PM Weekly Market Commentary - 3/1/2019

davefairtex
By davefairtex on Sat, Mar 2, 2019 - 10:58pm

On Friday, gold plunged -20.09 [-1.52%] to 1298.03 on extremely heavy volume, while silver dropped -0.42 [-2.65%] to 15.22 on very heavy volume. The buck rose +0.42%, SPX rallied +0.69%, while crude dropped -2.52%. Commodities had a bad day for the most part.

The metals sector map is showing a flood of red; silver is leading gold lower, miners are leading the metal down, and all the gold/silver items have fallen below the 9 MA, with silver below all 3 moving averages.  We're in a PM correction at this point.  Surprisingly, platinum managed to move higher this week, along with palladium that - apparently - has real supply issues.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 2.59% 52.71% rising rising rising rising ema9 on 2019-02-01 2019-03-01
Platinum $PLAT 1.99% -10.92% rising rising falling rising ma200 on 2019-02-22 2019-03-01
Copper $COPPER -0.73% -5.93% rising rising falling rising ema9 on 2019-03-01 2019-03-01
Gold $GOLD -2.65% -1.77% falling rising rising rising ma50 on 2019-03-01 2019-03-01
Gold/Euro $GOLD:$XEU -3.42% 4.73% falling rising rising rising ma50 on 2019-03-01 2019-03-01
Silver $SILVER -4.15% -7.67% falling rising falling rising ma50 on 2019-03-01 2019-03-01
Senior Miners GDX -5.90% 0.60% falling rising falling rising ema9 on 2019-02-27 2019-03-01
Silver Miners SIL -5.93% -12.51% falling rising falling rising ma50 on 2019-03-01 2019-03-01
Junior Miners GDXJ -7.15% -1.41% falling rising falling rising ema9 on 2019-02-27 2019-03-01

Gold fell -35.28 [-2.65%] this week, with all the damage happening after the break below the 9 MA on Wednesday. The technicals look terrible; weekly candle print is a confirmed shooting star (81% reversal), and the daily looks terrible too; gold is in a very strong downtrend, dropping below the 50 MA just on Friday. Weekly forecaster issued a sell signal, which puts gold in a downtrend in both daily and weekly timeframes. The monthly is still clinging to an uptrend, for now.

The March 2019 rate-increase chance is at 1%, and the Dec 2019 rate increase chance is at 9%. Futures are now more hawkish vs last week.  A rate increase!!  I don't believe it - do you?

COMEX GC open interest fell -13,351 contracts this week. That's probably the shorts ringing the cash register as price declines.

COT was valid through Tuesday; that was before the big declines on Thursday and Friday. Commercials are reasonably heavily short, while managed money added +40k contracts to their net long position last week right at the top. It looks like the wash-and-rinse cycle is still alive. That said – managed money is nowhere near as exposed as they were back at the top in 2016, so there isn't nearly as much fuel for a plunge as there was back then.

Silver fell -0.42 [-2.65%] on the week; that's the same-sized move as gold. As with gold, all the damage came after the plunge through the 9 MA on Wednesday. On Friday, silver dropped through both the 50 and 200 MA lines, it broke below the previous low set back in December, and the monthly (March) will issue a sell signal if we close here at end of month. Silver is now in a downtrend in all 3 timeframes.

The gold/silver ratio rose +1.74 to 85.28.  Just like that, we're back to 85 in the GSR.  That's bearish.

COMEX SI open interest plunged -24,963 contracts this week. I think this had something to do with the contract roll – it is still 52 days of global production in paper removed from the market.

Commercials were heavily short silver going into this decline – the size of the short position looks a lot like it was back in 2016.  Managed money isn't quite as long, however.  Looking at the “producer” category, it appears that the miners have hedged a fair amount of production in recent weeks; silver at 16 encouraged them to lock in the price.  That probably accounts for a chunk of the commercial short position.  We saw the shale drillers doing the same thing with oil last year.

