26 September 2014

Gold bottom update

Following up on my Sep 18 post gold has bounced a couple of times off sub $1210 level which is encouraging. I note there was another 5 tonnes of kilobars withdrawn out of Comex on the 23rd and by my calculation there is still another 10 tonne of kilobars in Comex still to come out.

SGE premiums have been moving up and currently at 1.05 yuan/gram and this matches the premiums Perth Mint has been getting on kilobars, which have increased since my last post. Part of that demand has been related to the SGE International Board launch but our dealers' feedback is the $1200 level is also drawing out renewed Asian interest.

What I didn't see on the 18th was any positive narrative around gold, but that has changed. First up we have this Reuters article which runs with the mine cost/closure narrative:

"$1,200 is a critical level. The industry has geared itself around $1,200," said Joseph Foster, portfolio manager at institutional investor Van Eck Global. "If it falls below that level, then there are a lot of mines around the world that are really going to struggle."

This is an important narrative for gold, and I've mentioned it before here. Then we had these two headlines:
Bloomberg: Gold Premiums in India Seen Doubling on Festival Demand
Gulf News: Weak gold prices has Dubai consumers clamouring for more

On the negative side re narrative Goldman are still downbeat on gold and stocking to their $1050 call and the strong dollar story is the biggest risk to gold breaking $1180.

18 September 2014

Gold bottoming?

This morning I recorded an interview with Al Korelin for his weekend show which should be up Saturday US time. Al talked about how bad the sentiment was in the gold market right now, the worst he has ever seen, and I'd have to agree.

Having said that, I talked about the recent return of demand for gold kilobars from Asia. Premiums have come up off the floor and are moving up nicely. This caused me to have a look at the kilobar movements in COMEX warehouses (see here for background on this indicator), which are shown in the chart below

What it shows is that deposits seem to line up with future price weakness, as bullion banks stockpile them when Asian demand is weak. The withdrawals of kilobars, certainly in January this year, foretold price strength but it is not as strong an indicator considering the late 2012/early 2013 ones. You can see that on the 2nd of September 5 tonnes came out of JP Morgan's warehouse and that doesn't surprise me considering the renewed interest we are seeing. Worth keeping an eye on the COMEX movements to see if more of the 26 tonnes that was deposited in August is pulled out.

On the chart you'll notice a buy and sell point marked. These were my previous calls, which I discussed here. In the Korelin interview I did call a bottom, so you might want to trade against that :P

The uptick in kilobar premiums and COMEX movements gives me a bit of confidence, but on the negative side I don't see any positive narrative developing around gold that would drive big fund money (as Dan Norcini notes, "the big leveraged macro trade buying indiscriminately across the entirety of the commodity sector is not in the cards for now"). Goldman is still out there pushing their $1050 call and they don't want to be proven wrong. All that chatter does impact on the professional market.

However I'm confident that gold won't go below $1180 as I think Asians see this bottom of the range we've been in since April 2013 as a good buying point and that will provide support.