PM End of Week Market Commentary - 8/26/2016

davefairtex
By davefairtex on Sun, Aug 28, 2016 - 2:30am

On Friday, gold fell -1.20 to 1320.70 on very heavy volume, while silver rose +0.10 to 18.64 on heavy volume.  Chair Yellen's speech was interpreted by the market as dovish, while the hawkish follow-on comments by Vice Chair Fischer combined to create a very volatile environment for gold and silver.  Although price did not change much by end of day, the trading range was large.

The market is trying very hard to figure out what Fed rate policy will be.  While newsflow initially suggested that Yellen's speech was hawkish, the market did not see things that way, and after some initial confusion most every risk asset rallied sharply.  Apparently not satisfied with the market's reaction, Vice Chair Fischer gave an interview to CNBC where he offered to read the tea leaves a bit more definitively for the market.  Put succinctly, if the data supports it, Fischer claims that the FOMC could raise rates twice before end of year, and September was definitely a "live meeting" for a rate rise, depending on the data.

http://www.reuters.com/article/us-usa-fed-fischer-idUSKCN1111X8

Fischer was asked on CNBC whether people should "be on the edge of our seat" for a rate hike in September, and for more than one policy tightening before year end.

He answered: "I think what the Chair said today was consistent with answering yes to both of your questions, but these are not things we know until we see the data."

Given the context and timing of the interview, what he said was: "Listen here, market: you didn't interpret Yellen's speech correctly.  We really might raise rates in September!"

On the week, gold fell -20.80 [-1.55%], silver dropped -0.70 [-3.62%], GDX plunged -9.28% and GDXJ moved down -9.82%.  Platinum was down -3.68%, palladium fell -2.20%, and copper dropped -4.15%.  It was a very difficult week for the metals, both precious and industrial.

On the chart, gold fell through its uptrend line, and then closed below the 50 MA.  The 1310 support line is just $10 away; one bad day could take gold clean through that line.  Below 1310 we have another support level at 1300, so the drop through 1310 might not be the end of the world.

You can see the large doji candle from Friday's back-and-forth on rate expectations.  Candle code says this doji gives us no insight as to direction.  Given the strong dollar rally, its not a bad performance by gold.

To me, the key is the dollar; if the world market continues to believe the FOMC has a chance of raising rates in September, the buck will rally further, and gold may well drop through 1310, leading to more selling in the rest of PM.  If that happens, we will probably have to wait for the FOMC meeting on September 21 for gold to find support - assuming the Nonfarm Payrolls report that comes out next week is neutral-to-bullish.

Note: I don't believe the Fed will raise in September (although a fantastic payrolls number might change my mind on that), but for some reason, the FOMC appears desperate for the market to believe that they might.

This week, open interest fell by -24,020 contracts.

This week silver was driven below 19.25 support as well as the 50 MA, finally finding buyers at around 18.50.  The initial move on Sunday came in the first minute of trading, and was clearly a move by the commercials to drive price through support.  Friday's heavy volatility caused silver to print a shooting star candle, which is generally bearish, although this one provides us no information as to direction.  I think silver's near-term future depends on copper as well as the USD; since copper is in a horrid downtrend right now and the USD jumped substantially on Friday, this suggests we will probably see lower prices ahead for silver.

Miners

Last week's slow-motion miner drop accelerated dramatically this week, with a very large drop happening Wednesday; many miners that I follow fell 10%.  Thursday there was a modest bounce, and on Friday, miners initially rallied strongly following Yellen's speech, only to lose all those gains and a bit more once the "correction" by Fischer caused the strong dollar rally.

On the chart GDX is now well below its 50 MA.  If the dollar continues to move higher, then I suspect the miners will make new lows - which is what happened the last several times (May & July) that the miners experienced a high volume sell-off.

The USD

The rallied strongly this week, up +1.05 to 95.50, with most of those gains coming on Friday.  The buck clearly reversed course this week, printing a swing low on Wednesday, and Friday's huge move higher took the buck back above the 9 EMA.  The convincing rally on Friday was the key - if the buck continues to move higher, that's bad news for PM, and for equities.  It all depends on what probability the market ends up assigning to a rate increase in September.  This also raises the stakes for the upcoming Nonfarm Payrolls report.  Since the Fed claims to be "data driven", a strongly positive payrolls report could lock in expectations for a September rate raise - at least according to the way I read the market's reaction.  If the payrolls report is weak, I suspect that PM and especially the miners will simply go nuts.

