PM Daily Market Commentary - 6/8/2017

davefairtex
By davefairtex on Fri, Jun 9, 2017 - 4:01am

Gold fell -9.20 to 1280.30 on heavy volume, while silver dropped -0.15 to 17.43 on heavy volume also. After all the buildup about politics and elections, today's move in PM seemed to be guided more by a relatively severe selling assault that commenced just after the US market opened at 9:30am, and ended at 10am. Looking at the timing of the event, it appears as though silver was driven lower first, and gold followed, finally resulting in a big bunch of gold long stops that were triggered at about 9:41.

So the timing is: silver assault started at 9:30, and ended just at 10:00. Comey's testimony started a little after 10:00am. I do not think these two events are coincidental.

So what happened with the politics? Comey's firing and today's testimony, when boiled down to its essentials, was that Trump's action did not rise to the level of obstruction of justice. The headline from WAPO, which presumably chose the biggest bomb from the available bunch to throw: “Trump lied about me and the FBI.” Turns out that lying about the FBI being in disarray is not an impeachable offense.

UK elections resulted in the Tories losing 12 seats, Labor gaining 31 seats, and the Scottish National Party losing 19 seats. May no longer has a majority, with two weeks before the BRExit negotiations are to start. GBP did not like this outcome, dropping 2 points (or -1.59%), making a new low. Market doesn't like uncertainty, and that's what the UK has in spades right now. May, who some call the “accidental prime minister”, turns out to be a terrible campaigner, and may not remain in power for much longer.  And this is all right before the BRExit negotiations start.  Did I mention that part?

The apparent agreement between the major parties on the electoral reform law in Italy appears to have broken down. No new elections for now.

The ECB met and decided to remove all mention of lowering rates further (they're already at 0%) and indicated it was willing to keep the money printing in operation for the foreseeable future.

Lastly, and largely below the fold, was perhaps the most important news of the day: the ECB, acting as banking regulator, was faced with an old-fashioned bank run on the #5 Spanish bank Banco Populare (168B in assets, 11B in tier 1 capital, 19B in non-performing loans). The ECB appeared to have instructed Banco Santander to buy it for 1 (one!) Euro after first wiping out the shareholders and junior bondholders in the first major Eurozone bail-in action. Why act today? Because over the previous two days, some 3.6 billion Euros were withdrawn by worried depositors, and 18 billion euros over the past few weeks, and apparently Banco Populare had run out of high quality loans to use as collateral. The ECB essentially had no choice.  Santander will raise 9 billion Euros to deal with the bad loans - not sure how that math works out.

Ultimately, extend and pretend works right up until the customers withdraw their money, and the bank eventually runs out of good collateral.

https://www.ft.com/content/f43d182c-4c4f-11e7-a3f4-c742b9791d43

Right, so gold's big move south today came courtesy of what was probably official intervention immediately prior to Comey's testimony, which ended up to be – seemingly – a non-event. Candle print was a long black candle, which the code felt was neutral. In spite of that, for me today's candle confirms yesterday's bearish dark cloud cover, and also ends up printing a three-day swing high. We also have a possible double top forming too, which would be bearish.  So while gold remains above its 9 EMA, and some buyers did appear after the morning attack, it wasn't really enough to turn the ship around. My guess: gold probably continues moving lower.

Open interest at COMEX for GC fell -7,116 contracts. Lots of long stops were run at 9:41.

Rate rise chances (June 2017) fell to 97%.

Silver appeared to be the lever used to pull gold prices lower today. After making a new low to 17.28, some buyers did show up moving silver back up 14 cents off the lows. Candle print was a spinning top, which the code found relatively bullish. Silver ended the day just above its 9 EMA, and just below the 50. It also printed a three-day swing high, which is bearish - and I think the swing high overrules the bullish single-day candle.  Once that 9 gets crossed, the selling could get intense.  Intraday, the buying pressure today didn't look all that strong to me.

Open interest at COMEX for SI rose +10 contracts.

The gold/silver ratio rose +0.12 to 73.47.

Miners gapped down at the open, and continued selling off, finally bottoming out at around 11:20. Buyers did appear, pulling the miners back up; GDX closed down -1.82% on moderately heavy volume, while GDXJ dropped -1.80% on moderately light volume. GDX's spinning top actually looked bullish (a 62% chance of marking a low), while GDXJ's spinning top/swing high was neutral.

