PM End of Week Market Commentary - 3/30/2018

davefairtex
By davefairtex on Sun, Apr 1, 2018 - 12:13am

Friday was a holiday – and this weekend marked both end of month, and end of quarter, so while I'm going to include some of my weekly update information, mostly I'm going to focus on monthly charts and data.

In the monthly sector map for the metals, the miners are leading the metals, while gold is leading silver. The industrial-use metals (copper, palladium, platinum) did worst, with palladium the standout at -8.48%. Miners doing well is a positive sign for the PM group, while the industrial metal plunge is generally negative for risk assets and economic activity. It feels as though silver is being tugged lower by the drop in copper and the other industrial metals.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 3.92% -14.31% rising falling falling falling ema9 on 2018-03-29 2018-03-31
Senior Miners GDX 2.95% -4.06% rising falling falling falling ema9 on 2018-03-29 2018-03-31
Junior Miners GDXJ 2.45% -11.07% rising falling falling falling ema9 on 2018-03-28 2018-03-31
Gold $GOLD 0.77% 6.10% rising rising rising falling ema9 on 2018-03-28 2018-03-31
Silver $SILVER -0.49% -10.51% falling falling falling falling ema9 on 2018-03-28 2018-03-31
Copper $COPPER -3.39% 13.12% falling falling rising falling ema9 on 2018-03-29 2018-03-31
Platinum $PLAT -4.95% -2.23% falling falling rising falling ma200 on 2018-03-27 2018-03-31
Palladium $PALL -8.48% 19.88% falling falling rising falling ma200 on 2018-03-29 2018-03-31

Gold rose +10.20 [+0.77%] this month, closing at 1329.60.  Gold tried to make a new high this month but failed, printing a neutral-looking spinning top candle. On the USD chart, gold remains far above its uptrend line, and appears to be reasonably close to a breakout.  However, monthly forecaster fell -0.31 to -0.46; this month's relatively feeble rally didn't impress the model very much at all.  Still, the longer term uptrend remains intact, with price well above the uptrend line.

However, if you align the DX chart and the GC chart, you will see that gold's $250 rally from 2017-present coincides almost entirely with the plunge in the buck that happened at the same time. But to make it easier, I'll just include the GC.EUR monthly chart, which does all that for you. It shows that gold across the pond is in a forecaster downtrend (-0.18), and has been heading generally downhill since the BRExit-related high in mid-2016.

The June rate-increase chances ended the week at 79%.

COMEX GC open interest fell by -64,182 contracts this week. That's 200 tons of paper gold, gone.

Silver fell -0.08 [-0.49%] this month, closing at 16.34. This resulted in a doji/NR7 candle; forecaster thought this was very mildly bullish, rising +0.04 to -0.38, which is still a downtrend. Overall, silver's chart continues to look much worse than gold's chart; a descending triangle is generally bearish, with the (managed money) shorts looking for a drop through the rough support area at 15.63.

The gold/silver ratio rose +0.01 to 81.37, which is neutral.

COMEX SI open interest rose 11,630 contracts this week, or 1808 tons of paper silver. I believe that is all about managed money continuing to load up short, but we won't know until the COT report arrives on Monday.

The miners moved up, with XAU rallying +3.64% on the month. The forecaster seemed to like the short white candle (+0.28 to -0.18). If PM was about to collapse, its probable that the miners wouldn't have done this well, so while I'm not saying that we're looking at a near-term breakout, and XAU remains in a downtrend, the bid underneath the miners is a positive sign – and if we look at the PM sector map, having the silver miners doing best (while silver-the-metal looks weak) is another positive indication.

The (monthly) GDX:$GOLD ratio rose +2.16%, and the GDXJ:GDX ratio fell -0.48%. That's somewhat bullish.

USD

The buck fell -0.43 [-0.47%] to 89.81. Mostly, the buck chopped sideways this month, printing a short black/NR7 candle. The forecaster thought it was a bit bearish, dropping -0.05 to -0.07, however overall it appears as though the buck may be about to mark a low. If it does, then gold will probably have a difficult time. While the forecaster suggests the buck may be about to reverse direction, the buck really needs to break out of its channel before we can say it is recovering.

US Equities/SPX

SPX fell -72.90 [-2.69%] to 2640.87. We saw a one-week rally, followed by a two-week selloff that found support at the 200 MA. In February, the FINRA margin loans (formerly the NYSE Margin Loans) dropped $20 billion, or about 3%. This suggests there was some amount of margin-related selling in last month's plunge. Candle print was a spinning top; forecaster liked it, rising +0.14 to -0.01, which is right on the cusp of a buy signal. SPX avoided making a new low, which is a positive sign, as is the relatively long lower shadow.

The sector map shows that interest-rate sensitive issues led - REITs and utilities – while basic materials, financials and tech plunged most. That's a classic bearish pattern.

