Beiträge von n@utilus

Silver ETF: In contrast to gold ETFs, metal holdings for Barclay’s iShares Silver Trust [AMEX:SLV],
the U.S. silver ETF, showed a significant increase of 151.35 to
5,730.30 tonnes of silver metal held for its investors over the past
week.

On a calendar week basis, silver booked a net $0.14 fall on the cash market with a Friday last trade of $17.75.

Isn’t it fascinating that as silver reached its most
recent apex above $21 and then sold down to as low as the $16.60s that
we have yet to see ANY negative money flow from the largest silver ETF?
Friends, we’re seeing the opposite.

Please see the 1-year silver graph and the 2-year weekly version for this report’s technical and market commentary on the graphs themselves.

As the total open interest dropped so fast, how did
the LC’s net short position change compared to the total open interest?
The answer is that for the past week the LCNS percentage to total open
actually increased a little. That’s likely a combination of large long
liquidation and profit taking which resulted in the big drop in total
COMEX open interest. This report suspects that we will see a
significant reduction in the commercial net short percentage to open in
the next COT report.

Gold ETFs. Over the past week gold holdings at streetTRACKS Gold Shares, the largest gold exchange traded fund [NYSE:GLD],
remained unchanged at 642.04 tonnes. As of Friday’s figures that’s
equal to $18.7 billion U.S. dollars worth of gold bars held by a
custodian in London for the trust. That follows an addition of 4.91
tonnes the week prior.

Gold holdings for the U.K. equivalent to GLD, LyxOR Gold Bullion Securities Limited, rose by a tiny 0.16 to 115.87 tonnes of gold held (as of Friday). Barclay’s iShares COMEX Gold Trust [AMEX:IAU] gold holdings showed a maintenance reduction of 0.02 to 64.04 tonnes of gold held for its investors.

For the week ending Friday, 4/4, all of the gold ETFs sponsored by the World Gold Council showed a collective increase of 0.23 tonnes to their gold holdings to 807.49 tonnes worth $23.5 billion.

We should note that as gold metal sold down over
$100 the ounce there really hasn’t been all that much in the way of
negative money flow (more wealth leaving an issue or a sector than
entering) for the world’s gold metal ETFs. Take GLD for example. If
there had been a major exodus of capital from GLD without corresponding
and offsetting dip-buying we should have seen a much larger reduction
in GLD gold holdings than has surfaced thus far. (See the graph below.)

Where’s the Exodus in ETFs?

If overwhelming selling pressure, such as one would
expect if very large, institutional and pension funds all hit the exits
on gold via the gold ETFs at once had occurred, then the authorized
market participants for GLD would have no choice but to reduce the
trading float of GLD (and redeem a corresponding amount of gold) in a
much bigger way than just happened. Otherwise the sales price of each
share of the trading vehicle would drop much faster than its net asset
(gold bullion) value per share.

While there has been some negative money flow over
the past few weeks, it is this report’s read that the relatively small
quantities involved (just a reduction of 21.79 tonnes since March 18 or
3.3% versus a peak to trough drop of $157 or 15.2% for gold metal) are
much more consistent with a hot-money fund get-out than a bona fide
wholesale shift away from gold by large institutions. For now this
action suggests that the very largest investors in gold metal ETFs are
not heading for the exits as some commentators in the financial media
suspected and reported.

How about another comparison? As the COMEX
commercials reduced their collective net short gold futures positions
by 23.61% since February 19 when gold was in the $920s the amount of
gold metal held by the custodian for GLD has shown a net increase from
631.15 to 642.04 tonnes over the same period. So the biggest hedgers
and short sellers have been reducing their exposure while demand for
GLD increased. Does that sound consistent with an exodus of capital
from precious metals? Nope.

That doesn’t mean that there couldn’t be just such a
major exodus of capital out of gold ETFs tomorrow, next week or next
month, it just means that so far it isn’t showing. It also means that
significant numbers of investors are buying the dips so far.

COT Changes. In
the Tuesday 4/1 commitments of traders report (COT) for gold metal the
COMEX large commercials (LCs) collective combined net short positions
(LCNS) fell a smaller than expected 13,057 contracts or -6.33% from
206,125 to 193,068 contracts net short Tuesday to Tuesday as gold
plummeted $56.24 or 5.99% from $938.74 to $882.50. ($34.45 of the drop
occurred on COT reporting Tuesday itself, so once again we are probably
not seeing the whole story on LCNS reduction.) Since Tuesday gold
managed to claw its way back on up above the $900 level for a Friday
last trade of $913.78 on the cash market.

As of Tuesday’s COT reporting cutoff, COMEX gold
open interest fell by a huge 52,800, to 399,393 contracts open. That’s
the lowest total open interest on the COMEX since September of 2007
when gold was just gaining its legs above the $730 previous resistance.

