PM Daily Market Commentary - 6/26/2018

By davefairtex on Wed, Jun 27, 2018 - 1:34am

Gold fell -6.50 [-0.51%] to 1260.80 on moderate volume, and silver dropped -0.04 [-0.21%] to 16.29 on very heavy volume. The buck rallied +0.43%, which accounts for most of the drop in PM.

Crude was the big mover today, jumping +2.49 [+3.65%] to 70.68 on news that Trump was asking our allies (with “ask” a interesting word choice) to stop buying oil from Iran. Failure to comply with the “ask” would result in US sanctions against them – not Iran, our allies! This could take 1 mbpd offline, at a time when the oil markets are in deficit. Here is what Nick Cunningham over at oilprice had to say:

The U.S. government is calling on its allies to zero out imports of oil from Iran by November 4, or else face sanctions, and Washington is leaning towards granting no waivers at all. An official from the U.S. State Department said on Tuesday that it had plans to follow up on the matter with Turkey, India and China, even as the U.S. is trying not to “adversely impact” these countries, Bloomberg reports.

The effect of knocking 1 mb/d of supply offline by the end of the year is hard to overstate. The oil market is already in a deficit situation, with inventories continuing to decline. Venezuela is expected to continue to post production declines, likely losing several hundred thousand barrels per day of supply by the end of the year, at the very least. Surprise outages from Libya, Nigeria and, most recently, Canada came out of nowhere over the last few weeks. Together, all of the disruptions more than overwhelm the 600,000 bpd that OPEC+ is set to add back onto the market.

Now, knowing Trump, the long deadline (Nov 4th) and the potential severe impact is all focused on giving him leverage in the Iran nuclear deal negotiations, but after the imposition of tariffs, the market – and the Iranians - can see he isn't bluffing. This may well bring oil right back up to the mid-70s.

I'm thinking of putting Trump himself onto my list of black swans.  But I'm not sure what good it would do - the stuff he comes up with isn't all that predictable.

Gold bounced around in a fairly narrow trading range, attempting to rally after the close in Asia but ultimately failing. The candle print was a bearish continuation, and gold forecaster plunged -0.31 to -0.31, which was a sell signal for gold. At this point in the decline, we have to pull back to the weekly chart to see where support might be – its around 1238, set back in December. GC.EUR also continues to fall.  No good news for gold at all; the RSI-7 for gold is currently at 16, which is quite oversold.

COMEX GC open interest rose 9,851 contracts. That's a reasonably large increase, about 5 days of global production – I'm guessing that's managed money going short, driving the price lower.

Rate rise chances (September 2018) fell to 74%.

Silver sold off along with gold, making a new low to 16.14, but rebounded fairly strongly, almost getting back to even. The candle print was a takuri line, which had a 31% chance of marking the low. Silver forecaster ticked higher up +0.05 to +0.03, which is a tentative buy signal for silver. Volume on the day was heavy, so today's candle might actually be a low.  It will probably depend on what the rest of the metals do in the next few days.

COMEX SI open interest rose by 925 contracts today.

The gold/silver ratio fell -0.23 to 77.42, which is bullish.

Miners fell, with GDX off -0.27% on light volume, and GDXJ dropped -0.34% on light volume also. These marked new lows for both ETFs, and the candle prints were both bearish continuations. XAU forecaster fell -0.27 to -0.30.  XAU also broke below its previous low, which is a bit of a danger sign.

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

Platinum rose +0.02%, palladium rallied +1.93%, and copper moved up +0.32%. Is the decline in copper coming to an end? Certainly the forecaster is almost back to even, rising +0.11 to -0.04. Palladium printed a bullish engulfing (52% bullish reversal) and issued a buy signal, while platinum was more neutral. We might be getting closer to a low in the metals – it is possible that the rally in crude is helping.

The buck rose +0.41 [+0.43%] to 94.35. Is this the end of the dollar sell-off? It might be. Forecaster edged up +0.03 to -0.04. That isn't a bullish reversal just yet, in spite of today's reasonably large move.

SPX rallied +5.99 [+0.22%] to 2723.06. SPX printed a bullish harami, which had a 36% chance of being a bullish reversal. Forecaster wasn't as impressed, rising just +0.04 to -0.77; that's still a strong downtrend. Sector map had energy leading higher (XLE:+1.26%) along with cyclicals (XLY:+0.72%) while staples brought up the rear (XLP:-0.42%). I'm not sure today's move means much.

VIX fell -1.41 to 15.92.

TLT rose +0.14%, slowly clawing its way higher. That's another new closing high for this move in bonds. TY moved up just +0.01%, which is basically no change. The 10-year yield ended the day unchanged, at 2.88%.

JNK was unchanged also; it remains in a downtrend, although the pace is slowing.

CRB rose +0.97%, with only 2 of 5 sectors moving higher, led by energy (+2.40%). Both PM and industrial metals look fairly ill right now. Energy's move today was quite strong.

Boy, if its not one thing, its another.  Last week, tariffs.  This week, Iran.  What's next week?

It feels as though the pace of events is starting to pick up.  It is getting harder for me to keep track of all the balls that are in the air at any one moment.  It is unfortunate that gold doesn't seem to be the beneficiary of any of it.

