PM End of Week Market Commentary - 12/09/2016

davefairtex
By davefairtex on Sat, Dec 10, 2016 - 2:16pm

On Friday gold fell -11.00 to 1161.40 on moderate volume, and silver dropped -0.18 to 16.91 on moderately light volume. Gold performed worst, making a new low to 1157.60, but most PM components fell on the week, probably triggered by a renewed move higher in the buck.

In the metals sector map, copper is the only item that remains in an uptrend.  In PM, silver is the only component to rally this week, while the rest of the items sold off with varying degrees of intensity.  Everything except silver is below all three moving averages, and at this point everything has executed a death cross.

PM is in a downtrend.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Copper $COPPER 1.03% 28.63% rising rising rising rising ema9 on 2016-12-09 2016-12-09
Silver $SILVER 0.68% 19.96% rising falling rising falling ema9 on 2016-12-02 2016-12-09
Gold $GOLD -1.51% 8.36% falling falling falling falling ma200 on 2016-11-08 2016-12-09
Platinum $PLAT -1.55% 7.11% falling falling rising falling ema9 on 2016-12-09 2016-12-09
Senior Miners GDX -3.28% 45.46% falling falling rising falling ema9 on 2016-12-09 2016-12-09
Junior Miners GDXJ -3.61% 75.64% falling falling rising falling ema9 on 2016-12-09 2016-12-09
Silver Miners SIL -4.25% 81.27% falling falling rising falling ema9 on 2016-12-09 2016-12-09

 

Gold's weak swing low from last week didn't lead to a positive outcome; while gold did manage to rally briefly on Wednesday, by Friday the strength in the buck took gold down to yet another new low.  The 9 EMA acted as resistance, and the candle print on Friday was an “opening black marubozu” candle, which does not signal any sort of reversal.  Gold closed the week only a few dollars above the new low.  Gold, at least in the west, just doesn't have any buyers.  The shorts remain in complete control.

December rate-increase chances are at 95%.

This week, gold open interest fell by –4,999 contracts, down to 357k contracts total.

Silver actually managed to rally this week, staging a strong move higher on Wednesday.  Even the sell-off on Thursday and Friday wasn't enough to push silver back below its 9 EMA. Friday's candle print was a long black candle, which the candle code saw as neither bullish nor bearish, so we can't tell right now what might be next for silver. The gold/silver ratio fell -1.53 to 68.66 on the week, which is bullish for PM overall.  Silver is the most bullish component in PM, although if it loses the 9 EMA, I believe the selling could get very intense: the massive $1 red candle in the second week of November is an example of what I'm talking about.

The miners more or less chopped sideways up until Friday, when they sold off from the open through to the close, printing an unpleasant-looking high volume long black candle. Although the miners managed to avoid making a new low, Friday's drop below the 9 EMA looks fairly dangerous. A break below 20 (which is about 3% away) could lead to another large leg down for the mining shares. In recent months, breakdowns of this sort have led to 10-15% drops over the course of several days.  Just look at the two big red candle prints that happened the second week in November to see what I mean.

USD

The buck had a very eventful week this week, first plummeting on Monday immediately following the Italian referendum, which appeared to be a “sell the news” event after it became clear that the referendum was going to lead to no immediate change in the political situation (i.e. where Italian PM Renzi would be replaced with some sort of EU stooge – which Fake News Media calls a “technocrat” government). Then on Thursday, the ECB taper-extend decision led to a total reversal in the buck, flipping the dollar right back up into a positive trend. Friday's follow-on rally ended up being a two-candle swing low which was ridiculously highly-rated, with a 94% chance of marking a low.

From what I could see, Friday's follow-through in the buck ended up causing any potential western gold buyers to pull their bids.

 

US Equities/SPX

The US equity market rallied all five days this week, closing up +67.58 [+3.08%] to 2259.53. The VIX dropped -2.37 to 11.75. Puts are starting to get cheap once again. Combine that with SPX at RSI-7=86 and I suspect this puts us well into “overbought and over bullish” territory – i.e. ripe for a correction in the near future. SPX is up 7.5% since Trump won the election.

The sector map shows homebuilders in the lead, but many sectors are back into a medium term uptrend, rising back above their 50 MA lines.  The trailing sector is sickcare, which I suspect is still laboring under the overhang of Trump's comments about “drug prices being too high.”

