PM Daily Market Commentary - 5/1/2018

davefairtex
By davefairtex on Wed, May 2, 2018 - 2:32am

Gold fell -11.50 [-0.87%] to 1304.60 on moderately heavy volume, while silver dropped -0.18 [-1.07%] to 16.18 on moderate volume. The buck shot up +0.62 [+0.68%] to 92.07, making a new high and generally pulling commodity prices lower in advance of the FOMC announcement that happens tomorrow at 2pm.

Gold more or less sold off all day long, starting early in Asia, and only stopping at the close in New York. Gold made a new low to 1302.30, bouncing back just a couple of bucks. The long black candle: bearish continuation. Forecaster dropped -0.12 to -0.53, making a new multi-month low. Gold stopped dropping right at the 200 MA.

COMEX GC open interest rose 6,631 contracts. I would have expected the commercials to close out their shorts, but that doesn't seem to be happening.

Rate rise chances (June 2018) fell to 90%.

Silver took a bit of a different track, starting its plunge around 8:30 am, making a new low to 16.07 at around 11 am. Candle print was a long black candle – a bearish continuation. Forecaster plunged -0.44 to -0.65; silver is now in a strong downtrend. The break below the previous low is a bearish sign.

COMEX SI open interest rose by 1,582 contracts today.

The gold/silver ratio rose +0.16 to 80.63. That's bearish.

Miners gapped down at the open, but rallied steadily all day long, closing near the highs of the day. GDX moved up +0.13% on moderate volume, while GDXJ climbed +0.62% to on moderate volume also. GDXJ printed a bullish engulfing, which was a bullish reversal (33%). XAU forecaster wasn't as bullish, dropping -0.07 to -0.40; XAU remains in a downtrend. Still – there was a serious bid under the miners today, especially given how poorly both gold, silver, and the rest of the metals group did. Are the miners a “tell” for what happens tomorrow at FOMC?

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

Platinum fell -1.12%, palladium dropped -2.03%, and copper moved down -0.63%. Platinum made a new low, dropping below 900 (to 895). The gold/platinum ratio hit another multi-decade high today: 1.458. All the other metals are in downtrends, just like gold and silver. Platinum looks weakest of the group.

The dollar shot up +0.62 [+0.68%] to 92.07. So what's behind the strong USD rally? The thing that makes the most sense is increased inflation concerns in the US. Wolf Richter had an article on “Rate Hike Ammo” - the Fed's favorite inflation gauge (the PCE) is right at the Fed's target of 2%. With the FOMC meeting upon us, how will the Fed react? Will they signal a faster set of rate increases? A more rapid wind-down of the balance sheet? Or will nothing change? The currency market seems to be projecting a hawkish Fed response. https://wolfstreet.com/2018/04/30/consumer-spending-holds-up-fed-favorite-inflation-gauge-spikes/

Crude fell -1.07 [-1.56%] to 67.50. I'm not sure why crude dropped today – the move down in crude more or less followed currency moves. Maybe that was it. The API report was relatively bearish (crude: +3.4m gasoline: +1.6m, distillates: -4.1m) but after today's drop, prices did not fall any further. Candle print was a long black candle – a bearish continuation. Forecaster plunged -0.55 to -0.28, which is a sell signal for crude. The move took crude below its 9 MA. That's bearish.

SPX rose +6.75 [+0.25%] to 2654.80. SPX spent much of the day selling off, marking a low at around 1 pm, after which it rallied for the remainder of the day. The spinning top candle could be a bullish reversal (32%). The forecaster agrees, jumping +0.71 to +0.14, which is a buy signal for SPX. Might this be an actual low? Sector map shows tech leading (XLK: +1.25%) while consumer staples brought up the rear (XLP:-0.87%). Today's sector map could be slightly bullish – but only tech did well today. Most of the rest of the market closed down.

VIX fell -0.44 to 15.49.

TLT plunged -0.58%, printing a swing high/confirmed bearish doji (65% bearish reversal). Forecaster plunged -0.61 to +0.08. That's not a sell signal just yet, but its definitely bearish-looking. TY confirms, dropping -0.08%; TY forecaster fell -0.27 to -0.16, which is a sell signal for TY.

JNK plunged -0.47%, a big move down – which happened entirely as a gap down at the open. Its a new low for JNK – and also a forecaster sell signal (down -0.22 to -0.01). Its a bit of a surprising move, given the rally in equities.

CRB fell -0.36%, with 3 of 5 sectors dropping, led by energy (-1.68%). CRB remains relatively near its recent multi-year highs. This does line up with the whole PCE inflation thesis – although commodities haven't really seen a large move higher at this point.

While gold and silver are both getting steadily pounded lower – with only sporadic short-covering by the commercials – miners saw a serious bid today that was quite surprising. Traders are buying the miners in advance of FOMC tomorrow. Is this a tell? It sure could be.

For gold to recover, the buck really needs to stop rallying. I don't need to tell you this, you already know it. The Fed meeting result could be a “sell the news” event – an “unexpectedly hawkish” note might cause one last spike higher, followed by a reversal. That's the setup, at least.  However, the market will have the last word.

We should know the outcome tomorrow.

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5361
FOMC announcement: no change

Fed kept rates unchanged, as expected.  The sole new bit was that the now Fed expects inflation (and by that, I mean the CPE - "Fed inflation") to run near to its 2% target over the medium term.  That's slightly more hawkish - and may hint at 4 rate increases this year instead of 3.

I wish I could experience this "Fed inflation" someday.

Gold up +0.51%, silver up +2.47%, crude +0.95%, GDX +1.70%.  Much of silver's move happened prior to 2pm.

Rate increase chances largely unchanged.  June @ 90%.

 

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