PM End of Week Market Commentary - 4/27/2018

davefairtex
By davefairtex on Sat, Apr 28, 2018 - 7:47pm

On Friday, gold rose +6.40 [+0.48%] to 1324.10 on moderately light volume, while silver rose +0.07 [+0.46%] to 16.55 on moderate volume. The dollar was largely unchanged [-0.03%], which suggests that the modest PM rally on Friday wasn't currency-driven.

It was a relatively bearish PM sector map this week, with almost every item in the red. Silver led gold lower, juniors led senior miners lower, but palladium was hit hardest – that might have been about Russia and sanctions. Short term, all items are below the 9 MA. Longer term, all items except gold are below the 200 MA. That's all fairly bearish.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 0.09% 4.22% falling falling rising falling ema9 on 2018-04-20 2018-04-27
Gold $GOLD -1.01% 4.64% falling falling rising falling ma50 on 2018-04-23 2018-04-27
Platinum $PLAT -1.37% -3.10% falling falling falling falling ema9 on 2018-04-20 2018-04-27
Junior Miners GDXJ -1.37% 4.23% falling falling rising falling ma200 on 2018-04-25 2018-04-27
Silver Miners SIL -1.62% -9.51% rising falling falling rising ema9 on 2018-04-23 2018-04-27
Copper $COPPER -2.10% 18.23% falling falling rising falling ema9 on 2018-04-27 2018-04-27
Silver $SILVER -3.30% -4.28% falling falling rising falling ma50 on 2018-04-25 2018-04-27
Palladium $PALL -5.52% 18.21% falling falling rising falling ma200 on 2018-04-27 2018-04-27

Gold fell -13.50 [-1.01%], with gold falling 3 days out of 5. Friday's bullish harami only had a 27% chance of being a bullish reversal, and gold forecaster ended the week at a relatively bearish -0.35. Gold is below both the 9 and 50 MA, but remains above the 200 – the only PM component to do so. Weekly and monthly forecasters are both in downtrends.

The June rate-increase chances fell to 93%.

COMEX GC open interest fell -18,428 contracts this week.

Silver plunged -0.56 [-3.30%] this week, with almost all of the damage happening Monday. Last week's rally was entirely unwound.  Thursday silver might have put in a low, but Friday the forecaster issued a sell signal, dropping -0.25 to -0.18.  Last week everything looked bullish, uptrends across the board, but this week that was all unwound.  Silver is now in a downtrend in all 3 timeframes, with a sell signal on the weekly.  And the monthly forecaster has backed away from its buy signal.

One last note.  On the weekly chart, the candle print was a bearish engulfing.  That particular candle print has a lot more predictive power on the weekly and monthly timeframes.

The gold/silver ratio rose +1.85 to 80.01, which is bearish.

COMEX SI open interest fell -31,300 contracts. This was a huge change; 4867 tons of paper silver, or 19% of global production, gone in 1 week.  Normally I'd say that was bullish, but this week, I'm just not so sure.

The miners dropped early in the week, with XAU forecaster issuing a sell signal on Tuesday, and then moved sideways for the remainder of the week. XAU ended the week below the 9 and 200 MA lines, but remains above the 50. XAU is in a downtrend on the daily and weekly timeframes, but remains in an uptrend on the monthly.  The miners are the only positive-looking item in the metals space.

The GDX:$GOLD ratio rose +1.11%, while the GDXJ:GDX ratio fell -0.37%. That's slightly bullish

USD

The buck rose +1.23 [+1.37%] to 91.18, breaking convincingly above its multi-month trading range. On Friday the buck made a new high to 91.62 an hour before the US session, but then it reversed, losing all its gains by the close. That looked like some kind of shooting star to me, but it was just a neutral high wave according to the candle code. DX forecaster ended the week at +0.52, which is a strong uptrend. DX is in an uptrend in all 3 timeframes.

