Monday, February 25, 2013

More On Capitulation In Gold & Silver - Rally Ahead

I wrote a post last week on timing and indicators:


As luck would have it the metals took another large dive lower the very next day... typical!

However, it should have been obvious from the post that the indicators provide a time frame during which to accumulate the metal, rather than being able to pinpoint the day of the exact bottom. A further $50 slide to lower levels of support was a possibility, as I wrote "the price of has bounced strongly off support at $1600 and if it does slip lower there is further support around $1550-1575". 

Gold fell to the lower level support I'd anticipated (during Wednesday trade). There is no guarantee a final low is in for this correction, a retest of support at those levels or even a further drop can't be ruled out completely, however there are strong signs that we saw capitulation last week, pointing to a probable bottom with higher prices ahead.

Below are some observation from Tiho on The Short Side of Long:

- We seem to be entering a liquidation period for PMs with volume rising rapidly
- Gold's public opinion is now at the 2nd lowest level in 10 year history
- Silver's public opinion below 35%, which is the same level as during 08 crash
- Gold's DSI was sitting at 6% bulls (out of 100%) on Thursday last week
- German investors hold 20% net shorts toward Gold, lowest since May '12
- Gold's COT shows hedge funds have cut bullish bets to lowest since late '08
- GLD ETF suffered the biggest weekly outflow since the September '11 bottom
- GLD Put vs Call volume has exploded to bearish levels not seen in years
- Rydex PM fund has suffer major 10% outflows in the recent months
- Central Fund of Canada ETF (CEF) is now trading at a discount to NAV
- Gold Miner breadth had climax sell off, 40% of Gold Bugs making new lows
- Gold Miners BPI reached single digit readings for only the 3rd time since 08
- Gold Miners Summation Index is almost a slow as October 08 and May 2012
- Gold Miners % of stocks above 50 & 200 MA was at extreme 0% last week
- Gold Miners vs Gold reached an oversold level last seen during late 08 crash
- Gold's daily RSI reading dropped below 20 last week, lowest in over a decade
- Gold Miners weekly RSI dropped below 30 last week, lowest since late 2008

And the below from Alex Cowie of Money Morning:

‘The most powerful signal in my eyes is the Gold Forward Offered rate (GOFO).

‘The GOFO is another measure of market liquidity, and is set to hit new multiyear lows. Over the last five years, the one-month GOFO has been a consistent warning sign of an imminent major move in gold. And importantly, these moves have been associated with outperformance in gold equities. And when GOFO turns back up, it’s the sound of the trigger being pulled to start the rally.’

Click Chart To Enlarge
And of course we can't ignore the fact that the downturn on Wednesday probably further exacerbated the sentiment & commercial positioning indicators in Gold. The COT report last Friday showed continuing improvement in positions with commercial short contracts in Gold the lowest since mid 2009 when the price of Gold was below US$950. We also saw commercials holding a record number of long Silver contracts in the 10 years data I have available (even though they are still net short overall). These positions were only current as of last Tuesday so again, likely to have improved by this Friday's report.

Another couple of points worth making is that GLD saw the "Puke Indicator" on February 20th (Dow Theory Investment):
Yesterday, February 20, 20.77 tonnes of gold were drained from GLD. In other words, GLD inventory decreased by 20.77 tones or 1.57%. As Victor the Cleaner has explained here such “pukes," contrary to conventional wisdom, are bullish, as they denote great avidity for physical gold, which forces GLD to disgorge its gold in order to put out fires elsewhere.
And  we also saw the Dow/Gold ratio top out at levels that appear to be previous highs from the last few years:

Click Chart To Enlarge
All things considered it's very likely we have put in a major bottom in the metals or if not we are very close to it and chances are those buying the fear exhibited will be well rewarded.

These indicators only suggest that a low might be near, they can't predict that the next rally out of these oversold levels will take us on to new highs (the bounce from 2012 lows didn't), however the environment for higher Gold prices continues, negative real interest rates and irresponsible fiscal/monetary policy. It's my opinion we will see record highs for Gold this year and a Silver price approaching $50 again if not over it. I'm prepared accordingly.

