PM End of Week Market Commentary - 8/5/2016

davefairtex
By davefairtex on Sat, Aug 6, 2016 - 8:19am

On Friday, gold fell -26.00 to 1336.40 on moderate volume, while silver dropped -0.65 to 19.73 on moderately heavy volume.  It was Nonfarm Payrolls Friday, and an unexpectedly strong report sent the buck shooting higher, while gold and silver plummeted.

On the week, gold fell -16.70 [-1.23%], silver dropped -0.66 [-3.21%], GDX moved down -1.18%, and GDXJ declined -1.32%.  Platinum was down -0.25%, palladium dropped -1.90%, and copper fell a big -3.15%.  This is copper's third week of decline.  Falling copper prices will tend to tug silver lower also.

On the chart we see that gold took a shot at the previous high of 1377 and failed forming a rough double top, selling off hard after the unexpectedly strong Nonfarm Payrolls report on Friday.  Gold is now through its 9 EMA, and it also printed a fairly dramatic swing high.  While I believe it is very unlikely the Fed would raise rates in September, traders bailed out of their gold positions on the spike in the buck that happened immediately following the report.  No doubt the commercials used the opportunity to help move prices lower - COMEX Gold OI rose +7,412 contracts on Friday.  Gold closed at almost the dead lows of the day, printing an unfortunate-looking "opening black marubozu" which seldom marks a low.

Support for gold remains at 1310.  A break below 1310 would form a "lower high" for gold, which would be quite bearish.  Right now, momentum is pointing lower.

Silver more or less double-topped this week, attempting to break above the previous high at 20.76, briefly popping above it on Tuesday before moving lower.  On Friday, silver cratered following the Nonfarm Payrolls report, plunging through its 9 EMA and closing at the dead lows of the day.  Support for silver is at 19.25.  A move below 19.25 would print a lower high pattern for silver which would be bearish.  Silver is now underperforming gold, which is bearish.

Miners

Miners printed a swing high on Wednesday, and followed through on Friday closing below the 9 EMA after the bullish Nonfarm payrolls report.  However, miners also made a new high Tuesday, which neither gold nor silver were able to do.   From the relatively moderate size of the decline on Friday, and the new high, we can see that the miners remain the most popular PM component.  If gold can just avoid dropping on Monday, it would not surprise me to see traders buy the 3% dip in the miners.

The USD

The buck did well this week, rising +0.67 to 96.17, with most of the gains coming on Friday following the payrolls report.  That said, the buck surged a full point on Friday after the payrolls report, but only managed to keep about half of those gains through the close.  This makes me question just how long-lasting the effects of this payrolls report will be on the dollar.  I believe it is possible the buck will reverse on Monday and that may well end up acting as a support for gold and silver.  The CME Fedwatch tool suggests only a very minor increase in the chances of a rate rise this September - it is up to about 15%. 

http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

US Equities/SPX

The US equity market closed up +9.27 [+0.43%] to 2182.87, a new closing high.  SPX flirted briefly with a sell-off on Tuesday printing a swing high, only to encounter UK money printing on Wednesday, followed by that bullish payrolls report Friday which was good for a 19 point day.   The weekly candle print was a bullish hanging man.  VIX fell -0.48 to 11.39. 

In the sector map, financials led, and utilities brought up the rear - this is a more typical "bull market" sector picture.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 1.56% -2.90% rising rising rising rising ema9 on 2016-08-03 2016-08-05
Technology XLK 1.29% 13.42% rising rising rising rising ma50 on 2016-06-30 2016-08-05
Telecom XTL 0.50% 10.80% rising rising rising rising ema9 on 2016-08-04 2016-08-05
Industrials XLI 0.47% 9.89% rising rising rising rising ema9 on 2016-08-05 2016-08-05
Energy XLE 0.22% -1.10% rising rising falling rising ema9 on 2016-08-03 2016-08-05
Homebuilders XHB 0.19% -1.42% rising rising falling rising ema9 on 2016-08-05 2016-08-05
Materials XLB 0.16% 8.11% rising rising rising falling ema9 on 2016-08-04 2016-08-05
Healthcare XLV 0.07% 0.88% rising rising rising rising ema9 on 2016-06-29 2016-08-05
Cons Discretionary XLY -0.06% 5.38% rising rising rising rising ema9 on 2016-08-05 2016-08-05
Cons Staples XLP -0.20% 10.29% falling rising rising rising ema9 on 2016-07-26 2016-08-05
Gold Miners GDX -1.18% 128.04% falling rising rising rising ema9 on 2016-08-05 2016-08-05
REIT RWR -2.02% 17.69% falling rising rising rising ema9 on 2016-08-02 2016-08-05
Utilities XLU -2.67% 18.88% falling rising rising rising ma50 on 2016-08-05 2016-08-05

Gold in Other Currencies

Gold had a bad week; in XDR, gold fell -21.9.  Gold fell in every currency I track.


