PM End of Week Market Commentary - 6/8/2018

davefairtex
By davefairtex on Sun, Jun 10, 2018 - 11:18am

On Friday, gold rose +2.20 [+0.17%] to 1303.50 on moderate volume, while silver climbed +0.09 [+0.54%] on moderately heavy volume. The buck rallied +0.17%, which tells us that gold did fairly well in Euros – a welcome change from the declines we saw earlier in the week.

The PM sector map showed a very strong rally in industrial metals, especially copper which snapped its downtrend line and rallied strongly up to the previous multi-year high of 3.32. Silver rallied in sympathy, while gold and the miners looked weak by comparison. What's the story with the copper rally? I don't know, but since copper prices affect silver, the big copper move is silver-positive.  Gold in Euros fell, which shows that gold's move was just a currency effect.  Here's what that copper rally looked like.

And here is the sector map. You can see copper, silver, palladium above all 3 moving averages, with the miners below all 3 moving averages, with gold in the middle.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Copper $COPPER 6.71% 26.21% rising rising rising rising ma200 on 2018-06-04 2018-06-08
Silver $SILVER 2.44% -3.47% rising rising falling rising ma200 on 2018-06-08 2018-06-08
Palladium $PALL 1.04% 18.48% rising rising rising rising ma200 on 2018-06-06 2018-06-08
Platinum $PLAT 0.50% -3.27% rising falling falling falling ema9 on 2018-06-08 2018-06-08
Gold $GOLD 0.43% 1.81% rising falling rising falling ema9 on 2018-06-07 2018-06-08
Senior Miners GDX 0.22% -3.70% rising rising falling rising ema9 on 2018-06-08 2018-06-08
Junior Miners GDXJ -0.06% -1.68% falling rising falling rising ema9 on 2018-06-08 2018-06-08
Gold/Euro $GOLD:$XEU -0.40% -2.87% falling rising rising rising ema9 on 2018-06-04 2018-06-08
Silver Miners SIL -1.08% -16.15% falling rising falling rising ema9 on 2018-06-08 2018-06-08

Gold rose +5.50 [+0.43%], moving higher on the week, however the drop in gold-in-Euros suggests that the Italy-driven safe haven move continues to unwind. While the daily forecaster ended the week at -0.09, the weekly actually issued a tentative buy signal, up +0.17 to +0.01. Right now, I believe that gold's future is tied up with what happens in Italy, and this week, there was little to no activity. Monthly forecaster remains in a downtrend.

The June rate-increase chances remains at 91%.  The FOMC meeting is next week.  Perhaps after FOMC, gold will stage its usual rally.

COMEX GC open interest fell -7,295 contracts this week.

The commercial net position rose +2.3k contracts, which is 7.3k longs sold, but also 9.7k shorts closed. 7.1k new longs, and 4.7k new shorts. Managed money fell -3.1k contracts, which was 7.9 longs sold, and 4.7k covered shorts. Both commercials and managed money are exiting the paper market. Gold could still be at or near a low.

Silver rose +0.40 [+2.44%], rising 5 straight days, with the forecaster issuing a buy signal on Wednesday. Copper's huge rally probably dragged silver higher. Silver's weekly forecaster also issued a buy signal. Silver has moved up to the very top of its rough trading range. A close above 16.90 would be bullish; its possible that if copper breaks out, so will silver. Will managed money rush to cover if that happens, or will they double down short?

The gold/silver ratio fell -1.55 to 77.50, which is quite bullish.

COMEX SI open interest rose +19,789 contracts. That's a massive change; 45 days of global production of paper silver added in just one week.

The commercial net position fell -2.3k contracts, which was 566 new shorts, and 1.7k longs sold. Managed money net rose by +3.8k contracts, which was 3.7k new longs, with 107 shorts covered. 2.2k new shorts. This could be a local high for silver.

Miners fell slightly [-0.13%], more or less chopping sideways. The daily forecaster issued a buy signal on Wednesday, but ended the week at +0.06, which is barely above stall speed. Weekly forecaster remains in a downtrend, while the monthly is in an uptrend. That's pretty confused – miners are more or less just moving sideways. XAU remains above the 50 MA, but below the 200 and 9 MA – that's a technical no-mans-land. Miners are approaching a decision point, but I can't say which way it will end up going. Perhaps the bullish-looking monthly chart will be decisive?

The GDX:$GOLD ratio fell -0.21%, and the GDXJ:GDX ratio fell -0.28%. That's slightly bearish.

USD

The buck plunged -0.66 [-0.70%], falling 4 days out of 5. Forecaster issued a sell signal on Monday, and dropped every day except Friday, ending at -0.34, a moderate downtrend. The buck remains in an uptrend in both weekly and monthly timeframes, but the momentum appears to be fading a bit. No new news out of Italy appears to have been the cause – at least that's my sense anyway.

US Equities/SPX

SPX rose +44.41 [+1.62%], rising 4 out of 5 days. Monday saw SPX break above its previous high. Forecaster issued a buy signal on Monday, and ended the week at +0.65, which is a strong uptrend. SPX is in an uptrend in all 3 timeframes.

The sector map was mixed. Homebuilders did best, I'm not sure why, while utilities were hit hard. I'd say the map was mostly bullish, even though tech didn't do all that well.  You can see its mostly a green map this week, with only miners and utilities looking bearish.

