PM Daily Market Commentary - 9/4/2018

davefairtex
By davefairtex on Wed, Sep 5, 2018 - 3:21am

Gold fell -9.65 [-0.80%] to 1198.84 on very heavy volume, while silver dropped -0.39 [-2.68%] on extremely heavy volume. The buck rose +0.32%, which was not a particularly dramatic move; I put the blame on copper, which plunged -2.49%.

Gold started its plunge around 1:30 am, and moved lower for most of the day, touching 1195.10 at its low point, ending the day relatively close to the lows. Candle print was a long black candle, which was a bearish continuation. Forecaster dropped -0.34 to -0.24, which is a sell signal for gold. Gold is in a downtrend in all 3 timeframes.

COMEX GC open interest rose +11,453 contracts, or 35 tons of paper gold.

Rate rise chances (September 2018) rose to 100%.

Silver fell harder than gold, also starting its drop around 1:30 am, making a new low to 14.03, which means silver has broken 14.30 support. That's a bad sign. Volume was extremely heavy, and there was no sign of short-covering. Forecaster dropped -0.14 to -0.80. There's just no good news for silver right now. Forecaster remains in a downtrend in all 3 timeframes.

COMEX SI open interest rose +1,799 contracts.

The gold/silver ratio jumped +1.54 to 84.48. That's quite bearish. The gold/silver ratio has not been this high since the depths of the crash in 2008. While the g/s ratio tends to point out the trend, it can also be useful in showing just how extended a move happens to be. Gold bottomed out in 2008 within about 5 days of GSR=84. So while a rising GSR is a bad sign, a GSR above 84...is a sign that a low could be near, say, within the week. Theoretically anyway.

Miners fell along with the metal, with GDX down 2.86% on heavy volume, while GDXJ dropped -1.85% on heavy volume also. GDX made a new low, while GDXJ managed to avoid that fate; that's a mildly positive sign. XAU plunged a huge -4.24%, making a new low; the opening black marubozu candle was a bearish continuation. Forecaster plunged -0.51 to -0.69. The juniors might have done fairly well, but the overall mining index looks terrible. XAU is in a downtrend in all 3 timeframes.

The GDX:$GOLD ratio fell -2.08%, while the GDXJ:GDX ratio rose +1.04%. That's more bearish than bullish – and perhaps it stems from the fact that silver was hit really hard, while gold held up reasonably well.

Platinum fell -1.25%, palladium was unchanged, while copper plunged -2.49%. Copper made a new low to 2.58, which wasn't a multi-year low, but it does appear to be heading to re-test the lows (2.55) set back in early August. I'm guessing the other metals are weakening because of the impending deadline for the imposition of tariffs on $200 billion in Chinese products.

The buck rose +0.30 [+0.32%] to 95.04. The move higher in the buck seemed to be related (at least to some degree) to the TRY, which jumped higher starting around 1:30 am. Candle print was just a long white candle, which was a bullish continuation. Forecaster jumped +0.58 to +0.57 which was a buy signal for the buck. Buck is in an uptrend in both the daily and monthly timeframes.

The Turkish 10-year dropped 39 bp to 19.98, which is a reasonably large move down. Are things getting better in Turkey? Maybe, kinda. After government-reported inflation came in at 17.9% y/y on Monday, Turkey's central bank “signaled” it would take unspecified action to promote price stability; that's probably what caused the rates to drop. Turkey's next central bank meeting is on September 13.  Currently, rates are at 17.75%. If the central bank fails to raise rates “sufficiently” (whatever that means), I'd expect a vicious sell-off in both the currency and the bonds. The TRY is edging slowly back up towards the previous high, ending the day today at 6.69.

Crude fell -0.46 [-0.66%] to 69.01. The prospect of Hurricane Gordon hitting a bunch of oil platforms has caused production to be shut-in in the Gulf of Mexico, and this initially popped crude prices to a new high of 71.40, but it soon retreated, losing all it gained and then some. Crude's shooting star candle was a 39% bearish reversal, but crude forecaster jumped +0.32 to +0.19, which is a buy signal for crude. Crude is in an uptrend in all 3 timeframes.  Curious that buy signal on a shooting star candle.

