Pain for gold, silver price as hedge fund slash bullish bets

On Friday the price of gold fell again, reaching an 8-month low after five straight days of selling on the back of negative precious metals sentiment among large investors coupled with a strong dollar.

On the Comex division of the New York Mercantile Exchange in after-hours Friday trade gold for December delivery slid below $1,230 an ounce, a 2.8% retreat for the week to levels last seen early January.

After hitting a high of $1,380 in March, gold's retreat accelerated during the third quarter with a loss of 4.5% so far in September alone. Gains since the start of the year are now less than 3%.

Bullish bets on gold – net long positions held by large investors like hedge funds – fell again last week, while bullish silver positioning all but evaporated.

On a net basis hedge funds hold 71,376 gold lots or 7.1 million ounces, half the year-high of 144,272 while open interest – a measure of market involvement – are hovering near 5-year lows.

So-called managed money now hold a neutral position in silver compared to record net longs of 240 million ounces only a couple of months ago according to Commodity Futures Trading Commission data for the week to September 9 released after the close of business on Friday.

Silver managed slight gains on Friday exchanging hands for $18.62, but still ended the week 3% lower and is not far off levels last seen in July 2010.

Silver has performed against expectations this year with many market observers calling for a rise in the price of the metal thanks to essentially flat mining supply, robust industrial buying which accounts for half overall demand and falling inventories in top consumer China.

This three-year chart of positioning in silver futures and options shows how dramatically speculators' bets on the volatile metal have swung from bullish to bearish in recent months.

China's Lead and Zinc Mines close after heavy rains

Heavy rains in Shaanxi Province, China, have negatively affected production in local lead & zinc mines, Shanghai Metals Market learns.

The impact in Hanzhong is in particularly big, according to SMM sources. There are four lead & zinc mines in Hanzhong, and it is heard that some mines have closed for a week following heavy rains. It remains unknown when production will be resumed.

Lead and Zinc mines in Shaanxi province are mainly distributed in Baoji, Hanzhong and Shangluo. The impact on mines in other two regions is small so far, SMM learns.

India not plan to trim Gold import duty from 10% immediately

It appears that India’s 10% gold import duty, initiated last year, will continue even as an important gold-buying holiday approaches, according to analysts.

The country is not considering an immediate cut in gold import duties despite its trade account deficit narrowing over the past year, according to a Reuters report quoting Trade Minister Nirmala Sitharaman. 

“Since the curb in the gold trade, local merchants and dealers expressed optimism for a possible rollback in these restrictions as India’s current account deficit has narrowed to 1.7% of GDP (gross domestic product) for the quarter ending in June from the all-time high of 4.8% a year earlier,” said HSBC. 

“This news comes at a time when India’s appetite for gold traditionally improves from seasonal demand. Diwali, also known as the festival of lights, is on 23 October and is the largest gold-buying holiday in India,” HSBC added. 

According to INTL FCStone, the import duties have reportedly increased the amount of gold being smuggled into the country. India is important to the gold market as one of the world’s two largest buyers, along with China.

Majority Of Chinese Say War With Japan Is Just A Matter Of Time

When it comes to current geopolitics, one has to stretch their memory to recall a time when there were more overt and not so overt conflicts, humanitarian interventions, drone bombings and proxy or outright civil, and/or otherwise, wars.

But even the escalating cold war (as in European winter cold) between Russia and the west will pale by comparison to what may happen in the far east, if the pent up for generations tensions between China and Japan, which have historically hardly been in a state of "amicable relations", finally spill over into an all out war. Which, incidentally, is precisely what a majority, or 53% of Chinese respondents, and some 29% of their Japanese peers, expect will happen in the coming years.

As the FT reports, the Genron/China Daily survey poll found that "38 per cent of Japanese think war will be avoided, but that marked a nine point drop from 2013. It also found that a record 93 per cent of Japanese have an unfavourable view of their Chinese neighbours, while the number of Chinese who view Japanese unfavourably fell 6 points to 87 per cent."

It is almost as if all that fake pleasantry and courtesy over the past several decades between the two feuding nations was merely to facilitate globalized trade. Trade, which in the new normal is no longer relevant since central banks can just print prosperity in lieu of actual commerce, and which means that the people's underlying feelings can finally bubble to the surface. 

And what's making things worse is that over the past year, both government have made nationalistic sentiment a cornerstone of their domestic and foreign policy (something which a depressionary Europe is quite familiar with):

Jeff Kingston, a Japan expert at Temple University in Philadelphia, said Japanese tabloid media were driving the already negative sentiment towards China by focusing on its “warmongering”. He added that the government was “amplifying the anxiety” by talking about the threat from China.

The poll was released ahead of the second anniversary of Japan’s move to nationalise some of the contested Senkaku Islands in the East China Sea.

Ironically, one of the biggest contributions of Abenomics to Japan's economy may be a massive GDP boost... through war:

Sino-Japanese relations started to improve about a year ago, spurring Tokyo to start laying the groundwork for a possible first meeting between Japanese Prime Minister Shinzo Abe and Chinese President Xi Jinping. But ties deteriorated rapidly again after Mr Abe’s visit in December to Yasukuni, a controversial shrine dedicated to Japan’s war dead including a handful of convicted war criminals.

