PM End of Week Market Commentary - 8/24/2018

davefairtex
By davefairtex on Sun, Aug 26, 2018 - 12:15am

On Friday, gold rose +20.48 [+1.72%] to 1213.50 on heavy volume, while silver jumped +0.31 [+2.18%] to 14.79 on extremely heavy volume. The buck plunged -0.56%, which definitely helped the metals to rally. That said – both gold and silver were rallying fairly strongly from the open in Asia. My sense is that the big move in the metals was helped by the fall in the buck currency, but there was another dynamic happening as well. I'm not entirely sure what it was, but it was a very strong move. Given the plunge in the metals on Thursday, I take Friday's strong rally as a positive sign.

The metals sector map is showing clear signs of a reversal. Every single item has moved back above its 9 MA – this happened on Friday. Miners are leading gold and silver, but gold is doing better than silver. That last one is not so ideal, as silver should be the one doing best in a real PM market reversal. Still, I can't complain too much. This is exactly the sort of thing you want to see as a buy signal after a long downtrend. And in addition to the sector map, the triple-RSI map shows buy signals for the juniors, seniors, silver, platinum, and gold too.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 4.75% -0.58% rising falling falling falling ma50 on 2018-08-24 2018-08-24
Silver Miners SIL 2.86% -25.55% falling falling falling falling ema9 on 2018-08-24 2018-08-24
Junior Miners GDXJ 2.62% -16.54% falling falling falling falling ema9 on 2018-08-24 2018-08-24
Gold $GOLD 1.72% -6.13% rising falling falling falling ema9 on 2018-08-24 2018-08-24
Senior Miners GDX 1.23% -18.84% falling falling falling falling ema9 on 2018-08-24 2018-08-24
Copper $COPPER 1.17% -11.36% falling falling falling falling ema9 on 2018-08-24 2018-08-24
Platinum $PLAT 0.30% -19.50% falling falling falling falling ema9 on 2018-08-24 2018-08-24
Silver $SILVER 0.03% -12.82% falling falling falling falling ema9 on 2018-08-24 2018-08-24
Gold/Euro $GOLD:$XEU -0.15% -4.63% falling falling falling falling ema9 on 2018-08-24 2018-08-24

Gold rose +20.78 [+1.74%] on the week, with a buy signal Monday, a brisk head-fake lower on Thursday (which fooled me, but not my forecaster), and ripped higher on Friday, with gold blowing through round number 1200 in several high-volume up-spikes which could well have been engineered to cause a short-covering panic. Daily forecaster ended the week at +0.28, which is a medium-strong uptrend. Gold remains in a downtrend in the weekly and monthly timeframes, but the weekly is on the edge of a buy signal at -0.05.

The September rate-increase chances rose to 98%.

COMEX GC open interest rose +1,357 contracts this week.

The COT commercial net position rose +5.6k, bringing the commercial net almost to a neutral position. Commercials are usually heavily short, so where they are now is unusual, and very bullish. Commercials added 2.3k longs and covered 3.3k shorts. Managed money net fell -6.7k, yet another all time low in managed money net position. This is also very bullish. Managed money added 2.3k longs, but also 9k new shorts. Managed money shorts are, once again, at a new record, almost 200k shorts, which is about double the usual “maximum” short position seen at previous lows.

Managed money has not just moved to one side of the boat, they're standing with both feet on the gunwale, and are leaning out over the water as far as they can. Ok, it is a sailing metaphor, but if you've ever sailed a hobie cat across or into the wind, you know what I'm talking about. There are a bunch of traders who will fall right into the metaphorical water if and when the wind changes suddenly.

Silver rose +0.01 [+0.03%]; silver went basically nowhere this week – chopping sideways for the first part of the week, selling off quite hard on Thursday, and then bouncing back even harder on Friday. Silver's bullish engulfing candle on Friday wasn't actually bullish; it was neutral. Silver forecaster issued a sell signal on Wednesday, the day before the big drop. Friday's rally wasn't enough to pull it back into an uptrend, however, with forecaster ending the week at -0.01. Weekly and monthly forecasters also remain in downtrends, so while gold looks quite strong, silver seems much less exciting. While silver's rally on Friday was quite strong, gold's chart just looks a whole lot better than silver's chart - gold has broken out higher, while silver has not.

