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.

6 Gold Stories for Wednesday, & 1 Chart

1. Global Gold Coin And Bar Demand Surged 28% To Record 1,654 Tonnes In 2013

The World Gold Council's "Demand Trends Full Year 2013" shows that China became the world’s largest store of wealth buyer of gold in 2013. They are not consumers as only a tiny fraction of  gold is ever consumed. Chinese people bought a record 1,066 metric tons of gold last year, as sudden price falls led to a 32% jump in bars, coins and jewelry buying.

China’s increased purchases helped limit the decline in gold prices as western speculators and investors sold 869.1 tons through exchange-traded products backed by bullion.

2. 'Dama' women behind much of China's current gold demand

Massive gold purchases by Chinese `dama' investors - bargain-hunting, middle-aged women - may have propelled China past India as the largest gold consuming country in the world this year.

According to the Xinhua News Agency, the surge in gold demand seen in China was helped by frenzied purchases by these `damas', who were eager to chase cheap deals.

this group consisting mainly of married women between 40 and 60 years of age, grabbed the attention of the world for the first time in 2013. The Wall Street Journal specially created the term `dama' to showcase the urgency of the Chinese ladies in the gold market.

In the wake of the gold price slump in the international gold market, Chinese investors, mostly mothers, spent around 100 billion yuan to buy 300 tonnes of gold within 10 days.

3. The World Gold Council Clueless on Chinese Gold Demand?

 The World Gold Council released the Gold Demand Trends for Q4 2013. According to this report total 2013 Chinese consumer demand was 1,065.8 tons. In my opinion this number is highly disputable.

The consequence/purpose of the structure of the Chinese gold market is that SGE withdrawals equal wholesale demand. In 2013 SGE withdrawals accounted for 2197 tons.

How come there is such a big difference between Chinese demand reported by the WGC, 1066 tons, and wholesale demand, 2197 tons? Why is the WGC missing 1132 tons? One reason is because the Chinese are hiding it. Since 2008 the Chinese have great interest to hoard in the dark in order to diversify their US dollar reserves, strengthen their economy and protect it from external shocks. The China Gold Association (CGA) changed the way they measure demand and all other Chinese gold institutions ceased publishing reports on demand since 2011. The only valuable information they continue to publish are SGE withdrawals.

4. The big gold ETF turnaround and its prospective impact

Chinese and Indian demand alongside high demand levels from a number of other countries, mostly in the East, Middle East and FSU, was perhaps more than countered, as far as the Western gold markets were concerned, by the enormous turnaround in the gold ETFs in 2013. The WGC figures put gold ETF outflows of 880.8 tonnes as against ETF intakes of 279.1 tonnes in 2012. Thus this comes out as a massive turnaround of 1,159.9 tonnes in effective market supply, which was almost certainly, although unspecified as such, the key driver forcing down gold prices in the West in 2013.

Now there are indications this year, although it is early days yet, that the outflows from the ETFs may have ended and may even be being replaced by small inflows.

5. Gold ETP Holdings In Biggest Jump Since December 2012

total gold holdings in exchange traded products rose by 3.2 tons, the biggest weekly increase since December 2012. Holdings in silver, which rallied more than 7 percent last week, jumped by 104.2 tons.

With two weeks gone, February could be on track to show the first monthly increase in ETP holdings since December 2012 as many investors who left the market last year may be tempted to get involved once again.

6. India's Smuggled gold doubles to 200 tonnes in 2013

According to estimates by the global precious metals consultancy GFMS, 150 to 200 tonnes were smuggled in 2013 from Dubai, Singapore and land routes of Bangladesh, Pakistan and Nepal. The agency estimated 112 tonnes had been smuggled in 2012.

7. US Dollar Tries to Bounce

Here is the chart of the PowerShares DB US Dollar Index Bullish Fund that I've been following ...

(Updated chart)

It looks like the US dollar wants to rally from support, but it's a pathetic bounce so far. 

