“Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter.” – Ayn Rand, “Atlas Shrugged”
ATLANTA -- In the last report issued one week ago we highlighted the overly large net short positioning of the COMEX commercial traders in gold. On June 1 we raised the “caution flags” because it looked like the opposition to gold advances had become determined. Gold has since encountered significant resistance and is apparently in the midst of the expected pullback.
We’re glad the Japanese have expressed their “unshakeable confidence” in the U.S. dollar, but at Got Gold Report our unshakeable trust resides in gold and silver longer term. You can bet that the only thing the Japanese really have “unshakeable confidence” in is the same “currency” mankind has put its trust in for over four millennia – gold. You can also bet that they are not so dense as to talk up a market they intend to buy or talk down a market they intend to sell.
Before moving into this week’s menu, there is a new game coming to town for silver. It comes from the same folks who brought us the closed-end gold/silver Central Fund of Canada (CEF in the U.S.). The new fund is to be structured to only invest in allocated silver bullion stored in Canada. If interested, and you happen to live in Canada, the details are at this link. Thanks to GATA board member and Casey Research commentator at-large Ed Steer for bringing it to my attention.
In the Gold COT section below for Gold Newsletter subscribers, we take a closer look at some of the previous “goal line stands” the COMEX commercial traders have taken with gold. The results may surprise some of you. Why? Because as big an influence as the COMEX commercial traders have in the gold and silver markets, they don’t always get it “right.” Indeed we will chronicle below when, in the past, their largest goal line stands on the short side of gold were overrun by the Great Gold Bull.
What is particularly interesting today is the very close parallel to the last time the COMEX commercial’s confidence in lower gold prices was … excuse me, “unshakeable.”
We also take a look at the very large U.S. bank positioning in the gold and silver futures markets and show the results graphically.
On another topic, while gold and silver may be in a pullback, we have to take note that the smaller, less liquid and more thinly-traded junior miner and explorers (like the ones represented in the Canadian CDNX index) continue to show a resurgence of modest strength (as expected). Apparently the Armageddon sell-down of last year is gradually being replaced by a bit more confidence that the world may not end after all.
Unless we return to another period of end-of-world panic thinking, that will probably continue for the foreseeable future regardless of the short-term action in the metals. The “little guys” were sold down so far relative to gold that as a group they would have to double from here just to be “crummy.”
It’s a great time to be resource-company shopping. For us, and for the companies that are in a consolidation rush getting underway. The CDNX itself could also double from here and still be “cheap” historically speaking. Even though it is up some 70% from the October panic bottom and up about 28% for 2009, the CDNX is still about 1,600 points, or 59%, below where it began 2008.
Finally, all the Got Gold Report technical charts have been updated and linked near the end of the report.
Gold ETFs
Gold turned in a lower high and low for the week as Japan did what it could to jawbone the dollar higher. We wonder how long it will take for most traders to figure out that if Japan … Japan! … has to go out to talk up the buck, there’s more dollar trouble ahead. Probably more government intervention also, though, and that had traders more worried short term.
As expected, gold had difficulty advancing as a very, very determined seller or sellers showed repeatedly in the $960s. The selling action Tuesday, Wednesday and Thursday was reminiscent of the kind of action we saw in July of last year and again in February this year. The kind of action that suggested a deliberate seller of material size and a seller intent upon making their intentions “known.” All seasoned gold traders will understand that remark.
Despite all the intensely dollar bearish news following the announcement by Russia they intended to reduce their U.S. dollar holdings, the buck got that short-term assistance from the Japanese later in the week. And, don’t you know the very large seller of gold was glad to hear them say that? What great timing! (See the gold charts linked below for more technical commentary.)
SPDR Gold Shares, [GLD], the largest gold ETF, saw its metal holdings remain flat at 1,132.15 tonnes of gold bars held for its investors by a custodian in London. As of the Friday 6/12 close the metal held by the trust was worth $34.1 billion.
