PM End of Week Market Commentary - 1/12/2018

davefairtex
By davefairtex on Sat, Jan 13, 2018 - 9:25am

On Friday gold rose +15.30 [+1.16%] to 1338.30 on very heavy volume, and silver climbed +0.25 [+1.44%] to 17.25 on heavy volume. Friday's PM move was all about currency; the Euro shot higher, rising +1.36%, breaking out to a new high on the news that the SPD had agreed to form a government with Merkel. This caused the buck to break support, eventually closing down -0.87 [-0.95%] to 90.67, which is a new multi-year low.

The PM sector map ended the week mostly in the green, with only copper below its 9 MA. However, the relative ratios were not bullish; gold led silver, and the senior miners led the juniors, and that's the opposite of what we'd like to see. Palladium and platinum both did quite well. That's a curious thing to me; on the way down, platinum did worst, and now on the way up, platinum is rising seemingly without a care in the world. Is platinum the tell for the trend? Maybe it is.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 2.99% -6.04% rising rising falling rising ema9 on 2018-01-10 2018-01-12
Palladium $PALL 2.97% 47.39% rising rising rising rising ema9 on 2017-12-07 2018-01-12
Platinum $PLAT 2.44% 1.89% rising rising rising rising ma200 on 2018-01-02 2018-01-12
Senior Miners GDX 1.44% 6.15% rising rising rising rising ema9 on 2018-01-11 2018-01-12
Gold $GOLD 1.36% 11.98% rising rising rising rising ma50 on 2017-12-22 2018-01-12
Junior Miners GDXJ 1.33% -4.46% rising rising falling rising ma200 on 2018-01-12 2018-01-12
Silver $SILVER -0.09% 2.65% rising rising falling rising ema9 on 2018-01-12 2018-01-12
Copper $COPPER -0.26% 20.82% falling rising rising falling ema9 on 2018-01-05 2018-01-12

Gold rose +18.00 [+1.36%], spending the first part of the week correcting, and then rallying on Thursday and Friday, breaking out to new highs. Mostly that was about currency; the buck was off -1.06% on the week, all of the move happening on Thursday and Friday, and this accounted for much of gold's move higher. Gold's forecaster ended the week at +0.30, which is an uptrend. Weekly and monthly forecasters are both in uptrends.

The March rate-increase chances closed the week at 73%.

COMEX GC open interest rose +24,667 contracts this week.

Silver fell -0.02 [-0.09%] to 17.25, correcting on Monday and Tuesday, and then getting almost all of it back Friday. Silver is seriously underperforming gold – you can see that gold broke out sharply, while silver remains below resistance. Silver's forecaster issued a buy signal on Friday after the rally, ending the week at +0.02. The weekly forecaster issued a sell signal, while the monthly remains in a downtrend. Silver isn't looking very strong at all.

The gold/silver ratio rose +1.11 to 77.61, which is bearish.

COMEX SI open interest rose +6,372 contracts – 990 tons of paper silver.

Like gold, the miners sold off on Monday and Tuesday, and then spent the rest of the week moving higher. However, the juniors are lagging the seniors – GDX broke out to new highs on Friday, while the junior miners have yet to do so. XAU forecaster closed the week at +0.29, which is an uptrend.

On the weekly charts, XAU remains in an uptrend (+0.41), while the monthly forecaster remains in a downtrend (-0.09).

The GDX:$GOLD ratio rose +0.48%, while the GDXJ:GDX ratio fell -0.10%. Looks slightly more bullish than bearish.

USD

As mentioned, the buck fell -0.97 [-1.06%] to 90.67. The buck rallied for the first two days, and then sank for the next three, making a new multi-year low on Friday. The dollar breakdown took the buck into dangerous territory – there is a whole lot of air underneath 91 on the chart. Forecaster ended the week at -0.66, which is a strong downtrend. The dollar is also in a downtrend on the weekly and monthly timeframes.

 

This week it was all about the Euro, which is doing well not only because of the positive signs of a government in Germany, but also because traders just realized that the EU has returned to a pre-2008 level of bank credit growth – right now it is 5.14% y/y. I haven't been following the chart, but when I looked at it, the Euro rally made sense. Credit growth = economic growth. Finally after 8 years, Draghi has what he was looking for. By comparison, US credit growth is around 3.7%, and falling.

US Equities/SPX

SPX rose +43.09 [+1.57%] to 2786.24, moving higher 4 days out of 5, with Friday making yet another all time closing high. While the candle code believes that the white marubozu candle on Friday might be a reversal (45%), it has been saying that for a while now, and no reversal. I'm going with the forecaster, which ended the week at +0.58, which is a reasonably strong uptrend.

