PM End of Week Market Commentary - 8/19/2016

davefairtex
By davefairtex on Sat, Aug 20, 2016 - 7:54am

On Friday, gold fell -11.80 to 1341.50 on moderately heavy volume, while silver plunged -0.42 to 19.34 on heavy volume.  A medium-sized dollar rally appeared to kick off a large sell-off in silver and a more modest sell-off in gold.

On the week, gold rose +4.10  [+0.31%], silver dropped -0.38 [-1.93%], GDX fell -3.51% and GDXJ moved down -1.92%.  Platinum was down -0.96%, palladium rose +2.69%, and copper moved up +1.26%.

Gold more or less moved sideways this week, managing to move back above its 9 EMA for several days, until Friday's sell-off pulled gold prices back down to earth.  Given that the buck was hit hard for most of the week, gold's lackluster rise was a disappointment; gold should have done a lot better than it did.  That tells us that gold in Euros fell: down -1.16% on the week.

On the chart, we see that gold ended the week below its 9 EMA, and briefly moved through the downtrend line intraday but managed to close above it by end of day Friday.  Support for gold remains at the downtrend line, at 1310, as well as the 50 MA at 1329.

This week, open interest rose by +8,250 contracts.

Silver had a bad week, culminating with a strong sell-off on Friday which saw the metal poke briefly through 19.25 intraday.  The meager rebound left silver only 9 cents above support.  Silver is perched right on the edge of a potential $1.25 decline - a support break could lead to that much selling, and knowing silver, it could happen in just a couple of fifty-cent down days.  Based on what happened on Friday, the dip-buyers seem to be AWOL right now.  Copper prices remain relatively weak, and silver is definitely underperforming gold.  It all looks pretty bearish for silver.

This would be a reasonable time for our friendly commercials to drive price through support this Sunday evening prior to the market open in Japan.  That's the setup, at least.

Miners

The miners printed a swing high on Monday, and things more or less went slowly downhill after that.  At no time did prices collapse - there was a sell-off the morning before the FOMC minutes release, but that was the extent of the selling that I saw.  Mostly, it was just falling silver prices that kept pulling the miners lower.  GDX closed the week below its 9 EMA, as did GDXJ, but the juniors appear to be holding up better than the senior miners.  This is a bullish pattern, and suggests that the owners of the mining shares aren't ready to abandon their positions.  Volume is starting to pick up on the down days - that's bearish.

The 50 MA acted as support during the correction back in June.  Perhaps miners will find some support there this time around also.  Most likely, silver will be the key to what actually happens.  If the miners can retain their composure in the event of a large silver sell-off, that will be bullish longer term.

The USD

The buck took a big hit this week, falling -1.20 [-1.25%] to 94.45, making a low of 94 before bouncing back on Friday.  It was Friday's dollar rally that gave gold and silver so much trouble this week - a falling dollar during the rest of the week provided only minor support for PM, and the rising dollar on Friday seemed to be quite negative for PM.  That doesn't sound very good - and it isn't.  The Euro was the biggest winner: XEU:+1.40%, XBP:+1.23%, and XJY:+1.12% making a new high too.

US Equities/SPX

The US equity market closed almost flat, falling -0.18 [-0.01%] to 2183.87.  It was another very narrow trading range for the index, but there was a fair amount of movement between the sectors, with energy being the star performer (XLE:+2.49%) which broke to new highs.  VIX fell -0.21 to 11.34.

In the sector map, we can see energy in the lead - this was all about the big oil rally.  High yielding utilities and REITs did worst.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 2.49% 7.01% rising rising falling rising ema9 on 2016-08-11 2016-08-19
Materials XLB 1.18% 12.50% rising rising rising falling ema9 on 2016-08-18 2016-08-19
Industrials XLI 0.79% 13.39% rising rising rising rising ema9 on 2016-08-05 2016-08-19
Telecom XTL 0.79% 12.44% rising rising rising rising ema9 on 2016-08-18 2016-08-19
Financials XLF 0.63% -0.44% rising rising falling rising ema9 on 2016-08-03 2016-08-19
Technology XLK -0.19% 16.00% rising rising rising rising ma50 on 2016-06-30 2016-08-19
Cons Staples XLP -0.31% 14.10% rising rising rising falling ema9 on 2016-08-17 2016-08-19
Healthcare XLV -0.56% 1.70% falling rising rising rising ema9 on 2016-08-16 2016-08-19
Cons Discretionary XLY -0.61% 7.37% falling rising rising rising ema9 on 2016-08-17 2016-08-19
Homebuilders XHB -0.80% -5.88% falling rising falling rising ema9 on 2016-08-16 2016-08-19
Utilities XLU -1.24% 13.28% falling falling rising falling ema9 on 2016-08-19 2016-08-19
REIT RWR -1.74% 13.34% falling rising rising rising ma50 on 2016-08-19 2016-08-19
Gold Miners GDX -3.51% 91.00% falling rising rising falling ema9 on 2016-08-19 2016-08-19

Gold in Other Currencies

Gold was mixed on the week, but mostly down.  It looks like a big currency move happened in BRL.  Gold in XDR fell -8.26.


