PM End of Week Market Commentary - 2/24/2017

davefairtex
By davefairtex on Sun, Feb 26, 2017 - 4:07am

 

On Friday gold rose +7.30 to 1258.00 on moderate volume, and silver climbed +0.18 to 18.41 on very heavy volume.

This week, we see gold and silver doing well, with silver leading gold, while the miners fell. Platinum actually performed best, while the junior miners did worst. The divergence between the miners and gold is becoming more striking. The GDX:$GOLD ratio dropped quite substantially this week, which is bearish.  At the same time, silver is leading gold; that's bullish.  Which one is "right"?  Its really hard to say.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum $PLAT 2.48% 11.11% rising rising falling rising ema9 on 2017-02-23 2017-02-24
Silver $SILVER 2.02% 21.31% rising rising rising rising ma200 on 2017-02-14 2017-02-24
Gold $GOLD 1.78% 1.97% rising rising falling rising ema9 on 2017-02-14 2017-02-24
Palladium $PALL -0.56% 58.82% falling rising rising rising ema9 on 2017-02-22 2017-02-24
Copper $COPPER -1.32% 28.67% falling rising rising falling ema9 on 2017-02-23 2017-02-24
Silver Miners SIL -2.35% 64.65% falling rising rising rising ema9 on 2017-02-17 2017-02-24
Senior Miners GDX -2.66% 24.45% falling rising falling rising ema9 on 2017-02-17 2017-02-24
Junior Miners GDXJ -2.81% 55.57% falling rising rising rising ma200 on 2017-02-24 2017-02-24

Gold broke out to new highs this week, with the gains coming on Thursday and Friday. On the chart we see gold moving through 1250 resistance up almost to the 200 MA. Gold is somewhat overbought, with RSI7=76. Friday's candle print was just a “long white” candle, which does not mark a top. This week's breakout eliminated last week's concerns over slowing momentum.

The May rate-increase chances rose to 43%.  However, gold doesn't seem to mind anymore.

COMEX GC open interest rose +26,462 contracts.

Silver retreated for the first two days of the week, finding support at the 200 MA, and then broke out to new highs Thursday and Friday. Candle print on Friday was an opening white marubozu, which does not mark a top. Silver is overbought, with RSI7=82. Next resistance point: the previous high at round number 19. The gold/silver ratio to fall -0.16 to 16.31.  The heavy volume suggests a strong bid underneath silver right now.  Except for the overbought condition, this all looks bullish.

Miners fell again this week; GDX dropped -2.66%, while GDXJ fell -2.81%. Miners are falling while the metal is rising, and the juniors fell more than the seniors. Both of these outcomes are bearish. GDX tried to rally, but the 9 EMA acted as resistance. That doesn't look good either, especially since the metals broke out to new highs. Candle print on Friday was an opening black marubozu, which the candle code finds to be quite bearish. How can the miners be looking ugly while the metal makes new highs? That doesn't happen very often, and it usually doesn't end well - for PM - because the miners tend to lead.

USD

The buck rose +0.16 to 101.05. It spent three days trying to move up through the 50 MA and failed, but Friday's attempted sell-off was bought. The “high wave” candle on Friday was very bullish, according to the candle code, which rates it as a 70% chance of marking a low. That's as bullish as high wave candles get. The buck has been unable to make it through the 50 MA, and yet it also refuses to sell off.  It will resolve one way or the other, and soon.  For now, momentum for the buck is to the upside moving into next week.

US Equities/SPX

The US equity rallied again, up +16.18 [+0.69%] to 2367.34, which is another new all time closing high. Candle print: closing white marubozu, which the candle code determines is bullish. Even though SPX is very overbought (RSI7=87), momentum is still to the upside. Don't go short until you get a signal, and so far, I haven't seen one.

VIX fell this week -0.02 to 11.47.