You can follow me on Twitter. I'm usually sharing links and opinions daily (@BullionBaron). You can also CLICK HERE to signup for free email updates.

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Wednesday, February 20, 2013

Russia Buying Up Global Gold Companies & Assets: Stratfor via Global Intelligence Files

For those not familiar with the Global Intelligence Files, here is the description provided by WikiLeaks:
The Global Intelligence Files, over five million e-mails from the Texas headquartered "global intelligence" company Stratfor. The e-mails date between July 2004 and late December 2011. They reveal the inner workings of a company that fronts as an intelligence publisher, but provides confidential intelligence services to large corporations, such as Bhopal's Dow Chemical Co., Lockheed Martin, Northrop Grumman, Raytheon and government agencies, including the US Department of Homeland Security, the US Marines and the US Defence Intelligence Agency. The emails show Stratfor's web of informers, pay-off structure, payment laundering techniques and psychological methods.
They have been staggering the release of these emails over time and there are some interesting emails that I found in one of the latest batches (released February 13th, 2013). While the conversations in these emails were not held recently I have not yet seen any discussion of this information on Gold news sites and blogs, so this is potentially breaking news despite the age of the emails themselves. The millions of emails are no easy feat to search and digest, I have cut and paste excerpts to provide the core message and you can hit the links to read the emails in full.

The gold Russia takes from Kazakhstan and Kyrgyzstan is sold on the open market. Russia only hordes its own supplies, that way they can keep it secret on how much they are actually putting in their mountain caves.

So I would assume that Russia will sell what it extracts in Venezuela too. I'll ask around to see if anyone has estimates on how much VZ is making out of this deal, if anything.

From what I am starting to gather is that Russia wants to control global supplies. As for VZ, I would assume this means controlling how much is extracted and where the gold can be sold. But there is that possibility that Russia may not want to extract any gold in the first place. My assumption is that they are determined to be in the driver seat on world gold prices, letting them skyrocket.

Kevin is looking into this part to see if it is possible to impact the gold markets this way. Rodger and Mark both said they are hearing similar rumblings of Russians in their region's gold sectors. So they are poking into what Russia is doing in South Africa, Angola, Guinea, Mongolia, Indonesia, Malaysia & Vietnam's gold groups.
So the only way Russia can really drive the gold markets is if it is sitting on a huge chunk of global supplies. Do we know roughly what percentage Russia has and how much they are trying to take over in all these places?

--------------

We are not sure they can impact supplies this way. It is a conspiracy theory thus far that Kevin is looking into. He had heard rumors of being able to do this, but no one ever has, so he is looking more into it. We don't know what Russia has really taken over yet. It is a massive research project we're just starting to form between your info, me, Kevin, Mark & Rodger that will most likely take a few months, bc it seems like the Russians are:

* buying a large set of 2nd tier companies under a hundred different non-Russian entities in order to not tip anyone off
* using private Russian firms to buy foreign firms and assets
* buying up gold traders
* buying up gold assets (mines, networks)


So each has to be researched and broken down & you know how shady and tangled Russia can be.
Attached are my thoughts, notes & the intel-ling I did yesterday and today....
Then we can map out the holes...
I think we may have a larger issue once we're done with Russia-Venezuela as I am learning that Russia is buying up gold companies & assets around the world. But this is something I am really going to have to do some heavy lifting research and intel-ling on.

In attachment: 9524_Russia - Gold.doc

Table of Contents:

1) How Russia's gold and diamond sectors domestically work
a. Diamonds
b. Gold
c. The Kremlin's secret gold and diamond stockpiles
d. Kremlin folklore on gold (for fun)
2) Rusoro - Russia's gold company in Venezuela
a. Who, what, where, etc.
b. How Rusoro works
c. Crystallex & Russia
3) Russia's other moves in Gold
Selections from above document (9524_Russia - Gold.doc), I would recommend reading in it's entirety as quite interesting:
Russia’s gold industry is also all over the place. Russia most likely has the largest gold reserves in the world – but no one knows for sure (supposedly even the Kremlin, which I doubt). There are estimates that Russia has between 25-40% of the world’s reserves – so estimates are all over the place. But Russia is only the 6th largest producer.

