Overview

Technical systems are calling for continued weakness in Gold and strength in the USD. Technical analysis being what it is, that is correct until it no longer is. What matters is the risk/reward scenarios presented by such analysis. As Statistical traders and Option geeks we do not claim to be technicians. But the tool is useful in conjunction with other factors after one has developed an opinion and is looking for an entry or exit point to implement that opinion.
-Soren K.

Brexit, Volatility, and Value
From our point of view, Gold has been relatively strong. It is among the last markets to go back into pre-Brexit mode. That is a pleasant sight given that hot money makes Gold more volatile on a daily basis than other mediums of exchange. Which also means it could have further room lower. As we said over the last week, our own VBS trade signal has given entries and non profitable 3 day exits to the downside in Gold and Silver. But if you ignored the volatility, as we do not on VBS signals, both markets have softened since. If you ignore the volatility as an investor you will be more comfortable. and yesterday’s DB report gave us impetus to comment on that. If Gold can be $300 higher from where it is now based on one correlation, then why isn’t it? Because of volatility. Price is not value. Price is a snapshot in time. Value is relative price over a period of time. We will elaborate on that more tomorrow in a fresh post

UPDATED 2:45- GC “Snaps” its range
Snap is a common term traders use on a range breakout in either direction. Today we saw a classic example right below what we thought was “weak resistance”. Turns out, it was strong enough. The only “tell” in the rectangle area was the RSI. On each attempt to pierce the upper bound of the trading range shown, the RSI made lower highs. That was our only warning. And no we did not trade it. But we are sure technical bears (before the snap), and momentum shorts (after the snap), did

Our next trade in Gold will likely be a buy after the market bottoms and our VBS gives us a signal for increasing upward volatility. We say that becasue the OI is upticking as shorts are starting to pile in. They will likely be right in the short term. Assume the bottom is not in. It is when the market makes new lows without a the RSI makingnew lows. A nice Snap could come off a similar pattern at some point. Hopefully if you are a Gold inverstor just hearing someone agnostically say “The next trade on our system will likely be a buy” should tell you that volatiity is not risk. And Price Is Not Value.
But if you are trading Gold and area momentum fund, you will be selling dips now. If you are a technical bear, you will be selling rallies. If you are looking for a place to buy technically, one place would be when you can identify more sellers of weakness than sellers of strength. Weak hands selling for quick dayttrader type gains. Watching OI and RSI should help.

Today we have to contemplate whether consumer confidence, that is the public’s “attitude” toward cutting loose and stoking the fires of higher spending, is an idea or a reality.

After all, broad consumer spending is based on higher employment levels, higher wages, and access to credit. The model consumer can be whistling “Dixie” as he or she walks down the street, but that doesn’t mean that consumer is going to turn into the nearest store and buy four new pairs of shoes instead of one or a ride-on lawn-mower instead of an old-school push mower. Feelings are notoriously hard to quantify through surveys.

One way or another, the sharp rise in consumer confidence that came in well above projected levels, (101 vs 97) moved the U.S. dollar sharply higher today. That, in turn weighed heavily on gold and the entire precious metals complex.

The dollar was up half a percent against the euro and more than one percent against the yen. Gold is down about $11.00, of which $7.00 can be attributed to dollar strength. Silver is off 1.60%.

Interestingly, the yield on the U.S. 10-year bond inched up barely perceptibly. The bond market, unlike gold, oil and equities seems to reflect more doubt as to the direction of interest rates especially in the near-term.

Speaking of oil, it fell again today as it remains trapped in a range that is defined by rumors of a freeze on one hand and oversupply due to over-production on the other. Some of today’s loss in West Texas Intermediate and Brent North Sea positively may be attributed to the stronger dollar but the fact remains too much oil is – literally – in the pipeline.

Although we are probably in a minority at the moment, we don’t see the oversupply issue clearing up until late in 2017, or perhaps even 2018. No player in the energy game wants to alter the game’s current rules by curbing production.

The price of oil, a new ripple of fear concerning the possibility of rising interest rates and sluggish growth elsewhere in the world quashed any incipient rally in Wall Street stocks.

Add to that the chilling effect of the EU’s unfair and retroactive tax grab on Apple-Ireland and you have an almost perfect storm for losses in equities. This will not be the last of the Apple tax brouhaha, which is rather just beginning to unfold.

If the ruling stands, it will leave many American companies puzzling out whether they should invest in Europe at all if they can be subject to retroactive taxes. Additionally, after the Brexit train wreck, it will leave a bad taste in the mouth of all strong supporters of stronger decentralized decision-making within the EU. The Irish – and other nations in the group – will likely ask if they, too, should drop out.

