PM End of Week Market Commentary - 3/24/2017

davefairtex
By davefairtex on Sun, Mar 26, 2017 - 5:06am

 

On Friday gold fell -1.70 to 1246.40 on moderate volume, while silver climbed +0.18 to 17.77 on moderately light volume. Gold and silver diverged, with silver moving sharply higher while gold drifted downhill.

The metals had a confusing week. Palladium broke out to new highs, both silver and gold did fairly well too, but the miners lagged behind, with both miner ETFs printing swing highs. Junior miners even closed below the 9 EMA, which is another sign of trouble. Copper did worst, managing to drop back below both the 9 and the 50 MA lines.

I'm really not sure what to make of palladium's breakout and silver's decent performance placed right alongside the miners who appear to be turning lower.  I'm happier when all the horses are pulling in the same direction. 

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 4.13% 40.76% rising rising rising falling ma50 on 2017-03-16 2017-03-24
Silver Miners SIL 2.11% 36.47% rising falling falling rising ema9 on 2017-03-15 2017-03-24
Silver $SILVER 2.10% 16.98% rising rising rising rising ma50 on 2017-03-21 2017-03-24
Gold $GOLD 1.42% 2.27% rising rising falling rising ema9 on 2017-03-15 2017-03-24
Senior Miners GDX 1.10% 17.78% rising rising falling rising ema9 on 2017-03-15 2017-03-24
Platinum $PLAT 0.21% 1.96% rising falling falling rising ema9 on 2017-03-17 2017-03-24
Junior Miners GDXJ -0.22% 34.22% falling falling falling rising ema9 on 2017-03-23 2017-03-24
Copper $COPPER -1.93% 17.94% falling rising rising falling ema9 on 2017-03-24 2017-03-24

Gold closed up +17.50 on the week, with most of the gains coming on Tuesday - the day of the "large" and "unusual" [-1.2%] equity market decline.  In fact, the move lower in SPX was the largest in six months.  That was also the day when the buck sold off relatively briskly too.  Friday's spinning top candle was neither bullish nor bearish.  The close on Friday was just short of a swing high for gold.

The June rate-increase chances fell to 54%.

COMEX GC open interest rose +35,709 contracts. That's an addition of 111 tons of paper gold. (roughly 50 tons of actual gold were mined during this same period, just as a point of comparison).

Silver climbed +0.36 [+2.10%] this week, crossing the 50 MA on Tuesday, and then jumping sharply higher on Friday. Silver lagged gold for much of the week, but outperformed gold on both Thursday and Friday. As a result, the gold/silver ratio dropped -0.46 to 70.12. I'm always more comfortable about PM when silver is doing well, because that tends to be the “risk on” metal in the group, and while silver's move wasn't explosive, it did manage to rise 4 days out of 5, with a nice pop on the 5th day.  Better than a poke in the eye for sure.

Miners did poorly on the week, falling 3 days out of 5. GDX managed to rise +1.10%, while GDXJ actually fell -0.22%, but both miner charts looked fairly similar: a rise to the 50 MA on Monday and Tuesday, only to sell off for the remainder of the week, printing some bearish-looking swing high patterns. Juniors are leading senior miners lower, and that's bearish – a sharp contrast to silver's strong performance. For whatever reason, money doesn't like the mining shares right now.  For now, GDX seems to have found support at its 9 EMA, but a break below the 9 would increase the bearishness in the outlook for the miners.

The last time we saw a strongly bearish swing high in the miners, it took a couple of weeks for gold to feel the pain and start sinking. Of course once that happened, the miners were hammered.

USD

The buck fell -0.67 to 99.44 this week, plowing through round number 100 and driving straight down to the “neckline” of the increasingly obvious (bearish) head & shoulders pattern forming on the dollar. A conclusive close below the neckline could lead to a much sharper decline of the buck in the weeks ahead. This would be supportive for gold. The spinning top candle print on Friday was more bearish than bullish; it does not mark a low.

US Equities/SPX

SPX fell -34.27 [-1.44%] this week to 2343.98, with most of those losses happening on Tuesday. The overall market did seem to find some support at roughly the 50 MA, but Friday's spinning top candle print looks to be equal parts bullish and bearish. Financials led the plunge lower, dropping a brisk -3.72%. Deutche Bank (DB) had a particularly hard fall, losing -11.56%.

What's the story with the dropping equity market? Well first, the sector map pattern looks bearish. Financials tend to lead, and this week along with them came homebuilders, energy, and industrials. So this does look like a bit of an unwind of the Trump Rally.  TrumpCare (RyanCare?) didn't happen; I think the market may have figured out on Tuesday it wasn't going to happen, and perhaps it is starting to get nervous that the Trump Treats it was expecting to see (tax cuts, and an infrastructure spend, all using borrowed money) are going to meet with an equally unfriendly welcome from the swing group of fiscal conservatives in the House.

