PM End of Week Market Commentary - 10/12/2018

davefairtex
By davefairtex on Sat, Oct 13, 2018 - 5:27am

On Friday, gold fell -7.19 [-0.58%] to 1224.71 on heavy volume, while silver was unchanged at 14.61 on moderate volume. The buck rose +0.21%, but the move didn't materially affect the price of the metals. Mostly, the focus was on risk assets and treasury bonds; SPX rose +1.42%, while TLT dropped -0.35%.

The weekly metals sector map turned 2/3 green; every item is back above both the 9 and 50 MA lines, although silver moved above its 50 by a very slim margin on Friday. Gold is leading silver, which is generally a mark of a safe haven move, but the miners are leading metal, which is bullish, with juniors leading seniors – also bullish. It appears that PM may have awakened from its multi-month slumber.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 6.08% -15.44% rising falling falling falling ema9 on 2018-10-11 2018-10-12
Senior Miners GDX 5.90% -16.74% rising falling falling falling ema9 on 2018-10-11 2018-10-12
Silver Miners SIL 3.59% -27.89% rising falling falling falling ma50 on 2018-10-12 2018-10-12
Platinum $PLAT 2.02% -10.55% rising rising falling rising ema9 on 2018-10-09 2018-10-12
Copper $COPPER 1.92% -10.05% rising rising falling rising ema9 on 2018-10-12 2018-10-12
Gold $GOLD 1.18% -5.79% rising rising falling rising ema9 on 2018-10-11 2018-10-12
Gold/Euro $GOLD:$XEU 0.74% -3.34% rising rising falling rising ema9 on 2018-10-11 2018-10-12
Palladium $PALL -0.31% 9.16% rising rising rising rising ema9 on 2018-10-05 2018-10-12
Silver $SILVER -0.48% -15.40% rising falling falling falling ma50 on 2018-10-12 2018-10-12

Gold rose +14.61 [+1.20%] this week. Trading range on the week was very wide; there was a plunge on Monday, and then the big move on Thursday, when for some reason (probably tied to the plunging equity market) gold shot up almost $30 in spite of what appeared to be heavy official intervention, breaking out above its recent trading range. Gold's forecaster issued a daily buy signal on Thursday, and that caused the weekly to issue a buy signal as well. Gold remains in a downtrend on the monthly timeframe. Gold in Euros is in an uptrend in all 3 timeframes.

The December rate-increase chances fell 78%.

COMEX GC open interest rose +10,668 contracts this week.

COT report shows the commercial net position jumped +17k, mostly because of 12k fewer shorts, but also 5k more longs. I'm guessing all the short-covering happened on the relatively big Monday sell-off, when gold fell to 1190. This is a new record high for the commercial net position: 26k net contracts long. Commercials are almost never net long, but they are right now. Managed money net fell by -30k, a massive drop, mostly because of 18k longs dumped but also because of 11k new shorts. A mirror image of the commercial position, managed money is at the most extreme net short position in history.

Silver fell -0.07 [-0.48%] on the week, clearly underperforming gold. While silver did manage to crawl back above its 50 MA by end of week, it did so only because the 50 fell faster than the price of silver this week. Still, silver forecaster issued a buy signal on Thursday; that puts silver in an uptrend in both the daily and weekly timeframes. That said, silver weekly forecaster dropped hard, and just barely avoided issuing a sell signal. Contrast with gold's breakout; this is the mark of a safe haven move.

COMEX SI open interest fell -1,304 contracts this week.

COT report shows commercial net rose +4.6k on the week, mostly 3.1k fewer shorts, but also 1.4k more longs. This was a minor move. Managed money net fell -5.2k contracts, which was 5.1k fewer longs, and 107 new shorts. These were both relatively small changes. Silver remains at near-record positions; commercials remain net long, which almost never happens, while managed money is heavily net short.

Miners did best this week, with XAU rising +5.79%. The big day for the miners was Thursday, where all of the miner elements (XAU, GDX, GDXJ) moved up more than 6%. XAU is now well above its recent trading range as well as the 50 MA. The move caused the weekly forecaster to issue a buy signal, which leaves XAU in an uptrend in both the daily and weekly timeframes.