 

Rates & Commodities

TLT is mostly chopping sideways, down -0.98% on the week but remaining more or less in the middle of its recent trading range.  Bonds do not have a clear direction right now - well, perhaps "sideways" is a direction.

JNK rose +0.25%, making a new high, and remaining in its strong uptrend.  JNK likes oil rallies, and it continues to signal risk on.

CRB made a big move this week, rising +3.38%, mostly due to the big rally in oil.  CRB is now convincingly above its 50 MA.  That's some good progress; if oil can convince the other commodities to rally, that would be helpful for PM overall.

Crude staged a massive rally this week, climbing +4.06 [+9.08%] to 48.75, moving higher 5 days out of 5.  Oil is well into "overbought" territory - I could see it taking a bit of a rest next week - but this week there was not much hesitation in the oil uptrend.  Every intraday dip was bought.  The petroleum status report showed a bullish inventory draw of -2.5m barrels of crude, and a bullish inventory draw of -2.7m barrels of gasoline.  We will have to see how the market reacts to the next petroleum status report next Wednesday to see how much more upside there might be.  If we rely just on the COT report, the large remaining number of managed money shorts suggest we could break to new highs before this rally runs out of gas.  They covered 56k shorts this week, but we could have another 100k shorts remaining to cover.

Physical Supply Indicators

* Gold at Shanghai is trading at a +2.08 premium to COMEX.  That's up $4 from last week's discount.

* The GLD ETF tonnage on hand fell -4.46 tons, with 956 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1341.50 and silver 19.34.

 PHYS 11.09 +0.37% to NAV [up]
 PSLV 7.40 +0.35% to NAV [down]
 CEF 14.05 -4.70% to NAV [up]

* 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 [2.10% for 100 oz bars in NYC], higher for silver [+2.95% for 1000 oz bars], and higher for silver eagles at +13.24%.

Futures Positioning

COT report covers trading up through Tuesday Aug 16th.

Gold commercials closed -2k shorts, while managed money sold -4.k longs.  Almost no change at all this week - both sides remain heavily offside.

In silver, commercials had no meaningful change, while managed money sold -2.5k longs and added +2.5k shorts.  Managed money is getting slowly less bullish on silver.

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

Things are increasingly bearish this week, with all components below their 9 EMA lines.  Miners are leading metals lower, silver dropping faster than gold.  The only bright spot is that the juniors are still holding up relatively well.  In a stronger downturn, the juniors would be right at the bottom, below GDX.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold GC.CW 0.31% 16.37% falling rising rising rising ema9 on 2016-08-19 2016-08-19
Platinum PL.CW -0.96% 8.23% falling rising rising rising ema9 on 2016-08-11 2016-08-19
Junior Miners GDXJ -1.92% 125.59% falling rising rising rising ema9 on 2016-08-19 2016-08-19
Silver SI.CW -1.93% 24.94% falling rising rising rising ema9 on 2016-08-11 2016-08-19
Silver Miners SIL -2.71% 129.07% falling rising rising rising ema9 on 2016-08-19 2016-08-19
Senior Miners GDX -3.51% 91.00% falling rising rising falling ema9 on 2016-08-19 2016-08-19

Gold Manipulation Report

There were no spikes to report this week.  Given where silver is right now, I think we could see one appear Sunday night.  Buyers in silver seem to be relatively scarce right now, so now would be a good time.

Summary

Everything dropped below their respective 9 EMA lines this week, led by silver which had a fairly dramatic move lower on Friday.  A dropping dollar didn't seem to provide much help to metals prices - while a rebounding dollar seemed to cause all sorts of difficulty.  It is an important signpost for me of weakness in PM, and in silver especially.  And as we know by now, silver tends to lead gold, both up as well as down.

The gold/silver ratio rose +1.52 to 69.69, with all of the gains coming on Friday.  That's bearish.  The GDX:$GOLD ratio fell, but remains bullish, while the GDXJ:GDX ratio actually rose, and also looks bullish.  Its a mixed bag in the ratios.

There was very little change in the gold COT report.  Managed money is slowly moving to a less bullish position in silver, but at this rate it will take months before any real change takes place.

Gold and silver big bar shortage indicators show no signs of shortage.  Shanghai has moved to premium.

