PM Weekly Market Commentary - 11/9/2018

davefairtex
By davefairtex on Sun, Nov 11, 2018 - 12:06pm

On Friday, gold fell -14.10 [-1.15%] to 1215.50 on extremely heavy volume, while silver dropped -0.29 [-201%] to 14.13 on extremely heavy volume also. The buck climbed just +0.19%; it was not the cause of the big drop in PM. The other commodities I track also had bad days: platinum -1.34%, copper -1.96%, palladium -1.04%, crude -1.52%, along with SPX -0.92%. It was an everything-fell day, with silver losing the most.

The weekly metals sector map tipped mostly back into a downtrend this week; apart from palladium, which managed to avoid selling off.  Silver led gold lower, and juniors led seniors lower.  It was a mostly-classic bearish week. The only outlier was copper; it doesn't often drop more enthusiastically than silver, but it definitely did so this week.  That suggests trouble in China, and given the size of the drop - Big Trouble.  All of last week's hope-for-a-tariff-solution gains have utterly vanished.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL -0.29% 9.07% rising rising rising rising ema9 on 2018-11-02 2018-11-09
Gold/Euro $GOLD:$XEU -1.57% -3.32% falling rising falling rising ma200 on 2018-11-09 2018-11-09
Platinum $PLAT -1.90% -8.95% rising rising falling rising ema9 on 2018-11-09 2018-11-09
Gold $GOLD -1.97% -5.86% falling rising falling rising ma50 on 2018-11-09 2018-11-09
Senior Miners GDX -3.01% -16.53% rising rising falling rising ema9 on 2018-11-09 2018-11-09
Silver Miners SIL -3.15% -25.68% falling falling falling rising ema9 on 2018-11-06 2018-11-09
Junior Miners GDXJ -3.31% -16.78% falling falling falling rising ema9 on 2018-11-06 2018-11-09
Silver $SILVER -4.17% -16.81% falling falling falling rising ema9 on 2018-11-08 2018-11-09
Copper $COPPER -4.95% -13.33% falling falling falling rising ema9 on 2018-11-09 2018-11-09

Gold fell -24.03 [-1.94%] this week, with most of the losses happening on Friday. Gold issued a weekly sell signal; it is now in a downtrend in all timeframes – and in Euros as well. This week's drop was not about currency.  Gold also plunged through both the 9 and 50 MA lines. Really, there was no good news for gold this week – gold has moved into a downtrend.

The December rate-increase chances rose to 76%.

COMEX GC open interest rose 2,969 this week.

COT report shows the commercial net position fell -6.9k, with 8k new longs, and 15k new shorts. Managed money net rose by +8k contracts, which was 2k new longs, and 6k covered shorts. These were minor changes. Both commercial and managed money net positions remain in a relatively bullish position.

Silver plunged -0.61 [-4.17%] this week; silver printed a swing high on Monday, and never looked back, dropping clean through its lower support level on Friday. Like gold, it issued a weekly sell signal, which puts silver in a downtrend in all timeframes. Silver is also well below all 3 moving averages, through support, and appears on the way to re-testing the recent lows at 13.96. Given the accelerating speed of the downtrend, it is not clear at all that will hold. The gold/silver ratio shot up +1.84 to 85.42. I keep waiting for that to matter; so far, it hasn't.

COMEX SI open interest rose +5,908 contracts this week.

COT report shows commercial net fell -9.5k contracts, with 5.9k new shorts, and 3.6k longs sold. Managed money net rose by +4.3k, which was 7.2k shorts covered, and 2.9k longs sold.

Miners fell also; XAU plunged -4.51%. It was all downhill after Tuesday's swing high; the miners ended the week in a downtrend in the daily and weekly timeframes. Friday's hammer candle looked good on the chart, but the code says it was not a bullish reversal. Like gold and silver, XAU is now below all 3 moving averages.

GDX:$GOLD fell -1.09%, while the GDXJ:GDX ratio dropped -0.32%. That is moderately bearish.

USD

The buck rose +0.35 [+0.36%] to 96.42. The buck made its low on Wednesday, printed a swing low on Thursday, and ended Friday within range of the previous high of 96.72. The big rally for the buck came on Thursday, following the FOMC meeting where the Fed ended up changing nothing.  My guess: changing nothing was actually dollar-bullish, since Trump had placed strong pressure on the Fed not to continue raising rates, and by not-changing-anything, 3-4 more rate increases appear to be baked into the cake.

