PM Daily Market Commentary - 10/5/2017

davefairtex
By davefairtex on Fri, Oct 6, 2017 - 2:01am

Gold fell -6.90 [-0.54%] to 1270.60 on moderate volume, while silver rose +0.01 [+0.06%] to 16.62 on moderate volume also. Today was another attempted rally and another failure, this time driven entirely by currency; a sharp drop in the Euro and a sharper drop in the Pound saw the buck rise +0.56%, almost a mirror image of gold's fall.

Gold's high today was 1281.60 on the back of a small rally in the Euro. However once the Euro decided to reverse, it dragged gold right down with it, with gold making a new low to 1268.50. Candle print was a confirmed shooting star – normally quite bearish, but this one was just neutral. Forecaster felt that today's plunge was no big deal, actually rising +0.24 to read +0.16. Forecaster is saying today's drop is just a headfake. Its a bold prediction. Let's see how it works out tomorrow.

COMEX GC open interest fell -2,885 contracts.

Rate rise chances (Dec 2017) jumped to 87%.

Silver was much more resilient than gold today; it rallied early, and it eventually succumbed to the pull from the currency move. It managed to avoid making a new low, printing a doji candle on the day, which the code had no opinion on. (Unless something makes a higher high, a lower low, or matches with an “important” candle pattern like a harami, the candle code has nothing to say). Forecaster dropped, off -0.11 to +0.03. That's barely above stall speed. Silver has been moving sideways for 3 days now. If that Euro craps out some more, silver probably resumes the downtrend.

Open interest in COMEX SI contracts fell by -1,333.

The gold/silver ratio fell -0.46 to 76.47. That's bullish.

Miners fell today, with GDX off -0.85% on moderate volume, and GDXJ falling -1.54% on moderately light volume. A large number of candle patterns matched today: confirmed bearish NR7, confirmed bearish doji star, but it all added up to nothing. Candle code felt all the patterns it saw today were actually bullish continuations. “Nothing to see here.” Forecasters were not so sanguine: GDX -0.27 to +0.10, GDXJ -0.28 to -0.11. Forecaster says that the junior miners have re-entered a downtrend. That's a warning sign. Both miner ETFs are now back below their respective 9 MA lines. That's not good either.

Today, the GDXJ:GDX ratio fell, as did the GDX:$GOLD ratio. That's bearish.

Platinum fell -0.015, palladium rose +1.93%, and copper shot up a massive +2.93%. What's that copper move about? Perhaps it was the 5.4 magnitude earthquake in Chile, home to a number of important copper mines – which all reported no damage from the quake. Palladium and copper have both resumed their uptrends. Platinum is doing less well, with the forecaster dipping back below zero.  If platinum resumes its downtrend, that's bad for gold.

USD rallied sharply today, up +0.52 [+0.56%] to 93.78, making a new high today. Candle print was a closing white marubozu, which means the buck closed at its day high. That's a bullish continuation. Forecaster moved up +0.10 to +0.22. Buck remains in an uptrend, above both 9 and 50 MA lines. One possible cause of the dollar rally was the House passing a budget resolution. Forgetting for a moment if the budget is one that is good for the country overall, it does seem that Trump's willingness to do deals with Democrats have brought his nominal Republican allies back into line – and my sense is, the passage of this bill was seen by the market as dollar-bullish.

Crude rose +0.87 [+1.74%] to 50.83. The move resulted in a 2-candle swing low, which only had a 32% chance of marking the low. That's not very good. But the forecaster jumped +0.29 to +0.13, which suggests the trend in crude has reversed back up again. Looking at the chart, it does appear that oil has found support on its 200 MA. It definitely feels to me as though there is a bid underneath oil right now - the price didn't stay below 50 for very long. There are also signs that the shale boom in the Permian is slowing down. Per oilprice.com: http://oilprice.com/Energy/Crude-Oil/The-Permian-Boom-Is-Coming-To-An-End.html

There’s a growing consensus that the pace of shale drilling needs to slow down, or else E&Ps will destroy value.  [gee, really?]. “All these factors are pointing to slower, more methodical development,” said David Pursell, managing director at Tudor Pickering Holt, according to the WSJ. “That needs to happen.”

A shift toward more “methodical” development would likely mean that U.S. shale undershoots growth forecasts. While the EIA expects U.S. oil production to top 10 million barrels per day, the more prudent approach advocated by more and more shale investors would likely mean output remains flat for years to come, never topping 10 mb/d, according to BTU Analytics.

SPX jumped +14.33 to 2552.07, another new all time high. Financials led (XLF:+1.04%) along with tech (XLK:+0.96%), while utilities brought up the rear (XLU:-0.09%). It looked like a Trump reflation rally day, brought on by the passage of the budget by the House. RSI7 for SPX has risen to 90, which is extremely overbought. You can tell (roughly) who the market thinks that the winners will be from the budget just by which sectors did well. In order: financials, tech, materials, cyclicals, energy, consumer staples, industrials, and then sickcare. I'd say cyclicals are a proxy for the US consumer – and we can see, they come in 4th. Be thankful they didn't actually drop!

VIX fell -0.44 to 9.19.  That's really, really low.