US Equities/SPX

SPX fell -0.23 [-0.01%] to 2669.91, virtually unchanged on the week. SPX sold off sharply onTuesday, but rallied back to end the week flat. SPX daily forecaster ended the week at -0.28, just below the 9 MA. SPX is also below the 50 MA as well. We are in the middle of earning season, and while many companies have done well, the market has not responded very enthusiastically. When a market can't rally on good news, that's bearish. SPX remains in its bearish descending triangle.

Sector map shows high-yielding REIT and utility stocks in the lead, while defense & industrials did worst. Financials and tech were also down on the week – this is a relatively bearish-looking sector map.  Its generally not a good sign when utilities are at the top.

VIX fell -0.53 to 16.88.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
REIT RWR 3.75% -5.70% rising rising falling rising ema9 on 2018-04-26 2018-04-27
Utilities XLU 2.80% -0.46% rising rising falling rising ema9 on 2018-04-16 2018-04-27
Healthcare XLV 1.77% 10.94% rising falling rising falling ma50 on 2018-04-27 2018-04-27
Cons Discretionary XLY 1.10% 15.14% rising falling rising falling ema9 on 2018-04-26 2018-04-27
Energy XLE 0.71% 8.90% rising rising rising rising ma50 on 2018-04-10 2018-04-27
Homebuilders XHB 0.71% 3.97% falling falling rising falling ema9 on 2018-04-19 2018-04-27
Cons Staples XLP 0.55% -8.03% falling falling falling falling ema9 on 2018-04-19 2018-04-27
Gold Miners GDX 0.09% 4.22% falling falling rising falling ema9 on 2018-04-20 2018-04-27
Technology XLK -0.48% 21.48% falling falling rising falling ema9 on 2018-04-20 2018-04-27
Financials XLF -0.65% 16.58% rising falling rising falling ema9 on 2018-04-24 2018-04-27
Telecom XTL -1.33% -0.32% rising rising rising rising ema9 on 2018-04-23 2018-04-27
Materials XLB -2.10% 7.92% falling falling rising falling ema9 on 2018-04-24 2018-04-27
Industrials XLI -3.19% 9.81% falling falling rising falling ema9 on 2018-04-24 2018-04-27
Defense ITA -4.59% 26.52% falling falling rising falling ma50 on 2018-04-25 2018-04-27

Gold in Other Currencies

Gold was mixed this week, but fell in XDR by -8.61.

Rates & Commodities

Bonds bounced back this week, with TLT up +0.36%, printing a swing low and a forecaster buy signal on Thursday. TY confirmed with its own buy signal a day later, but it was largely unchanged (-0.01%) on the week. In spite of the rebounds on the daily charts, TY remains in a downtrend on both weekly and monthly timeframes. The 10-year ended the week at 2.96%.

JNK dropped -0.33% on the week, dropping for the first few days, and then bouncing back. JNK remains in a downtrend, with forecaster ending the week at -0.21. Weekly and monthly BAA forecasters both support the JNK downtrend. However, BAA-AAA ratio isn't getting any worse, which suggests the credit market is not overly concerned about safety.

Crude edged down -0.09 [-0.13%] to 67.97, ending up more or less unchanged on the week. CL forecaster switched directions 3 times this week, underscoring the uncertainty, with forecaster closing the week at +0.02, which is just barely an uptrend. The EIA report was slightly bearish [crude: +2.2m, gasoline: +0.8m, distillates: -2.6m] but the market ended up rallying on the day. Uncertainty over whether or not Trump will recertify the Iran nuclear deal is probably supporting prices in crude. Weekly and monthly forecasters remain in an uptrend, although momentum on the weekly is beginning to fade.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +5.31, with 871 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.75 -0.62% to NAV [down]
 PSLV 6.12 -1.74% to NAV [down]
 CEF 13.38 -2.09% to NAV [up]

* 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] 1.30% and silver [1000oz] 3.02%.

Futures Positioning/COT

In gold, the commercial net position rose by 23k contracts; commercials closed -21k shorts and added +2k longs. Managed money fell by -33k contracts; that's +18k new shorts, and -15k fewer longs. That's a pretty clear case of commercials ringing the cash register. We're still far from a significant COT low, however.