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Homebuilders XHB 5.59% 1.40% rising rising rising rising ema9 on 2016-12-05 2016-12-09
Telecom XTL 5.37% 24.79% rising rising rising falling ema9 on 2016-12-05 2016-12-09
Financials XLF 4.86% 21.97% rising rising rising rising ema9 on 2016-11-07 2016-12-09
Technology XLK 4.20% 11.30% rising rising rising falling ma50 on 2016-12-07 2016-12-09
REIT RWR 3.88% 5.44% rising falling rising falling ma50 on 2016-12-07 2016-12-09
Cons Discretionary XLY 3.52% 5.55% rising rising rising rising ema9 on 2016-12-05 2016-12-09
Materials XLB 3.04% 14.09% rising rising rising rising ma50 on 2016-11-08 2016-12-09
Cons Staples XLP 2.91% 4.02% rising falling rising falling ma50 on 2016-12-09 2016-12-09
Utilities XLU 2.48% 14.45% rising falling rising falling ma50 on 2016-12-09 2016-12-09
Energy XLE 2.37% 21.96% rising rising rising rising ema9 on 2016-11-30 2016-12-09
Industrials XLI 1.86% 19.57% rising rising rising rising ema9 on 2016-11-07 2016-12-09
Healthcare XLV 0.64% -3.50% rising falling rising falling ema9 on 2016-12-09 2016-12-09
Gold Miners GDX -3.28% 45.46% falling falling rising falling ema9 on 2016-12-09 2016-12-09

Gold in Other Currencies

Gold fell in most currencies; gold in XDR fell -15.51. In almost every currency, gold has been in a downtrend since about mid-year.

Rates & Commodities

TLT fell -1.76%, making yet another new low on Friday. The 20 year is now yielding 2.87%. The recent swing low has now been invalidated, and I would guess that we have lower prices ahead. TLT is down about 20% since the high back in July. Bonds do not look healthy at all.

JNK rallied +1.25% on the week, managing to move back above its 50 MA and at the same time erase the pattern of lower highs and lower lows that marks a downtrend. While JNK is not out of the woods yet, it is sure looking a lot stronger than its less-junky cousins IEF & TLT.

CRB rose +0.15%, moving strongly higher and then falling back. On the longer term weekly chart, the 50 week MA is starting to bend higher now, which is a sign of slowly recovering commodity prices.

Crude fell -0.20 to 51.48, first making a new high on Monday to 52.42, printing a swing high on Wednesday, only to reverse higher on Thursday and Friday. It appears as though crude found support on its 9 EMA. This weekend, we have a non-OPEC meeting to decide if any of the non-OPEC producers will end up cutting production to rebalance the oil market. The Saudi oil minister says “we already have a deal” which is a hopeful sign for those of us who are long oil. My guess is, if non-OPEC can come to an arrangement, oil will break out above the previous high of 52.42.

Physical Supply Indicators

* SGE premium to COMEX has risen to $28.65 over COMEX. Chinese remain very strong buyers of physical gold at these prices.

* The GLD ETF tonnage on hand fell -0.32 tons, with 870 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1161.40 and silver closing of 16.91:

 PHYS 9.48 -0.78% to NAV [down]
 PSLV 6.43 -0.08% to NAV [up]
 CEF 11.76 -8.22% to NAV [down]

* 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 [1.95% for 100 oz bars in NYC], higher for silver [+2.93% for 1000 oz bars in NYC], and higher for silver eagles at +17.62% [NYC].

Futures Positioning

COT report covers trading through Dec 6th, when gold closed at 1171.40 and silver 16.78.

In gold, commercials covered -19k shorts, while managed money bailed out of -11k longs. Short covering continues; how much will be enough? I don't really know. The commercials have covered 200k shorts since the top in July. To get back to where we were at the start of 2016, the commercials probably have another 90k shorts remaining.

In silver, commercials added +1.5k shorts, while managed money bailed out of -800 longs. Based on the managed money long positions, it feels as though silver could bottom at any time.

Gold Manipulation Report

No meaningful spikes occurred this week.

