PM Daily Market Commentary - 2/21/2019

By davefairtex on Fri, Feb 22, 2019 - 5:47am

Gold plunged -15.09 [-1.12%] to 1328.58 on very heavy volume, while silver plunged -0.25 [-1.59%] on extremely heavy volume once more. The other metals all fell too, as did crude [-0.61%], SPX [-0.38%], TLT [-0.89%], while the buck rallied [+0.18%].

Gold followed through off yesterday's shooting star, falling for much of the day, ending right near the lows. The confirmed shooting star/swing high candle print was bearish (48% reversal), and forecaster plunged hard, issuing a sell signal for gold. Gold/Euros also issued a sell signal too. Gold remains in an uptrend in the weekly and monthly timeframes. It is also above the 9 MA, and remains far above its uptrend line.

COMEX GC open interest fell -5,483 contracts; that looks like a bit of cash-register ringing by the shorts on the decline.

Futures are showing a 1% chance of a rate increase in March, and a split in December (4% chance of an increase, a 9% chance of a cut).

Silver looked fairly similar to gold, dropping for most of the day, ending at the lows. Volume was once again immense. The confirmed shooting star/swing high was extremely bearish (60% reversal – a very negative rating), and forecaster plunged, resulting in a sell signal for silver. Silver is now in a downtrend in both the daily and weekly timeframes. Silver ended its decline right at the 9 MA.

COMEX SI open interest fell -4,792 contracts; that's a big decline, and suggests cash-register-ringing by the shorts.

The gold/silver ratio rose +0.36 to 83.77. That's bearish.

Miners gapped down at the open, and then fell slowly the rest of the day; GDX lost -1.63% on moderately heavy volume, while GDXJ dropped -2.01% on moderately heavy volume also. XAU fell -1.41%, printing a swing high candle (49% reversal), and while forecaster dropped, it was not enough for a sell signal for XAU. (both GDX and GDXJ did issue sell signals, however). XAU remains in an uptrend in all 3 timeframes.

The GDX:$GOLD ratio fell -0.51%, and the GDXJ:GDX ratio fell -0.38%. That's a bit bearish.

Platinum dropped -0.52%, palladium fell -1.17%, while copper moved down -0.55%. These were not dramatic moves, and all 3 other metals remain in uptrends. Palladium did issue a swing high that looked quite bearish (60% reversal) – perhaps it was the extremely heavy volume.

The buck rose +0.17 [+0.18%] to 96.07. The spinning top candle was a bearish continuation, and forecaster remains in a strong downtrend. However the rally did manage to unwind the weekly sell signal; the buck is now in a downtrend in the daily and monthly timeframes.

Major currency moves were limited to just AUD [-1.00%],

Crude rose +0.80 [+1.41%] to 57.56. Crude spiked to a new high: 57.61, but only momentarily; once hitting the high, crude spent the rest of the day selling off. The short black candle was bearish (47% reversal), and forecaster plunged, but not quite enough for a sell signal. Crude remains in an uptrend in all 3 timeframes, but the daily will probably issue a sell signal if crude drops tomorrow.

SPX fell -9.82 [-0.35%] to 2774.88. SPX made a new high in the futures markets overnight, but then spent the rest of the day selling off, although the daytime trading range was fairly narrow. The short black candle was a bullish continuation, and forecaster moved lower, but not enough for a sell signal. SPX remains in an uptrend in all 3 timeframes.

Utilities led (XLU:+0.73%) along with staples (XLP:+0.29%) while energy (XLE:-1.55%) and communication (XLC:-0.93%) did worst. This was a bearish sector map – it looks like a rotation into the safe haven equities.

VIX rose +0.44 to 14.46.

TLT fell -0.89%, a large drop; TLT is now in a strong downtrend. TY fell too, losing -0.30%, which was a confirmed bearish NR7 (49% reversal), as well as causing a forecaster sell signal. TY ended the day below its 9 MA. TY remains in an uptrend the weekly and monthly timeframes. The 10-year treasury yield rose +3.4 bp to 2.69%.  TY looks as though it is just about ready to break down.

JNK fell -0.08%, basically going nowhere. JNK remains in a gentle uptrend.

CRB rose +0.08%, which is a new high. 4 of 5 sectors rose, led by livestock (+0.91%).

Today's plunge confirmed yesterday's shooting star for gold. Gold is now in a nascent downtrend, silver looks quite a bit worse, while the miners remain in decent shape. All of the other metals remain in uptrends, at least for now anyway.

We also saw hints of selling in both SPX and crude – not enough to change the daily trend, but it definitely seemed as though most everything moved lower today.

I'm going to take my guidance from the miners.  While they saw some selling, it was relatively light.  Could we blame the selling in gold and silver on some kind of official intervention?  The increase in OI recently was quite significant, and for sure they don't want to see gold break out above 1370.  Even platinum did fairly well today in comparison to gold and silver.  That makes me a little suspicious.

The real test will come if and when SPX starts to sell off.  My guess is, money will resume flowing into gold when risk off returns. If that stops being true, gold will most likely sell off pretty hard.  If it continues to be true, then gold remains a buy-the-dip sort of item.  We will just have to see how it goes.

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Michael_Rudmin's picture
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Blockchain fault

I think people should think about getting out of e-coin until they understand the implications.

pinecarr's picture
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New rules for banks' gold holdings April 1st?

Greg Hunter interviews Craig Hemke on USAWatchdog, "Bear Market in Gold & Sliver is Over".  My apologies if someone has already posted this somewhere else on the site.  What caught my eye was the comment below by Craig Hemke.  Have others here seen/discussed this before?  It was news to me.

