PM End of Week Market Commentary - 9/21/2018

davefairtex
By davefairtex on Sun, Sep 23, 2018 - 4:00am

On Friday, gold fell -8.64 [-0.71%] to 1205.94 on heavy volume, while silver dropped -0.04 [-0.31%] to 14.31 on very heavy volume. Both metals made new highs, but then were hit fairly hard. The buck did rally +0.32%, which didn't help.

The big news of the week – at least for the metals - was that Trump became more specific about tariffs on Chinese products; on $200 billion, it will be 10% now, and 25% later. Chinese retaliation will focus on $60 billion in US products. China also canceled trade talks with the US and won't send a delegation to Washington, but that last item happened on Saturday, after market close. The market seemed to treat all of the tariff news as “not as bad as it could have been.”

The metals sector map shows an explosion of buying in the metals, with copper up a ridiculous 8.6% this week alone. Juniors led seniors, and silver led gold – it was a bullish week for the metals group, with almost every item managing to cross back above the 9. Palladium is back above all 3 moving averages. Miners put in a solid performance. Gold did worst of all, barely managing to move higher.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Copper $COPPER 8.57% -3.08% rising rising falling rising ma50 on 2018-09-18 2018-09-21
Palladium $PALL 7.72% 14.53% rising rising rising rising ma200 on 2018-09-18 2018-09-21
Junior Miners GDXJ 4.74% -16.80% rising falling falling falling ema9 on 2018-09-17 2018-09-21
Silver Miners SIL 4.62% -25.00% rising falling falling falling ema9 on 2018-09-17 2018-09-21
Senior Miners GDX 4.45% -19.09% rising falling falling falling ema9 on 2018-09-12 2018-09-21
Platinum $PLAT 4.27% -11.79% rising falling falling rising ma50 on 2018-09-18 2018-09-21
Silver $SILVER 1.63% -15.82% rising falling falling falling ema9 on 2018-09-19 2018-09-21
Gold $GOLD 0.42% -7.03% rising falling falling falling ema9 on 2018-09-21 2018-09-21
Gold/Euro $GOLD:$XEU -0.21% -5.53% falling falling falling falling ema9 on 2018-09-20 2018-09-21

Gold rose +5.33 [+0.44%] this week. Gold had been inching higher for much of the week, but Friday's sell-off took gold back below its 9 MA, and also triggered a sell signal in the daily forecaster. Gold's weekly still managed to issue a buy signal, as will the monthly if we close at these levels next week. In spite of gold's lackluster performance this week, the longer term forecasters think that the low might just be in.

The September rate-increase chances rose to 94%. FOMC meeting is next week.

COMEX GC open interest rose +4,935 contracts this week.

COT report shows commercial net increased +1.6k: 2.1k new longs, and 423 new shorts. Managed money net fell by -7.2k, with 4.5k new shorts, and 2.6k fewer longs. Both commercial and managed money net positions remain at or near historical (bullish) extremes.

Silver rose +0.23 [+1.63%] this week, moving slowly but steadily higher all week long. Daily forecaster issued a buy signal on Tuesday, and by the end of the week, the weekly forecaster issued a buy signal also. As a result, silver ended this week in an uptrend in both the daily and weekly timeframes. Monthly remains in a downtrend.  Silver has yet to break above its downtrend line.

The gold/silver ratio fell -0.99 to 84.15. That's bullish.

COMEX SI open interest rose 1,600 contracts.

The commercial net position fell -3.5k, with 2.5k new shorts, and 993 fewer longs. Managed money net rose +1.3k, which was 2k fewer shorts and 738 longs sold. These were very minor changes. Commercial and managed money net positions remain at historical (bullish) extremes in silver also.

Miners shot up +4.21% on the week, following through on last week's buy signal. Weekly forecaster issued a buy signal, putting the miners into an uptrend in both daily and weekly timeframes. Weekly chart also printed a swing low candle pattern, and XAU also broke above the downtrend line. The miner chart looks stronger than either gold or silver.

The GDX:$GOLD ratio rose +3.99% while the GDXJ:GDX ratio moved up +0.28%. That's bullish.

USD

The buck fell -1.11 [-1.17%] this week. Most of the damage happened on Thursday, although there was a pretty big loss on Monday too. This seemed to be driven by tariffs, where it looked as though the news caused a flight-to-safety unwind, at least to some degree anyway. The buck ended the week in a downtrend in both daily and weekly timeframes. The monthly is right on the edge of a sell signal as well. You can see that the buck is testing near-term support; a breakdown could lead to a fairly brisk sell-off in the buck.

US Equities/SPX

SPX rose +24.69 [+0.85%] to 2929.67, making a new all time high on both Thursday and Friday. SPX ended the week in an uptrend in all 3 timeframes.

