The USD is taking a slight breather from its one-way appreciation trade, and that has given metals an opportunity to form something of a base in the last couple of sessions. The ETF selling continues at a pretty steady pace and has done nothing but liquidate since early November.

With nonfarm payrolls Friday and the Italian referendum this weekend, things will stay interesting for the next three days. Then, we may find ourselves settling into a quieter rhythm for a while in a headline vacuum — save Donald Trump's moonlighting tweets.

Bull Case

  • Oversold on a 14-day basis with the RSI hovering right at 30.
  • The USD has made a 4 percent move higher since election night. May be time for a pause.
  • The roll is over and COMEX futures positioning is back within something resembling reasonable levels.
  • Puts continue to get bid over calls by 4 vols for one month (15d). That's the largest since July 2015 and Nov 2014, both of which marked trading lows for the period.
  • Shanghai premium remaining elevated, though I hear largely for supply constraint reasons as opposed to being a massive demand wave. Large bar lack of demand would agree.

Bear Case

  • Below every major moving average (and all downward sloping), and we saw a death cross for gold on the 18th.
  • Rates may take a pause in their ascent, but they seem to be holding higher levels.
  • December rate hike is happening, discussion will now turn to "how many in '17?" and we will all be disappointed.
  • OTC contango rates highest since 2008. Even OTC longs are getting very expensive in carry.
  • Physical demand poor v. typical seasonality. Even six-month basis silver eagle sales lowest since 2012 and 2009 before that (more below).

Chart 1

Softening retail silver demand. While the private bullion market is opaque, the U.S. mint numbers are a good benchmark, save their Q1 overweighting.

The trailing six-month average is a nice way to summarize demand, and the current levels are not encouraging. The pink line below is six-month moving average of retail silver eagle sales, and it's at levels not seen since 2012 and 2009 before that.

Chart 2

Sea change. Gold net spec length (yellow line) on COMEX is down some 60 percent from the peak. Total open interest (orange line, bottom) is just as wild, having been up 72 percent and now down 38 percent from there. It's only up about 13 percent YTD (hooray geometric math).

A lot of the discrepancy is that although longs have returned back to Q1 levels, the shorts haven't really stepped in on this selloff the same way they had in the past few years. Hard to say if once bitten, twice shy or if there is something else at work, but few seem willing to short gold here.

Coin Toss

We are due for a macro pause unless the NFP number comes in as a huge surprise, and the Italians decide to have a go of the whole "EU-exit" thing. The put skew is a major factor to me for bias. With positioning having moderated as well, I think we are looking for some relief rally from here though probably capped upside given the long term headwinds of higher interest rates.

Perhaps a new range is about to be established.