If this scenario plays out, I'd expect to see a complete unwind of the Trump Rally, or perhaps another 12% down from here. Buck probably tanks too, right up until either that Italian election I'm waiting for, or a surprisingly strong showing by Le Pen at the end of April.

VIX rose +1.68 to 12.96. Puts are still fairly cheap; if you believe Congress won't pass any of the Trump Market Treats, you might consider buying some. I'd pick XLF. It's looking as though it is experiencing one of those dead cat bounces after Tuesday's big sell-off.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 1.29% 6.09% rising rising rising rising ema9 on 2017-03-21 2017-03-24
Gold Miners GDX 1.10% 17.78% rising rising falling rising ema9 on 2017-03-15 2017-03-24
REIT RWR -0.04% -0.14% rising falling falling rising ema9 on 2017-03-23 2017-03-24
Cons Staples XLP -0.51% 4.55% falling rising rising rising ema9 on 2017-03-17 2017-03-24
Telecom XTL -0.68% 27.57% rising rising rising falling ema9 on 2017-03-24 2017-03-24
Cons Discretionary XLY -0.92% 11.62% falling rising rising rising ema9 on 2017-03-20 2017-03-24
Technology XLK -0.94% 21.14% falling rising rising rising ema9 on 2017-03-21 2017-03-24
Healthcare XLV -1.16% 10.24% falling rising rising rising ema9 on 2017-03-17 2017-03-24
Materials XLB -1.30% 15.96% falling rising rising falling ma50 on 2017-03-24 2017-03-24
Industrials XLI -1.75% 17.07% falling rising rising falling ma50 on 2017-03-23 2017-03-24
Energy XLE -1.78% 10.87% falling falling falling falling ema9 on 2017-03-16 2017-03-24
Homebuilders XHB -1.79% 12.17% falling rising rising rising ema9 on 2017-03-21 2017-03-24
Financials XLF -3.72% 29.94% falling falling rising falling ma50 on 2017-03-21 2017-03-24

Gold in Other Currencies

Gold rallied in all currencies except the Yen this week; gold in XDR was up +15.01.

Rates & Commodities

TLT rose +1.89%, moving convincingly above the 50 MA, and climbing towards the top of the recent 4 month trading range. Bonds usually like falling stock prices, and most of TLT's gain this week came on Tuesday, the day the equity market sold off. If TLT breaks above the top of its trading range, it could be off to the races; the number of people talking about shorting bonds suggests there is a whole lot of fuel for a short-covering rally. Understand, I'm not suggesting a buy-and-hold strategy here - bonds will blow sky high eventually - but if you expect equities to correct, then the set of current price moves suggests strongly bonds will benefit in the near term.  At this moment, buying bonds is a relatively low-risk way of shorting the stock market – perhaps even collecting a small amount of income while you wait.

JNK plunged along with equities on Tuesday, but by Friday it had printed a swing low, and was only down -0.25% on the week. JNK may have double-bottomed, but it too has staged a strong Trump Rally, and if the equity market corrects, I'd expect a brisk move lower in JNK. JNK is actually looking a bit more bullish than equities right now, but that probably won't last if SPX takes another leg down.

CRB fell -0.55%, moving slowly lower. Agriculture and Energy dragged the complex down, while PM did fairly well. Still, the overall commodity index seems to be having trouble rallying. It really needs oil to reverse. Higher commodity prices generally help PM, but we're really not seeing that right now.

Crude oil fell -1.01 [-2.05%] to 48.14. Last week's “dead cat bounce” ended up with crude dropping to a new low at 47.01, which crude hit on Wednesday. The drop on Wednesday was a result of a bearish EIA report, which showed a 5 million barrel inventory build, which caused an instant spike down that was promptly bought. There seem to be a fair number of buyers at these prices; the massive liquidation we saw three weeks ago is not happening any more. In fact, oil closed at its highs on Friday; traders apparently did not want to be short oil over the weekend. Friday's candle print of a “closing white marubozu” appears very bullish; its an 84% chance of marking a low. That's the most bullish read from an oil candle pattern I've seen in a long time. We're also seeing a bullish divergence in the RSI, which says downside momentum is slowing. The MACD appears to be confirming this too. We'll see how the market reacts on Monday.

Physical Supply Indicators

* SGE premium to COMEX fell -4.43 to a still-healthy +12.02 over COMEX.

* The GLD ETF tonnage on hand fell -1.48 tons, with 833 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1246.40 and silver closing of 17.77:

 PHYS 10.27 +0.24% to NAV [up]
 PSLV 6.73 +0.48% to NAV [up]
 CEF 12.89 -5.10% 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 [1.93% for 100 oz bars in NYC], lower for silver [+3.18% for 1000 oz bars in NYC], and lower for silver eagles at +17.56% [NYC].

Futures Positioning

COT report covers trading through Tuesday March 21st, when gold closed at 1244.60 and silver 17.55. This period covers from the FOMC announcement two weeks ago through the large rally on Tuesday.

