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Published Technical Analyst, Author, Commodity Trader, Systems Developer, Algorithmic Intelligence, Computer Modeling of Processes. I custom build Proprietary Artificial Intelligence for each individual client's portfolio needs. After more 30 years in the business, Patrick MontesDeOca has... More
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  • A Bull Market In (Physical) Gold

    Gold trader and whistleblower, Andrew Maguire, based in London, was interviewed on May 19 and seriously questioned the bear market in gold. He argued persuasively that gold, at least physical gold, is really in a bull market. His argument reflects my belief that the physical gold market is a true market affected by supply and demand, while the paper market has been a casino of sorts unrelated to anything in the real world.

    Maguire said, "You cannot have a bear market when even the initially reported physical demand is surging to its highest level in 18 months." On top of this official data, is significantly increased wholesale demand for the yellow metal.

    Maguire further argued, "You cannot call a bear market when you see $30 premiums in Shanghai, India and Middle Eastern markets. You cannot call it a bear market when we see extended and increasing delivery bottlenecks."

    Bullion banks are offering cash settlements to depositors for their gold, instead of going out and just buying the gold to deliver. There is also a delay for delivery of purchases of physical gold, up to 3 weeks in some cases.

    With such indicators of a bear market, he rhetorically asked, "If this is a bear market, what is a bull market?"

    Certainly prices keep falling in the paper gold market, as last Friday marked another major series of drops for gold prices. As I have argued, the two markets have become almost entirely disconnected.

    The divergence between paper and physical gold is only widening. Maguire recalled that the divergence was happening even before the April 12 paper market crash. March marked the beginning of the official intervention in the paper gold market, and then the Cyprus crisis happened and people raced to turn their paper gold into physical gold and take delivery. Maguire reported that hundreds of tons of gold have been entering Asian markets since March and April. With prices now even lower, the outflow to Asia is just accelerating. Some 300 tons of paper gold has been redeemed out of GLD, the paper holdings, alone.

    As Maguire has argued, and I agree, "This bear market is 100 percent in the paper market."

    How long can this divergence between the paper and physical markets last? Not long.

    Maguire argued that managed funds still have large short positions, and they have been rolling these positions into ever larger positions as gold has fallen by actively adding shorts to defend the lower price levels. Bullion banks are taking the long side of these short positions. When the market turns, there will be a race to cover all the short positions and gold could explode to the upside.

    Maguire said, "I firmly believe the bottom is in…Anything below 1350 is going to create massive central bank demand."

    Maguire warned that the bullion banks are never wrong and they are currently positioned for a large more higher in gold. Our technical analysis supports his fundamental analysis, which points to this being an excellent time to invest in gold. The bottom is near or may have already been hit and when the paper and physical markets realign, the paper market price should skyrocket.

    TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGOL, AGQ, DGL, DGLD, DGP, DGZ, DZZ, GLD, GLL, IAU, PHYS, SGOL, UBG, UGL, UGLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.

    May 22 8:16 AM | Link | 2 Comments
  • The Best Cure For Low Prices Is Low Prices

    South Africa's $402 million trade surplus with the United States turned into a $689 million deficit in March. Why?

    Examining the data points, the US trade deficit decreased to $38.8 billion in March, according to official statistics. The total amount of trade (imports plus exports) conducted with the US shrunk more than $7 billion to $407.1 billion. The US's largest trade surplus was with Hong Kong. The autonomous Chinese region imported $3.2 billion more from the US than it exported. The largest US trade deficit was with mainland China, which declined to $17.89 billion.

    $1 billion worth of gold has been shipped to South Africa from New York.

    It turns out the $1.1 billion swing in South Africa's trade with the US is entirely due to unusual shipments of gold from the US to South Africa in February and March. So far this year, 20,013 kg of unwrought gold, worth $982 million, has left John F. Kennedy International Airport (JFK), in New York, for South Africa, according to the US Census Bureau's foreign trade division. (Unwrought gold includes bars created from scrap as well as cast bars, but not bullion, jewelry, powder, or currency.

    The shipments from JFK were the only unwrought gold to leave the US for South Africa in 2013,although another large shipment occurred in September 2012.

