PM Daily Market Commentary - 8/15/2018

davefairtex
By davefairtex on Thu, Aug 16, 2018 - 5:03am

Gold plunged -19.30 [-1.61%] to 1182.61 on very heavy volume, while silver fell -0.62 [-4.15%] to 14.43 on extremely heavy volume. The buck edged down -0.03% - it was not a factor. So what happened?? Let's round up the usual suspects.

  • USD -0.03%, Euro +0.06%.

  • Palladium (-6.76%), platinum (-4.24%) and copper (-3.74%) all made dramatic new lows today.

  • Crude plunged -2.37%.

  • SPX fell -0.76%.

  • TLT rose +0.58%.

The standout seems to be the industrial/precious metals group, which was absolutely clobbered today, with crude oil helping matters out by falling too. This doesn't appear to be a “Turkey” thing. I expect its more related to China.

Here's the metals sector map, to give you the big picture.  Palladium sure had a bad day.

Name Chart Chg (D) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold/Euro $GOLD:$XEU -1.37% -4.11% falling falling falling falling ema9 on 2018-08-15 2018-08-15
Gold $GOLD -1.61% -7.45% falling falling falling falling ema9 on 2018-08-01 2018-08-15
Copper $COPPER -3.74% -10.25% falling falling falling falling ema9 on 2018-08-10 2018-08-15
Silver $SILVER -4.15% -13.23% falling falling falling falling ema9 on 2018-08-10 2018-08-15
Platinum $PLAT -4.24% -20.39% falling falling falling falling ema9 on 2018-08-10 2018-08-15
Silver Miners SIL -5.71% -26.30% falling falling falling falling ema9 on 2018-07-26 2018-08-15
Junior Miners GDXJ -5.83% -15.14% falling falling falling falling ema9 on 2018-07-26 2018-08-15
Senior Miners GDX -5.92% -17.55% falling falling falling falling ema9 on 2018-07-26 2018-08-15
Palladium $PALL -6.76% -6.55% falling falling falling falling ema9 on 2018-08-01 2018-08-15

Gold fell all day long, every bounce being sold. The opening black marubozu candle was a bearish continuation. Forecaster edged down -0.03 to -0.40, a fairly strong downtrend. Gold remains in a downtrend in all 3 timeframes. Gold in Euros issued a sell signal on the daily chart, remains in an uptrend on the weekly, and a downtrend on the monthly.  The weekly RSI-7 for gold is 9.  You don't see that every day.  Gold has dropped 14 of the last 18 weeks.

COMEX GC open interest rose 6,645 contracts. There was no short covering on the plunge, which suggests to me that prices will move lower.

Rate rise chances (September 2018) remains at 96%.

Silver moved lower in Asia and London, but the move really accelerated shortly after the US market opened with silver plunging 35 cents in about 20 minutes. Low for the day was 14.34, exactly the level of the previous low set back in July 2017. The strong line candle was a bearish continuation, and silver forecaster plunged -0.34 to -0.57, which is a strong downtrend. Silver remains in a downtrend in all 3 timeframes.  You can see that silver bounced off 14.34 support on the weekly chart.  Let's hope it holds.

COMEX SI open interest fell -3,108 contracts. Looks like some traders covered on the plunge; perhaps they rang the cash register at 14.34. Armstrong says that only shorts are gutsy enough to buy at the lows – because they are actually cashing in.

The gold/silver ratio shot up +2.12 to 81.98. That's very bearish.

Miners gapped down at the open, plunged until noon, tried rallying – the rally failed – and ended up closing at or near the lows. GDX fell -5.92% on extremely heavy volume, while GDXJ plunged -5.83% on extremely heavy volume also. XAU fell -6.55%, worse than both ETFs; the strong line candle was bearish, and XAU forecaster fell -0.27 to -1.03, which is a very strong downtrend. The move took XAU below the previous low – there is only air between here and the 2016 lows. If gold continues to fall...we could well get to that point.

The GDXJ:GDX ratio rose +0.10%, while the GDX:$GOLD ratio cratered, down -4.38%. That's very bearish.

As mentioned, platinum fell -4.24%, palladium dropped -6.76%, and copper moved down -3.74%. All made new lows, all are in strong downtrends. Copper saw a large increase in open interest (+8,673, about a 3% increase), as did platinum (+2,126, about 2.5%). Unlike Monday, I don't think today was an op of any sort.  Too many things moved in parallel.

Crude fell -1.56 [-2.37%] to 64.23, plunging along with the metals. Crude had its own troubles, however: the EIA report was bearish (crude: +6.8m, gasoline: -0.7m, distillates +3.6m), and crude prices more or less collapsed immediately after the report came out at 10:30 am. There is rough support for crude at 64, which also happens to be the 200 MA. Crude is in a downtrend in all 3 timeframes now. One contributing factor: Libya reported that it is now shipping 1 mbpd of crude. Likewise, a shipping report showed that China and India imported 500 kbpd less oil in July than in previous months.