Russia uses gold very differently than most governments. Gold + diamonds does not make up 1% of the budget or revenues.

The Kremlin started in 2008 diversifying its reserves portfolio (meaning its piggy bank funds) with Gold, so that their reserves were mostly dollars and euros with 10% gold.

However, it is rumored that the Kremlin holds incredibly massive amounts of gold and diamonds in stockpiles – I mean seriously huge amounts.


This allows the Kremlin to sell it to make cash when needed or have the “doom’s day” threat where it could flood both markets should it want to.

For example, when the government needed some cash on very short notice, they sold $1b worth of gold they had lying in the stockpiles… but this is a “secret”

It is an incredibly high-level state secret to how much they have in stockpiles.
For those interested in searching for more Gold (or Silver!) related content in the Stratfor emails, you can have a play with the search page here.

Finally, here's another email that I found which asks some interesting questions for which I couldn't find a response in the email database:
 

2321975     1970-01-01 01:00:00 Date wrong (from August 2011)
Hey Jacob

Not sure if you are the person to pester with this - but I think this could make a really interesting piece for s4. Gold is shooting through the roof right now and VZ's move is to bring the gold home (and the cash, but let's focus on the gold for now). How is this gold used in the European banks who have had it for forever? I'm certain that unless Bank of England just locked it in a dusty vault and forgot about it, the gold has been used on deposit for outside loans. How leveraged is the gold in its European hands? VZ is small potatoes, but a rich oil country. What would be the exposure risk for European banks if everybody did as VZ is doing?

If everybody (or just enough somebodies) pulled their gold home, how would European banks recover? (and how much money would they need to borrow from Berlin and Brussels to meet that withdrawal call?) What would be the long term geopolitical dangers/changes?
Maybe Research could find out where most of the world's sovereign gold is deposited - see where the exposure is most great (my guess is Europe, shaky, shaky government-dictated European banks). Sovereign gold is interesting (to me, at least) and I'm not sure there is much out there about that. It fits into G's economic guidance in that it's about commodities trading and transport. Does the global economy benefit from having sovereign gold stored in European vaults or will a mass exodus of gold from Europe cause a realignment of world banking?

May be totally off base but this is a really interesting article and thought I'd toss the thought your way, solo OpsCenter Man!

Cheers,

Bonnie

FYI- I'm more interested in sovereign gold deposits as a whole, not VZ specifically. As the rest of this article highlights beautifully, VZ's move could signal everything from escaping Libya-like sanctions, collateral for Moscow and China to easy cash for the pillaging that comes with a coup. VZ is just what made me think about sovereign gold and what it means for the global markets and who will be vulnerable to a run on this. It'd been small beans for Russia or China to have 3-4 or maybe 5-6 small-to-medium sized countries to start withdrawing their gold, slowly and surely, bleeding Europe liquidity when it's already hemorrhaging Spanish and Italian blood. Perhaps China is stockpiling gold as a bulwark for the yuan, moving it towards a reserve currency (long way to go with that, I know).
It would seem that speculation over leasing foreign owned Gold held by the Bank of England isn't only the concern of Gold Bugs, but also members of the global intelligence community! And you wonder why I'm campaigning to bring home Australia's Gold from the Bank of England?

Sign the petition!


You can follow me on Twitter. I'm usually sharing links and opinions daily (@BullionBaron). You can also CLICK HERE to signup for free email updates.

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Tuesday, February 19, 2013

When To Buy Gold (Timing The Market & Indicators)

Keep in mind that this blog is the opinion of the author and should not be taken as investment advice.

While I don't trade precious metals on a short term basis, I do keep a close eye on the charts and other market indicators in order to increase my positions (using some corrections to "buy the dip"). I've been more or less "all in" on precious metals since catching the lows through the middle of 2012, but have been able to add a small amount to my positions a couple of times since. Some medium to long term holders of precious metals prefer to dollar cost average their purchases (e.g. buying monthly regardless of price), but I prefer to time my purchases using a combination of the below indicators (which have served me well)...

