PM End of Week Market Commentary - 9/15/2017

davefairtex
By davefairtex on Sun, Sep 17, 2017 - 1:00am

On Friday gold fell -10.10 to 1323.50 on moderately heavy volume, while silver dropped -0.23 to 17.63 on moderately light volume. The metals were under pressure all day – and this time it had nothing to do with currencies. Is it about the FOMC meeting next week? Its hard to say.  Traders didn't want to hold the metals going into the weekend.

The metals sector map tipped over into a downtrend this week, with junior miners leading seniors, and silver leading gold. All components dropped below their 9 EMA lines. This is what the start of a downtrend looks like in PM.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL -1.10% 39.98% falling rising rising rising ema9 on 2017-09-13 2017-09-15
Gold $GOLD -2.04% 0.43% falling rising rising rising ema9 on 2017-09-15 2017-09-15
Silver $SILVER -2.22% -7.38% falling rising rising rising ema9 on 2017-09-15 2017-09-15
Copper $COPPER -2.98% 36.45% falling rising rising rising ema9 on 2017-09-08 2017-09-15
Platinum $PLAT -3.96% -6.04% falling rising rising rising ema9 on 2017-09-11 2017-09-15
Silver Miners SIL -4.38% -23.76% falling rising falling rising ema9 on 2017-09-13 2017-09-15
Senior Miners GDX -4.40% -7.83% falling rising rising rising ema9 on 2017-09-11 2017-09-15
Junior Miners GDXJ -4.55% -21.36% falling rising rising rising ema9 on 2017-09-13 2017-09-15

Gold fell -27.50 [-2.04%] this week. Gold started the week by gapping down on Monday, and never really recovered. Some of it was due to a strong dollar rally at the beginning of the week, but by Friday gold was dropping regardless of the currency market moves. Gold printed a weekly chart swing high this week which is bearish. Friday's print was a closing black marubozu – not a new low, but not a bullish candle either. Gold's forecaster dropped well into bearish territory, ending the week at -0.39. Gold is now in a downtrend, although it is not too severe as of yet.

Gold in Euros has also moved into a downtrend, although the GC.EUR downtrend is not quite as steep: forecaster is at -0.27, which is relatively shallow. Still, the close of GC.EUR on Friday was a new closing low, and it looked fairly bearish.

The December rate-increase chances jumped up to 56%. That's the highest I've seen it. Gold generally doesn't like the prospect of a rate increase.

COMEX GC open interest fell -1,453 contracts this week.

Below you can see the weekly swing high for gold.  In the recent past, the 2-candle swing high pattern (on the weekly chart) has led to selling - sometimes its a major trend change, other times it is just over the next week or two.  Usually, however, its bearish.

Silver fell -0.40 [-2.22%] this week; silver held up fairly well until Friday, finally dropping below its 9 EMA, and ending Friday at the day low. Candle print was a closing black marubozu, which the code felt was a bearish continuation. Forecaster dropped to -0.44, which is a downtrend. Silver also printed a swing high on the weekly chart, which is bearish.

The gold/silver ratio rose +0.14 to 75.07, which is slightly bearish.

COMEX SI open interest rose by +4,683 contracts.

Miners led PM lower – the tell last week was the swing high by GDXJ on Friday. Sometimes the junior miners know what's up. Both forecasters are deep in downtrends (GDX: -0.73, GDXJ: -0.64). Since GDX didn't make a new low on Friday the candle code didn't have an opinion, but GDXJ's print was a closing black marubozu which was a bearish continuation. Both miner weekly charts show swing highs, which is bearish.

The GDX:$GOLD ratio fell -2.54% on the week, and the GDXJ:GDX ratio fell -0.15%. That's bearish.

And here's the weekly swing high for GDX.  The last time we had a 2-candle weekly swing high was at the top back in 2016.

USD

The buck rebounded this week, rising +0.53 [+0.58%] to 91.66. The first three days looked quite strong for the buck, as it powered through 92 resistance. The rally faded on Thursday and Friday, with the buck ending the week back below its 9 EMA. The forecaster has turned bullish (+0.32) and Friday's spinning top was a bullish continuation. Is the trend change still in place? So far, yes - but the fact that the buck remains below the 9 EMA calls into question just how durable Monday's swing low will end up being.

Part of the problem with the buck this week was a very strong performance by the GBP, which screamed up +2.88% after the BOE hinted that it would probably be raising rates at its next meeting. GBP ended the week at 135.82, which is back to the levels seen just following the BRExit vote.

US Equities/SPX

SPX shot up +38.80 [+1.58%] to 2500.23, making a new all time high this week.