SPX fell -21.59 [-0.76%] to 2818.37. Much of the damage happened overnight in the futures markets; SPX continued falling during the trading day, but managed to bounce back by the close. Daily forecaster remains in a downtrend, weekly will issue a sell signal this week, while monthly remains in an uptrend. SPX remains below its 9 MA. Sector map shows utilities doing best (XLU:+0.92%) while energy led the market lower (XLE:-3.49%); energy really cratered today. This was a bearish sector map. You never like to see utilities in the lead.

VIX rose +1.33 to 14.64.

TLT rose +0.58%, acting as a mirror image to SPX. TLT made a new high today, but momentum does seem to be falling. TY climbed +0.26%, also making a new high. TY looks stronger than TLT - it is now in an uptrend in all 3 timeframes. The 10-year yield fell -4.3 bp to 2.85%. That breakout above 3% is looking less and less likely.

JNK fell -0.22%, making a new low today. JNK remains in a downtrend, but like SPX, not a very strong one.

CRB plunged -1.83%, making a new low, with 4 of 5 sectors dropping, led by industrial metals (-3.90%). That's economic activity/China.    Commodities are now in a pronounced downtrend - down almost 10% from the highs in May.  I read an article that suggested this move paralleled the move down in CNY.  This is largely true.

So what was the big China news? Looking through the SCMP (South China Morning Post) I found references to some poor retail sales data – among many other things – that indicates a slowing economy in China.

... rising consumer debt and concerns over the outlook for incomes have forced some consumers to rein in their spending this year.

The NBS data mirrors the findings of a recent study by the China National Commercial Information Centre, a state-backed consultancy, which suggested that the drop in consumer spending was gathering steam.

It showed that sales at 50 major Chinese retailers fell by 3.9 per cent in July from a year earlier, accelerating from drops of 3.4 per cent in May and 0.6 per cent in April.

According to government data released on Tuesday, car sales fell 2 per cent in July from a year earlier, the third straight monthly drop. Also, growth in home appliance and audiovisual product sales plunged to 0.6 per cent from 14.3 per cent in June.

https://www.scmp.com/business/companies/article/2159675/chinas-retail-sales-data-shows-consumers-not-offsetting-us-trade

So maybe that collection of things was the cause. Its hard to know.

There is a bit of good news, however – China has announced they are sending a trade negotiator to Washington at the end of the month. Perhaps there will be a thaw in the trade war. At least, that's the hope anyway.

Perhaps in response to this, USD/CNY retreated about 1% this morning in Asia trading, down from a near-record 6.93 at the close of yesterday's trading. And at the same time, gold, silver, and the other metals have rallied off their lows - at least so far. It is probably too soon to tell for certain, but...this could be the low for gold and silver for a while.

Ok, maybe it is too soon to call the low. But I am hopeful. Things are so dreadfully oversold, the shorts are looking for an excuse to cover and ring the cash register.  You don't see the miners with RSI-7 levels of 6 very often.

Here's what that looks like in the metals space - my favorite RSI table.  It may sound ridiculous after all the beatings - 14 weeks down - but ... remember the emotion you are feeling right now.  That's how capitulation feels.  You never want to see gold, silver, or a mining share ever again.

And that's usually - right around - the low.  I use the RSI values to reassure me that I'm not crazy.  That's what they are for.

name symbol last RSI-D RSI-W RSI-M
Gold/Euro GC.EUR 1045.26 39.3 26.7 33.2
Palladium PA.V 830.10 16.5 21.5 31.3
Copper HG.V 2.58 18.0 19.4 27.9
Junior Miners GDXJ.N 27.63 5.7 10.9 26.9
Gold GC.V 1181.80 16.2 8.7 26.0
Senior Miners GDX.N 18.60 7.4 9.0 24.8
Platinum PL.V 768.20 17.5 9.1 21.6
Silver SI.V 14.43 16.5 10.4 21.5
Silver Miners SIL.N 24.13 10.9 8.6 18.9

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6 Comments

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 43
Blood and hope

Jeez Dave I was expecting you to say to be careful out there, especially after your strong case for downwards PM manipulation on Monday and your own technical analysis that gold and the miners are a way off their next support. What happened to not catching a falling knife (which BTW is a phrase you taught me!)?

I hope you don't mind me pointing this out, but you say 'this is how capitualition feels' and end with saying you feel hopeful the low is in, so from my point of view we're not at capitulation yet.