Sector map shows the utilities and REITs in the lead, while telecom and energy were the worst performing sectors. The map shows a rough “reach for yield” pattern – if it were a “Trump Infrastructure” rally it would include basic materials and industrials - both of which fell; if it were a normal bull market then tech and financials would be in the lead, and they were mixed.  In truth, XLU is "going vertical" right now, with Friday's +1.52% gain a very large move for the normally placid utility sector.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 4.08% 8.66% rising rising rising rising ema9 on 2017-02-16 2017-02-24
REIT RWR 1.81% 8.77% rising rising falling rising ma200 on 2017-02-24 2017-02-24
Healthcare XLV 1.52% 10.92% rising rising rising rising ma200 on 2017-02-03 2017-02-24
Cons Staples XLP 1.51% 6.68% rising rising rising rising ma200 on 2017-02-07 2017-02-24
Homebuilders XHB 1.21% 15.84% rising rising rising rising ema9 on 2017-02-09 2017-02-24
Technology XLK 0.84% 27.22% rising rising rising rising ema9 on 2017-02-01 2017-02-24
Cons Discretionary XLY 0.36% 16.03% rising rising rising rising ema9 on 2017-02-08 2017-02-24
Materials XLB 0.25% 26.46% rising rising rising falling ema9 on 2017-02-24 2017-02-24
Industrials XLI 0.00% 25.79% rising rising rising falling ema9 on 2017-02-03 2017-02-24
Financials XLF -0.20% 42.05% rising rising rising falling ema9 on 2017-02-09 2017-02-24
Energy XLE -1.36% 24.78% falling falling rising falling ema9 on 2017-02-16 2017-02-24
Telecom XTL -1.73% 34.12% falling rising rising falling ema9 on 2017-02-23 2017-02-24
Gold Miners GDX -2.66% 24.45% falling rising falling rising ema9 on 2017-02-17 2017-02-24

Gold in Other Currencies

Gold rallied in every currency this week, doing best in Euros, up +33. Gold in XDR was up +24.96.

Rates & Commodities

TLT rose +1.40% this week, with most of the gains coming on Friday. Candle print was a “confirmed NR7” which the candle code finds to be very bullish. Bond may finally be starting to recover – although I've said that before and I've been wrong. This week's move in TLT does seem aligned with that big move higher in utilities – so maybe the reach for yield has returned, at least for now.

JNK rose +0.51%, making a new high. JNK is overbought, although a bit less than SPX.  JNK continues to signal risk on.

CRB fell -0.62%, marking a new low this week and continuing its slow retreat from the mid-January highs. Only the PM sector rose this week; the rest fell.

Crude rose +0.36 to 54.01. This week, crude tried two times to move through 55, failed, and sold off back to the 54 level by end of week. Once again, 54 resistance has proved to be too much for crude to surpass. On Thursday, the EIA reported a very modest crude inventory build of about 800k barrels, which was bullish, as it was far better than the massive builds of 13+ million barrels seen the previous two weeks.  Crude remains above its 9 EMA, and it does appear to be slowly chewing through the 54 resistance zone – the key word being “slowly.”  Energy equities, by contrast, have sold off all during this timeframe, off perhaps 10% from the highs set in early December.  XLE was down -1.36% this week.

Physical Supply Indicators

* SGE premium to COMEX is currently at +12.04 over COMEX.

* The GLD ETF tonnage on hand was unchanged, with 841 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1258.00 and silver closing of 18.41:

 PHYS 10.33 -0.16% to NAV [up]
 PSLV 6.98 -0.61% to NAV [down]
 CEF 12.75 -7.8% 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 higher for gold [2.25% for 100 oz bars in NYC], lower for silver [+2.98% for 1000 oz bars in NYC], and lower for silver eagles at +16.84% [NYC].

Futures Positioning

COT report covers trading through Tuesday February 21st, when gold closed at 1236.70 and silver 18.03.

In gold, commercials added +9.9k shorts, while managed money added +6.9k longs and bailed out of -7.5k shorts. The changes in positioning were relatively minor. Managed money shorts are down to 64k, which is still far from marking any sort of top.

