PM Daily Market Commentary - 10/25/2017

By davefairtex on Thu, Oct 26, 2017 - 2:36am

Gold rose +0.80 [+0.06%] to 1278.60 on very heavy volume, while silver was unchanged at 16.95 on moderately heavy volume. It took a relatively strong rally in the euro (+0.43%) just to keep gold even.

Intraday, gold sold off steadily, making a new low to 1272 at 8:35 am, but then staged a high-volume move higher starting at 9:11-9:15.  I'm not sure what the move was about, but it seemed to mark a reversal in direction intraday. The doji candle print was a bearish continuation. Forecaster thought it was mildly bullish, rising +0.06 to read -0.32.  Volume in gold today was very heavy; a lot of volume happened on and after that spike.  Gold remains in a downtrend.

COMEX GC open interest rose by 1,019 contracts.

Rate rise chances (Dec 2017) remain at 97%.

Silver also made a new low, to 16.81, and reversed along with gold with the big move coming at 9:11 am. Much of that move was unwound, but it did seem to signal a reversal in direction.  Silver printed a long-legged doji candle, which was a bearish continuation. However silver's forecaster jumped +0.25 to read -0.05. According to the forecaster, the downside momentum for silver has almost stopped.  Might silver be ready to reverse now?  To me - and the forecaster - the silver chart looks better than the gold chart.

Open interest in COMEX SI rose by 32 contracts.

The gold/silver ratio rose +0.05 to 75.41. That's slightly bearish.

Miners continued dropping, with GDX off -0.52% on heavy volume, while GDXJ dropped -0.89% on moderately light volume. Both miner ETFs made new lows. Intraday, GDX sold off for much of the day, with the buying occurring in the last hour of trading, and especially the last few minutes.  Could be shorts covering prior to the ECB meeting.  Candle print was a spinning top which looked a lot like a hammer, and had a 54% chance of being a reversal. Forecasters: GDX -0.03 to -0.49, GDXJ +0.03 to -0.42.  We have a disagreement here; the forecaster has the miners in a strong downtrend, while the candle code is thinking there might be a reversal coming.  Candle code knows about volume, while the forecaster does not.  Perhaps that's the difference.  Volume today was strong for GDX.

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

Platinum rose +0.08%, palladium fell -0.41%, while copper fell -0.38%. Platinum printed a dragonfly doji, which has a 51% chance of being a reversal; forecaster remains slightly negative for platinum. In fact, all of the other metals remain in modest downtrends.  Platinum could reverse at any moment.

USD fell -0.08 [-0.09%] to 93.48. The print was just a long black candle, which had a 36% chance of being a (bearish) reversal. Forecaster agreed, dropping -0.24 to -0.07. The buck is now in a slight downtrend. ECB meeting coming up tomorrow, where Draghi will tell us just how much tapering will happen. If Draghi does not taper, then the Euro will probably plunge.  Can he pull the trigger with the Catalonia situation brewing in Spain?

Crude fell -0.37 [-0.69%] to 52.17. Crude moved slowly lower for most of the day. The EIA report released at 10:30 am largely confirmed yesterday's API report: a small oil build (+0.9m) and a large gasoline (-5.5m) and distillates draw (-5.2m). Prices popped for a moment, but it didn't last long – the slow downtrend resumed. Candle print was a long black, which was a bullish continuation. Forecaster dropped -0.07 to +0.29. Crude remains above all 3 moving averages, and in an uptrend, but continues to have trouble with selling pressure above 52.

SPX fell -11.98 [-0.47%] to 2557.15. SPX staged a strong morning sell-off starting at about 9:50, plunging perhaps 20 points in about two hours.  Then the dip-buyers appeared, recovering more than half the losses. Candle print was a spinning top, which the code felt was a bearish continuation. Volume was quite heavy. Forecaster fell -0.12 to -0.32. SPX has dropped through the 9 MA, printed a three-candle swing high, and has entered a downtrend. Sector map shows that industrials led lower (XLI:-0.99%) while sickcare did best (XLV:-0.14%). It looked like a bear market move.

VIX rose +0.07 to 11.23. VIX was up big earlier in the day, but unwound most of the gains as traders bought the dip in SPX.  Will the dip-buying continue?  It has been "the right move" for a very long time now.

TLT dropped once more, moving down -0.48%, making a new low. I keep expecting to see better performance out of bonds given the new SPX downtrend, but so far, that's not happening. Maybe its traders selling ahead of the Fed's balance sheet normalization. Candle print (for TY, the 10 year treasury futures) was a takuri line, which had a 56% chance of being a reversal. TLT's forecaster moved up +0.20 to -0.35, which suggests that the pace of the downtrend is decreasing. TY shows the same thing.  Still, bonds look very weak right now.

JNK fell hard, dropping -0.32%, printing a 3-candle swing high, plunging through its 9 MA, printing an opening black marubozu (bearish continuation), while the forecaster dropped -0.39 to -0.26. JNK has entered a downtrend. This is risk off.

CRB fell -0.23%; only 2 of 5 sectors fell, led by agriculture (-0.32%). Most of the other items had very little movement.

We saw another Euro rally today, but all gold could manage was to stay flat. Gold in Euros fell -0.41%. There could be a fair amount of currency-turbulence in the next few days as the ECB meets, and then Catalonia and Spain figure out what their next moves will be, and that could yank the metals prices around.

SPX has entered a short-term correction.  JNK's plunge reinforces the risk off sentiment.   So far, gold is not a beneficiary.

As for PM, let's use the miners as the tell. Currently, they are moving lower. While the GDX candle print looked somewhat hopeful, the HUI is a longer-running index than GDX for the mining shares, and it is mired in a relatively strong downtrend; forecaster is at -0.57, and it has fallen 5 days out of the last 5. That's bearish.

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davefairtex's picture
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ECB: taper to 30B Euros; EUR drops -0.45%

Looks as though the market was expecting something more hawkish out of the ECB.  Draghi announced he would taper the bond-buying from the current 60 billion Euros/month down to 30 billion Euros per month, starting in January, for an "initial 9-month period."

Euro is down from a high of 118.36 to its current price of 117.57.  This has dragged PM lower, but not dramatically so - gold is down just -2.40 and silver is down about 3 cents.  That's better than I expected.

Draghi also did not specify an end date to the bond-buying program, fanning speculation that it might continue indefinitely.

And for our next item on the list, we have the latest from Catalonia:

The Catalan leader's family just left the country.  Be prepared for more excitement today and tomorrow.

Cold Rain's picture
Cold Rain
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Posts: 378

I read on ZH that they may not declare independence yet and instead hold elections.

PMs and miners continue to suck wind, although it could be worse, I guess.

Oh, and a couple of Fed notes...looks like Yellen and Warsh are out.  That leaves Taylor the Hawk and Powell the Dove.  I'm guessing they go with the Dove.

Also, it doesn't look like the Fed has begun reducing their balance sheet, like they promised they would start doing this month.  Wonder why that is?

davefairtex's picture
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Posts: 5681
euro breakdown

The Euro has broken below 117 support...there is a fair amount of air below 117, which suggests that we could see a fairly strong dollar rally in the next week or so.

In all probability, this won't be great for PM.

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