PM Daily Market Commentary - 5/24/2017

By davefairtex on Thu, May 25, 2017 - 6:56am

Gold shot up +11.10 [+0.89%] to 1261.90 on heavy volume, while silver rose +0.17 [+0.97%] to 17.23 on moderately heavy volume. Yesterday's losses in gold were completely reversed, and then some, mostly because of the release of the FOMC minutes at 2pm. The buck tipped over and sank at about that time also.

What did the minutes say that was exciting? Well, reading the tea leaves, it seemed to me that there were hints that some of the FOMC members did not sound entirely convinced that the weakness in inflation and consumer spending was really “transitory.” In addition, the mechanism for the reduction of the balance sheet was defined a bit better. Namely, the unwind will be capped at a fixed rate, rather than simply letting all the bonds run off when they came due. This would act to slow down the rate of the unwind. Both of those positions seemed a bit more dovish than was previously the case.

As a result of the aftermath of the minutes release, gold ended up closing at its high for the day. Candle print was a closing white marubozu which the code felt was somewhat bullish. Gold is now back above its 50 MA. Instead of preparing to break down, gold now looks as though its forming an ascending triangle pattern – which looks more like it is preparing for a breakout. A break above the 1260 resistance zone would be bullish.

Open interest at COMEX for GC rose +8,511 contracts.

Rate rise chances (June 2017) fell to 83%.

Silver made a low in Asia, but then rallied right through London and closed at its high in New York. The FOMC meeting didn't seem to affect silver either way. Candle print was a closing white marubozu which the code felt was neutral. Me, I think it looks bullish. Silver found support on its 9 EMA and closed right at its highs. It appears as though it is preparing to move higher.

Open interest at COMEX for SI rose +321 contracts.

The gold/silver ratio fell -0.06 to 73.26.

Miners were rescued from another bad day by the FOMC minutes; both ETFs were down 1-2% at the time of the release, and then rallied strongly afterwards. GDX climbed +1.46% on moderate volume, while GDXJ moved up +0.94% on moderate volume also. GDX printed a “thrusting” candle pair, which the code felt was neutral, while GDXJ printed a spinning top which the code gave a 47% chance of marking the low – that's not bad. GDX is now back above both the 9 and 50 MA lines, which is nice to see. Perhaps at least some of the weakness in the miners in the past few weeks could have been due to worries about the Fed balance sheet unwind. We'll have to see if the buyers continue to appear for the miners in the days to come.

Platinum rose +0.41%, palladium dropped -1.22%, and copper moved down -0.33%. Copper's takuri line looks bullish, palladium's spinning top looks ok, while platinum was neutral today. All of the metals evidenced dip-buying behavior in one way or another.

The buck fell, dropping -0.12 to 97.01, with the losses occurring immediately following the FOMC minutes release. Even this number actually understates the loss by a bit; it appears that my data provider closes out the DX contract updates at 4:00pm, but the buck continued dropping until trading stopped at 4:45, ending the day at 96.94. Probably too much detail, but there it is. Candle print was an NR7, which the code felt was somewhat bullish.

Crude fell -0.19 to 51.30, making a new high to 51.86 in London. However, the EIA report was (apparently) not all the market hoped; crude showed a crude draw of -4.4 million barrels, a gasoline draw of -0.8 million barrels, but crude ended up selling off about 30 cents following the report. The all-important OPEC meeting is tomorrow, and perhaps traders were just nervous going into the meeting.

SPX liked the results of the minutes, but just a little; SPX closed up +5.79 to 2404.39, enough for a new all time closing high. Woohoo. Sector map shows that materials led (XLB:+0.67%) followed closely by utilities (XLU:+0.57%), while energy trailed (XLE:-0.53%). Interest-sensitive stocks rising suggests a reduced worry about Fed-engineered rate increases. Financials confirmed ths by dropping (XLF:-0.04%).

VIX plunged -0.70 to 10.02. We're almost back in the single-digits again. It seems that the Trump Impeachment worry lasted all of a day. Perhaps the DNC members have large stock portfolios. That, or they want to save their firepower for the midterms.

TLT came back today, up +0.56%, recovering much of yesterday's loss. Most of the rally came following the FOMC minutes. My guess: traders were worried about the FOMC reducing their bond holdings rapidly, and the “cap” concept made them relax. The longer FOMC keeps its bloated bond holdings, the better the long bond will do. TLT is sensitive to rate changes, bond supply, and equity market behavior. Fed rate increases and bond supply increases are bad news for bonds, and equity market panics are good news.

JNK rose +0.13%, another new high. JNK continues to grind higher, signaling risk on.

