PM Daily Market Commentary - 9/13/2016

davefairtex
By davefairtex on Wed, Sep 14, 2016 - 2:51am

Gold fell -9.60 to 1318.20 on moderate volume, while silver fell -0.09 to 18.89 on moderate volume also. The buck rallied slowly for most of the day; this eventually took its toll on both gold and silver, which hit bottom at a little before 3pm in the US.

But don't feel singled out, goldbugs!  Literally everything else sold off today too: oil, equities, junk debt, and treasury bonds.

I didn't see any single cause for gold's decline today - it was just a steady move lower starting a few hours before market open in the US.  I'm sure the commercials were delighted to help push prices lower, but they were greatly helped by an +0.50 rise in the buck over that same period.  It seemed like mostly a currency effect.

In this chart, gold's downtrend can be seen via the pattern of lower highs and lower lows that have been printed over the past 10 weeks.  Yesterday's doji candle was invalidated by today's new low: a long black candle which is generally a continuation rather than a reversal bar.  Ahead we see the 1300 support level which should be fairly strong.

Rate-rise assessment for September remains at 15%.

Gold open interest at COMEX fell by -10,628 contracts.

Silver followed gold, but performed a bit better.  On the chart you can see that silver did not make a new low, which means that yesterday's "dragonfly doji" is still in play as a potential reversal bar.  We do see the same pattern of lower highs and lower lows in silver though, and so from a trading perspective, silver will remain in a downtrend until it stops doing this.

While the gold/silver ratio has been moving higher over the past week, it reversed a bit today.  If silver can continue outperforming, that would be positive for PM.

Miners had a tough day, with GDX down -3.62% on heavy volume, while GDXJ fell -4.19% on very heavy volume.  The miners clearly did not like falling gold prices nor did they like the rising buck.  The drop in the senior miners retraced all of the "Brainard Bump" from Monday's dovish speech.  There was a small rebound in the last 30 minutes, which is certainly better than a close at the dead lows, but not enough for this to be any sort of reversal bar.  Today's "opening black marubozu" is a sub-20% candle print.

Senior miners made a new low today, but the juniors did not.  That's a small positive, but that's pretty much all the good news there is.  For the miners to rebound, they first have to stop making new lows - and that likely only happens if the dollar stops rallying.

Platinum dropped -1.85%, palladium fell -0.09%, and copper was dead flat on the day.  I think copper is poised to rally given the COT report from last Friday.  That would be helpful for silver if it happens.

As mentioned, the USD rallied strongly today, up a solid +0.56 to 95.55, moving through its 9 EMA and seemingly causing literally everything else to sell off - gold, silver, oil, bonds, and equities.  Why?  Perhaps, its just September.  Or Hillary Clinton overheated and/or has pneumonia (or a third choice, as of yet undisclosed) and now her campaign has taken ill.  Regardless of cause, as long as that buck keeps rallying, right now at least, it will be trouble.

Crude fell -1.06 to 45.02 today, selling off along with everything else.  Candle print was an "opening black marubozu"; those black marubozu candles always seem to signal a continuation of the trend.  There was some modest good news after trading closed: the API report showed a small +1.4 million barrel build in inventories, which was less than the expected +4.1 million barrels.  Crude tried to rally off the report but mostly failed; price appears to be awaiting confirmation from the EIA tomorrow at 10:30.

SPX lost all of yesterday's rally, dropping -32.02 [-1.48%], managing to avoid making a new low by a slim margin.  Today's drop was led by energy (XLE:-2.86%) which was crushed; financials were down too (XLF:-1.77%).  The large drop in financials suggests that today's price drop was not about rates; it was something else.  I'm not sure there was one cause - it felt like risk off to me.  Oil seemed to be a contributing factor to the decline in SPX.  VIX went a bit nuts, up +2.69 to 17.85.

TLT fell hard, dropping -1.14% making a new low.  Bonds selling off alongside equities again?  Hmmmmmm.  It may just be that bonds are now being treated as risk assets, rather than their historical role as a safe haven.  If so, this would be a huge change in a long term trading pattern, and a really big deal.

JNK fell -0.72%, taking JNK just below its 50 MA for the first time in 11 weeks.  No doubt some of this was about oil.  I also read an article which said that the 2015 recovery rate for bondholders in junk debt (E&P) bankruptcies have been a "catastrophic" 21% - about a third of the usual 59% recovery rate.

http://www.bloomberg.com/news/articles/2016-09-12/e-p-debt-recoveries-plunge-to-catastrophic-level-moody-s-says

Recovery rates for 15 U.S. E&P bankruptcies averaged a “catastrophic” 21 percent last year, well below the historical average of 59 percent, Moody’s said in a report released Monday. Senior unsecured bondholders were hammered even more, averaging just 6 cents on the dollar. Collectively, the debacle could be worse than the telecom industry’s collapse in the early 2000s, measured by both the number of companies that go bust and the recoveries, Moody’s said.

Ouch.  I think Chris might have mentioned this would not end well some time ago.

CRB fell -1.30%, making a new low.  All commodity groups fell, with livestock leading prices lower.

Ok, so we managed to dodge the rate rise bullet, but now the markets seem affected by some sort of risk off malaise; everything that I track dropped substantially except for copper which was flat, and of course the dollar which staged a strong rally.  We have entered the one-week (mercifully) quiet period prior to the next Fed meeting, so we won't be hearing any more Fed governors chattering about anything.

We have the retail sales report coming Thursday, and the CPI on Friday.  From a data standpoint, the CPI is a sad story - the timeseries goes back to 1913, but they wrecked it when they started messing with it in the 80s.  There are only a small handful of timeseries that go back that far, but but once you stop measuring actual prices of things, everything becomes subject to interpretation.  The series goes "strangely flat" after the big pop in 1980.  Not even the massive commodity boom in 2007-2008 really shows up on the chart.  Its almost as if they designed it to behave that way.

But I digress.  PM is in a downtrend right now, and until we see a clean reversal bar, its probably best to stay away.  I thought we might have had a reversal after the Brainard speech, but today's dollar rally stuffed that possibility.

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