PM End of Week Market Commentary - 3/9/2018

davefairtex
By davefairtex on Sun, Mar 11, 2018 - 11:41am

On Friday gold rose +1.50 [+0.11%] to 1324.00 on moderate volume, while silver climbed +0.11 [+0.64%] to 16.61 also on moderate volume. The buck was mostly unchanged, falling just -0.11%.

The Nonfarm Payrolls report was surprisingly strong, with the headline number of 313k exceeding the expected top end of 230k. Strong job growth was seen in manufacturing, construction, retail, and business services. These were not just part-time jobs that were added. The participation rate jumped +0.3%, which greatly exceeded expectations as well. However, growth in average hourly earnings (+0.1% m/m) was weaker than expected, which implies a relatively low level of wage pressure. This says that a bunch of people entered the workforce, and that is probably why there was no wage pressure. It was a very solid payrolls report.

The equity market took off like a shot immediately following the report; other items weren't quite as sure, with oil delaying its rally until late morning. Generally speaking though, it looked to me as though the inflation trade was back on once again: copper +1.85%, palladium +2.20%, platinum +1.25%, crude +3.18%.

This week the PM sector map was a confused, mixed bag. While most items rose, and silver led gold, the miners were all over the map; silver miners did best, while the juniors performed worst. Copper, gold, and the silver miners joined silver above the 9 MA, and half of the items are now above the 200 as well. That is positive, but it is tough to extract any sort of clear directional signal from this week's PM sector map.  Mildly positive - and silver-positive is the best I can see.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 1.67% -6.31% falling falling falling falling ema9 on 2018-03-06 2018-03-09
Palladium $PALL 0.53% 32.52% falling falling rising falling ema9 on 2018-03-01 2018-03-09
Silver $SILVER 0.42% -2.21% falling falling falling rising ema9 on 2018-03-09 2018-03-09
Senior Miners GDX 0.37% 2.03% falling falling falling falling ema9 on 2018-03-07 2018-03-09
Copper $COPPER 0.34% 21.98% falling falling rising falling ema9 on 2018-03-09 2018-03-09
Gold $GOLD 0.02% 10.25% falling rising rising rising ema9 on 2018-03-09 2018-03-09
Platinum $PLAT 0.00% 3.17% falling rising rising rising ma50 on 2018-03-01 2018-03-09
Junior Miners GDXJ -0.03% -3.82% falling falling falling falling ema9 on 2018-03-07 2018-03-09

Gold rose +0.30 [+0.02%] to 1324.00, virtually unchanged on the week. Friday's candle was a high wave, which had a 35% chance of being a reversal. Gold issued a sell signal on Wednesday, and the forecaster ended the week at -0.28, which says gold remains in a downtrend. The weekly GC forecaster remains in a downtrend also, as does the forecaster for gold in Euros. 

The March rate-increase chances rose to 89%.

COMEX GC open interest fell by -8,264 contracts this week.

Silver rose +0.07 [+0.42%] to 16.61, chopping sideways again this week. A huge move up on Tuesday was followed by an equally large move down on Wednesday. Thursday silver issued a buy signal, and on Friday the forecaster edged up +0.02 to +0.06. That's not very enthusiastic, but it is better than gold. Candle print on Friday was a confirmed bullish NR7, which had a 56% chance of marking the low.  Silver also moved back above its 9 MA.  That sounds good, but silver's weekly and monthly forecaster remain in downtrends.

The gold/silver ratio fell -0.32 to 79.74, which is mildly bullish.

COMEX SI open interest [190,630] rose 6,746 contracts.

The miners moved sideways this week; XAU rose +0.19%. There was a fair amount of back and forth, but on Friday the XAU forecaster issued a modest buy signal, ending the week at +0.05. Has the miner plunge stopped? The multi-month descending triangle looks quite bearish. Our first sign that the plunge might be over is when the miners break above that steep downtrend line. Meanwhile, both the weekly and the monthly forecasters are both in downtrends.  XAU is also below the 9 MA.

The GDX:$GOLD ratio rose +0.33%, and the GDXJ:GDX ratio fell -0.40%. That's neutral.

