donderdag 28 februari 2013

Correlation: Margin Lending Vs. Stock Valuation

I came across an interesting correlation: Margin Lending Vs. S&P.

Margin loans are programs that allow investors to borrow money to buy equities. So if you think through it: the higher the margin balance in the market, the higher the S&P will go, because people will have more borrowed money to put in the stock market. Today, the total margin balance is at $350 billion for NYSE member firms.

The evidence is presented on Chart 1. You can see that there is no lag between the two charts, so it's a rather useless correlation to time the market.

Chart 1: Margin Balance Vs. S&P
Although fairly useless, sometimes there are discrepancies that can be spotted. For example, the rising Australian stock market could be overvalued at this moment when you look at their declining margin lending rate (Chart 2). So it can be interesting to watch this correlation.

Chart 2: Margin Balance Vs. ASX200

Update: Beleggerscompetitie

On the Belgian Investors Competition, I'm still standing on last place with my dreaded declining gold and gold mining stocks. But let's take a look at the top 10.

It looks like Diddenboyke has held his position rather nicely.

1) tompau: long stocks, France Telecom, Air Liquide
2) pmanager: ING, long stocks
3) Diddenboyke: short gold, Barco, Adidas, Total, GDF Suez
4) DRACHE: Barco, Heineken, long stocks
5) Maarten Janssens: short stocks, Bekaert
6) Freak of Nature: short gold
7) Yamayoze: Gold Fields, Umicore, long stocks, Commerzbank
8) Bouchez: Gold Fields, Harmony, short stocks, Arcelormittal
9) Rover45: short stocks
10) Lapitop: ING, sipef, short stocks

As a summary we see that people aren't sure if we should be long or short stocks. What is sure is that you should be short gold apparently.

France Telecom, which I recommended in the previous update here, is being held by "tompau" and could be a winner here. It is interesting to see that someone is holding Sipef, which I also hold in my (real) portfolio.

Update: Precious Metals Premiums

Just wanted to give a status update on the premiums.

The trend in premiums is still in an upward phase. A little side note, the bitcoin price has skyrocketed and continues to do so.

woensdag 27 februari 2013

The Leverage in COMEX Silver is about to Explode

Why is the eligible silver going up at such high pace and open interest going up at the same time?

As I told people before, eligible silver is not allocated. People think they own it, but it is not available for delivery. The ratio of registered to eligible is now: 29.7%. Down from 33% the last time I looked.

As this ratio between registered and eligible goes down, the leverage is going up and up. And when this leverage breaks (due to a short squeeze), the non-eligible supply of smaller bars and coins is going to disappear in front of you.

Chart 1: COMEX Silver
People know this, and as a result are buying physical silver in record quantities. The U.S. Mint just sold a never seen record of 3.37 million ounces in February 2013.

Correlation: The Dow Theory

Peter Schiff's Radio Show has reminded me that there is a correlation in the Dow Transports Vs. Dow Industrials.

He said in the 26 February 2013 radio show that when the Dow Transports doesn't go up together with the Dow Industrials, then it is likely that the Dow Industrials will go down. That's the Dow Theory.

The definition of the Dow Theory goes like this:
In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air.

So if you see that the Dow Industrial goes up, while the Dow Transport doesn't go up, you're in trouble.

Now back to Peter's case. He said that the Dow Transportation Average didn't confirm the rise in the Dow Industrial Average on 26 February 2013. That was true, but if you look at a longer term, the Dow Transportation average has outperformed the Dow Industrial Average (Chart 1).

So this is one of those times I actually don't agree with Peter.

Chart 1: Dow Jones Transportation Average (blue) Vs. Dow Jones Industrial Average (red)
This makes me want to go further in my analysis. Let's subtract both indices from each other, take the percentage change on it and see what happens (Chart 2).

