PM End of Week Market Commentary - 7/7/2017

davefairtex
By davefairtex on Sat, Jul 8, 2017 - 7:59am

 

On Friday gold fell -12.80 [-1.05%] to 1211.90 on very heavy volume, while silver was driven down -0.46 [-2.84%] on extremely heavy volume. Silver was crushed early in Asia – even before the Japan open – with a $1.50 cent move down in about a minute. Silver did bounce back initially, but after the unexpectedly positive Nonfarm Payrolls release hit the wires, both metals sold off once more. Once the European market closed the selling pressure abated and the metals bounced back somewhat – but only somewhat.

I want to hasten to say that the payrolls report wasn't indicative of some major bit of good news; the average hourly earnings (arguably one of the more important indicators in the report) was tepid, showing a growth rate of 2.4% per year. While there may have been some slight wage-price pressure at the start of the year, it appears to be fading rapidly. Econoday characterized the report as pointing to growth in “low wage, low productivity” jobs. So while some people got jobs, the jobs they were able to obtain didn't pay very well. Government jobs accounted for 15% of the gains. There does not look to be any real wage pressure at this time.

This week was a holiday week, but in the 4 days of trading, PM managed to move lower across the board, with silver and silver miners leading the way down. While Friday's silver smash set the tone, the rest of the metals definitely followed along – was that payrolls, or was it simply following the current trend? Palladium and copper, both metals primarily used in industry, did best, but even they too weakened this week. All the primary PM items are now below all 3 moving averages.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL -0.35% 37.03% falling rising rising falling ema9 on 2017-06-27 2017-07-07
Platinum $PLAT -2.06% -16.99% falling falling falling falling ema9 on 2017-07-03 2017-07-07
Copper $COPPER -2.14% 24.81% falling rising rising falling ema9 on 2017-07-07 2017-07-07
Gold $GOLD -2.38% -11.01% falling falling falling falling ma200 on 2017-07-03 2017-07-07
Senior Miners GDX -3.94% -28.37% falling falling falling rising ema9 on 2017-06-29 2017-07-07
Junior Miners GDXJ -6.26% -33.60% falling falling falling rising ma50 on 2017-07-06 2017-07-07
Silver $SILVER -6.41% -21.20% falling falling falling falling ema9 on 2017-06-29 2017-07-07
Silver Miners SIL -6.54% -32.80% falling falling falling falling ema9 on 2017-06-29 2017-07-07

Gold fell -29.50 [-2.38%] on the week, spending 3 of 4 days moving south. The bulk of the losses came on Monday and Friday – gold's plunge on Monday was one of those “waterfall” moves down. Friday gold was tugged lower by the silver smash, and then once more after the headline number beat by the payrolls report. Gold did bounce off the new low at 1206.60, but not very far. The candle print was a spinning top, which the code found to be mildly bullish. The forecaster remains deep in bearish territory, down at -0.74. Gold is nearing support at round number 1200, but in looking just at the technicals, this does not appear to be a low for gold.

The December rate-increase chances rose to 51%.

COMEX GC open interest rose +17,084 contracts this week. All during the week I was sure this showed the commercials going heavily short, but the COT report says otherwise. That's a new wrinkle in the game – managed money pushing prices lower by loading up short. We saw this in crude also.

Silver fell -1.06 [-6.41%] on the week, dramatically underperforming gold. While silver was hurt on Monday, most of the drama occurred Friday at 7:05pm Eastern (8:05 am JST) when 18k contracts changed hands and silver dropped a buck-fifty in about a minute. Once that wild-west show was over and silver rebounded, silver traded sideways at about 15.80-85 until payrolls came out, at which point silver dropped rapidly to the 15.50s where it ended the week. With the new low to 14.34, silver printed a massive hammer candle that was rated as very bullish – a 77% chance of marking a low. Candle code likes long lower shadows, and Friday's print was about as large a hammer candle as you'll see. Forecaster didn't agree, it dropped -0.22 to -1.15, a very bearish rating. That said – sometimes that forecaster is at its most bearish right at the lows. It is more of a trend-follower than a reversal detector, and it often does not do a good job picking the dead low. Candle code, while less accurate about the trend, often can pick the lows.

The gold/silver ratio screamed up +3.21 to 77.89. That's bearish.

COMEX SI open interest rose by +9,771 contracts. As with gold – it was probably a new bunch of managed money shorts. Surprise! Well, it was a surprise to me anyway.

