Gold and Silver ETPs Inflows

From Commodity Universe: 

Gold ETPs saw the strongest inflows of any commodity ETP besides silver in February and March, with inflows of $322mn and $536mn respectively. Large outflows in January ($946mn), however, meant that for the full quarter there were in fact $88mn of outflows. 

Silver saw the largest inflows of any commodity ETP group during the quarter, $354 net purchases, as investors looked to the metal as a leveraged play on improved sentiment towards gold. Silver was one of the few commodity ETPs to see inflows in every month of the first quarter, following on strong inflows in 2013.  It appears that investors view the silver price around the $20/oz level as a good entry point (less than half its 2011 peak) and with silver often viewed as a high beta version of gold, improved sentiment towards the gold price is causing investors to build positions in silver ETPs. 

Forbes has more details. And this could lead to more upside for gold.

6 Important Stories on Gold

1. ETF Purchases of Gold Rise Again: There were purchases of gold into the SPDR gold ETF [GLD] of 3.297 tonnes but none into the iShares Gold Trust [IAU], on Friday, which left their respective holdings at 816.593 tonnes and 165.14 tonnes.

2. RBCCM sees gold rally ahead - similar to 2005-2008
Royal Bank of Canada Capital Markets analysts Dan Rollins in Toronto and Jonathan Guy in London have come up with a detailed analysis of the gold market over the next few years comparing it with the big ETF driven gold price rally of 2005-2008.Over that period, gold doubled in price from $450 to $900.

What they see as the huge, and sustainable, rise in gold purchases by China, which they reckon as replacing the surge in ETF purchases which drove prices after 2005 up until the 2012 crash.

Taking the net Hong Kong gold import figures alone, plus Chinese gold mine production, China appears to have absorbed just short of 1,600 tonnes of gold in 2013 alone – and the true figure is likely to be far higher given there are other routes for Chinese gold imports than just via Hong Kong.

Back in 2005, Chinese gold imports were negligible – so the difference here is enormous and is actually far bigger than the sales out of the ETFs. Read the rest

2. Speculators expect gold, wheat to get Ukraine price boost
Hedge fund managers are piling back in as the escalating crisis in Ukraine spurs a rebound in the prices of both commodities.

XX Sean's note -- this is actually a bearish force in the market, because the hedge funds will sell the minute the wind shifts.

3. Chinese Yuan Tumbles Again
The People's Bank of China widened the daily trading band around which the value of the Chinese yuan is allowed to deviate from the daily reference rate to 2% from 1%.
The announcement comes on the back of a PBoC-engineered weakening of the yuan (via lower reference rates) over the past several weeks — largely designed to shake out carry-trading speculators

XX Sean's note: A weakening of the yuan (or renminbi) means that gold prices are higher for people in China. This, along with other harbingers of inflation in China, makes them more likely to invest more money in gold. China also wants its people to own gold, long term. So unlike India, they won't discourage this investment in gold.

And let's in the fact that many of the wise sages of the market said that China's currency would appreciate as the government widened the band. Obviously that's not happening, so they're all caught on the wrong side of the market.

4. 2013 U.S. gold production down 128,602 oz - USGS
Also, 2013 worldwide gold production increased by 3% from 2,690 metric tons to 2,770 metric tons due to increases in production from Brazil, Canada, China, the Dominican Republic, and Russia, “which more than offset production decreases in Peru, Tanzania, South Africa, and the United States”. There are a lot of good stats in this story. Read the rest.

5. Bruised gold miners return tentatively to hedging
Increasing numbers of gold miners, battered by last year's drop in bullion prices, are selling planned output forward to help shore up their finances for stormy times.

XX Sean's comment: Obviously, many miners STILL don't believe the gold price rally is for real. You can't blame them after 3 years of a bear market, but it just shows that sentiment is awful, as I wrote about in a FreeMarketCafe.com piece about my recent trip to the Prospectors & Developers Association of Canada (PDAC), the world's biggest mining conference.

6. Gold Weaker as Market Place Takes in Stride Crimea Vote to Succeed
XX Sean's note: On Friday, I told Gold & Resource Trader subscribers to expect this -- as well as a rally in the broad stock market. So what do you do now? And what comes next? GRT subscribers know what I think. We'll be acting on it soon. Stay tuned, my friends.

Investors Return to Gold Funds

From the Wall Street Journal ...

SPDR Gold Shares, known by its ticker symbol GLD, has added 10.54 metric tons to its gold holdings this month through Wednesday, boosting its total to 803.7 tons. Net inflows for the year total $255 million.