Chart 2: DJTA - DJIA (Percentage Change) Vs. DJIA
As you can see, each time the DJTA goes up more than DJIA (blue chart moving up), the DJIA will go up. And each time we see a spike lower in the blue chart, we hit a recession or a stock market crash.

At this moment we don't see any of such things happening in the blue chart, so I believe the stock market is pretty stable at the moment.

dinsdag 26 februari 2013

Correlation: EPS revisions Vs. S&P

This is a fun correlation. By just looking at the EPS revisions (which is still negative), you can see that the stock market has outrun its pace and is due for a correction.
Chart 1: EPS revisions Vs. S&P

Record High Insider Selling Marks The Top In The Stock Market

There are several indicators today, marking a major top in the stock market. One of those indicators is the overvaluation in the stock market according to the "Warren Buffett Valuation" of the total U.S. stock market index as compared to U.S. GNP. We found out that stock markets are overvalued today, because the total U.S. stock market index is at 100% of  U.S. GNP. Normally we see that the total U.S. stock market index is at 80% of GNP. We just recently had news that U.S. GDP was negative and I wrote about it here. When GDP declines, it inherently means that the stock market must decline, taking into account the Warren Buffett Valuation theory.

Investors are much too bullish on stocks at this moment and we can see that in the Dow-Gold ratio, which is hitting a ratio of 9 to 1 as we speak.

I believe though, we shouldn't be so complacent about stocks. After all, the P/E ratio of the Dow Industrials stands at 15.3 right now, while in the 70's, the P/E ratio was on average at 10, which is much lower than 15.3. The question is: "Do we expect higher or lower earnings in the future?". I believe the earnings are going to get worse in the future. One way to measure this is to look at the Citigroup Economic Surprise Index (CESI). This index is defined as weighted historical standard deviations of data “surprises”. In human language it means that if the index turns negative, the chance of an "unexpected" downward revision goes up. You will hear more bad news out of the media. And what do you know, the CESI did turn negative in the previous month. So you can expect more bad news coming. Historically, when the CESI goes down, the stock market goes down a few months later as you can see on chart 1.

Chart 1: Citigroup Surprise Index Vs. S&P
To read more evidence on a top in equities, go here.

100% Chance of a Major Low in Gold Miners

I don't know if you have noticed this, but sentiment on the gold miners is at a record low on a 3 year period (because the free chart only goes for 3 years...)

Each time when we see a bottom in sentiment, the gold miners are bottoming out.

I believe the best place to go right now is in gold mining stocks and I'll put the money where my mouth is, especially when Goldman Sachs tells you to sell your gold.

Some suggestions: ASM, EXK, NEM.

maandag 25 februari 2013

donderdag 21 februari 2013

Update on Shanghai Precious Metals Premium

Just a little update for those who think precious metals demand is going down.

As you can see, Asians want to pay a premium for precious metals. The west is selling gold, the east is buying gold...

Chart 1: Shanghai to London Gold Premium

Chart 2: Shanghai to London Silver Premium

woensdag 20 februari 2013

Beleggerscompetitie: Update

It's a pretty embarrassing accomplishment for anyone to be almost last place in a competition, namely 22698th. It's all attributed to the decline in precious metals.

All of the top 10, except Nass, have lost their position, because they were long gold.

Here is the new list of top 10:
1) Diddenboyke: Short Gold, Adidas, GDF Suez, Total, Umicore
2) BOSSIE BAS: Short Gold, Credit Agricole, KBC, Nyrstar
3) Fanskb: Short Gold, BNP Paribas, Nyrstar, AXA
4) Remi261: Short Gold, Long Banks
5) tbourrie: Long Gold, China, Russia, ArcelorMittal, Ageas
6) DINAMO7626: RHJ International
7) Chovidio: Short Gold, Long Emerging Markets, Nyrstar, Air Liquide
8) Insomnia: Short Gold, Credit Agricole, Umicore, KBC, BASF, ArcelorMittal
9) Nass: France Telecom, Lafarge, AXA
10) Camul: Short Europe, Shell, Solvay

Looks like most of them are short gold and long banks. Very interesting stock among these is France Telecom. Marc Faber suggested that we should buy European Telecom Stocks. Maybe this is one you should look at.

