PM End of Week Market Commentary - 6/1/2018

davefairtex
By davefairtex on Sun, Jun 3, 2018 - 3:40pm

On Friday, gold fell -4.80 [-0.37%] to 1297.90 on heavy volume, while silver dropped -0.01 [-0.06%] to 16.42 on moderately heavy volume. The buck moved up +0.22%, which more or less accounted for the move in PM.

Friday saw the market-moving Nonfarm Payrolls report released at 8:30 am, which came in at the high end of expectations. This had the effect of boosting equity prices, industrial metals, the buck (to some degree), and Fed rate increase expectations. Rising payrolls are wage-price inflationary, and are also stimulative to the economy, just like deficit spending or an increase in bank credit. Payrolls are telling us that there is no recession in the immediate future.

The PM sector map bifurcated this week; the industrial items did best, while the rest of the sector fell. Palladium led, the miners outperformed gold, and gold led silver. It was an odd pattern. Roughly speaking though, the urgency of last week's flight to safety relaxed somewhat. While gold-in-Euros fell, it remains in a strong, medium term uptrend, above all 3 moving averages.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 2.09% 20.81% rising rising rising falling ma200 on 2018-06-01 2018-06-01
Copper $COPPER 0.47% 19.64% rising rising rising falling ema9 on 2018-06-01 2018-06-01
Platinum $PLAT 0.34% -3.09% rising falling falling falling ema9 on 2018-06-01 2018-06-01
Senior Miners GDX 0.00% -1.28% rising rising falling rising ema9 on 2018-06-01 2018-06-01
Silver Miners SIL -0.20% -12.74% falling rising falling rising ema9 on 2018-05-25 2018-06-01
Gold $GOLD -0.25% 2.33% rising falling rising falling ema9 on 2018-06-01 2018-06-01
Junior Miners GDXJ -0.27% 4.69% falling rising rising rising ema9 on 2018-05-31 2018-06-01
Gold/Euro $GOLD:$XEU -0.32% -1.51% rising rising rising rising ema9 on 2018-05-23 2018-06-01
Silver $SILVER -0.61% -4.98% falling falling falling falling ema9 on 2018-05-31 2018-06-01

Thursday was end of month, so I'm going to show monthly charts today rather than the daily or weekly charts. Sometimes we can get caught up in the daily back and forth; some longer term perspective can be helpful.

Gold fell -3.30 [-0.25%], retracing some of last week's gain. Friday gold printed a swing high, which had a 48% chance of marking a top. That said, gold forecaster closed the week at +0.22; it remains in an uptrend. On the chart, the 200 day MA appears to be acting as resistance. Gold monthly has been in a downtrend now for 4 months, but the downtrend appears to be slowing. However since the lows in 2016, we can see an ascending triangle pattern, which is a bullish pattern overall.

The June rate-increase chances moved up to 91%.

COMEX GC open interest fell -18,992 contracts this week. That's a fair-sized drop; 59 tons of paper gold disappeared - about 9 days of global production.

The commercial net position fell -21k contracts, which is 32k longs sold, but also 11k shorts closed. 7.1k new longs, and 4.7k new shorts. Managed money rose +37k contracts, which was 16k new longs, and 21k covered shorts. Both commercials and managed money are closing short positions – possibly as a result of the excitement in Italy. Who wants to be short gold when the Eurozone blows up?

Silver fell -0.10 [-0.61%], with the losses coming on Monday and Tuesday. Compared with gold, silver doesn't look to be a very good safe haven asset. Still, it doesn't look ready to collapse; silver daily forecaster ended the week at -0.15, which is a mild downtrend. Silver has been trading sideways in a range since January, and all that happened this week was a slow move down towards the lower part of the trading range.

The gold/silver ratio rose +0.29 to 78.77, which is somewhat bearish. As I said in the PM map review, this feels more like a gold safe-haven move than anything specifically bearish for silver.

COMEX SI open interest rose +4,382 contracts.

The commercial net position fell -3.9k contracts, which was 4.8k new shorts, offset by 931 new longs. Managed money net rose by +1.3k contracts, which was 3.6k new longs, but also 2.2k new shorts. There were not large changes for silver.

Miners retreated this week, pulling back from the potential breakout, but managed to avoid making a new low. Miners remain above the 50 MA, and the forecaster ended the week at +0.32, which is an uptrend. Weekly forecaster is in a slight downtrend, but the monthly actually looks relatively strong, hinting of a potential breakout to the upside for the miners.

