JP Morgan, at least according to the daily Comex warehouse report,
added over half a million ozs of silver to its “historic” stash of
silver at the Comex:
TF Metals Report.
It would be even more interesting to see an actual independent
accounting of that specific metal which would track the serial numbers
on the bars to the legal owner of title.
I’ve been hedged in my mining stock portfolio since early September.
The signal for me to hedge is the reliable Comex bank “net short”
position as reported in the weekly Commitment of Traders report. Since
late summer, the bank net short position, and the corresponding hedge
fund “managed money” net long position, has been at an extreme level.
Historically this is the signal that the Comex banks will implement
what I call a “COT open interest liquidation” take-down of the
gold/silver price using Comex paper to trigger hedge fund stop-loss
positions. This enables the Comex banks to cover their shorts and print
huge profits. It’s also illegal trading activity but that’s for another
day.
In early September, in “eyeballing” the gold chart in conjunction
with the historical COT data I have set up in a spreadsheet back to 2004
, I figured that the open interest – which was in the high 500,000’s at
the time – needed to come down at least 100-150k contracts. I thought
it would take a price take-down from $1320 to $1230/$1240.
But something different is occurring. Two months is usually plenty
of time for the banks to work their price control “magic.” The hedge I
am using (JDST in-the-money calls) minted money up until two weeks ago.
But the open interest has been “stuck” in the 520k area (plus or
minus). Furthermore, the ability of the banks to slam the price seems
limited, at least for now. As an example, last Friday out of nowhere
around 10 a.m. EST the price of gold was slammed for $10. There
was a notable absence of any specific news event or technical signal
which might have triggered the massive selling. (click on chart to
enlarge)
Unloading on the price of gold like this on a Friday, after the rest
of the trading world – and specifically the physical-buying eastern
hemisphere markets – has closed for the weekend, is typical. What is
not typical, however, is the reversal of the price of gold which
occurred the next trading day (Monday). Usually a shock and awe
price-attack, like the one that occurred on Friday, is followed up by a
few days in a row of price declines. I thought this would be the
progression which would cause open interest to liquidate in a manner the
banks would use to covered their shorts as the hedge fund puked out
their longs.
The open interest in Friday declined by only 4.9k contracts.
Typically a “shock/awe” hit would have removed at least 10k of open
interest. Based on the latest COT report, the bank net short position
stubbornly persists at an extreme level.
Open interest as of yesterday also persists at a high level.
Another typical indicator that the banks are trying to push the price
of gold lower is the repeated “false news” reports that spin out of
Bloomberg News regarding India’s demand for gold (
Gold Import Slump in India). However,
based on the high ex-duty import premiums which correlate with India’s
level of import demand, India’s legal importation of gold in October was
at least normal for the month. It also followed an extraordinary level
of importation in September. YTD through the end of October, Indian
gold imports are up 91% vs the first 10 months of 2016 (I track import
premiums in India via
John Brimelow’s Gold Jottings report).
I am still hedged. As I asserted to my subscribers in last week’s Mining Stock Journal,
although I still am mentally braced for one more aggressive attack on
the price of gold that will enable the Comex banks to book profits on
their collective net short position, I’ve started evaluating the
possibility that the precious metals could start to launch higher in
spite of the large bank short. In other words, it might start to get
interesting in this sector.
Another signal for me that something unusual is occurring is the fact
that junior miners have started popping in price again at the release
of positive drilling results. For instance, yesterday one of the juniors
I feature in my
Mining Stock Journal
jumped 17%. This is behavior coming from the juniors that has not
occurred since last summer and mining stocks do not exhibit bullish
trading behavior if the market is anticipating another leg down in
gold/silver prices.
Something different – at least for now – is going on. Maybe it’s
related to smart, big money knowing that the world is on the cusp of
rampant, uncontrollable price inflation after the unprecedented money
supply inflation of the last 9 years. And, in reality, the money supply
inflation began with Greenspan in the late 1980s/early 1990’s. The U.S.
money printing has been going on since Nixon closed the gold window and
it went semi-Weimar in 2008-2014. The U.S. exported its inflation with
the strong dollar policy and reserve status of the dollar. That has
changed. The BoJ and the Peoples Bank of China have been printing money
the last few years like a meth addicts on steroids. The ECB is a close
third.
This monetary inflation was contained when it was just the Fed and
maybe the BoJ printing in volume. Now the world is drowning in printed
fiat currencies of every flavor. Price inflation is on the cusp of
breaking out furiously in all currencies. This will translate into a
furious break-out in the price of commodities, especially physically
deliverable gold and silver bullion.
True economic inflation is defined as the increase in money supply in
excess of wealth output. The supply of money exceeds the supply of
“widgets.” Eventually the price of widgets has to go higher. We are at
that point. I’m talking about parabolic price increases, which have
already been manifest in global stock and real estate prices.
The
graphic to the left suggests that the global economic system has
reached a “tipping point” at which rapidly accelerating price inflation
is about to emerge. That price inflation, combined with inexorable and
severely negative real interest rates, functions as precious metals
rocket fuel. Currently commodities are extraordinarily undervalued
relative to the Dow. In fact, going back to 1917, there were only two
prior periods when commodities were extremely undervalued vs. the Dow –
the late 1920’s – early 1930’s and during the 1960’s. Both of those
times, the U.S. dollar was significantly devalued vs. gold. In November
1934, FDR revalued the price of gold by 75% vs. the dollar, from $20 to
$35. The market forced the devaluation of the dollar vs. gold after
Nixon disconnected gold from the dollar in 1971.
Since 1971, the dollar has lost 80% of its purchasing power vs. a
generic basket of goods. In 1971 it took $35 to buy 1 oz of gold. Today
it takes $1271. That’s a 97% decline in the purchasing power of the
dollar vs. gold. Here’s the funny thing about the dollar’s eventual fall
to zero (per Voltaire and history), the last few percentage points
before a fiat currency completes its collapse will produce the biggest
nominal price rise in gold. Just look at Weimar Germany as an example.
In January 1922, an ounce of gold was worth 1,000 German marks. By
November 1923, when the mark collapsed, an ounce of gold was worth 100
trillion marks.
A portion of the above commentary comes from the latest issue of the Mining Stock Journal.
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Dave Kranzler spent many years working in various Wall Street jobs. After business school, he traded junk bonds for a large bank. He has an MBA from the University of Chicago, with a concentration in accounting and finance, and graduated Oberlin College with majors in Economics and English. Dave has nearly thirty years of experience in studying, researching, analyzing and investing in the financial markets. Currently he co-manages a precious metals and mining stock investment fund in Denver and publishes the Mining Stock and Short Seller Journals. Contact Dave at dkranzler62@gmail.com.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
