PM Daily Market Commentary - 6/1/2017

By davefairtex on Fri, Jun 2, 2017 - 4:25am


Gold fell -3.10 to 1268.30 on moderate volume, while silver fell -0.04 to 17.28 on moderate volume also. Gold moved slowly lower all day long as the dollar rallied, while silver was shoved off a cliff during the London session, but recovered after the US market opened. The rising dollar more than accounts for all of the losses in PM today.

Gold's trading range was relatively narrow today, with a brief spike down at 8:15am, the time when the ADP employment report was released. The ADP report was unexpectedly strong, at +253k jobs for this month, and this almost certainly caused the spike down in gold. Still, the move down was – mostly – eventually bought. Gold seems to be relatively resilient to rate rise concerns at this point, which is bullish overall for the metal.

Today, Gold printed a spinning top, which the candle code feels is somewhat bearish. Gold remains above all 3 moving averages.

Open interest at COMEX for GC rose +3,497 contracts.

Rate rise chances (June 2017) rose to 96%. The move higher likely was a result of the ADP employment report.

Silver was pounded lower today, suffering a number of what looked like spike attacks during the London session that drove silver to a new low of 16.98. However, once the US opened, buyers then appeared that ended up pushing prices back up to almost even. Candle print was a high wave with a long lower shadow, which the code felt was bullish: a 57% chance of marking a low. Was this an attempt to change trend that was overcome by the buyers? Maybe it was just some bullion bank in London trying to hammer prices down to $17 before the expiration of some derivative contract. Its impossible to say from the outside.

Open interest at COMEX for SI fell -602 contracts.

The gold/silver ratio fell -0.03 to 73.40.

Miners gapped down at the open, rallied early, but the rally failed, which is a relatively frequent event these days for the miners. GDX fell -0.40% on very light volume, while GDXJ dropped -0.32% on very light volume also. Right now, not many people care about the miners, and they seem to care less and less as the days pass. GDX did manage to avoid a new low, and the code felt that the spinning top candle print was actually somewhat bullish. (Really??  I don't think so.)  GDXJ's spinning top candle was seen as neutral. The GDX:$GOLD ratio continues to fall, which is bearish. At some point this will change; perhaps when GDXJ has its grand realignment. You know, it makes me think that this upcoming event might well be a buy-the-news sort of thing. Everyone sells off in anticipation, and on the day after, there is a big flow of money into the sector now that the risks are gone. It is something to watch as the days get closer.

Platinum was hit hard today again, plunging -1.86% on very heavy volume, while palladium rallied +0.99%, and copper ended the day flat. Code thought that platinum's opening black marubozu was bearish, palladium's spinning top was somewhat bullish, and copper's doji gave us no information at all. Palladium has moved right up to within a few bucks of the previous high set back in April, while platinum's big drop took it below its 9 EMA. Platinum appears to be heading to re-test its lows.

The buck rallied today, closing up +0.29 to 96.98, managing to lift itself off support and avoid a further breakdown – at least for the moment. However, the candle code was not impressed by the bullish harami candle print, which had a rating of neutral. “Lamest bullish harami ever” - well more or less anyway. Dollar remains below its 9 EMA. If it can't pick itself up off the floor with the rate rise chances jumping to 95%, I'm not sure what will help.

Crude fell again today, dropping -0.59 to 48.04. The drop today was in spite of a positive-looking EIA report which showed a crude draw of -6.4 million barrels, along with a gasoline draw of -2.9 million barrels. Initially crude rallied off the EIA report moving up above 49, but the sellers appeared in the afternoon, driving price down to round number 48 where it found some support. The candle code assesses the long black candle as...slightly bullish.  No way - I think that's another bad call. I think we get lower prices ahead. The failed rally off the nominally bullish EIA report and the close near the lows looks quite bearish to me.

Perhaps a contributing factor: there is a unrest happening within the GCC – the super-rich gulf states including Bahrain, Kuwait, Qatar, Saudi Arabia, and the UAE. Here is what's going on: Qatar (home to Al Jazeera) has been warming up to Iran, and reportedly the Emir of Qatar had an unpleasant interaction with Trump at the most recent meeting in Saudi Arabia where there was a disagreement about Iran, and Qatar's support for the Muslim Brotherhood. Here's an article that details what happened:

During these meetings, as indicated by Arab sources, Sheikh Tamim has called Iran a force of stability. The latter is remarkable as most statements made to the press during the Riyadh Summit indicated that all attending countries agreed to keep Iran in political and economic quarantine. At the same time, the participants agreed to counter the Muslim Brotherhood, which is blacklisted by Saudi Arabia, UAE and Egypt. The Muslim Brotherhood however is well protected in Qatar. At present, the ideologue of the Brotherhood, Yusuf Al Qaradawi, is a celebrity in Doha, and has access to the Emir and the Emir’s father and predecessor, Hamad bin Khalifa al-Thani.