TLT fell -0.38%, under pressure probably due to the strong rally in equities. TLT made a new low today, but the opening black marubozu candle might be a bullish reversal (50% chance).

JNK rose +0.13% - it has been back and forth for several days now – down one day, and up the next. Curiously JNK has not been giving off consistent signs of “risk on”, unlike the equity market. Longer term, all it has done is move sideways over the past six months.

CRB shot up +0.91%. 4 of 5 sectors rose, led by energy (+1.65%) and industrial metals (+1.23%). PM was the only sector that fell. CRB is back up to challenge its 200 MA.

The buck has been slowly moving higher – today the move was a bit more rapid, so gold took a hit. My sense is that the buck has been hammered down substantially because of the concerns about Trump's inability to govern – for whatever reason. That worry is now slowly ebbing, and at the same time, its also clear that “populism” in Europe is not dead after all, and that the plans for More Europe are not likely to happen.  Result: upside pressure on the buck, downside pressure on the Euro.

Here's what that looks like on the monthly USD chart.  Note that the last bar (the one that is currently labeled with a blue "BUY" signal) is a work in progress, but if the month were to close out here, the buck will have reversed course.  Of course it could bounce around here at the lows, as reversals aren't always clean and sharp, but the point is that the forecaster believes the current impulse right now is up, not down.  And absent a safe haven impulse, that's bad for gold.


 

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4 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 291
Jobs

Loss of 33K vs gain of 90K exp.  Yikes!

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 291
Forecaster

Dave,

Just read your post from last night.  Good info and makes sense.  Thanks for posting.

For today, looks like PMs are gone.  And crude.  Market should start to reverse here pretty soon.  Ruler time.  But gold and silver are toast, apparently.  Market is pretty much guaranteeing a rate hike, although Jim Rickards is adamant that the Fed will not hike in December.  He thinks there will be a significant repricing of PMs, the Dollar, and Bonds.  Unfortunately, when the repricing starts, gold will probably be significantly lower than it is now, the way things are trending.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 4836
NFP Friday

CR-

I was right there with you - up until the Euro decided to come screaming back.  Not sure what that's about, but it pulled silver up 10c and gold up $3 off the lows.

Here's the bit from Econoday about why a negative jobs number is scary to the Fed:

... But the big surprise in today's report are sudden indications of excessive labor market tightness as the unemployment rate fell 2 tenths to 4.2 percent and average hourly earnings spiked 0.5 percent with the year-on-year rate jumping 4 tenths to 2.9 percent. This report on the surface -- and needing confirmation from the October employment report to follow next month -- appears to change the dynamics for the labor market and suggests that the Federal Reserve, the decline in September payrolls aside, has fallen behind the inflation curve.

We can't have increasing wages.  That would be bad. 

Quick!  Pull the plug!  Before its too late!!!

Avg Hourly Earnings is a huge indicator.  And a jump of 0.5% in one month - annualizes to 6% per year. 

I never trust the prognosticators who say what the Fed will or won't do.  They're wrong so often its not even funny.  And it stops me from watching prices because I'll start seeing what I want to see instead of what's actually happening.

Wow.  Now silver is almost back to its starting point.  Gold has reversed its losses.  So have the miners.

I love these reversals.  They tend to mark lows a bit more emphatically.    Assuming this all holds through to the close, mind you.  NFP day can wang things around pretty hard sometimes.  Silver green, gold almost green.  All my miners are green.    Definitely better than a poke in the eye with a sharp stick. :)

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 291
Interesting

Dave,

Yeah, PMs looking better than I expected.  We'll see how the rest of the day goes.  Here is some Rickards stuff, followed by a couple of tidbits from ZH (the second one is really interesting, if true):

Rickards thinks that 3 key items govern the Fed's interest rate policy:  Monthly job growth, annual PCE, and asset prices.  They won't raise if monthly job growth falls to below roughly 70K, if there is a market meltdown, or if year over year PCE is substantially tracking below 2.  It's the PCE that is going to be the problem as we started the year at 1.9 and it's now down to 1.3.  If we have another month of much weaker job growth and the PCE doesn't rebound sharply, he feels that December is off the table and that the markets are not pricing this in at all.  Once they do, Gold, the Euro, and Bonds should catch a bid and stage quite the reversal.  That's his forecast.  He also sees war with NK happening by mid-2018.  Very intersting stuff.

 

1)  North Korea Planning To Test Fire Missile Capable Of Reaching U.S. West Coast; Stocks Slide:

http://www.zerohedge.com/news/2017-10-06/north-korea-planning-test-fire-...

2)  BLS Caught Fabricating Wage Data

http://www.zerohedge.com/news/2017-10-06/bls-caught-fabricating-data

"Another way of showing the July to August data:

  • Goods-Producing Weekly Earnings declined -0.8% from $1,118.68 to $1,109.92
  • Private Service-Providing Weekly Earnings declined -0.1% from $868.80 to $868.18
  • And yet, Total Private Hourly Earnings rose 0.2% from $907.82 to %909.19

What the above shows is, in a word, impossible: one can not have the two subcomponents of a sum-total decline, while the total increases. The math does not work.

This, as Zatlin notes, undermines not only the labor inflation narrative, but it puts into question the rest of the overall labor data, and whether there are other politically-motivated, goalseeked  "spreadsheet" errors."

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