PM End of Week Market Commentary - 1/26/2018

davefairtex
By davefairtex on Sat, Jan 27, 2018 - 9:46am

On Friday gold rose +1.80 [+0.13%] to 1348.70 on moderately heavy volume, and silver moved up +0.11 [+0.61%] to 17.39 on moderately light volume. The buck fell -0.37%, but that wasn't enough to convince gold to move much higher; gold seemed to be suffering from a bit of shock after Thursday's big sell-off.

Last week, the PM sector map was pointing at a correction. This week, 3 items remain below their 9 MA lines, which is troublesome, but gold, silver, and the miners moved higher. The junior miners look quite weak, while senior miners did best, which looks a bit like risk off. Silver is leading gold, so that's a positive sign. It's a mixed bag.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 2.96% 6.47% rising rising falling rising ema9 on 2018-01-19 2018-01-26
Silver $SILVER 2.14% 3.57% rising rising falling rising ema9 on 2018-01-24 2018-01-26
Gold $GOLD 1.31% 13.52% rising rising rising rising ma50 on 2017-12-22 2018-01-26
Junior Miners GDXJ 1.13% -3.76% falling rising falling rising ema9 on 2018-01-25 2018-01-26
Copper $COPPER 0.60% 20.19% falling rising rising falling ema9 on 2018-01-24 2018-01-26
Silver Miners SIL 0.12% -8.74% falling rising falling rising ema9 on 2018-01-25 2018-01-26
Platinum $PLAT -0.31% 3.34% rising rising rising rising ma200 on 2018-01-02 2018-01-26
Palladium $PALL -1.17% 50.07% falling rising rising rising ema9 on 2018-01-25 2018-01-26

Gold rose +17.50 [+1.31%], erasing last week's swing high and breaking out – briefly - above the previous high set back in September 2017. Given that the buck plunged -1.65%, it is clear that gold's rally to new highs was all about currency movement. Gold in Euros actually fell on the week. Gold's forecaster ended the week at +0.16, which is still an uptrend, but a fading one. The weekly and monthly forecasters are both in strong uptrends.

The March rate-increase chances rose to 77%.

COMEX GC open interest fell by -19,393 contracts this week.

Silver rose +0.37 [+2.14%] to 17.39, with all of the gains coming on the big breakout on Wednesday. Thursday silver retraced, Friday it bounced back a bit – however the forecaster issued a sell signal on Friday, ending the week at -0.08. That said, silver is now in an uptrend in both the weekly and monthly timeframes.  Silver's weekly issued a buy signal this week, but you can see that silver has yet to push above the September 2017 high, unlike gold which did this on Thursday.

The gold/silver ratio fell -0.63 to 77.56, which is bullish.

COMEX SI open interest rose +4,724 contracts.

The miners moved higher, but the juniors noticeably lagged the seniors, with all the damage happening to the juniors on Thursday's big selloff. You can see the difference by looking at the moving averages: GDX remains above its 9 MA, while GDXJ has now fallen below it. XAU forecaster issued a sell signal on Friday, ending the week at -0.05. Longer term forecasters remain split; monthly remains in a downtrend, while the weekly is in an uptrend.

The GDX:$GOLD ratio rose +1.63%, while the GDXJ:GDX ratio fell -1.77%. That's neutral.

USD

The buck had a terrible week, dropping -1.49 [-1.65%] to 88.78, falling hard through round number 90. The big move of the week came on Wednesday, when Treasury Secretary Mnuchin suggested that a weak dollar was good for US exporters – and the market inferred from this commment that the US now had an explicit weak dollar policy, and promptly dropped a full point. Thursday saw a possible reversal bar after Trump walked that comment back, but Friday didn't confirm the reversal. The forecaster ended the week at -0.52, which remains a strong downtrend. Both weekly and monthly DX forecasters are in downtrends.

US Equities/SPX

SPX rose +62.57 [+2.23%] to 2872.87, ending the week with yet another all time closing high, with half the gains coming on Friday's big rally. The forecaster ended the week at +0.54, which is only slightly lower than where it was last week. SPX remains in a strong uptrend in all 3 timeframes.