A retroactive move is also the kind of tricky maneuver that leaves European countries here in the U.S. subject to retaliation. This could be the start of an undeclared trade war.

For those who would like a deeper analysis, I invite you to try our daily video newsletter. Simply use the link at the bottom of this report to sign up for a free trial.

Wishing you as always, good trading,

As I’ve been warning for some time, the silver spot price was due to correct. And that’s playing out this week.

Recent silver spot price action has dragged the precious metal below its narrow consolidation range and below its 50-day moving average. That certainly helps confirm correction mode.

But I’ve also been telling readers to watch for the gold/silver ratio to bounce back after dropping significantly in silver’s favor. That’s happening now, too, and we’ll look at that in more detail below.

Price of SilverNow that U.S. Federal Reserve Chair Janet Yellen and other Fed officials have made their speeches at Jackson Hole, Wyo., we can see what that has done to the dollar and precious metals.

Her remarks that the U.S. economy is nearing the Fed’s employment and inflation goals sent the dollar higher and precious metals lower.

It seems the market saw Yellen’s remarks as hawkish, which explains both the stronger U.S. Dollar Index and lower silver prices.

We’re going to look at what the silver spot price correction and the gold/silver ratio move could mean for silver going forward. But first let’s analyze what happened with silver prices last week…

Why the Silver Spot Price Is Correcting Now
Like gold, the silver spot price peaked in early August around $20.70. But the precious metal eventually succumbed to weakening sentiment and overbought conditions. And that trend intensified this past week.

On Monday, silver opened at $18.88, and after a quiet day of trading closed just one cent higher at $18.89.

Urgent: Despite the recent gold price slump, gold stocks are still among the best investments out there. That’s why we just recommended one gold stock that could gain 49% in 12 months…

Tuesday saw silver open at $19.00 on early morning dollar weakness. But the dollar rebounded and that weighed on silver, which closed at $18.85.

Wednesday, more strength in the dollar continued to drive the silver spot price lower. Silver began trading at $18.84 but quickly dropped to $18.55 by 11 a.m. It closed even lower at $18.50.

By Thursday, these new lower levels had become entrenched. Silver opened at $18.50 and closed at that exact same price.

But after Yellen’s speech on Friday is when the fireworks started. Here’s how silver prices reacted:

You can see an immediate drop as Yellen’s comments were made, then a strong bounce, followed by a retreat to below pre-speech levels.

Much of that can be explained by the opposing reaction in the U.S. Dollar Index. Here’s how it looked:

Gold and wealth is often viewed hand in hand, with gold no longer being a modern measure of wealth alone, many people still believe that buying gold is only an activity for the rich, the reality is nothing could be farther from the truth.

A large majority of gold is produced in one ounce bars (1 troy ounce = 31.1 grams), this amount is not because of demand from rich investors, but rather is to supply gold at low premium (premium means the lowest possible price over the current world gold price) to everyday buyers. These small amounts mean that individuals who are able to accumulate $1500 AUD (Australian dollar) or so (the amount an ounce of gold has been recently, and is likely to return to) can go out and purchase either a 1 ounce gold bar, or 1 ounce gold coin, to add to their collection.

Coin and bullion collection is not the habit of collectors only, in fact, the majority of gold purchased in one ounce lots is often by lower middle class income earners, who look to hold some of their wealth in gold for the long term. Gold is attractive because it is simple in its economics, the world gold price is active for 6 days a week globally, and local markets operate monday to friday. There is only two central prices, a bid price (the amount for which a broker is willing to pay for your 1 ounce of gold) and an ask price (the price at which a broker or the market in general is willing to sell an ounce of gold to you). A single quoted gold price from a gold bullion broker often indicates the price between these two, as being the actual gold value price at any one time.

Understanding these 3 basic prices is enough to enter into and manage the market, and your potential profit or loss at any one time for the gold you acquire. Keeping track of gold is a simple process, you just need to purchase at times when gold is cheap (at present this is around $1450 AUD to $1550 AUD) and sell when gold rallies to a higher amount (at present the top expected near future price is around $1750 AUD).

Another good thing about gold, is that it is always quoted globally to the marketplace in US dollar currency form, meaning that when the Australian dollar devalues against the US dollar (USD), we always see the AUD value of the metal rise to the exact amount that the Australian dollar has lost. Hence during times of high Australian Dollar value against the US dollar, it is often highly profitable to purchase gold. Historically the AUD has always found a stability level at around 55c to 65c USD, when the AUD is of higher value than this, and the gold value in USD has been stable for some time, is indicative of a great opportunity to purchase gold.

