PM End of Week Market Commentary - 7/20/2018

davefairtex
By davefairtex on Sun, Jul 22, 2018 - 5:04am

On Friday, gold rose +9.40 [+0.77%] to 1231.90 on very heavy volume, while silver climbed +0.22 [+1.44%] to 15.55 on moderately heavy volume. The buck was pounded, losing -0.76%, accounting for all of gold's move. Still, the other metals all had great days, with palladium up +2.73%, platinum climbed +2.56%, and copper rose +1.27%. Was Friday the low in the metals we've been waiting for? It sure could be. I'll try and sort through the evidence and see how it turns out once I'm done.

The metals sector map is a sea of red, except for one lone green spot in platinum, which crossed back above its 9 MA on Friday. The overall sector map was a bit of a mess; of the basic PM metals, gold led silver, while senior miners led the juniors.  If a rebound is coming, its tough to see in this week's sector map.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Platinum $PLAT -0.34% -10.87% falling falling falling falling ema9 on 2018-07-20 2018-07-20
Gold $GOLD -0.80% -0.96% falling falling falling falling ema9 on 2018-07-11 2018-07-20
Senior Miners GDX -0.82% -2.42% falling falling falling falling ema9 on 2018-07-11 2018-07-20
Copper $COPPER -0.95% 1.27% falling falling falling falling ma50 on 2018-06-19 2018-07-20
Gold/Euro $GOLD:$XEU -1.32% -1.77% falling falling falling falling ma200 on 2018-06-25 2018-07-20
Junior Miners GDXJ -1.35% -2.64% falling falling falling falling ema9 on 2018-07-11 2018-07-20
Silver Miners SIL -1.71% -17.46% falling falling falling falling ema9 on 2018-07-11 2018-07-20
Silver $SILVER -1.80% -4.63% falling falling falling falling ema9 on 2018-07-11 2018-07-20
Palladium $PALL -4.63% 5.21% falling falling falling falling ema9 on 2018-07-13 2018-07-20

Gold fell -9.90 [-0.80%] this week; gold broke below the 1238 support level on Tuesday, and bounced off 1210 on Thursday, and printed a swing low Friday (55% bullish reversal). Forecaster ended the week at -0.02, which is a heartbeat away from a reversal. Weekly and monthly forecasters remain in a downtrend.

The September rate-increase chances rose to 85%.

COMEX GC open interest fell -9,810 contracts this week. All of that drop happened on Friday, when OI fell -11k.

The COT commercial net position rose +27k this week, which was 16k new longs, and 11k covered shorts. Managed money net fell -24k, which was 24k new shorts, and 373 new longs. Managed money shorts are now at a record high, and overall managed money net position is roughly where it was back at the lows in December, 2015. While the commercial net position is reasonably bullish, the managed money position is wildly bullish. If we believe that the wash & rinse cycle remains in place, this should be at or near “the low” for gold for the next few years.

Silver fell -0.29 [-1.80%] on the week, breaking below the 15.75 level on Tuesday, and making a new low to 15.18 on Thursday. On Friday, silver printed a bullish harami candle (39% bullish reversal) and silver's forecaster ended the week at -0.21; still a ways from a reversal. In truth, silver didn't look nearly as strong as gold on Friday, as it was unable to print a swing low. Silver remains in a downtrend in all 3 timeframes.

The gold/silver ratio rose +0.80 to 79.22. That's bearish.

COMEX SI open interest rose 3,847 contracts. Contrast this with gold, where the OI dropped. Even on Friday, there just wasn't all that much short-covering; silver's OI actually increased +1,205 on Friday.

The COT commercial net position rose by +13.5k, with 2.8k new longs, and 11k covered shorts. Managed money net fell by -16.6k, with 6.3k fewer longs, and 10.2k new shorts. Managed money short interest is almost at record highs, but the net positions in both categories are not at the extremes we see in gold. Silver's COT position is bullish, and might be a low, but it isn't as wildly bullish as gold.

Miners fell -1.07% on the week, with a buy signal on Wednesday, a sell on Thursday on the breakdown, with a rally on Friday which looked a bit disappointing, given the stronger-looking rallies in the metals. Forecaster ended the week at -0.26, which is still a downtrend. Weekly is also in a downtrend, and monthly remains in an uptrend – although not by much. The miners certainly aren't giving an “everyone back into the water” signal at the moment.