The GDX:$GOLD ratio rose +0.25%, and the GDXJ:GDX ratio fell -0.27%. That's neutral.

USD

The buck went nowhere, rising +0.02 [+0.02%] to 93.82. The buck printed a swing high on Wednesday after a big sell-off, and the daily forecaster ended the week at +0.21, which is a slowing uptrend. Still, both weekly and monthly forecasters remain in a strong uptrend, and from the macro viewpoint, the buck is the place to be given the new government in Italy, among other forces in play. We might rest for a time here, but I think the buck will continue to move higher.

US Equities/SPX

SPX rose +13.28 [+0.49%]. SPX plunged hard on Tuesday – the day of maximum angst about events in Italy – but then bounced back strongly during the remainder of the week. The payrolls report on Friday caused a strong rally, pulling SPX back above the 9 MA. While the daily forecaster remains in a downtrend (-0.61), the weekly is in a strong uptrend, and the monthly is recovering. This tells me momentum is probably to the upside.

The sector map was mixed. Energy led, even though crude fell, while financials and homebuilders did worst. Bank stocks don't like it when situations like Italy crop up; there is the prospect of bank collapse and potential contagion on the horizon.

VIX rose +0.24 to 13.46.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 2.41% 15.99% falling rising rising rising ema9 on 2018-05-24 2018-06-01
REIT RWR 2.22% -0.62% rising rising falling rising ma200 on 2018-05-30 2018-06-01
Technology XLK 1.92% 25.45% rising rising rising rising ema9 on 2018-05-30 2018-06-01
Healthcare XLV 0.51% 8.37% rising falling rising falling ema9 on 2018-06-01 2018-06-01
Cons Discretionary XLY 0.39% 15.92% rising rising rising falling ema9 on 2018-05-30 2018-06-01
Telecom XTL 0.20% -2.06% rising falling rising falling ema9 on 2018-06-01 2018-06-01
Materials XLB 0.10% 9.96% falling rising rising falling ma200 on 2018-06-01 2018-06-01
Gold Miners GDX 0.00% -1.28% rising rising falling rising ema9 on 2018-06-01 2018-06-01
Defense ITA -0.09% 26.87% rising rising rising falling ema9 on 2018-06-01 2018-06-01
Cons Staples XLP -0.44% -13.03% rising falling falling falling ema9 on 2018-05-31 2018-06-01
Industrials XLI -0.57% 10.77% falling falling rising falling ema9 on 2018-05-31 2018-06-01
Utilities XLU -0.57% -7.40% rising rising falling rising ema9 on 2018-06-01 2018-06-01
Homebuilders XHB -1.23% 3.91% falling falling rising falling ema9 on 2018-05-31 2018-06-01
Financials XLF -1.33% 16.74% falling falling rising falling ma200 on 2018-06-01 2018-06-01

Gold in Other Currencies

I don't have an up-to-date timeseries for XDR right now...my prior source stopped updating.

Rates & Commodities

TLT shot higher on Tuesday, then retreated for the rest of the week, closing up +0.57%. TY didn't do quite as well, also shooting higher on Tuesday, but then losing most of it later in the week, up just +0.06%. Still, TY is in an uptrend in all 3 timeframes, with the daily and weekly forecasters looking quite strong. The 10-year bond yield dropped 3.6 bp to 2.9%.

JNK fell -0.53%, plunging to a multi-month low on Friday. Unlike equities, junk debt did not rebound, which indicates to me that there is increasing nervousness in the credit markets right now that has little to do with rising US rates.

BAA-AAA ratio, the bond fear gauge, broke out to a new multi-year high this week; it wasn't a large move, but the move up in this gauge has been steady since March.

Crude was hit again this week, falling -1.79 [-2.65%] to 65.71. Crude tried rallying on Wednesday, but the rally didn't hold. Even a bullish EIA report (crude: -3.6m, gasoline: 0.5m, distillates: 0.6m) was only enough to cause a momentary rally in the price. When happy news doesn't result in a rally, that's bearish for the trend. Daily forecaster ended the week at -0.23, and weekly forecaster is also in a downtrend. Monthly avoided a sell signal by a very narrow margin, ending the week at +0.01. My guess: this is more fallout from the Russian/Saudi announcement that they were going to produce more if shortages developed. It appears as though the “potential shortage premium” is being erased from the price.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -12.08, with 836 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.53 -0.44% to NAV [increase]
 PSLV 6.04 -2.36% to NAV [increase]
 CEF 13.11 -2.33% to NAV [increase]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a slight discount for gold and a 1% discount for silver.