Keeping your receipts and invoices helps you keep track of how much you have paid for gold in total, as the price varies each day you purchase, you will rarely pay the exact same amount for gold from one day to the next. Keep track of your total position (the total value of your gold on hand) and the average combined position (the total gold value divided by the ounces of gold you hold), and if your average becomes much lower than the current gold price on offer (say you stand to make around $200 off selling a single ounce at any one time), you can offload small amounts to gain a short term profit, then re-purchase that amount if the gold price falls.

This keeps a short term gain and also sets you up for a long term position, never sell all your gold in one go, it is advisable to acquire around 10 ounces before you even consider selling any gold.

The gold price is also known to stagnate for upto a month or two at a time, this is often when the market demand is low and future economic problems within the general economy (stocks and share prices of regular companies and levels of federal government debt, along with federal currency inflation increases) are unlikely and not yet foreseen. During these times is often a good time to buy, and the price recently where this stagnation has occurred for some time is the $1450 AUD mark.

Recently there has also been a constant move between the 1450 AUD mark and the $1700 AUD mark, with prices rising often to around $1700, then falling back to 1450. This has helped investors who target both short term profits and long term positions, as they have been able to sell at around the $1650 – $1700 mark, and re-acquire those ounces of gold at the $1450 – $1550 mark. This is often unofficially termed as ‘playing the market’, as you are taking advantage of selling around 10% of your total gold on hand for a short term profit, then re-acquiring it for less at a later time.

By ‘playing the market’ with 10% of your total gold outlay, you still have the other 90% on hand if the gold price continues to rally (gain in value), hence you have made some money on your initial position, but are still well placed that if gold finds a new long term position of around $1700 AUD and you are forced to pay this price a year later, your outlay cost difference is not highly affected and at most times you will break even with the original price, maybe $100 or so behind or in front.

So in this position, what purpose does the other 90% serve, the amount that is not going to be used for short term gains, where do the benefits of holding this come in? The answer to this, is 3 simple letters, G. F. C.

Global financial crisis if you haven’t already guessed, these events are known to occur once or twice a decade in varying extremes, the 2007/2008 GFC was very serious, and big gains were seen in the gold price, while currency inflation gained rapidly (resulting in a decrease in the value of the $50 note in your wallet or bank account) and stocks crumbled from their original value. During a global financial crisis, metals are far more secure than currency and stocks, as to counter a GFC, governments either need to inflate the currency by stimulating investment in companies that have lost value, or they have to opt for a recession (a lowering of the total money supply, where by a percentage of the countries debt is recovered and the amount of available money is lowered, causing its value to rise as more is repaid to banks).

Global financial crisis means that the global economic model is in a state of recovery and prices are going to be unstable for some time. At these times, gold often holds the most value and regularly gains highly in value regardless of recession or inflation. At these times when you hear of inflation rising by say 3% to 5%, this means that every year the $50 note in your wallet is devaluing by this amount (at the absolute minimum, most times inflation from private loans pushes this amount even further). At the same time, during a recession money is not easy to come by, many people are often laid off work or have their employment terminated, there is no growth within the economy of the country or countries affected by a recession, and growth is unlikely until enough debt is recovered to satisfy central banks that the economic situation going forward is safe enough to begin loaning money to people once more. During a recession money is difficult to come by, as money is difficult to find, and selling gold during this time can provide you with financial security going forward, should you be affected by the employment situations that often occur during a recession.

During Australia’s last recession, gold actually gained in value dramatically, almost doubling by the time the country came back into growth, hence those who held gold during this time made a substantial gain, and another benefit of a recession is that often people will default on property loans, meaning property purchase prices become lower, so you can sell your gold and acquire property much cheaper than you would have during an inflation period or a period of stability.

All this is the key behind why individuals own gold, and why gold is not only for people who are well off financially, but can greatly assist those who are of lower-middle class incomes to secure their limited wealth during periods where often they are the most affected by global financial crisis.

The price of gold was down about fifteen Federal Reserve Notes this week. The price of silver was down sixty-two copper-plated zinc pennies. Is the Federal Reserve Note a suitable instrument with which to measure gold? Can one really use debased pennies—which aren’t even made of the base metal copper any more—to measure the value of gold? We don’t know. We just work here. Quick, buy some silver, we hear it’s going to $100!

Not so fast. As the headline suggests, we think silver has been bid into a speculative bubble. We’ll cover that and show a new graph to support our discussion.

