PM Daily Market Commentary - 3/21/2018

davefairtex
By davefairtex on Thu, Mar 22, 2018 - 2:06am

Gold shot up +21.60 [+1.65%] on extremely heavy volume, while silver jumped +0.39 [+2.41%] on extremely heavy volume also. At the same time, the buck plunged, losing -0.65%. While the temptation is to blame it all on the Fed, at least half of gold's rally happened well before the announcement at 2:00 pm.

The Fed raised rates as expected, up 25 basis points, and the new Fed Chair Powell didn't say anything particularly surprising. For anyone expecting him to be more hawkish than Yellen, they were disappointed by the press conference: the balance sheet reduction plan will remain unchanged, and overall it appeared as though the pace of rate increases would remain unchanged also.

Market's reaction: the announcement itself was neutral for gold, but the press conference was worth about $10 tacked onto gold's price. Bonds sold off after the announcement, but then rallied back during the press conference. No ramp-up of balance sheet reduction was good news for bonds. Equities tried to rally on the announcement, failed, and then more or less moved lower during the press conference. The Euro rallied for much of the day, paused after the announcement, and then shot higher during and after the press conference.

Gold tracked the rising Euro, with its rally starting in Asia, continuing through the FOMC announcement and press conference, closing near the highs of the day. Candle print was a bullish engulfing, which had a 67% chance of marking the low. That's as high a rating that the bullish engulfing pattern gets. Forecaster jumped +0.48 to +0.33, which is a buy signal for gold. Gold blasted through both its 9 MA and 50 MA, as well as through the downtrend line of the descending triangle.  That's all positive.

COMEX GC open interest rose 15,437 contracts today – 48 tons of paper gold. It was another large increase in OI.  Gold would have done even better without all the new paper.  Hard to say which side was responsible.

Rate rise chances (June 2018) are at 80%.

Silver rallied for much of the day, with a sharp spike at 9:20 am, and the rest of the move coming after the FOMC announcement at 2 pm. Silver also printed a swing low/bullish engulfing, which had a 61% chance of marking the low. Forecaster jumped +0.73 to +0.44, which is a buy signal for silver. Silver ended its day above the 9 MA, which is a positive sign.

COMEX SI open interest fell -1,490 contracts today. To me, this suggests a fair amount of short-covering by managed money – quite possibly on that 8300-contract spike that happened at 9:20 am.

The gold/silver ratio fell -0.60 to 80.42. That's bullish.

Miners rallied along with gold, gapping up in the morning, but saving the majority of the move for the FOMC press conference. GDX climbed +2.77% on very heavy volume, while GDXJ rose +3.60% on extremely heavy volume. GDX printed a swing low (56% reversal) while GDXJ printed a confirmed bullish NR7 (68% reversal). XAU forecaster jumped +0.79 to +0.52, issuing a buy signal for the miners.

Today, the GDXJ:GDX ratio rose, as did the GDX:$GOLD ratio. That's bullish.

Platinum rallied +1.32%, palladium climbed +0.92%, and copper moved up +1.40%. While the other metals did relatively well today, only platinum was able to return to an uptrend. Palladium and copper both remain in downtrends, and under pressure.

The buck fell -0.58 [-0.65%], with much of the move happening after the press conference. Currency was an important factor in today's commodity price moves, but it didn't explain everything. The buck printed a bearish engulfing, which was fairly mild – only a 39% chance of marking the top. DX issued a sell signal today. We still have no direction for the buck; today's plunge pulled the weekly DX forecaster back into a downtrend.

Crude had another very strong day, up +1.75 [+2.75%] to 65.49. While crude was moving higher earlier in the day, things accelerated after the EIA report confirmed what the bullish API report said yesterday: [crude -2.6m, gasoline -1.7m, distillates -2.0m]. Forecaster moved up +0.10 to +0.59. It appears as though the fears of renewed shale production have been balanced out by the relentless decline in production in Venezuela.  Underscoring that this situation is likely to remain in place, an article from Reuters (with more detail from oilprice) suggests that China is backing away from Venezuela: no more new loans.  And there's a fun quote in there too:

“Given Venezuela’s falling oil production, it’s natural for Chinese banks not to renew loans,” said one Chinese oil industry source who asked not to be identified.

A second oil industry source, asked if the conditions would be tightened, cited a Chinese proverb, saying China would not “drop stones on somebody who has fallen into a well.”

https://www.reuters.com/article/us-venezuela-china/china-stays-on-the-sidelines-as-venezuela-spirals-downward-idUSKBN1GX0BO

https://oilprice.com/Geopolitics/South-America/Venezuela-Just-Lost-A-Key-Ally.html

SPX staged a failed rally today, falling -5.01 [-0.18%] to 2711.93.   SPX rallied early and seemed to initially benefit from the FOMC announcement, but then started to sell off before the press conference even started, finally ending the day in the red.  Candle print was a bearish high wave while the forecaster moved up +0.02 to -0.62. The market was sharply bifurcated today, with consumer staples leading lower (XLP:-1.24%) while energy charged higher (XLE:+2.62%) along with materials (XLB:+1.13%). What does it all mean? I'll trace it back to crude, which is attracting a whole lot of money – possibly based on the situation in Venezuela.

VIX fell -0.34 to 17.86.

TLT managed to catch a small bid today, rising +0.11%. TY also did well, rising +0.14%, with the TY forecaster jumping +0.31 to +0.06, which is a buy signal for TY. Bonds actually sold off right up until the press conference, after which they rebounded sharply – possibly after figuring out that Powell wasn't going to speed up the balance sheet reduction after all. The 10-year bond closed the day with a yield of 2.88%.

JNK rose +0.08%, a very small move given the sharp rise in energy prices. JNK remains in a downtrend, with the forecaster ending the day at -0.15.

CRB jumped +0.96%, leaping above both the 9 MA and the 50 MA. 4 of 5 sectors rose, led by energy (+2.50%). In truth though, energy is the only commodity component that remains in a strong uptrend.

While reading through the stories of the day, trying to filter out the propaganda, one thing did stand out: Trump's enthusiasm for firing people almost certainly reduces the number of people willing to work in his government. Will we be stuck with Bolton in a position of power simply because other, more reasonable candidates are reluctant to put themselves in a position where they will be treated badly? Its an issue, certainly. Who wants to end up like Tillerson – first an executive in charge of a trillion-dollar company, then secretary of state for a year, and then unceremoniously shown the door, without even a fig-leaf for his ego.  All of that is dollar-negative.

Anyhow. FOMC was kind to the metals today; the expectations for a bit more hawkishness were not met, and that could be seen in the falling buck as well as rising bond prices. While Powell is clearly not Yellen – there was a sharp reduction in the amount of econo-Fedspeak in his press conference – his policies seem exactly the same as hers, at least for this first press conference anyway.

While the moves in PM look strong, this is just one day. We will have to see if the move has any legs to it. While the short-covering in silver gives me some amount of hope, unless gold in Euros can continue moving higher – which it did today – PM will remain the plaything of the currency market. We will just have to see how things go.

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4 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 363
Reversals

Looks like another 500 point down swing reversal to rip your face off rally to end the week is in store today.  Dollar doesn't decline for 2 days in a row anymore either.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 363
Of Course...

It's possible we could end up crashing into the close. surprise

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 4 2014
Posts: 569
Oops!

Did Donald just pee into China's bowl of cornflakes? Hope you're not planning to buy a washing machine or big screen TV soon.

Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 561
What’s up with Libor?

Can someone who is smarter than me tell me how big of a deal it is that the LIBOR rate is going up so much? 

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