Vince Lanci: Gold Futures Market Is Dying As Spot Market Grows | Arcadia Economics
Summary
Transcript
Gold sideways is bullish for CTA flows. The CTAs are flat gold and they will get long if the market goes sideways. Silver Max shorts if the market goes sideways. And gold rallies, they will buy. Welcome to the daily gold and silver fix with Vince Lancey, where each morning he brings you the precious metals news and insights to get you ready for your day. And now, here’s Vince. Don’t also go through the top stories and news of the day and some trading levels to keep in mind.
But first, let’s take a quick look at the morning’s markets. The dollar is up five at 1396. Bond yields are four thirty s and p is fifty fifty seven down two handles. The VIX is 14. 1. Gold is down four and a quarter off the lows. Trading 20 29 91. Silver is 2036, down $0. 07. Oil is up 51 at 79 one. Natural gas is trading 180. And bitcoin is up 24 basis points.
So 151 points, 62,682. And I guess that’s a break for bitcoin these days. Ethereum is up two and a half percent. There’s probably a rotation going on there again. Grains are down very weak. Soybeans leading the way. Trading 1123 down $0. 15. Corn trading 413 and wheat trading 570, average down of 1%. Okay, let’s take a look at some news items and what happened yesterday. All right. Stocks were weaker yesterday.
Today is PCE. That’s the one that I think people are going to care about the most. It’s expected to come in at 0. 4% month over month, which is up, meaning about two weeks ago was discounted to come in at 0. 3. But they’ve raised that based on the implications of the PPI and CPI math. Precious metals were. Well, we’re going to take a look at all those in a second.
Right. So oil, natural gas stocks, bonds, the dollar and bitcoin was what everyone was talking about yesterday. There is the data as mentioned. Here’s some news headlines, I think that are relevant for us. Top congressional leaders unveiled a deal Wednesday to keep the federal government fully operational beyond Friday, when funding is scheduled to lapse for some agencies. Leaders said they will hold a vote on a stopgap bill this week to avoid any lapse in government funding, followed by votes next month on full year spending bills.
I don’t think they’re going to let this one go by, let’s put it that way. We are aware, here’s the next one for you. We are aware that some users may see a zero balance across their Coinbase accounts and may experience errors in buying or selling. Our team is investigating this and will provide an update shortly. Your assets are safe. That’s Coinbase during the rally in bitcoin, when their exchange went down.
Context for that. Since bitcoin has been moved towards the institutional side, all the competing exchanges have gone away. Coinbase is probably one of the last ones out there. So you’ll have left is you’ll have the New York Stock Exchange and the CME left. There’s just experiences of people losing their money, and so these exchanges won’t survive. Whether that’s organically they lost their money or the exchanges being hacked by someone on a competitor we don’t know.
Revenge of the internal combustion engine. You can get 40,000 off a 2023 Toyota Mirai, a fuel cell vehicle that retails for 52,000. When you factor in the $15,000 in free hydrogen over six years and the available 0% interest loan, Toyota is essentially paying people $3,000 to take the car off its hands. Toyota’s discount comes on the heels of Shell’s announcement three weeks ago that it’s closing its hydrogen filling station in California.
So hydrogen is not going to happen, at least not in the US. Sounds like a great deal, right? You have to be able to find the hydrogen, though. There’s no hydrogen filling station. You’re a mess. Geopolitics. The focus here, I think, is on Russia. Today, Italy’s finance minister discussed with US Treasury Secretary Yellen a path to use frozen russian assets to compensate Ukraine for war damage. For war damage, Japan’s top currency diplomat Conda, said using frozen russian assets for Ukraine must be based on international law.
And he thinks EU’s proposal is doing just that. Feet held to the fire. That’s my paraphrase there. Eight EU countries called for sanctions on Russia over Navalny’s death. All three of those things say that we’re about to push harder on Russia. Whether it be effective or not, who knows? But what’s causing this is know. Machiavelli said, a prince doesn’t like to see another prince with his head chopped off.
And so these other countries are saying, you know what? We can lean on Putin a little bit more. Again, I don’t know how they would do it, but the reason I cite Machiavelli and, you know, the practicality of it is because look at who signed. Look at the eight countries who signed. Czech Republic, Estonia, Finland, Lithuania, Latvia, Poland, Sweden and Romania. Pretty much all of those are either geographically closest to Russia or they were in the USSR.
So these countries, while they may not be as woke as their western counterparts, are certainly not thinking about good days being under russian rule. Look, if he’s going to kill Navalny, whether he did or not, I don’t know. But if Navalny’s death can mean their deaths going back to Machiavelli, well, they’re not going to stand for it. All right, markets and commentary, just get this out of the way before we go through the chart.
Gold sideways is bullish for CTA flows. The ctas are flat gold and they will get long if the market goes sideways. Silver max shorts. If the market goes sideways and gold rallies, they will buy. They will probably add a little bit of shorts if the gold ctas don’t buy oils. Sideways is bearish. My opinion, stocks yesterday was a pullback in anticipation of today’s PCE. Who knows what’s going to happen? That’ll come out at 830 bitcoin.
No top side yet. They’re still selling and it just keeps retreating. Now, they’re probably going to be pigs and not get stopped at all yet, but the institutions are still buying and they’re coming in. All right, let’s go to this chart that I want to show you. The top chart there is the monthly gold price going back to about June of 2019. And the bottom chart is the same time frame for open interest in gold futures.
