PM End of Week Market Commentary - 4/11/2014

By davefairtex on Sat, Apr 12, 2014 - 3:06pm

On Friday, gold was up +0.30 to 1318.40 on light volume; silver was down -0.07 to 19.96 on moderate volume.  Both gold and silver traded mostly sideways within a tight trading range.  It wasn't very interesting.

Gold has slowly and steadily climbed right back above a cluster of moving averages; volume has been modest, and most likely gold's recent moves have been helped by the plunge in the buck.  To me, it feels like the buy-side support for gold at COMEX is a bit tepid.  But at least so far, the shorts don't seem to be too eager to pound the price down, so gold is floating slowly higher.

For the week, gold was up +16.10 [+1.24%], silver was unchanged, GDX down -0.16% and GDXJ down -2.56%.  While price action in the metals was bullish but relatively modest, the mining shares were hit moderately hard on the last two days of the week.

US Equities/SPX

Distribution in equities in the last few weeks apparently was the harbinger of doom - SPX was off -2.65% this week.  The 50 MA acted as support and it looked for a few days as though the dip-buyers were going to (inexplicably) continue driving the market higher, but on Thursday the market just had no buying support to keep pushing it higher.  And once that upward momentum stopped, it really changed the complexion of the price action.  Rallies were sold, and it sure looked like traders wanted out - but it was all fairly orderly (i.e. there were no big moves down on high volume).

So, support at 1840: broken, support at 1820: broken.  Now I'm looking at 1780.  Likewise, we could also bounce on Monday and attempt to rally back above the 50.  If I were looking for a good short entry scenario, that's a pretty good one - a rally attempt back to a moving average that successfully acts as resistance.

Suggesting we're still headed lower is the performance of the bank index as well as Nasdaq - both continue to make lower lows.

Gold and silver both seem unaffected by whatever has disturbed the equity market.


Although by the numbers the mining shares were flat this week, from the daily chart viewpoint, the selloff on Thursday and Friday looks somewhat alarming.  While volume was low, the fact that GDX was unable to move above its 50 MA is worrisome, and then when it dove through the 200 MA that made matters worse, since this puts GDX below all three of its moving averages.

The chart for GDXJ looks similar but worse - down-day volume is higher, and GDXJ is closer to actually breaking down and forming a new low.  Similarly, the GDX:$GOLD ratio as well as GDXJ:GDX are suggesting the market is moving into a "risk off" state, likely caused by the trend change in SPX.


The dollar had a horrible week, dropping -1.22%, declining 4 out of 5 days and plunging below all of its moving averages to 79.57.  The brief move above the 50 MA last week was apparently just a head-fake.  Now we appear headed back to test support at 79.20-30, and if that cracks, long term support at 79 which if lost, could lead to a lot of selling of the dollar.  Rather than being predictive, its just a level to watch.  We could get a lot of exciting things happening if that 79 level is significantly breeched, but if Draghi actually ends up expanding the balance sheet of the ECB, likely we get a bounce off 79 instead.

If the buck continues dropping, it should be gold-supportive.

From what I can see, it looks like foreigners are pulling their money out of US equities and bringing the money back home.  US equities down, dollar down is what tells me this - money flowing out of equities and then out of the country is causing both markets to drop.

Rates & Commodities

TLT broke out this week - money is also flowing from equities into bonds.  While we may all think the US treasury debt is trash, that's where big money tends to run when equities have problems.

Commodities inched back up again, up +0.88% and have moved slowly back up to the previous high for the cycle.  It looks like commodities are still trying to decide if they want to break significantly higher, or sell off.  Perhaps the fate of the dollar and commodity prices are intertwined here.

Copper has been tracking sideways for a couple of weeks; while 3.05 is proving difficult to get through, it does seem like there is buy side support below 3.  China is still a big question mark.  Will all those defaults lead to catastrophe or is it all overblown?  Copper says: we don't really know.

