PM End of Week Market Commentary - 12/22/2017

davefairtex
By davefairtex on Sat, Dec 23, 2017 - 3:09pm

On Friday gold rose +9.20 [+0.72%] to 1279.10 on moderate volume, while silver rallied +0.27 [+1.70%] to 16.45 on moderately light volume. The buck hardly moved, rising +0.07% - this metals rally was all about the metals today.

I didn't see any proximate cause for the metals rally on Friday; traders just started to buy just before 9 am, and mostly didn't stop until the afternoon. Is it possible that the large drop in bitcoin prices helped? Who knows. I'm not seeing any strong correlation either way.

This week was a clearly bullish one from the viewpoint of the metals sector map. Juniors led seniors, silver led gold, and the miners led the metals, with the junior miners at the top of the heap. Special mention goes to copper, which is a penny away from making a high that dates back to 2014. Most items are back above the 50 MA, and many have even crossed back above the 200 MA. After the recent rally, all elements are back in positive territory over the last 52 weeks, even rented-mule platinum.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 6.58% 18.77% rising falling falling falling ma200 on 2017-12-22 2017-12-22
Senior Miners GDX 4.09% 20.03% rising falling rising falling ma200 on 2017-12-22 2017-12-22
Silver Miners SIL 3.48% 4.15% rising falling falling falling ma50 on 2017-12-20 2017-12-22
Copper $COPPER 3.41% 29.50% rising rising rising falling ma50 on 2017-12-15 2017-12-22
Platinum $PLAT 2.93% 1.51% rising falling falling falling ema9 on 2017-12-18 2017-12-22
Silver $SILVER 2.14% 3.92% rising falling falling falling ema9 on 2017-12-15 2017-12-22
Gold $GOLD 1.67% 13.21% rising falling rising falling ma50 on 2017-12-22 2017-12-22
Palladium $PALL 1.47% 57.21% rising rising rising falling ema9 on 2017-12-07 2017-12-22

Gold moved up +21.00 [+1.67%], with almost half the gains coming on Friday. This week, gold managed to plow through both the 50 and 200 MA lines, as well as 1270 resistance. These are all really good signs. Gold forecaster closed the week at +0.47, which is a strong uptrend.

Gold's weekly and monthly forecasters remain in a downtrend.

The March rate-increase chances closed the week at 56%.

COMEX GC open interest rose +2,083 contracts.

Silver rose +0.34 [+2.14%] to 16.45 on the week, with most of the gains happening on Friday. Silver was fairly lackluster on the other 4 days, looking as though it might actually reverse on Thursday, but Friday's strong move eliminated that concern.   Silver is coming up on 16.60 resistance; gold has already plowed through its resistance area, and now its silver's turn.  Forecaster ended the week at +0.35 which is a reasonably strong uptrend.

Silver's weekly forecaster is now in a strong uptrend (+0.37), but while the December monthly has improved (+0.09 to -0.13), it remains in a downtrend.

The gold/silver ratio fell -0.36 to 77.76, which is bullish.

COMEX SI open interest fell -4,574 contracts.

Miners did fairly well all week, managing to rise even on day when silver was looking iffy. Both GDX and GDXJ have managed to close back above both the 50 and 200 MA lines, with GDXJ executing a clear breakout above the November high. When the juniors lead like this, it is good news for PM overall. Having said all that – the XAU forecaster retreated on Friday, and closed the week at just +0.06, which suggests that the miner rally might be running out of steam. The XAU RSI-7 is currently at 83, which is definitely overbought.

On the weekly charts, XAU issued a buy signal, and while the monthly forecaster is improving (+0.06 to -0.05), it remains in a downtrend.

The GDX:$GOLD ratio rose +3.18%, and the GDXJ:GDX ratio climbed +1.61%. That's all quite bullish. SIL:GDX fell -1.38%, which says that the silver miners are still working at putting in a low. In fact, SIL:GDX fell this whole week.