The sector map looked bullish – industrials, energy, and consumer discretionary led, while the high-yielding utilities and REITs trailed. The concern over inflation trade continues.

VIX rose +0.94 to 10.16.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Industrials XLI 3.29% 27.29% rising rising rising rising ma50 on 2017-11-27 2018-01-12
Energy XLE 3.27% 3.78% rising rising rising rising ema9 on 2017-12-18 2018-01-12
Cons Discretionary XLY 3.19% 25.56% rising rising rising rising ema9 on 2018-01-02 2018-01-12
Financials XLF 2.89% 25.02% rising rising rising rising ema9 on 2018-01-03 2018-01-12
Healthcare XLV 1.84% 22.54% rising rising rising rising ema9 on 2018-01-02 2018-01-12
Homebuilders XHB 1.74% 35.12% rising rising rising rising ema9 on 2017-12-15 2018-01-12
Gold Miners GDX 1.44% 6.15% rising rising rising rising ema9 on 2018-01-11 2018-01-12
Telecom XTL 1.29% 1.08% rising rising rising rising ema9 on 2018-01-11 2018-01-12
Materials XLB 0.84% 24.42% rising rising rising rising ema9 on 2017-12-18 2018-01-12
Technology XLK 0.77% 34.94% rising rising rising falling ema9 on 2018-01-02 2018-01-12
Cons Staples XLP -0.49% 10.02% falling rising rising rising ema9 on 2018-01-10 2018-01-12
Utilities XLU -2.08% 3.46% falling falling rising falling ma200 on 2017-12-21 2018-01-12
REIT RWR -2.98% -4.52% falling falling falling falling ma200 on 2018-01-04 2018-01-12

Gold in Other Currencies

Gold rallied in most currencies, moving up +8.12 in XDR, but actually falling in Euros and Yen.  This underscores how important currency was in gold's USD rally this week.

Rates & Commodities

TLT fell -0.95% this week, plunging on Monday and Tuesday, and recovering for the rest of the week. Forecaster is at -0.18, which still shows TLT in a downtrend. TY fared worse – it fell for two days, and then chopped sideways for the rest of the week, closing down -0.46%. TY forecaster remains in a downtrend too, at -0.62. Candle print for TY was a high wave, which has a 60% chance of being a reversal. TY remains in a downtrend in the weekly and monthly timeframes – it is right at a multi-year low dating back to 2014. Since utility stocks continue to plunge (down 5 weeks out of 6), I take that as a tell for where bonds are headed.

JNK fell -0.46%, with the losses coming Tuesday and Wednesday. JNK tried to bounce at end of week, but it looked fairly feeble. The forecaster ended the week down -0.31, which is a downtrend.

CRB rose +1.35%, managing to close above the important 195 level for the first time in a year. 4 of 5 sectors moved higher, led by energy (+3.55%). A convincing breakout above 195 (which is a resistance level that has held since late 2015) could bring in a lot more buyers into the commodity space.

Crude rallied strongly, up +2.78 [+4.51%] to 64.36, breaking to highs not seen since the big oil crash back in 2014. By breaking above the last bit of post-crash resistance at roughly 60, crude is now signaling that the oil glut is probably over. Russia is talking about the timing of its exit from the OPEC agreement, and North American rig counts are up +117 (mostly due to rapidly changing weather in Canada) and US rigs are up 280 y/y. How rapidly will shale production ramp higher now that prices are above $60? That's the big question.

Physical Supply Indicators

* SGE premiums over COMEX are at +11.24.

* The GLD ETF tonnage on hand fell -5.90, with 829 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.89 -0.59% to NAV [down]
 PSLV 6.45 -1.01% to NAV [down]
 CEF 13.68 -1.5% 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] 3.13%.

Futures Positioning/COT

Note that the report covers through Tuesday, 1/9 – which means that this week's rally wasn't included in the report.

In gold, the commercial net position fell 43k contracts, which is a large drop. Most of the change came from new shorts (-38k) but some from selling longs (-5k). Managed money net rose by 48k, with all of it being new long purchases. Managed money shorts are mostly gone. If next week is as strong as this week, we will be at or near a COT top for gold,

In silver, the commercial net fell by -13k; mostly that was new shorts (+10.2k) but some longs were sold too (-2.5k). Managed money net rose by +22k; it was more or less evenly split between new longs (+11.9k) and covered shorts (-10.4k). Another two weeks of this and silver will be at a COT top, at least where managed money is concerned.

Gold Manipulation Report

There were no after-hours spikes in PM this week – but a fair number of spikes during market hours that appeared designed to move prices lower.

Grey Swan Status

  • Italian Elections: Anti-Euro M5S (27.85%) is leading vs the PD (23.03%). A combination of FI + LN (both semi-anti-Euro parties) are at 29.45%. The PD continues to drop in the polls, while the FI rises. 6 more weeks until the elections.

