Next two weeks pivotal for precious metals

As Benjamin Graham said:

In the short run, the market is a voting machine but in the long run it is a weighing machine.


Fundamentals affect long term trends, not short term movements.

From my understanding, and I'm not a market professional, Open interests are at record highs, and the commercials would have taken a big hit if they didn't keep a lid on prices when the July option expired.

 

London OTC options expiring 12 noon (9pm est), will be interesting to see if that marks the turning point for the night.

 

9pm has come and gone.. Doesn't look like anything is happening.

 

Decent miss on US Q2 GDP figures

 

Nice catch up now. Looking like a nice Friday smack up.

 

Over the last 5 years I've seen dozens next weeks pivotal.
And this time would be differents...
Everytime "fundamentals" overruled them.
What is fundamental?
Well, ounces existing stocks, ounces produced, ounces consumed (real consumption, as unrecoverable in waste), and the futures markets bogus order that gets cancelled everytime because it's just a hedge that inserts an extra in the price.
The recent $14>20 was nearly completely due to the latter.
The futures bogus order increased from 20K to 100K, a 80K x 5000 = 400 Moz silver ordered.
1 price dollar change is due to a supply/demand change of 70Moz, so that bogus order represents 5.7 price dollars.
$20-$14=$6. Meaning that nearly nothing changed in the cash market.

"...and the commercials would have taken a big hit if they didn't keep a lid on prices when the July option expired."
... is inverted reality. Commercials and noncommercials, together nicely cooperate to bring their hedge (and the price extra) into place.
Their end-to-end counterparties reside in the cash market, with the futures market serving as a "Hey JOE I sold alot ounces today pls give the price a couple upticks maybe they'll pay the extra too!" and "Hey Joe I had alot buy backs today pls give the price a couple downticks! maybe they'll accept my fewer dollars"
The common "momentum" story.
And once they refuse to do so, momentum vanishes, and we're back where it started, with the "they" ending up with fewer dollars / fewer ounces.

 

I'm not sure if I follow what you're saying Pirocco. If by your logic 70 million oz = $1 move in price, then when silver was $49 the 'futures bogus order' would be an extra 2.03 bullion oz higher than it is now, so about 400k contacts higher? The total open interest currently at a bit over 200k contacts is a record high. How does that work?

 

Forgot to add the BoE interest rate decision which is due tonight. Markets are expecting a cut. Trading the GBP/USD and the EUR/GBP

 

BoE cut rates by 0.25% and added another 50 billion pounds of QE. The GBP has fallen about 150 pips

 

50 billion pounds pulled out of thin air. Really does make money seem worthless.

 

No, when silver rose from $30 to $50 it was entirely due to the cash market. For ex SLV reached a peak of 366 Moz in april 2011.
This is all ETF's:
2004 0.0 $6.6711
2005 0.0 $7.3164
2006 126.8 $11.5452
2007 54.8 $13.3836
2008 101.3 $14.9891
2009 156.9 $14.6733
2010 129.5 $20.1928
2011 -24.0 $35.1192
2012 55.3 $31.1497
2013 2.5 $20.0858
2014 1.5
2015 -17.7
Notice how before 2011, ETF's were big adders.
Notice how despite that SLV peak in april 2011, the year ended with the opposite: 24 Moz down instead.
In the month may 2011 alone, SLV alone dropped 50 Moz.
Alot on the cash market, hammered their SELL buttons.
The $32 > $49 runup is, with its $17 delta, and 70 Moz per price dollar, a 1190 Moz supply/demand change.
Take into account that this is a SUPPLY/DEMAND CHANGE
For ex, if SUPPLY would increase 600 Moz, and DEMAND would drop 600 Moz, then the price effect would combine to 1200 Moz.
Likely, early may 2011, that symbolic price of $50 caused a massive demand drop, and a massive supply increase.
That's what happens when a market suddenly gets moved from buy to sell modus.
Look at gold, when central banks shifted from net selling 600 tonnes a year to net buying 600 tonnes a year. That's a price effect of 1200 tonnes.
I made a post yesterday, for gold, for the 2012 > 2013 years. There you can see me combining changes to a total net change. The same applies here.

About futures market hedge, you use open interest, which is wrong, the forward component in the spot price is not driven by open interest but by the total net position, which is half your open interest, being 100K (like I said).
This is also the figure shown for ex on finviz.com.

