SS: Got Gold Report: COMEX Commercials position for gold, silver correction
Largest futures traders poised for PM smack-down with record net short gold futures
HOUSTON – The largest of the largest gold and silver futures traders in New York significantly increased their collective net short positioning going into the U.S. Thanksgiving week, a week of lighter than usual liquidity.
COMEX commercial traders boosted their net short positioning for gold by a large 24,558 contracts as of Tuesday, November 24, according to data released by the Commodities Futures Trading Commission (CFTC) Monday, November 30.
At 306,104 contracts net short, the net short position held by traders the CFTC classes as “commercial” for gold is at a new nominal record.
On the surface that suggests that the largest gold hedgers and short sellersare once again taking a “goal line stand,” or at least employing a “prevent defense” as gold approached the $1,170 level. Indeed we have to note material and determined “opposition” to $1,200 gold and $19 silver.
Interestingly, as the COMEX commercials were stepping up their gold short positions, their colleagues, commercial traders on the Intercontinental Exchange or ICE, were apparently heading in the opposite direction with their U.S. dollar positioning. Despite additional weakness in the greenback, the “ICECOMS” ended the reporting week net short the buck for the first time in months.
Base on preponderance of all the indicators in our gold and silver universe, we have adopted a cautious, neutral bias for the first time this year, for gold and for mining shares in general. Our bias remains cautiously bullish for silver, mainly because it remains strongly undervalued relative to gold.
We have moved our short-term trading stops to their highest, most cautious settings as of Friday, November 27. We have also employed partial hedging via inverse gold ETFs, albeit with extremely tight, micro-loss stops in place.
Out of an abundance of caution we have also “harvested” some investing/trading “ammunition” from ultra high-flyers and offsetting laggards in an effort to build up the “opportunity arsenal.”
With gold having just traded as much as 23% above its popular 200-day moving average (Wednesday November 25), and with the large, well-funded mining shares refusing to “answer” the last moves higher; with silver also having refused to echo gold’s remarkable move into nominal record territory, our antennae are up and so then are our defenses.
This week we noted continued positive money flow in many gold ETFs. Once again we see significant positive money flow into the leading U.S. silver ETF, which has added over 660 tonnes of new silver in November and over 2,600 tonnes this year (details below).
Gold ended the holiday week in backwardation on the COMEX futures markets, with the cash price actually higher than the front active contracts. Not so for silver.
Arguing in the opposite direction, as the buck fell again, ICE commercials actually went from net long to net short the greenback! (See the details below).
Well financed mining shares were flat for the holiday-influenced week. No help there.
In short, we urge caution for short-term traders. Caution flags are flying. Please do not confuse that with an outright sell signal. If our short-term caution proves unwarranted, we want the opportunity to stay in the game (in the trade), thus, instead of just hitting the red (sell) button we move stops up to our tightest of tight settings. If a material precious metal smack-down is indeed in the making, we’ll be watching it from the relative safety of the sidelines pronto.
We’re cautious, but we will let the Trading Gods decide whether this is where we heave ho or get to stay game on with our short-term gold and silver ETF and futures trades.
Subscribers please note: The COT report was delayed to Monday this week because of the Thanksgiving holiday in the U.S., hence the reason the Got Gold Report is being issued on a Tuesday instead of Sunday/Monday. Most of this report was actually written Saturday, November 28 as we were traveling Sunday and Monday. The COT report more or less confirms our impressions on a short-term basis. For all the details don’t miss the Gold and Silver COT sections below.
With our short-term caution firmly in mind we reiterate our longer-term view that the world will most likely continue down a path of fiat currency debasement, weakening confidence in all fiat currencies, coupled with incessant official meddling and interference. We see the setup as long-term very bullish for gold metal and extraordinarily bullish for silver looking well ahead.
We see nothing which promises to reverse the current flight of wealth out of paper and into real money.
Now, a closer look at a few of this week’s indicators:
Gold ETFs: SPDR Gold Shares (NYSE: GLD, Stock Forum), by far the largest gold exchange traded fund, reported a net increase of 10.367 tonnes for the week. GLD reports that it held 1,127.86 tonnes of gold bars held by a custodian in London. That’s just a gnat’s hair less than the all-time high water mark of 1,134.03 tonnes set on June 2, 2009. (Late update.) GLD reported another small addition of 2.13 tonnes to show 1,129.99 tonnes on Monday, November 30.
Source for data SPDR Gold Shares.
Barclay’s (soon it will become BlackRock’s) iShares COMEX Gold Trust (NYSE: IAU, Stock Forum), reported no change to its metal holdings this week, showing 80.72 tonnes of gold held in COMEX warehouses.
All five of the gold ETFs sponsored by the World Gold Council (WGC) collectively recorded an increase of 9.85 tonnes of gold metal, to a combined 1,325.88 tonnes (42,628,220 ounces) worth about US$49.8 billion as of Friday’s close. There was briefly over $50 billion in the WGC gold ETFs Wednesday, November 25.
We note, then, slightly more buying pressure than selling pressure once again in the world’s gold ETFs over the past multi-holiday week.
