PM Daily Market Commentary - 9/25/2018

davefairtex
By davefairtex on Wed, Sep 26, 2018 - 12:25am

Gold rose +2.39 [+0.20%] to 1208.38 on moderate volume, while silver rallied +0.21 [+1.44%] to 14.49 on very heavy volume. While gold chopped sideways, silver shot higher for reasons unknown; the buck fell -0.07%, which is practically unchanged.

Gold moved slowly higher in a narrow range today. The short white/NR7 candle was unrated. Forecaster jumped +0.42 to -0.07; gold is now back above the 9 MA, and remains in an uptrend in both the weekly and monthly timeframes.

COMEX GC open interest fell -1,765 contracts.

Rate rise chances (September 2018) roe to 95%. FOMC meeting issues its statement tomorrow at 2pm with a press conference at 2:30.

Silver chopped sideways for much of the day but started moving higher around 6 am, and really took off a bit after 9:10 am, breaking sharply above its recent trading range, breaking out above its downtrend line, holding most of its gains into the close. The reason for the rally? I didn't see one. All the usual suspects were silent; copper actually fell, as did platinum; the buck wasn't the cause. In short, silver just decided to rally all on its own, for reasons that remain a mystery. Silver remains in an uptrend in both the daily and weekly timeframes.

COMEX SI open interest rose 14 contracts.

The gold/silver ratio fell -1.05 to 83.22. That's bullish – and the current level for the ratio suggests PM could be at or near a long term low.

Miners tried rallying again today – they failed once more. GDX rose +0.27% on moderate volume, and GDXJ climbed +0.39% on moderately light volume. XAU moved up +0.63%, printing a shooting star candle that was just a bullish continuation. XAU remains in an uptrend in the daily timeframe, but is in a downtrend on the weekly and monthly. No change in the miners today.

The GDX:$GOLD ratio rose +0.07%, and the GDXJ:GDX ratio moved up +0.13%. That's neutral.

Platinum fell -0.60%, palladium moved up +0.15%, while copper dropped -0.23%.

The buck moved down -0.04 [-0.04%] to 93.75. The trading range was fairly wide, but the buck ended up going nowhere. The doji candle was unrated, and forecaster remained in a downtrend in both the daily and weekly timeframes.

Crude fell -0.09 [-0.13%] to 71.90. Crude made a new high to 72.78 but was not able to hang on to the gains, partly because of a somewhat bearish API report (crude: +2.9m, gasoline: +0.9m, distillates: -0.9m) which yanked prices down 30 cents on release. Still, crude remains in an uptrend in all 3 timeframes. Nick Cunningham wrote an article in which he noted that BAML has a price target for Brent crude of $95 by Q2 2019. Sanctions on Iran play a big part in this story. https://oilprice.com/Energy/Oil-Prices/100-Oil-Is-A-Distinct-Possibility.html

SPX fell -3.81 [-0.13%] to 2915.56. The mild drop took SPX down to its 9 MA, but not below. SPX remains in an uptrend in all 3 timeframes. Utilities did worst (XLU:-1.37%), while energy was best (XLE:+0.64%). Sector map was slightly bearish.

VIX rose +0.22 to 12.42.

TLT fell -0.10%; TY also fell, losing -0.06%, making a new low. So far, no bullish reversal for TY, although the pace of the downtrend appears to be slowing down. TY remains in a downtrend in all 3 timeframes. The 10-year yield rose +2.4 bp to 3.10%. Are we heading for a break above the previous high? We are right there today.

JNK rose +0.03%, effectively going nowhere. JNK is in no mans land right now, neither uptrend nor downtrend.

CRB rose +0.17%, with 3 of 5 sectors rising, led by energy (+0.68%). CRB is right at its 200 MA.

Rates have moved up to their previous high; a move above 3.10% and we could see a rapid move higher as traders who bought bonds a few months ago get stopped out of their trades.  Its hard to know which way things will go, but the more shots the market has at the high, the more likely a breakout is to occur.  Fed is rolling off $50 billion per month, the US government has a large deficit, and that large amount of new supply on the market is a force moving long rates higher.  Absent some sort of flight to safety, I'd expect 3.10% to be broken - probably sooner rather than later.

As for silver - I have no idea what happened to cause it to rally today.  Currently silver is quite close to a buy signal in the monthly timeframe, and it already looks quite strong on both the weekly and daily.  We didn't see substantial short-covering today, but I suspect that will change if prices makes it back above 15 - although it could happen sooner, its hard to say.  Once the commercials decide its time for silver to rally, things could get disorderly pretty quickly.

