PM End of Week Market Commentary - 8/11/2017

davefairtex
By davefairtex on Sat, Aug 12, 2017 - 7:51pm

On Friday gold rose +2.90 to 1295.00 on heavy volume, while silver was unchanged at 17.11 on heavy volume also. An unexpectedly weak CPI report showed government-reported inflation of 1.2% annualized, and this sent the buck lower, along with both gold and silver. The buck closed off -0.38%, but this did not provide much help to PM. Might the recent upswing be over?

Looking at the metals sector map, it was a pretty good week for the group. Everything was up on the week, with silver in the lead. Junior miners did just a bit better than the seniors, silver outperformed gold. Most items are back above the 9 and the 50 MA lines. Gold and the senior miners are above all 3 moving averages. It all looks pretty good.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver $SILVER 5.36% -14.39% rising falling falling falling ema9 on 2017-08-09 2017-08-11
Junior Miners GDXJ 3.83% -34.08% rising rising falling rising ma50 on 2017-08-10 2017-08-11
Senior Miners GDX 3.72% -25.42% rising rising falling rising ema9 on 2017-08-09 2017-08-11
Silver Miners SIL 3.36% -36.51% rising falling falling rising ema9 on 2017-08-10 2017-08-11
Gold $GOLD 2.43% -3.67% rising rising rising rising ema9 on 2017-08-08 2017-08-11
Palladium $PALL 2.19% 29.47% rising rising rising rising ema9 on 2017-08-07 2017-08-11
Platinum $PLAT 1.89% -13.77% rising rising rising rising ma200 on 2017-08-03 2017-08-11
Copper $COPPER 0.90% 32.76% rising rising rising rising ema9 on 2017-07-14 2017-08-11

Gold rose +30.70 [+2.43%] this week, with the big day being Wednesday. Gold closed at a new high, and is within a few dollars of the previous high of 1298.80. A break above round number 1300 would be quite bullish. That said, gold's RSI-7 is 78, which is overbought. Friday's candle print was a spinning top, which the code says has a 36% chance of marking a top. Forecaster still looks bullish, with a current rating of +0.99, however the forecaster has a habit of being most bullish right at turning points.

The December rate-increase chances fell to 35%, with much of the drop happening on Friday following the weak CPI report.

COMEX GC open interest rose +34,438 contracts this week, with the majority of the new GC contracts printed up on Wednesday-Friday, the days of the largest moves. It feels as though it might have been official intervention.

Silver rose +0.87 [+5.36%] this week. On Tuesday, silver printed a swing low and rallied strongly for the next 2 days, finally hitting a high of 17.24 on Thursday. By Friday silver seemed to run into resistance at the 200 MA – the 200 has proved troublesome back in June also. Friday's bearish doji star candle was seen as a possible reversal bar (50%) by the candle code. Forecaster agreed, dropping -0.20 to a still-bullish +0.80 reading.

The gold/silver ratio fell -2.17 to 75.71. That's bullish.

COMEX SI open interest fell by -14,598 contracts.  That looks like a fair amount of short covering.

The miners outperformed gold, but underperformed silver this week, waiting until Wednesday to print a swing low. Friday GDX printed a high wave, which the candle code says was probably a continuation, as was GDXJ's closing white marubozu. On that day, GDX broke out to new highs as well. The GDX forecaster is now heavily bullish, with a reading of +0.81. GDXJ isn't quite as strong, at +0.52. That makes sense – GDX made a new high this week, while GDXJ has not yet done so.

The GDX:$GOLD ratio rose, while the GDXJ:GDX ratio was almost flat. That's mostly bullish.

USD

The buck had no follow-through from last Friday's rally, finally plunging on Friday -0.35 to 92.85. On the week, the buck dropped -0.48 [-0.51%], and is now convincingly back below its 9 EMA. The dollar forecaster is now at -0.54, back in bearish territory. That dollar rally I was worried about just isn't happening.

US Equities/SPX

SPX made a new high on Tuesday to 2490.87, but that was just intraday, and that rally ultimately failed. Thursday saw a brisk sell-off, dropping -1.45%, plunging through the 50 MA. Friday was a bit of a dead cat bounce, but the bullish harami candle pattern was seen as a 44% chance of marking the low by the candle code.

The equities sector map shows most everything in the red; consumer staples and utilities did best, while financials and energy led the market lower. That's a fairly bearish picture; “safe haven” assets are typically staples and utility stocks.