Huge Divergence Between Bitcoin and Gold Price

How can the bitcoin chart (Chart 1) keep going up, while the gold chart goes down (Chart 2)? Apparently it can, but not for long, that is my take.

Chart 1: Bitcoin Chart
Chart 2: Gold Price
Premiums on Shanghai are hitting new highs so stress is building up:

Chart 3: Silver Premium Shanghai/London
And U.S. Mint silver sales are hitting a record for this part of February.

dinsdag 19 februari 2013

Total Gold Stock at COMEX hits new low

As predicted here, the total gold stock plunged to the lowest stock level since I monitored the COMEX, namely: 10676012 troy ounces.

This was of course obvious when J.P. Morgan swapped eligible gold into registered gold a few weeks ago. Total stock at J.P. Morgan vault hit a low of under 2 million troy ounces.

(Probably Soros is selling his GLD and now taking delivery...)

Chart 1: Gold COMEX

On the silver front we still see a huge increase in stock (and therefore also increase in open interest) (Chart 2).

Chart 2: Silver COMEX
It's surprising to see this huge divergence between silver and gold. I don't know what it means...

Update: Copper Contango Experiment

There is no stopping of the increase in contango in copper. So don't expect a correction in copper price soon. Probably the stock market can still go up for a little bit, due to this expansion of the balance sheet of the Federal Reserve.

Chart 1: Copper Contango

Brent Vs. Crude Divergence

If you hadn't noticed, Brent and WTI crude oil were pretty correlated historically, but since 2011 something weird happened.

Brent crude oil started to move up, while WTI crude oil was flat (Chart 1). This is mainly caused by the increased oil supply in North Dakota due to the applied technique called "fracking". This increased oil supply drove down the WTI crude oil price, while Brent crude oil (tied to the Gulf Coast) has increased.
Chart 1: Brent VS. Crude
To read more, go here.

maandag 18 februari 2013

China Ups U.S. Bond Holdings

Surprisingly, China bought even more U.S. bonds and is now again the champion, just before Japan. Almost every foreign country increased its U.S. bond holdings in December 2012.

And now realize they are making a loss on that purchase as yields went up.

Shanghai Silver Premium Rising

There is a lot of hope that Asia, when it opened this week after the lunar holiday, would normalize the precious metals market. And indeed, my chart tells me the demand is there.

Premiums on silver between Shanghai and London keep rising (Chart 1).

So, stay tuned for tomorrow!
Chart 1: Silver Premium Shanghai / London

zaterdag 16 februari 2013

Update: List of Discovered Correlations

Once in a while I need to post an update on all discovered correlations.

Positive correlations mean that if one goes up, the other goes up too. Negative correlations mean that if one goes up, the other goes down.

