PM Daily Market Commentary - 5/3/2017

davefairtex
By davefairtex on Thu, May 4, 2017 - 5:18am

 

Gold plunged -19.30 [-1.53%] to 1238.50 on heavy volume, while silver dropped -0.34 [-2.17%] to 16.48 on moderately heavy volume. Both gold and silver sold off prior to the FOMC announcement at 2pm; after a brief headfake higher, the sell-off continued, with both metals eventually closing at their lows. It was a bad day for PM.

Did the Fed say something surprising? Not that I could see. Regarding Q1 GDP: “weakness is transitory”, which we already knew they felt. Core PCE inflation was down, but they still see prices moving higher. (woohoo?). No mention of reducing the balance sheet, no new information on the pace of rate increases. In short, nothing happened.  Why then the move in the metals?

Gold moved gently lower in Asia and London, with the real decline starting just before the US market opened. There was a brief spike higher immediately after the FOMC announcement, but it was a head-fake; price then fell steadily through end of day, closing relatively near the lows. Candle print was an opening black marubozu, which the code felt was bearish. You probably didn't need the code to tell you that. Today's drop carried gold through its 200 MA and the 50 MA. I don't see a lot of chart support until round number 1200. That's not to say it will fall that far – that's just the “previous low” where buyers are almost guaranteed to show up. RSI7 for gold is 23. Gold is oversold.

Open interest at COMEX for GC rose +473 contracts. One would expect after a drop of this size for the commercials to be ringing the cash register. They aren't.

Rate rise chances (June 2017) rose to 74%.

Silver fell along with gold, spiked higher briefly following FOMC announcement, and then continued to plunge through end of day. Silver's drop took it through support; the next support level is probably round number 16, followed by the previous low at 15.75. Candle print was a confirmed bear NR7, which the code found to be bearish. Silver has dropped for 13 straight days. RSI7 for silver is now at 7.2; it is extremely oversold. We are now at capitulation levels for silver.  That's a good place to be if you are looking to buy, but if you are long, you are getting very tired of seeing all that red every day, and you are just about ready to give up.

Open interest at COMEX for SI rose +2,321 contracts. Commercials are not ringing the cash register in silver either.

The gold/silver ratio rose +0.48 to 75.15. The RSI7 for the ratio is now at 90; this suggests that silver's plunge (relative to gold) is very overdone.

In spite of gold selling off ahead of FOMC, miners actually staged a rally, spiking briefly higher on the gold headfake at 2pm, but when gold continued to plunge after 2pm, the miners gave up their rally, closing at the lows for the day. Still, the damage was not too bad, all things considering: GDX fell -1.06% on moderately heavy volume, while GDXJ dropped -1.51% on moderate volume. The GDX print was a shooting star, which the code felt was bearish, as was GDXJ's spinning top. I got the sense that traders (much like me) were looking to buy miners ahead of FOMC thinking we'd see a reversal. The GDX:$GOLD ratio went nowhere, while GDXJ:GDX continued to inch lower. Both miner ETFs printed new lows.

Platinum was crushed, dropping -3.19% on heavy volume, palladium fell -2.39% printing a swing high, while copper was (where's that thesaurus?) pounded too, dropping a massive -4.66%, blowing through two moving averages, printing a swing high, and moving right back into a downtrend. All these metals fell more severely than either gold, silver, or the miners. I think the problems in copper originated in China, where iron ore prices fell some 7%, and the rest of the metals caught the contagion.

The buck rallied, climbing +0.50 to 99.25. The buck had rallied going into the FOMC announcement, and moved sharply higher right afterwards. The gains in the buck were a mirror image for falling metals prices, although I don't believe that the rise in the buck caused the moves.

