PM Daily Market Commentary - 8/31/2016

davefairtex
By davefairtex on Thu, Sep 1, 2016 - 5:22am

Gold fell -2.10 to 1308.40 on moderately light volume, while silver rose +0.06 to 18.65 on light volume.  Gold and silver diverged today, with gold hitting a new low and silver attempting to rally but largely failing.

Gold's new low (1306.90) came at around 08:45 eastern, at about the same time as the dollar hit its peak for the day.  As as the dollar retreated from its high, gold did manage to rebound but not enough to pull price back into positive territory.  The trading range for gold today was relatively small.

Gold printed a spinning top candle, which was not a particularly good reversal bar - around 20%.  The relatively low volume wasn't all that supportive of a low either.  Gold seems headed to test the next support level of 1300.  That said, gold is now in oversold territory, with RSI(7) at 23.  A bounce could be expected at any time - and the timing of this could be lining up with Nonfarm Payrolls due out Friday.

Gold open interest at COMEX fell by -437 contracts.

Silver tried rallying today relatively early in the Asia trading session, but the rally largely failed.  Silver did manage to close green on the day, and it avoided making a new low, which is certainly better than what happened to gold.  Copper is probably helping somewhat - it seems to have stopped plunging, at least for the last week or so.  On the chart, silver appears to have found support at around 18.50, but remains bounded on the top by the falling 9 EMA.  Soon it will have to pick a direction.

Miners fell again today, with GDX off -1.58% on moderately heavy volume, and GDXJ fell -2.43% on heavy volume.  Both miner ETFs made new lows, but the volume was a bit less intense, and the trading range was fairly narrow.  The declining volume and the narrow trading range suggest that the selling in the miners is beginning to slow down, and there was at least a modest rally at the close.  GDX printed a spinning top candle today, which was mildly bullish: 18-27% chance of marking a low.  The miners are well into oversold territory, with RSI(7) at 13.82.  This is lining up with my "bounce after payrolls report" possibility.  From the peak, miners are off about 20%.

Platinum fell -0.51% making a new low, palladium dropped -1.22% making a new low also, while copper was unchanged.  If you think gold has had it rough, you might try looking at the platinum chart. 

The USD tried rallying today but it failed, closing down -0.03 to 95.96.   This is the dollar's second attempt to close above 96, and so far it has been unsuccessful.  My guess is that the buck will need a strong payrolls report to keep prices moving higher.  From the other side of the fence, the Yen appears to be weakening all on its own, while the Euro may have found support at its 50 MA, and the pound has been more or less chopping sideways since BRExit.

Crude was stomped today, down -1.40 [-3.03%] to 44.86, making a new low and blasting through its 50 MA.  The beatings started immediately following the petroleum status report, which showed a bearish-looking inventory build of +2.3m barrels, along with a smaller-than-expected gasoline draw of -0.7 million barrels.  Oil closed relatively near the lows of the day, so we probably have more follow-through tomorrow.  Often, price tends to move for several days following the status report, and that's why I think there may be more downside to come.  Right now, it appears that oil inventory reports are trumping rumors of Iranian cooperation at the next OPEC meeting.

SPX fell -5.17 to 2170.95, with energy (XLE:-1.58%) leading the way lower, while utilities (XLU:+0.41%) finally catching a breather after a bad couple of days earlier in the week.  Energy equities were hit fairly hard; the bad petroleum status report triggered a fair amount of selling.  That all sounds a bit unpleasant, but SPX managed to rebound off its lows printing a "takuri line" candle today, which is a reversal bar, although this particular one only yields a 21-34% chance of marking a low.  VIX rose +0.30 to 13.42.

TLT rose +0.14%, remaining in the same sideways trading range where it has been for the past six weeks.

JNK finally had a bad day, dropping -0.49%, printing a swing high, and closing below its 9 EMA.  If oil continues to drop, probably so will JNK.

CRB fell hard again today, dropping -1.43%, with every commodity group falling - led lower by energy, which dropped the most.  The 200 MA is ahead, at this rate - just one more day.

PM is now well into oversold territory, which suggests that a bounce could happen at any time.  However, a bounce generally requires a trigger of some sort.  That could be Friday's payroll report.

I have often seen PM sell off for a week in advance of an FOMC meeting, the selling tapers off to nothing on the day before the announcement, and then price reacts violently on the day itself.   That seems to be the setup going into payrolls this week.  Whether we get a bad payrolls report - that I have no idea - but I do get the sense that the market has sold off in anticipation of the event, so a more-likely outcome is probably a relief rally following the report.

Of course, a fantastic payrolls report will push PM further into oversold territory.  Perhaps the immediate downside risk for gold could be $20?  Maybe a bit more?  It would depend largely on how strongly the buck rallied.

Longer term I think gold will definitely go higher, but if you look at a weekly chart for gold and/or the miners, you can see there is plenty of room for a much deeper correction without derailing the overall gold bull market, so some caution is still warranted.  Gold could drop another $100 and still look just fine longer term.  How might this happen?

Well, a very bullish payrolls report would allow the Fed to raise rates in September.  That drops gold another $30.  Following that, the Fed continues to chatter about a December rate rise.  One or two more bullish payrolls reports, and gold moves down to around $1200 without much difficulty.  That scenario lines up fairly well with Martin Armstrong's "slingshot move", where gold first drops precipitously terrifying all the goldbugs, which builds a much larger store of energy for the rally to follow.

A good trader must keep both the bull and the bear cases in mind, so he is not surprised by what goes down.

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