great read27 Feb 2017 10:57
Summary
Gold and silver did well, with both of them breaking to new highs. The buck more or less moved sideways, although Friday's bounce ended the week on a positive note. The miners – they look ill. The divergence between the miners and the metal is striking. SPX made yet another new high, TLT looks to be recovering, and commodities continue their slow retreat.
Gold COT still looks bullish – although slightly less so from last week. The silver commercial short position continues to rise; we are just one week away from possibly marking a top for silver, at least from the COT perspective.
Gold and silver big bar shortage indicators still show no signs of shortage in the west; ETF premiums were mixed, while GLD tonnage was unchanged. In Shanghai, premiums remain in place. This is a puzzle; either China is limiting imports, or the buying in China remains very heavy. Normally during a rally in gold, Shanghai premiums vanish. But for whatever reason, the premium at Shanghai is still there.
Currently PM indicators are pulling in two directions; silver leading gold is bullish, both silver and gold breaking to new highs is bullish, but the decline in GDX – while gold is rallying – is distinctly bearish, because miners usually lead. Which one is right?
I'm thinking the bid for the metals is coming from Europe. We are not seeing much movement on the COT report, but the buying pressure is there for sure. Does this mean the COT report won't be giving us proper signals? Its quite possible. It also may be that the Europeans want gold, rather than the miners, although I'm not sure why traders are selling miners when gold itself climbs. Of course, that exact thing has been happening in the oil sector. Perhaps the miners just rose too fast in the recent rally?
Confirming the stress from Europe, we are also seeing a build-up in TARGET2 imbalances in Germany – back to levels last seen in 2012, at the height of the Eurozone crisis. Money is fleeing to Germany from Spain and Italy. Mish had the story on that: https://mishtalk.com/2017/02/24/fuse-is-lit/.
The parliament in the Netherlands is going to have a comprehensive debate on the Euro after the coming elections are past. They will ask, “is it possible to withdraw from the Euro, and if so, how would it be done?” http://www.reuters.com/article/netherlands-election-euro-idUSL8N1G95BX. Recognize that simply having this debate crosses the Rubicon in some way; the Netherlands was one of the original 6 Eurozone members. Its a very different tone from 5 years ago, when the story was all about the irrevocability of Eurozone membership.
I'm sure the politicians currently in power aren't really interested in going there. As such, this is an acknowledgement of popular unrest regarding the Euro. If your political party is projected to lose seats in parliament by being pro-Euro, its probably a good idea to throw your anti-Euro voters some kind of bone to
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