USD

The buck fell -0.56 [-0.59%] to 92.92, making a new low. In spite of the separatist win in Catalonia, which should theoretically have helped tank the Euro, the buck just can't find many buyers right now. Certainly the tax reform passage seemed dollar negative. Perhaps the answer to the puzzle lies in the bond market – perhaps the money fleeing the bond market was foreign money front-running January's 30 billion dollar “Fed balance sheet normalization” program. The buck ended the week with a whimper – a short black/NR7 candle because of a very narrow trading range. The daily forecaster is unsure as to direction, ending the week at -0.06. Weekly buck forecaster is down (-0.21), while the interim Dec monthly is up (+0.26). On the monthly chart, the buck seems to show strong support at 92.50, at least on a monthly closing basis anyway.

US Equities/SPX

SPX rose +7.53 [+0.28%] to 2683.34. After breaking higher on Monday, SPX slid slowly downhill all week. All the juice from the tax cut lemon has already been squeezed out. Forecaster isn't happy, ending the week at -0.47, in spite of the new high. From what I could tell, the forecaster didn't like what was happening with the utilities, or long rates. It will be interesting if this (presumably historical relationship) proves out in the coming weeks.

Weekly and monthly charts both show SPX remains in an uptrend.

Although SPX didn't move much, there was a big rotation – apparently out of utilities (which were crushed) and into energy, which broke out to new highs. It seems that the market is betting that the oil glut is coming to an end sooner rather than later. The XLU:XLE ratio topped out in August – it was a 10 year high. If we bet on a reversion to the mean, XLU:XLE has another 20-30% drop before it gets back to its usual range. That won't be any fun at all if you own utilities.

VIX rose +0.48 to 9.90.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 4.73% -5.82% rising rising rising rising ema9 on 2017-12-18 2017-12-22
Gold Miners GDX 4.09% 20.03% rising falling rising falling ma200 on 2017-12-22 2017-12-22
Materials XLB 2.13% 20.27% rising rising rising rising ema9 on 2017-12-18 2017-12-22
Homebuilders XHB 2.01% 28.53% rising rising rising rising ema9 on 2017-12-15 2017-12-22
Industrials XLI 1.18% 19.82% rising rising rising rising ma50 on 2017-11-27 2017-12-22
Cons Discretionary XLY 1.03% 19.79% rising rising rising rising ema9 on 2017-11-03 2017-12-22
Financials XLF 0.86% 19.16% rising rising rising rising ema9 on 2017-12-15 2017-12-22
Telecom XTL 0.63% -1.27% falling falling falling falling ema9 on 2017-12-22 2017-12-22
Cons Staples XLP -0.02% 9.45% rising rising rising rising ma200 on 2017-11-28 2017-12-22
Technology XLK -0.03% 31.93% rising rising rising rising ema9 on 2017-12-07 2017-12-22
Healthcare XLV -0.96% 20.26% falling rising rising falling ema9 on 2017-12-20 2017-12-22
REIT RWR -2.33% 1.16% falling falling rising falling ma200 on 2017-12-20 2017-12-22
Utilities XLU -4.67% 7.88% falling falling rising falling ma200 on 2017-12-19 2017-12-22

Gold in Other Currencies

Gold rallied in all currencies, rising +18.14 in XDR.

Rates & Commodities

TLT was hammered this week, dropping -2.79% with all the losses coming Monday-Wednesday. TLT is in a downtrend, but the strong back and forth moves in the long bond means the trend-following forecaster isn't providing us any useful signals. TY looks a lot less volatile, but it too dropped -0.75% on the week. The TY forecaster (-0.73) remains in a downtrend, as are the weekly and monthly forecasters.

JNK fell -0.19%, taking a large loss on Tuesday but then bouncing back to end the week, eventually printing a swing low on Friday. Forecaster issued a buy signal Friday. As with TLT, there is a lot of back and forth on the daily chart. The weekly and monthly BAA yield charts both remain in downtrends; that's a JNK uptrend, because when yields go up, bond prices go down. No scary credit signals yet from JNK.

