PM Weekly Market Commentary - 8/12/2016

davefairtex
By davefairtex on Sat, Aug 13, 2016 - 11:14am

On Friday, gold fell -2.70 to 1337.40 on moderately heavy volume, while silver dropped -0.28 to 19.72 on moderately heavy volume also.  In spite of a bad Retail Sales report that initially sent the buck screaming lower and the metals higher, a strong rebound in USD (which ended up printing a hammer candle) helped the commercials push price right back down again.

On the week, gold rose +1.00 [+0.07%], silver dropped -0.01 [-0.05%], GDX moved up +2.71% and GDXJ climbed +3.26%.  Platinum was down -1.89%, palladium dropped -0.79%, and copper fell -0.93%.  Copper did relatively well during the week, but fell out of bed on Friday, dropping a big -2.33% making a new low, and both platinum and palladium have nosed over into short term downtrends.

Gold attempted to rally back from last week's losses, only to meet with failure.  Wednesday was gold's best shot at a rebound, and even though the buck dropped sharply that day, gold was only able to manage a mostly-failed rally, printing a bearish shooting star candle that was confirmed on Thursday.  On the week, the buck dropped about -0.50%, but gold ended up more or less flat.  That's bearish.  Likewise, so is the shooting star, as is gold closing the week below its 9 EMA.  Lastly, we have seen a couple of down days with high volume - that's bearish also.

This week, open interest declined by -18,532 contracts, with most of the drop happening on Monday.

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

Silver had a similar experience to gold, trying to rally Wednesday only to mostly fail, with some relatively heavy selling appearing Thursday and Friday.  Silver is also below its 9 EMA, and the down-day selling volume pattern is more pronounced than for gold.  Copper's continued downtrend (in place now for four weeks) is probably not helping.  A break below 19.25 support could lead to a fair amount of selling.  It will probably all depend on how managed money reacts.  Silver's chart looks weaker than gold.

Miners

In spite of gold's failed rally collection this week, miners jumped back above the 9 EMA and stayed there, making a series of new highs this week.  Although the past three days looked a bit like distribution, the volume was low, and price never made it back below the 9 EMA.  The GDX:$GOLD ratio continues to make new highs as well.  Mining shares remain the most bullish PM component.

The USD

The buck retreated this week, dropping -0.46 to 95.65, with most of the losses happening Wednesday.  The move in the buck this week ended up retracing last week's gain off the positive payrolls report, but based on the hammer candle Friday, it is not clear that the buck is ready to collapse.  I was surprised at the strength of the rebound in the buck after the poor Retail Sales report; after being down -0.70 initially, by the end of the day the buck closed down only -0.16.

US Equities/SPX

The US equity market closed up just +1.18 to 2184.05, and the trading range on the week was very narrow.  It was all very quiet.  VIX rose +0.16 to 11.55.  The smart/dumb money sentiment index remains at extreme levels - that's bearish, and it has been bearish since mid-July.

In the sector map, assuming we ignore the crazy gold miners, energy led, driven higher by the rally in oil.  Financials remain weak.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 2.71% 113.91% rising rising rising rising ema9 on 2016-08-08 2016-08-12
Energy XLE 1.73% -1.14% rising rising rising rising ema9 on 2016-08-11 2016-08-12
Cons Staples XLP 0.92% 12.28% rising rising rising rising ema9 on 2016-08-09 2016-08-12
Cons Discretionary XLY 0.53% 5.98% rising rising rising rising ema9 on 2016-08-10 2016-08-12
Industrials XLI 0.43% 10.17% rising rising rising rising ema9 on 2016-08-05 2016-08-12
Utilities XLU 0.34% 15.64% falling rising rising falling ma50 on 2016-08-05 2016-08-12
Technology XLK 0.13% 13.24% rising rising rising rising ma50 on 2016-06-30 2016-08-12
Telecom XTL -0.13% 9.77% rising rising rising rising ema9 on 2016-08-04 2016-08-12
Homebuilders XHB -0.22% -4.62% rising rising rising rising ema9 on 2016-08-11 2016-08-12
REIT RWR -0.30% 15.74% falling rising rising rising ema9 on 2016-08-11 2016-08-12
Healthcare XLV -0.62% 0.62% falling rising rising rising ema9 on 2016-08-12 2016-08-12
Financials XLF -0.67% -3.24% rising rising rising falling ema9 on 2016-08-03 2016-08-12
Materials XLB -0.72% 8.16% falling rising rising rising ema9 on 2016-08-12 2016-08-12