Now in 2020. In approximately March of 2020, the open interest was explosively high and then went down, and the market actually rallied during that time frame. First of all, what we’re looking at here is we’re looking at a market that’s going up in price as open interest is going down. That’s very significant. The futures market is dying as the spot market is growing, first of all. Second of all, this whole thing here started in March of 2020.
Why is March of 2020 important? It’s important because in March of 2020, during the COVID crisis, there was a problem getting delivery of Comex gold and silver. And that’s because traditionally the US delivery points are used in London. So Comex contracts are swapped for London gold, and then the gold in London gets re smelted or re refined into bars for the US consumption. So if you’re the United States mint and you need to buy Comex gold, you take delivery of a Comex contract, and then Morgan or another bank will arbit to London, take the London gold, have it re refined and shift back in blank coins.
That’s typically how that works. But during that timeframe, during COVID the refineries were closed. Most of them are in Switzerland and Lombard and Lombard, Italy, and they shut down because of COVID And you could not get your metal re refined. And as a result of that, you had a very big regulatory arbitrage that could not be closed. And as a result of that, if you remember, spot market was flat and Comex went into backwardation in silver and gold.
Anyway, that event was an awakening of the spot market, of a need to have fungibility. And since then, on a macro basis, futures open interest has decreased while price has increased. What does that say? Well, that says that there’s a couple of drivers in this. One of them is not the most important, but significant is Basel three has decreased leverage in the gold market. Therefore, it’s more of a cash and carry market, number one.
Number two, the BRICS want the gold, and that’s why the price is going up. Because central banks, not just the BRICS, european central banks, are buying gold to get ready for whatever the new world order is for trade. The third thing is. The third thing is the open interest is dropping because there are no speculators. The market is breaking at the futures level while the OTC market is expanding.
Anyway, you take all this together, and although no one’s talking about it, I’m telling you, this is the real thing. This is what happens when a futures exchange is just being used to get the metal from one place to another. When the buying is done, then you’ll see players come back in and speculate on the long side in gold. Because right now, this market is being bought, it’s being cornered.
This is what happened in silver many times. Anyway, the whole thing started in March 2020, and that’s when the physical market was reawoken. And since then, you have nobody getting along and a market coming off. Which brings me to the other point I wanted to make about all this. This was the research I did when trying to figure out whether this was an important or non important year for gold, at least from the market structure.
Look, we’ve got BrICS in October, and it’s hosted by Russia, and Russia isn’t know mellow about how they do things. The US election is in November. And one thing I can tell you with know certainty is that if Trump or Biden are running, they don’t have to both run. But if Trump or Biden are running, the election will create uncertainty, not create certainty. Remember when Trump won? It created uncertainty.
Gold spiked that night, and then the hammer got put on it, and it got brought back down. So elections need to give for the public the impression of certainty. Anyway, there are rumblings out there that the Mtrade platform is actually up and almost ready and all the agreements are signed, all the paperwork is done and they’re working on it now. Now, I personally don’t know if that’s true, but I do know that the principle behind it is actually pretty clear.
And there’s a paper out there that I’ll be looking at and writing up. It’s called a unit, if you want to look at it for yourselves. But the unit basically describes something that we shared at Goldfix with everyone a year and a half ago, and that is the common currency or the common backing asset of whatever their currency is called. I don’t care what it’s called will be predominantly in gold and then other assets that do not deteriorate.
Not oil, not pistachio, not, as I used to say all the time back then. It’s going to be gold, it’s going to be silver, although I don’t know how they’re going to put it in there right away, but they’re going to put it in there and it’s going to be sovereign bonds and currencies of countries that have gold as their backing. That’s what it’s going to be anyway.
So you’ve got the bricks in October, you’ve got the US election in November, you’ve got Mtrade being tested. Whether it’s successful or not, I don’t know, but you’re going to start hearing about it more. You’ve got gold above $2,000. 14 weeks in a row with zero speculative longs. How does that happen? You’ve got zero speculative longs. You’ve got open interest at all time lows. You’ve got almost all time lows.
You’ve got a significant premium in chinese gold, and bitcoin is supposedly stealing investor money. Remember the last time bitcoin was roofing like this? Gold was getting smacked. They’re not smacking gold this time. Something’s going on. I don’t know what it is, but something’s going on anyway, bringing it back home. Let’s look at some prices and we can all have a good day. All right, so nothing compelling for me to say about gold today except that this is a nice little wick.
Look, people are buying dips. I’ll zoom out to the four hour. Right. Here’s your trading range. This market is in this range right now, and unless it gets below this line, I don’t think you’re going to have anything to worry about. Now, if it gets above this line. You saw my bigger picture levels. I think they’ll be buying. The buyer didn’t come back. If you remember, I said there’s a buyer last week.
Here’s the buyer. The buyer didn’t come back. That’s not bad, though. No one’s selling it. So right now, pretend you’re the buyer and he’s long and he wants to buy more. Or another buyer wants to similarly buy. These guys buy in bunches. They’re not isolated alone. So you’re the guy who wants to buy, who hasn’t bought yet. And you say, okay, I’ll wait for the market to come off because my budy bought it at this price.
But the market doesn’t come off. And tick tock, tick tock. Time goes by and then you lose your patience and then boom. That’s why I say sideways is higher in gold. Anyway, I’m Vince. Have a great day watching this morning’s gold and silver fix with Vince Lancey. Brought to you each day by Miles Franklin precious metals, where this week only 2023 1oz. Silver britannias are only 315 over spot, which you can get by calling Miles Franklin at 833-26-4653 please note that this video is not intended as legal licensed financial trading advice and is to be used for informational purposes only.
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