PM Daily Market Commentary - 6/14/2018

By davefairtex on Fri, Jun 15, 2018 - 2:58am

Gold rose +2.90 [+0.22%] to 1305.80 on heavy volume, while silver rose +0.12 [+0.73%] to 17.19 on extremely heavy volume. And for the cause: the buck shot up +1.14%, with the Euro plunging -1.85%. For gold to rally on a day the Euro tanked this hard is a minor miracle; gold in Euros was up 2.05%; that would be a $26 rally if it happened in USD. So what happened?

The ECB met today, and they announced (at 7:45 am) that they will taper their money-printing operation to 15 billion euros/month starting in October, 2018, and then stop the printing entirely by end of year. The ECB's balance sheet will be maintained "for an extended period of time", and rates will remain pegged at the zero bound through at least summer of 2019. All of this caused the EUR/USD to crater – the selling started immediately following the announcement, and it didn't stop until the market closed in New York, dropping 2.30 cents in a 9 hour period. Clearly, the ECB was far more dovish than the market had anticipated. As a result, money fled Europe - mostly destined for the US.

Here's what the Euro looked like in my trading app today.  Thats 2.57 Euro drop, for those keeping score at home.


Gold rallied into the ECB meeting, and then jumped a bit higher after the announcement, but then slowly lost its gains as the Euro kept falling. In USD, gold printed a shooting star candle which was mildly bearish (33% chance of a bearish reversal). Forecaster was happy, however, rising +0.11 to +0.01, which is a buy signal for gold, although not a very enthusiastic one. As I said before, it was a minor miracle that gold was in positive territory today given the huge rise in the buck/and even larger drop in the Euro.  In fact, I'll show you GC.EUR today instead of GC in USD.  GC.EUR looks bullish.

COMEX GC open interest rose 12,161 contracts.

Rate rise chances (September 2018) moved up to 85%.

Silver rallied into the ECB meeting, spiked up sharply, then faded somewhat into the close. The spinning top candle was mildly bearish, and the forecaster dropped -0.16 to +0.46, which is still a strong uptrend. Silver's rally stopped just below the previous high of 17.36, set back in April. Silver's rally was remarkable in the face of the strong plunge in the Euro today. If silver can break through 17.36, this move could get a bit out of control. The RSI-7 for silver is at 80, which is overbought – but it could still definitely go higher.

COMEX SI open interest rose by 5,016 contracts today. That's 11 days of global silver production.  It looks as though someone is going short.

The gold/silver ratio fell -0.39 to 75.96. That's bullish.

Miners moved higher, with GX up +0.80% on moderate volume, while GDXJ climbed +0.61% on very heavy volume. GDXJ is seeing a whole lot of volume recently; I'm not sure what that's about, but it looks bullish to me. XAU appears to be breaking out – it closed above a previous high today. XAU forecaster rose +0.08 to +0.19. It has been pretty accurate about the miner uptrend. Even if the trend itself isn't particularly strong, it has been steady.

The GDXJ:GDX ratio fell, but the GDX:$GOLD rose. That's neutral.

Platinum rose +0.23%, palladium dropped -0.31%, and copper plunged -1.67%. Copper is in the process of reversing last week's big rally; copper forecaster fell -0.24 to -0.38, which is a fairly strong downtrend.

As mentioned above, the buck rose +1.06 [+1.14%] to 94.44. DX forecaster rose +0.50 to +0.58, which is a strong uptrend. The buck is in an uptrend in all 3 timeframes. In one day, the buck regained all that it lost over the prior two weeks. Volume in today's move was immense. My guess is that the buck will break out to new highs in the near future.  I don't think that the plunge in the Euro is done quite yet.  Thing is, this move had nothing to do with politics.

Crude rose +0.35 [+0.53%] to 66.87. Crude had a relatively narrow trading range (candle print: short white candle), which the forecaster felt was bearish, losing -0.09 to +0.09. That's still an uptrend, but not a very strong one. Still, I think its bullish that crude managed to move higher on a day when the dollar rallied so strongly.

SPX rose +6.86 [+0.25%] to 2782.49. While prices moved higher, forecaster wasn't happy, losing -0.09 to +0.04. That puts SPX right around stall speed, although it has not yet tipped into a downtrend just yet. Utilities led the market higher (XLU:+1.24%) while financials did worst (XLF:-0.93%). However, tech and cyclicals actually did fairly well, so perhaps this sector map was neutral rather than bearish.

VIX rose +0.60 to 12.94.

TLT rose +0.83%, a strong move, but it wasn't clear that the ECB caused the rally given the timing of the price movement. TLT did print a swing low, which had a 54% chance of marking a low. TY confirmed the move, rising +0.17%, and printing a bullish engulfing which had a 40% chance of marking the low. TY forecaster was also happy, rising +0.42 to +0.13, which is a buy signal for TY. The 10-year treasury yield fell 3.1 bp to 2.95%.

JNK rallied +0.31%, a strong move, making a new high. JNK continues to attract money. Why people are so willing to buy into junk debt is a bit of a curiosity; my understanding is that junk will be very difficult to sell if things start to turn down..

CRB fell -1.08%, which is a fairly large move. Agriculture led (-2.01%) with 4 of 5 sectors moving lower. That's not surprising given the sharp rally in the buck. This underscores the strong performance today in silver. While I don't look at the silver:EUR chart often at all, a quick glance shows it jumped +2.46% today alone.

So the rally in the buck and the plunge in the Euro was unexpected, as was the rally in gold, and the strong rally in silver.  The markets keep expecting Draghi to stop printing, but at this point the ECB has laid out the schedule for all to see: printing until December, and rates at the zero bound for another year.  One might ask, why would one do that if everything was going great in Europe?

Why indeed.  If you had a bunch of money, and were suddenly faced with another year at the zero bound, what might you do?  Perhaps you too would flee to another place that didn't penalize you for saving.  Well - a place that didn't penalize you quite as much.

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Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 385

Gold and silver getting smoked today.  Dollar down and PMs hammered.  The last couple of rate hikes seem to be playing out opposite of previous ones.  Used to, PMs rallied after hikes.  Now, they rally for about 24-48 hours and then fall off a cliff.  Not sure at this point what it will take to ever get gold back to $1400 again.  Probably nothing short of a nuclear war.  Anyway, going to be a big down day.  Then, we'll work for 2-4 weeks to get back to the $1290 level.

davefairtex's picture
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Joined: Sep 3 2008
Posts: 5787

It isn't just gold and silver.  It is also palladium, platinum, copper, and crude oil.  They all fell off a cliff at around 8:20 am.  The only commodity I track that is doing well is natgas.

Boy, oil is really getting clocked.  Down $1.75 overall, and down $1.30 over the last 90 minutes.

Perhaps it was related to the USTR announcement this morning announcing which Chinese imports are going to have 25% tariffs, and are scheduled to go into effect on June 15th.

"Trade wars are bad for commodities" - perhaps?

I also think there's a certain amount of opportunistic hammering of PM by our central planner friends, who were not so happy with the big rally in gold (in Euros) after the ECB's announcement yesterday.

"No, you really shouldn't buy gold, even though we're going to keep charging you to keep your money in a bank for at least a year longer..."  If you are going to engage in financial repression, it is a good idea if you can make the alternatives look as unattractive as you possibly can.


Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 385
Opportunistic Hammering

Yep, that's about the right way to put it.  Monster volume too.  And like you said, commdodities in general are getting taken to the woodshed.

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