“Something” happened three weeks ago. While we cannot be sure “what” exactly happened, we can speculate. We have many dots and lots of data points to help us but first it needs to be pointed out, even if wrong in conclusion …just the knowledge alone that “something changed” is enough. If you know something has changed, you can take clues and look at various markets for inflection points. Currently, most markets are stretched to various limits. Whether it be zero bound credit markets, equities, real estate, commodities or gold and silver, all values had reached extreme highs or lows.
Something changed three weeks ago and a series of events began. It all started with China announcing 600 additional tons of gold. This was followed by the IMF rebuff of China, the three yuan devaluations and three “coincidental” explosions. Then equity markets around the world (which were already weak) began to violently unravel and finally spilled over to the U.S.. This tested the PPT’s limits (which were apparently $23 billion last week).
There were other behind the scenes dots which I missed and would like to add here before theorizing. In the gold arena, the GLD inventory supposedly rose over the last two weeks even though gold was “weak” and being sold. This was against a backdrop of very deep backwardation going out a full six months in London. The current backwardation is further out in time and far larger in price than EVER before! These two data points are in exact divergence to a dropping gold price. Why would there be buying in GLD if gold was being panic sold? Also, if real gold was being dumped, how could it be in backwardation or shortage? Wouldn’t “sales” make product extremely plentiful?
There were several more major anomalies in gold. As of Friday, there were 63 August contracts still open …even though the contract went off the board. This has NEVER happened in 40 years! How is this possible? The day before on Thursday, there were 552 contracts open. Can someone please explain to me why the shorts would not have delivered gold (like they did in the old days) on the first or second delivery day rather than waiting to the last day? Someone has to pay for storage, why would the short want to pay for storage they are contractually able to deliver nearly 30 days prior and avoid the charges. Are they having problems sourcing gold? Just like several mints who have gone to rationing or halts of production …and exactly as the backwardation is suggesting?
Over in silver, did you know they had confirmed volume on Thursday of 122,482 contracts traded? Did you know this represents 612 MILLION ounces of silver …or over 87% of annual global silver production ex China and Russia? How in the world does 87% of a full year’s production trade in just several hours? Doesn’t this go against commodity laws? AND, silver was pummeled on Thursday so it was supposed to represent PANIC SELLING. Who was panicking and needed to sell all that silver so fast? …especially since the U.S. Mint just raised premiums and started rationing dealers because they couldn’t keep up with DEMAND! Let’s not forget the Royal Canadian Mint, they have suspended sales of silver Maples! Why or how could this be? Everyone has been selling silver but the mint could not source any? This defies pre school logic!
Let me give you two more data points. Were you aware SGE (Shanghai gold exch.) has not reported ANY withdrawals over the past two weeks? They have been reporting over 200 tons of withdrawals per month in rough increments of 50 per week for the last two years …and now all of a sudden they went silent? Add to this, the FRBNY (New York Fed.) always reports custodial gold holdings on the 28th or 29th of the month for the previous month. They missed July 29th and reported on August 20 NO GOLD was shipped (to Germany for their repatriation program) when month after month they have been reporting close to 10 tons out the door. What’s going on?