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Cold Rain
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My $1200 is coming up quick.  I think we'll see it break below by the end of July, probably before, unless something really unexpected and serious happens.  Unfortunate, but there's just no good reason for the price of PMs to increase substantially for the foreseeable future, unless, like I said, something serious happens.  Trump caved to China today a little.  None of the things he seems to say or want to do end up being as bad as everyone makes them out to be (or as bad as people say they could/will be).  We're going to have to have a serious global recession, a financial crisis that is systemic, or a hot war somewhere for PMs to catch a real bid.  Those are probably things that are years away.

Every time something seems imminent, it magically gets "fixed" or papered over or whatever.  In 2014, 2015 was going to be the year.  In 2015, the party JUST couldn't go another year...two at the VERY most.  In 2016, it was 2017.  Now, in 2018, everyone sees the world falling apart in 2019.  It's starting to be lol.  Not saying you/we shouldn't be prepared.  We absolutely should.  But just because things seem like they should break, don't mean they will anytime soon.

Too many rich and powerful people have entirely too much at stake and too many resources at their disposal to allow things to fall apart.  Maybe the day will come when the next leak in the dam will be the one that breaks the whole thing down.  But I'm starting to believe that will be years and years down the road.

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Babson's warning

[A] crash is coming, and it may be terrific. …. The vicious circle will get in full swing and the result will be a serious business depression. There may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed. Wise are those investors who now get out of debt.

The above words could easily have been stated by me or another of the (very) few others who currently predict the coming of crashes in the markets.

But they were not. The statements above were made by investor Roger Babson at a speech at the Annual Business Conference in Massachusetts on 5th September, 1929.

Mr. Babson’s prediction was not a sudden one. In fact, he had been making the same prediction for the previous two years, although he, in September of 1929, felt the crash was much closer.

News of his speech reached Wall Street by mid-afternoon, causing the market to retreat about 3%. The sudden decline was named the “Babson Break.”

The reaction from business insiders was immediate. Rather than respond by saying, “Thanks for the warning—we’ll proceed cautiously,” Wall Street vilified him. The Chicago Tribune published numerous rebuffs from a host of economists and Wall Street leaders. Even Mr. Babson’s patriotism was taken into question for making so rash a projection. Noted economist Professor Irving Fisher stated emphatically, “There may be a recession in stock prices, but not anything in the nature of a crash.” He and many others repeatedly soothed investors, advising them that a resumption in the boom was imminent. Financier Bernard Baruch famously cabled Winston Churchill, “Financial storm definitely passed.” Even President Herbert Hoover assured Americans that the market was sound.

But, 55 days after Mr. Babson’s speech, on 29th October, 1929, the market suddenly went into a free-fall, dropping 12% in its first day.

Today, most people have the general impression that on Black Friday, the market crashed and almost immediately, there were breadlines. Not so. In the Great Depression, as in any depression, the market collapsed in stages. The market did not reach its bottom of 89% losses until July of 1932.

I've heard it argued that our coming Crash will be wickedly quick for two reasons: 1) the speed of communication and trading, and 2) the amplifying effect of all the world's markets being intimately interconnected.  I'm convinced of that line of reasoning, but time will tell.

Personally, if it holds off getting started for about 10 months I'd be thrilled. That would enable me to get a retirement home built and our current house sold at today's bubble high prices.

"Welcome to the Hunger Games. And may the odds be ever in your favor."

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John Williams podcast

Economist John Williams says if Hillary would have won the 2016 election, we would “most likely be in a full blown depression.” The problems in the economy started long ago no matter who was elected. Williams says, “I would contend we were already in a recession at the end of the Obama Administration. That’s one reason why Donald Trump got elected.”

Williams says another negative for the economy is resistance on both sides of the isle of swamp creatures who do not want to pass legislation so Trump can bring home better jobs. Williams says, “Their motivation is not to provide those jobs.” So, Congress is working against “We the People,” and Williams goes on to say, “Yes . . . Yes, let me put it this way. Mr. Trump was something of an anti-establishment candidate, and the establishment had been in place on both sides of the isle for a long time. . . . Now, you have someone who is going to change the approach, one that is needed to get the system back on stabile footing. As a result, you have extraordinary turmoil in the press and a lot of opposition in Congress on both sides of the isle. He also has some support, and that’s where this next mid-term election is going to be interesting. My bet is the same people that voted for Mr. Trump for President are sensitive to the fact he has run into a lot of trouble here. If he had a slate of Congressional candidates that were looking at the same thing (as Trump), this whole thing might have gotten off to a little faster footing. There is going to be more people running for Congress this time that are aware of what needs to be done. I think you are going to have some surprises that will help the President.”

Williams sees a declining economy and says, “This is what I see happening. As the economy turns down, that’s a negative for the dollar. Most importantly here, if the Fed backs off its tightening and moves back towards quantitative easing, and their minutes allow for it . . . they’re going to do that. Right now, the dollar is being supported by expectations of a higher interest rate. As the fed moves back towards quantitative easing, you are very likely going to see a massive sell-off in the dollar. The massive sell-off in the dollar becomes very inflationary. This is a big problem right now for the Fed.”

Williams says everyone should hold a core position of physical gold and silver because they will work well as financial protection from a dollar sell-off and inflation.


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