PM End of Week Market Commentary - 10/28/2016

davefairtex
By davefairtex on Sat, Oct 29, 2016 - 3:36am

On Friday gold rose +6.80 to 1276.00 on moderately heavy volume, while silver climbed +0.13 to 17.75 on moderately heavy volume also.  PM was hit briefly following the "unexpectedly" positive 3Q GDP report, but quickly recovered; the real rally came as the buck cratered in the early afternoon.

On the week, gold climbed +9.30 [+0.73%], silver moved up +0.22 [+1.28%], GDX fell -3.29% and GDXJ was hit for -5.28%.  Platinum rose a big +4.87%, palladium dropped -0.71%, and copper did best, up a massive +5.14%.  What's the story with copper?  It was up all 5 days this week, on increasing volume, and appears to be heading for a breakout above the previous high.  From what I can tell, its about declining inventories.  I guess China isn't cratering in the near future.

This week, gold moved steadily higher, tracing a path along the rising 200 MA.  The candle print on Friday was a spinning top, but this one had long shadows in both directions.  Candle code thought this was actually quite bullish, assigning a 38-40% chance that this will be a near-term low.  (Such a bullish assessment for a spinning top is relatively rare).  Still, the drop in the buck on Friday exactly matched gold's rally, so the move higher was entirely a currency effect, and Friday's move accounted for much of gold's rise this week.

December rate-increase chances were up 4%, at 68%.

This week, open interest rose by +3,001 contracts.

Silver managed to out-perform gold this week, but not by much.  Like gold, silver is following its rising 200 MA, but it is using the 200 as support, which is somewhat more bullish.  That said, I saw a pattern when looking at the chart this week that looks a bit disagreeable: I'll show you what I mean.  Over the past four months, silver has shown a repeated pattern of a shallow rising trend, followed by a support break.  The rising phase lasts for about 6 weeks, and the breakdown takes about a week.  We are about four weeks into the latest six-week rising trend period.  If the pattern holds, a breakdown would take price to about 16.

Not saying this is some guaranteed future or anything, its just something I noticed.

Miners

The miners had a bad week, starting out on Monday with a swing high, and then eventually closing below both the 9 and the 200 MA.  While miners haven't made a new low for this cycle, this week's move down is not a good sign.   GDX ended the week printing a "high wave" candle, which the candle code says is a 17-35% chance of a low.  That's fairly bullish for a high wave, but given how poorly the miners performed this week vs the metal, I'm not sure the odds of a low here are all that good.

The USD

The USD may have topped out; it fell -0.35 to 98.29.  The buck marked its high on Tuesday, hitting 99.04 briefly but then falling back.  On Friday, the buck printed a bearish engulfing candle pattern, and also printed a swing high, closing below its 9 EMA for the first time in four weeks.  The decline on Friday really accelerated after 13:00; I'm not sure what happened at that time, but there was a whole lot of dollar selling that happened in the hour following.  This is the sole positive thing I see in the PM space right now.

US Equities/SPX

The US equity market fell -14.75 to 2126.41.  On Friday, SPX bounced off support at 2120, printing a "spinning top" - candle code says this is a 21-26% chance of a low, which isn't very encouraging.  The small-cap cousin of SPX - the Russell 2000 - has already broken support and looks thoroughly bearish.  My sense is that RUT is leading SPX lower, at least right now anyway.  VIX jumped up +2.85 to 16.19.  Equities overall are looking fairly fragile.

The sector map is slowly turning more and more bearish, with REITs and homebuilders near the bottom.  While the best performer this week was utilities, financials look strongest; they appear to really like the increasing prospects of a rate hike.  This is possibly because they will get a whole bunch of additional risk-free income when the Fed pays them an added 25 basis points on the 1.86 trillion dollars in excess reserves - about 4.65 billion dollars per year.  Woohoo!

