PM End of Week Market Commentary - 8/25/2017

davefairtex
By davefairtex on Sat, Aug 26, 2017 - 7:17pm

On Friday gold rose +5.00 to 1296.50 on extremely heavy volume, while silver rose +0.10 to 17.06 on extremely heavy volume also. There was exceptional volatility today, with several spikes both up and down, with the last spike driven by a huge rally in the Euro [+1.29, a new high of 119.31] that was instrumental in pulling gold and silver off the lows of the day.

The PM sector map looked reasonably bullish this week; miners led gold & silver, and silver led gold. But the size of the moves was relatively minor. Still, every element is above its 50 MA, which is a positive sign. PM remains in an uptrend, and the sea of green in the sector map is solid evidence of this.  Longer term, copper, palladium, and gold are doing best.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Copper $COPPER 3.44% 46.28% rising rising rising rising ema9 on 2017-08-16 2017-08-25
Senior Miners GDX 2.09% -14.28% rising rising falling rising ema9 on 2017-08-16 2017-08-25
Silver Miners SIL 1.90% -26.60% rising rising falling rising ma50 on 2017-08-24 2017-08-25
Junior Miners GDXJ 1.65% -25.44% rising rising falling rising ema9 on 2017-08-16 2017-08-25
Silver $SILVER 0.65% -7.81% rising rising falling rising ema9 on 2017-08-25 2017-08-25
Palladium $PALL 0.59% 35.11% rising rising rising rising ema9 on 2017-08-16 2017-08-25
Gold $GOLD 0.50% -2.16% rising rising rising rising ema9 on 2017-08-16 2017-08-25
Platinum $PLAT -0.50% -9.34% falling rising falling rising ema9 on 2017-08-25 2017-08-25

Gold rose +6.40 [+0.50%] this week. Mostly gold chopped sideways, with a huge dip on Friday (to 1278.50) that ended up being bought. However when viewed in Euros, the price action was bearish: the Euro rallied +1.43% on the week, which tells us that gold's very modest weekly rally (+0.50%) was entirely about currency, since gold actually fell in Euro terms. The candle print for Friday was a huge spinning top, which the code found to be bearish (a 47% chance of a reversal). Forecaster disagreed, climbing +0.51 to read a somewhat-bullish +0.31. Gold remains above all 3 moving averages. Round number 1300 once again proved to be the immovable object for gold.

The December rate-increase chances rose to 40%.

COMEX GC open interest rose +11,827 contracts this week.

Silver rose +0.11 [+0.65%] this week. Silver took 5 more shots at moving through the 200 MA, but no luck yet. On Friday it made a solid attempt, but could not hold its gains through the close – not even with a 1% rally in the Euro on the day. Buyers just aren't enthusiastic enough to overcome the resistance at the 200. On Friday silver printed a spinning top, which the code felt was neutral. No help. Forecaster rose +0.23 to read +0.12 – silver just continues to chop sideways. No direction yet. That's pretty much where we were last week too.

The gold/silver ratio fell -0.12 to 76.00.

COMEX SI open interest rose by +16 contracts.

Miners continued to grind slowly higher this week, with GDX rallying more strongly than GDXJ. GDX remains above all 3 moving averages, while GDXJ has yet to cross its 200. Friday's print for GDX was a high wave, which had a 30% chance of marking the top, while GDXJ printed a northern doji, which had a 40% chance of marking the top.  GDX forecaster was flat on Friday, while GDXJ's forecaster rose +0.08. Both forecasters project continued slow uptrends for the miners, but Friday's candle prints are hinting at caution.

The GDX:$GOLD ratio rose +1.50% on the week, while the GDXJ:GDX ratio fell -0.44%. That feels slightly bullish.