The sector map was led by sickcare – the Republicans in the Senate have been working hard behind closed doors to “fix” the healthcare system, and the bill is about to be unveiled. I'm guessing from the rally that the market has sniffed out that “the fix” will have the same set of winners and losers we've seen over the past 20 years. Obamacare, Trumpcare, Republican-Senatecare, they all come up with the same answer: more money for their donors, paid for by us. https://www.reuters.com/article/usa-healthcare-stocks/u-s-healthcare-stocks-rally-as-senate-set-to-unveil-bill-idUSL1N1JI12E

Apart from my annoyance at sickcare, the sector map looked mostly bullish, with financials and discretionary doing well. Utilities were also strong; they just might have put in a low this week.

VIX fell -0.19 to 11.08.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Healthcare XLV 3.51% 32.32% rising rising rising rising ema9 on 2018-01-02 2018-01-26
Cons Discretionary XLY 3.22% 27.74% rising rising rising rising ema9 on 2018-01-02 2018-01-26
Gold Miners GDX 2.96% 6.47% rising rising falling rising ema9 on 2018-01-19 2018-01-26
Financials XLF 2.13% 27.09% rising rising rising rising ema9 on 2018-01-03 2018-01-26
Utilities XLU 2.10% 5.45% rising falling falling falling ema9 on 2018-01-25 2018-01-26
Technology XLK 2.05% 36.90% rising rising rising rising ema9 on 2018-01-02 2018-01-26
Energy XLE 1.48% 3.33% rising rising rising rising ema9 on 2018-01-26 2018-01-26
REIT RWR 1.37% -3.35% rising falling falling falling ema9 on 2018-01-22 2018-01-26
Materials XLB 1.28% 20.92% rising rising rising rising ema9 on 2018-01-19 2018-01-26
Industrials XLI 1.22% 24.98% rising rising rising rising ema9 on 2018-01-25 2018-01-26
Cons Staples XLP 1.17% 11.47% rising rising rising rising ema9 on 2018-01-16 2018-01-26
Telecom XTL 0.57% -1.25% falling rising rising rising ema9 on 2018-01-26 2018-01-26
Homebuilders XHB -0.58% 30.49% rising rising rising rising ema9 on 2018-01-25 2018-01-26

Gold in Other Currencies

Gold was mixed this week, rising +5.79 in XDR, dropping -4.96 in Euro, while rising +17.50 in USD.

Rates & Commodities

TLT rose +0.43% this week, printing a swing low on Thursday and only retreating somewhat on Friday. TLT forecaster ended the week looking quite bullish, at + 0.57, which is a strong uptrend. TY ended the week down -0.07%, and on Friday it fell -0.32%, making a new closing low. While TLT looks like it could recover, TY appears to be on the cusp of a strong move lower. TY forecaster ended the week at -0.39, an improvement over last week, but the weekly and monthly forecasters remain mired in downtrends. TY tea leaves are telling us: no bond reversal, lower prices are ahead. That suggests that XLU is probably not a buy after all.

JNK moved higher, up +0.27%, issuing a buy signal on Tuesday and then chopping sideways for the rest of the week. JNK may be in an uptrend, but it doesn't look all that enthusiastic. The BAA weekly and monthly charts are hinting at a turn in junk debt prices; the weekly BAA chart issued a “rising rate” signal two weeks ago, and while the monthly remains in a rate-downtrend, it is suggesting a move towards higher rates as well.

CRB charged higher this week, rising +2.57% and blasting through 195 resistance, closing at 200.52, which is a multi-year high for CRB, last seen in late 2015. All 5 sectors moved higher, led by energy (+3.91%). Mostly, that was about crude oil.

Crude shot up +2.76 [+4.35%] to a new high of 66.24. Last Friday the forecaster issued a sell signal, but it reversed itself Monday, issuing a buy signal just in time for crude's big rally. Crude broke out to new highs, closing the week at a high that dates back to 2014. Crude's big move came on Wednesday, after the EIA report looked … well, it looks slightly bearish to me: (crude: -1.1m, gasoline +3.1m, distillates +0.6m). Market didn't care, it shot higher. Perhaps someone has some satellite photos that tells them the true state of global oil inventories. Oil ended the week in an uptrend (+0.38), the weekly forecaster remains in an uptrend, while the monthly still thinks we're going to sell off. Maybe I should go retrain it, because its been wrong for several months now.

Physical Supply Indicators

* SGE premiums over COMEX are at +6.97.

