PM Weekly Market Commentary - 1/6/2017

davefairtex
By davefairtex on Sat, Jan 7, 2017 - 11:46pm

 

On Friday gold fell -8.00 to 1172.90 on moderate volume, and silver fell -0.11 to 16.52 on moderate volume also. The Nonfarm Payrolls report resulted in a sharp rise in the buck, which caused problems for PM today.

In spite of the losses on Friday, PM spent much of the week moving higher, led by the mining shares. Juniors did best, up +12.2%, a fantastic week by any measure – and this is even taking into account a -4.58% loss on Friday.

I have to say, this was one of the better-telegraphed moves in gold. Either that, or I'm getting better at seeing the signals. Juniors, platinum, senior miners, and copper are all back above their 50 MA lines, which is a mark of the strength of the PM rally. Gold and silver are still lagging, however; its possible that it is that the mining shares just got a bit ahead of themselves and needed some time to recover.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 12.20% 71.43% rising falling rising falling ma50 on 2017-01-05 2017-01-06
Silver Miners SIL 10.56% 86.35% rising falling rising falling ma50 on 2017-01-06 2017-01-06
Platinum $PLAT 7.32% 10.68% rising rising rising rising ma50 on 2017-01-04 2017-01-06
Senior Miners GDX 7.03% 50.47% rising falling rising falling ma50 on 2017-01-04 2017-01-06
Silver $SILVER 3.48% 15.45% rising falling rising falling ema9 on 2017-01-03 2017-01-06
Gold $GOLD 1.81% 5.72% rising falling falling falling ema9 on 2016-12-28 2017-01-06
Copper $COPPER 1.42% 25.78% rising rising rising rising ema9 on 2017-01-04 2017-01-06

Gold broke higher this week, rising to a high of 1185.90 before selling off after the Nonfarm Payrolls report on Friday. I was initially concerned by this outcome, but the “long black” candle on Friday was not seen by the candle code as bearish – it was actually somewhat bullish. Sometimes I don't know whether or not to believe the code, but it seems to be right more often than me. That's just machine learning in action, I guess. Those self-driving cars will probably be a lot safer than me as a driver too.

The May rate-increase chances rose to 34%.

Silver followed gold higher, making a new high to 16.71 before falling victim to the dollar-driven selling following the Nonfarm Payrolls report on Friday. Silver also had a spike event Friday morning at 00:01 Eastern, where a big manipulative dump took silver down 31 cents in one minute – 244 tons of paper silver were traded in an apparent attempt to run the stops of the longs. Silver eventually recovered, printing a spinning top/hammer candle on the day, which the candle code says is actually bullish. If you're long silver, that's the response from the buyers that you want to see. The gold/silver ratio fell -1.16 to 71.02, which is mildly bullish for PM overall.

The miners made new highs this week, breaking convincingly above the 50 MA, but the selling on Friday to end the week was fairly intense. Candle print was a bearish harami, which candle code rates as quite bearish: 64% chance of marking a high. GDX remains above its 50 MA, but the volume on Friday's day-o-selling was heavy which isn't a great sign. Hopefully the 50 MA will now start acting as support for the miners. While gold and silver did not end the week on a bearish note, the miners definitely did. Which indicator to follow, that's the question. The GDX:$GOLD ratio improved substantially, as did the GDXJ:GDX ratio; both are bullish.

USD

The buck printed a swing high in the first few days of the week, fell hard on Thursday, but then printed a “bullish tasuki line” to end the week, which the candle code tells me is a 43% chance of marking a low. So – swing high, or 43% reversal bar, which will it be? The Nonfarm Payrolls report was treated by the market as dollar-positive news; I'm not quite sure why that was, it doesn't make much sense to me, as it seemed that payrolls came in under expectations. Well, nobody asked me what I thought.

US Equities/SPX

The US equity market rallied four days out of four, up +38.15 [+1.70%] to 2276.98, making a new all time high on Friday. Money continues to flow into equities – I'll blame the January Effect, but what that really means is, I don't have any idea where the money flow is coming from, so the best I can come up with is the new drop of pension money that always lands on or about the first day of the New Year and needs to find a home. VIX fell -2.72 to 11.32. Puts are cheap once again.

The sector map shows sickcare in the lead, with utilities bringing up the rear. All sectors are now back above their 50 MA lines, though homebuilders are lagging a bit, as is energy.  Crude has been significantly outperforming energy equities.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 7.03% 50.47% rising falling rising falling ma50 on 2017-01-04 2017-01-06
Healthcare XLV 2.92% 2.74% rising rising rising rising ema9 on 2017-01-03 2017-01-06
Cons Discretionary XLY 2.36% 11.97% rising rising rising rising ema9 on 2017-01-04 2017-01-06
Technology XLK 2.15% 22.25% rising rising rising rising ema9 on 2017-01-03 2017-01-06
REIT RWR 1.99% 5.58% rising rising rising rising ema9 on 2016-12-29 2017-01-06
Materials XLB 1.85% 25.08% rising rising rising rising ema9 on 2017-01-04 2017-01-06
Telecom XTL 1.62% 34.34% rising rising rising rising ema9 on 2017-01-03 2017-01-06
Industrials XLI 1.48% 25.70% rising rising rising rising ema9 on 2017-01-04 2017-01-06
Financials XLF 1.25% 29.13% rising rising rising rising ema9 on 2017-01-06 2017-01-06
Homebuilders XHB 1.12% 8.29% falling rising rising rising ema9 on 2017-01-06 2017-01-06
Cons Staples XLP 0.79% 5.51% rising falling falling falling ema9 on 2017-01-03 2017-01-06
Energy XLE 0.76% 33.66% falling rising rising rising ema9 on 2017-01-05 2017-01-06
Utilities XLU 0.54% 13.22% rising rising rising rising ema9 on 2017-01-04 2017-01-06

Gold in Other Currencies

Gold rallied in every currency this week except the Ruble; gold in XDR was up +13, so we can see that our gold-in-dollars rally was at least partially a currency effect.

