PM Daily Market Commentary - 10/2/2018

By davefairtex on Wed, Oct 3, 2018 - 12:33am

Gold rose +14.64 [+1.22%] to 1210.13 on heavy volume, while silver climbed +0.20 [+1.38%] to 14.72 on very heavy volume also. The buck rose +0.22%; it did have some influence on price, but the influence was not very strong – the metals shot higher in spite of the move higher in the dollar.

Gold's rally started at around 8 am, really taking off at 8:20, charging higher for the next 3 hours, and finally topping out at 1212.30 at around 11:25. The rally ended the day right at the 50 MA, and gold has yet to break out of its recent trading range. Gold printed a 4-day swing low, and gold forecaster jumped +0.52 to +0.47, which is a buy signal for gold. Gold/weekly also issued a buy signal today, assuming we close at these levels by end of week, while gold monthly remains in a downtrend. Gold/Euros is even more bullish: it is in an uptrend in all 3 timeframes.

COMEX GC open interest rose +5,910 contracts.

Rate rise chances (December 2018) fell to 78%.

Silver started its rally a bit earlier than gold – at around 7 am – eventually reaching a new high of 14.95 by 10:30 (up 45 cents!), after which the selling pressure hit, knocking 23 cents off the rally. The spinning top candle was bearish (42% bearish reversal), and forecaster agreed, falling -0.34 to +0.01, which has silver almost ready to issue a sell signal. Silver's momentum appears to be slowing in spite of today's huge initial rally.  Silver remains in an uptrend on the daily and weekly timeframes.

COMEX SI open interest fell -236 contracts. That's a bit surprising – given the big, almost-failed-rally look to silver's move today, I expected there to be a large build in short interest. Maybe the 45 cent move was just too far, too fast.

The gold/silver ratio fell -0.12 to 82.04. That's slightly bullish, and the current level for the ratio suggests PM could be at or near a long term low.

Miners did well, with GDX up +2.70% on extremely heavy volume, while GDXJ climbed +2.30% on very heavy volume. XAU shot up +2.82%, with XAU forecaster rising +0.42 to +0.39, which is a buy signal for the miners. Today's move was enough to pull XAU back above the 9 MA. XAU has yet to break out, but the XAU is now in an uptrend in both the daily and monthly timeframes.

The GDX:$GOLD ratio rose +1.45%, and the GDXJ:GDX ratio fell -0.38%. That's bullish.

Platinum rose +0.97%, palladium fell -0.37%, and copper rose +0.47%. The other metals did all right, rising alongside both gold and silver. Copper specifically followed a similar pattern to silver, rising strongly until about 10 am, at which point it sold off fairly hard, losing much of its gains for the day – copper looked even more like a failed rally than silver did. Platinum looked the strongest of the 3 other metals.

The buck rose +0.21 [+0.22%] to 95.07, with the buck looking a bit as though it too had a failed rally. The buck topped out at about 5 am, then retreating as the metals rallied. While the buck's reversal didn't cause the metals rally, there was a certain sympathy to both moves.  DX remains in an uptrend in both the daily and monthly timeframe, with the weekly still in a downtrend.

Crude fell -0.37 [-0.49%] to 74.88, retreating after yesterday's big rally. Crude made a new high to 75.91 before retreating and losing all of its modest gains. The short black candle was neutral, and CL forecaster plunged -0.38 to +0.46, which is still a fairly strong uptrend. The API report looked mildly bullish (crude: +0.9m, gasoline: -1.7m, distillates: -1.2m), but price didn't seem much affected by the after-market release. Crude remains in an uptrend in all 3 timeframes.

SPX fell -1.16 [-0.04%] to 2923.43. The doji candle was unrated, and forecaster edged lower, but remains in an uptrend – just barely. SPX remains above its 9 MA, and in an uptrend in all 3 timeframes. Cyclicals did worst (XLY:-1.35%) while utilities performed best (XLU:+1.35%). That's quite a bifurcation. Today's sector map was neutral.

VIX rose +0.05 to 12.05.

TLT climbed +0.61%, with much of the rally coming in the futures markets overnight. The bond market looks unsure of direction, plunging one day, only to rip higher the next. Today's swing low was highly rated – a 66% bullish reversal. TY rose too, up +0.12%, with the TY forecaster issuing a buy signal. Today's move took TY back above its 9 MA, but it remains in a downtrend in both the weekly and monthly timeframes. It is hard to know if this buy signal marks a real low for bonds, or is just a dead cat bounce; TY remains within its recent trading range. Perhaps the answer lies with the equity market. The 10-year yield fell -2.4 bp to 3.06%.

JNK fell -0.14%, moving lower 2 days after making a new high. There is really too much chop to sort out the trend for JNK at the moment.

CRB climbed +1.10%, a sharp move higher, with all 5 sectors rising today. Agriculture led (+1.53%) along with PM (+1.28%). Most of the commodity groups are showing some decent short-term strength; commodities appear to be breaking out to the upside.  While that has a lot to do with energy, both livestock and industrial metals are doing well also, and now PM may be starting to join in too.

So what was today's rally about?  Well just looking at the synchronization of the different items, it appears that both copper and the Euro bottomed out first and started to rally, then silver joined in, then gold and platinum.  Roughly speaking.  Copper made its high early, then silver, and then gold.  Both copper and silver lost much of their gains, while gold actually held on to most of its rally.

