PM End of Week Market Commentary - 7/4/2014

davefairtex
By davefairtex on Sat, Jul 5, 2014 - 4:32am

Although Friday July 4th was a holiday in the US, gold was traded internationally until 1300 EDT - gold closed up +0.70 to 1321.30 on very light volume; silver was up +0.06 to 21.20 also on very light volume.

For the week gold was up +4.40 [+0.33%], silver +0.04 [+0.19%], GDX up +2.00% and GDXJ up +5.82%.  While PM rested, the mining shares came back to life.

Miners

This week the miners moved higher within their consolidation range.  GDX moved up to the top of its range, is quite close to breaking out, and the volume pattern is no longer showing distribution. 

GDXJ looks similar, although the consolidation range for GDXJ is much larger than for GDX.  As with GDX, the juniors are quite close to a breakout higher, and the volume pattern is no longer showing distribution.

For both GDX and GDXJ, this week saw a golden cross - the 50 MA has crossed over the 200 MA.  This particular MA crossing has significance for longer term traders, who use it as an important indicator for trend changes.  We had one of these about three months ago in March, but the price action at that time looked weak, while today it is looking substantially stronger.

US Equities/SPX

This week, SPX was up +24 [+1.25%] to 1985, another new all time high.  The Nasdaq is outperforming, even biotech has almost returned back to its highs again.  A trader I respect has pointed out that when a market is in uncharted territory, lighter volume can push prices higher because there is no "overhead selling pressure" - longs who bought at higher levels, and are looking to sell once they get back to even.

For those of us with a longer term bearish outlook due to resource scarcity (and that includes me), it is important not to get upset or angry that the market isn't cooperating with our worldview.  Emotion is quite dangerous in trading; if at all possible, try to become an interested observer.  Regardless of whether the market cooperates with your forecast or not, try to find it interesting.  If you sense yourself growing angry or frustrated or - if the market drops, you feel justified, happy, or relieved, you may act on that emotion to your detriment.

Another trader I respect says, "trade what you see, not what you think."  I'd rephrase that somewhat: "trade what you see, and your sight will be clearest once you can observe the market from a position of emotional neutrality."

Financial commentators at other sites who yell and scream about how stupid the market is - they're quite entertaining to read.  However, passion is the enemy of your portfolio.  Emotional involvment will cloud your vision, and you will be "trading what you feel, rather than what you see."  And that almost always ends badly.

The USD

The buck rose +0.29 this week, closing at 80.27.  The dollar found a low on Tuesday at 79.80, and has started moving higher.  Normally this would hamper PM prices, and in fact the USD price drop over the past month has been coincident with the rise in PM.  Will the rising USD cause problems for PM?  Not so far.

Rates & Commodities

Bonds were hammered this week, dropping -2.01%, and closing below its 50 MA and ending the week right at support.   It would not take much to push the long bond through support, and that would form a "lower high" pattern on the daily chart.  If you are long TLT, this is a dangerous moment for you: bonds are not quite oversold enough to be forming a high percentage low, but they are right at support.

Commodities were down -0.66% this week, hitting a new low.  Perhaps the falling price of oil had a little something to do with this - Brent crude dropped all week, and closed down -2.30 [-2.03%].  However Brent crude may have put in a low on Friday; it is at support, it printed a doji, is starting to become oversold, and so this would be a logical point for oil to bounce assuming it still remains in a longer term uptrend.

Physical Supply Indicators

* Premiums in Shanghai recovered +1.58, and is now trading at a discount of -0.50 to COMEX.

* The GLD ETF gained a big +11.37 tons, with 796.39 tons remaining.

* Registered gold at COMEX is unchanged, at 28.38 tons.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on July 3) of 1320.40 and silver 21.17:

  OUNZ 13.19 -0.05% to NAV
  PSLV 8.47 +2.91% to NAV [down]
  PHYS 10.92 -0.57% to NAV [down]
  CEF 14.38 -5.99% to NAV [down]
  GTU 47.28 -3.16% to NAV [down]

ETF premiums were lower this week across the board.  OUNZ suggests there is no scarcity of gold bars in London.

Futures Positioning

The COT report is as of July 2nd.  Managed money shorts continued covering, reducing gold shorts by a healthy -11.4k contracts, while at the same time adding +14.7k contracts on the long side.  This resulted in the "net long" position of Managed Money expanding quite substantially.  This says the move higher in gold is no longer about just short covering, which I see as bullish.  Producers increased short positions by +9.6k contracts, however the net short position for Producers is still quite bullish.

In silver, Managed Money appears to be almost out of the market on the short side, covering -4.7k contracts, with only 13k shorts remaining.  Managed Money acquired +7k long silver contracts this week as well, mirroring the behavior in gold.  Over the past three weeks, this has been a massive short-to-long directional change, one of the biggest changes on record.  Producers increased their shorts by 800 contracts.

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

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

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

Gold's 50 MA starting turning up this week, and in fact crossed its 200 MA in a "golden cross", which is an event that got no attention in mainstream media, although the goldbug press most definitely took notice.   Golden crosses don't happen that often, and are a bullish long term trend change indicator.  Without question, the golden cross is good for gold.

Silver remains behind, since it was battered much more severely than gold during the March-June silver downturn.

Summary

PM mostly moved sideways, the miners rose to the top of their trading range, and GDX, GDXJ, and gold itself executed golden crosses this week - that 50 MA crossing the 200 MA which is a generally accepted longer term bullish trend change indicator.

Looking at the various ratios and averages, gold's 50 MA started rising, turning medium term bullish.     Gold/silver ratio is more or less unchanged again this week, but still bullish for PM.  GDX:$GOLD is starting to break higher, and looking bullish, while GDXJ:GDX has recovered, regaining its bullish tone.  For this area, everything looks positive.

The COT reports this week showed Managed Money continuing to both cover short, and increase long exposure, with the long buying outweighing the short covering in terms of total contracts.  This sort of behavior is required to keep prices moving higher.  It also matches with the intraday behavior, with every single dip in both gold and silver being bought relatively rapidly.

Shanghai premiums are slightly negative, GLD tonnage is significantly higher, while ETF premiums are down.  Physical demand seems slightly negative.  COMEX and western gold buying in general looks to be carrying the market at the moment.  Just my opinion, but gold is no longer moving from West to East.

PM market looks strong right now, with one small concern about a rising dollar's effect on PM.

 

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