* The GLD ETF tonnage on hand rose +1.47 tons, with 848 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 11.00 -0.35% to NAV [up]
 PSLV 6.43 -2.18% to NAV [down]
 CEF 13.60 -3.64% to NAV [down]

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

* Big bars premiums were: gold [1kg] 1.33% and silver [1000oz] 3.11%.

Futures Positioning/COT

Note that the coverage period of the report did not include the big breakout on on Wednesday, or the very heavy volume day following the ECB meeting on Thursday.

In gold, the commercial net position fell 2k contracts, which is virtually no change. That was 5k new shorts, and 3k new longs. The commercial short position is equal to where it was for the last top. Managed money net rose by 8k, which was 8.6k new longs, and 626 new shorts. Managed money longs aren't quite up to where they were last time we made a top – we are maybe 35k contracts short of that point.

In silver, the commercial net rose by 8.6k, which was 4.9k shorts covered, with 3.7k new longs. Managed money net fell by 9.8k, which was 6.2k longs sold, and 3.6k new shorts added. Silver isn't looking like a top yet.

Gold Manipulation Report
While there were no after hours assaults, silver was hit with a plunge on Tuesday at just after 9am.  It took silver down about 20 cents, but it managed to recover by end of day.

Grey Swan Status

  • Italian Elections: Anti-Euro M5S (27.5%) is leading vs the PD (23.07%), with M5S regaining what it lost last week.. A combination of FI + LN (both semi-anti-Euro parties) are at 29.3%. There are 5 more weeks until the elections.

  • Government shutdown lasted three days. It appears that the trade on the table is: DACA for the Wall, with other immigration changes as well as “improved border security”. Which, I think, was Trump's plan all along. Nothing to see here, move along.

  • Is Italy about to leave the Eurozone? Stratfor (via Forbes) says no, in spite of the tough talk of the euroskeptics. I'm not sure I believe Stratfor; I don't think Italy's problems can be fixed inside the Eurozone – but even M5S has backtracked, saying that the referendum on the Euro is their “plan B”. https://www.forbes.com/sites/stratfor/2018/01/23/europe-braces-for-the-next-italian-election/#72257e0b101b

  • Here are the candidates: PD: Paolo Gentiloni and/or Matteo Renzi, M5S: Luigi Di Maio, Forza Italia: Silvio Berlusconi (who must play the role of kingmaker, since he cannot hold office right now due to a conviction for tax evasion), and his presumed king-to-be for LN: Matteo Salvini. https://www.thelocal.it/20180125/who-is-running-italy-2018-election

  • In Germany, the SPD delegates voted to approve the coalition blueprint hammered out last week by the leadership of both parties, but the support was relatively lukewarm.  Still more voting to come.

  • Mueller Investigation: it appears to be focused entirely on obstruction of justice at this point. Was there any Russian collusion? It doesn't seem so. Trump claims to be willing to be interviewed by Mueller under oath. Meanwhile, hints of anti-Trump “secret societies” within the DOJ, 5 months of disappeared-now-reappeared texts from lead FBI investigator Strzok, and that Republican memo are swirling around the edges. It appears that Trump really was wiretapped by the Obama administration using a FISA warrant.

Summary

The buck took a big leg down this week; that helped gold, but not as much as it should have. Miners felt the pinch, and the juniors felt it most, barely managing to put in a gain for the week. Oil is not having any such difficulty; while energy equities look a bit tired, oil continues to play the part of “the little engine that could.” Bonds continue to look ill, with the 10-year treasury continuing to hover at multi-year-high yields (2.66%), looking as though they are preparing to break lower.

Gold and silver big bar shortage indicators are showing no sign of shortage; premiums on big-bar gold and silver are normal, GLD tonnage was unchanged, while ETF discounts for silver increased substantially; PSLV and CEF both took NAV hits this week. Shanghai remains in premium, although the premium shrank.

The gold COT report saw almost no change this week. The commercial shorts are in place for a COT top, but managed money longs are not. Silver is not there at all, and moved farther away from a top this week.

So the buck didn't reverse like I thought it might, and gold did continue to rise, but gold in Euros is now actually dropping, which isn't a great sign for our great PM rally. While gold did manage to break (briefly) above its previous high, it wasn't strong enough to hold the gains through end of week.

Technically, the junior miners are hinting of problems ahead.