Crude had yet another bad day, dropping -0.52 to 47.56. Most of the losses came after the EIA report at 10:30am which wasn't quite as bullish as the API report yesterday: crude oil inventory fell by just -0.9 million barrels, while gasoline inventories rose +0.2 million barrels. This caused oil to spike down to a new low of 47.30. Crude bounced back to even, but the rally failed, and then crude sold off into the close. The candle print was a long black candle, which the code felt was actually somewhat bullish. I guess crude could bounce here, but its not too likely. Crude is hovering just above the previous low of 47.01 set back in March. A break below 47 would probably run a large number of stops.  I couldn't help but notice that the crude chart looks a bit like silver.

SPX moved gently lower, dropping -3.04 to 2388.13. Financials did best (XLF:+0.80%), helped by the FOMC, while materials plunged (XLB:-0.98%) pulled lower by the drop in the metals. The high wave candle print was neutral. US equities seem to be blissfully unconcerned about the issues in the metals coming from China – except for the materials sector, of course.

The Russell 2000 smallcap index isn't looking quite so healthy; it dropped below its 9 EMA just today, off -0.60%.

VIX rose +0.08 to 10.68.

TLT rose +0.08%; it gapped up on the open, but then spent the day selling off, moving lower following the FOMC announcement. The long black candle was seen as relatively bearish. No real signal from TLT today.

JNK rose +0.08%, more or less no change again today – it is inching higher, and is now back above all 3 moving averages. I'll put JNK into the “blissfully unconcerned” state along with SPX.

CRB was mostly unchanged, up +0.03%. What about the huge plunge in the metals? Turns out, only 2 of 5 groups fell today; industrial metals led lower, but it was offset by a big rally in livestock.

The metals were all beaten heavily today. Which one was hurt most? I guess if I had to pick, it would be platinum, since its chart looks the worst.  Yes. $PLAT:$GOLD ratio (0.725) looks terrible – it is making lows last seen in the early 80s! My guess: industrial metal + non-safe-haven PM = bad news for platinum. But if you are looking to buy something for the long term, it may be something to consider. Once it stops dropping, of course.

Greece equity market continues to scream higher; GREK up +2.44% just today, +7.7% this week. Perhaps the Greeks have some good news ahead of them. They sure need it.

No reversal bars yet for gold, silver, or the miners. That's just the way it is. The market is oversold, especially in silver, but it will probably be difficult for a bounce to occur when every other metal is selling off hard – and as best I can tell, the commercials have yet to start covering their shorts. They might even be piling on.

China could be ready to have its long-awaited banking crisis. If this happens, then funny things could happen to commodity prices as Chinese futures traders bail out or get margin calls. Where funny = some pretty dramatic losses in a short period of time. This could affect silver, copper, and the other industrial metals. Not all the crazy stuff is manipulation. Some of it is just highly leveraged money fleeing a market causing a cascade lower. I suspect yesterday's move in iron ore was exactly that, and that – probably – had knock-on effects to copper and possibly silver too.

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11 Comments

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

Starting off terrible for gold.  Silver holding steady, but it'll probably head south later.  I'd expect the miners to take one to the gut in the next day or two.  The only thing that will help PMs in the short run will be a surprise Le Pen win or bombs being dropped via the NK situation.  Chinese credit situation looks bad, but apparently, PMs hate credit crises.  Our equity market doesn't seem to mind, though.  Healthcare is going to pass, so everything's awesome!

Happy Thursday!

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5733
Purchasing every magazine cover was cheap

Actual headline this morning:

Macron, earnings hopes send European shares to 20-month high

A Rothschild banker and hope, what else does a ""market"" need? (besides $70 billion a month in direct, thin-air money injections from the ECB I mean...)

This final blow off top is beyond anything I expected...I honestly thought my fellow humans would not be this prone to ultra-delusional behavior, but here we are.

 

jtietz79's picture
jtietz79
Status: Member (Offline)
Joined: Sep 10 2015
Posts: 9
OUCH

What a depressing start for PMs.

