Gold and silver market status update

An update to my previous posts here and here on the state of the gold and silver markets as the Perth Mint sees them. Coin demand (retail and wholesale) has also eased but still good. Our retail outlet in Perth is quiet.

On the gold kilobar market, premiums have come off a bit but are still way above normal levels. This market action is confirmed by Warren "the ETF bar list guru" James at Screwtape Files who has observed a clear preference by bullion banks to choose 99.99% 400oz bars rather than 99.5% bars when redeeming physical from the ETFs as investors sell up, as the 99.99% bars can just be melted down and recast into kilobars (no refining required) and sold at a premium. Warren will have a post on his blog showing this graphically when he gets time.

On the Depository front, over the past few weeks we are now seeing net selling. It seems a bit of that is clients selling up part of their holdings and switching into equities. This may reflect what Financial Sense Newshour said in this podcast where they have clients who originally had a modest allocation percentage into precious metals but after the bull market (and no rebalancing) they are now sitting on excessive allocations of say 75%. Clients may have been induced into rebalancing with gold not showing any signs (yet) that a rapid rise is coming combined with the stock market showing gains.

We have also seen some physical collections of metal in Depository, mostly silver but minor quantities overall. The net loss in Depository is modest an similar to the percentage losses Bullion Vault, GoldMoney and BMG Bullion are also showing, according to Sharelynx's Transparent Holdings page (you'll need to subscribe if you want to see the data). The ETFs have been showing a lot more percentage losses than PM, BV, GM and BMG have, which reflects I think our more retail (strong hand) client base.

I don't know how to read this market behaviour. Weak investor sentiment like this could portend a bottom, but it could also make the market suseptible to a sell off if the April price smash entity decides to test the market's strength again as it need not worry about position limits and the CFTC catching them out.

Gene Arensberg at Got Gold Report also sees the market as “very imbalanced” and “dangerous for both sides of the battlefield.” with the largest hedgers of gold are positioned as though they see very little downside left, while on the other the Funds, while still net long gold, have put on their largest gross short position since the disaggregated data begins in 2006. 

Further confusing messages comes from the contrast between James Turk and the Royal Canadian Mint. James Turk reports some stress in the wholesale markets (although I think when he says that "some of the larger orders to buy bars have been moving out to as long as T+5, which is extraordinary" he is referring to kilobar, not 400oz bars, as GoldMoney isn't showing premiums or delays for their 400oz bar backed product) and that "the buyer or buyers who pushed the gold price up during the London PM fix yesterday were obviously desperate to get their hands on physical metal and were prepared to pay whatever price it took to obtain it".

Then we have this Globe and Mail article which notes that the Royal Canadian Mint's gold and silver exchange-traded receipts were trading at a 1.7% and 1% discount on Wednesday. The fact that "major investors holding at least 10,000 of the gold ETRs or 5,000 of the silver ones could also redeem them for metal and acquire holdings at a below-market price" certainly isn't reflective of a shortage in the wholesale markets.

At this time I think I agree with Gene: "We have to admire the courage of those willing to sell gold short in this, very imbalanced environment, knowing that a reversal could occur any moment and that it could be epic in its violence. Rest assured we have neither the courage nor the inclination to do so ourselves."