PM Daily Market Commentary - 10/3/2016

davefairtex
By davefairtex on Tue, Oct 4, 2016 - 3:37am

Gold fell -4.80 to 1314.00 on light volume, and silver plunged -0.39 to 18.86 on moderate volume.   Silver is seriously underperforming gold.  A dollar rally didn't help matters any, neither did falling copper prices.

Gold fell for the 5th day in a row; it printed a new low, and came to rest just above gold's uptrend line.  While volume does not seem to be accelerating, prices just continue to drop day after day.  Its not a good sign.  A drop below the uptrend line would make things look even worse.

December rate-rise projection is at 58%.

Gold open interest at COMEX fell by -3,882 contracts.

Silver plunged much more dramatically than gold did, making a new low and also closing below its uptrend line.  This is a clear danger sign, and it says to me that we almost certainly have lower PM prices ahead.  Silver is pulling PM prices lower.  The big red candle today confirmed last Friday's shooting star - that's bearish.  The gold/silver ratio rose by +1.02 to 69.57.  That's bearish also.  Really, there's no good news coming from silver.

GDX fell -1.78% on moderate volume, while GDXJ dropped -1.69% on moderate volume also.  GDXJ made a new low today, dropping below its uptrend line into a clear danger area, just like silver.  The one modest good note is that the miners did recover some losses in the last hour of trading, however the overall candle print looked more like a swing high than anything else.  Code says its bearish, at 40-53% chance of marking the high.

Platinum fell -1.96%, palladium fell -1.34%, and copper fell -0.99%.  It was a bad day all around for both metals groups.

The buck rallied today, up +0.20 to 95.56, moving back above its 50 MA as well as the 9 EMA.   The buck now appears to be slowly moving higher.  If it continues, it won't do PM any favors.

Crude rallied for the fourth day in a row, up +0.60 to 48.65.  While crude continues to move higher following last week's OPEC news, pundits continue to suggest that there will be no agreement, that OPEC can't possibly keep any deal they make, and so on.  I think there are risks to be sure, but as long as prices are rising, I'm going to believe them.  Crude is not far from testing its previous high at around 49.  A close above 49 would be quite bullish.

SPX fell -7.07 [-0.33%] to 2161.20; utilities were stomped again today (XLU:-1.41%), which is relatively unusual behavior.  This makes five red candles in a row for XLU; has the reach for yield morphed into something else?  Energy equities took a rest (XLE:-0.07%) i spite of the continuing rally in oil.  -VIX rose +0.28 to 13.57.

TLT fell -0.33%, and is now down below all three moving averages.  TLT looks to have formed a bearish-looking lower high.  That's bearish for bonds.

JNK was mostly unchanged, up +0.02%.  JNK continues to move steadily higher.

CRB rallied +0.38%; energy and agriculture led.  CRB is slowly moving back into bullish territory.

PM weakness is continuing and is now even starting to accelerate.  The close below the uptrend lines is a clear danger sign that should not be ignored.  Next stop for gold is the previous low at 1302.    A break below that - its probably "lookout below" given the lack of buy-side enthusiasm for PM right now.  It could all reverse dramatically tomorrow, but for now, trend is down.  Be careful out there.

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15 Comments

davefairtex's picture
davefairtex
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gold pounded; off -25

Gold was pounded through its previous low this morning a little after 8 am.  Once through 1308, it didn't take long to plunge through 1302, and the selling has been intense ever since.  Gold's low so far is 1283.

Miners of course have cratered, but not as badly as I might have expected, GDX is down -5.70%; we will know more after the first hour (and the first wave of selling) is over.  So far the miners haven't experienced one of those relentless bail-out-at-all-costs days, but the day is still very young.

My suggestion: don't be too eager to buy this dip; PM might dip a whole lot further before it prints a low.  I think the risk of that outcome is higher near-term than the risk of missing out on the next massive rally.