COMEX SI open interest fell -4,644 contracts this week. That's a positive.

The COT commercial net position rose by +4.9k, with 6.7k new longs, and 1.7k new shorts. This brings the commercials to a new record high for long exposure – most longs ever in history. Managed money net fell by -5.4k, which was 2.1k new shorts, and 3.3k fewer longs. Managed money continues to load up short, while the commercials are going long. Managed money set another new record for shorts this week, which continues to look very bullish - although not quite as bullish as gold.

Miners tracked gold this week, with XAU moving higher for the first half of the week, selling off hard on Thursday (convincing me they were headed to new lows), only to rally strongly on Friday. Friday's candle print, a bullish tasuki line, had a 64% chance of marking the low – it was very highly rated. Forecaster issued a buy signal on Tuesday, and never really looked back, ending the week at +0.26. On Thursday, when I was all gloomy, the forecaster maintained its positive outlook. I'm not sure what it saw, but it was 100% right. XAU closed above its 9 MA for the first time in many weeks. That said, XAU remains in a downtrend in both weekly and monthly timeframes. There is still a lot more work ahead to get the longer term trend to reverse.

GDX:$GOLD fell -0.50%, while the GDXJ:GDX ratio rose +1.37%. That's bullish.

USD

The buck fell -0.96 [-1.00%] to 94.76. The buck fell 4 days out of 5, with the week low happening on Wednesday. While the buck did manage to find support at its 50 MA – for 4 days in a row – it is looking as though it might well break down in the near future. DX forecaster ended the week at -0.32, which is a fairly brisk downtrend. Buck remains in an uptrend in both weekly and monthly timeframes, but that won't last if DX loses the 50 MA, I suspect.

What caused all the fuss in the buck this week? My guess: it was Trump's legal troubles (apparently some people think paying hush money to your favorite porn star mistress – prior to being elected - is an impeachable offense), Turkey hasn't collapsed just yet, and something that Jay Powell said in his Congressional testimony seemed to also contribute to the dollar-bearish sentiment.  However, I suspect a fair amount of the move was about the impeachment chorus from the media. Looking back on the Nixon impeachment track, the overall event appeared to be quite dollar-negative – and at the same time, gold positive.

Is both gold and the buck reacting to this possibility? I think the answer is, most likely, yes.  If the buck loses the 50 MA, things could get fairly unpleasant, if you are a dollar holder.

[EXPLETIVE DELETED!]

[that's a Nixon impeachment reference; you may be seeing more of those as time passes]

US Equities/SPX

SPX rose +24.56 [+0.86%] to 2874.69, moving above the previous all time high set back in January by just 4 points. The bulk of the move came on Friday. SPX remains in an uptrend in all timeframes. While the US was definitely not the best-performing market internationally this week, it is the only market to be making new all time highs. Capital continues to flow to US assets, in spite of the dollar sell-off this week.

The sector map shows energy and homebuilders in the lead, while staples and utilities did worst. I'd call this a cautiously bullish map, since utilities and staples are generally safe-haven assets. The Chinese $SSEC managed to move slightly higher off its lows.

