PM Daily Market Commentary - 2/1/2018

davefairtex
By davefairtex on Fri, Feb 2, 2018 - 5:42am

Gold rose +3.50 [+0.26%] to 1351.90 on moderate volume, while silver fell -0.11 [-0.61%] to 17.21 on moderately heavy volume. Even though the buck fell -0.51%, the metals still seemed to have a tough day, silver especially.

Even though the Euro rallied for most of the day, gold had trouble in Asia and London, only managing to get back to even in the afternoon in New York.  Candle print was a swing low – neutral, rather than bullish. Forecaster jumped +0.55 to +0.42, which is a buy signal for gold. Hmm. It all feels a bit lackluster to me, but who am I to say? Perhaps the forecaster saw good things in related price moves.  You can see in the chart how important the 9 MA is for gold during this uptrend.  The declining volume is bearish.  Gold in Euros has been in a downtrend for a while now.

COMEX GC open interest fell by -1,427 contracts today.

Rate rise chances (March 2018) fell to 78%.

Silver looked much weaker than gold, selling off for most of the day even though the Euro did very well, but then managing to bounce back in the afternoon in New York.  Silver's candle print was a bearish harami, which was neutral rather than bearish. However the forecaster fell -0.21 to -0.13, which is a sell signal for silver. Silver ended the day below its 9 MA, which is bearish. Silver appears to be struggling right now.

COMEX SI open interest rose +4,770 contracts today. That's a lot of new shorts – 741 tons of paper silver, or about 10 days of global production. Maybe that's why silver is having such a hard time.

The gold/silver ratio rose +0.68 to 78.55. That's bearish.

The miners gapped down at the open, but managed to rally by end of day. GDX fell -0.21% on moderate volume, and GDXJ moved down -0.15% on moderate volume also. Both ETFs printed high wave candles, which had a 48% (GDX) and 61% (GDXJ) chance of marking the low. XAU forecaster rose +0.22 to +0.08, which is a buy signal for the miners. We are still waiting for confirmation of yesterday's (stronger) reversal bar - no swing low yet.

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

Platinum rose +0.58%, palladium rallied +0.76%, and copper rose +0.45%. Palladium's rally could well be a reversal (spinning top/hammer: 63% bullish reversal), and its forecaster jumped +0.60 to -0.21. Huge volume too. Platinum did relatively well, as did copper. The other metals are doing all right, which helps to support gold and silver.

The dollar fell -0.45 [-0.51%] to 88.37 – all because of the Euro (+1.02/+0.82% to 125.10) which rose to a multi-year closing high. Money appears to be fleeing the dollar for Europe. The long black candle was a bearish continuation, but the forecaster actually rose +0.04 to -0.33. I wonder what it saw; the chart sure looks unpleasant to me.  No new low today, but the previous low at 88.13 is not very far away.

Crude rose +1.19 [+1.84%] to 65.96. It looks like the two-day correction is all we get. Forecaster rose +0.39 to +0.26, which is a buy signal for crude.  Our friends at Goldman Sachs have been bullish on the price of oil (which always makes me grab for my wallet, just in case) and now they're saying they see oil at $80 within a few months, because the oil market is now back in balance.  A sign of a top?  Its hard to say.

https://oilprice.com/Energy/Oil-Prices/Goldman-Oil-To-Top-80-Within-Six-Months.html

“The rebalancing of the oil market has likely been achieved, six months sooner than we had expected,” the bank’s analysts said in a report, as carried by Bloomberg.

“The decline in excess inventories was fast-forwarded in late 2017 by stellar demand growth, high OPEC compliance, heavy maintenance as well as collapsing Venezuela production,” Goldman noted.

SPX fell -1.83 [-0.06%] to 2821.98. SPX tried to rally but largely failed – although trading range was fairly narrow today so it is hard to read too much into it. Forecaster moved up +0.03 to -0.58, which is still a strong downtrend. Sector map shows energy (XLE:+1.03%) and financials (XLF:+0.94%) leading, while utilities (XLU:-1.57%) and materials (XLB:-1.37%) did worst. It looks like there was some significant sector rotation happening under the covers. Utilities just can't seem to catch a break.

VIX fell -0.07 to 13.47.

TLT was hammered, dropping -1.65%, a large move for TLT which was sold all day long, resulting in a relatively rare bearish strong line candle. That is a new low for TLT. TY fell -0.49%, also making a new low. TNX (10-year yield) rose +0.53 to 2.77%. Bonds are in free-fall at this point; the pace of the selling is accelerating. The market has yet to become “disorderly”, but it sure could get there because of leverage. How many funds, chasing yield, have borrowed cheap money to buy higher yielding securities such as bonds?  That works great, right up until the selling starts, at which point your losses become magnified. Large theater + small door + leverage = disorderly market. It looks like that 2.60% level for the 10-year really was the line-o-death.