At least part of the problem is a strong dollar rally; buck is up +0.69% today, breaking out to a new high.

davefairtex's picture
davefairtex
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watch silver

I think silver is the key these days.  It led us lower, and - at least my theory is, it may also show the first signs of recovery at the lows.   If gold finds support but silver continues to fall, then most likely we will continue going lower.

Silver should have some support around 18.  Given that its at 18.07 right now, that's really not very far away.

reflector's picture
reflector
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price widget wrong

price widget on peak prosperity for silver shows 19.06 right now, about $1 higher than everyone else.

silverprice.org shows 18.04

Cold Rain's picture
Cold Rain
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Slaughtered

Silver down over 5% to $17.80 now and gold down over 3%.  Just a brutal day.

Jim H's picture
Jim H
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China closed...

Going to be very interesting to see what happens when they open again for business.... I have never seen the gap so big;

  http://didthesystemcollapse.com/

Kim L. Law's picture
Kim L. Law
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It's a blessing for laggers.

Seems like it's another chance for laggers (like me). Hooooorayyyyy!!!!

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sand_puppy
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Where is the money flow going today?

I would love to hear the observations of you economically sophisticated folks.  (You know who you are.)  So money flowed OUT of PM today.  Were was it going to?

Cold Rain's picture
Cold Rain
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Fake Rally?

Martin Armstrong and Jeff Nielson have been two of the very few in the alt media/pm space who have not been super bullish on gold and miners.  In fact, Nielson has been beating the drum that this entire move has been a fake rally, manipulated up to suck investors in and then to be crashed, along with the financial markets.  Only then, would PMs experience a real, non-manipulated rise.  Looks like there may be something to that premise after all.

Listening to various interviews and reading various blog posts across the Web, most PMers continue to expect the move this year to be the beginning of a new bull run.  Lately, though, many of them are seemingly more and more perplexed.

Feels more like a pump and dump than a new bull market.

Penny551's picture
Penny551
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50% retracement

Now that $18 has given way, $17.50 would reperesent a 50% retracement from the run from $14-$21....Below there is the rising 200MA, currently $17.03.

I'm certainly not trying to catch this falling knife, but will be watching closely for the first sign of a reversal.

Recently, going into "market moving events," like FOMC, etc with an oversold RSI has resulted in big bounces, although short lived.  The jobs #s on Fri should be interesting...

davefairtex's picture
davefairtex
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a taper tantrum - and a big deal

So bloomberg reported that the ECB was planning to taper its bond purchases. This surprised the market - in much the same way as the Fed threatening to raise rates surprised the market in what is clearly a slowing US economic environment:

http://www.bloomberg.com/news/articles/2016-10-03/dollar-dominates-yen-after-factory-data-with-asian-futures-mixed

Bonds from North America to Europe fell, the euro rebounded from its lows of the day and equities came under renewed pressure after Bloomberg News reported the European Central Bank will likely gradually reduce bond purchases as it ends quantitative easing. Officials who asked not to be identified didn’t exclude that such program could still be extended past the current end-date of March 2017 at the full pace of 80 billion euros ($90 billion) a month.

Banks are the big winners here.  XLF is the only thing that's green today.  Utilities (XLU:-2.27%) are getting hammered, and of course the miners have cratered (GDX:-8.63%).

This is not what the market was expecting; allegedly money printing was going to happen until the economy recovers - Draghi would do whatever it takes - but of course the EU economy is far from recovered.

The ECB suggesting they'll abandon QE in this circumstance suggests there are no tools left in the toolbox, that QE isn't working, and that the economic world will be abandoned to its fate - no savior in sight.  Well, that's how I read it anyway.

How will the market perform with no new money inflows, and declining earnings for companies?  Will money run to EU sovereign debt with the ECB no longer buying that debt?

Initial response is to sell gold, since (I'm guessing) negative rates will likely recede.  Traders will front-run the ECB in the other direction now.

If the ECB persists in this tapering threat, this downdraft could have legs.  This most recent 8-month gold rally had to do with negative rates, and they are now suggesting things will move in the other direction.