The authorized market participants for gold ETFs add gold (and increase the number of shares in the trading float) in response to more buying pressure than selling pressure and vice versa.
Silver ETFs: Barclay’s (also soon to be BlackRock’s) sponsored iShares Silver Trust (NYSE: SLV, Stock Forum), reportedly added another 135.98 tonnes Thanksgiving week, to show a new record 9,252.02 tonnes of average 1,000-ounce allocated silver bar inventory for the week. (Late update.) The last trading day of the month, Monday, November 30, SLV reported adding yet another 152.77 tonnes to show a new record 9,404.79 tonnes of bar silver in London.
Silver may not be answering gold like it should, and that is certainly a reason to be short-term cautious, however it is clear that money flow continues to be positive for the second most popular precious metal. We continue to note much tighter spreads between the SLV share price and the implied NAV per share during pullbacks for silver. Collectively investors are apparently still waiting for dips to buy more than not.
Arguing with what some analysts have suggested, SLV seems to have no trouble adding silver metal when the spreads tighten (when we would reasonably expect there to be additions to the metal holdings). Indeed, for the month of November, SLV added a little over 660 tonnes of silver to its holdings.
For all of 2009 thus far SLV has added a net 2,611.80 tonnes of silver to its holdings, an increase of 38%.
As long-time readers know, SLV now holds a goodly amount of silver more than the amount called for in its custodian agreement with JP Morgan Chase, London. Although the managers for SLV have yet to file documents with the SEC amending the current custodian agreement or announcing a new custodian or sub-custodian (and the amount of silver which the new agreement might indicate is available to SLV when it needs more), the current custodian is apparently able to supply enough metal for SLV’s current needs.
We expect that soon after the BlackRock purchase of the iShares product line closes and funds, we will likely see such an amendment to the SLV custodian agreement. We will comment on it then. Meanwhile, we are advised by people who absolutely know the status of silver availability in London that there is not currently any “shortage” of good-delivery bar silver. Most any London-based silver ETF should have no difficulty finding the silver it needs very near term.
Having said that, at now just over 302 million ounces held by SLV alone, some significant fraction of the available bar silver in London has been removed from the total amount available for all trading purposes. In other words, when we do finally see the surge in silver demand we have been expecting, there is a good deal less of it to satisfy that new demand. Each thousand tonnes put away globally by all the silver ETFs, pools, funds and trusts reduces the available-for-trading bullion amount, hastening the time when we might see a sure-enough demand-critical-mass-event for silver similar to the one we witnessed in 1979.
We don’t know precisely when, but we continue to believe that it is merely a question of time before we see a silver supply squeeze of equal or perhaps even superior amplitude to then. (If the world manages to hold things more or less together.) In our opinion, harsh dips for silver are to be bought rather than rallies sold into for our longer-term minded traders.
If our view is correct, then it would not be at all surprising to see silver trading well above its 1980 nominal highs near $50 the ounce in the not-too-distant future. It is difficult for people to grasp just how much less actual silver bullion metal exists compared to what was available during the last physical silver squeeze 29 years ago.
Sooner or later that will change.
Gold once again advanced to print a new all-time nominal cash market high ($1,195.23 Thursday) and a higher weekly low ($1,138.42 Friday, see the closing table for comparison to last week). High-low spreads widened as shown in the closing table above, suggesting a bit of chaos returning. The last trade on Friday printed $1,177.79 on the cash market, an advance of $27.31 or 2.4% for the week. Despite the initial selloff on Friday (to the $1,130s on the news out of Dubai), we noted more strength on the bid side than on the offer side nearly all day. We noted very determined selling pressure in the $1,190s just ahead of the Friday break attempt. Please see the gold charts linked below for more technical commentary.
Silver seemed tired and weary the week of Thanksgiving. Silver did manage to print a slightly higher high ($18.92 Monday) and managed to make a modestly higher low ($17.67 Friday). However, each time cash silver approached $18.90 we noted material and determined firepower in opposition to it. At least for now it is obvious that some very large sellers are defending against anything with a $19 handle. Not quite enough bull horsepower to overcome the entrenched bears? A pity, because it is almost a certainty that large numbers of buy stops and short trailing stops reside just above the $19 silver Maginot line. Despite silver’s underperformance to gold, we noted that bidding for SLV increased in intensity somewhat on the least dip in silver price and was nothing short of robust in the Dubai-inspired Friday harsh dip to the $17.60s in early N.Y. trading. The last trade Friday printed $18.29 on the cash market, down 21 cents or 1.1% versus gold’s 2.4% addition. Right or wrong, when silver is weaker than gold we become instinctively more cautious. Please see the silver charts linked below for more technical commentary.
Backwardation in Gold, Contango Razor Thin for Silver
As it has for weeks, gold futures ended the week in backwardation, where the cash or spot price was higher than the front active contracts. Cash gold closed the holiday week at $1,177.79, which is $3.59 above the December contract and $2.29 over February as shown in the table below courtesy of Barcharts.com. The spread between cash gold and the December contract actually widened since our last full report two weeks ago when it was then $2.50.
