Our good friend Ned Naylor-Leyland of Cheviot Asset Management is back with a MUST READ update on gold.

In light of the deep sell-off in the Gold price, I present 3 charts to clarify what has (and hasn’t) happened.
Chart 1 is a chart of Spot Gold, the second an illustration of what makes up the daily ‘Gold’ market, the third shows the enormous flow of physical metal from West to East in the context of Global mine supply.
There is an ongoing clash between the forces of paper supply and physical demand – paper supply has won the latest round, but its objective of satisfying and slaking demand for the real metal has failed entirely.


Stunning Gold & Silver Charts Reveal Shocking Global Situation

Today the man who provides macro research and commentary to many of the largest financial institutions and top hedge funds around the world sent KWN 5 absolutely stunning gold and silver charts illustrating the shocking global situation in both metals. Eric Pomboy, who is founder of Meridian Macro Research, and whose sister Stephanie Pomboy appears in Barrons, also provided incredible commentary to go along with the 5 stunning gold and silver charts, as well as what all of this means going forward for the gold and silver markets.

“The Net Commercial Gold Position has moved even closer to positive territory (reduction of 20% for week ending 6/25). The nearly $560/oz drop since the announcement of QE3 in mid-Sept. 2012 has resulted in the most bullish Commercial reading since August 2002 when Gold was $310/oz.

Given the enormous volume for just Wednesday-Friday (total of 873,719 contracts…the largest 3-day volume since the mid-April smash), I would not be surprised to see the net short position cut nearly in half by next week, with a net long reading not far off.

The next chart offers a different look at the COT data as we wanted to get a sense of Gold’s performance relative to the very bullish Net Commercial position. Since October 2012, the Commercials have pared their net short position by 87%, yet the overdone selling in Gold has resulted in a huge disconnect when compared to prior cycles.

Friday was a strong day for the Gold miners. Spot Gold was up $34, and the GDX (+7.5% on the day) traded a record 75.3 million shares…more than 1 million shares above the April 15 (previous) record when Spot Gold dropped $135/oz (GDX -10% on the day). The (14 day) Relative Strength Index for GDX surged +11.1 points on Friday to 39.14…above the 30 ‘oversold’ level….

“The RSI has been below 30 three times this year (all since late February). The last time we saw 3 consecutive oversold readings in just a 4 month span was when Gold made its bottom in 2008. In sum, it would seem the Gold miners may finally be back on firm ground.

Looking at the Dow/Gold ratio, in the ’74-’76 period the Dow rose +73% while gold retreated -40%. Gold has retreated -36% from its Sept. 2011 high (-38% if using Friday’s intra-day low), while the Dow has risen +127% from its 2009 lows (up +40% since Sept. 2011). In our estimation, the ratio reversal should not be far off, if not already here.

Our last chart shows value of US Gold Reserves is at historic lows relative to Monetary Base, below 2001 levels when Gold was in the mid-$200’s. Gold would have to be $3,850 today for Reserve Value just to match 31% of Monetary Base seen in 2008 as the recession took hold.

Gold has endured quite a drubbing, and the naysayers are piling on. The bear case: Gold pays you nothing and its 15 minutes of fame have come and gone. That’s the extent of the forensic analysis. There is no mention that the global economy is in continued crisis and that easing policies are set to ramp up, not down.


PRECIOUS-Gold edges up, headed for worst week in a month

SINGAPORE, May 17 (Reuters) - Gold edged up on Friday as
stock markets paused after rally, but the metal was still on
track for its worst weekly decline in a month as investors cut
exposure to bullion, sending holdings in exchange-traded funds
to the lowest in four years. 

    * Spot gold was up 0.17 percent to $1,388.11 an ounce
by 0038 GMT, having fallen to a four-week low of $1,369.29 on
Thursday as renewed liquidation in gold ETFs and the recent drop
below the $1,400-per-ounce level spooked investors.
    * U.S. gold for June delivery was little changed at
    * SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund, said its holdings fell 0.55 percent to
1041.42 tonnes on Thursday - the lowest in four years.

    * Premiums for gold bars rallied to all-time highs in Hong
Kong and Singapore on Thursday after bullion's steepest drop
since its April sell-off fuelled another round of buying that
constricted supply. 
    * Gold investment nearly halved in the first quarter as a
brighter view of the U.S. economy prompted investors in the West
to favour other assets, but Chinese coin and bar demand hit a
quarterly record of 109.5 tonnes, the World Gold Council said on
    *  Indian gold futures fell 1.5 percent on Thursday,
extending losses for a second straight session, to hit their
lowest level in nearly a month in line with global markets. 
    * The Shanghai Gold Exchange (SGE) will launch after-hours
trading for Fridays on May 31 as part of its efforts to help its
members better manage price risks, the bourse said in a
statement on Thursday. 
    * For the top stories on metals and other news, click
, or 

    * The Nikkei share average fell for a second day on Friday
as caution over the recent steep rises continued to spur
profit-taking, while a pullback in Wall Street soured investor
    * Global equity markets fell on Thursday after a regional
president of the Federal Reserve said the U.S. central bank
could begin to ease up on its loose monetary policy this summer,
leading the dollar to recover against the euro. 

    1355     U.S. TR/U Michigan sentiment index     
    1400     U.S. Leading indicators              

  Metal             Last    Change  Pct chg  YTD pct chg   Volume
  Spot Gold        1388.11    2.42   +0.17    -17.10
  Spot Silver        22.67    0.01   +0.04    -25.13
  Spot Platinum    1479.99    0.99   +0.07     -3.58
  Spot Palladium    734.25   -1.75   -0.24      6.11
  COMEX GOLD JUN3  1386.70   -0.20   -0.01    -17.25        2478
  COMEX SILVER JUL3  22.63   -0.03   -0.13    -25.14         855
  Euro/Dollar       1.2884
  Dollar/Yen        102.21

  COMEX gold and silver contracts show the most active months