PM End of Week Market Commentary - 3/10/2017

davefairtex
By davefairtex on Sat, Mar 11, 2017 - 5:57am

On Friday gold rose +3.60 to 1204.50 on moderate volume, and silver climbed +0.07 to 17.05 on moderately heavy volume. After four days of steady decline, the metals finally have a good day. That said – a simultaneous and substantial drop in the dollar tells us that Friday's PM rally was just a currency effect.

You can see Friday's USD currency effect on gold when viewed in Euros: our friends over in the Eurozone saw a 1% decline, not a rally.

This week was terrible for the metals; platinum did worst, while the miners actually performed best. Most of the miner out-performance came on Friday, when GDX and GDXJ both staged large rallies while gold itself just moved up slightly.  As a result, the GDX:$GOLD ratio rebounded sharply, and was able to move above its 9 EMA on Friday due to the rally.  While all of the metals elements remain below their respective 9 EMA lines, the miner rally and the rebound in the ratios hint at a possible low for PM.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX -2.12% 6.62% falling rising falling rising ma50 on 2017-03-02 2017-03-10
Junior Miners GDXJ -2.36% 23.80% falling rising rising rising ma50 on 2017-03-02 2017-03-10
Gold $GOLD -2.46% -5.39% falling rising falling rising ma50 on 2017-03-08 2017-03-10
Palladium $PALL -3.53% 30.56% falling rising rising rising ma50 on 2017-03-09 2017-03-10
Copper $COPPER -3.97% 16.85% falling rising rising falling ma50 on 2017-03-07 2017-03-10
Silver Miners SIL -4.80% 28.85% falling rising rising rising ma50 on 2017-03-02 2017-03-10
Silver $SILVER -5.22% 9.15% falling rising rising rising ma50 on 2017-03-08 2017-03-10
Platinum $PLAT -5.68% -3.84% falling rising falling rising ma50 on 2017-03-06 2017-03-10

Gold fell for most of the week, making a new low on Friday of 1194.50 before bouncing back to close down -30.40 for the week at 1204.50.  This week's drop took gold below its 50 MA.  Candle print on Friday was just a spinning top, but it was a bullish one; candle code rates it as a 47% chance of a low, the highest rating it can give a spinning top. It appears that gold has some support at the “round number 1200” level. I suspect the large drop in the buck had a great deal to do with Friday's bounce. Gold is oversold, with RSI-7=19.

The March rate-increase chances rose to 87%; the May rate-increase chances are at 90%. FOMC meeting starts next week on Tuesday, with a press conference on Wednesday. Why is the Fed raising rates with GDP Now forecast for Q1 2017 at 1.3%?  Since we know its not about a fantastically strong economy, by process of elimination, the reason must be something else.

COMEX GC open interest fell -16,188 contracts.

Like gold, silver plunged all week, making a new low of 16.85 on Friday before bouncing back to close down -0.94 to 17.05. It appears that “round number 17” provided some support, as did the plunging dollar on Friday.  Even so, the gold/silver ratio shot higher this week, up +2.00 to 70.62, which is bearish.  What's more, silver's “spinning top/NR7” candle was not rated very highly by the candle code, with just a 10% chance of marking a low here.  Another odd point: while silver's decline this week was substantial, the volume was uncharacteristically light.  Selling is definitely happening, but it would appear, not at the COMEX.  Contrast that with the high volume plunge seen in early November 2016.  That's what happens when managed money bails out.  But that's not what we're seeing now.

Silver is oversold, with RSI-7=16, and has fallen below its 50 MA also.

Last week was a miner-disaster, while this week saw declining volume, a progressively narrowing trading range, and finally a swing low printed on Friday. On the week, GDX fell -2.12% and GDXJ dropped -2.36%, the best performance of anything in the PM space. GDX printed a two candle swing low (and/or a “confirmed bullish NR7”), which the candle code gave a 67% chance of marking a low. GDXJ also printed a swing low, and it too had a “confirmed bullish NR7” pattern, which provided an 82% chance of a low. For me, the “tell” for the miners was the declining volume during the descent. After last week's vicious decline, selling had all but evaporated; it seemed to me that traders were waiting for any positive sign in gold so they could step up and buy the dip.  That's what happened on Friday.  Friday's move saw GDX up +2.79%, while GDXJ rallied +5.18%.  Volume on Friday was also quite strong.