 

Rates & Commodities

TLT fell, off -2.34%.  Although there was a fair amount of back and forth, the week ended on a sour note for bonds and TLT is now below its 9 EMA, and that throws it into a short term downtrend.  That ties in with the equity market rally.  Risk on.

JNK rose +0.47%, printing a swing low and moving back above its 9 EMA.  This probably ties in with the low in oil.  Risk on.

CRB rose +0.78% on the week, printing a swing low and moving back above its 9 EMA.  Although it is too soon to call this an uptrend, it is possible that the 8-week commodity downtrend might be at an end.

Crude rose +0.66 [+1.45%] to 41.98, printing a swing low and moving back above its 9 EMA.  It appears that the low might be in for oil, at least for now.  The EMA crossing and the swing low are both good signs, but there's also this COT report (below), which shows that managed money has moved to a heavily short position, and we can see that this has, in recent months, marked a low.  Kind of reminds you of how gold used to be, doesn't it?  And this low was just after we started to read stories about "oil moving into a bear market", and articles saying "the glut was back", and so on.  A big coincidence?  Do you think that the Wall Street Press provides these helpful stories so we can position ourselves properly?  Where are those Customer's Yachts, anyway?  Just once I'd like to hear them say, "oil is oversold and managed money is all on one side of the boat...you might start looking for a low."

Physical Supply Indicators

* Gold at Shanghai is trading at a -5.63 discount to COMEX.  Chinese may be selling what they believe to be the top.

* The GLD ETF tonnage on hand rose +22.25 tons, with 980 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1342.30 and silver 19.72.

 PHYS 11.10 +0.38% to NAV [down]
 PSLV 7.61 +1.17% to NAV [down]
 CEF 14.20 -4.46% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed a discount for gold, and a premium for silver.

* Big bar premiums are lower for gold [1.60% for 100 oz bars in NYC], and higher for silver [+2.83% for 1000 oz bars], and higher for silver eagles at +12.98%.

Futures Positioning

COT report covers trading up through Tuesday Aug 2nd.

Gold commercials added +11.5k shorts - possibly on Tuesday when they were selling the high.  Managed money bought +9.8k longs.  Not much change for gold.

In silver, commercials added +3k shorts, while managed money sold -2.7k longs.  Not much change for silver either.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

There were a lot of moving average crosses this week.   Silver and juniors are leading lower.  That's bearish.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum PL.CW -0.25% 20.95% rising rising rising rising ema9 on 2016-07-26 2016-08-05
Silver Miners SIL -0.65% 160.78% falling rising rising rising ema9 on 2016-08-05 2016-08-05
Senior Miners GDX -1.18% 128.04% falling rising rising rising ema9 on 2016-08-05 2016-08-05
Gold GC.CW -1.23% 22.79% falling rising rising rising ema9 on 2016-08-05 2016-08-05
Junior Miners GDXJ -1.32% 162.08% falling rising rising rising ema9 on 2016-08-05 2016-08-05
Silver SI.CW -3.21% 35.04% falling rising rising rising ema9 on 2016-08-05 2016-08-05

Gold Manipulation Report

There were no after-hours spikes this week in either silver or gold.

Summary

After trying and failing to make a new high, gold turned lower this week, hammered by the commercials (and sold by the momentum traders) after an unexpectedly positive Nonfarm Payrolls report was released on Friday. 

The gold/silver ratio rose +1.10 to 67.84, with most of its gains occurring on Friday.  The GDX:$GOLD ratio was unchanged, as was the GDXJ:GDX ratio.  Miners are still hanging tough in spite of an emerging bearish PM picture.

