Managed Money Short Positions: Predicting Short Squeezes in Gold and Silver

What do we look at when we want to know if there will be a short squeeze to the upside in gold and silver?

Well, we look at the managed money short positions. These are the hedge funds and commodity trading advisors (CTA's). If these people go short, then the price goes down and when the get long again, the price goes up.

You can find all info on the COT report site.

For example, the chart (May 28 2014) below indicates that there are a record amount of silver shorts at this moment. Each peak in the blue chart marks a bottom in silver price. So at least we will see some sort of price spike in the coming weeks in silver, when these hedge funds go long again from a record short positioning. This chart confirms to me that silver is cheap at this moment and it confirms why the premiums on silver are so high at this moment, while U.S. mint sales of silver outstrip the gold sales.

Managed money short positions silver

You can always find the latest numbers here. The latest managed money short number is 38453 shorts, which is a record high number of silver shorts, even higher than in the chart above. There is potential for a good short squeeze.

Silver COT report

As for gold, the last chart I could find is from March 2014. But you can always find the latest numbers here.

Managed Money Short Positions Gold

The latest number for the managed money gold shorts is 53577. If you compare that to the chart above, that's also a pretty high number. So again, there is a potential for a short squeeze a few weeks from now.

Gold COT report

So now you will have another report to look at. This will at least give you the tools necessary to predict sudden gold/silver price spikes.

India Gold Premiums have fallen 50%

As I wrote here exactly a week ago, I saw that Indian gold premiums would fall. And they did.

Premiums have indeed dropped from $90/ounce to $30/ounce, that's more than a 50% drop.

So with premiums of gold going back to this low level, gold jewelry will be cheaper for the people to buy and I expect pent-up demand to come back.

As you can see on this chart, the premiums have come back to the 2012-2013 level of $30/ounce.

Local gold price premiums

 This also means that the India gold import trade will go back to the 2012 levels. I expect that the official numbers will double. This will add at least another 30 tonnes/month of demand from India, which balances the recent decline in demand from China.

India Gold Trade (In Gold We Trust: Koos Jansen)

Gold and Silver Premium Update

Here's an update on premiums.

Even though silver dropped to its low of $18.7/ounce, miners have not dropped prices of silver bullion. The result is a record high premium to get your hands on physical silver.

APMEX silver premiums are steady.

Junk silver premium is stable.

 

 Shanghai silver premiums are soaring.

While Shanghai gold premiums are zero.

Today the gold premium on APMEX had a little bounce upwards when gold was slammed down.

Conclusion, I think silver is still pretty cheap here.

Belgium Housing Bubble Starts to Pop

As I predicted a year ago, it is starting to happen. The declining home sales in 2012 are now starting to have its effects. The Belgium housing bubble shows signs of a pop. In Brasschaat (where I live), I indicated that many houses and especially villas were on sale.

Now the reports are out. We are seeing prices drop more than 20% this year around the Antwerp region. Brasschaat and Schilde were most affected.

Could this be the start of a declining housing market in Belgium, just like we saw in our neighbour country the Netherlands?

Copper still bullish

As far as I can see, the trend for the copper price (blue line) is still upwards.

The effect of ECB negative deposit rate

The recent news about the ECB imposing a negative deposit rate in June 2014 has spurred a new trend. The deposits at the European banks is seeing outflows.

Who would want to hold deposits with negative rates? They will of course take their money out and hunt for higher yielding assets.

See what happens to the deposits of the periphery in Europe on this chart:

Charles Nenner predicts $2000 gold in 2014

Charles Nenner predicts that we will see a gold price higher than $2000/ounce in 2014. I am very sceptical about this call, to say the least... He is also completely out of stocks and says the U.S. dollar is going to collapse at the end of 2014. Hyperinflation will come around 2016.

Ok, we'll see, let's bookmark this call.

Who is Mysterious Belgium Buyer of U.S. Debt: Jim Rickards and Peter Schiff's take

Jim Rickards says that the ECB could be buying the U.S. debt via Belgium with money from the U.S. Federal Reserve. The Federal Reserve would print U.S. dollars, gives them to the ECB, that goes through Euroclear and they buy the U.S. treasuries anonymously on the books of Belgium. Watch this extremely interesting video below.

Also Peter Schiff suspects, via his radio show, that it's the ECB buying U.S. debt via Belgium. He doesn't suspect it's the Federal Reserve itself, because that would destroy their credibility of tapering QE.

What is clear is that this is not likely the government of Belgium, or private Belgian capital, that is doing the buying. The numbers are just too large. This is particularly true in the First Quarter of 2014 when the buying averaged a stunning $41.5 billion per month (January was the biggest month with $54 billion). In all likelihood, the only European buyer with a wallet that big would be the European Central Bank (ECB) itself.

Indian Gold Premiums to come down $50

The RBI announced an easing of gold imports on 21 May 2014.

Only banks could import gold under the 20:80 export rule. But now also star trading houses and premier trading houses can import gold under this 20:80 export rule. This revised guideline has come into force with immediate effect.

