PM Daily Market Commentary - 8/23/2018

By davefairtex on Fri, Aug 24, 2018 - 2:53am

Gold fell -10.38 [-0.86%] to 1193.02 on moderate volume, and silver dropped -0.27 [-1.83%] on very heavy volume. The buck shot higher, up +0.57%; the strong move in the buck seemed to be responsible for the woes in the metals.

Looking at the various currency moves, it appears as though today's moves were for a whole variety of reasons:

  • the steadily-increasing prospects of a no-deal BRExit (GBP -0.80%), about which the UK government published a guide today (GBP -0.80%).  GBP is off 11% over the past 4 months, likely as a result of worry over BRExit.

  • Australia had a “coup” - where the man responsible for implementing Australia's “detain all migrants caught sailing towards Australia and place them on an unpleasant island” policy convinced his buddies in the ruling party to replace the current PM Turnbull with himself (AUD -1.4%). [The migrant policy works quite well, apparently - as long as you aren't a migrant on a boat headed for Australia.]

  • Trump also tweeted about South Africa's “land reform” policy which appears to involve basically stealing land owned by whites and and then giving it to (presumably black) cronies of the government – I'm guessing, because that's the standard thing done with such "uncompensated seizure" policies implemented in other situations, such as what Hitler did with the property of the Jews after he sent them off to the camps, and what Mugabe did in Zimbabwe. (ZAR -1.77%)

Anyways, all that activity conspired to move the buck higher. In spite of all the chatter about Trump's legal issues, there is enough upheaval elsewhere that the buck continues to remain the safe haven.

Name Chart Chg (D) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Brazilian Real USD-BRL 1.83% 26.13% rising rising rising rising ma50 on 2018-08-09 2018-08-23
South Africa Rand USD-ZAR 1.77% 15.84% rising rising rising rising ema9 on 2018-08-21 2018-08-23
Australian Dollar USD-AUD 1.40% 8.07% rising rising rising rising ema9 on 2018-08-23 2018-08-23
Mexican Peso USD-MXN 1.39% -2.71% falling falling rising falling ema9 on 2018-08-23 2018-08-23
Turkish Lira USD-TRY 1.06% 74.91% falling rising rising rising ema9 on 2018-08-23 2018-08-23
South Korea Won USD-KRW 0.81% 5.93% falling rising falling rising ema9 on 2018-08-23 2018-08-23
Argentine Peso USD-ARS 0.76% 65.54% rising rising rising rising ma50 on 2018-08-08 2018-08-23
Indian Rupee USD-INR 0.67% 10.71% rising rising rising rising ema9 on 2018-08-23 2018-08-23
Thai Baht USD-THB 0.61% 1.33% falling falling falling rising ema9 on 2018-08-16 2018-08-23
Israeli Shekel USD-ILS 0.58% 5.62% falling rising rising falling ma50 on 2018-08-20 2018-08-23
Chinese Yuan USD-CNY 0.53% 5.90% falling rising rising rising ema9 on 2018-08-23 2018-08-23
Singapore Dollar USD-SGD 0.51% 0.96% falling rising rising rising ema9 on 2018-08-23 2018-08-23
Russian Ruble USD-RUB 0.34% 18.80% rising rising rising rising ema9 on 2018-08-21 2018-08-23
Philippine Peso USD-PHP 0.19% 7.17% rising rising rising falling ma50 on 2018-08-21 2018-08-23
Malaysian Ringgit USD-MYR 0.07% 2.14% rising rising falling rising ema9 on 2018-08-02 2018-08-23
Hong Kong Dollar USD-HKD 0.00% 0.32% falling rising rising falling ema9 on 2018-08-22 2018-08-23
Indonesian Rupiah USD-IDR -0.10% 7.76% falling rising rising rising ema9 on 2018-08-22 2018-08-23

Gold moved lower for most of the day, closing relatively near its lows. The collection of candle prints (bearish engulfing, swing high, confirmed northern doji) were quite bearish (61% bearish reversal), and forecaster plunged -0.58 to +0.02, just a smidge above a sell signal for gold. Gold remains in a downtrend in weekly and monthly timeframes. Gold is now back below its 9 MA, and looks as though it will be re-testing its lows in the near future. Still, today's volume wasn't all that heavy, and the size of the decline was not all that large, especially compared to the capitulation moves we saw last week.

