PM Daily Market Commentary - 8/1/2018

davefairtex
By davefairtex on Thu, Aug 2, 2018 - 2:26am

Gold fell -8.40 [-0.68%] to 12240.50 on moderately light volume, while silver dropped -0.14 [-0.90%] to 15.44 on moderate volume. Yesterday's metals rally was unwound today after Trump asked the US trade rep to explore the option of hitting $200 billion in Chinese imports with a 25% tariff, rather than 10% as previously requested. Copper (-2.84%), platinum (-2.66%), palladium (-1.68%) were all hit as a result. The buck rose +0.15% - it was not a factor in today's metals action.

The Fed ended up doing nothing, as expected; in the announcement, there were some word tweaks that added up to “the economy is stronger than it was at our last meeting.” The market impact was minor.

Gold spent the day moving south, along with the rest of the metals. The long black candle was a bearish continuation; forecaster dropped -0.63 to -0.44, dropping gold back into a downtrend. Today's close was a new closing low for gold, and it dropped gold back below its 9 MA. I expect that if the metals complex as a whole breaks down further, it will drag gold right down with it.

COMEX GC open interest rose 2,536 contracts.

Rate rise chances (September 2018) rose to 91%.

Silver fell all day long. The closing black marubozu was a bearish continuation; forecaster fell -0.54 to -0.28, which was a sell signal for silver. Silver managed to avoid a new closing low, unlike gold, but it too dropped below its 9 MA today. If copper makes new lows, so will silver. It all pretty much depends on tariffs.

COMEX SI open interest fell -1,908 contracts today. That's a new one; short covering?

The gold/silver ratio rose +0.17 to 79.31. That's somewhat bearish.

Miners fell, with GDX off -0.80% on moderate volume, while GDXJ dropped -0.57% on moderate volume also. Both miner ETFs made new lows, printing a variety of bearish-looking candles. XAU fell -1.85%, substantially worse than the ETFs,. It hasn't quite broken down below the previous low set back in December, 2017, but it is very close to doing so. Miners remain weak.

The GDXJ:GDX ratio fell -0.21%, and the GDX:$GOLD ratio dropped -0.81%. That's bearish.

As mentioned, platinum fell -2.66%, palladium dropped -1.68%, and copper lost -2.84%. This was all driven by tariff news. Copper and platinum both issued sell signals, while palladium is just barely hanging on. The metals could be preparing to take another leg down; they look pretty weak right now.

The buck rose +0.14 [+0.15%] to 94.25. The modest move pulled the buck back up above both the 9 and 50 MA lines, which flipped the forecaster back into an uptrend – for the 5th time in two weeks. Pulling back to the weekly, we see that the upside momentum for the buck continues to slow. The buck really could go either way at this point; if it starts rising again – say it breaks through 95 - that would of course be bad for PM.

Crude fell -0.58 [-0.85%] to 67.84. The EIA report was not quite as bearish as the API report (crude: +3.8m, gasoline -2.5m, distillates: +3.0m), and it did manage to pull oil up off its lows, but the short black candle was a bearish continuation, and forecaster fell -0.06 to -0.22; the EIA report did not rescue oil prices this week. Crude remains in a downtrend in both daily and weekly timeframes.

SPX moved down -2.93 [-0.10%] to 2813.36. The long black candle was bearish, and forecaster dipped -0.15 to -0.20. SPX remains in a downtrend in both daily and weekly timeframes. Sector map has energy leading down (XLE:-1.39%) along with industrials (XLI:-1.35%) while tech did best (XLK:+0.90%).

VIX rose +0.32 to 13.15.

TLT was hit hard today, dropping -1.04%, making a new low. TY's plunge was a bit more sedate, losing just -0.25%, also making a new low. TY printed a variety of bearish-looking candle patterns. Bonds continue to head downhill. The 10-year yield rose +3.9 bp to 3.00%.

JNK plunged -0.36%, printing a swing high (59% bearish reversal). Forecaster fell, but has not issued a sell signal just yet. I'm not quite sure what made JNK unhappy today; it didn't look particularly risk-off to me.

CRB fell -1.49%, with 4 of 5 sectors moving lower, led by industrial metals (-1.96%) with energy (-1.93%) close behind. CRB is now below all 3 moving averages. Tariffs are taking a toll on the commodity complex, although it remains well above the lows set back in early 2016.

Well the FOMC meeting announcement was a big nothing-burger, but the ramping up of the tariff threat to 25%, up from 10%, definitely did wang prices around, especially in the metals space. Copper was the biggest loser; it is threatening to re-test the 2.67 low set a few weeks back. My guess is that the Chinese didn't offer any more concessions in the hinted-at negotiations, so Trump decided to ratchet up the pressure.

