PM End of Week Market Commentary - Q2 2018

davefairtex
By davefairtex on Sun, Jul 1, 2018 - 1:59pm

On Friday, gold rose +4.70 [+0.38%] on moderate volume, and silver rose +0.11 [+0.72%] to 16.16 on moderate volume also. The buck was hammered, falling -0.76 to 94.34, on news that the EU had agreed to fix the migration problem. How did they do this, you ask? I'll deal with the details later. The market, however, saw the news as Euro-bullish: Merkel will remain in power.

Today ended the week, the month, as well as the quarter. I'll be showing monthly charts as a result, to provide a longer term context.

Pulling back to the quarterly view provides some good context – it highlights some trends I've been noticing for a while now. Junior and senior miners are actually up for the quarter, with juniors leading seniors – this is remarkable since gold itself has plunged more than 5% over that same period. Industrial metals are mixed, with silver sandwiched between palladium and copper. Platinum is down a horrid 8%. The entire complex is below the 50 and 200 MA lines, with just hints of recovery in the miners. What happened? Buck rose +5.04% over the quarter, so almost all of gold's move could be accounted for by currency moves. We know this by looking at GC.EUR, which only fell -0.77%.

Key takeaway from this table: regardless of the movements of the metal, the miners have a bid. Big money is accumulating.  Considering the environment - that's quite bullish.

Name Chart Chg (Q) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 1.71% -1.86% falling falling falling falling ema9 on 2018-06-29 2018-06-30
Senior Miners GDX 1.50% 1.64% rising falling falling falling ema9 on 2018-06-29 2018-06-30
Palladium $PALL 0.25% 12.28% falling falling rising falling ema9 on 2018-06-29 2018-06-30
Gold/Euro $GOLD:$XEU -0.77% -1.61% falling falling falling falling ma200 on 2018-06-25 2018-06-30
Silver $SILVER -1.10% -2.86% falling falling falling falling ema9 on 2018-06-15 2018-06-30
Copper $COPPER -1.94% 9.92% falling falling falling falling ma50 on 2018-06-19 2018-06-30
Gold $GOLD -5.67% 0.69% falling falling falling falling ema9 on 2018-06-15 2018-06-30
Silver Miners SIL -5.99% -14.38% falling falling falling falling ema9 on 2018-06-29 2018-06-30
Platinum $PLAT -8.51% -7.11% falling falling falling falling ema9 on 2018-06-15 2018-06-30

Gold fell -16.90 [-1.33%] this week, dropping 4 days out of 5, and only rallying on Friday because of a massive plunge in the buck. This tells us that GC.EUR had an even worse week; it lost -1.78%. Friday's candle print was a bullish engulfing (44% bullish reversal), but the forecaster ticked up just +0.16 to -0.18, which is still a daily downtrend for gold. Weekly and monthly are bearish, with that previous low at 1238 not so far away. Quarterly gold (yes I have one) issued a sell signal to end Q2. Ouch. That's what happens when gold drops almost 6%.  On the chart, you can see that gold has been in a downtrend since February, 2018, and it is falling towards the uptrend line that dates back to January 2016. 

The September rate-increase chances rose to 72%.

COMEX GC open interest fell 5,028 contracts this week.

The commercial net position rose +19k contracts, which was 9k covered shorts, and 10k new longs. That's some cash-register ringing by the commercials. Managed money net fell -11k contracts, which was 11k new shorts, and 538 new longs. Managed money net is very low - not quite historical, but close, while commercial net is relatively high. As with last week, we could easily be at a COT reversal point again this week.

Silver fell -0.29 [-1.79%] on the week, making a low on Wednesday, with the contract roll making silver look a bit better than it otherwise would have. Silver rallied strongly on Friday, with the forecaster issuing a buy signal after rising +0.30 to +0.04. Support for silver appears reasonable at round number 16, and the previous low is now at 15.68, which should act as support too. Silver weekly and monthly both remain in downtrends.  On the chart, we see silver has moved right down to the support area at 15.75-16.00, and is in a slight downtrend.

