PM Daily Market Commentary - 3/27/2018

davefairtex
By davefairtex on Wed, Mar 28, 2018 - 12:24am

Gold fell -8.80 [-0.65%] to1344.60 on extremely heavy volume, and silver fell -0.18 [-1.08%] on very heavy volume. At the same time, the buck rallied +0.43%, and that dollar rally seemed to cause trouble for PM today.

Gold tracked the movements of the Euro fairly closely; it rallied early in Asia, and then sold off after Japan closed, moving lower into the afternoon in the US.  Candle print was a bearish engulfing pattern (29% reversal); GC forecaster edged down -0.01 to +0.19.  That would seem to be no big deal for gold. Volume continues to be extremely heavy. Does this engulfing pattern mark the top? It doesn't look like it, not according to the numbers anyway.

COMEX GC open interest fell -18,973 contracts today; 59 tons of paper gold gone. That's a big change, and it is a bit odd for a flood of short-covering to happen at this point on the chart. Perhaps it has to do with an upcoming futures contract expiration; I don't know the inner workings of the market that well.  We'll get more details on Friday from the COT report about who closed what.

Rate rise chances (June 2018) dropped to 74%.

Silver fell a bit harder than gold; the print was just a long black candle, but it had a 40% chance of marking the top. Forecaster plunged -0.46 to -0.08, which is a sell signal for silver. Volume was also heavy. While gold's technicals remain relatively strong, silver looks as though it may have put in a high here; unlike gold, it didn't make a new high. Worse, silver made a new low about two weeks ago. Lower low, lower high = a downtrend.

COMEX SI open interest rose by 1,878 contracts today.

The gold/silver ratio rose +0.35 to 81.37. That's bearish.

Miners gapped down at the open, tried to rally and failed. GDX fell -2.01% on heavy volume, while GDXJ dropped -1.67% on very heavy volume. GDX printed a swing high (49% reversal). XAU forecaster plunged -0.71 to -0.38, which is a sell signal for the miners. While gold might be clinging to an uptrend, that's just not the case for either silver or the mining shares – traders are bailing out of the risk-on components in PM.

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

Platinum fell -0.40%, palladium dropped -0.33%, and copped moved down -0.03%. While the industrial metals continue to look relatively weak, platinum appears unsure as to where it will go next. Industrial metals are giving us a hint about future economic activity, and the hint isn't a positive one.

Looking at the larger picture, platinum is in a similar place with silver, in that the gold/platinum ratio is at a near-historic high at 1.42. Last time the ratio was at these levels was back in the early 1980s. Either gold is overvalued, or platinum is undervalued. Looking at the chart, you should have swapped your platinum for gold in May 2008 (gold $935, platinum $2200, ratio: 0.4), and right now, you should (theoretically) be swapping your gold for platinum (gold $1344, platinum $949, ratio: 1.42).  Not financial advice - just reading the chart, and assuming relationships like this eventually revert to the mean.

The buck rallied +0.38 [+0.43%] to 88.98. Candle print was a bullish harami (32% reversal), however the forecaster remains in a show-me mode, rising just +0.01 to -0.49. There has been so much back-and-forth over the last few months, it is hard to know where the buck will go next. Sideways, if the recent past is any guide.

Crude fell -0.82 [-1.25%] to 64.67. Yesterday the forecaster looked pretty unhappy, and today things got worse; crude printed a swing high (43% bearish reversal) and the forecaster fell -0.23 to -0.20, which is a sell signal for crude. Crude also moved into a downtrend on the weekly chart as well – assuming we close at these prices at end of week. The API report looked relatively bullish to me [crude +1.7m, gasoline -5.8m, distillates -2.2m], but that caused a 40 cent drop immediately after the report was released. (Market sells off on good news: that's bearish).  Was this drop in crude just a side effect of the falling equity market?  Possibly so.  Certainly oil dropped less than equities, so that's a cautious positive.  Still, I expect if equities continue to plunge, so will crude.