USD

The buck plunged -0.70 [-0.75%] to 92.53, with most of the damage happening on Friday, where the buck made a new low to 92.19. The big drop on Friday (and/or big rally in the Euro) came at 10am, right as Janet Yellen began her speech at Jackson Hole. Did she say something noteworthy? Not that I saw. “Regulators have to be alert to new booms and busts.” Maybe that was it. Forecaster dropped -0.28 to read -0.46, which is a more emphatic downtrend. The buck is now below all 3 moving averages.  The buck isn't looking good right now.

US Equities/SPX

SPX moved higher on the week, rallying +17.50 to 2443.05. Most of the gains came on Tuesday, with the market just chopping sideways through end of week. Friday's print was a shooting star, which the code felt was neutral. Forecaster was unchanged at +0.27. SPX remains below the 9 and 50 MA lines, which suggests a downtrend – as does the pattern of lower highs and lower lows.

The equities sector map looks just ok; interest-sensitive issues did well, while the risk assets did less well. Financials were well back in the pack. This weekly map doesn't look like a bull market buy-the-dip opportunity.

VIX dropped -2.98 on the week to 11.28. Hmm. We could be getting close to another put-buy opportunity. Get your puts prior to September! Just a thought.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Telecom XTL 2.35% 11.27% rising falling rising falling ema9 on 2017-08-24 2017-08-25
Gold Miners GDX 2.09% -14.28% rising rising falling rising ema9 on 2017-08-16 2017-08-25
REIT RWR 1.81% -7.19% rising falling rising falling ma50 on 2017-08-25 2017-08-25
Materials XLB 1.34% 11.06% rising rising rising falling ma50 on 2017-08-25 2017-08-25
Healthcare XLV 1.22% 8.46% rising rising rising falling ema9 on 2017-08-24 2017-08-25
Utilities XLU 1.17% 9.86% rising rising rising falling ema9 on 2017-08-14 2017-08-25
Technology XLK 1.10% 22.69% rising rising rising falling ema9 on 2017-08-22 2017-08-25
Energy XLE 1.09% -9.51% rising falling falling falling ema9 on 2017-08-25 2017-08-25
Financials XLF 0.77% 26.88% rising rising rising falling ema9 on 2017-08-25 2017-08-25
Industrials XLI 0.52% 14.74% falling falling rising falling ema9 on 2017-08-23 2017-08-25
Cons Discretionary XLY 0.43% 9.19% falling falling rising falling ma50 on 2017-08-15 2017-08-25
Homebuilders XHB 0.19% 3.30% falling falling rising falling ema9 on 2017-08-15 2017-08-25
Cons Staples XLP -0.96% 0.15% falling falling rising falling ma50 on 2017-08-24 2017-08-25

Gold in Other Currencies

Gold was mostly flat this week, except in Euros where it dropped $14. Gold in XDR fell -0.29. I removed Rubles from the chart on request.

Rates & Commodities

TLT continued moving steadily higher, up +0.55% and making a new high on Friday. TLT remains in a slow-but-steady uptrend, and is above all 3 moving averages. As I have mentioned before, going long TLT is a form of equity-market short, since bonds tend to rally when stocks drop. This week, bonds rallied alongside stocks, which was nice – if you're long TLT. TLT forecaster remains mildly bullish at +0.26.

JNK did well this week, rising +0.87%. Most of the gains came on Tuesday, when JNK rallied alongside equities. JNK is now back above all 3 moving averages, and it executed a bullish crossover on the MACD, which has done a decent job in predicting trends for JNK over the past six months. JNK is saying risk on.

CRB rose +0.19%; mostly commodities just chopped sideways this week. CRB did manage to climb above its 9 EMA; after dropping for 3 weeks, CRB now appears to be trying to recover. Industrial metals and PM have done well over the past few months, while livestock and agriculture have done poorly, with crude somewhere in the middle.

