PM Daily Market Commentary - 10/9/2018

davefairtex
By davefairtex on Wed, Oct 10, 2018 - 2:11am

Gold rose +1.82 [+0.15%] to 1196.70 on moderate volume, while silver moved up +0.02 [+0.10%] to 14.41 on moderate volume also. The buck dropped -0.10%; really it was a failed rally, with the buck up +0.50% at one point before eventually falling back. PM moved more or less along with currency.

Gold rallied in Asia, drifted lower as the Euro plunged, and then slowly moved higher as the Euro came back. Trading range was narrow; the bullish harami candle was neutral, while forecaster moved up +0.22 to -0.18. The move is slowing, but it remains a downtrend. Gold remains in a downtrend in all 3 timeframes.  GC.EUR issued a sell signal today on the daily, but remains in an uptrend on both weekly and monthly timeframes.

COMEX GC open interest fell -4,000 contracts. That's a curiously round number. There was what appeared to be a minor manipulative spike down today at 9:46 am; perhaps that was where the round-number-short-covering took place.

Rate rise chances (December 2018) is unchanged at 81%.

Silver moved higher in Asia, had a bit of a drop around 5 am, and then recovered for the remainder of the day. Like gold, the trading rang was narrow; the doji/NR7 candle was unrated, and the forecaster jumped +0.29 to -0.25; silver remains in a downtrend in all 3 timeframes.

COMEX SI open interest fell -582 contracts.

The gold/silver ratio rose +0.01 to 82.76. That's neutral; the current level for the ratio suggests PM could be at or near a long term low.

Miners were hit fairly hard today, with GDX off -1.71% on moderately heavy volume, while GDXJ dropped -1.94% on moderate volume. XAU plunged -1.59%, with the forecaster dropping -0.51 to -0.39, which is a sell signal for XAU. The move pulled XAU back below its 9 MA; XAU is now in a downtrend in both the daily and weekly timeframes. Today's sell-off is a sharp contrast to yesterday's outperformance by the mining shares, and it looks bearish to me.

The GDX:$GOLD ratio fell -1.86%, and the GDXJ:GDX ratio dropped -0.23%. That's bearish.

Platinum rose +0.63%, palladium dropped -0.43%, while copper shot up +1.89%. Copper issued a buy signal today as did platinum, while palladium might be topping out. Platinum is looking a whole lot better than both gold and silver right now.

The buck was driven by the Euro today, rallying during the London session (up almost +0.50% at one point), but then selling off after the US open, ending the day down -0.10 [-0.10%] to 95.23. The shooting star candle was neutral, but forecaster plunged -0.32 to +0.03, which is almost a sell signal for the buck. In spite of today's failed rally, the dollar remains above all 3 moving averages, and it remains in an uptrend on both the daily and monthly timeframes.

The Italian budget remains front and center for Europe; Salvini said that Italy will not change its plan (a deficit of 2.4% - miniscule by US deficit-loving standards), saying that he is convinced that the “planned budget measures will create jobs and wealth.” In other words, he wants to inject borrowed money into Italy's economy the same way Trump and the “deficit conscious” Republicans did to get the US GDP growth to 4%. Salvini is right, deficit spending works. Kind of. Of course, the unelected European Commission has stated they will reject Italy's budget, and if Italy then refuses to back down, the EC will effect the “excessive deficit procedure” (EDP) which would involve economic sanctions on Italy. Of course, both France and Germany have had “excessive deficits” in years past, with nobody saying boo. “It's good to be the king.” “Some are more equal than others.”

https://www.euractiv.com/section/economic-governance/news/commission-prepares-to-reject-italys-budget/

Market effects are that over the last 10 trading days, the Euro has dropped 2 percent, and Italy's 10-year rate has jumped to 3.5% - up from 2.8%.  That's a 70 basis point move. Has the ECB stopped buying Italian debt? I think so - because Italy must be beaten into submission. Never mind that I'm a deficit hawk; I'm even more of a blatant-hypocrisy hawk. Its fine when Germany and France have excessive deficits. Its not fine when Italy does so – most especially if it is governed by people that Brussels doesn't approve of.