VIX fell -0.65 to 11.99.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 2.66% 18.85% rising falling rising falling ema9 on 2018-08-22 2018-08-24
Homebuilders XHB 2.33% 8.49% rising falling falling falling ma50 on 2018-08-21 2018-08-24
Telecom XTL 2.20% 9.22% rising rising rising falling ema9 on 2018-08-16 2018-08-24
Cons Discretionary XLY 2.12% 29.95% rising rising rising falling ema9 on 2018-08-20 2018-08-24
Technology XLK 1.54% 28.71% rising rising rising falling ema9 on 2018-08-21 2018-08-24
Gold Miners GDX 1.23% -18.84% falling falling falling falling ema9 on 2018-08-24 2018-08-24
Materials XLB 1.20% 8.98% rising falling rising falling ema9 on 2018-08-24 2018-08-24
Healthcare XLV 0.88% 16.42% rising rising rising rising ema9 on 2018-08-14 2018-08-24
Industrials XLI 0.58% 14.20% rising rising rising falling ema9 on 2018-08-16 2018-08-24
Defense ITA 0.56% 23.70% rising rising rising rising ema9 on 2018-08-16 2018-08-24
Financials XLF 0.25% 14.15% rising rising rising rising ema9 on 2018-08-16 2018-08-24
REIT RWR -0.84% 4.01% rising rising rising rising ema9 on 2018-08-24 2018-08-24
Utilities XLU -1.45% -2.24% rising rising falling rising ema9 on 2018-08-22 2018-08-24
Cons Staples XLP -1.74% -0.79% rising rising rising rising ema9 on 2018-08-23 2018-08-24

Gold in Other Currencies

Gold rallied in every currency this week, but did not move much in Euros; that's because the Euro was up +1.54% on the week. Might the Euro rally be about Turkey avoiding disaster? I don't know. Certainly Turkey did manage to avoid plunging into the abyss (USD/TRY was largely unchanged), in spite of my doom and gloom talk last week. I'm sure once I stop paying attention it will collapse, but probably not until then.

Rates & Commodities

TLT ralled +1.08% this week, a nice gain, making a new high on Friday. A big chunk of the move came after Powell's testimony started at 10:00 am on Friday. “The Fed has the inflation thing under control”, he seemed to be saying. That's a relief, because government-measured inflation (the CPI-U) is reading 2.9% y/y right now. That's government inflation! But nobody really seems to care.  TY also climbed, up +0.24%, but it didn't close the week on a new high. In fact, TY forecaster is right on the edge of a sell signal – but weekly and monthly remain in uptrends. The 10-year yield fell -4.7 bp to 2.83%.

JNK rose +0.42%, making a new high on Friday along with TLT. JNK broke above its previous high this week, more or less ending the longer term “lower highs/lower lows” downtrend pattern. This is a risk-on signal – which makes sense, as equities made new highs this week also. Even so – JNK isn't making any new all-time highs, so the celebration in junk debt is substantially more muted.

Crude shot up +3.20 [+4.92%] to 68.24. The daily forecaster issued a buy signal on Monday, after which crude never really looked back. Crude's advance snapped its downtrend line, crude is now back above its 9 and 50 MA lines, and it is also back in an uptrend in all 3 timeframes. Part of this was due to a reasonably bullish-looking EIA report (crude: -5.8m, gasoline: +1.2m, distillates: +1.8m), but it doesn't feel as though this was enough of a reason for the large rally this week.  It was a bit tough for me to sort out the real whys behind this week's move. There wasn't any dramatic new news that would drag oil out of its 7-week downtrend, but here we are, with the weekly forecaster issuing a buy signal.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -7.66 tons, with 764.58 tons in inventory.

* ETF Discount to NAV:

 PHYS 9.72 -1.26% to NAV [decrease]
 PSLV 5.33 -4.25% to NAV [decrease]
 CEF 11.87 -4.01% to NAV [increase]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a $7 discount for gold and maybe a 10c premium for silver.

* Big bars premiums were: gold [1kg] 0.78% and silver [1000oz] 3.75%.

Grey Swans & Geopolitics

  • Ebola: In the past 2 weeks, the latest outbreak (declared Aug 2nd) went from 24 cases to 105 cases; a number of health care workers were infected by early patients before they recognized it was Ebola they were dealing with. Bad news: the outbreak is in a combat zone, which makes it much more difficult for healthcare workers to do their jobs safely. Worst news is that a doctor appears to have caught Ebola, but his 97 contacts have all been tracked down. There is a vaccine, and several experimental treatments, some of which may be helping infected patients to survive.

  • Turkey: The Turkish 10-year yield remains at about 21%, while the USD/TRY has also continued to chop sideways, at around 6, after hitting a high of 7.2 last week. Meltdown: on hold.

  • German Government/Migration: no news.