Still, apart from the Trump-dollar walkback on Thursday, the Euro has been on an unrelenting move higher dating back to the start of the commodity rally on Dec 11th. When will it stop? So far, there's no clear sign.  Currency moves can go for quite a long time before they change direction.

The US treasury bond weakness hints at dollar weakness too. While the bond selling could be domestic (who needs bonds when SPX is rising 1-2% per week?), falling bond prices and and the falling dollar does suggest foreigners are selling US treasury securities.

Why would they sell? Maybe all they are doing is just front-running the Fed, who plans to offload a trillion or two in bonds over the next 4 years. Seems like common sense.

But they have to put those reserves somewhere.  Where might they be putting all those dollars? Well, maybe they are buying Euros – owning Euro-denominated debt doesn't yield you very much right now, but the steady move higher in the Euro does suggest that might be happening, much to Draghi's disgust. Maybe he should blame his friends at the other central banks for the move.

And they also might be buying gold. Certainly if I were running the PBOC, and I felt as though US treasury bonds were due for a brisk move lower, I'd swap some of those treasury bonds for gold. Very, very quietly, so as not to panic the herd. And heck, with the 0% rates in the EU, there's no penalty at all to having a bit more of the country's reserves in the yellow metal.

Certainly all timeframes have gold in an uptrend right now – not in Euros, of course - but for some reason gold is outperforming silver and the mining shares, and we aren't in some sort of “safe haven” move either. Nobody is scared of anything right now, its all risk on.

Forecasting code – weekly – says:

Uptrend: gold, silver, crude, miners, SPX, BAA bond yields.

Downtrend: copper, 10-year treasuries, USD.

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6 Comments

PeakGold's picture
PeakGold
Status: Bronze Member (Offline)
Joined: Jun 3 2017
Posts: 78
RSI

RSI on the S&P 500 is looking pretty extreme on the overbought side. Maybe a bit more wiggle room to the upside over the next couple weeks?

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 356
Pre-Fed Selloff

Maybe we're getting the usual pre-Fed rundown and we'll break higher Thursday/Friday.  Just trying to be optimistic.

Or maybe we're headed back to $1250.  Well, so much for optimism! :)

DennisC's picture
DennisC
Status: Gold Member (Offline)
Joined: Mar 19 2011
Posts: 300
New Hats?

Watching the action in bonds, I'm wondering if I should order some 10year-UST 3% hats and forego the Dow 30K hats this time around.  I don't need another gross of hats sitting in a box in the basement.  I wonder what Dave's Ogham staves are prognosticating for this week?  I suppose the overstocks can be used on the way down too...bonus.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5325
everything sold

Let's see.  Most everything I watch is red today, except the buck.

Bonds and utilities are down (XLU -1.12%, IEF -0.29% + new low, TNX up +0.37 to 2.699%)

SPX is down, now only -9.23 after a bounce.

GDX -2.38% GDXJ -2.99%.

EUR/USD -0.41%

Gold -10.70 [-0.79%]

Looks like money continues to flee bonds - but once again the bunk is hinting at maybe a low.  Although that's not a sure thing.  Maybe the Fed will provide the market some clarity.  Maybe this is just a pre-Fed gold selloff.

Maybe traders are just going to cash?

That's a lot of maybes.

Ultimately, I don't like what the junior miners have been saying recently.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2382
To those who might say Gold and Silver are not manipulated...

Here is what got far less publicity: it wasn't just any futures that were spoofed - all the banks and traders busted were charged for spoofing the precious metals market, i.e. gold and silver. We bring this up because there are still the occasional idiots out there who say gold and silver were never manipulated.

https://www.zerohedge.com/news/2018-01-29/these-are-6-traders-who-were-j...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5325
agree

Evidence is pretty clear about the manipulations.  Reading the zero hedge article, they talk about stop-running, which is exactly the sort of thing we see happening on a relatively frequent basis.  Especially in silver.  If the prosecutions were supposed to deter this sort of behavior, they don't seem to have done a very good job of it.

My question is, how much do they make from one of these assaults, and what's the size of the fine?

And - how about some jail time?  Orange jumpsuits for the miscreants would offer far more of a disincentive going forward than the company simply forking over some fraction of the winnings as "a cost of doing business."

Of course if its all just a wink-wink-nudge-nudge affair - "please keep hammering gold, but do try not to get caught next time" - then the modest fines make complete sense.

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