Gold in Other Currencies

Gold was slightly positive on the week; gold in XDR rallied +3.05.


 

Rates & Commodities

TLT rallied strongly, up +2.08%.  Bonds looked to be headed lower last week, but this week's rally broke the short term downtrend line and ended up with TLT comfortably back above the 9 EMA.  TLT is more than hinting at risk off now.

JNK rose +1.14%, breaking out to a new high.  JNK is sending the opposite signal to TLT; risk on.

CRB rose +0.48% on the week; strong gains in energy pulled the index higher.  CRB is struggling to put in a low here.  It remains above its 9 EMA, but not by much.

Crude followed through on last week's swing low in oil and rallied +2.71 [+6.46%] to 44.69.  Crude managed to overcome a heavy selling day on Wednesday that occurred after the petroleum status report; it looked as though traders possibly preferred to focus on the forward looking data released on Thursday from the IEA that projected a tightening supply/demand balance for the 3rd quarter.

From a longer term perspective, I believe this is a once-in-a-generation opportunity to pick up cheap oil services equities - the people who provide the "picks and shovels" to the oil business.  SPX may be at all time highs, but that is not at all true of oil services.  One example company, Tidewater (TDW), closed this week at 3.24; two years ago it was at 45.  It has been in business for 50 years.  The trick is, don't pick the companies that will have to restructure.  The ones that make it through the current "valley of death" will be 5-10 baggers just by returning to where they used to be.  The ones that don't - their equity will go to zero and the bondholders will end up owning the company.

Even if you don't play this particular game of bottom-fishing, the concept that debt is a killer during down times is a good takeaway for all of us - and that bad times can come upon us suddenly giving us just a few short months to prepare.

Physical Supply Indicators

* Gold at Shanghai is trading at a -2.67 discount to COMEX.  That's up +2.76 from last week.

* The GLD ETF tonnage on hand fell -19.89 tons, with 960 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1340.30 and silver 19.70.

 PHYS 11.07 +0.27% to NAV [down]
 PSLV 7.62 +1.44% to NAV [up]
 CEF 14.13 -4.80% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premium for gold or silver.

* Big bar premiums are higher for gold [1.66% for 100 oz bars in NYC], higher for silver [+2.94% for 1000 oz bars], and higher for silver eagles at +13.08%.

Futures Positioning

COT report covers trading up through Tuesday Aug 9th.

Gold commercials closed -8.7k shorts, while managed money sold -7k longs.  There is not much change this week for gold - positions are very slowly starting to retreat from extreme levels.

In silver, commercials closed -7.9k shorts, but managed money sold none of their longs - instead, they added +3.3k shorts instead.  Commercials need another 6 weeks of this sort of activity before they are back to something like a bullish position.

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

The metals are all below their 9 EMAs, while the equities remain strong.  That's generally bullish, since equities tend to be a leveraged play on the underlying metal.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 5.42% 135.23% rising rising rising rising ema9 on 2016-08-08 2016-08-12
Junior Miners GDXJ 3.26% 130.86% rising rising rising rising ema9 on 2016-08-08 2016-08-12
Senior Miners GDX 2.71% 113.91% rising rising rising rising ema9 on 2016-08-08 2016-08-12
Gold GC.CW 0.07% 20.05% falling rising rising rising ema9 on 2016-08-11 2016-08-12
Silver SI.CW -0.05% 27.97% falling rising rising rising ema9 on 2016-08-11 2016-08-12
Platinum PL.CW -1.89% 13.74% falling rising rising rising ema9 on 2016-08-11 2016-08-12

Gold Manipulation Report

There was one high-volume spike down for silver on Thursday at about 01:15 Eastern for 20 cents total...13 cents of the drop was bought instantly (i.e. the bar was 20 cents long, but the body was only 7 cents long because of the rapid rebound) and the remainder of the drop was bought within the hour.  Someone out there was buying the smash, even with silver in a short-term downtrend.  As long as this keeps happening, the "all powerful commercials" won't be able to push prices around.