The miners were all fairly bearish, with silver miners hurt worst, and GDX holding up best. GDX actually had a modest rally at end of day Friday which looked even somewhat bullish. The candle print for GDX was a spinning top – almost a hammer - which the candle code assessed as felt was moderately bullish: a 48% chance of marking a low. The miners could actually be at a low here, as they are more or less at support. GDXJ fell more substantially and rallied less at end of day, but it too got a somewhat bullish rating from the candle code on its long black candle. Forecasters for both miners remain bearish, with GDX at -0.57 and GDXJ at -0.75. Over the longer haul, forecaster will keep you on the right side of the trend, at the cost of missing the reversal.

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

USD

This week the buck rose +0.35 to 95.77, a modest recovery after last week's plunge. The buck ran into some trouble on Thursday when it printed a swing high, but Friday it rallied back managing to keep the forecaster just barely in bullish territory. The mildly strengthening dollar was not kind to PM, especially early in the week. Still, Friday's bullish harami candle print was rated as neutral by the candle code. Things look a bit directionless right now for the buck - I could see it chopping sideways for a time before it finally picks a direction.

US Equities/SPX

SPX rose +1.77 to 2425.18. SPX fell for most of the week, but rallied back nicely on Friday after the bullish nonfarm payrolls report numbers. SPX printed a swing low on Friday, with the code assessing a 77% chance of marking a near-term low here. That said, SPX remains below its 9 EMA, and appears to have entered a downtrend. Forecaster suggests SPX is chopping sideways with a bias lower. Its not really strong enough to be called a trend, at least not yet.

The equities sector map shows financials in the lead, with energy and the high yielders trailing. That seems to be more of the Draghi taper trade; banks win, and utilities and REITs lose. Energy is being sold (yet again) because of the move lower in crude. That's a new 15-month low for XLE. Sentiment over in oil is very bearish.

VIX was largely unchanged, up +0.01 to 11.19.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 1.54% 37.17% rising rising rising falling ema9 on 2017-06-27 2017-07-07
Industrials XLI 0.81% 22.37% rising rising rising falling ema9 on 2017-07-07 2017-07-07
Materials XLB 0.61% 18.16% rising rising rising falling ema9 on 2017-07-07 2017-07-07
Technology XLK 0.53% 26.61% rising rising rising falling ema9 on 2017-07-07 2017-07-07
Homebuilders XHB 0.26% 13.42% rising rising rising falling ema9 on 2017-07-07 2017-07-07
Healthcare XLV -0.03% 8.83% falling rising rising rising ema9 on 2017-07-06 2017-07-07
Telecom XTL -0.28% 21.33% falling falling rising falling ema9 on 2017-06-29 2017-07-07
Cons Discretionary XLY -0.48% 12.57% falling falling rising falling ema9 on 2017-06-29 2017-07-07
Cons Staples XLP -0.78% -1.14% falling falling rising falling ma50 on 2017-06-22 2017-07-07
Utilities XLU -0.90% -0.98% falling falling rising falling ma50 on 2017-06-28 2017-07-07
Energy XLE -1.40% -4.20% falling falling falling falling ema9 on 2017-07-05 2017-07-07
REIT RWR -1.45% -7.58% falling falling falling falling ma50 on 2017-07-06 2017-07-07
Gold Miners GDX -3.94% -28.37% falling falling falling rising ema9 on 2017-06-29 2017-07-07

Gold in Other Currencies

Gold fell in every currency this week, dropping -31.40 in XDR. The downturn in gold is becoming more pronounced.

Rates & Commodities

TLT dropped hard again this week, down -1.92%. The plunge in bonds has been steep. It takes 18 months of interest payments to make up for the capital losses over the past two weeks. Long bonds are not a “risk free” investment. Can you imagine if the equity market dropped 4% in 2 weeks? World coming to an end! US 10 year +8bp, Germany +10bp, France +13bp, Portugal +12bp. Money continues to flee bonds both here and in Europe, and more in peripheral Europe than in the core.

JNK followed the rest of the bond market lower, dropping -0.99% on the week. JNK fell 4 days out of 4, and continues to signal risk off. Friday's high wave candle was seen as neutral.

After last weeks strong rally, CRB fell -1.27% this week, printing a swing high. 4 of 5 groups fell, led by energy and PM which performed worst. CRB remains in a longer term downtrend.