    The numbers indicated in the charts above are a real concern in terms of pricing the yellow metal properly. The paper and physical markets have become two completely different markets. The paper market or electronic price benchmark has been used to set the price of gold as far back as I can remember. But in all my more than 30 years of studying market behaviour, never have I seen such a difference in pricing between the cash and futures markets. This creates one of the most exciting conditions for long-term investors to capture this window of opportunity and build speculative wealth aggressively in a short period of time.

    The cash market, in this case the physical gold bullion market, is a market in which prices are affected by changes in the supply and demand balance. In a free market, a short supply situation will lead to higher prices based on the increasing demand for the actual product. Ample supplies will lead to theopposite; lower prices. This is basic Econ 101.

    With paper gold prices, this balance between supply and demand on the one hand and price on the other has ceased to operate. The current price metric used, called the futures or paper market, has transormed into a virtual casino controlled by the central banks, who have driven prices to historical extremes. The open interest far exceeds the amount of supply available to deliver against the record large short positions controlled by large speculative managed money investment funds.

    The price dynamics have gone far beyond the laws of any free and transparent market enviroment. This can potentially create a significantly volatile situation as the fundamentals begin to have an impact and paper prices adjust to gold's true fair market value. Such an adjustment will probably be extremely violent and sudden, when it occurs.

    However, as Jim Rogers recently said "The fact gold continues to move lower despite 'continued positive news' would seem to be a highly bearish indicator."

    This might be true in the virtual paper market but it certainly does not seem to support what is happening in the physical market, in which premiums (in Asia) have reached $30 an ounce. In my opinion this is not a bear market when you have central banks buying physical gold at record levels. In a bear market, central bankers would be major sellers not buyers.

    In a recent interview, London gold and silver trader and whistleblower, Andrew Maguire, said that the current precious metals markets are going through a historic transition as market prices shift from being set by paper exchanges in London and New York to prices being set by the physical price of gold in India and, with increasing influence, in China.

    "In 30 years of watching the gold and silver markets," Maguire said, "I haven't seen anything this exciting."

    Maguire and I posit a concerted effort by bullion banks and managed funds to push the price of gold lower on the paper market, even as the fundamentals of physical gold (supply and demand), push the price higher on the physical market. Asians especially, and apparently South Africans, are seizing this opportunity to purchase physical gold and that artificially discounted price set by the artificially manipulated paper gold market in New York.

    Investors didn't buy enough physical gold to completely offset outflows from gold exchange traded funds (NYSEMKT:ETF) in the first quarter, but total ETF gold holdings were still higher than a year ago, and demand for jewelry, bars and coins grew significantly thanks to China and India, according to a report from the World Gold Councilreleased last week.

    · Jewelry: Fourth quarter recovery continued into the first quarter of this year.

    · Investment: The decline in demand relative to Q1 2012 was solely attributable to the net outflows from ETFs, which obscured the strong rise in investment for gold bars and coins at the retail level.

    · Technology: demand has been broadly stable, holding around 100 tonnes over the last six quarters.

    · Central Banks: added 109.2t of gold to their reserves in Q1 2013, the ninth consecutive quarter of net purchases.

    · Supply: At 1,051.6t, total gold supply was little changed from first quarter 2012

    Then why are Comex Gold Inventories Collapsing?

    In a recent report published on Seeking Alpha, I strongly suggested that my subscribers step back and take an objective look at the big picture of what is actually happening in the gold bullion market in terms of supply and availability of the physical metal. All data points seem to indicate some of the most bullish fundamentals I have ever experienced, and yet prices keep falling.

    In the three months covering January through March, gold futures lost nearly 5%, while shares in the largest gold-backed ETF in the US, the SPDR Gold Trust GLD, fell 7.6% during April, while gold futures lost 7.8%.

    "In the first quarter of this year, we saw the first increase in demand for gold jewelry in the U.S. market in seven years," said Karl Schott, a bullion specialist with the Equity Management Academy. "Total jewelry demand climbed 12% in the first quarter, compared with the same time a year ago, according to the World Gold Council's latest Gold Demand Trends report for the first quarter of 2013. Jewelry demand from China was up 19% to a record 185 metric tons. Jewelry demand from India rose 15% and the U.S. showed a significant increase in the first quarter, of 6%, for the first time since 2005."