COMEX GC open interest fell -3,192 contracts. That's cash-register ringing. Perhaps things aren't as bad as they look.

Rate rise chances (September 2018) rose to 98%.

Silver was hit hard, dropping for much of the day, closing at the lows. The candle prints (swing high, confirmed bearish high wave) were negative (56% bearish reversal), and silver forecaster fell -0.05 to -0.11; the downtrend isn't really all that steep. The move on the daily chart looks pretty awful, but the forecaster is suggesting things aren't as bad as they look.

COMEX SI open interest fell -623 contracts. Maybe hints of short-covering today.

The gold/silver ratio shot up +0.81 to 82.45. That's quite bearish.

Miners sold off fairly hard, with GDX down -3.15% on heavy volume and GDXJ dropping -3.35% on very heavy volume. XAU fell -3.14%. These were all strong moves down. Accordingly, the candle prints sounded bearish too (swing high, confirmed bearish doji, etc) but the ratings assigned by the code weren't all that bad; perhaps 35-40% bearish reversals, which is light for a swing high. XAU forecaster did fall, losing -0.24 to +0.12, but that's not a sell signal just yet. Watching the action it looked pretty unpleasant, but for some reason my code isn't all that concerned just yet.  On the chart, the 9 MA definitely appears to have acted as resistance.  A re-test of the lows looks all but certain. 

The GDXJ:GDX ratio fell -0.20%, while the GDX:$GOLD ratio plunged -2.31%. That's quite bearish.

Platinum plunged -2.23%, palladium dropped -1.13%, and copper moved down -0.86%. You can see that the other metals had real problems today too. Copper saw a great deal of short covering (-6,747 contracts or 2.6%), with palladium second (-232 contracts, about 1%), while in platinum the shorts really decided to load up (+1007 contracts, or 1.1%). Copper forecaster did issue a sell signal, but copper's spinning top candle was actually bullish (38% bullish reversal) – it looked a bit like a (bullish) hammer candle, with a decently-long lower shadow. If the short-covering in copper continues, that bodes well for the metals group overall. Except for platinum.

Armstrong had a writeup on platinum on his blog. Turns out, no solid platinum asteroid was involved; platinum jewelry demand fell 12% last year. Might there be a fundamental reason for platinum's heavy pounding by the shorts? Certainly, moving platinum tends to move gold, and perhaps the oversupply situation in platinum has contributed to the fall in the price of gold.

As mentioned, the buck rose +0.54 [+0.57%] to 95.29, printing a swing low/confirmed bull high wave candle, which had a 54% chance of being a bullish reversal. Forecaster jumped +0.46 to -0.14, which is not quite a buy signal for the buck, which remains in an uptrend in both weekly and monthly timeframe. It appears as though the 50 MA once again provided support to the dollar. Trump's troubles appear not as consequential as the problems elsewhere in the world.

That said...Armstrong also had a piece on what happened last time a President was impeached – for real, I mean, not the sideshow that happened to Clinton.  I'm referring of course to Nixon.  Short answer: yes, a Trump impeachment proceeding will cause an incredible amount of upheaval, because it will directly affect confidence both at home and abroad

This is why I focus on Mueller and the domestic political issues.  Trump retains the confidence of half the electorate – unlike with Nixon, none of the issues raised by Mueller have dented his approval rating among his base.  Dershowitz - who is a real paragon of intellectual honesty, I'm sure he doesn't like Trump at all - tells us that if Trump paid off his two former "girlfriends", that's not a campaign violation because a candidate can contribute an unlimited amount of money to his own campaign.  The fact that the DOJ forced Cohen to say something different and to plead guilty to a non-existent crime doesn't change this situation at all.

