PM Daily Market Commentary - 5/31/2017

davefairtex
By davefairtex on Thu, Jun 1, 2017 - 5:54am

 

Gold rose +5.80 to 1271.40 on moderate volume, while silver fell -0.07 to 17.32 on moderate volume also.  The falling dollar (DX:-0.36) seemed to help gold rally; in fact, much of gold's move was just a currency effect.

Gold dipped briefly in Asia, and then moved slowly higher until about 1pm in New York when it jumped higher more dramatically, eventually touching 1276.80. However, the new high was just temporary, and gold was unable to hold its gains into the close.  The candle print was a long white candle, which the code felt was somewhat bullish.

Open interest at COMEX for GC rose +9,448 contracts.

Rate rise chances (June 2017) rose to 89%.

Silver mostly followed gold, except the sell-off in Asia was more pronounced, and the rally in the afternoon in the US was milder.  Silver printed a spinning top candle that looks a little bit like a hammer. The code thinks it is slightly bullish.

Open interest at COMEX for SI fell -602 contracts.

The gold/silver ratio rose +0.65 to 73.43. The reversal in the ratio is a warning sign.

Miners gapped up a bit at the open, promptly sold off, then rallied into the afternoon, then fell into the close. At the end, GDX managed to close up +0.44% on moderately light volume, while GDXJ fell -0.16% on very light volume. The candle code felt that GDX's long legged doji was mildly bullish, while GDXJ's high wave candle was seen as neutral.  It looked as though traders really weren't sure whether or not it was time to buy.

Platinum rallied +1.05% coming back from yesterday's big move lower, palladium moved up +1.50% now up 4 days in a row, while copper climbed +0.58%. Palladium looks as though it will be testing its previous high set back in early May; it looks quite strong. Platinum is struggling to regain its 50 MA, and is closer to the lows than the highs. It was a good day for the other metals.

The buck moved sideways in Asia, and then sold off steadily until about mid-day in the US, finally closing down -0.36 to to 96.69. Candle was a long black/swing high, which the code felt had a 70% chance of marking a top. The buck closed very near its multi-month lows. I believe we will probably see another leg down in the dollar in the near future.  If it happens, this should help PM.

News out of Europe involved an EU proposal to bless the construction of securitized sovereign debt, a Frankenstein's monster composed of government debt stitched together from all countries across the zone, sliced into tranches with varying degrees of “risk” assigned. If this sounds familiar, it should; this was the same sort of instrument that blew up Lehman Brothers. Why would banks choose to buy this beast? Well, the EU proposes allowing the Eurozone bank regulators to assign this instrument a zero risk weighting, which means the bankers don't need to hold reserves held against it, allowing them to buy as much of these items as they'd like.  That'll work out great until losses happen, and then it will work out a whole lot less well.

Here's the relatively benign article at FT: https://www.ft.com/content/ba4b9b60-455c-11e7-8d27-59b4dd6296b8 and the rather crankier article at zero hedge: http://www.zerohedge.com/news/2017-05-30/watershed-event-europe-unveils-plan-securitize-sovereign-debt. The ZH article comes complete with a nice graphic that dates back to the mortgage crisis, which is worth seeing.

Crude fell hard today, dropping -1.03 to 48.63, making a new low to 47.73. The trading range was large, and crude was rescued from turning in a really horrible day by the API report that came out at 4:30pm, which showed a very large (surprise) crude inventory draw of 8.3 million barrels. This dragged oil back up 30 cents. The candle code saw today's outcome as more bearish than bullish. Oil continues to look unhappy following the conclusion of the OPEC meeting, and is now below all 3 moving averages. An attempt by Saudi Arabia's oil minister to channel Draghi: “we'll do whatever it takes to reduce oil supply” fell flat.

SPX edged down -1.11 to 2411.80, ticking slightly lower. The market had sold off more enthusiastically early on, but the usual buyers showed up and pulled prices back up almost to the green. Candle print was a hammer, which the code felt was bullish. That said, the rally was led by utilities (XLU:+0.50%) while financials plunged (XLF:-0.85%). The banks are starting to look quite unhappy; DB was down -2.73%. Its a sharp contrast to what the overall market is doing.

VIX rose +0.03 to 10.41.

TLT rose again, up +0.24%, making a new high for this month. Bonds appear ready to break out to new highs, and this appears to be a pretty clear risk off signal. TLT is up 5% off the lows, and is definitely not supporting a case for a breakout in equities. That goes along with the rally in utilities, and the drop in financials.

JNK fell -0.03%, more or less unchanged. It remains just below its recent high set yesterday, and it is saying that all is well.

CRB fell again, dropping -0.86%. Only 1 sector fell today, but it was energy, and that sector fell -2.59%. Energy has the largest weighting in the index, and so when it decides to move, it takes the complex with it. CRB appears headed to re-test its recent lows.

Right now we're seeing mixed signals; TLT, gold, and financials are all signaling risk off, while junk bonds and equities hover within spitting distance of their highs. One of these two groups will end up being wrong.

Miners remain the poor stepchild. In spite of rising gold and silver prices, the miners continue either treading water or moving lower – we can see this in the falling GDX:$GOLD and SIL:$SILVER ratios over the past three weeks. Perhaps its all due to the anticipated re-weighting of the GDXJ ETF due out mid-June. It could also be that the miners are signaling lower PM prices ahead.  I guess we'll know which one it is soon enough.

Can the proposed combined, sliced and diced sovereign bond instruments save the Euro? In a word, no.  It is just a way for Germany to appear to be combining the debt (one of Macron's proposal/demands), but without truly mutualizing it. It's just a fig leaf. Compare and contrast:

1) If you are an owner of Fig Leaf Instrument, and Greece defaults, you take losses.  Doh!

2) If the debt is mutualized (which is what Macron wants), and you own the mutualized debt instrument, and Greece can't pay its share (i.e. it defaults), then the other countries must pony up extra cash, and you as the holder take no losses.  Woohoo!

Which one of those should have a zero risk weighting, do you think?

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3 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 327
Silver

It's down handsomely this morning.  Looks like it's trying to put in a lower high.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 327
Sell In May and Go Away

I don't think it means what you think it means.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 327
Reversal

Nice reversal in PMs today.  Miners are still having a hard time getting up off the mat, but stocks are soaring and TLT is pretty flat.

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