SPX fell -4.80 [-0.17%] to 2896.72. The minor losses occurred overnight in the futures markets, with SPX selling off but then coming back by the close. The spinning top candle was a bearish continuation, and forecaster dropped -0.20 to +0.12, which is still an uptrend, although it does seem to be fading. SPX remains above its 9 MA. The sector map shows financials (XLF:+0.49%) and utilities( +0.45%) in the lead, with REITs (-1.03%) and telecoms (XTL:-1.11%) leading lower. I'm not sure what to make of this map. The US was once again the best-performing equity region in the world.

VIX +0.30 to 13.16%.

TLT plunged, dropping -0.80%, printing a swing high (53% bearish) and sending the forecaster into a sell signal. TY didn't look quite so horrid, losing -0.25%, but it printed a confirmed northern doji (48% bearish), with TY remaining in a daily downtrend. TY weekly will also issue a sell signal this week if prices close here; TY remains in a monthly uptrend, at least for now.  It was a bad day for bonds.  The 10-year yield jumped +4.9 bp to 2.90%.

JNK was also pounded, with all of the losses coming on a gap-down open. Money is fleeing junk debt.

CRB fell -0.44%, with 3 of 5 sectors moving lower, led by industrial metals (-2.56%). CRB appears to have run into resistance at its 50 MA. Three weeks ago, CRB executed a “death cross”, and so the longer term trend is now down.

Well, copper and silver both had terrible days today, with silver looking substantially weaker - it made a new multi-year low.  Silver and copper are back in that triple-RSI-accumulate mode; the recent buy signal from two weeks ago turned out to be a headfake.  That's how it goes sometimes.

It also appears as though silver is headed to re-test the multi-year low at 13.62.  The only way that doesn't happen is for copper to stop dropping, and for the buck to stop moving higher.  That's my sense anyway.

I'll leave you with this chart - the Silver vs gold/silver ratio chart.  It suggests we are at or near a low.  I mean, silver could plunge another week or so from here, but this ratio suggests you should be selling your gold and buying silver.  Perhaps wait to see if the 13.62 low holds first.

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5 Comments

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 164
Sell gold to buy silver?

Dave,

Is this thinking on a short-term trading basis or does it apply to a long-term holding also?

Given silver has a bigger industrial aspect than gold, it would be expected to drop more in the next recession, right?

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5653
sell gold buy silver

This is a long term trade.

It works best if you don't have any tax consequences, and the spread isn't too bad.  Swapping gold for silver at GSR 84 means you are selling the ratio at its high.

This is a once-every-5-years sort of thing.  When the GSR reverses, and it drops down to 31, that's when you sell silver and buy gold.  The GSR picked both the highs and the lows over the past 15 years within a few weeks of the turning points.  I'm guessing it is doing so again - but we can't really be sure.

So if you buy the ratio at 31, and sell it at 84, that's a 170% gain - almost a triple - and you remain fully invested in PM the whole time.

I do agree that silver will probably do more poorly than gold in a recession.  I'm just talking about doing the "mechanical trade" that the ratio is suggesting we do.

The ratio has risen to the 90s at times, however, so silver could plummet some more, especially if the buck takes off, copper plunges, and there is more bad news on the tariff front.

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1696
That’s my plan exactly

You took the words right of my mouth Dave. Trade my gold and silver back and forth as dictated by the gold-silver ratio: over the long term your wealth increases and you’re always invested in PM’s. And on a generational scale, you can rotate in and out of PM’s with stocks, bonds and real estate on the other side. So now’s the time to be in PM’s and after The Collapse it will be time to rotate into stocks, bonds and real estate.  I hope I have the nerve to do it!

Im no genius. I got this from Mike Maloney in his book Rich Dads Guide to Investing in Gold and Silver. He does an interesting thought experiment in the book following a hypothetical investor family who started this process in the 1920’s and ended up with a gazillion dollars just by rotating in and out of these asset classes at the right times since then. You don’t have to get the timing exactly right, but you do have to recognize when asset classes are peaking and bottoming, but even I can tell that’s what’s happening now. And they seem to be doing so on a scale that dwarfs just about every other time in recorded human history.

”Welcome to the Hunger Games. And may the odds be ever in your favor.”

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 164
Tax consequences

Dave,

Thanks for making great sense (as per usual).

Under what circumstances could one have no tax consequences?

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5653
tax consequences

Well for instance if you had gold and silver (paper, or otherwise) sitting in your IRA, that would be one way.

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