Weekly sector map shows materials and financials doing best, while utilities and homebuilders trailed. That suggests there were some pretty big interest rate moves this week – when rates rise, financials benefit, while builders and utilities do not.

VIX fell -0.39 to 11.68.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 4.45% -19.09% rising falling falling falling ema9 on 2018-09-12 2018-09-21
Materials XLB 1.94% 6.71% rising rising rising rising ma200 on 2018-09-17 2018-09-21
Financials XLF 1.81% 12.88% rising rising rising rising ema9 on 2018-09-18 2018-09-21
Industrials XLI 1.18% 13.36% rising rising rising rising ema9 on 2018-09-05 2018-09-21
Energy XLE 1.13% 12.32% rising falling rising falling ma50 on 2018-09-18 2018-09-21
Healthcare XLV 0.79% 15.56% rising rising rising rising ema9 on 2018-09-12 2018-09-21
Cons Staples XLP 0.47% 1.74% rising rising falling rising ema9 on 2018-09-20 2018-09-21
Defense ITA 0.42% 21.65% rising rising rising rising ema9 on 2018-08-31 2018-09-21
Cons Discretionary XLY 0.00% 30.80% rising rising rising falling ema9 on 2018-09-21 2018-09-21
REIT RWR -0.14% 3.52% falling rising rising rising ma50 on 2018-09-20 2018-09-21
Telecom XTL -0.25% 10.95% rising rising rising falling ema9 on 2018-09-20 2018-09-21
Technology XLK -0.44% 27.56% rising rising rising falling ema9 on 2018-09-20 2018-09-21
Homebuilders XHB -1.14% 3.99% falling falling falling rising ma50 on 2018-09-21 2018-09-21
Utilities XLU -2.28% -1.14% falling rising falling rising ema9 on 2018-09-19 2018-09-21

Gold in Other Currencies

Gold moved higher in every currency except the Euro.

Rates & Commodities

TLT fell another -1.22% this week, with the damage happening on Tuesday and Wednesday. Friday saw a bounce, which caused TLT forecaster to issue a buy signal. TY didn't look quite as healthy; it fell -0.44% on the week, and Friday's bounce wasn't much of anything. TY daily remains in a strong downtrend; in fact, TY remains in a downtrend in all 3 timeframes. The 10-year yield broke sharply above the 3.0% level, rising +7.4 bp to 3.07%.  It is fast approaching the previous high of 3.12%.

JNK fell -0.11% on the week; JNK's uptrend might be faltering a bit. In the less-junky BAA corporate rates, we are seeing some fairly strong moves movement higher. The weekly chart is showing a breakout to new highs, with these levels last seen in April. This is a sign of risk off.

Crude rose +1.67 [+2.43%] to 70.38. Overall it was a good week for crude, but there was a fair amount of back and forth; on Friday crude made a new high, but lost all the gains by the close. EIA report was mildly bullish (crude: -2.1m, gasoline: -1.7m, distillates: +0.8m) which definitely helped crude to make its big move of the week. Assisting crude this week were declining exports from Iran due to the US sanctions (South Korea and Japan have ceased all crude oil imports), Saudi Arabia stating that $80 was a fine price for oil, much to Trump's dismay (tweet: “OPEC must cap the price of oil!”), a decline in the North American rig count, and ongoing troubles in Libya.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -0.30 tons with 742 tons in inventory.

* ETF Discount to NAV:

 PHYS 9.61 -1.70% to NAV [increase]
 PSLV 5.19 -3.48% to NAV [increase]
 CEF 11.68 -3.85% to NAV [increase]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a $5 discount for gold and perhaps a 20c premium for silver.

* Big bars premiums were: gold [1kg] 1.0% and silver [1000oz] 3.56%.

Grey Swans & Geopolitics

  • Ebola: total cases 142, with 97 deaths. The number of new cases continues to drop slowly, but there are still challenges: people lost to contact follow-up, poor infection prevention in health centers, and reluctance of some cases to be treated in ebola treatment centers. It seems as though things could still go sideways at any moment.

  • Turkey: Last week's big rate increase seems to have held, more or less: the 10-year yield rose +38 bp to 18.29%, which as these things go, isn't too horrible. The USD/TRY rate rose +0.11 to 6.28, another relatively small move higher. Likely, the drop in the buck helped as well.