USD

The buck fell -0.33 to 101.11 this week. The dollar rallied for three days, then fell for the next two, finally printing a two-candle swing high on Friday. Candle code rated the swing high as a 65% chance of marking a top. This also formed a “lower high/lower low” pattern, which is the mark of a downtrend.  The dollar has now reversed course.

How can this be, with a rate increase coming soon, which would normally be dollar-positive?  Why did the buck top out on Thursday? From what I saw, the buck started selling off right after the ECB meeting on Thursday.  At his press conference, Dragi indicated that deflation was on the run in the Eurozone, he wasn't going to stop printing, and that the Eurozone was irrevocable. I can't say which comment caused the ruckus, but the buck hasn't stopped falling since that meeting ended.

US Equities/SPX

SPX fell three days out of five, dropping -10.52 to 2372.60 [-0.44%] on the week. Friday saw a small rally and a doji candle print which was somewhat bullish. SPX ended the week just above its 9 EMA, still in an uptrend, and just a few percentage points away from its all time high. While a number of other sectors endured some pretty steep declines, the overall market largely ignored the fuss.

VIX rose +0.70 to 11.66. Puts are cheap, but the teflon-coated equity market does not look to be ready to fall, at least at the moment.

This week's sector map shows homebuilders still doing well, with REITS and Energy trailing badly. I'm not sure what got into the homebuilders, but they have been on a tear for the past five weeks. Energy on the other hand has steadily moved lower for the past 13 weeks; it tried to put in a low on Thursday, but oil's new low on Friday didn't help.  REITS - they just cratered.  You can see that of all the groups in SPX, they've done worst over the past 52 weeks.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Homebuilders XHB 0.71% 16.13% rising rising rising rising ema9 on 2017-02-09 2017-03-10
Technology XLK 0.47% 25.79% rising rising rising rising ema9 on 2017-02-01 2017-03-10
Healthcare XLV 0.24% 12.93% rising rising rising rising ema9 on 2017-03-08 2017-03-10
Cons Staples XLP -0.16% 5.30% rising rising rising rising ema9 on 2017-03-10 2017-03-10
Cons Discretionary XLY -0.17% 14.08% rising rising rising rising ema9 on 2017-03-10 2017-03-10
Financials XLF -0.72% 39.27% rising rising rising falling ema9 on 2017-03-09 2017-03-10
Industrials XLI -0.72% 23.60% falling rising rising rising ema9 on 2017-03-07 2017-03-10
Materials XLB -1.04% 19.52% falling rising rising rising ema9 on 2017-03-06 2017-03-10
Utilities XLU -1.09% 5.95% falling rising rising rising ema9 on 2017-03-08 2017-03-10
Telecom XTL -1.71% 26.85% falling falling rising falling ma50 on 2017-03-02 2017-03-10
Gold Miners GDX -2.12% 6.62% falling rising falling rising ma50 on 2017-03-02 2017-03-10
Energy XLE -2.75% 15.17% falling falling rising falling ma200 on 2017-03-08 2017-03-10
REIT RWR -4.53% -0.22% falling falling falling falling ma50 on 2017-03-08 2017-03-10

Gold in Other Currencies

Gold fell in every currency this week, dropping the most in INR (-33.54). Gold in XDR fell -30.88.

Rates & Commodities

TLT plunged -1.76%, following through on last week's selloff. Bonds fell four days out of five, on Friday bouncing off the December low and printing a “takuri line” candle that the code found to be neutral rather than bullish.  Bonds are at a key point right now; if they break below the December lows, the selling could get intense. Its possible the FOMC will prove decisive as to where the long bond goes next.

JNK fell harder than TLT for a change, dropping -2.05% but finding support at its 200 MA. Volume is both heavy and accelerating, which is bearish. JNK tried to rally on Friday, but only just succeeded in remaining flat.  JNK and crude oil are fairly well correlated; the two-week drop in crude is (more or less) paralleled by a two week drop in JNK.