CRB fell again today, dropping -0.61%; all 5 groups were in the red, with the drop led by livestock.

These days its always something. Today, it was about the FOMC providing us with more clues as to how they plan to reduce the size of their balance sheet. The market looked relieved that they were going to reduce it slowly – it appears that it will be slower than the market had anticipated. Yay, free money for longer.

Will this end up changing trends? It might. Gold's chart went from looking iffy to hinting at a breakout. Moving above that 1260 resistance area would be quite bullish, and it might even bring in some buying into the mining shares.

Next week we have Comey's testimony – tentatively scheduled for 9:30am next Wednesday.

And of course the OPEC meeting...this just in...OPEC agreed to extend the output cuts for another 9 months. Crude dropped about 80 cents; likely disappointed it wasn't more.

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davefairtex's picture
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Google Trends: "Buy Bitcoin"

We have a new all time high in the search term "buy bitcoin".

This goes right along with the near-vertical $300/day move in the price.

$44 billion market cap.  That's about the same size as the silver market.

robie robinson's picture
robie robinson
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Sell Bitcoin

and buy a mare.

Jim H's picture
Jim H
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Fixed it for you Dave : )

That's about the same size as the silver market.

Should read;  That's about the same size as the paper silver market.

The total value of physical Silver for sale in the market today is estimated at $1 - 2B. 

Egon Von Geryerz went into some detail on the paper market leverage (vs. physical) in a recent KWN piece - specifically regarding Gold;

...With such vast amounts of paper gold traded, it is clear that the gold market today has very little to do with physical gold. The annual increase of physical gold in the world in 2016 was 3,000 tonnes or $120 billion. That is only 0.16% of all the gold traded in 2016. Thus, the gold price bears very little relation to the physical market since the gold price is settled by a paper market which is 600x annual gold mine production.


davefairtex's picture
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above ground supply

I stand corrected.

I used the source for "the silver market" as "total identifiable above ground supply", located here:

That being 2590 million ounces as of 2016.

2590 mOz x $17.15/oz = 44.42 billion dollars.

I should have said, "bitcoin, about the size of the total above-ground physical silver."

Its stil a good number though, and I think, an interesting comparison.

Amusingly, in the time it took me to return and see your post, bitcoin fell from $2760 to $2360.  $300 rally turned into a $100 loss.

But I'm sure it will be up $600 tomorrow to make up for the loss today.

"Mr Toad's Wild Ride."

Oh Jim.  Here's a fun question for you: gun to your head, would you take half of the physical silver, or half of the bitcoin?

Nate's picture
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The individual that manages my retirement account received a call yesterday from a friend in Houston who wants to invest in bitcoin.  The friend has 2 coworkers that have invested $5,000 and $7,000 in bitcoin.

Sounds like Joe Kennedy getting tips from the shoeshine boy in 1929.  The bubble continues.......


Jim H's picture
Jim H
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Silver or Bitcoin...

I would take the Silver..  : )

davefairtex's picture
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my code re: bitcoin

So whenever I see a big red candle like yesterday, I always wonder, is this the top?  So I asked my code to look at the bitcoin chart.  It takes into account the RSI, the relative volume, and a bunch of other factors and comes up with a bullish & a bearish assessment.  Here's what it said:

In a nutshell, code is "more bullish than bearish".  I think it was the pause at 1600 that bled off some of the overbought condition.  Lastly, a daily close below 2224 will result in a swing high, which would probably be bearish.

Jim-  I'm relieved to hear that you'd pick the silver.  My model of the world remains intact.

mrees999's picture
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Thanks Dave, I hope you keep making these charts. I helped sign up 10 people in the last week that have been ignoring my advice for years. I never push it with people as I don't want to sound like an Amway salesperson (Sorry to any Amway fans here).

Funny out of the blue phone calls and txt messages.  I see some choppy waters but more countries are just now allowing citizens to purchase and allow it as a legal currency (not that it was illegal-  just not recognized by the legal court system as a valid payment of debt).

India debating it now, Japan on board, Australia and Russian on board. Nobody wants to be left behind in the next digital technology race.  Interesting times ahead.





davefairtex's picture
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Posts: 5681


Well I certainly hope you remain enthuasistic when my code starts getting cranky and predicting doom & gloom.  :)

Looking at the performance today, the reading seems to be borne out with today's price action.

That bitcoin trader told me about bitcoin futures available on some exchanges.  That's a terrifying thought.  20:1 leverage on top of bitcoin - both long, and short, I'd assume. 

It would be interesting to find out just how much borrowed money is involved.


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