G0ldfinger

Good to see a few familiar avatars around! Still holding all my gold and silver and adding to it every now and then. The wait has been long, so a little up-move in the metals would be nice to see. But I am very patient, and one has to be, it seems.

Interestingly, Dan Norcini is not at all bullish on silver:

http://traderdannorcini.blogspot.de/2014/08/agressive-hedge-fund-selling-plagues.html

It seems that we are contrarians here:

http://www.bloomberg.com/news/2014-08-25/gold-drops-toward-two-month-low-as-silver-slips-to-10-week-low.html

Silver Open Interest Reaches 14-Month High on Short Bets

 

... “The interest in silver is clearly on the short side,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “People expect silver to trade weak going forward, as the fundamentals are very week.”

I sorta nailed this one back in the days:

I think the jury is still out on this one:

These are indicators that silver will outperform gold, and I think gold's resurrection is only a question of time given none of the deeper financial issues in Europe (and elsewhere) have been resolved.

Call me Silverfinger!

http://gold.approximity.com/gold_charts.html

The charts below (in their version of August 26, 2014) tell us that:

 

(1) When compared to the Dow Jones, gold has only been cheaper on 22.1% of all trading days of the past 130 years (i.e. gold is cheap from a historical perspective).

 

(2) When compared to gold, silver has only been cheaper on 20.4% of all trading days of the past 130 years (i.e. silver is from a historical perspective even cheaper than gold).

http://gold.approximity.com/since1885/DJIA-Gold-Ratio_Q_LOG.html

http://gold.approximity.com/since1885/Gold-Silver-Ratio_Q.html

http://gold.approximity.com/gold_charts.html

 

Chart of the month (November 2013)
For a long time our Gold-Silver-Watch page has featured two charts of the Dow-Jones-to-Gold- Ratio: our own, and DrBubb's (a.k.a. Michael Hampton). With the Dow making new highs, it is time to review them again. DrBubb's target area had been hit in 2011 with a low below 6:1, and the DJIA:Gold-ratio has since almost returned to the grey trend line Bubb suggested. This was a fairly precise call, to say the least. So, will it move beyond, and then make new highs? Over the medium term, we don't think so. While Bubb's call was precise until now, we expect history to repeat itself, at least we expect it to rhyme. As in 1976, we might cross the grey trend line, but a swift crash could follow due, pushing the ratio towards our own target are at or below the 1:1-level. As always in finance, there is no guarantee for anything, but is the American economy really in such great shape? We doubt it, and we think that gold's great revival could arrive in the not too distant future.

See you up thereeee!

DOUBLE.

Further to Igglepiggle's growing imbalances and ALK's criticism of my thinking that QE is here to stay.

ALK, don't you see how QE is becoming engrained into the system and how we are slowly getting used to it? Those people who bought your NZ house or who are buying houses in the UK, US or Germany right now, they enjoy ridiculously low interest rates. Fine if they're fixed, but most of them are not. They take on a ginormous mortgage fixed for 5 years or so, and then you think they would be able to cope with, say for starters, triple the rates when the Fed stops QE? Also, the deficit in the U.S. has been reduced by sequestering, but this is a drag on the economy. Meanwhile the Fed has until recently monetized that whole deficit! So, do you really think they will start paying down debt soon, or at least keep it constant? No, again, QE will become accustomed to as the new normal. It's like NuLabour made sure that all the UK's debt was paid back during the boom years - oh, wait, it wasn't! Great surprise!!

Read that famous book on the French hyperinflation following the revolution. It's appaling how history does not just rhyme, but seemingly repeat itself right here right now. Only, as I said, this thing is big, like a supersized super-tanker, so it will take off slowly.

DOUBLE POST.

How will you raise your stop? How much will you cash out?

What is the inflation rate at the time?

What are interest rates doing?

Who is the Fed Chair(Wo)man?

Is it bail-ins or bail-outs, or both?

What is MZM doing?

What is money velocity doing?

How is the US/Europe/China/Japan doing?

How easy is credit?