Right, so the Emir likes both Iran and the Islamic Brotherhood, which the US thinks is an almost-terrorist organization. I could go along with that view, but honestly its hard for me to tell the difference between the Brotherhood and the Saudis, at least in terms of legal code. Anyhow, Qatar is now a problem, and the article suggests the next steps could include military action by Saudi Arabia, the US, and/or a breakdown in the OPEC deal that was just agreed to this week. Bullish or bearish for oil? I guess it depends on how far things go.

In the meantime, we should probably get some interesting news articles out of Al Jazeera.

SPX broke sharply higher today, rising +18.26 to 2430.06. Yesterday's plunging financials turned into today's fantastic financial-stock rally (XLF:+1.25%), while tech trailed (XLK:+0.25%). I didn't see any single event that caused the market to launch; SPX ticked slightly higher just after the ADP report, but the real move in SPX happened a little after 11am, with a extra 5 points added right at end of day. I have no idea what moved prices higher. Certainly the banks were happy about something, but their rally came after market open, and it was not due to ADP.

VIX fell -0.52 to 9.89. There we are back to single-digit VIX once again.

TLT fell -0.20%; it gapped down in the morning, but then rallied for the rest of the day, closing right at the highs. The white marubozu/bullish belt hold candle was rated by the code as quite bullish. Whatever caused SPX to take off, it doesn't look as though TLT is very worried about it.

JNK fell -0.35%, with all of the losses coming at the gap-down open. Although there was a lot of volatility during the day, JNK closed about where it opened, resulting in a gap down doji candle print, which the code has rated as quite bullish. Summary is, there was a sell-off, but then buyers showed up in force to buy the dip in junk debt.

CRB fell once more, falling -0.38%. This time, 4 of 5 sectors fell, led by agriculture which has been having a tough time recently. CRB remains in a downtrend, and appears to be headed for a re-test of the recent lows.

In spite of the breakout in SPX, gold, silver, and bonds are all doing fairly well, while crude seems to be headed lower in spite of bullish-looking inventory draws. When prices sell off on what should be good news, that's just bad.  I am a little worried about silver; it tends to follow oil even more than gold does, and so plunging oil prices generally don't do silver any favors.

We have Nonfarm Payrolls tomorrow at 830am, which can sometimes cause a lot of price movement. If the report confirms today's bullish ADP report, that will probably push gold prices lower.

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davefairtex's picture
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the end of oil?

So something has been bothering me for several months now: it is the upcoming IPO of the National Oil Company of Saudi Arabia: Saudi ARAMCO.

From where I sit, you don't sell the big milk cow that keeps your elites in gravy unless one of two things is happening:

1) The cow is about to run dry.

2) You see a near-term future in which the price for milk drops through the floor.

Now initially when I heard about the upcoming IPO, I figured the answer was 1: the cow is about to run dry.  This ties in with the whole Peak Oil thesis and my own belief system and all the rest of that.

Subsequently, I've been reading this virtual avalanche of articles about how oil demand - not supply - will be peaking in about 2020.  Could this be true?

Here's an article from Bloomberg entitled "The Demise of Oil", partially based on efficiency gains projected by the IEA, and partially on the work of RethinkX, a SF-based think tank.

After thinking about it, self-driving cars will be an absolute revolution for transport energy savings.  Why is that?  First, they will enable "transportation-as-service" business models, which will make sharing transport between people automated.  Carpools are simple now.  Want your commute bill cut in half?  Enable automatic sharing.  Who won't want to do that?  And the fuel savings will be amazing simply because the autocars can effectively hyper-mile everywhere they go.  The companies that own them will insist on it, to keep their costs down.  Sharing + hypermiling = at least 50% savings in fuel efficiency.

And with sharing, you don't need to spend 10 years to build out the entire auto fleet to have an impact.  With sharing, you might just get 30% coverage after just one year.  5 years on, perhaps 80% of people commute regularly with shared, self-driving cars.

If you turn these shared cars into electric vehicles on top of this, the charts start to look very seriously like Peak Oil Demand: 2020.

And then when they added the chart about "what happened to coal" - which I know very well because I track it too - it really made me think.  Could oil demand really peak in 2020 the same way coal did?  Here's "peak coal demand."  Have you even heard about peak coal demand?  Its a real thing.

And it's crushed the coal industry in the US.  Biggest coal company in the US went BK as just one side effect.  Turns out, you can't service your debts when demand for your product peaks out.

Could this happen to the oil industry too?

Now a big part of the drop in coal is probably cheap natgas from fracking, but its probably also helped by the fact that much of the new generating capacity brought online has been wind and solar: in 2016, 63% of all new generating capacity was renewable, vs 28% in 2010.

