PM End of Week Market Commentary - 12/23/2016

davefairtex
By davefairtex on Sat, Dec 24, 2016 - 5:30am

 

On Friday gold rose +5.40 to 1135.20 on moderate volume, while silver fell -0.04 to 15.79 on moderate volume also.  It was a quiet day, but in the last few minutes of trading, gold popped up $3 right at end of day.  For some reason, traders didn't want to be short gold going into the holidays.

There wasn't a lot of news this week; the electoral college met and rubber-stamped Trump's election, with a few defections on both sides just to keep things interesting, but otherwise the week was relatively uneventful.

For the most part, the metals continued to fall; gold did best with an almost-flat performance. Mining shares rallied, but even so, every component closed the week below the 9 EMA, with everything except copper fully bearish.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 1.36% 35.53% falling falling falling falling ema9 on 2016-12-09 2016-12-23
Gold $GOLD -0.14% 5.47% falling falling falling falling ma200 on 2016-11-08 2016-12-23
Silver Miners SIL -0.79% 60.83% falling falling rising falling ema9 on 2016-12-14 2016-12-23
Silver $SILVER -2.20% 9.77% falling falling rising falling ema9 on 2016-12-14 2016-12-23
Copper $COPPER -2.75% 16.78% falling rising rising rising ema9 on 2016-12-12 2016-12-23
Platinum $PLAT -3.47% 1.18% falling falling falling falling ema9 on 2016-12-21 2016-12-23
Junior Miners GDXJ -4.15% 42.67% falling falling rising falling ema9 on 2016-12-09 2016-12-23

Gold consolidated this week – chopping sideways, avoiding making a new low. Friday's candle was just a “short white” candle, which if it can be believed, has a 40% chance of marking the low. While gold remains below its 9 EMA and it spend the week chopping sideways, it is quite oversold on the weekly chart, with the weekly RSI-7 at 18. This is normally “about-to-bounce” territory. It would not take much to push gold above the (daily) 9 EMA, which right now is hovering around 1141.

May rate-increase chances fell to 32%.

This week, gold open interest rose by +424 contracts, up to 365k contracts total.

Silver underperformed gold this week, making a new low to 15.67. Silver did print a hammer candle which appeared as though it might be a reversal bar, but then spent the last three days of the week falling. On Friday, silver printed a “short black” candle, which does not look bullish at all. Silver ended the week just ten cents from the low made on Tuesday. The gold/silver ratio shot up +1.48 to 71.92, which is bearish.

The miners made a new low along with silver on Tuesday, and then spent the rest of the week chopping sideways, finally printing a swing low on Friday. GDX was the sole PM component to turn in a positive result this week, although GDX has yet to cross the 9 EMA. The GDX:$GOLD ratio also climbed, hinting at a low, while the GDXJ:GDX ratio fell – although there are signs that the junior miners are recovering too. GDXJ missed a swing low by a single penny.

USD

After rocketing higher last week, the buck more or less moved sideways, first making a new high to 103.62 before retreating to close at 103.00, up just +0.08. The buck remains above its 9 EMA, and in a strong uptrend, but momentum does seem to be slowing down. While the buck missed printing a swing high by a few pennies, the Euro printed its own swing low, although it remains below the 9 EMA and in a clear downtrend. No doubt the fate of the dollar depends on just how unhappy people in Europe are about hanging onto their currency. The Euro broke long term (105) support last week, and if it can't move back above 105 in the near future, the most likely move is down.

While we are seeing faint “green shoots” in the PM space, those will be blasted away if the Euro resumes moving lower.

US Equities/SPX

The US equity market rose +5.72 [+0.25%] to 2263.79. It was a pretty uneventful week. VIX fell -0.76 to 11.44.

The sector map shows financials in the lead, while homebuilders appear to have resumed their downtrend. Its hard to get any sort of directional information from the light holiday trading.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 1.36% 35.53% falling falling falling falling ema9 on 2016-12-09 2016-12-23
Financials XLF 0.94% 20.94% rising rising rising rising ema9 on 2016-12-20 2016-12-23
Telecom XTL 0.85% 24.00% rising rising rising rising ema9 on 2016-12-23 2016-12-23
Technology XLK 0.78% 13.23% rising rising rising rising ma50 on 2016-12-07 2016-12-23
Industrials XLI 0.66% 17.83% falling rising rising rising ema9 on 2016-12-21 2016-12-23
Utilities XLU 0.41% 11.82% rising rising rising rising ma50 on 2016-12-09 2016-12-23
Cons Staples XLP 0.02% 2.34% rising falling falling falling ma50 on 2016-12-09 2016-12-23
Healthcare XLV -0.17% -4.13% rising falling rising falling ema9 on 2016-12-23 2016-12-23
Energy XLE -0.21% 24.01% rising rising rising rising ema9 on 2016-12-22 2016-12-23
Cons Discretionary XLY -0.29% 5.06% falling rising rising rising ema9 on 2016-12-22 2016-12-23
Materials XLB -0.30% 13.97% falling rising rising rising ema9 on 2016-12-16 2016-12-23
REIT RWR -0.49% 0.20% falling falling falling falling ma50 on 2016-12-23 2016-12-23
Homebuilders XHB -0.87% -0.61% falling rising rising rising ema9 on 2016-12-22 2016-12-23

Gold in Other Currencies

This week, gold fell in every currency except GBP – the pound was off -1.68% vs USD this week. Gold in XDR fell just -0.09, which really isn't much of a drop at all.

