PM End of Week Market Commentary - 6/22/2018

davefairtex
By davefairtex on Sun, Jun 24, 2018 - 4:53am

On Friday, gold rose +2.10 [+0.17%] on moderately light volume, and silver rose +0.14 [+0.89%] to 16.45 on heavy volume. The real excitement was in crude, which shot up +3.48 on news that OPEC won't increase production as much as feared – the effective increase was 600k bpd, not 840k bpd. The buck fell -0.22 [-0.24%], which tells us that gold/Euros continues to fall.

After last week's big news week, this week was mostly about tariffs and migration; while the US media focused on a picture of an unhappy baby whose mom was detained by ICE, over in Europe migration was threatening to bring an end to Merkel's government, as well as substantially boosting Salvini's (Lega Nord) popularity in Italy.

The PM sector map has miners in the lead, with juniors leading seniors, and silver leading gold, which is a bullish configuration.  That said, the differences between each of these items is fairly small. Industrial metals were hit hard by the successive tariff announcements from Trump; perhaps the market is now thinking Trump isn't kidding around, and/or China is going to test Trump's staying power with the midterms coming up soon. Gold in Euros isn't doing so great. Most PM items are below all 3 moving averages; that's bearish.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 0.21% -2.47% falling falling falling rising ema9 on 2018-06-22 2018-06-22
Senior Miners GDX -0.22% -0.81% falling falling falling rising ema9 on 2018-06-15 2018-06-22
Silver $SILVER -0.69% -0.33% falling rising falling rising ema9 on 2018-06-15 2018-06-22
Gold $GOLD -0.85% 1.59% falling falling falling falling ema9 on 2018-06-15 2018-06-22
Silver Miners SIL -0.91% -13.92% falling falling falling falling ema9 on 2018-06-08 2018-06-22
Platinum $PLAT -1.06% -5.08% falling falling falling falling ema9 on 2018-06-15 2018-06-22
Gold/Euro $GOLD:$XEU -1.18% -2.77% falling rising falling rising ma50 on 2018-06-20 2018-06-22
Palladium $PALL -3.34% 8.08% falling falling rising falling ma50 on 2018-06-19 2018-06-22
Copper $COPPER -3.46% 16.69% falling falling falling falling ma50 on 2018-06-19 2018-06-22

Gold fell -10.90 [-0.85%], with the downside velocity slowing down by end of week. Gold was quite close to printing a swing low on Friday, but couldn't quite pull it off. The forecaster thought Friday's slight move higher was bullish, rising +0.28 to +0.01, which is a tentative buy signal for gold.  Is this a reversal?  I'm not so sure - the volume over the last 2 days has been pretty low, which does not suggest a change in trend is upon us.  Gold is in a downtrend in both the weekly and monthly timeframes.

The September rate-increase chances fell to 71%.

COMEX GC open interest rose 2,551 contracts this week.

The commercial net position rose +26k contracts, which was 24k covered shorts, and 2k new longs. That's a fair amount of cash-register ringing by the commercials. Managed money net fell -45k contracts, which was 35k new shorts, and 10k longs sold. From this report, it appears that managed money going short probably caused the plunge last Friday. Gold looks as though it could be at a COT low right now. Perhaps the wash & rinse cycle is back.

Silver fell -0.12 [-0.69%] on the week, falling the first part of the week but then bouncing back on Friday. The silver forecaster issued a buy signal Wednesday, ending the week at +0.14, which is a mild uptrend. Silver also printed a swing low on Friday, which had a 41% chance of being a bullish reversal. That's pretty lukewarm for a swing low. Silver remains in a downtrend in both weekly and monthly timeframes. However it is interesting to see that silver may be putting in a reversal right at the lower end of its trading range.

The gold/silver ratio fell -0.12 to 77.25. That's mildly bullish.

COMEX SI open interest rose +743 contracts.

The commercial net position rose +8.8k contracts, which was 8k covered shorts, and +829 new longs. Managed money net fell by -13k contracts, which was 8.6k longs sold, and 4.3k new shorts. Although there was some cashing-in by the commercials, the overall COT position suggests that silver is at a top more than a bottom.

Miners fell -0.70%; they fell for most of the week, but appeared to reverse on Friday. GDX printed a swing low (64% bullish reversal), while GDXJ printed one as well, but it was a 3-candle swing low, which my code doesn't rate. XAU forecaster issued a buy signal on Friday, rising +0.50 to +0.20. XAU remains in an uptrend in the monthly timeframe, but a downtrend on the weekly.