Long-term April 2009 and beyond COMEX forwards added
a large 4,614 contracts, but still only show 54,731 lots open, or a
still low 13.7% of total open contracts. If we don’t include April 2009
(which drops off as the back month in the next report) then long
forwards would only be 46,381 lots open or a very low 11.6%. Given the
harsh pullback for gold the increase in long-term forwards is actually
not as large as we would expect. Those looking for a telltale bearish
big jump higher in long-term forwards are still looking for it in other
words.

More to Come?

Although the reduction of the collective commercial
net short positioning (LCNS) is quite a bit less than one would expect
where the gold price on COT reporting Tuesday was fully $56 less than
the prior Tuesday, it is really not uncommon for that to occur when the
largest move lower of the reporting week occurs on COT reporting cutoff
day. In fact, $34.45 of the $56 move lower occurred on COT reporting
Tuesday and there were really no obvious or determined attempts at
rallies that Tuesday and thus not really all that much incentive for
short interests to close their positions or for newly minted
“short-term-momentum-shorts” to cash in.

If true, then we should be able to see a
considerable amount of commercial repositioning in the next COT report
even if gold remains flat or increases in price, similar to what
occurred in mid-November of last year when gold fell $22.48 in the COT
reporting week ending November 13 with gold then $802.52, but the LCNS
(only) declined 13,592 contracts that week. The following two reporting
weeks saw the LCNS decline another 21,000 contracts as gold actually
INCREASED about ten bucks.

COMEX Commercials Reducing Net Short Positions

Interestingly, (and some would say bullishly) the
LCNS peaked February 19 at a record 252,740 COMEX 100-ounce contracts
net short with gold then at $927.92. As of Tuesday, 4/1 (six reporting
weeks later) gold had declined a net $45.42 or 4.89% to $882.50 while
the collective combined commercial net short positioning (LCNS) had
declined a whopping 59,672 or 23.61%. Clearly there has been a
significant reduction in short positioning by the very large, well
funded traders classed by the Commodities Futures Trading Commission as
“commercial” on what amounts to a fairly small net move lower for gold
metal.

If we ignore for the moment that gold zoomed up to
test over $1,000 the ounce on a multitude of frightening financial
concerns (an unsustainable event-driven move higher) and if we strip
out that added upside pressure at some point we end up with where
demand for gold metal is consistent with all the other strongly bullish
fundamentals driving this Great Gold Bull. The market is currently in
the process of discovery on just that in this report’s opinion. Notice,
however, that while that discovery process is underway we are
witnessing a big move lower (repeat lower) in COMEX commercial net
short positioning.

For some color on just how much of a move we are
talking about, as of Tuesday, 4/1, the LCs were about 186 tonnes of
gold less net short (in paper gold contracts) than they were on
February 19. They went from being net short 786.11 to 600.51 tonnes of
paper gold futures. As measured in notional value, as of Tuesday they
were about $5 billion dollars less net short than in February.

Rhetorical question: If a gold bubble has just been
popped, why are the largest gold futures short sellers in such a hurry
to “get small.” (Translation: Why, when gold has only sold off 4.89%
since the LCNS peaked February 19 have the commercials dumped 23.61% of
their collective net short positioning?) Rhetorical question answer: Is
it because they got so upside down by taking the short side they are
getting out (covering) now, while gold is in a pullback, while the
getting is good?

And, what is it they see on the horizon that has
them so scared? (They were reducing their net short positioning even
when gold was going higher!)

Gold versus the commercial net short positions as of the Tuesday COT cutoff:

ATLANTA (ResourceInvestor.com)
-- This offering of the Got Gold Report focuses on the notion that very
large institutional interests are now rotating out of precious metals
and into other assets once again. The idea that the gold and silver
markets have been in a “bubble” and that an exodus of capital away from
precious metals will now decimate metals prices.

We’ve seen that same argument become popular several
times since the Great Gold Bull began in 2001-2002, haven’t we? Didn’t
we hear it when gold first managed to eclipse the $425 level late in
2003? Remember those very same gold-bull-is-over calls when gold
touched $730 in May of 2006? Then again at $750, at $800, at $900 and
now this one with gold having just tested $1,000 for the first time.

Quite
a few analysts, commentators and market watchers are, once again, of
the opinion that a bubble of sorts has just been pricked in precious
metals and it sometimes seems all of these metals-bearish experts
somehow find their way onto televised financial media. To hear them
tell it, actions by the FED and the U.S. congress have been the pin
that just got stuck into the over-inflated balloon of precious metals
and commodities. Really?