USD

The buck rose +0.10 [+0.11%] to 89.69. The buck tried to move lower but a strong rally on Thursday wiped out all the losses, dragging the buck back into positive territory. It is a mirror image of the failed rally from last week. The net effect is that the buck has moved sideways now two weeks in a row, with the direction being no more certain now than it was then. DX forecaster ended the week at +0.10, which is a mild uptrend. Trying to trade these signals is a good way to lose money when the market is chopping sideways like this. Pulling back, we can see that the buck remains in a downtrend in both the weekly and monthly timeframes.

US Equities/SPX

SPX rose +95.32 [+3.54%] to 2786.57, a very strong gain with about half of the weekly gains coming following the strong Nonfarm Payrolls report on Friday. Forecaster issued a buy signal on Thursday, and closed the week at +0.32, which is a reasonably strong uptrend. Weekly forecaster is also in an uptrend.

The sector map looked bullish: telecom, financials and homebuilders did well, while staples and utilities trailed.

VIX fell -4.95 to 14.64.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Telecom XTL 5.25% 5.25% rising rising rising rising ma200 on 2018-03-05 2018-03-09
Financials XLF 4.43% 19.71% rising rising rising rising ema9 on 2018-03-08 2018-03-09
Homebuilders XHB 4.42% 14.77% falling falling rising falling ema9 on 2018-03-06 2018-03-09
Industrials XLI 4.42% 19.88% falling rising rising rising ma50 on 2018-03-09 2018-03-09
Technology XLK 4.18% 33.47% rising rising rising rising ema9 on 2018-03-05 2018-03-09
Materials XLB 4.00% 18.22% falling rising rising falling ma50 on 2018-03-09 2018-03-09
Healthcare XLV 3.43% 14.30% rising rising rising rising ma50 on 2018-03-09 2018-03-09
Cons Discretionary XLY 3.10% 22.51% falling rising rising rising ema9 on 2018-03-08 2018-03-09
REIT RWR 2.81% -4.99% rising falling falling falling ema9 on 2018-03-05 2018-03-09
Energy XLE 2.24% -2.37% falling falling rising falling ema9 on 2018-03-09 2018-03-09
Cons Staples XLP 1.60% -0.36% falling falling falling falling ema9 on 2018-03-08 2018-03-09
Utilities XLU 0.94% -2.26% falling falling falling falling ema9 on 2018-03-09 2018-03-09
Gold Miners GDX 0.37% 2.03% falling falling falling falling ema9 on 2018-03-07 2018-03-09

Gold in Other Currencies

Gold was mixed this week, with gold in XDR rising +1.25.

Rates & Commodities

Bonds fell this week, with TLT down -0.37%, moving slowly lower. TY agreed, down -0.15% for the week, however the TY forecaster actually rose, issuing a buy signal on Friday.  Of course, TY has been chopping sideways for the past 4 weeks; its hard to know if this is actually the low.  TY remains in a downtrend in both the weekly and monthly timeframes. The 10-year rate closed the week at 2.89%.

JNK rose +0.25%, moving slowly higher on the week. Given the strong rally in equity prices, this is a particularly feeble move in junk debt. While the JNK forecaster issued a buy signal on Friday, the move doesn't look very convincing to me.

CRB rose +0.53%, with 3 of 5 sectors moving higher, led higher by energy (+1.29%). CRB made new highs, but was unable to hang onto the gains, being hit with selling on Wednesday and Thursday. CRB ended the week just above its 50 MA. That's still an uptrend, but it feels just a bit tenuous to me.

Crude rose +0.62 [+1.01%] to 62.05. The market did not like the EIA report on Wednesday [crude +2.4m, gasoline -0.8m, distillates -0.6m]; to me, the report didn't look all that bad, but crude sold off for two days after the report came out. Friday's strong Nonfarm Payrolls report pulled crude out of its downtrend; the bullish engulfing candle pattern had a 46% chance of marking a low, while forecaster issued a buy signal on Friday, ending the week at +0.05. Supporting this, both the weekly and monthly forecasters are in uptrends.

Physical Supply Indicators

* Premium of SGE over COMEX was +8.12 vs COMEX.