Miners sold off steadily during the week; XAU plunged -5.81%. Unlike gold and silver, the miners fell all week long. Perhaps they were the “tell” for the PM correction we are now experiencing. While the miners remain above both 50 and 200 MA lines, the weekly swing high candle was bearish (60% reversal), and all 3 forecasters issued sell signals this week.

GDX:$GOLD plunged -3.34%, while the GDXJ:GDX ratio fell -1.33%. That's quite bearish.

USD

The buck rose +0.04 [+0.04%] to 96.02. The buck fell on Monday and Tuesday, then reversed course Wed-Fri, erasing all of its losses. This resulted in a daily swing low (62% reversal), a weekly dragonfly doji (42% reversal), and both a daily and monthly forecaster buy signal. The buck ended the week in an uptrend in all 3 timeframes.  Overall, looking at the weekly chart, the buck still appears to be a bit uncertain, but it is leaning to the upside.

The big currency moves: EUR: +0.76%, GBP +1.19%, JPY -1.10%, AUD -0.66%, CAD -1.23%.

US Equities/SPX

SPX rallied +11.02 [+0.39%] to 2803.69. This was a new weekly closing high for SPX; the northern doji was a bullish continuation, and forecasters remain unchanged: SPX is in an uptrend in all 3 timeframes.

Energy and tech did best, while homebuilders and REITs brought up the rear. Energy's performance was a bit surprising, considering crude declined this week.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 1.05% -0.29% rising rising falling rising ema9 on 2019-03-01 2019-03-01
Technology XLK 0.99% 6.41% rising rising rising rising ma200 on 2019-02-15 2019-03-01
Financials XLF 0.87% -5.92% rising rising falling rising ema9 on 2019-02-15 2019-03-01
Healthcare XLV 0.43% 12.26% rising rising rising rising ema9 on 2019-03-01 2019-03-01
Industrials XLI 0.26% 1.68% rising rising rising rising ma200 on 2019-02-11 2019-03-01
Utilities XLU 0.14% 16.43% rising rising rising rising ma50 on 2019-01-31 2019-03-01
Cons Discretionary XLY -0.01% 7.92% rising rising rising rising ema9 on 2019-03-01 2019-03-01
Defense ITA -0.06% 5.29% rising rising rising rising ma200 on 2019-02-04 2019-03-01
Cons Staples XLP -0.35% 1.78% falling rising rising falling ema9 on 2019-02-25 2019-03-01
Telecom XTL -1.24% 5.35% rising rising rising rising ema9 on 2019-02-28 2019-03-01
Materials XLB -1.43% -6.85% rising rising falling rising ema9 on 2019-02-28 2019-03-01
Homebuilders XHB -1.50% -3.81% falling rising falling rising ema9 on 2019-02-28 2019-03-01
REIT RWR -1.85% 14.86% falling rising rising rising ema9 on 2019-02-25 2019-03-01
Gold Miners GDX -5.90% 0.60% falling rising falling rising ema9 on 2019-02-27 2019-03-01

The US was in the middle of the pack in terms of regional equity moves.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Eurozone EZU 1.94% -9.92% rising rising falling rising ema9 on 2019-02-15 2019-03-01
Europe IEV 1.31% -6.66% rising rising falling rising ema9 on 2019-02-14 2019-03-01
United States VTI 0.45% 5.15% rising rising rising rising ma200 on 2019-02-13 2019-03-01
Developed Asia VPL -0.36% -8.34% rising rising falling rising ema9 on 2019-02-28 2019-03-01
Emerging Asia GMF -0.49% -10.45% rising rising falling rising ema9 on 2019-02-28 2019-03-01
Latin America ILF -4.18% -10.62% falling rising falling rising ema9 on 2019-02-27 2019-03-01

VIX fell -1.40 to 13.51.