You see, elections are anti-Europe. Just look at the structure of EU. Unelected people have all the power, with the one elected group having powers that were patterned after the Duma in the former Soviet Union. All the elected European Parliament can do is vote yes or no to legislation put forward by the Politburo. Excuse me, I mean the European Commission. Same role, different names, that likely accounts for my confusion. Can the population of the EU elect its chief executive? No, of course not. That would be anti-Europe to have such an election.  Instead, that person is appointed by the EC.

The EC and the ECB got rid of Burlusconi back in 2011. Now they're trying to deep-six Salvini and Di Maio using the levers of power they have control over. It will be interesting to see how that plays out.

More Europe, anyone?

Crude rose +0.45 [+0.61%] to 74.49. Candle print was a neutral-looking spinning top, with crude's forecaster ending the day down -0.05 to -0.08. That's a slight downtrend. Crude remains in an uptrend in the weekly and monthly timeframes. Right now, the oil markets just aren't sure how much production will be taken offline with the Iran sanctions, how much will be replaced by the Saudis and Russians, and what other geopolitical issues might crop up along the way, however that long term trend remains up.

SPX fell -4.09 [-0.14%] to 2880.34. The futures trading range was fairly wide, but the high wave candle was just neutral. Forecaster rose +0.17 to -0.42, which leaves SPX still in a downtrend. SPX closed the day right at the 50 MA, where it seems to have found some support. SPX is in a downtrend in both the daily and weekly timeframes. Materials led the market lower (XLB:-3.32%) along with industrials (XLI:-1.54%), while energy did best (XLE:+0.89%). This is a bearish sector map.

What's the story about the massive drop in XLB? PPG Industries, a chemical company, issued an earnings warning that said commodity costs are rising at the fastest pace in 2 years, as well as activity in China is slowing down. That resulted in a brisk sell-off for the companies in the materials sector.

VIX rose +0.26 to 15.95.

TLT rallied +1.01%, but the confirmed bull NR7 candle pattern was just neutral rather than being a bullish reversal. TLT's forecaster did issue a buy signal. ;TY al, but not all that strongly, up +0.15%, printing a swing low which was a 62% bullish reversal. That's a pretty strong reversal for a relatively weak rally. Forecaster jumped +0.27 to -0.26, which is still a downtrend for TY. TY remains in a downtrend in all 3 timeframes. The 10-year yield fell -2.5 bp to 3.21%. Based on the candle print I think this could well be a near-term low, but I suspect the longer-run monthly forecaster holds the key to rates over the longer term: they are going higher.

JNK rose +0.11%, rising for the first time in days. The bullish harami was more neutral (it wasn't a bullish reversal), and while forecaster improved substantially, it remains in a strong downtrend.

CRB rose +0.31%, with 3 of 5 sectors moving higher, led by industrial metals (+0.92%). That's probably copper, which did quite well today.

After the large dip in PM yesterday, the dip-buyers didn't put in much of a showing today. Today's relative weakness in PM wasn't about currency, since the buck actually fell, and the miners are looking especially bad, selling off briskly even though the metals actually moved higher.  The metals sector looks pretty feeble right now - perhaps its a bit shell-shocked after yesterday's hammering.

What to make of the XLB sell-off? Well it definitely seems to be a signal of commodity-push inflation.  Will that make it into gold and silver prices?  Well so far, it hasn't.  Certainly nobody seems to care about gold right now, and (probably) with some help by official intervention, it remains below 1200, even though Turkey is heading inexorably towards default (74% annualized inflation!), Italy is playing chicken with the EU on its budget, and the emerging markets in general are looking pretty shaky because of the rising dollar.  And of course, there's also the rates breakout.

Here's the key point for me: commercials remain net long both gold and silver, which is a very rare place for them to be.  They are positioned for a big gold rally.  Of course, that will only matter when it matters; that COT report is not great at signaling timing.  But given how well-connected our friendly bankers are, when you know that they won't benefit from a big drop in the price of gold, that suggests to me, we probably won't be seeing one.

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11 Comments

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 166
The European Commission (aka The Politburo)

Excellent summary of the European situation Dave. You entertain and inform in equal measure!

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5971
Agreed!
Eannao wrote:

Excellent summary of the European situation Dave. You entertain and inform in equal measure!