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4 Comments

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 58
futures

A single precious metal in a thin market moving down for no obvious reason gets many PM people thinking about possible manipulation. Could this be manipulation upwards to lure in some more buyers before smashing the price back down again? Would the COT report in a few days shed more light on this?

As I understand it the price of commodities is set in the futures market, so if this spike was real physical demand then it would be demand for in at least one month's time that just had to be fulfilled (by) yesterday.

I guess if you realise your business will run out of the silver it needs in a months time, you would be pretty quick to the futures market and wouldn't worry much about causing a 1% rise. But what real business would suddenly realise it needs the 'heavy volume' quantity of future silver bought yesterday? Unless the actual demand was the trigger and the rest of the buying was just traders mistakenly following the mini-trend?

But how many players the silver futures market are actually taking future delivery of physical silver? I've often read that the futures market (although initially a valid idea) is these days almost all about manipulating the price. Up and down to cream cash off any investors/traders and primarily down to keep the industrial metals cheap for industry (like Trump wants to keep oil and electricity cheap for industry) and in the case of silver and gold to disguise inflation.

I recently read someone say the futures market can't be manipulating the price because you could just take physical delivery after a month and potentially sell that on the spot market. But if the futures market can maintain it's manipulation pressure for at least a month (or the threat of it), then I don't see how there would be any reward for enough physical deliver takers to actually do so and cause honest price discovery.

So only when physical demand swamps the number of future contracts is this game up? But as future contracts are just made of 'bits' (of 'paper') then isn't this actually impossible?

Would the price of silver have to be really rocketing for someone to want to take on the futures market and buy enough contracts, hold them a month and demand a large enough physical delivery that would then have to be defaulted on, breaking the trust in the futures market and allowing the spot market to take over as price discovery mechanism. But does that rocketing of the price ever happen with the control of the futures market manipulators?

Long one, sorry no time to re-edit, but writing this down is helping me to organise my thoughts.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 58
futures 2

Just read Ted Butler who says the futures market music will change when there is a shortage of actual physical product for someone who needs it in production, so basically when there's more demand than supply.

In that case wouldn't the price just rise some (or be allowed to rise some) causing more silver mines to come online? I don't see how that breaks the manipulation.

In the case of a precious metal like silver, investment demand could show up alongside industrial demand to help swamp out the futures. But again

a) wouldn't more supply just come online?

b) why would investment interest in silver increase when the price action, for the decade since central banks openly took over the markets, shows no sign of ever significantly reversing upwards?

So isn't the only end game if supplies of silver were ever to run out? Up until then maybe the silver market is only for those nimble traders who can on average be smarter than the average manipulator (or than the not so smart participants)

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5686
above ground silver

Most of the gold ever mined is still with us, roughly 180k tons, with 2.5k tons mined per year.

Silver's above-ground stock (courtesy: http://sprott.com/media/1834/the-silver-institute-world-silver-survey-2018.pdf) is 86k tons, less than half the above-ground gold supply.

Mine supply is about 26.5k tons/year.

So we're in this strange position of there being 1/2 as much silver in the world as there is gold, and yet gold is 84 times as "valuable."

That's because silver gets used up every year, but gold does not.

 

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1712
Peak silver

https://peakoil.com/geology/peak-silver-coming-this-decade

As far back as at least 2010, those in the know were already predicting silver's reserves would be depleted due to rising demand and falling mine reserves and supply.  In fact, in the above frequently cited chart, Silver and Strontium were predicted to reach depletion first among strategic metals/minerals in about 2022.  It makes sense to me that eventually reality will impinge on the silver market, and that will probably happen when there's an undeniable shortage or failure to deliver physical silver.  Then the big industrial users will start bidding up the price while new investors discover the money to be made. In the meantime, "no one cares," and prices are a screaming bargain.

So we're in this strange position of there being 1/2 as much silver in the world as there is gold, and yet gold is 84 times as "valuable."

Furthermore, it has been observed in centuries past that silver is about 15-17 times as plentiful in the Earth's crust as gold is.  Mining ratios over the years and the comparative prices of the two metals maintained that approximate ratio of 15-17:1.  But now that the mining ratio is down to about 10:1, it makes sense that silver should be priced approximately 1/10th of gold's value.  That would be about $120 silver today, so there's a lot of room to run there.  Added to that is that the inflation adjusted price of silver today compared to its bubble peak in January 1980 would be about $140.  My minimum price target before I even consider selling is therefore $120-$140.

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