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Sentiment (contrarian indicator)


There are a couple of sentiment indicators available including Market Vane & Hulbert Sentiment. They are essentially tools which track what other market participants are doing and form a simple to read measurement which you can use as a contrarian indicator (do the opposite of consensus). There are subscription services you can pay for or just keeping your eye on various blog sites can score you recent updates on the sentiment charts for no cost (as an example, Tiho from theshortsideoflong.blogspot.com often posts them, as does acting-man.com).

Here is a description of the Hulbert Sentiment tracker:
The Hulbert sentiment indexes for Stocks, Bonds and Gold are courtesy of Hulbert Financial Digest.

This service was started by Mark Hulbert, in order to track the performance of hundreds of investment newsletters.  On a daily basis, Hulbert's team monitors all the newsletters they follow and determines the net long or short exposure of each letter.  We update the charts on our site weekly - for daily data, please visit their service directly.

They then aggregate that data to construct their Hulbert Sentiment Indexes, which is what we show on the site.

The net exposure among newsletters can vary from 100% net short to 100% net long, though in reality most newsletters are biased to the long side, so there is usually a long-side bias to the sentiment indexes.

This data is considered to be a contrary indicator when it reaches an extreme.  As noted above, newsletters tend to be long-biased, so whenever we see a net short exposure among them, it tends to be a decent buy signal for the underlying market.

Conversely, when newsletters are lopsidedly bullish, the underlying market tends to under-perform going forward.
Essentially you want to be doing the opposite of the crowd. So when the crowd is bullish on Gold you should be lightening up on positions (or holding, waiting for better opportunities to add to existing), when bearish, loading up (buying). Here is a recent chart showing how the sentiment peaks lineup with the highs in Gold and sentiment troughs lineup with lows in Gold.

Gold Sentiment Chart (Click to Enlarge)
The above was a snapshot from last week. It's likely that Fridays washout in Gold saw public opinion dip even further, providing an even stronger buy signal (similar to which we saw around the start and middle of 2012 when Gold was trading in the low $1500's).

Technical Analysis (price/chart)


I would consider price and chart analysis the least important of the four indicators I predominantly use. The price tells you next to nothing without proper context.

A chart can be open to multiple interpretations (depending on where/how you draw the support/resistance lines and the patterns you choose are most important), take the below for example:

Gold T/A Chart (Click to Enlarge)
We can see that $1625 was an important level. It was an area of resistance through mid 2012 and then support earlier this year when we saw it tested in early January, however ultimately it sliced through this last Friday and bounced off the next resistance which was the bottom of the downtrend channel. A scalper who happened to be trading at the time of the $1625 break might have picked up an easy $20 by shorting Gold on the drop below $1625 and buying back when the next, but most likely there were a large number of traders with stops just below the $1625 area which were cleared out in the one day plunge.

The commercial traders will often be found to lighten their short positions, increase their longs as they squeeze contracts out of the hands of speculators and traders who have their stops around important technical levels.

I tend to buy in the case of one of two events (provided other indicators also point to a good buying opportunity):

1. When Gold drops sharply to a level of strong resistance and bounces (so I was a buyer when Gold recently dropped to $1625 and support held and also with Friday's drop to $1600).

2. When Gold drops sharply through an important technical level, but then recovers quickly, bouncing back on the same trading day (signs of an obvious stop run where the buying pressure underneath is strong enough to drive the price back above support). We saw several of these events over 2011/2012 where the price dropped below important support at $1550 for less than a day or two.

If Gold breaks through important support areas and doesn't show quick signs of a recovery it often means further weakness is ahead.

Volume (capitulation)


When Gold breaks to the downside through important technical levels as discussed above it often does so on heavy volume as the price plunges, clears out stops and scares weak hands out of the market. This is the signs of the short term speculators capitulating, exiting their positions and traders being stopped out. 