Mr Abe wants to hold a summit with Mr Xi in November on the sidelines of an Apec summit in Beijing but China has shown no sign of interest. Critics say Mr Abe has hurt efforts to repair ties by visiting Yasukuni and also because of the perception that he is an unrepentant ultranationalist.

This week two members of Mr Abe’s ruling Liberal Democratic party, including a new cabinet minister, were forced to distance themselves from photographs that showed them posing with the leader of a Japanese neo-Nazi party.

“He just replaced the rightwing loonies [in his cabinet] with another group of rightwing loonies,” said Mr Kingston.

As if the world needed more evidence of the intellectual capacity of the people bringing you Abenomics every day. That said, with loonies running the show, something tells us those 53% of Chinese respondents expecting war in the near and not-so-near future, will be 100% right.

BofA Warns "Risk Of Selloff" After September's FOMC

While BofAML's Michael Hanson expects Yellen’s overall tone to remain dovish, market perception will be key. The combination of changes to the forward guidance language, upward drift of the dots, and any comments seen as potentially hawkish, could lead to a selloff...

Via BofAML,

Risk of a hawkish read

The September FOMC meeting may be the most anticipated in nearly a year. We expect no fundamental changes in Fed policy, despite revising the statement to clarify policy data dependence and some upward drift in the dots. The FOMC should taper by another $10bn as well. Fed Chair Janet Yellen’s press conference will set the tone for the market reaction. While we anticipate she will continue to support a patient and gradual normalization process, the risk is that markets may sell off on the perception of a less dovish Fed.

Textual analysis

The FOMC statement has been the focus of much market speculation recently. The “significant underutilization of labor resources” phrase should be retained, in our view, given the soft August jobs report and only slight improvement on net since the July meeting. Conversely the “considerable time” language is likely to revised, in our view, as several Fed officials worry it sounds too much like calendar guidance. To reinforce the data dependent nature of policy, the FOMC could suggest that they will maintain the current 0 to ¼ percent funds rate target range until there has been “considerable progress toward the dual mandate objectives.” We also expect the statement to note that these changes do not reflect a shift in policy preferences, and for Yellen to reiterate that point at the press conference. Still, the risk is that markets see these revisions as a hawkish move in the timing of liftoff.

Drifting dots

The Summary of Economic Projections (SEP) should reveal a slight revision lower for the unemployment rate forecasts for this year and next. We expect a modest upward drift to the 2015 and 2016 dots as well, as some centrist Fed officials have recently shifted to “midyear” from “second half” for their expected start to the tightening cycle. (We just updated our own forecast for the Fed’s first rate hike to June 2015 from September.) The 2017 forecasts will be included for the first time; we look for the median dot to be between 3.25 and 3.50%, with the median ex-hawks at that lower bound. The median longer-run policy rate projection should remain at 3.75%.

Recall that Governor Lael Brainard participates in the SEP for the first time at this meeting.

Market risk also drifts up

Markets are priced well below just about any reasonable variation on the median dot, and a recent San Francisco Fed paper noted that the market seems both too dovish and too certain about Fed policy as well.

Drifting dots thus represent a significant risk for a selloff in the markets. While we expect Yellen to de-emphasize the dots at the press conference  - they are not a consensus policy tool, after all - markets may have difficulty looking past them this time.

*  *  *

Meet the press

Finally, Chair Yellen will likely continue her more balanced discussion of the labor market outlook, yet still emphasize a patient approach to policy normalization. She also may update the discussion around the revised Exit Strategy Principles, but a formal restatement may not appear until later this year. While we expect Yellen’s overall tone to remain dovish, market perception will be key. The combination of changes to the forward guidance language, upward drift of the dots, and any comments seen as potentially hawkish, could lead to a selloff, particularly at the short end of the yield curve.

Oil Price Plunge? It's The Global Economy, Stupid !

The decline in the price of oil - in the face of surging geopolitical pandemonium - has been lauded as indicative of both US' awesomeness in energy independence and a tax cut for Americans... but, as the following chart suggests, there may be another - much more realistic - explanation for why oil is plunging... demand!

World GDP expectations for 2014 just tumbled to their lowest since estimates started...

Maybe - just maybe - that explains the price of oil...

The Philippine ban on nickel spooks out LME

 Since the ban on export in Indonesia, the Philippines have been playing its role regarding the fulfillment of nickel demand in China. The spread of latest news has created a tremendous wave in the nickel market. But relief was bought when the announcement came that the Philippine ban  on exports are many years away from now.

At London Metal Exchange, the benchmark price of nickel declined 1000 dollars to 18,925 dollars on Tuesday; a three month collapses, wiping clean all the profits gained by nickel in the previous days. The market is likely to be overly smug, by the recent lagging in the timeline before even the happening of the unsure Phillipines ore ban, if the whole market is expecting the events in the country to be same as that in Indonesia.

Most probably this is what recent steep offset in the nickel market is all about. Or maybe this can be the reaction of the market towards all the bullish rumors.

Since the market changing ban of Indonesia over unprocessed nickel, the market life of nickel has been going upside down and has been outrun by all other base metals in the market. By issuing the ban Indonesia has cut down about one third of global nickel supply. China and many other countries were in trouble as almost all the producers in the countries provided nickel for stainless steel plants, and their main source of raw material was Indonesia.