The gold/silver ratio rose +0.36 to 77.61. That's bearish.

COMEX SI open interest fell -9,563 contracts. That's 21 days of global production.

The commercial net position rose +9.5k contracts, which was 7.9k covered shorts, and +1.6k new longs. Managed money net fell by -5.6k contracts, which was 4.8k new shorts, and 885 longs sold. 8.6k longs sold, and 4.3k new shorts. Because of a large commercial short position, as well as a large managed money long position, silver looks to be more at a top than a bottom.

Miners rose +2.20%; they did the best of the PM group, appearing to reverse on Friday. Both miner ETFs printed swing lows (65-69% bullish reversals), XAU forecaster issued a buy signal (+0.66 to +0.18). XAU is now back above its 9 MA. Just a hint that gold had stopped plunging was enough to bring out the bidders for the mining shares. As you saw in the sector map, the miners have been the most bullish item in the PM group for several months now, and Friday was no exception. XAU remains in an uptrend in the monthly timeframe, but a downtrend on the weekly.  Its interesting that XAU forecaster has remained in an uptrend even though the chart doesn't look all that different from silver's chart.  Perhaps it has noticed the outperformance vs gold. 

The GDX:$GOLD ratio rose +1.94%, while the GDXJ:GDX ratio fell -0.83%. On the quarter, GDX:$GOLD ratio jumped +7.60%. That's bullish.

USD

The buck rose +0.16 [+0.17%] to 94.18 on the week, and +5.04% for the quarter. While the buck made new highs, it sold off hard on Friday, printing a swing high (50% bearish reversal), and has dropped back below the 9 MA. As mentioned, Friday's reversal was all about the EU coming to an agreement about migration, and perhaps more importantly for the Euro, Merkel staying in charge in Germany. Weekly and monthly remain in an uptrend; the monthly is slowing a bit, and the weekly is really slowing down. Is the migration trouble over in the Eurozone?

Well, I don't think so.

US Equities/SPX

SPX fell -36.51 [-1.33%] to 2718.37 on the week, and rose +2.93% for the quarter. SPX took another leg down this week, attempting to rally on Friday but failing. SPX remains in uptrend on the weekly and monthly timeframes, but momentum is definitely slowing. SPX also appears to have printed a lower high a few weeks back.

The (quarterly) sector map had some sharp divergences; energy did extremely well (not surprisingly, with crude up $9) while financials and industrials fell. Its hard to say if this was a bearish quarterly sector map or not; tech and discretionary both did very well also. The reaction of the market to the imposition of tariffs definitely pulled prices lower.

VIX rose +2.32 to 16.09.

Name Chart Chg (Q) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 12.65% 17.50% rising rising rising falling ma50 on 2018-06-29 2018-06-30
REIT RWR 9.08% 0.86% rising rising rising rising ema9 on 2018-06-20 2018-06-30
Cons Discretionary XLY 7.91% 22.59% falling rising rising rising ema9 on 2018-06-21 2018-06-30
Technology XLK 6.19% 26.84% falling rising rising falling ma50 on 2018-06-28 2018-06-30
Telecom XTL 4.95% 2.16% falling rising rising falling ma50 on 2018-06-28 2018-06-30
Utilities XLU 2.83% -0.15% rising rising falling rising ma200 on 2018-06-27 2018-06-30
Healthcare XLV 2.53% 5.18% falling rising rising rising ma200 on 2018-06-29 2018-06-30
Materials XLB 1.98% 8.50% falling falling rising falling ema9 on 2018-06-29 2018-06-30
Gold Miners GDX 1.50% 1.64% rising falling falling falling ema9 on 2018-06-29 2018-06-30
Cons Staples XLP -2.09% -6.04% rising rising falling rising ema9 on 2018-06-21 2018-06-30
Defense ITA -2.77% 23.13% falling falling rising falling ma200 on 2018-06-28 2018-06-30
Homebuilders XHB -3.04% 3.83% falling falling rising falling ma50 on 2018-06-22 2018-06-30
Financials XLF -3.55% 7.70% falling falling rising falling ma200 on 2018-06-15 2018-06-30
Industrials XLI -3.58% 6.04% falling falling rising falling ma50 on 2018-06-19 2018-06-30

Gold in Other Currencies

Gold fell in every currency except the CNY. This tells us that CNY was hit hard this week; it fell -1.81% vs USD.  Money is leaving China, it would appear.

