PM Daily Market Commentary - 5/4/2017

By davefairtex on Fri, May 5, 2017 - 4:54am


Gold fell -10.10 [-0.82%] to 1228.40 on very heavy volume, while silver fell -0.15 [-0.91%] to 16.33 on heavy volume. A sharply falling buck did nothing to help PM.

Gold started dropping in Asia, making its day low of 1225.70 just before the US market opened, after which it chopped sideways for the reminder of the day. Volume was extremely heavy given the relatively smaller drop as compared to yesterday, where gold dropped much further on lower volume. It makes me think that although it didn't show up in the candle, there was buying and/or short-covering going on at the lows. Candle print was just a long black candle, which the code felt was mildly bearish. That means more lows tomorrow, probably. Gold's RSI7=19, which means gold is oversold.

Given that the Euro staged a very strong rally yesterday (XEU:+0.88%), this implies that gold-in-Euros absolutely cratered. Which it did - down -1.88%. I think gold's support pre-French election came from Europe, and now that Le Pen is no longer a danger, those Euros are now fleeing gold.

Open interest at COMEX for GC rose +3,403 contracts. OI continues to build.

Rate rise chances (June 2017) remains at 74%.

Silver held up a bit better than gold, but eventually caved just before 8am, falling for a couple of hours and making a new low to 16.21. After the drop, silver bounced slightly and traded sideways for the remainder of the day. This marks the 14th straight day of declines for silver. The candle print was a spinning top, which the code felt was mildly bearish. RSI7 for silver is now at 6; it is extremely oversold. We are now at capitulation levels for silver. It could rally at any time.

Open interest at COMEX for SI rose +170 contracts.

The gold/silver ratio rose +0.07 to 75.22.

GDX followed the metals lower, gapping down at the open and then trading sideways in a range for most of the day. GDX closed down -1.91% on moderately heavy volume, while GDXJ dropped -3.42% on moderately heavy volume also. GDX printed a spinning top candle which was slightly bullish. GDX dropped momentarily below previous low, but managed to crawl back above it by end of day. GDXJ printed a spinning top also, which the code felt was bearish too. No reversal bars yet for the miners.

The GDX:$GOLD ratio fell, as did the GDXJ:GDX ratio. That's bearish too.

Platinum bounced back after yesterday's disaster, rising +0.67%, while palladium climbed +0.58%, and copper fell -0.10%. Copper made a new low, but the long-legged doji candle print was quite bullish (68%). Copper may well have stopped its downtrend for now. Platinum printed a bullish harami, which the code felt was bullish, and may mark a low too (61%). Palladium's hammer candle was also bullish. All the “other” metals did fairly well; is this a tell for gold and silver? It could be.

The buck fell sharply, dropping –0.44 to 98.57. The buck fell all day long, mostly due to the euro (XEU:+0.88%) and the pound (XBP:+0.43%). As mentioned, even a sharply falling dollar couldn't rescue gold and silver today. If you feel picked-on as a USD silver owner, try looking at the chart through the Euro lens.  Its a catastrophe!!

Crude's fall accelerated, down -2.04 [-4.29%] to 45.52, smashing through 47 support as though it didn't exist. I don't think there are any managed money longs left – I expect they've all bailed out after today's massive plunge. Crude printed a strong line candle, which is normally quite bearish, but in this case is just mildly so. I guess that's a mark of hope of sorts.  Crude has fallen for 14 of the last 16 days.  Crude's RSI7=7, which is also absurdly oversold. It should bounce at any time. Ignore the horrid news in crude, its just there to terrify you right at the lows.  That's why we use the RSI.  It is telling us that you should be looking for an entry point right about now.

SPX moved sideways today, up +1.39 to 2389.52. SPX has chopped sideways in a narrow range for 8 straight days now. Today's print was a doji, which the code felt was somewhat bullish. Top performing sector was consumer staples (XLP:+0.77%) with sickcare close behind (XLV:+0.66%; repeal-and-replace, woohoo, everyone in the cartel is a winner!), while energy cratered (XLE:-1.84%).

VIX fell -0.22 to 10.46.

TLT dropped -0.49%, finding support at the 50 MA. Code felt the swing high print was bearish. TLT is signaling risk on.

JNK dropped hard today, down -0.59%. Candle print was a two-candle swing high, which the code felt was bearish. JNK probably fell as a reaction to the plunge in crude. It is signaling risk off.

CRB cratered, dropping -1.88% and making a dramatic new low. 4 of 5 sectors fell, led by energy, which as a group fell -4.25%.

It was more of the same today, with a bit of added emphasis from the massive drop in crude oil. Given the bullish-looking COT for crude, I'm suspicious; commercials are usually right with crude, the same way they are with gold and silver.  My guess is, this is one last dramatic flush before prices move back up again.

Silver and oil are both incredibly oversold. I hate to sound like a broken record, but they really could bounce at any moment. Since platinum, palladium, and copper all did relatively well, that is supportive of a near-term bounce for PM, assuming the good news continues.

So, I believe it is probably time to start thinking about buying. We rarely get to see RSI7 values in the mid-single digits. They are generally buying opportunities – even if just for a bounce. I added back my PSLV position right around the lows today. I'm probably ahead of things a bit, but today didn't feel like a distribution day; it felt like momentum was slowing, in spite of the unfortunate candle print.  I believe there is limited downside - round number 16 should provide good support.

During the asia session as I write this, crude has made a fairly dramatic new low but bounced back, and both gold and silver appear to be recovering too.

The Nonfarm Payrolls report is released at 08:30 tomorrow. Its usually a market-mover, and if the report doesn't support the Fed's “Q1 economic weakness is transient” worldview, the rebound in the metals could be very, very strong. If on the other hand its a strong NFP report, I'm not sure we have too much downside left.

Its just a guess, but the setup seems to be asymmetric to me.  Of course, I was wrong about FOMC so take my guesses with a grain of salt.

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

Nice beat: 211K vs. 185K exp.  Should keep the Fed on the path to hiking in June.  Hopefully, PMs will get a breather today, because when Macaroni wins over the weekend, it could set us up for another leg down.  Crude touched the $43 handle overnight, so maybe it gets a break today also.  It'll be interesting to see how bitcoin finishes the week.

And NK railing against the CIA now.  They just talk way too much.  They're starting to look foolish.

davefairtex's picture
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Joined: Sep 3 2008
Posts: 5681
NFP +211k

Headline number for Nonfarm Payrolls is +211k, solidly at the high end of the expected range.

Initial response from PM: both gold and silver reacted lower on the release, bounced back, and are more or less unchanged.

Euro is rallying; normally this would be dollar-positive news.

SPX is up a few points, but isn't looking particularly enthusiastic.

Rate-increase chances edged up from 74% to 76% on the news.

I'm guessing Macron's win is already baked into the cake, and Monday will be a sell-the-news event.

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
probable lows: oil & the miners

Probable lows in oil and GDX, possible lows for GDXJ, gold and silver.

Wow.  Rate-rise chances have risen to 83%. 

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