A Few Interesting Data Points

It has almost become a matter of routine that we write about new extremes in a number of market data related to gold (specifically sentiment data) and after Friday's massive shellacking several such extremes have occurred again. Note that not all of these are historic firsts, but two actually are.

We present them without any additional interpretation. In a highly emotional market, even just one or two days can make a big difference in terms of where prices end up. Still, there were certainly a few noteworthy developments, all of which are not surprisingly conveying that sheer panic broke out in the gold market last week. 

 

A word of caution: if a severely oversold market just keeps falling, then there  is sometimes a lot more short term downside in store. We're not saying that this is likely to happen in gold's case, we just want to point it out as a general rule of thumb. The higher probability is actually that extremes in sentiment and other 'oversold' readings result in a near term reversal, but one should be aware that there are occasionally exceptions.

To start with, the closed end bullion funds CEF and GTU went to big discounts to their NAV:

 

 

 

 

 

 


 

CEF

CEF holds both gold and silver bullion – its discount to net asset value widened dramatically on Friday. This is not quite a record though. It is the third biggest discount recorded in the past three years – click for better resolution.

 


 

GTU-discount

GTU holds only gold bullion – and Friday's discount to NAV was actually a record as far as we are aware- click for better resolution.

 


 

GLD-p-c

The put-call volume ratio of GLD was already quite high, but on Friday it soared to a new 52-week high of 1.47 (probably not a record high, but definitely a fairly rare high reading)- click for better resolution.

 


 

GVZ

GVZ – a measure of the volatility premium of GLD options that is calculated in the same manner as the VIX. Not surprisingly, it soared on Friday along with the explosion in GLD's put-call volume ratio- click for better resolution.

 


 

Rydex pm

The Rydex precious metals fund with its cumulative cash flow ratio and NAV. Interestingly, cash flows into the fund continue to diverge from the fund's price. That has happened in the latter stages of the 2008 crash as well- click for better resolution.

 


 

HUI-weekly

A weekly chart of the HUI. Here we have another historical record. The weekly RSI has never been lower than last week. This is probably the most astonishing datum.

 


 

Conclusion:

A panic was/is underway in gold and silver. It is impossible to tell when it will be over, but it is astonishing that it has become so intense (it is actually a bit out of sync with the actual price movement in gold). The action in precious metals stocks is a reflection of the growing panic in the underlying metals  – they have so far led the decline, but are now severely oversold. At some point  an opportunity should present itself, even if it is just for a short term trade.

 

 

Charts by Decisionpoint, StockCharts, Schafferresearch


 

 

 

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4 Responses to “Panic on the Gold Titanic”

  • UrbanNomad:

    Great website. Just discovered it, although I’ve been looking for it seemingly forever. Thanks!

    I hope I don’t come across as impertinent, as this is my first comment, but there may be an oversight in your GTU & CEF NAV stats. In recent days I’ve been trying to accumulate gold at a discount through these funds. Of course the fund’s website only publishes the prior day’s NAV stats, but it also provides sufficient data for anyone to calculate current NAV using live gold prices throughout the trading day. When I did this exercise on 12 & 15 April, I calculated a discount for the funds of around 2%-2.5%, so I was surprised to see them report much larger discounts on the website. The reason for this is that they use the London PM fix (10am New York time) for calculating the NAV, while gold continued to plunge for many hours after that. The larger, reported discounts are ‘official’, although they were never actually available to purchasers of paper gold.

    The GTU discount finally collapsed today, but Kitco are still offering to purchase Krugerrands at 1% above spot. For a few days, retail investors could sell physical, buy paper and pocket a 4% spread; i.e. the paper and physical prices almost decoupled. My instincts are that such a decoupling might be a ‘Lehman event’ for the bullion banks; perhaps even for fiat currencies. Are you aware of any blogs or articles discussing such a decoupling?

  • I don’t believe that this is likely in the near future – in fact, I think they will all soon step up and print even more. I have given the panic in gold some more thought and believe I actually have an explanation for the fundamental causes driving it that hasn’t been mentioned anywhere else yet. Look for it in tomorrow’s blog posts.

  • pyrat:

    Who would think it possible for the FED, ECB. BoE, BoJ, and the PBoC could all be forced to stop their extravagant money printing all at the same time?

  • No6:

    Certainly the Gold Titanic has been hit by massive volume.
    JPM and GS seen boarding and filling several life boats.

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