Gold finished Friday up +0.70 to 1242.40 on moderate volume, silver was down -0.14 to 19.82 on moderate volume. The gold/silver ratio rose +0.47 to 62.70. Gold traded sideways within a tight trading range. Silver sold off modestly all day long. GDX also sold off all day, dropping -1.24% on light volume, losing most of the gains from Thursday's rally. GDXJ dropped -1.93% on moderate volume.

On the week, gold was down -47.20 [-3.66%], silver down -0.95 [-4.66%], GDX -7.79% and GDXJ -9.67%. The weekly picture is one of almost unrelieved bearishness, silver down more than gold and GDXJ down more than GDX, with GDX dropping faster than gold. All the ratios look bearish. Both GDX and GDXJ are very close to breaking down - any move down below the June lows will likely lead to some more serious selling.

In addition, tax loss season fast approaches. Mining shares have dropped 46% year-to-date. Any hardy mining share investor who hasn't sold yet is probably sitting on some very large losses.

The USD

The dollar moved down -0.19% to 80.72. After hitting the 50 week MA two weeks ago week, the buck seems to be drifting lower, but without any real intensity. This week the buck seemed to be a non-factor for PM.

Physical Supply Indicators

* Shanghai gold premiums have risen; currently Shanghai gold is selling at a premium of +2.68 to COMEX, up +3.53 over last week. While this is bullish, with gold at these levels I'd have expected Shanghai premiums to have risen more than they have.

* The GLD ETF lost -13.50 tons of gold this week and is down to 852 tons. In January, GLD had 1350 tons, which is a drop of 498 tons.

* The COMEX is down to 18.33 tons, yet another a new low for the year. COMEX registered is down dramatically from its April peak of 92 tons.

* I'm still working on getting historical closing prices for the Indian gold futures market (the MCX).

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1242.70 and silver 19.84:

CEF 13.46 -6.57% to NAV [down]
PHYS 10.27 -1.01% to NAV [down]
PSLV 7.89 +1.80% to NAV [down]
GTU 42.70 -7.37% to NAV [down]

Discounts on the ETFs have increased from 0.5% to 1.5%. Physical ETF investors are bailing out once again and discounts are widening.

With the drop in the price of gold, physical demand is now clearly positive.

Futures Positioning

This week's COT report shows a further decrease in Managed Money net long positions (+8k contracts short -3k contracts long), while the Producers decreased their shorts by about the same amount (-11k contracts). Producers have become even more bullish, while the Managed Money increased their bearish stance - Managed Money is getting close to the bearish stance they had at the June 2013 lows. While this is not useful as a timing indicator, long term this is bullish.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term DOWN, medium term DOWN, long term DOWN

Silver: short term DOWN, medium term DOWN, long term DOWN

There is no change from last week. Gold and silver trends are down in all three timeframes, with the price of both gold and silver both below all three of their moving averages. This is bearish.

Summary

This week saw gold blow through two support levels, but Thursday and Friday there were signs of accumulation (and/or short covering) - on Thursday especially, with large volume on a day with very little price movement. There was no particular news driving gold lower this week, except perhaps chatter about the likelihood of tapering coming at the upcoming December Fed meeting on the 18th.

With the decline in prices, Shanghai has returned to premium, gold departing GLD has accelerated, so all indicators suggest physical buying pressure is positive.

Futures positioning is increasingly bullish. While not a timing indicator, managed money short positions are approaching that reached back in June when gold hit 1180.

Gold and silver both remain in a downtrend in all timeframes. GDX:$GOLD is dropping (bearish), GDXJ:GDX is dropping (bearish), gold/silver ratio is rising (bearish) - it all looks pretty bad.

The mining shares sold off hard this week; 4 of 5 days were down, volume was moderate, and mining shares are right at their June lows. Any sustained move through the June lows would most likely bring heavy selling to the beaten-up mining sector (-46% YTD). With tax loss season almost upon us, this would probably lead to a significant capitulation in the mining shares. This would lead to a good buying opportunity for those with cash towards the end of December, but it would be unfortunate for those already long the miners.

Gold's downtrend took another leg lower this week, although the accumulation (and/or short covering) observed (mostly Thursday) give a very modest sign of hope. For that hope to be realized, confirmation is required - at a minimum, a close above Thursday's high of 1250 is necessary to get some relief from the short assaults coming from Managed Money. If a confirmation is not forthcoming, then the downtrend in place will likely move gold towards its next support level of 1200.

Trends in motion tend to stay in motion, and the current trend is definitely down.