Gold and silver started the week strongly, and silver in particular showed the characteristics of a bear-squeeze. However, on Wednesday morning the bears hit back with a concerted raid eroding most of the gains by Thursday afternoon, New York time. There is little doubt that one motivation was to ensure that maturing options were out-of-the-money, and therefore abandoned.
We are now delivering futures for February, and already notices have gone out for 914,200 ounces of gold, which for first day notices must be close to a record. What it means is that buyers are prepared to stump up the cash for physical possession of more than 28 tonnes of gold, indicating real demand at current levels and shortages in other markets. There is a further 476,800 ounces for February delivery taking the total to as much as 1,391,000 ounces.
Open interest figures for gold have fallen considerably since the last Commitment of Traders report, from 461,369 to 431,137 contracts at Thursday’s close; but this includes the expiry of the January contract. Nevertheless, it does illustrate that there are still mug-punters in the market, vulnerable to periodic bear-raids.
Silver is very different, with open interest actually rising by 9,401 to 151,680. It is clear that the shorts are having great difficulty buying back their positions, and every bear raid leads to net buying.
Back in the real world, the gold price in Japanese yen has hit a new record at ¥153,000 per ounce, and it is reported that anxious citizens are buying bullion in increasing numbers. This is down to yen weakness, which started last September against a background of deteriorating fundamentals. If the Japanese see further yen weakness, they are likely to continue to buy gold.
The U.S. Mint seems to be having difficulty getting enough silver to satisfy public demand for coins. In India, citizens are now accumulating silver as well as gold. With public demand for both gold and silver bullion growing around the world, it seems very odd that over the last ten days bullion has been withdrawn from GLD and SLV, the two big physical ETFs. The only plausible explanation is bullion banks are shorting them to get their hands on scarce physical for onward delivery.
Next week’s announcements
Next week is fairly quiet with respect to scheduled announcements, with none of interest on Wednesday and Friday. Otherwise the principal ones to look out for are as follows.
On Monday, the Eurozone PPI is expected to decline 0.2% on the month, leaving a net rise of about 2% on the year. U.S. Factory Orders are expected to rise 0.9% m/m and the U.S. Treasury will issue its quarterly borrowing estimates.
On Tuesday, we have U.S. Consumer Optimism and the ISM Non-manufacturing Index, which will be valuable indicators for the health of the economy.
On Thursday, U.K. Industrial Production estimates and the trade deficit are due, which could have an impact on sterling, and which has been weak of late. The Monetary Policy Committee is expected to hold bank base rate at 0.5%, and the ECB to hold its rate at 0.75%, followed by a press conference. In the U.S., Initial Jobless Claims are expected to be about 360,000, and non-farm productivity is expected to decline 0.5%.