PM Daily Market Commentary - 11/17/2016

davefairtex
By davefairtex on Fri, Nov 18, 2016 - 12:30am

 

Gold fell -9.00 to 1216.00 on moderate volume, and silver dropped -0.32 to 16.66 on moderately heavy volume. The buck broke to new 10-year highs, and that sent gold and silver into a tailspin.

Gold rallied starting in Asia; that happy state lasted until the dollar started breaking out just before noon in New York. Once the buck broke above its old high of 100.72, gold just gave it up, dropping $17 in about two hours, finally making a new low at 1210.50, just under the previous low of 1211 set four trading days ago. Gold managed to bounce into the close, but after market close in NY, the buck broke even higher, topping out at 101.37; that sent gold down to a new low of 1205.

On the chart we see that gold printed a two-candle swing high, and made a new low today. Candle code is quite bearish, giving today's swing high an 89% chance of marking the 10-day high.

With the buck seemingly unstoppable, I just don't have any good news. Next support level is round number 1200. Let's hope that holds. It really all depends on if the buck decides to stop climbing, and your guess is as good as mine about that.

Rate rise chances are unchanged at 91%.

Gold open interest at COMEX rose +5,069 contracts.

Silver behaved a lot like gold, rallying in Asia and then selling off because of the dollar rally. Silver didn't bounce as much at end of day, and ended up printing a “confirmed bearish spinning top”, which for some reason the candle code doesn't think is all that bearish. It looks unpleasant enough to me. Next support is down around 16.

The miners sold off today too, with GDX dropping -2.47% on moderately heavy volume, while GDXJ fell -2.81% on heavy volume. GDX printed just a long black candle, avoiding one of those “marubozu” prints because of a rally in the last 30 minutes of trading. The long black candle doesn't look nearly as bearish as gold's print, and GDX is a ways from making a new low too. In the last week, the miners have been outperforming gold, which is a modest positively sign. Traders do look like they want to buy the miners, but the constantly rising dollar is the problem.

Platinum fell -1.07%, palladium rose +1.51%, and copper rose +0.26%. The palladium rally has been almost as strong as the copper rally; palladium has risen 9 of the last 10 days, and is up about 17%. Candle code also likes copper's “spinning top”; 52% chance copper continues moving higher.

USD broke out to new highs today, climbing +0.51 to 100.87, a level not seen since 2003. This was mostly about the Euro (XEU:-0.63% to 106.25) and also the Yen (XJY:-1.03% to 90.78). The trouble started roughly around the time the CPI report was released, which showed a M/M +0.4% change – at the upper end of expectations. That's about a 5% annualized rate. Why might the buck rally on higher inflation signs? Higher chances for a rate rise – and perhaps more than one. We also see the bank stocks rallied too today, and we also saw bonds drop, which helps confirm this supposition. Chair Yellen also appeared before Congress, where she stated that recent economic data are consistent with expectations for a near-term rate hike. The timing of that speech also coincides with the start of the dollar rally, as well as the start of the drop in gold and bonds.

On the daily chart, I don't see support for the Euro until 105-105.50. Looking at a much longer term chart, I see a fair amount of danger if the Euro breaks 105 in any sort of convincing way. There is a whole lot of “air” underneath 105. Euro-dollar “parity” would just be the first stop. I have to say, Armstrong predicted as much a few years back – which is why I listen to what he says.  What would gold do if the Euro took the (20+%) plunge I'm talking about?  It would probably retrace all the way back down to 1050.  Maybe more.

Crude fell -0.36 to 45.10, once again briefly making a new high before spending the remainder of the day selling off. Candle print today was a shooting star, which looks fairly unpleasant; candle code says its a 26% chance of a high here.

SPX rose +10.18 to 2187.12. Today was about financials (XLF:+1.37%), with energy (XLE:-0.67%) bringing up the rear. And here I thought the rally was beginning to peter out; not yet, apparently. SPX remains above all of its moving averages, and it is just a few points away from a new all time high (2190), RUT and DJIA have already made new all time highs. VIX fell -0.37 to 13.35.

TLT sold off hard today, falling -1.47% and apparently heading back to testing its recent lows. The 10 year actually did make new lows today; bonds are very oversold, but just can't seem to rally. Stay away.

JNK fell -0.22%; JNK is struggling too, but not nearly as much as Treasury bonds. The JNK:IEF ratio continues to climb, as it has done since the lows in February.

CRB fell -0.06%; not much happened. Commodities remain in a rough near-term downtrend.

