PM Daily Market Commentary - 7/27/2016

davefairtex
By davefairtex on Thu, Jul 28, 2016 - 2:35am

Gold rose +19.60 to 1342.80 on moderately heavy volume, while silver shot up +0.74 to 20.42 on light volume.  Gold and silver both rallied prior to the FOMC announcement, retraced briefly at 14:00, and then shot higher while the dollar retreated.

I have decided to abandon stockcharts for the time being.  They just aren't handling end of day data properly.  So you get my charts instead.  I believe their charts look nicer, but...bad data is bad data.

For what its worth, determining "the closing price of gold" is not as easy as it sounds.  Currently, there are three active futures contracts: GCQ16 (Aug), GCV16 (Oct), and GCZ16 (Dec), each with different prices.  Which one is "the price for gold?"  GCQ16 closed at 1339.90, GCV16 closed at 1343.30, and GCZ16 closed at 1347.70.  Trading volume on Q16 was 211k contracts, trading volume on V16 was about 25k, and trading volume on Z16 was 160k.  My trading app has already rolled to Z16, stockcharts remains at Q16, and my chart is somewhere in between.

Based on those prices, there is about a $4 price increase for each future contract; Dec gold is $7.80 more expensive than Aug gold.  So snapping forward from Q16 to Z16 results in an immediate jump in "the price of gold" of $7.80.  But there was no price jump.  Nobody made money on this.  And doing this makes the chart look funny on the day of the contract roll.  (Only data geeks like me care about this - but it really does affect software that tries to predict prices, so I actually am required to care). 

So to fix the fake "jump" in price, what I do is use a "roll rule" which averages the prices of the two nearest months (Aug & Oct), slowly changing the weighting towards the more distant contract as time passes.  That's why "my" gold price is $1342.80, which is somewhere between GCQ16 nor GCV16.  This method keeps the chart smooth, avoiding big moves when a contract roll occurs, but it also means my price is different from either futures contract price.

That's probably too much detail - but just so you know, getting "the current price" for gold is a quagmire.  Same game is played with silver, and with crude.

On the chart, we see a clean breakout above the downtrend line.  It looks as though the market had some rate concerns going into FOMC which have now been relieved.  That's a guess of course.  It also could be that there was a raft of short covering, ringing the cash register on the move down from 1370.  Gold's long white candle today was definitely bullish, as was the breakout.

Gold open interest decreased by a massive -33,009 contracts today.  Wow.

Fully half of silver's gains came just before the US market opened; buyers pushed silver up to around the 20 level.  The rest came after the FOMC announcement at 14:00 Eastern.  Silver closed quite near its highs, and printed a bullish "strong line" candle - which means the bar is 3 times larger than average.  These are typically bullish, and they are relatively rare.

The miners had a bit of trouble immediately following the FOMC announcement, but once the buck started to move south, the miners took off; GDX rose +4.56% on heavy volume, while GDXJ climbed +5.67% on heavy volume also.  Miners had a strong move through the 9 EMA, and the long white candle wasn't any special pattern, the computer tells me its quite bullish in this context.  I expect GDX to be making new highs in the near future.

Platinum shot up a massive +4.00% making a new high, palladium rose +1.60% which is also a new high, while copper fell -1.35%.  PM is clearly doing quite well, while the industrial metals are definitely weakening.  That's probably copper's COT report in action.

The USD fell -0.14 to 97.04, with the losses coming relatively soon following the FOMC announcement.  The first move post-announcement was up; the buck screamed up about 0.40 points, but then about five minutes later it flipped direction and headed south.  This reversal was concurrent with the PM rally.  Once the market figured out that the dollar really wasn't moving higher, prices on gold and silver and the miners just started to take off.

WTIC dropped -0.73 [-1.71%] to 41.91, making a new low to 41.68.  Oil reacted poorly to the Petroleum Status report today, which showed a bearish inventory build of 1.7 million barrels.  Oil immediately fell about a buck fifty.  It recovered some by end of day, but oil remains weak.  It is oversold at this point, but so far there is no indication on the chart, or intraday, that the descent is stopping.

SPX fell -2.60 to 2166.58.  SPX traded in a fairly narrow range today; while it too moved higher after the FOMC announcement, the move was about 8 points, which it gave back about half just before the close.  VIX fell -0.31 to 12.83.

TLT really liked the FOMC meeting results, climbing a big +1.25% and breaking above its 9 EMA.  Bonds are back in an uptrend.  I'd say that's risk off - except I think this is just bonds bouncing back from some pre-FOMC nervousness.

JNK rose +0.28%, inching back over its 9 EMA.  It remains in its 3 week trading range - all the while oil has sold off sharply.

CRB fell -0.88%, due mainly to energy and industrial metals.  CRB ended the day just above its 200 MA.  A drop below the 200 would be bad news.

FOMC did nothing - but sometimes doing nothing causes a great many things to happen.   Gold, silver, and platinum broke out as did the miners and long term treasury bonds.  That combination doesn't look very risk-on to me, especially since energy and industrial metals continue to sink.

We have the BOJ meeting announcement on Friday morning - or Thursday at 19:00 hours for those of you on Eastern time.  The Japanese government is putting a lot of pressure on the BOJ to expand their stimulus program.  It will be interesting to see how that plays out.  Last time they did something "big" they moved to negative rates, and it had the opposite effect of what they'd intended.

http://www.reuters.com/article/us-japan-economy-boj-idUSKCN10804A

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