The GDX:$GOLD ratio fell but has retained much of its gains from Tuesday's big move, while GDXJ:GDX ratio continues to rise. Buyers are slowly, but distinctly acquiring the junior miners right now in preference to the seniors, and have been over the past 6 days. This behavior started on June 1st. We should all probably be paying attention, because the juniors have been beaten like a pinata since mid-March. Instead of your GDX chart, today I'll show you the ratio, since I think its probably more important.  The current buying impulse probably won't survive a more serious gold correction, but the recent move suggests that the unreasonable junior-miner beatings may be at an end.

Platinum fell -0.70%, palladium rocketed up +2.59%, and copper surged +2.58%. These are massive gains for the “other two” metals. Copper's move took it to the top of its recent trading range, and clearly above all 3 moving averages, while palladium's rally completely wiped out yesterday's plunge, and is now hovering just below multi-year highs.

The buck rallied +0.17 to 96.68, however the spinning top candle was just mildly bullish. Buck still remains below all 3 moving averages, but it printed a three-candle swing low just today. Downside momentum for the buck is decidedly slowing down.  As for GBP - it didn't actually drop during the trading day, but it fell off a cliff after trading opened early in Asia tonight once the election results were known, and is down about 2% as of this writing. The Euro also fell, losing -0.32%. Upside momentum for the Euro now appears gone, and it now appears to be tipping over, at least according to the MACD. This confirms that a dollar rally is probably in the offing. A dollar rally would – probably – make life very difficult for gold in its current state.

Martin Armstrong believes that gold could still be vulnerable to a large sell-off due to a massive move in the buck stemming from troubles with the Euro, so its very important to keep an eye on the currencies. Gold-in-Euros is looking awfully weak right now.  My guess: as the Euro (USD) goes, so goes gold.  Do you see a double top in the chart below?  Gold's rally in Euros looks pathetic: it just printed a swing high, and appears as though it may be ready to correct.

Crude was more or less unchanged, dropping just -0.06 to 45.80. Crude made a new low to 45.20 before finding buyers; candle print on the day was a spinning top/NR7, which the code felt was somewhat bullish. Volume was very heavy; crude is slightly oversold (RSI7=26). This could be the low – but probably won't be. Oil seems to like to move deeper into oversold territory before it rallies, from what I've seen anyway.

SPX was largely unchanged today, up just +0.61 to 2433.79. Candle print was a doji, which the code felt was mildly bearish. Financials were the star (XLF:+1.15%) while utilities were hit worst (XLU:-0.83%). It looked like a small dose of the Trump reflation rally was put back on, with an added boost for the bankers from the Republican-controlled house, which passed the “Financial Choice Act” - which if it is true to the pattern of Congressional bill-naming conventions, is sure to hose the living crap out of normal Americans through an overdose of sheer hypocrisy. Supposedly this bill will reduce or eliminate most of the restrictions placed on the banking industry via Dodd-Frank. No more Volcker Rule, no more “fiduciary” requirements for retirement advisors, a defanged CFPB, regulatory exemptions for payday lenders, there's something in there for every financial actor.  We're Making America Great Again - for some of us.  No cheaper (but oh so dangerous) prescription drugs from Canada, but we can all feel blessed by all that Financial Choice.  And I can tell this is a real thing by the jump in the bank equity index: up +1.73%.

VIX fell -0.23 to 10.16.

TLT fell today, dropping -0.26% following through from yesterdays swing high. The drop in TLT suggests that while today's move down in PM was likely caused by intervention, it also had some aspects of a natural correction to it. TLT is now below its 200 MA, but remains above the 9 EMA . TLT's opening black marubozu was seen by the code as slightly bullish, but overall TLT is hinting at risk on.

JNK was largely unchanged, up +0.05%. JNK actually endured some early morning selling, but then the dip-buyers appeared right at the 50 MA, and pushed prices back into the green by end of day. Candle print was a spinning top, but a very bullish one. This might mark the low for JNK, and if so, would signal risk on.

CRB bounced +0.28%, just a small move up after yesterday's big sell-off. 3 of 5 groups rose, led by agriculture, which has been rallying now for 3 days straight.  Commodities still look quite ill, and today's dead cat bounce did nothing to change the picture.

So where are we now?

It may be the case that the Trump impeachment story line has run its course, at least for now. The evidence: the downside momentum in the buck has slowed dramatically, and it may well be ready to turn up in the near future. This coincides with a topping-out of the long bond, gold, and silver. Crude is currently searching for a low, but I'm not sure what would be a near-term driver for a rally.  Commodities look ill, which means no support for gold there.