  • German Government/Migration: while migrants & refugees form 2% of Germany's population, they form 8.5% of crime suspects; 10.4% of murder suspects, and 11.9% of sexual offense suspects. Roughly speaking, this group is 4.5 times likely to commit a crime, 5.2 times more likely to commit murder, and 6 times more likely to commit sexual assault than the average German citizen. This could be partially because of age; young men are far more likely to commit crime, and the migrants tend to be young and male. However – did the article assess how much more likely migrant/refugee young males are to commit crime than the average young German male? The article did not. I assume that is because the conclusion would not have been politically correct. https://www.bbc.com/news/world-europe-45419466

  • Italy – Migration: MSF “migrant sea taxi” Aquarius asked to land 11 migrants it rescued from Libyan coastal waters; Salvini refused. “Go wherever you want, but not to Italy.” There was also a kerfuffle between Luxembourg's foreign minister and Salvini, whom he accused of using “fascist methods”; Salvini suggested that “if he likes immigrants so much, he can have all of them.” Fascist methods they may be, but to Salvini's point, no politician in Europe is actually willing to accept migrants voluntarily, and especially not the very comfortable folks in Luxembourg (2017 per capita GDP: $108k). https://www.thelocal.it/20180917/matteo-salvini-jean-asselborn-italy-luxembourg-fascist

  • China – Tariffs & Debt: Trump laid out the tariff schedule this week: 10% on $200 billion in products starting September 24th, rising to 25% in January 2019. China will retaliate, and has decided to cancel plans to send a trade delegation to Washington.

  • Yield Curve Inversion: the 1-10 spread widened +6 bp to 49 bp.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 49.3% [+8.8%] vs Republicans 40.5%. Democrat win → impeachment attempt. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: A summit between the Koreas resulted in an offer from the DPRK to dismantle its main nuclear complex, as well as a missile engine test site and launch pad in the presence of international experts, if the US takes “corresponding measures.” Trump tweeted his enthusiastic support.

  • Mueller Investigation: No news this week.

Summary

There were a whole raft of buy signals from the weekly metals forecasters, as well as very strong moves higher in both copper and palladium. The "other metals" markets seem to be suggesting that the tariff problems are over, which is a bit surprising given that Trump escalated the tariff fight, and that the Chinese cancelled trade talks – although to be fair, the cancellation happened on Saturday, after market close. 10-year rates also blew through 3% with some enthusiasm. If the rate move continues, it will almost certainly result in an economic hit, but only one that will be felt 3-6 months in the future.  Also, a break above the previous rate high of 3.12% could lead to some panic selling in bonds. 

Big bar gold premiums remain low, silver premiums are slightly elevated, while ETF discounts remain fairly high. My supply indicators suggest there is no current shortage of physical gold.

The gold and silver COT reports shows net positions remain at historical levels; this is very bullish, as commercials are very seldom net long silver or gold, and they are net long both gold and silver at the moment.

While the very strong rallies in palladium and copper are pretty much what I expected to see following good news in the tariff fight, gold's weak response to both that, and the falling buck doesn't make me feel very sanguine about the near-term prospects for the metals. Perhaps it wasn't enough of a solution, or perhaps it wasn't enough of a trigger. Certainly, the shorts didn't seem to be leaning on price this week at all – there was scant increase in open interest, and certainly no big moves in the COT report either.

I also expected a lot more out of silver, especially seeing that 8% move in copper.

I guess with equities making new highs, nobody is interested in gold right now. That doesn't explain silver, however; usually it rallies alongside economic activity.

That gold/silver ratio in the mid-80s (84.15, at end of week) tells us that silver is – still - very cheap relative to gold, and that usually happens at or near lows in the metals. This, along with the COT report, remain positive technical signs for the long term, but as to when there will be some actual buying pressure for either gold or silver, that's an unknown.

Ultimately I'm right in line with KWN commentator Bill Fleckenstein, whose resigned tone in his interview with Eric King matches my mood almost exactly.  Perhaps it can be summarized as - paraphrased - "Everything looks great.  Now all we need to see are buyers.  Of course, who knows when they'll appear."

https://kingworldnews.com/bill-fleckenstein-9-22-2018/

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6 Comments

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 56
Low near in time or price?

Thanks for the write up again Dave. Enjoyed the Fleckenstein interview, he talks a lot of sense.

That gold/silver ratio in the mid-80s (84.15, at end of week) tells us that silver is – still - very cheap relative to gold, and that usually happens at or near lows in the metals. This, along with the COT report, remain positive technical signs for the long term, but as to when there will be some actual buying pressure for either gold or silver, that's an unknown.

When you say 'at or near lows in the metals' are you thinking in terms of price and/or timing?

Radomski also thinks we are near in time, but not in price, as he's seeing lots of similarities to the big drop in April 2013: https://www.sunshineprofits.com/gold-silver/free-alerts/precious-metals-...

Any chance you could be drawn to comment on your take on this supposed similarity? :-)

With no buyers around any big sellers that show up will of course hammer price down hard.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5585
probability

Here's the key paragraph of his whole analysis:

Summing up, the situation on the precious metals market remains very bearish, as it’s likely that we are right before a major plunge, similar to the one that we saw in April, 2013. This is confirmed not only by what we’re seeing in the gold market, but also by what’s happening in silver, mining stocks, USD Index and the general stock market. It seems that the big profits on our short positions will become much bigger before this trade is completely over.