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 0.96% 11.27% rising falling rising falling ema9 on 2016-10-24 2016-10-28
Cons Staples XLP 0.84% 4.42% rising falling rising falling ema9 on 2016-10-21 2016-10-28
Financials XLF 0.61% -0.34% rising rising rising falling ma50 on 2016-10-19 2016-10-28
Industrials XLI 0.19% 5.08% rising falling rising falling ema9 on 2016-10-28 2016-10-28
Technology XLK -0.19% 7.97% falling rising rising falling ema9 on 2016-10-26 2016-10-28
Materials XLB -0.70% 3.34% falling falling rising falling ema9 on 2016-10-25 2016-10-28
Telecom XTL -0.73% 10.19% falling rising rising falling ema9 on 2016-10-27 2016-10-28
Energy XLE -1.17% 2.63% falling falling rising falling ma50 on 2016-10-27 2016-10-28
Cons Discretionary XLY -1.95% -3.42% falling falling rising falling ma200 on 2016-10-27 2016-10-28
Healthcare XLV -2.77% -5.59% falling falling falling falling ema9 on 2016-10-11 2016-10-28
Homebuilders XHB -3.22% -11.61% falling falling rising falling ma200 on 2016-10-11 2016-10-28
Gold Miners GDX -3.29% 57.47% falling falling rising falling ma200 on 2016-10-27 2016-10-28
REIT RWR -3.40% -1.93% falling falling rising falling ema9 on 2016-10-25 2016-10-28

Gold in Other Currencies

Gold was all over the map this week; gold in Euros dropped a couple of bucks, while in Yen it was up +24.  Gold in XDR was up just $7.  Mostly, gold rallied.

Rates & Commodities

TLT fell -2.15%, making a new low and dropping below all three of its moving averages.  TLT is now in a strong downtrend, off perhaps 10% from its high set back in July - a rise of 57 basis points for the 20 year treasury, with the low at 1.70%.  This behavior is unusual, since TLT "should" be rallying in the face of the current equity market decline.  This tells me bonds are very weak right now.  Run, don't walk.

JNK fell hard this week, down -1.28%, printing a swing high on Wednesday and managing to close just below the 50 MA on Friday's -0.44% plunge.  If the 50 doesn't hold, this could start to get ugly for JNK; the 50 MA (and/or the 9 EMA on the weekly chart) has acted as strong support during the past 10 month rally.  A weekly close conclusively below the (weekly) 9 EMA would be a sign to bail out if you are a JNK holder - which would have been a 19% gain off the lows in February.  Not bad for a product clearly labeled as low quality.

CRB was mostly flat, falling -0.10% but making a new high this week.  CRB has moved mostly sideways over the past few weeks.  It might be topping out here - its hard to say.

Crude was hit hard this week, down -2.34 [-4.59%] to 48.66.   Friday's candle was just a "long black candle", which the candle code did not like; less than 10% chance of a low here.  Crude is well below its 9 EMA and appears to be headed for a test of the 50 MA down around 47.50.  While the petroleum status report showed a mild inventory draw on Wednesday, it was not enough to reverse the move lower in oil.  It feels like we have more downside yet to come.  Perhaps the API report next Tuesday will bring some relief from the selling, but we'll have to see how the market reacts.  Market did not like this week's API report at all.  That COT report from last week (showing a very low level of managed money shorts) seemed to be a strong clue that a near-term top might be in.

Physical Supply Indicators

* The Shanghai Au9999 contract is trading at a +6.51 premium to COMEX.  Part of this is recent volatility in the RMB; I only get end-of-day RMB quotes, and if the currency drops after the SGE closes, the premium/discount calculation can sometimes bounce around significantly.  I'm sure there's a premium - I'm just not sure its $6.

* The GLD ETF tonnage on hand fell -10.97 tons, with 943 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1276.00 and silver of 17.75.

 PHYS 10.60 +0.94% to NAV [down]
 PSLV 6.78 +0.27% to NAV [down]
 CEF 13.42 -2.97% 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 [2.09% for 100 oz bars in NYC], higher for silver [+4.51% for 1000 oz bars in NYC ], and lower for silver eagles at +14.65% [NYC].

Futures Positioning

COT report covers trading up through Tuesday October 25th.

Gold commercials added +14k shorts, while managed money added +9k longs and covered -4k shorts.  With the slow rise in gold, commercials have moved from covering short to adding new short positions.

This current level of the commercial net position could theoretically mark a low right now, since a similar pattern showed up back in June.  It all depends what the "baseline" level of commercial short positions is these days.  If June's level represents the "new normal", then we are at a low point right now.  However, if the commercials want to reduce short positions back to January levels, we are only 40% of the way towards the goal.

