PM Weekly Market Commentary

davefairtex
By davefairtex on Sun, Mar 10, 2019 - 3:14am

On Friday, gold rose +12.75 [+0.99%] to 1303.13 on extremely heavy volume, while silver jumped +0.33 [+2.20%] to 15.36 on heavy volume. The buck retreated [-0.38%], SPX avoided disaster [-0.21%] bonds rallied [+0.42%] while crude moved lower [-0.65%]. It was a day of risk off, for the most part – much of the move came following a payrolls report with a terrible headline number.

Friday's report said that the Nonfarm Payrolls were up +20k, vs an expected +175k. The release of this report resulted in an equity-market sell-off, and a rapid move higher in gold and silver. Especially silver, for some reason. Equities later recovered, but gold and silver retained most of the gains by end of day.

This week shows a recovery by the miners, with gold and silver lagging behind somewhat. The miners and gold/Euros are all back above all 3 moving averages. Gold and silver have fallen behind somewhat, while palladium and especially platinum did worst this week. Platinum is having a particularly hard time, coming in dead last, losing more than 5% this week alone.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 3.09% 3.33% falling rising rising rising ema9 on 2019-03-08 2019-03-08
Junior Miners GDXJ 2.74% 1.67% falling rising falling rising ema9 on 2019-03-08 2019-03-08
Gold/Euro $GOLD:$XEU 1.39% 8.26% falling rising rising rising ema9 on 2019-03-08 2019-03-08
Silver Miners SIL 1.00% -13.07% falling rising falling rising ma50 on 2019-03-08 2019-03-08
Silver $SILVER 0.89% -6.91% falling rising falling rising ma200 on 2019-03-08 2019-03-08
Gold $GOLD 0.39% -1.76% falling rising rising rising ma50 on 2019-03-01 2019-03-08
Copper $COPPER -0.92% -5.44% falling rising falling rising ema9 on 2019-03-06 2019-03-08
Palladium $PALL -2.13% 51.43% falling rising rising rising ema9 on 2019-03-05 2019-03-08
Platinum $PLAT -5.09% -14.21% falling rising falling rising ma50 on 2019-03-08 2019-03-08

Gold rose +5.10 [+0.39%] this week. All the gains came from the strong rally on Friday,which resulted in a daily swing low (57% reversal). The weekly hammer candle was a bearish continuation. Gold is in an uptrend in both the daily and monthly timeframes. So far, no reversal on the weekly timeframe, but the daily is looking a lot better after Friday's move.

The March 2019 rate-increase chance is at 1%, and the Dec 2019 rate-cut chance is 20%. That's a big change from last week – back then we were looking at a rate increase, not a cut.

COMEX GC open interest rose +41k contracts this week. Mostly that was “someone” piling on the shorts on Thursday - the day of the ECB announcement, but another +15.7k increase in open interest occurred on Friday. That's about 126 tons of new paper gold. Gold still managed to rally.

COT coverage period included 4 days of serious decline in gold. During that time, commercials covered 36k shorts – ringing the cash register as price fell. Managed money bailed out of 28k longs, and added 19k shorts, with a net change of -47k contracts. Although the change in position is large, it isn't enough; the COT report isn't at any sort of turning point.

Silver rose +0.13 [+0.89%] this week, with all the gains coming on Friday's big rally. The daily swing low looked strong (53% reversal), and daily forecaster issued a buy signal. Weekly doesn't look quite as good; the bullish harami could be a reversal (40% chance), but forecaster remains in a downtrend. Silver is in a downtrend in both the weekly and monthly timeframes.

The gold/silver ratio fell -0.50 to 84.78. That's somewhat bullish.

COMEX SI open interest fell -3,521 contracts this week. That's a big difference from what happened over in gold, both directionally, and in magnitude.

Commercials covered short this week, some 28k contracts, which is a very large change. Managed money bailed out of 18k longs, and added 12k shorts, for a net change of -30k. This too is a very large change. While this doesn't signal a low just yet, by next week, it just might.

