PM End of Week Market Commentary - 1/20/2017

davefairtex
By davefairtex on Sun, Jan 22, 2017 - 8:05am

 

On Friday gold rose +5.90 to [+0.49%] to 1210.20 on moderately heavy volume, and silver climbed +0.08 [-+0.50%] to 17.11 on moderate volume. Once again, the dollar played the tune; an initial dollar rally caused gold to sell off, and once the buck reversed, gold rebounded. Gold's move on Friday was almost entirely a currency effect.

PM is moving slowly higher, led this week by palladium which staged a massive +4.7% rally on Friday. What's up with palladium? It is up 58% over the past 52 weeks. I confess, I have been ignoring palladium, since it tends to move (imperfectly) along with the auto industry rather than with the rest of PM, but this move seems to be outpacing any move higher in (at least) US auto production.

As for the rest of PM, GDX led, followed by silver, then gold. That's usually a good sign – with the noted exception of the junior miners, who are lagging. All PM components are now above their 50 MA, which should bring in some buying from the longer term traders, although ideally we'd like that 50 MA to be heading up, not down.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 5.07% 57.98% rising rising rising rising ma50 on 2017-01-03 2017-01-20
Senior Miners GDX 1.67% 79.09% rising falling rising falling ma50 on 2017-01-04 2017-01-20
Silver $SILVER 1.66% 21.43% rising falling rising falling ma50 on 2017-01-17 2017-01-20
Silver Miners SIL 1.50% 137.90% rising falling rising falling ma50 on 2017-01-09 2017-01-20
Gold $GOLD 1.09% 9.88% rising falling falling falling ma50 on 2017-01-12 2017-01-20
Junior Miners GDXJ 0.95% 111.97% rising falling rising falling ma50 on 2017-01-05 2017-01-20
Platinum $PLAT -0.43% 20.02% rising falling rising falling ema9 on 2017-01-20 2017-01-20
Copper $COPPER -3.33% 31.23% rising rising rising rising ema9 on 2017-01-04 2017-01-20

Looking at the weekly gold chart, we can see that the yellow metal has risen now four straight weeks – this mirrors what the buck has done during that same period, which is to drop four straight weeks. Is it as simple as that? Probably. If the buck continues to move lower, then gold will probably continue to rally.  In addition, we can also see a "golden cross", which is a long term bullish signal that you might want to pay attention to if you trade on a yearly timeframe.

On the daily chart, we see that gold has been well-supported by the 9 EMA; every intraday drop managed to find buyers each time price reached the daily 9 EMA. As long as that keeps happening, the uptrend remains in place. Candle print on Friday was a “spinning top” which the candle code considers bullish. In truth, it looked a bit like a hammer candle, and it actually confirmed Thursday's bounce too. Intraday, Friday's modest rally was aligned in time with Trump's inauguration speech, which caused the buck to slide, and gold to rally.

The May rate-increase chances rose to 34%.

COMEX GC open interest rose +21,155 contracts.

On the weekly chart, you can see that Silver's weekly 50 has yet to cross the weekly 200 - no golden cross for silver.  What's more, silver appears to have had more trouble with the 200 MA. These milestones are useful in looking at relative performance.  It appears that silver's longer term performance lags gold.

On the daily chart, silver has broken sharply above its 50 MA, which is a bullish sign. However, silver is looking a bit weaker than gold. Silver's 9 EMA hasn't provided quite the same level of support – while silver has yet to close below the 9, on four different occasions silver has dropped below the 9 intraday, most recently on Friday. Still, silver's “bullish engulfing” candle print on Friday is quite bullish and most likely a “continuation” - 82% chance of this being a near-term low. On the week, the gold/silver ratio fell -0.40 to 70.01, which is mildly bullish for PM.

On the weekly chart, the miners are looking stronger than either gold or silver, having moved above their weekly 200 MA two weeks ago.  Like gold, GDX has executed a weekly-chart “golden cross” 9 weeks ago.

On the daily, we see the miners moving slowly higher this week, supported by the 9 EMA. On Friday, the candle print was a spinning top, which the candle code says is mildly bullish. The GDX:$GOLD ratio rallied a little this week, which is mildly bullish, while the GDXJ:GDX ratio fell slightly, with is mildly bearish. While over the longer term the miners are doing quite well, over the past few weeks the miners have struggled to move higher; momentum has greatly slowed, and the MACD appears to be signaling a potential correction.  A close below the 9 EMA would be the first signal of such a correction.

