PM Daily Market Commentary - 9/5/2017

davefairtex
By davefairtex on Wed, Sep 6, 2017 - 7:36am

Gold rose +15.00 [+1.13%] to 1345.00 on extremely heavy volume, while silver rose +0.16 [+0.93%] to 17.97 on very heavy volume. Today's results combine both the Monday and Tuesday trading sessions: most of the gains came on a gap-up open on Monday, as North Korea's hydrogen bomb test got the flight to safety move started. JPY rallied hard too [+1.41%], and that seemed to help move PM higher also.

As mentioned, gold opened up $10 on Monday, traded in a fairly wide range over the next two days, and ended up an additional $5 by the close on Tuesday. Candle print was a spinning top, which the code felt might be a top (33%). Forecaster disagreed, jumping +0.41 to read +1.11, which is a very bullish reading. Gold's RSI7 is now at 86, which is more seriously overbought. Price has now moved to the top of the daily chart; we need to pull back to a weekly in order to provide perspective.  We can see that gold is moving up towards its post-BRExit high of 1376.

Comex GC open interest rose +20,861 contracts. That's 64 tons of paper gold created over two days; to provide some perspective, only 6 tons of actual gold are mined per day.

Rate rise chances (Dec 2017) plunged to 31%. That's a huge drop. I guess a successful hydrogen bomb test means no rate increase in December. Or something. Certainly a lower rate increase chance is gold positive.

Silver followed gold, but its rally was somewhat more muted. Silver did break out a bit more conclusively above its Junw high, but the longer-term high from April remains intact.  Silver is definitely still lagging behind gold.  The candle print was a spinning top, which the code felt had a 33% chance of a high. Forecaster jumped +0.20 to read +0.96, which is a very bullish rating. The RSI7 moved higher into overbought territory, reading 82.  Silver continues to move higher, but is underperforming gold.  That tells us the move higher is a flight to safety move rather than a more general PM rally.

Open interest in COMEX SI contracts rose by +4,828 contracts.

The gold/silver ratio rose +0.15 to 74.85. That's slightly bearish.

The mining shares did well, with GDX up +2.14% on very heavy volume, while GDXJ climbed +3.14% on heavy volume. GDX has now cleared its previous high dating back to April and is approaching its high set back in February, while GDXJ is lagging behind. Both ETFs are overbought, with RSI7 values around 85. Both GDX and GDXJ printed white marubozu candles; the GDX print had a 38% chance of marking the top, while the GDXJ print had a 33% chance. The GDX forecaster fell -0.12 to +0.63, and the GDXJ forecaster dropped -0.04 to +0.77. The price moves are all fairly bullish, but not excessively so.

Given the strong rally in GDX, we had to pull back to the weekly GDX chart to provide some perspective.  It shows that we're approaching the previous high set back in February.  A break above that - quite bullish.

The GDXJ:GDX ratio rose, as did the GDX:$GOLD ratio. That's bullish.

Platinum fell -0.09%, palladium plunged -2.45%, while copper climbed +0.19%. All the candle prints for the “other” metals were fairly bearish: platinum's high wave had a 44% chance of marking the high, palladium's closing black marubozu had a 61% chance of marking a top, while copper's northern doji candle print had a 55% chance of being a reversal. Palladium's print was especially bearish. Forecasters for all 3 metals remained bullish, at least for now.

USD plunged -0.55 to 92.02, dropping back into the danger zone right at round number 92. Forecaster fell -0.33 to -0.02. Buck is poised right above a substantial breakdown point – as I've said before, a close below 92 could lead to quite a strong move lower. I felt last week that the bounce in the buck may have been engineered by our friendly central bankers, and the utter lack of follow through off last Monday's strong reversal bar increases my sense that this was probably the case.  A breakdown appears imminent.