There was not much change in the COT report again this week; commercials increased short exposure in both gold and silver; managed money went long gold but short silver.  It was all pretty minor.  The horribly extended positioning remains in place.

Gold and silver big bar shortage indicators show no signs of shortage.  Shanghai is even in discount.

If last week's gold rally came from a bad GDP report, it makes a certain amount of sense for this week's gold tumble to appear after a good Nonfarm Payrolls report.  Friday's bearish prints on the gold and silver charts both look pretty convincing, moving average crossing are bearish, and the pair of double-tops look worrisome, but the miners aren't confirming the bearishness just yet, and the dollar rally looks iffy.

I think the buck is the key.  While I think the chances of a Fed rate rise are zero, what I think doesn't matter.  Everyone else determines where prices go, not me, and if a strong dollar follow-on rally causes managed money to start to bail out instead of buying the dip, we're going to see the commercials get a rinse cycle for gold.

Current view from the computer:

  • Uptrend: miners, crude, SPX, DJIA, USD.
  • Downtrend: gold, silver, natgas, copper, platinum, treasury bonds.

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5 Comments

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 5 2009
Posts: 573
great commentary

Dave,

I really enjoy and appreciate your market commentary on this site.  Thanks again.

Nate

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Losing my Religion.

The market has more faith in the non-farm payroll than I.

Searching for a workable model on which to make my bets I'm thinking that the dollar is higher because foreign debts have to be paid back in $US as Chris has pointed out.

My model is that this is the broad flow of the river.  Everything else is whirls and eddies. I'm thinking that the pop up that we are waiting for will happen when those foreign debts are paid off.

And judging from Zimbabwe's performance its going to be a long wait. Several generations. I can't wait for Godot any more.

I hope that someone can correct my model.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
could popup happen when debts are completely denied?

Just sayin...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
dollar moves

So there are a whole bunch of foreign companies that have borrowed money in dollars - this allows the US pension funds to get high yields by buying bonds from these foreign companies without having to deal with currency risk.

If the companies decide not to pay back those USD-denominated bonds, by law, that's a default, and (I'm guessing now) at that point the bondholder is allowed to force the company into a bankruptcy proceeding where the assets are sold off and whatever is left is given to those bondholders.  Without such a consequence, nobody would ever pay their bond debts when things got iffy.  Management really wants to avoid that outcome, because shareholders are zeroed out, and they all lose their jobs, and the company goes away.  So debts get paid.

So when the buck screams higher (because of a flight to safety, for instance) then it increases the effective debt burden of those companies with USD bonds - coupon increases, principal payment increases, because the company is the one taking the exchange rate risk, not the bondholder.  So they are motivated to pay off that USD debt.  And that pushes the dollar up even faster.

If the "debts are denied" - how does that happen without a bankruptcy proceeding?  It doesn't.  Unless this is in China where coupon payments are missed and there is no consequence.

Would you buy USD bonds from a Chinese company?  I sure wouldn't.

And yes, buck will still rise if the EU is about to break up.  All that money in peripheral Europe will want to avoid being turned into Pesetas, or Drachmas, or Lira, etc, so it will run and hide in the buck.

Think about it.  If you were in Spain, and you saw the dissolution of the EU coming, and you had a million Euros sitting in a Spanish bank - would you just let it sit there and maybe get bailed-in, or turned into Pesetas and devalued by 50%?  All you have to do is move it to a US bank and convert it to USD, and you avoid the bail-in, AND the peseta conversion.  You get to avoid a 75% haircut on your money by doing just one transfer.

Especially if all your rich friends were doing this, and it was a big topic of conversation.  Which it sure would be.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Reply to self. (Thinking allowed.)

Start again. Total computer malfunction.

Of cause the above model is from a US perspective. Things look different from the Debtor's point of view.

The debtor nations will see the value of their currency fall (much to the annoyance of the US manufacturers) as the $US gains value . In which case PMs will gain in value in foreign countries currencies.

On Dave's foreign gold versus foreign currency chart we see that Russia is an extreme case. The rest of the nations are corralled into one group. I assume that the US has taken them under its mighty armpit, as the Zulus say. That graph is trying to tell me something profound about the world we live in, but I am not sure what.

Thinks to self. Maybe take PMs to Russia. Huge arbitrage. Land in Kamchatka. Hmmm.

PS. I know how to spell aloud but am addicted to double entendre.

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