Generally higher volume will be seen in the troughs as well as the peaks as most market participants will chase or capitulate at exactly the wrong times:

Gold Volume Chart (Click to Enlarge)
A large spike in volume (as we saw last Friday) doesn't guarantee the low was on that day. As we saw through the middle of 2012 (May/June) we had elevated volume for a period of time as Gold carved out the bottom, building support before moving back to higher prices.

The charts used for price and volume activity are from Stock Charts.

Commercial Positioning (COT report)


Unfortunately the Commitment of Traders (or COT) report is not timely enough to use when taking a position within a day or two of a suspected bottom. When released on a Friday it's data only reflects to the Tuesday prior, making it a late indicator, but a useful one for confirmation following a purchase. The trend is usually pretty obvious as well. See the below chart:

Gold Volume Chart (Click to Enlarge)
What I'm looking for in this data is positioning of the commercial traders (that is the bullion banks such as JP Morgan, HSBC & others). They retain a permanant net short position in Gold, but as you can see they significantly reduce their net short position as the price falls (see green lines) and increase it as the price rises (see blue lines).

As can be observed in the chart the net short position has been reduced to a level of previous price lows (see orange line) and the further shakeout on Friday has almost certainly reduced the commercial net short position even further. This points to a bottom in price likely in or very close.

You can view the latest COT reports here on Goldseek (posted every Friday, data current to the Tuesday prior) and the above chart was from Bar Charts.

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So in summary the four indicators I watch show that sentiment on Gold is bearish (bullish for price), the price of has bounced strongly off support at $1600 and if it does slip lower there is further support around $1550-1575, volume on Friday suggests capitulation (a sign of a low or a bottom forming) and the commercial positioning also suggests that it's time to buy.

If the last three occasions where we've seen where these indicators align are any sign of where the price is heading we can expect a rally in the vicinity of $150-200 in the near future. Such a rally would break us out of the downtrend channel and likely set us on course to breakout to new highs later this year (in my opinion).

The above indicators will only continue to help while Gold remains in a secular bull market where the buyer has the patience to ride out the longer term trend and allow it to correct any timing mistakes. Use them at your own risk.

A couple of other observations that I've made that are worth noting:

Gold / Silver Ratio


The Gold:Silver Ratio (GSR) has not bounced as high this time around, indicating that Silver is holding up better than the three other times the above indicators pointed to a buying opportunity. See below, Dec 2011/Jan 2012, May/June 2012 & Dec 2012/Jan 2013 we saw the GSR peak above 55, but the current correction still has it below 54.


This could in part be due to the large demand for physical Silver which saw the US Mint achieve a record month of 1oz coin sales in January 2013 and also saw the Mint run out of blanks to press new coins.

It suggests that either Silver could be ready to outperform Gold again when it bounces back, leading the strong advance as it did in 2011 or it could mean that the price correction is not yet over and further downside could see Silver slide heavier than Gold in the short term. After two years in the doldrums and still some 40% below the early 2011 highs I am thinking there is a good possibility that it's the former and I am positioned aggressively with the SLV call options to benefit from strength in Silver over this year and next.

Inverse to Stock Market


Gold has started to trade inversely to the stock market as put by The Rothbardian Investor (a new contrarian investment blog I have enjoyed reading):
We’ve been delighted to see a resurgence of the historical negative correlation between equities and gold, which was thrown under the bus during this last cyclical stock bull. It’s now obvious that gold is again ready to act as a “risk-off” investment, as it is fundamentally designed to do (and as in fact did in many prior instances, both recent and remote). The Rothbardian Investor
Here is a chart showing that through the middle of 2012 Gold and the stock market moved together as risk assets, rising and falling mostly around the same times, but late in 2012 they started to diverge.

S&P 500 (blue) vs Gold (red) (Click to Enlarge)
While this has resulted in short term price weakness in Gold it also sets up the potential for a powerful counter trend rally in the metals should the stock market peak and roll over, especially if market participants are looking for an oversold sector to pile into...