USD

On the weekly chart, we see that the buck has fallen four straight weeks, and that there is rough support at round number 100. On the weekly chart, at least, the buck is far from being oversold, so it has room to drop further.

The buck fell four days out of five again this week, dropping -0.51 to 100.65, ending the week convincingly below the 50 MA. Candle print on Friday was a “closing black marubozu” as well as a two candle swing high, all of which added up to a bearish tone. During the last few weeks, the 9 EMA has acted as resistance. That means we probably shouldn't worry too much about a dollar rebound until we see a close back above the 9.

 

US Equities/SPX

The US equity market ended the week down just -3.33 to 2271.31, chopping sideways again this week. It looked for a moment on Thursday as though we might see a correction, but Friday the market moved back above its 9 EMA. That said, the “high wave” candle on Friday was seen by the candle code as being quite bearish: a 69% chance of marking the top.

VIX rose +0.31 to 11.54. Puts are cheap.

While there is a lot of green in the sector map below, the specific sectors that fell reveal a more bearish tone, with financials and sickcare leading the market lower. Financials generally provide direction; when they drop, its generally a sign of bad things to come.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Cons Staples XLP 2.06% 8.50% rising rising falling rising ema9 on 2017-01-17 2017-01-20
Gold Miners GDX 1.67% 79.09% rising falling rising falling ma50 on 2017-01-04 2017-01-20
REIT RWR 0.67% 9.46% rising rising falling rising ema9 on 2017-01-20 2017-01-20
Materials XLB 0.43% 35.05% rising rising rising rising ema9 on 2017-01-20 2017-01-20
Industrials XLI 0.35% 31.56% rising rising rising rising ema9 on 2017-01-18 2017-01-20
Technology XLK 0.28% 26.75% rising rising rising rising ema9 on 2017-01-03 2017-01-20
Utilities XLU 0.27% 13.04% falling falling rising falling ema9 on 2017-01-19 2017-01-20
Energy XLE 0.22% 39.64% falling rising rising rising ema9 on 2017-01-05 2017-01-20
Cons Discretionary XLY -0.04% 16.49% rising rising rising rising ema9 on 2017-01-04 2017-01-20
Homebuilders XHB -0.44% 16.04% falling rising rising rising ma50 on 2017-01-20 2017-01-20
Telecom XTL -0.97% 43.42% falling rising rising rising ema9 on 2017-01-17 2017-01-20
Healthcare XLV -1.52% 4.57% falling rising falling rising ema9 on 2017-01-17 2017-01-20
Financials XLF -1.53% 36.41% falling rising rising rising ema9 on 2017-01-17 2017-01-20

 

Gold in Other Currencies

Gold rallied in every currency this week except GBP, which fell $8. Gold rose +11.75 in XDR.

Rates & Commodities

TLT fell -1.13%, diving back below both the 9 EMA and the 50 MA, printing a swing high. Its hard to know if this will lead to another leg down for bonds but it might. If it does, that is probably bad for gold.

JNK fell -0.08%, dropping briefly below the 9 EMA on Thursday only to crawl back above it on Friday. The hints of weakness in JNK is supporting the concept of a near-term correction in equities.

CRB fell -0.27%, falling back after making a new closing high for commodities mid-week. Commodities remain in a strong uptrend.

Crude rose +0.20 to 53.24, managing to hold it together after a bearish-looking petroleum status report showed a large crude and gasoline inventory build which led to a brief sell-off that was then bought. OPEC appears to be making good on their production promises; perhaps the terror of mid-$30s gold is keeping them honest. Candle print on Friday was an “opening white marubozu”, which the candle code finds quite bullish: a 73% chance of being a low. Crude really needs a close above 54 to start any sort of move higher. The rally off the bearish petroleum status report is a sign of strength.

Physical Supply Indicators

* SGE premium to COMEX fell to $9 over COMEX. The rally in gold continues to reduce the SGE premium.

* The GLD ETF tonnage on hand rose +1.19 tons, with 809 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1210.20 and silver closing of 17.11:

 PHYS 9.92 -0.31% to NAV [down]
 PSLV 6.53 +0.47% to NAV [up]
 CEF 12.28 -6.93% to NAV [down]

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

* Big bar premiums are lower for gold [2.04% for 100 oz bars in NYC], higher for silver [+3.28% for 1000 oz bars in NYC], and lower for silver eagles at +17.53% [NYC].

 

Futures Positioning

COT report covers trading through Tuesday Jan 17th, when gold closed at 1216.70 and silver 17.22.