Positive correlations:
1) Silver premium Vs. Silver Price 
2) Baltic Dry Vs. Industrial Commodities
3) Baltic Dry Vs. Copper
4) Copper Vs. S&P
5) Oil Vs. Dow Jones
6) Agriculture Price Vs. Health of Economy
7) Agriculture Vs. Fertilizer Price 
8) CRB Index Vs. Commodity prices (oil, agriculture, metals)
9) MZM velocity Vs. Inflation
10) MZM velocity Vs. 10 year U.S. treasury yield
11) Case-Shiller Index Vs. Housing Market Index
12) Capacity Utilization Vs. Inflation
13) Rhodium Price Vs. Automotive Industry
14) Housing Price Vs. Rise of Wages
15) O-metrix Score Vs. Stock Value
16) Outlay Spending Vs. Hyperinflation
17) Gold Money Index Vs. Gold Price
18) Stock Dividend to Bond Yield ratio Vs. Stock Price
19) War Vs. Silver Price
20) Exchange Rate Vs. Treasury Bond Valuation
21) PMI Vs. GDP Growth Rate
22) Gold Lease Rate Vs. Gold Price
23) Economy of Australia/Canada Vs. Industrial Commodities
24) Jim Sinclair's Fed Custodials Vs. Gold Price
25) LCNS silver net short positions Vs. Silver Price
26) ECB Deposit Rate Vs. Euribor and Deposit Facility
27) China Gold Imports from Hong Kong Vs. Gold Price
28) AUD/USD Vs. Iron Ore
29) Chinese yoy GDP growth Vs. Chinese yoy Power Consumption
30) Chinese yoy Power Consumption Vs. Chinese yoy Power Production
31) M1 and Gold
32) Obesity Vs. Debt
33) Global Equity Prices Vs. Global EPS revisions
34) Total Public Debt Vs. Interest Payment on Debt
35) U.S. Bond Yields Vs. Interest Payment on Debt
36) Federal Reserve Balance Sheet Vs. S&P
37) Federal Reserve Balance Sheet Vs. Gold Price
38) Balance Sheet Ratio Fed/ECB Vs. EUR/USD 
39) China Manufacturing PMI Vs. Base Metal Prices
40) COMEX stock level Vs. CFTC Open Interest
41) Manufacturing component of Industrial Production Vs. CRB Metals Index
42) Net Short Interest Gold Vs. Gold Price
43) Central Bank Net Gold Buying Vs. Gold Price
44) LCNS silver Vs. Silver Open Interest
45) Bond Yields Vs. Gold Price
46) Gold Miners Bullish Percent Index Vs. GDX
47) Daily Sentiment Index Gold Vs. Gold Price
48) Commercial Net Short Interest Vs. Silver Price
49) Food Stamp Participation Rate Vs. Unemployment Rate
50) Bitcoin Price Vs. Gold Price
51) Credit Expansion Vs. Economic Health (second link)
52) Gold Volatility Vs. Gold Price
53) Total Stock Market Index Vs. GDP
54) Brent Crude Oil Vs. WTI Crude Oil
55) EPS revisions Vs. P/E Ratio
56) Citigroup Surprise Index (CESI) Vs. S&P 
57) EPS revisions Vs. S&P
58) Dow Theory: Dow Jones Transportation Average Vs. Dow Jones Industrial Average
59) Margin Balance Vs. S&P
60) Federal Debt Growth Vs. 10 Year Treasury Yields
61) Fed Funds Rate Vs. 10 Year Treasury Yields
62) Total Central Bank Balance Sheet Vs. Gold Price
63) Large Commercial Short in Copper Vs. Copper Price
64) Bond Yields (<3%) Vs. P/E Ratio
65) ECB Lending (LTRO) Vs. Deposits at Banks

Negative correlations:
1) Copper Price Vs. Copper Futures Contango
2) Interest Rates (bond yields >3%) Vs. P/E ratio of gold mines
3) Non-Farm Payrolls Vs. Unemployment Rate
4) Federal Debt Held by Foreigners Vs. U.S. Bond Yields
5) Size of Governments Vs. Their Economies
6) Stocks Vs. U.S. Dollar
7) Silver Stock at CME Vs. Silver Price
8) China Reserve Requirements Vs. Shanghai Real Estate Prices
9) Capacity Utilization Vs. Unemployment Rate
10) Net Commercial Short Positions Vs. Bond Yields (Alternative Site)
11) Net Non-Commercial Long Positions Vs. Bond Yields
12) % Change in Gold Vs. Real Interest Rates on 10 Year Treasuries 
13) Shanghai Silver Premium Vs. Silver Price

These are a lot of correlations that you need to monitor on a day to day basis!

