“We have very strong support in the (Mexican) Congress for the monetization of the silver ounce … it might happen this year. ” – Hugo Salinas Price on KWN
HOUSTON (Got Gold Report) – With people and central banks worldwide apparently reluctant to trade their gold metal for fiat currencies; a fact borne out by the relatively tame pullback just exhibited by the metal of kings; and with the largest of the largest commercial hedgers and short sellers of gold and silver futures in New York apparently positioning NOT as though they sense imminent precious metals weakness, but instead as though they sense the opposite; and with the bigger, more liquid and better financed miners finally showing some relative strength, even while the world’s reserve currency has been gaining on the other sick members of the fiat currency leper colony, we here at Got Gold Report have to conclude that the markets are setting up for a gold and silver rally.
Whether or not we get one, (and if truth be known we would prefer a further leg down on both), that’s what the data is telling us major players and Big Money are jockeying for shape to game just ahead. That’s of course if none of the many black swans that are circling overhead decide to land anytime soon.
ETFs to Shares, a New Trend?
Yes, that flies in the face of the very public get-outs of gold ETFs by famous socialist-leaning currency manipulators (read George Soros), but we had to note in Mr. Soros’ 13-Fs that he more or less traded his gold ETFs for mining producers.
Holding gold metal or gold ETFs is one bet on gold becoming dearer on the one hand and a play that has great insurance value in case something goes wrong on the other. Holding gold miners is a longer-term version of the same bet, just with less “coverage” on the latter part, is it not? Just a thought.
More in a moment, but first, here is this week’s closing table and comments.
Table comments: Negative liquidity environment, gold outperforming silver – risk off for now. Silver near flat, but failed to cut a new low for the week. No big changes in open interest for futures. Hi-lo spreads contracting harshly for silver suggests much lower volatility and a potential change in direction. ICE commercials now fully net short the greenback. Miners outperforming suggests bargain hunting and dip buying in full swing. Some positive money flow for gold ETFs, but strongly negative money flow for silver ETFs – (a bullish contrary indicator there? We’ll see soon enough.)
The gold/silver ratio is struggling to make it to our upside target of 46 ounces to one ounce of gold, but it is up a teeny. The most bullish of the signals we see this week comes from the COT data. Much more about that below for subscribers.
Back to the introduction: We here at Got Gold Report believe that one of the issues holding mining shares back since 2008, and a reason that the miners have not answered the new all time highs for gold, is the idea that the world economy has been dependent in large part on the hand of government since 2008, through stimulus. Always in the back of investor’s minds was/is the idea that at some point the U.S. Fed would remove the uber-cheap money punchbowl, and always was the notion that this is not a real market.
Silver’s Answer is a Bona Fide Signal
Another reason that the miners have not traded better relative to gold as they “should” have is that up until just recently silver had not shown a willingness to “answer” gold’s new all time highs – a blatant non-confirmation. As long as silver lagged and underperformed, being bearish on mining equities had both cover and evidence to support it. Now, silver still has yet to cut new all time nominal highs, but it did get very close on a parabolic romp in April and the propensity of investors, even bearish bettors to say that silver no longer “wants” to answer the precious metals bull market, has been reduced.
Now, with unsavory, but nonetheless brilliant investors taking positions in the miners instead of the metal itself, we have to wonder if they have deduced that the final stages of the game are upon us now, or will be soon, … or if they are merely positioning in mining shares at what will prove to be well in advance of the 1970s-style high-inflation-currency-collapse-fears phase that will ignite the mining share rocket launch into the stratosphere.
Crystal balls seem cloudy at times; especially the ones out of warranty, but the indicators are suggesting more strength than weakness if we are reading them correctly here.
Great Walls … of Worry
Moving to a different window on this observation platform in Texas, we can see the general worry in the stock markets of North America in the ratio of insider sellers to buyers of common shares of public companies in the U.S., which, at 29:1 in April is not a record, but it is certainly very high. Insider selling is not a new story, but for some of us it tends to be more of a contrary indicator when the market is trending (such as now for the Big Markets when viewed on long-term monthly charts). At high extremes it is much less of a “lock” contrary indicator, and at low extremes the opposite. That is to say that heavy relative insider buying, tends to be a strong signal of an impending reversal at low extremes – we think. It is difficult to quantify or build a meaningful ratio of it, but it does add to the overall impression for traders. Insider selling adds to the “wall of worry” all great bull markets must climb. Even cyclical bulls inside great bear markets, such as the one we think we are in now.