GDX:$GOLD rose +4.65%, while the GDXJ:GDX ratio moved up +0.17%. That's quite bullish.

USD

The buck fell -0.43 [-0.45%] to 94.78, falling 3 days out of 5. Forecaster issued a sell signal on Wednesday, moving DX into a downtrend in both daily and weekly timeframes. Monthly remains in an uptrend, as it has for the past 7 months.

World currency markets were split; CNY fell -0.77%, while EUR rose +0.39% along with GBP +0.26%. Most of the emerging markets got some relief for a change; money was more or less fleeing US assets this week due to the sell-off in the US equity market, and so the emerging market currency pairs rallied vs USD, including even the Turkish Lira and Argentine Peso.

US Equities/SPX

SPX was hit hard, dropping -118.44 [-4.10%] to 2767.13. Most of the damage happened on Wednesday and Thursday. Why the big move this week? Big picture: equities were an insect looking for a windshield. More tactically, I believe it had to do with concern over China infecting US computer products with hardware malware that basically turns over control of the box to the Chinese Army; Bloomberg released a second article with more evidence confirming the infections on Wednesday morning. This seemed to cause a sell-off in the tech sector, which dragged everything else down with it. Also contributing was Fed Chairman Powell, who explained in an interview that same day that the US short term rates were “far from neutral” suggesting we had a large number of rate increases ahead of us. Rate increases slow economies, and even though GDP Now forecasts a 4.2% number for the current quarter, the market doesn't like to hear that there will be rate increases as far as the eye can see.

Friday's candle was not rated – it was an inside day. Forecasters all became more bearish; daily is showing a strong downtrend – the bounce on Friday didn't help matters much at all – while the weekly issued a sell signal this week, dropping -0.55 to -0.51. Monthly fell too, but Friday's bounce was enough to pull it back from the brink. So right now, we're in a downtrend in the daily and weekly timeframes, with the monthly looking iffy, but still in an uptrend. SPX ended the week right at its 200 MA.

The sector map shows materials and defense doing worst, while utilities and consumer staples did best – but still fell. That's a relatively bearish sector map.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 5.90% -16.74% rising falling falling falling ema9 on 2018-10-11 2018-10-12
Utilities XLU -1.27% -2.90% rising rising rising rising ema9 on 2018-10-11 2018-10-12
Cons Staples XLP -1.98% -3.84% falling falling falling falling ma200 on 2018-10-11 2018-10-12
REIT RWR -2.75% -6.59% falling falling falling falling ma200 on 2018-10-11 2018-10-12
Cons Discretionary XLY -3.35% 19.50% falling falling rising falling ma200 on 2018-10-12 2018-10-12
Healthcare XLV -3.41% 10.21% falling rising rising falling ma50 on 2018-10-10 2018-10-12
Technology XLK -3.79% 17.64% falling falling rising falling ma200 on 2018-10-12 2018-10-12
Energy XLE -5.39% 7.07% falling falling rising falling ma50 on 2018-10-11 2018-10-12
Financials XLF -5.61% 1.19% falling falling falling falling ema9 on 2018-10-10 2018-10-12
Telecom XTL -5.77% -1.22% falling falling rising falling ma200 on 2018-10-10 2018-10-12
Homebuilders XHB -6.24% -13.52% falling falling falling falling ma50 on 2018-09-21 2018-10-12
Industrials XLI -6.37% 2.37% falling falling falling falling ma50 on 2018-10-10 2018-10-12
Defense ITA -6.55% 9.88% falling falling rising falling ma200 on 2018-10-11 2018-10-12
Materials XLB -6.73% -7.42% falling falling falling falling ma50 on 2018-09-26 2018-10-12

Globally, Latin America equities did best, while the US came in dead last.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Latin America ILF 2.76% -5.34% rising rising falling rising ema9 on 2018-10-12 2018-10-12
Emerging Asia GMF -1.99% -12.44% falling falling falling falling ema9 on 2018-09-28 2018-10-12
Europe IEV -4.02% -10.47% falling falling falling falling ema9 on 2018-09-28 2018-10-12
Developed Asia VPL -4.04% -4.50% falling falling falling falling ma50 on 2018-10-04 2018-10-12
Eurozone EZU -4.10% -12.02% falling falling falling falling ema9 on 2018-09-28 2018-10-12
United States VTI -4.24% 7.70% falling falling rising falling ma200 on 2018-10-11 2018-10-12

VIX shot up +6.49 to 21.31.

