PM End of Week Market Commentary - 10/6/2017

davefairtex
By davefairtex on Sun, Oct 8, 2017 - 5:31am

On Friday gold rose +8.30 [+0.65%] to 1278.90 on very heavy volume, while silver climbed +0.24 [+1.41%] to 16.85 on very heavy volume also. Nonfarm Payrolls report seemed to be the proximate cause for a large trading range for the Euro, which first sold off hard, only to rebound sharply an hour later. The currency “dog” wagged the PM “tail” - both gold and silver had large trading ranges on the day as a result.

So what's the deal with payrolls? Well first, the headline number came in negative, down -33k jobs, which sounds horrible until you remember the hurricanes that hit the US this past month. Further down in the data were the average hourly earnings numbers, which came in at +0.5% m/m, which annualizes out at +6% per year. In addition, the U3 employment number dropped to 4.2%. These were seen as indicating the start of wage inflation.

The metals sector map showed some significant recovery this week, with more than half of the items closing back above their 9 MA lines, and half of the items are now back above the 50. Juniors led seniors by a small margin, silver led gold, miners led metal. That's all bullish. Copper and platinum supported the effort. This was more of a typical PM rally – no easily-unwound safe haven moves here.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 3.00% -11.90% rising falling rising falling ma50 on 2017-10-06 2017-10-06
Junior Miners GDXJ 2.98% -7.66% rising rising rising rising ema9 on 2017-10-06 2017-10-06
Senior Miners GDX 2.74% 3.28% rising rising rising falling ema9 on 2017-10-06 2017-10-06
Copper $COPPER 2.59% 40.28% rising rising rising rising ma50 on 2017-10-05 2017-10-06
Silver $SILVER 1.02% -2.83% rising rising rising rising ema9 on 2017-10-06 2017-10-06
Platinum $PLAT 0.31% -5.16% falling falling falling falling ma200 on 2017-09-19 2017-10-06
Gold $GOLD -0.28% 1.81% falling rising rising falling ma50 on 2017-09-27 2017-10-06
Palladium $PALL -1.48% 37.78% falling rising rising falling ema9 on 2017-10-06 2017-10-06

Gold fell -3.60 [-0.28%] on the week. Losses came on Monday and Thursday. Friday saw gold sell off hard alongside the drop in the Euro making a new low to 1262.80, only to bounce back hard when the Euro rebounded. Candle print on Friday was a closing white marubozu – this says gold closed at the highs for the day, with a 56% chance of marking the low. It was a highly rated candle print.  Forecaster wasn't happy, dropping -0.18 to -0.01.  Forecaster isn't sure about where things will go.

The December rate-increase chances rose to 89%.

COMEX GC open interest fell -15,178 contracts this week.

Silver rose +0.17 [+1.02%] this week, clearly outperforming gold. Silver tried rallying several times during the week, only to have the rally be stuffed for one reason or another. On Friday, silver sold off hard after payrolls making a new low to 16.34, but then came roaring back along with the Euro rally. Friday saw a 51 cent trading range for silver. The resulting candle print was just a spinning top, but the code gave this spinning top the highest rating for this candle type: a 77% chance of marking the low.  Forecaster jumped +0.25 to read +0.30.  Silver is back above its 9 MA.  I think its likely that silver has changed trend here.

The gold/silver ratio fell -0.99 to 75.90, which is bullish.

COMEX SI open interest rose by +3,307 contracts.

Miners did well this week, turning the corner on Tuesday printing a swing low and then on Friday driving lower after payrolls only to reverse back up again alongside the Euro rally. The prints on Friday were: GDX bullish engulfing, GDXJ closing white marubozu. Both were seen as bullish by the code, negating any ill-effects from the drop on Thursday.  Forecaster closed the week at +0.31, which is an uptrend.  GDX is now back above all 3 moving averages.

The GDX:$GOLD ratio rose +3.54% on the week, and the GDXJ:GDX ratio rose +0.23%. That's bullish.