Rates & Commodities

TLT plunged -2.39%, making a dramatic new low plunging below the most recent low set back in mid-December, ending the week below the 50 MA and in a strong downtrend. All of the damage came Wed-Fri, quite similar to what happened to gold. TY fell -0.66%, a sharp drop, but not as dramatic as what happened to TLT. Both daily and monthly forecasters issued sell signals, and the weekly confirmed bearish NR7 candle print was a 44% reversal; TY is now in a downtrend in both of those timeframes. The 10-year yield jumped +10 bp to 2.75%.  Bonds definitely had a bad week, right alongside gold.

JNK was unchanged this week – literally, it went nowhere. What actually happened was a modest rally, followed by a -0.28% plunge on Friday. The daily forecaster issued a sell signal for JNK on Friday. HYB looked stronger (+0.28% on the week), but it too issued a (daily) sell signal on Friday.

The BAA.AAA ratio plunged this week - the drop was fairly dramatic, as you can see below.  This tells us there was a flow of money out of safe haven (AAA) bonds into the junkier, higher yielding (BAA) bonds.  This reflects a reduction in credit concerns.

Crude fell -1.26 [-2.19%] this week, with the losses coming on Monday and Friday. Friday's plunge took crude back below its 9 MA, caused a forecaster sell signal on the daily chart, but that's where the damage stopped. The weekly bearish engulfing candle pattern was actually a bullish continuation, and both the weekly and monthly forecasters remain in uptrends. A positive force this week was the surprisingly bullish EIA report, which definitely caused the market to rally – at least on the day of the news anyway. Crude remains in a longer term uptrend.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -17.72, with 772 tons remaining in inventory.

* ETF Discount to NAV:

 PHYS 10.44 -0.91% to NAV [decrease]
 PSLV 5.55 -2.71% to NAV [decrease]
 CEF 12.50 -3.42% to NAV [increase]

* Premium for physical (via Bullion Vault: https://www.bullionvault.com/gold_market.do#!/orderboard) vs spot gold (loco New York, via Kitco: https://www.kitco.com/charts/livegoldnewyork.html) shows no premium for gold, and a 2c premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.36% and silver [1000oz] 3.59%.

Grey Swans & Geopolitics

  • Ebola: total cases 879, with 553 deaths, which is 31 new cases this week. New case reporting continues to decline, but a relatively low number of new cases that were contacts of previous cases suggests there may be undiscovered chains of transmission in the affected communities. That's bad. What do you don't know can kill you. https://www.who.int/csr/don/28-february-2019-ebola-drc/en/

  • Germany – Migration: Germany failed to deport about half of rejected asylum seekers last year; they had no travel documents, or the police could not find them. A new law is about to be passed that would provide for “preparatory detention” for those who lied about their identity or are deemed a security threat, where “detention” consists of reporting to the police regularly and potentially having to wear a locator device. My thought: perhaps Germans have a different definition of the word “detention.” https://www.reuters.com/article/us-europe-migrants-germany/germany-fails-to-deport-nearly-every-second-asylum-seeker-idUSKCN1QD0LT?il=0

  • Italy – Migration: Salvini's Lega won a huge victory in regional Italian elections – by taking votes away from M5S, which appears to be rapidly losing support. Executive summary of the article below: Lega's core appeal (migration!) doesn't depend on fixing things for real people, while M5S does. Italy is now in recession, and the failure of M5S to deliver on their UBI, avoid taxpayer-funded bank bailouts - they just went along with a recent bank bailout just like their predecessors the PD - and fix other economic-related issues is hurting them at the polls. Outcome: Lega will probably run Italy after the next general election. https://www.thelocal.it/20190228/analysis-salvini-league-in-charge-italy-local-elections

  • China - Tariffs: Larry Kudlow, Trump's economic advisor, said on Friday that tremendous progress was made in the past week on IP theft, forced tech transfer, cyber interference, and enforcement. “What we have is vastly greater than just buying some soybeans,” he said. "It’s virtually a revolution in American-Chinese trade -- it could be a historical breakthrough.” It's a bombshell, according to Fox. Meanwhile, in a less-surprising development, other media sources are not as positive: glass is not only half empty, the remaining liquid is probably poison. Don't drink!  https://www.foxbusiness.com/politics/kudlow-drops-us-china-trade-deal-bombshell