CRB plunged -3.72%, a very large move in the commodity index.  Four groups out of five fell; energy, agriculture, precious metals, and industrial metals. Only livestock moved higher.  CRB is now far below its 200 MA – below all 3 moving averages. CRB is oversold, with RSI-7=15. I'd like to blame it all on energy, but its really almost everything.

Crude oil cratered, dropping -4.62 [-8.68%] to 48.62. The big breakdown came on Wednesday after the EIA's petroleum status report which showed a bearish inventory build. We've seen these bearish inventory reports before, but this one seemed to actually matter this time. No dip-buyers appeared to rescue the market, and the plunge was massive.

If you are a trader, what does that mean? Let's say you are the owner of one single CL futures contract (1,000 barrels of light sweet crude = 136 tons).  To buy, you ponied up an initial margin of $3,562.  Your losses this week: $4,620. Congratulations, in one week you have been wiped out, and you owe your broker $1,058.

And that's why we use stops.

Chart shows a very high volume collapse in oil prices, with the close on Friday at the dead lows for the week.  Friday's "closing black marubozu" candle print is mostly bearish, although given crude's oversold condition (RSI-7=14), there is a slight chance this could mark the low: about 16%.  Crude is now below all 3 moving averages.

Physical Supply Indicators

* SGE premium to COMEX fell dramatically this week; it is now at +0.59 over COMEX. No more premiums in China.

* The GLD ETF tonnage on hand fell -15.36 tons, with 825 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1234.90 and silver closing of 18.00:

 PHYS 9.90 -0.35% to NAV [down]
 PSLV 6.47 -0.13% to NAV [up]
 CEF 12.48 -4.5% to NAV [up]

Note: CEF's big drop in premium was a result of a legal move by Sprott to (effectively) offer each CEF shareholder a share in a new fund that looked a lot like PSLV/PHYS, which would allow for traders to take delivery if the discount to NAV moved too far out of alignment. Works for me.

* 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 [2.18% for 100 oz bars in NYC], higher for silver [+2.92% for 1000 oz bars in NYC], and higher for silver eagles at +18.18% [NYC].

Futures Positioning

COT report covers trading through Tuesday March 7th, when gold closed at 1215.90 and silver 17.52.

In gold, commercials closed -28k shorts, while managed money bailed out of -16k longs and added +7.8k shorts. Let's call this a medium-sized move this week. Just this week, the commercials closed out about 40% of the shorts they've added since the lows back in December. From the COT perspective in gold, we're closer to a low than a high.

In silver, commercials closed out -5.5k shorts, while managed money bailed out of just -1.5k longs. Considering the massive plunge on Thursday of last week, and the big moves this week, I am left to wonder who exactly sold in order to cause such a big price drop for silver. It wasn't managed money. They have largely retained their silver positions. But if managed money isn't selling, who is?  My guess: its not happening at COMEX.  The selling is occurring elsewhere - I'm going to guess, the LBMA.

The COT report still looks like a top for silver, even after this big recent drop in price.

Gold Manipulation Report

There were no after-hours spikes seen this week.

Summary

The entire PM complex sold off for most of the week, along with most everything else. Most of the commodity complex dropped, some areas quite substantially, as did treasury bonds, junk bonds, and even the dollar. However this time the miners did best, not worst, because the decline slowed down, and then traders stepped up to buy the dip on Friday.  If the miners were leading us lower over the past few weeks, this week they are hinting at a possible recovery.

Gold COT still looks bullish – the commercials covered a big chunk of their new short position this week. The silver managed money long position hasn't changed; managed money has almost entirely refrained from bailing out in spite of the $1 drop in silver.  My conclusion is, the selling pressure in silver is probably not coming from COMEX.

Gold and silver big bar shortage indicators still show no signs of shortage in the west or the east. ETF premiums were mixed, while GLD tonnage fell.  In Shanghai, premiums have vanished.

While one day does not a recovery make, we can call Friday's miner rally "green shoots of spring" a la Ben Bernanke.

Next week we have the FOMC announcement on Wednesday, along with the elections in the Netherlands.  I think Stockman's debt ceiling crisis is not going to happen.  Republicans only have deficit-religion when they're not in power.