CRB rose +1.82%, with 4 of 5 sectors rising. CRB is back above its 50 MA, which is a bullish sign. Like last week, industrial metals led (+3.82%), with copper at a new multi-year weekly closing high.

Crude rose +0.98 [+1.71%] to 58.36, moving steadily higher, rising 4 days out of 5. Forecaster issued a buy signal on Monday, but Friday it saw something it didn't like, falling -0.12 to +0.08. Candle print was just a short white bullish continuation, so no problems there. EIA report was bullish (crude -6.5m, gasoline +1.2m, distillates +0.8m) and the market had a mildly positive reaction to that release. The big news from the oil industry came from Total, which announced it would start drilling offshore in Brazil, where (“technical”) costs were estimated to be below $20/bbl. At least – that's the only news I saw that I felt might have been responsible for the heavy buying in energy equities. Certainly the moves in oil prices were just slow and steady rather than explosive. Weekly forecaster was at +0.10, while the monthly is still forecasting a top, at -0.23. Historically, crude has done poorly when it is at or near yearly highs, which is where it is right now.

Then again, it also looks poised to break out.  I think it could go either way.

Physical Supply Indicators

* SGE premiums over COMEX are at +9.04.

* The GLD ETF tonnage on hand fell -6.79 tons, with 837 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.37 -0.63% to NAV [up]
 PSLV 6.09 -1.73% to NAV [down]
 CEF 13.05 -1.3% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) is at a slight discount for gold and a slight premium for silver.

* Big bars premiums were: gold [1kg] 1.02% and silver [1000oz] 2.74%.

Futures Positioning/COT

In gold, the changes were small: commercial net position fell 8.7k contracts, with 9.2 shorts added, and 496 longs added also.  Commercial longs are at a 2-year high, which could be a sign of a low.  Managed money net position rose by 5k, with 11.5k shorts closed, as well as 6.5k longs sold.  The current managed money long position is also at multi-year lows, which could support a bullish reversal - pretty much what we're seeing now.  Managed money longs have (largely) all been rinsed out at this point, but there are still a lot of commercial shorts still in place.

In silver, the changes were proportionally larger: the commercial net position rose by 6.2k, which is a high going back to mid-2015.  There were 4.9k shorts covered, as well as 1.3k longs purchased.  This is a multi-year high for silver longs too.  Managed money net dropped 8.7k, which is a multi-year net low position for managed money dating back to mid-2015 also.  Managed money added 8k shorts, and sold 577 longs.  While the shorts aren't quite a record, the low level of longs dates back to late 2015.

It feels likely that we've got lows in both metals - even if the commercials have a few more shorts in place that I'd really like to see.  The number of commercial longs is especially interesting.

In platinum, commercials have a record number of longs in place, and managed money has a record number of shorts.  That unwind should be pretty interesting too.

Gold Manipulation Report

There were no after-hours spikes in PM this week.

Grey Swan Status

  • Italian Elections: anti-Euro M5S (27.8%) is leading vs the PD (24.55%). A combination of FI + LN (both semi-anti-Euro parties) are at 29.67%.

  • Hints became stronger this week as to the date of the Italian election: either March 4, or March 11. That's just 10 weeks away.  Will the EU be able to stage a coup to depose Berlusconi a second time?  Something tells me that trick will only work once.  https://www.bloomberg.com/news/articles/2017-12-19/italy-s-president-paves-way-for-national-elections-in-early-2018

  • In Germany, SPD and CDU will engage in “exploratory talks” about forming a government starting January 7th and ending January 12th. Even if agreement is reached there, its not likely a new government will be in place until March at the earliest. Forming a government is a complicated process. http://www.dw.com/en/angela-merkels-conservatives-to-hold-exploratory-grand-coalition-talks-with-social-democrats-in-january/a-41877897

  • Catalonia regional elections resulted in a victory by the separatists, with voter participation at an incredible 82%, a new record. Parliament will be controlled by the separatists, although they did not win an absolute majority of the popular vote. Rajoy's PP lost 7 out of 11 seats. The turnout numbers make it really clear that the people of the region on both sides care deeply about the issue. Rajoy rejected an offer to sit down and discuss the issues (outside Spain) by the previous (and perhaps new) President-in-exile Puigdemont. Asia Times had an article that did a good job summarizing the broader implications for Europe: nationalism is back, for a variety of reasons, and the EU is very poorly structured to deal with the resurgence.  Hint: requiring unanimity to act = one country can veto any action. http://www.atimes.com/article/catalan-elections-ghosts-wont-go-away/

  • Mueller Investigation: nothing new this week.

