PM Daily Market Commentary - 7/3/2018

davefairtex
By davefairtex on Wed, Jul 4, 2018 - 3:30am

Gold rose +11.20 [+0.90%] to 1254.00 on moderately heavy volume, while silver climbed +0.18 [+1.13%] to 16.06 on heavy volume. The buck fell -0.37 [-0.39%], which definitely helped the metals, but to me the real cause of the PM rebound was platinum.

Yesterday was the perfect setup; platinum cratered, plunging 4.2% on extremely heavy volume, making a decade-low, pushing the gold/platinum ratio at an all time high.  When Asia opened, platinum continued to sell off, but buyers appeared at round number 800.  Armstrong likes to say that the only people with the courage to buy during a plunge like this are the shorts - who are madly ringing the cash register.  That could have been what happened today; perhaps a bunch of shorts decided to ring the cash register at 800, and prices leaped higher, eventually rising $50 off those lows.  Volume was once again extremely heavy.

Why do we care about platinum?  Well, platinum prices tend to be a strong influence on both gold and silver, so even though you don't own platinum, its still good for your PM position when it rallies, and its generally bad when it tanks.

Gold sold off early, making a new low to 1238.80, then it double-bottomed, and then took off as platinum rebounded. Gold rallied steadily until about noon, after which it dropped off a bit into the close. Gold's long white candle was bullish (a 45% bullish reversal), and gold forecaster jumped +0.55 to -0.09; not quite a buy signal. GC.EUR looked similarly bullish. Gold appears to have found support at the previous low of 1238.

COMEX GC open interest rose 4,765 contracts; that's curious – I would have expected a bunch of short-covering, but a rising open interest suggests otherwise.

Rate rise chances (September 2018) moved up to 73%.

Silver more or less tracked gold, but avoided making a new low, and rallied a bit more strongly, ending the day near its high. Candle print was a bullish harami (56% bullish reversal – very highly rated), but SI forecaster just moved up +0.05 to -0.06, which isn't a very satisfying move. Silver remains below all 3 moving averages.  I think we'll need more than one day of rally to convince the forecaster that the trend has changed.

COMEX SI open interest fell by -2,328 contracts today.

The gold/silver ratio fell -0.18 to 78.08, which is somewhat bullish.

Miners rallied today, with GDX up +1.77% on moderately heavy volume, while GDXJ moved up +1.98% on hevay volume. Both miners printed bullish continuation candles, and XAU forecaster moved up +0.13 to +0.38; uptrend is strengthening. XAU's rally stopped right around the 200 MA.  Miners continue to look strong.  Compare XAU's position w.r.t its moving averages with where gold is; XAU looks much more bullish.  That is why we use the MA lines - as a form of signpost.

The GDXJ:GDX ratio moved higher, as did the GDX:$GOLD ratio. That's bullish.

As mentioned, platinum shot up +2.92%, palladium fell -0.33%, while copper dropped -0.75%. Copper made a new low and remains in a downtrend, while palladium is more or less chopping sideways. Platinum appears to have put in a low - the bullish harami candle was a 53% bullish reversal.

The buck fell -0.37 [-0.39%] to 94.39. While the candle print was neutral, DX forecaster plunged -0.41 to -0.17, which is a sell signal for the buck. Buck is now below its 9 MA. Weekly and monthly both remain in uptrends, but momentum is clearly slowing. It looks as though 95 is a pretty tough level for the buck to move through at the moment.  If the buck does top out here, it could line up with a nice rebound for the metals.

Crude edged up +0.08 [+0.11%] to 73.90. Crude had a wide trading range today, making a new high to 75.27 before selling off hard (down $2 in about 30 minutes) on news that Russia and Saudi Arabia reaffirmed their commitment to increase oil production by 1 mbpd to offset losses from the US Iran sanction regime due to come into force in November 2018.  After cratering, oil then managed to bounce back up to even. The API report after market close looked bullish (crude: -4.5m, gasoline -3.1m, distillates: -438k). US crude oil production stagnated for the third week in a row. The high wave candle was mildly bearish (29% bearish reversal), but crude forecaster dropped -0.17 to -0.12, which is a sell signal for crude.

Still, my takeaway is that shale production is not increasing even though we're at $75 oil.  To me, that's a big deal.  It tells me that shale might not be the oil-price-party-crasher that it was made out to be.  That's bullish for oil in the longer term.

SPX fell -13.49 [-0.49%] to 2713.22, rallying early, but then selling off hard into the close. The long black candle was a bearish continuation, and SPX forecaster fell -0.31 to -0.58; SPX remains in a downtrend. SPX is below its 9 and 50 MA lines. While weekly and monthly forecasters remain in uptrends, they are weakening; it would not take much to tip them both into downtrends. Sector map shows that tech led lower (XLK:-1.18%) along with financials (XLF:-0.90%) while energy did best (XLE:+0.63%). This was a bearish sector map.