How are commodities like food and energy doing?

One way of getting out could be to slowly turn gold into cheaper hard assets at the time (property, general stocks), but (if paper markets are still functioning) to speculate in long options to potentially cover any ridiculous spike-ups in the gold price, while keeping some bullion for SHTF liquidity reasons.

Here is where I am at:

I have been somewhat surprised by the amount of time the central bankers have been able to buy with their hyperinflation of the monetary base (yes, just tripling it nilly-willy is HI in my opinion).

On the other hand, as the likes of Prechter or our very own ALK simply do not grasp that the "deflation" they want to see (even ALK's house in the tundra went up in price over the past years - I'd call that INflation...) is there because of historically low money velocity and because of a certain unwillingness of banks to function as multipliers, this makes sense. For now mass psychology still is in favour of deflationary thinking while the fundamentals lean to the opposite. Fundamentals will - as always - win in the end and velocity will go back to normal and potentially way beyond normal, but it might take a while.

The recent gold correction has an almost perfect historic blueprint in the 1974-76 sell-off (only, the fundamentals today are so much better for gold). So, people like Prechter or our very own ALK, who now expect gold to drop to USD 200, will most likely have to eat their hats (if they still own any at the time in question). I hope the traders have been able to trade this, and I hope the investors don't worry - just like me: I have not sold one ounce for divesting out of PMs. I still mostly hold physical gold and silver bullion, but increased gold & silver stock investments during the past two years (so far at a loss).

As Igglepiggle points out: the imbalances are growing thanks to the printing presses. He is also right in pointing out that all major fiat currency turds are floating in the same bowl at roughly the same speed. That's why the golden life boat seems less necessary, but of course that's an illusion which will sooner or later disappear (and ALK will wake up and try to buy what by then will be unobtainium).

Gold, like other assets, is forward looking when things get rough. The greatest increase in actual value might come (just?) before a large currency collapse or price inflation spike. "You got to be in it to win it."

Recent developments in the LBM and the COMEX may be signs that the bottom has been reached and that some major players are in the process of repositioning themselves on the other side of the trade. So, Sinclair's prophecy might come true that in the end the former gold dumpers will make the most profit on the upside.

Finally, I have never predicted the end of the world. The financial world as we knew it, however, ended in 2007 and we are sliding deeper into some sort of financial doom (which is entirely normal and happens quite often historically). It is so slow, however, that some (like our very own ALK) are not able to see it. This is to be expected. Further, I see no reason why gold could not be beyond USD 10,000 and the supermarket still be (a-okay) stocked. In fact, I sincerely hope that this will be the case.

Semper ad hominem, numquam ad rem.

And there was me thinking you went quiet because I told you that you should be buying that nice looking cheap property in a nice looking town in America that your wife was interested in.

 

Gold just another commodity? After 30,221 posts on this thread, this is still a topic on here?

No wonder I had to essentially stop posting at this joint!

All the paper bug chickens are finally coming home to roost.

(1) The COMEX gold shenanigans seem to be coming to a very sudden end. They seem to be turning themselves into a cash market (if any market at all) - credit to Sinclair for having predicted that one too! Backwardation in the first two months has been a stark warning for a couple of weeks.

(2) Bernanke has proven to the world that the Dow and T-Bonds will just collapse without QE - so any successor (Yellen) of his will have to continue it forever - if they want it or not!

(3) No single issue of the crisis since 2007 has been resolved. We are sourrounded by zombie banks that have been feeding on (now as well zombie) states.

This is the perfect storm for gold. However, the price action that we have seen over the past two years has been absolutely confusing, and without the intellectual ability and self-confidence to see through the smoke and without the emotional stability to not panic out of sound portfolio positions, many might have been pushed out of gold over the past two years. I suppose this is how it has to be, as otherwise it would (have been) very easy for anyone to become very wealthy in what I think is going to unfold now.

Very interesting.

Seen in http://www.mauldineconomics.com/ttmygh/what-if

...

If you like this "Ratio" approach to valuing Gold, what else would you look at?