The constant media barrage has only served to lower the public's confidence in the media to all-time low levels. And now the conspiracy by the tech companies to purge Alex Jones (not my favorite guy, but he is the voice a fair number of people listen to) just a few months ahead of the mid-term elections only further serves to divide the country. Someone, or something, seems to have no problem with ripping the country exactly in half in order to remove Trump from office. If it goes there, this storyline will (most likely) crush the buck and drive US long term rates through the roof. They may or may not get Trump, but I suspect the effort will leave behind a wrecked economy – all because of the massive hit to confidence Trump's attempted removal will bring about among the half of America that still supports him, as well as - maybe - dethroning the US as reserve currency.  Perhaps this is what will give China it's opening; Armstrong says that China will become the new financial capital of the world within the next 14 years.

The only thing we can do is look at what happened when Nixon was subjected to impeachment. Taking down Nixon had a profound impact and created the worst economic recession since the Great Depression. Paul Volcker commented economically on what happened with the Nixon impeachment – “[I]t was not until the events of 1974 and 1975, when a recession sprung on an unsuspecting world with an intensity unmatched in the post-World War II period, that the lessons of the ‘New Economics’ were seriously challenged.”

I will admit, the Armstrong post shook me.  It seems as though we are moving into "Nixon" territory right now, in terms of the potential effects on the economy going forward.  Does anyone remember 15% long term rates?  Gold from $35 to $800?  That all happened after the hit to confidence in government following the aftermath of the Nixon impeachment along with the oil price shock.  You may get your "gold $5000" but you might well not like how it comes about.

Crude fell -0.24 [-0.35%] to 67.62. It appeared as though crude took a rest after yesterday's strong move higher. The bearish harami was actually a bullish continuation, and crude forecaster ticked down -0.09 to +0.66, which is still a strong uptrend for crude. Crude remains in an uptrend in the daily and monthly timeframes, and is just about to trip a buy signal on the weekly.

SPX fell -4.84 [-0.17%] to 2856.98. Mostly equities just chopped lower in a relatively narrow trading range. The spinning top candle was neutral, while forecaster dipped -0.03 to +0.48. SPX remains above its 9 MA, and in an uptrend in all 3 timeframes. So far, running out of “August” doesn't seem to be impacting prices. What's more, while equity prices around the world moved lower today, the US equity market performed best. Capital still appears to be flowing to the US. Sector map shows telecom (XTL:+0.46%) and tech (XLK:+0.22%) doing best, while materials (XLB:-0.68%) did worst. Sector map looked slightly bearish today; those financials also moved lower (XLF:-0.46%) and that's never a positive.

VIX rose +0.16 to 12.41.

TLT rose +0.16%, making a new high; TY did not agree, falling -0.07%. The move in TY was an inside day, so the candle was not rated. TY remains in an uptrend in all 3 timeframes. The 10-year yield fell -0.2 bp to 2.82%.

JNK fell -0.06%, making a new high and then retreating somewhat. JNK remains in an uptrend after breaking above its previous high two days ago. Crappy debt is not giving off any signs of risk-off right now.

CRB fell -0.32%, with 3 of 5 sectors falling, led by livestock (-1.21%).

Currency moves played the music today and the metals danced to the tune, each according to its own situation. Copper managed to do best; we saw short-covering, a decent candle print, even though the latest trade talks with the US and China ended without any signs of a resolution. That's a positive sign; a not-so-negative move on "bad news" is bullish. Platinum was hosed, which may just be about oversupply and/or a persistent dearth of interest in buyers of platinum jewelry. Gold and silver were somewhere in the middle; we did see some short-covering, which was also a mildly positive sign.