The GDX:$GOLD ratio rose +0.63%, and the GDXJ:GDX ratio climbed +0.44%. That's bullish.

USD

The buck fell -0.27 [-0.29%] to 94.18, with all of the damage happening Thursday and Friday. The DX forecaster issued a sell signal for the buck on Thursday, and the buck printed a swing high Friday (59% bearish reversal), closing below its 9 MA for good measure. That's all bearish. Weekly and monthly remain in an uptrend, but the weekly is starting to hint at a reversal in the near future. It looks as though there is some serious resistance at 95. Perhaps Daddy buck needs a rest.

US Equities/SPX

SPX fell -24.54 [-0.88%] to 2754.88. Mostly, SPX drifted lower, with all the damage happening on Tarriff Thursday. While the daily forecaster remains in a downtrend (-0.26), the weekly and monthly are both in uptrends. SPX did drop below its 9 MA, which is bearish, although it doesn't appear as though it is in any great rush to sell off.

The sector map looked relatively bearish. Utilities and REITs did best, while industrials were worst; this suggests that tariffs were the cause of the drop this week, although it wasn't all that dramatic. By contrast, the Shanghai index plunged -4.37% on the week; whatever the economists and pundits are saying, money is telling us that China will suffer substantially more than the US if this trade war continues.

VIX rose +1.79 to 13.77.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
REIT RWR 2.52% -0.51% rising rising falling rising ema9 on 2018-06-20 2018-06-22
Utilities XLU 2.44% -4.94% rising rising falling rising ma50 on 2018-06-19 2018-06-22
Energy XLE 1.32% 17.51% falling rising rising rising ma50 on 2018-06-19 2018-06-22
Cons Staples XLP 0.17% -6.92% rising falling falling rising ema9 on 2018-06-21 2018-06-22
Gold Miners GDX -0.22% -0.81% falling falling falling rising ema9 on 2018-06-15 2018-06-22
Healthcare XLV -0.62% 5.39% falling rising rising rising ema9 on 2018-06-18 2018-06-22
Cons Discretionary XLY -0.70% 24.20% rising rising rising rising ema9 on 2018-06-21 2018-06-22
Technology XLK -1.28% 26.54% falling rising rising rising ema9 on 2018-06-15 2018-06-22
Financials XLF -1.46% 12.89% falling falling rising falling ma200 on 2018-06-15 2018-06-22
Materials XLB -2.03% 9.10% falling rising rising falling ma50 on 2018-06-19 2018-06-22
Telecom XTL -2.46% 1.14% falling rising rising falling ema9 on 2018-06-21 2018-06-22
Homebuilders XHB -2.52% 3.48% falling falling rising falling ma50 on 2018-06-22 2018-06-22
Defense ITA -2.56% 23.39% falling falling rising falling ma50 on 2018-06-15 2018-06-22
Industrials XLI -3.34% 7.16% falling falling rising falling ma50 on 2018-06-19 2018-06-22

Gold in Other Currencies

Gold fell in every currency except the CNY.  You can see that gold in general has started to move lower in most every currency.

Rates & Commodities

TLT rose +0.12%, more or less moving sideways on the week. It remains above both the 9 and 50 MA lines – that's a short term uptrend. Forecaster confirms, closing the week at +0.45. TY did a little better, up +0.22%; it is slowly inching higher, also above the 9 and 50. TY is in an uptrend in all 3 timeframes. The 10-year yield dropped -2.4 bp to 2.90%. For all the hype and talk of "lines of death" - me included - that 10-year rate sure hasn't spent much time above 3%.

JNK fell -0.25%, issuing a sell signal on Tuesday, and then moving slowly lower in fits and starts. By end of week the forecaster had a rating of -0.50, which is a strong downtrend – but it sure doesn't look like that when looking at the chart. Over the multi-month timeframe, JNK has been meandering slowly lower.

BAA-AAA ratio, the bond fear gauge, fell -2 bp on the week to 0.87%. No fear here.

Crude staged a huge recovery this week, up +5.05 [+7.86%] to 69.28. Most of the gains came on Friday, but crude did manage to move higher 4 of the 5 days this week. Forecaster ended the week at +0.76, which is a strong uptrend. Crude weekly issued a buy signal, and the monthly is back in an uptrend. The EIA report looked mixed (crude: -5.9m, gasoline: +3.3m, distillates: +2.7m), and the market didn't really react either way to the report.

