are going to be awfully interesting. Feels like the financial markets are heading toward unchartered territory.

SugarLover said...

Tony,

So by uncharted territory are you implying paper/physical gold separation?

That seems to be the firm conviction amongst FG fans, do you share that view?

duggo said...

Come on geniuses that follow Screwtapes.

I'm still waiting for a real answer.
I'll try again.

What does the coin shop owner have to sell a Krugerrand at to break even?

There must be "floor" level below which a coin dealer cannot replenish his stock.

If all the dealers, traders and technicals do not know what this amount is then all the talk and graphs are just hot-air.

Warren James said...

[ @duggo, last time I had a heart to heart with the bullion dealer he said he was losing money selling at these prices (having bought stock high) but who knows how much of that was 'shop' talk.

The mines are in big trouble - here in Australia, Newcrest closed their Brisbane office. Alas I do not have the specific numbers and percentages you seek, so I'll let others do the talking. ]

SugarLover said...

Duggo, generally gold dealers will make a profit over time whatever the price, as they are just middle-men with their spread as their gain.

Miners is a different story. I've seen breakeven figures ranging from $950ish to $1300ish in comments from CEOs. So maybe $1100 is the average. Each mine is different of course.

Of course this move down in price helps tighten supply, with marginal mines closing, and eventually that feeds through to prices. As usual, my bullion dealer tells me there is no sign of tightness in supply at the moment, and in fact some johhny-come-latelys are selling their gold pieces in despair at the moment, adding to supply.

Just wait til the world realises that QE will not be tapered, and might even be ramped up, plus China and Japan, and what about Europe? Too much complacency, the fun is about to start.

duggo said...

@SugarLover.

"gold dealers will make a profit over time whatever the price"

That's not logical. And unfortunately not an answer.

Think about it.

If it costs (at the present time) $1100 to dig Gold out of the ground and the "paper" price is $1000 or less the mine and the coin dealer would soon be out of business. Your theory would only hold water if the "price" fluctuated above the real price of digging Gold out of the ground.

Farmers soon go out of business if they sell their produce for less than it costs to produce. (In Europe they are subsidised).

The point I'm trying to get at is if you know the break-even retail price of a Krugerrand then you know roughly when Gold will disappear from the retail market place.

Bernanke, Draghi, Comex and the LMBA will not be able to disguise the fact. No matter how hard they try.


SugarLover said...

Duggo,

You're confusing miners and dealers. The dealer will just take a spread, won't care what the price is.

The miner needs to cover costs etc.

duggo said...

I give up.

"You're confusing miners and dealers. The dealer will just take a spread, won't care what the price is."

With answers like this no wonder nobody knows the true state of the precious metal market.

So SugarLover. AS an exaggerated scenario following your argument. The mine spends $1100 to dig it out of the ground. The "paper" price is $600. The mine happily sells the Gold at $600 to the Coin Manufacturer. The Coin Manufacturer production costs $100 but sells it to the coin dealer for $600. The Coin Dealer is then happy to sell the purchaser for $600.

Everyone is happy and out of the precious metals business.

Your statement about "spread" only works if the price is ABOVE the cost of digging the stuff out of the ground. How many mines will stay in business taking a loss?

So there MUST be a break-even price for a Krugerrand. WHAT IS IT?

SugarLover said...

'The Coin Manufacturer production costs $100 but sells it to the coin dealer for $600. The Coin Dealer is then happy to sell the purchaser for $600.'

Neither of the above would happen. It's the mine that gets screwed by the price falling. The dealer is ok. The manfacturer I reckon is ok too, but just guessing on that one.

duggo said...

EXACTLY! You are beginning to see the light.

So you say the mine is being screwed. How long can this go on for before all the mines go out of business?

I cannot believe the Gold mines would sell way below the cost to just keep the coin manufacturer and coin dealer happy.

So why would this happen?

GM Jenkins said...

I've pasted the last three comments here, as there was a mishap -GM:

Tony said ...

@ SL By unchartered territory, I wasn't intending to imply anything specific. I simply view the financial markets heading to further disarray, the likes of which we haven't seen our lifetime. Do I think a paper/physical separation is possible or even probable? Yes. Do I think it's likely this year? Not likely. I'm not here to debate the merits of freegold with you. That's been done ad nauseum in the FOFOA comment section and besides, this isn't FOFOA's blog. Suffice to say, I embrace much of what I understand about the concept of freegold, but that understanding isn't the sole driver behind my owning gold. Let's respect the hosts and stay on topic.

SugarLover said …

@Duggo, yeah, well I did address that point in my first response to you, so not sure what we're doing going round the houses. Mines will shut down, as I said above: 'Of course this move down in price helps tighten supply, with marginal mines closing, and eventually that feeds through to prices.' No mine will dig at a loss for very long. There will come a point where the market just won't have much gold delivered, and in past cycles this has resulted in price rising to bring new supply on stream. Freegolders reckon this time may be different and paper and physical go their separate ways, but whilst that would be wonderful, none of them actually give any solid reasons for this happening.
@Tony I'm not bothered with a freegold thesis deconstruction, just wondered if you were on board with the 'window' thing, and if you were, what you thought the trigger might be, as no one in the cult ever provides one, except they can feel it in their water, and there's no more

Tony said …

@ SL Am I on board with the "window thing"? If I understand you correctly, you're referring to 2013 being "IT". Well, who am I to say... though I think it's highly unlikely. As a side note, based on your commentary, it doesn't appear you've spent much time actually reading the blog itself, as FOFOA has spent plenty of time detailing triggers for the paper/physical separation. I'll readily admit that his posts are tough to get through, but the freegold thesis is built around much more than just a bunch of conjecture and hunches. I'd give you a reading list, but I'm sure that's been done countless times before, to no avail. I'm guessing you've simply treated that blog as a sparring ground up to this point, which is unfortunate. There's some great material to be discovered if you give it a chance. To each his own I guess. Whatever the case, I'm not here to promote FOFOA or his blog.

Tony said...

Thanks for being so considerate, GM.

Slow Loris Larry said...

Just up!

Trader Dan Norcini (http://www.traderdannorcini.blogspot.com) just posted a most interesting 'theory' deduced from his reading of Friday's COT Report, titled 'Mining Companies Appear to be Engaging in Hedging Activities once Again'.

That title says it all, but the lengthy post is certainly worth absorbing in detail.

SSL

Slow Loris Larry said...

Trader Dan also posted this on Friday, 28 April: 'Heavy Call Option activity in GLD'.

It is also very much worth your time to read.

SLL

Als

Stuart Unger said...

Duggo,

You are incorrect. Are you asking about the production of a marginal new production Krugerrand or one of the millions of Krugerrands floating around. the cost of a newly produces Krugerrands is simply the cost of getting AU out of the ground and minting it. But that is not where dealers make money, dealers don't just buy new production, they buy from the "flow" of coins are already out there, and they charge a spread between what they pay and what they sell for. So the dealer does always make money. you seem to be confusing the concept of what does a Krugerrand cost to make today, which I explained and what does it cost to buy a Krugerrand, which can be higher or lower, but still pays the dealer his spread. Get it?