PM End of Week Market Commentary - 11/4/2016

davefairtex
By davefairtex on Sat, Nov 5, 2016 - 7:33pm

On Friday gold rose +1.60 to 1305.20 on moderately heavy volume, while silver climbed +0.07 to 18.43 on moderately heavy volume also.  Nonfarm Payrolls caused its usual volatility, but ended up with prices more or less unchanged.  The buck continued to fall, but the pace of the decline has greatly slowed.

On the week, gold climbed +29.20 [+2.29%], silver moved up +0.67 [+3.77%], GDX rose +5.29% and GDXJ went up +4.97%.  Platinum rose +2.02%, palladium moved up +1.37%, and copper did well again, up +2.75%.  Something is definitely up with copper; it was up 5 days out of 5, and appears to be headed for a test of the 2.28 high set back in mid-July.

Last week gold was moving slowly higher along its 200 MA.  This week, gold broke sharply higher, rising up to close above the 50 MA as well as round number 1300.  Gold is now in the resistance zone from 1302 to about 1310.   What changed?   Trump moved from a 21% chance of winning the election, to a 35% chance of winning - according to Nate Silver over at 538.  Market has now been busily repricing a number of things, including the buck, equities, junk debt, and gold.

On Friday, gold printed a "high wave" candle, which has a very low probability (sub-10%) of being the high.  From a technical perspective, gold will have some tough slogging ahead of it to move through the current resistance area.  However, if we get a major new November Surprise over the weekend, gold will probably just cut right through resistance as traders scramble for safety.  I sure wouldn't be short gold over this particular weekend.

December rate-increase chances were down 1%, at 67%.

This week, gold open interest rose by +27,321 contracts.  My sense is that the commercials have been loading up short over the past few days.

Silver followed gold higher this week, but ran into some heavy resistance at the 50 MA.  It had two shots to move above it, but both failed.  This is a logical place for the sellers to load up short, but it is a bit disturbing that they have been so successful, since copper staged a very impressive rally at about this same time.  To me this relatively poor performance for silver is a bearish note in a bullish week.  If Trump is elected, my guess is that silver will break higher right alongside gold.  If not...we could see a sharp sell-off, perhaps even a drop through the 200 MA.

Miners

The miners started out strong this week, breaking sharply higher, but ran into resistance at the falling 50 MA.  GDX is now bounded on the bottom by the rising 9 EMA, and on the top by the falling 50 MA, and the resulting triangle pattern will be decided in the very near future.  This dovetails neatly with the election next Tuesday.  As a result, the miner chart is showing a clearer decision point than either silver or gold - it seems to boil down to two simple cases.  If Trump wins, they will probably break higher.  If Trump loses, miners will sell off.  The mining shares have not rallied materially vs the metal itself, which suggests to me that traders really are uncertain about the outcome - unwilling to either increase or decrease risk as we approach the decision point.

The USD

The buck did not like the idea of President Trump much at all; after printing a swing high last week, the buck fell -1.25 [-1.27%] to 97.04, retracing half the gains from all the rate-rise fuss we experienced over the past few weeks.  This definitely helped gold and silver, but the move lower in the buck accounted for only about half the rally in PM.  A ruling by the UK court that insisted a vote in Parliament is required to leave the EU (referendums: they don't count, apparently) caused a sharp rally in GBP/USD.  The banker dream of Remain is not dead yet.

US Equities/SPX

The US equity market fell a big -41.23 [-1.94%] to 2085.18, breaking 2120 support and dropping down to the 200 MA.  On Friday, SPX tried to rally, but the sellers took over around mid-day, and by the end SPX was back in the red once again.  It appeared to me that traders had no interest being long over the weekend.  VIX shot dramatically higher, up +6.32 to 22.51.

Last week seemed all about rate rises, while this week was all about elections.  The effect on the overall market was bearish in both cases, but the specific sectors affected have changed.  The sector map is now completely medium-term bearish, with every component below the 50 MA and with many dropping below the 200.  Energy and tech are the weakest sectors this week - now that's a real correction for you.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 5.29% 78.05% rising falling rising falling ema9 on 2016-10-31 2016-11-04
Homebuilders XHB -0.63% -13.15% falling falling rising falling ma200 on 2016-10-11 2016-11-04
Materials XLB -0.71% 2.63% falling falling rising falling ema9 on 2016-10-25 2016-11-04
Utilities XLU -1.05% 9.52% falling falling rising falling ema9 on 2016-11-02 2016-11-04
Industrials XLI -1.10% 2.93% falling falling rising falling ema9 on 2016-11-01 2016-11-04
Telecom XTL -1.15% 7.96% falling falling rising falling ema9 on 2016-10-27 2016-11-04
Financials XLF -1.42% -1.95% falling falling rising falling ma50 on 2016-11-02 2016-11-04
Cons Discretionary XLY -1.68% -5.75% falling falling rising falling ma200 on 2016-10-27 2016-11-04
REIT RWR -1.71% -3.52% falling falling rising falling ema9 on 2016-10-25 2016-11-04
Healthcare XLV -1.92% -7.73% falling falling falling falling ema9 on 2016-10-11 2016-11-04
Cons Staples XLP -2.01% 3.80% falling falling rising falling ema9 on 2016-11-02 2016-11-04
Energy XLE -2.31% -3.41% falling falling rising falling ma50 on 2016-10-27 2016-11-04
Technology XLK -2.66% 4.50% falling falling rising falling ma50 on 2016-11-01 2016-11-04

Gold in Other Currencies

Gold rallied in every currency I track, although it did best in rubles, dollars, INR, and CNY.  In XDR gold was up +21, which is a respectable move.

