PM Weekly Market Commentary - 10/7/2016

davefairtex
By davefairtex on Sat, Oct 8, 2016 - 3:38pm

On Friday gold rose +2.40 to 1258.60 on heavy volume, while silver rose +0.23 to 17.57 on heavy volume also.   It was Nonfarm Payrolls Friday; a weak report caused PM to first rise, then fall to new lows, and then buyers appeared and pushed prices right back up, rising steadily into the close.

On the week, gold fell -60.20 [-4.56%], silver dropped -1.67 [-8.68%], GDX was down -12.98%, and GDXJ fell -14.00%.    Platinum dropped -5.75%,  palladium plunged -7.50% and copper fell -2.10%. 

Last week, gold dropped down to its uptrend line.  This week, gold smashed through its uptrend line and was pounded down all the way to the 200 MA where it finally found support.  Friday's candle print was a "high wave" (also a "bullish harami"), which has a 26-36% chance of marking a low in this context.   That's a fairly highly rated "high wave" candle.  RSI(7) for gold is 12, which is deeply oversold.  It would not take much for gold to rebound from these levels.

On Friday, gold was pounded lower following the Nonfarm Payrolls report, making a new low of 1243.20, but once the low was made, buyers appeared and moved price steadily higher right into the close.  My sense was that a fair number of traders did not want to be short over the weekend.

December rate-increase chances rose to 60%, according to CME futures.

This week, open interest fell by -56,155 contracts - 175 tons of paper gold vanished.

Like gold, silver blew through its uptrend line and spent the week selling off, finding support at the 200 MA.  On Friday, silver made a new low by a few pennies, and printed a bullish harami candle pattern, which is a 27-32% chance of a low.  RSI(7) for silver is 16, which is quite oversold.  All during the move lower, silver was dropping faster than gold, but on Friday that reversed - silver dropped less than gold, and rebounded more strongly.  This suggests to me that the metals are close to a rebound.  Silver will probably lead gold on the way back up, much as it led gold on the way down.

Miners

The miners followed the same pattern as the metals, plunging through the uptrend line, and selling off roughly down to the 200 MA. RSI(7) for the miners is 22, which is oversold.  The miners had one very bad day on Tuesday - GDX dropped by a massive 10% - but after that the buyers kept the miners from descending too much further.  On Friday, miners avoided making a new low and printed a "long black" candle, which is only a 18-26% chance of a low.  The juniors looked a little better; its "spinning top" candle gave a 25-43% chance of marking the low.

The USD

The USD raced higher this week breaking out to a new high, closing up +1.26 to 96.62.  Most of the gains came from GBP (-4.29%) and JPY (-2.56%), both of which plummeted against the buck.  GBP made a new low to levels not seen since 1985, and is very oversold (RSI(7) is 12).  On Friday, the buck printed a new high but actually fell; the spinning top candle having a 20-32% chance of marking the top.  Its possible the buck has run out of gas for this particular move.

US Equities/SPX

The US equity market fell -14.53 to 2153.74.  Mostly, SPX chopped sideways, ending the week below its 50 MA and 9 EMA.  To my eye, it looks as though SPX is starting to fade, with the 50 MA acting as resistance.  This slow decay process could change dramatically in just one day - in either direction.  DB, the bank we all love to hate, rose +4.2% ending the week with a "northern doji" which is just a 15-25% chance of printing a high.  No screaming short just yet.  VIX rose +0.19 to 13.48.

The sector map shows a reversal of fortune for the beaten-up financials; they led, with utilities, REITs, and the miners bringing up the rear.  The sector map suggests that this week was all about rates once again.  The interest-rate sensitive issues really got clocked.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 1.66% -14.68% rising falling falling falling ema9 on 2016-10-05 2016-10-07
Energy XLE 0.00% 4.09% rising rising rising rising ema9 on 2016-09-28 2016-10-07
Telecom XTL -0.11% 18.02% rising rising rising rising ema9 on 2016-10-05 2016-10-07
Healthcare XLV -0.33% 6.74% falling falling rising falling ema9 on 2016-10-06 2016-10-07
Technology XLK -0.33% 17.03% rising rising rising rising ema9 on 2016-10-05 2016-10-07
Cons Discretionary XLY -0.37% 3.94% falling falling rising falling ema9 on 2016-10-07 2016-10-07
Homebuilders XHB -1.30% -7.53% falling falling falling falling ema9 on 2016-10-07 2016-10-07
Industrials XLI -1.40% 10.01% falling falling rising falling ema9 on 2016-10-07 2016-10-07
Cons Staples XLP -1.65% 8.01% falling falling rising falling ma200 on 2016-10-04 2016-10-07
Materials XLB -1.86% 7.79% falling falling rising falling ema9 on 2016-10-07 2016-10-07
Utilities XLU -3.82% 9.90% falling falling rising falling ma200 on 2016-10-04 2016-10-07
REIT RWR -5.25% 5.08% falling falling rising falling ma200 on 2016-10-05 2016-10-07
Gold Miners GDX -12.98% 50.53% falling falling rising falling ma200 on 2016-10-06 2016-10-07

Gold in Other Currencies

Gold was trampled in every currency this week; gold in Rubles suffered particularly badly.  Gold in XDR dropped -59, which tells us that gold's fall wasn't a currency effect.