USD

The buck moved higher overall this week, rising +0.73 [+0.79%] to 93.61. This is the third week of rallying by the buck. Even so, Friday didn't look great; while initially the buck rallied off the payrolls report, it reversed about an hour later, which enabled gold, silver, and the miners to reverse also. Candle print was a shooting star, which the code felt had a 44% chance of marking a top. Forecaster just moved sideways, closing the week at +0.21. DX remains above its 9 MA – it is definitely still in an uptrend.

US Equities/SPX

SPX rose +29.97 to 2549.33, making a collection of new all time highs this week. Friday's print was a short white/NR7, which the code had no comment on. SPX forecaster, which is not particularly good at actually giving us profitable trades but does provide a sense as to near term direction, dropped a bit but remains +0.39, which is a fairly strong uptrend.

This week's sector map looks fairly bullish; led by materials and financials, with utilities and consumer staples bringing up the rear.

VIX rose +0.14 to 9.65.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 2.74% 3.28% rising rising rising falling ema9 on 2017-10-06 2017-10-06
Materials XLB 1.94% 21.26% rising rising rising rising ema9 on 2017-09-28 2017-10-06
Financials XLF 1.89% 34.23% rising rising rising rising ma50 on 2017-09-18 2017-10-06
Telecom XTL 1.89% 8.09% rising falling rising falling ma50 on 2017-10-02 2017-10-06
Cons Discretionary XLY 1.82% 14.51% rising falling rising falling ma50 on 2017-09-29 2017-10-06
Homebuilders XHB 1.68% 18.63% rising rising rising rising ema9 on 2017-09-25 2017-10-06
Technology XLK 1.44% 25.55% rising rising rising falling ema9 on 2017-09-27 2017-10-06
Healthcare XLV 1.42% 15.25% rising rising rising falling ema9 on 2017-09-29 2017-10-06
Industrials XLI 1.32% 23.38% rising rising rising rising ma50 on 2017-09-11 2017-10-06
Utilities XLU 0.72% 13.25% rising rising rising falling ema9 on 2017-10-04 2017-10-06
REIT RWR 0.45% 0.49% rising falling rising falling ma50 on 2017-10-06 2017-10-06
Cons Staples XLP -0.31% 2.55% falling falling rising falling ema9 on 2017-10-06 2017-10-06
Energy XLE -0.60% -4.15% falling rising falling rising ema9 on 2017-10-06 2017-10-06

Gold in Other Currencies

Gold was mostly flat this week, rising in XDR by just +0.94.

Rates & Commodities

TLT fell -0.94% on the week, moving lower as the equity market rallied. Friday's print was a spinning top, which the code felt had a 60% chance of marking the low. Forecaster for TLT remains in bearish territory at -0.36. Its tough to be motivated to buy bonds when equities are rallying, and the Fed is engaged in its balance sheet normalization process.

JNK fell -0.38%, with all of the loss coming on Monday. Still, JNK is more or less still trading sideways over the longer term, and does not seem to be either expressing risk on, or risk off at this point.

CRB fell -1.17%; 3 of 5 groups fell, led by energy which dropped -2.72%. CRB is fairly trend-less right now on the daily chart. Weekly, it appears to be having trouble with the 50 week MA – it looks relatively bearish. It doesn't look as though commodities are ready to spring back to life just yet.

Crude plunged -2.29 [-4.43%] to 49.35. This was in spite of what appeared to be a bullish-looking EIA report (oil -6.0m, gas +1.6m, distillates -2.6m) on Wednesday, as well as a drop of 7 in the North American rig counts reported on Friday. After a head-fake up on Thursday, the forecaster ended the week at -0.20, which is a modest downtrend. Crude is now through both the 9 and 200 MA lines, and came to rest on Friday just above the 50 MA.

Physical Supply Indicators

* China is on holiday this week; SGE is closed.

* The GLD ETF tonnage on hand fell -10.63 tons, with 854 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.39 -0.64% to NAV [down]
 PSLV 6.32 -0.59% to NAV [down]
 CEF 13.15 -1.5% to NAV [up]

CEF shot higher on Monday as a result of being bought out by Sprott – the discount to NAV mostly vanishing as a result. That was a quick 4% - if you happened to own CEF. https://finance.yahoo.com/news/sprott-enters-agreement-acquire-management-110000359.html

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

* Big bars premiums were: gold [1kg] 1.17% and silver [1000oz] 3.08%.