. . . ”Hemke says there are several factors leading to the perfect storm of price explosion for precious metals. On April 1st, new rules will allow banks to hold gold as a so-called tier 1 asset. Hemke points out, “This is why central banks are buying gold too. . . . Gold will be considered a riskless asset just like Treasury bonds. The way it is currently structured now, if you had $1 billion in gold in your reserves in the bank, you could only count half of that as your reserves. . . . So, $1 billion in gold only counted as $500 million. Now, it will count for the full $1billion.”

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Cold Rain
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Limping Home

Can't wait to get another set of shooting stars with the miners today.  Nice gap up with buying, followed by a sell-off into the close.  Yay.  We'll see if gold and silver can finish positive.

bronsuchecki's picture
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Gold as Tier 1 Asset

I'm not an expert on banking rules, but I don't think the Basel rules will result in banks buying gold. Basel 3 just determines the riskyness of the banks assets in a complex calculation to meet minimum reserve rules. Banks are more likely to want to hold assets with lower Basel risk ratings as it gives them more "reserves value" into this calculation.

However, banks with USD liabilities (eg customer deposits) back them with USD assets (like mortages, bonds etc). It makes no sense IMO for a bank to back a USD liability with gold, because if the gold price goes down, then the bank has to book a loss.

For a bank involved in bullion banking (ie it has unallocated client deposits which it lends to miners and industrial users) then it makes sense to back those gold liabilities with gold asset. So if anything, the Basel Tier 1 thing is likely only relvant to banks involved in bullion banking, making it easier/less costly to do gold lending.

pinecarr's picture
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re Gold as Tier 1 Asset

Interesting, bronsuchecki.  Thanks for your response!

kelvinator's picture
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Recent Sources Say Banks Want Tier 1 Gold, Bronsuchecki

The banking & capital requirement rules are complex, almost to the point of appearing to be intentionally obscure to permit accounting funny business along with make-work-for-life careers for international banking bureaucrats, (not possible, right? ;-) )....  Anyway, likewise, I’m no expert, but I've seen sources that disagree with your comment that are worth considering, Bronsuchecki, (see link below).   It implies banks have been significantly adding gold to their holdings since last year, due to the new Basel 3 rules.

They underline that recent rulings give 'gold directly held as bullion or in trust' a 0% risk factor, along with a very narrow set of other assets that include cash and sovereign bonds (eg US Treasuries, direct ECB bond issues, etc.).   Specifically, under Basel 3, mortgage-backed securities and GSE (Government Sponsored Entity) securities like Fannie & Freddie USD bonds, etc. that you thought might be better matched USD collateral for USD deposits and other USD liabilities can NOT be counted as Tier 1 assets, but Tier 2 requiring at least a 20% risk write-off when counting them as assets providing required minimum HQLA (High Quality Liquid Asset) collateral on bank balance sheets.

As you point out, holders of US denominated liabilities would have the risk of changes in the price of gold in US dollars - eg, if they owe a lot of USD denominated debt or need to back USD customer deposits and the dollar price of gold declines, that creates a potential shortfall in their capital requirements for collateral, and they might be forced to sell assets to raise their proportion of cash or other Tier 1 liquid capital collateral to still meet the minimum requirements.

But, let’s say a bank has $1 million in gold in its vaults as HQLA collateral and another $1 million in the Fannie issued mortgage-backed securities.  They can only count $800,000 of the Fannie MBS as collateral toward their required capital but all million of the gold.  The dollar-denominated gold price would have to drop by over 20% before the MBS would start being better USD collateral.  At the current gold price of ~$1330, that would put the price of gold below its production cost, IMO – not a place it’s likely to stay for long, if it ever makes it there at all. 

Also, imagine the dynamics of a world in which deflation (dollar strength) starts pushing down the price of gold by 20%.  It would be, IMO, a increasingly recessionary world in which risk assets, including mortgages, will be dropping like flies in in defaults, price and value, central banks will be lowering interest rates and printing money to try to accelerate inflation and the ‘velocity of money” to resuscitate a failing economy.  My guess would be that all of those elements are likely to strengthen the value of gold as a bank collateral asset and boost the gold price.


davefairtex's picture
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hacking smart contracts


I have to say, as a software guy, the thought of having a bit of code nailed into place, immortalized by a blockchain, is just terrifying.

And the article you reference provides chapter and verse to my ... unease is too gentle a word.


Until we get provably correct software, smart contracts of any complexity at all are just asking for trouble.

And even if we had that, even the simple stuff might have problems that a later iteration of the underlying architecture exposes.  Change the underlying system, and the smart contrac that uses it - which was formerly stable - might well become unstable.

The whole thing is a complex system that is just begging to be hacked.  And the more smart contracts that are in place, the more of a dice-roll each modification to the underlying ruleset becomes.

Versioning is probably the only way to deal with this.  "This contract works under V1.0, and that's it."

You guys who deal with molecules are used to having your errors "cemented" into place for all eternity.  We aren't, and we don't have the discipline or the tools or the unchanging laws of physics to come up with bridges that don't collapse, especially if the rules change out from under us in subtle ways.

davefairtex's picture
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gold as a bank asset

I could easily see gold as a banking asset in a time when interest rates are heavily negative.

We are more or less there right now, over in the EU.

If you are a bank, and you want to have reserves that are on the more-secure side, you can either hold a 2-year German Bund [-0.58% yield], or hold a crate-full of gold bullion.  Both have a "storage cost", but gold at least isn't tied to the value of the Euro.  As the Eurozone gets closer to blowing up, gold will become more interesting as a reserve asset for the bank.  Assuming there is enough gold lying around to move the needle for the bank.

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