US Equities/SPX

The US equity market fell -14.83 [-0.68%] to 2169.04.  SPX fell 4 days out of 5, but there seemed to be some support at 2160, which was the low end of the trading range back in July.  My sense: we have to wait until next week to see if the world market really believes in this rate rise; if they do, then money will probably flow right back into US equities as the dollar rises.  VIX rose +2.31 to 13.65.

In the sector map, we can see homebuilders and financials at the top; XLF (new high on Friday) was pleased at the possibility of a rate increase, while a rise in new home sales spiked XHB.  At the other end, we can see that utilities (XLU) did not like the thought of rising rates, and sickcare (XLV) was battered by the possibility that relentlessly raising prices on drugs may not be a sustainable business model after all.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Homebuilders XHB 0.53% -0.31% falling rising rising rising ema9 on 2016-08-26 2016-08-26
Financials XLF 0.42% 3.26% rising rising falling rising ema9 on 2016-08-03 2016-08-26
Technology XLK 0.06% 17.82% rising rising rising rising ema9 on 2016-08-25 2016-08-26
REIT RWR -0.32% 18.62% falling rising rising rising ma50 on 2016-08-24 2016-08-26
Telecom XTL -0.48% 14.30% falling rising rising rising ema9 on 2016-08-26 2016-08-26
Materials XLB -0.53% 14.28% falling rising rising rising ema9 on 2016-08-26 2016-08-26
Industrials XLI -0.61% 15.29% falling rising rising rising ema9 on 2016-08-25 2016-08-26
Cons Discretionary XLY -0.69% 8.46% falling rising rising rising ema9 on 2016-08-24 2016-08-26
Cons Staples XLP -1.11% 15.93% falling rising rising falling ma50 on 2016-08-25 2016-08-26
Energy XLE -1.46% 7.90% falling rising rising rising ema9 on 2016-08-26 2016-08-26
Healthcare XLV -1.73% 2.35% falling rising rising rising ma50 on 2016-08-25 2016-08-26
Utilities XLU -2.23% 16.69% falling falling rising falling ema9 on 2016-08-19 2016-08-26
Gold Miners GDX -9.28% 98.79% falling rising rising falling ma50 on 2016-08-23 2016-08-26

Gold in Other Currencies

Gold was down in every currency except JPY, which fell -1.61% on the week.  Gold in XDR fell -21.53.

Rates & Commodities

TLT continues to chop sideways, down -0.25% on the week.  While TLT remains within its recent trading range, TLT dropped below its 50 MA for the first time since May, due to Friday's drop of -0.58%.  Most rate-sensitive issues dropped on Friday - utilities, REITs, and TLT.  Most likely TLT's near term future depends on the market's belief in a rate rise in September.  Rate rises are bad for bonds.

JNK was dead flat, unchanged this week.  Like TLT, it is chopping sideways too, but it remains quite near its highs.  It made a new high on Friday, but it was unable to hold onto its gains.

CRB dropped -1.41% on the week; every sector was down.  Still, pulling back to the weekly chart, it appears that the 50 week moving average is beginning to move sideways instead of down.  Commodity prices are not out of the woods just yet - it probably needs another month or two to be more sure - but it appears that the long decline may be over.  Energy is probably the key.

Crude fell -1.46 [-2.99%] to 47.29, taking a rest after its big move last week.  A somewhat bearish petroleum status report showed an inventory build which caused price to drop on Wednesday, but there was no follow through from that report on Thursday.  Price remains above its 9 EMA.  Oil seems to be holding up relatively well in the face of a stronger dollar and some somewhat bearish oil inventory news.  That feels bullish, although if inventories come in higher next week, and/or the buck rallies strongly, oil may sell off further.  Managed money covered a massive 75k shorts this week; this says that the short-covering fuel is just about spent.  Maybe that's part of the reason the rally ran out of steam.

Physical Supply Indicators

* Gold at Shanghai is trading at a -0.30 discount to COMEX.

* The GLD ETF tonnage on hand rose +2.38 tons, with 958 tons in inventory.

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

 PHYS 10.92 +0.39% to NAVup [up]
 PSLV 7.14 +0.44% to NAV [down]
 CEF 13.82 -4.02% 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 lower for gold [2.09% for 100 oz bars in NYC], higher for silver [+3.30% for 1000 oz bars], and higher for silver eagles at +14.00%.