I believe the next gold rally will require a loss of faith in sovereign debt.  That loss of faith might take some time to manifest.  But with the ECB threatening to taper, holders of all that Spanish 10-year debt yielding 0.90% might just decide to bail out sooner rather than later.

We could see a really serious correction in bonds.  TLT has printed a swing high and followed through pretty dramatically today.  I know its been said a million times, but this could mark the top of the 35-year bond bull market.

Its starting to get really interesting.

davefairtex's picture
davefairtex
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not a fake rally

ColdRain-

I don't think the last 8 months was a fake rally, in the sense that it wasn't manufactured by anyone in order to trick people in some way into buying gold.

From what i can tell, it was based mostly on the concept of gold being better than having to endure negative rates, and that negative rates were something that the financial world would have to endure "until things got better."

But negative rates are slowly being removed from the table.  First the ECB surprised the market by deciding not to expand QE during their last meeting.  Then the Fed talked about raising rates.  Then the BOJ did nothing.  And now finally the ECB is talking about tapering.  This is all hitting at the underpinnings of the last 8-month gold rally.  Expectations were for a steady march into negative territory.  That's just not happening.

Gold needs a new reason to rally - a new rationale that drives people to own gold.  The buyers who picked up gold in the last 8 months with "negative rates" on the brain are bailing out, because the thesis didn't play out.  So my best guess is, gold will likely sell off until all those people are rinsed out.

But tapering will bring with it its own set of problems.  That might bring a different set of gold buyers in.

So was this 8-month rally "fake"?  I don't think so.  I just think the rationale for owning gold is undergoing a change, and in the meantime, price will probably drop.

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lambertad
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Where does the money from bonds go?

Dave, 

Question for you. Where do you think money flows if it comes out of bonds? I think you've said Armstrong predicted it to flow into equities and maybe investment grade corporate bonds, but what's your take at this point in time? It makes sense that if the ECB is going to taper and the FED is going to raise and the BOJ is done with negative rates, then as you say, the bond bull run is over. Yields go up, prices come down, but those billions (Trillions?) have to go somewhere and with sinking earnings does it really make sense for that money to flow into stocks? I'm as confused as anyone in this whole thing, but just wondering what your thesis is going forward. Thanks again for the market commentary, I always enjoy reading your stuff. 

Adam 

Cold Rain's picture
Cold Rain
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Posts: 380
Tapering

How can these CBs taper or even reverse and tighten?  They would crash economies and markets around the world, so say nothing of the fact that the sovereign debt burdens are so high, it would become impossible to service the debt after rates rise.  Don't get me wrong, I think the bond bull ends and rates jump at some point, but not sure it will be because of purposeful CB policy.  I think this is another in a long series of jawboning crusades.  Maybe they really don't WANT to ease anymore, but the know they can't really tighten.  So they continue to do what's worked time and again.  Talk the markets along.  And the market responds every time.  Everybody keeps saying that CBs are out of credibility, but they seem to have an endless supply.  I know, I know, it's not endless, but it hasn't run out yet.

They are just talking about stopping QE or talking about tightening or talking about a deal or talking about sitting tight for a while.  They talk and talk and talk and the market moves.  The algos do their things.  I do not see any way they can intentionally normalize policy without crashing the system.  And they know it too.

Re: Gold rally/collapse, Dave, what you say makes sense.  I think what Jeff was saying is that they have manipulated the markets lower for years, even as CBs have induced monetary policy and economies have produced growth rates that should be bullish for gold.  But this year, prices have been "allowed" to rise.  Soon (now?), prices will get slammed again and the cartel makes money hand over fist.

Maybe that's right, or maybe, as you said, traders that were expecting something different than what is current occurring are getting out.  I have to at least believe that some part of this is due to manipulation.  We'll see how it all plays out.  I think until the rush for physical overtakes the paper market, we're not going to see the big move higher.  There will be a catalyst, as you say.  When and what?  Who knows.

