PM Daily Market Commentary - 10/18/2016

By davefairtex on Tue, Oct 18, 2016 - 10:51pm

Gold rose +6.90 to 1263.30 on moderate volume, and silver rose +0.15 to 17.63 on moderately heavy volume.  The buck was a non-factor today; gold broke above its downtrend line today, which suggests that the buyers may have returned to the PM segment after a multi-month correction.

On the chart, we see that gold has broken through that pesky downtrend line; that's good news, however gold seemed to run into resistance at the confluence of the 200 MA/9 EMA.  While isn't as good as it could have been, a close above the downtrend line is definitely a bullish sign.  Next step is a close above that 200 MA.  Gold has yet to print a swing low, but for the moment, the breakdown has been averted.

The December rate-rise projection fell to 60%, down 4%.

Gold open interest at COMEX rose +1,086 contracts.

Silver popped momentarily above its own downtrend line, but was unable to close above it.  Like gold, it ran into resistance at the 9 EMA.  Still, its a positive sign that silver is right up against the downtrend line, and silver did finally manage to print a swing low - after 8 days.  Better late than never.

The miners broke out today, with GDX up +3.86% on moderate volume, while GDXJ rose +4.86% on heavy volume.  Senior miners broke above their consolidation area, as well as closing above both the 200 MA and the 9 EMA.  This appears to be the real deal; miners are leading metal higher, and this breakout is probably something we might consider buying.  Alternatively, you can wait to see if the miners retreat back into the consolidation area, and buy then.  That sort of thing often happens on these breakouts.

Platinum rose +0.75%, palladium moved up +0.25%, and copper dropped -0.19%, printing a new low.  Platinum printed a swing low - at long last - after a 30% decline over the past few months.  If you like platinum, the platinum/gold ratio is quite near lows that date back to the mid-1980s.

USD was more or less flat today, rising +0.01 to 97.85.  Buck remains in a strong uptrend.  It is well above its 50 and 200 MAs; it may be engaging in either a topping pattern or a rest here, its hard to tell.  If the buck continues to rise, it will of course make life difficult for PM.

Crude rose +0.69 to 50.86, with much of the gain happening after the API report came out at 16:30 that showed a surprise bullish inventory draw of -3.8 million barrels.  Crude remains in a relatively sturdy uptrend, above all 3 moving averages.  If the EIA report confirms this tomorrow, my guess is that oil breaks out to new highs either tomorrow or Thursday.  The 51.67 high is just not that far away.  The combination of OPEC agreements and relatively consistent inventory draws is pulling oil prices inexorably higher.

SPX rose +13.10 to 2139.60.  Even with the gain today, SPX was unable to close back above its 9 EMA; it remains in a downtrend.  Sickcare did best (XLV:+1.20%) while industrials trailed (XLI:+0.21%).  A good time was had by all, which is to say every sector was up today.   VIX fell -0.93 to 15.28.

TLT rose +0.32%; bonds seem to have found support on the 200 MA.  If bonds can rally alongside equities, that suggests the weakness in bonds might have passed.  Also helpful - rate rise prospect fell a bit, and utilities (XLU:+0.85%) gained on the day.

JNK rose +0.33%, apparently heading back up to re-test its highs.  JNK remains in a strong uptrend.  Go JUNK!

CRB rose +0.20%; it too remains in an uptrend, although it has yet to recover back to its recent high.

The breakout of the miners looks positive.  While gold isn't taking off just yet, gold's close above the downtrend line and the miner close above consolidation are signs of hope.  Perhaps this wave of selling is over.  The medium term future for PM will probably be decided by what happens to the buck, but if we've reached a near-term top for the dollar, PM may be able to move off its lows, at least for a time anyway.

Here's a fun chart; GLD tonnage is increasing even in the face of a drop in the price of gold.  This is a phenomenon that is only a recent one.  It suggests GLD traders are buying the dips, rather than bailing out.  This is not a guarantee of a near-term pop in gold - but it is a hopeful sign over the longer haul.  In the bad old days of 2013-2015, GLD tonnage would drop every time the price of gold fell.  That is no longer the case.

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davefairtex's picture
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petroleum status report: -5.2 mb draw

The petroleum status report has confirmed yesterday's API print - an inventory draw of -5.2 million barrels.  Oil is up +1.10, briefly punching through the previous high to 51.88.

This all feels pretty oil-bullish to me.  After a strong status report, there are often several days of follow-through.  I suspect we'll see higher oil prices tomorrow and Friday and a more emphatic breakout.


hammer6166's picture
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Shale, Iranian and World oil

While shale production is dropping as expected, -700K barrels a day:


Iranian production is up by +600K barrels a day:


The EIA predicts supply meets demand in 2017:


If there is no war, no recession, OPEC stays somewhat united, etc, supply drops below demand in Q3 2017. We should plan for higher prices. Maybe higher oil prices are what finally pushes us into recession.


davefairtex's picture
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Posts: 5740
nice oil charts


Nice oil charts! It looks as though supply & demand are very nearly in balance right now. Saudi Arabia could fix this problem in short order by chopping their own production by just 5%. In the past, they did not hesitate to do this; that's why i say this crisis is manufactured rather than being a "real" one.

I believe even if there is a recession, Saudi Arabia could still fix the problem if they chose to do so.

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