Hightower Silver Market Update: May 20, 2013

May 20, 2013

STATS

London Gold AM Fix $1,353.75, -$23.00 LME Copper Stocks 628,025 tons -1,925 tons.

Gold Stocks 7.968 million ounces +766, Silver Stocks 164.020 million ounces -855,953

Chinese equity markets were higher overnight off more gains in cyclical shares and from the Chinese property sector. European shares were higher off carryover sentiment from the US on Friday but also because of ideas that the world economy is showing some improvement. The US market was choppy to start, as the talk of an overbought condition has seemingly resulted in some pause by investors. The US report schedule today is somewhat thin, with a Chicago Fed National Activity Index release, and the Fed's Evans will give a speech in Chicago in the afternoon.

GOLD

Weakness in gold prices was seen overnight in Asia, with gold in India falling to a 1 month low. With the slide overnight and the declines forged at the end of last week, the Commitments of Traders positioning in gold probably overstates the long position. The COT Futures and Options report as of May 14th for showed Non-Commercial traders were net long 68,942 contracts, a decrease of 9,929. Commercial traders were net short 70,153 contracts, a decrease of 7,031. Nonreportable traders were net long 1,210 contracts, an increase of 2,897 contracts, and this represents a change from a net short to a net long position. Non-Commercial and nonreportable traders combined held a net long position of 70,152 contracts, a decrease of 7,032. Since the last Tuesday when COT report was measured, June gold prices to the overnight low have fallen an extra $88 an ounce! Gold derivative holdings at the end of last week showed another decline and were seen at their lowest level since March 2009. Surprisingly, gold doesn't seem to be garnering any lift from supportive currency market action and gold. It also doesn't seem to be drafting any support from initial weakness in US equities. Gold also didn't seem find support from news that the South African Mine Workers Union was asking for significant wage increases. With that stance causing South African mining shares to fall, it would appear that the prospect for strikes will be on the rise. With June gold to the lows overnight sitting $466 an ounce below the October 2012 highs, gold mining companies aren't exactly in a position to offer up wage increases. However, in the short term the gold market might have to see production derailed to offset the current wave of investment liquidation. Gold may have even drafted some support off news reports overnight of strong Indian demand and Indian equities lifting the Indian currency but apparently not enough to send gold prices higher overnight. Comex Gold Stocks were 7.968 million ounces up 766 ounces. Gold stocks have declined in 12 of the last 20 days.

SILVER

Silver saw some aggressive liquidation action overnight, with the July contract falling down to its lowest level since September of 2010! In addition to knock-on selling from gold, silver was reportedly under pressure from technically inspired selling as the market approached and failed to hold the April spike low. Another element that might be undermining silver is ongoing interest in equities, which in turn might have been behind the decline in silver derivative holdings at the end of last week. One silver derivative instrument on Friday saw its holdings fall down to its lowest level since January 15th. The Commitments of Traders Futures and Options report as of May 14th showed Non-Commercial traders were net long 8,693 contracts, a decrease of 3,829. Commercial traders were net short 11,436 contracts, a decrease of 2,063. Non-reportable traders were net long 2,743 contracts, an increase of 1,765 contracts. Non-Commercial and Non-reportable traders combined held a net long position of 11,436 contracts, a decrease of 2,064 contracts. With July silver from the COT position mark off date down another $3.12 an ounce to this morning's low, the COT long positioning readings are probably overstated. However, silver in modern trading has only seen two instances where the Non-reportable and Non-commercial net long positioning has fallen below 10,000 contracts, and that was in mid 1997 and again in 2001! Comex Silver Stocks were 164.020 million ounces down 855,953 ounces. Silver stocks have declined in 14 of the last 20 days.

PLATINUM

Like the rest of the precious metals markets, platinum is under pressure to start the new trading week, with a large portion of that coming from gold and silver price action. As in gold, platinum is discounting news of significant wage increase intentions from South African mining unions. The market is also discounting somewhat favorable currency market action. Impala officials have already lobbed a volley back toward the unions by suggesting that mining companies cannot offer wage increases! The Commitments of Traders Futures and Options report as of May 14th showed Non-Commercial traders were net long 32,734 contracts, an increase of 2,093. The Commercial traders were net short 33,615 contracts, an increase of 2,032 contracts. The Non-reportable traders were net long 881 contracts, a decrease of 60 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 33,615 contracts. This represents an increase of 2,033 contracts in the net long position held by these traders. With platinum prices to the overnight lows sitting roughly $70 an ounce below the level where the COT report was measured, the spec long positioning figures are probably overstated. From a short term perspective, July platinum was probably short term oversold into the overnight low, and that might leave support today at $1,442 in the July contract.

COPPER

The copper market held up relatively well overnight, especially when one considers the beat-down seen in the rest of the metals complex. Apparently Asian copper players think that the Fed is poised to remove QE, but copper isn't in as vulnerable of a position technically as gold and silver. Those markets continue to hold net long positions in the non-reportable and non-commercial categories, while copper doesnt. The Commitments of Traders Futures and Options report as of May 14th for Copper showed Non-Commercial traders were net short 16,981 contracts, a decrease of 1,483 contracts. The Commercial traders were net long 25,801 contracts, a decrease of 1,907 contracts. The Non-reportable traders were net short 8,820 contracts, a decrease of 424 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 25,801 contracts. This represents a decrease of 1,907 contracts in the net short position held by these traders. Copper might have drafted some fleeting support from favorable property sector action in China overnight, but some traders think that ongoing property price strength in China will virtually eliminate fresh easing hopes from the PBOC. The copper market might see some reaction to the Chicago Fed National Activity index release and to a Fed speech that is scheduled for the afternoon trade.