Miners did reasonably well this week; XAU climbed +2.67%, printing a daily swing low on Friday (62% reversal – a very strong rating), which caused forecaster to issue a buy signal too. The weekly candle pattern was a bearish continuation, and weekly forecaster remained in a downtrend. However the rally this week resulted in the monthly forecaster unwinding its sell signal. That puts XAU in an uptrend in both the daily and monthly timeframes. My feeling is that the miners were the tell this week – they were hinting at a low for gold several days prior to the actual swing low we saw on Friday.

GDX:$GOLD jumped +2.68%, while the GDXJ:GDX ratio dropped -0.34%. That's quite bullish.

USD

The buck rose +0.76 [+0.79%] to 96.78. The buck tested a previous high (97.18) set back in December 2018, but was unable to move above it. Much of the gains came on Thursday following the ECB meeting where the upshot was that the EU economy didn't look great, and that negative rates would remain in place at least through end of year. The buck remains in an uptrend in all 3 timeframes. To my eye, it appears as though the buck will probably break out to new highs.

The big currency moves: GBP: -1.64%, EUR: -1.20%, JPY: -0.74%, AUD: -0.48%.

The Euro is on a steady path downhill, and has been for the past year. Will more TLTROs and an extended period of negative rates fix the problem? They will certainly continue providing an advantage to the “market leaders” in each business segment (per Wolf Richter: https://wolfstreet.com/2019/02/05/low-interest-rates-a-factor-in-slow-down-of-economic-productivity-growth-nber/) and at the same time it will reduce or eliminate productivity gains. Turns out, the stodgy, bloated market leaders aren't the ones responsible for productivity gains, so if you give them an consistent (unfair?) advantage with your negative-rate-forever policy, you shouldn't be surprised when growth grinds to a halt. Which it has. “We had to destroy the village in order to save it.”  Who really won the cold war?  Central Planning is alive and well, and the outcomes are just as bad as they were in the FSU.

US Equities/SPX

SPX fell -60.62 [-2.16%] to 2743.07. Equities dropped 4 days out of 5, falling below both the 9 and 200 MA lines. Daily forecaster issued a sell signal earlier in the week, although Friday's strong-looking closing white marubozu candle might be a reversal (43% chance). Weekly forecaster looks to be on the edge of a sell signal, and the weekly bearish engulfing could be a reversal too (46% chance). SPX ended the week in an uptrend in both the weekly and monthly timeframes, but the medium term picture is starting to break down.

Utilities and REITs were the only sectors in positive territory, while telecom and defense did worst. Financials and tech were the middle of the pack. This is a relatively bearish sector map, but not a horribly bearish one.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 3.09% 3.33% falling rising rising rising ema9 on 2019-03-08 2019-03-08
Utilities XLU 0.74% 16.83% rising rising rising rising ma50 on 2019-01-31 2019-03-08
REIT RWR 0.12% 12.48% falling rising rising rising ema9 on 2019-03-06 2019-03-08
Materials XLB -0.45% -9.13% falling rising falling rising ema9 on 2019-02-28 2019-03-08
Cons Staples XLP -0.98% -1.00% falling rising rising rising ema9 on 2019-02-25 2019-03-08
Homebuilders XHB -1.40% -7.57% falling rising falling rising ema9 on 2019-03-05 2019-03-08
Technology XLK -2.14% 0.88% falling rising rising rising ema9 on 2019-03-06 2019-03-08
Cons Discretionary XLY -2.42% 3.62% falling rising rising rising ma200 on 2019-03-08 2019-03-08
Financials XLF -2.70% -10.45% falling rising falling rising ema9 on 2019-03-04 2019-03-08
Industrials XLI -2.80% -3.24% falling rising falling rising ema9 on 2019-03-04 2019-03-08
Healthcare XLV -3.82% 4.83% falling rising rising rising ema9 on 2019-03-04 2019-03-08
Energy XLE -3.84% -4.87% falling rising falling rising ema9 on 2019-03-06 2019-03-08
Defense ITA -3.98% -0.62% falling rising falling rising ema9 on 2019-03-04 2019-03-08
Telecom XTL -4.14% -4.00% falling rising falling rising ma200 on 2019-03-05 2019-03-08

