This week has been all about currencies, with a weak euro grabbing the
headlines.
At one point yesterday morning, the euro was 3% down from last Friday's
close, hitting a 12-year low against the US dollar. The yen was also weak,
challenging its multi-year low point established last December. However,
there are signs that gold and silver are being accumulated in the futures
markets, and at GoldMoney we have seen a pick-up in demand for physical gold
this week.
Gold fell heavily last Friday by over $35 after overnight prices failed to
hold, reflecting a developing bout of dollar strength. Since then gold has
drifted sideways to slightly lower by the close last night, a pattern
followed by silver. This month, so far, gold is down 4.5% and silver 6.2%.
Since silver tends to move twice as much as gold up or down, this
represents a good relative performance for the former.
Given the drubbing precious metals have received recently it is a surprise
that Open Interest on Comex for both metals is increasing. The next chart is
for gold, where this can be clearly seen.
The only Comex category which appears to be adding to its longs is
"Other Reportables", which includes dealers that don't fit into the
other defined categories. Otherwise, Money Managers are adding to their
shorts and Producers and Merchants are reducing theirs, which is normal for
gold in falling markets.
The rise in Open Interest in silver has been more dramatic, which is shown in
our next chart.
Open Interest is heading back to new highs. Here again, it is the
"Other Reported" category that is going long, together with the
"Non-reported" category. It looks like undefinable parties are
accumulating long positions.
So what is going on?
When Open Interest accompanies a rising price, it indicates healthy buying is
present. Conversely, a falling price, which most of the time is through lack
of bids, is usually accompanied by falling Open Interest. The relationship
between Open Interest and the price is different at turning points, and it
looks like that is what's happening.
Rising Open Interest on a falling price, which is the condition we have here,
indicates increased buying support on falling prices, telling us that the
price trend is likely to be on the turn. The bullish implication of this new
demand is confirmed by silver showing resistance to further price falls
relative to gold: silver should have fallen by about 9%.
In other news this morning, deliveries from the Shanghai Gold Exchange rose
to 44.52 tonnes for the week ending 6th March. This is more than for the
comparable week following New Year in 2014.
Next week
Monday
UK: Rightmove House Price Index.
US: Empire State Survey, Capacity Utilisation, Industrial Production, NAHB
House-builders Survey, Net Long-Term TICS Flows.
Tuesday
Japan: Leading Indicator, Customs Cleared Trade.
Eurozone: HICP, ZEW (Economic Sentiment).
US: Building Permits, Housing Starts.
Wednesday
Japan: BoJ MPC Overnight Rate.
UK: Average Earnings, Claimant Count Change, Claimant Count Rate, ILO
Unemployment Rate, Budget Day.
Eurozone: Trade Balance.
US: FOMC Fed Funds Rate.
Thursday
Japan: All Industry Activity Index.
Eurozone: Labour Cost Index.
UK: CBI Industrial Trends.
US: Leading Indicator, Philadelphia Fed Survey.
Friday
Eurozone: Current Account.