Crude's rally was all about OPEC; about a month ago, there was talk that Russia and Saudi Arabia would ramp up production to make up for Venezuela's shortfall, which is about 800k bpd and rising. That's what caused crude to drop $12 in the first half of May. But this week, it became increasingly clear that due to OPEC politics, the actual increase would be short of that number, perhaps around 640k, which would still leave the world in deficit. That resulted in our $5 rally, and a return to the uptrend for crude.

https://oilprice.com/Energy/Energy-General/OPECs-Agreement-Sends-Oil-Prices-Soaring.html

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -4.13 tons, with 825 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.31 -0.49% to NAV [decrease]
 PSLV 5.97 -3.71% to NAV [increase]
 CEF 12.81 -3.42% to NAV [increase]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows slight discounts for both gold and silver.

* Big bars premiums were: gold [1kg] 1.25% and silver [1000oz] 3.37%.

Grey Swans & Geopolitics

  • German Government: Merkel has until July 3rd before German interior minister Seehofer orders the German border guards to turn back migrants who have previously been registered in other EU countries. Merkel is totally against this policy.  As a result, there are rumors of Merkel threatening to fire Seehofer over this plan, which could end up bringing down the fragile coalition government after only a few months in office. That Interior Minister post is pretty important, it turns out, and when your cranky anti-migration coalition partner owns the slot...all sorts of things can happen.

  • EU migration: Italian interior minister Salvini ordered a “migrant sea taxi” (a rescue ship run by a German NGO) impounded because the rescue ship was flying the Dutch flag, but the Netherlands had denied responsibility for the vessel, saying it wasn't registered in their country. Salvini said he had contacted the Dutch ambassador about the ship's activities, adding that the migrants "will only see Italy on a postcard." Macron compared rising nationalism and anti-migrant sentiment to “leprosy”, to which Salvini replied, “I take the lessons from those who open their own ports. Welcome thousands of migrants and then we can talk.” Which, of course, won't happen; the French border police actively discourage migrants from Italy from crossing the border into France. Things are not calming down - and Macron is not only tone-deaf, he's hypocritical too.  http://www.dw.com/en/italy-to-seize-german-ngo-rescue-ship-carrying-226-migrants/a-44342405

  • US Congressional Elections, 2018. The generic ballot shows Democrats 47% [+6.3%] vs Republicans 40.7%. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: this week Trump kept sanctions in place on North Korea by declaring them an “extraordinary threat” - a bureaucratic lever the President needs to pull every year in order to keep sanctions in place. This particular lever has been pulled every year since 2008. Mainstream media then proceeded to bash Trump for “flip-flopping”, because in the post-summit glow, Trump suggested that North Korea was no longer a threat. Of course if Trump had lifted sanctions on North Korea, they would have bashed him about that. To me, Trump does bad things – like healthcare, the cost of prescription drugs, and the environment – but does the MSM complain about those issues that affect every American on a daily basis? No. These really serious Trump failings are routinely ignored, and instead they focus on Stormy Daniels, crying migrant babies, school shootings, “Russian collusion”, and now the Trump flip-flop. My sense is, for them to file a story, it must only be about something that doesn't affect the bottom line of their corporate sponsors.

  • Mueller Investigation: a former advisor to Bill Clinton has suggested the Mueller investigation may have been irretrievably tainted at inception – by Strzok and Page - and as a result it could be challenged in court under the doctrine of “fruits of the poisonous tree”, which was first put forward by a Supreme Court justice as the only way to prevent government agents from first abusing the rights of citizens, and then benefitting from those actions. http://thehill.com/opinion/judiciary/384963-comey-mueller-and-the-poisonous-tree

Summary

More migration and more tariffs.  The tarriff explosion on Thursday gave US equities a slight sniffle, while the Shanghai composite is in bed with the flu.  Migration hasn't hit Euro bonds just yet, but a couple of newly-appointed eurosceptic committee chairmen in Italy caused a jump higher in Italian 2-year debt yields, which I believe is a harbinger of things to come.  Crude recovered fairly dramatically; it appears that OPEC won't be pumping as much as they could, which will make sure the glut will not return.

The gold COT could definitely be signaling a low, while silver appears to be nearer a top than a bottom.  It is possible that managed money has wised up - it is hard to know if the formerly dependable wash-and-rinse cycle remains in play.

Big bar gold and silver premiums are relatively low, and the ETFs have moved fairly heavily into discount.  My (US-centric) supply indicators suggest there is no current shortage of physical gold.  That said - Andrew Maguire over at King World News says that the Swiss refiners are (probably) all sold out of kilo bars, which are favored by the East, for the next few months.