Rates & Commodities

TLT rose +0.99% for the week, and +0.15% for the quarter. Bonds spent most of the week rallying, and sold off on Friday, plunging -0.34%. Most likely the drop in bonds on Friday was the result of the plunge in USD; money fled the US back to Europe – “now that the migration problem is all fixed.” TY rose +0.19% on the week, but it printed a swing high Friday (58% bearish reversal). In spite of Friday's move, TY remains in an uptrend in all 3 timeframes. The 10-year yield dropped -5.1 bp to 2.85%.

JNK fell -1.06% for the week, and -1.03% for the quarter. JNK has fallen 5 days in a row, and made a new low on Friday that dates back to January 2018. I'm not sure what is going on, but JNK is starting to really sell off. Coalmine canary may be starting to tip over here.

Crude jumped higher, up +5.01 [+7.23%] this week, and +9.38 [+14.45%] on the quarter. This week's rally was due to a wave of bullish news: Trump told our allies to stop buying oil from Iran by November 4th or else face sanctions, the EIA report was wildly bullish (crude: -9.9m, gasoline: +1.2m, distillates: unchanged), and the OPEC meeting ended with an increase of only 600 kbpd, which is not enough to make up for the shortfall due to Venezuela and a number of other oil supply issues from Libya, Canada, and Nigeria. Plus, pipeline limitations in the US is causing shale to grow less rapidly than expected. It was a perfect storm of good news. Forecasters for crude are strongly bullish in all 3 timeframes. RSI-7 for crude was at 81, which is overbought – but it still has some room to climb.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -5.59 tons on the week, and -27.08 tons on the quarter, with 819 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.18 -0.55% to NAV [increase]
 PSLV 5.87 -3.32% to NAV [decrease]
 CEF 12.53 -3.77% to NAV [increase]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no discounts for gold and silver.

* Big bars premiums were: gold [1kg] 1.27% and silver [1000oz] 2.88%.

Grey Swans & Geopolitics

  • German Government: Merkel is meeting with conservative Bavarian CSU members on Sunday to try and broker a truce – another way of saying that she's trying save her government from disintegration. Bavaria has been the most heavily impacted by migration, and the CSU has been forced to move to the right on migration or else risk losing votes to the AfD. Bavaria is having a regional election in October.

  • EU Migration Agreement. Here's what they agreed to, according to Haarez – the only news source I could find that had a reasonable explication of what went down. https://www.haaretz.com/world-news/europe/controlled-centers-and-intake-camps-eu-reaches-deal-on-migration-1.6221691

    • EU must rapidly “explore the concept of regional disembarkation platforms” for migrants saved by the NGO ships [e.g. establishing migrant camps in Africa for rescuees.]

    • On EU territory, the EU would establish “controlled centers” providing rapid and secure processing to separate “irregular migrants” (those to be returned) from those “in need of international protection.” Resettlement of refugees (on a voluntary basis) will occur without prejudice to the Dublin reform. [e.g. presumably Italy doesn't get stuck with all of them].

    • The EU needs to figure out how to deport non-refugee migrants faster.

    • Within the EU, migration of not-yet-accepted-refugees needs to be controlled.

    • There is a need to revisit the Dublin Agreement w.r.t. NGO migrant rescues.