The GDX:$GOLD ratio fell -1.02%, while the GDXJ:GDX ratio dropped -0.54%. That's mildly bearish.

USD

The buck fell -0.31 [-0.33%] this week. There was a lot of back and forth this week, with the buck flipping between buy and sell signals. Friday's big sell-off resulted in another sell signal, as well as a very highly rated swing high (64% bearish reversal). The cause? Probably, it had to do with Trump's comments on Thursday in an interview where he said that he wasn't in favor of any more rate hikes – but that he certainly wasn't going to interfere. 24 hours later, the buck sold off dropping -0.76% and more or less causing the PM rebound. This was enough to cause both daily and weekly forecasters to issue sell signals. Does this mark the top for the buck? This is the first weekly forecaster sell signal in a long time. At the same time, a real dollar decline would require a strong Euro rally, and I'm not quite sure what would bring that about. Perhaps a settlement of the US-EU tariff kerfuffle?

US Equities/SPX

SPX rose +0.52 [+0.02%] to 2801.83. SPX uptrend weakened, with SPX starting to flop back and forth between buy and sell. SPX remains above all 3 moving averages, and in an uptrend in all 3 timeframes, but at least on the daily chart, the uptrend appears as though it may be ready to reverse.

Weekly sector map shows financials leading along with defense, while energy and telecom brought up the rear. Financials did well because our friendly bankers at BAC had surprisingly good earnings (although lower revenues), which pulled the sector higher – although the overall sector still looks ill, as it remains below all 3 moving averages and in a downtrend.

VIX rose +0.68 to 12.86.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 2.15% 11.13% rising falling rising falling ma200 on 2018-07-19 2018-07-20
Defense ITA 1.42% 24.08% rising rising rising falling ma50 on 2018-07-12 2018-07-20
Industrials XLI 0.94% 8.02% rising rising rising falling ma200 on 2018-07-19 2018-07-20
Homebuilders XHB 0.69% 6.60% rising rising rising rising ma50 on 2018-07-05 2018-07-20
Cons Staples XLP 0.23% -3.87% rising rising falling rising ema9 on 2018-07-05 2018-07-20
Technology XLK 0.01% 26.09% rising rising rising rising ema9 on 2018-07-05 2018-07-20
Cons Discretionary XLY -0.39% 23.15% rising rising rising rising ema9 on 2018-07-20 2018-07-20
Utilities XLU -0.48% -1.17% rising rising falling rising ema9 on 2018-07-20 2018-07-20
Materials XLB -0.50% 5.50% falling falling rising falling ema9 on 2018-07-18 2018-07-20
Healthcare XLV -0.73% 7.01% rising rising rising rising ema9 on 2018-07-19 2018-07-20
Gold Miners GDX -0.82% -2.42% falling falling falling falling ema9 on 2018-07-11 2018-07-20
REIT RWR -1.40% -0.39% falling rising rising rising ema9 on 2018-07-13 2018-07-20
Energy XLE -1.80% 13.88% falling falling rising falling ema9 on 2018-07-16 2018-07-20
Telecom XTL -2.83% 0.75% falling rising rising rising ema9 on 2018-07-16 2018-07-20

Gold in Other Currencies

Gold fell in every currency except CNY. That's because USD/CNY rose +1.11% this week. The RMB has been in more or less free fall since early June, down almost 6%. China is fighting back in the tariff war by devaluing their currency.

Rates & Commodities

TLT plunged -1.60% this week, hit hard on both Wednesday and Friday. The damage on Friday (-1.23%) was probably caused by one of the Fed “doves”, who told reporters on Friday that the FOMC will be ignoring Trump's opinion on where rates should go next. That one comment took the 10-year yield down 4 bp. https://wolfstreet.com/2018/07/20/which-yield-curve-will-invert-first-us-japan-germany-or-china/ TY also moved lower, losing -0.33%, and issuing a sell signal on Friday. There has been a lot of back and forth in the bond market, but it does look as though bonds are starting to make their way lower. TY is now below its 9 MA, although weekly and monthly forecasters remain in an uptrend. The 10-year yield rose +6.4 bp to 2.89.