Migration is at the top of my list of things to watch.  It could blow up the German government, wreck the Shengen agreement, and force the other EU governments (I'm looking at you, France) to confront the same issues that Italy has been dealing with for 4 long years.  The EU hypocrisy is at maximum at this point, and its quite clear from Italian opinion polls that a majority of the Italian people support Salvini's "no more migrant sea taxi" policy.

All the while, the spin placed on migration by the mainstream media is curious too.  I just recently realized that the migrant arrivals into Italy are more than 90% men, and yet in every MSM reference I read, it  lists the total number of people on the boat, followed by the number of women and children, and mostly, the pictures of migrants are pictures of women and children.  http://www.dw.com/en/italy-to-seize-german-ngo-rescue-ship-carrying-226-migrants/a-44342405

A wave of young men from a different culture "migrating" into your country seems scary.  In fact, it sounds exactly like an invasion.  And yet, by talking only about women and children, the MSM is actively painting migration as some sort of benign humanitarian effort.  Who doesn't want to help women and children?  (That urge to help women and children has to be pro-survival biological programming of some sort.)  My conclusion: by deliberately re-framing this as a women-and-children issue, when its really a wave-of-young-men issue, someone powerful enough to corral the entire MSM wants migration to continue.  Who?  And why?

Look at this from a military perspective.  Perhaps 630,000 young men from Africa - around 30 divisions of military-age men - have been thrown ashore by the "migrant sea taxi service" run by non-Italian NGOs in the past 4 years.  Point of reference: 150,000 troops were landed on D-Day on the beaches of Normandy in 1944.  Of course the troops had all sorts of military gear, and the migrants do not, but...the sheer numbers of military-age migrants landed are extraordinary.

I focus on migration because its a local issue that cannot be resolved by an ECB money printing campaign.  Opportunistic politicians looking for a horse to ride into power will seize upon this issue and flog it for all they are worth.  Usually these politicians are anti-Brussels, and the tone-deaf EU bureaucracy continues to play right into their hands.  For several years, calling them "racist" and "far right" kept this issue at bay, but that tactic is no longer working.  At this point, roughly 2/3 of the Italian electorate supports the anti-migration (anti-invasion?) policy.

What will Salvini do with all this support?   The less credibility Brussels has, the more support Salvini will have for his domestic agenda, which will need to be funded by a new, local currency.

If he does that - instant jump in Euro bond prices, soon to be followed by a banking crisis.

Weekly trends (in order of strength):

Uptrend: SPX, 10-year treasury, silver, USD, crude.

Downtrend: miners, copper, gold, gold/Euro, bitcoin, BBB corporates.

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6 Comments

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 2014
Migrations: Ants and Grasshoppers

While one immigrant family is probably a group of wonderful human beings that we would welcome to our neighborhoods, in groups of say, 500,000, mostly young men, the immigrant masses are more like a flash flood from a failed dam destroying a town. 

This passage, posted on fb by Rob Shepler, reminds me of the scene from A Bugs Life where they realize that the puny little ants, in number, are a force to be feared.

DaveF wrote:

All the while, the spin placed on migration by the mainstream media is curious too.  I just recently realized that the migrant arrivals into Italy are more than 90% men, and yet in every MSM reference I read, it lists the total number of people on the boat, followed by the number of women and children, and mostly, the pictures of migrants are pictures of women and children.  http://www.dw.com/en/italy-to-seize-german-ngo-rescue-ship-carrying-226-migrants/a-44342405

A wave of young men from a different culture "migrating" into your country seems scary.  In fact, it sounds exactly like an invasion.  And yet, by talking only about women and children, the MSM is actively painting migration as some sort of benign humanitarian effort.  Who doesn't want to help women and children?  (That urge to help women and children has to be pro-survival biological programming of some sort.)  My conclusion: by deliberately re-framing this as a women-and-children issue, when its really a wave-of-young-men issue, someone powerful enough to corral the entire MSM wants migration to continue.  Who?  And why?

Look at this from a military perspective.  Perhaps 630,000 young men from Africa - around 30 divisions of military-age men - have been thrown ashore by the "migrant sea taxi service" run by non-Italian NGOs in the past 4 years.  Point of reference: 150,000 troops were landed on D-Day on the beaches of Normandy in 1944.  Of course the troops had all sorts of military gear, and the migrants do not, but...the sheer numbers of military-age migrants landed are extraordinary.

I believe that we urgently need to get ahead of this process:  To admit to ourselves that it is happening and ask WHO IS RE-ENGINEERING OUR SOCIAL STRUCTURES?  How are they organized?  What is the goal.