Read on for the only the only true picture of the supply and demand fundamentals for gold and silver. But first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio rose this week.

The Ratio of the Gold Price to the Silver Price

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The Gold Basis and Cobasis and the Dollar Price

A little move down in the FRN-price of gold, i.e. a ¼ milligram move up in the price of the dollar as measured in gold… and we see larger moves in the basis and cobasis. The abundance of gold fell, and its scarcity increased.

The market price may have dropped, but our calculated fundamental price bumped up. It’s still below the market price, but not all that much.

Silver is another story, so let’s turn to silver.

The Silver Basis and Cobasis and the Dollar Price

http://goldseek.com/news/2016/8-8kw/image008.jpg

Note: we switched from the September contract to December as September is too close to expiry to be usable as a signal now.

The price of silver fell more than gold in proportion, but we do not see anything like the move in its bases. Unsurprisingly, the fundamental price of silver fell. It’s way, way under the market price.

Consider the following graph.

The Great Silver Bubble

http://goldseek.com/news/2016/8-8kw/image010.jpg

This is a picture of the price of silver, along with the basis, premium (the market price – our fundamental price, shown as a percentage), and open interest in the futures market. As we have written in the past, open interest tends to rise as the basis rises, because a higher basis is a greater incentive to carry silver. To carry metal, you simultaneously buy a bar and sell a contract. You are not betting on price, but earning a small spread—the basis spread.

The basis and our calculated premium bottomed and began their current rise around late November. The price of silver began moving up a bit later, around mid-January. And open interest bottomed in late January (it is subject to other factors, such as bank credit availability). Since then, a great bubble has been inflating, with a small leak in May.

The correlation of these four numbers—price, basis, premium, and futures open interest—is not perfect, but it’s uncannily close.

Who knows when the air will be let out of it? All we can say is that Friday’s 61-cent price action is likely a small down payment on a $3 move south.

Gold Weaker Amid Keener Risk Appetite

Tuesday August 09, 2016 08:23
(Kitco News) – Gold prices are modestly lower in early U.S. trading. Risk appetite in the world marketplace has been on the upswing the past couple weeks and that’s bearish for safe-haven assets like gold. December Comex gold was last down $3.70 an ounce at $1,337.60. September Comex silver was last down $0.14 at $19.665 an ounce.

World stock markets were mostly higher overnight, boosted in part on reports the OPEC oil cartel will hold an informal meeting in late September. Equities were supported on ideas OPEC could move at that time to curtail their crude oil production levels. Crude oil prices are in a two-month-old slump and last week briefly dropped below $40.00 a barrel.
U.S. stock indexes are pointed toward slightly higher openings when the New York day session begins.

In other overnight news, China’s producer price index was reported down 1.7% in July, year-on-year, versus a decline of 2.6% in June. The July number was deemed better than expected.

The key “outside markets” Tuesday morning see the U.S. dollar index trading firmer and Nymex crude oil prices also slightly higher.

U.S. economic data due for release Tuesday includes the weekly Goldman Sachs and Johnson Redbook retail sales reports, the NFIB small business index, preliminary productivity and costs, monthly wholesale trade, and the IDB/TIPP economic optimism index.

(Note: Follow me on Twitter–@jimwyckoff–for breaking market news.)

Wyckoff’s Daily Risk Rating: 2.5 (Trader and investor market risk aversion is not elevated today.)

(Wyckoff’s Daily Risk Rating is your way to quickly gauge investor risk appetite in the world market place each day. Each day I assess the “risk-on” or “risk-off” trader mentality in the market place with a numerical reading of 1 to 5, with 1 being least risk-averse (most risk-on) and 5 being the most risk-averse (risk-off).

Live 24 hours gold chart [Kitco Inc.]

Technically, December gold futures bulls still have the overall near-term technical advantage but are now fading. Bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at the July high of $1,384.40. Bears’ next near-term downside price breakout objective is closing prices below solid technical support at the July low of $1,318.50. First resistance is seen at Monday’s high of $1,343.90 and then at $1,350.00. First support is seen at Monday’s low of $1,335.30 and then at $1,325.00. Wyckoff’s Market Rating: 6.0

Live 24 hours silver chart [ Kitco Inc. ]

September silver bulls have the overall near-term technical advantage but are fading. Silver bulls’ next upside price breakout objective is closing futures prices above solid technical resistance at the July high of $21.225 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $19.00. First resistance is at $20.00 and then at $20.25. Next support is seen at Monday’s low of $19.515 and then at $19.25. Wyckoff’s Market Rating: 6.0.