Summary

On a relatively quiet pre-holiday trading week, PM followed through on last week's rally, with the mining shares leading the sector higher. Copper had another great week, managing to end on a multi-year closing high. A falling buck helped contribute some momentum, and an overall commodity rally did its part to help PM move higher also.

Gold and silver big bar shortage indicators are showing no sign of shortage; premiums on big-bar gold and silver are normal, GLD tonnage fell, whle ETF discounts were mixed. Shanghai premiums remain moderate.

The COT report turned more bullish this week; while there are a fair number of commercial shorts still in place, the recent "rinse" cycle has quite successfully convinced more than enough managed money longs to bail out to mark a low.  We're back to mid-2015 numbers.  This clears the deck for a rally.  Managed money belatedly coming back in long will provide the fuel.

This bullish setup is just in time for the elections in Italy, while Germany struggles to form a government, while the EU mulls removing Poland's right to vote (although any other single EU member can veto this punishment - with Hungary already volunteering that it will do so), and Catalonia having voted their separatists back into power with an astonishingly high turnout - on a weekday even.

Gold and silver might not immediately head for the stars, but I suspect it will take off relatively soon.  That's the setup, both geopolitically, and what the technical COT report is saying too.

It probably doesn't hurt that a bit of air has come out of the bitcoin balloon too.  All these new buyers have now been able to experience the Mr. Hyde side of bitcoin.  It's not all Dr. Jekyll.

There's really not much on the economic calendar for next week; Monday is Christmas, and the rest of the week looks pretty empty of economic-report excitement, and after that we'll be in 2018.

The miners are starting to look a little bit extended. That's something to watch.

Forecasting code – weekly – says:

Uptrend: miners, crude, silver, copper, SPX.

Downtrend: gold, 10-year treasuries, BAA bond yields, USD.

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5 Comments

rl's picture
rl
Status: Bronze Member (Offline)
Joined: Feb 9 2009
Posts: 42
Technical analysis for Gold prices in the short and medium term
Technical analysis for Gold prices in the short and medium term
 
Expects the price to rise in Jan, Feb, March 2018
 
Minimum:  $1470 USD
 
Do take a look
 
 
rl's picture
rl
Status: Bronze Member (Offline)
Joined: Feb 9 2009
Posts: 42
Technical analysis for Gold prices in the short and medium term
Technical analysis for Gold prices in the short and medium term
 
Expects the price to rise in Jan, Feb, March 2018
 
Minimum:  $1470 USD
 
Do take a look
 
 
rl's picture
rl
Status: Bronze Member (Offline)
Joined: Feb 9 2009
Posts: 42
"Post" button

It would be more intuitive to have a button labeled, "Post", instead of save.   Ciao

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5068
btc update

Looks like bitcoin may be back into an uptrend - at least for now.  First of all, the 4h forecaster is well into uptrend territory, and second because my Mk 1 eyeball sees a double bottom pattern, which is typically a fairly strong bullish reversal - as long as it can break through the red resistance line just below 16k.

Looks like 13k is the rough support level at the lower end, with 16k is shorter-term resistance, and stronger resistance at 20k.

I've been working at integrating some new inputs for the bitcoin forecaster.  It is looking reasonably good at this point.  You can see it now has a less-pleasant headfake on the buy just after the top, but in compensation, it did do fairly well on the recent lows, getting you back in before the pop to the high 15s.

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 691
nice to see an objective chart

nice to see an objective chart.  All the hype about BTC going to zero or $40K doesn't help anyone interested in trading/investing in BTC.

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