 

lambertad's picture
lambertad
Status: Silver Member (Offline)
Joined: Aug 31 2013
Posts: 181
ECB can solve migration issue

Dave, 

Wasn't a country, perhaps Germany, offering migrants several thousand euro to return home to their countries? What's to stop the ECB from printing a 100 billion Euro and handing it to the migrants to bribe them to return home? That would be a win-win for Brussels, too. Sure they'd look hypocritical, but they could spin it as they're saving both the EU and the migrants. "Hey, look, we're giving them 10,000 Euro each to return home, they can all buy a house". If I were in Europe, I'd be all about printing money and handing it to the migrants to return home. That's a piss in the bucket for what it's going to cost to keep these people on the .gov dole for the rest of their lives. I would be willing to bet 90+% won't assimilate. What european woman is going to marry someone who treats them like a baby factory and can't hold a job? I do agree, the migration issue is going to end the EU, unless the ECB prints big bucks and pays them to go back to the country they came from. 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5643
migration

Two thoughts.

SP- yes it does seem that someone is trying to change the social structure in Europe.

lambert-

GIving the existing migrants $10000 to go back home is an interesting idea.  It works great for the set that are currently there.  It also works as an incentive to drag even more migrants in.  "If you can make it to Europe, you get 10,000 euros - enough to buy a house!"  You're right though, the price tag is 7B Euros - that's not all that much, all things considered.

But how to stop the follow-on surge of migration looking for that $10k euro payday?  With instant communications from social media, the migrants know instantly how best to work the system.  People are very clever; governments, much less so.

 

DennisC's picture
DennisC
Status: Gold Member (Offline)
Joined: Mar 19 2011
Posts: 334
Case in Point

Re: "Clever" governments.

A link to this site was posted in the Daily Digest a few days back.  After reading the linked article, I started reading other articles and spotted this comment. I remembered it because I got a good chuckle at the time.

The committee’s other cost-saving measure in recent months, sending the school-bus contract out to bid rather than taking a locked-in renewal rate as staff had recommended, backfired. Only one company sent in a bid — Students First, the existing transportation provider — at 8 percent higher than their current rate. Because the company is the only bidder, the district is trying to negotiate the rate down.

https://www.newhavenindependent.org/index.php/archives/entry/creed_alter...

lambertad's picture
lambertad
Status: Silver Member (Offline)
Joined: Aug 31 2013
Posts: 181
lessons from history

Dave, 

Good point. Just like the British government in India. We pay for each cobra head you bring in. The locals start cobra breeding programs to cash in. 

You would certainly have to shut the borders first. As long as you don't have migrant taxis continuing, I'm not really sure how hard that would be. If you had boats actively working to tow their boats back to where they came instead of ferrying them to Europe, it could be a different story. 

I guess the true moral of the story is to not bomb the crap out of their countries to begin with and maybe they'll stay put.  

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5643
migration lessons from israel?

I just remembered that Israel has had problems with migrants from Africa too.  Currently they have 60,000 African migrants (Netanyahu calls them "infiltrators") who made it across the Egypt-Israeli border prior to the wall going up.  Yes, Israel has a wall.  I don't think Egypt paid for it.  But by all accounts, it has totally stopped illegal migration.

Anyhow, so they have these 60k migrants.  In January they threatened the migrants with jail if they didn't take $3500 and a plane ticket to Rwanda.  So far, that plan hasn't worked out.

https://www.usatoday.com/story/news/world/2018/04/03/israel-migrant-deal/480859002/

Israel is very slow to process asylum requests.  So far, less than 20 of the migrants have been granted asylum.  One would almost think they were not eager to grant the requests.

Bottom line: the Israeli Wall really did seem to work.  Who knew?

As for lessons - Italy needs a wall, and we all need to stop bombing their countries, but even if we do this, I see going forward that climate change or peak oil (take your pick) will bring about real economic troubles in these "migration source" countries, which will trigger a wave of migration that probably makes the current one pale by comparison.  That will ultimately call into question the whole concept of accepting refugees, as well as forcibly returning migrants back to their source nations.  That, or turning them into slaves - er, I mean, detaining them and setting them to hard labor so they can repay the cost of their plane ticket back home.

Whatever the policy is, it has to be unpleasant enough to dissuade new people from coming.  Australia has its policy of intercepting inbound boats, coupling it with that Unpleasant Island to which it sends the people it catches.  That seems to work fairly well - as long as you aren't one of the people tasked with implementing said policy.

I think that's where we end up, once peak oil becomes reality.  In the meantime...best migrate while you can still do so...

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