Correlation: Total Stock Market Index Vs. GDP: How to Value Dow Jones

Today I learned about the Warren Buffet valuation of the stock market by looking at the total stock market index and GNP numbers (which is almost equal to GDP numbers + $200 billion).

The total stock market index can be found here and stands at $15.879 trillion on 15 February 2013 (Chart 1). It measures the market cap of the U.S. companies. Don't confuse this chart with the Dow Jones chart.
Chart 1: Dow Jones U.S. Total Stock Market Index

Now you compare that to the U.S. GDP number, which can be found here (Chart 2).
Chart 2: U.S. GDP
If you then divide Chart 1 by Chart 2, you get Chart 3. If the chart goes above 100%, then the stock market is overvalued.

Chart 3: Market Value to GNP ratio
Here is the table for valuation:
Chart 4: Valuation Table

For example, in December 2007, the GDP was $14.25 trillion, while the total market cap was $15 trillion. 15/14.25 = 105%. Meaning overvalued.

For example, in December 2008, the GDP was $14.08 trillion, while the total market cap was $8.78 trillion.
8.78/14.08 = 62%. Meaning severely undervalued.

So today, you could say that stocks are becoming overvalued, so you should take some of your money out of the stock market while you still can.

There is a final note I want to make. If this correlation is true between the Total Stock Market Index and GDP, then you have to take in mind that GDP is very important to watch. If the GDP drops, then the stock market will most likely drop. If the GDP rises, then the stock market will most likely rise.

I pointed out many times that U.S. GDP will not go up, due to the zero hour debt problem, which I talked about here. So theoretically, the stock market cannot rise.

The only way to get GDP go up again is when debt is significantly reduced and we're not at that point yet.

Tightness Continues in the Precious Metals Market

There are several indicators of a tight gold market right now and I want to show you this in the following analysis. I will talk about the GOFO rate, premiums, supply and demand, CFTC report.

Investors shouldn't worry about the gold price declining, this is a healthy consolidation phase we are entering in now. Of course, we hear about George Soros lightening up his gold positions, Jim Rogers starting to hedge the gold price and Dennis Gartman shorting gold, but I see that more as a contrarian indicator. In the long term, fundamentals will win the battle.

donderdag 14 februari 2013

Gold Supply and Demand

As I predicted here, the gold supply is declining by 1.4% in 2012 due to lower recycling. On the other hand, the gold demand from central banks soared.

It is odd that the gold price hasn't reacted on this yet.

The downward action this week in gold has much to do with the 1 week holiday in China. Fundamentals for gold look very good to me, at least on the demand supply side.

On a side note, APMEX silver premiums have gone to a new high of 16.5%. Very interesting.

Chart 1: APMEX premium on silver

woensdag 13 februari 2013

Beleggerscompetitie: Update

We are one week further in the investors competition and I already dropped to position 20000 with my emerging market stocks and turbo gold which is dropping. You can follow me at "katchum", but following my positions seems not to be a good idea lately...

A lot of the investors from the previous week have dropped out of the top 10 too with the exception of VanLooy, Fidelski and Houtten.

1) Nass: Credit Agricole, Harmony, Infineon
2) VanLooy: Ageas, Commerzbank, gold, ING
3) gdelabassee: banks, Harmony, Inbev, Siemens, gold
4) Houtten: long stocks, Belgacom, GDF Suez, PostNL
5) Drache: long stocks, Heineken, Kinepolis
6) Dr Evil: long stocks
7) Fidelski: Umicore, Gold fields, gold, Japan, BASF
8) KVK1: Banks, Umicore, China
9) driesbe: China, Russia, stocks, K+S, Deutsche telecom
10)  jpah: Societe general, gold, Michelin, Mobistar

It looks like everyone is bullish on banks now, still holding gold and Umicore seems to have a special place because it has dropped a lot lately.

Keep your eyes on VanLooy, Houtten and Fidelski.

dinsdag 12 februari 2013

Gold cannot be suppressed for long

Have you seen the bitcoin chart recently?