(chart source)

One thing not covered in the article:  Total selling by bullion-backed funds was something like 869.1 metric tonnes of gold last year. If bullion-backed funds buy 150 metric tonnes this year -- which I think is very possible -- then that's a shift in global supply/demand for gold of more than a thousand metric tonnes. 

And that is a big deal.

Why I Exited Most of My Gold Positions Today

What a busy day -- I've had no time to update the blog.  But I sold a bunch of my precious metals positions at the open today. Here's why ...

Even though the Fed announced no change in its quantitative easing policy yesterday, gold sold off hard. That's a bad reaction to good news -- bearish.

The pain continued when the Wall Street Journal's Jon Hilsenrath -- aka The Mouth of Bernanke -- published an article saying that "taken together, the Fed

The Mouth of Bernanke strikes fear in markets

isn't taking a December adjustment o the bond-buying program off the table."

That caused the jittery bots on Wall Street to put on a hawkish trade. They sold gold bonds and stocks.  The Dollar Index rallied.

Too bad the bots didn't bother to read Hilsenrath's next sentence: "But that comes with the strong caveat that it depends on whether the economy is living up to expectations."

Interestingly, many gold miners rallied at the end of the day yesterday. So I was on the fence.  But thinking about it overnight, I decided that discretion was the better part of valor.

So, I exited ...

• Silvercrest with a small loss (8.5%, but it was a half position, and cheap).
• Global X Silver Miners flat. I gained 3 cents a share on the trade -- not enough to cover costs.
• Market Vectors Junior Gold Miners at a 5.4% loss. Grr!
• Market Vectors Gold Miners at a 1% gain.
• B2Gold at a 2.5% gain on the combined position. I'd doubled up on that one. 

The only precious metals position I kept was Primero. Because I don't know which level of support GLD is going to test.

(Updated chart)

Maybe gold is going to head higher from its 20-day moving average (I can always buy more miners if it does). Or maybe it will go test support around 121.

I would look forward to that buying opportunity. 

I'll be more selective on miners operating in Mexico, because the Mexican Senate passed the new mining royalty law. As of January 2014, mining companies in Mexico will pay an additional 7.5% royalty on pre-tax profits and precious metals will pay 0.5% extra on top of that.

In any case, I strongly believe we saw the bottom in late June. 

That's when the selling by gold ETFS seemed to peak. Investors sold 750.2 tons through gold-backed exchange-traded products this year, erasing $60.1 billion from the value of the funds, according to Bloomberg data. Holdings reached 1,881.4 tons on Oct. 25, the lowest since April 2010.

In other news, the Chicago PMI blew out expectations, coming in much higher ...

Source

Here are the details. Two of the most impressive aspects of this month's Chicago PMI report were the big jumps in Production (+13.1) and New Orders (+15.4).

Will more news like that cause the Fed to hike rates?  I think the Fed is looking for more jobs. And the looming budget battle should cast a cloud over the economy. Once traders realize that, they'll come back to gold.

Elsewhere in the world, demand for gold is heating up.

• Demand for bullion in Dubai expanded eightfold in the last six to 10 years
• Gold premiums in India are at a record, and traders in that country still can't find supply, the government crushes legal imports. 
• Not surprisingly, the fastest growing industry in India is gold-smuggling.
• Central banks were quite bullish on gold at the LBMA Conference. The central banks of France and Germany said they had no plans to sell gold.

Gold Price Watch: 10 Fundamental Truths on Gold

Here are some facts we know ...

• Central Banks keep adding to their Smaug-sized hoards of gold. But they're still below levels of a decade ago.

Source: Sharelynx.com

• Net Chinese gold imports through Hong Kong plus the country’s own domestic production, are together likely to reach well over 1,500 tonnes in calendar 2013.

• Despite government attempts to discourage imports, India's gold imports should be close to 1,000 tonnes this year. More if you include all the smuggled gold.
• Together, China and India will account for nearly all the world’s 2013 newly mined gold supply.
• In percentage terms, they are consumers of more than 60% of global gold.
• Selling of physical gold by exchange-traded funds is the biggest bearish force on the market right now. 

• Investors sold 711.8 metric tonnes from bullion-backed exchange-traded products this year, erasing more than $61 billion from the value of the funds, according to Bloomberg.
• But the sheer amount of gold being produced also had an effect, at least through the end of 2012. The world produced 2,848 metric tonnes of gold in 2012.

• How much will production change with gold prices under pressure? Gold produced by US mines has dropped 5% from 2012 to-date totals and is almost 10% lower than 2011 to-date totals.

