Weekly: Gold and Silver Being Played Again- Correlation Spoofing

GS, TD, RBC, and CFTC COT Reports

Aug 21, 2022

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Housekeeping:  The next 2 weeks expect Market Rundown (almost) Dailies  to have less proprietary analysis due to teaching prep. But you should still have plenty to read.  ***NO FOUNDERS CLASS THIS WEEK***

SECTIONS

Market Summary— Gold/Silver Trade, When Doves Die
Research— Fed Pivot Fail; Gold, Silver, Oil, & Stocks
Week’s Analysis/Podcasts— Gold, Oil, Bitcoin, by Moor Analytics
Charts— Gold, Silver, Silver/Gold ratio
Technicals— Oil, Nat Gas, Gold, Bitcoin
Calendar— PCE, UMich Friday
Zen Moments— Beauty and the beast
Full Analysis— Gold, Silver, Oil, Stocks

* UPDATE: Gold and Silver Being Played Again*

We were going to wait on to this, but more vault ‘withdrawals’ came out. A preview is in order. Gold is being accumulated, Silver being shorted is a Podcast clip describing what we saw Friday. Please listen if you have intention of trading these metals soon or wish to look under the hood of how metals markets are “managed”. Future commentary and analysis will build on it.

What is potentially happening will make a lot more sense as it unfolds over the next few months. Shell games are frequently played at this level.

The back story most know. There are big shorts at BOA in Silver. Gold is now disappearing at Comex at regular orderly clips. For example according to Wall Street Silver:

Wall Street Silver @WallStreetSilv

You have been reading about gold leaving the Comex vault at huge rates, but is it really significant? The Comex has a gold kilo vault and yesterday 41% of their gold said bye bye and left.

H/t @phil_grahamphil

To be fair: these 'withdrawals' can and frequently are warrant-gold as opposed to actually delivered gold1. That itself is also an old game they play. But the fact remains- there is real and growing evidence corroborating (lower) price action with (bigger) draws. As in BTD.2

When you combine this info with what we noticed Friday in the Gold/Silver spread, you pay attention. Not only is this rare at these levels, it is almost always a sign of a big bank rolling risk around. Sometimes for non-important accounting reasons ( JPM derivatives?), sometimes for important ones.

CORRELATION SPOOFING

Simply put: Trading the Gold/Silver ratio is selling one commodity lower haphazardly to get filled on your much bigger bid in another related commodity, or vice-versa. It happens in many cross-margined futures (not spot!) markets like Oil Products, PGMs, and Grains3.

This “correlation spoofing” has been applied frequently as an intraday tactical tool in metals since the beginning of time. When subscribers hear us say things like “ Silver leads Gold intraday” we are referring to this.

However, using this tool too much4 (either by necessity or stupidity), as we suspect it is now, eventually creates a great multi-month trade if/when that level is reached again. Or something bigger.

-VBL

1. Market Summaries

Comments from Richmond Fed president Barkin Friday summed up a week of hawkish repeated prompts from the FOMC that a pivot ain't coming soon and there's more pain to come (for the economy and the market).

"The Fed must curb inflation even if this causes a recession," adding that The Fed "needs to raise rates into restrictive territory."

Recession is the lesser of evils now and they have been saying that. So, provided there is no crash, they will keep the hiking campaign going. And, the expectations of rate easing right afterwards decreased ( green line raised) precipitously narrowing that K alluded to recently.

Bottom Line:

Market was really setting its heart on a Fed dovish pivot Post US inflationary data
Prior to this, several Fed speakers had been saying they would continue to be hawkish.
Market had ignored them until Thursday afternoon
German inflation came out very high, Fed speakers talked even tougher
Markets finally got the message

H/t Zerohedge for data and some graphics.

Energy stocks went from worst to almost first on the week
***WATCH ENERGY EXPLORATION AS BIDEN RENEWS PERMITS***
Dow, Nasdaq, and S&P all reversed at their 200DMAs this week

WATCH ENERGY EXPLORATION AS BIDEN RENEWS PERMITS

Staples were the leaders while Materials the laggards
The S&P reverted back down to its 50% Fib retracement level

Commodities:

A Bank is buying Gold and selling Silver
Bloomberg's Dollar Index up 2% on the week
Gold tumbled back below $1800 this week.
EU NatGas soared to a new record high
US Natgas closed at its highest since 2008
Oil ended the week lower with WTI holding around $90.

Bonds:

US Treasury Yields surged this week
The curve may be getting ready to uninvert/steepen again based on this weeks behavior.
US 30Y yields rose back above China 30Y yields which dropped to 6 year lows

Crypto:

Crypto was hammered lower as the week progressed with ETH and BTC down around 12%. Friday was over 9% lower alone.

2. Research:

This week:

GoldFix on Why No Fed Pivot
TD on Gold: Someone still has to puke
Silver CFTC Analysis: Shorts still covering, but now in control again
Goldman’s Institutional Desk on Stocks through September
RBC on Gold and Energy Problems

MORE AT BOTTOM...

3. Analysis/Podcasts:

This week’s Precious Metals, Energy, and Economics pieces by GoldFix

Popular Last Week:

Gold/Energy Technical Podcast (Beta)- by Founder request
SPECIAL FRIDAY PREMIUM POST
Weekly Part I: Goldman Sets Table for the Next Bull Market Leg
Visualized Global Trade If Russia Wins- 20,000 views
Analysis: Mining Lessons From the 1970s- 15,000 views
The Fat Russian Lady is Getting Ready To Sing For The LBMA- 32,000 views

GoldFix Content Last Week: original pieces and more

Gold:

Silver:

Gold-Silver Ratio:

Nat Gas:

Charts by GoldFix using TradingView.com

5. Technicals

GoldFix Note: Do not attempt to use price levels without symbol explanations or context. Moor sends 2 reports daily on each commodity they cover. The attached are non-actionable summaries.

Gold: Watch for $1737.10

TECHNICALLY BASED MARKET ANALYSIS AND ACTIONABLE TRADING SUGGESTIONS Moor Analytics produces technically based market analysis and actionable trading suggestions. These are sent to clients twice daily, pre-open and post close, and range from intra-day to multi-week trading suggestions.