PM End of Week Market Commentary - 3/16/2018

davefairtex
By davefairtex on Sat, Mar 17, 2018 - 6:12am

On Friday gold fell -2.30 [-0.17%] to 1313.90 on moderate volume, while silver dropped -0.05 [-0.34%] to 16.34 on moderate volume also. The buck rose +0.12%.  From the PM perspective, Friday was relatively uneventful.

This week the PM sector map was negative, with silver leading gold lower, although the miners were in the middle of the pack rather than leading the sector down. All items except palladium are back below the 9 and 50 MA. The metals are in a pretty clear downtrend right now. The moves down weren't large, but they were negative across the board.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL -0.03% 29.19% rising falling rising falling ema9 on 2018-03-13 2018-03-16
Senior Miners GDX -0.65% -5.88% falling falling falling falling ema9 on 2018-03-15 2018-03-16
Gold $GOLD -0.76% 7.16% falling falling rising falling ema9 on 2018-03-14 2018-03-16
Junior Miners GDXJ -0.98% -16.13% falling falling falling falling ema9 on 2018-03-13 2018-03-16
Copper $COPPER -1.00% 16.27% falling falling rising falling ema9 on 2018-03-15 2018-03-16
Silver Miners SIL -1.51% -15.71% rising falling falling falling ema9 on 2018-03-15 2018-03-16
Silver $SILVER -1.60% -5.71% falling falling falling falling ema9 on 2018-03-14 2018-03-16
Platinum $PLAT -1.65% -0.76% falling falling rising falling ma200 on 2018-03-16 2018-03-16

Gold fell -10.10 [-0.76%] on the week. All of the losses came Thursday and Friday, with gold dropping below the 9 MA, and moving down to the lower end of its recent trading range. This happened during a time of relatively neutral currency movements, and so that's definitely bearish for gold. Friday's candle print was a bearish continuation, the forecaster fell to -0.38, which is a downtrend. Gold remains in a downtrend in both weekly and monthly timeframes, as does GC.EUR. There isn't any good news here.  Will 1309 support hold through to the FOMC meeting?  I think it depends on the buck, but the momentum suggests probably not.

The March rate-increase chances rose to 94%. Fed meeting and press conference next Wednesday.

COMEX GC open interest rose by [495769] 39,320 contracts this week.

Silver fell -0.27 [-1.60%] to 16.34. As with gold, silver's losses came at the end of the week, dropping below the 9 MA. Friday's spinning top was a bearish continuation, and the forecaster dropped to -0.30, which is a downtrend. Silver remains in a downtrend in all timeframes. Like gold, silver has moved down to the bottom of its recent trading range.

The gold/silver ratio rose +0.68 to 80.41, which is bearish.

COMEX SI open interest [196956] rose 13,418 contracts.

The miners drifted lower this week; XAU fell -0.25%. The miners tried to rally but the rally failed, printing what looks like a gravestone doji candle on the weekly chart. Friday's spinning top on the daily chart was a bearish continuation, and the XAU forecaster ended the week at -0.42, which is a downtrend. XAU is in a downtrend in the weekly and monthly timeframes also.

The GDX:$GOLD ratio rose +0.10%, and the GDXJ:GDX ratio fell -0.33%. That's more or less neutral.

USD

The buck rose +0.12 [+0.13%] to 89.81. The buck fell early in the week, but recovered on Thursday and Friday. Friday's spinning top was a bullish continuation, and DX forecaster ended the week at +0.14, which is a mild uptrend. Longer term, the buck continues to chop sideways, as it has done for the past six weeks. While the buck remains in a downtrend in weekly and monthly timeframes, it is not that far from reversing. My guess is, all it would take is a weekly close above 90.29.

US Equities/SPX

SPX fell -34.56 [-1.24%] to 2752.01, dropping 4 days out of 5. Trump Tariffs were the concern of the week, along with the firing of Sec State Tillerson. Friday's trading range was quite narrow, resulting in an inside-day NR7 which was not rated. SPX forecaster ended the week at -0.48, which is a downtrend. SPX weekly is in an uptrend, while SPX monthly is in a downtrend.

The sector map was bearish this week; materials and financials led lower, while utilities and REITs did best. This lines up with a move higher in bonds.