Which brings me to SPX, which dropped -45.93 [-1.73%] to 2612.62. Today's plunge erased much of yesterday's “tariff relief rally”; today was all about plunging tech company stock prices. It is possible that the pin has finally found the bubble in Silicon Valley. TSLA: -8.22%, FB: -4.92%, NFLX: -6.14%, GOOG: -4.57%, AMZN: -3.58%. Sector map confirms: tech led lower (XLK:-3.21%) along with cyclicals (XLY: -1.96%) while utilities moved up strongly (XLU:+1.43%). What's going on? Facebook has become the disappointed-HRC-voters' new punching bag, via Cambridge Analytica.  And a Tesla car had a fatal accident. Was it in self-driving mode? (Errant thought: hacker goes short TSLA, hacks into the autonomous systems, causes a number of fatal crashes, then covers short.) It seems that the bloom is off the tech rose. And we are seeing some strong moves into utilities, which is risk-off behavior.

VIX rose +1.47 to 22.50.

TLT staged a very strong rally, up +1.07%, making a new high. Forecaster jumped +0.41 to +0.55, which is a strong uptrend. TLT is moving steadily higher, up roughly 4% off its lows set last month. TY confirms the move, up +0.47%. TY forecaster jumped +0.32 to +0.61 – that's a strong uptrend too. TY also managed to close above its 2-month trading range today; it doesn't look as bullish as TLT, but it is slowly improving. The 10-year treasury closed at 2.78%. Weekly TY forecaster is in an uptrend as well. It looks as though bonds are finally set to move higher, which supports the risk-off mood in equities.

JNK fell -0.14%, a very mild move considering the plunge in equities. While JNK is in a downtrend (forecaster: -0.07 to -0.16) it does not look as though it is any sort of hurry. The less-junky cousin – the BBB (lower grade) corporates – are selling off a bit more briskly.

CRB fell -0.11%, with 3 of 5 sectors dropping, led by PM (-0.95%). CRB remains above both the 50 and 200 MA, but the inflation thesis does not appear to be pushing commodity prices higher right now. CRB has more or less just chopped sideways since January.

Is it too soon to say that Facebook's goose is cooked? It turns out that when you can accurately profile your userbase (i.e. “your product”), you can sort out which of them might be vulnerable to various internet scams: miracle diet pills, muscle builders, brain boosters, penile enlargements, “your computer may be infected”, and so on. In other words, Facebook already knows if you're a sucker. And guess what? This turns out to be a serious money machine for them.

https://www.bloomberg.com/news/features/2018-03-27/ad-scammers-need-suckers-and-facebook-helps-find-them

I'm going to say “run, don't walk” if you are the owner of Facebook stock. Regulation is coming. To Facebook, and probably to Google as well. This is what Axel Merk said in the “Off the Cuff” that dates back to last week (https://www.peakprosperity.com/insider/113870/cuff-fed-may-less-worried-stock-plunge-we-think).  Smart guy, that Axel. I predict hearings. Lots of hearings. Executives will be dragged in front of committees, because “something needs to be done.” Which I actually agree with. Users of a system need to give informed consent as to how their data will be used.  "Yes!  I'm a sucker!  Please send me various internet scams so I can waste my money!"

Tech are largely the market leaders in the equity space, and as the leaders go, so goes the market. With FANG stocks under pressure, this strongly suggests that SPX will head lower.

Currently, gold does not seem to be deriving much benefit from the drop in equities; it remains the plaything of the currency markets. Gold is the last element of the PM group clinging to its uptrend. If the buck continues to rise, that won't last. But if the buck continues to chop sideways, we still might see a gold breakout, even if the mining shares remain relatively weak.

Last thought. Gold/Silver ratio at 81.37, and gold/platinum ratio at 1.42 both suggest relative lows in both silver and platinum prices. That's not to say prices couldn't drop further, but – we're supposed to buy straw hats during the wintertime, right? And right now, it does seem to be winter for both silver and platinum.

Just saying.

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12 Comments

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 3 2014
Posts: 632
Oooooh; David!

Perhaps you should have started your day with a shot of rye in that coffee instead just black; or was the cream curdled?