Rates & Commodities

TLT finally rallied this week, up +0.99%, managing to move back above its 9 EMA.  TLT is trying hard to put in a low here, and it did actually manage to print a swing low this week, but the move off the bottom is a bit lackluster, especially given how far SPX has dropped.  Money appears to be fleeing the US, and that's probably affecting treasury bonds as well as equities.

JNK fell for the second straight week, dropping -1.01% and falling below its weekly 9 EMA.  That's noteworthy as JNK has not been below the weekly 9 EMA since mid-February.  This is a risk-off signal we should probably not ignore.

CRB was hammered this week, dropping -3.54% and falling five days out of five.  CRB is now below both the 9 EMA and the 50 MA, and is clearly in a short term downtrend.  Mostly this is about fally energy prices.

Crude's move down accelerated this week, losing a big -3.97 [-8.16%] to close at 44.69.  Can we blame oil's big drop on Trump?  Well, on Wednesday the petroleum status report showed "the largest inventory build ever", and that certainly didn't help.  Additional blame can be heaped on last week's COT report, which showed a very low level of managed money short positions.  Trump probably didn't help, but I don't think he's the primary cause.  On Friday, OPEC attempted to jawbone prices higher, but the market only responded briefly to the effort; that's not a great sign either.  On Friday, oil printed a "long black" candle, which candle code says is a 17-22% chance of a low.  Crude is oversold, with RSI7 = 15.  A bounce could happen any day now, but I've been saying that for a few days.  Crude has support from the previous low at 42.74 as well as the 200 MA.  It could bounce either place.  If it doesn't, we probably see a re-test of the lows at 38.

Physical Supply Indicators

* The Shanghai Au9999 contract is trading at a +4.50 premium to COMEX.

* The GLD ETF tonnage on hand rose +7.10 tons, with 950 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1305.60 and silver of 18.43.

 PHYS 10.72 -0.18% to NAV [down]
 PSLV 7.07 +0.74% to NAV [up]
 CEF 13.96 -1.79% 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 higher for gold [2.14% for 100 oz bars in NYC], lower for silver [+2.98% for 1000 oz bars in NYC ], and lower for silver eagles at +14.16% [NYC].

Futures Positioning

COT report covers trading up through Tuesday November 1st.

Gold commercials added +22k shorts, while managed money added +5k longs and covered -18k shorts.  Gold's recent move higher looks to be mostly short covering by managed money.  Bad news is, there are not so many managed money shorts left.  One more week and then the cupboard is bare.

Silver commercials added +5k shorts, while managed money covered -8.5k shorts.  Managed money still has a fair number of shorts left to cover; we could see a more sustained move higher in silver.

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

Gold is back, baby!  Gold is now back above all three moving averages.  Miners are leading the metal, silver is leading gold, all looks relatively good from the standpoint of this report.  The only change I'd ask for is for the juniors to be doing a bit better than the senior miners.  The other components have all moved back above their 9 EMA lines, which is an early sign of a rebound.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 5.29% 78.05% rising falling rising falling ema9 on 2016-10-31 2016-11-04
Junior Miners GDXJ 4.97% 111.39% rising falling rising falling ema9 on 2016-10-31 2016-11-04
Silver $SILVER 3.77% 23.29% rising falling rising falling ema9 on 2016-10-28 2016-11-04
Silver Miners SIL 3.36% 105.85% rising falling rising falling ema9 on 2016-10-31 2016-11-04
Gold $GOLD 2.29% 18.33% rising falling rising falling ma50 on 2016-11-03 2016-11-04
Platinum $PLAT 2.02% 5.08% rising falling rising falling ema9 on 2016-10-25 2016-11-04

Gold Manipulation Report

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

Summary

Gold and silver both broke higher this week, breaking out of their recent slow uptrend channels and rallying up to the previous lows which are now acting as resistance.  A falling dollar helped PM move higher.

The gold/silver ratio fell -1.03 to 70.84, but the bulk of the improvement in the ratio came on Tuesday.   The GDX:$GOLD ratio climbed higher, moving the ratio from bearish to neutral.  GDXJ:GDX dropped slightly, and it is starting to look bearish.

We saw a fair amount of short-covering this week, and it provided the majority of the fuel for the rally, at least through Tuesday.  However for the move to continue, we'll need to see the managed money longs start to jump in; there are just not that many shorts left to cover to keep this going too much longer.

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

Last week there were hints of risk off.  This week the signals were much stronger; the buck, oil, and equities all fell, while gold rallied fairly briskly.  There is little down in my mind that all of these moves were related to the increased chances of a Trump presidency. 

The election is on Tuesday, November 8th.  If Trump wins, market probably extends its gains (and losses) in the current direcitons.  If he loses, we probably retrace.  How about if the election is contested?  That one, I don't know.  We may imagine we're coming up on the finale in the next couple of days...but what if this thing drags on for weeks afterwards?  Its a thought anyway.

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