In silver, the commercial net fell by -14.6k contracts; that's +13.7k new shorts, and -914 fewer longs. Managed money net rose by +19k contracts, mostly -12.3k shorts covered and +6.6k new longs purchased. Commercials have flipped direction; they've started to go heavily short, while managed money is covering. These are also large moves. Is this just last week's rally that took until now to show up in the report? Or is it something more? Its really hard to say – and unfortunately, we won't be able to sort it out until next Friday.

Grey Swans & Geopolitics

  • Italian Elections: M5S has abandoned its effort to form a government with Lega Nord, and is now entering discussions with the PD. If those discussions fail, it will likely lead to a new election.  I'm not sure a M5S-PD government will end up changing status quo in Europe.  https://www.thelocal.it/20180425/italy-five-star-democratic-party-government

  • US Congressional Elections, 2018: The generic ballot shows Democrats 46.4% [+7.3%] vs Republicans 39.1%, an increase of +0.4% in the spread vs last week.  Dems taking over Congress probably mean impeachment hearings, which would be dollar-negative.  https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • ISIS: There's a linkage between food security, ISIS, and migration. Speaking of the ISIS strategy: “those [ISIS commanders] forced out of Syria were uniting with local terrorist groups to use a lack of food as both a recruitment tool and a vehicle to push millions of Africans towards Europe.” https://www.theguardian.com/world/2018/apr/26/isis-trying-to-foment-a-wave-of-migration-to-europe-says-un-official

  • Mueller Investigation: nothing new this week. 61% of Republican voters now believe that the Mueller investigation is unfair; that's up 15 points in the past 6 weeks – 2 weeks after the FBI raided the offices of Trump's attorney. Regardless of the technical reasons why they did it, it may have been a bridge too far. Public support for Mueller is crucial, because if Mueller loses the support of the American people – even just the Republicans – Trump will be able to fire him.  It is dollar-positive if Mueller investigation ends.

  • Iran: there are indications that Trump will bail out of the Iran nuclear deal. If Trump does so, the renewed sanctions regime would reduce Iran's oil exports at a time when the supply & demand in the oil market is relatively evenly balanced. That would be crude-positive. Decision is due May 12th.

Summary

This week the buck rallied strongly, probably encouraged higher by the ECB resolutely doing nothing while  US short rates continue to climb. We also have Iran and the nuclear deal, as well as the summit with North Korea, which continues to become more positive.  (Might it be a setup by "Fatty on the Train"?  It might.)  At the same time, the equity market is failing to rally on good news, which is always a bad sign, and while bond yields retreated this week, rates will probably continue to climb given the supply situation.

In silver, the commercials are going heavily short, while managed money is bailing out long. Normally this would be good news, if it was accompanied by rising silver prices, but it is happening at a time when the price has reversed lower. I'm starting to get concerned. Gold is moving slowly into a more bullish COT position, but we have a ways to go.

Big bar gold and silver premiums remain relatively unchanged; supply indicators suggest there is no current shortage of physical gold.

Next week we have an FOMC meeting – no press conference, so no rate increase – but we will get an update on what policy will be. I'm not sure what they'd change, but who knows. Gold likes to sell off immediately prior to these meetings, and that's certainly what we are seeing.  Is that all it is?

I've been following Armstrong's reversal system, and his computer had a weekly bearish reversal for silver at 16.91 which was elected, and in addition, his pattern-matching code is saying – translated into candle-speak – that this month's candle is a shooting star, and that's generally bearish. (His actual language: Knee-Jerk High, Crash Likely). My own code issued a sell signal on the weekly, and my monthly is now back in a downtrend, as is the daily. While this might just be a headfake in advance of FOMC on Wednesday – it might be something else too. Volume this week was extremely heavy.

Copper is back to looking weak (it sold off hard on Friday – swing high – 59% bearish reversal), palladium and platinum are both in monthly-downtrends, and only crude continues to look positive longer term. All that won't help silver too much.

