PM Daily Market Commentary - 8/7/2018

davefairtex
By davefairtex on Wed, Aug 8, 2018 - 8:36am

Gold rose +3.14 [+0.26%] to 1219.23 on moderately light volume, while silver climbed +0.08 [+0.56%] on moderately heavy volume. The buck fell -0.15%; it appeared that the metals moved higher alongside the Euro today, which rose +0.41%. Mostly today's move in the metals was a currency effect.

Gold rallied in Asia and Europe peaking out around 1224, and then retreating for the remainder of the day. The spinning top candle was neutral. Gold forecaster dropped -0.27 to -0.39, which suggests we might see new lows in gold in the near future. That said, gold in Euros is back above its 9 MA, and GC.EUR forecaster is in an uptrend. GC.EUR weekly and monthly also look as though they are ready to reverse. That is good news – it suggests that the selling pressure from Europe has passed; if gold continues to sink, it will probably be just a currency effect. Believe it or not, that's a substantial improvement.

COMEX GC open interest rose 2,487 contracts.

Rate rise chances (September 2018) remains at 94%.

Silver also rallied early, then ran into selling pressure around 6-7 am, sold off, losing most of its gains. The long white candle was neutral. According to the forecaster, silver remains in a mild downtrend on the daily chart, and on the weekly timeframe, is right on the edge of reversing higher.

COMEX SI open interest rose 2,700 contracts today. Watching the moves in silver intraday, it felt as though managed money was shorting the rally. Certainly silver behaved a lot worse than copper – which saw a drop of -6,971 contracts on the day.

The gold/silver ratio fell -0.04 to 78.91. That's neutral.

Miners gapped up at the open, and then sold off all day long, with GDX dropping -1.15% on moderate volume, while GDXJ fell -1.09% on moderately light volume. Both ETFs made new lows – this on a day when gold actually rallied. That's a fairly bearish sign. XAU was off -1.38%, printing a long black marubozu candle; surprisingly the candle code felt it had a 38% chance of being a bullish reversal. Sometimes that's how declines end – and XAU's RSI-7 is 23, which is fairly heavily oversold. Forecaster didn't agree, dropping -0.23 to -0.38, which is a fairly brisk downtrend. In truth, both the weekly and monthly charts look terrible, so I'm going with the forecaster: we probably have new lows ahead.

The GDXJ:GDX ratio rose +0.17%, and the GDX:$GOLD ratio fell -2.12%. That's quite bearish.

Platinum rose +0.85%, palladium climbed +0.22%, and copper moved up +1.03%. The other metals all did fairly well, and copper definitely looked to be the strongest of the three. Copper really could be putting in a low here – with all the negative tariff news, copper has managed to avoid breaking down.

The buck fell -0.14 [-0.15%] to 94.83, moving lower after threatening to break above 95 for the past two trading days. However the spinning top candle was more of a bullish continuation, and forecaster moved higher, up +0.11 to +0.48. The buck remains in an uptrend – all 3 timeframes.

Crude moved up +0.42 [+0.62%] to 68.17, rallying along with the metals, but then topping out at around 7:30 and selling off for the remainder of the day.  The API report after market close didn't seem to help much; it was bullish (crude: -6m, gasoline: +3.1m, distillates: +1.8m) but prices didn't really react.  The spinning top candle was a bullish continuation. Forecaster climbed +0.08 to +0.09 – thats a very mild uptrend. Crude isn't quite sure where it will go next.  Crude is in a slight downtrend in the weekly timeframe, but remains in an uptrend on the monthly.

The US imposed sanctions on Iran today; supposedly we will gradually increase pressure on the regime until they do what we say.  To me, the Iran sanctions regime is more of a bone we're throwing to the Saudis than anything else.  Regardless, it is projected to remove 1 mbpd of oil supply offline by November.

SPX rose +8.05 [+0.28%] to 2858.45. That's a new multi-month high, and is only 14 points away from the all time high set back in January. The spinning top candle print was a bullish continuation; SPX remains in an uptrend in all 3 timeframes. The sector map show energy in the lead (XLE:+0.74%) while consumer staples fell (XLP:-0.61%). This was a relatively bullish-looking sector map.

VIX fell -0.34 to 10.93. Last time we saw the VIX at that level was back at the high in January, 2018.

TLT fell -0.52%, a fairly brisk move lower, printing a flurry of bearish-looking candles (55% bearish reversal) . TY fell too, dropping -0.20%, also printing bearish patterns (59% bearish reversal). The TY forecaster has yet to react, however; it remains in bullish territory. TY remains in an uptrend in both daily and monthly timeframes, but in a downtrend on the weekly. To me, bonds are actually doing fairly well, given SPX is just a few points away from an all time high. The 10-year yield moved up +3.5 bp to 2.97%.

JNK moved up +0.11%, making a new high. JNK remains in an uptrend, which is a risk-on sign.

CRB rose +0.29%, moving right up to its 200 MA. 4 of 5 sectors rose, led by energy (+0.64%).

Is today's Euro rally a sign that the buck isn't going to break out after all? My gut says no. I think the buck eventually breaks above 95. That will be bad for the metals. Both gold and silver did fairly poorly today even though the rest of the group moved higher. And the miners are giving us a strong hint that metals prices are probably moving lower too. The all-day sellfest in the mining shares are a distinctly bearish sign.

I just don't really see any good news right now when I look at the charts.

Longer term, its a different story.  There are clear signs that we have hit peak gold: Mish published a report by Steve StAngelo (SRSrocco) https://moneymaven.io/mishtalk/economics/excellent-srsrocco-report-on-free-cash-flow-evaluation-of-gold-mining-companies-DSIDUpHx0ku5vag2F3luLw/ which lays out the case pretty convincingly.  It is worth looking at; Steve did a deep dive into mining company numbers to extract some really good information.  He shows that miners at these prices are not throwing off much free cash flow at all, and haven't been for years now.  Looking at his data, its pretty clear that gold is priced right around the cost of production.  And the raft of bad earnings reports from the mining shares this quarter underscores this point.

So if you buy gold right now, you are getting it at cost of production.  That's a pretty good deal if you are buying gold for the long haul.  But that fact does not mean this magically puts a floor under the price - lots of things could happen to drive price lower, especially since mine supply comprises a relatively small amount of total above-ground supply of gold worldwide.  Sentiment is a much stronger driver than mining costs, as are moves in currency.

So gold is a clear long term buy at these prices.  Just be prepared that price could drop further, driven lower by currency moves if/when the buck breaks above 95.

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