PM Daily Market Commentary - 9/27/2016

davefairtex
By davefairtex on Wed, Sep 28, 2016 - 5:22am

Gold fell -11.20 to 1330.70 on moderately heavy volume, while silver fell -0.30 to 19.22 on moderately heavy volume also.   A few minutes after 08:00 gold and silver both started falling; the selling didn't stop until just before noon.  A dollar rally at that same time probably helped to push PM prices down.

Gold tipped over and sank today; my concerns about silver leading PM lower came to pass.  On the chart we can see gold dropping through both the 50 and the 9 EMA, printing a swing high.  Candle print was a bearish engulfing, 22-34% chance of the top.  That doesn't sound all that bad, but I don't like the larger chart pattern of repeated lower highs - that pattern is bearish.  Momentum is definitely lower at this point.

It did feel as though the commercials were working hard to push prices lower today, but it was also the lack of buying enthusiasm over the last few days that brought us to this point.

Gold open interest at COMEX rose by +6,227 contracts.

Silver dropped for a third day in a row, falling below the 9 EMA and heading for a test of its uptrend line.  The selling is starting to accelerate, both in size of trading range as well as volume.  Falling copper and crude oil prices probably didn't help, although the three different commodities definitely did not all start dropping at the same time.  Silver spiked to a low of 19.04, bouncing back at least somewhat by end of day, but the "opening black marubozu" candle isn't a reversal bar - a sub-10% chance of being the low.  I think it is likely that silver will test the uptrend line.  The PM downtrend remains intact until that downtrend line is broken.

Since the gold sell-off started at 08:10, by the time the US equity market opened, gold was already down; this caused the miners to gap down at the open and sell off, with the day low right at the downtrend line.  GDX ended the day down -1.87% on moderately light volume, while GDXJ dropped -2.25% on moderate volume.  GDX printed a spinning top, which looked like a miniature hammer candle, but it was just an 11-23% chance of a low here.  Today's drop wipes out the entire move following FOMC.  Momentum remains down for the miners, although the selling wasn't particularly intense.  Unless gold can buck the odds here and rally, miners will probably end up making new lows in this cycle.

Platinum fell -1.41%, palladium rose +0.70%, and copper moved down -0.80%.  Copper printed a swing high today; it remains in an uptrend, but if this swing high ends up being a reversal, it will probably help drag silver down along with it.

The buck had a big trading range today, but by the end of the day, it was up just +0.10 to 95.29, printing a non-helpful "high wave" candle that provides us no clue as to direction.  Still based on the recent price moves, I'd say the odds are the buck will continue moving lower, although it doesn't look to be in any hurry to get there.

Crude had a bad day, price driven lower by Iran's refusal to agree to a Saudi production freeze proposal.  But then after the trading pit closed, a surprisingly bullish API report was released, showing an inventory draw for the third time in a week.  The API release helped oil to recover at least 50 cents.  Oil ended the day down -0.69 to 44.93.  If the EIA report confirms API, that would limit the damage from the OPEC failure.

Right now, the popular theme is "lower for longer" - but here's an article that uses both Saudi production numbers as well as the overall OPEC surplus from the 1990s to counter that logic.  Last time we had low oil prices, there was a massive global surplus production capacity of between 3 and 12 million barrels.  Today, the surplus is zero - everyone is producing flat out, and supply and demand are close to evenly matched.  Nobody is spending money to drill new wells, so decline rates will assure supply will drop in the relatively near future.  Author of the article does not think the amount oil in storage is that big a deal; he thinks its mainly about trader sentiment more than anything else.

http://oilprice.com/Energy/Energy-General/Why-Oil-Prices-Will-Rise-More-And-Sooner-Than-Most-Believe.html

SPX climbed +13.83 [+0.64%] to 2159.93, printing a bullish engulfing that wiped out much of yesterday's losses, and also providing a 30-47% chance of the low here.  SPX moved back above its 9 EMA.  Perhaps most interesting was that utilities (XLU:-1.30%) were crushed, with tech (XLK:+1.10%) and cyclicals (XLY:+1.02%) receiving the money flows today.  VIX fell -1.40 to 13.10.

So what's the deal with the equity market rally?  Perhaps traders are happy that corporate-crony-Clinton made a good showing in the debate?  If you think about it, if Trump wins, globalization will take a hit, and that in turn will hit profits at the US companies.  Profits will drop, and (presumably) US wages will rise.  Maybe Trump's success is interpreted as causing an equity market tumble?  If this is true, then the market really believes that Trump might actually mean what he says - but that Clinton will act to please her corporate masters and keep the globalization gravy train running. 

It might also mean that we'll see a closer tie between market performance and the Presidential election cycle.  Poll numbers might end up driving SPX.  Its a thought anyway.

TLT rose once again, up +0.73% pulling bonds above their 50 MA for the first time in three weeks.  It looks like whatever bond hiccup happened a few weeks back is not the start of some new trend - although with the utility stocks being clobbered, its not just the reach for yield.  Hmm.

JNK rallied +0.39%; you can't keep a good junk bond down these days for long.  JNK remains in its uptrend, within a few percent of its all time high.

CRB fell -1.01%, with 4 of 5 commodity groups falling, led lower by livestock, of all things.  I don't trade the stuff, but livestock has had a 40% drop since late 2014.