So self-driving cars (automated efficiency gains) + electric cars could make that happen.  And our current oil glut might just last us to the edge of the 2020 time period.

Now normally I'd chalk this up to the usual cornucopian techno-fantasy dream world, except I work with AI, and I know what's possible, heck I've got a box on my desk that does some amazing things, and I've been thinking about this self-driving car revolution for a while now.

And remember what I led off with?  Here comes Saudi Arabia, suddenly willing to sell off their Milk Cow.  Either that cow is about to run dry, or peak oil demand is a very real possibility.

davefairtex's picture
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NFP disappoints at +138k; gold & silver up

Nonfarm Payrolls disappointed; not just the weak headline number, but also negative revisions to previous months, which makes everything that much worse.

Manufacturing & retail jobs actually fell; they were expected to rise.

Gold, silver, and bonds all rallied on the news, while the buck fell.

cmartenson's picture
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Peak oil demand

...yeah, I keep reading about peak oil demand too, the problem is every time I dig into the numbers there really aren't any that tie to anything besides "the future's gonna be awesome!"

Consider this one piece of data.  Here are the actual fuel mileage efficiencies reported by the US over a very long stretch of time.

A few observations here.

1) Medium and heavy-duty trucks have not seen any gains over 50 years.  This makes sense because the biggest gains are always from reducing weight, and these trucks haul weight.  Revoke gravity and inertia and we'll see bigger gains there in the future.

2) Light trucks have done better primarily as a result of aluminum frames and other weight reducing measures, and a tiny bit from engine improvements.

3) Passenger cars have gone from 20 to 24 mpg average since 1983.  That's a pretty good gain, but not amazing.

4) The black line - for all vehicles - has essentially gone nowhere since 1990.

However, the IEA now assume monster efficiency gains going forward.  Forget about the last 25+ years.  Now there's a new future before us!!

But we have to ask where those will come from and why they will be so pronounced as compared to the past?  What's really new in the world that will drive such massive change in efficiency?  As I travel the world, I can assure you all I notice - and I watch carefully - is that people drive internal combustion engines based on the economics involved.  Everywhere I go, there are almost literally zero electric cars to be seen.

A subtlety to keep in mind in the IEA chart; they are showing the impact of efficiency on total oil demand so buried in there is the fact that the total number of vehicles on the road will be changing over that same time frame.  The past 25 years has been one of explosive growth in the number of vehicles on the global roads.  

Perhaps the next 25 years will see an explosive collapse and that is baked into the IEA numbers, but, again, we have to ask what the driving force will be to effect such a massive departure from BAU.

When it comes to oil demand, the only force I know of that matters is economics.  If there's a more economic way to transport ourselves using AI and such then it will win if and only if it's more economical to such an extent that it outweighs the inconvenience of waiting and riding with people you possibly won't like (or don't want to talk to hung over, or who have bad body odor, or who talk incessantly when you want a quiet morning commute, or you are just an introvert and people drain your life force)...all I'm saying is the savings are going to either have to be massive, or draconian government forcing will be required.

But those sorts of changes are very slow...usually...because they are cultural as much as anything.  The IEA is showing the fastest pace of efficiency savings in all of human automotive history.  I've yet to see anything specific that points to how that happens now, over the next 25 years, when it didn't even happen over the past 25 when we saw oil go from $10 a barrel to $150, and finally $50....massive increases.


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AI is the revolution

So I'm guessing that the thing remaining constant here is that people continue to make the car purchase buying decisions, as well as the tactical driving decisions also.  From what I read, mileage isn't getting better, but power sure is.  So people buy faster cars that get the same mileage, and they all have lead feet.  So, mileage goes basically nowhere.

What changes in my new world?

Well if a company is buying the cars for use in a transport-as-service business, they don't give a crap about power.  Nor do they give a crap about going fast, or cutting someone off, or feeling impatient.  They care about mileage.  The incentives are entirely aligned on the side of conservation.  Gas mileage improves via better equipment choices, and then improves once more on how the equipment gets used by the AI settings.  That's perhaps a double right there.

At the same time, rIght now we have a bunch of people falling out of the middle class.  Car ownership is getting a lot harder for many economically.  The costs of owning a car in a big city: insurance and tickets and registration and garage requirements and repairs and the capital expense, will tend to drive everyone but the upper class out of actually owning one of these beasts.

At the same time, people are growing more used to sharing stuff (airbnb, uber, etc) via apps.

Lastly, the tendency of people to not want to engage, but rather play with their phones, tops it all off.  Nobody really cares about driving anymore.