VIX rose +0.54 to 16.14.

TLT rose +0.54%, erasing yesterday's plunge and then some; while TLT forecaster remains in a downtrend, today's candle print was bullish. TY rallied +0.19%, mostly erasing the past 3 days of decline, with TY forecaster issuing a buy signal: up +0.36 to +0.30. The 10-year yield fell 2.8 bp to 2.84%.

JNK rose +0.06%; prices had moved a lot higher, but the day's rally largely failed. Today's candle print was a swing low – 43% bullish reversal. JNK remains in a downtrend.

CRB moved down -0.01%, largely unchanged, with 4 sectors out of 5 rising. (How can that be? Seems like the math is off somewhere). PM led (+1.07%). Commodities are a tariff-effects microcosm; industrial metals and agriculture are down about 10% each, livestock and energy are flat-to-up, while PM is off about 6%.

The big question is, does this mark the low for the metals? Maybe.  Miners are voting yes, but the industrial metals remain under pressure. Copper made a new low just today – it is down 13% over the past 3 weeks, and it shows no hints of stopping.  Copper is driven by concerns over tariffs and Chinese economic activity, which appears to be slowing.

Platinum looks to have had a capitulation low, bouncing nicely off round number 800, on some huge volume. Managed money is heavily short platinum – we might have some room to run there for a while. Rising platinum should help the rest of the PM group to rally – let's assume it will continue to move higher.  And if the buck really does top out, that should help too.

So on balance, that's probably PM-rally positive, although how far the move could go in the face of plunging copper prices, I'm not quite sure..

Ultimately, what we really need is for the tariff situation to be over. Once tariff-peace is declared, the commodity complex should rip higher.  So when will tariff-peace break out? Will it ever break out? Well the globalized US manufacturers are pulling out the stops to get the captured media to play the “tariffs are bad” tune. There are lots of US corporate winners that benefit from the status quo, along with workers in China and the EU, and they desperately don't want anything changed. And their bipartisan mouthpieces in Congress are doing everything they can to help keep the status quo in place.

It is unclear who will end up winning this one, but the odds would seem to favor the US globalized companies/China/EU conspiracy. They own most of Congress, and they own the media.  And they really, really don't want to see any changes. Executive compensation is on the line here, as are corporate profit margins, as are employment rates in China and the EU.

To me, all the fuss and bother right now is centered around one thing: the cost of labor.

Open borders means lower wages. H1-B visa programs means cheap imported (skilled) workers – lower wages. Unequal tariff regimes means outsourcing can generate much higher profits for US companies as a result of lower wages.  Lower wages = higher executive compensation, higher stock prices, higher profit margins, higher employment in China and EU.  Its a win-lose game, and US labor is the loser, and has been for 30 years now.

And the latest sales technique from this corporate/China/EU axis?  Pictures of crying babies in cages. It reminds me of the “babies in incubators” fraud that got us into Gulf War 1. Crying babies means we should get rid of ICE and have open borders. Get rid of ICE, open the borders and let everyone in who wants to come to the US - especially if they come with a crying baby - and labor costs will plunge right through the floor. Companies win!  And everyone will get to feel momentarily good that all those crying babies are now happy...and then they will wonder why their job gets taken by a lower-priced open-border immigrant who is ecstatic to work twice as long for half of what they earn.  In my experience, Asia has millions of of people who would love to get a 300% pay raise for the cost of a $500 one-way ticket on China Eastern.  And I suspect most of them can arrange to come with a crying baby if that's what is required for entry.

So, will this tariff thing end?  I see it ending one of three ways.

* US partial victory: The axis fragments; EU caves early, and later on as economic activity in China starts to materially decline, China and the US split the difference - enough for Trump to declare victory, but also enough for China to retain an advantage.  From 1-6 months.

* US victory: the Axis hangs tough; tariffs cause a recession.  Trump retains enough political capital at the midterms to convince the axis that they'd better cave rather than continue bleeding economic activity for another 2 years.  6-12 months.

* Axis victory: the Axis hangs tough, Trump gets impeached, and/or the targeted tariffs cause his base to desert him at the midterms, and he gives up the effort.  12 months.

And of course by "US Victory" I mean US labor wins - higher employment, higher wages.  Executive comp and corporate profits of US corporations will definitely drop, and employment in both China and the EU will decline.

While we wait for the tariff denouement, the miners continue to do quite well. Here's a trade for you: short GLD, long GDX. 

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8 Comments

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 4 2014
Posts: 601
The economy. What's it to run on?