VIX shot up +5.48 to 15.51. On the weekly chart for the VIX, it seems as though we have a “major volatility event” about every 5 months. Something to think about perhaps, 5 months from now, if the VIX drops back down to 9.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 3.72% -25.42% rising rising falling rising ema9 on 2017-08-09 2017-08-11
Cons Staples XLP 0.18% 0.40% falling falling rising falling ema9 on 2017-08-10 2017-08-11
Utilities XLU -0.07% 5.72% falling falling rising falling ema9 on 2017-08-11 2017-08-11
Technology XLK -0.89% 21.08% falling rising rising falling ema9 on 2017-08-10 2017-08-11
Healthcare XLV -1.11% 4.84% falling rising rising falling ma50 on 2017-08-10 2017-08-11
Cons Discretionary XLY -1.29% 9.53% falling falling rising falling ma50 on 2017-08-10 2017-08-11
Industrials XLI -1.48% 15.57% falling falling rising falling ema9 on 2017-08-10 2017-08-11
Telecom XTL -1.68% 11.50% falling falling rising falling ma200 on 2017-08-10 2017-08-11
Homebuilders XHB -1.85% 5.45% falling rising rising falling ma50 on 2017-08-10 2017-08-11
Materials XLB -2.02% 9.28% falling falling rising falling ma50 on 2017-08-08 2017-08-11
REIT RWR -2.14% -9.43% falling falling falling rising ma200 on 2017-08-10 2017-08-11
Energy XLE -2.59% -6.41% falling falling falling falling ma50 on 2017-08-07 2017-08-11
Financials XLF -2.60% 27.27% falling rising rising falling ema9 on 2017-08-10 2017-08-11

Gold in Other Currencies

Gold rallied in every currency this week, with gold in XDR up +29.49.

Rates & Commodities

TLT rallied +1.20% this week, dipping briefly below the 50 MA on Tuesday but then making a new high on Friday. Candle print Friday was a closing white marubozu, which the code gives a 30% chance of marking a top. Forecaster disagrees, and currently has a reading of +0.68, which is quite bullish. TLT is above all 3 moving averages, and appears to be in a slow but steady longer term uptrend.

JNK plunged -1.21% on the week, driving through both the 50 and the 200 MA. Friday a bit of a dead cat bounce, which did not manage to climb back above the 200 MA. JNK is in a clear downtrend, and is saying risk off.

CRB fell -0.60%, with 3 of 5 groups dropping: agriculture, livestock, and energy. PM did very well, of course. CRB is now below its 9 EMA, and has printed a lower high/lower low pattern. The MACD has also executed a bearish crossover. MACD has been a pretty good predictor of the trend in CRB, so this crossover looks fairly bearish.

Crude fell again this week, dropping -0.69 [-1.39%] to 48.84. Crude chopped sideways for the first half of the week, but broke down on Thursday along with equities dropping below its 9 EMA for the first time in four weeks. Friday's print was a hammer/bullish harami candle pattern, but the code only gave it a 25% chance of marking the low here. Forecaster has crude at just above breakeven, with a +0.02 rating. This week's EIA report looked relatively bullish (crude draw: -6.5m barrels, gas build: +3.4m barrels) and the market did rally after seeing the numbers. However, crude started plunging on Thursday shortly after a weak producer price index (PPI) report; PPI showed actual contraction in producer prices, even when food & energy was not included. Looking back...this also might have been the signal for the equity market to sell off too.

Managed money remains strongly net long crude – certainly enough to justify an interim top here from the viewpoint of the COT report.

Physical Supply Indicators

* No SGE data this week.

* The GLD ETF tonnage on hand fell -0.27, with 787 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.54 -0.32% to NAV [up]
 PSLV 6.49 +0.18% to NAV [down]
 CEF 12.74 -6.7% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed a discount for gold, and no premium for silver.

* Big bars premiums were: gold [1kg] 0.8% and silver [1000oz] 3.24%.

Futures Positioning/COT

COT report is through Aug 8th, when gold closed at 1266.50, and silver at 16.43. This period mainly encompassed dropping PM prices, but did include Tuesday's swing low.

This week in gold, the commercials net position fell by 16k contracts; they sold 2k longs, and added 14k shorts. Managed money net position rose by 18k contracts, adding 7k longs and bailing out of 11k shorts. The managed money short position is at a place consistent with a top in gold; commercial shorts could be there too, but its less extreme.

In silver, the commercial net position was unchanged; while managed money net grew by +4.4k, entirely by closing -4.4k shorts.  A bunch of silver managed shorts have been rinsed out; this could be a top for silver too.