Today, the US gold price is $1300/ounce. The total Indian premium was around 20% (import duty of 10% + premium of 10%) a few weeks ago. Today the premium is apparently 82 USD. That's a premium of 6.3%. That means the Indian premium has already started to come down. And it is expected that this premium will come down another 50 USD, which is another 4% lower. Also, it is likely that import tax duty will go back to 6-8% from 10%, which will make premiums go down some more.

With Indian premiums now dropping, this will lead to a higher physical demand. I expect that this higher demand will send gold prices higher in a few weeks from now.

Why do I think this? Just look at the chart above. When the Indian gold premium (red line) goes down, the US gold price (grey line) goes up.

Peter Schiff speaking at the Las Vegas Moneyshow May 2014

Peter Schiff giving his predictions at the Las Vegas Moneyshow.

LME copper stock hits multi-year low

The latest numbers on the forward curve for copper show something interesting. Copper went from contango steeply into backwardation again in just a month (see chart below, created by Correlation Economics). This indicates price strength in copper.

And consistent with our correlation between copper backwardation and LME stock levels, the LME stock level went down as well, hitting multi-year lows. We are hitting below the 200000 tonne level, never seen since 2008.

This indicates to me that there is a tight supply of copper. We may have a surplus in copper concentrate, but what is off the radar is the deficit in global refined copper. That deficit stands at approximately 600000 tonne this year. If this trend of backwardation widens in the coming months when LME stock levels hit critical low levels, copper could rise some more in price.

To read further, go here.

Mallorca 2014

I went on a five day trip to Mallorca. I won't forget the priceless views of the mountains there. The only downside was that of those 5 days, we only had 3 days of sun... The other days were all rain, lightning and thunder.

The first day we went to the beach to go swimming, but in May the water was too cold. The beach was all empty. But still, I wanted to get into the water and went in, for 10 minutes. I couldn't stand the cold water.

The next day we went to the medieval market and I saw some interesting things there, like owls.

And doughnuts.

Barbarians.

After that medieval market we went to Cala Gat to go swimming again. We found some stray cats and fed them.

The next day we went on the great island trip. We went to Sa Calobra, which is a must see. There is this Torrent de Pareis, which is a giant crater.

To get there you have to go through the racing track in the mountains.

The bus was having some difficulties.

At last we arrived inside the Torrent de Pareis.

Then we took the boat to Puerto de Soller.

We took the train to Palma de Mallorca.

The other days, we finally got the sun in our back and went swimming. The beaches started to fill up with surfers and sun bathers as the weather turned warmer.

So it was a pretty nice holiday. Mallorca is a ghost city in May, but it gets full of tourists in the summer. The lounge bars in the evening are very recommendable. There are a lot of cats walking around. And you should go up the mountains to see the priceless view of the rocks and sea.

Peter Schiff Vs. Nouriel Roubini: 100% fun guaranteed

Peter Schiff Vs. Nouriel Roubini is a pretty funny mixture.

Silver Fix Ends August 14, 2014

The manipulation in silver will end on August 14, 2014, with the end of the silver fix.

We will mark this event in our calendar and see what happens when we cross that bridge. Obviously this end of the silver fix will end the manipulation in the prices of silver futures and options contracts. This will put a stop to the hundreds of millions of dollars profit the banks make from this manipulation. All of this money is taken from honest investors. If these illegal profits by the banks can't be made whole anymore, then precious metals investors will be able to put more of their money to work in the precious metals space, instead of giving it to the J.P. Morgan bankers. There are people who say we could finally go to the $100/ounce figure after that date. One thing is for sure, volatility in price will go up and the price itself too.

Silver goes into deficit in 2013

David Morgan forecasted a silver deficit in 2014, well we don't even have to wait for the 2014 numbers, because 2013 already had a silver deficit.

We have the new numbers hot off the press. 

World Silver Survey 2014

As you can see below, total supply dropped from 1005.3 to 978.1 million ounces. While demand has gone up from 954.4 to 1081.1 million ounces. You know what that means. When something goes into deficit, the price has to go up to balance supply and demand.

Don't forget that silver supply from mines has gone up in 2013, but is expected to go down from 2017 onwards.

 

Silver Supply and Demand

Let's calculate the upside: price rise = (100/(1-Demand decrease)) - 100

 

 = (100/(1- ((1081.1-978.1)/1081.1))) - 100 = 11% price rise

Not too shabby, but who knows how big the deficit will become in 2014...

Gold Demand and Capacity

An interview from Eric Sprott came to my mind today. Apparently, Dubai will build the largest refinery in the world with 1400 tonnes/annum gold refining capacity. You can put that next to the 3000 tonnes/annum Swiss gold refining capacity today. That's a lot of capacity coming online. Now why would someone do this? It's simple, because demand for gold is going up, not down.

Just like in the oil refining industry, capacity follows demand. The more people consume gasoline (or gold jewellery), the more oil refining capacity (or gold refining capacity) is needed.

This is the gold refining picture today. If you add it all up we get around 8000 tonnes/annum. Most of these are Swiss companies. But now you can add Dubai's Kaloti to that list.

I really wonder what will happen at this stage when demand is going up, while gold supply is bound to go down in 2015.

Twitter, the worst stock ever

There goes Twitter, which I called "the worst stock ever".