I saw an interesting article posted on KWN about industrial metals and how the 7-year bear market in metals prices has led to a lot of supply destruction in the mining industry. KWN sees this through the PM filter, but I think its interesting from a macroeconomic viewpoint; I had been assuming that the recent, steadily-climbing copper prices were demand driven, but according to this article, its more about supply destruction. File this under the “good to know” section. Base metals supply destruction should reduce silver production, since a lot of silver is produced as a byproduct of base metal mining.

http://kingworldnews.com/development-will-huge-impact-silver-market/

Crude fell -1.00 [-2.05%] to 47.86 on the week, with all of the losses occurring on Monday. Wednesday's EIA report looked mildly bullish (crude draw: -3.3m barrels, gas draw: -1.2m barrels), and the market reacted positively, but it was not enough to recoup the losses from Monday's big drop. Friday's candle print was a useless spinning top, but the forecaster popped up +0.36 moving back into slightly-bullish territory at +0.17. If crude is in an uptrend, it is a very mild one. Still, it could have been worse.

Physical Supply Indicators

* SGE Au9999 contracts are at +2.65 premium vs COMEX.

* The GLD ETF tonnage on hand rose +5.91 tons, with 805 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.52 -0.60% to NAV [down]
 PSLV 6.44 -0.40% to NAV [down]
 CEF 12.74 -6.5% 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] 1.0% and silver [1000oz] 3.16%.

Futures Positioning/COT

COT report is through Aug 22nd, when gold closed at 1290.40, and silver at 16.99.

This week in gold, the commercials net position fell by 23k contracts; they bought 3k longs, and added 26k shorts. Commercials continue to cap the rally at 1300. Managed money net position rose by 17k contracts, adding 14k longs and bailing out of 3k shorts. Managed money is fairly far offside right now – they have the lowest short position in the past 3 years. Longs are also extended too. Commercial shorts continue to be high enough for a top – more so than last week.

In silver, the commercial net position fell by 7k; shorts grew by 6.1k, while longs fell by 858. Managed money net rose by 7k; it was mostly short covering, with managed money dropping 6.6k shorts and picking up 716 longs. I suppose this could be a top in silver, but it looks a lot less compelling than the situation in gold. Commercial short levels just aren't all that high, and there aren't very many managed money longs to hose.

COT Gold: supports a top. COT Silver: not so much.

Gold Manipulation Report

There were no after-hours spikes this week; there were plenty of spikes at other times, however.

Eurozone Status

  • German Elections; October 2017: Merkel has a 15 point lead over Shulz.

  • Forza Italia (FI) leader Burlusconi has indicated he supports a recent proposal to implement a parallel currency in Italy. This announcement hammered Italian debt on Tuesday. While this news hasn't affected the Euro yet, it has started to call into question the price of Italian 10 year debt, which even after this news closed the week at 2.10%. If they had an ETF that was filled with Italian sovereign debt, I'd load up short for sure. https://www.reuters.com/article/eurozone-bonds-idUSL8N1L81TZ

  • A new type of NGO is apparently operating in Libya, this one allegedly formed by a former Mafia boss, which may be responsible for the brisk drop-off of migrants coming to Italy via Libya. This NGO is apparently armed, and comprises local police, and army figures. A spokesman for the group explained, “we're making the migrants an offer they can't refuse.”  Ok, so I might have embellished the following article a little - but really, only a little: http://www.express.co.uk/news/world/844213/italy-close-migrant-shut-down-mafia-libya-Sabratha-un-election-eu-tripoli-summer-turkey

  • Italian Elections: In national polls, anti-Euro M5S is slightly ahead of the PD: 27.4% to 26.85%. A combination of FI + LN (both semi-anti-Euro parties) continue to poll at 28%.

Summary

This week was fairly quiet; there was a recovery in SPX and JNK, a mostly-sideways chop in gold and silver, a sharp rise in the Euro/a brisk drop in the buck. Miners continue to move slowly higher. The multi-month industrial metal rally continues, and may be a sign of some serious supply destruction in the base metal space.

The COT report for gold shows a relatively strong possibility of a short-term top for gold; managed money shorts are at historical lows, and the commercials are fully loaded up short. Silver's situation looks more neutral.

