PM End of Week Market Commentary - 3/23/2018

davefairtex
By davefairtex on Sun, Mar 25, 2018 - 3:51pm

On Friday gold rallied +18.40 [+1.38%] to 1347.30 on extremely heavy volume, while silver climbed +0.18 [+1.13%] to 16.56 on extremely heavy volume also. The buck fell -0.49%, a fairly large move, but not enough to account for the move higher in PM. Concerns over tariffs as well as the perceived increased chances for war drove prices on Friday. Equities were clobbered again, with SPX down -2.10%. Banks had it worst, dropping -3.04%.

The driving news items this week were as follows:

  1. the FOMC, which raised rates the expected 25 bp, but Jay Powell's press conference was somewhat more dovish than expected.

  2. Trump announced tariffs of $60 billion on Chinese products, an amount larger than expected.

  3. Trump's appointment of John Bolton as National Security Advisor.

This week the metals sector map bifurcated, with gold and silver shooting higher, while the more industrial metals palladium and copper sold off. Platinum, which straddles the fence, was mostly unchanged. Junior miners led seniors, but gold led silver. Gold leading silver suggests this week's action was mainly safe-haven-related; the metals map is forecasting a slowdown in economic activity, with a strong element of worry added in. Juniors leading seniors is a risk-on sign for gold and silver in general.

Gold is clearly doing best of all the elements; it is above all 3 moving averages, it has executed a golden cross, and it is the only item that has risen in both the weekly and 52-week timeframes.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 4.36% -9.60% rising falling falling falling ma50 on 2018-03-23 2018-03-23
Senior Miners GDX 3.22% -3.95% rising falling falling falling ema9 on 2018-03-23 2018-03-23
Gold $GOLD 2.54% 8.21% rising rising rising rising ma50 on 2018-03-23 2018-03-23
Silver Miners SIL 1.93% -14.73% falling falling falling falling ema9 on 2018-03-23 2018-03-23
Silver $SILVER 1.35% -5.88% rising falling falling falling ema9 on 2018-03-23 2018-03-23
Platinum $PLAT -0.14% -1.47% falling falling rising falling ma200 on 2018-03-22 2018-03-23
Palladium $PALL -2.13% 20.94% falling falling rising falling ema9 on 2018-03-22 2018-03-23
Copper $COPPER -4.37% 12.28% falling falling rising falling ma200 on 2018-03-23 2018-03-23

Gold shot up +33.40 [+2.54%] on the week, with all the gains coming Wednesday and Friday. Wednesday's move was mostly driven by the FOMC announcement, while Friday's move appeared to be equally about tariffs as well as the increased prospects for war. Friday's candle print was an opening white marubozu (bullish continuation), and gold forecaster ended the week in a strong uptrend at +0.87. Gold also broke above its previous high of 1342 set about three weeks ago, and appears headed for a retest of the 1365 high set back in mid-February. Gold in Euros issued a buy signal on Tuesday, and closed the week in a reasonably strong uptrend (+0.53). Gold in Euros/weekly also issued a buy signal this week – for the first time in several months.

The June rate-increase chances ended the week at 81%.

COMEX GC open interest rose by [533887] 32,350 contracts this week. The COT report suggests that was managed money going short.

Silver rose +0.22 [+1.35%], almost recovering from last week's sell-off. Silver rallied on Wednesday and Friday along with gold, but Friday's move wasn't quite as strong. That suggests a safe-haven component to price action on Friday; copper did poorly also, which reinforces that sense. Silver's opening white marubozu was a bullish continuation, while the forecaster ended the week at +0.45, which is a reasonably strong uptrend. Unlike gold, silver has yet to break above a previous high, and it remains below the 50 and 200 MA lines. However it did manage to break out of its descending triangle pattern, so that's a plus.

The gold/silver ratio rose +0.95 to 81.36, which is bearish.

COMEX SI open interest [210242] rose 7,532 contracts.