UPDATE: The Fed minutes released today (from January's meeting) seem to have put a bid in the U.S. dollar. This is weighing on gold.  We'll see how far and long the dollar rally/gold correction goes.

Good luck, and good trades,

Sean

Nobody Expects A Gold Reversal

Boy, the mood in precious metals is like a funeral directors' picnic right now. And the bad mood comes in spite of the fact that gold is making a decent attempt at putting in a bottom.

Gold closed down a bit yesterday. But it's up this morning (though off its highs), and silver is up, too. The fuel for the move may be that China's gold imports in October were HUGE.  According to Reuters...

China's net gold imports from Hong Kong climbed to their second-highest on record in October, as the country bought more than 100 tonnes of gold for a sixth straight month to meet unprecedented demand.

Mineweb adds ...

Chinese gold imports through Hong Kong accelerated in October to 131.2 tonnes ...  the seventh month this year that China has imported over 100 tonnes of gold and the sixth in a row.

The sheer tonnage of China's gold imports are amazing. It was expected to break 1,000 metric tonnes this year. Obviously that estimate was too low ...

China net gold imports from Hong Kong 2013 to date

Month	(tonnes)
January	20
February	61
March	136
April	77
May	106
June	102
July	113
August	110
September	111
October	131
Total year to date	967

But I can't emphasize enough, this is only gold imported through Hong Kong. China also imports gold through other routes, including Shanghai. So, its total import figures now look likely to be nearer 2,000 tonnes. Some analysts put them even higher.

Bottom line: Gold continues to move from West to East, seemingly at an accelerating rate. The West only has so much gold to sell, and the Chinese have seemingly bottomless pockets with which to buy.

So the China imports are one angle.  Now let me give you another one. As I wrote in my Gold & Resource Trader issue yesterday ...

"Funds that are long gold have hit a four-year low, while short positions spiked recently.  In other words, sentiment on gold got too extreme."

As an indicator of that sentiment (but also a fundamental on gold), Exchange-Traded Products (ETPs) that hold physical gold continue to sell. Their bullion holdings fell by 17.1 metric tonnes in the most recent week to 1,852.4 tonnes, according to Bloomberg data. That’s the lowest level since April 2010.

Now, let's look at two charts from Citigroup on gold and silver ...

Source

Citi's FX Technicals group is now bullish on gold, targeting $1,335 for gold in the short term.

Nobody is expecting a gold reversal, even a short-term rally. And that may just be why we get one.

Just something to think about. Have a great Thanksgiving, and let's all count our blessings.

All the best,

Sean

Gold Is Up and the Dollar Is Down -- Chart

I thought we'd revisit a chart I keep posting of the relationship of between the US dollar and gold -- the "seesaw of pain" as I call it. 

(updated chart)

You can see that this morning, gold gapped higher while the US dollar continues to bleed lower. The day's not over yet -- anything can happen -- but this is a potential set-up for a rally in gold and a pullback in the US dollar. Since the US dollar's larger trend is down, maybe we'll see a resumption of that trend. But be sure to wait and see how the day ends.

Naturally, seeing how the dollar ends the week would be even better.

What seemed to spark this was the prepared testimony of Federal Reserve Chair nominee Janet Yellen, which was released late Wednesday afternoon. Yellen said she would continue current Fed Chairman Ben Bernanke’s monetary policies and said the U.S. economy still needs monetary stimulus because it is performing below its potential. The market place read Yellen’s remarks as dovish monetary policy.

This gave gold a lift yesterday afternoon, but REALLY put a fire under the broad stock market. The action in gold is more short-covering. We need to see follow-through. Gold and silver remain totally at the mercy of tapering expectations.

What could help the dollar (and hurt gold) is if the European Central Bank cranks up its easy money policies. That would probably push the euro lower and boost the dollar. 