We are probably on the cusp of a fairly brisk move lower, led by silver.  That's just how things seem to be lining up right now - the rising gold/silver ratio bothers me, as does gold's relative weakness during a dollar decline.  I said something similar last week about a test of support, and silver ended the week right at support.  The next step is a breakdown.  It may be triggered by a further dollar rebound, or it may happen because of the commercials playing their spike-down games.

FWIW, silver in Euros broke support three days ago.

All that is worth my usual warning: "be careful out there."

Current view from the computer:

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

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7 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5685
gold valuation metric

Here's another rough inflation gauge - the "ratio": how many ounces of gold does it cost to pay for "the median US rental unit for a month."

 

year 2016 2014 2010 2000 1990 1980 1970 1960 1950 1940
med rent 1009 934 855 602 447 243 108 71 42 27
gold 1330 1184 1421 273 396 600 35 35 35 35
ratio 0.76 0.79 0.60 2.21 1.13 0.41 3.09 2.03 1.20 0.77
infl rate 4.00% 2.31% 4.20% 3.47% 8.40% 12.50% 5.21% 6.90% 5.56%  

It was hard to pay your rent in gold in 1970 - it took 3.09 ounces.  Gold was underpriced.  It was easy in 1980 - it took 0.41 ounces.  Gold was overpriced.

Where are we now?  If gold was underpriced in 2000 with the ratio @ 2.21 (and even more underpriced in 1970 @ 3.09), we are fairly far from that: current ratio is 0.76.  The high point of the ratio in 2011 was approx 0.45 @ gold 1900, and the high point of the ratio in 1980 was 0.30 @ gold 800.

With gold = $5000, the ratio would be 0.20.  With gold = $3400, the ratio would be 0.30...which is what the top was in 1980.  Of course if the crisis we face is worse than 1980, we could certainly see $5000 gold.  The ratio isn't an upper limit, its just a measuring stick.

However as soon as the crisis gets resolved, that ratio probably snaps back, the same way it did after 1980.  Either by a dropping gold price, or dramatically higher rents.

Note 1: Median rent data came from the US census.  If you have better median rent data, I'll happily do another spreadsheet.  I bet the outcome is a whole lot different if you live in SF.

Note 2: 2016 data was imputed from an estimated 4% annual increase vs 2014.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Mitsubishi's Transmutation Patent

Test your powers of compression here.

 

https://www.lenr-forum.com/forum/index.php/Thread/3655#post33667

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5685
Chinese Gold

Bullionstar gold has done an estimation of how much gold is sitting in China - quick answer: 16,000 tons.  This is a combination of private and public gold holdings within China.

https://www.bullionstar.com/blogs/bullionstar/infographic-the-chinese-gold-market/

16k tons is 9.7% of the above-ground gold.

I'm guessing they'll eventually do something monetary with it...but I believe that will only come after the resolution of their massive debt problem.

One flaw: I don't believe that gold cannot exit China - rich people figure a way to get what they want, and if they want to take their gold out of China, they will find some way to make it happen.  Even the little guy can wear gold jewelry while crossing the border into Hong Kong, but then somehow lose that jewelry during their stay.

Coda's picture
Coda
Status: Member (Offline)
Joined: Jul 5 2016
Posts: 7
>Even the little guy can wear

>Even the little guy can wear gold jewelry while crossing the border into Hong Kong,

You'd have to dress like the A-Team's B.A Baracus to minimize your costs :)

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5685
silver down -0.47

Silver was hit for a 43 cent loss right at the open today in Asia in literally the first minute of trading.  It looked like the commercials were going to take no chances waiting even a few minutes for any buyers to possibly appear.  The 19.25 support level has been broken; we will see if any buyers appear, but for now it looks as though silver is headed to 18.

Gold is down $10, but that looks to be more about a dollar rally (DX:+0.42) than any sort of assault.  Gold remains above both its 50 MA and above 1310 support.  It is interesting that gold didn't drop much at all in sympathy with silver's drop.  It makes the silver drop appear to be even more of an engineered move.

I'm hoping to reload my paper silver in the 18 area - but we'll see how price is acting if/when it gets down there.  18 is stop #1, with a potential for a move down to the 16 area if things really get going to the downside.  It just depends on managed money: will they bail out, or will they buy the dip - and when?

Buyers could appear later today, even.  It is impossible to predict, so we just have to watch and see how traders react to the drop.

 

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 919
Wouldn't a 43-cent drop be a call?

More specifically, "calling all buyers... calling all buyers"

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5685
how many will respond

MR-

Yes the call has gone out.  Now we need for price & volume to show us the evidence of how many actually responded.

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