The miners moved higher; XAU rose +3.56%, with the gains coming on Wednesday and Friday. Unlike gold, the miners didn't hold their gains into the close – they sold off a bit at end of day, possibly dragged lower by the plunging equity market. Still, the ETF candle prints (gap-up doji, high wave) were both bullish continuations. XAU forecaster ended the week at +0.46, which is a reasonably strong uptrend. In spite of the good week for the miners, the weekly and monthly forecasters remain in downtrends.

The GDX:$GOLD ratio rose +0.79%, and the GDXJ:GDX ratio rose +1.11%. That's bullish.

USD

The buck fell -0.78 [-0.87%] to 89.03. The buck was all over the map this week, but seemed to sort out its direction by Friday, ending the week with a new low and a forecaster sell signal (-0.35). Buck remains in a downtrend in weekly and monthly timeframes also. That said – the buck has chopped sideways now for more than two months, and all it did this week was move to the lower half of that trading range.

US Equities/SPX

SPX fell -108.32 [-5.95%] to 2588.26. Most of the damage came on Thursday and Friday; Thursday was about tariffs, and Friday the selling continued, seemingly exacerbated by the Bolton appointment. Friday's closing black marubozu was a bearish continuation, and the forecaster ended the week at -1.04, a very strong downtrend. Interestingly, the plunge stopped right at the 200 MA. SPX is in a downtrend in all 3 timeframes now.

The sector map was quite bearish this week; tech and financials led the market lower: a 7% drop is nothing to sneeze at. I added “defense” to the sector map below; it did fairly well this week compared with the rest of the market.

Facebook plunged -13.89%; people have just now noticed that Facebook's data might well have gotten Trump elected via Bannon and Cambridge Analytica. If everyone wasn't so distracted by HRC's “Russian collusion” story they might have twigged to this a year ago. Last year when I read what Cambridge Analytica did, I had the impression it was possibly decisive. Now FB stock is paying the price. “How could you help elect Trump!” The outrage firehose that Facebook was instrumental in creating is now pointed directly back at Facebook.

VIX shot up +9.07 to 24.87.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 3.22% -3.95% rising falling falling falling ema9 on 2018-03-23 2018-03-23
Energy XLE -0.80% -2.99% falling falling rising falling ema9 on 2018-03-22 2018-03-23
Defense ITA -1.74% 30.81% falling rising rising falling ema9 on 2018-03-22 2018-03-23
Utilities XLU -2.37% -5.11% falling falling falling falling ma50 on 2018-03-23 2018-03-23
Homebuilders XHB -3.97% 8.25% falling falling rising falling ma200 on 2018-03-22 2018-03-23
REIT RWR -4.37% -10.00% falling falling falling falling ema9 on 2018-03-19 2018-03-23
Cons Staples XLP -4.49% -7.21% falling falling falling falling ema9 on 2018-03-14 2018-03-23
Cons Discretionary XLY -4.75% 16.02% falling falling rising falling ma50 on 2018-03-19 2018-03-23
Telecom XTL -4.91% -0.91% falling rising falling rising ma50 on 2018-03-23 2018-03-23
Industrials XLI -5.01% 12.43% falling falling rising falling ema9 on 2018-03-14 2018-03-23
Materials XLB -5.29% 7.48% falling falling rising falling ma200 on 2018-03-22 2018-03-23
Healthcare XLV -6.70% 7.30% falling falling rising falling ma200 on 2018-03-22 2018-03-23
Financials XLF -7.10% 13.79% falling falling rising falling ema9 on 2018-03-14 2018-03-23
Technology XLK -7.66% 21.74% falling falling rising falling ma50 on 2018-03-22 2018-03-23

Gold in Other Currencies

Gold rallied in all currencies; gold in XDR rose +27.25.