So sharing a self-driving car with some other glued-to-the-phone idiot, while the fuel-efficient low-power car is driven in hyper-miling mode by the AI, car drops you off at work, and then tots off to take care of the next customer will - probably - come very naturally to the current generation.  No parking, no insurance, no registration fees, no tickets, no traffic stress, no capex, no repairs, and no DUIs.  Just hop in, and play with your phone until the car gets there.  And maybe its 1/3 the price of a cab, and less if you carpool.

It doesn't take a very large percentage of the auto fleet to be deployed in this mode (in the big cities) to result in a massive fuel savings.  Not because the underlying technology is better, simply because we are using it in a smarter way.  10% of the fleet, so equipped, would save maybe 20%.  Its probably going to crush the manufacturers, and the rental car businesses, and meter maids, and the traffic cops.

Again, its about AI making use of our existing tech & resources a whole lot better, at a fraction of the current cost of ownership for individuals.

When I map this against the Hirsch report, its easy for me to visualize how a deployment of AI-equipped shared, self-driving cars into the major metro areas can fix a fuel problem in really short order.  It won't take 20 years to effectively replace the fleet, it will take 2, because the cars will be shared, and so each AI car serves maybe 5-10 people.

Most importantly, it will be the companies making the buying decisions in order to provide a service, so the adoption will be much more rapid.

davefairtex's picture
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axis of control

And if you want to view things from a population control standpoint:

If a big percentage of the population uses the transport-as-service to get around, they are much easier to control.  Cars will (digitally) simply not be allowed to go some places.  And if you do something wrong, your access to transport can be cut off.  If you are a criminal, the car can identify you, and call the police.  Cars will log their travel activity in detail on a per-person basis - like a phone, but better, because it includes full motion video and audio.

Laws can be structured to favor highway and street access for the self-driving cars.  Special fast lanes, lower registration fees, tax breaks, and information-sharing with law enforcement.

At the same time, our wealth disparity situation will be economically driving the lower class out of the car-owning middle class, so by economic necessity, they will need to make use of the service.

Any way you want to slice it...I think its coming...and it will end up really driving down fuel consumption as a side effect.

Whoa.  There goes silver.  17.57.  Wish the miners were paying attention.


cmartenson's picture
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More numbers on vehicles

So let's imagine that you could replace 10% of all vehicles in all major metropolitan areas of the world, and you could have done this over the past 7 years - an astonishing feat, but hey the fuel savings are just that compelling and somehow the culture has shifted rapidly enough.

Would that have created peak oil?


Why?  Because the global vehicle fleet expanded by 33% completely overwhelming the 20% fuel savings that was just proposed. [Note:  I also pulled the lightest numbers I could find, other estimates place teh global fleet at 1.2 billion in 2014, and headed to 2.5 billion by 2030]

Okay, maybe fewer vehicles are sold because of AI cars, but it's also true that a lot of city dwellers already don't have cars and they would, in many cases, simply be swapping rides in cabs and Uber for some other means, but not exactly for the same savings as an AI fleet replacing a private fleet.

However, such semantics aside, I see the penetration as being a hell of a lot slower than 7 years, because such things have to actually fight many entrenched beliefs and interests in order to gain.  If fuel savings is the the only driving force, then it will take even longer because those are not a very good driver, only a few percent at the margin typically when one is considering a capital expense of $40k for every AI enabled car.

Just my thoughts on this at the moment...subject to change when the data starts to change...


davefairtex's picture
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saving fuel: not the goal

Agreed that if the goal is saving fuel, its not gonna happen.  Nobody cares.  People won't own AI cars, companies will, and they'll do it with the goal of making money.

My argument is that the fuel savings will be happening as a side effect of Uber (and others) deciding to provide transport-as-a-service, and that this service ends up being a cheaper option for most people than owning their own vehicle, and that in order to save money, people will enable the "auto carpool" option for longer-haul trips/commutes, which will save them even more money, and fuel as a side effect.

When you go to Bangkok, you will find that taxis are just really cheap.  That's because the poor drivers don't make much money.  Now imagine all taxis around the world were similarly priced.  If that were the case, I would simply never own a car, ever again, because there is just no point.

I imagine a world where literally everywhere they have cars, that drive themselves, that cost what it costs to get a taxi in Bangkok.  And if you want it to be really cheap, or go long distances, you can carpool.

Of course taxi drivers act to maximize their income, so they race around like crazy people.  AI cars won't do this.  They'll follow the highway laws, and they'll also use fuel economy protocols which means their mileage will be a whole lot better than normal drivers.  And their equipment will be easy on fuel too.

If we assume the 80/20 rule, with 80% of the fuel used by 20% of the drivers, replacing just 10% of the fleet would do the trick.  But again - the fuel savings is an unintended consequence of AI, rather than the end goal.

Bankers Slave's picture
Bankers Slave
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Im blown away

by the critical thinking on this thread. "Every day is a school day".


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