dinsdag 30 september 2014

China raiding GLD again

In case you haven't noticed, China is raiding GLD again. A new low of 767.47 tonnes in the GLD trust.

As China gold premiums rise.

We've seen this happening in 2013 and we're at it again today. Gold goes from West to East until at some point, it ends.

European Bank Deposits Once Again Declining

As everyone already knows, the LTRO from the ECB this September was a complete failure.

So that means liquidity for the European banks has not improved a lot. They expected that European banks would take credit from the ECB of €385 billion, but instead it became €82.6 billion across 255 counterparties. Excess liquidity has jumped up a bit from €77 billion to €122 billion, but it's still not enough to be safe in my opinion. I wrote about that here.

This is also being confirmed in the deposits at the European banks. The latest number from August 2014 showed a decline in deposits.

And so excess liquidity keeps drying up. Let's wait till the second LTRO in December and see how that goes. They can't wait any longer as Europe is now entering a deflationary cycle, probably along with a lot of unemployment claims.

zondag 28 september 2014

Gold and Silver Bullion in Heavy Demand

In the previous week, precious metals investors have seen gold and silver prices plunge due to heavy shorting as we can see in the most recent weekly COT report (charts below created by Correlation Economics). The probability of a short covering rally has increased tremendously.

What is most interesting to see here is that the silver market is leading the gold market with some unseen events in the silver market. For example, on September 21, we saw heavy volume to the downside in after hours trading in the Silver Trust (SLV). This is very unusual as we have never seen such high volume before in after hours (see chart below by Netdania.com).

The unintended consequences from these takedowns are very pronounced when we look at gold and silver bullion demand, the premiums and the declining stock levels in Shanghai.

To read the analysis, go here.

zaterdag 27 september 2014

SHFE silver inventory hits new low

SHFE silver inventory hits new low.

80000 kg. Losing 14000 kg/week = empty vaults in less than 2 months. 10% premium today.

vrijdag 26 september 2014

woensdag 24 september 2014

This is why interest rates can't be raised

Janet Yellen may be telling us that she will increase interest rates next year (and the market believes that). But here is why it can't happen.

Because when we arrive at 2015, the long term bond yields (red and blue chart) will have almost intersected with the short term treasury bills (purple chart). We call this flattening of the yield curve.

If Janet Yellen even increases its interest rates half a percent, the 2 year treasury yields will skyrocket. The yield curves will flatten out and a recession will start, just like in 2008 where the yield curves were flat.

Note: A flattened yield curve means that all maturities (3 month, 2 year, 5 year, 10 year, 30 year bonds) have the same yield. This is typically a recessionary indicator.

Look how the 2 year bond yields go up because of Janet Yellen's talk about increasing interest rates.
2 year U.S. bond yields

Commodities Will Be Hit By China Slowdown

I have bad news for commodity fans. China is indeed slowing down as power consumption has reached sub-zero year over year growth in August 2014. This means that China GDP growth will be sub 6% as the correlation suggests on chart 2.

Chart 1: China power consumption growth
Chart 2: Power output growth Vs. GDP growth

Peter Schiff Was Right Bitcoin Version

As the Bitcoin bubble has burst (Bitcoin price under $400), I wanted to look back on Peter Schiff's call on the Bitcoin bubble.

Here is one of his funniest moments from November 2013.

dinsdag 23 september 2014

Which Silver Mine to Choose: AISC Update

As many precious metals investors know, the price of silver (SLV) was smashed to 2008 lows of $17.5/ounce (see chart from Kitco below).

Silver premiums have been moving up particularly at Shanghai, where silver inventories are very low. It is also very interesting to note that while the paper silver price has dropped, the mining companies are not eager to sell their physical silver at lower prices. You won't get your hands on the physical silver in large quantities. For example, First Majestic Silver Corp. still sells its silver bullion at $23/ounce and has been doing this for one year already.

Nevertheless, investors should mitigate the risks in their silver miners portfolio. If silver prices keep slumping below the all-in sustaining costs of silver production, the company won't be able to make a profit. That's why I summarized a table of the most recent AISC numbers of several notable silver mining companies and compared it to the 2013 numbers.

You can find the analysis here.

vrijdag 19 september 2014

Managed Money Gold/Silver Short Update

Looks like everyone and their cat is short gold and silver now. Managed money shorts have reached their absolute peak again. Never have their been so many short positions since 2008.

To give an idea of the historic short positions in silver (blue line), oscillating upwards.

20140628 MM shorts

The silver short positions are very high at 42249 contracts, while the silver price is essentially the same as in 2008. At some point this will revert.

Shanghai silver premiums are now 13% and I think they will be almost 15% next week, which means China can now prepare to raid the Western silver vaults. It will be very interesting to watch.