PM End of Week Market Commentary - 1/5/2017

davefairtex
By davefairtex on Sun, Jan 7, 2018 - 12:25pm

On Friday gold fell -3.70 [-0.28%] to 1320.30 on heavy volume, while silver fell -0.01 [-0.06%] on heavy volume. The buck staged a somewhat feeble rally which mostly failed; it rose just +0.10%.  Nonfarm payrolls, while they caused a fair amount of volatility at the time of release, ultimately didn't change the direction of anything that I saw.

From the PM sector map viewpoint, the week was mostly bullish. Copper was the sole item that fell, dipping below its 9 MA on Friday. Almost all items are above their 200 MA lines, with silver miners being the exception. While platinum was the surprise winner, silver led gold, juniors led seniors, but the miners overall look relatively weak, coming in near the bottom of the pack. In spite of the map itself being almost all green, the miners at the bottom are a bearish sign.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum $PLAT 4.30% 0.34% rising rising rising rising ma200 on 2018-01-02 2018-01-05
Palladium $PALL 3.07% 46.94% rising rising rising rising ema9 on 2017-12-07 2018-01-05
Senior Miners GDX 1.85% 2.03% rising rising rising rising ma200 on 2017-12-22 2018-01-05
Silver $SILVER 1.62% 3.82% rising rising falling rising ma200 on 2017-12-29 2018-01-05
Gold $GOLD 1.16% 11.80% rising rising rising rising ma50 on 2017-12-22 2018-01-05
Junior Miners GDXJ 1.03% -7.06% rising rising falling rising ma200 on 2017-12-22 2018-01-05
Silver Miners SIL 0.43% -12.31% rising falling falling rising ma50 on 2017-12-20 2018-01-05
Copper $COPPER -1.91% 27.50% falling rising rising falling ema9 on 2018-01-05 2018-01-05

Gold rose +15.20 [+1.16%], moving higher on two out of four days. The pair of red candles this week are signs of selling pressure in gold; the spinning top candle on Friday was a bullish continuation, but the forecaster dropped to +0.06. A red candle Monday probably means a sell signal.

Gold is now in an uptrend on both the weekly and the monthly timeframes.

The March rate-increase chances closed the week at 67%, up 11% over last week. That was probably due to the somewhat hawkish-sounding commentary from the FOMC minutes.

COMEX GC open interest rose a massive +60,270 contracts this week. That's 187 tons of new paper gold – on top of the 90+ paper tons from last week.

Silver rose +0.28 [+1.62%] to 17.26 on the week, slightly better than gold, but running into resistance near the previous high 17.35. Candle print on Friday was a doji, which was a bullish continuation. Forecaster ended the week at +0.09, which is just slightly above stall speed - a bit better than gold, but not much.

The weekly SI forecaster remains in an uptrend (+0.14), while the monthly remains in a downtrend (-0.12).

The gold/silver ratio fell -0.17 to 76.49, which is bullish.

COMEX SI open interest fell -1,553 contracts.  The commercials aren't leaning on silver the way they're leaning on gold, it would appear.

Miners were weak again this week, with one strong rally day on Tuesday followed by three days chopping sideways. GDX printed a bearish harami, with a 57% chance of marking the top, while GDXJ's bearish harami was only a 32% chance. XAU forecaster issued a sell signal on Friday, ending the week at -0.15. Is this just another “rest” phase before miners jump to new highs, or does this mark the near term high?

On the weekly charts, XAU remains in an uptrend (+0.21), and while the monthly forecaster remains in a downtrend (-0.10).

The GDX:$GOLD ratio rose +0.48%, while the GDXJ:GDX ratio fell -0.81%. Looks more bearish than bullish, I'd say.

USD

The buck fell -0.18 [-0.20%] to 91.64, making a new low on Tuesday and then chopping sideways for the remainder of the week. The buck got a bit of a boost on Wednesday, but it is still uncomfortably close to the lows. The spinning top on Friday was a bearish continuation; the forecaster has moved up off the lows, but is still quite bearish at -0.53. Buck remains in a downtrend.

Weekly forecaster is also in a downtrend (-0.09) but it has improved somewhat, as is the monthly forecaster (-0.25).  The monthly chart looks especially concerning - there's a lot of air below the current price level.  If 91 support fails, the next stop is down around 80.  Gold would definitely scream higher if the buck went down that far - the commercials would be hard-pressed to keep a lid on things if that happened.

And here's that monthly chart I was talking about.  We're quite close to a serious dollar breakdown.