In gold, commercials added just +4k shorts, while managed money added +9k longs. Really, that adds up to virtually no change at all. Gold remains in a bullish COT configuration.

In silver, commercials added 1.7k longs and closed out -2.5k shorts (during a rally?) while managed money sold -1.8k longs (during a rally????) and added +1k shorts. Its like the commercials and managed money have swapped positions.

While the numbers aren't all that large, it is very strange to be seeing the commercials “going along” with a rally in silver. What is going on at the COMEX? I fully expected to see a big new short position opened by the commercials after the large rally following FOMC, and the rally again this week. That's just not what happened. I'm going to wait for next week before getting too excited, but if the commercials really have stopped shorting the rallies...

Gold Manipulation Report

There were no after-hours spikes seen this week. It has been very quiet on the “spike” front lately.

Eurozone Status

  • French Presidential Elections; May 2017: probable EU non-event (polls have for the 2nd round Macron 62, Le Pen 38); one interesting article suggested Le Pen's support was much stronger than reported by the mainstream polling organizations. How shy are the French about admitting their support for Le Pen? Certainly to some degree, but probably not enough to make up a 24 point gap. Not yet anyway.

  • German Elections; October 2017: Merkel/Shulz remain tied. Both parties are pro-Euro.

  • Greek bailout; June 2017 they need to pay 7 billion Euros. No agreement yet. Greece appears to be heading into recession. Lots of chatter inside Germany about how Greece should leave the EU.

  • Turkey & the migrants: no change in rhetoric from Erdogan, but the agreement remains in place. He wants to win his “more power for me” referendum scheduled for April 16, and he appears to want to be free to campaign for this referendum inside the EU. The latest from Erdogan this week: a possible national referendum in Turkey on whether or not to continue trying to join the EU.

  • Italian Elections: no progress towards an early election; M5S is currently polling at roughly 30%, a 5 point lead over their next closest competitor.

Summary

A falling dollar helped gold and silver move higher, but was not the proximate cause of the move. Palladium did best, while the miners lagged well behind. The GDX:$GOLD ratio has tipped over, and is now sinking, as has the GDXJ:GDX ratio. This could be a tell – and it has been one in the past.

Gold COT continues to look bullish – in spite of the rally, commercials commercials have now exited almost all their recent new short position. While silver doesn't look bullish, some odd things are happening; commercials are buying as prices rise. This is unusual, and if it continues to happen, it may signal a fairly dramatic change in policy.

Gold and silver big bar shortage indicators shows some hints of shortage in the west; ETF premiums rose (PHYS now has a positive NAV) and GLD tonnage fell. Normally during moves higher, GLD tonnage rises. In Shanghai, premiums have declined, but remain meaningfully higher than COMEX.

Nothing new from Europe, while Trump experienced a loss in his first attempt to convince Congress to pass laws. The buck is at a key point here; a plunge through support could lead to a whole lot of selling (and/or a Euro breakout). I suspect SPX would probably follow the buck lower too. I'm guessing politics in the US will be the strongest near term driver.

If silver hadn't had such a strong day on Friday, I would have been more concerned about where gold is headed next, but when silver is rallying, gold pretty much has to follow along. Losses in the miners won't be all that bad if PM is moving higher. Its just that risk in the miners is unusually high right now; if PM were to tip over, miners would probably sell off quite hard, at least based on recent history. Once they start underperforming the metal, as soon as gold decides to change trend, traders simply panic out and we have 8-10% down days in the mining shares. Based on their recent performance, I think the metal is a bit safer right now.

Trend-following code says:

Uptrend: gold, silver, platinum, natgas, treasury bonds

Downtrend: copper, crude, USD, SPX, and the miners.

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5 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 363
Slam

After rocking and rolling all morning, the mid-morning slam gold slam happened once again.  Been headed straight down ever since.  Will probably finish red for the day.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
heh

I think you were a little too quick to worry. 

I think sometimes its just better not to watch these things too closely.

I felt the same thing about oil this AM.  I'd have saved myself plenty of worry if I'd just kept working on my code.  :)

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 363
davefairtex wrote: I think
davefairtex wrote:

I think you were a little too quick to worry. 

I think sometimes its just better not to watch these things too closely.

I felt the same thing about oil this AM.  I'd have saved myself plenty of worry if I'd just kept working on my code.  :)

Yeah man, I was a little too bearish it looks like.  Maybe I'll be vindicated tomorrow!

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

Plus it's now reaching overbought on the 10 day RSI which is generally where I call it a day.

However, silver in GBP and EUR may have a little more upside

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Online)
Joined: Jan 25 2014
Posts: 377
Bearish Divergence

I'm also seeing bearish divergence on the DAX - 10 day RSI from 01/01/07 and again on the FTSE-100 from 15/01/17 if anyone is interested in such things.

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