  • Italy – Migration: Up until Saturday, Salvini refused to allow yet another group of migrants, rescued by an Italian coast guard ship, to disembark unless other nations in the EU agreed to take the migrants in. Ireland volunteeed to take a few, so did Albania.  Crickets from the rest. De Maio said that Italy was no longer willing to give Italy's 15 billion Euro annual EU dues if the migrant burden wasn't shared. That drew a cranky response from the EU Budget Commissioner, who suggested Italy would pay a stiff price (late payment charges, and possible “further heavy sanctions”) if they did that. Salvini also wants to make use of the “Pacific Solution” cooked up by Australia, which has worked well at deterring migrant boat-arrivals, but the key component for this solution is the undesirable-to-a-refugee “safe harbor” of Papua New Guinea, which Italy doesn't happen to have handy. “You want to be a refugee? Here's this lovely desert island you can live on...”  My prediction: at some point, first-world nations will get tired of military-age young men from poor countries who game the "refugee" system in order to force a targeted first world nation to let them in.  We might have to get a bit further down the peak oil curve for that one, however.

  • China – Tariffs: China and the US engaged in low-level talks about tariffs this week. No apparent progress was made. https://www.straitstimes.com/world/united-states/much-detail-little-progress-in-us-china-talks-sources-say

  • China – Debt: No news.

  • Yield Curve Inversion: the 1-10 spread narrowed 1 bp to 42 bp.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 47.9% [+7.2%] vs Republicans 39.7%. Democrat win → impeachment attempt? And impeachment is the word of the week. Since 6 companies control all news in America, its much easier to weave a consistent narrative, be it kneeling football players, statues, Russia, Nazis, and this week, impeachment. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: Pompeo's trip to North Korea was cancelled; the word is, China isn't helping, most likely because of the trade war.

  • Mueller Investigation: Paul Manafort was found guilty of 5 counts of false 1040 filings, 2 bank loan app exaggerations, and 1 count of failure to file an FBAR, while Cohen pled guilty to a collection of income-tax charges, as well as pleading to a couple of charges which do not appear to be actual crimes. We have gone from a hunt for Trump Treason! (i.e. conspiracy with Russia) to Trump paying hush money (from his own pocket) to a porn star mistress prior to the election.

Summary

No progress was made on the US/China tariff situation, Mueller collected two more non-Russia-collusion scalps to add to his collection, Turkey avoided meltdown for another week, the buck tanked, and gold and the other metals shot higher, issuing some convincing technical signs that the low for the metals is now in.

Big bar gold premiums on gold remain low, silver's premium is slowly moving higher, and ETF discounts decreased somewhat. There is no shortage of gold at these prices – at least according to my numbers anyway.

The gold COT report shows yet another record low in the managed money net position, while commercials continue to cover their gold shorts. Silver COT also continues to look more and more bullish.

So what caused the rally in gold on Friday? I still don't know. It may have been the other metals, all of which moved steadily higher, led by palladium, with silver and copper lagging a bit. The strength in gold vs silver felt like a flight to safety, which would point at a concern over – perhaps – the increasing likelihood of an impeachment process starting against Trump.

Is the fuss over impeachment just a political stunt to energize the Democratic base prior to the midterms? Certainly the coordinated censorship by the tech companies of Alex Jones suggests there is a strategy afoot to dislocate Trump's base prior to the 2018 election, and maybe this coordinated impeachment talk is a part of this strategy.

If it intensifies, we may see the impact play out in gold, and the USD. Certainly, Friday's move in gold was very strong – and there were definite short-covering spikes as prices drove higher. It wasn't tariffs, and it wasn't Europe, and it wasn't Turkey, and it wasn't about Powell's testimony. Once you eliminate the impossible, whatever remains however improbable, must be the truth.

The pre-midterms impeachment campaign could actually be the trigger for the commercials to start the ball rolling on gold.  They're certainly properly positioned for it.

Weekly trends (in order of strength):

Uptrend: SPX, BAA corporates, 10-year treasury, Gold/Euros, USD.

Downtrend: platinum, miners, copper, silver, gold, bitcoin.

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