JNK rose +0.06% for the week, basically unchanged. JNK is also showing signs of a potential reversal, fluttering back and forth between buy & sell signals this week.

Crude fell -1.75 [-2.50%] this week, with a heavy Monday sell-off followed by a swing low on Wednesday, and a forecaster buy signal Friday. The(bullish) tell for me was on Wednesday, when a bearish-looking EIA report (crude: +5.8m, gasoline: -3.2m, distillates: -0.4m) ended up being bought by traders. When bad news results in a rally, that's a bullish sign.  Still, crude looks to have some resistance at the 50 MA; it is unclear if this swing low is a real reversal.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +2.94 tons, with 798 tons in inventory.

* ETF Discount to NAV:

 PHYS 9.94 -1.11% to NAV [increase]
 PSLV 5.63 -3.53% to NAV [increase]
 CEF 12.25 -3.74% to NAV [increase]

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

* Big bars premiums were: gold [1kg] 1.41% and silver [1000oz] 3.15%.

Grey Swans & Geopolitics

  • German Government/Migration: Interior Minister Seehofer's national popularity has dropped 11 points to 31% over the past 3 months most likely due to his “trouble-maker” activity surrounding the issue of migration. He remains quite popular with the AfD voters, however – around 80%.

  • Italy – Migration: Salvini allowed 2 Frontex ships with 450 migrants aboard to dock in Sicily after 5 other EU countries signed up to take 50 migrants each. The Czech government refused, saying “such an approach is the road to hell.” Salvini said “Italy is no longer the refugee camp of the world.” Also, this week Libya's PM rejected the EU's request to open migrant & refugee processing centers in that country, saying financial inducements will not change this position. (Perhaps the inducements being offered weren't large enough?)

  • China – Tariffs & Debt: Trump said in an interview he was “willing to go to $500 billion”, meaning tariffs on every single imported Chinese product. For their part, China has devalued their currency by about 5.7% over the past 6 weeks. “Our currency war matches – or beats - your tariff”, they seem to be saying.  China really does not want to give up their advantage.

  • Yield Curve Inversion: the 1-10 spread widened 4.3 bp to 50.3 bp. Inversion is going backwards.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 48.1% [+8.1%] vs Republicans 40.0%. Democrat win → impeachment attempt? https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: No progress on denuking North Korea. Pompeo accused them of violating sanctions and illegally importing petroleum products. The South Korean central bank estimated that the NK GDP dropped 3.5% in 2017 as a result of the tough sanctions regime.

  • Mueller Investigation: No news this week – unless you want to include the Helsinki summit where Trump met Putin, and was accused of being a traitor by a large number of pundits and some former Obama administration officials for denying the existence of “Russian meddling” in the election. He then walked that back, said it was just a simple word error - “would, vs wouldn't” - and invited Putin to visit the US, to "shock and incredulity" from the media.

Summary

After a long, long move down, the metals finally rallied on Friday, with the recovery led by platinum. The bounce was supported by a large move down in the buck, possibly driven by Trump's statement that he didn't like all those rate increases by the Fed.

Big bar gold and silver premiums inched higher, while ETF discounts increased; my supply indicators suggest there is no current shortage of physical gold. That said – there was an interesting article at King World News which claimed that Swiss and German banks had refused to deliver gold to their clients that was supposedly held in an allocated account – complete with storage fees being charged. The banks had offered to settle the balance in cash. It seems pretty clear the banks didn't have the gold.  Why else would they refuse to deliver?   Of course, it could also be behavior egged on by Maguire, who is constructing a gold-backed cryptocurrency - which would be a competitive product to the bank allocated gold system.  While I personally think its lunacy to trust a bank to honor an "allocated gold" product, given the long history of banker malfeasance in this area, it also helps to understand who stands to benefit from this story.   https://kingworldnews.com/wtf-is-going-on-andrew-maguire-now-says-a-swiss-bank-just-refused-to-hand-over-clients-physical-gold/

The discounts to NAV for PHYS and PSLV have continued to widen; PSLV is an especially good deal at -3.53%. If you have faith that Sprott will continue to cough up the big silver bars on demand, buying PSLV at -3.53% is a lot better than buying a COMEX bar at +3.40% from some dealer. Note that during the big silver rally in 2011, PSLV was trading at a double-digit premium to NAV, and if we do start to see actual confidence in the paper system start to crack, I suspect the premium to NAV for these "we really have physical" products will scream higher.