According to the recent polls, support for the euroskeptic PVV party has dropped; they are now in second place.  That takes the pressure off any sort of near-term Eurozone issue, and is probably gold-negative.  How correlated is gold with the PVV poll numbers?  Only slightly.  Le Pen in France is coming up.  The lead-up to the French election will get a whole lot more interesting if the polls are wrong in the Netherlands and PVV ends up winning.

We're going to have a rate increase on Wednesday.  The market-moving events will come from the Fed's projections of future increases.  Tea leaf reading will occur on every word change in the announcement; more hawkish, more dovish, etc.  I can just imagine how I'd do it if I were writing the code; diff the two documents, and give relative weightings to the hawkish/dovish sense I got from the changes, triggering buy/sell orders as appropriate.  It would all be automated in a high speed switch somewhere as close to the exchange as possible.

Either that, or get a copy of the release advance through some sort of bribery and fake the whole thing, executing a few milliseconds ahead of those guys with the switch who played by the rules.  Uncle John vs Fat Tony.

If the FOMC slants hawkish, the buck probably moves higher and gold drops.  Otherwise, we probably get a gold rally and the dollar will continue to fall.   Both gold and silver are oversold, and should be ready to bounce soon.  That's what the miners are telling us.  This happens often enough right before FOMC meetings; gold plunges, recovers on Monday, then rallies into the meeting.  I should do a study rather than rely on my faulty memory.

Trend code reports: uptrend for silver, copper, HUI, downtrend for gold, USD, SPX, crude, treasury bonds, and oil equities.

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11 Comments

lambertad's picture
lambertad
Status: Silver Member (Offline)
Joined: Aug 31 2013
Posts: 184
Fascinating interview on RealVision TV

I listened to a RealVision interview today while gardening and it really piqued my interest. Dave, I thought you might find it interesting as well if you have a RealVision subscription. 

The guy's name is James Crawford and he is the CEO of Orbital insight. Here are the highlights of what he was talking about. 

1. His company doesn't own satellites but gets access to the data, mainly digital images. 

2. There are enough satellites in orbit now that they can get pictures of Macy's and Wal-Mart parking lots during peak shopping seasons and their computer algorithms can broadly predict spending off of this data. 

3. The images are incredibly detailed - 30cm resolution on some images. They can get images of oil tanks in Saudi Arabia that have floating roofs and actually predict how much oil is in those tanks from the shadows of the floating roofs - all with computer algorithms of course. 

4. They have mapped an additional 2000 oil storage facilities in China that were previously unknown. They had their algorithms pour over satellite images and the computers identified the spots that look like oil storage facilities. 

5. They can do all this with shipping as well. They can get images of ships and analyze the shadows they cast on the water to tell how full they are coming from China to the U.S. and how empty they are going from the U.S. back to China. It's not incredibly precise, but can they can identify trends. 

6. They can use different non-visible wavelengths of energy to identify minerals in the ground - he used iron and lithium as 2 examples. This is a new technology and not many satellites currently have it, but it is becoming more common with newer satellites. 

Thought I would share this here. I know it doesn't pertain to PMs exclusively, but the part of identifying mineral deposits from satellite imagery does. 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 378
Lower Bob!

Should see gold solidly into the $1100s and silver into the $16s before the Fed this week.  Maybe both can regain some footing after.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
AI at work

I have heard bits and pieces of this story, but not all wrapped up in a package like this.

(I don't have Real Vision, so I can't see it...but your summary is cool enough)

It sure sounds all about AI meets satellite photo-recon techniques to provide some awesome realtime economic intelligence.  They'll know GDP as it happens.  And of course I like the AI part.  They can sic the computer on all those images - I'd train up a net to first locate oil tanks in an image, and then once the tanks are geo-located, I'd have another net to sort out how full each tank was.

Its the same tech that brings you the self-driving car.  With enough training examples, computer beats analyst.  But you need lots of examples to train the computer.

Someday we'll have off-the-shelf "computer vision" tech that will be able to identify most everything that normal people know about.  Buy this chip, and connect it to a camera, and it will identify everything in the frame for you, in real time, along with what everything is doing.  There will be a standard interface - a stream of messages emitting from the chip describing the world it sees and what the world is doing.  By then it will cost maybe $100.