Everyone who bought Twitter at the IPO price and after that, has now officially lost money.

Arbitrage opportunity in agriculture

At this moment there is an interesting arbitrage opportunity for investors in the agricultural space.

When we look at the potash price we see the following trend downwards. Ever since the break-up of the potash cartel between Uralkali and Belarusian Potash Company in July 2013, we have seen a drop in potash price from 400 USD/t to 300 USD/t (see chart below from InfoMine.com).

Normally, the potash price follows the food price, because the food price is a leading indicator for the potash price. I have noted this correlation here. So you would expect that the potash price would get some momentum upwards since food prices have soared almost 20% since the start of 2014 (see chart of RJA below from Google Finance, which represents agricultural prices).

To read further, go here.

Depletion Curves: What oil depletion teaches us in predicting the silver price

Crude oil depletion can be a good indicator of what can happen to the price of something that gets depleted.

The following is a extraction/depletion curve for U.S. crude oil. The blue area represents the U.S. crude oil reserve. As you can see, the U.S. has already peaked in oil extraction in 1970 as their reserves are diminishing.

Now let's look at the world crude oil depletion curve. Almost the same, but the peak is delayed from 1970 to 2000. It's this curve that we need to monitor to guess what will happen to the crude oil price.

When we look at the crude oil price, we can see that the 1970 U.S. crude oil extraction peak had spurred the OPEC crisis and a spike in the crude oil price occurred from $2/bbl to $30/bbl.
Then, when world crude oil extraction peaked in 2000, we got a second spike in crude oil price from $33/bbl to $110/bbl.

 

That's what I call the "price effect" of extraction peaks. Namely, that when the peak occurs, the price will move significantly higher the next few years. This is one very useful correlation.

Now, what I find interesting is that we can easily use this little "theory" on other things and most particular on silver, because I believe we are nearing a depletion stage now on silver in a few years.

So this is the current world silver extraction curve. We see that the peak will occur in 2020.

The extraction curve can be seen below. You can see that silver extraction will rise the fastest in 2020. After that, we will only have lower and lower production going forward. And that's the time when the silver price will start to surge.

Learning from the oil depletion curve is a good way to predict what will happen for silver a few years from now. And it will be rosy.

Koos Jansen: CCFD's Do Not Influence Gold Demand

Very interesting article by Koos Jansen. I always wanted to know more about these China Commodity Financing Deals. He claims CCFD's (and the blow up of these CCFD's) does not influence gold demand, like it would influence copper demand. This is actually good news for precious metals investors.

This is what I think. If industrial commodities blow up in price to the downside, the gold price would stay steady, which also means the silver price will stay steady. As industrial commodity miners will have difficulty to stay in business due to lower industrial commodity prices, their by-products, like silver, will diminish in supply. But the demand of silver will not decrease (just like the demand for gold won't decrease). This will be supportive for silver going forward.

Unemployment Rate Or Labor Force Participation Rate?

It is a real mystery how the European unemployment rate is 12%, while the U.S. unemployment rate is 6%, half of the European unemployment rate.

Obviously, the U.S. unemployment rate is not a good measure anymore for the state of the U.S. jobs market. Ever since the crisis started in 2009, the labor force participation rate has declined, so the jobs market was not improving. Recessions occur when the labor force participation rate drops, which means we're in a recession since 2008 and have not gone out of this recession at all.

The U.S. unemployment rate should have soared to 10% at least, when counting all the people out of the labor force and this correlation proves it. Also, if next quarter has negative GDP as well, then we are officially in recession, which is very plausible, considering the decline in the labor force participation rate.

So which chart do you take, the red pill, or the blue pill? Contrary to the Matrix, the red pill is fantasy, while the blue pill is reality.

Kyle Bass: Tapering to zero is a difficult task for Yellen

Here is Kyle Bass's talk about opportunities in 2014.

- Kyle Bass points out that tapering to zero is a very difficult task.

- U.S. Fed Funds Rate increase is highly unlikely.

- Japan will buy more Japanese bonds as investors sell because of CPI of 2%.

- Japan QE will increase in May. 

- Yen weakening to continue.

- Japanese current account deficit to continue.

- Brazilian 2 year bond is a buy. 

- Kyle Bass has no interest in Bitcoin.

- China is slowing down faster than reported.

- Canadian housing is in a bubble. 

- Equity of European banks could be in trouble.

There we go again: GLD raid

GLD raid has started again. If anyone is saying that gold ETF's are buying gold again, well it has reversed now. GLD hit a new low of 787.94 tonnes in the trust. GLD outflows are commencing.

I think China is at it again, because Shanghai gold premiums are starting to become positive again. Just like on 20 June, 2013 and 11 Dec, 2013, where we had a bottom in the gold price.

Silver premiums are soaring again

Just an update on the silver premiums which are really soaring.

First off, silver miners have not been cutting prices on physical silver bars while the COMEX price of silver went down. This resulted in record high premiums above 20%.

Silver dealers still have high premiums.

Junk silver premiums are coming back on track.

Most importantly, the Shanghai price of silver is on track to hit new highs. So there is definitely a bottom in place.