This is what they call a “news-driven market”, which means that any sort of technical analysis takes a back seat to what the guys in the back rooms decide to do on any given day.

http://www.atimes.com/article/white-house-ups-ante-looks-at-25-tax-on-chinese-goods/

“Certainly, we would like to see the playing field leveled,” White House Press Secretary Sarah Sanders said in a briefing on Wednesday. “But until that happens, the president is going to hold their feet to the fire. He’s going to continue to put the pressure on China.”

A longer article at Asia Times puts a framework around the situation that won't be found in the Trump-bashing media circus:

http://www.atimes.com/article/china-caught-off-guard-as-us-trade-war-highlights-beijings-dilemma/

Gold's near term future - as is the case with the rest of the metals - seems tied to what happens with China and tariffs.

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.

 

5 Comments

RocketDoc's picture
RocketDoc
Status: Member (Offline)
Joined: Aug 28 2013
Posts: 13
Vanguard discontinues its Precious Metals and Mining Fund

"to err is human, to forgive divine, to persist devilish"

I became a "gold bug" on Sept 1st 2007.  It has not been a wise move. I moved into the Vanguard Precious Metals and Mining Fund over the next several years investing some $350,000 that is now worth about $200,000.  My wife's SPX Vanguard Fund was worth about the same and is now over $1 million.  I am the clever stubborn one, she just saves and throws the money in a Retirement 2020 Fund and is obviously doing better over the last 10+ years.  She is skeptical of my investment prowess with good reason.

I received a nice note from Vanguard PM&M and they are discontinuing the Fund or rather refocusing it on a Global Capital Cycles Fund that is no longer required to hold 80% of assets in gold and mining stocks.  It's a relatively small $3 billion Fund but it indicates to me that the slow bleed in gold and GDX is due to a lot of "uninterest" by big Fund players.  So I would expect further precious metal losses as they sell or transfer those holdings.  So despite holding for many years I am being forced by Vanguard to move out of the precious metals/mining investment space.  They have no Fund.  I could move to GDX or GDXJ with another company but I am already holding 1,000 shares at a loss and suspect it will drift lower if big funds are leaving the gold space.  

My take away from this unobstrusive notice is that someone will be acquiring the assets as the retail investor is run out of participation.  Perhaps the companies are going private.  Perhaps they will take the good companies out of the indexes and Funds and gradually replace with the companies that are more likely to fail to thrive.  What I can say is that my $200,000 is leaving for a short term bond fund and I expect gold to be lower before it goes higher or becomes "Unobtanium".  I would appreciate more knowledgeable thoughts and advice on remaining "invested" in precious metals.  

RocketDoc's picture
RocketDoc
Status: Member (Offline)
Joined: Aug 28 2013
Posts: 13
Vanguard discontinues its Precious Metals and Mining Fund

"to err is human, to forgive divine, to persist devilish"

I became a "gold bug" on Sept 1st 2007.  It has not been a wise move. I moved into the Vanguard Precious Metals and Mining Fund over the next several years investing some $350,000 that is now worth about $200,000.  My wife's SPX Vanguard Fund was worth about the same and is now over $1 million.  I am the clever stubborn one, she just saves and throws the money in a Retirement 2020 Fund and is obviously doing better over the last 10+ years.  She is skeptical of my investment prowess with good reason.

I received a nice note from Vanguard PM&M and they are discontinuing the Fund or rather refocusing it on a Global Capital Cycles Fund that is no longer required to hold 80% of assets in gold and mining stocks.  It's a relatively small $3 billion Fund but it indicates to me that the slow bleed in gold and GDX is due to a lot of "uninterest" by big Fund players.  So I would expect further precious metal losses as they sell or transfer those holdings.  So despite holding for many years I am being forced by Vanguard to move out of the precious metals/mining investment space.  They have no Fund.  I could move to GDX or GDXJ with another company but I am already holding 1,000 shares at a loss and suspect it will drift lower if big funds are leaving the gold space.  

My take away from this unobstrusive notice is that someone will be acquiring the assets as the retail investor is run out of participation.  Perhaps the companies are going private.  Perhaps they will take the good companies out of the indexes and Funds and gradually replace with the companies that are more likely to fail to thrive.  What I can say is that my $200,000 is leaving for a short term bond fund and I expect gold to be lower before it goes higher or becomes "Unobtanium".  I would appreciate more knowledgeable thoughts and advice on remaining "invested" in precious metals.  