Source for data SPDR Gold Trust
So that the price of each share of GLD tracks very closely with the price of 1/10 ounce of gold (less accumulated fees), authorized market participants (AMPs) have to add metal and increase the shares in the trading float when buying pressure strongly outstrips selling pressure. The reverse occurs when selling pressure overwhelms buying pressure.
Barclay’s sponsored (for now) iShares COMEX Gold Trust [IAU] gold holdings were also flat on the week, they continued to show 69.85 tonnes of gold held for its investors in the COMEX warehouses. Gold holdings for the U.K. equivalent to GLD, Gold Bullion Securities, Ltd. added another 0.98 tonnes over the past week, to show 140.03 tonnes of gold held.
Despite the gold weakness, all of the gold ETFs sponsored by the World Gold Council (WGC) added a collective 3.06 tonnes of gold metal, to 1,321.96 tonnes worth $38.8 billion as of the Friday, 6/12 cash market close.
At least in the early stages of this current gold pullback, on balance, we continued to see positive money flow into the world’s gold exchange traded funds for the week, suggesting still more buying pressure than selling pressure.
SLV Metal Holdings
Silver booked a 45-cent net loss on the week, turning in a much lower high Thursday at $15.53 and a lower low Monday of $14.74. The last trade on Friday 6/12 at $14.82 on the cash market was just four pennies above the low for the week (See the silver charts linked below for more technical commentary).
For the week, metal holdings at Barclay’s-sponsored (for now) iShares Silver Trust [SLV], the U.S. silver ETF, remained steady at 8,605.43 tonnes of silver metal held for its investors by custodians in London.
Source for data Barclay’s iShares Silver Trust.
Like GLD, the authorized market participants (AMPs) for SLV add shares to the float and increase the amount of silver held (in minimum basket amounts of 50,000 shares) to answer imbalances of buying pressure over selling pressure. Thus, we know that when the amount of silver being held increases, buying pressure is prevailing. The opposite is true when selling pressure overwhelms buying pressure.
Still no new custodian for SLV, but…
As of Friday, June 5, SLV still had not filed an amendment with the SEC either naming an additional custodian or increasing the amount of silver storage available under the current custodian agreement with JP Morgan Chase London.
The details are in previous Got Gold Reports, but briefly, SLV reported holding 276,670,924.1 ounces of silver as of June 12. The current SLV custodian agreement was for up to 264,550,265 ounces. So SLV now holds 12,120,659.1 ounces, or about 377 tonnes more silver than the current custodian agreement covered.
The Barclays sale of its iShares division to CVC is off and a new sale to Lawrence Fink’s BlackRock Inc. was announced this week. According to news reports, technically CVC has until June 18 to match the $13.5 billion BlackRock offer, but more likely CVC will bow out and accept a $175 million consolation prize breakup fee.
Bottom line, iShares ETFs are getting new management, but instead of a largely unknown entity the new management is much better known and more high profile. The deal must be approved by Barclays shareholders.
Meanwhile SLV has still not filed an amendment with the SEC naming a new custodian or sub-custodian or how much silver that new arrangement will be able to provide for the very popular trust. See previous reports for why that might be important.
Please note this is an excerpt of portions of the full Got Gold Report (GGR). Gold Newsletter subscribers enjoy access to the full GGR as well as Brien Lundin’s timely and actionable analysis of specific resource companies. For more information visit GoldNewsletter.com or New Orleans Investment Conferences.
Bank positioning
Before moving on, we wanted to comment on the positioning by the very large U.S. banks in COMEX futures as reported in the CFTC’s Bank Participation in Futures and Options Market Report for June 2.
Despite confusing and contradictory commentary elsewhere on the Web, as of June 2, with gold then at $981.45, the big reporting U.S. banks in COMEX futures did indeed increase their net short positioning in gold to their highest yet nominally, with just three banks reporting 123,110 contracts net short – an amazingly concentrated futures position in one direction.
For comparison, all COMEX commercial traders, all of them, reported a net short positioning on June 2 of 226,521 contracts with the open interest then 391,057 contracts open. So, even though the three U.S. bank’s net short positioning was the highest we’ve seen, it was actually a little less percentage wise than the previous month as measured against all commercial traders’ net short positioning as shown in the chart below.