The PM downtrend is starting to become more pronounced; silver has finally dragged gold down below its two moving averages.  Unless we get some kind of catalyst, we will probably see lower prices ahead.  No reversal bars have appeared.  Until they do, it might be better to watch than to jump in.  We could easily drop for another week, dropping below support and selling off strongly, or we could rebound tomorrow - you just never know.

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4 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
low for gold, silver, oil on OPEC deal rumors

After the Fed Speaker rolling barrage today, gold, silver and especially crude oil seem to have marked lows.  Special notice to crude, which tanked after the 10:30 status report, only to reverse once the buck topped out at around 11:00.

Oil was having a pretty good day already, and then a rumor of an OPEC deal hit the wires at 14:25, and then oil spiked up another +1.30.

Now oil is up huge, +1.90 to 46.55 - snapping its downtrend line - and XLE has jumped a massive +3.39%.

This all seems to have had a halo effect on gold and silver.

Without a doubt, the buyers are appearing.  GDX is up +2.5%, way outpacing gold which just managed to get back to flat.  Its risk on for PM.  Miners leading metal, silver leading gold.

Wow.  Crude continues to scream higher, now up more than +2.67, or +5.98%.

Miners up +2.8%. 

 

lambertad's picture
lambertad
Status: Silver Member (Offline)
Joined: Aug 31 2013
Posts: 169
SA willing to screw the US with higher oil prices?

Here's a thought that crossed my mind today.

The senate voted 97-1 to override Obama's veto on the 9/11 lawsuit bill. 

SA has already threatened to sell billions of dollars worth of T-bills (bonds?) if the bill becomes law. 

Maybe they've had enough and said okay, you idiots in the U.S. want to sue SA, we're gonna stick it up your ass with $100 oil. Not only is this a smart move for SA because they keep their oil in the ground for a longer period of time, but they actually turn a profit on their oil and then if they do get sued they just pay back the lawsuit with money they earned through screwing over the American people. Not only that, but if they decide to sell a couple hundred billion of T-bills, what does that do to the market? I don't know enough about that to even make a guess, but what's your take on what that does to the market, Dave?

 

DennisC's picture
DennisC
Status: Gold Member (Offline)
Joined: Mar 19 2011
Posts: 271
Is it the optics?

After reading the following article this evening, I'm wondering if the entire drama had "optics" as some of the motivation.  After all, it's an election year.  Lawmakers have to show (in a bipartisan manner) they truly do care for their constituents. From www.nytimes.com/2016/09/29/us/politics/senate-votes-to-override-obama-ve...

There were swift complications. Within hours of their vote, nearly 30 senators signed a letter expressing some reservations about the potential consequences of the law, including the prospect that the United States could face lawsuits in foreign courts “as a result of important military or intelligence activities.”

The White House and some lawmakers were already plotting how they could weaken the law in the near future, although there was general pessimism on Wednesday that Congress would agree to any changes. “You got to find consensus,” said Senator Lindsey Graham, Republican of South Carolina, after the vote. “Then you need a vehicle.”

It is unclear whether the Saudis will make good on warnings that the kingdom could unload hundreds of billions of dollars worth of assets inside the United States, and some economists have said that such a sell-off would do far more damage to Saudi Arabia’s economy than America’s.

So why the second thoughts?  Are the folks that make and sell (billions of dollars per year of) stuff that goes boom a factor in the sudden remorse?  Why the pangs of conscience now after having a nearly unanimous vote and veto overturn?  Will this legislation be reversed by slipping it into some bill that provides federal funding for bridge repair in East Podunk?  My apologies to the residents of East Podunk.

I guess what I find troublesome is if this was truly enacted for the right reasons, why suddenly (or so it seems) taint it with something that sounds like "I was for it before I was against it"?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
9/11 lawsuits, OPEC agreement timing

lambertad-

Definitely the timing of the OPEC agreement and the 9/11 bill was interesting.  Probably coincidence.  If the Saudis sell those treasury bills, what will they buy?  Yen?  Bwahahaha.  Euros?  RMB?  Rubles??!

If they were smart they'd buy gold.  A hundred billion dollars tossed into the gold market would definitely move the needle - 2350 tons.   One year's mine supply.  Or 120% of the total paper gold at COMEX.  Or maybe all the actual gold left in the LBMA system.  They should do it slowly.  I certainly can't imagine what foreign currency I'd prefer vs USD besides gold.

Regardless, I don't think Saudi Arabia is focusing their oil price strategy on that bill.  My sense (FWIW) is that they're playing a game with shale, and with Iran, and with Russia.  They don't always want to be the only one who cuts back production so that everyone else gets a great payday.  So they played a two year game of chicken.  Russians didn't blink, a whole bunch of shale companies went BK, but the wells remain - just the creditors and equity holders got stiffed.  The oil keeps coming out, however.  And apparently its now a lot cheaper to drill wells since all the services companies are desperate for business, so break-even for shale isn't $80 anymore, its more like $50, and even cheaper in the Permian region.

And now they're having to cut paychecks of their bureaucrats, everyone is having to belt-tighten, their reserves are rapidly being depleted...so maybe they are just declaring victory and going home.  That's my sense.

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