PM Daily Market Commentary - 10/10/2017

davefairtex
By davefairtex on Wed, Oct 11, 2017 - 1:46am

Gold rose +3.90 [+0.30%] to 1290.30 on heavy volume, while silver rose +0.15 [+0.88%] to 17.14 on heavy volume also. A strong Euro rally [+0.57%] pulled the metals higher; the driver for the Euro was possibly the Catalan leader's announcement that he would delay declaring independence in order to give diplomacy with Spain's central government a chance.

Gold spiked up in Asia trading, continued rising through London, and finally making its day high of 1296.70 at around 11am in New York. Gold then faded steadily into the close. Print for today was a spinning top, which the code felt was a bullish continuation. Forecaster fell -0.09 to +0.42, which is still an uptrend. Apparently forecaster wasn't impressed by the rally which appeared to mostly fail; neither was I, given that the Euro rallied substantially more than gold did.

COMEX GC open interest rose +7,406 contracts, or 23 tons of paper gold. 6 tons of actual gold are mined every day. I suspect all the new paper gold helped to put a lid on the rally today.

Rate rise chances (Dec 2017) rose to 92%.

Silver followed gold higher, making a new high to 17.28 at around the same time as gold. Silver also faded, but managed to retain much more of its rally through the close. Candle print for silver was a long white candle, which the code felt was a bullish continuation. Silver forecaster moved up +0.09 to +0.58, which tells us that the uptrend is strengthening. Silver ended the day right at its 200 MA.

Open interest in COMEX SI contracts rose by +584.

The gold/silver ratio fell -0.44 to 75.28. That's bullish.

Miners gapped up at the open, and then sold off all day long, with GDX falling -0.72% and GDXJ dropping -1.29%. Both ETFs printed bearish engulfing candles which is a bearish reversal pattern: GDX 40%, GDXJ 54%. Forecasters were also quite unhappy: GDX -0.47 to -0.10, GDXJ -0.44 to -0.16. That's a fairly solid sell signal for both miner ETFs. A number of miners I watch were down between 3-4%, for no reason that I could see. What is this selling pressure about? Is this just a headfake or does it signal a resumption of the PM downtrend?

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

Platinum shot up +1.65%, palladium moved up +0.43%, and copper moved up +1.06%. It was a good day overall for the other metals. Copper made a new high; palladium and copper are both in slow uptrends, above all 3 moving averages. Platinum's big rally today – the first rally of that size in at least a month – pulled it conclusively through its 9 MA. The forecaster has been predicting something like this for several days now. The moves in the “other” metals are supportive of higher prices for PM.

USD fell fairly hard, dropping -0.41 [-0.44%] to 93.06, following through off yesterday's swing high. This was mostly due to a strong rally in the Euro [+0.67]. Candle print for the buck: long black candle, which was seen as a bearish continuation. Forecaster plunged hard, losing -0.54 to -0.51. The buck is back through its 9 MA. Buck is back in a downtrend. 

Crude rallied +1.38 [+2.78%] to 51.09, printing an opening white marubozu candle which was a 3-candle swing low. Forecaster moved up +0.29 to +0.22. The move took oil back up through its 9 MA. Oil is back in an uptrend. There was no API report today. What caused the jump in oil? I'm not sure.  There were a number of OPEC jawboning attempts yesterday, but nothing new today.  I'm sure its just something I missed.

SPX rose +5.91 [+0.23%] to 2550.64, making a new all time high, however the market was unable to hold it through the close. Candle print was a long-legged doji, which has a 38% chance of being a reversal. Sector map has utilities leading (XLU:+0.97%) along with consumer staples (XLP:+0.88%), with cyclicals (XLY:-0.10%) bringing up the rear. That is a fairly bearish sector rotation. Even though oil had a very strong rally today, energy equities did quite poorly (XLE:+0.09%); energy equities were sold all day long.

VIX fell -0.25 to 10.08.

TLT rose +0.16%, rallying quite strongly early in the day, but it was unable to hang on to the gains through the close. Mostly, it was a failed rally today in TLT. Print was a northern doji, which looked unpleasant but was actually a bullish continuation according to the candle code. Forecaster agrees, rising +0.35 to +0.17, which is a buy signal for TLT. TLT remains below its 9 MA.

JNK rose +0.08% today, moving just above its 9 MA. JNK is slowly drifting higher.

CRB jumped +1.24%, managing to close back above its 200 MA. All 5 sectors rallied, led by energy (+2.17%).

We got mixed signals today from PM. The miners looked bad, not to put too fine a point on it, and gold seriously underperformed. The selling in the miners started right at the open, and they were under selling pressure all day long. At the same time, silver did relatively well, platinum looked very strong, and the other metals were generally positive too.

So do we follow silver & platinum, or the miners as the leading signal for the sector?  I don't have a clear idea.

Last thought. FOMC minutes come out tomorrow at 2pm. This release often moves the markets.  Right now the rate rise chances are at a virtual certainty.  I'm not sure how much new bad news could appear; it seems to me there might be a higher chance of a dovish surprise than anything else.