As I said you made a strong case on Monday for central planner manipulation through their singling out of platinum. If I play devil's advocate then I would ask who else could have had the motivation to do such a thing? That one's easy;

a) the platinum shorts, assuming they include real traders/investors, who see car sales slowing down due to trade wars and the China slowdown, alongside diesel cars and their catalytic converters becoming more unpopular due to emmissions concerns.

b) Any other industrial metal shorts, as you point out that platinum is correlated to copper, silver, aluminium.

The second question would be whether these legitimate shorts have the means to move the platinum market as they did? Now I don't have the technical know-how to answer that question, so hopefully you could shed some light on this (alternative explanation)?

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 374
Nice To See

Nice to see an up day at last.  Gold got down into the low $1160s, last night (what I saw on goldprice.org).  Now, it's back to $1280.  Silver is rocking also.  Personally, I doubt we've seen the bottom.  Probably most of this is due to China coming back to the table (which was the spark needed for some short covering).

It's hard to believe China is ready to cave, but if they are, I suppose this could be a meaningful bottom for a while.  Either way, the talks ramp back up toward the end of the month, so we should hopefully get a break from falling prices.  And of course, stocks are going bananas again.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5530
hope at RSI=6

phusg-

The raft of unhappy comments on yesterday's post - as Tom pointed out - tells us that yesterday was a capitulation day.  So does the volume, so does the long, red candle. And my own feelings confirm this too.  And of course, all those RSI values that I colored green instead of red.  Green for opportunity.  (But really, red for lots of blood in the streets).

And when I was watching the trading in Asia this morning, and saw the news article that talked about China sending a trade rep to the US, and then I saw platinum and palladium rally strongly off the lows...it just felt like the low to me.  It all added up to that.

Sorry for being so optimistic.  :)

Again, I'm conditioned, by experience, to look for lows when the triple-RSI accumulate status is in place.  Add to that the bullish COT report.  In this situation, literally anything will cause those shorts to run for cover with prices this extended.  They've already made tons of money on this move.  And - if China and the US do come to an agreement, the metals prices will rocket higher.

I think the XAU looks pretty scary, I think silver looks as though its at support (and the intraday trading more or less confirmed that - silver stopped dead on 14.34 - I'm guessing the shorts were covering at that level), while gold I'm less certain about.

The platinum manipulation thing was a one-day affair, from what I could see.  It was just an op (my guess) to make sure that gold didn't provide a safe haven reaction to the Turkey crisis.  And now that Qatar dropped $15 billion, that will probably soothe things for the moment.  I was wondering if the EU would send some money to Turkey to bail out their banks, but they didn't have to.

Underlying cause remains in place, Turkey is still toast - 16% "government" inflation with a 17% fed funds rate = inflation guaranteed, but it won't blow up within the next few days.  Maybe the EU banks can slowly liquidate their position in the next few weeks before the next phase of the crisis appears.

I do realize it's a risk catching the falling knife - but a lot of things lined up while I was writing today's piece.

@cold rain

I'm not sure China is ready to cave yet either, but the data I'm seeing says they are moving into recession.  They were willing to provide The Donald a cosmetic win before, and now with a recession looming, they might be willing to be a little more flexible - especially with the EU lined up with the US.  They tried to romance the EU, but no deal.  So China is alone, having played their geopolitical cards and come up empty, about to enter recession, heavily in debt, stock market down 30%...and Trump about to drop $200 billion in tariffs on their head, with the US GDP at 4.1%, US stock market at the highs, everyone buying US treasury bonds, future so bright you gotta wear shades, etc.

So yeah, they sent a trade rep.  And it might even lead somewhere.  China stands to lose a lot more than the US does if this thing continues.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 374
China

Dave, I hear you.  They have more to lose, especially in the near term, than we do.  But, maybe they risk a recession if they think we’ll feel the pain eventually also.  I don’t know.  Anyhoo, how bout that failed miner rally?!  Nice give up by gold and silver too.  That’s not a good look.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 43
Pessimism and delivery

> Sorry for being so optimistic.  :)

Haha, well I am definitely an above average pessimist, but of course I call myself a realist, as humans as biased towards optimism :-)

I think our different takes comes from our different underlying strategies, you are more a trader looking for the local bottom whereas I'm looking to make a long term investment.

> The platinum manipulation thing was a one-day affair, from what I could see.

Perhaps we should call it a 4 day affair, as platinum (along with pallidium) also lead out the bounce back! I guess manipulated prices are impossible to maintain, especially for metals that have an actual industrial market where people who actually need the stuff to produce goods will happily pay downward manipulated prices for delivery.

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 154
Qatar

Dave,
I haven't seen the 15 billion loan from Qatar even mentioned in the MSM. Is it just talk, or is it really happening? Also, what is the Qatari motivation for such a risky loan?

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