However, for now, I'll take the good news where I can find it. This is helpful for the three gold mining positions we entered in Gold & Resource Trader this week.

More Gold News

In other gold news, Bloomberg reports -- quoting The World Gold Council -- that in the third quarter, global gold demand slipped to 868.5 metric tonnes, from 1,101.4 tonnes a year earlier. Investors pulled 118.7 tons out of ETFs and similar products, while buying from central banks was 17% lower than a year ago. So, central banks are still buying, but at a lower rate. 

Also, China’s demand for jewelry, bars and coins rose 30% to 996.3 metric tonnes, while usage in India gained 24% to 977.6 tonnes. So it's a continuation of the big shift from West to East.

Finally, as of November 13, holdings in gold-bullion-backed exchange-traded products stood at 1,873.3 tonnes. That is down 29% from the beginning of the year, but selling seems to have subsided, and holdings in the gold ETPs seems to be hammering out a bottom. We'll see.

7 Hot Stories and 5 Sizzling Charts for Wednesday

Here is some of what I'm reading ...

1. GOLD UPDATE: Holdings in Gold-backed ETP’s fell 0.3 metric tons to 1,875 tons on Monday, dropping to the lowest since April, 2010, according to data compiled by Bloomberg. On the bullish side, sales of gold at the Perth Mint are shifting into higher gear. And the premium (above regular cost) in India has soared to $100 per ounce of gold.

This is due to the Indian government import suppression scheme, of course. I bet there are a bunch of ticked-off people in India right now (smugglers excepted).

2. CHINA AND GOLD. And as for China, its imports through Hong Kong dropped in September from August, but are still up significantly for the year. Here are two charts to drive that home ...

In September Hong Kong net gold import was 52 metric tonnes, down from 142 tonnes in August. That's down 63% m/m. The year-to-date net import is 489 tonnes. Hong Kong gross gold import year to date is 1751 tonnes, gross export 1262 tonnes.

Source 

Annualized mainland net import through Hong Kong is 1101 metric tonnes, a surge of 109% as total import in 2012 was 525 tonnes.  And we aren't even counting the imports through Shanghai.

3. FALLING PRICES. Gas and food prices hit their lowest levels of the year ... 

I wrote more about this topic on Monday. I was at a conference this weekend and one of the speakers was talking about rising gas prices. Along with directly contradicting me, it was just plain wrong.

Anyway, I was pretty positive just two weeks ago that this would boost consumer spending.  I still believe so, but you also have to take into account that millions of people just had their food stamps cut, so that will lessen some of the effect.

4. US DOLLAR I posted a chart yesterday about a possible continued rally in the dollar. Here is more on the topic from Bloomberg. And the always-awesome Kathy Lien adds her two cents. 

5. ENERGY PRICES (CANADIAN EDITION) Alberta and British Columbia have worked out a deal to move energy resources (produced in Alberta) through BC to new markets. There are hopes that this will ease the $40 discount that Western Canadian Select, the benchmark price for Canadian oil, trades at compared to US oil benchmark West Texas Intermediate.

I'd say that will happen longer-term, but I don't expect much relief in 2014. Still, we'll see.

6. ENERGY PRICES (EUROPE EDITION). Europe's push for cleaner energy is driving up prices (somewhat expected) and holding back the economy (oops!). Once again, America is saved by its abundance of cheap natural gas.

Electricity costs in Europe have spiked 17% for homeowners and 21% for industry. Will this move Europe to re-open mothballed coal plants? Stay tuned.

7. FERTILIZER BREAKTHROUGH?  Multiple people have called me up to tell me about a looming phosphorus (fertilizer) crisis.  Coincidentally, they also are promoting the stocks of phosphorus miners or developers.  Is there a simple solution? This TED speaker thinks so: mycorrhizal fungi. I'm wary because I remember when algae was touted as the next great source of oil. Remember that horse-hockey? Anyway, we'll see.

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.