Crude unwound last week's rally by falling -1.95 [-4.21%] to 44.38. The market appeared to be disturbed by reports of Nigeria and Libya increasing production about as much as the rest of OPEC has managed to cut. In addition, Russia suggested that it wasn't interested in cutting any more. As a result, even when the EIA served up a bullish crude inventory draw of -6.3 million barrels, the market took the chance to sell off hard. Friday's print was an opening black marubozu which the code found to be neutral. No reversal Friday. Crude forecaster dropped heavily into bearish territory, now -0.70. Crude is once again below its 9 EMA.

OPEC responded to the sell-off on Friday by hinting that it was considering capping Nigeria and Libya's production, and Russia attempted to backpedal from its “we're not cutting any more” stance by saying they were actually open to more production cuts. Sure, we believe you. The technicals suggest that the attempt at jawboning didn't have much of an effect.

Physical Supply Indicators

* SGE premium to COMEX rose +3.09 to 12.19 over COMEX.

* The GLD ETF tonnage on hand fell -17.15, with 835 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1211.90 and silver closing of 15.56:

 PHYS 9.88 -0.79% to NAV [down]
 PSLV 5.97 +0.79% to NAV [up]
 CEF 11.83 -7.7% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for gold or silver.

* Big bars premiums were: gold [1kg] 2.29% and silver [1000oz] 3.51%.

Futures Positioning/COT

COT report is through July 3rd, when gold closed at 1219.50, and silver at 16.11. The report covers the strong move lower in gold that happened on Monday.

This week in gold, the commercials closed -29k shorts and added 14k longs, while managed money bailed out of -15k longs and added +24k shorts. These were fairly large moves, and managed money is now where it was back in January 2017.  Roughly both sides are in the "minor bullish reversal" area.  If we still have a Dec 2015 magnitude low still ahead of us, then we have some more work left to do.

In silver, commercials closed -9.1k shorts, and added +1.8k longs. That's a big net change. Managed money sold -4.6k longs and added +6k shorts. That's another big net change. Managed money is just about back to a net flat position – that's slightly more bearish (bearish position - which is bullish for silver) than they were in Dec 2015/Jan 2016. Mostly that's due to a record number of managed money shorts in silver. Do we think this will work out for them? It doesn't usually. While COT isn't the best timing tool, over the long haul, the commercials usually get it right. And right now in silver, managed money is well out over the tips of their collective skis.

Gold Manipulation Report

As mentioned, there was another after-hours spike this week – someone pounded silver down $1.50, which seemed to stun the silver market somewhat. It is possible this flush could have rinsed out the last of the long stops from the market in preparation for a rebound. We'll know more next week. The spikes are starting to happen more frequently again. Might it be a structural thing?

Perhaps the bots have learned to spot when a spike is about to occur, and they are now trying to front-run it by going short first, thus magnifying the move down. Its a thought anyway.

Eurozone Status

  • German Elections; October 2017: Merkel's lead is increasing; it is now a 14 point lead.

  • Draghi's taper speech continues to have an effect; Reuters reports that the bond markets were “battered and bruised” this week once more. https://www.reuters.com/article/us-eurozone-bonds-idUSKBN19S1IZ?il=0. This appears to be a key issue driving money flows on both continents. Did anyone expect this two weeks ago? I sure didn't.

  • Another Italian bank went down this week: MPS (“world's oldest surviving bank” - also the 3rd largest bank in Italy) was rescued by the Italian government after attempting to pretend everything was fine for 3 years. The price tag was 8.1 billion Euros - a capital injection by the government, which filled up the hole on the balance sheet left by unloading 29 billion euros of bad loans at a price of 21 cents/Euro. (The bad loans were formerly on the books at 33 cents/Euro – the writedown to 21 cents caused the hole). Junior bondholders and stockholders were hit for a 4.3 billion Euro loss. Government now owns 70% of MPS.  That 21 cent value on the debt seems more reasonable than most. Either that, or these loans were simply gifts to mafiosos who had no intention of paying them back, and for which there is no collateral. I cannot tell from the cheap seats which one it is. Also possible: PD is begging the “caretaker” government to do all the unpleasant, unpopular bank bailouts before the next election. “It wasn't us.”

  • Migrants continue to be a problem; Austria has moved troops and armored vehicles to its Italian border in a bid to stop the inflow of migrants from Italy. Related: Italy is complaining that NGOs are conducting rescues of migrant boats very near to the Libyan coast and then bringing the rescued migrants to Italian ports, effectively turning the NGO ships into a “sea taxi” service for the migrants.