Right.  He's short.  As are a whole lot of others.  If he were neutral, I'd be more worried, but he's talking his book.  And he - and people like him - are utterly unable to push prices lower, since they're already fully loaded up short.  These are the people that will cover once the trend changes, providing fuel to the rebound.  This of course has yet to happen.  But these people - the already-short people - have no power to move prices lower, except by jawboning.

Which is pretty much what he is doing.  "Rah-rah-go-lower-make-me-money."

Could we go lower?  Of course we could go lower.  New highs in the equity market won't help gold.  Neither would a dollar rally.  I definitely don't think gold did well at all this week.  Could the commercials become even more net long?  I suppose they could.  There are still shorts the commercials have left to cover.  Most are gone, but they do have some left.  Why not?  They can always go from "historical" to "even more historical."

I'll always remember Peter Lynch and his words - roughly paraphrased - "They say it is always darkest before the dawn.  It is also darkest right before it goes completely pitch black."  Or, as another friend of mine would always remind us, "oversold can always get oversolder, then it can get oversoldest, and then it can always go down some more."

Ultimately, all we can do is assess the odds.  The following chart shows commercial shorts at their lowest ebb in the last 10 years.  This level coincided with the lows in 2008, and the lows in 2016.  This chart suggests the lows are - if not in, then quite near.  It does not suggest we have another $150 drop ahead of us.

Likewise, we see a historically high gold/silver ratio.  The last time it was at this level was at the lows back in 2008.

None of this is a guarantee of anything.  Its a tool in the toolbox for assessing probability.  Is it more likely this grossly overextended gold/silver ratio will continue to flex even further - or will it conform to history and snap back?  Likewise, are the commercials wrong for having covered the vast majority of their short position - as much as they covered during the plunge of 2008?

All we can do is guess, and make bets at times when we believe the odds to be in our favor, knowing that we can always be wrong.

Heh.  I realize I didn't answer "price or time" - I'd say if COT and GSR historical conditions both hold, it should be a low for this price.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5585
buyers = commercial shorts

I will add one thing.  The huge buyers a few weeks ago (at least in silver) were the commercial shorts.  When price dove down into the 14s, the commercial shorts covered like crazy.  Armstrong says that only the shorts have the guts to buy the low - that's because they are ringing the cash register.

So I'd expect that, if prices dive lower once more, we'll see the remaining commercial shorts step up and ring the cash register and pocket big gains as they cover their remaining positions.

So when I say there aren't any buyers - what I really mean is, there aren't any longs who see a big upside ahead for the metals.  There are still plenty of shorts who seem to be willing and ready to cover if prices drop precipitously.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 56
Book talking

Thanks for your perspective Dave.

To be fair to Radomski, he's no perma-bear and was briefly bullish I believe (although I'd have to check my archive at home to be sure) just before the big leg down mid august, thankfully becoming bearish just in time to save my skin.

As for talking his book, that's a good point and always one to watch out for. I remember you saying you were long silver recently (last week?), is that still the case? I guess you should be assuming you believe what you write :-)

I'm not up on all the rules and regulations on publishing these things, but it would certainly help to weigh your perspective against the like of Radomski.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5585
my book

I'm longer-than-normal (mostly PSLV, some GDXJ), but I dropped some of my extra enthusiastic long positions (some mini futures contracts) after the buyers didn't show up the way I figured they should have at the end of last week.

 

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 56
open book

Just checked and Radomski flipped from bullish to bearish on PM between 9 and 11 July 2018 (not mid august as I previously said), which was pretty good timing. I'm pretty sure he's been bearish/short ever since.

On the 9th you were neutral and by the 11th you said

it may be time to run, not walk, from the entire complex. If China decides to respond in kind to Trump's tariff escalation, I expect the general commodity sell-off to escalate.

Yes, things could get worse.

Which were more than useful words to any of us still long at that point! Not that I'm comparing you guys or anything :-)

To be honest, at the moment I have you alongside Radomski and Jim Rogers on my personal advisory board. As Rogers also still sees Gold below $1000 at some point I'm still cautious.

I appreciate it's all about probabilities and also that someone could be right for the wrong reasons. At the moment I'm trying to keep in mind Taylor Darts advice and patiently wait for the trend to turn before reentering. You seem to take more risk than I can handle, although you do have your eyes constantly on the ball and are no doubt very nimble in getting out at the first sign of potential trouble.

Not that I have any right to ask, but it might be nice if you included some words to spell this out a bit every now and again? It would be a shame if community members who aren't so alert or nimble follow you and get hit for 20%.

Please don't take me the wrong way, I really appreciate you publicly sticking your neck out in these manipulated markets!

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