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Saturday, February 23, 2013

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Reports say hedge funds and large money managers are dumping their gold

Posted: 23 Feb 2013 12:04 PM PST

From The TSI Trader:
 
I came across some information earlier this evening that appears to be not only interesting, but may also provide a decent clue that gold is not likely to trade much, if any, lower.
  
The following link will take you to the full discussion and I wish all credit to be given this author, Mr. Arensberg and his GGR -- Got Gold Report, from which I have shared the chart below.
 
What follows is one of his excellent charts from his publication dated a few days ago - February 18th. It details the weekly net Managed Money COT gold position (blue) as well as the price movement of gold futures since 2008 (maroon).
 
I encourage you to read his report if you are interested in either the current positioning of the various powers within the Commitment of Traders report (COT), or if you are specifically interested in the widely touted notion that hedge funds are abandoning their gold investment positions.
 
My interest in this chart, to be honest, is to assess how smart these hedge funds are.
 
I have drawn five light blue arrows to locations in the past seven years when the positioning of Managed Money was heavily short. At present you may notice that they are more short of gold than anytime since 2008...
 
 
More on gold:
 
 
 

A rare "behind-the-scenes" look at Stansberry Research's most advanced trading system

Posted: 23 Feb 2013 12:04 PM PST

From Sean Goldsmith in the S&A Digest:
 
You've likely seen an e-mail from us about a "$900,000 website" developed by Steve Sjuggerud – the big-wave surfing, guitar-playing financial guru from S&A…
 
For years, Steve has been working with a Ph.D. in mathematics, Dr. Richard Smith, to develop a computer program to wrangle an almost unimaginable amount of market data into useful and profitable trading systems. The goal was to provide you, our reader, with the kind of technical, proprietary data analysis large hedge funds use to consistently beat the market.
 
These hedge funds spend millions, even tens of millions, of dollars on the brainpower and data behind their trading systems. And they go to great lengths to ensure nobody outside the firm (in some cases, even employees at the firm) know the strategies they're using.
 
At S&A… we strive to make this kind of high-quality research and analysis available to everyone. We've spent nearly $1 million to build a sophisticated set of proprietary programs that quantify the strategies Steve developed over his career. (We spend $200,000 a year just on data.) These systems can now scan a vast array of market data and yield buy/sell signals.
 
The result is a service called True Wealth Systems – a high-end trading service based on decades of Steve's financial knowledge and Dr. Smith's mathematical prowess. And our system tells you EXACTLY when to get in and out of a trade.
 
Unfortunately, like the hedge funds, we can't share the specific details of the trading strategies Steve uses in True Wealth Systems. Sharing the specifics would make them much less effective… even useless. (Of course, we share the results and the recommendations with subscribers… just not the process.)
 
To date, Steve has developed more than three-dozen tradable systems. They monitor investment opportunities in every corner of the market: commodities, currencies, stocks… you name it. That way, we're always able to make money somewhere…
 
In today's Digest, I'd like to share some of the results of this work… and how True Wealth Systems has helped produce huge returns for our readers…
 
To start, let's take a look at a recommendation from the January 2012 issue of True Wealth Systems…
 
A little more than a year ago… Steve recommended going long drug stocks. Using the True Wealth Systems programs to study nearly 60 years of history, he found a signal for buying drug stocks based on price-to-earnings ratios and dividend yields.
 
When displaying historical results, Steve used Johnson & Johnson (JNJ) as a proxy for the sector. Between 1957 and 1972, JNJ returned 3,569%. In its next bull market (1984-1999), JNJ returned 2,393%.
 
As Steve pointed out in that issue…
 

It is true that the drug companies will grow slower today than they did 20 years ago. But that is fully priced into these stocks right now. Drug stocks today are just as cheap as they were back in 1984, when they took off for thousands of percent gains over a massive 15-year bull market.

 

Based on dividends, you could argue that drug stocks are a better deal today than they were back in 1984.