Then you can connect it to your pizza delivery drone.  (Or your personal assassin drone).  Write the instructions to the drone.  "Fly to the following address.  Locate the black subaru.  Attach the bomb to the roof of the black subaru.  Rise to 150 feet.  Hover in place; when a man wearing a red sweater opens the door of the car detonate the bomb, and then self-destruct.  If your battery runs low, fly 1 mile in a random direction and then self destruct."  The "AI OS" software will run your meta instructions, mediating between what the chip sees, and what it's supposed to do when it sees the different things.

I'd say commercial versions of that are probably 5 years away.  Maybe 10 years to make it to the "hobby" level.

Back in the day we had specific components that make up a computer.  Now, we have a SOC (system on a chip) that has most computer parts in one chip.  That's why you can have a $9 computer.

[1 Ghz ARM, 512 MB Ram, 4G flash, all the connectors you'd expect incl audio, USB, video, and ethernet, runs Linux]

https://en.wikipedia.org/wiki/CHIP_(computer)

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
miners avoid collapse

CR-

I dunno, miners appear to be doing fairly well.  GDXJ is up 4%.  That's gotta feel good, right?

I mean, depends on where we close of course but I don't see gold collapsing if GDXJ is rocketing higher.

Last few weeks it has been a pretty good coal mine canary.  Now that it's making bullish noises...we should probably pay attention.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 378
davefairtex wrote:CR-I
davefairtex wrote:

CR-

I dunno, miners appear to be doing fairly well.  GDXJ is up 4%.  That's gotta feel good, right?

I mean, depends on where we close of course but I don't see gold collapsing if GDXJ is rocketing higher.

Last few weeks it has been a pretty good coal mine canary.  Now that it's making bullish noises...we should probably pay attention.

Good point.  They could just be taking a breather.  But this is a good point.  I hope you're right.

On another note, I saw that Harvard released it's list of 50 fake news sites.  Peak Prosperity made the list.  Congrats!  It's one of my favorite sites, and it's stock just went up another notch in my book. :)

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 918
AI/not paying attention

Dave, your drone scenario seems correct, except for one thing: said drone then dutifully reports you to the powers that be, who set up a sting, and tout their antiterrorism prowess.

Let's try to keep in mind: all computer hardware is owned, unless you go back to your doped triangle and doped glass block, and develop your transistors starting there.

Without the aid of already-compromised computers.

sand_puppy's picture
sand_puppy
Status: Diamond Member (Online)
Joined: Apr 13 2011
Posts: 2032
Begun the Clone War has

Labertad and DaveF bring up a very interesting discussion of a possible near term future.

Orbital photography and AI analysis tickles my SciFi loving imaginative self as an exciting and wonderful technological leap.

But then it is also another potential mechanism for "the great unraveling" as the human population curve collides with the resource curves and human beings duke it out to hold their slice of the shrinking pie.

Now we have:

  • Pandemic
  • Environmental collapse
  • Monetary collapse
  • EMP
  • Civil War
  • Conventional war
  • Nuclear war
  • And attacks by drone armies and assassins.

Great!  Where is Yoda and Obi-Wan when you need them?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
clone wars

SP-

If you haven't yet, read Neuromancer, by William Gibson.

His stuff is coming true, slowly but surely.  I keep it in the back of my mind as I see things develop.

 

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 378
Miners

Finally turning down now after a couple days of a break.

sand_puppy's picture
sand_puppy
Status: Diamond Member (Online)
Joined: Apr 13 2011
Posts: 2032
X22 Says Debt Bubble Has Begun to Deflate

DaveF and Chris and you other economic wonks, does this sound right to you guys?

X22 has an episode where he points out that credit creation has fallen significantly, tax income to the US Gov has fallen for the last 3 months all giving the impression that we are currently in a recession.  With the rate hike coming up later this year, he predicts the debt bubble is ready to pop.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
credit creation

SP-

Total bank credit has flatlined since Trump's election.  This is unusual, and its relatively bearish.

https://fred.stlouisfed.org/series/TOTBKCR

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