On this week’s SD Weekly Metals & Markets we cover:
*This week’s historic smash in the metals which saw gold complete it’s worse quarter in decades and fall to $1186, and silver drop another $3 to $18.20 in what can only be described as panic driven capitulation
*Doc’s Physical Market Re-cap: Silver supply issues re-emerge as spot price smashed under $20
*Smart Money: Asian demand greater than 2-to-1 Western “paper” dishoarding
*1970s Cyclical Bear vs. Current Metals Correction: Is history repeating or is the bull market over?
Picking a bottom is virtually impossible with the cartel gang lurking around. We never can be certain when their “managed retreat” strategy is flipping over into “retreat” mode. But there are hints that we might be setting up for a bottom. Previous strong support levels of $26 and $22 silver obviously didn’t hold, but falling below $18 would have erased nearly 3 years worth of bull market action, leaving silver well below the cost of production. As with gold, declining prices has boosted physical demand. Silver’s strong fundamentals remain, and Friday’s leap higher prior to the London PM Fix isn’t just short covering. It tells the story of the need to source physical silver out of the LBMA, which was only possible going into the fix at a much higher price.
SD Weekly Metals & Markets with The Doc & Eric Dubin is below:
We’re still standing — although a certain part of our anatomy is a bit black and blue. Since the last FOMC release, Uncle Ben and his merry monkeys kicked our collective arses. Concerned, the Doc has added a new product line to stiffen our rear flank: “The StackA$$ Master.” This is homeopathic therapy at it’s best. The next time you feel the urge to lean over and liquidate some of your stack, jump on the StackA$$ instead for a swift kick lesson in resolve.
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The precious metals complex is giving us other signs that the carnage is probably over. One anecdotal bit of evidence that few people have noticed are the highly unusual levels of accumulation in specific stocks. For example, following last week’s trashing, McEwen Mining saw two massive block trades for over 7 million shares execute during Friday’s after hours trading. By the end of the day the stock had traded nearly 12 million shares, or about 6 times it’s 30 day average. Mining shares have already seen a capitulation washout, and now we’re seeing accumulation by strong-hand value investors.
The LBMA issued an interesting press release today. They report:
“On the back of falling prices strong physical demand particularly from China and India more than offset continued sales by ETF funds in the western economies, with the result that the volume of ounces transferred (out of the LBMA) in May increased significantly by 17.2% to 28.2 million ounces; the highest total for 12 years.”
To put that into perspective, 28.2 million troy ounces translates into 877 metric tonnes of gold. For two months we’ve documented how Asian gold physical off-take is running at a rate well past 2 times the “paper-driven” selling coming out of the West. The latest LBMA data only proves we were being conservative with our estimate.
Believe it or not, the 1970s precious metals bull run witnessed a similar cyclical bear market. Imagine seeing gold get halved to around $100 in the span of just a couple of years. That’s a deeper pullback than what we’ve sustained today. The depth and duration of the 1970s pullback offers insight into gold’s current decline — and the 1970s experience suggests the current decline is getting long in the tooth.
Finally, it wouldn’t be right to start the weekend before highlighting the latest batch of jawboning coming out of the Fed. Uncle Ben’s suggestion that QE could end in full sometime in 2014 was laughable – because it can’t happen without crashing the bond market – but nevertheless the markets took him seriously enough to dare to correct. It didn’t take more than a few days for a number of Fed “doves” to hit the newswires downplaying the Fed’s latest FOMC release and press conference. The bottom-line: There is no meaningful exit strategy and central bank balance sheets do matter because the addition of debt obligations has a direct correlation to the long-term price of gold, as can be seen in this chart courtesy of Incrementum AG.
Have a great weekend! – Eric Dubin
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