 

Back in 1984, interest rates were much higher than they are today. At the time, nobody in their right minds would have considered the 4% dividend on drug stocks as competitive with the double-digit interest rates you could have earned by buying government bonds. Even boring bank CDs were paying double-digit interest rates back then.

 
At the time of the issue, drug stocks were yielding nearly double that of the wider market… and more than double the yield on 10-year Treasurys. The stocks had to rally, or government bonds had to crash (meaning yields rise)…
 
Here's the actual chart from that issue showing how the True Wealth Systems signal would have traded drug stocks going back to 1975… When the line is green, the signal says investors should be in drug stocks. When the line turns red, that means investors should be out of the sector…
 
 
The drug-stock signal would have had investors in "buy" mode 62% of the time, based on history. And it compounded investor capital at 22% a year when in buy mode – an extraordinary compound annual gain.
 
In the January 2012 issue, Steve used this signal to recommend shares of the ProShares Ultra Health Care Fund (RXL). His subscribers have already made 63% on the position in a little more than a year.
 
The system also works on short-term trades… In August 2011, True Wealth Systems generated sell signals on everything but gold…
 
In the next month, U.S. stocks fell 6% (a huge one-month drop). Other countries' stock markets fell even more. But gold rose 12%. And the True Wealth Systems gold recommendation of PowerShares Deutsche Bank Gold Double Long exchange-traded note (DGP) was up 25%.
 
True Wealth Systems also flashed "buy" on homebuilders in December 2011… Today, readers are up nearly 100% on the fund Steve recommended as a result. Steve has used his system to help subscribers profitably trade biotech, steel, Italy, the S&P 500, and Singapore, to name a few.
 
And remember, the best part is, True Wealth Systems tells you exactly when to get in and out of the trade (based on sophisticated analysis of decades of data).
 
And in his latest issue, Steve recommended what he calls the U.S. Treasury's "stock option" program. In short, as a result of the financial crisis, the U.S. government was left holding "warrants" on banks worth billions of dollars.
 
Most warrants act like call options… They give the owner the right to buy a share of stock for a set price at any time before the expiration date. But warrants last for years, whereas most options expire in months.
 
But the government doesn't want to own these warrants, so it's started selling them on the stock market. True Wealth Systems picked up on this opportunity. These warrants are cheap… And while bank stocks have ripped higher, the warrants have stayed flat.
 
Based on the analysis of historical data, Steve believes one of these warrants could return 907% by 2018… And the underlying stock only needs to reach its historical price-to-book ratio for these gains to be possible.
 
Steve calls True Wealth Systems his "life's work" and "the culmination of everything I've learned in the investing world in the past 19 years." It's a true passion for him… And it's making our readers money.
 
Crux Note: If you'd like to access Steve's True Wealth Systems strategies, click here to learn more about a subscription.
 
More on trading:
 
 

Trader alert: A bearish sign is developing in several important markets

Posted: 23 Feb 2013 12:04 PM PST

From All Star Charts:
 
It looks to me like the U.S. stock market is finally joining this Bearish Divergence party that we've seen throughout Europe this year. I think this is a development that is worth paying attention to.
 
You see, when prices in a given asset class make new highs, we also want to see momentum putting in higher highs. When momentum diverges, it's a heads up that something isn't right.
 
Think about it, when you throw a tennis ball up in the air, momentum in the speed of the ball is going to slow before it eventually hits its peak and reverses right? Same thing in markets. 
 
In our case, we use the Relative Strength Index (RSI) as our momentum indicator of choice. We saw this oscillator diverge out in Europe throughout January, and we're currently watching the consequences...
 
 
More on technical analysis:
 
 
 

What you need to know about the terrible sentiment toward gold

Posted: 23 Feb 2013 12:04 PM PST

From Acting Man:
 
Yesterday, the January Fed minutes were greeted with a heavy dose of renewed selling, on the widely held view that they indicated a sooner-than-expected return to a somewhat less expansive monetary policy. Bridges in Brooklyn come immediately to mind, but of course we cannot know the future with certainty.
 
