PM Daily Market Commentary - 10/4/2017

davefairtex
By davefairtex on Thu, Oct 5, 2017 - 6:55am

Gold rose +3.40 [+0.27%] to 1277.50 on moderate volume, while silver fell -0.05 [-0.30%] to 16.61 on moderate volume also. The story of the metals today was a failed rally; both metals climbed higher during London trading, but topped out and reversed before well before open in New York, and lost most if not all of their gains. Currency did play a part in the drama, with the Euro first rallying, and then selling off alongside gold, but currency followed rather than led the PM reversal.

Gold rallied to 1285.00 in London, but then fell once silver topped out. Even so, gold managed to hang on to some of its gains. Candle print was a shooting star as well as a two-candle swing low and a confirmed bullish NR7. That summed to be a fairly highly rated bullish reversal (64% chance) – the shooting star candle was not seen as problematic. Forecaster jumped +0.14 to -0.08. Gold remains below its 9 MA.

COMEX GC open interest fell -2,670 contracts.

Rate rise chances (Dec 2017) remained at 82%.

Silver rallied much more strongly than gold, hitting a high of 16.92 before topping out, and then running into a wall of selling which rapidly unwound all of its gains and then some. Candle print was a shooting star, which was seen as neutral by the candle code. Forecaster was very positive on the day's action, however, jumping +0.33 to read +0.15, which is a buy signal for silver. Silver remains below its 9 MA.

Open interest in COMEX SI contracts rose by +2,223 contracts. That's a lot for silver. My guess: commercials jumped in short after silver topped out, dropping 345 tons of paper silver onto the market in a short period of time; just 60 tons of real silver are produced by mines every day. Gold will follow silver, so gold ended up dropping in sympathy.  Because the OI in silver rose, while the OI in gold fell, I speculate that the primary action occurred in silver, not gold.

The gold/silver ratio rose +0.44 to 76.93. That's bearish.

Miners moved higher, with GDX up +0.60% on moderate volume, while GDXJ climbed +0.82% on light volume. Miners followed through – lightly – after the swing lows yesterday, which is a relatively positive sign. Candle prints for both ETFs (GDX: bearish doji star, GDXJ: spinning top) were bullish continuations. Forecasters: GDX +0.27 to +0.42, GDXJ +0.11 to +0.19. Uptrend for GDX is becoming more pronounced. Both ETFs are now more convincingly above their 9 MA lines.

Today, the GDXJ:GDX ratio climbed, as did the GDX:$GOLD ratio. That's bullish.

Platinum rose +0.32%, palladium climbed +0.70%, while copper fell -0.07%. Platinum's forecaster issued a buy signal today, jumping +0.37 to +0.17. While platinum also had a failed rally along with gold and silver, the forecaster appears to believe that momentum is reversing for platinum. That's good news for gold and silver, since those three metals all tend to move together.

USD fell -0.13 [-0.14%] to 93.26. The buck came within a few pennies of printing a swing high, but rallied back enough to avoid that fate. Candle print was a short black spinning top, which was a bullish continuation. Forecaster wasn't happy, dropping -0.31 to +0.05. If the buck does reverse lower here, the PM rally could definitely intensify.

Crude fell -0.26 [-0.52%] to 49.96. EIA report which looked bullish to me (crude: -6.0m, gas: +1.6m, distillates: -2.6m) did cause a brief rally, but then momentum faded and oil sold off, eventually printing a new low to 49.82. Print for today was a spinning top: bearish continuation. Forecaster rose +0.07, but remains in a shallow downtrend at -0.16.

While not exactly oil-related, an article at oilprice.com reported on a statement by the head of the IEA: "the era of expensive renewables is over."  http://oilprice.com/Alternative-Energy/Renewable-Energy/IEA-Era-Of-Expensive-Renewables-Is-Over.html. Reports of utility scale solar at 3c per kwhr – in some places – says that solar is becoming less about subsidies and more about economics. In terms of net new generating capacity installed in 2016, new renewable (solar + wind) plants outstripped new coal + natgas generators. Partially that's because old natgas and coal plants are being retired, but its also about new installations of renewables.

SPX rose +3.16 to 2537.74, yet another new all time high. Candle print was a long white, which was seen as a bullish continuation. Utilities led (XLU:+1.00%) while financials did worst (XLF:-0.46%). It looked like a bit of sector rotation today. RSI7 for SPX has risen to 86, which is quite overbought.

VIX rose +0.12 to 9.63.

TLT sold off during the day making a new low but came back, ending up just +0.01%. Candle print was a takuri line, which the code felt was a 38% chance of marking the low. Forecaster moved into bullish territory.  Bonds may be about to reverse.  That would be risk off.

JNK fell -0.16%, erasing much of yesterday's rally, printing a bearish harami – which was actually not bearish, just neutral. JNK remains below its 9 MA, in a sort of no-mans-land moving sideways.

CRB rose +0.22%; only 2 of 5 sectors rose, led by industrial metals (+0.61%). Mostly commodities went nowhere.

The metals certainly looked ready to rally today and did, but I think the commercials stepped in to stop it using silver as the vehicle – assisted by a top in the Euro a few minutes after silver reversed.  Its hard to know who did what and when if all you have is a 1-minute chart, but certainly someone jumped in heavily short today in silver, and the plunge from the highs was fairly dramatic, losing 20 cents in 30 minutes.  We'll know more when the OI numbers go "final" after trading starts tomorrow.

In spite of the failed rally, technical evidence mounts of a reversal in the metals.  I especially like what I see in platinum.  For this reversal to be durable, I think the buck will need to chop sideways if not fall.  Lets see how that goes.

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4 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 271
OI

Dave, how's that OI looking?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4683
OI from yesterday

Gold: -4026

Silver: +2049

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 271
Thanks

Metals playing out much like they did yesterday.  Steady selling throughout the day.  I think the Forecaster is missing something.  PeakGold's $1250 is coming up soon.  Would also not be surprised to see silver head back down below $16.

Chris,

Time to bust out the ruler again.  It's all about Netflix and apparently the budget resolution passed by the House.  Never mind PR bonds, Iran, North Korea, Catalonia, Russia hacking NSA data, etc.  Just never mind that.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4683
forecasters

The forecaster is projecting what it thinks the slope of the trend will be in the next 2 days.  It makes its best guess based on what it has seen from a large number of different inputs - including open interest changes.  It turns out each item has a different set of external forces that act on it that end up with the algorithm resolving.  Gold's inputs are not the same as the inputs for silver.

I think its output lately was pretty good.  Usually when the slope of the trend flattens out after a long downtrend, the end result is a rally of some sort.  That is what the code has learned over time.  It nailed the turn in GDX, but remember - it only looks ahead 2 days.

It turns out that trying to look ahead farther than that, the model doesn't end up resolving.  At least not as well.  The further you want to look ahead, the fuzzier things get, and the easier the model is faked out.

My main concern with gold right now is the buck.  Especially now, with no "crisis of confidence" to drive people into gold, any reasonably large currency moves lower (say, in the Euro - like we saw today) will generally cause problems for gold.  In fact, I think silver (specifically) held up quite well.  I was watching the Euro plummet, and while silver dropped too, it didn't drop all that much.  Silver felt like it really did want to rally today.

Because I've had to feed all sorts of things into my models to see what gets them to resolve, I have a sense of how interlocked everything really is.

What makes it more complicated is, the effects change over time.  What affected gold back in 1985 isn't the same as what affects gold today.

Then again, if this were easy, we'd all be on the beach drinking margaritas.

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