  • Turkey & the migrants: The Turkey/EU migrant deal is due to expire at the end of 2017. Brussels is recommending it be extended. That's another 3 billion Euros – assuming the terms remain the same, of course.

  • Italian Elections: no progress on a new electoral law in Italy. In national polls, M5S remains slightly below the PD, with both at about 27%. It was an M5S politician who came up with the “migrant sea taxi service” tagline.

Summary

The threat (promise?) of ECB tapering continued to reverberate through the markets again this week, with bonds and PM selling off some more. Silver was particularly hard-hit because of the assault early Friday morning in Japan.

The COT report continued to show an increase in short positions by managed money – to the point where they approximate where we were back at the beginning of 2016. That's bullish. We could drop further and it could always get more bullish, of course, but at some point the short-balloon will get popped.

Gold and silver big bar shortage indicators shows a mixed picture in the West, but no shortage signs. Western buyers were picking up PSLV on the dip. GLD tonnage fell. In Shanghai, premiums increased.

Last week I was enthusiastic for a low in silver. That...didn't happen! Instead silver plunged to some dramatic new lows. COT report shows an even more bullish picture this week. I shudder to think what happens next week if I suggest something good. Silver down 20%? While the candle code loved Friday's big assault, I'm not as certain.

Over at King World News things are “just about” to break loose to the upside. Not an unusual prediction at KWN. Maybe they'll be right this time.

If the USD pulls itself up off the lows that will probably cause a problem for PM - unless that selling over in Europe (which we now know is really managed money going heavily short) has exhausted itself.

Apart from that, we'll just have to wait and see next week if the selling wave is over. Once everyone who wants to be short has a position, then the selling pressure will dry up. And I suspect that's when the fireworks will start. I just can't say when that will occur.

Trend-following code says:

Uptrend: USD.

Downtrend: gold, silver, platinum, copper, crude, natgas, treasury bonds.

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4 Comments

bronsuchecki's picture
bronsuchecki
Status: Bronze Member (Offline)
Joined: Apr 22 2012
Posts: 60
KWN

I note that http://kingworldnews.com/ andrew-maguire-major-event-to- create-massive-gold-price- surge-in-26-days/ was posted on June 9, which plus 26 days equals July 5, so that was a miss. First lesson of forecasting - never get too specific.

"Perhaps the bots have learned to spot when a spike is about to occur, and they are now trying to front-run it by going short first, thus magnifying the move down."

I think there is something in this and compounded by market makers bailing out at the sign of any stress in the market. The regulators have been pounding the banks more and more not to have "prop" positions, but taking positions is part and parcel of market making. What happened in silver is same as what happened when those London fixes set well below spot: as soon as there is any break in the market, be it manipulative or error trading, the liquidity dries up as the traders at the banks (who personally can go to jail) say stuff this why take risk that a regulator will impute stuff into what I've done just to help make an orderly market. There was no fundamental or other move in other markets to justify this drop and even after a 10sec halt you'd think with the bullion banks' privileged knowledge about the real physical supply and demand that they would know this was a bargain price, yet the price traded lower after the halt. The size of the trades after the halt were circa 10-20 contracts, that's nothing. Shows that no one wanted to stick their neck out, bullion banks or hedge funds or other professional traders.

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 146
SIL

I had been expecting this to break up....Guess that's why we wait for a signal!

sc?s=SIL&p=W&yr=5&mn=0&dy=0&i=p16905005508&a=530852939&r=1499524510840&r=1499524617847

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4611
different behaviors

Bron-

Now that you mention it, it was really odd that it took a minute or two for traders to buy a $1.50 dip in silver.  One would assume that would be a signal for everyone to jump in.

On the one side, we have the banks who have learned they can smash the markets (especially in a downtrend) and move price to where they want it to be, at least temporarily - so that the derivatives they happen to be short expire worthless, for instance.

On the other, the bots have now been trained to recognize these smash events as they happen, and to either pull their bids, or actually jump in short too.  Maybe both.

Lastly, I'm guessing that only bots make markets these days.  How can you justify paying a human trader with an 0.10 spread?

So a "silver smash" which in the past might have been good for a 4% move, now turns into a 10% move.  The net effect is to make using stops almost a suicide pact.

I do wonder where this all ends up, and what it has to do with price discovery.

 

Cold Rain's picture
Cold Rain
Status: Silver Member (Offline)
Joined: Jul 26 2016
Posts: 247
Reversal

Dave,

I'll bet your code will like the reversal in silver today...assuming it holds.  Finally a nice day (or not sucky day) in the miners too!

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