Its also possible that uncertainties in China about their credit issues have resulted in lower gold deliveries in Shanghai.

Silver looks to be trapped in much the same way as copper - it too has been mostly side-tracking for a few weeks, and it is having difficulty getting through 20.

Physical Supply Indicators

* Shanghai premiums on the Au9999 contract dropped a bit, down -0.58 to +8.92 above COMEX.  Delivery volumes of gold at Shanghai continue to be perhaps half of what they were a few months back.

* The GLD ETF dropped -4.76 tons this week to 804.42 tons.

* Registered gold at COMEX rose, up +1.57 to 25 tons of gold.  I have to say, after thinking about the number of tons of gold delivered in Shanghai each week, I do start to wonder how relevant how a few tons added or removed from COMEX really is - just in terms of understanding what "true physical demand" might be.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1303.60 and silver 19.90:

   PHYS 10.93 -0.41% to NAV [down]
    PSLV 7.89 +1.32% to NAV [down]
    CEF 14.01 -6.19% to NAV [down]
    GTU 46.08 -5.52% to NAV [up]

ETF premiums are mixed, mostly down, and PSLV's premium was down quite substantially, cut almost in half.  If it ever moves into discount (my opinion) it would seem to be a good opportunity to buy.  You can see this premium drop reflected in the chart PSLV:SLV.

Futures Positioning

The COT report is as of April 8th.  Managed Money increased shorts slightly, and bailed out of longs more significantly, with a net change of -9.9k contracts, a moderately large sized move.  Producers were mostly unchanged.

Managed Money still doesn't have a large overhang of short positions - its about 28k contracts, way down from the peak of 83k set at the beginning of 2014.  This week, for instance, shorts increased by a modest 1.7k contracts.  Far more longs are being dumped than new short positions taken.  This means we aren't likely to get massive short-covering rallies, but neither does it appear that the Managed Money shorts are in the mood to savage the market they way they did last year.

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

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

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

There were a lot of changes in the moving averages this week.  Many are at inflection points - after traveling so far down, the 200 MA for both gold and silver are quite close to flat, so only small moves in price can cause the moving averages to move from down to up, and vice versa.  Still, this is the first time all three of gold's moving averages have been pointing up, and with gold above its 3 averages, that's definitely looking more bullish - from a trend point of view.  Likewise, silver's 200 MA is now flat, and its 50 MA is pointing up - an odd artifact of how moving averages are calculated.


Gold continued slowly moving higher this week, likely aided by the drop in the buck.  Silver tracked sideways with price seemingly capped at 20.  Miners look like they might be heading for a breakdown - but that could also also be an artifact of the SPX selloff.

Looking at the various ratios and averages, all three moving averages for gold are now positive; the 200 MA is now pointed (very gently) up for the first time in perhaps a year.   So while trends for gold is looking good, the shorter term ratio GDX:$GOLD is bearish and getting more so this week, while GDXJ:GDX is bearish as well.  The gold/silver ratio is also bearish, having moved back up to 66.05 - quite close to making a new high.  Gold's rise while silver continued moving sideways is responsible.  So trend-wise, things look to be slowly and steadily improving, but on the near term ratio charts, PM & the mining shares are giving a definite "risk off" bearish signal.

Managed Money continued reducing long positions at COMEX.  Its not a massive liquidation, but it does represent a headwind for gold when Managed Money is a net seller.

Shanghai premiums dropped modestly, and gold delivery volume continued to be substantially below what it was in the past few months.  COMEX registered moved higher, the physical ETF premiums were mostly down, and GLD tonnage dropped.  Let's call physical signals as mixed, and still somewhat positive.  To my mind, India remains a wildcard.

Miners have moved from neutral to leading lower, gold looks ok, while silver is at best neutral.  Will gold follow the mining shares lower, that's my question.  It often happens that way, and the ratios seem to be suggesting that's how it will play out, at least in the short term.  Longer term, the trends look more positive.


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