VIX rose +1.15 to 15.80.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 1.72% -2.07% rising falling falling falling ma50 on 2018-03-14 2018-03-16
REIT RWR 0.52% -6.03% rising falling falling falling ema9 on 2018-03-05 2018-03-16
Telecom XTL -0.34% 2.89% rising rising rising rising ema9 on 2018-03-16 2018-03-16
Gold Miners GDX -0.65% -5.88% falling falling falling falling ema9 on 2018-03-15 2018-03-16
Cons Discretionary XLY -1.00% 20.19% rising rising rising rising ema9 on 2018-03-16 2018-03-16
Homebuilders XHB -1.19% 10.54% rising falling rising falling ema9 on 2018-03-15 2018-03-16
Technology XLK -1.28% 30.28% rising rising rising rising ema9 on 2018-03-16 2018-03-16
Healthcare XLV -1.29% 12.58% rising rising rising falling ema9 on 2018-03-16 2018-03-16
Energy XLE -1.67% -4.21% falling falling rising falling ema9 on 2018-03-14 2018-03-16
Industrials XLI -2.38% 16.70% rising rising rising falling ema9 on 2018-03-14 2018-03-16
Cons Staples XLP -2.47% -3.92% falling falling falling falling ema9 on 2018-03-14 2018-03-16
Financials XLF -2.79% 16.51% rising rising rising falling ema9 on 2018-03-14 2018-03-16
Materials XLB -3.54% 13.14% falling falling rising falling ema9 on 2018-03-14 2018-03-16

Gold in Other Currencies

Gold was lower in all currencies; gold in XDR dropped -10.94.  Gold in JPY looks particularly unhappy right now.

Rates & Commodities

Bonds rebounded this week, up +1.51%, with the TLT forecaster issuing a buy signal on Monday. However TLT printed a swing high on Friday (47% bearish reversal). The TLT forecaster remains in an uptrend, but TY also printed a swing high on Friday (48% reversal) and TY forecaster was more bearish, at +0.08. That's still an uptrend, but not by much; TY ended the week above the 9 MA, which is a positive sign. 10-year treasury closed the week at 2.84%.  What does all that add up to?  Perhaps just a short-covering bounce this week that may have run its course on Friday.

JNK fell -0.33%, falling along with the equity market for the first half of the week. JNK's forecaster issued a sell signal on Tuesday, and closed the week at -0.17. Mostly JNK has been chopping sideways for the past two weeks. Longer term, the BAA weekly and monthly rate forecasters are both in uptrends – which ends up being a JNK downtrend (rates rising = prices falling for bonds). BAA monthly may be in the process of forming a double bottom.  Rising BAA rates is bearish for equities.

CRB fell -0.36%, with 4 of 5 sectors moving lower, led by agriculture (-1.81%). Only energy managed to move higher on the week. Mostly, CRB chopped sideways all week long, just below the 50 MA. That's just a bit more bearish than last week.  If there is a concern about inflation, CRB isn't showing it.

Crude rose +0.26 [+0.42%] to 62.31. All of the gains in crude happened on Friday, when crude shot up more than $1 in about 20 minutes and held most of its gains through end of day. The confirmed bullish NR7 candle on Friday was definitely bullish, and the forecaster ended the week +0.40, which is a strong uptrend. Crude is also in an uptrend on the weekly chart, but in a downtrend on the monthly.

Venezuela's oil production is continuing to fall, this month by 52,000 bpd. This is due to structural problems with the oil industry in country (such as the firing of the engineers, replacing them with the military) which has resulted in steadily declining production over the past 2 years; down 600k bpd since 2015.

https://oilprice.com/Energy/Energy-General/The-Oil-Crisis-That-Cant-Be-Stopped.html

“Production is collapsing in a way rarely seen in the absence of a war,” Francisco Monaldi, fellow in Latin American Energy at the Baker Institute for Public Policy at Rice University, wrote in a new report published by the Atlantic Council. “The country is also suffering the worst economic depression ever recorded in Latin America.” GDP shrank by 16.5 percent in 2016 and 12 percent in 2017. The IMF predicts the economy will contract by another 15 percent this year.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +6.49 tons, with 840 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.67 -0.67% to NAV [increase]
 PSLV 6.02 -2.43% to NAV [increase]
 CEF 13.15 -2.97% to NAV [decrease]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no premium for gold and a 1-2% premium for silver.

* Big bars premiums were: gold [1kg] 1.34% and silver [1000oz] 3.15%.

Futures Positioning/COT

In gold, the commercial net position rose 16k, roughly split between new longs (+8.2k) and covered shorts (-7.9k). Managed money net fell by 14.8k, most of which involved selling longs (-10.2k) as well as new shorts (+4.7k). This was a relatively modest change. Perhaps half the required number of managed money longs have been rinsed out by now; another 40k and we might have a low.

In silver, the commercial net rose by 2.5k contracts, mostly short covering (-1.9k) but some new longs (+602) also. Managed money net fell by 5.3k contracts, split between selling longs (-2.8k) and new shorts (+2.6k). These were relatively small changes; silver remains at near-historic levels of managed money net short, while the commercials are definitely leaning long.