The buck is back in an uptrend in all 3 timeframes.

CNY fell against the buck this week, dropping -0.98%; it is back up to 6.96, up +0.07, quite close to the previous high at 6.97. I'm guessing concern about China is what helped drive prices of the metals on Friday.

US Equities/SPX

SPX rose +57.95 [+2.13%] to 2781.01. Most of the gains came on a huge post-election rally on Wednesday, with some retracement happening at end of week. Although the daily and monthly are both in uptrends, the rally was not enough to pull the weekly out of its downtrend just yet. However, the weekly swing low pattern was extremely bullish (82%), so I think the momentum is probably to the upside right now.

The sector map shows sickcare (+4.13%) leading along with REITs and Utilities, while homebuilders (-0.89%) trailed. That's not a particularly bullish configuration. In fact, looking at the map overall, only the yield-sensitive (safe haven) components are all green. All of the rest of the items look spotty.

Globally, the US was the top performer this week, while Latin America did worst.

VIX fell -2.15 to 17.36.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Healthcare XLV 4.13% 13.73% rising rising rising falling ma50 on 2018-11-07 2018-11-09
REIT RWR 4.01% -0.90% rising falling rising falling ma50 on 2018-11-07 2018-11-09
Utilities XLU 3.24% -1.61% rising rising rising rising ema9 on 2018-11-06 2018-11-09
Cons Staples XLP 3.10% 5.75% rising rising falling rising ema9 on 2018-10-29 2018-11-09
Financials XLF 2.81% 3.67% rising falling falling falling ema9 on 2018-10-30 2018-11-09
Defense ITA 2.50% 11.53% rising falling falling falling ema9 on 2018-11-01 2018-11-09
Industrials XLI 2.01% 2.06% rising falling falling falling ema9 on 2018-11-01 2018-11-09
Cons Discretionary XLY 1.90% 19.51% rising falling rising falling ma200 on 2018-11-06 2018-11-09
Materials XLB 1.89% -5.53% rising falling falling falling ema9 on 2018-10-30 2018-11-09
Technology XLK 1.60% 9.98% rising falling rising falling ma200 on 2018-11-09 2018-11-09
Energy XLE 1.39% -2.18% rising falling falling falling ema9 on 2018-11-01 2018-11-09
Telecom XTL -0.07% 10.88% rising falling rising falling ma200 on 2018-11-02 2018-11-09
Homebuilders XHB -0.89% -15.14% rising falling falling falling ema9 on 2018-11-09 2018-11-09
Gold Miners GDX -3.01% -16.53% rising rising falling rising ema9 on 2018-11-09 2018-11-09

Gold in Other Currencies

Gold was hit hard in all currencies, doing worst in GBP.

Rates & Commodities

TLT climbed +1.21%, issuing a buy signal on Friday, managing to print a 6-candle swing low – that's how long it took to form a reversal. TY rose +0.09% for the week, printing a strong swing low on Friday, but remaining in a downtrend on both the daily and monthly timeframes. The 10-year yield fell -2.5 bp to 3.19%.

JNK was unchanged this week, rallying for the first part of the week, and then plunging on Thursday and friday. Friday was particularly bad, with JNK down -0.62%. The big black candle looks pretty ominous.

Something mildly alarming is the breakout of the BAA.AAA ratio this week. It has hit the 1% level, which is a high dating back to mid-2016, and the velocity of the move seems to be picking up. Rising BAA-AAA ratio signals an increasing worry about junky credit (TSLA, shale drillers, etc), and a corresponding bid for the safer stuff like JNJ and AAPL. We saw this on Friday – a rally in TLT, and a large plunge in JNK. If this continues, it is a significant long term credit market risk off signal. What's more, this series updates with a 1-day delay, so this chart does not include Friday's move, which based on what we saw with JNK and TLT, was likely quite significant.

Crude dropped for the 5th straight week, losing -2.89 [-4.59%] to 60.08. Crude has fallen for the last 10 days in a row; this has taken crude's RSI-7 down to 10. My thought was, “it will bounce any day now.” And then it sells off some more. The EIA report wasn't helpful at all (crude: +5.8m, gasoline: +1.9m, distillates: -3.5m); the big drop contributed to the decline of prices this week. Crude is in a downtrend in all timeframes. Friday's long black candle was cautiously optimistic (34% bullish reversal), but it certainly wasn't conclusive.  The weekly chart - well, it just looks awful.  No reversal on the weekly chart.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -3.83, with 755 tons in inventory.

