Ted isn’t optimistic, but would love to be wrong

As has been the case for quite some time, the gold price once again ticked down at the 6 p.m. open on Wednesday evening—and was in the hole right from the get go.  The low tick came a few minutes after 1 p.m. London time—and about 20 minutes before the Comex open in New York.  The subsequent rally didn't even make back to unchanged before it was capped within about an hour—and from there it chopped sideways in a tight range for the remainder of the Thursday session.

The low and high ticks were reported by the CME as $1,306.80 and $1,320.60 in the August contract.

Gold finished the day at $1,316.90 spot, down $1.50 from Wednesday's close.  Volume, net of June and July, was 140,000 contracts—and 5,000 less than that number if you subtract out the activity in the far months.

It was almost the same chart pattern for silver, except the price action was a bit more 'volatile'—and it managed to close up on the day by a dime.

The low and high ticks were recorded as $20.795 and $21.20 in the July contract.

Silver finished the New York trading session at $21.115 spot, up 10 cents from Wednesday's close.  Not surprisingly—and as  I mentioned yesterday—with the big traders having to roll or sell their July positions, gross volume was over 100,000 contracts, but it all netted out to about 6,500 contracts.

Platinum and palladium didn't do much.  Platinum closed down the four bucks it gained on Wednesday—and palladium finished up four bucks.  Here are the charts.

The dollar index closed late on Wednesday afternoon in New York at 80.20—and then didn't do much until about 2:30 p.m. Hong Kong time, which was about thirty minutes before the London open.  The 'rally' to 80.34 that began from that point lasted until about 9:35 a.m. in New York—and the dollar index was back to basically unchanged shortly before noon EDT.  From there it traded flat, closing at 80.21.

The gold shares started in negative territory, but began to rally unsteadily right from the 9:30 a.m. EDT market open in New York.  All of their gains were in by 12:35 p.m. EDT—the dollar index low tick—and the shares didn't do much after that.  The HUI finished up 0.92%.

It was more or less the same for the silver equities, but as you can see from the chart, Nick was having some data feed issues which resolved themselves just before the markets close.  The Intraday Silver Sentiment Index closed up 0.76%.

The CME's Daily Delivery Report showed that 411 gold and zero silver contracts were posted for delivery within the Comex-approved depositories on Monday.  The only short issuer worth noting was Morgan Stanley with another 409 contracts, all out of its in-house [proprietary] trading account.  Canada's Scotiabank was the largest long/stopper by far with 350 contracts—and ABN Amro was a very distant second with 42 contracts.  The link to yesterday's Issuers and Stoppers Report is here.

Just as a point of interest, Morgan Stanley, out of its in-house [proprietary] trading account, has been the short/issuer on 983 gold contracts so far this month—and has been the long/stopper on 983 gold contracts as well.  And June has been the only delivery month that they've been active in so far in 2014.  I'm not sure if anything should be read into that, but I thought it worth noting.

There were no reported changes in GLD—and as of 10:06 p.m. EDT yesterday evening, there were no reported changes in SLV, either.   However, when I was editing today's missive at 3:00 a.m. EDT this morning, I noted that SLV had been updated over at the iShares.com Internet site.  Another 1,344,261 troy ounces were shipped out for parts unknown.

Since the gold and silver rallies began back on June 5, GLD has had about 66,000 troy ounces of gold withdrawn—but over at SLV over the same period, 8.12 million ounces has been shipped out the door for parts unknown.  Because of these rallies, both ETFs are owed metal.  As I've been saying all week, Ted Butler says that SLV is owed about 7 million ounces.  So, where is it all???  That's one of several reasons that I wouldn't touch these two particular ETFs with the proverbial 10-foot cattle prod.

Joshua Gibbons, the “Guru of the SLV Bar List,” updated his website with the internal goings-on over at the SLV ETF—and this is what he had to say—“Analysis of the 25 June 2014 bar list, and comparison to the previous week's list: 3,649,207.8 troy ounces were removed (all from Brinks London). No bars were added or had a serial number change.

The bars removed were from: Handy Harman (0.8M oz), Britannia Refined Metals (0.6M oz), Degussa (0.4M oz), Nordeutsche (0.3M oz), and 18 others.  As of the time that the bar list was produced, it was overallocated 315.6 oz.  All daily changes are reflected on the bar list.

Worthy of note is that there was a withdrawal reflected on Sunday around 4 a.m. EST (9 a.m. GMT). There have been 3 previous Sunday updates, but those were all around 1 p.m. EST (6 p.m. GMT).

The link to Joshua's website is here.

There was a small sales report from the U.S. Mint yesterday.  They sold 2,500 troy ounces of gold eagles—1,000 one-ounce 24K gold buffaloes—and 42,000 silver eagles.

There was very little in/out activity in either gold or silver on Wednesday over at the Comex-approved depositories.  In gold, 4 kilobars were shipped out—128.600 troy ounces to be precise—and in silver, nothing was reported received—and 2,987 troy ounces of the stuff were sent out the door.  Not much to see here.

After yesterday's question/answer between Harvey Lewis and Ted Butler concerning an authorized participant shorting SLV shares in lieu of depositing the metal itself, Harvey had a follow-up question on the same issue.