Rates & Commodities

TLT fell -2.24% this week, following through off last Friday's swing high.  While TLT hasn't made a new multi-week low, its longer-dated cousin the 30 year bond looks quite a bit worse, making a new low and and dropping through its 200 MA.  Most things with a yield did poorly this week.

JNK rallied +0.40%, making a new all time high.  JNK continues to rally - the JNK:IEF pair shows JNK strongly outperforming its higher-quality cousin since oil printed its low back in February.

CRB rallied +1.07%, slowly moving higher.  CRB is still trying to regain its uptrend.

Crude rallied again this week, closing up +1.50 [+3.12%] to 49.55.  Crude had another bullish petroleum status report showing another inventory draw on Wednesday, and on Thursday crude even managed to break above round number 50 for the first time since June.  Friday saw a bearish engulfing candle print, which the candle code assigns a 23-38% chance of marking the top.  My guess is oil will retreat a bit from here; the crude COT report shows an increasing concentration of commercial shorts - approaching what they were at the oil peak in 2014.  Most likely we need a strong petroleum status report to move oil through the previous high at around 52.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +10.95 tons, with 959 tons in inventory.  The entire gain in tonnage for the week came on Friday.

* ETF Premium/Discount to NAV; gold closing of 1258.60 and silver of 17.57.

 PHYS 10.38 +0.19% to NAV [down]
 PSLV 6.75 +0.80% to NAV [up]
 CEF 13.10 -4.13% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for either gold or silver.

* Big bar premiums are lower for gold [1.01% for 10 oz bars in LA], higher for silver [+3.41% for 1000 oz bars], and higher for silver eagles at +13.9%.

Futures Positioning

COT report covers trading up through Tuesday October 4th.  This covers the big $45 drop on Tuesday, and during the coverage period gold dropped 4 days out of 5.

Gold commercials covered -55k shorts and sold -11k longs, while managed money sold -37k longs and added +18k shorts.  Commercials are by no means back to "normal" - that would involve a drop of another 100k contracts.  Its a similar situation with managed money; short interest remains very low and the long liquidation this week was not all that severe.

Silver commercials covered -9k shorts, while managed money sold -8.8k longs and added +3.3k shorts.  The managed money short position is starting to creep higher, but as with gold, the longs have not been seriously liquidating.

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

It was a bad week for PM; silver leading gold, and juniors leading the seniors.  While all elements remain positive over the past 52 weeks, the drop has clipped 39% from GDX, from the peak to today.  Anyone who bought the top is feeling a whole lot like its 2013 once again.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold GC.V -4.56% 10.58% falling falling rising falling ma200 on 2016-10-07 2016-10-07
Platinum PL.V -5.75% 2.40% falling falling rising falling ma200 on 2016-10-04 2016-10-07
Silver SI.V -8.68% 12.19% falling falling rising falling ema9 on 2016-09-27 2016-10-07
Silver Miners SIL -11.85% 79.53% falling falling rising falling ema9 on 2016-09-29 2016-10-07
Senior Miners GDX -12.98% 50.53% falling falling rising falling ma200 on 2016-10-06 2016-10-07
Junior Miners GDXJ -14.00% 83.05% falling falling rising falling ema9 on 2016-09-29 2016-10-07

Gold Manipulation Report

There were no meaningful after-hours spikes for PM this week.

Summary

The uptrend-line break at the start of the week was the signal to buckle up; gold was pounded, silver dropped even more, and the miners really had a bad time.  Its possible that the lack of Chinese buyers (it was a week-long holiday in China) gave the commercials their opening; certainly, buyers were not much in evidence until mid-day on Friday, and by the time the week was over, gold had retraced all of its post-BRExit gains.  A strong rally in the dollar contributed to the mayhem, but this week's drop was not a currency effect.

The gold/silver ratio rose +3.48 to 72.03, which is bearish. The GDX:$GOLD ratio fell and is increasingly bearish, while the GDXJ:GDX ratio fell slightly and has dropped gently into bearish territory.  Ratios were all bearish this week.

The gold COT shows the commercials heavily covering short, while managed money engaged in some long liquidation, but not as much as might be expected after a $60 move down.  Silver showed something similar.  Both the commercials and managed money still have a ways to go before returning to "traditionally neutral" COT positioning.

Gold and silver big bar shortage indicators show no signs of shortage; popularity of paper gold appears undiminished.  That said, CEF premiums actually managed to rise during the decline, which is historically unusual.  Normally during drops, CEF premiums grow more negative.  PSLV premiums also rose slightly.  GLD tonnage also increased as price dropped.  All this tells me that western ETF traders are buying the dips.