    I asked Sprott Asset's Rick Rule in a recent interview about what appears to be an orchestrated action to deliberately collapse the price of gold on the paper market in the face of relentless demand for physical gold bullion. He said:

    "I'm not sure it was an attack. I'm not saying it isn't…..I think there is an awful amount of structured prices, which revolve around gold and silver. Structured products become uncomfortable for the holders at the viable end for the holders…."

    I said, "When you say structured, you mean leveraged?"

    "Yeah. People were involved in yen/gold carry trades, which would be an example where people were required to meet margin calls, or as they're called in this area, performance guarantees, as trade went along, an unwinding of momentum-oriented leverage structured plays can be very vicious. It was particularly instructive, I think, to see the downside volatility occurred in the futures in paper markets, while the underlying physical demand was incredibly strong."

    The Best Cure For Lower Prices Is Lower Prices

    As most market investors will agree, when prices are manipulated to an extreme level, natural market forces begin to shift as the economics of price weakness starts to affect the bottom line. As this transition takes place, we can abruptly shift from ample supplies to shortages, literally overnight. I think this is very much the case for the yellow metal as we move forward from the current price levels. Maguire recently said that there are already delays for delivery of physical gold, up to three weeks in some cases.

    I asked Sprott's John Embry recently, if gold stays at this level, do you think production will slow dramatically?

    "That's a really good question. I'm glad you asked me that, because I've been sort of an outlier on this subject for a while. For the longest time I believed we were at peak gold production, and that you couldn't increase the world's gold production to any great extent because a lot of the old open pits are being depleted, and you can't find enough new gold and get it online to replace it. So I thought we'd be do well to stay sort of flat. Well what's transpired recently, I mean, is devastating as the mining sector and gold mining shares have been crushed and I mean all the exploration of any significance is conducted by juniors in that now they have no money and no future. So I think instead of the gold production model staying flat for the next few years, I think there's a very real probability it could fall dramatically."

    Let's take a closer look at the Gold Trust Shares ETF derivative instrument and see if we can identify some short - term swing trading opportunities for next week.

    The GLD SPDR Gold Trust Shares closed at 131.07. The market closing below the 9 day MA (137.70) is confirmation that the trend momentum is bearish. A close above the 9-day MA would negate the daily bearish trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 133.75, it confirms that the price momentum is bearish.

    For the bulls, look to take some profits as we reach the 136.48 and 141.89 levels during the week.

    For the Bears, buy corrections at the 128.34 to 125.61 levels to cover shorts.

    For new bulls use these price levels on a weekly reversal stop to initiate new positions. If long, use the 125.61 level as a weekly protective Stop Close Only and go neutral if activated.

    Our models continue to indicate a long-term bottoming action is taking place and extreme caution is warranted on the short side.

    The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGQ, GLD, PSLV, PHYS, GDX, SLW, HL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    May 22 8:16 AM | Link | Comment!
  • Is Gold In A Bear Market Or Not?

    "The fundamentals for gold are unassailable, the long technical picture is excellent and gold remains very inexpensive when compared to almost every other alternative (most particularly, bonds, treasury bills and bank deposits). With currency debasement assured and some form of hyperinflation probable, gold should trade at several multiples of the current price before this bull market reaches its end." John Embry, Chief Investment Strategist for Sprott Gold and Precious Minerals Fund

    Has the gold bear market started?

    Not according to my most recent interview with John Embry, (Sprott Asset Management, Chief Investment Strategist), "I am absolutely sure the gold and silver bull market has not ended. If you don't like gold prices here, then you must like the value of paper money and you're getting next to zero interest on it." With governments printing money around the world, he said, "I don't see how you can possibly make that argument."

    After a painful week for the bulls experiencing a massive effort by the central banks to collapse the price of the yellow metal more than $200 an ounce in just a couple of days, the price rallied on Friday to close near the 1400 level.

    The price of gold dropping from a high of 1557 made on April 10, 2013 to a low of 1323 in 6 days was a clear move by the central banks to indirectly confiscate the ownership of the gold market from the private sector by using the virtual electronic paper market and manipulate prices to extreme levels.