Gold in Other Currencies

Gold rallied in most currencies, doing best in CNY.

Rates & Commodities

TLT rose +1.27%, managing to move higher, but clearly struggling to do so. My sense is, there is a lot of selling of US treasury bonds happening right now, perhaps by emerging market nations or by China itself. Last week's breakout above the previous high of 3.12% probably got some people worried, and so this week (I'm guessing) they unloaded some of their longer-dated inventory. That's why bonds hardly rallied at all even in the face of some moderately hair-raising moves lower in risk assets. TY rose +0.46%, which was enough for a buy signal on the daily, but not nearly enough for the weekly. TY remains in a downtrend in weekly and monthly timeframes. If the equity market recovers, I'd expect US treasury bonds to make new lows.

JNK fell -0.14%, plunging hard on Wednesday, but then erasing all those losses and then some on Thursday and Friday. Last week JNK did a good job predicting the drop in equities, this week it is now suggesting a rebound may be in our future. Friday's move was impressive: up +0.51%. JNK printed a weekly takuri line candle which was a 49% bullish reversal. JNK's daily forecaster came back from a huge deficit, ending the week at -0.09, which is almost a buy signal. Traders are clearly still willing to buy the dip in junk debt. Do we imagine the Plunge Protection Team is hoovering up shares of JNK? I'm guessing not.

Crude fell -2.87 [-3.87%] to 71.29 this week, with all of the losses coming Wednesday and Thursday, with a bounce on Friday. It looked to me as though crude was fairly closely aligned with the movements in the equity market. While the EIA report was bearish (crude: +6m, gasoline: +1m, distillates: -2.7m), I think the stronger influence was plunging equity prices. I think that because crude prices actually bounced a bit following the EIA report.

Crude remains in a downtrend in the daily timeframe, but the weekly and monthly remain in uptrends. That said, the uptrends are definitely showing signs of fatigue, and a drop next week would almost certainly result in a sell signal, possibly in both timeframes. The weekly candle print was an unpleasant-looking swing high (61% bearish reversal), which suggests that momentum for crude may have shifted to the downside. However regardless of all the technical stuff, I think crude's near-term future is probably tied to where equity prices go next.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +14.47, with 745 tons in inventory.

* ETF Discount to NAV:

 PHYS 9.75 -2.00% to NAV [increase]
 PSLV 5.28 -3.93% to NAV [decrease]
 CEF 11.87 -4.08% to NAV [decrease]

* Bullion Vault gold (https://www.bul lionvault.com/gold_market.do#!/orderboard) shows a $4 discount for gold and a 15c premium for silver.

* Big bars premiums were: gold [1kg] 0.89% and silver [1000oz] 3.63%.

Grey Swans & Geopolitics

  • Ebola: total cases 194, with 122 deaths. Things got substantially worse this week; there were 29 new cases, mostly from the city of Beni. “The response ... is becoming increasingly undermined by security challenges in at-risk areas, particularly Beni. These incidents severely impact both civilians and frontline workers, forcing suspension of EVD response activities and increasing the risk that the virus will continue to spread.” Turns out its really tough to deal with an Ebola outbreak in the middle of a civil war, with a population that is already suspicious of the government. http://www.who.int/csr/don/11-october-2018-ebola-drc/en/

  • Turkey: the 10-year yield fell -140 bp this week to 18.28; there was no single cause for the move, although it roughly paralleled the flight out of US equities. Additionally, on Friday, Turkey released the US pastor they have held in prison for two years. This could relieve tensions between the US and Turkey. This happened at roughly the same time that Turkey claimed to have video and audio evidence of the murder of a Saudi dissident journalist at the Saudi Consulate in Turkey. There are lots of moving parts happening here; Saudi and Turkey are at odds in Syria, and Qatar – so Turkey is motivated to cause trouble for Saudi. Will the US/Saudi working relationship suffer if Turkey provides evidence that MBS had this journalist (a Saudi citizen, but a US resident, and a writer for WAPO) killed in the consulate? Trump doesn't appear all that eager to pursue this, but the US Senate seems to have bipartisan agreement that Saudi should suffer if the allegations of murder are correct. So decreased tension between US and Turkey, in exchange for increased tension between the US and Saudi – with Iran and oil possibly affected.