* ETF Discount to NAV:

 PHYS 9.64 -2.27% to NAV [increase]
 PSLV 4.76 -5.06% to NAV [increase]
 CEF 11.58 -4.79% to NAV [decrease]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a $5 discount for gold and a 32c premium for silver.

* Big bars premiums were: gold [1kg] 0.95% and silver [1000oz] … are still sold out. The 100 oz silver bars had a premium of 4.99%, up almost 0.5% from last week. The American silver eagle buy-side premium was 8.6%. They were sold out as well. Not all silver items were sold out – just selected items.

Grey Swans & Geopolitics

  • Ebola: total cases 306, with 189 deaths. There were 29 new cases. The tone of the leading paragraph of the report was mostly boilerplate go-team stuff, up until...“this week, the WHO Director-General, UN Under-Secretary-General for peacekeeping, and WHO Deputy Director-General (DDG) Emergency Preparedness and Response travelled to the Democratic Republic of the Congo to review how further support can be offered to strengthen the response.” Uh oh. http://www.who.int/csr/don/08-november-2018-ebola-drc/en/

  • Turkey: the 10-year yield fell -47 bp this week to 16.62. Turkey's 10-year yield continues to decline. The TRY/USD pair rose +0.5% to 5.45, up slightly this week, but still far from the high of 7.21 set back in August.

  • German Government: After the electoral debacle in Germany last week, both the CDU and SPD are holding meetings to basically stop their parties from disintegrating. Latest poll numbers have the Greens up to 24%, almost certainly because of the “strategic pragmatism” of the SPD – a nice word for the tactic of “selling out your alleged principles in order to be in government.” The SPD is down to 14% - about even with the “far-right populist” AfD. (Note: the Greens aren't “populist” - they are “liberal”). Regardless of labeling, the center is fading. Europe is in the process of losing its de facto President: Merkel.  Who replaces her is a mystery.  I'm sure Macron would volunteer, but his popularity is extremely low also.  https://www.dw.com/en/crunch-time-as-german-government-parties-seek-new-direction/a-46151061

  • Italy – Budget: More back and forth this week on Italy's budget, with Italy signaling it will not bow to EU pressure. The deadline is next Tuesday. Also, the Italian parliament seems set to pass a bill that eliminates the popular “humanitarian residency” permit, as well as reducing the daily 30 euro support payment for every migrant down to 15 euros.

  • China Tariffs: No news. Trump meets Xi at end of month at the G-20.

  • Yield Curve Inversion: the 1-10 spread fell -6.1 bp to 46 bp.

  • US Congressional Elections, 2018: they aren't over yet. Two senate races in particular are still up in the air. New votes are still being found – or “found”, its hard to know which. It depends on which echo chamber you inhabit, it seems.

  • North Korea: the process of de-nuking North Korea appears stalled. North Korea wants sanctions removed prior to them de-nuking, while the US is demanding that North Korea proceed with denuking prior to the removal of sanctions.

  • Mueller Investigation: Just seconds after the midterms were over, AG Sessions resigned, as requested by Trump. His temporary replacement, Acting AG Whitaker, has previously opined that Mueller should limit the scope of his activities to “the four corners of the order appointing him special counsel.” Presumably this means Mueller should investigate alleged collusion with Russia during Trump's 2016 campaign, and nothing more. Naturally the people demanding Trump's head on a pike (for winning the election?) want the unlimited fishing expedition to continue. We could end up with Mueller restricted to Russia issues. Of course, come January, the House will start in on their attempt on Watergate Redux, so it might end up being a wash.

Summary

The metals turned sharply lower this week – gold was hammered, with silver and the miners doing even worse. Copper led the pack lower.  Most of the plunge could not be blamed on the buck, which did rally, but not all that strongly. Silver looks set to re-test its 13.96 lows next week. Crude appears to be in free-fall, down $15 in 5 weeks. Is it supply? Worries about recession? Trump taking it easy on Iran? Its hard to know. Junky credit yields have also lurched higher – when this happens alongside a treasury bond rally, it is time to start worrying about the macro situation.

Big bar gold premiums on gold remain low, silver's premium has increased, while ETF discounts are mixed. There is no shortage of gold at these prices, but there does seem to be a shortage of silver, for certain products.

The COT report is split this week; gold remains relatively bullish, although it is not currently at the highs, while silver has changed more substantially. Silver no longer looks bullish, at least from the standpoint of commercial and managed money short positions. We could actually be nearer an interim high – if we assume a steady rise in short positions by both players.