    The volume collapsed from 219,806 contracts as of March 25, 2013 to 92 contracts by April 17. One might say, it is an understatement to make that all the sell stops have been taken out.

    According to the latest Commodity Futures Trading Commission report COT released Friday, it indicates that hedge funds and commodity trading advisors took advantage of the steep drop in prices.

    .

    Managed money traders raised their net "long" positioning, or bets prices will go higher, by 21,675 contracts to 68,662 contracts net long, according to Gene Arensberg, editor of the Got Gold Report.

    Managed money, which had recently built up a record short position in gold, covered 12,411 shorts to show a "still high" 54,025 contracts of short gold futures, he said."Managed money covered a goodly portion of their huge short position and they increased their net long position, but they still hold a very large gross short position," said Arensberg.

    Is the gold really there?

    Over the last 90 days without any announcement, stocks of gold held at Comex warehouses plunged by the largest figure ever on record during a single quarter since record keeping began in 2001.

    "This is one of the greatest and generational opportunities to accumulate gold and silver at these levels" stated Karl Schott, bullion specialist with EMA in a recent interview. " The spreads between the paper market and the real physical bullion market are beginning to get expensive and it is becoming increasingly more difficult to buy the physical bullion without some kind of substantial premium. I think this is a clear sign of capitulation in prices."

    Why isn't gold in a bear market now?

    Objectively investigating from the physical markets perspective, I recently wrote a piece entitled - Gold: A Possible Paper Short Squeeze? - I pointed out the discrepancy between the activity in the physical market trade on the LME and the virtual paper markets or electronic platforms.

    Bullion banks and central banks, which have been shorting gold, have applied great pressure to drive the price of gold down in the paper markets. This, in turn, has led to the fall in the price of gold--at least on the paper market.

    In my report London metals trader and whistleblower, Andrew McGuire made the following comment; "Since gold broke 1550, McGuire said, "there has been far in excess of 500 tons of paper gold that has been sold, strongly suggesting a bull market-at least on the paper market. The physical market, however, tells an entirely different story. Just in Shanghai, physical deliveries were 283 tons in March alone. In eight trading days in April another 183 tons were delivered. Some 400 tons have been delivered to buyers in Shanghai in less than a month and a half, and that is just for one exchange."

    McGuire stressed the importance of the difference between a paper market intervention and a physical intervention. He said, "There's a huge difference. Traditionally, when official buyers have come into the market, they have been able to back up the paper intervention with real physical supply. McGuire said, "What we're seeing now is none of the physical supply is there."

    What to do now?

    "Do not be sucked in by this," Mr. Embry said. "Sell is just what they want you to do. You must hold your position. If you have cash, I think this is a wonderful opportunity to dollar-cost average in."Although we are in a bottom area, he said, "You can't pick the bottom because you can see what these guys can do in a short period of time."

    If you are long gold or hold physical gold, this is certainly not the time to sell. Studies show that most investors lose money by buying high when the media is focused on the latest hot investment, and selling low, as the media focuses on stories about an investment that is plummeting. Gold is plummeting.

    However, the fundamentals reinforce a mid- to long-term prediction of a bull market in gold and silver. Governments around the world continue to run deficit budgets. Even in the United States, where sequestration was, and is, big news, the reductions in spending were not a reduction in overall government spending. They were reductions in the rate of increases in expected spending, with non-discretionary spending, such as funds spent on Social Security and Medicare, let untouched. The US government continues to borrow more money in order to spend more, even with all the talk of reducing spending. The total debt of the US government continues to grow, from $17.7 trillion in 2011 to an estimated $20.2 trillion in 2013.

    To meet such debts, governments around the world are printing more money and borrowing. Printing more money, as with anything, decreases the value of each piece of currency. By keeping interest rates extremely low, governments seek to keep their own borrowing costs low, but also help inflate the stock market and housing markets with artificially induced growth. How long can this cycle last?

    Let's examine what I said in this recent forecast and see what the market has done since the projection was made. "Conventional interpretation of cycles defines the expectation of a cycle top to be accompanied ideally with new seasonal or historic highs in price. This is the highest probability factor for the signal to materialize as originally anticipated. In the current analysis, this is not the case. Instead, what we see as we move into the latter part of the forecast is that prices are doing the opposite or have created an "Inversion".

