Correlation Economics Backup

Tekoa Da Silva notices, just like me here , that COMEX gold stock is declining rapidly lately. We don't know what it means, but one of the theories is the COMEX default. Which is what happens when the downtrend keeps going on like this. Chart 1: Comex Gold

This page is used to monitor the gold and silver stock at the COMEX. As total gold stock decreases, open interest decreases too. I expect a reversal in the gold price down trend. Silver open interest and total stock has started to top out, I expect a silver reversal in the coming months.   The COMEX counterpart is the Shangai Gold Exchange. If you want to monitor the weekly inventory of gold/silver at the Shanghai Gold Exchange, you can go here . Click on "weekly inventory" (by the way, these are real physical inventories, not imaginary inventories from the LBMA). For example: 5-Sep-2014: Inventory of silver is 93304 kg.

Another way to value the stock market is to look at the initial unemployment claims. You take the inverted chart of this metric and you will see that this is highly correlated with the S&P index. Chart 1: Initial Unemployment Claims (Inverted) Vs S&P Index So whenever you hear that the initial unemployment claims went up, you sell the S&P index. Oh, and what do you know, weekly initial unemployment claims just went up: http://www.marketwatch.com/story/us-weekly-jobless-claims-edge-up-to-352000-2013-04-18?link=MW_latest_news

There is an inverse relationship between the unemployment rate and the wage inflation. Whenever people get unemployed, it means the economy isn't doing well. Employers won't be able to raise wages of the people during these difficult times, so you will get a low wage inflation trend (blue line). In these periods, the unemployment rate tends to go up (yellow line). Chart 1: Wage Inflation Vs. Unemployment Rate The same can be said the other way round. When the unemployment rate declines, people will demand a higher salary as skilled workers get scarcer. At this stage the wages will inflate. It is also so that wages correlate highly with the consumer price index (CPI). So if the unemployment rate declines, you can expect a higher CPI as you can see on Chart 2. So if you don't believe the CPI the government is reporting, you just look at the average hourly earnings. The average hourly earnings  were positive in March . So I expect the CPI to increase too. Chart 2: Average Hour...

As I forecasted here , we now see the money aggregates go up again after a slow start in 2013 (Chart 1), which also means that money velocity will go down. So you can expect that U.S. treasury yields will go down as GDP is likely to go down too with the declining PMI. As U.S. treasury yields go down, we have a perfect environment for gold to reverse its downtrend considering the negative real interest rates. Chart 1: Money Aggregates

The latest articles say that the LBMA, COMEX are going to default in the next few weeks . What is all this fuss about? Apparently the open interest in silver is at record highs while the silver price is dropping. This is not normal because normally the open interest should decline. But let's first ask ourselves, what is open interest ? Open interest is the total number of options and futures contracts that are not closed on a particular day. If someone opens a call on silver on the futures market, then open interest increases by 1. If open interest is increasing at a rapid pace, that means there are a lot of traders on the futures market making calls (long) and puts (short). The key metric to watch here is the following: When open interest is increasing, it means that the price trend in silver will keep going up/down. When open interest is decreasing, it means that the price trend in silver will reverse the trend. So what do we have here? We have an increasing open interest in silv...

It looks like the contango is steepening again, so that means that the price will likely go down. But the red chart seems to be topping out while the copper price seems to bottom out... Chart 1: Copper Contango Vs. Copper Price The COT report though is very bullish, so copper could go up in the future. Chart 2: COT report Copper Although the technicals are bullish, the fundamentals are very bearish. First we have the Chinese GDP below estimates. We have IMF GDP growth revisions to the downside. Record stock levels for copper. Stock markets on the verge of collapse. We have a lot of contradictory indicators.