PM Daily Market Commentary - 8/16/2016

davefairtex
By davefairtex on Wed, Aug 17, 2016 - 4:20am

Gold rose +7.00 to 1347.40 on moderate volume, while silver climbed +0.01 to 19.84 on moderate volume also.  A big dollar sell-off initially caused a PM rally, which lasted right up until the 08:30 CPI release, after which both gold and silver were pounded lower, with silver suffering more than gold.

Gold's initial rally on the big move lower by the buck - which fell almost a full point, starting early in Asia and more or less selling off in a straight line down - looked like a fairly normal move.  The gold rally was at least half just a currency effect.  However the pounding that happened after the CPI release looked a whole lot like the commercials working hard to move price lower.  The attempt initially worked, clipping about $20 from the price of gold.  However once the dollar bounce from the CPI report faded, gold came back, with traders buying the dip.

Today's spinning top candle print is neither bullish nor bearish.  Gold managed to close back above its 9 EMA.  That's bullish.

This tells me that a bid remains under gold.  That's bullish - managed money does not look as though they are bailing out on drops the way they used to do.

Gold open interest rose by a big +9,866 contracts today.

Silver suffered more than gold; it was unable to bounce back very far from the post-CPI report selling spree. Silver remains below its 9 EMA, and today is another in a series of relatively high volume down days.  The gold/silver ratio is continuing to move slowly higher, which is bearish.  I especially don't like the large volume bars on the down days.  That's bearish too.

Miners traded mostly sideways today; GDX fell -0.16 on light volume, while GDXJ rose +0.57% on light volume also.  Senior miners closed the day exactly at the 9 EMA.  The follow-through from yesterday's swing high was very modest - the declining volume also suggests that the selling pressure is minimal.  While there is no major force moving the miners higher, it also seems that the current owners of the mining shares don't feel any great pressure to sell.

When price falls slowly and volume drops too, that's generally a good sign.  It allows the instrument to work off its overbought condition, while also suggesting that "the selling is drying up."

Platinum rose +0.70%, but printed a bearish-looking shooting star, while palladium rallied +1.86% and moved back above its 9 EMA.  Palladium is recovering from a massive bearish engulfing it printed last week.   Copper actually rallied too, up +0.95%.  Copper is struggling to put in a low at 2.17.

The USD had a really bad day, dropping -0.82 to 94.73 - and this includes the rebound that followed the CPI release at 08:30 Eastern.  On the chart, we see that the buck has made a new low, plunging dramatically through support.  There was no one single winner on the other side: XEU:+0.85%, XJY:+0.98%, XBP:+1.28%.  If the buck continues lower, the commercials will be hard pressed to keep the price of gold from breaking higher.  The trend in the buck is clearly down.

WTIC climbed once agin, up +0.74 [+1.62%] to 46.54.  Today's move took crude back above its 50 MA, and marks the fourth straight rally day following that IEA report that projects a worldwide 3Q inventory draw.   Tomorrow we have the EIA's petroleum status report (note: EIA: US, vs IEA: international) which could either provide further fuel for the rally or cause a reversal, depending on how the market reacts.  I suppose it could be neutral too.  If the market likes the status report result, we could see oil back to $50 by next week.

SPX fell -12.00 to 2178.15, printing a two-candle swing high.  Is a crash coming?  Candle code thinks the swing high in SPX is no big deal (16-23%), but the swing high for DJIA appears more serious (27-66%).  Energy (XLE:+0.15%) managed to buck the trend, while utilities continued to crater (XLU:-1.18%).  While the XLU decline isn't that severe on a percentage-wise basis, the normally placid utility chart is really starting to look bad: today saw a gap down open and a black marubozu candle print which means XLU was sold all day long.  Money is fleeing utilities.  That said - XLU does not normally lead the market lower.  Perhaps this is just a dramatic bit of sector rotation - although overall market sentiment remains at extreme levels, which tends to be bearish.  VIX rose +0.83 to 12.64.

TLT fell -0.27%, but I don't interpret this as risk on.  Instead, it appears that money is fleeing the USD, and some of it is coming out of Treasury bonds.  And come to think of it - perhaps the money fleeing the buck is also responsible for the big drop in XLU.

JNK fell -0.30%, printing a two candle swing high (20-31%), a very low rating.  If money is fleeing XLU, its moving cautiously away from JNK.  After all, JNK yields a massive 6.17%.

CRB rose +0.81%, with most every commodity sector rising today.  CRB is approaching its 50 MA.  We can call this a near term uptrend now, I think.

Price is telling us that the buck isn't the place to be right now.  Is that because of Trump/Clinton - "the best America has to offer"?  A zero percent chance of a rate hike at the next meeting?  A "fixed" Italian banking system which makes that Euro look attractive?  I don't know.  Maybe its all of it, or none of it.  Rallying commodity prices do suggest a bit of international risk on, with money moving back to the periphery too.

While today I largely blamed the commercials for the move lower in gold, it is also the case that there has been no new collapse in confidence or major central bank policy change to drive gold buying.  We will have to see if the lower dollar will eventually drive more buyers into gold.  If a weak dollar doesn't encourage more gold-buying, that would suggest we could see lower prices ahead for the yellow metal.

And people might just be on vacation too.

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