Rates & Commodities

TLT rose +0.78%, trying hard to climb above its 9 EMA, but ultimately failing to do so, ending the week below the 9 by just a few pennies. Its hard to know which way bonds will jump; although the downside momentum seems to be about spent, traders do not seem eager to load up on bonds at these prices.

JNK climbed +1.02%, up 5 days out of 5, and is now in a solid uptrend. JNK is above all 3 moving averages. The JNK:IEF pair trade continues to perform quite well.

CRB fell -0.47%; commodities continue to struggle, with agriculture and industrial metals dragging the sector lower. On the longer term weekly chart, commodities remain in recovery mode, above the weekly 9 EMA and the weekly 50 MA, with the 50 now visibly starting to rise.

Crude rose +0.37 to 53.25, suffering a relatively large loss on Wednesday following the bearish crude oil inventory report, but recovering on Thursday and Friday. Oil remains above its 9 EMA, and to me the rebound at the end of the week signals that the uptrend in oil remains intact. Based on this, I expect higher oil prices to come, although it might take until after the new year to break out to new highs. So far, the wall of selling from the hedgers isn't enough to drive crude into a move below the 9 EMA. That's bullish.

Physical Supply Indicators

* SGE premium to COMEX has risen to $30 over COMEX. Chinese remain very strong buyers of physical gold at these prices. Levels such as this also sometimes mark a low for gold.

* The GLD ETF tonnage on hand fell -12.45 tons, with 825 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1136.80 and silver closing of 16.14:

 PHYS 9.24 -1.05% to NAV [down]
 PSLV 5.98 -0.47% to NAV [down]
 CEF 11.33 -7.91% 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 higher for gold [2.18% for 100 oz bars in NYC], higher for silver [+3.10% for 1000 oz bars in NYC], and higher for silver eagles at +18.68% [NYC].

Futures Positioning

COT report covers trading through Dec 20th, when gold closed at 1133.90 and silver 16.14; this includes the big selloff on the day of the FOMC announcement.

In gold, commercials covered -14k shorts, while managed money bailed out of -8.5k longs. Managed money also added +6.3k shorts. The 83k total managed money shorts are starting to become “a thing”; often, lows are marked when managed money gets this heavily short. The short position could always increase, of course, but as of right now I think the setup is in place for a rally in gold, at least according to the COT. On the chart below, you can see that 5 times out of 7, “around” 80k shorts was a magic number for a low forming. That's probably because the commercials just can't resist running a short squeeze on managed money once the pile of shorts grows high enough.

In silver, commercials covered -7k contracts, and managed money sold -421 longs. From the “managed money long” perspective, we're probably near a low, but unlike in gold, there just aren't enough managed money shorts in silver for the commercials to run a squeeze operation: there are only 16k shorts, and the historical level for a low is around 30-40k.

Gold Manipulation Report

No meaningful spikes occurred this week.

Summary

Perhaps because of the holidays, it was a slow week for trading. The buck took a rest from its relentless move higher, and this helped gold to at least move sideways, and the miners actually managed to print a swing low. Miners tend to lead metal, so that's a positive sign. Still, silver is under-performing gold, so that's not so good, and we have yet to see the buck actually reverse direction.

Gold COT is suggesting a short-covering rally in gold could start at any time, based on the level of managed money shorts. Silver isn't there, although a whole lot of managed money longs have definitely been rinsed so silver might just follow along behind gold.

Gold and silver big bar shortage indicators still show no signs of shortage in the west; ETF premiums fell this week, as did GLD's tonnage, although at retail in the US premiums are starting to move higher.  In Shanghai, premiums continue to increase: now at $30.

If the Euro can avoid dropping further, I think gold will rally in the next week or two, based on the COT report, the oversold level on the weekly chart, the premiums at Shanghai, and on this week's sideways consolidation.  I believe that enough stars and moons have lined up to make this a reasonably likely outcome.

Tactically, I'd guess we will see “manipulation spikes” to the upside as the commercials kick off a raid on managed money's sizeable short position. After this week's sideways consolidation, gold is only $6 under its 9 EMA – it would not take too much to rattle the shorts. I'm not sure how long this rally might last or if it will result in a genuine trend change. That likely depends on the long term currency moves.

Risks to this are all currency-related: if the Euro starts heading towards parity, all bets are off, and we probably see gold 1100.

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3 Comments

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1449
Hawking Stocks to Kids at Christmas Time

Wall Street has hit a new low with its paid for reporting on local news about how nice it is to buy your child stock including parts of a stock.   The father's parting quote "I like 16%, 18% gain year after year.".   Just shameless.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5465
year after year

Gee, we'd all love 16% gains year after year.  No pension would be in trouble.  We'd all be sipping margaritas on the beach.

It does seem like the "Time Magazine Cover Curse" raising its ugly head.

http://content.time.com/time/covers/0,16641,20050613,00.html

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5465
about those spikes

Gold spiked up through the 1141 level (9 EMA) about ten minutes ago in the afternoon in Asia.  There was a 3500 contract 1-minute spike - someone clearly wanting to drive the price higher.

(Nobody buys gold like this if they're trying to get a good price)

I hate those gold manipulators, pushing prices higher like this.

smiley

Let's see if it holds through end of day.  My sense is, the commercials may be starting their run against Managed Money's newly-acquired pile of GC short contracts.

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