Futures Positioning/COT

The COT report was as of September 26th, when gold closed at 1274.10 and silver at 16.65.

In gold, the commercial net position rose by +9k contracts; 17k shorts were covered, but 8k longs were also sold. Managed money net fell by -17k contracts; 15k longs were sold, and 2k shorts were added. Things look a bit confused right now; managed money is bailing out of longs, but shows no interest in going short. If gold does rally more significantly, a managed money short squeeze won't contribute to the move higher. Commercials retain a large short position, and it didn't significantly decline this week. It doesn't look like a “COT low” for gold.

In silver, the commercial net rose by +3.5k contracts; 6.3k shorts were covered, and 2.8k longs were also sold. Managed money net fell by -2.4k contracts; 1.1k longs were sold, while 1.2k shorts were added. As with gold, there are no managed money shorts to speak of, so any silver rally won't involve squeezing the shorts.

I note that overall, commercials seem to be exiting the futures market this week – both long and short positions declined for both gold and silver. Is this a new trend? Something to watch for next week.

Gold Manipulation Report

No after-hours spikes were seen this week.

Eurozone Status

  • Merkel still has yet to form a government. Possibly amusing spin from various news sources regarding the election.  Just looking at the headlines from last week, which news organization would you select as being most matter-of-fact?

    • CNBC: “Merkel has clear mandate to form a government”

    • VOX: “Angela Merkel won in a landslide”

    • Al Jazeera: “Angela Merkel wins fourth term.”

    • Guardian: “Merkel faces tough coalition talks”

    • Telegraph: “Immigration takes center stage as Merkel faces protracted coalition battle.”

  • Italian Elections: New polling data shows anti-Euro M5S has fallen slightly behind the PD: 26.7% to 27.25%. A combination of FI + LN (both semi-anti-Euro parties) are now 29.3%.

  • A local militia group in Libya, funded by Italy to stop migrant traffic, has become embroiled in a multi-week battle for control over the city they occupy.  I thought the following observation was really salient:

    https://www.theguardian.com/world/2017/oct/03/italys-deal-to-stem-flow-of-people-from-libya-in-danger-of-collapse.   The strategy to stem the flow of people from Libya – largely masterminded by the Italian interior minister, Marco Minniti - is seen by the governing Democratic party (PD) as critical to its fortunes in elections next spring.”

Summary

The buck continued to move higher, but gold mostly held its own, due to a strong rally on Friday following the nonfarm payrolls report which suggested signs of wage inflation due to a brisk increase in weekly earnings.

Gold and silver big bar shortage indicators shows no signs of shortage; premiums on big-bar gold and silver remain normal. GLD tonnage fell, while ETF premiums fell – except for CEF, which rose sharply due to the Sprott buyout on Monday. Shanghai is closed because of the week-long Chinese holiday.

COT report shows only relatively small changes in commercial short positions for gold and silver. Gold is still out of balance, but we could be at a low for silver. Also, some odd things are taking place. Managed money is showing little interest in jumping in short, while commercials seem to be closing out both short and long positions.  It could be that managed money as a group has finally grown wise to the wash-and-rinse games of the commercials. Wouldn't that be something?

The Fed has started its balance sheet normalization. Wage inflation may be starting to appear. Rate increase projections have risen to an almost-certainty. The House actually passed a budget. Do you feel like buying bonds at this time? If wage inflation becomes a “thing”, we might actually see a real PM rally right along with a plunge in the bond market.

Right now it looks to be a struggle between a rising dollar, and the technicals which strongly suggest a reversal in PM is in progress. Which will prevail? If the buck chops sideways, I think PM will do well, especially silver and the miners. Platinum is also showing signs of putting in a low.

Trend-following code says:

Uptrend: silver, copper, platinum, USD, SPX.

Downtrend: gold, natgas, crude, treasurys, miners.

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2 Comments

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5406
Strange ... ethereum DOWN big, bitcoin UP big

This is very strange behavior....

Not sure what to make of it yet...who's got it wrong?  ETH or BTC?

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

I'm guessing people are rotating out of ETH and into BTC.

The ETH/BTC chart looks fairly unpleasant - a steady ride downhill.

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