* Big bars premiums were: gold [1kg] 0.97% and silver [1000oz] 3.53%.

Grey Swans & Geopolitics

  • Ebola: no new cases reported in Mbandaka, the large city in the Congo to which it has spread. Motorcycle-taxi drivers are at risk; there are no ambulances, and if you are a sick ebola patient looking to go to a hospital, you will hop on the back of a motorcycle taxi, very possibly infecting the driver, and any subsequent passengers. Lots of people have been vaccinated, including the motorcycle taxi drivers who transported the infected escapees from last week as well as healthcare workers – another vulnerable group - but it will be another week before we know how many new cases there are in the big city. http://www.promedmail.org/direct.php?id=20180601.5834040

  • Italian Government: The M5S/Lega Nord government is now in place, with the new PM sworn in on Friday. The Italian 10-year spiked to 3.16% on Tuesday after calls for the President to be impeached, but by Friday it had fallen back to 2.69% - which is still up 23 bp over last week. Now we get to wait and see what the new government will actually do. Ultimately, I believe that “Italy is not Greece” and the new government will push the limits as much as they can.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 46.1% [+5.9%] vs Republicans 40.2%, with the spread unchanged this week. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: talks are back on with North Korea, with Trump saying he'll hold off on new sanctions for now: “why would I do that when we are talking so nicely.” The MSM may have a hard time figuring out Trump, but KJU seems to be having no problem with the dance. Expectations have been reduced to this being a “getting to know you” meeting. Seems right to me.

  • Tariffs: Trump allowed the temporary exemptions on steel and aluminum tariffs to expire, resulting in a chorus of unhappiness from domestic business interests that benefit from the status quo. “This didn't work during the Great Depression”, we hear. Of course, the US was a massive exporter in the 1920s and 30s – just like China and the EU today - so back then tariffs were an terrible idea. Today we are a big importer, so the historical reference not only doesn't apply - it is exactly backwards. Equities were only briefly affected by the news. It is likely that the markets have figured out this too is just a negotiation-dance, one they are starting to understand better as time goes on.

  • Mueller Investigation: Trump pardoned Dinesh D'Souza, who was convicted of violating campaign finance laws; Trump mentioned that he was also considering pardoning Martha Stewart, who pled guilty to conspiracy, as well as lying to the FBI. This was seen as a signal to other key actors in the current investigation (Cohen, Manafort, Flynn) who are either charged, or who have already pled guilty to similar charges, that Trump would take care of them at the end of the day. http://www.businessinsider.com/trump-pardons-send-clear-signal-to-associ...

Summary

This week the buck made another new high on events in Italy, along with US treasury bonds and gold, but the rally faded as things in Italy calmed down to some degree.  The new Italian government still looks set to embark on a spending plan that will bust EU spending cap rules, but the timeline for that appears further into the future.

The gold COT showed a lot of short covering by both commercials and managed money - apparently nobody wants to be short with all the fuss going on in Italy.  Silver is in more or less of a neutral place.

Big bar gold and silver premiums are mostly unchanged; my supply indicators suggest there is no current shortage of physical gold.

Crude may be starting to more seriously reverse at this point.  The lack of response from crude after the positive EIA report has me a bit worried.  So far, that hasn't affected energy equity prices though, which is a bit surprising.

Gold in Euros has reversed, at least on the daily chart, but in looking at it more closely, it may just be taking a break before moving higher.  It remains above all 3 moving averages and in a longer term uptrend.  Does this paint some larger risk-off picture for the Eurozone?  I think it does.  If I'm right, that should keep gold from selling off too dramatically in USD terms.

Meanwhile, there is a new (socialist) government in Spain, a new "populist" government in Italy, tariffs on aluminum and steel, and my favorite wild card: Ebola in the Congo.  Meanwhile the US economy keeps plugging along - strong payrolls growth acts just like monetary stimulus.

Who's your daddy right now?  The US Dollar, that's who.

Weekly trends (in order of strength):

Uptrend: USD, 10-year treasury, SPX, copper, Gold/Euros.

Downtrend: crude, gold, bitcoin, silver, BBB corporates, miners.

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1 Comment

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 155
Who's your daddy right now?!

Dave,

Your turn of phrase always gives me a chuckle!

I also appreciate the Ebola story, which I'm not seeing covered anywhere else.

Thanks!

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