grasshopper

market vibes

December 29…)

“When you can snatch the pebble from my hand, Grasshopper, it will be time for you to leave.”

A big night for precious metals and copper overnight. Silver had an $8.96 range, or 11% of Friday’s settlement, on high overnight volume. Open interest hasn’t been posted yet. Since last Monday, Dec. 19, over 4.5 billion ounces of silver have changed hands on the Comex, and open interest hasn’t changed an ounce. I am reminded of an episode of Sherlock Holmes in which the telltale clue was “the dog that didn’t bark.” (ht: Doomberg).

Repeating a maxim I believe to be true: “When prices are moving and open interest is not changing, one side of the open interest is not contributing liquidity to the auction.”

Comex March silver daily data

In this case, because at least half of the short open interest is facing Comex inventory, shorts covering are buying from new shorts getting in. As prices rise, the shorts’ average entry prices go up with the market. Ultimately, the shorts acquire dominant location. So too, as longs take profits and new longs buy from old longs, the average entry price of the longs becomes more vulnerable. The higher the volume at new highs, the more volatile the transformation in the liquidity profile…shorts get stronger, longs get weaker.

For example (next chart), gold and silver have a correlated kinship, but the technical structures are night and day. Open interest in gold is up 80,000 in December (20%); silver is up 7,000 (4%). There is an identifiable steady growth of new longs in Comex gold, which are as long this morning as they were on October 15, when prices began 4 days of extreme volume at record highs every day.

I think the location of sellers in October still dominates gold because there is zero indication of short covering in this rally. The decline in open interest in late October and November was healthy long capitulation. In December, open interest kept going up with rising prices (shorts scaling up), and volume keeps going down (soft buyers afraid to buy silver). Bottom line: gold is tagging along with silver but still in a long time-frame period of range compression. If silver develops lower, gold will revert toward $4,000. If not, gold will grind higher on light volume. There is no shortage of gold or paper/physical imbalances. Gold is balanced, in my opinion.

In other metals

Platinum, palladium, and copper all have outside reversals down, but there is nothing technically lethal in any of these metals so far in the session, including silver. Anything can happen today. However, range extension down from here at this time of day and year…with very high volumes and down ranges behind us in Asia and London…implies responsive buying on new lows is a long-odds probability. This might be it for metals 2025.

It would be nice if oil could get its story straight. Yesterday, the President and Zelenskyy held a presser announcing strides toward peace, and this morning the barrel is up $1.50 on the hot war getting hotter. Elsewhere, S&Ps, bonds, FX, and bitcoin are closed for the year.

According to BBG, VIX ended Friday at a new low for the year 13.6. MOVE at 58.5 low since late 2021, before hiking cycle started (Alex Manzara).

my vibe

The futures exchange is just one part of global liquidity, and the COMEX has devolved into a tier-2 (or lower) venue for precious metals trading. Imagine a calm pool of water. Drop a pebble in the middle. The pebble is the imbalance of buyers and sellers. The pool of water is the primary venue where the imbalance is auctioned. The rings that emanate out from the impact of the pebble represent the value of price discovery.

It is axiomatic in trading that whoever makes the first price makes 75% of the profit in the trade. The second price (or second ring emanating from the pebble’s impact) can still make a little money with far greater risk. The third price is usually the loser. The third price, in my opinion, is the Comex. The last price, or weakest ring emanating from the pebble, is you.

There was a time when you were the pebble in the water and the Comex was the pool of water. Whenever anyone wanted to trade gold or silver, they had to ask us. But we all know the history. Technology is a powerful force. And here we are.

We twa hae run about the braes,
And pou’d the gowans fine;
But we’ve wander’d mony a weary fit,
Sin’ auld lang syne

Miley and Melanie

JJ

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Charts and data CQG and Bloomberg

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