PM Daily Market Commentary - 11/28/2018

davefairtex
By davefairtex on Thu, Nov 29, 2018 - 1:35am

Gold rose +6.69 [+0.55%] to 1227.49 on extremely heavy volume, while silver climbed +0.17 [+1.23%] to 14.41 on extremely heavy volume also. The buck plunged -0.62%, a very large move. Equities shot up +2.3%, copper +2.87% - it was a risk on day. What caused all the fuss?

It was a speech by Fed Chairman Powell, who said that interest rates are “just below neutral” - this after telling us all on October 3rd that we are “a long way from neutral at this point.” This indicates that we may only get one more rate increase, in December, rather than the 4 that were projected as recently as two months back. This is a big policy change.

https://www.bloomberg.com/news/articles/2018-11-28/powell-sees-solid-economic-outlook-as-rates-just-below-neutral

Was Powell tweeted to death? Or did he simply look at the signals – plunging oil prices, and a housing market that seems to be tipping over (falling new home sale prices, rising supply, falling sales), and draw the conclusion that in spite of his hectoring tone, just maybe Trump might actually be right.

Gold had a fairly large trading range, ending up moving up roughly as much as the buck fell. The bullish harami was mildly bullish, and forecaster ticked up +0.11 to -0.11. That's still a downtrend. Gold/Euros was unchanged on the day. Gold is in a downtrend in both the daily and monthly timeframes; the weekly sell signal evaporated after today's rally. Today's move isn't a bullish reversal – possibly because the entire move was just a currency effect.

COMEX GC open interest fell -19,232 contracts. That's another huge drop in OI – about 5% of OI disappeared today. It turns out, this drawdown in OI happens every year in late November. This year looks heavier than normal, but not dramatically so.

Rate rise chances (December 2018) jumped to 83%.

Silver did a lot better than gold, keeping most of its gains into the close. The long white candle was a bullish continuation, and forecaster jumped +0.30 to +0.08, which is a buy signal for silver. I'm guessing silver was aided by the huge (+2.87%) rally in copper. Silver is now back above its 9 MA, and is in an uptrend in all 3 timeframes. For me to be happy about silver, I'd like to see a close above the previous high at 14.54. That's not too far away.

COMEX SI open interest fell -1,521 contracts.

The gold/silver ratio fell -0.55 to 85.18. That's bullish. The gold/silver ratio remains at multi-decade highs – that usually happens around a low for PM.

Miners did well, with GDX up +2.49% on heavy volume, while GDXJ climbed +2.68% on very heavy volume. XAU jumped up +3.12%, wiping out the losses from the last 2 days, and printing a reasonably strong swing low (60% reversal). While XAU forecaster jumped +0.61 to -0.06, it wasn't quite enough for a buy signal. XAU is now back above its 9 MA, and remains in a downtrend in both daily and weekly timeframes. As with silver, I'd like to see XAU regain the 50, although I think the XAU chart looks a bit healthier than silver.

The GDX:$GOLD ratio rose +1.93%, and the GDXJ:GDX ratio climbed +0.19%. That's bullish.

Platinum fell -1.09%, palladium jumped +2.62%, and copper rallied +2.87%. The strong rallies in palladium and copper have pulled both metals into short-term uptrends, with palladium about to re-test its all time high. Platinum, for some reason, continues to look ill. Maybe that's about the US auto market? It was the skeleton at the feast in today's strong metals rally.

The buck plunged -0.60 [-0.62%] to 96.27. The move was all about “just below neutral” from Powell; the Euro screamed higher (+0.67%) right when the speech text was released. AUD (+1.11%), the risk-on currency, was the big gainer of the day. The bearish engulfing was cause for concern (47% bearish reversal) and the forecaster dropped -0.87 to -0.05, which is a sell signal for the buck. The move was enough to cause the weekly forecaster to issue a sell signal also, which pulls the buck into a downtrend in both the daily and weekly timeframes. I'm not sure how durable this trend change is – there's still BRExit, and that pesky Italian budget to worry about. If Draghi stops buying sovereign debt in the EU, who will step up to do so at these prices?

Crude plunged -1.83 [-3.50%] to 50.48, making a new low by a few pennies. However the drop might actually be good news; the selling pressure was unable to force oil to break down today, which it has been able to do every other time during this downtrend. There appears to be strong support for oil at round number 50. The long black candle was mildly bullish (31% reversal), and forecaster jumped +0.18 to +0.15, which is a buy signal for crude on the daily chart. Still, crude remains in a downtrend in both the weekly and monthly timeframes.

SPX climbed +61.58 [+2.30%] to 2743.78. Most of the move came after Powell's speech at noon. The closing white marubozu was a bullish continuation, and forecaster jumped +0.91 to +0.75, which is a buy signal for SPX. Today's move also pulled the monthly into a buy signal also. SPX is now back above the 9, but remains below the 50 and 200.

Tech led (XLK:+3.50%) along with discretionary (XLY:+2.95%), while utilities (XLU:-0.07%) and REITs (XLRE:+0.81%) did worst. This is a bullish sector map.

VIX fell -0.53 to 18.49.

TLT fell -0.49%, moving deeper into its downtrend. TY actually rallied, up +0.11%, curiously moving higher in the face of a very strong equity move. I have no idea what that's about. TY remains in an uptrend in both the daily and weekly timeframes. The 10-year yield fell -1.1 bp to 3.04%.

JNK shot up +0.75%, breaking cleanly above its congestion area, causing forecaster to issue a buy signal for JNK. This aligns with the strong move higher in equities.

CRB rose +0.72%, with 3 of 5 sectors moving higher, led by agriculture (+1.53%).

While the market really liked seeing a possible end to the rate increase campaign from the Fed, in truth it is actually a danger signal. The pattern from the the period immediately preceding the most recent three recessions suggests that the Fed sniffs out the impending recession, stops hiking rates, and then actually starts reducing them just before the recession hits. Here's what that looks like:

So we should enjoy the good times while we can. If we combine the current enthusiasm about stopping rate increases with a Trump-Xi settlement at the G-20, we could see a strong risk-on rally through the beginning of the year – maybe even a re-test of the previous highs.   Silver could like that environment a lot.  However (roughly) six months from now, I suspect we'll see the Fed reverse direction as the recession hits. That's what the charts suggest anyway.  And if the Fed stops its balance sheet roll-off, that's even more bearish, although it will probably cause the equity market to rally temporarily.

What does this mean for the metals?  We will have to see how the metals respond to the flat-to-dropping rates.  Theoretically they should like that environment, and there certainly isn't any leverage in PM that needs to be wrung out, so the recession, when it happens, probably won't lead to forced selling in gold and silver.

It could be a good environment for PM, especially gold.  For a change.  But we'll have to wait and see how the big money reacts to the changing environment.

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