Judging from momentum alone, the metals probably make new lows next week.  Certainly that's more likely true of silver, which is just one bad day away from a new low and a probable breakdown.  I think its time to watch from the sidelines until things settle down.  Based on the current premiums I see, if silver does make new lows, it might not be possible to buy physical silver for anywhere near the COMEX price.  In that case, you can always buy PSLV (which is trading at an impressive 5% discount) and then hold until price rebounds, sell, then use the cash to buy whatever silver item you want to hold.  You will have to pay taxes on the gains, but they might be less in aggregate than the premiums you would otherwise have to pay.

Weekly trends (in order of strength):

Uptrend: platinum, USD, 10-year Treasury, DJIA.

Downtrend: crude, copper, BAA corporates, gold, SPX, silver, gold/euro, bitcoin.

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5 Comments

MGRS's picture
MGRS
Status: Member (Offline)
Joined: Feb 28 2013
Posts: 16
Premiums

Judging from momentum alone, the metals probably make new lows next week.  Certainly that's more likely true of silver, which is just one bad day away from a new low and a probable breakdown.  I think its time to watch from the sidelines until things settle down.  Based on the current premiums I see, if silver does make new lows, it might not be possible to buy physical silver for anywhere near the COMEX price.  In that case, you can always buy PSLV (which is trading at an impressive 5% discount) and then hold until price rebounds, sell, then use the cash to buy whatever silver item you want to hold.  You will have to pay taxes on the gains, but they might be less in aggregate than the premiums you would otherwise have to pay.

Thanks for doing these, Dave, and especially for this wrap up this week.  Super helpful (or maybe just feeding my confirmation bias), especially this part about trends and the probable effect on premiums. 

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1223
Many
thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1718
How severe is the silver shortage?

If COMEX shenanigans are causing a shortage of silver at the COMEX price, how bad is it? I’ve been keeping my eyes open for that situation reasoning that the big explosive upward move in silver we KNOW must come eventually should be signaled by shortages and difficulties accessing physical silver at whatever the ridiculously low COMEX price is when that happens. Is this just a small, temporary shortage like we’ve seen before, or are manufacturers having trouble sourcing silver too? Are manufacturers suddenly scrambling and trying to build up silver inventories to cope with the future shortages they expect? What other signs of distress should we be looking for aside from shortages of some retail products and rising premiums on physical silver. What’s the history, for instance, on the premiums for silver American Eagles? In the last 8.5 years I’ve seen it go as high as $3.50/oz in the places I’ve bought from, so getting back there or worse would be a sign for me. Who cares if the spot price is $9.00 when the premium is $5.50?! I see miners are having trouble staying in business at these prices.

Personally I’m waiting for gold to drop below my last purchase price: $1,182. I’ll buy a little more at any temporary bottom below that (Buy The Dip in my vocabulary

skipr's picture
skipr
Status: Silver Member (Offline)
Joined: Jan 9 2016
Posts: 168
silver tokens??

I'm thinking about exchanging a few of my cryptos for a silver backed ERC20 token like SLVT when the SLVT/*** ratio bottoms out, where *** is another token I'm tracking.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5694
silver shortages, etc

Thanks for the kind words MGRS.  My stuff all looks pretty bearish.  The whole thing is exacerbated by today's cratering in Euro, which plunged through 113, now at 112.44, down -0.81%.  Gold is actually doing fairly well, only off -0.48%, but it doesn't make the P&L in USD look any better.

Re: silver shortages, I don't do a survey of the industry; i just check a large coin dealer I know.  I check every week - I haven't seen them run out of COMEX bars in quite some time.  They've been out for the past few weeks.  Maybe that's a local thing, or maybe its a bigger trend.  Perhaps you guys can check your local areas or favorite places and report back.

For instance, the dealer I check has no silver eagles, but they do have a monster box, selling for $8387 ($16.77 each), which is a premium of $2.77 per coin.   But pandas, 10oz bars, kilo bars, and 1000 oz COMEX bars are sold out.

I checked HAA - allegedly they have stock, but since I don't have an account, I can't be sure.

Premium at bullionvault is only 10-15c.

So I don't think we're in premium panic mode just yet, but if silver drops below 14, we could see silver in the 13.50s in a pretty big hurry.  And a sharp rise in the buck could make that happen.  The buck has already broken out today.  That could be in advance of the Italian budget, with the EU set to administer a spanking tomorrow.

Buck looks really strong.

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