  • German/Italian Migration Issues: authorities in Bavaria, supported by Seehofer, are allegedly planning to start deporting large numbers of migrants back to Italy. Salvini warned Berlin that “unauthorized charter flights” would not be allowed into the country. “We will close the airports, as we have already closed the ports.” How does this line up with the EU's Dublin Regulation that states that migrants must seek asylum in the country of arrival? Every time Salvini does something like this, Lega's poll numbers rise. Migrants are the political gift that just keeps on giving. https://www.dw.com/en/rome-warns-germany-not-to-deport-migrants-back-to-italy/a-45788051

  • Italy – Budget: Di Maio stated that Italy's new budget, which violates the EU rules for deficits, will be approved on Monday by the Cabinet, and sent to Brussels and also to the Italian parliament. Will the EU go to the mat over this budget? Migration got this government elected, and migration issues ensure the government just gets more and more popular. Popular enough to leave the Eurozone? That's the question. It seems to be an incremental thing, but it might have to wait for an economic downturn to really take effect.The Italian 10-year jumped +20 bp this week, closing at 3.6%, up 75 bp over the past 3 weeks. https://www.reuters.com/article/us-italy-budget-cabinet/italian-cabinet-to-approve-2019-budget-on-monday-di-maio-idUSKCN1ML2NI

  • China – Tariffs: On Thursday, after the US equity market started its correction, news reports surfaced that Trump will be meeting with Xi at the G-20 in Argentina in late November. Rumor is that both Kudlow and Mnuchin encouraged Trump to do this. https://www.reuters.com/article/us-usa-trade-china-tension/trump-chinas-xi-to-meet-at-g20-amid-trade-tensions-wsj-idUSKCN1ML24W

  • China – Debt: no news this week.

  • Yield Curve Inversion: the 1-10 spread fell -8.8 bp to 50.2 bp. This move was all about the rally in the 10-year this week.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 49.9% [+8.8%] vs Republicans 41.5%. Outcome Projection: Democrat controls: Senate 18.7% (-0.6 seats), House: 79% (+35 seats). https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: South Korean President Moon claims that North Korea intends to abolish all nuclear weapons. My sense is, Moon is pushing the process forward more rapidly than the War Party establishment in Washington is comfortable with. https://www.reuters.com/article/us-northkorea-southkorea/north-korea-intends-to-abolish-all-nuclear-weapons-south-says-idUSKCN1MM0NA

  • Mueller Investigation: Trump's defense team has agreed to answer 15 questions in writing. No in-person interview – so no “perjury trap” for the notoriously flexible-with-the-truth Trump. The questions will focus solely on alleged collusion, not on obstruction; that means, no questions about Trump's tweets, and no issues about firing Comey.  http://nymag.com/intelligencer/2018/10/trump-to-answer-muellers-questions-but-theres-a-catch.html

Summary

This week was all about the plunge in US equity prices, which more or less fell off a cliff on Wednesday and Thursday. Was it about China infecting US computers with hardware controls? Or was it due to Powell stating US rates were “far from neutral?” It is hard to know. The likely murder of a journalist by the Saudis inside their own consulate may imperil larger geopolitical issues, talk of a meeting between Trump and Xi next month may bring some resolution to the trade dispute, and a relatively weak US treasury bond market were the most interesting things I saw. And of course there was the strong move higher in gold in response to all the fuss.

Big bar gold premiums on gold remain low, silver's premium remains moderate, and ETF discounts were mixed. There is no shortage of gold at these prices – at least according to my numbers anyway.

The gold COT shows record bullish positions, while the silver COT reports show little change from last week. Both are very bullish, with gold looking strongest.