Over the past 11,000 or so posts, I have mentioned quite a few of those things.

Here is some interesting, slightly dated Goldman Sachs research. On p. 9 it says:

http://www.nowandfut...mmodity(GS).pdf

The relationships in Exhibits 10 and 11 can be quantified through the use of a regression analysis. As seen in Exhibit 12, the gold lease rates are well-explained by the TED-spread and the level of COMEX registered gold inventories. Exhibit 13 reports the results of this regression analysis of the (log) one-year gold lease rate on COMEX registered gold inventories (in million troy oz) and the one-year TED-spread. The analysis was performed on the log of the gold lease rate in order to capture the non-linearity evident in Exhibit 10. As reported in Exhibit 13, a one million ounce increase in COMEX inventories decreases the gold lease rate by 0.68% while a 100 bp increase in the TED-spread increases the gold lease rate by 0.95%.

By "explained" they mean the goodness of fit of a multilinear regression (it seems). So, according to this, dwindling COMEX inventories >> rising lease rates >> falling GOFO.

COMEX gold registered inventory below 1m ounces.

...

Bring it on. Paper gold to zero.

Do you have a sell plan?

 

If not yet, what will you want to see before beginning to develop one?

Contrary to a single stock someone may trade, gold - for me - is a long-term macro-"trade"(investment). Also, it is macro in a global sense. It is political. Because it is political, I can't come up with all the brilliant ways politicians may screw up over the next decade or so. I look at my quantitative fundamental indicators, but politics will have to be in line too. A "Volcker" at the Fed again? Unlikely, I suppose, but who knows. With Obama, Bernanke (and maybe Yellen), Draghi, Carney and Abe in place, given the fundamental quantitative indicators, I can only conclude: "very strong buy"!

do you plan to rotate out of metals at some point GF or just hold forever?

Of course I will sell most of my gold when the time comes, and in the past I have written a lot about when I think that this will possibly be the case. Right now, my fundamental indicators tell me that gold is a strong buy.

Re: Backwardation/GOFO<0 one more time: Given it is only up to six months maturity and very small so far, some sort of short squeeze in upcoming deliveries, i.e. a high need for borrowing bullion to make deliveries fairly short term, is in my opinion the most likely reason. If this was the grand COMEX meltup, then all maturities should be in heavy backwardation - but they are not by a long stretch. However, it is a dynamic situation, so it might as well be the innocent looking start of the Big One.

@GF: thanks a lot, things are beginning to warm up again. It's been a long two years.

I had to dust off this knowledge too. Another thing: yes, we have backwardation in some maturities, but the GOFO values are not dramatic yet, and we were close to zero anyway. It's still in the microscopic stage. Let's watch that dynamics.

http://www.zerohedge...013/07/GOFO.jpg

chris_ct: Here are some thoughts on it (also for others, since you're most likely aware of most of them).

GOFO below zero means backwardation, i.e. some forward price (of that same maturity) is lower than spot. I know that this may not be entirely obvious from the LBMA's swap definition of GOFO, but a simple no-arbitrage consideration (that we omit here) would show this. Generally (again by a no-arbitrage argument):

GOFO + GLR = LIBOR ,

where GLR = Gold lease rate.

Now we look at what the gold bug interpretation of GOFO < 0 is (e.g. James Turk in http://kingworldnews...old_Market.html).

The gold bugs think that everyone likes to own gold forever. So, if tomorrow's gold is cheaper than todays, a gold bug could go long a forward, sell her bullion (gold bugs, of course, actually own some) today, earn LIBOR during the wait, and then buy back at a lower price. So, she will make LIBOR - GOFO = GLR > LIBOR on her net worth today, and she will still have the same amount of bullion in the end! (Obviously, she could achieve the same by simply leasing the gold out at GLR.)

If all gold bugs did that, the "arbitrage" (in their minds, because they will have the same amount of bullion plus some extra cash) should close, i.e. negative GOFO/gold backwardation should disappear.

But it's there!