Have you seen the lease rate chart recently?

Have you seen the commercial short chart recently?

Have you seen the China gold import chart recently?

Have you seen the M1 chart recently?

=> Gold will not be kept down for long.

zaterdag 9 februari 2013

Avino Silver and Gold Mines: The Perfect Growth Story

Avino silver and gold mines (ASM) is one of those miners that has long existed in Mexico and has a proven track record of 27 years. It closed in 2001 due to low metal prices but reopened in 2010 and is continuing to grow production as we speak. One of the most important aspects to take into account is the presence of a long existing infrastructure, including a mill with a replacement value of $40 million. This mill is fully operational now at 250 tpd (San Gonzalo mine) and is being expanded to 1250 tpd next year (Avino mine). For more information, I encourage investors to read the corporate presentation here.

ASM closely follows the silver price as you can see on chart 1, so you're buying a leveraged instrument to the silver price and I'm very bullish on silver in the coming months.
Chart 1: Avino Silver and Gold Mines Vs. Silver Price

In this article I will talk about the catalysts of ASM. I think Avino Silver and Gold Mines is a pure growth story. Production will go up 6 fold in just 2 years time. When people see that this company has turned from a net loss to a net profit in the coming year, they will all pile in to buy this stock with both hands. As a matter of fact, Eric Sprott is the largest shareholder in this company and if you've read this article carefully, you know exactly why this is...

Go here to continue.

vrijdag 8 februari 2013

Belgium Restricts Gold Buying

There is a proposal in the parliament of the kingdom of Belgium to make buying gold with cash illegal above 5000 euro. All transactions above 5000 euro in gold should be made electronically (so the government can trace you).

This is of course a first step to make gold illegal and to confiscate your physical gold holdings. It is an attack on our privacy and I don't approve it. The more debt and the more government in a certain country, the higher the chance of repression by that government.

Of course there is an option out. I'll just buy my gold in the Netherlands...

woensdag 6 februari 2013

Investors Competition Belgium

In Belgium we have the yearly investors competition called: "Beleggerscompetitie". Of course I'm participating too as "katchum". You can search me if you want and view my "virtual' holdings. My standing is currently at position 8752 of 19000 so I'm above average... I'm currently in emerging markets, China, Russia, gold, agriculture, oil and base metals.

Not that I'm a good trader, but what's interesting about this competition is that you can view the holdings of everyone, including the top 10. And you can win a car (Ford).

I will list the top 10 participants' holdings here:

1) Vanlooy: Gold, Short Europe, Short CAC
2) Rover45: Gold, RHJ International, Short Europe, Short CAC, Long Oil
3) ik short dus ik ford: Gold, Short Europe
4) nicolas 812: Gold, Arcelormittal, Gold Fields, Harmony, Short Europe
5) harpy: Short Europe, Long Oil
6) 902314nd: Gold, Bekaert, KPN Koninklijke, Short Europe
7) astevens: Gold, Short Europe
8) eulsonced: Short Europe
9) Fidelski: Adidas, Barco, BASF, RTL Group, Solvac, STmicroelectronics
10) Houtten: GDF Suez, Harmony, K+S, Royal Imtech, RWE

It's obvious what they all have in common: Long Gold and Short Europe. Harmony Gold is a possible play here. And surprisingly, people are getting long oil!

I say follow the professional investors here. I will keep you updated each week.

dinsdag 5 februari 2013

December 2012 China Gold Imports Hit Record Level

As predicted here, China bought gold like there was no tomorrow in December 2012 as gold prices fell to a record low. They bought 114.4 tonnes. I believe January will be a good month too.
Chart 1: China Gold Imports from Hong Kong
Net imports were 84.7 tonnes. That's 84.7/114.4 = 74%. That's a record high, even higher than the 68% in November 2012. This means China isn't even trying to export its gold to Hong Kong anymore. It's scooping up all the gold they produce!