Grey Swan Status

  • Migration continues to cause problems in Germany; a million new people have arrived to date.  This story is about how migrants are crowding out the poor Germans at food banks.  Poor, sometimes elderly Germans waiting in line for food are literally being elbowed aside by pushy young migrants. One German food bank banned migrants in response.  Sounds iike a breitbart piece, right?  https://www.nytimes.com/2018/03/15/world/europe/germany-food-bank-migrant-ban.html  In a nutshell this is why AfD won 12.5% of the vote in the previous election. This is during a time of relative economic prosperity and peace. What happens during a downturn? How large will AfD be then?

  • Italian Elections – No progress this week on forming a new government. PD won't work with anyone, and neither M5S nor the conservatives have enough votes to rule on their own. Salvini from the Northern League expressed a willingness to work with M5S, but only in the context of a FI+LN+M5S arrangement, which would leave M5S at a disadvantage.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 48% [+8.1%] vs Republicans 39.3%, an increase of +0.4% in the spread vs last week.  This swan is all about impeachment. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • Mueller Investigation: nothing new this week. Pew conducted a poll on how Americans view the investigation. Fun stat: 96% of self-identified liberals believe that the Trump campaign either probably or definitely had “improper contact” with Russia during the 2016 campaign. I suppose “improper” can mean anything you want it to mean. http://assets.pewresearch.org/wp-content/uploads/sites/5/2018/03/15132027/03-15-18-Russia-release.pdf

  • There were hints this week that the FOMC might decide to speed up the pace of its balance-sheet roll-off. Markets are almost certainly not expecting this. FOMC meeting coming up on Wednesday.

Summary

The buck chopped sideways, but that didn't help PM, which moved slowly lower on the week, along with SPX and junk debt. Utilities and bonds rallied, although its hard to know if this is just short-covering in advance of the FOMC meeting next week, or a more durable low. There was nothing worrying from the political front in Europe. Trump Tariffs are causing some concern in risk assets and currencies, as did the abrupt firing of Sec State Tillerson – replaced by CIA Director Pompeo. Running the country like a reality TV show tends to be a hit to confidence in US assets.

Gold and silver big bar shortage indicators are showing no sign of shortage; premiums on big-bar gold and silver are normal, GLD tonnage rose, while ETF discounts were mixed.

The gold COT report continued to show a “slow rinse” cycle, with commercials covering. At this rate, it will be 4+ weeks before a COT low for gold forms. Silver continues to be at a COT low, although I'm not sure what will trigger the reversal. COT reports aren't good timing tools; they just indicate levels where (theoretically anyway) buying is relatively lower risk. The gold/silver ratio > 80 also speaks to silver being the lower-priced metal at the moment.

We also saw large builds in open interest; 122 tons of paper gold, and 2086 tons of paper silver. This flurry of new paper PM probably helped push prices lower also.

Even though the buck more or less moved sideways, gold dropped. That tells us that gold in Euros is continuing to move lower, as it has for the better part of a year. Until that downtrend reverses, PM prices are totally dependent on a falling dollar to bounce back or otherwise look positive. Its not a great place to be.

A “risk off” ratio I like to watch is the BAA/AAA ratio – basically that's junk bond yield minus high-grade corporate yield. In my longer-term models, a rising BAA.AAA ratio is a negative sign for equities. After chopping sideways for 12 months, this ratio is now moving higher.  Rising 1 year, 10 year, BAA, and now BAA.AAA yields all adds up to a negative impact on equity prices.

Did I mention we have an FOMC meeting next week?

Forecasting code – weekly – says:

Uptrend: crude, SPX.

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

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3 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 150
Premium/Discount to NAV...

Hey Dave,

 

is there a quick way to determine the ETF premiums to NAV?

 

same for the Shanghai discount to comex?

 

Appreciate the thoughtful analysis each week!

steve 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5263
discounts to NAV

Here's where I get my "sprott fund discounts".  Click on CEF / PSLV / PHYS, and select the first menu entry.

http://sprott.com/investment-strategies/physical-bullion-trusts/

The premium/discount of Shanghai is a *lot* more complicated.  And its broken right now because of a local configuration problem I haven't yet been able to chase down.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5263
eth buy?

Shorter term 2h reversal detector has been giving off buy signals here and there for the past 12 hours. 

Longer term 4h reversal detector gave two clear buy signals in the past 8 hours.

My buy point was on the drop below 500.  This is an attempt to catch a falling knife - risky - because the daily still remains in a downtrend.  Daily issued a sell signal 8 trading days ago at about 860 (and that's about when I sold too) and it remains in a downtrend.  Not financial advice, etc.

Boy.  You just gotta love those 41% drops.  In just 8 days!

ETH/BTC ratio bottomed out at about 0.063, having plunged from 0.12 just one month ago.

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