PM End of Week Market Commentary - 3/28/2014

davefairtex
By davefairtex on Sat, Mar 29, 2014 - 3:48am

On Friday, gold rose +3.60 on heavy volume to 1294.90. Silver closed up +0.12 to 19.83 on moderate volume.  The shorts pushed gold lower immediately before the New York open, making a new low of 1286.10 before rebounding and closing slightly higher on the day.

We have been waiting for the buyers at the COMEX to show up after a downside test; I'm not sure if Friday qualifies but at least gold closed up, so that's something.  Given the heavy volume, this could even be seen as accumulation, which would be bullish.  It requires confirmation by a close above today's high sometime next week.  Silver performed better than gold, trading in a relatively tight range with an upward bias.

For the week, gold was down -39.60 [-2.97%], silver down -0.47 [-2.29%], GDX off -5.56% and GDXJ down -6.42%.  From the weekly chart perspective, the downside in precious metals continues, although a bit less vigorously than last week's move.

US Equities/SPX

Modest distribution continues in the US equity market, with downside volume being higher than upside volume.  Equities were down -0.40%, no new highs were made but no new lows either. I have to go with the volume picture and so my sense of the equity market is that it is heading lower, although not with any real enthusiasm just yet.  VIX, the volatility index, does not agree with me as it is lower this week than last.  Perhaps that is because the market is only 1.3% below its all-time high.

One of my Big Four economic indicators, real final sales, reported this week.  It moved higher, which is bullish.  Additionally, NYSE margin credit is also higher, which is also bullish for equities.  The macro picture as represented by my indicators still looks positive.

Miners

Mining shares had a bad week again this week.  There were clear signs of distribution, with down day volume being massively higher than up day volume.  Although the last two days of the week saw the mining shares put in a reversal, the volume was not spectacular, especially in comparison to the down day volume. The only positive note was that the mining shares were rallying even though gold itself either dropped or stayed even.  As a result, I'm not sure if this move higher at end of week is a head fake, or the real deal.  Friday's reversal in mining shares is an opportunity, but I think it is a high-risk one because the volume did not confirm.

The USD

The dollar this week first dropped, then rallied right up to its 50 day moving average, closing up +0.08 to 80.33.  That 50 day moving average seems to be a lot of resistance for the buck.  Any move through the 50 will likely cause gold to have more problems.

If we look at the other side of the fence, the euro which has been in an uptrend now for quite some time has dropped for the past two weeks but may well find support at its weekly 20 EMA as it has several times in the recent past.  From the perspective of the euro, it is likely that its uptrend will continue, which would be bullish for gold.  Sometimes it helps to see the perspective from the other side of the fence, where the trend may be more clear.

Rates & Commodities

Bonds had some interesting behavior this week: long-term bonds rallied strongly, breaking out to new highs, while 10 year treasury was up only modestly, and the five-year treasury actually dropped. This says money is flowing from short-term to long-term.   When money flows from short term to long term, they call that "a flattening of the yield curve" because long term rates will drop (and short term rates will rise) as a result of this move.  This is typically a bearish sign for both the economy as well as equities.

Commodities had a good week this week, +1.20%. Commodities appear to be heading for another breakout, with the commodity chart continuing to look quite strong.  Perhaps commodities too are sensing a move higher in the euro.

Copper has confirmed it's low of last week and has broken above its consolidation area.  Copper moving above 3.00 is a bullish sign, and I believe it has contributed to silver possibly stopping its six week downtrend.  The volume on the copper breakout is not spectacular, which is my only concern.

Physical Supply Indicators

* Shanghai premiums on the Au9999 contract dropped a bit, down -0.65 to +7.91 above COMEX.  Given that gold dropped $39 this week this is not such a bullish sign.  Delivery volumes remained steady.  It seems that while Shanghai remains in premium, the buyers are not yet ready to back up the truck.

* The GLD ETF is unchanged this week, at 817 tons.

* Registered gold at COMEX remains unchanged, at 19.83 tons of gold.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1293.20 and silver 19.80:

    PHYS 10.75 -0.21% to NAV [down]
    PSLV 7.90 +2.44% to NAV [up]
    CEF 13.83 -6.01% to NAV [down]
    GTU 45.58 -4.82% to NAV [up]

ETF discounts are a mixed bag this week.  CEF is doing particularly poorly, however PSLV has improved. At CEF you can buy gold & silver for a 6% discount.  Such a deal!

Futures Positioning

The COT report is as of March 24th.  There were some big moves in the COT report again this week, although as usual it only covers through Tuesday.  The big news was in the producers, who covered short 34.7K contracts, a massive change.  Producers covered 29% of their total short position just this week, ringing the cash register on the big move down in gold.

Managed money on the other hand dropped -12K contracts from their long positions. Surprisingly, they only added a small +2K contracts short.  Managed money remains at a low level of short interest, which says that at least as of Tuesday there is not a lot of fuel for any short covering rally.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term DOWN, medium term UP, long term DOWN.

Silver: short term DOWN, medium term DOWN, long term DOWN

Silver's 50 day MA turned down this week, putting silver back into a completely bearish stance.  What's more, gold is now trading below all three of its moving averages.  Both of these changes increase the bearish picture for PM.

Ironically, gold completed its golden cross earlier this week.  For it to remain "golden", gold had better climb above its 50 day moving average pretty soon.

Summary

Gold continued dropping for a second week, and is now down $95 from its high of two weeks ago.  As is often the case, the move down has been a whole lot faster than the move up.

Looking at the various ratios and averages, only the 50 MA is rising for gold; the other averages are dropping.  Both gold and silver are below all three moving averages.  That all adds up to "bearish".  GDX:$GOLD is now distinctly bearish, while GDXJ:GDX is only somewhat bearish.  Gold/silver ratio of 65.32 is bearish, but it may have topped out this week.  If it continues lower, it may ultimately be an early signal of a trend change in both silver as well as eventually gold.

Producers covered a huge number of short contracts, while Managed Money dropped a number of longs because of the steady move lower.  However because Managed Money still has a relatively small number of short positions, this means it will take fresh buying by Managed Money to get gold to move higher.  There won't be any more short covering rally-spikes the way we had January-March.

Shanghai remains in premium although the premiums actually dropped along with the gold price, which is unusual.  COMEX registered is unchanged, the physical ETF premiums were mixed, and GLD tonnage was unchanged.  Let's call physical signals as very mildly positive.

Copper did its job and recovered this week, which helped silver more than it did gold.  If the euro can find support, then we might see gold rally as well.  Mining shares appear to have reversed, but they did this with less-than-impressive volume, so while ordinarily I'd suggest they might be leading gold higher, it feels like a high risk call.  Ultimately, it may be silver that's the better deal at these levels - assuming the gold/silver ratio really has topped out.

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1 Comment

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 323
Silver Closed at 19.82

Not 21.83. 

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