Thanks for the answer.

I really did not want to say “I still don't understand”, so I talked to people that might understand and struggled with it for hours. The only thing I can come up with is that Ted is talking about naked shorts. In a proper short you sell shares you own or have borrowed. Metal should exist for those shares. In a naked short you do not have the shares. They do not exist and no metal backs. You hope to buy some cheaply before you have to deliver. If the price goes to the moon, you, and the buyer are both screwed.  Is this what Ted is describing?

Here's Ted's reply…

Harvey and Ed,

“I didn't distinguish between naked short sales, or short sales done after shares were borrowed, because it doesn't make a difference. First, naked short sales are supposedly illegal, although SLV did fall victim to this practice some years back (hopefully not now).”

“The reason it doesn't make a difference is that the net effect is the same. Obviously, you know that a naked short seller would not secure and deposit metal, so let's agree on that.”

“In a “proper” short sale with shares first borrowed, neither is there metal deposited to accommodate the new buyer of the shorted shares. So, the old share owner who has loaned his shares (often unknowingly) thinks he still owns the metal his shares represent and the new buyer of the shorted shares, not knowing he is buying shorted shares, also thinks he has metal behind his shares as the prospectus states.”

“But we know the short seller who borrows the shares first sure isn't buying and depositing new metal, so some shareholders must be shortchanged.”

“The key to all this is the highly unique circumstance of a hard metal ETF which purports to have metal backing for each share outstanding. Another way of looking at it is that borrowing shares first before shorting effectively increases the total shares outstanding on an unauthorized basis.”

“This is a complicated issue, so please get back to me if you are still unclear of what I am suggesting.”

Ted Butler

I'm happy to report that I don't have a lot of stories for you today.  I hope you find something of interesting in the very few I do have.

The “hot” money category of the COT Reports is the managed money category of the Disaggregated Report. This is the category of registered commodity trading advisors (CTA’s) that mainly trade on momentum and price signals and is most responsible for price movement, both down and up. Most (but not all) of the traders in this category are what I call the technical funds which buy and sell when prices penetrate moving averages. Most of the buying last Thursday and Friday was by technical funds which bought to cover short positions and/or establish new long positions in gold and silver as several important moving averages were penetrated. In essence, this was the sole explanation for the price rally in gold and silver.Silver analyst Ted Butler: 25 June 2014

It was another rather quiet trading day in both gold and silver on Thursday and, as usual, the rallies in both metals that developed shortly before the New York trading session began, got dealt with in the usual manner.  And with the end of the month—and second quarter upon us, I'm not overly surprised by the lack of volatility as the June delivery month goes off the board—and the rolls out of the July contract come to an end today.  The CME should issue the First Day Notice data for the July delivery month in silver later in the evening EDT—and I'll have all those details for you in Saturday's column.

Here are the 3-year charts for both gold and silver.  As you can tell, we're very overbought in gold—but looking at past history, we've certainly been more overbought than this on a few occasions.  But, having said that, I still fear for the not-to-distant future.

I don't have to say too much about silver, as the RSI trace tells all.  We're monstrously overbought—and past history says that a condition as extreme as this one always ends the same way—badly, in the short term.  And unless some black swan appears out of left field to negate that situation, like a physical silver shortage for instance, I'm concerned about the future price of silver as well.

Today, finally, we get the long-awaited Commitment of Traders Report for positions held at the close of Comex trading on Tuesday.  The only question that should be on everyone's lips is—“How bad will it be?”  Last week's report was scary enough—and very little happened from a price perspective during that reporting week.  This afternoon's report could be the ugliest report that both Ted and I have ever laid eyes on.  But, if JPMorgan did cover a huge chunk of their short position during that short covering rally last Thursday, then it's a whole new ball game.  Which scenario will it be?  Ted isn't optimistic, but would love to be wrong on this one.

As I write this paragraph, the London open is about 15 minutes away.  All four precious metals are up a bit from their Thursday close in New York—and it will be interesting to see how the trading day unfolds in London—and then later in New York.  At the moment, gold volume is light, but not as light as I'd like to see it.  Silver volume is about average—and most of the trading volume is in the new front month, which is September.  The last of the July contracts have to exit by the Comex close today—and those that don't, are standing for delivery.

I mentioned yesterday that it was entirely possible that JPMorgan et al would hammer gold and silver to make them look as bad as possible for the month/quarter end.  So far that hasn't happened.  I'll be happy if they don't, of course—but I'm ever mindful of the overbought positions in both metals.  I'll have a much better picture of future events once I lay eyes on the COT Report at 3:30 p.m. EDT this afternoon.

And as I prepare to hit the send button on today's efforts at 5:10 a.m. EDT, I see that gold is now down a couple of bucks—and silver is back below the $21 spot mark once again.  Palladium is up a few dollars—and palladium is flat.  Volumes in both gold and silver are certainly higher than I'd like to see them—and the dollar index was flirting with the 80.00 level a while ago—but is now down only 5 basis points.

That's it for today.  Enjoy your weekend—or what's left of it if you live west of the International Date Line—and I'll see you here tomorrow.

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