Experts “Schmecksperts”

I believe it was Mark Twain who said, “Few things
are more irritating than when someone who is wrong is also very
effective in making his point.” What if these expert analysts are
invited on the business TV programs not because they are good at what
they do, but instead are very good at how they say it? (Or worse,
because they are good looking.)

Citing evidence such as high volume in mining stocks
without meaningful advance of mining stock indexes (distribution by
“smart money” to “dumb money” said one such commentator), rapidly
falling prices for gold and silver, now rising Big Market indexes and
other, similar indications, these otherwise respected and closely
followed pundits are heralding a coming “crash” in metals prices as
they presume that vast amounts of wealth which “chased the metals
craze” is about to be “crushed” in a “flood of liquidity back out of
commodities and into equities.”

Metals craze? Rubbish!

Let’s skip straight to the conclusion which is that
the indicators this report follows closely just can’t confirm that
bubble-pricked theory. Not yet anyway. Besides, if gold and silver were
in a true bubble just about everyone would own some or have exposure to
the sector in their 401Ks and IRAs. That is certainly not the case
today. If we were in a true bubble for precious metals there would be a
great deal more popular excitement about them than there is today and
it’s pretty safe to say that if we were in a true bubble many of those
same analysts, the “schmecksperts” that are now confidently and
self-assuredly calling a top in gold would be advising people to buy,
buy, buy!

COMEX Commercials Reduce Net Short Position

Resource investors who are diligent readers will
learn in this report that over the past six reporting weeks the largest
of the largest traders of gold futures have reduced their net short
positioning by 23.61%, enough contracts to cover about 186 tonnes of
gold metal. Clearly those bullion bank and hedge-trading veterans
aren’t aggressively positioning for strongly lower gold prices. To the
contrary. Yes, they remain considerably net short gold, but a lot less
net short than they were just after Valentine’s Day. They may not have
reduced their net short positions as much as we might have expected
over the past week, but there are probably good reasons for that. Read
more about that in the COT Changes section just below.

Indeed, in late March gold metal was being returned
to gold lenders at such a fast clip and the demand to lease gold
dropped so much that even with the drop in short-term interest rates
for a while it was actually cheaper to borrow gold metal than it was to
borrow cash at LIBOR resulting in short-term negative gold lease rates.
A clear sign of widespread gold short covering and a drop in demand for
gold borrowing. Very short-term negative gold lease rates are somewhat
bearish, usually pointing to or answering a snap-down lower, but they
are extraordinarily bullish longer-term. We’ll have more about that
easily misunderstood topic in future reports or in a separate article.

Demand for Silver Robust

Despite the current sharp sell-down for silver prices in the paper silver markets underway since the last Got Gold Report,
we still see significant positive money flow (more wealth entering than
exiting) in the U.S. silver ETF. Persistent reports of a widespread and
growing shortage of physical silver continue to surface indicating very
strong and growing popular on-the-street demand for the white metal in
the U.S.

If institutional investors are “exiting the metals
in droves” as some analysts would have us believe, then why isn’t there
negative money flow in the silver ETF and why are there actual physical
shortages of silver metal out there right now? Read more about that in
the Silver ETF section below.

Mining Shares Argument

Finally, regarding the most compelling argument the
gold-bubble-is-popped market watchers point to, which is that volume
has been extra high for gold mining companies but without meaningful
advances in the mining shares indexes as gold tested the $1,000 level
and silver tested $21. That’s actually an accurate assessment relative
to gold metal compared to past leverage and the miner’s inability to
leverage gold gains would ordinarily be worrisome all else being
“normal.”

However, the markets since last July have been
anything but “normal.” One only has to look at the relationship between
mining shares and the Big Markets to quickly understand why volumes
have been so high relatively speaking for mining shares. Compared to
the Big Markets the miners have been a great place to be. (See performance comparison chart.)

When investors go looking for liquidity, when they
have to have cash aren’t they more likely to go looking for it where
they have a profit? Can’t we argue that since the big miners did so
well compared to the rest of the Big Markets that’s a sign that Big
Money has stayed with them?

Bottom Line

The bottom line for this report is that despite the
popular calls for a wholesale and massive exodus of capital from
precious metals, the indicators this report follows closely for both
gold and silver just do not support those ideas very well. Although it
is entirely possible that our read is dead wrong, this report continues
to believe that the current pullback in precious metals is just that, a
good pullback. To know more as to why we take that position, please
read on.

Significant to strong dips in both gold and silver
bullion are for buying now and for the foreseeable future in this
report’s opinion. (Especially silver, and please see expanded
commentary about silver below in the Silver ETF and Silver COT
sections.) As always that is provided short-term traders using indexes
and ETFs for trading vehicles instead of taking delivery of actual
metal are disciplined in the use and management of reasonable trailing
stops for protection.