VIX ended the month at 19.97.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
REIT RWR 3.35% -5.96% falling falling falling falling ema9 on 2018-03-28 2018-03-31
Utilities XLU 3.00% -1.90% rising rising falling rising ema9 on 2018-03-27 2018-03-31
Gold Miners GDX 2.95% -4.06% rising falling falling falling ema9 on 2018-03-29 2018-03-31
Energy XLE 1.00% -3.92% rising falling rising falling ema9 on 2018-03-29 2018-03-31
Homebuilders XHB 0.62% 9.80% falling falling rising falling ema9 on 2018-03-29 2018-03-31
Telecom XTL -0.20% -2.53% falling falling falling falling ma50 on 2018-03-23 2018-03-31
Cons Staples XLP -1.46% -4.05% falling falling falling falling ema9 on 2018-03-28 2018-03-31
Defense ITA -2.42% 33.39% falling falling rising falling ema9 on 2018-03-29 2018-03-31
Cons Discretionary XLY -2.67% 15.48% falling falling rising falling ma50 on 2018-03-19 2018-03-31
Industrials XLI -3.08% 14.35% falling falling rising falling ema9 on 2018-03-14 2018-03-31
Healthcare XLV -3.26% 9.17% falling falling rising falling ma200 on 2018-03-22 2018-03-31
Technology XLK -4.03% 22.72% falling falling rising falling ma50 on 2018-03-22 2018-03-31
Financials XLF -4.50% 16.72% falling falling rising falling ema9 on 2018-03-14 2018-03-31
Materials XLB -4.51% 8.64% falling falling rising falling ma200 on 2018-03-22 2018-03-31

Gold in Other Currencies

Gold fell in most currencies this week; gold in XDR dropped -13.81.

Rates & Commodities

Bonds moved higher this month, with TLT up +2.65%, erasing almost all of last month's loss. TY did less well, rallying just +0.64%. The forecaster liked the short white candle, rising +0.44 to -0.36. That's still a downtrend, but it is slowing down. The 10-year yield ended the month at 2.74%, down 13 bp from last month. While the long bond did well this month, I'm not sure this will end up marking the low for bonds, unless the selling in risk assets gets a lot more intense.

JNK fell -0.99% this month; while it didn't end up making a new low, the monthly chart shows a very clear topping pattern. While the selling is not particularly intense just yet, JNK remains in a downtrend. The longer term monthly BAA (yield) chart is also in a fairly strong uptrend; a "yield uptrend" = "price downtrend" = risk off.  BAA has a bit farther to go before it confirms the double bottom pattern that appears to be forming.

Crude rose +3.36 [+5.46%] to 64.91 this month, recovering all of last month's plunge and a little bit more.  Forecaster liked the move, rising +0.34 to +0.31, which is a buy signal for crude.  This month, Venezuela lost access to new loans from China, and production continues to plunge. Venezuelan production is back to lows not seen on a sustained basis since 1980. China's crude futures contract launch went well. No doubt China was encouraging local participants to help make it a success.

According to this source (https://tradingeconomics.com/venezuela/crude-oil-production) Venezuela lost 180k bbl/day in February.  Here's what the loss in Venezuela's crude production looks like over the long term: they're down perhaps 1.3m barrels over the past 4 years.  I think they are single-handedly helping OPEC to compensate for the increase in shale production in the US.

Physical Supply Indicators

* SGE premium vs COMEX ended the month at +5.53.

* The GLD ETF tonnage on hand rose +15.09 tons, with 846 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.75 -0.74% to NAV
 PSLV 6.04 -2.25% to NAV
 CEF 13.22 -3.13% to NAV

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a slight discount for gold and a small premium for silver.

* Big bars premiums were: gold [1kg] 0.96% and silver [1000oz] 3.49%.

Futures Positioning/COT

No update this week for the COT report. I think it will be released next Monday.

Grey Swan Status

Summary

So to review where we are from the technical point of view:

These are generally negative for risk assets over the long term:

  • Rising BAA rates (3-month uptrend)

  • Rising BAA-AAA rate ratio (new uptrend)

  • Rising 10-year rates (17-month intermittent uptrend, slowing)

  • Rising 1-year rates (18-month uptrend, slowing)

Copper is indecisive having fallen perhaps 10% below its recent high, palladium has entered a downtrend after a 2-year rally, while platinum is in a downtrend, and has just largely moved sideways over the past 18 months, after topping out in mid-2016. That looks somewhat negative for risk assets.

In my other charts, I have no recession indications, but I do see a slowing in home price appreciation. That's yet to the point of a correction, but rising rates should eventually take a toll on home price increases.

Crude, marching to the speed of its own drummer, appears set for a breakout above $66, because of falling Venezuelan oil production, as well as an increase in projected demand.

That's a fair number of bearish inputs for risk.  Perhaps in response, SPX issued a sell signal last month, however this month it avoided making a new low. Topping may not be immediate - it may end up being a process.  And there is always Martin Armstrong's theory that suggests equities will benefit from a flight to safety if a sovereign bond crisis strikes.  Such an event seems far away, but it is something to keep in mind when betting on an equity market collapse.

So where does that leave gold, silver and the miners?