Gold itself remains above a few major near-term support levels (barely), but the gold-stock indexes actually breached their equivalent supports and are now poised above what looks like a lot of empty space.
 
Not surprisingly, already bearish sentiment has turned even more bearish.
 
For instance, the daily sentiment index (DSI), a survey of futures traders, clocked in at 3% bulls yesterday. That is an all-time low and is incidentally equivalent to the percentage of SPX bulls found at the March 2009 low in terms of the DSI.
 
We wanted to show a few charts that illustrate the situation further...
 
 
More on gold:
 
 
 

Bob Moriarty: Calling Tops and Bottoms

Posted: 23 Feb 2013 10:21 AM PST

"The technical funds and small traders are now loaded for bear on the short side."

¤ Yesterday In Gold & Silver

The gold price rallied slowly until mid-afternoon in Hong Kong...and then began a long, slow slide that ended around 12:40 p.m. in New York. Once the Comex closed, gold rallied a bit into the 5:15 p.m. electronic close.

Gold finished the Friday trading session at $1,581.50 spot...up $4.50 on the day. Gross volume was pretty decent...around 151,000 contracts.

It was pretty much the same chart pattern in silver, but once the Comex opened for business, the sell-off in silver became much more pronounced and, like gold, had it's low price tick of the day [$28.29 spot] at 12:40 p.m. during the New York lunch hour.

The subsequent rally lasted until 4:00 p.m. Eastern time...and from there the silver price traded sideways into the close of electronic trading.

Silver finished the day at $28.76 spot...up 8 cents. Net volume was pretty light...around 27,500 contracts.

The dollar index opened on Thursday at 81.36...drifted a bit lower and hit its low [81.22] at 9:00 a.m. in London. From there it rallied to its high of the day [81.58] at the London p.m. gold fix at 3:00 p.m. GMT...10:00 a.m. in New York...and drifted lower from there into the close. The index ended the day at 81.46...up 10 basis points from Thursday's close. Nothing to see here.

The gold stocks rallied at the open of trading...and were up over a percent within the first twenty minutes. However, there was a willing seller waiting to send them back into negative territory...and all of this occurred about 25 minutes before gold's high tick was in for the day. From that point, the shares traded more or less sideways into the close...and the HUI finished down 0.47%.

The silver stocks finished mixed, but unlike Thursday, this time the juniors did well...and virtually all the stocks that make up Nick Laird's daily Intraday Silver Sentiment Index finished in the red...and it closed down 0.80%.

(Click on image to enlarge)

Here's the long-term Silver Sentiment Index...

(Click on image to enlarge)

The CME's Daily Delivery Report showed that 27 gold and 1 silver contract were posted for delivery on Tuesday.

Once again there was another big withdrawal from GLD. This time it was 309,694 troy ounces. Since the engineered price decline in gold began two weeks ago, almost 1.5 million ounces of gold have been withdrawn from GLD. And once again the SLV ETF was a surprise, as it reported no changes. As I reported in this space yesterday, since the engineered price decline in silver began two weeks ago, almost 3.5 million ounces of silver have been added to SLV.

The U.S. Mint had a small sales report yesterday. They sold 7,000 ounces of gold eagles, along with 24,000 silver eagles. Month-to-date the mint has sold 63,000 ounces of gold eagles, 9,000 one-ounce 24K gold buffaloes...and 2,546,500 silver eagles. Based on these figures, the silver/gold sales ratio is a bit over 35 to 1.

Over at the Comex-approved depositories on Thursday, they reported receiving 871,417 troy ounces of silver...and shipped 474,597 troy ounces of the stuff out the door. The lion's share of the silver reported received, ended up in the JPMorgan Chase depository. The link to this action is here.