The US was dead last in terms of regional equity moves.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Emerging Asia GMF -0.61% -11.79% falling rising falling rising ma200 on 2019-03-08 2019-03-08
Europe IEV -1.78% -9.93% falling rising falling rising ema9 on 2019-03-07 2019-03-08
Latin America ILF -1.90% -12.51% falling rising falling rising ma50 on 2019-03-06 2019-03-08
Developed Asia VPL -2.15% -11.77% falling rising falling rising ema9 on 2019-02-28 2019-03-08
Eurozone EZU -2.28% -13.73% falling rising falling rising ema9 on 2019-03-07 2019-03-08
United States VTI -2.38% 0.02% falling rising falling rising ma200 on 2019-03-07 2019-03-08

VIX jumped +2.48 to 16.05.

Rates & Commodities

TLT jumped +2.45%, a very large move, reversing all of last week's losses. TLT rallied 5 days out of 5 this week, ending the week back above all 3 moving averages. TY did well also, up +0.88%. TY's weekly candle print was bullish (42% reversal), and the forecaster moved higher into an uptrend.  TY looks to be threatening to break higher – it managed to move briefly above resistance on Friday, but fell back as the equity market managed to rebound in the last half of the day. TY is in an uptrend in all 3 timeframes.  The 10-year yield fell -13 bp to 2.63%.  It looks to me as though bonds are probably going higher.

JNK fell -0.53%, falling right along with equity prices. Weekly candle print was a swing high (59% reversal) – this looks a bit worse than equities, although the drop wasn't all that dramatic.

Crude rose +0.29 [+0.52%]. Mostly crude spent the week moving sideways, ending up mostly where it started. This week's EIA report was bearish (crude: +7.1m, gasoline: -4.2m, distillates: -2.4m) but the market wasn't offended by the build. The weekly bullish harami was actually bullish, while weekly forecaster declined.  Is this just a pause in the uptrend or is the decline in weekly forecaster signaling a correction?  Monthly forecaster says: uptrend remains relatively strong, so for now, I'm going with that.  Crude is in an uptrend in all 3 timeframes - but the daily uptrend is tenuous at best. 

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -5.87, with 767 tons remaining in inventory.

* ETF Discount to NAV:

 PHYS 10.48 -0.91% to NAV [unch]
 PSLV 5.59 -2.84% to NAV [increase]
 CEF 12.75 -2.64% to NAV [decrease]

* 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 a $1 premium for gold, and a 4c premium for silver.

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

Grey Swans & Geopolitics

  • Ebola: total cases 907, with 569 deaths, which is 28 new cases this week. The epidemic is spread across 9 health zones, with Katwa (44) and Butembo (17) having the most cases in the past 21 days.  At least the cases aren't increasing though.  https://www.who.int/csr/don/7-march-2019-ebola-drc/en/

  • EU – Migration: The EC has declared the migration crisis over, due to an 89% reduction in migrants arriving in the EU in 2018 (vs the peak in 2015). Of course, there is still no agreement to redistribute “asylum seekers”; Central and Eastern Europe have no interest in taking any, while Southern Europe continues to bear the burden of their arrivals, and there is no common “asylum” policy. The real goal of this declaration was to strike back against Viktor Orban, who has made migration (and the EU politically correct support of "asylum" - at the expense of unwilling member nations) a domestic political issue. https://www.theguardian.com/world/2019/mar/06/eu-declares-migration-crisis-over-hits-out-fake-news-european-commission

  • Italy – Migration: No news.

