PM Daily Market Commentary - 5/15/2018

davefairtex
By davefairtex on Wed, May 16, 2018 - 1:13am

Gold plunged -23.10 [-1.76%] to 1290.10 on extremely heavy volume, while silver fell -0.26 [-1.57%] to 16.27 on heavy volume. The buck rallied +0.68%, which was a cause – but perhaps not the primary cause – for the plunge in PM today.

Much of the damage in the metals started at 8:30, following the Retail Sales report released at that time.

Gold fell steadily throughout Asia and London, falling off a cliff at 8:30 am, with most of the damage done by 10 am. Gold closed near the lows of the day. While the rising dollar did have an effect, gold was just sold hard today – gold in Euros was also hit relatively hard. Gold's strong line candle was bearish, as was the drive through both the 200 MA, and the plunge through round number 1300. Gold forecaster cratered, dropping -0.77 to -0.96. Gold is in a downtrend in all 3 timeframes.  The very heavy volume is also a bad sign.

COMEX GC open interest rose 8,506 contracts. Commercials are either not ringing the cash register, or managed money is really piling in short.  This doesn't look like the standard rinse cycle.

Rate rise chances (June 2018) fell to 95%.

Silver fell more gently than gold – a rare thing to see on such a big day down. Silver even had a little bounce after making its low, and it avoided breaking down. While silver forecaster also dropped hard, losing -0.66 to -0.75, it doesn't look nearly as bad as gold.

COMEX SI open interest rose by 3,368 contracts today. Maybe – managed money piling in short, as was the case with gold.

The gold/silver ratio fell by -0.15 to 79.29. That's … bullish I guess.  Its hard to see how silver does well if gold continues to crater, however.

Miners fell too, with GDX off -2.28% on very heavy volume, while GDXJ dropped -2.09% on heavy volume. That's not as bad as it could have been, certainly. The candle prints (doji, spinning top) were not reversal bars. XAU forecaster plunged -0.56 to -0.57. That's a strong downtrend now for the miners.

The GDXJ:GDX ratio moved higher, while the GDX:$GOLD ratio fell. That's neutral.

Platinum plunged -1.57%, palladium fell -1.38%, copper dropped -0.94% (swing high: 43% bearish reversal). You can see that today's plunge was not all about gold and silver – but certainly gold fell hardest, which is quite unusual.  Normally, gold has held up best when the other metals have bad days.  All 3 other metals are now in daily-chart downtrends.

The dollar shot up +0.63 [+0.68%] to 92.83, making a new high, and printing a variety of bullish-looking candle patterns (confirmed bullish doji was strongest: 60% bullish reversal). Forecaster jumped +0.35 to +0.01, which is a buy signal for the buck. Daily-chart uptrend resumed. Buck is also in an uptrend on the weekly and monthly timeframes as well.  Gold seemed to suffer by far the most from the recovery in the buck.

Crude fell -0.15 [-0.21%] to 71.03. Crude tried breaking out, making a new high to 71.92, but then sold off at 8:30 am along with most everything else. The high wave candle was neutral, and forecaster fell just -0.08 to +0.05; crude remains in an uptrend, but just barely. The API report after market close was somewhat bearish: crude: +4.9m, gasoline :-3.4m, distillates: -0.8m. Price dropped about 20 cents after the report hit, which accounted for all of today's drop in crude. Crude remains in an uptrend in all 3 timeframes, but the upside momentum does seem to be slowing down.

SPX fell -18.68 [-0.68%] to 2711.45. Much of the losses came before market open; the selling started just after 8:30 am, as it did with many other things.  Candle print was a swing high (34% bearish reversal), but SPX forecaster fell just -0.08 to +0.42, which is far from a sell signal. Energy did best (XLE:+0.03%) while sickcare trailed (XLV:-1.29%). Sector map wasn't particularly bearish today, in spite of the drop.

VIX rose +1.70 to 14.63.

TLT cratered today, dropping -1.14%; TLT is quite close to making a new low. TLT forecaster is very bearish at -1.03. TY confirms the move, dropping -0.45%, making a new multi-year low. The 10-year treasury closed at 3.08%, a level last seen back in 2011.  While bonds were under pressure all day long, the selling in bonds started in earnest after 8:30 am.

JNK plunged also, down -0.50%, which isn't all that bad given the drop in treasuries. As long as JNK is falling at the same rate as TY, we aren't heading into any sort of panic situation. That view is supported by the relatively mild drop in equity prices.

CRB moved down -0.185, with 3 of 5 sectors moving lower, led by PM (-2.14%).

The tell for today's sell-off may have been the drop in Gold/Euros over the previous two days. Once support for gold from Europe evaporated, all it took was a dollar rally to put a stake in the heart of the yellow metal, at least for now anyway. The move through 1300 should get your attention. While the miners are hanging in there, gold breaking 1300 is not a good sign, especially on such heavy volume. The move higher in open interest suggests that managed money is piling in short – this isn't the usual rinse cycle happening here, it appears to be something else. We'll only know for sure on Friday when the COT report gives us clues as to who did what.

While silver was hit also, it managed to avoid making a new low. It isn't under nearly as much selling pressure as gold – I'm not really sure why. If silver cracks 16, then it too becomes vulnerable; if that happens, I'm guessing managed money will pile in short.

Risk is high right now. While gold is oversold (RSI7=23), it is showing no signs of a low. If you are looking to buy the dip, it is probably best to wait until we see some sort of reversal before jumping in long.

And there's that dollar rally to think about as well.  If the dollar continues moving higher, gold will be under pressure.

Lastly – the 10-year treasury is now conclusively through 3%. That's a big deal. Last time we were here was back in 2011. At some point, rising rates will take a toll on both the real economy as well as asset prices. So far, that hasn't happened.

But it will.

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