Getting tired of reading about the buck? Well I'm tired of writing about it. A combination of rate rise prospects, worry about the Euro and the Yen, now actual signs of inflation even in the government stats (which brings up the prospect of even more rate hikes) - none of this is gold-friendly territory. One would think inflation would spur gold, but the 2016 gold trade was all about negative rates, not worries about inflation. At this point, nobody is worried about negative rates, and so that 2016 gold trade is now in the process of unwinding. To date, we've had about a 50% retracement of the 2016 gold move.

As long as the buck keeps rising, gold will almost surely drop. That's just where things are right now. Until the buck stops, be careful out there.

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8 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
The latest: "Quitaly"

Here's a chart of the Italian 10 year bond.  It has gone from a yield of 1% to 2% over the past few months.

Italy is due to have a referendum (you know its going to be good now) on reforming its constitution, which (roughly) would end up effectively removing the power from the senate, and giving whichever party won the most votes a big bunch of extra representation in the chamber of deputies.  Its complicated.  But it is ending up to be a referendum on the popularity of the Renzi government.  According to polls (buried in the wiki page below), the referendum will quite possibly be rejected.

https://en.wikipedia.org/wiki/Italian_constitutional_referendum,_2016

All this is thought to be leading up to a rejection of the Renzi government, and new elections where the 5-star movement may well end up in power.  And THIS brings up the prospect of "Quitaly" - BRExit for our Italian friends.  Google trends shows a dramatic increase in the search term "italy referendum", with most of the searches coming from ... England, of all places.

So watch the yields on the italian government bonds.  If the referendum passes - and the Renzi government falls, we actually could see a whole lot of upheaval.  Quitaly has the prospect of actually being a lot more of an impact than BRexit...

And it could also end up being actually positive for gold.  Imagine that!

Coda's picture
Coda
Status: Member (Offline)
Joined: Jul 5 2016
Posts: 7
Wouldn't Italians (or any

Wouldn't Italians (or any other non-English speaking people) be searching google for a different term (i.e whatever "Italy Referendum" translates to in their own language)?

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 327
Gold

I'll be glad when gold just gets it over with and falls to $700, like Harry Dent says.  Then, I'll load the boat.

Good post above, Dave.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
my goodness

Wouldn't Italians (or any other non-English speaking people) be searching google for a different term (i.e whatever "Italy Referendum" translates to in their own language)?

Heh.  Yes indeed they would.  :)  Boy am I anglo-centric or what?

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
Aside from the referendum

Steve Eisman gave an interview to the Guardian today.Looks like he has shorted the European banks.The Italians in particular.The problem is non-performing loans.The system has priced them at 45-50 cents on the dollar and the bid is 20 cents.If they admitted true value of the loans, they are insolvent...He went on to say Europe is screwed.Given we are in our own 9th circle of hell the focus is elsewhere...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
Italian NPL problems

The Italian NPL problem (loans on the books for 50 cents, where the bid is around 20) has been with us for a while now, and nothing seemed to happen.  If the government is able to convince the regulators to ignore the problem, then they aren't a problem.  Japan ignored them for 20 years.  Its only if you actually try to clean the system up does the problem actually happen.

That's why I think the recent moves have more to do with Quitaly than with the NPL issues.

 

 

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
NPL

Agreed on the bid not being a secret.Given Eismanns past history and his insight on the markets it is worth paying attention too.That is all.Ya know,sub-prime and all....

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
multi-headed hydras

[Hail Hydra!!]

Here's an article which seems to agree with you and Mr Eismann - specifically that the banking crisis is a big chunk of what is moving prices around.

So, debt of all EZ sovereigns have been headed higher over the past few months, in the face of all that ECB bond purchasing.  But the key signal supporting your position is the falling Italian bank prices.  DB hasn't tipped over yet, but Unicredit's chart (UCG.MI) looks substantially uglier.

Hmmmmmm.  Renzi = "public bailout/regulator blind eye", Non-Renzi = "a less banker-positive resolution process."

http://wolfstreet.com/2016/11/20/italys-banking-crisis-debt-for-equity-swap-retail-investors-pay/

As with all major crises, Italy’s current predicament is a multi-headed hydra. It’s a banking crisis, an economic crisis, a debt crisis, and a political crisis all rolled into one, and all coming to a head at the same time.

Italy’s economy has been in reverse ever since it joined the euro 17 years ago. Since 2007, its GDP has shrunk by a staggering 10%. In the meantime its public debt has continued to grow, reaching 135% of GDP today, the highest level of any Eurozone country with the exception of Greece. And now the yield on Italy’s 10-year bond is on the rise, hitting 2.09% on Friday in a NIRP world, its highest point in over 13 months.

Investors are worried about two things: the very real prospect of a government defeat in the upcoming referendum on constitutional reforms (a subject I covered last week) and Italy’s blossoming banking crisis.

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