Managed money has controlled the gold and silver market over the last several months. But there are other dynamics going on unnoticed under the surface.
Please note: the CoTs report was published 10/28/2022 for the period ending 10/25/2022. “Managed Money” and “Hedge Funds” are used interchangeably.
“How did you go bankrupt?”
“Very slowly at first, and then very quickly?”
The data shows that the Comex is in the middle of experiencing a run on its vaults that is really taking its toll and continuing to accelerate. If you read no further in this analysis, first just take a look at Figure 8 and Figure 18 – those two charts will tell you everything you need to know about the impact of the vault exodus.
The Fed is supposed to be reducing the balance sheet by $95B a month. This is up from $47.5B before September. As the chart below shows, the Fed has only succeeded in meeting or exceeding its goal a single time (August) in 6 months.
In the latest month, the Fed came up 25% short with a taper of only $72B. Even when removing the $10B increase of “Other”, which is a range of other instruments not related to MBS or Treasury, the Fed was still over $12B short of target.
Money Supply shrunk last month by $129B, the largest monthly fall ever going back to 1959. April and June also set records at the time from a gross change perspective. From a percentage amount, Feb. 1970 had been the largest contraction ever (-6.5% annualized), but the current month beat that number at -6.9% annualized.
The Federal Government ran a $430 billion deficit in September. It was the largest monthly deficit since March 2021 when the last Covid stimulus bill was passed. The massive surge this month was due to another Biden giveaway in the form of $437 billion in student loan forgiveness.
The price analysis of gold and silver last month discussed the technical damage done and highlighted how support had become resistance. It concluded, “When everything is so lopsidedly bearish, it can signify capitulation. That said, beware of trying to catch a falling knife. Because of the technical drivers in gold and silver, moves tend to extend beyond what seems possible as momentum carries the move forward… The paper market is driving prices and the spec traders don’t see a Fed pivot anywhere, which suggests more time before a turnaround.”
The short-term picture is still rather mixed despite the incredible physical demand on the Comex. The data below helps provide some context.
Let’s say you were a country or a group of very wealthy individuals and Covid hits. You see governments around the world print money like crazy. It makes you think there might be some inflation to deal with and you want to protect yourself. Gold and silver are the logical choices. So, if you decide to accumulate a whole bunch of precious metals, how would you do it?
Physical metal has continued to drain from COMEX vaults. This is particularly true for silver, which now has 17.4 paper ounces for every registered ounce.
This analysis focuses on gold and silver within the Comex/CME futures exchange. See the article What is the Comex? for more detail. The charts and tables below specifically analyze the physical stock/inventory data at the Comex to show the physical movement of metal into and out of Comex vaults.
The latest seasonally adjusted inflation rate for September came in at 0.38%, dropping to 8.25% YoY. Median expectations had been for 0.3% MoM and 8.1% YoY so the hot number hammered markets on the open, especially precious metals.
The markets climbed their way back as of publishing, indicating the investors may be starting to understand the Fed’s predicament even though the probability of a 75bps hike in November is now a near certainty at 99%.
According to the BLS, the economy added 263,000 jobs in September, which was slightly below the Dow Jones estimate of 275,000. More significantly, the trends reveal a slowing labor market.
Education and Health led the way with strong hiring along with Leisure and Hospitality.
