Gold stock sentiment indicator.
No indicator yesterday as work got in the way.
Considering upgrading data service so indicator can be completed by around 7pm, rather than in the morning.
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On the Perth Mint.
That was a useful interview and went some way to explaining the books.
One line item that was not followed up on - what is this metal that has no price attached.
The only explanation I would accept is metal that is earmarked to replace leased metal at a 1 to 1 ratio. Anything else is leased out.
To say they only deal with reputable banks etc was amusing - those responsible for manipulating prices.
Of great interest was how he explains working metal and the use of unallocated metal for this purpose. Let's call it float as per usual for cash management in a business. This amount is around 15% of their total gold holdings.
This has blown out significantly and also depends on gold leased from 3rd parties to maintain this float. A good deal is used to maintain the T+2 finished product supply to miners to T+12 refining of delivered gold from miners.
If there are significant outflows from the pool then this proportion increases. Quite likely given the current smash.
I consider a major risk the potential for a metal credit crunch - bullion banks refusing to supply metal to maintain the float. June 29 would be a good excuse.
What a lot of this highlights is just how high demand for gold has become. There never used to be manufacturing issues - maintaining the significant range of products PM is renowned for.
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When JP mentioned a pull back in lumber prices as an example of what will happen to commodity prices, this was the signal to smash all commodities (except oil).
Much maligned, the commodities sector constantly experiences these sorts of attacks and price caps, resulting in under-exploration, discovery and development and eventually the supply/demand imbalance will come home to roost.
Because of risks generated by these sorts of attacks, capital raising is expensive with borrowing charged at 10% or more in the mining sector.
2 more risks - water supply and ESD commitments are climbing in relevance and therefore cost.
This is a can they are trying to kick down the road but will find it is made of solid lead.
I wonder how they are going to deal with the cost of second hand vehicles - a clear sign of inflation. Import more used vehicles with a stronger USD?
Commodity prices are a very small component of the inflation pie of which the most significant is oil.
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The sniper video is a must watch.
One of the reasons I believe so is he is one of the few to mention that the US EXPORTS ITS' INFLATION.
Can't go past this without mentioning how the USD as a reserve currency affects other currencies, debt and the necessity to use USD for trade.
This is already happening and this smash in commodity prices is part of the equation.
In a few days any debt denominated in USD has risen by around 3-4% and so has the required interest repayment in real terms in local currency, including Australia.
To compound this, falling commodity prices in USD means less USD to service this debt.
In essence this makes countries poorer though not necessarily at a local level. It appears as inflation.
I suspect this will show up in South American economies relatively quickly.
The falling Yuan has already delivered an inflationary spike to China. That adds to our inflationary pressure from imported goods.
Who needs enemies when you have friends like this.
Snipers macro views are excellent and should be heeded. His analysis about a potential currency crisis are highly relevant. In my opinion of course.
More to add to inflationary pressure in this article.
disallowed/business/the-economy/string-of-disasters-china-s-shipping-delays-set-to-widen-trade-chaos-20210618-p5822a.html.
Real rates are negative and will remains so for some time (between -3.5 and -5%) depending on your time scale.
There are plenty of historical charts out there describing the relationship between real rates and price of gold. Keep this mind whenever inflation, rates and price of ALL commodities are discussed.
The bull in commodity prices has barely woken up.
Don't forget there is $3/4 T dollars slopping around in the RRP facility looking for a home. When the Fed wants this cash relocated they will send the rate negative. When you see this quantity reducing, you know the money is being invested elsewhere so watch it closely and observe what is moving. Indices might be a useful tool to identify money moves. And don't ignore the cryptos.
Just a general observation.
For another macro view, go here.
Patrick Karim & Lawrence Lepard: Gold Manipulation Will Fail and Prices Will Explode - YouTube.
Commodities have been smacked down to reduce domestic inflationary pressure, in spite of international damage, intentional or otherwise.
It also serves a couple of other purposes that are rather more insidious.
If you think the big boys don't know how this is going to play out, you are seriously mistaken. Forget any 'guidance' the Fed gives and follow the money.
With BASEL lll coming up I was very confident there would be a last stand by the shorting cartel. The Fed was the catalyst. The failure for gold and stock prices to push higher were the signs. I suspect they needed the catalyst as the cycle is clearly bullish.
I believe BASEL is about preventing exactly the past few days behaviour from re-occurring as NSFR requires some degree of stability in tier 1 assets, otherwise banks will be constantly adjusting their asset base.
Question is are the cartel going to keep this up for the next 2 weeks? If so then you may see producers cave in under the pressure or boredom (underperformance or failure to launch).
It is unlikely you can smash one section of the market without there being some ripple effect in the wider markets with stops hit (new money into RRP?) and margin calls where other stocks could be collateral damage. As Dirk Gently says 'Everything is connected'.
The other aspect is those pulling the trigger know when pressure is going to be released. In the meantime they have backed up the truck to the bourse exits because they understand what negative real rates and inflation means for the commodities sector. Another name for it is kleptomania.
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Where to from here?
Probably best to look at this from a macro perspective. The is the XGD short term chart. Resting on support.
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What happens if the sector is pushed lower?
My primary chart shows a far stronger level of support kicking in at the cursor along with a 3 point reversal at 6517. This level does not damage the chart above so support is doubling up.
In other words I have no long term issues with the sector.
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The short term Aussie gold ETF shows there is plenty of room before support kicks in at 215.5. The ETF closed at 221.1 on Friday.
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The more important longer term chart shows a 3 point reversal and support at 214.1 so not concerned here either.
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On Thursday sentiment collapsed 9% and a further 5% on Friday.
This is a huge over-reaction.
The last time I saw a counter cyclic move of this nature was between Feb 25 and March 23 last year. There were seven similar spikes.
There have been others but all of these were during the gold bear leg therefore could be anticipated such as rejections from resistance.
Currently at the 5th lowest level since 2015 and could go lower yet.
Given recent history it could take 2 weeks to get back to trend but while doing so, producer stocks prices will rise at least 15% and probably higher.
If we see sentiment level out around here then gold will probably be manipulated to maintain the current or slightly lower prices for the next 2 weeks.
Gold is now in backwardation with spot slightly higher than the futures price. We have seen this occur over an extended period before but not by more than about $5.
What is happening right now could be a pattern of behaviour throughout the bull leg of this cycle which means the game has gone to another level.
If so then this bull leg may go for longer and further the previous 7 month bull.
May take another 2 months to interpret how this market is behaving, particularly once BASEL is implemented.
The indicator has typically taken less than a week to reverse 10% from these levels. To put it in numbers, 30 or more gold stocks will have reversed at least 15%.
Have homework ahead of me. Considering dumping underperformers as there are stocks nicely positioned for the next bull. But not many.
Here is the indicator.
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