 

And a Tesla car had a fatal accident. Was it in self-driving mode? (Errant thought: hacker goes short TSLA, hacks into the autonomous systems, causes a number of fatal crashes, then covers short.) It seems that the bloom is off the tech rose. 

Is it too soon to say that Facebook's goose is cooked? It turns out that when you can accurately profile your userbase (i.e. “your product”), you can sort out which of them might be vulnerable to various internet scams: miracle diet pills, muscle builders, brain boosters, penile enlargements, “your computer may be infected”, and so on. In other words, Facebook already knows if you're a sucker. And guess what? This turns out to be a serious money machine for them.

Just saying!

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 378
Pete and Repeat

Nice to see gold on the way to giving up all of last week's gains.  Surging back toward $1300.  Just can't break above $1360.  It's probably going to take a nuke going off somewhere.  Then it will be panic bid up $100 and lose it all the next week.

The other thing that's interesting today is that equities keep shooting up and then slowly coming back down.  The Dow went from 0-200 ealier in like 5 minutes and then worked its way back to flat/down.  Same thing happened again a bit later, except it went up like 150ish.  Same thing just happened again.  It's like it keeps being ramped up and then slowly selling off.  I guess equities will finish higher, but the action is interesting.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
its the buck

Buck up another +0.5% today.  Gold really doesn't like that much at all.

 

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 918
Cieling may be a nonissue

Just a point: suppose you had a market stabilizer who had determined to buy at anything less than 1200, sell at anything over 1360. If they were a big player -- maybe a jeweler, or maybe a chip manufacturer -- you might see that level get tested and retested over several years.

The fact that this cieling has been tested so many times, implies that it is a significant breakpoint. As long as the fundamentals remain the same, and the unit which sets the cieling remains the biggest player, you will see the same market behavior.

Who would do that? I don't know. But for know, rest assured that sellers seem likely to show up at 1360.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 378
Right
davefairtex wrote:

Buck up another +0.5% today.  Gold really doesn't like that much at all.

 

Yeah, the dollar is up again.  The Yen is down, I guess because NK wants peace with the world now.  Looks like KJU is on a global peace tour.

bronsuchecki's picture
bronsuchecki
Status: Bronze Member (Offline)
Joined: Apr 22 2012
Posts: 81
the seller at $1360
Michael_Rudmin wrote:

Who would do that? I don't know. But for know, rest assured that sellers seem likely to show up at 1360.

One of the "sellers" is physical coin/bar owners (retail), coins premiums have never been this low, in some cases the lowest in 10 years. I suspect those who bought in the run up to $1900 held on once gold peaked, and then after it crashed below $1600 in April 2013 they have been seeing any strength as an opportunity to get out (and maybe get into bitcoin, the next hot thing they think they can make big money in). Until that bunch of unhappy gold owners is exhausted, I think we will continue to see gold capped.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 58
JPM and seabed mining

Hi Dave,

My long silver trigger finger is finally getting very twitchy but there are still 2 big issues that bother me and that I'd appreciate your viewpoint on. The first is whether the price could substantially rise in lets say the next decade faced with modern record holdings at the JPM bank:

Bank silver holdings

I used the search tool and with that it seems your last comments on JPM were from 2013: https://www.peakprosperity.com/discussion/82484/pm-daily-market-commenta...

My other big doubt is about seabed mining technology working out and depressing the price, see: http://www.mining.com/worlds-first-seabed-mine-to-begin-production-in-2019/

What are your thoughts on that long term?

Do you know of a mining ETF that has good exposure to deepsea miners generally that could be used as a hedge? And what would be a way to hedge against silver manipulation?

All my investment decisions are my own and I won't be putting anything into SLV and SIL that I can't lose 50% of. Just appreciate your expert trader viewpoint, thanks!

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
seabed mining

Well I don't know anything about seabed mining.  Do you have any numbers on how many ounces of silver it is expected to produce?  Annual global production is maybe 25,000 tons.

The JPM holdings are about 3500 tons, based on your chart, or about $1.9 billion, or about 51 days of mine supply.  That's quite a bit, but presumably if they have a big supply, they're expecting it to go up then, yes?