See those green/red/blue trendlines below the price chart?
Green is the inverted of the sum red+blue.
Party / counterparty.
Supply side / demand side.
Long / short.
That is 100K, not your open interest.
This 100K figure you can retrieve from the COT reports.
http://www.cftc.gov/dea/futures/other_lf.htm
http://www.cftc.gov/MarketReports/CommitmentsofTraders/HistoricalViewable/index.htm
Take for example the last one (first link)

26/07/2016 107123 $19.68

Supply Side (Commercial Hedgers on finviz.com - GREEN trendline):
Producer/Merchant/Processor/User Long 19019 Short 76841
SwapDealer Long 24613 Short 73914

Demand Side
ManagedMoney (Large Traders on finviz.com - RED trendline component) Long 104148 Short 8224
OtherReportables (Large Traders on finviz.com - RED trendline component) Long 19589 Short 19436
SmallTraders (Small Traders on finviz.com - BLUE trendline) Long 25124 Short 14078

That price for that day is found on http://www.kitco.com/LFgif/ag2016D.gif
That bold figure is what finviz.com shows, but you have to calculate it, all longs minus all shorts.
19019-76841+24613-73914 = -107123 so the Supply Side is 107K net SHORT.
104148-8224+19589-19436+25124-14078 = +107123 so the Demand Side is 107K net LONG.

One can also see here, the entire futures hedge change is due to the Trader Class "Large Traders", and (mostly) the Trader Class Swap Dealers. But the latter are intermediaries, they act in behalf of clients, and usually those that act through swap dealers are big funds / institutionals (read: State).

Silvers $30 to $50 had little to nothing to do with the futures market.
It was even the opposite, the cash market entities literally smashed away the price effect of the futures market entities.
The futures hedge increased early 2011 (jan/feb) from 45K to 55K and dropped to 40K BEFORE may and $50.
During april 2011 the spot price increased from $40 to $50 despite the futures market dropping 10K.

To summarize:
1) The futures hedges price component/effect is total net position not open interest, so 107K instead of 218K.
2) $30 > $50 didn't need 2 billion ounces silver, "just" a supply increase of 600 Moz combined with a demand drop of 600 Moz.
3) The futures market isn't the only possible price driver, the cash market is the second, and as in 2011, can overrule the futures market.
That's how it works monopolize.

 

Why is open interest not accurate? Isn't open interest the number of contracts that are still possible to be exercised?
How would total net position not be 0? Someone offers to sell the contract and someone agrees to buy thus the total net position would be 0, or is that inaccurate?

 

But hold on there Pirocco, the etf's didn't add any physical but Indian demand has been going up from 2013-2015

2012 70 million oz

2013 200 miilion oz

2014 250 million oz

2015 300 miilion oz



So the demand CHANGE, if you take into account Indian cash market demand would be + 50 million oz for each of 2013-2015.

Adding to that the net positioning (paper demand) as per your chart went from about 0 to 50,000 over that period (with fluctuations), so how do you explain the fall from $30 to $14 based on that supply and demand fundamentals, when it looks like demand increased in both markets?

 

US non-farm payroll out tonight. Market is expecting a figure of 180k and wage growth of 0.2%.

If it's a decent miss and last month's 287k figure gets revised downward, it should be enough to propel gold through the $1376 resistance level that is been stuck at. It would also help if wage growth misses as well. If it's a beat or the figures come in as expected gold should sell off towards the $1350 level.

Trading the EUR/USD and the AUD/USD currency pairs

10:30pm AEST

 

So you wait for figures and ride the swing or take a punt on which way your expecting?

 

I think Caput likes to ride the swings.

It's very difficult to predict stuff like this and you're always at a disadvantage trying to anticipate moves because often the insiders get the good oil and start moving the market before the public get all the information. Payroll data in particular can be very prone to manipulation IMHO so take a guess on it if you've got money to lose.

My personal opinion (guess) is that the numbers will be positive tonite. There is strong motivation to deliver good news to the market ATM.

 

I place pending orders both above technical resistance levels and below technical support levels. The figures are announced, the market goes one way or the other triggering one of the orders. I cancel the other order and ride the price movement until I hit a take profit sell order, a trailing stop or I simply believe the market has moved enough. I will then sometimes use Fibonacci retracements levels to take advantage of any pullback on the initial movement. I always trade with stop-losses in place for the occasional whip-saw price movement, but it doesn't happen that often.

Basically I play both sides of any movement. I would like see a miss as I have other precious metals investments which would benefit from a weaker USD, but by taking profit on the opposite trade it acts as an indirect hedge against my precious metals investments. It also makes Pirocco cry

 

I don't understand this bit either Pirocco. The hedge funds and commercials are counter parties on the comex, trying to make money off one another. Why would they work together?

 

the executors are not the same as the companies.

by working together they can both front run their companies.

 

So they work together to screw the mining companies?