US Equities/SPX

SPX rose +69.54 [+2.60%] to 2743.15, a very strong rally that made four new all time highs in a row. Friday's closing white marubozu might be a top (42%) but I'm not so sure. Forecaster ended the week at +0.97, which is about as high as it gets. It was a very strong start to the year.

Sector map shows money flowing into commodity producers (energy, and basic materials) while money continues to flee yield (REITs, utilities). That all suggests inflation is coming.  Check out all the "red" in the high yielding sectors.

VIX rose -1.82 to 9.22.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Materials XLB 3.85% 24.30% rising rising rising rising ema9 on 2017-12-18 2018-01-05
Energy XLE 3.75% -1.12% rising rising rising rising ema9 on 2017-12-18 2018-01-05
Technology XLK 3.67% 35.20% rising rising rising rising ema9 on 2018-01-02 2018-01-05
Cons Discretionary XLY 3.13% 22.76% rising rising rising rising ema9 on 2018-01-02 2018-01-05
Healthcare XLV 3.11% 20.49% rising rising rising falling ema9 on 2018-01-02 2018-01-05
Homebuilders XHB 2.62% 31.61% rising rising rising rising ema9 on 2017-12-15 2018-01-05
Industrials XLI 2.58% 23.64% rising rising rising rising ma50 on 2017-11-27 2018-01-05
Telecom XTL 2.15% -1.62% rising rising falling rising ema9 on 2018-01-02 2018-01-05
Gold Miners GDX 1.85% 2.03% rising rising rising rising ma200 on 2017-12-22 2018-01-05
Financials XLF 1.79% 21.10% rising rising rising rising ema9 on 2018-01-03 2018-01-05
Cons Staples XLP 0.07% 9.33% rising rising rising rising ema9 on 2018-01-05 2018-01-05
REIT RWR -2.31% -3.75% falling falling rising falling ma200 on 2018-01-04 2018-01-05
Utilities XLU -2.56% 5.44% falling falling falling falling ma200 on 2017-12-19 2018-01-05

Gold in Other Currencies

Gold rallied in all currencies, rising +17.28 in XDR. After moving the chart's starting position forward a year, I notice that the GBP and JPY have diverged significantly from the rest of the group starting in about 2016. JPY has strengthened, while GBP has weakened.  Gold is a great denominator to assess relative currency performance.

Rates & Commodities

TLT fell -0.91% this week, losing about half of last week's rally. The back and forth chop is fairly intense, but take a step back and it appears that bonds are heading lower in fits and starts. TY is much calmer; it issued a sell signal on Tuesday, fell 3 days out of 4, and made a new low. It is right at support, and it doesn't look as though support will hold. I say that because of the strong selling going on in the utility space also.

JNK shot up +0.84%, with most of the move coming on Wednesday. JNK likes rising commodity prices, I think – in this way its more of a commodity creature than a bond. Risk on.

CRB fell -0.22%, taking a rest after last week's sharp move higher. 3 of 5 sectors fell, led by livestock (-1.25%). Industrial metals took a break after two very strong weeks. Copper is down 4 days out of 5, and its forecaster issued a sell signal on Friday. Commodity rally might be taking a break.

Crude rose +1.48 [+2.46%] to 61.58, breaking convincingly above 60 on Wednesday and then chopping sideways for the remainder of the week. The rally on Wednesday wasn't about the EIA report – which looked relatively bearish to me (crude -7.4m, gasoline +4.8m, distillates +8.9m). Maybe its Iranian protesters. Who knows. But the break above 60 sure got the energy equities all excited. North American rig counts rose 33; US rigs dropped 5, while Canadian rigs jumped 38.

Physical Supply Indicators

* SGE premiums over COMEX are at +9.04.

* The GLD ETF tonnage on hand fell -2.64, with 835 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.75 -0.41% to NAV [up]
 PSLV 6.47 -0.64% to NAV [up]
 CEF 13.05 -1.8% to NAV [up]

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

* Big bars premiums were: gold [1kg] 1.2% and silver [1000oz] 2.95%.

Futures Positioning/COT

In gold, the commercial net position fell 28k contracts, which is a moderate drop. Almost all were new shorts (27.7k) but a few longs (353) were sold also.  Its important to remember that the COT report didn't cover the last 3 days - the huge jump in gold open interest suggests that the commercials probably spent the rest of the week going heavily short. The commercial shorts are building towards a COT top in the next few weeks. Managed money net rose by 40.4k, with all of it new long buying (40.7k) with a token number shorts (252) added in. The gold rally was all about heavy buying by managed money.