In silver, commercials added +6.5k shorts, bringing the total to 154k total. The high from last year is about 160k – which we are one week away from reaching. Managed money longs rose by +5.6k to 90k total, below the high of 104k longs set last June. We could well be at or near a top for silver, from the COT perspective.

Gold Manipulation Report

There were no after-hours spikes seen this week.

Summary

Gold and silver did well, with both of them breaking to new highs. The buck more or less moved sideways, although Friday's bounce ended the week on a positive note. The miners – they look ill. The divergence between the miners and the metal is striking. SPX made yet another new high, TLT looks to be recovering, and commodities continue their slow retreat.

Gold COT still looks bullish – although slightly less so from last week. The silver commercial short position continues to rise; we are just one week away from possibly marking a top for silver, at least from the COT perspective.

Gold and silver big bar shortage indicators still show no signs of shortage in the west; ETF premiums were mixed, while GLD tonnage was unchanged. In Shanghai, premiums remain in place. This is a puzzle; either China is limiting imports, or the buying in China remains very heavy. Normally during a rally in gold, Shanghai premiums vanish.  But for whatever reason, the premium at Shanghai is still there.

Currently PM indicators are pulling in two directions; silver leading gold is bullish, both silver and gold breaking to new highs is bullish, but the decline in GDX – while gold is rallying – is distinctly bearish, because miners usually lead.  Which one is right?

I'm thinking the bid for the metals is coming from Europe. We are not seeing much movement on the COT report, but the buying pressure is there for sure. Does this mean the COT report won't be giving us proper signals? Its quite possible.  It also may be that the Europeans want gold, rather than the miners, although I'm not sure why traders are selling miners when gold itself climbs.  Of course, that exact thing has been happening in the oil sector.  Perhaps the miners just rose too fast in the recent rally?

Confirming the stress from Europe, we are also seeing a build-up in TARGET2 imbalances in Germany – back to levels last seen in 2012, at the height of the Eurozone crisis. Money is fleeing to Germany from Spain and Italy. Mish had the story on that: https://mishtalk.com/2017/02/24/fuse-is-lit/.

The parliament in the Netherlands is going to have a comprehensive debate on the Euro after the coming elections are past. They will ask, “is it possible to withdraw from the Euro, and if so, how would it be done?” http://www.reuters.com/article/netherlands-election-euro-idUSL8N1G95BX. Recognize that simply having this debate crosses the Rubicon in some way; the Netherlands was one of the original 6 Eurozone members. Its a very different tone from 5 years ago, when the story was all about the irrevocability of Eurozone membership.

I'm sure the politicians currently in power aren't really interested in going there.  As such, this is an acknowledgement of popular unrest regarding the Euro.  If your political party is projected to lose seats in parliament by being pro-Euro, its probably a good idea to throw your anti-Euro voters some kind of bone to keep them from bolting. Trump is the perfect example of what happens if you just ignore the problem. Of course, BRExit was designed to be just that sort of bone, and look what it turned into.  Sometimes these things can develop a life of their own.

So that Euro-currency uncertainty continues to appear gold-positive and Euro-negative – although depending on how the Trump thing plays out, the damage to the Euro might well be contained, with gold being the sole winner. German bank deposits may end up being the pressure release for Europe, rather than the buck, if the unrest in the US continues.

Dutch general elections: March 15th.

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12 Comments

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 133
How much Euro?

Hi Dave,

thanks as always for the excellent analysis.

Given the current risks to the Euro, if you were a European, what percentage of your cash would you hold as Euro? (aside from cash for living expenses). 

I'm in this situation (in Ireland), and currently hold 58% cash and 42% PMs. Of my cash about 25% is in Euro, but I'm considering reducing this even further, particularly given that my future earnings will all be in Euro.