Gold Manipulation Report

There were no after-hours spikes this week.

Eurozone Status

  • German Elections; October 2017: Merkel has a 14 point lead over Shulz.

  • The Libyan coast guard has demanded that NGO rescue boats must stay hundreds of km away from the Libyan coast, no doubt acting under encouragement from Italy. Doctors Without Borders (MSF) announced they were suspending rescues in Libyan territorial waters. Migrant flows into Italy have slowed over the past six weeks.

  • Latest numbers on Italian debt: NPL at 356 billion Euros, 18% of the banks' total loan book, and 20% of GDP. Public debt is at 133% of GDP. Do we imagine bank capital is enough to deal with losses of 18%? No. So then, can an insolvent sovereign bail out a bunch of insolvent banks? If you are a depositor in an Italian bank, its a “run, don't walk” situation, especially with the new proposed rules about stopping withdrawals at banks who are deemed “failing”. https://www.cnbc.com/2017/08/10/italys-debt-problem-is-still-causing-major-headaches-as-elections-loom.html

  • Which Italian banks are going to implode in the near term?  If you read Italian, or you are slightly clever and willing to look for the words "Texas Ratio" in an Italian news article, this link might help.  MPS, a bank with a 262 billion Euro loan book, was taken down recently, and it had a Texas Ratio of 262.   http://www.ilsole24ore.com/art/finanza-e-mercati/2017-03-24/quelle-114-banche-che-hanno-sofferenze-e-incagli-che-superano-capitale--201607.shtml?uuid=AE6qY5s&refresh_ce=1

  • What happens to Italian bond rates when the ECB stops buying EU sovereign debt? Italian sovereign debt is currently yielding 2.03%; with the US 10 year at 2.19%, this is just a bad joke. If Italy leaves the Eurozone, defaulting on all that sovereign debt, whats the price tag for the rest of the Eurozone? ECB owns 25% of the Italian sovereign debt, which stands at 2.27 trillion Euro; that's a 567 billion euro price tag if Italy bails & defaults. https://austrian.economicblogs.org/wolf-street/2017/quijones-italy-debt-...

  • Italian Elections: In national polls, anti-Euro M5S remains even with the PD at 27%. A combination of FI + LN (both anti-Euro parties) continue to poll at 28%.

Summary

Last week it was Nonfarm Payrolls, this week it was nuclear brinksmanship, and disinflation indications from the PPI and the CPI reports that drove prices. Gold and silver both reversed course and made new highs, and the miners even managed to move higher as well. Gold/EUR actually rallied too, breaking above their six-week consolidation zone. Fun was had by all.  Nuclear war...gun to the head, what do you do? Buy gold!  (And silver too)

The COT report for gold shows a possible short-term top for gold, at least from the standpoint of managed money shorts who have almost all bailed out. In silver, a bunch of managed money shorts have been rinsed out – possibly enough for a top - but the commercials haven't loaded up short yet so it is less clear.

Gold and silver big bar shortage indicators shows no signs of shortage; premiums on big-bar silver remain slightly elevated, while premiums on gold remain normal. GLD tonnage did not change.

The dollar rebound I have expected didn't happen. Instead, geopolitics seems to have triggered a safe haven move into PM, a move out of the buck, a plunge in US equities, and a solid risk off move in junk debt.

That is all gold-positive. Gold is now nearing round number 1300. A break above 1300 would be bullish, and the breakout might just drag in a bunch of new managed money longs, which have not yet piled into the market, at least as of last Tuesday's COT report anyway. Similarly, if gold can't break above 1300, and I'd expect the commercials to load up short here, gold probably heads lower.

It might just depend on the buck – and what happens in equities. Continued risk off behavior and the ongoing indicators of low inflation are supportive of PM, because presumably the Fed won't start trimming its balance sheet in the face of a deflationary impulse.  Plus there's the nuclear war thing too.

Speculation aside though, gold and silver both remain in uptrends.

Trend-following code says:

Uptrend: gold, silver, platinum, natgas, treasury bonds.

Downtrend: copper, crude, USD.

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8 Comments

Cold Rain's picture
Cold Rain
Status: Silver Member (Offline)
Joined: Jul 26 2016
Posts: 234
Is It Friday?