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3 Comments

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2365
Paper Gold...

Glad to see DaveF being more clear about how these markets actually work!

COMEX GC open interest rose +7,406 contracts, or 23 tons of paper gold. 6 tons of actual gold are mined every day. I suspect all the new paper gold helped to put a lid on the rally today.

Indeed.. that's exactly how it works when the bullion banks can print paper Gold contracts at will, and under real time algorithmic control.  

My view continues to be that the paper Gold wall of leverage will eventually crumble, bringing about a rapid repricing of real, physical Gold.  EvG shines light on this through a recent article where he is quoted talking about his experiences with Swiss Banks;

https://kingworldnews.com/major-alert-greyerz-warns-swiss-bank-says-it-w...

What The Hell Is Going On With Swiss Banks?
October 8 (King World News) – Egon von Greyerz: 
“Don’t hold gold in a Swiss Bank or in any bank in any country. We regularly see examples both in mid-tier and large Swiss banks that should make bank clients very concerned. Here are some examples:

  • A client stores physical gold in a bank but when he wants us to organize a transfer to private vaults, the gold doesn’t exist and the bank must acquire it
  • 400 oz gold bars that were bought by the bank for the client in 2005, were cast in 2011, so the gold never existed.
  • The client is told he owns physical gold and silver but actually only has paper metals.
  • Swiss banks are also doing all they can to stop clients taking their gold out. One major bank refuses to transfer gold out if the client isn’t present. Another major bank recently told the client that they don’t transfer client gold out of the bank to anyone, even if the client demands it
  • Swiss banks tell their clients that physical gold and silver held in the bank vaults on behalf of clients is not on the bank’s balance sheet and based on Swiss law it belongs to the client. Yes, that is correct, but how many times have we not seen that banks under pressure use client assets as security for their trading, especially when they are under pressure.

Gold and silver are wealth preservation assets. Therefore, they must not be held within a rotten and massively leveraged financial system. Physical gold and silver must be held in the most secure private vaults outside the banking system and with personal access to the metals by the beneficial owner…

I would also recommend reading Kranzler's recent piece regarding Gold and Silver market manipulation;

  http://investmentresearchdynamics.com/gata-those-who-deny-gold-silver-ma...

".....Indeed, in 2005 the director of the BIS’ monetary and economic department, William R. White, told a conference at BIS headquarters in Basel, Switzerland, that a primary purpose of international central bank cooperation is “the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful“: LINK

The BIS even advertises that its services to its member central banks include surreptitious interventions in the gold market: LINK...."

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4851
FOMC minutes

In reading the synopsis of the FOMC minutes release, I didn't really see anything too revolutionary.  However immediately following the release, the Euro moved up about +0.20, and gold and silver recovered all their losses on the day.  Miners looked especially good.

Looks like the PM uptrend remains intact.

Its also becoming more clear that the Euro has resumed its uptrend.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4851
storing gold, open interest

JimH-

I too think there's plenty of things to be concerned about when it comes to storing physical gold and those banks.  I recall reading a few years back where a bank was successfully sued for charging storage fees for storing physical gold - even though it actually wasn't storing it at all. Am I unwise to trust the Sprott funds?  What do you think?  They seem legit.

Regarding attempts to influence price:

I think the key insight for me was when someone suggested I look at changes in open interest and see if and how that might be affecting prices.  (I forget who suggested this - I get so many  ideas from the group here).  I've been tracking OI for (maybe?) a year now, and it does appear to me that it is significant.

My suspicion, based on my open interest observations, is that there are two things going on in the market.

Most of the time, I think its just the commercials running their wash-and-rinse cycle, with the occasional stop-running spike attack executed in order to pick the pockets of the other market participants more thoroughly.  They do things that make money for them.

Some of the time, central bankers decide to intervene, when the gold price threatens to get out of hand.  I believe we saw that during BRExit.  There was a 50k OI increase on the day of BRExit, and another 20k OI increase the day after.  That OI was slowly unwound over the next six months.  I think it might happen more routinely than that also.  Presumably, the more it works, the more they want to use it.

I also think the intervention mechanisms in use are more subtle and varied than simply "printing unlimited GC contracts."  That's based on the price forecasting models I'm developing.  If this were simply about unlimited contract-printing, then changes in open interest would drive everything.  My models tell me that OI is important, but it doesn't drive everything.

Platinum, for instance, has a strong influence on gold.  Hammer platinum down 1% and maybe you get gold to drop 0.3%.  Since platinum is a tiny market, it is probably much cheaper than hitting gold directly.  I used to think they might do this via silver, but now I'm not as sure.  Platinum seems to exert a stronger pull over gold, at least in some ways.

At the end of the day though, I do agree now that some degree of control is something they are striving for.  This is because I have found that almost every prediction formula I run seems to need the price of gold as an input.  Rates too, of course.  They seem to be more important.  But gold is right in there too.

All this stuff works out fine as long as nobody really cares in the west.  Once confidence snaps however, I think the wheels come off the effort to influence price.

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