Gold, silver, and the miners are all fairly heavily oversold.  Both gold and silver printed relatively modest reversal bars on Friday, so there is some possibility that Friday could mark the low.  The US has a holiday on Monday - Columbus Day - banks will be closed, but the market will be open.

While the markets have assigned a miniscule chance (8%) for a rate rise in November, the odds of a December increase have risen to 60%.  We can see from the rally in the financials (XLF) and the strong sell-off in the utilities, REITs, and the long bond that this overhanging rate issue continues to drive capital flows.  We can believe what we like about the actual chances of a rate increase, but the market is clearly signaling its concern.

It will be interesting to see just how much buying the Chinese do when they come back from their holiday on Monday - that's Sunday evening starting at 6pm for everyone in timezone US/Eastern.  If we see a strong wave of buying, that could well drive a rebound in the metals as the shorts run for cover.  Given the oversold condition in the metals, the set-up is in place for such an event to occur.  Now the market just has to cooperate.

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8 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5414
Putin: Russia willing to freeze or even cut output

This particular announcement by Putin sent oil up +1.60 right up to the previous high of 51.67.

I have said for quite a while that this is a bit of a "phony crisis" - all OPEC needs to do is reduce production slightly, and oil will bounce back to 60 in relatively short order.  It appears as though this is playing out right now.  All we need is a bullish petroleum status report and I think we can get to at least 55 by Wednesday.

http://www.bloomberg.com/news/articles/2016-10-10/putin-says-russia-ready-to-freeze-or-even-cut-output-with-opec

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5414
bloomberg: "gold bulls flee"

From a contrarian perspective, I like seeing headlines like this with the RSI in deeply oversold territory.  If this doesn't drive people out of gold at the lows, nothing will.

Doesn't this article just make you want to panic out at 1260 - after buying the top at 1375?

http://www.bloomberg.com/news/articles/2016-10-09/gold-bulls-flee-at-fastest-pace-since-may-on-u-s-rate-outlook

The Federal Reserve has spooked investors out of gold.

Prices last week posted their biggest weekly slump in three years as hawkish comments from multiple Fed officials ignited concern that the central bank will soon raise U.S. interest rates. Investors are bracing for more declines, cutting their bets on a bullion rally by the most since late May.

For those who advise "buying the dip" in gold - do you think this is a dip that should be bought?  Or should we wait?

Coda's picture
Coda
Status: Member (Offline)
Joined: Jul 5 2016
Posts: 7
Well I went long on physical

Well I went long on physical gold at ~1335, and silver at ~20 I don't care very much about the current pricing. The world economy is just about ripe for a catastrophe (just look at the jokers vying for the presidency that will surely speed it along whichever one gets into power). And when that happens, I think I know what will happen to PMs.

New_Life's picture
New_Life
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 320
What about UK price?

Dave fancy adding GBP to your chart, added relevance with the USD/GBP change?

1 Year GBP chart

David Allan's picture
David Allan
Status: Silver Member (Offline)
Joined: Nov 15 2009
Posts: 105
A bird in the hand...

I'm with you Coda, there's nothing like having the goods in your hot little hand. And who can predict what happens next? It's interesting that in the old days escalating global tensions would certainly have seen gold prices firming. Now the geopolitical situation seems to be irrelevant for the manipulated paper markets. Just goes to show how broken things are. One benefit of having staked my PM position is that I don't have to worry about every little market twitch. I can now work on more pressing issues - like how to keep my bloody chickens out of the vege garden!

mikeg's picture
mikeg
Status: Member (Offline)
Joined: Aug 30 2009
Posts: 11
Long

Not picking on you Coda, but if you're following these posts you know how short the Commercials (the banks) were in both you would understand that there wasn't a chance in hell they would let the price get away to the upside. Brexit delayed this leg of the cycle for months (also forced JPM to throw even more shorts at it to keep price from going even higher) but it was only a matter of when. Of course if you have Phys Gold for the long run you can't really go wrong! ps... I've been short since before Brexit

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 4 2014
Posts: 571
I tend to go really long

This is from an older Nicole Foss article on finance and food security. It points out the relative value of several commodities. Most of the graphs point to land as the only asset that has consistently out performed just about everything. A ways into the article their is a graph comparing just gold and land. My prediliction is to always go long on land; especially arable land. But then I work the piece I have and it has always produced. A bit hard to flip, sometimes, but even with commissions; not a bad investment. Any idea on what's happening to paper Gold?

https://www.theautomaticearth.com/2014/04/nicole-foss-finance-and-food-i...

Coda's picture
Coda
Status: Member (Offline)
Joined: Jul 5 2016
Posts: 7
Yep, I've been following PMs

Yep, I've been following PMs since around Brexit, and it was at that time I decided to invest (invest is the wrong word here right? :)) and since then I have been reading all sorts of stuff from diverse authors, trying to get an accurate picture of the reality. The only thing I am sure of, is that PM prices (AU especially) suffer from frequent interventions because otherwise certain govt/central banks are exposed to higher risk. In my mind, I equate this to insider trading, and these people should go to jail.

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