This is what I thought would happen on Friday.  Nice market rally and a PM smash.  Gold can't quite get to $1300.  What is this the 3rd failed attempt (assuming it has failed)?  Triple top?

lambertad's picture
lambertad
Status: Silver Member (Offline)
Joined: Aug 31 2013
Posts: 130
fundamentals

Did you base your assumption of what would happen today on fundamentals or just off of the past couple of years of experience of watching things play out? I, too, figured that after the TPTB had the weekend to collude on what "should" happen in the markets the same thing would happen. It's predictable until it isn't, and there is a growing and growing number of people making more and more noise as to why this is going to end. 

You're right from a technical perspective that 3 shots at 1300 looks bad, but wouldn't this also be the place where TPTB try to suppress the price the most? So again, fundamentals or what - Dave said in the weekly commentary it smelled of official intervention.

It's been less than a week since Trump flaunted the nuclear card with NK, and he's even since considered military action in Venezuela, at least he failed to rule it out. We got a 2% correction in the market before stawks jumped the very next monday? Fundamentals or just cuz? 

I, personally am not a trader, but I enjoy reading Dave's daily/weekly commentary. From the cheap seats, today was entirely predictable, like you said. I've seen it happen time and again over the past months-years. Start of a very very minor correction earlier in the week, Friday numbers get pumped, whether that's due to falsely elevated statistics by da gov on Friday reports or what, but then the next Monday stawks vault higher. You know, cuz things are so rosy! Either that or TPTB are so terrified of any sort of serious correction that they have to jump on the ball as soon as it gets rolling to put a stop to it, which is what I suspect. Anyway, now I'm just rambling. 

Here's a quote I found interesting. Market Cap to GDP ratio has only been higher TWICE in history. So Buffet's favorite indicator is flashing red, but he's nowhere to be seen to make a prediction. I wonder why?

"The Warren Buffett Indicator has only been higher twice since 1950. In 1999, at the height of the dotcom bubble, the ratio was at 153.6%. In late 2015, it was at 129.7%. It was only at 108% before the 2008 financial crisis."

Mohammed Mast's picture
Mohammed Mast
Status: Bronze Member (Offline)
Joined: May 17 2017
Posts: 63
BTC

BTC $4293

ETH $ 298

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 4522
1300 resistance & EUR/USD

For me, intraday official intervention would look like some really high volume as price starts to approach 1300.  That's not the pattern of what happened today.  Today it appears that gold has had a mild sell-off, dragged down by a falling Euro.

Its also a "natural market thing" for real participants to pile in short at obvious resistance levels, like round numbers, and previous highs, so that adds a bit to the confusion.  And if you are a producer, maybe you want to add some production hedges here at 1300.

I suspect a similar thing happens right now when oil hits $50.  Shale drillers all jump in and add shorts, and that caps the rally in crude.

I like the Buffet indicator too: stock market valuation as a percentage of GDP.  Here's what that looks like, from FRED:

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1369
Buffett Indicator

The Buffett Indicator is probably higher than 2000 given all the inflating massages to GDP calc since.

Cold Rain's picture
Cold Rain
Status: Silver Member (Offline)
Joined: Jul 26 2016
Posts: 234
Outlook

Lambertad,

Yeah, my guessing isn't based on fundamentals, because I don't think they have mattered very much for quite a while.  Sentiment has been beaten down, and we've seen the same basic patterns repeated over and over.  That's what I tend to go with...until it changes.  It may very well be in the process of changing.  In fact, Dave's COT report comments illustrate that to some degree, particularly in the Silver market.  Also, GLD tonnage has been decreasing as well, albeit slightly.  Anyway, once sentiment turns around (which could be a revelation of a shortage, a CB not having as much metal as believed, something China does, a major level like $1300 being captured (and held), etc.), that's when I'd expect to see some of these recurring patterns not recur anymore.  Maybe we're on the cusp of such a change.  The metals have come back today, surprisingly, even as the market has continued to soar.  Who knows?

Cold Rain's picture
Cold Rain
Status: Silver Member (Offline)
Joined: Jul 26 2016
Posts: 234
Sell sell sell

Nothing says sell precious metals like a lazy summer's evening  in mid-August.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 4522
bitcoin forecaster: 2017-08-14

The bitcoin forecaster turned positive on Aug 3.  It hasn't looked back since.  It remains bullish with a very high rating of 1.41.  Uptrend remains unchanged.  Forecaster does best with a strong trend - and that's what we are seeing right now.

Candle code sees today's "long white" candle as a possible high (37%) but if you are looking to trade, its probably best to wait for an actual swing high before even thinking of bailing out.  This thing could just keep going, since there is no overhead resistance to deal with.

RSI-7=90.  That's heavily overbought.  Not the time to buy - but probably not the time yet to sell either.

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