  • BRExit: Labor is now hinting that they'll pass (really, allow passage of) May's Unconditional Surrender document if and only if they get a second BRExit referendum. Although even that is up in the air. While the details of how this thing ends is anyone's guess, to me the near-term outcome appears to be heading for a corporate victory: basically de-facto Remain. However, if that does happen, I suspect the two parties could easily get ripped apart following such a result. https://www.theguardian.com/politics/2019/feb/28/labour-moving-towards-plan-to-let-mays-brexit-deal-pass-if-it-faces-public-vote

  • Yield Curve Inversion: the 2-10 spread fell -4 bp to 21 bp. Recession concerns faded somewhat.

  • North Korea: Trump decided to end negotiations early – he walked out – after North Korea made an offer to dismantle its Yongbyon nuclear complex (in the presence of US experts) in exchange for partial relief on sanctions. The US position is that North Korea has other nuclear sites that would remain intact; sanctions need to remain in place until North Korea agrees to denuke. Of course, KJU is understandably reluctant given what happened to Khadaffi – who died (thanks to Obama and HRC) after giving up his WMD. (We came, we saw, he died. Giggle giggle.) KJU's response: blowback from destroying Libya. Al Jazeera has a good overall view: https://www.aljazeera.com/news/2019/02/trump-kim-summit-vietnam-latest-updates-190225054914749.html

  • Mueller Investigation: former Trump attorney Cohen testified before Congress this week. No collusion, no “Prague” meeting, no extortion material, no apparent leverage that Putin allegedly had over Trump, and Trump didn't suborn his perjury before Congress. And, after Cohen's testimony, reports of a book manuscript produced by Cohen that appears to contradict at least some of the other things he said to Congress during his recent testimony. Apart from “Congress should probably not take too seriously the testimony of the guy who has pled guilty for lying to Congress”, my other thought: whatever happened to attorney-client privilege? Apparently, if the government can squeeze your attorney hard enough, it just goes away. If you have ever used an attorney, you will know just how disagreeable this is.

Summary

So what happened to gold this week? It cratered, starting on Wednesday. Why? Looking at all the other items that traded alongside gold, it looked as though it was a reduction in the concern about a recession. The market is now projecting a rate increase in December 2019, instead of a rate cut. Independently of whether or not that is a good prediction – that's what the current thinking is. Treasury bonds sold off – and may be about to reverse into a correction, and the BAA.AAA ratio (which reflects concern about credit quality) dropped sharply this week too; that means money flowed from safer bonds into junky debt. And gold and silver started moving lower at about the same time. The safe haven trade is unwinding, at least for now. SPX moved a bit higher, and the buck rose at the same time, which is a bad combination for gold and silver.

Big bar gold premiums on gold remain low, and most ETF discounts declined. There is no shortage of gold or silver at these prices.

At the same time as recession concerns relaxed, the COT report shows silver with a toppy-looking condition. Gold's COT report looks toppy too, but to a lesser degree. This, along with the strongly bearish reversal bars on the weekly timeframe, suggests we have a gold-and-silver PM correction in progress, with silver looking most vulnerable. Once the commercials rinse out the overextended managed money longs, and/or concern about a recession surges once more, gold should get moving higher once again. That's my thought anyway. But as long as traders imagine things are getting better...gold, silver, and bonds are going to continue selling off, as managed money longs get rinsed out which helps price drop more rapidly.

Think of it this way.  You can point to individual cases of manipulation, where the commercials - or should I say "somebody" - hammers price lower, but that's just a tactic.  The real issue is that the bid underneath the metals is now much weaker with the change of sentiment, and that allows this tactic to work.  Otherwise, the commercials would have been pounding gold last week, the week before, and the week before that.  But they weren't.  So something else is the root cause, and manipulation is just the symptom.

