JP Morgan And SLV - What Is Going On?

It looks like JP Morgan is moving its silver from iShares Silver Trust (SLV) to its COMEX warehouse. Look at this table:

data in millions ounces of silver

source: Simple Digressions

Note that since 2017 the changes in SLV holdings match the changes in JP Morgan holdings. This pattern is particularly clear this year - JPM increased its holdings by 7.9 million ounces of silver up-to-date while SLV reported a decrease of 7.7 million.

Last year JP Morgan added 37.3 million ounces to its COMEX warehouse while SLV reported a decrease of 20.7 milion.

Now the question is what it is all about.

By the way, there are 127.3 million ounces of silver at JP Morgan's COMEX warehouse. (as of February 5, 2018). To give you some comparison - the annual silver production is 886 million ounces (2016) so JP Morgan (or its clients) hold around 14.3% of the world's silver production. 

US Dollar - Is It Close To The Bottom?

It looks like we are very close to the end of a bear market in the US dollar. Look at this chart:

source: Simple Digressions and the COT data

The grey bars represent the net positions held by big speculators trading US dollar index futures. Note that the current position held by these traders is SHORT.

However, despite the US dollar index being at its lowest level since January 2015, the net short position is not that large as it was at the end of November 2017 (the green arrow) when the previous bottom in the US dollar index was printed (the red arrow).

In other words, the speculators are not that pessimistic about the greenback as they were in November 2017. In my opinion, it is a common pattern visible during bottoming phases. Hence, expect the US dollar to consolidate or even go higher soon...

Note To The Subscribers - A New Pick Has Been Added To The Portfolio

The second issue of the Simple Digressions Newsletter has been dispatched. Please, find it enclosed in your e-mail boxes.

By the way - due to the fact that my subscribers are mostly interested in Newsletter (to remind you - in each issue of Newsletter I discuss and report the results delivered by the 2018 Precious Metals Portfolio and present an investment idea), I have decided to offer Newsletter only. The appropriate changes in the payment boxes have been made.

Please, note that I intend to offer my service for many years to come (it is not a one-year service). Hence, the payment boxes offer a subscription.

Gold At A Pivotal Point

Gold prices are very close to their strong resistance level at $1,350 - $1,380 per ounce:

source: Stockcharts.com

A thesis on a final breakout is supported by the physical demand. For example, the IAU ETF has added a large amount of gold in January up-to-date (465 thousand ounces):

source: Simple Digressions and IAU

On the other hand, the Goldollar index is lagging (the blue arrow) behind gold prices (the green arrow), which is a sign of a short-term correction coming:

source: Simple Digressions

Summarizing - we are at a pivotal point for gold. Although I opt for a short-term correction, I would not be surprised to see a big leg up in gold starting soon...

Gold And The GolDollar Index

One of my readers has asked me about the Goldollar index. Here are the updated two charts:

Long-term picture

source: Simple Digressions

Note that most recently the Goldollar index has bounced off its long-term trend line and now it is marching higher.

Short-term picture

source: Simple Digressions

However, in the short term there is quite a big divergence between gold and the index (which, generally, go in tandem). Gold has crossed above its strong resistance (the blue circle) while the index is still below a similar resistance level. It looks like a short-term correction or a stall in gold prices is in the making.

Sandstorm Gold 2017 Production Figures

Today Sandstorm Gold (SAND), one of my favorite streaming companies, announced production figures for 2017. Here is the chart showing historic figures:

source: Simple Digressions

The picture is clear - there is steady growth at Sandstorm. Each year the company adds new streaming / royalty contracts and lifts up the amount of gold equivalents delivered.

However, let us look at the company's sales from a short - term perspective (two years). Here is the appropriate chart:

source: Simple Digressions

Well, now the picture is not that bright - since the first quarter of 2017 the sales have been going down (look at the red arrow).

What is the takeaway for investors? Well, I would not bother too much about the short-term perspective. Precious metals mines do not deliver  the same or only higher amounts of gold and silver each quarter - sometimes production goes down for a while. It is the long-term perspective that counts so...relax. Sandstorm is on the right track.

My Lack Of 2018 Predictions Of Gold / Silver Prices

2017 has just ended so it is a good time to make predictions for 2018. However, the problem is that I do not make predictions - I have no crystal ball and no idea what will happen this year. The only thing I can do reliably is to look at the current state of a few financial markets and discuss the patterns they present.
Let me apply this approach to the gold and silver markets. As usually, I am going to use the data delivered by the Commitments of Traders reports.  

Silver

From the contrarian perspective silver looks very attractive. For example, Money Managers, big speculators trading silver futures, hold a net short position (the red circle):

Source: Simple Digressions and the COT data

Last time they were that pessimistic about silver was July 2017 (the blue circle). At that time Money Managers were also holding a net short position in silver futures. Then, over the next two months the prices of silver went from $15.6 to $18.2 per ounce (an increase of 16.7%).

Another example – the ratio defined as:

Gross short position held by Money Managers / gross long position held by Money Managers

Now the ratio stands at 1.14 which means that the majority of speculators are betting on lower prices of silver:

                           Source: Simple Digressions and the COT data

In the past, when the ratio was in the area marked in yellow, silver presented an excellent medium-term (up to six months) buying opportunity. As the chart shows, the ratio is once again in that area.

Gold

Although gold looks less attractive than silver (from the contrarian perspective), it is still a buying opportunity. My self-invented gold sentiment index is below 40%. In most cases such a low reading indicates pessimism among big speculators trading gold futures (but it is not excessive pessimism):

                                    Source: Simple Digressions

And pessimism is what the contrarian speculators look for. Note that at the end of 2015, when gold was bottoming, the index was standing at 0% (everybody was busy in predicting lower prices of gold) indicating an excellent buying opportunity. Then a bull market in gold started.

Now, during bull market cycles the best buying opportunities are when the index is flashing low readings…but not necessarily very low ones (as, for example, 0%). As the chart above shows, the readings of around 20% – 40% are sufficient to expect a bottom. Now the index is flashing 35.2% so, despite a recent rally, gold looks still attractive for the buyers. However, due to the fact that gold prices are close to their strong resistance level (the area marked in yellow on the chart below) a near-term correction is likely:

                                                        Source: stooq.pl