Silver commercials added +1.8k shorts, while managed money sold -2.6k longs.  The silver COT (especially from the standpoint of managed money longs) appears to be - at least possibly - near a turning point.  There really aren't quite enough shorts yet, but the long liquidation for silver was substantial; managed money bailed out of 6200 tons of paper silver in the past few months.

The COT has me cautiously optimistic.

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

While platinum staged an impressive rebound, and both silver and gold moved higher, the miner performance is really problematic.  Senior miners have dropped below all three moving averages, and since miners tend to lead, that suggests bad news ahead for PM.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum $PLAT 4.87% -1.31% rising falling rising falling ema9 on 2016-10-25 2016-10-28
Silver $SILVER 1.28% 14.00% rising falling rising falling ema9 on 2016-10-28 2016-10-28
Gold $GOLD 0.73% 11.39% rising falling rising falling ma200 on 2016-10-28 2016-10-28
Senior Miners GDX -3.29% 57.47% falling falling rising falling ma200 on 2016-10-27 2016-10-28
Silver Miners SIL -3.95% 88.95% falling falling rising falling ema9 on 2016-10-26 2016-10-28
Junior Miners GDXJ -5.28% 92.84% falling falling rising falling ema9 on 2016-10-26 2016-10-28

Gold Manipulation Report

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

Summary

Gold continued slowly moving higher this week, as did silver, but the miners did quite poorly.  Its hard to know why this is the case; perhaps poor earnings for some miners is causing a problem.  Or - maybe - the miners are just acting as a (bearish) tell and we really need to be paying attention.

The gold/silver ratio fell -0.72 to 71.75; this is mildly bullish.   The GDX:$GOLD ratio fell fairly substantially, moving back into bearish territory.  GDXJ:GDX dropped also, and it is starting to look bearish as well.

We might have marked a low in the COT report, but that requires the commercials to be happy with current levels as the new low watermark for outstanding short positions.  Only time will tell if this is the case.  Since I believe we're in the middle of a long term trend change, it certainly could be true, but its something we'll have a much better handle on in about a year.  Of course, this doesn't help us much today.

Gold and silver big bar shortage indicators show generally few signs of shortage; Shanghai premiums rose, while the ETF premiums were mixed, and GLD's tonnage dropped.

Equities look as though they might be ready to fall off a cliff - they are in a slow decline now, but these things tend to accelerate once sentiment cracks; a close below 2120 could lead to a lot of selling.   Bonds are selling off more enthusiastically.  The buck may have topped out.  Crude is selling off, as is junk debt.  It feels like traders (and probably foreigners) are selling US dollar and/or risk assets and/or moving to cash - perhaps its an election-related "risk off" move.  The "unexpectedly" positive GDP report helped for about four hours.

Its hard to know if this is about Hillary, or Trump, or what.  Paddy Power has Trump a 1:3 underdog.  At the same time, it is difficult to trust the reliability of media-sponsored polls when that same media willingly laps up stories (https://theintercept.com/2016/10/09/exclusive-new-email-leak-reveals-clinton-campaigns-cozy-press-relationship/) written for them by the Clinton campaign.

To add to the fun, we also have an FOMC meeting next week, with an announcement on Wed Nov 2 at 2pm.  Let me guess: "we're really, really going to raise rates next meeting."  Especially with nominal GDP at 2.9%, while GDPNow having predicted a 2.0% GDP print.

All I know for sure is that the whole picture is one of risk off right now.  PM is still slowly moving higher, but the miners are sending off strong warning signs.  We might get another leg down.  If the dollar corrects, we'll have to see how PM responds.  If it is unable to rally - then its probably "look out below" for gold and silver.  As an analogue for that, the gold-in-Euros chart just can't seem to close above that 50 MA.

Its probably a good idea to be careful out there.

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
nominal vs real GDP

Turns out, the 2.81% GDP number is nominal GDP, not the GDP that was deflated by the BLS and its silly inflation metric.  The "real GDP" number is the number that's left after the deflator is applied.  That's only 1.5%.  If we imagine that inflation is higher than 1.3% - well - that reduces "real GDP" even further.

Nominal GDP is GDP with inflation included.  Real GDP is GDP with inflation removed.  Nominal GDP is useful because that's the number used to make debt payments.  Real GDP is used to figure out if the economy is actually growing at all.

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