  • Macron & Migration: immediately after the summit, Macron suggested that “controlled centers” would not be established in France. Italian PM Conte immediately shot back that Macron was tired, and didn't realize what had been agreed to. Italy clearly wants “centers” established all across the EU, while Macron wants the “centers” to be established only in Italy and Greece – with funding provided by the EU. Note: a “controlled center” is definitely not a migrant concentration camp. And by definitely not, I mean, it pretty much is exactly that.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 47% [+7.2%] vs Republicans 39.8%. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: multiple US intelligence sources leaked information to NBC News, suggesting that North Korea had increased production of nuclear fuel “in recent months” and opined that “there is absolutely unequivocal evidence that they are trying to deceive the US.” While on the surface this report appears to discredit Trump's summit, when parsed carefully, it was not at all clear if this classified analysis occurred prior to the summit, or afterwards. What does appear clear is that “multiple US intelligence sources” were almost certainly not in favor of the summit (c.f. “Bomber Gap”, “Missile Gap”, the Strangelovian “Mine Shaft Gap”, and so on). https://www.nbcnews.com/news/north-korea/north-korea-has-increased-nuclear-production-secret-sites-say-u-n887926

  • Mueller Investigation: Peter Strzok was interrogated by Congress over his anti-Trump text messages – sent at the same time he was leading the investigation of Hillary Clinton over her emails, and starting the investigation of Trump and Russia collusion. Some of the texts hinted at a broader conspiracy within the FBI. One thing is clear to me: if you are plotting to prevent a candidate from being elected President, texting about the progress of said plot to your girlfriend via unencrypted text message on an ordinary phone is an incredibly bad idea. It speaks to just how immune Strzok felt in the actions he took. This guy was the head of counter-intel at FBI. He knew exactly just how problematic these texts were. And yet, here he is, texting about the FBI's anti-Trump conspiracy to his girlfriend. If this doesn't scream “member of the protected class/deep state” to you, I don't know what would. I'm guessing any junior enforcer in the Mafia would have better comsec than Strzok.

Summary

This week we had major developments in migration and a potential rescue for Merkel's government which initially appears Euro-positive, hints of a low in the metals, tariff-related declines in equities, a huge rally in crude thanks to a raft of crude-bullish news, and hints of trouble in the junk bond market.

The gold COT became more bullish – it is signaling a COT low for gold at the moment. The silver COT looks more like a top than a bottom; I'm not sure the wash & rinse cycle applies to silver any more. Either that, or we have a big silver decline ahead of us.

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

It remains to be seen just how much has been papered over with respect to migration (accepting rescuees, processing, distribution, and deportation) after the EU deal on Saturday. Will Italy blow up the EU if they are forced to become the administrators of a large number of migrant concentration camps for 600,000 refugee-candidates, in exchange for EU money? From what Italian PM Conte has said, the answer may well be yes. Will the agreement be enough to mollify the Bavarian CSU, who have borne most of the burden of migration in Germany? We'll know Monday. These guys have an election to win; they don't want to lose to the AfD.

And of course there's the Italian government's costly new domestic policy agenda, which has yet to be enacted. A shoe yet to drop. If you think migration is fun...mini-bots look to be about ten times as much fun.

And there's DB (down 24% this quarter), and emerging markets/Latin America equities (down 21%), emerging market govt bonds (down 13%), Thailand/Indonesia/Malaysia equities (down 14-17%), China equities (down 6%) and Japan equities (down 5%).

Name Chart Chg (Q) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
United States VTI 3.47% 12.99% falling rising rising falling ma50 on 2018-06-29 2018-06-30
Developed Asia VPL -4.07% 6.56% falling falling rising falling ma200 on 2018-06-18 2018-06-30
Europe IEV -4.12% 0.88% falling falling falling falling ema9 on 2018-06-29 2018-06-30
Eurozone EZU -5.40% 1.54% falling falling falling falling ema9 on 2018-06-15 2018-06-30
Emerging Asia GMF -6.69% 9.29% falling falling falling falling ma50 on 2018-06-15 2018-06-30
Latin America ILF -21.24% -1.47% falling falling falling falling ema9 on 2018-06-28 2018-06-30

The takeaway from that: when the dollar rallies, it sucks money out of everywhere else.

Monthly trends (in order of strength):

Uptrend: crude, miners, USD, 10-year treasury, copper.

Downtrend: BBB corporates, gold/Euros, gold, silver.

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