The big bank’s net short positioning is still ridiculously high for just a few entities and we will leave it at that for now.
In silver, the results are quite a bit different. With silver at $15.97 on June 2, two U.S. banks reported holding 25 contracts long and 27,503 short or 27,478 contracts net short. That is actually not, repeat not, materially higher than it has been for the past few months even though silver has risen substantially in price and the collective commercial net short position has materially increased. In other words, in nominal terms the net short positioning by the banks has pretty much stayed in the same neighborhood for silver as shown in the graph below.
If we can believe the figures reported by the banks to the CFTC, the recent rise in commercial net short positioning for silver really cannot be attributed to the two reporting U.S. banks in silver. As compared to all the commercial traders, the two reporting bank’s net short positioning has actually gone down in percentage terms as shown in the chart just below.
As a percentage of all commercial traders net short positioning, the two reporting U.S. bank’s positions have fallen over the past three months from 96.3% (nearly all of it) to just way too much at 63.9% of all the commercial net short positioning. This data argues against the idea that the two U.S. banks were hammering the metals markets with additional COMEX short selling as of June 2.
Natural gas
This past Thursday the Energy Information Administration (EIA) reported an injection into storage of 106 billion cubic feet of natural gas, slightly less than consensus estimates. NatGas inventories of course continue to be higher than the five-week average range.
For the week natural gas traded near flat, rewarding neither bulls nor bears, while oil prices continued to move higher. The widening ratio between oil and natural gas prices has now reached stratospheric levels and suggests strongly that either oil has become too expensive or natural gas has become too cheap relatively speaking (See the chart just below).
Since most natural gas producers are also producers of oil, the ratio of NatGas producers to the price of NatGas has gone out to historic extremes as well, but the huge divergence from the norm currently shown almost certainly cannot be explained by the oil price alone. Rightly or wrongly, investors are already pricing in a material advance in the price of natural gas ahead of the fact and continued to bid up the largest companies that produce and sell it as shown in the $XNG:$NatGas ratio graph just below.
This past week the United States Natural Gas Fund (UNG), the big natural gas ETF, saw extreme volume of over 300 million shares, suggesting that investors are zeroing in on NatGas in a very big way. Be sure to check the UNG graph below for more NatGas commentary as we have already gone beyond the usual allotment of space and time for this report.
Got Gold Report Charts
GNL subscribers enjoy access to all the Got Gold Report charts and analysis. Below are samples of some of the most popular GGR graphs.
This week’s surprise small or micro-cap company is another former Bob Bishop and former Casey Research favorite, which made it onto my radar screen in 2006 or 2007. A Robert Giustra company operating in Nevada, which just announced the addition to the board of Peter Gianulis (Carrolton Asset Management).
With about 34 million fully diluted shares outstanding, the market cap now resides south of C$7 million. It was at least 7X that in 2007. Of interest to us “vulture” or bottom fishing stock watchers is the significant insider buying noted on the graph by Giustra, Anglo Pacific and most recently Carrolton Asset Management. Technically, the company just realized a 7/40-week re-cross after a wide consolidation, so if it were to get a bid it could move in high percentages. Note also the slight increase in volume in recent weeks suggesting modest accumulation.
Please read the disclosures below before clicking on the link above to see who this week’s surprise small resource company is.
Until next time, scheduled in about two weeks, good luck, good trading and as always MIND YOUR STOPS.
The above contains opinion and commentary of the author. Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure: The author currently holds a net long position in iShares Silver Trust, net long natural gas ETF UNG, long Timberline Resources (TLR), long Paragon Minerals (PGR.V), long Forum Uranium (FDC.V), long Natcore, (NXT.V), long Odyssey Resources (ODX.V), long Radius Gold (RDU.V), long Columbus Gold (CGT.V), long SDS as a Big Market hedge and currently holds various other long positions in mining and exploration companies. To contact Gene use LLCCMAN (at) AOL (dotcom).