Well, the changes in the Commitment of Traders Report yesterday were right in line with what both Ted Butler and I were expecting.

In silver, the Commercial net short position declined by 44.2 million ounces...and now sits at 189.8 million ounces.

The Big 4 traders in silver are short 233.0 million ounces, which represents about 123% of the entire Commercial net short position. Ted Butler says that about 142.5 million ounces of that amount is held by JPMorgan Chase all by itself. The '5 through 8' traders are short an additional 53.6 million ounces of silver. The Big 8 in total are short 286.6 million ounces of silver.

As far as concentration goes, of the 155,353 contract total open interest in silver, a full one third of that amount are market-neutral spread trades...and once they are netted out, the true open interest in silver falls all the way down to 102,722 contracts.

Using that net number, the Big 4 are short 45.4% of the entire Comex silver market...and JPMorgan [the Big 1] holds about 28 percentage points of that number net short on its own. The '5 through 8' short holders are short an additional 10.4 percentage points of the Comex silver market on a 'net' basis. So the Big 8 in total are short 56.2% percent of the entire Comex futures market in silver...and that's a minimum number.

In gold, the Commercial net short position declined by an eye-watering 2.86 million ounces...and the new Commercial net short position has fallen all the way down to 13.21 million ounces.

The Big 4 are short 8.95 million ounces of gold...and the '5 through 8' traders are short an additional 5.50 million ounces. So the Big 8 are short 14.45 million ounces of gold, or 109.4% of the entire Commercial net short position.

In gold, the market-neutral spread trades are far fewer...only about 17% of the total open interest...or about half the amount of spreads on a percentage basis that are present in silver, so the concentrations aren't as high in gold as they are in silver.

On a net basis, the Big 4 in gold are short 24.2% of the entire Comex futures market in gold...and the '5 through 8' largest traders are short an additional 14.8% of the futures market in gold. Add the two numbers up...and the Big 8 are short 39% of the entire Comex futures market in gold...and a big drop from the prior week's COT report.

Of course, the two most important days of the engineered price declines in all four precious metals occurred on Wednesday and Thursday...and none of these numbers were in yesterday's COT Report.

But Ted and I are speculating that we'll see more big improvements in the Commercial net short positions in both silver and gold...north of 5,000 contracts in silver...and north of 10,000 contracts in gold. Even with these numbers factored in, we are not yet at the low COT numbers either from last summer, or between Christmas and New Years back in 2011.

The other thing about yesterday's COT Report that Ted mentioned was the massive short positions being placed in silver and gold...particularly gold...in the technical fund and small trader category. Ted figures that a lot of the negative price action on both Wednesday and Thursday was the result of new short positions being placed.

Here's Nick Laird's "Days of World Production to Cover Short Positions" for the week that was. Note the extreme short positions of the four largest short holders in silver...and as I pointed out last week, it's my opinion that JPMorgan Chase, the Bank of Nova Scotia...and HSBC USA...hold 95% of the short position of the Big 4...and the positions of the remaining five traders in the Big 8, either individually or collectively, are irrelevant.

(Click on image to enlarge)

I've decided to include the same chart from February 12th, so you can see the week-over-week changes in each commodity. If you want to see further back in time, you can click on the interactive silver COT charts here...and the interactive gold COT charts here.

(Click on image to enlarge)

Before heading into today's story list, here's a photo of some of the gold and silver bars that are being held by Switzerland's Zürcher Kantonalbank. It appears that they may have some storage/space issues, as these good delivery bars in the foreground are piled on the floor. I thank reader Eric Strand for providing this most excellent picture.

I have a large number of stories for you to wade through...and I hope you can find time to read the ones that interest you in what's left of your weekend. There have been some changes since yesterday's column...and they are permanent [touch wood] as the sentence "The link is here." is now history...and you have to click on the headline to read the story.