I felt there were a number of reasons for the rally:

  1. Hurricane Irma managed to avoid destroying Florida which helped the banking sector

  2. The crude oil supply/demand situation is showing signs of recovery, which helped the energy sector.

  3. Trump may have found his way out of the bipartisan trap he has been in by doing a deal with the Democrats for a 3-month debt-limit increase, and by more-than-hinting that he's open to a deal on DACA – after threatening to deport them all within the next 6 months. This suggests that his tax cut plan may not end up on the dustbin of history after all – if he can manage to come up with something that makes the Democrats & moderate Republicans happy.

The sector map shows a combination of a Trump reflation rally, the oil rebalancing, and the financials' relief at not having a bunch of (literally) underwater homeowners sending jingle mail. Utilities brought up the rear, which is what you'd expect in a bull market move.

VIX fell -1.95 to 10.17.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 2.78% 27.31% rising falling rising falling ema9 on 2017-09-11 2017-09-15
Energy XLE 2.24% -3.76% rising rising falling rising ma50 on 2017-09-11 2017-09-15
Materials XLB 1.93% 18.82% rising rising rising rising ema9 on 2017-08-30 2017-09-15
Industrials XLI 1.64% 20.89% rising rising rising falling ma50 on 2017-09-11 2017-09-15
Technology XLK 1.22% 23.46% rising rising rising rising ema9 on 2017-09-11 2017-09-15
Telecom XTL 1.08% 5.95% falling falling rising falling ema9 on 2017-09-05 2017-09-15
Cons Discretionary XLY 0.52% 13.48% falling rising rising falling ema9 on 2017-09-15 2017-09-15
Cons Staples XLP 0.24% 3.62% falling rising rising falling ema9 on 2017-09-15 2017-09-15
Healthcare XLV 0.06% 14.17% rising rising rising rising ma50 on 2017-08-30 2017-09-15
REIT RWR -0.20% -2.29% rising rising rising rising ma50 on 2017-08-31 2017-09-15
Homebuilders XHB -0.21% 13.03% rising rising rising falling ma50 on 2017-09-08 2017-09-15
Utilities XLU -1.10% 11.28% falling rising rising rising ema9 on 2017-09-15 2017-09-15
Gold Miners GDX -4.40% -7.83% falling rising rising rising ema9 on 2017-09-11 2017-09-15

Gold in Other Currencies

Gold fell in all currencies this week, dropping in XDR by -23.88. Gold fell particularly hard in GBP, because of the strong move higher in the pound.

Rates & Commodities

TLT was hit hard, dropping -1.66% on the week alongside gold, a victim of risk on. The biggest losses came early in the week, as the flight to safety premium evaporated. Friday saw a slight bounce, which the candle code actually liked: it was a bullish NR7 pattern which has a 52% chance of marking a low. Forecaster liked it too, bouncing back to -0.30; still a downtrend, but better than the -0.57 rating we saw on Thursday. What will TLT do if (when?) the FOMC starts running off its balance sheet next Wednesday?  On the weekly chart, TLT has printed a swing high, which in the past has led to selling - sometimes a little, sometimes a lot..

JNK rose +0.65%, recovering handsomely from last week's sell-off. JNK is back above its 50 MA, and appears to be trying to move back into an uptrend. That looks like risk on to me. Longer term, JNK has been moving sideways for the past year.

CRB climbed +1.59% on the week, led by energy (+3.77%). CRB made another new high this week dating back to April 2017. Could this be the start of a real commodity rally? Probably only if energy cooperates. We are hearing hints out of BOE that inflation is expected to be 3% across the pond, and the CPI report this week shows an (annualized) gain of 4.8% for August. That might be commodity-related. PM and industrial metals were the only 2 groups that dropped.

Crude charged higher, up +2.47 [+5.17%] to 50.23. Crude managed 3 milestones this week: closing above the 200 MA, making a new multi-month high, and closing the week above round number 50. Crude's forecaster closed the week with a rating of +0.75, which is a strong uptrend. Crude is not yet overbought, with the RSI7 at 70. There were a flock of bullish articles over at oilprice.com - let me give you a sense:

You might be forgiven if you conclude that oilprice.com writers are cheerleaders for higher oil prices. Oil rig counts did drop, but collapse is probably not the adjective I'd choose. Still, refineries are restarting, and the IEA did put out a report that showed that global oil demand increased (though I probably wouldn't say it “soared”), while supply dropped due to unrest in Libya and a decline in US production. The jump in crude prices this week reflects the good news, which appears to have been a bit unexpected. Cracking 50 (and having that hold going into the weekend) is really good news from a chart perspective. I'd expect shale drillers to be jumping in short here to hedge their production. If crude can plow through all that resistance, that says this rally might have some legs to it.  If crude breaks 54...I think oil equities have the potential to scream higher - which will probably drag up SPX right along with it.