So do we re-test new lows, or is this just the bottoming process? I think it probably depends on currency. If the buck breaks out, then we re-tests the lows.  If not, then the bottoming process may continue.

Any way you slice it though, the miners really don't look healthy at all.

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Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 380
Excellent Entry


Really enjoyed reading this one.  Great work.

I don't know if you read this blog piece by Armstrong or not, but it really is worth a look:

Gold looks back near $1200 again, after yesterday's selloff.  Obviously, it's only about 5 till 10 ET, so we have a long way to go.  Would love to see a weekly close over $1200.

Have a good weekend!

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5685

[Thanks for the kind words, CR]

Headfake is my word of the day - actually my word of the day, yesterday.  Apparently triggered by Powell's speech at Jackson Hole, the Euro screamed higher, as did gold and silver.

But the real tell were the all-day rallies in platinum and palladium.

Just looking at the breakouts in gold and silver, there looks to be short-covering going on.  I'm still not sure what the cause is, but even the mining shares are looking good.  Prices are pretty depressed here.  If the commercials start pushing prices higher, things could really take off driven by the record-short position in managed money gold.

Hopefully I can dissect the causes by the time I do the weekend writeup.

New_Life's picture
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 395
Bullish divergence played out?

Well my support at $1180 area held, also a combo of a bull div on multiple time frames. (12hr, 1D, 2D)

Reversal for the last plunge to $1180 was really noticeable on the 12hr and if we close here tonight it is also now above many key MAs.

We may get another retest attempt of support in the next few days, will be watching closely if we lift off afterwards, new trend up and up?

New_Life's picture
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 395
Bitcoin follwing suit?

Would be interested to see if the manipulated fragile bull div on BTC continues to grind higher aswell

New_Life's picture
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 395


davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5685
Pacific Solution

I had read about Australia's fairly hard-nosed policy on migration - directed at people on boats seeking to enter Australia without first going through the visa application process.  Their solution is:

From now on, any asylum seeker who arrives in Australia by boat will have no chance of being settled in Australia as refugees. Asylum seekers taken to Christmas Island will be sent to Manus and elsewhere in Papua New Guinea for assessment of their refugee status. If they are found to be genuine refugees they will be resettled in Papua New Guinea... If they are found not to be genuine refugees they may be repatriated to their country of origin or be sent to a safe third country other than Australia. These arrangements are contained within the Regional Resettlement Arrangement signed by myself and the Prime Minister of Papua New Guinea just now.

Put simply: "If you come to Australia by boat, without a visa, and we can't end up sending you back to where you came from because you are classified as a refugee, we'll settle you on Papua New Guinea.  Have a nice day."  To make this happen, Australia gave a large sum of money to PNG.  As a result: instant refugee settlement camps. 

This was called "The Pacific Solution" - zero points for the name.

But did it work as a deterrent to illegal migration?  It was first put in place in 2002-2007, then halted for a few years under the Rudd government (2009-2012), and then re-established from 2013-present.  See the chart below and you tell me whether or not it was effective.

It turns out that even people who fall into the category of refugees do not really want to be a refugee in Papua New Guinea.  If you are going to be a refugee, you would much prefer to be one in Australia.  Example: Afghanistan - per capita GDP: $618.  Australia - per capita GDP: $59,925.

If I lived in nasty old Afghanistan, and I read on the Internet about refugee status, I'd do my level best to make sure I would end up in the "refugee" bucket, and then I'd save up for the next boat leaving for sunny Australia.

Do nations have the right to control their own borders?

Now just for fun, imagine the US had a real, live, shooting civil war.  Some percentage of the population of the US would probably want to flee for other places.  Where would we go?  Would Canada be as welcoming as they are today with a sizeable fraction of our 320 million Americans showing up at their doorstep?  How about the rest of the world, much of which currently allows US citizens to just show up and receive an instant visa on arrival?

Just a thought.

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