• The price of gold is well under the average all-in cost of mining gold, which is $1,538, according to Societe Generale.

These are some important things to keep in mind when considering investments in precious metals and miners.

Oil Prices Trend Lower. But This Energy Fund Is A Winner (3 Charts) ...

I'm choosing today's energy winner for a few reasons, which I'll explain in a minute. 

First, the pick o' the day. The SPDR S&P Oil & Gas Equipment & Services ETF (XES) ...

(Updated chart)

As you can see, the XES is breaking out of its recent range. You could buy it with a stop at either the recent bottom of the range ($41.50) Or below the 50-day moving average OR below the recent uptrend if you have a stomach for risk and  big ol' brass ones.

Why I chose XES ...

1. Obviously, it's breaking out. My target is $62.

2. It's indicative of what's going on in the industry. Increasing oil demand is driving oilfield service activity. 

Source

3. It's an example of how select energy stocks and funds can do well even when oil prices go lower

(Updated chart)

In the short term, oil prices look to get weaker.  Sure, the bigger trend is up. If we get a test of support around $99, that's probably a great buying opportunity.

So why do energy stocks go up when oil goes down? While the price of oil is becoming more and more a reflection of global demand, there are still blockages getting oil out of Cushing, and prices could remain under pressure for a bit as American oil production continues to crank higher. Meanwhile, plenty of companies are VERY comfortable with oil in the $100+ range, and they want to pump more oil. So, the oilfield services companies are doing booming business.

Finally, oil services companies are being helped by the breakout in natural gas prices, which I talked about on Wednesday. We've seen follow-through as nat-gas moves to multi-month highs. This is sparking new interest in drilling for nat-gas and associated liquids.

I've seen multiple stories that the government shutdown is going to negatively impact the oil industry. So far, the action in oil industry stocks is calling those reports wrong. We'll see how it goes, though.

And remember, there are plenty of companies that do better when oil prices go lower.  Airlines (Spirit, US Airways, Delta), for one. Travel companies (Allegiant Travel) for another. Companies that use oil as an input -- for example, agricultural chemical companies like American Vanguard. 

Those are just some ideas.  In any case, these three charts show that while oil prices may be headed lower, select oil industry stocks and funds should head higher. 

I'm not your investment advisor. Do your own due diligence before buying anything.  And a smart investor would have a stop in mind -- and a profit target -- before buying anything.

The Great Gold Caper

The turmoil in the Middle East has shone a spotlight on gold recently, as the yellow metal cracked overhead resistance like an old tin roof and shot up into a new bull market. The spot gold price briefly rose above $1,430 an ounce to a three-and-a-half-month high on Wednesday on safe-having buying.

Sure, it's pulled back from those highs. Nothing travels in a straight line. Just you wait. Other forces are lining up to make this bull bigger than ever!

This might seem strange, considering that investors sold 684.64 metric tons of gold held in exchange-traded products this year, erasing $54.3 billion in value.

The bankers had their reasons. I’m not a Wall Street banker, but I guess their plans included buying gold back at cheaper prices.

But the best-laid plans of monsters and men can go awry, and someone was standing ready to buy up all the gold the funds had to sell – and then some.

Now, the dust is settling.  And the gold has disappeared into eager hands. It’s the biggest transfer of gold from West to East that the world has ever seen, as China and others scooped up all that gold on the cheap.

Even now, forces are coming into play that could push the price of the yellow metal much higher. If the big banks planned this caper to buy gold on the cheap, they’re left holding the bag.

The facts are stark.

•          UBS AG said in a report on August 15 that gold inventories on the COMEX in New York are falling fast. They’ve dropped to their lowest level since 2005. Where did that gold go? Read on …
•          Great Britain is shipping enormous amounts of its gold to Switzerland. Britain shipped 92 metric tonnes of gold to Switzerland in all of 2012.  In the first half of this year, it shipped a whopping 797 metric tonnes. Once that gold gets to Switzerland, it is remelted into different-sized bars and coins and then sold to buyers in China and India, Macquarie reports.
•          Meanwhile, Hong Kong reported imports of gold from Switzerland of 370 metric tonnes in the first half of 2013. That’s more than 4 times what was imported during the same period a year earlier.  And Indian imports rose by more than 100 tonnes year on year.
•          Finally, sales of jewelry, coins and bars in China and India will reach as much as 1,000 metric tons EACH in 2013, the World Gold Council estimates. That’s a combined value of $87.6 billion.
•          In the first two quarters, gold buying in China came in at 571 metric tonnes. That is 45% compared to the same period last year.
•          The gold-buying in India is happening despite the fact that the government there has raised import taxes three times in eight months and added draconian restrictions on gold imports. Still, with gold purchases are at 568 tonnes. That is up 48% year over year.