¤ Critical Reads

Economists Warn Fed Risks Losing Control Amid Budget Deficits

Four economists, including a former Federal Reserve governor who has co-written research with Chairman Ben S. Bernanke, warned that losses from the central bank’s more than $3 trillion balance sheet could lead to the Fed losing control of monetary policy.

“The combination of a massively expanded central bank balance sheet and an unsustainable public debt trajectory is a mix that has the potential to substantially reduce the flexibility of monetary policy,” the economists write. “This mix could induce a bias toward slower exit or easier policy, and be seen as the first step toward fiscal dominance. It could thereby be the cause of longer-term inflation expectations and raise the risk of inflation overall.”

The conclusion from economists, including Frederic Mishkin, a governor at the central bank from 2006 to 2008 and an academic collaborator with Bernanke before that, will be presented at the U.S. Monetary Policy Forum in New York. Their paper serves as a high-profile warning to an audience including Boston Fed President Eric Rosengren, Fed Governor Jerome Powell and St. Louis Fed President James Bullard.

This Bloomberg article was posted on their website early Friday morning Mountain time...and I thank Manitoba reader Ulrike Marx for today's first story.

Fed unlikely to curtail stimulus despite rising doubts

U.S. Federal Reserve officials are likely to press on with their bond-buying stimulus program even though some harbor growing concerns the purchases could fuel an asset bubble or inflation if pushed too far.

A full-throated debate among U.S. central bankers over the wisdom of ongoing quantitative easing, or QE, sent U.S. stock prices down sharply when minutes of the meeting were released on Wednesday.

Investors were right to assume the Fed is treading more carefully as it weighs the risks of its effort to spur a faster economic recovery, but that does not mean policymakers will conclude the costs outweigh the benefits.

Indeed, the officials who have voiced the greatest angst over the central bank's course do not currently have a vote on the policy-setting panel and the Fed's two most influential officials -- Chairman Ben Bernanke and Vice Chairman Janet Yellen -- are seen as committed to the bond-buying plan.

I found this Reuters story in a GATA release yesterday.

Fed Officials Reject Warning Losses May Weaken FOMC Clout

Two Federal Reserve policy makers rejected a warning from economists that potential losses on the Fed’s $3.1 trillion balance sheet may undermine central bank control of monetary policy.

Boston Fed President Eric Rosengren said today “this discussion does not do justice to the policy trade-offs” of the Fed’s large-scale asset purchases, referring to a paper written by four economists, including Frederic Mishkin, a former Fed governor and co-author with Chairman Ben S. Bernanke. Fed Governor Jerome Powell dismissed a suggestion policy makers won’t act to curb inflation.

This Bloomberg story was posted on their Internet site early Friday afternoon Mountain time...and I thank Washington state reader S.A.for sharing it with us.

Fields of Gold: 'Inflationary expectations' are not so well-contained with U.S. agriculture

On the basis of headlines alone, you might be forgiven for thinking that last year's record-breaking drought had devastated American agriculture. Across the Midwest (and farther afield) more than a thousand counties in 26 states were declared natural-disaster areas -- the largest such ruling that the U.S. Department of Agriculture (USDA) has ever made. Yet despite withered crops, sun-baked soil, and damage from wildfires, some think that farming is in the midst of another golden age, thanks to booming commodity markets and record prices for farmland.

In recent years strong global demand for food and biofuels has been pushing crop prices higher. The drought has helped, not hindered, profits. For farmers able to produce corn (maize), it raised prices dramatically. The average price of corn was about 20 percent higher last year than in 2010, and reached $8.49 a bushel (25kg) in August. For everyone else crop-insurance payments have stepped in, reaching a record $14.2 billion in payments in mid-February, a figure that is expected to go on growing a bit as insurers finalise the claims. This year, according to a report from the USDA on February 11th, farm profits may rise by 14% to $128 billion, the highest in real terms since 1973.

This is story was from The Economist in London...and will appear in their print edition today. I found the story buried in another GATA release yesterday.

Dr. Marc Faber: The Stock Market Has Peaked