In gold, commercials added +2k shorts, and managed money added +3k shorts too. Surprisingly, this week the commercials added +5k longs and managed money added +6k longs. Plenty of fuel remains for a managed money short-covering rally, but the added long exposure by the commercials is surprising – surprising and bullish.

In silver, commercials added +6.4k shorts, while managed money closed -2.5k shorts and added +2.5k longs. Commercials went long too, +3.6k contracts. Some funny things are happening, but so far silver is not close to a top, at least from the point of view of the COT.

 

 

Summary

Same story, fourth week in a row: PM continued moving higher, aided by the falling dollar.  Now all PM elements are convincingly above their 50 MA lines.  Silver did somewhat better than gold this week, and while numerically GDX outperformed gold, the charts don't really show it; the miners continue to lag.  Miners should be doing a lot better than they are doing.  Palladium has been the star metal over the past 52 weeks.

Gold COT still looks bullish - its unchanged, actually - with managed money owning 83k short contracts. Managed money in silver has a small short position, while both the commercials and managed money are going long. This buying is probably what is causing silver to move higher.  Silver certainly isn't moving higher on short-covering.

Gold and silver big bar shortage indicators still show no signs of shortage in the west; ETF premiums were mixed, and GLD tonnage rose slightly. In Shanghai, premiums continue to drop, but remain positive. Chinese are still net buyers at these prices.

I hate to sound like a broken record, but as long as the buck continues to fall, gold should perform well.  The move higher in gold isn't just a currency effect, though; gold in Euros continues to rally too, albeit less enthusiastically.  One concern: the gold rally in Euros is starting to flatten out; if gold-in-euros breaks below its 9 EMA and starts to fall, that would probably lead to an eventual correction in the metal, and we might get an advance warning by watching that chart.  So far, however, the bull case remains in place.

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6 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5414
BOJ Asset update

I sort of stopped watching what the BOJ was doing for a while, and when I went back to look at it...well here's what the balance sheet looks like.  This is in JPY, of course, but if we do a little math, we notice that this ends up being 4.14 trillion USD, or about 92% of what the FOMC is holding.  Of course, Japan's GDP is somewhat smaller...if we divide both numbers by the respective GDP values, we see that the BOJ is holding 98% of Japanese GDP in total assets, while the Fed holds about 24% of US GDP.

 

Oh heck here's what that looks like.

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1614
Looks totally sustainable to me

Thanks Dave!  Turn your back for a minute and the BOJ floats off the planet into outer space.  Perfectly normal.  You're going to need a bigger chart by summer, or sooner.

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 377
Amazing

What amazes me is that is what it takes just to keep the motor running. Imagine how much the Japanese would need if they actually wanted to go somewhere!

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 364
PMs

Hard to hate the action in Gold/Silver/Miners today.  I guess you can find some reason not to be bullish, like a currency effect or something, but the moves today were pretty good, I thought.  Armstrong is looking at what, the $1220ish level for an indication of a sustained upward move for a while?  Bonds were up, so it looks like the bond/PM/inverse dollar correlation is still en vogue for now.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5414
BOJ, PMs

@thc, Luke-

I have to admit, I was astonished to see just how much the BOJ owns - I think it is something like 37% of the (already very large) JGB market.  Its just absurd.  They can't ever sell those bonds.  And yes, this is what it takes to just keep things afloat.  That can't be good, right?  These guys make the Fed look like slugs.  History being made, etc.  I do wonder what the trigger will be.  Its so easy reading the history books since you know how it will turn out, but living through it, things are a whole lot less clear.

@CR

The miners looked good, gold less so.  The move down in the buck was pretty substantial, and so in Euros, gold didn't do much at all.  My issue is: if you live solely by the buck, you die by it also, and once momentum in the buck reverses, those commercials will jump in with both feet and - its always an "elevator" on the way down, even more so when the commercials are standing on your head.

The COT still looks good, and hopefully that buck keeps dropping.  Meanwhile, "go miners!"

Armstrong's approaching "weekly bullish reversal": 1221.  If we close above that (I think on a weekly basis), gold could gain as much as $100, according to him.  If it touches 1221 and heads lower, that's a bad sign.

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 377
Is Kuroda in Wonderland?

It reminds me of a quote from Alice in Wonderland;

“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.” 

I was also going to cast Abe as the Mad Hatter but then I saw this Cheshire Cat quote;

“Imagination is the only weapon in the war against reality.” 

Are the Japanese Central Planners actually turning to Lewis Carroll for financial guidance? Now there's a scary thought!

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