  • China - Tariffs: Will there be a meeting with Trump and Xi at Mar-A-Lago in March? Maybe not. China wants to have the terms of the deal nailed down before Xi flies to Florida – perhaps to avoid the same thing that happened to KJU in Vietnam when Trump walked out. This runs counter to what Trump wants, which is for the two leaders to decide together on the final issues. If I were Xi, I'd be thinking much the same thing, especially after the Vietnam meeting.

  • BRExit: May predictably didn't get any relief from the EU this weekend.  Why would the EU change anything – their goal is both punishment and maximum chaos. As a result, the three votes coming up next week are unchanged: March 12: Unconditional Surrender. March 13: hard BRExit. March 14: UK requests an extension from the EU - the party continues. The Guardian has a helpful flowchart as to what might happen after each option. https://www.theguardian.com/politics/2019/mar/08/a-slap-in-the-face-barnier-sets-may-on-course-for-brexit-defeat

  • Yield Curve Inversion: the 2-10 spread fell -5 bp to 16 bp. We are moving closer to inversion.

  • North Korea: US satellites have detected activity at a North Korea rocket site after the failed summit last week. Trump said he was “a little disappointed” by the reports.

  • Mueller Investigation: Paul Manafort was sentenced to 4 years in prison for lying on a bank loan application, cheating on his taxes, and failing to register as a foreign lobbyist. That's a win for Mueller, who is slowly cleaning up the fraud in the banking industry one borrower at a time, as well as cracking down hard on tax cheats. Moral of the story: if you associate yourself with an outsider politician's campaign, you'd better be squeaky clean when the Deep State starts to look for something to charge you with.  And while you're at it, make sure your attorney is squeaky clean too.  Otherwise - the attorney-client privilege you thought we all enjoyed will simply go away.

Summary

There were two market-moving events this week - the first was the ECB meeting, which caused a strong rally for gold/Euros, and an equally strong rally in the buck.  The second was the payrolls report, which further boosted gold prices.  The futures markets are telling us there won't be any rate increase - more likely a cut - and bonds also rallied strongly.  Equities fell as bonds rallied.  It was a relatively classic move into the safe havens.  However, gold only saw inflows after the ECB announcement on Thursday.

But here is the interesting bit.  Once the ECB meeting happened, "someone" dropped 40k contracts in 2 days in paper gold into the COMEX.  This suggests that someone is definitely worried that the gold price might soon get out of control.  It reminds me of the line from Yes, Minister: "The first rule of politics,” Sir Humphrey said, is: “never believe anything until it is officially denied.”  That's what 40k contracts dumped into the gold market is: it's an official denial.  By whom?

I'm going to point the finger at the ECB; they have the most to lose if ordinary people and even some banksters decide they will flee the dubious, costly, printable haven of Euro deposits for the longer-term safety of the barberous relic.  This reaction by people becomes more and more likely the longer Draghi keeps a negative rate environment in place.  And now the ECB appears to be running scared that people are going to sort this out for themselves after the latest ECB meeting projecting negative rates at least for another year and a weakening economy on top of that.

Another year!!  And we're not even in recession yet!

See, the ECB doesn't want people to hide out in safe havens.  The ECB wants people to spend spend spend - preferably borrow more - even as the economy staggers lower due to zero productivity growth (itself a result of a decade of negative rates) and "protectionism" (Trump!).  And they're going to keep punishing savers (and giving that money to zombie corporations) until those savers do what runs completely counter to their own interest: spend!

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

So based on market activity in the latter half of the week, and on the ECB's "official denial" of trouble ahead, I see the impulse for gold's next move higher coming from Europe.  Right now you Europeans are paying a storage fee for Euros (German 2-year bond yield: -0.55%).  Instead of paying the German government, why not pay that same fee for storing your gold instead?  And unlike Euros, the ECB can't print gold...

Weekly trends (in order of strength):

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

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

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