Rates & Commodities

Bonds chopped higher his week, with TLT up +0.30%, making a new high on Thursday courtesy of the equity market sell-off. Still, I would expect a lot more of a move out of bonds with the equity market down so strongly.  Forecaster ended the week at +0.12, which is a very mild uptrend. TY supports the story, up +0.22%, with its forecaster closing the week at +0.47. TY has moved to the top of its recent trading range, but has yet to break out. Weekly TY forecaster issued a buy signal this week, while the monthly remains in a downtrend. I'm really not sure this marks a low, however; it should have done much better than this with equities down so hard. 10-year yield closed the week at 2.81%.

JNK fell -0.97%, dropping alongside the equity market. JNK continues to look relatively weak, but is not showing any sort of signs of capitulation at the moment.

CRB rose +0.93%; only 2 of 5 sectors rose, but energy was quite strong (+5.05%).

Crude rose +3.43 [+5.50%] to 65.74. It was a very good week for crude. Price is now back to within a stone's throw of the previous high of 66.66. Wednesday's EIA report was bullish [crude -2.6m, gasoline -1.7m, distillates -2.0m], and that certainly helped. Likewise, there were hints that China's banks have decided to stop extending new loans to Venezuela, which virtually ensures that the production declines will continue. Forecaster ended the week at +0.33, which isn't as strong as I would have expected. Still, crude remains in an uptrend in all 3 timeframes.

China is launching its crude futures contract next week. Does this mark the end of the petrodollar? If and when China allows convertibility of their currency, it just might. Until then, I'm guessing probably not. Martin Armstrong says the world's financial center will shift to China by 2032 – as one of those global macro trends that plays out over decades. Perhaps we have another 14 years.

https://www.armstrongeconomics.com/international-news/china/will-china-take-over-us-as-the-top-superpower/

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +10.32 tons, with 851 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.92 -0.88% to NAV [decrease]
 PSLV 6.07 -2.89% to NAV [decrease]
 CEF 13.42 -3.23% 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] 1.84% and silver [1000oz] 3.14%.

Futures Positioning/COT

In gold, the commercial net position rose 21.5k, after buying 11.7k longs and closing 9.8k shorts. Managed money net fell by 24k, mostly by selling 14.2k longs, but also adding 9.9k shorts. These are relatively small changes for gold; it will take a few more weeks more before gold moves into a COT long positioning. Still, the commercial longs are at a 2-year high (dating back to late 2015) and managed money longs are mostly (70%) rinsed out, so on balance gold is more positive than negative.

In silver, the commercial net rose by 15.6k contracts, with 8.7k new longs, and 6.8k covered shorts. This moves the commercial net position to the highest net position on record. Commercials have gone from a net of -117k a few months back, to a -3.7k net position today. Managed money fell by 19.4k, by selling 5.7k longs, and adding 13.8k shorts. These are huge changes, and it has moved managed money to the lowest net position on record.

I hate to keep beating the “silver” drum, but these positions in silver on the COT are historic. Highest/lowest ever. With the gold/silver ratio at 81.36, the contrarian in me is screaming “BUY!”

Grey Swan Status

  • In her inauguration speech for her 4th term as Prime Minister, Merkel stated that while the million migrants and refugees that arrived in 2015-2016 should be a source of pride for Germany, but that it was “an exceptional humanitarian situation”, and as such, “such an exceptional situation should not and must not be repeated.” I did a great thing and you should all be proud; I promise, the great thing won't happen ever again. http://customwire.ap.org/dynamic/stories/E/EU_GERMANY_NEW_GOVERNMENT

  • Italian Elections – M5S and Northern League have entered negotiations on allocating key posts in the lower house and the Senate. M5S would lead the lower house, and someone from the conservative coalition would lead the Senate. This isn't an agreement on forming a government, but it could lead to one. Gotta love Bloomberg's characterization of M5S as “extremists” - as if they were ISIS, tossing people off buildings. https://www.bloomberg.com/news/articles/2018-03-21/italy-s-populist-talks-raise-chances-of-extremists-taking-power

  • US Congressional Elections, 2018. The generic ballot shows Democrats 46.2% [+5.5%] vs Republicans 40.7%, a decrease of -2.6% in the spread vs last week. That's a big change. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • Mueller Investigation: nothing new this week.