If I had to guess, there's a fund or two out there that is looking to profit from the smash attempts.  To borrow a line from Chris, "that's what I'd be doing if I were them."  A quick 20 cents in silver, times 5000 ounces per contract, and pretty soon you're talking real money.

Summary

Both gold and silver attempted to rally back following last week's big price drop on Friday; the rally failed.  A weakening dollar did not seem to help.  The miners remain the sole bright spot, making new highs in spite of the relative weakness in the metal.

The gold/silver ratio rose +0.33 to 68.17, with all of the gains coming on Friday.  The GDX:$GOLD ratio rose, and looks bullish, as did the GDXJ:GDX ratio.  Dip buying is alive and well in the mining shares; its really hard to argue with new highs every week or so.  There are no bullish fireworks to be seen anymore, just a steady move higher.

There was not much change in the gold COT report, but in silver the commercials have started to cover more vigorously - although they remain strongly offside and it will take perhaps a month and a half at this rate to return to normal.

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

If a weakening dollar isn't helping gold, that suggests possible trouble ahead for PM.  Copper's 4-week downtrend is tugging silver lower, and silver is tugging on gold.  No doubt the commercials are trying to help matters along, but managed money has not been bailing out on the drops, at least so far anyway.  Fedwatch tool suggests only a 9% chance of a rate rise next month; that's pretty pessimistic.  Its not clear if there is much more negative rate sentiment left to be squeezed out of the buck by bad economic reports.  I suppose if things get bad enough, we could always start expecting a rate cut.

At the same time, we are probably at peak complacency in SPX.  The VIX at 11.55 supports this also.  If equities were to roll over, we might see a renewed flow of capital into gold and bonds - TLT and gold being relatively well correlated in the last few months.

But if equities remain high and with no new catalyst for gold, I believe we are more likely than not to see a test of support, with silver leading the way.

Current view from the computer:

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

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2 Comments

dryam2000's picture
dryam2000
Status: Gold Member (Offline)
Joined: Sep 6 2009
Posts: 292
USD/JPY

Dave,

So are saying, per Friday's thread, that there is not a correlation between the inverse of the USD/JPY and gold?  It seems to me that there is.  Additionally, anytime there is BOJ intervention causing a spike down in the JPY, gold also spikes down.  Yes, there is a carry trade effect as far as the buying of U.S. equities, but gold gets hit & usually in a very significant fashion.

http://finance.yahoo.com/chart/jpyUSD=X?ltr=1#eyJjb21wYXJpc29ucyI6IkdMRC...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
correlations

So are saying, per Friday's thread, that there is not a correlation between the inverse of the USD/JPY and gold?

Did I say that?   Let me look back and see.  Here's what I said.

First of all, gold and USD/JPY don't trade in lock step.  Sometimes they do, and sometimes they don't.

I guess the answer is no, I didn't say that.  I observed that sometimes gold and USD/JPY are correlated, and sometimes they are not.  Here's a chart which shows platinum, silver, and JPY correlations.  Silver is known to correlate best with gold.  You can see that JPY isn't very good by comparison, and that even silver has times when it de-correlates with gold.

JPY did get more correlated in 2014 & 2015 and for a few months here in 2016, but again - silver and platinum are a lot closer.

I also find that USD is a bit better correlated (negatively) with gold than is JPY.   And in fact, that's the behavior we saw on Friday.  Dollar rallied, gold dropped.  Which was my point.  Dollar move was decisive in understanding why gold dropped.

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