Wednesday, December 13, 2017

It Looks Like Silver Is Bottoming

Commitments of Traders reports are, in my opinion, a very helpful tool to measure the traders' sentiment. Let me take the silver market as an example. Here is the chart documenting historical movements in silver prices, starting from the beginning of 2016:

Let me analyze two latest legs down during the current bull market cycle in precious metals (please, forgive me for calling this flat market a bull cycle - I am an incurable gold bug).
Leg down number 1

The first move is marked with the red arrow. It started in middle April 2017 and ended in early July. During that period (a 16.8% drop in silver prices) the Money Managers (big speculators trading silver futures) increased their gross short positions by 42.9 thousand contracts and cut their gross long positions by 54.5 thousand contracts. As a result, a net long position held by these speculators dropped by a huge amount of 97.4 thousand contracts.
Leg down number 2
The second move (blue arrow) dragged silver prices from $18.2 to $15.7 per ounce (a drop of 13.7%) but this time the shorts (Money Managers holding gross short positions in silver futures) increased their short bets by 17.7 thousand contracts and the longs (Money Managers holding gross long positions in silver futures) cut their exposure by 13.1 thousand contracts. As a result, a net long position held by Money Managers went down by 30.8 thousand contracts.

Thesis: the latest leg down in silver was accompanied by significantly lower selling pressure among big speculators trading silver futures. So, if I am correct, we may be ahead of another strong move up in silver prices. What is more, now Money Managers hold a net long position of 21.6 thousand contracts. It means that this group of players is less pessimistic than during the bottom established in the beginning of July (a net short position of 6.4 thousand contracts). Lower pessimism at similar prices may be an indication of an ending bear cycle.

Last but not least. Here is the chart documenting this year's silver flows reported by the iShares Silver Trust (SLV):

source: Simple Digressions

Note that in December up-to-now as many as 9.6 million ounces of silver were added to SLV vaults. Well, it is not a common pattern. Usually, SLV reports silver inflows during bull cycles. Most often (but it is not a strict rule) during bear cycles the silver goes out of SLV so...this time is a little bit different.

Friday, December 8, 2017

Look What They Have Done To Gold

According to the Commitments of Traders report, during the week that ended on December 5, 2017, Money Managers (big speculators trading gold futures) totally changed their attitude to gold. Look at the chart below:

As the chart shows, a net long position held in gold futures by Money Managers was reduced by 64 thousand contracts in just one week!

What is more, it was the highest reduction in a net long position in history. Simply put, suddenly the gold traders threw in the towel. In my opinion, it looks like a panic and, as usually, panics create buying opportunities.

The red rectangle points to other sudden and big reductions in net long positions held by Money Managers. Each time there was such a drop the prices of gold were recovering.

Last week this change was the highest in history (the blue circle) so the chances for a short move up are relatively high.

I have not written about gold on this blog for quite a long time but believe me - I was not optimistic about the yellow metal. Now I am getting optimistic, at least in the short term.

Wednesday, December 6, 2017

And The Chinese Are Still Buying Gold

The Chinese demand for gold is still strong. Look at the charts below:

In November the Chinese withdrew 189 tons of gold. By the way, more gold was withdrawn only in September (214 tons) and March (192 tons):

source: SGE and Simple Digressions

As a result, since the beginning of 2017 the Chinese investors withdrew 1,845 tons of gold (an increase of 4%, compared to the same period of 2016):

source: SGE and Simple Digressions

Once again the Chinese, spotting relatively low prices, invested in gold.

Last but not least - the average annual gold production stands at around 3,000 tons and the Chinese absorb around two thirds of annual production. Year by year...

Tuesday, December 5, 2017

Wesdome Gold - An Unlucky Miner

Wesdome Gold (WDO.TO) is an unlucky miner. The company owns an excellent mine, Eagle River, but it also has a big shareholder, Resolute Funds, that some time ago has decided that Wesdome is not a decent investment. As a result, since the end of 2016 Resolute Funds has been selling the company's stocks dragging them down to US$1.4 a share. The charts below document this process:  

source: Simple Digressions

Note that initially Resolute was a typical contrarian - the fund was purchasing Wesdome shares when nobody wanted them (until middle of 2013).

Then, after a period of strong accumulation, Wesdome shares started a vicious bull cycle. At that time (middle 2013 - beginning of 2016) these shares were going in the opposite direction than the entire precious metals market.

The start of a bull market in precious metals  (December 2015 / January 2016) made this bull cycle even stronger. In between (2016) there was a proxy battle between the company and Resolute Funds which resulted in another strong bull wave.

Then, in 1Q 2017 the shares topped and entered a bear cycle. This cycle is still intact and it looks like it is fuelled by Resolute selling Wesdome shares.

Summarizing - Wesdome is a decent miner (I particularly like its Eagle River mine which is located in an established gold camp in Canada) but as long as Resolute is throwing the company's shares in the towel it is hard to expect an end of the current bear cycle.

Monday, December 4, 2017

Another Mineral Drilling Company Reports Decent Quarterly Figures

Another mineral drilling company, Major Drilling (MDI:TO; MJDLF:OTC Markets), delivered decent 3Q 2017 results. For example, cash flow from operations (excluding working capital issues and taxes) was the highest since 3Q 2015:

source: Simple Digressions

Another sector measure, ARPOR (average revenue per operating rig), also went up:

source: Simple Digressions

The green rectangles depict boom times while the red ellipses are attributed to poor business conditions.

The yellow rectangle points to the period 2016 - 2017, which, in my opinion, is another boom time.

Thursday, November 30, 2017

Drilling Companies Lead The Precious Metals Market

Despite precious metals and gold / silver mining stocks going flat this year so far, the drilling sector performs quite nicely:

 source: Simple Digressions

To remind my readers - the DRILL index comprises the shares of the following drilling companies: Energold Drilling, Major Drilling, Orbit Garant, Geodrill and Capital Drilling.

Note that the index can be considered as a leading indicator for the precious metals sector. For example, since March 2011 the DRILL index was under-performing against one of the most popular gold mining ETFs, GDX (the red arrow). For those that do not remember - gold made a top in middle 2011 and GDX topped in late 2011 but the DRILL index was at that time in its full-gear bear market phase.

Then, since the end of 2012 the index was flat against GDX, gold etc.(the violet rectangle) sending a message that not all things were that bad as many thought.

Now we have a very weak bull market in precious metals but the DRILL index is performing much better than GDX (the blue arrow). So, once again, the message is clear - the bull market in precious metals is still alive.

Tuesday, November 28, 2017

Are We In A Bull Or A Bear Market In Precious Metals - Two Misleading Charts

Precious metals flows data, delivered by popular gold / silver ETFs, can be very misleading. For example, look at these two charts:

iShares Gold Trust (IAU)

source: Simple Digressions and the IAU data

The chart shows gold flows reported by IAU. The red line depicts cumulative flows calculated for the period January 1 - November 27, 2017. It is easy to spot that as many as 1.5 million ounces of gold have been added to IAU vaults this year so far.

Now look at this chart:

iShares Silver Trust (SLV)

source: Simple Digressions and the SLV data

SLV is the world's largest private holder of silver bullion. However, this year this giant recorded a cumulative outflow of 24.2 million ounces of silver.

Now the question is: are we in a bull market or a bear market in precious metals? Or maybe this question is badly-formulated?