Loved your analysis, Dave. However, methinks that Mr. Trump doth protest too much. Energy is the same factor it always is in the economy. Without it, you're at a disadvantage. The US fracking miracle is rapidly showing signs of evaporating and ALL the international players are dilligently exploring supply options. The US is sitting on a precariously thin edge of the supply peak and small disruptions(pipeline capacity, Syncrude shutdown, rail car spills) can have an immediate impact on price. Why is Donald so cozy with SA sheiks? Pressure from Asia for more energy is the long term elephant-in-the-room for NA biggest economy. I cannot see higher wages, let alone more American jobs anywhere on the horizon. Unless Mr. Trump can "hoodwink" the US electorate into more American exceptualism and maintain a majority, the pain may slowly increase into the next decade. Perhaps those immigrants, you speak of, are headed to Thailand:

https://www.reuters.com/article/us-harleydavidson-thailand/harley-davidson-plans-a-thailand-factory-to-serve-se-asian-market-idUSKBN18L0DA

Enjoy your independance(day) while you can!

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5527
autarky

If you look at this as a long term play, and you assume that the US more or less owns the canadian syncrude, its probably best to get as much manufacturing back home before the oil thing blows up.

So while today it is about jobs - and I think it is about jobs right now, as it was about wages for the last 30 years - 5-10 years from now, we'll be glad we brought mfg back to the US while we still had spare energy to invest in such things.

Having long fragile supply chains planted on territory either owned or within the sphere of influence of the other major power during a time of declining net energy seems...really problematic to me.  Best to have that moved back onshore, regardless of the profits lost to the executives in the US companies.

CAF says that its the military that is pushing this strategy; they are backing Trump, versus the usual bunch of money-grubbing pinheads who just want to keep on ringing the register on the globalization thing right until we run into the brick wall at 60 mph.

"Invest your capital in your factory in our country", they said.  "You will retain ownership", they said.

Right up until it got nationalized "when things get more serious" down the road.  After all the technology transfer has already happened to the local partner.  Possession is 9/10ths of the law, especially in the international sphere where "the law" is mostly just what the host country says it is.

I dunno, am I the only one seeing this as a potential issue down the road?

 

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 42
Self sufficiency

Makes perfect strategic sense to me too for the US military complex to support onshoring of steel and technology manufacturing. It's a shame that we haven't taken the opportunity of decades of relative peace and prosperity to deweaponize the world. Combined with the distinct possibility of peak prosperity bearing down on us, I'd say this is most concerning.

Not everyone is suited to the service economy so it also makes perfect sense to repatriate manufacturing jobs that will give employees a sense of self worth, hopefully stabilizing society.

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 4 2014
Posts: 601
Autarky or Malarky?

The sentiment is shared and palpable amongst many PP self-sufficiency advocates including, I must admit, myself. However, as long as the PTB continue to focus on the financialization aspects of trade, we are headed for a slow but severe decline in fortunes especially if we focus on barriers. When I consider the recent passing of the US federal farm bill offering up $867 million more dollars to keep agri-industrial sector solvent, I have to wonder whether the US is just compounding the problem by kicking- the-can a little further down the road, predicated on cheap energy. Without overplaying my hand, I would suggest that we're seeing a replay of the Smoot-Hawley fiasco all over again. History can testify to expected outcomes of this type of thinking and it ain't great.

But, of course, the American public is on top of this and is eager to know more;

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5527
smoot hawley

The amusing thing about the Smoot-Hawley reference is that this particular event occurred when the US was a large exporting nation.  We were in China's position back then.  Starting a tariff war when you are a major exporter is a seriously bad idea.  That's what we did.  And it was really stupid.

Of course, as we all know, that's not where the US is anymore.  As a result, the Smoot-Hawley historical reference is not only incorrect - its exactly backwards.  It applies to China, not us.  That's why China is eager to avoid the tariff war.  China is much, much smarter than we were back then.

If Trump sticks to his guns, it will all be fine.  If we start misunderstanding lessons from history dragged out by the corporate/China/EU axis in an attempt to dissuade us from taking this self-protective action, well, then we deserve to lose.  To paraphrase: "He who doesn't properly understand the lessons of history is doomed to be manipulated by those who do."

 

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 325
You might want to check out

the future of manufacturing in this country with a company like markforged.com MIT has them placed as one of the top 10 breakthrough technologies of 2018......

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1958
Markforged 3D metal printing

I was pretty awed by the pictures of the 3D printers.  I don't know anything about this technology, but *WOW* anyway.  The ability to make metal machine parts locally on a 3D printer.

:-)

https://markforged.com/metal-x/

[Now I imagine a hack by a competitor who puts small defects into the design of a part which is stored in the cloud.....   Like a crucial stearing component in a fighter jet.   Alas, a suspicious nature really ruins lots of things.]

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5527
3-d printing

I was wondering when this would become a reality.

Now imagine auto-parts stores.  Get rid of the inventory, and replace it with a bunch of 3-D printers, and drones for delivery.  No more need for pick & pull salvage lots that never have your part anyway, and no more need for those piratical prices charged by the dealers.

It would seem to be even more important to bring the factories back here.  Having all this tech/capital living overseas is just a bad idea if we are expecting a peak energy situation.

 

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