Crude shot up 1.24 to 48.62, moving conclusively above both the 9 and 50 MA lines. Crude's forecaster jumped +0.62 to +0.65, which is a clear uptrend. This all looks fairly positive. The long white candle was most likely a continuation. According to oilprice, several Houston-area refineries have been successfully restarted, and more restarts appear to be imminent: VLO says Corpus Christie (293k bpd), Texas City (225k bpd) have restarted, while Port Arthur (293k bpd) is in the “final stages” of being restarted. That was enough to bring the Colonial Pipeline system back online.  Markets are slowly pricing in a recovery in the refinery sector. Likely the refinery restarts helped oil prices recover. http://oilprice.com/Energy/Energy-General/Oil-Markets-Rebound-After-Hurricane-Harvey.html

SPX plunged -18.70 to 2457.85 to start the week. Financials were hammered (XLF:-2.14%), while energy did best (XLE:+0.55%). Today's sector map looked like a bear market move: financials, materials, industrials, and tech led lower. Candle print was bearish: a 2 candle swing high which had a 69% chance of marking the top. This was a strongly bearish pattern – in the top 5-10% of swing highs for bearishness. The SPX forecaster also plunged -0.62 to read +0.19 – still bullish, at least for now.

VIX jumped +2.10 to 12.23.

TLT shot higher, up +1.59%, making a new multi-month high (dating back to Dec 2016) which erased last Friday's swing high. TLT forecaster jumped +0.92 to read +0.57 – TLT is back in an uptrend, and back above all 3 moving averages. It appears as though last Friday's drop was just a headfake. Risk off.

JNK fell -0.13%, fading somewhat - but I suspect the oil rally is keeping JNK afloat. It remains below its 50 MA, apparently trying to decide where it will go next. Neutral.

CRB continued moving higher, up +0.77%. 4 of 5 groups climbed, led by agriculture which rose +1.42%. The PM sector is looking especially strong right now. Gasoline futures fell, but not by all that much. I think a few more refineries need to restart before the gasoline futures market calms down.

  • Oct: $1.70 [-0.05]

  • Nov: $1.59 [-0.01]

  • Dec: $1.53 [unch]

We're seeing serious weakness in SPX, strength in bonds, strength in PM, the buck is right at a breakdown point, and we've got another hurricane (IRMA) on the way, this one a Cat 5 that appears to be set to make landfall in south Florida on Monday.  (https://www.wunderground.com/hurricane/atlantic/2017/hurricane-irma). Last week's Nonfarm Payrolls looked a bit weak, and Harvey's latest cost estimate is up to $190 billion. That's money that won't be spent on other things.

The large increase in gold open interest also suggests that there may be official intervention capping the move of gold at this point; even so, gold rose $15, and it will likely rise further if the buck actually does break below 92 and/or SPX drops further.

Armstrong believes that the August close above 1323 will lead to a re-test of the 1362 level. I certainly could see that happening.

And of course we also have a possible war with North Korea.

Lastly, we have an ECB meeting coming up this week. Will the ECB decide to taper its purchases? That could send the Euro screaming higher, driving the buck well below 92. Gold in Euros is rallying strongly now, and a ECB-driven Euro rally would just add fuel to the fire in gold - especially gold priced in dollars.

Things are starting to get interesting.

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3 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4617
bitcoin update 2017-09-06

Last week's brisk reversal in bitcoin, driven by China's regulator declaring ICO's illegal, may have run its course - at least for bitcoin.  Today's candle print was a confirmed hammer, which has a 67% chance of marking the low.  That's a pretty high rating.  Forecaster hasn't quite caught up, but it too is moving back towards bullish territory.

ETH isn't looking nearly as good; there was no swing low, no confirmed hammer candle pattern.  There was a strong-looking spinning top 3 days ago, but there has been little follow-through, and the ETH forecaster remains more solidly in downtrend territory.  No real recovery yet for ETH.

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 123
ECB Taper may be Euro negative

Dave,

if it's the case that ECB printing and bond purchasing has temporarily stabilised the Eurozone and improved confidence in the Euro, couldn't it be the case that a taper of printing will lead to greater Eurozone instability and may actually be Euro negative?

Regards, E.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4617
ecb taper

In general, I've observed that raising rates attracts more people to the currency.

Think of it this way.  QE leads to negative bond yields in the EU.  Money flees negative yields.  Any tapering will result with higher yields in the EU, which makes returning to the currency more attractive.  Its bond-negative, but Euro positive.

 

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