Futures Positioning

COT report covers trading up through Tuesday Aug 23rd.

Gold commercials closed -1k shorts, while managed money added +7k longs and covered -3.5k shorts.  Little change this week - both sides remain heavily offside.

In silver, commercials covered -4.1k shorts, while managed money sold -1.8k longs and added +3.2k shorts.  Managed money is slowly reducing long exposure, and the commercials are slowly reducing their shorts.  Key word: slowly.

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

The moving averages don't lie; they are our rock in a sea of uncertainty.  This week, every PM component crossed its 50 MA.  Silver is leading gold lower, and the miners are dropping fastest.  Gold usually does best during PM downtrends; losses in gold are about 1/6th the losses in the mining shares.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold GC.CW -1.55% 17.56% falling rising rising falling ma50 on 2016-08-24 2016-08-26
Silver SI.CW -3.62% 29.00% falling rising rising rising ma50 on 2016-08-22 2016-08-26
Platinum PL.CW -3.68% 7.62% falling rising rising rising ma50 on 2016-08-24 2016-08-26
Senior Miners GDX -9.28% 98.79% falling rising rising falling ma50 on 2016-08-23 2016-08-26
Junior Miners GDXJ -9.82% 133.37% falling rising rising falling ma50 on 2016-08-24 2016-08-26
Silver Miners SIL -10.71% 133.08% falling rising rising rising ma50 on 2016-08-24 2016-08-26

Gold Manipulation Report

There was one after-hours spike this week - it happened on Sunday, in the first minute of trading, good for a 40 cent drop in silver.  This move blew silver through support, and led to silver eventually coming to rest right around 18.50, which is about a 75 cent drop overall.  Given the downtrend already in place in silver and many other metals, it was likely that silver would have broken support anyway, but by controlling the time and place of the support break, the commercials could cash in on the stops that were triggered by the break.

Summary

PM took another leg down this week with silver leading the way, smashed through support Sunday evening by the commercials in the first minute of trading.  All PM components are now below their 50 MA lines.  The dollar rebounded sharply on Friday, the move deliberately propelled by comments from the Fed that we could have two rate rises ahead of us if the macro data is strong enough.

The gold/silver ratio rose +1.04 to 70.73, which is bearish.  The GDX:$GOLD ratio plunged into bearish territory, while the GDXJ:GDX ratio dropped slightly, but remains bullish.  Ratios look bearish overall.

There was very little change in the gold COT report again this week.  Managed money is slowly moving to a less bullish position in silver.

Gold and silver big bar shortage indicators show no signs of shortage.

If the market continues to believe in a rate increase, the dollar will continue moving higher.  A continuing dollar rally won't do any favors for PM, but its hard to know if gold and silver will continue to sell off.  While the candle prints on Friday for gold and silver weren't great, the massive dollar rally didn't actually lead to a breakdown, it just led to a retracement of the day's big rally.  It could have been far worse.

In the short term, we'll have to wait and see how the global market reacts to the proposition of two potential rate increases "if the data tells us to."  That ratchets up the importance of each new data release.  Next Friday we have the Nonfarm Payrolls report, which normally is important but now - it could end up moving gold $20 in either direction, depending on how much the report diverges from expectations.

Here's another thought.  Gold and silver have both printed swing lows, when viewed in Euros.  That's positive.

My conclusion: the low could be upon us, but if you buy now, remember that a strongly positive payrolls report could easily end up with gold taking another leg lower.  What's more, we have three long weeks before the next FOMC meeting where the Fed will be faced with actually having to make good on its strong suggestion.  For some reason, they really want us to believe they'll do it, "for real this time."  Again, its not what they will actually do that matters, its what the market believes they'll do that moves price - at least for the next three weeks anyways.

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

And of course those commercials really want to see lower gold and silver prices too.

Payrolls report: next Friday at 08:30 Eastern.  FOMC announcement: September 21st, at 14:00 Eastern.

Current view from the computer:

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

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1 Comment

reflector's picture
reflector
Status: Gold Member (Offline)
Joined: Aug 20 2011
Posts: 269
Silver to Gold Ratio Historical Timeline

here is an interesting video that shows the timeline of the GSR since 1883 with notations of key financial events:

Silver to Gold Ratio Historical Timeline (1883 to 2009) | Silver Investments | Silver Coins

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