E.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
how much Euro

Eanno-

So poking around, I ran into this article on "what happens when a currency union blows up."  The case: Hapsburg Empire dissolution after WW1.

http://www.aicgs.org/site/wp-content/uploads/2013/08/Gummer_Ghosts-of-the-Habsburg-Empire_8-28-2013.pdf

After reading this case study, the answer is, "it depends" - mostly on how your country will decide to deal with the breakout.  Czechoslovakia chose the austerity route.  Austria chose the inflation/hyperinflation route.

Czechoslovakia, the most industrialized of the successor states, attacked its public debt at first through a combination of capital levies, domestic saving, deflation, and austerity. Yet in the process it initially suffered high unemployment rates ... Czechoslovakia employed other techniques to raise money from its citizens and finance its obligations. First, when stamping the old Austrian crowns, the state kept half of all notes brought to the authorities as well as half of all bank deposits. This was austerity at its most extreme. In effect, the capital levy took money out of circulation, forced prices down, and raised funds for the government.

Bottom line though, even under austerity, they can & will change the rules.  You have bank deposits?  Ok, we're taking half.  You are swapping your cash?  We'll take half of that too.  The nations that didn't hyperinflate got money via seizure.  That could be Germany's response.  Ireland?  Not sure.  Probably you guys will pick inflation; you are probably tired of austerity by now.

It sounds like you've spread the cash around a bit already.  In terms of form, I'd pick highly rated corporate debt.  Countries both change the rules, and they default, but the AAA corporates don't, at least according to Armstrong.  At least for now, USD is probably safer than Euro.  CHF may be safer than both, although its negative-yielding.  Risks to this are a hyperinflationary outcome in that currency - but that's always an act of policy, not just some accident.

If you have to have Euro, maybe try German corporate debt.  That way if the Eurozone does blow up, you'll end up with DMK-denominated bonds, rather than Irish Pound-denominated bonds.  And Germany is unlikely to pick the hyperinflation option.

Would I bail out of Euro entirely?  If I had Euro-denominated debt, I'd keep some.   If I didn't - I'd probably get down maybe to 10%.  I've got mostly USD right now.  I'm kind of waiting for the shoes to drop.

I'm assuming you have your other "real stuff" covered and this is just your spare cash.

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 133
Gold, Cash & Patience

Dave,

thanks for the opinion and the historical analogy. It's indicative of the bizzaro state of the world that AAA corporate debt may be safer than sovereign. 

Having been burned by the Irish property bubble in 2006 and having missed the rebound since 2011, I am loathe to purchase another over-priced property here.  I currently rent and am hoping for a correction, therefore this cash & PM is my entire net worth. Hence I'm wary of the Euro threat. The drop in Sterling after Brexit was a stark lesson in how your currency can lose 20% in weeks.

The scars of 2006 have made me quite risk-averse and gold is the only currency I trust, but for the sake of diversification I like the USD. When the SHTF in Europe/Japan/China I think the USD will do well.

Thanks again, E

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
corporate debt

I am with you on the property bubble.  Property values are underpinned by debt.  If the debt breaks the wrong way (i.e. deflation), it could get ugly.

I also agree with you about BRExit and the GBP and that disagreeable 20% move.  If you had gold, you were happy though.  Not only did gold rally, it rallied really hard in GBP.  Armstrong feels that GBP might actually be a modest safe haven when the Euro goes tits up.  Scotland should wait for a couple years before bailing out.

I credit Armstrong with the bond analysis.  If you look at what happened during the 1930s depression, there were a huge swath of countries that ended up defaulting on their debts.  England and France, to name two.  They were over-indebted because of the war - but today, we've had no war, but they're maxed out anyway.

And with "no growth" on the horizon...

Armstrong pointed out that sovereigns historically have defaulted pretty frequently, while the AAA-rated debt has an expected default rate of less than 1%.   You get a payout from bankruptcy from a corporate; you may get almost nothing from a sovereign.  The JNJ bonds I was talking about?  They yield 3%, and are rated higher than US treasury bonds.