Rates & Commodities

TLT rose +1.73%, climbing all the way to touch its 50 MA before retreating on Friday. Bonds appear to be recovering at long last, and the candle code says that Friday's “bearish harami” is really nothing to worry about. Bonds remain quite well correlated with gold.

JNK climbed +0.80%, rising to a new high for this cycle. JNK is above all 3 moving averages and continues to look quite strong. As always, its hard to see a correction in SPX without having some weakness in junk debt too.

CRB rose +0.53%, overcoming a huge oil-and-natgas-driven drop on Tuesday to close in positive territory by end of week. CRB remains in a strong uptrend, above all 3 moving averages, and has moved very close to a new high for this cycle.

Crude rose +0.07 to 53.96, managing to recover from a huge red candle on Tuesday. The petroleum status report on Thursday showed a bullish inventory draw for crude, but bearish inventory builds for gasoline and distillates.  The mixed report caused crude to sell off briefly, but then the dip-buyers appeared and prices recovered by end of day.  That looks bullish to me.  All the dips keep getting bought for crude; as long as that keeps happening, crude will remain in an uptrend.

Physical Supply Indicators

* SGE premium to COMEX has risen to $32 over COMEX. Chinese remain very strong buyers of physical gold at these prices, even after the recent rally in gold. It probably helps that the RMB continues to plunge vs the USD.

* The GLD ETF tonnage on hand fell -8.58 tons, with 813 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1172.90 and silver closing of 16.52:

 PHYS 9.59 -0.58% to NAV [up]
 PSLV 6.28 -0.05% to NAV [up]
 CEF 11.83 -7.36% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for gold or silver.

* Big bar premiums are lower for gold [2.08% for 100 oz bars in NYC], higher for silver [+3.13% for 1000 oz bars in NYC], and lower for silver eagles at +17.37% [NYC].

Futures Positioning

COT report covers trading through Tuesday Jan 3rd, when gold closed at 1159.40 and silver 16.35.

In gold, commercials added +4k shorts, while managed money also added +4k shorts. Curious. Managed money has not only retained its large short exposure – it even added to it this week. The 91k short interest for managed money tells us that the commercials have every incentive to keep pushing the price of gold higher. That's a clearly positive indicator for a continuing rally in gold.

In silver, commercials added +2.3k shorts, while managed money added +376 shorts too. There really aren't enough managed money shorts in silver to provide a convincing target for the commercials. Therefore, the rally, if one happens, will be up to the managed money longs, who were inspired to buy +3.5k contracts this week. The silver longs have mostly been rinsed out of their positions, so there is the potential that some of them could come back and help push prices higher, but I dunno. Silver just has less potential right now than gold, from the COT perspective anyway.

Gold Manipulation Report

There was one large manipulation spike in silver, as I mentioned, that happened at 00:01 Friday morning, which took silver down 0.31 in one minute. It didn't seem to affect the trend, as silver managed to recover and even printed a bullish hammer candle by end of day.

Summary

PM started the new year with a nice pop, following through from the 9 EMA crossing that happened in the last few days of 2016. Miners did even better. The dollar printed a swing high and moved down off its highs. SPX made new highs, bonds recovered, JNK rallied, crude avoided correcting, and – for the most part, asset prices climbed.

Gold COT continues to look bullish, with managed money owning 91k short contracts that the commercials are probably just itching to cash in on. Silver doesn't look at all the same; managed money has only a small short position, so the same incentives aren't in place for a silver rally. We'll need fresh long buying in order to get silver moving higher.

Gold and silver big bar shortage indicators still show no signs of shortage in the west; ETF premiums rose slightly this week, while GLD tonnage fell. In Shanghai, premiums continue to increase, and are now at $32. That's definitely a bullish level for premiums in Shanghai.

Most indicators are positive for a continuation in the gold rally. The sole fly in the ointment are the mining shares, which printed a disagreeable candle pattern on Friday that suggests weakness ahead. I expect the buck will cast the deciding vote – if it chops sideways or falls, then gold has the potential to continue moving higher, but if the buck recovers and moves to new highs, that probably spells trouble for PM.

My trend-following code suggests gold, silver, the miners, SPX, and treasury bonds remain in an uptrend, while the buck, crude, and natgas are in a downtrend. For what its worth.

I think I'm going with the COT report this week. Managed money is still way too short. That's not a guarantee of any sort of near-term outcome, but in the past it has been a relatively reliable indicator. And trading is about odds, not about certainties. If you wait until you're sure, its probably too late.

Now gold just needs to break through that 50 MA...

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