PM Daily Market Commentary - 1/23/2018

davefairtex
By davefairtex on Wed, Jan 24, 2018 - 4:00am

Gold rose +7.60 [+0.57%] to 1341.00 on very heavy volume, while silver moved up +0.04 [+0.21%] to 17.05 on heavy volume. Silver was pounded with a prime-time spike assault at 9:00 am, but buyers eventually pulled prices back to even and a little bit more. The afternoon rally in the metals took gold to a new closing high. It probably helped that the buck closed below 90 for the first time since December 2014.

Gold was pulled lower by the spike assault on silver at 9 am, but gold rapidly recovered. In the afternoon, buyers really decided to pile in, and gold shot to new highs, maintaining the gains right into the close. Gold forecaster jumped +0.32 to +0.44; looks like the buy signal from yesterday was on the money.

COMEX GC open interest rose by +10,295 contracts today. Looks like the commercials are back to going short again.

Rate rise chances (March 2018) remains at 73%.

Silver was shellacked during the 9am assault – I didn't see a reason for it (i.e. there was nothing else that got hit at roughly the same time) and it had the usual very large number of contracts traded over a very short amount of time. Unlike gold, silver's rebound was fairly tentative, and it took until the afternoon rally before silver pulled back to even. Silver's candle print was a takuri line, which had a 49% chance of being a bullish reversal. Forecaster agreed, rising +0.16 to +0.06, which is a buy signal for silver. However when comparing what silver did with at the rest of PM, silver continues to look weak.

COMEX SI open interest rose +121 contracts today.

The gold/silver ratio rose +0.28 to 78.67. That's bearish.

The miners plunged at the open because of the 9am assault, but buyers showed up almost immediately pulling miner prices back to even, and the afternoon rally lit a small fire under the shares, driving them even higher. GDX closed up +1.64% on heavy volume, while GDXJ rose +1.51% on heavy volume also. XAU forecaster rose +0.36 to +0.65, which is a strong uptrend. The surprising XAU buy signal from yesterday turned out to be correct.

Today, the GDXJ:GDX ratio fell slightly, while the GDX:$GOLD ratio rose. That's somewhat bullish.

Platinum rose +1.12%, palladium fell -0.53%, while copper plunged -2.56%. The drop in copper was dramatic – it started in Asia, and pretty much didn't stop until mid-day in the US. Copper closed near its lows for the day. Copper forecaster issued a sell signal and plunged -0.73 to -0.67 – just a little bit late on that sell signal.

The buck dropped -0.29 [-0.32%] to 89.80, which is a new closing low for the buck. The Euro made a new high to 123.00, up +0.32%. DX forecaster dropped -0.02 to -0.37; the buck remains in a downtrend.

Crude rose +0.53 [+0.83%] to 64.47. It actually was much stronger than that during the day, but the API report after market close was bearish: (crude +4.8m, gasoline +4.1m, distillates -1.3m), and that chopped 40 cents off the rally for the day. Still, crude is looking strong; forecaster moved up +0.18 to +0.31. The buy signal from yesterday seems to have been correct.

SPX rose +6.16 [+0.22%] to 2839.13, another new all time high. Today, utilities led (XLU:+0.96%) along with cyclicals (XLY:+0.84%), while sickcare trailed (XLV:-0.48%). This looked like a somewhat-bearish sector rotation to me. After an 8-week 13% decline, is this the low for utilities? Downside momentum does seem to be slowing down.

VIX rose +0.07 to 11.10.

TLT rose +0.43%, printing a 3-candle swing low. Forecaster issued a buy signal, rising +0.54 to +0.14. TY also rallied, up +0.25%, printing a swing low (64% bullish reversal). TY forecaster rose +0.38 to -0.33. TY is not out of the woods yet, but this was the best performance by TY in a month. We could be looking at an interim low for bonds, however TY still has a ways to go before we see a buy signal.

JNK rose +0.30%, which caused the forecaster to issue a buy signal (a little tardily), rising +0.46 to +0.33. JNK is adding its vote to the “bond reversal” theme for the day.

CRB rose +0.37% to 196.94. Commodities are slowly grinding through 195 resistance. 3 of 5 sectors rose, led by energy (+1.43%). The big move in the energy space today wasn't crude, it was natgas, which broke out to new highs, had a very large intraday trading range, ending up +5.65%. At one point it was up more than 9%. I suspect some amount of the move today was short covering on the breakout. Natgas is up 32% over the past 5 weeks.

The commodity rally continues, it looks as though bonds may be ready to reverse, and equities seem to find a new reason every day to rise. While you might be tempted to go short “because prices are really high” that is generally thought to be a risky strategy, since overbought today can just become even more overbought tomorrow. We saw that in bitcoin with that famous human drive: fear of missing out. Its probably wisest to watch for some sign of weakness before jumping in short.