    Sometimes a cycle high occurs when there should be a cycle low and vice versa. This can happen when a cycle high or low is skipped or is minimal. A cycle low may be short or almost non-existent in a strong uptrend. Similarly, markets can fall fast and skip a cycle high during sharp declines. Inversions are more prominent with shorter cycles and less common with longer cycles. For instance, one could expect more inversions with a 10-week cycle than a 40-week cycle.

    This is actually an alternate count to interpret the signal. Based on the fact that the prices are making weekly lows into this cycle time frame, it is actually telling us that instead of a cycle high it is making a cycle low. It indicates that this inversion confirms the probability that we're looking not only at a short-term bottom, but a major generational bottom or the yearly lows are coming in sooner than expected for 2013."

    No one knows for sure, but it is an ideal time to start cost-averaging into the precious metals markets. Why? Because no one can ever pick the top or bottom of a market, but we are in the region of a bottom. Once the massive printing of money leads to inflation, fiat money will be worth less and, as has happened historically, investors will flee to physical investments, such as gold and silver.

    Such a volatile market also provides opportunities for short-term trading that can lead to nice profits.

    Strategies and Technical Landscape

    Let's take a look at a few derivative instruments in the precious metals sector and see what short-term opportunities we can identify for next trading week.

    GOLD

    The April gold futures contract closed at 1400. The market closing below the 9 day MA (1452) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 1442, it confirms that the price momentum is bearish.

    Long positions, look to take some profits, as we reach the 1561 and 1722 levels during the week. Short positions, buy corrections at the 1281 to 1162 levels to cover shorts and go long on a weekly reversal stop. If long, use the 1162 level as a weekly Stop Close Only and go neutral.

    The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

    SILVER

    The May futures contract closed at 23.24. The market closing below the 9 day MA (24.97) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 24.53, it confirms that the price momentum is bearish.

    Long positions, look to take some profits, as we reach the 27.07 and 30.89 levels during the week. Short positions, buy corrections at the 20.71 to 18.17 levels to cover shorts and go long on a weekly reversal stop. If long, use the 18.17 level as a weekly Stop Close Only and go neutral.

    The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

    AGQ - ETF

    The AGQ ETF contract closed at 24.43. The market closing below the 9 MA (29.14) is confirmation the trend momentum is bearish. With the market closing below the VC Weekly Price Momentum Indicator of 28.23, it confirms the price momentum is bearish.

    Long positions, look to take some profits, as we reach the 33.02 and 41.60 levels during the week. Short positions, buy corrections at the 19.85 to 15.26 levels to cover shorts and go long on a weekly reversal stop. If long, use the 15.26 level as a Stop Close Only and go neutral.

    The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

    GLD - ETF

    The GLD ETF contract closed at 135.47. The market closing below the 9 day MA (140.65) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 140.30, it confirms that the price momentum is bearish.

    Long positions, look to take some profits, as we reach the 150.10 and 164.72 levels during the week. Short positions, buy corrections at the 125.68 to 115.18 levels to cover shorts and go long on a weekly reversal stop. If long, use the 115.18 level as a weekly Stop Close Only and go neutral.

    The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

    PGLC

    The OTCQB:PGLC stock closed at .415. The market closing below the 9 day (.42) MA is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing above the VC Weekly Price Momentum Indicator of .40, it confirms that the price momentum is bullish.

    Long positions, look to take some profits, as we reach the .43 and .44 levels during the week. Short positions, buy corrections at the .40 or .37 levels to cover shorts and go long on a weekly reversal stop. If long, use the .37 level as a weekly Stop Close Only and go neutral.

    The weekly lows need to hold and close above it on a weekly basis. Then we can begin to build a strong argument that weekly lows are in and the foundation is in place to support a larger move to the upside. Extremely Oversold.

    Trading derivatives, financial instruments and precious metals involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGQ, SLV, AG, PSLV, GLD, GDX, SLW over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.

    Apr 22 3:27 PM | Link | 1 Comment
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