PM Daily Market Commentary - 2/6/2017

By davefairtex on Tue, Feb 7, 2017 - 2:43am


Gold rose +15.70 to 1237.30 on moderate volume, and silver climbed +0.23 to 17.74 on moderately light volume. Both gold and silver rallied steadily today, apparently immune to any currency moves. Miners led, with GDX closing well above its 200 MA for the first time since November. Today, it was all systems go for gold.

Gold rallied all day long, starting in Asia and not stopping until the market close. Today's candle print is a “white marubozu” (the “rally all day long” candle), which is quite frequently bullish – and is definitely bullish in this case too. Gold broke out to new highs, and appears to be heading for the 1250 resistance zone.  I expect some amount of selling to appear as all those trapped longs who "bought the dip" around 1250 back in October sell once they get back to even.

Open interest at COMEX for GC rose by +11,563 contracts.

Rate rise chances (May 2017) fell to 26%.

Silver looked much the same as gold, although a slight dip at market open kept the final candle print from looking quite so pretty: it was a “closing white marubozu”, which also confirmed the “high wave” candle from last week. Both candle patterns are bullish. Silver hit a new high of 17.76, and it appears to be headed for a test of the 200 MA. The volume was a bit low, and the gold/silver ratio fell just -0.02 to 69.75. These two results are a bit less than one might have hoped given how well the rest of the PM space is doing – perhaps the lack of managed money shorts could be a reason why silver's move higher hasn't been as explosive.

After a two-hour drop at the open, mining shares rose steadily right into the close. GDX was up +3.67% on moderate volume, while GDXJ jumped up +7.72% on very heavy volume. The big, high-volume move in the juniors is a serious risk-on indicator for PM. On the chart you can see the GDX candle print (a closing white marubozu - bullish) as well as the clean break through the 200 MA. Above there is a resistance zone around GDX=26, where I would expect selling pressure from the “trapped longs” to appear.  Both GDX and GDXJ are now in overbought territory (RSI7=82 and 86 respectively), and so I'm not sure how many more days of moves like this we can expect.  Still, lets enjoy them while they last.

Platinum rose +1.14%, palladium jumped up +3.03%, and copper rose +1.41%. Platinum broke above its 200 MA today. All the metals look strong at the moment.

USD tried rallying today, at one point up almost +0.50, but the rally failed, and USD closed up just +0.02 to 99.81. Once again, the buck attempted to cross the 9 EMA and failed. Candle print was a spinning top, which gives us no help as to direction. While the buck has rallied very slightly over the past four days, it remains in a downtrend.

Crude fell -0.66 to 53.25. Once again, crude attempted to rally through the 54 price level, but could not make any progress, selling off instead. Candle print was a “confirmed bearish NR7”, which the code says will mark a top 46% of the time. That's bearish. That 54 price level continues to look like the line-o-death for crude. As I said in the weekend commentary, the COT report for crude is overwhelmingly bearish, with the commercials lined up with the highest concentration of short positions ever in the history of the series.   Concentrations like this often mark the tops.  Here is what that looks like on the weekly chart.  See how the spike higher in commercial shorts (red line) coincided with oil prices moving sideways?

SPX fell -4.86 to 2292.56. The modest drop was led by falling energy (XLE:-0.84%) while industrials (XLI:+0.14%) did best. In truth, the trading range was narrow today, with the candle print a “short black” candle – but also a “bearish harami” which the code says is a 40% chance of marking a top.  If we get a drop tomorrow that closes below the 9 EMA, this could be an example of a possible minor “lower high”, which would be a short entry.  Shorting today is higher risk than waiting for the confirmation tomorrow.  VIX moved up +0.40 to 11.37.

TLT rose +0.61% on the day, managing to move back above its 9 EMA and 50 MA. The 10-year did a bit better. Bonds may be putting in a low here, at long last.  That's hints of risk off.

JNK fell -0.16%, dropping below its 9 EMA. That's a hint of risk off too.

CRB fell -0.54%; only 2 of 5 groups fell, but the reasonably large move lower in energy was strong enough to pull down the entire complex. CRB is back below its 9.

Gold has really changed behavior in the past few weeks. Before, gold was very sensitive to moves in the buck. Today, however, I saw gold rally strongly right alongside the dollar, and then when the dollar retreated, gold rallied even more. This suggests to me that sentiment has changed. It might be inflation, it might be the market reducing the likelihood of a May rate increase (now down to just 26%), or it might be some safe-haven buyers deciding to shift from the buck to gold.

What backs the buck again? In essence, its about perception - of the Deep State, the US military, the overall US economy, and now – Trump.

Lastly, a falling JNK, a rising TLT, and the SPX bearish harami hint at a potential move lower for equities.  Right now, it is just a hint, not any sort of trend change, and on the weekly chart, this move doesn't even show up.  I only mention it because I made that post about "when to short".  I'd like to have JNK fall further, TLT to rally for another day, and SPX to close below the 9 before doing anything.

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vadim_75's picture
Status: Bronze Member (Offline)
Joined: Oct 18 2015
Posts: 48

"Both gold and silver rallied steadily today, apparently immune to any currency moves".

Sorry to say but that seems to be wrong. The only thing that price of gold is correlated with is usd/jpy. No yeld curves, no dollar index per se, but only usd/jpy and correlation is almost perfect (-1). Yesterday usd rose but so did yen, it rarely happens that's why it was little bit confusing. 



davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5740
perfect correlation??

I definitely see the influence, and over the past three months the correlation is closer than normal, but over the longer term, it fades in and out.

Here's what I mean.  Correlation with $XJY is in the drop-down chart below gold.  Since November the correlation hovers between 0.5 and 1, which is pretty good.  But before that, it bounces around a fair bit.

And if I look at my trading app, and I apply a 10-point correlation of GC with USD/JPY, I'm not seeing any sort of perfect correlation.  The correlation of GC to EUR/USD looks to be roughly on the same order.  I'm looking at a 30 minute chart.

Yesterday though, as you say, the intraday (negative) correlation with JPY was reasonably strong, while the correlation with USD was actually positive.

Can you post a chart where you see your perfect correlation?

vadim_75's picture
Status: Bronze Member (Offline)
Joined: Oct 18 2015
Posts: 48

I didn't mean that it's been always like that, from time to time the correlation is falling (btw, it would be a strong buy signal for me next time it happened), but if you tell me where usd/jpy now i could tell where the gold is (+- 2 bucks) without looking on the gold chart. And i can't prove it but i have strong feeling that the leading moving always is in yen.

I have no idea BTW where this correlation came from, i haven't heard any reasonable explanation of the fact.

I'll try to attach the chart, just don't know how to extract it from the terminal. 

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