Over the past 12 months, gold has remained largely at the mercy of movements in the currency market. Once the excitement of BRExit had passed, gold-in-Euros mostly just chopped sideways with a negative bias, which roughly corresponds to “nobody cares” over there in Europe. The chart of GC.EUR doesn't look that bad – it really could go either way if there were a catalyst - but the general direction does appear to be lower.

Silver in Euros has done far worse – silver in euros is approaching a long term support line, and the trend is much more clearly down. Perhaps that's where all of the managed money shorts are coming from.

The miners look more like silver, except that the downtrend is shallower, and there were positive signs this month. That said – if we pull way back, the GC/XAU long term ratio chart appears to be on a voyage to the bottom of the sea. Is this just about poor use of capital? Relentlessly declining ore grades? Are miners doomed to never recover to their former glory? How can we know?

Well, copper miners Rio Tinto and Freeport McMoran haven't had such an experience.  They have roughly kept to their longer term trading range with respect to the price of copper.  Gold miners alone have gone on this journey of tears; this isn't about resources alone – it is probably a combination of feckless management, investor disinterest, as well as declining ore grades. However if gold does manage to execute its long-awaited moonshot, the miners will be a lottery ticket, given how depressed the ratio is.  I'd expect a 4-bagger for much of the group just based on the ratio alone.  Add another 2x for gold's price move.  This is "the bitcoin move" that goldbugs have awaited since forever.  The rally in 2016 was a twobagger because the ratio was so depressed, but it hardly shows up on the chart below.

But enough with the dreams.  For now, given that "nobody cares" in Europe, gold remains the plaything of the currency markets, the moonshot remains somewhere in the future when confidence breaks down, and so for today we must look at the buck to see where gold will go next. Currently, the trend for the buck remains down, but not by much.  And gold remains relatively close to a breakout, at least for now.

In other words, I still can't say - it could go either way.

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3 Comments

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 580
Rod Kirby podcast

     Forensic macroeconomic analyst Rob Kirby says big money knows “gold supplies are tight” and getting tighter by the day.  Kirby, who also arranges gold sales by the ton on a global scale, explains, “There are reports of people trying to buy institutional amounts of physical gold bullion in the Asian market, and there is none available even if they are paying a premium.  I’m not talking about availability at the coin shop where you would buy two American Gold Eagles or a Gold Panda.  I am talking about institutions wanting to buy serious amounts of physical gold bullion in bar form.”

     Kirby says the global financial system is packed with unpayable debt, and the insiders know many might wake up someday to find they are living in their very own Mad Max movie. Kirby says, “If the financial world is turned on its head, we could very likely see some social unrest.  Things could get very, very unpalatable, and we could see a complete breakdown. . . . This leads naturally to the question if the system is this precarious, why hasn’t anybody with a whole lot of money done anything to tip it over?  The reason is that virtually nobody benefits from a situation where anarchy happens, and there aren’t many people who want to be the person that pulls the pin on the grenade.”

     How long can this go on for? Kirby says, “Not much longer because the amounts and volumes of delivering physical gold are growing with time at a geometric rate.  The demand for physical is growing too fast for the paper to be able to justify the false price discovery.  There are fraudulently concocted prices of precious metals on the COMEX exchange . . . to keep these fraudulent prices on metal believable, COMEX has had to give up at least some metal to make their fraudulent price believable.  At some point, this whole system is going to be exposed for the massive fraud that it has been for a very long time. . . .  What does this mean to the average guy in the street?  We could see physical gold and silver prices go Bitcoin.  We could see the price of silver go up 5, 10, 20 or 30 times just like Bitcoin did in a very short space of time.  I feel this is ultimately what is in store for precious metals prices.” 

     On the inflation front, Kirby says all the money needed for hyperinflation has already been printed. Kirby contends, “It’s kind of like having a nuclear war, and people say where are the bombs going to come from?  The bombs are going to come out of their silos.  What people can’t believe or can’t wrap their head around is the notion and the fact that there’s $21 trillion or more that’s been ‘siloed.’  The money has been created and siloed.  We know it’s been created because we know it flew through the books of the Department of Defense (DOD) and the Department of Housing and Urban Development (HUD).  That’s just two government agencies. . . . We’re talking about tens of trillions of dollars.  We don’t know exactly where they are or who controls them. . . . This is why you want to own some tangible stuff.  This is why you want to own physical bullion, such as coins and bars, and you want to have them in your control.”

https://usawatchdog.com/global-gold-supplies-getting-tighter-rob-kirby/

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2241
Thanks, Nate

Thanks, Nate, for the link to the Rob Kirby podcast.  I find his perspective really interesting, and would love to hear a conversation between Chris and him on Off-the-Cuff sometime.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 799
I tend to be more pessimistic.

People who play with loaded dice and roll double sixes, often have a six shooter in reserve, too.

When they can't defraud any more, why wouldn't they just steal? If the theft would upset too many people, why wouldn't they solve it with boxcars? Lenin style boxcars.

I just don't see a winning path here.

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