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 rose, while ETF premiums were mixed. Shanghai premiums vs COMEX are positive, but modest.

The hints of a dollar recovery from two weeks ago have now faded – the dollar appears to be setting up for another leg lower. Looking at the longer-term USD chart, the 92 support level is critical. A break below 92 and all we see is a whole lot of air.

While the USD drop has helped gold as well as US manufacturing (INDPRO shot higher along with the dropping buck over the past 7 months), a further plunge in the dollar will likely cause foreigners to flee US equities, since currency losses will exacerbate any equity market losses. From a European currency viewpoint, SPX topped out back in March, and is now down 10%.

Will the buck drop through 92? It hit 92.19 at one point on Friday. We aren't very far away. If the buck moves convincingly through 92, gold should easily break 1300. Of course if the buck bounces, gold goes the other direction. Probably fairly quickly, too. For that to happen, though, you might need to see some signs of Trump recovering politically – and the breakdown scenario I lay out below could be driven (hypothetically anyway) by a Trump Impeachment scenario.  Once we lose 92, things start to look very ugly from a chart perspective.

We also have the debt ceiling thing approaching. Country runs out of running room on September 29th, if we are to believe Mnuchin. That's probably not dollar-positive either. Until it gets fixed, of course.

Trend-following code says:

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

Downtrend: platinum, crude, USD.

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9 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
IRS tracking bitcoin trades now

Here's an article that describes how the IRS is using blockchain analysis to track down people making money from their bitcoin transactions and not reporting them to the government.

https://news.bitcoin.com/irs-crackdown-tracking-bitcoiners-with-chainalysis/

"Who would have thought that a public ledger might be problematic for anonymity?"

 

 

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5568
Harvey creating concern and doubt?

Problem:  Major disaster unfolding in the US.

Fed solution:  Make everyone feel better by busting out "the ruler."

If you've every wondered what it would have been like to live in the old Soviet Union, but with an extra overlay of self-serving kleptocracy, wonder no more!

 

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1428
Gold - Major Move Up

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 323
Cause?

What's the cause of the major move higher in PMs?  Anything in particular?  Gold, silver, and shares are way higher.  Looks like a legit breakout.  We'll have to see if it is a fake or for real.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
gold breakout

Yes, we got a gold breakout which started in earnest at 10:57.  Looks like traders just started buying.  It wasn't an up-spike per se, since it took several minutes to rise $6, but a large number of contracts traded hands on the breakout, so there was probably a fair amount of short-covering that happened.

Things were probably helped by the Euro making new highs today, but the Euro breakout probably wasn't the proximate cause of the sharp rally.  Buck is down at 92.17, threatening to break down more seriously. There's lots of air below 92.

Silver is also through that pesky 200 MA.  Finally!

SPX sold off right from the opening bell.  So much for "the ruler" :)

My gut says we'll keep gold 1300 through the close.  Its had a bid all day long.  I just have that feeling.

 

 

 

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 323
Thanks

Thanks for the insight, Dave.  Yeah, it looks legit today, especially given the miners are doing unusually well.

On another note, I bet the Houston crisis will prevent any sort of debt ceiling crisis.  They'll use that as the excuse to raise the limit, do away with it altogether, or kick the can.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5568
Then let's call it a mattress
davefairtex wrote:

SPX sold off right from the opening bell.  So much for "the ruler" :)

Then we should call it a mattress.  There to soften the experience, and assure that any falls don't make it all the way to the floor, where they can hurt.

I would say there's a tasty ROI there (depending on how you measure "returns") for them. 

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1428
Re: Then let's call it a mattress

This could be a sign the market is about to turn over.   If they implement QE4 , we need to organize a protest at WH and FED.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
rulers

I didn't mean to suggest the ruler (or mattress) didn't exist - I meant to say that once traders to decide to sell rallies, all "rulers" do is provide selling opportunities.

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