It's been a long time coming, but I think the continuation of the Gold bull market (i.e. new highs) is close. It has certainly tested the patience of many. I've seen a few burnout waiting with some previously bullish now turning into bears, it's observation like this while we remain in a fundamentally positive environment for Gold (negative real rates, abuse of fiscal and monetary policy) that make me even more bullish for the rally that I believe lies ahead... as I've recently written I believe we will see the price of Gold rise above $2000 this year, possibly as high as $2300-2400 and I think Silver will be along for a great ride too.



You can follow me on Twitter. I'm usually sharing links and opinions daily (@BullionBaron). You can also CLICK HERE to signup for free email updates.

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Tuesday, February 12, 2013

Grassroots Campaign For Australian Gold Repatriation!

The campaign continues to gather support for the repatriation of Australia's Gold from the Bank of England. 

Following on from my last post:

Australians Seek Gold Repatriation "Bring Home Our Gold"

Gino, creator of the online petition (to be provided to an Senator for presentation to the Australian Senate, please sign it!) has published the below video explaining the importance of our Gold reserves.

A German Bear meets an Australian Bear and discuss the global currency wars and the importance of national gold reserves. Watch the video and if you would like to have the 80 Tonnes of Australian Gold returned from the Bank of England then sign the petition at: http://www.petitionbuzz.com/petitions/aussiegold


It's a bit of a throwback to the "Silver Bears" videos that were circulating a couple of years ago for those who remember.

Thanks goes to those who have helped spread the word by linking or embedding yesterdays press release:


And thanks to any I've missed (I'm relying on Scribd's stats which don't seem very complete). Thanks to the efforts of all individuals who have shared the press release or petition link through social media and other methods.

I am disappointed with the lack of Australian media coverage so far (I forwarded the press release to most of the major news outlets and many more smaller sites too), but they may pick up on the campaign if it spreads far enough. Those who were around 2 years back may remember the GetUp petition that I started in support of the "Don't Buy Now!" campaign by Prosper Australia. The petition became so popular that it dwarfed all others on the site and they ended up having to change the way campaign ideas were displayed to knock the "Don't Buy Now!" campaign off the list (was changed from most popular campaign ideas to "hot" ideas which didn't include the one I'd started). Read more in this post.

The 'Don't Buy Now' campaign on GetUp took a couple of weeks to gain enough momentum for mainstream media coverage, so don't give up hope. With almost 300 voted so far, we can build on this and gain momentum if many hands are prepared to make light work... and I note already that the Return Aussie Gold petition has made the top 6 "hot petitions" at Petition Buzz (displayed on home page):


And you can see from the petitions that surround it that there is potential, it is competing with petitions that have thousands or tens of thousands of votes!

Let's keep the heat on, get the number of signatures up and increase the liklihood of larger coverage, making it more likely the politicians will take it seriously.

Here are some ideas to spread the message:

1. Share or like this meme picture on Facebook. Gold isn't the only national treasure England is holding hostage (be sure to include the link to the online petition when sharing!):


2. Email your favourite bullion dealers and ask them to put a message of support on their home page.

3. Email, phone or write to your local Members of Parliament advising them of the Gold being stored in England and that we want it back on our soil. A template for this may be forthcoming.

4. Make sure you have signed the petition yourself!

If you have any other ideas, please share them in the comments. But remember many hands make light work, so if it's something you can do yourself please put in the effort first and then share your techniques!
 


You can follow me on Twitter. I'm usually sharing links and opinions daily (@BullionBaron). You can also CLICK HERE to signup for free email updates.

BB.

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Sunday, February 10, 2013

Australians Seek Gold Repatriation "Bring Home Our Gold"

I recently broke the news that the RBA has Australia's Gold stored at the Bank of England. While it was not surprising given the nature of the RBA's Gold leasing (which continues today in limited capacity), it did confirm suspicions and has now led to a group of Australian seeking repatriation of our Gold. You can support the cause by signing the online petition (started by Gino, a member of Silver Stackers, it will be provided to a Senator for presentation to the Australian Senate) or by spreading the below press release which I will be forwarding on to some media contacts and news sites.

The time for action is now, while Gold repatriation is making headlines and with Australian political parties seeking issues to appease voters given the upcoming Federal election.

Australians Seek Gold Repatriation - Bring Home Our Gold by BullionBaron