In silver, the commercial net fell by -16.5k; the swing between COT high and low points is about 60k contracts, so that's a decent-sized (25%) move. Largely it was new shorts (9.9k) with some longs sold (6.5k) for good measure. Managed money net rose by 23k; mostly short covering (17.2k) with some long buying (5.8k) added in too. Managed money shorts are about 1/3 gone.  That suggests we get 2 more weeks of silver rally - assuming we don't correct here.

Gold Manipulation Report

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

Grey Swan Status

  • Italian Elections: Anti-Euro M5S (27.9%) is leading vs the PD (23.67%). A combination of FI + LN (both semi-anti-Euro parties) are at 29%. The PD continues to drop in the polls, while the FI rises. 8 more weeks until the elections.

  • Talks between the SPD and Merkel's CDU to form a government – some 100 days after the German elections in 2017 – have begun. Issues: immigration, “more Europe”, taxes, and healthcare. Media blackout for now, talks due to conclude Thursday. http://www.bbc.com/news/world-europe-42594246

  • Israel has migrants too; their solution: offering each migrant a choice: a $3500 cash payment (and a ticket home), or the prospect of indefinite detention after enforcement begins at the end of March. After March, the payment will decline. Israel has already deported 20,000 migrants. https://www.reuters.com/article/us-israel-migrants/israel-offers-to-pay-...

  • Migration to Italy fell from 181,000 in 2016 down to 119,000 in 2017. Over the past 4 years, 600,000 migrants have arrived in Italy.

  • Mueller Investigation: currently, it appears to be focusing on obstruction of justice rather than collusion. http://www.latimes.com/politics/la-na-pol-trump-probe-20180106-story.html

Summary

The overall commodity rally took a bit of a break this week, although commodity-related equities shot higher; it appears that commodity equities might be a new investment theme for 2018. “Stuff with a yield” such as bonds and utilities continued moving lower. The theme remains: inflation is coming, and the FOMC minutes release just seemed to underscore that notion, as did the Nonfarm Payrolls report which showed average hourly earnings up 3.6% annualized. While the buck edged lower, it does not seem ready to collapse just yet.

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, and ETF discounts fell too.

The gold COT report is showing a relatively rapid buildup in commercial shorts; this week's rally in gold was driven by managed money going long – and the increase in open interest was quite substantial: 187 tons of paper gold created, 42 tons of actual gold mined. That certainly helped cap the rally. Silver's increase wasn't nearly as substantial; perhaps its another 3 weeks to mark a COT top for silver. Silver's rally this week was mostly managed money covering short.

There's not much new out of the news flow right now. Germany is still in the process of forming a government 100 days after the 2016 election, Italy's elections are 8 weeks away, in the US “collusion” is turning into “obstruction of justice” (which would definitely result in a “second-place” award for Mueller, if that's the best he can do for the not-my-president group) – so far the gray swans are in a holding pattern.

Forecasting code – weekly – says:

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

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

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6 Comments

Miningjunkie's picture
Miningjunkie
Status: Member (Offline)
Joined: Nov 21 2011
Posts: 1
COT

Commercials moving to "hostile mode" but last top was from an aggregate short of 290,000 contracts and we are at 177,000 today. Market could rally for three more weeks if Large Specs continue to devour gold.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5284
agree

Yeah I agree with that basic math on the COT - we also agree that a critical question is, are there still enough managed money bucks out there to keep buying 40k contracts for the next 3 weeks?  Charts look a bit extended right now, I'm guessing we get a correction of some short.  But probably not a "COT top" as you say.  That's still maybe 3 weeks out at the current pace.

Of course if commodities keep moving up, and the buck cracks 91...then probably no correction.

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 705
and how about a bone tossed to the BTC junkies?

What, no 4-hr update on BTC? The junkies are craving a fix....

charles

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 138
"the gray swans are in a holding pattern"

Classic! Great work Dave.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5284
btc update

Well, its bad news, as we know.  China appears concerned over electricity consumption.  Among other things.

I've always thought the whole "burn electricity" model in bitcoin was going to cause scaling problems at some point.  "There's gotta be a better way."

PeakGold's picture
PeakGold
Status: Bronze Member (Offline)
Joined: Jun 3 2017
Posts: 78
I know it's "bad," but I

I know it's "bad," but I really do want those bitcoin ETFs to become available. 

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