So while traders are confused about "maybe we won't have a recession", that just gives you a better opportunity to buy bonds, sell junky debt, or buy metals and/or the miners.

Weekly trends (in order of strength):

Uptrend: platinum, DJI, USD, copper, crude, SPX, 10-year Treasury.

Downtrend: silver, miners, gold, gold/Euros.

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3 Comments

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 617
CAF

Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts says the federal governments made $21 trillion in “missing money,” discovered in late 2017, a national security issue the public is not allowed to find out where the money is. Fitts explains, “There is a big study we published at Solari.com. If you go to the annual wrap-up on DOD and HUD ‘missing money,’ we have a whole piece on FASAB Standard 56, and it explains how it works. Essentially, what it says is there is a secret group of people, by a secret process, that can take a portion of the financial statements on the books and make them secret. You cannot know what a secret is and what is not.  So, when you look at financial statements at the Department of Defense, essentially, they are meaningless because you don’t know what has been cut out. When you add this to the other laws that they promulgated that allows them to classify income flows and allow the private contractors and banks freedom from complying to SEC regulations, what you’ve just done . . . is taken the vast majority of the U.S. securities market dark. If I am an investor and I am looking at anything impacted by the federal credit, all the way from U.S. Treasuries, Fannies and Freddies, municipal bonds . . . or the defense contractors and the banks that handle all the deposits of all the government accounts, I cannot know what their financial statements say. It’s meaningless. It’s very frightening what they have done. . . . I would not buy a Treasury.”

Fitts says investing now hinges on one main question, “The biggest problem when you look at investment today is: What is a good investment in a world where the rule of law exists, and what is a good investment when there is no law? There is way too much money going into military, going into war and going into force, and part of it is a real concern about lawlessness. . . . The value of an asset is only good if you can protect it.”

So, what investment is Fitts looking at? She has long been lukewarm on gold, but not any longer. Fitts now says, “The world is choking on debt. . . . It’s not just peak oil, it’s peak everything. So, it is one of the reasons you see margins falling, and we tried to fight it by blowing bubbles. We are reaching the end of that sort of strategy, and it’s one of the reasons you are seeing more and more people become aware of gold and want gold. They are saying, okay, the financial asset bubble game is over, and now we want real things. . . . To me, gold was a core position, and I have always felt that gold was a core position. So, I like gold now. For many years, I said I don’t think gold is going to have a good investment run. I am changing that this year. I think gold as an investment will do reasonably well this year, and it should. . . . Basel III rules are basically making gold more attractive and focusing more on financial soundness. Yes, the central banks and banks are going to be buying, but I think as you see global investors see the extent of the lawlessness, and like the determinations in the U.S. federal credit, they are going to be looking for real assets. Gold is just going to be a place to go. . . . Away from jewelry, you’ve got about a $3 trillion gold market. So, it only takes a little bit of a pension fund or a sovereign wealth fund to increase their gold allocation to run the market up. I think there is going to be a steady drum beat of support for the price of gold for some time to come.”

https://usawatchdog.com/federal-accounting-now-meaningless-frightening-c...

 

 

bronsuchecki's picture
bronsuchecki
Status: Bronze Member (Offline)
Joined: Apr 22 2012
Posts: 97
Tatical Manipulation

The real issue is that the bid underneath the metals is now much weaker with the change of sentiment, and that allows this tactic to work.

I think this is an under appreciated point. Bullion banks deal with a wide range of counterparties - refiners, mints, jewelry, industrial - and thus would see before, and have a better view of, underlying physical demand and flows. I doubt that they would trade against the fundamental market mood where the more likely to succeed and thus the more profitable trade is to front run and nudge the trend.

no premium for gold, and a 2c premium for silver

I note that since you refined the method that these figures have been very consistent. I would expect this as Bullion Vault's underlying physical is LBMA large bars so they shouldn't be affected by other factors which will impact bullion dealers further down the distribution chain. The other side of this is that if this measure does start moving it could be an indication of real problems in the professional market.

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 617
Ray Dalio

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