And it’s not just India and China. Outside of those two countries, another 650 million people spread across Southeast Asia.  More and more of them are joining the middle class, and those cultures have an affinity for gold.

Heck, Indonesia is Southeast Asia’s most populous country, and gold jewelry demand in Indonesia is hitting a four-year high. In fact, it’s up 30% year over year. Add in investment demand, and it’s up 55% year on year. So we can add that to the list of forces that are lighting a fire under gold, as Asian demand for the yellow metal turns white hot.

As this Reuters chart shows, if you add together gold demand in East Asia and India, that adds up to more than 50% of the world’s gold demand. Wow!

So, to sum up, bankers and other heavy hitters in the West decided to sell gold hard.  Asia bought it on the cheap. But guess what?

That’s not the end of the story.

The Tide Turns

ETF selling of gold has been the biggest bearish force weighing on the yellow metal. I’m talking grizzly bear bearish. That trend hammered gold lower through the first half of the year. But all trends end.

Now, Bloomberg reports that the gold ETFs it tracks saw inflows of 4.7 tons last Friday, the highest to have been recorded since the end of November 2012.

And this week, the SPDR Gold Trust gained 29,000 ounces on Tuesday.

And for the week, and looking at ALL gold exchange-traded products, holdings in funds backed by bullion rose 2.6 metric tons  to 1,954.6 tons, data compiled by Bloomberg show.

This is the third straight week of additions. It seems that investors want to buy gold again. It sure looks like the tide has turned!

Certainly we've hit an extreme. Despite recent inflows, bullion held at SPDR Gold Trust is still near its lowest level since early 2009 and about 30% below a record high set in December 2012.

So here’s the billion-dollar question. Now that investors want to buy gold again, who is going to sell? Asia?  Probably not. They still pay higher premiums for gold in Asia than we do in the West.  They still want it … badly.

Heck, thanks to rising import duties and premiums -- and the falling rupee --  people in India are paying the equivalent of $1,800 an ounce to buy gold. The price of gold in India has jumped 2.5% in just the last five days! (see chart).

And they’re still lining up for it.

And then there is the seasonal demand factor that I covered in yesterday's Investment U column. 

Meanwhile, gold mines themselves -- especially in South Africa -- are facing production squeezes.  

So, if you add it all up, this sure looks like forces are falling into line for a push to higher prices. My target is $1,650.

Maybe I'm too pessimistic. I've also heard $3,500 and $10,000 as potential gold targets, from quite respectable sources.

What's your target?

6 Must-Sees for Sunday -- Including 4 Gold Charts

#1: Thirteen Things the Government is Trying to Keep Secret from You

The President, the Head of the National Security Agency, the Department of Justice, the House and Senate Intelligence Committees, and the Judiciary, are intentionally keeping massive amounts of information about surveillance of US and other people secret from voters. 
Read more.

#2: Barry Ritholtz: How to Avoid Being a Wall Street Muppet

About 10 percent of the new accounts that we see are muppet portfolios. These typically hold hundreds of positions. Mind you, these are not from a family office with $150 million, but a portfolio 1 percent of that size. There is no rational reason for these sorts of assemblages to be holding 100-plus positions.
Read More.

#3: Gold's Breakout Has Only Begun

Source 

#4: On The Other Hand ...

@AllStarCharts Shows Why He Just Faded Gold ...

Source

#5: Asia's Gold Reserves as Percent of World Gold Reserves

Source

#6 Physical Gold Delivered on Shanghai Gold Exchange Vs World Mining Production

Source

Shanghai Gold Exchange
- 39 metric tonnes delivered in week 32 (left the SGE vaults), 12-08-2013/16-08-2013 
- w/w + 4.93 %
- 1424 metric tonnes delivered year to date

Global Gold Demand, And Why It's About to Change

Courtesy of Reuters ...

Why this is so important: First, India and China should EACH buy 1,000 tonnes of gold this year. Second, exchange-traded-product selling of gold was a major bearish force in the markets through July. But more recently, the SPDR Gold Trust GLD saw its gold holdings rise on Wednesday for the first time since late May.

In other words, the selling pressure that has kept its boot on the neck of gold prices for months may finally be about to lift.

One data point is not a trend. But this may mark the beginning of the bottom in gold. Be careful -- you're in charge of your own investing destiny.