JNK plunged -0.68%, a large move for JNK. JNK is underscoring the problems in the bond market and the “flight from yield."

CRB rose +0.49%,bouncing off the 50 MA. All sectors rose, led by livestock (+2.06%). dropping back to its 50 MA. Only 2 of 5 sectors fell, led by livestock (-1.05%). Natgas continued to plunge, down -4.64%.  Natgas doesn't like the prospect of warmer weather.

Bonds are the big news right now – bonds and the buck. Money appears to be fleeing US yield instruments, and then leaving the US, mostly for Europe.  The Fed's balance sheet normalization is one reason - here's an article describing the mechanism and timing.  https://wolfstreet.com/2018/02/01/feds-qe-unwind-accelerates-sharply/  Remember them saying it was going to be like watching paint dry?

With the dropping dollar, gold should be doing better, but isn't.  I'm not sure why, but I don't think its a good sign.  Still, with the dropping dollar, gold should continue to stay at least somewhat positive, even if gold is dropping in Euro terms. 

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7 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5278
strong payrolls => USD rally

A strong payrolls report triggered a big dollar rally (+0.73%) - which took out gold (-16) silver (-0.43) the miners (-3%) as well as crude (-1.15) and energy equities (-3%).

The first wave of selling looks to be over.  Is this the start of a new USD move or just another headfake?  We have to wait for the close to know.

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 352
Miners

Maybe in a few days, it'll be a good time to pick up some shares for a quick trade.  They'll rally again before the inevitable next leg lower.

Cold Rain's picture
Cold Rain
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Posts: 352
Gold vs. Dollar

It seems to me, and this is purely anecdotal and based on my non-quantifiable observations, that when you have a big dollar down day, you get a move in gold up a few bucks.  Every now and then it'll be up like $14 or something.  But mostly, it seems like it's up $4-8...somewhere in there.  But when you get an up move of .2-.5% in the dollar, you lose $15 bucks on gold easy.  And if it's higher than that, PMs crater.  I guess what I'm saying is that a rising dollar beats down PMs so much more than a falling dollar of greater magnitude.

charleshughsmith's picture
charleshughsmith
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Joined: Aug 15 2010
Posts: 705
DAX crushed

Not sure of the significance, but the German stock index DAX has been absolutely crushed, retracing the entire euphoric run-up in 2018. Could this be a harbinger of a global retrace of all the euphoric 2018 gains?

The short volatility, short USD, long oil trade is so one-sided, a rip-your-face off rally in vol and USD seems increasingly likely.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 27
Reuters on DAX
For what it's worth, this is pretty DAX specific according to Reuters:
It's now in the red year-to-date. 
    The euro's relentless rise must be partly to blame for the outsize decline in the
exporter-heavy index, but rising bond yields are also a pressure for the DAX's big defensive
stocks in healthcare and utilities. 
davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5278
the macro trend

Macro trend still involves the Fed quantitative-tightening, and Trumps tax-cut-deficit which together floods the market with new treasury bonds.  This is a long term wave of selling pressure for the USD. 

I think you'll eventually be right about volatility.  Just not sure when that will be.

Only thing that fixes this is some European crisis.  That's my sense anyway.

Long oil makes sense if the oil market has returned to balance.  Oil craters if Venezuela comes out of its death spiral, or if shale suddenly adds a new bunch of production.

Oil inventory has been on a steady downward track since April 2017.  If that reverses...then oil probably does crater there too.

The number of shorts, while historically large, doesn't amount to all that many days of global production.  Last time I did the math, it was something like 15 days.

CR-

Your intuition about gold is accurate.  Gold has been in a downtrend in Euros for about 4 weeks now, so while a plunging dollar does help, it can't rescue gold entirely from its downtrend.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 27
davefairtex wrote: Macro
davefairtex wrote:

Macro trend still involves the Fed quantitative-tightening, and Trumps tax-cut-deficit which together floods the market with new treasury bonds.  This is a long term wave of selling pressure for the USD.

I thought the tightening was supposed to relieve selling pressure for USD? Or is that effect just getting swamped by issuance of new bonds?

davefairtex wrote:

Only thing that fixes this is some European crisis.  That's my sense anyway.

Shouldn't take too long then, haha.

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