While the US-Turkey-Saudi triangle is interesting, the changes in US-China relations will probably have a larger impact overall. When I look across the broad swath of news stories over the last several weeks and months, I can see a pattern of hardening against China. I do not think the Bloomberg article occurred in a vacuum; I believe there was cooperation from within the administration on this story. Likewise, there was the extradition from Belgium of a Chinese operative who allegedly stole IP from GE, pushback on “China debt traps” in emerging market countries (Pakistan, for one), reporting on “Five Eyes” informal intelligence sharing on China, all of this is starting to form a pattern. The perception of China is changing: from “our friendly (and cheap) workshop overseas” to something closer to “Russia during the cold war.” We aren't there yet, but that's the direction we are heading.

Xi has the chance to stop this train, but I think time is fairly short. Do they realize the sea change happening?  This has become about more than trade at this point. China staged an effort to infect and control the US computing infrastructure. That's what our entire economy is based on. That's not a small thing.

But apart from major geopolitical questions like that, where will the equity market go next? I know that's the burning question of the day.

We appear to be on the edge of an equity-market breakdown. If not for Friday's rally, SPX monthly would have issued a sell signal – it was a close-run thing, although the odds favored a Friday rally. Looking at the daily candle patterns, Friday's rally wasn't all that bullish. In addition, the monthly candle patterns currently in place are quite bearish: the current swing high for monthly SPX is very highly rated – which is bearish.

On the positive side, JNK seems to have regained a bid, and I don't think that junk debt is being manipulated. At least, I'm guessing that it isn't. All the attention is on the big stuff – SPX, 10-year, the VIX, etc. If the bid under JNK continues, that suggests the “buy the dip” mood remains intact. Here's a thought: JNK is a one-day lookahead “tell”, which suggests we see a bounce on Monday, assuming no market-moving news occurs over the weekend.

Here's the currently monthly SPX. Note: its not valid until end of month.

Once again, there are lots of moving parts. US equities, China relations, Turkey & Saudi Arabia, Italy and its budget, and BRExit, which I don't think is a black swan, but will affect the EU if it goes wrong.

One last thing.  I'm not seeing any signs of a US recession in any of my indicators.  INDPRO and PPIACO are both still solid.  Only fly in the ointment: MSPUS (median-home sale price) is declining.  So the housing market (relative to wages) has tipped over, but the rest is still just fine.  In addition, the baseline recession predictor also looks fine.  My models look out a couple of months, so this correction we saw this week wasn't macroeconomics-driven, its about something else.

With all that said, we did learn one thing this week for sure: gold remains a safe haven. If things go badly, money will flow into gold.

Weekly trends (in order of strength):

Uptrend: Gold/Euros, gold, miners, platinum, copper, silver, crude.

Downtrend: BBB corporates, SPX, 10-year treasury, USD, bitcoin.

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2 Comments

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2888
Forbes Article (Commentary)

This one popped up and seemed somewhat interesting. No doubt there would need to be a futures market for the banksters to play in.

President Trump: Replace The Dollar With Gold As The Global Currency To Make America Great Again (Forbes)

Quote:

"Mueller’s Wall Street Journal column enumerates the three options open to President Trump:

First, muddle along under the current “dollar standard,” a position supported by resigned foreigners and some nostalgic Americans—among them Bryan Riley and William Wilson at the Heritage Foundation, and James Pethokoukis at the American Enterprise Institute.

Second, turn the International Monetary Fund into a world central bank issuing paper (e.g., special drawing rights) reserves—as proposed in 1943 by Keynes, since the 1960s by Robert A. Mundell, and in 2009 by Zhou Xiaochuan, governor of the People’s Bank of China. Drawbacks: This kind of standard is highly political and the allocation of special drawing rights essentially arbitrary, since the IMF produces no goods.

Third, adopt a modernized international gold standard, as proposed in the 1960s by Rueff and in 1984 by his protégé Lewis E. Lehrman …and then-Rep. Jack Kemp."

 

shastatodd's picture
shastatodd
Status: Bronze Member (Offline)
Joined: Oct 16 2010
Posts: 61
"Wall Street Journal column enumerates the three options..."

they missed (again) the elephant in the room... namely admitting the earth is a sphere, therefore limited and finite where it is not possible to have growth forever, so:

option #4 of wisely begin the difficult process of controlled "degrowth" (collapse) is still omitted. 

of course keeping the party going is job #1, so this inevetabllity will be ignored and have to come by force.

humans.... smh

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