Lazy, Hazy, and Potentially Very Crazy Days Ahead
We keep hearing about the upcoming “dawg days” of summer, as if there is not that much going on this year and analysts expect a sleepy vacation period just ahead. Well, we think that is just plain wishful thinking.
With Goldman in the government crosshairs, Mr. Obama jilting Israel and “B.B.” Netanyahu (or “Buffalo Ben” as some of us affectionately refer to him here in Texas) giving Barack Hussein Obama “the finger” right back without delay; with the U.S. election cycle moving into the critical 15-month period before a presidential contest; with The Fed unable to see the inflation (and people’s expectations of it) they have already caused, while locked into a have-to-print straightjacket; … and while the E.U. faces immensely difficult internal, potentially fatal structural issues as the ECB tightens the thumbscrews on big-spending Greece (Drachmas anyone?); … and with Japan rocked into full-blown recession by an act of God (mostly), and desperately needing a weaker yen (and finally getting it); … the “hits” just keep on coming: IMF sex scandal, bad weather, major food shortages, unsettling turmoil in formerly “peaceful” North African countries, civil war in Lybia and on, and on… well, friends and Vultures, suffice it to say that this summer could be a sleepy one, but it sure isn’t shaping up to be that way – so far. To the contrary.
Real Money Currency Ascending
From our observation platform, it appears to us that the world has spontaneously chosen gold as the one “currency” that will survive whatever upheaval or stress shall occur in our current economic and social systems. We surmise that once the yellow metal crossed the $1,500 Rubicon, it had then become clear that we were no longer involved in a speculative rush higher, but something else entirely. People, governments and central banks have chosen real money as the safe haven and ultimate store of value come what may, just as we said it would when we began sharing these commentaries privately eleven years ago (publically six years ago). We don’t see that changing anytime soon, and indeed the news this past week of Mexico’s acquisition of nearly 100 tonnes of gold pretty much confirms it. Mexico is a modus ponens of official gold demand for observers of the metals markets.
Now some heavy hitters are moving out of gold ETFs and into the gold/silver/copper equities? Really? How about that? Perhaps it is time to begin deploying portions of the Bargain War Chest into a few of our “faves” now that they are really on sale. We sure hope so … because we already are, as Vultures already know.
Oh, we are still in a negative liquidity environment, no doubt about it. We might be jumping the gun here, no argument. It’s just that some of the same signals that warned us that the negative liquidity period was coming late in 2010 and early 2011 are now attempting to signal us that the negative liquidity period may be about to have run its course. Only time will tell, of course, but if we don’t heed the signals we try so hard to keep up with, then why bother keeping up with them?
Vultures will see what we mean by that as get a little deeper into this week’s full report.
Got Gold Report
First things first, the Got Gold Report – the full report – is published biweekly at least 24 times per year. Between reports we communicate more regularly on the GGR web log, which is always free and open to the public, or in our COT Flash reports and Vulture Bargain Hunter reports reserved exclusively for subscribers. COT Flash reports appear on off weeks for the Got Gold Report when there are what we consider important changes in the commitments of traders reports which cannot wait until the next full report. Vulture Bargain offerings appear ad hoc as there are developments we feel merit comment for and in the resource company issues we track closely.
Our aim is to briefly summarize our positioning for the gold and silver markets, and also to highlight a few of the dozens of indicators, ratios and graphs we keep in constant touch with. Vultures, after logging in, please see the commentary in our even-dozen technical charts now located in their own section of the password-protected subscriber pages. We update most of the Got Gold Report linked charts each week, even the weekends when we don’t publish the full report. Changes to the linked charts are almost always completed by 6:00 pm ET on Sunday evening (except when Monday is a holiday) and occasionally during the week itself as events unfold.