The gold COT report shows managed money net positions are at levels last seen in December 2015, while commercial net is relatively high. We remain at a COT low for gold – it continues to get more enthusiastic. In silver, we could be at a low right now, but the positions aren't as lop-sided as they are in gold. The COT report for platinum shows record net short positions for managed money, and record net long positions for commercials. This, at a time when platinum had fallen to within $6 of its 15-year low.  The platinum COT report is incredibly bullish.

If the wash & rinse cycle remains in place – where the commercials bring about a rebound in the metals resulting in a big short squeeze on managed money – we could see a strong rebound in the metals materialize over the next few weeks. This assumes that the dollar cooperates, and there is no more bad news on tariffs.

Likewise, we have the study I did on Thursday on the “triple RSI accumulate” indicator, which suggests that history shows a 60% chance of a successful trade if you buy on a bounce after a long move down – and just as important - your returns on success are better than your losses on failure. In both silver and platinum, we saw one of those bounces that act as a buy signal on Friday.

From COT perspective, gold and platinum both look better than silver.  From the RSI perspective, silver and platinum look better than gold.  Hmm.  Platinum...a long, long descending triangle.  We're either at the low, or there will be a colossal breakdown in the near future.  Is managed money right on this one, for a change?  Or is this a two-year double bottom formation, just starting to form now?  I certainly don't know, but here's a thought.  You could always buy now, and stop your trade out if it drops below the previous low at 786.  If it really is a double bottom, your gains could be pretty nice...

Weekly trends (in order of strength):

Uptrend: SPX, 10-year treasury.

Downtrend: crude, gold, copper, miners, silver, gold/Euros, bitcoin, USD.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

 

4 Comments

bronsuchecki's picture
bronsuchecki
Status: Bronze Member (Offline)
Joined: Apr 22 2012
Posts: 74
Sprott Fund Premium

I think the Sprott or any fund trading at a discount do represent a better buy than paying premium for physical if you have a longer time frame, but I would caution against "I suspect the premium to NAV for these 'we really have physical' products will scream higher" as unless it is a real closed ended fund, then the fund manager can do a secondary offering/issue trust units, which Sprott did BTW in 2012 and why the premium dropped sharply from the 30% range to 5% and as the current prospectus indicates, has issued units repeatedly over the past 12 months. The result is that any premium is likely to be capped, as the Historical Premium/Discount to Net Asset Value shows it has never rose above 5% since 2013. Buying at -3.53% and selling at 5% will still be a good deal, but it is unlikely to ever see the crazy premiums is reached in 2011.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5530
sprott premium

I think if things remain within the normal band, you're right - if Sprott can continue actually getting physical silver and gold in size, the secondary would wipe out the premium.

If physical-in-size got to be in short supply, on the other hand...if Sprott actually couldn't get the bars...

Then it would be the place to be.

 

jgrote's picture
jgrote
Status: Member (Offline)
Joined: Feb 10 2011
Posts: 1
Swiss Bank Reneging on Providing Allocated Au bars to clients

I'm seeing more about Swiss banks reneging on providing delivery of Au bars (purchased as allocated and and paying allocated charges) to customers.  At this latest link (picked up from a Jim Rickards publication I subscribe to) it talks about this happening and then testing it via a Swiss Foundation.  The concern is scarcity of Au and as time goes on we will see more of this.  Have others read about this?  If I missed the discussion on this, my apologies and pls point me to it. 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 374
Germans Too?
jgrote wrote:

I'm seeing more about Swiss banks reneging on providing delivery of Au bars (purchased as allocated and and paying allocated charges) to customers.  At this latest link (picked up from a Jim Rickards publication I subscribe to) it talks about this happening and then testing it via a Swiss Foundation.  The concern is scarcity of Au and as time goes on we will see more of this.  Have others read about this?  If I missed the discussion on this, my apologies and pls point me to it. 

I think I read the other day about the same thing happening at a German bank as well.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments