PM End of Week Market Commentary - 5/9/2014

davefairtex
By davefairtex on Sat, May 10, 2014 - 11:09pm

On Friday gold closed down -0.20 to 1289.40 on moderate volume - silver was down -0.01 to 19.17 on moderately light volume.  Both gold and silver traded in relatively narrow ranges, but traders were buying into the close, which ended the week on a mildly positive note.

For the week gold was down -11.30 [-0.87%] silver -0.35 [-1.79%] GDX -2.43% and GDXJ -4.24%.  We can tell just by looking at the percentage moves that it was a bearish week - silver leading gold down, GDXJ leading GDX lower.

Silver misbehaved again this week.  Last week silver had rebounded back to its 20 EMA, which has acted as strong resistance during the past few months.  During a downtrend, shorts look for inability to move above moving averages as tests to see if they have a high probability of a short assault working out.  During any downtrend, there are always rallies - but if a rally fails to close above a moving average for a few days, shorts get more enthusiastic about jumping on board, since the odds of it being a successful trade increase.  That is the picture we've seen in silver this past week.

Now we're looking at 19 support; it has held so far, but we have seen a pattern of lower highs, and that's bearish.  We need to see a close above the 20 EMA and perhaps 19.75 to turn things around.

US Equities/SPX

SPX was mostly flat this week, -2.66 [-0.14%], +18 to 1878.  Yet much as the 20 EMA has been resistance for silver, the 50 MA has been support for SPX.  Three times over the past few weeks SPX has knifed below its 50, only to rebound by end of day and close up.  That demonstrates strong support from the dip-buyers.

Still, the more "risk-on" elements of the market continue to show weakness.  TWTR, WFM, and to some extent TSLA have had dreadful selloffs, EBAY is unhappy, AMZN looks bad as does LNKD.  I remain cautious because of that even though the dip-buyers are still definitely showing up.

Miners

Miners sold off a bit this week; on Wednesday the volume was high but the rest of the week saw only low volume moves.  GDX is hovering right around support and looks to be forming a sort of descending triangle, while GDXJ is looking more bearish - the GDXJ 50 MA has now executed a "death cross" by crossing over the 200 MA, which is a longer term bearish signal.  Unless we get some bullish action soon in the metals overall, we're likely to see new lows soon in GDXJ accompanied by a lot of selling.

The USD

The buck screamed higher this week, up +0.37 [+0.46] to 79.93.  It looks to have made a pretty clear bottom after testing 79 support, judging from the massive rally on the day following the successful test of support.  The higher dollar didn't seem to affect gold at all, which is a bit of a relief but is not something we should count on going forward.  Friday's move in the buck was really quite large, and it makes me think this dollar rally may have further to go.

Rates & Commodities

TLT sold off, down -1.30%, but the chart still looks quite bullish.  With the dollar rally, I'd expect TLT to continue moving up, most especially if SPX decides to drop a bit.

Commodities dropped again, closing down -1.06%.  I'm starting to see some negative aspects to the commodity chart formation - what's called a "negative divergence" in the weekly RSI which suggests momentum on the commodity move is losing steam and may be starting to correct.

Physical Supply Indicators

* I was getting some bad data last week - the CNY (Chinese Yuan) updates I got were perhaps 1% off and had been off for a while - which made premiums look quite high.  Using the more accurate FX quotes, it shows premiums at only +3.48 over COMEX, which is much lower than the +20 I was seeing with the bad data.  Its still positive, but not as dramatically so.

* The GLD ETF was unchanged at 782.85 tons this week.

* Registered gold at COMEX rose slightly to 26.07 tons.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1288.90 and silver 19.20:

   PHYS 10.69 -0.39% to NAV [down]
    PSLV 7.71 +3.17% to NAV [up]
    CEF 13.80 -4.80% to NAV [up]
    GTU 46.36 -2.81% to NAV [up]

ETF premiums are mostly up - with big reductions for GTU and CEF.  PSLV also looks quite strong.  It looks like there is serious dip-buying here at 19 and change for Sprott's silver fund.  That's unusual - usually PSLV and PHYS premiums drop on dips.

Futures Positioning

The COT report is as of May 6th.  Managed Money increased their long positions by a big +12.5k contracts, while producers were largely unchanged.  Most likely this all happened on last Friday's big gold rally, which was a high volume test of 1280 support which then rallied hard on big volume.  Its good to see that Managed Money is willing to belly up to the COMEX bar and buy, and the move higher wasn't all just about short covering.  I think that's a bullish sign; taken along with the producer shorts being near all time lows, I'm getting to have a better feeling about COMEX - at least with respect to gold anyway.  That may be a temporary thing having to do the the Ukraine, however,

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

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

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

Gold's moving averages are at inflection points right now, so it is easy for price changes to move them around, while silver's 50 and 20 MA are pointing straight downhill.  Prices of both gold and silver are below their moving averages, which is bearish.  Gold's overall picture is only modestly bearish, while silver is much more bearish, especially in the short to medium term.

Summary

Gold failed to break above its 50 MA, but also managed to remain above 1280 support.  Silver failed to break above its 20 EMA, and its chart looks significantly weaker.  The gold/silver ratio remains at a high 67.24, and looks like it will continue to rise - which is bearish.

Looking at the various ratios and averages, gold's moving averages are somewhat more negative this week, and silver's continue to point  straight downhill.  GDX:$GOLD is looking increasingly bearish, as does GDXJ:GDX.  The ratios and averages point to a gradually weakening gold, and silver remaining in a serious downtrend.

On the COT report, Producers remain at all-time low short positions, which is usually a sign that we're relatively near to a low point, and we also saw Managed Money actually step up and buy a large number of new long contracts.  It clearly didn't continue throughout this week, but it seems like there is serious long-side support on moves below 1280.

Shanghai premiums continued moving up this week but are only modestly positive.  GLD tonnage remained unchanged, ETF premiums mostly rose.  Physical demand seems mildly positive.

The trend indicators are weakening a bit, the ratios are getting more bearish, and the premiums in Shanghai look only weakly positive.  While the futures positioning is signaling a low should be near, and Managed Money did step up to buy during that last dip, we should also consider the mining share ratio charts, which are looking bearish right now.  I think there is some more downside risk at this moment.

 

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