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 35
Cheap advice for bugs

Not sure if you're seriously asking for investment advice for those sorts of amounts on a free internet forum, but a 'few cents' of free advice from a relatively poor amateur...

First of all don't put all your eggs in one basket. Luckily your millionaire wife balanced out your portfolio a bit, lowering your joint risk, sounds like she was your best investment!

> What I can say is that my $200,000 is leaving for a short term bond fund and I expect gold to be lower before it goes higher or becomes "Unobtanium".  I would appreciate more knowledgeable thoughts and advice on remaining "invested" in precious metals.

Not sure I understand fully, but why would you want to remain invested in precious metals (PM) when you expect them to go lower? It sounds like you're suffering from fear of missing out (FOMO), which can cause people to buy when something is already high and not sell when it's heading lower.

Don't be a gold bug cultist and keep an open mind. Gold may never reach unobtanium levels. Don't bet the farm on fighting the FED. There's always a chance the central banks can kick the can for another 10+ years.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5461
miners, gold, asset allocation

Until the tariff thing gets fixed, the miners are going to have problems.  I support your "lower in the near term" outlook.  There is a chance that the tariff thing gets fixed sooner than I expect, in which case the miners should start to do well again.

The problem with the miners over a 10+  year timeframe is that ore grades are declining, and the management has given themselves large bonuses, and bought out other mining companies for too high a price, and so the overall miner share price has not tracked gold very well.  In fact, $XAU has underperformed gold pretty horribly since 2007.

However, if you had bought gold, instead of miners, in 2007, you'd have done fine - you'd be up perhaps 89% over that time period.  I mean, not quite as well as your wife (SPX 2007 - SPX today: 96.5% gain), but pretty close.  And gold is collapse insurance, and SPX is risk-on business-as-usual inflation insurance.  If you don't get collapse, then your wife wins.  If you get collapse, your wife loses, and you win.  Either way, your family ends up doing all right.

So I think you have the right idea, you just picked the wrong asset class.  Miners suck longer term, while gold itself has done pretty well - unless you bought at the top in 2011.

So honestly, if you are still after collapse insurance, which I think makes some sense, to counterbalance your wife's risk on position, you could buy some paper gold.  I'd choose PHYS.

If you use an asset allocation mechanism with annual rebalancing, then you could imagine having some percentage in that short-term bond fund, some percentage in SPX, and another percentage in PHYS, and you could rebalance at end of year to keep the percentages equal.  That way if there is a crash in any one of the major items, you end up buying the dip automatically.  Or selling the peak, if one does particularly well.

You'd have to figure out the percentages yourself, but the asset allocation pattern is pretty well understood.

Oh - and last point.  When the big guys decide to close down miner funds, that's probably a good contrary indicator that we're closer to a bottom than a top.  Of course, stopping the fund will mean a fair amount of selling pressure as they unwind their positions, which you have already pointed out, but once that is done - its one of those "bottom detector" things that nobody cares any more about gold.  Which is a good time to be buying.  That's Warren Buffet's "buying straw hats in the wintertime" principle.

RocketDoc's picture
RocketDoc
Status: Member (Offline)
Joined: Aug 28 2013
Posts: 13
Closing Vanguard Miners PM/Miners Fund

Thanks for kind thoughts and cogent comments from PHUSG and DAVEFAIRTEX.

I had similar thoughts about the miners for the last 10 years;  big bonuses, big expenses, more difficult extraction so my thought was instead of me trying to pick "good" companies I would have professional management do it. That's why I picked Vanguard( low expense ratio)but their problem or concern is flows(ie money into and out of the Fund) and hitting benchmarks.  Actually understanding gold/silver mining companies is probably hard.  So that was actually the substance of my request--not really an asset allocation question since I have other accounts for that but actually being prudent in the gold space without trying to be a gold miners analyst.  Alas, there may be no shortcut to doing your homework. 

To buy the miners in a 401-K account then would necessitate moving to another fund family that does precious metals like Oppenheimer or van Eck.  And they of course could do the same thing as Vanguard, the amounts of money in these Funds are relatively small compared to what they have under management.   I just wondered if there wasn't a temptation to take the "good" mining companies private when its time for gold to move higher.  Hedge funds and big banks looking for value can literally buy out these funds if and when they are likely to move higher.  Most are under $1billion in assets.  A "little" $5 Billion loan at 1.75% for a year could buy out 5 or 6 complete funds.

What's surprising to me is how irrelevant gold is today.  10 years ago I thought it would be playing a bigger role in monetary affairs but it is markedly less important.  If every American bought one Eagle, the people would have more gold than the Fed but "democracy" is apparently headed a different direction...

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