Gold bug conclusion: no one does it, because what we forgot about is that the forward might not deliver (COMEX meltdown yaddayadda...), so what looks like a gold bug arbitrage is none as there is massive counter-party risk. Hence, GOFO negative means to gold bugs we are close to a meltdown (i.e. meltup in the physical spot price, i.e. soon +$10,000 = no problemo).

Now, the other explanation why that "arbitrage" does not close would simply be that someone who is not a gold bug and does not care about ounces but fiat money, simply sees no point in that "arbitrage" as they expect the gold price to fall. So, the same amount of ounces plus some extra cash (as in the gold-bug-arbitrage) might still be worth less fiat money than their bullion is worth today. So why do it? Now, this would explain why the paper bugs don't sell their bullion now, so the negative GOFO persists.

HOWEVER, if the paper bugs really expected gold being worth less tomorrow, they would sell it today, hence driving down the price, hence driving GOFO up again. But apparently they don't!

So, what's going on?

Well, maybe the gold bugs are right, and something bad in the paper markets is afoot. Or, only gold bugs are holding bullion right now, i.e. the gold market is indeed bombed out. In that scenario, they don't want to do the "arbitrage", but it also does not have to mean failure to deliver in the future. Prices could still go down if the gold bugs or someone else were not willing to buy future supply at higher prices.

So, in summary, the two big scenarios that would spring to mind are:

(1) meltdown near, or

(2) all gold is now in "strong" hands.

Both of these are in line with chris_ct's conclusion that "lease rates are going up now due to physical supply issues". This is also in line with Bubb's short squeeze in (near) spot gold. That would explain why people have to borrow gold to deliver in their shorts, hence driving up GLR which in turn (with LIBOR constant) would mean to drive down GOFO. People being less willing to lend their gold, would be another possibility.

Generally, I guess, we could agree with cgnao that this could be interpreted as a bullish sign for gold going forward. And it does not occur very often. Last time was apparently during the Lehman collapse. It was QE to infinity from then on.

GOFO has turned negative. First time since Lehman/AIG.

http://www.lbma.org....wards&show=2013

 

http://www.zerohedge...rst-time-lehman

 

 

So, I am trying to imagine (once again!) the funding/lending scenarios which "LIBOR minus GOFO" sets up.

Who makes what when, and what happens to physical demand when GOFO is negative?

Does it discurage swaps and encourage physical hoarding?

Does it encourage holders of physical to supply high-paying demanders of spot metal?

 

EDIT: I think it just means the "derived lease rate" is higher, because LIBOR minus GOFO when GOFO is -ve is a

 

bigger positive number.

e.g. LIBOR minus (-ve number) = bigger positive number..

Which means lease rates are going up now due to physical supply issues, I think.

 

 

I remember CGNAO commenting on this, and I saved the post from ages ago (I'm weird, I know!):

I have no problem imagining that this could happen. I would not be surprised, in fact, it should possibly go much higher. I did not say that I guarantee it by 2017/18 cgnao style.

One thing I have learned since 2007: the sheeple are stubbornly deluded and prefer to be so as long as possible. So, maybe we'll have to wait longer? But it has been a while already...

Gravity will win this one too.

Thanks for your help. I was definitely incapable of pulling up a long term silver chart on my own.

 

Silver may go to $180, anything is possible, but if you expect to convince me by pulling the bubble chart that happened several decades ago and say "this will definitely happen again" within 5 years then you are in la-la land.

Silver $180? A 1000% return in 5 years is, quote, "no problem" ???

 

LOL with those sort of expectations I can't take chumps like GF seriously.

As if it had not happened before... ...and that within one(!) year in less dire (regarding systemic risk) economic circumstances.

Yes, "no problem" at all (of course not for people who ignore everything that happened more than two years ago...). But obviously it all depends - on politics and on market psychology, which are both very resilient when it comes to accepting laws of nature. And - yes - you can ignore them for a while (see second "chart").

http://gold.approxim...Silver_USD.html

http://www.northwesternflipside.com/wp-content/uploads/2013/01/wile-e-coyote.jpg