PM Daily Market Commentary - 8/8/2016

davefairtex
By davefairtex on Tue, Aug 9, 2016 - 4:22am

Gold fell -0.10 to 1336.30 on light volume, while silver rose +0.03 to 19.76 on moderately light volume.  In spite of a somewhat stronger dollar, the metals managed to stay relatively flat.

In gold today, we see a doji star candle pattern - it is not particularly bullish, with only a 13-20% chance of marking a low.  Coupled with the low volume, it doesn't tell us too much about direction.  High volume dojis can be a sign of a reversal, because it suggests a lot of short covering and/or buying, but the low volume dojis provide no information at all.  More likely, things continue moving along their current path.

Still, the fact that gold didn't just sell off further does provide some amount of hope that the Nonfarm Payrolls report didn't convince the market that rate cuts are six weeks away.  The Fedwatch tool that uses futures prices to assess "the market's" sense of upcoming fed actions supports this; Fedwatch tool suggests there is only a 12% chance of a rate cut in September, down from 15% right after the payrolls report.  http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

Gold open interest dropped by -12,464 contracts today.  Commercials appear to be ringing the cash register to some degree - that, or getting out while the getting is good.  I believe that if managed money decides not to bail out wholesale during price drops, the commercials will be encouraged to cover, putting a floor under any correction.

Silver opened lower but then rallied back for most of the day, printing a "thrusting" candle pattern which is somewhat bullish - 25-31% chance of a reversal here.  The relatively low volume doesn't give us all that much confidence, and the rating of this candle pattern is a little weak.  19.25 support is not far away.  Silver really needs to hold above 19.25 or we could see some fireworks to the downside.  Copper is trying desperately to put in a low, but momentum for copper points lower.  Silver feels a bit more iffy than gold right now.

Both miners rallied today, with GDX up +0.89% on very light volume, while GDXJ was up +1.66% on moderate volume.  Both miner ETFs printed two-candle swing low patterns which are normally pretty bullish - this one is on the weaker side, about 24-36% chance of marking a low.   The strong swing low patterns go as high as 70%, just to give you a sense.  GDX did manage to close back above its 9 EMA, which is a lot better than what gold and silver managed to accomplish, but the miners sold off right at end of day, which suggests that traders were not confident enough to take the miners home overnight.

Platinum rose +0.34% finding support on its 9 EMA, palladium dropped -0.43%, and copper rose +0.51%, struggling to reverse its downtrend right at its 50 MA.  Copper also printed a disagreeable "failed rally" type of candle, which doesn't bode all that well for the near future.

The USD rallied +0.17 to 96.34, moving slowly higher after the Nonfarm Payrolls report last Friday.  The modest rally in the buck was not enough to derail PM.

WTIC continued moving higher, up +0.89 [+2.12%] to 42.87, moving convincingly above its 9 EMA.  It looks as though the reversal in oil is for real, and I'm just guessing that managed money is now having to cover all those short positions.  Volume looks strong.  Energy equities did relatively well, although like GDX they sold off after mid-day.

SPX fell -1.98 to 2180.99, in spite of the gains in energy equities.  Sickcare was the biggest loser, driven lower by a failed clinical trial of a cancer drug at BMY, which wiped 20% of its market value in two heavy-volume days - that's a pretty ugly outcome if you're long.  VIX rose +0.11 to 11.50.  Puts are awfully cheap, but as you can see with BMY's big move, that doesn't mean individual stocks are immune to large unpleasant moves.

TLT moved up +0.19%, but bonds still look to be in a downtrend.  Overall pattern looks like a descending triangle, which isn't encouraging if you own Treasury bonds.

JNK jumped another +0.55% printing a new high and generally yelling out "risk on" to anyone who might be listening.  JNK seems to be enjoying the oil rebound.

CRB followed oil again, closing up +0.55%, up four days in a row now.  Mostly commodity rebound is about energy and agriculture, and to a lesser extent industrial metals.

My gut tells me that PM probably hasn't found a low yet; miners still seem tentative, and the candle prints for both gold and silver aren't particularly conclusive about a reversal just yet.  Plus, the buck is continuing to move higher, albeit somewhat slowly.  The case for PM optimism lies in the belief there is only a small chance of any sort of rate rise by the Fed, detailed in the Fedwatch futures.  The pessimism case for PM in the near term is the Atlanta Fed's GDPNow https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1, which is projecting a 3.8% GDP growth rate for 3Q 2016.  If a flurry of economic indicators come in that continue to support this forecast, that probably will push the buck higher and gold lower.  Gold rallied on a bad GDP print.  It stands to reason that it would drop on a good GDP print, and 3.8% would definitely qualify.

I make no comment about the validity of the GDP data during an election year, especially the print immediately prior to the election itself [Oct 28th].  When assessing where price will move, we must remember that it is the market's reaction that matters most, rather than the news itself.   As observed in Wag the Dog: "The war is over.  I saw it on TV."

Longer term, everything remains pretty well in place.  For PM, that is.

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6 Comments

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5971
Crud. Now there are *two* Comex's

There are two ways of looking at this; either a COMEX style default is now 100% more likely (because there are two of them) or the system is now such a solid vehicle of control that 'they' are highly confident in the model.

World Gold Council, LME and key market participants to launch LMEprecious

The World Gold Council and the London Metal Exchange (LME), together with Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis, OSTC and Societe Generale, today announce their intention to introduce a suite of exchange-traded and centrally-cleared precious metals products.

The initiative has been driven by the need for greater market transparency, to support and aid ongoing regulatory change, provide additional robustness to the precious metals market, broaden market access, make trading more capital efficient and trade lifecycle management easier.

LMEprecious will be developed to accommodate the interests of the full range of market stakeholders and to reinforce the strengths of the London market. Today’s announcement follows an extended process of engagement with major market participants and users, and the LMEprecious service has been designed based on extensive consultation with core market players. 

LMEprecious will comprise spot, daily and monthly futures, options and calendar spread contracts for gold and silver. Future developments will include platinum and palladium contracts. All trading will be centrally cleared on LME Clear, the LME’s cutting-edge, real-time clearing house, and leverage the London market’s existing delivery infrastructure.

The new product suite will complement the bilateral over-the-counter (OTC) market, offering market participants similar levels of execution flexibility, including the ability to bring bilaterally negotiated (phone-based) trades into clearing. Market participants will also benefit from tight on-exchange price discovery and a product model designed to maximise capital efficiencies.

Yeah, well, color me surprised if those 'extensive consultations with core market players' does not result in extensively more of the same.

More mystery slams in the middle of the night.  More paper contracts dumped at key moments.  More thieving and stealing by those who are most able to accomplish this and get away with it.

I swear, the first market center to offer real protections to the majority of its participants will steal massive market share from the central dens of thievery; London and NY.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Literal Thinking

I have to admire the Lateral Thinking.

"That Comex caper sure is lucrative!! I know, we need a Comex of our own."

This is going to end badly for the new boys in da hood. Can the Capo de Capo bash some heads together or will this end in a literal bloodbath?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
we already have a second COMEX

So reading between the lines:

The new product suite will complement the bilateral over-the-counter (OTC) market, offering market participants similar levels of execution flexibility, including the ability to bring bilaterally negotiated (phone-based) trades into clearing. Market participants will also benefit from tight on-exchange price discovery and a product model designed to maximise capital efficiencies.

The current LBMA marketplace is (apparently) a bilateral OTC market, with no on-exchange price discovery, and all the usual counter-party risk associated with off-exchange trades.  This new beast seems to be dragging some fraction of those off-exchange trades on-exchange.

Honestly it doesn't feel like a plot to create a second COMEX.  I suspect we already have such a thing in place - we just have no information about it.

Instead, this feels like a keep-up-with-the-Shanghai's move.  China's SGE has all these same features detailed in the article: a spot market for immediate delivery, a futures market, and so on.  If I had to guess, LBMA is feeling the pressure from international competition and that is dragging it out of the opaque "by telephone off-exchange bilateral trade" world of the 1920s and into the modern age.

The fact it has taken this long for LBMA to move to an exchange suggests to me that there was great advantage to have it be opaque and archaic, and participants probably fought this tooth and nail and it was only the prospect of trading moving east (perhaps they'd been losing volume of late?) that caused them to modernize.  Here's an article that supports this:

http://blogs.platts.com/2016/05/03/london-starts-see-shine-chinas-gold-plans/

He said that “someone” needs to step in and help rejuvenate London’s importance as a global gold hub, be it the London Metal Exchange of Shanghai Gold Exchange; or both.

“I think it should be the best [London as a global hub for gold trade] and still could be, but time is running out fast,” he said.

The one - critical - fly in the ointment where this new offering differs from the SGE is that delivery in the spot market (and for the futures contracts) uses unallocated gold, while I'm pretty sure the SGE uses allocated gold for all their settlements.  As Jim would hasten to point out, unallocated gold is actually paper gold, to the extent that the total quantity of unallocated gold exceeds the physical gold on hand.  And likely, the sum total of "paper gold" at LBMA substantially exceeds the OI at COMEX.

Even so - from an information standpoint, I think it could potentially be a big win for us peons.  We might even get to see the open interest.  Wouldn't that be nice?  I've been wondering what the OI is on the LBMA.  Maybe now we'll find out.

Pricing is in dollars, btw, not GBP.  I suspect if the Chinese had priced their offerings in USD, and had allowed foreigners to take delivery, it might have become a lot more popular internationally.  Do you really want to own RMB?  And as a foreigner - do you really trust the Chinese government with "your" gold bars that you can't take out of China?

At least at LBMA, you can convert your unallocated gold into allocated gold and move it wherever you like.  As long as that allocated gold doesn't run out, of course.  :)

https://www.lme.com/metals/precious-metals/lmeprecious/

https://www.lme.com/metals/precious-metals/gold/

 

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 338
London gold vault?

Might this explain the Industrial and Commercial Bank of Chinas purchase of Barclays 2,000 tonne gold vault this spring? They are part of the 5 cast of characters...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
ICBC vault

EE-

If I were playing in this game, I'd make sure that I could take delivery of some of that LBMA unallocated gold.  Its not really a safe arbitrage if you can't get the actual gold and then things go wrong and your unallocated gold holdings just give you a marker in someone else's bankruptcy.

 

 

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 338
London gold turf war:

The cast of characters are now divided.In one corner we have Goldman and the ICBC.In the other J.P Morgan and HSBC.game on....

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