In other words, risk is increasing for the “safe haven” gold/silver/TLT trade, and a reversal in the buck would end up seriously hosing PM.  The Gold:$XEU chart shows that much of gold's recent rally was just a currency effect.

I think it may be time to be careful out there once again.

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5 Comments

jussaumm's picture
jussaumm
Status: Member (Offline)
Joined: Feb 16 2016
Posts: 20
Trying agin

There is a meme that continually resurfaces that that goes something like: if only the environmental protection racket got out of the way, then the US has plenty of resources to drill up. California seems to be the perpetual location where this domestic oil would be found.

Is there any validity to this?

My gut tells me that the environmental protection folks are not all that powerful (see Dakota Access Pipeline) and if there was easier oil to get to then someone would be doing it.

Many thanks!

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 384
Debt within the oil Industry

Hi Jussaumm,

Just some articles for you to read as I'm on my lunch now - short story is, it isn't the regulations that are the problem - it's the broke consumer;

https://srsroccoreport.com/the-great-u-s-energy-debt-wall-its-going-to-g...

https://ourfiniteworld.com/2016/12/07/what-has-gone-wrong-with-oil-price...

Cheers,

Luke

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 380
Double Top

I don't know what it takes technically to confirm a double top, but it looks like that process is well underway.  After we get past the Fed next week, outside of a black swan, it looks like hostile conditions for PMs, as far as the eye can see.  Usual summer doldrums, usual manipulation, Trump/UK stuff abating, steady risk on environment, etc.

But how about those cryptos.  Can't be stopped.  My guess is that Bitcoin is at least $6000 by the end of August.

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 3 2014
Posts: 633
Best EROI, Luke?

Agriculture is really the only game in town that gives you a positive return , albeit somewhere around the 6:1 ratio, unless you can leverage it with some type of slave labor (oil). As long as you continue to print money at a rate that allows for a positive gradient, the game continues. Those that can control access to currency ( be it crypto or other forms) you can control the supply. Business is all about supply management and subject to the vagaries of "thems" in control. Is Mr. Trump the poster boy for this trend?

  As Gail points out:

Once the opportunity gradient becomes negative, it becomes very difficult to get anyone to borrow money and to use the resulting debt to lead the economy forward. When the opportunity gradient becomes negative, young people are less inclined to get married, and tend to have fewer children. International organizations of countries (such as the European Union) have a harder time staying connected. The whole model of cooperation working better than “every country for itself” starts falling apart.

 

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 879
Private Profits. Public Losses.
jussaumm wrote:

There is a meme that continually resurfaces that that goes something like: if only the environmental protection racket got out of the way, then the US has plenty of resources to drill up. California seems to be the perpetual location where this domestic oil would be found.

Is there any validity to this?

jussaumm,

Let's go to the extreme and pretend that the earth is a hollow ball (with a thin, rigid skin) that is completely filled with high grade petroleum. Would we ever be able to pump it dry? Of course! If we just maintained the exponential growth patterns of the past, it wouldn't take more than a couple of centuries to do so. Once the oil is all gone, would it really matter if environmentalists were up in arms about it?

Back to reality - oil is found in relatively small pockets. Not all of these are economically viable to pump. Fracking allows some of the uneconomical fields to be produced. Fracking also has potentially devastating side effects. For instance, fracturing the aquiclude that separates an oil reservoir from a potable water bearing stratum potentially ruins the potability of the water. Who should pay to clean it up? If the oil company goes bankrupt and can't fix the problem, the users of the aquifer pay the cost. They either find a new source or pay to clean their once-clean water source. Hardly seems fair to me.

I also agree with SRSrocco's and Gail Tverberg's premise that affordability will be the constraining issue. Imagine that you can make a widget that performs a necessary task. You can produce each widget for $10, but consumers can only afford to pay $5 for the utility it provides. How many of these widgets can you produce before you go bankrupt?

Because we've already exploited the conventional oil fields, remaining oil is harder to find and produce and thus more expensive. I would gladly pay $10/gallon for fuel to run my chainsaw; however, I would cut out (or significantly curtail) my Sunday joy rides at that price. What would that do to the economy if enough folks rationally acted similarly?

Is that why central banks have driven interest rates downward? To kick the can a little further down the road. What other options do they have with the "tools" available to them? How much further can they kick? What if they start buying oil driller debt and just hide it on their balance sheet under "miscellaneous"?

Back to your question - I didn't really answer it. There may be some validity in the short term, but it isn't a long term solution.

Grover

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