 

davefairtex's picture
davefairtex
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tapering, money flows

adam-

My guess is, right now money will flow from bonds to bank deposits - at least here in the US.  Likewise, from stocks to bank deposits.  The aggregate level of total bank deposits doesn't actually increase, but there is a flurry of selling in the bond market, and the price drops, and we can say that the price drop times the volume = effective money flow.  Money is also flowing from gold to bank deposits too.

Money can also flow into very short term paper also - money market funds, 3 month treasury bonds, etc.

When money flows out of an asset, cash is simply transferred from the buyer's bank account to the seller's bank account.  It has no effect from the standpoint of the total deposits in the banking system, but the flow from buyer to seller results in a change in price for the asset.  "Money flows out" - but its really value that is flowing out of the asset, not money.

Armstrong says money will flee to equities once the sovereign debt is seen as a trap.  That hasn't happened yet.

ColdRain-

So I have no idea if they can or will taper.  Lots of people claim to be certain, but I'm not one of them.  The banks are getting hosed under the current regime.  The job of the CB's is to support the banks.  So...are you really so sure they won't raise?  Their banker overlords are screaming in pain.  Are you really sure they won't run off and help?  They sure sound like they want to.

I honestly don't know what the CB's will do.  I'm presenting what I believe to be the market's current mindset, based on the patterns I've observed over the past year or so.  The market doesn't know either, but traders are moving to a risk off position because they are moving from a place of money-printing-certainty to a place of more uncertainty.

Market was not happy when the ECB did nothing.  Market is even less happy now that the ECB is hinting at tapering.  I believe it is dangerous to assume "we know" what the CB "must do" - perhaps its even hubris.  I read lots of posts by people who like to pretend that they "know."  Do they really?  Did you see what XLF did today?  It rallied on the news.

ECB surprised us last time by doing nothing.  Might it surprise us again?  Its possible.

For me, that means reducing risk until I can get a clearer sense of where things are going.

Gold really cratered today.  It broke a long term support level on some really serious news.  Of course the commercials are chortling with glee, but this was a very long time in coming, and if rates had gone more seriously negative, we might well have broken 1400.

I think goldbug writers overstate the ability of the commercials to shove price around so that those writers can get a free pass on their failed predictions and keep their faithful subscribers paying the monthly sub fees.  "Dog ate my homework" = "The Evil Bullion banks ate my prediction for gold $5000/COMEX default."  Its a cop-out.  Sure, commercials affect prices, but can they really set the trend?  It violates occam's razor to suggest "they allowed gold to rally."  Its all too convenient for the goldbug writers - from a "cui bono" standpoint, the all-powerful bullion bank is the perfect scapegoat, with their motives re-formulated each week in order to explain away all those failed predictions.  "They hate gold."  "They control price."  "Well this week, they don't care, they are allowing the rally."  "Ok this week they care again, and they're manipulating price down."  "Ok this week they stopped caring again."

When we see the COT this week, I'm pretty sure we'll see a massive long liquidation by managed money on the support break today.  The fact support broke so completely on the heels of this news out of the ECB doesn't feel like manipulation to me.  It feels like longs bailing out wholesale because their assumptions had changed out from under them and it was now time to reduce risk.  En masse.

Did the commercials push the already-frail, tired old man over the cliff?  Almost certainly.  But that's not the same thing as saying they were able to turn a champion fighter into a frail, tired old man.

Mark Cochrane's picture
Mark Cochrane
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For what it is worth...

 

ECB Spokesman Denies The Governing Council Has Discussed Tapering

With the market shaken by the earlier report, or rather "trial balloon" by Bloomberg that the ECB was contemplating tapering, we said in our previous article that it was only a matter of time before someone at the ECB - having observed the impact on the market - would come out and deny it.

This happened moments ago when Michael Steen, formerly of the FT, and currently head of media relations at the ECB, said that the "ECB has not discussed these topics,  as Draghi said at last press conference and during testimony at the European Parliament."

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