Summary

This week, gold took another leg down, miners looked fairly strong right up until Friday, and silver continues to outperform.  Gold fell when the dollar was dropping, and gold fell faster once the dollar started to rise.  It all suggests that the buyers for gold are quite thin on the ground, at least in the west anyway.

Gold COT report shows continuing short-covering by the commercials, and a relatively slower pace of long liquidation by managed money. In silver, long liquidation has stopped, and absolute levels of commercial short and managed money long positions seem extended enough to indicate a low for silver.

Gold and silver big bar shortage indicators show no signs of shortage in the west; ETF premiums were mixed this week, and GLD's tonnage was unchanged. In Shanghai, premiums continue to increase, with the SGE trading at a $28 premium to COMEX. Historically, that's a very large premium, and in the past, premiums this elevated have sometimes marked turning points in gold.

The brief, one-week dollar correction may well have run its course; now we get to see if the Euro can print a low here at 105, which is only 0.60 away. If it can't, and the Euro breaks convincingly below 105, the selling could get fairly intense, which means the dollar would break out strongly to the upside. What that might do to gold – it probably won't be good news. I don't have a prediction, but momentum for the buck appears to be pointing up.

That, plus a weak bond market, the risk-on behavior in equities, and the complete inability of gold to close above its 9 EMA tells me risks remain to the downside for gold, and probably the mining shares too.

Fed meeting next week.  It is possible that the Fed meeting could mark a low for gold, depending on what they say.  I've seen it happen.  But I wouldn't buy in advance; I'd wait for the market to give me some sort of price signal first.

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5 Comments

kennethbolin's picture
kennethbolin
Status: Member (Offline)
Joined: Nov 23 2010
Posts: 5
Arbitrage?

Considering the 28+ USD price difference between SGE and LBMA and the 7-8 USD (?) transaction costs,

how can this arbitrage persist for so long? What am I missing?

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

How can a $28 arb continue to exist?  I think its about form.  Same thing happens to retail premiums for eagles when the shops in the US sell out.   There are plenty of 5000 oz COMEX bars, but people want the 1 oz silver eagle.  So premium on eagles scream higher after they start to run low.

We saw this same thing happen during the big gold smash back in 2013.  China wants 1 kilo bars, and the west has 400 oz Good Delivery bars, and so they have to melt the one down to make the other, and that takes time.

I'd guess that the Swiss refineries are working triple shifts right now.

 

shastatodd's picture
shastatodd
Status: Bronze Member (Offline)
Joined: Oct 16 2010
Posts: 49
kinds of silver

i cant afford a lot of gold, so have bought silver in the form of 90% pre 1964 junk coins.

do you think silver eagles or silver bars are a wiser way to invest in precious metals?

MJB's picture
MJB
Status: Silver Member (Offline)
Joined: Jan 5 2016
Posts: 117
Reportable PM transactions

Shastatodd if you live in the US here is a link of what is currently reportable. It covers the question you have about junk silver. I buy silver eagles primarily for tax reasons. Laws can definitely be changed and if there is a tremendous outbreak some people are calling for the laws probably will be changed. I am hoping to see a transaction law go into place, making it legal to buy other assets, i.e. land with gold and silver. Such a law exists now with relation to land and real estate where if a person sells a piece of property they have 30 days (I believe) to "re-invest" the proceeds into a different property and any gains from the original sale are not taxed. I think it has to do with carried interest. Any accountants here to clarify? I know a few and if there is an interest I can reach out to them.

https://www.jmbullion.com/reportable-bullion-transactions-infographic/

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
Crude +2.50 to 54

A non-OPEC agreement caused oil to gap up and through resistance to a new high of 54 when the market opened in Asia.  We'll see what happens at end of day. 

http://www.reuters.com/article/us-opec-meeting-idUSKBN13Z0J8

On Saturday, producers from outside the 13-country group agreed to reduce output by 558,000 bpd, short of the initial target of 600,000 bpd but still the largest contribution by non-OPEC ever.

Of that, Russia will cut 300,000 bpd, Novak said. He added it would be gradual and by the end of March Russia would be producing 200,000 bpd less than its October 2016 level of 11.247 million bpd - Russia's highest production estimate so far.

Russian output would fall to 10.947 million bpd after six months, Novak said.

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