  • Trump replaced his National Security Advisor HR McMaster with former UN Ambassador John Bolton. Asia Times provides a thumbnail on Bolton here, leading in with, “There are hawks and then there is John Bolton. The combative 69-year-old will be the third National Security Adviser in 14 months after US President Donald Trump decided it was time for Lt Gen HR McMaster to ride off into the sunset.” http://www.atimes.com/article/hawk-flies-back-white-house-shake-world-order/ My sense: if Trump actually listens to Bolton, the US will be involved in a new war within 6-12 months. The man is a one-man black swan generator, who has shown no understanding of the concept of “blowback” in spite of seeing it unfold in real time.

  • US Fed Chairman Powell stated he would keep the rate of balance sheet roll-off unchanged; the hints to the contrary turned out to be a false alarm.

Summary

Concerns about tariffs and a trade war, a somewhat dovish Fed, and the appointment of neocon Bolton rattled risk assets this week, most especially equities. The buck moved lower, industrial commodities fell, while PM rose, with gold appearing as though it might just break out above overhead resistance at 1366 if the fuss continues into next week.

Gold and silver big bar shortage indicators are showing no sign of shortage; premiums on big-bar gold and silver are ticking slightly higher, GLD tonnage rose, while ETF discounts increased.

The gold COT report continued the “slow rinse” cycle, with commercials covering. We probably have another 2-3 weeks before a COT low forms. Silver's COT low continues to grow in strength; the changes this week were very large, with managed money loading up short while the commercials continue covering and going long. When will this balloon pop? It just keeps getting bigger and bigger. The gold/silver ratio is now above 81.

Gold in Euros may have put in a low this week; both daily and weekly forecasters are in uptrends. If this sticks, it could easily lead to a breakout in the yellow metal – and its probably driven by the twin unknowns of a trade war and John “black swan” Bolton, and what that signals for US policy going forward. Its one thing to have Bolton pounding the table at the UN, and its quite another to have him a heartbeat away from the big red button. I earnestly hope this is just a device for “Deal Maker Trump” to bring a “really bad cop” with him to the table with Kim Jong Un. Certainly the chorus of alarm from publications around the world is exactly what Trump is looking for – assuming his goal is just to set the stage. I should probably read that book of his at some point.

One final note: Bolton himself was surprised at the timing of the job offer. Clearly, Trump didn't want to wait around. The appointment seemed time-sensitive; this could argue for Bolton needing to be in place prior to the start of negotiations with the North Koreans. Of course, this could just be me seeing what I hope to be true...

https://www.npr.org/2018/03/22/594363877/trump-names-john-bolton-as-national-security-adviser

In an interview on Fox News, where he had been a contributor, shortly after the news broke, Bolton called his appointment a "great honor" but seemed surprised that the Trump administration had announced the appointment so soon. Bolton was spotted earlier Thursday at the White House.

In the meantime, Bolton and tariffs both appear to be gold-positive.

Forecasting code – weekly – says:

Uptrend: crude, gold/Euros, 10-year treasuries.

Downtrend: copper, silver, miners, BAA-grade debt, USD.

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4 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 351
Resistance

Gold appears to be battling some pretty major resistance.  Dollar is off pretty big and gold has hit a ceiling for now.

Dave,

Great write-up, as usual.  Always a pleasure to read.  I look forward to it every day.

lambertad's picture
lambertad
Status: Silver Member (Online)
Joined: Aug 31 2013
Posts: 175
Year in review

 I seriously hope this one makes it into Dave Collum's year in review for 2018. 

I did a great thing and you should all be proud; I promise, the great thing won't happen ever again.

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 138
John “black swan” Bolton

'The man is a one-man black swan generator'.... love it! Great writing Dave!

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

Thanks guys :)

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