Physical Supply Indicators

* SGE Au9999 contracts are at a -0.74 discount vs COMEX. 

* The GLD ETF tonnage on hand rose +4.14 tons, with 839 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.76 -0.61% to NAV [down]
 PSLV 6.64 -0.27% to NAV [down]
 CEF 13.22 -6.1% to NAV [up]

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

* Big bars premiums were: gold [1kg] 1.0% and silver [1000oz] 2.72%.

Futures Positioning/COT

COT report is through Sept 12th, when gold closed at 1336, and silver at 17.97.

This week in gold, the commercials net position fell 10k contracts; 8.4k shorts were added, and 1.8k longs were dropped. Managed money net rose 16k, with 18.9k coming from new longs, and 2.6k new shorts. For gold, COT says that a top is here.

In silver, the commercial net position fell by 8k contracts; shorts rose by 6.4k contracts, while 1.6k longs were sold. Managed money net rose by 13.9k, dropping 5.2k shorts and adding 8.6k longs. Managed money shorts in silver are at multi-year lows at this point, although the managed money long exposure is relatively modest. We could say this is a top in silver, but not a very dramatic one.

Gold Manipulation Report

There were two after-hours spikes seen in silver; a down-spike on Monday, and an up-spike on Tuesday.  Neither were particularly dramatic.

Eurozone Status

Summary

Last week I was concerned that the weakening miners (and the COT report) were both signaling a top for gold. Stars and moons aligned, and that's what ended up happening.

The flight to safety move unwound this week – gold, silver, miners, and bonds all fell, while the US equity market rallied to new all time highs. Miners led PM lower. Hurricane Irma didn't wipe out Florida, Trump actually managed to do something constructive, the market ignored a weak Retail Sales report (down 3.36% annualized) and a drop in Industrial Production (down 10% annualized – probably due to Hurricane Harvey), the buck managed to rally a bit, crude broke above $50 on a flurry of bullish reports, and the futures market now believes that we will see another Fed rate increase by December. Nobody seems to care about North Korean missiles anymore.

The COT report for gold continues to show a strong setup for a top in gold. Silver is still moving slowly closer to a COT top; silver managed money shorts are at a 5-year low, but managed money is still relatively unenthusiastic about going long, which doesn't give the commercials any reason to rinse them out.

Gold and silver big bar shortage indicators shows no signs of shortage; premiums on big-bar gold and silver remain normal. GLD tonnage increased slightly, and ETF premiums were mixed. Shanghai premiums vs COMEX remains in discount.

This week we saw weekly-chart swing highs for gold, silver, miners, and bonds - but notably, not the Euro, nor did we see a weekly swing low in the buck.  How durable are the weekly reversal patterns?  You should go with the odds and take them seriously.  Unless the buck breaks down below 91, I suspect we see another week's worth of selling at a minimum.

We have an FOMC announcement scheduled for next Wednesday.  They will almost certainly start reducing the balance sheet, probably by a very small amount to start.  Is that built into the price?  I think mostly, it is.

Trump will probably do something newsworthy next week; I suspect he's willing to cave on DACA in order to focus his republican "allies" on what he really wants - tax reform.  "If you don't give me most of what I want, I'll go to the Democrats."  Getting the Democrats used to voting for things he wants also helps to break the "Trump is Evil" mindset, which means that some Democrats might be peeled off to vote for more centrist proposals, assuming they appear.  The media was confused - they had no idea how to report on Trump's debt ceiling raise.  All of this is dollar-positive, and thus gold negative.

Lastly, there is crude oil bullishness, and the related hot August CPI reading which showed even government-reported inflation at 4.8% annualized.  That has both the BOE and the Fed focused on - maybe, perhaps - raising rates.  It also boosts equity prices in energy, as well as junk debt.

Future market is predicting a lessening of the gasoline shortage by next month; gas price increases in the later months are now (roughly) due to rising crude oil prices. The futures market is telling me that the gasoline issues related to Harvey are probably now behind us.

Month

Price

Change

% Change

RBV17 [Oct]

$1.66

0.01

0.86%

RBX17 [Nov]

$1.62

0.04

2.59%

RBZ17 [Dec]

$1.59

0.05

3.59%

RBF18 [Jan]

$1.58

0.05

3.47%

RBG18 [Feb]

$1.58

0.05

3.36%

Its a risk-on mood right now.

Trend-following code says:

Uptrend: crude, natgas, USD, SPX.

Downtrend: gold, silver, copper, platinum, treasury bonds, utilities.

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5683
btc 2017-09-17 update

Picture looks improved today.  The selling pressure I was expecting didn't materialize, which I think is good news.  Still, bitcoin traders have this habit of selling rallies in downtrends.  Let's see how 4000 resistance works out.

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