The one positive note are the miners, which have managed to cling to a monthly-chart uptrend.  Somehow. 

Weekly trends:

Uptrend: crude, SPX, USD.

Downtrend: copper, miners, BBB corporates, gold, silver, 10-year treasury.

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5 Comments

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 594
Mauldin

Grant Williams, author of Things That Make You Go Hmmm..., warned investors about the dangerous implications of a shift in US monetary policy—another good reason to invest in gold now.

According to Williams, for the last 40 years, US monetary policy has been built on constant injections of stimulus. Since Paul Volcker’s tenure in the early 1980s, every Fed chair has pushed interest rates lower.

Now QE is officially over and is to be reversed. Williams thinks that this marks a monetary shift, which spells trouble for equities.

He gave a brief rundown on the effects that the Fed’s three rounds of QE had: “Stocks soared. The S&P doubled under the Fed's various QE programs. Gold fared really well because of fears of inflationary effects of money printing. The dollar eventually eked out a small gain. And the yield on the [10-Year] Treasury fell 1.6%.”

The key message for investors is, Williams said, that after nine years of one long, pleasant, ride in equities, we've reached the point where the main driver of equity prices is about to reverse.

In the best case scenario, he thinks quantitative tightening will reverse the effect of the Fed’s stimulus measures on the stock market. However, he doesn’t rule out a much bigger sell-off.

Asked what investors should do, Williams joked, “Long the Zambian kwacha versus the US dollar. Ah, who the hell am I kidding—it's gold! Of course, it's gold!”

The reason is that all the trends are pointing to rising inflation, he said. “Gold performs best in a rising inflationary environment, not a high inflation environment. So, we're kind of moving into that sweet spot.”

Williams likens today’s situation to the period leading up to the 1970’s recession where a shift from equities and cash to gold could happen unexpectedly fast.

What happened with that late-cycle stimulus that Johnson put in, and what happened to equity markets, bond yields, wage prices, CPI, and gold, going into the late ‘60s into the early ‘70s, we saw these things take off. And these things are cyclical. So to me, if this inflation story gets some traction, then I think you're going to see money move to gold reasonably quickly.

Further, Williams suggested, in periods of quantitative tightening, equities eventually crash. Since gold is inversely correlated to the stock market, this is another reason gold should rise in the coming years.

http://www.mauldineconomics.com/landing/smart-money-is-moving-into-gold-as-volatility-returns

 

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 370
< $1300

I have a feeling that we will see gold below $1300 soon.  Re: silver, I also have a feeling that in the end, all of the big partying over the commercials lowest short position in history will have only resulted in a two day spike above $17.  Yay.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
zombies in Europe

Wolf Richter has an article describing how the ECB's corporate bond purchase program has essentially kept 50 zombie European companies alive by providing 0% interest funding.

Apparently, the ECB has now started to taper the purchases of corporate bonds, and we're seeing a European corporate bond index yield starting to rise.

If the ECB shuts off the life-sustaining drip of cheap money to these corporations, they will all eventually blow up.  Whether or not the ECB actually does pull the plug, the net effect of keeping around companies long after their expiration date has eliminated capitalism's mechanism of cleaning out the deadwood through bankruptcy in the EU.  Over the long haul, corporate socialism is inefficient, and in time, will make that region a lot less competitive - dragging down living standards, etc.

Regarding capitalism, Europe, and the ECB's actions:

It became necessary to destroy the town to save it.

https://wolfstreet.com/2018/04/29/are-european-companies-ready-for-life-without-draghi/

 

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Re: Gut Feelings

Gut feelings and opinions are useless timinig indicators, especially when there is no clear trend (silver).  If you are bearish, wait for a break of $16.20 support and go short.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 370
100%
Penny551 wrote:

Gut feelings and opinions are useless timinig indicators, especially when there is no clear trend (silver).  If you are bearish, wait for a break of $16.20 support and go short.

Yep.  That’s 100% right, if you’re trading.  I’ve got physical gold and silver and I’m not getting rid of any of it.  But still, I would be surprised if we launch from here.

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