This was pure comedy gold PLUS insight:

Has the ECB stopped buying Italian debt? I think so - because Italy must be beaten into submission. Never mind that I'm a deficit hawk; I'm even more of a blatant-hypocrisy hawk. Its fine when Germany and France have excessive deficits. Its not fine when Italy does so – most especially if it is governed by people that Brussels doesn't approve of.

You see, elections are anti-Europe. Just look at the structure of EU. Unelected people have all the power, with the one elected group having powers that were patterned after the Duma in the former Soviet Union. All the elected European Parliament can do is vote yes or no to legislation put forward by the Politburo. Excuse me, I mean the European Commission. Same role, different names, that likely accounts for my confusion. Can the population of the EU elect its chief executive? No, of course not. That would be anti-Europe to have such an election.  Instead, that person is appointed by the EC.

The EC and the ECB got rid of Burlusconi back in 2011. Now they're trying to deep-six Salvini and Di Maio using the levers of power they have control over. It will be interesting to see how that plays out.

I too am a blatant-hypocrisy hawk!

:)

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 58
no hypocrisy here

Guys, I too enjoy Dave's writing style, and I'm sure these passages makes for very entertaining reading for American readers eager for distraction from their own corrupt, barely democratic (ok, so far not too different from any other political system I know of) and bipartisan system, which from all the way across the Atlantic looks to be tearing the states apart.

But just a fact or two to dispel the supposed hypocrisy here:

I'm even more of a blatant-hypocrisy hawk. Its fine when Germany and France have excessive deficits. Its not fine when Italy does so

There may be counter-examples from years past, but no doubt that was from when there was more of a eurozone wide financial crisis in play. I acknowledge that the ECB now more than ever has a lot of control over these crises and can manipulate them in their favour, as they may well be doing with Italian debt at the moment. But then again, wouldn't Italy's debt rate be spiking anyway, if there was a real sovereign debt market? So to me it looks like the ECB is trying to simulate the market mechanism, which isn't ideal, but not evil either.

But comparing apples to apples; at this moment in time Germany is running a deficit surplus!

It's true that France has a budget deficit of about 3%, which would be at, but not over, the deficit limit agreed by the EU. But then their debt to GBP ratio is 'only' 100%. https://www.bloomberg.com/news/articles/2018-09-11/macron-s-tax-promises...

Italy on the other hand is proposing a deficit of 'only' 2.4%, but has a debt to GBP ratio of over 130%!!! This is the main reason that the EU doesn't like the current Italian governments deficit spending plans (maybe in addition to it's banking sector being weaker than that of France). If you want to remain a member of the eurozone, or even the EU club, then you have keep within certain sane limits on spending. If you ignore those limits then you will under pressure to comply or ultimately leave. I'm not seeing any hypocrisy here.

 

thc0655's picture
thc0655
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Posts: 1712
Except

...no ones allowed to leave! “So, it’s obey, or else!”

davefairtex's picture
davefairtex
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Posts: 5686
hypocrisy

phusg-

When I was referring to Germany having run deficits in excess of the treaty limits, it was in the past, not today.  At that time, the EC dutifully ignored Germany's deficits.  Same with France's deficits.  Same with Portugal.  Anyone who followed the orders of Brussels got a pass on the limits.  People who Brussels doesn't like, well, they are forced to stick to the letter of the treaty.

When the rules are selectively enforced, that's hypcrisy.

If you put up enough of a fuss I'll run off and find all the cases where various countries exceeded treaty limits and got a pass from the EC.

As for democratic - the US is functionally non-democratic, while the EU is structurally non-democratic.  Theoretically, if the US got money out of politics, and fixed the "broken" voting machines, the US could be a democracy again.  Structurally, the design of the US system is basically sound.  For the EU, there is no way for them to be anything other than the Former Soviet Union unless and until they change their structure.  It has a design flaw - a deliberate one.  If the parliament can only rubber stamp someone else's legislation - that's not democracy.  If you can't elect the chief executive - even via your representative - that's not democracy either.

Its as if the designers of the EU said, "now then, what can we use for a model?  I know!  The Soviet Union had one that worked great!  Let's use that one."

One might argue that Donald Trump becoming President was an example of actual democracy in action.  Certainly, neither of the two political parties wanted him in power.  If not for the voters...he would never have made it.  And certainly there is an ongoing effort to remove him from power...

shastatodd's picture
shastatodd
Status: Bronze Member (Offline)
Joined: Oct 16 2010
Posts: 61
voting

"And certainly there is an ongoing effort to remove him from power..."

yes, i will be voting against him.