When things get tough, sovereigns also play nasty tricks on their bondholders like unilaterally extending maturities.  That 3-month T-bill is now a 30 year bond.  Surprise!  Corporates can't do that.  They actually have to follow the rules.

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 321
Reversal

I think we have our answer now about who's telling the truth:  PMs or Miners.  Looks like miners headed back south for a while.

vadim_75's picture
vadim_75
Status: Bronze Member (Offline)
Joined: Oct 18 2015
Posts: 48
Back to south for a while? ;)

Gold -0,5%, miner panic sell -5-10% across the board, with such a speed...

I don't think we've got any answers here, only questions, something has been very wrong during last couple of days, it looks very serious to me.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 321
vadim_75 wrote: Gold -0,5%,
vadim_75 wrote:

Gold -0,5%, miner panic sell -5-10% across the board, with such a speed...

I don't think we've got any answers here, only questions, something has been very wrong during last couple of days, it looks very serious to me.

Could be reflective of a top in Gold/Silver for now.  Miners usually lead, from what Dave says (and from what I've heard historically).  But yeah, the space cratered today.  Hopefully not headed for the lows again, but who knows.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
intraday moves

From what I saw, the bottom of the buck was coincident with the top in the miners - at about 11:30.  Then the miners cratered as the buck screamed higher.  I don't know what got the buck moving - the fall in GDX was way out of proportion to any move by the currency.  Just - one happened at the same time as the other, from what I can see.  As you say, only questions, not answers.

GDXJ was mauled, down -9.58% on some really immense volume.  Which I'm sure you already know.

While the trigger may have been the currency, it really does feel like the mood in the miners shifted in early February and has become progressively worse.

It reminds me of the bad old days of 2015.

TomBlackstone's picture
TomBlackstone
Status: Member (Offline)
Joined: Dec 19 2016
Posts: 2
Miners

I think the miners are going down because of something happening with recent earnings releases. It started around mid-February, right before Barrick, Newmont, and several other companies released earnings.

My guess is it's because revenue has been flat and cost estimates for the future are increasing. Newmont in particular is now saying that it expects costs to creep up. Maybe this is because the rising price of oil?

Anyway, I don't think it has much to do with the metals themselves at all. Gold has pulled back to the 10-day EMA. That's normal.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
miner earnings

Tom-

I haven't been tracking the individual miner earnings; I could certainly see that as a driver.  Do you have examples of miners which blew their earnings estimates and tanked as a result?  I know that Yamana (AUY) had an issue two weeks back, but that's the only one I can recall.

vadim_75's picture
vadim_75
Status: Bronze Member (Offline)
Joined: Oct 18 2015
Posts: 48
Hi Dave, If i may: NGD famous

Hi Dave,

If i may: NGD famous disaster, RIC, KGC, AG were weak, only ABX i remember to be strong. These are i'm keeping an eye on.

 

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Movement and Earnings
Quote:

I think the miners are going down because of something happening with recent earnings releases.

TB - years of chart study have shown me that there are typically two responses in stock price that occur wrt earnings announcements.  Earnings announcements are made 4 times a year.  I run charts back about 8 weeks prior to earnings release dates each quarter and look for historical equity price movements.  Over the years I have compiled a list of "calendar trades" to watch for.  Some stocks have fantastic moves going into all earnings release dates.  Others once or twice a year.  Others don't really move at all beforehand.  Those that have historical, repeated moves go into my trading manual that I refer to every day.

When my indicators tell me a potential movement to the upside is setting up that is consistent with historical expectations, I sell naked puts and buy calls.  Once the price movement is over, I buy back the puts and sell the calls.  I NEVER care about why the price moved....only that it did/does.  When indications match expectations, trade. 

Once earnings are announced, it's more about guidance.  I have seen companies miss by $0.20 per share, explain the miss and issue upside guidance and the stock price soared.  I have also seen companies beat earnings estimates by $0.20 per share, but guide lower and the stock gets hammered.

It's all about price movement....

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