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 58
Deepsea mining and JPM
davefairtex wrote:

Well I don't know anything about seabed mining.  Do you have any numbers on how many ounces of silver it is expected to produce?  Annual global production is maybe 25,000 tons.

Well it's all experimental so it's a serious question whether they'll get any out and if they do, whether it's profitable. Underwater mining isn't new, but this Solwara location is at 1600 metres depth, which some people say is puts in in the same league as mining from space.

Late 2017 the chairman resigned amidst a funding crisis. They still need to raise and spend US$243 million to commence production.

But if this all works out, the metals are supposed to be down there. Based on this:

The PEA was based on updated mineral resource containing 1.03-million tonnes grading 7.2% copper, 5 g/t gold, 23 g/t silver and 0.4% zinc in the indicated category, using a 2.6% copper cutoff. The Solwara 1 and 1 North projects also hold 1.54-million tonnes grading 8.1% copper, 6.4 g/t gold, 34 g/t silver and 0.9% zinc in the inferred category.

There should be ~23 + 52 million grams of silver = 2.6 millions ounces down there.

If my maths is right then that's 75 tonnes of silver, which compared to the JPM holdings and annual production now sounds pretty insignificant. Would you agree? Of course they're not only after the silver, and if successful think this can be scaled up all over the world, but maybe it'll be many many years before this potentially impacts the price of silver?

davefairtex wrote:

The JPM holdings are about 3500 tons, based on your chart, or about $1.9 billion, or about 51 days of mine supply.  That's quite a bit, but presumably if they have a big supply, they're expecting it to go up then, yes?

Haha, yes, maybe I should just apply Occam's razor and assume this simplest interpretation is the correct one. Only thing I still find strange is that JPM is the only bank with such an outsize position in silver, or is this normal and do other banks have large positions in other precious/industrial metals?

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5967
Doing the math
phusg wrote:

Late 2017 the chairman resigned amidst a funding crisis. They still need to raise and spend US$243 million to commence production.

But if this all works out, the metals are supposed to be down there. Based on this:

The PEA was based on updated mineral resource containing 1.03-million tonnes grading 7.2% copper, 5 g/t gold, 23 g/t silver and 0.4% zinc in the indicated category, using a 2.6% copper cutoff. The Solwara 1 and 1 North projects also hold 1.54-million tonnes grading 8.1% copper, 6.4 g/t gold, 34 g/t silver and 0.9% zinc in the inferred category.

There should be ~23 + 52 million grams of silver = 2.6 millions ounces down there.

Hmmmm...another $243 million to commence production.  Presumably production costs are higher than normal, but we don't know what those might be.

But the silver you mentioned, if sold at $16.20/Oz = $42 million.  

The Gold, however, would peg in at $640 million at current prices.  

The copper would price out at around $800 million.

So on paper it seems economically viable, but I will be willing to bet that operating at 1,600 meters is non-trivial and that both recovery costs are higher than anticipated and recovery yields are lower than the full amount of the inferred reserves.

Regardless, by the time people are excitedly raising money to chase ore deposits at 1,600 meters ocean depth we should be asking a few questions.  Such as, aren't the ore grade yields roughly what we were getting above ground just a few decades ago?

And, what does it mean that we're now even considering such meager deposits at such great expense?

bronsuchecki's picture
bronsuchecki
Status: Bronze Member (Offline)
Joined: Apr 22 2012
Posts: 81
JPM's position
phusg wrote:

Only thing I still find strange is that JPM is the only bank with such an outsize position in silver, or is this normal and do other banks have large positions in other precious/industrial metals?

Vault stocks do not mean the vault operator owns that metal. It is impossible to determine what, if any, proprietary (outright) or even hedged (arbitraged) positions JPM or any other bullion bank that operates a vault may have just from vault stock.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 58
Thanks for your thoughts

Thanks for your thoughts guys.

bronsuchecki wrote:

Vault stocks do not mean the vault operator owns that metal.

Great point that is missed by 99-100% of internet commentators on JPM's silver 'horde'. That would explain a lot without needing any over-elaborate conspiracy theory.

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