Gold sure seems to have buyers here at 1340. Silver remains the poor stepchild, and copper is looking a bit worrisome; copper and silver tend to be fairly closely correlated. After a 1-week rest, crude looks fully prepared to break out once more.

The story remains intact. The falling dollar along with rising commodity prices are supporting gold's move higher. The buck is down 4.6% (from 94 to 89.80) over the past six weeks. Over that same timeframe, gold is up 8.1% (from 1240 to 1341). That tells us that more than half of gold's move was just about currency.

The good news is, the dropping dollar makes it very difficult for the commercials (or anyone else) to have their way with the metals.  Today's spike assault "should have" caused problems for silver, but it didn't work out that way.  Did the drop below 90 spur the PM buying in the afternoon in the US?  They weren't directly connected, but the drop through 90 might well have encouraged managed money to dump a bunch more money into the PM sector.

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7 Comments

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

Good moves today in gold, especially silver.  Probably mostly a currency effect with the buck down big.  Dave probably won't like that very much in his report.  Still, nice to see $1350 eclipsed for a little while.  GDX and GDXJ both up about a percent and a half/two percent.  Not terrible.  Would be good to start to see some of those +5% days again, though.  Probably setting up for a pullback in gold/silver before too long.

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

Yeah the buck really hit the skids today, and so did bonds.  I agree, silver did great today - that could be because of copper's influence.  Copper simply went nuts, wiping out yesterday's big plunge and then some.  It really was a huge move.  Natgas yesterday, copper today.

As long as silver closes above 17.40 I'll be a happy man.

The commercials are pretty much powerless to hose the metals when the buck is moving lower, even though all of what gold has done today was just about currency.  (I.e. gold in Euros moved very little).

Its funny that Draghi is allowed to jawbone the Euro lower, and that's ok, but when the US (Mnuchin) does this, somehow it's a big no-no.

I do expect it weakens the enthusiasm of those who are thinking of owning USD as forex reserves, which will in turn probably raise US long rates.  (Who wants to own bonds in a depreciating currency)

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5584
panic buy?

In fact, it almost looks as though traders are panic-buying gold because of the plunge in the buck, which continues to move lower. 

"Holy crap Trump & crew really aren't kidding about pushing the dollar lower to help trade."  (Kinda like the rest of the world does, only this time its the US doing it.)

You want to get in front of that train?  No thanks.  The only thing that derails it would be some excitement in the Eurozone.  Commercials and their shenanigans don't have a chance.  All they can do is slow the train down.

A close for silver above 17.50 resistance (which I never dreamed would get challenged today) would be very bullish.

Still, that forecaster did say buy, didn't it?

 

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

Good post, Dave.  Silver is up over 4%.  That's impressive.  Buck isn't too far away from an 88 handle.  Miner ETFs up nearly 3%.

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

Nice day for the metals, no doubt.  GDX/GDXJ finished up about 2%, which is better than a sharp stick in the eye.  Not all that crazy about the close, given the performance of gold/silver.  Maybe they play catch-up in a big way if the metals continue moving forward.  Or maybe they're telling us something.

Brunel's picture
Brunel
Status: Bronze Member (Offline)
Joined: Jul 26 2015
Posts: 33
Dollar pricing

Priced in euro or sterling there doesn't seem to be much upward movement, so I guess the euphoria is mainly due to the plunge in the dollar.  I'll start taking notice when there's a perceptible price rise across the board - or maybe this is the first step as one invariably follows the other.  In the meantime, whenever I hear "trade war" all I get is "beggar thy neighbour" and "race to the bottom".

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

Yes, gold's movement is all about currency right now.  Silver, on the other hand, is shooting higher possibly because of copper, as well as because the overall commodity complex is breaking higher too.  When silver outperforms gold to this extent, its a good sign for PM.  If it continues, it should pull gold higher too.

Part of the reason gold didn't rally more today was a large increase in COMEX gold open interest, which I interpret to mean the commercials were going heavily short.  This behavior caps price moves.  Gold "would have done better" if not for all the new OI.

As for trade wars - trade isn't always some universally good thing.  Trade (and globalization) always has winners and losers.  Do you pick workers in your country, or consumers?  China picks its workers, while the US has picked consumers (and rich people) as winners for the last 30 years, and as a result it has shipped most of its manufacturing jobs overseas.  As a direct result of this policy, US working-class people have low wages and few benefits, while US consumers (and shareholders, and the upper 10%) reap the benefits in lower-cost goods.  This choice of winners & losers drives wealth inequality in a way that tax policy cannot possibly fix.

That situation got Trump elected.  Limiting immigration and a more pro-domestic-worker trade policy will result in time in higher wages for US workers at the expense of the US consumer.  There is nothing free, after all, but in my view the US blue collar workers have been unduly hosed for way too long.

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