* The GLD ETF tonnage on hand fell -0.25 tons, with 834 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.77 -0.52% to NAV [down]
 PSLV 6.12 -2.13% to NAV [down]
 CEF 13.27 -3.07% 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] 1.24% and silver [1000oz] 2.98%.

Futures Positioning/COT

In gold, the commercial net position fell 5k, with 8.1k from selling longs, and 3k from short covering. This was a minor change. Managed money net rose by 687 contracts, with 4.9k longs sold, and 5.6k shorts covered. Both participants reduced positions, long and short, and the changes were quite minor.  Gold remains in a relatively neutral position in terms of COT positioning.

In silver, the commercial net fell by 7.3k contracts, with all of it from long liquidation (7.4k). That's a fairly large change. Managed money net rose 5.4k contracts, with 4.4k longs bought, and 1k shorts covered. Silver remains near historic levels for both commercials and managed money.

Grey Swan Status

  • Italian Elections – Russia is apparently the big winner in the Italian elections; this opinion courtesy of CNBC.  https://www.cnbc.com/2018/03/06/russia-set-to-gain-from-m5s-and-legas-success-in-italys-election.html  No progress on a new government. M5S promised a universal basic income, while Lega Nord promised a 23% corporate & personal tax rate – more than a little challenging for a prospective coalition government to meet both sets of promises at the same time.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 47.2% [+7.7%] Republicans 39.5%, a decrease of 1.1% in the spread vs last week, mostly due to a rise in the polls from Republicans. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • Mueller Investigation: has now expanded to Qatar, where possible collusion with Russia has morphed into investigating possible contributions from the UAE to Trump's campaign. Its a big world, with 196 countries, all of whom have citizens who might have colluded with the Trump campaign in some way, shape or form.

Summary

Equities were the big winner this week, with special mention going to the post Nonfarm Payrolls report rally on Friday.  Junk debt is not confirming the risk on mood, however - but the long-dated treasuries aren't selling off either, which is a relatively confusing outcome.  The buck is trading sideways, right along with gold and silver.  Did the payrolls report bring the inflation trade back again?  Maybe - there were big rallies in copper and oil.

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 slightly, while ETF discounts were mixed.

The gold COT report showed no real change, and it remains relatively neutral.  Silver may be starting a move higher; the COT position in silver remains very bullish.

While equities did quite well, JNK prices aren't not confirming the risk on sentiment; normally junk debt and equities prices are closely correlated - roughly the same level of correlation as gold & platinum.  Is this breakdown because of the expectation of higher rates ahead?  Or is it a risk off signal?  Its hard to say.  Maybe its a little of both?

Payrolls were quite strong.  At the same time, at least part of the US credit impulse appears to be slowing; total bank credit (TOTBKCR) contracted during February.  No doubt that is being offset by all the deficit spending from the US government, but the drop in private credit creation is a worrisome sign.  Are rate increases starting to have a material effect on people's willingness to borrow?  That's the Fed's plan, by all accounts.

Wolf Richter piles on with this provocative piece on the Fed balance sheet unwind: a recent speech from a Fed governor (non-voting, this year) who suggested that the QE unwind is going too slowly.

The very slow pace of our balance sheet normalization may still be contributing to a buildup of various financial imbalances.

Could this be a trial balloon for a sharp change in Fed policy?  Is watching-paint-dry time over?  We have an FOMC meeting coming up in two weeks - March 21st.  Increasing the rate of roll-off would definitely be something that the market is currently not expecting.  This meeting is Chair Powell's first press conference.  Perhaps there is a new sheriff in town.

https://wolfstreet.com/2018/03/09/qe-unwind-is-too-slow-says-fed-governor-thus-launching-first-trial-balloon/

If the Fed does accelerate its rate of roll-off, it could easily blow the 10 year yield right through 3%.  And if that happened, the equity market might just sit up and take notice.  I'm not sure what happens to gold, but the inflation trade might suffer.  Let's call this a near-term black swan, at least for equities anyway.

Forecasting code – weekly – says:

Uptrend: crude, SPX.

Downtrend: copper, gold, silver, miners, 10-year treasuries, BAA-grade debt, USD.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

Login or Register to post comments