This week has been one of 'risk off' in the precious and base metal markets despite the welter of geopolitical headlines and the streams of distressing media broadcasts out of Northern Iraq.
Silver remains under pressure and is now looking a little bit soft and vulnerable. We see heavy selling appear every time the market approaches the $20 to $20.25 area.
We suspect this is because the 200 day moving average comes in at around $20.30 and the fund or funds that are selling want to keep silver below this level for long enough to change the chart patterns. Silver fell 1.0% last week after falling by 0.6% in the previous week.
Silver, like gold, benefited from the flight to “safe havens” on Friday. It was trading in and around the $19.90 level when President Obama authorized 'targeted air strikes' if needed to protect US personnel in Iraq. Silver rallied up to a high of around $20.15 before the selling began.
Technically speaking, silver remains stuck within a broad trading range of $20.80 to $21.00 at the top end and $19.50 to $19.40 basis spot at the bottom end of the range. The market remains very quiet and featureless.
Gold too perked up last Friday on the back of “safe haven” buying as the Ukrainian situation continued to deteriorate and the United States committed itself to selected air strikes against the IS(formally known as ISIS) in Iraq. Gold rose 1.4% last week after falling 0.3% in the previous week.
Gold could well move up towards the $1,320 to even $1,330 area basis spot on the back of either of these situation deteriorates. But the market usually finds good producer, dealer, and Chinese trade selling in and around the $1,320 area and above.
The Chinese have appeared to show little uninterested in gold at current levels over the past week， and The Shanghai Gold Exchange premium to loco London has been trading at a discount for most of the time indicating that local demand is weak.
If on the other hand the situation begins to improve in either of these regions then we may well see some selling of “safe haven” assets including gold. Gold is likely to find very good support in and around the $1,280 area basis spot.
It is worth pointing out that there have been a number of instances this year where heightened geopolitical risks have prompted spurts of aggressive buying of gold and other safe haven assets.
But the problem with these buying spurts is that they have consistently proved to be temporary. This reflects the short-term trading attitude of gold players and a general lack of interest in precious metals as an essential part of one’s long term investments.
Thus the gold and silver markets are dominated with “fast money” and intra-day specs looking to trade the ranges.
It is interesting to note that the SPDR gold ETF posted its largest weekly fall in three months last week. Holdings fell 5.98 tonnes to 795.86 tonnes of gold bullion.
The trading volume in gold on New York’s Comex so far this month is currently running some 27% below the year’s average. Things are definitely quiet in the gold market these days!
One final thought on China. A recent report by the World Gold Council said that Chinese companies may have accumulated up to 1,000 tonnes of gold for use as collateral in financing deals
If that is the case it helps to explain why Chinese demand for gold fell 19% in the first six months of this year to only 569 tonnes compared with 706 tonnes for the same period of 2013. Perhaps China’s appetite for gold has been overstated. Only time will tell.
And finally ......No discussion about gold is complete without a good conspiracy theory.
While most theories are easily dismissed, some stay around for a while due to a confluence of circumstantial evidence surrounding it.
Wall Street veteran Art Cashin addressed one such theory in this morning's Cashin's Comments.
这是华尔街资深经济学家Art Cashin在今早Cashin's Comments上发表的观点。
In it he builds off of this weekend's New York Times story about Goldman Sachs' aluminum warehousing operation and connecting it to Monday's sharp gold spike of $45。
The media pundits on the move pointed to sentiment from Russia, US action in Northern Iraq, China and the FOMC.
And while all the cited may well have been factors, a number of veteran traders saw the bulk of the move resting elsewhere in a conspiracy story.
Cashin notes that Gold soared off the back of a NYT story on metal warehouses fanned flames of conspiracy theorists that gold warehouse stores have been "lent" out. A theory given credence by the current backwardation (spot price far above near future).
Cashing expands this argument by adding that for several months "physical gold" (bracelets, coins and small bars) have seen near riotous demand with long lines stretching into the streets. At the same time "paper gold" (ETF's, futures and nominal spot) has seen steadily falling prices. That dichotomy has sparked more than a few conspiracy theories.