VIX fell -1.28 to 12.18. VIX below 12 is usually a decent buy.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Homebuilders XHB 4.95% 9.14% rising rising rising rising ma200 on 2018-06-08 2018-06-08
Cons Discretionary XLY 3.17% 21.10% rising rising rising rising ema9 on 2018-05-30 2018-06-08
Materials XLB 2.98% 12.77% rising rising rising rising ema9 on 2018-06-04 2018-06-08
Cons Staples XLP 2.36% -10.42% rising falling falling falling ma50 on 2018-06-08 2018-06-08
Financials XLF 2.18% 17.79% rising rising rising rising ema9 on 2018-06-06 2018-06-08
Telecom XTL 2.14% -2.00% rising rising rising rising ema9 on 2018-06-01 2018-06-08
Healthcare XLV 2.02% 10.44% rising rising rising rising ema9 on 2018-06-01 2018-06-08
Defense ITA 1.96% 29.92% rising rising rising rising ema9 on 2018-06-01 2018-06-08
Industrials XLI 1.57% 12.99% rising rising rising rising ema9 on 2018-06-05 2018-06-08
REIT RWR 1.37% -0.05% rising rising rising rising ma200 on 2018-05-30 2018-06-08
Technology XLK 0.83% 24.79% rising rising rising rising ema9 on 2018-05-30 2018-06-08
Energy XLE 0.68% 18.56% rising rising rising rising ema9 on 2018-06-06 2018-06-08
Gold Miners GDX 0.22% -3.70% rising rising falling rising ema9 on 2018-06-08 2018-06-08
Utilities XLU -3.03% -9.36% falling falling falling falling ema9 on 2018-06-01 2018-06-08

Gold in Other Currencies

Gold moved up in most currencies, with only gold/Euros dropping.

Rates & Commodities

TLT fell -0.64% on the week, falling early in the week and then bouncing back on Thursday, resulting in a forecaster buy signal. TY didn't fall nearly as much, losing -0.24%, but neither did it bounce back; TY forecaster ended the week at -0.62; that's a pretty brisk downtrend. Weekly TY forecaster also issued a sell signal this week, while the monthly is on the ragged edge of a sell signal also. The 10-year bond yield rose 4.2 bp to 2.94%. Italy better start acting up, or US treasury bonds are going to be back above 3% before you know it.

JNK rose +0.68%, with forecaster issuing a buy signal on Tuesday. JNK moved up 5 days straight. While the move was fairly modest overall, and the chart still looks weak, it is supporting the risk on mood in equities.

BAA-AAA ratio, the bond fear gauge, was unchanged this week. It remains in a weekly and monthly uptrend, but the move higher has been fairly mild.

Crude was mostly unchanged, dropping -0.17 [-0.26%] to 65.54. Crude made a new low to 64.20 on Tuesday, but managed to print a swing low by Thursday, which caused forecaster to issue a buy signal. This could be an actual low for crude; the bearish-looking EIA report (crude: +2.1m, gasoline +4.6m, distillates: +2.2m) didn't provoke much selling at all. Still, weekly and monthly forecasters are both in downtrends. Even if 64.20 ends up being the low, it will take a fair amount of work for crude to move back into an uptrend.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -7.66 tons, with 828 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.54 -0.58% to NAV [increase]
 PSLV 6.14 -3.00% to NAV [increase]
 CEF 13.24 -2.42% 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] 0.94% and silver [1000oz] 2.97%.

Grey Swans & Geopolitics

  • Ebola: 2 new/suspected cases in Mbandaka, reported on June 7th. WHO says that the situation “shows promise.” That beats the “epidemiological knife edge” situation from two weeks ago. http://outbreakwatch.blogspot.com/2018/06/proahedr-ebola-update-30-congo-dr-cases.html According to the data, the “reproduction number” R has fallen well below 1; a model produced by a researcher based on reported cases projects that the situation will be brought under control within a month. Based on this model, which was first used during the outbreak in 2014, I think we've successfully dodged the Ebola bullet this time around. https://github.com/calthaus/Ebola/tree/master/DRC%20(GitHub%202018)

  • Italian Government: other than a “pack your bags” comment from Salvini directed at 500,000 migrants currently living in Italy, not much happened in Italy this week. This probably accounts for the weakness in gold, bonds, and the USD.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 47.5% [+8.2%] vs Republicans 39.3% - that's a big increase for the Dems. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: talks are due to be held on June 12th; the media is full of advice to Trump on what he should do, what he should not do, how it will be a disaster, and so on. Senate Democrats are demanding full denuclearization; to me they seem worried that Trump might actually achieve some sort of diplomatic success - which would be an utter disaster for the country - and they are trying to frame anything short of total victory as a defeat. “Only Nixon could go to go to China” is what keeps going through my head.

  • Mueller Investigation: new charges - witness tampering - have been filed against Manafort. Looking a summary, it appears that Manafort sent some Whatsapp messages (he used an “encrypted message app”...gasp...I wonder what they'd make of my use of encrypted-and-disappearing-message-app “Signal”) that the FBI claims is an attempt to influence testimony. You can read through them and see what you think. However, there was still no evidence of collusion with Russia – it appears to be just another attempt to twist Manafort's arm. https://www.politico.com/story/2018/06/04/mueller-accuses-manafort-of-witness-tampering-624159

Summary

This week was about copper and equities; copper staged a huge rally, dragging silver along with it, and equities broke out to new multi-month highs. A lack of news from Italy helped pull the buck, bonds, and gold-in-euros lower – gold itself moved higher, but the move was just a currency effect.

The gold COT moved deeper into bullish-reversal territory, with commercials continuing to load up long on paper gold. Silver, on the other hand, is moving farther away from a reversal, and may be at a local top.

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

I have no idea what's up with the copper rally, or the move higher in homebuilders.

Weekly trends (in order of strength):

Uptrend: copper, SPX, USD, silver, gold.

Downtrend: crude, miners, BBB corporates, 10-year treasury, bitcoin, gold/Euro.

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