MarkM's picture
MarkM
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Joined: Jul 22 2008
Posts: 855
Scary

The effort Dave is referring to comes from within, not from the voters...frightening.

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

...no ones allowed to leave! “So, it’s obey, or else!”

Britain looks pretty set to leave, or at least the extent to which they stay, isn't dictated by the EU.

And if you mean no ones allowed to leave the eurozone, well that does look tricky and potentially the biggest design flaw of the euro, but I think it is a credible threat and/or democratic choice at the moment after years of preparation.

If you put up enough of a fuss I'll run off and find all the cases where various countries exceeded treaty limits and got a pass from the EC.

Don't worry, I believe those cases exist. My point is that they were no doubt from when there was more of a eurozone wide financial crisis in play. From where I sit I think the criterium for exceeding the treaty limits and not getting a pass from the EC is when doing so forms a systemic risk for the rest of the eurozone a la Greece. Italys 130% debt to GDP and weak banking sector forgoes the pass other countries have had in the past.

Having said that, I would've preferred the 3% limit to be applied without exception from day 1, I think the original designers of the euro had good reason to include it.

As for democratic - the US is functionally non-democratic, while the EU is structurally non-democratic.  Theoretically, if the US got money out of politics, and fixed the "broken" voting machines, the US could be a democracy again.  Structurally, the design of the US system is basically sound.

I would say that the money in US politics is part of the structure, as I take it there are laws governing how much can be spent. But yes, I'd agree that the older US system is better evolved to cope with a state and monetary union.

If the parliament can only rubber stamp someone else's legislation - that's not democracy.  If you can't elect the chief executive - even via your representative - that's not democracy either.

But the EU chief executive has far less powers that the American president. A lot of key decisions are taken by councils of elected ministers and the parliament can also throw out legislation, so it's not all that bad.

One might argue that Donald Trump becoming President was an example of actual democracy in action.  Certainly, neither of the two political parties wanted him in power.  If not for the voters...he would never have made it.  And certainly there is an ongoing effort to remove him from power...

Fair point, I agree Trump has democratic mandate and he is a good example of a departure from the traditional bipartisan system. I just worry he's whipping up polarisation that exacerbates the previous bipartisan system. For the short term I just hope he lets the FED get on with doing the right thing and that the ECB soon follows suit. Having some actual market forces in the debt markets and maybe some credible moral hazard back sounds like part of the cure to me.

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

I just hope he lets the FED get on with doing the right thing and that the ECB soon follows suit. Having some actual market forces in the debt markets and maybe some credible moral hazard back sounds like part of the cure to me.

My perspective is that the central banks and their fiat money systems based on debt enforced by the governments IS THE PRIMARY PROBLEM.  Everything else is just smoke and mirrors, rearranging the deck chairs on the Titanic.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5686
ongoing efforts

shastatodd-

Yes, I daresay your personal effort to remove him from power is entirely legitimate.

It's the campaign from inside the machine - both sides of the aisle - that I was referring to.  Rather than seeing this opposition (from Republicans) as confirmation that he's a major hosebag, I see it as confirmation that the machine will only accept candidates they can control with money.

I mean - he's actually trying hard to keep his campaign promises.  Who does that?

You may not like what he promised very much, but he is definitely trying to keep them.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 58
Friend of another perspective

Thanks, I enjoyed your 'How to become a crook' video. Reminded me of this old 'meme':

Agreed that debt is a dangerous thing and can be misused. Would you also agree that debt can sometimes have a beneficial use? For example, without debt there would be no mortgages and many people would have to rent their accomodation for much or all of their lives. Doesn't that make them just as vulnerable to misuse of power by landlords as a mortgage does to misuse of power by banks?

What would your alternative to fiat money systems based on debt begin to look like?

> Having some actual market forces in the debt markets and maybe some credible moral hazard back sounds like part of the cure to me.

BTW, I just realised that I used moral hazard the wrong way around, I meant 'some credible risk back' i.e. that the moral hazard (of people taking excessive financial risks because central banks will do whatever it takes) is reduced.

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