The worst (and most strained) claims are that the world's central banks have put a bear raid on gold. This rumor claims that they are trying to cover the fact that they have sold/lent the gold they are supposedly safeguarding for their citizens.
Of course a steadily falling gold price would reduce the urge to look behind the curtain (or into the vault) and discover this misfeasance. A more pervasive form of the rumor/hypothesis substitutes the global banks for the central banks but with the same, theoretical, abuse of custody.
Far fetched? Perhaps.
A key support of these theories is the backwardation in gold - the spot price is higher than the near future contract. That in itself is unusual. It could normally be resolved by selling spot gold and buying the cheaper future one month out. Thus, in a month, you would reap an apparent locked-in, riskless profit. Yet no one seems to be doing it. Is there really a shortage of physical spot gold? Is there doubt that there is gold in storage that will be deliverable in a month? So, the theorists assume.
Now add this in the front page NYT story, hinting chicanery and manipulation by the big banks of warehoused metals such as aluminium, nickel and zinc. Was this the smoking gun? Some people seemed to think so as a short covering stampede exploded the gold price. The next five days will be key.
Arb, or arbitrage, is a fancy word traders use to describe a situation where they can take advantage of market price discrepancies to book guaranteed profits.
Is there something the traders know that we don't know? Are there other forces preventing the arb opportunity from being arbed away?
Unfortunately, we are not sophisticated enough to answer these questions.
Copper remains a very choppy market at present with values struggling to stay above support at $6,950 per tonne basis three months.With the summer vacation season in full swing in the west，Volumes are drying up rapidly. Overall Copper fell 1.1% last week after falling by 0.7% in the previous week，and open interest long positions on the LME fell to their lowest level in 5 weeks with further price corrections expected.
Many macro fund managers and CTAs have been waiting for copper to break down. They reason that very solid support should be found in and around the $6,700 per tonne area and this is where they are anticipated to turn strong longer-term buyers.
What motivates the fund managers as well as the idea of longer term value is that copper has a positive carry (backwardation). Overhead resistance is still very strong in and around the $7,070 area basis three months and then again at $7,200 per tonne.
Sentiment continues to blow hot and cold about Chinese copper consumption and the slowdown in the property sector. Sentiment on Monday morning got a boost when it saw that the Chinese Consumer Price Index grew by 2.3% year on year in July. This was bang in line with expectations and was unchanged from June. The Chinese Producer Price Index fell 0.9% year on year versus expectations of a fall of 0.8%. This was slower than the 1.1% fall seen in June.
有关中国铜消费以及地产界的萧条的观点争论依然摇摆不定。当周一早上七月份中国居民消费价格指数比去年同比增长2.3%时，情绪迅速高涨。此反弹与预期相符，并与六月份持平。中国生产者价格指数同比下跌 0.9%，而预期下跌是0.8%。慢于比我们看到的六月份1.1% 的跌福。
But, China's copper arrivals fell 2.9% month-on-month in July. This was the third consecutive month of falling imports. This fall is thought to reflect small importers delaying term refined metal shipments. In addition Bank finance for importing copper has also been tighter since the Qingdao collateral scandal and this may have had an impact as well.
Arrivals of copper anode, refined metal, alloy and semi-finished copper products stood at 340,000 tonnes in July, the lowest since April 2013, data from the General Administration of Customs showed on Friday. The inflows dropped further from 350,000 tonnes in June when arrivals hit a 14-month low.
But that said total imports for the first seven months of 2014 still rose 18.7% year-on-year to 2.86 million tonnes. Traders said the improved price differentials between Shanghai and the London Metal Exchange had boosted spot refined copper purchases by large importers in late June and early July.
Imports in August may rise again as supply in the domestic market is tightening according to some dealers and this could encourage more imports and traditionally the seasonal peak of demand in China is usually in the September - October period.
China also imported 900,000 tonnes of copper concentrate in July, down 4.3% year on year, according to the General Administration of Customs. The July imports were down 9.1% from June. For the first seven months of this year, copper concentrate imports totalled 6.33 million tonnes, up 17.3% year on year.