What to make of it all?  It seems as though gold and silver are finally starting to react positively to the overall move higher in the commodity complex.  Was it about Canada signing on to NAFTA 2?  Something else?  Its hard to say for sure.  This isn't about currency - the metals are moving higher directly in the face of a rallying dollar.  That tells us that gold/Euros is doing quite well, and that is borne out in the charts.  Gold/euros is in an uptrend in all 3 timeframes.  Look at the daily chart of gold/Euros - it looks pretty good.

On reflection, I think that's our answer: there are finally buyers over in Europe for PM.  My key bit of corroboration?  The rally in both gold and silver came to an end just after Europe closed.

The PM rally in Europe could be about the increasing prospects of a hard BRExit, as well as Italy's impending failure to adhere to the edicts from Brussels about deficits.  The Euro has been falling steadily for the past week, down about 3%.  We'll have to see if this theory pans out over the next week or so, but...if true, and those Europeans keep buying, we probably have a low for the metals.

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phusg's picture
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Italy the new Greece?

European Commission President Jean-Claude Juncker said yesterday that “Italy is distancing itself from the budgetary targets we have jointly agreed at EU level.” He warned “one crisis was sufficient, one crisis was enough” and “after the toughest management of the Greece crisis, we have to do everything to avoid a new Greece — this time an Italy — crisis.” He added “we have to prevent Italy from being able to get a special treatment here that, if everybody were to get it, would mean the end of the euro.”

This comparison of Italy to Greece by the EC President maybe rattled markets, but this European is betting a deal will be made that keeps Italy in line with the sensible budget deficit policy, unless they really want out of the Euro, but just like the Greeks, I doubt they'll ever want that even more painful route.

Maybe Italy gets much tougher borders, which many across Europe are now also calling for (and which is also at the heart of the Brexit vote) and the migrant processing centres in Africa actually happen in return.

phusg's picture
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Silver dominated by individual investors?

Radomski made an interesting off the cuff remark on Monday:

On numerous occasions, we wrote that silver tends to be the metal of choice right before the local tops and before sizable price declines. The likely reason is that the silver market is dominated by individual investors that tend to be more emotional than institutions.

Dave, or any lurkers out there, do you also subscribe to this view that the silver market is 'dominated' by individual investors? It's very relevant to us if it's true, but I had never heard this before, and I've been keeping an eye on silver (commentary) on/off for some years now. I always assumed the big banks/money managers/hedge funds etc where the ones dominating silver through futures contracts.

Michael_Rudmin's picture
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I would be inclined to think...

... that the statement is at least partly true; although Dave also recently pointed out that consumption approximately equals production. Therefore, silver is also dominated by producers and suppliers.

Now, I don't entirely know what that consumption is, but I would expect it to include: photographic film (what little remains), ayurvedic consumption by humans, fillings, solder, the chemical market, electronics (non-solder applications), mirror production.

In line with that, it would seem to imply to me that there is a true market in silver.

Now, into that mix you add investors who wiggle the price a bit.

That said, I have no complete understanding, and would like to hevr others on the subject.

davefairtex's picture
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breakout: 10-year to 3.15%

Bonds have just been crushed today.  10-year yield +9.3 bp to 3.15%.  This is a huge move - and a big deal, assuming we close at around these levels today.


sand_puppy's picture
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Bond yield breakout: what does it mean?

I would be intersted in hearing you financial guys opine on what this 3% bond yield spike today means in terms of money flow.

Money is moving out of _____ and into _____ .

Thanks in advance.

phusg's picture
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filling blanks

I wouldn't call myself a financial guy, but I do know higher bond yields mean people are selling bonds and also that the stock market hit new all time highs this week, so to me it looks like:

Money is moving out of bonds and into stocks.

phusg's picture
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silver market

Not very recent chart, but I doubt these percentages have changed much. So there definitely a 'true' market in silver, whichever way you define true I guess. Whether that physical market sets the price is the main question, as many commenators I've read view the futures market as setting price, not daily physical demand. How much of the futures market are also consumers or producers of physical silver I have no idea ('true' futures if you will, using the futures market the way it was originally intented), but this implies that would be low and speculators are a high proportion. The next question is how many of these speculators are individual 'investors' and how many are institutions?

Geedard's picture
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JP Morgan silver

I too would be interested to understand the players in the silver market. 

My current understanding is that JP Morgan is by far the biggest player, dwarfing all others (possibly combined?). Is JPM only trading paper futures? Or physical, or both? If paper mainly, does that just move pricing up/down. 

In the event of a SHTF scenario (and a rush perhaps for physical)...would that suddenly create a “premium” for physical, where physical silver price uncouples from paper silver price?

Very interested to hear opinions on this. 

davefairtex's picture
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silver markets

So some stuff I heard about silver...

Much of silver production is just a byproduct at other types of mines - gold, and copper - so falling silver prices won't constrain as much silver production as one might hope.  The pure-play silver mines do exist, but they are more rare.

Silver was used heavily in photography back in the day.  Digital photography has reduced the consumption of silver from that source, and PV has yet to pick up the slack, although it is slowly doing so.

I don't think "industry" will rescue the silver market in the near future.  If we multiply solar panel production by 2 or 3...that might take 5-10 years, but it would help a lot.  That's still out there though, I think.

I don't know who the big players are - in terms of the banksters, etc.  I'm sure they are playing games; its what they do, silver is a small market, and wanging it around probably helps them wang prices around in other markets too, with all the correlations and bots that run based on those correlations.

Here's the PDF that contains the details.

hammer6166's picture
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JP Morgan silver


The Ted Butler podcast had an interesting take on the JP Morgan silver. He makes the case for a huge physical position held by JPM.


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