I say: "Follow the money!"

Eligible Silver Spiking Upwards

Something must be wrong here. Why is eligible silver rising at such a high pace, while registered silver doesn't budge? This trend can't last...

Is it because shorts can't get out?

Chart 1: COMEX Silver Stock
If we look at the premiums on APMEX, we get this. 12% and 16%, which are pretty high premiums lately.

Chart 2: APMEX 100+ silver coin premium

Chart 3: APMEX 1-19 silver coin premium

maandag 4 februari 2013

Contango Report Update

As predicted two months ago, the copper price has made a huge move upwards to $3.75/lb (Chart 1). Investors are worrying though, as the U.S. dollar is now strengthening again while stock prices decline. But I assure you that as long as the contango in copper doesn't fall down, the copper price will keep increasing. I will bet my copper contango theory on it. So don't count out the rise in stock prices just yet.
Chart 1: Copper Price
As a matter of fact, the copper contango widened this week, again with a rising copper price. That means we are still awaiting the massive spike upwards in copper.

Chart 2: Copper Contango Vs. Copper Price

zondag 3 februari 2013

How to Monitor the Gold and Silver Premium Between Shanghai and London

He who searches, will find what he's searching for (or something like that).

In a previous post here, I noticed that the silver prices between Shanghai and London were decoupling, with premiums as high as 10%. I didn't know where to find this Shanghai Exchange silver price.

But today I think I found the site that gives these gold and silver prices (for free).

You can find it on Bloomberg: 

And when Bloomberg restricts access to their site, you can find it here:

Gold for example: On February 1 the Shanghai gold price was: 334.63 RMB/g. Which is 39339 Euro/Kg at 8.506 EUR/CNY. The London price of gold on 1 February 2013 was 39297 Euro/Kg. So the premium was 0.1% (which is normal because there shouldn't be a premium).

Silver for example: On 21 December 2012 the Shanghai silver price was: 6.277 RMB/g. Which is 760.8 Euro/Kg at 8.25 EUR/CNY. The London price of silver on 21 December 2012 was $29.89/ounce or 22.61 euro/ounce at 1.322 EUR/USD. That's 726.9 Euro/Kg or indeed a 5% premium as was reported by Andrew Maguire.

This also means that I'm going to monitor the Shanghai Silver and Gold premiums to London market with this data on a daily basis!

vrijdag 1 februari 2013

Sprott Physical Platinum and Palladium Trust Goes Negative

A very rare sight, physical platinum and palladium now has a negative premium in the Sprott trust. So you can buy platinum and palladium at a discount! This could indicate to a future drop in platinum and palladium.

I was very bullish on platinum before, but today the platinum to gold ratio has gone up tremendously from 0.85 to 1.03. I think it's time to take some profits.

Correlation: Gold Volatility Vs. Gold Price

When I see the current volatility in the gold market, one day it's up 1% and the next day it drops 1%, then I'm wondering if it was like this historically too.

So I took the historic gold price and looked at the percentage changes (Chart 1). If you think of it deeply, you could say that when the volatility increases, the gold price should increase too because higher absolute changes in gold price indicate that this volatility can only decline if you have a higher gold price.

So let's look at the results.

Chart 1 (which looks like a soundwave) tells me that we had high volatility in each recession (grey area). So in recessions, people buy gold and sell gold at a higher pace, probably due to fear. 1980 had the biggest volatility, followed by 1975 and 2008.
Chart 1: Gold Percentage Change
If we then look at the gold price, we see that 1980 has the biggest rise in gold price, followed by 1975 and 2008.
Chart 2: Gold Price
The same can be said about low volatility. The lowest volatile period for gold was in 1995 and indeed we see a drop in the gold price in that period.

Currently the volatility is average, it is higher than in 1995, but lower than in 1980. But you can see that the momentum in volatility is building up and that indicates to higher gold prices in the future.