  • SPD and Merkel's CDU have agreed on a template for a new government. The 28-page agreement is full of policy details. From the guardian: “It contains lots of policy detail on every front: pension guarantees, equalisation of employer and employee healthcare contributions, more spending on schools, tax breaks for lower earners, more police jobs, and an annual cap of 180-200,000 refugees allowed into Germany. There is also a pledge to embrace Emmanuel Macron’s eurozone reform.” Did you catch that refugee limit? I wonder what happened to family reunification. While the leadership signed off, it isn't a done deal until the rank & file vote on the agreement. https://www.theguardian.com/commentisfree/2018/jan/12/the-guardian-view-...

  • ECB meeting minutes released on Thursday were more hawkish than expected, talking about gradually shifting its stance to avoid a more disruptive move later. With credit growth approaching pre-2008 levels, its time to start thinking about taking away the punch bowl. https://www.reuters.com/article/us-global-forex/euro-soars-after-ecb-say...

  • Mueller Investigation: the rumor is that Mueller is seeking to interview Trump. Given Trump's tendency to embellish (or downright ignore) facts, this could be a problem.

Summary

Energy led commodities higher, while the plunging dollar/rising Euro assisted gold and the miners in breaking out to new highs. Bonds fell as did utilities, underlining the inflation-is-coming thesis that appears to be fairly widespread. Silver was the only PM component to remain in a downtrend at end of week.

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. Shanghai remains in premium; there's a gold shortage in China anyway.

The gold COT report saw a fairly large increase in commercial shorts; once again, this week's rally in gold was driven by managed money going long. Gold has another week at this pace. Silver's change in COT positioning was fairly strong too, perhaps 2 more weeks remain until we get a COT top for silver.

We should not underestimate the impact of bank credit growth in the EU; if it continues, money will probably continue to flow back to the continent. That suggests lower prices for the buck. What's more, this sort of bank credit growth is usually inflationary, so that will underscore the inflation thesis. If the ECB does taper, what will that do to bond prices in Europe?

It seems as though the economic fundamentals are lined up behind a Euro rally right now.  That should be supportive of higher gold prices.  How will the Italian election play into all that?  That's the big unknown.

Forecasting code – weekly – says:

Uptrend: gold, crude, miners, SPX.

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

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4 Comments

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 155
Euro Crisis Monitor

Dave,

thanks for the EU bank credit growth graph - very interesting. 

I know that the Euro is strong right now, but this seems unfounded IMO given all of the risks and challenges faced by the Eurozone. Do you track this indicator?: http://www.eurocrisismonitor.com/

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5584
target2 balances

I don't track it, but I do think it's a great measuring stick for capital flight within the zone.  Something to add to my list-o-things-to-watch. I'd be interested to see the chart represented as a percentage of the host nation's deposit base.  What percentage of that base has fled the country for - say - Germany?  Portugal doesn't really show up on the current chart - but would they, if it was GDP-based?  I suspect they would.

It might be really instructive for people living in those countries to know just how much money has already fled.

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 375
Markets

Unbelievable that it rallies 200 points every day now.  Looks like the top is in for PMs for a while.  Doggone Commercials! :)

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5584
silver spiked

Yeah silver was spiked earlier today - it was a 36 cent 1-minute bar!  You don't see those very often.  4300 contracts traded in that minute.  Bidders sure did appear down at 16.80 though - it didn't stay there for very long.

I just wish one of them could have been me.  Dammit!

It will be interesting to see where silver ends the day.  Platinum is back near its highs...perhaps it is the tell.  Miners also doing well.

 

It sure looks like Korea has figured out that they can jawbone bitcoin down.  Just a comment or two and bang - a 20% drop.

An official at PBOC wrote a memo that suggested a wider ban on crypto trading in China was in order.

https://www.coindesk.com/pboc-official-calls-for-wider-ban-on-chinese-crypto-trading-report/

Pan Gongsheng, vice governor of the central bank, said, to prevent market risk, the government would apply more strict regulation to end all cryptocurrency trading-related activities and services. The news comes via a Reuters report today, citing an internal memo reviewed by the news agency.

According to the report, Pan said in the memo that a wider ban should extend to services and activities including individual or institutional market-makers, centralized trading platforms, guarantors, or settlement providers like online cryptocurrency wallets.

Not policy yet, but its definitely a shot across the bows.  I think policy will follow soon.  This is "fair warning" - if you are Chinese - to bail out now while you still can.

Its interesting that "some bubbles are more equal than others."  Let's work hard to pop the bitcoin bubble, but - the debt bubble?  Housing bubble 2?  Stock market at all time highs?  Greek bonds trading under the US treasury?

 

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