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

Looks like today is the day for the miners.  Knockout blow probably coming soon.  A Macron victory will probably lead to that.  Prolly why the commercials are still pressing for lower prices.  Hopefully, that will be the final washout of this leg down.  Then, they can allow prices to rise through the summer as tensions build toward the fall, at which point we'll hear "now's the time to buy gold and silver", at which point tensions are relieved again and prices plummet.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
today

I'm not seeing any interest in US equities right now.  SPX is just chopping sideways.  JNK is selling off.

If its any comfort, I haven't seen selling like this in silver for a very long time.  RSI7=5.95.  It is incredibly oversold.  I can't say when the beatings will stop, but this really can't go on forever.  We're well into the capitulation zone.

Gold/Silver ratio is at 93.75.  Things are extremely extended there too.

Miners are steadily selling off.  GDX down -2.56%, GDXJ down -4.04%.  No sign of a low yet in anything.  GDXJ's RSI7=12.  

I take it back.  It does look as though downside momentum in both gold and silver has stopped at least for now.  What we really need to see are the commercials to start covering their shorts.  If that starts happening, that should help mark the low.

If you want to see something really horrid, look at SLV:$XEU.

Oil just plowed through 46, new low 45.67, down 2.10 [-4.35%].  Boy, its oil's turn to capitulate today.

Nonfarm Payrolls tomorrow.

 

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

It would be interesting to see the record for down days in a row for silver.  It might be a good discussion point in the days ahead.  Bet US equities will see a rebound when healthcare passes the Senate.  Nice nipple bottom earlier today.

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 716
crypto-currencies on a roll

My 2-part post on crypto-currencies last year encountered some skepticism, but bitcoin, Ethereum and Dash are on a roll. Crazy gains in Ethereum, a 10-bagger in the course of a year. Could this be a bubble that crashes? Sure. But global interest is reflected in global capital flows into the main crypto-currencies. 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
so Charles

So let me summarize:

"Boy, the price of bitcoin sure has gone up.  That MUST mean its valuable, right?"

Of course, that same statement was used to justify the US property bubble in 2005, in the south seas bubble, the tulip bubble, dotcom "eyeball" stocks in 1999, and in vancouver house prices right now.

Perhaps you can use something other than the expectation of someone else paying more for it in the future to justify why someone might want to hold a bitcoin, because that logic has proved problematic in the past.

Of course if you're telling me, "hey Dave, I know its a bubble, and I'm really enjoying the ride, and believe me I'll grab a chair once I hear the music stop..."  :)

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

Will probably zoom to $10K once the west figures out how to get it and trade it.  Then, it will blow up and make the round trip.  Nobody I talk to knows anything about it.  They all say, yeah I've heard of it, but I'm not really sure what it is.  Couple that with the fact that it's not as easy as going into your brokerage account and buying it, we probably don't have much involvement from the US yet.  As it climbs, it'll continue to draw in speculators.  I could see how it could be useful, but it really feels like a fad to me.  It really does.

reflector's picture
reflector
Status: Gold Member (Offline)
Joined: Aug 20 2011
Posts: 269
china crashing
davefairtex wrote:

Gold/Silver ratio is at 93.75.  Things are extremely extended there too.

no, gold sliver ratio is around 75.5

still very high though

 

http://themacrotourist.com//macro/wallace-prepares-to-buy-some-silver

i'm looking to take a long position in silver soon

maybe wait a couple more days see if silver selling cools off

reading some stories today out about credit and commodity carnage in china, will post a link if i can find them again

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
thanks!

reflector-

Thanks for pointing that one out, the ratio is definitely 75.

What I had intended to say was that the RSI for the gold/silver ratio was at 93 - that's why I called it "extended", much as the drop in silver has resulted in its RSI hammered down to around 6 and change.  Its a rubber band stretched far out.

Today, the RSI is at 94 - if you use GLD & SLV, which have later closing prices than the actual futures contracts which close at 2:30 pm.

I'm with you on the silver-buying too, FWIW.

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