PM End of Week Market Commentary - 7/25/2014

davefairtex
By davefairtex on Sat, Jul 26, 2014 - 2:30am

On Friday gold closed up +14.30 to 1308.50 on moderately heavy volume; silver was up +0.38 to 20.80 on moderate volume.  Gold traded largely sideways until the NY trading session, where at 1100 EDT it started a series of breakouts that ended with gold closing higher than Thursday's high - a clear sign of a bullish reversal.

The mining shares outstripped gold's rebound, wiping out two days of losses, closing at the highs for the day on some decent volume.  Today's move pushed the gold/silver ratio back into bullish territory, as it did with GDX:$GOLD, and GDXJ:GDX is improved.  If miners lead, then they are leading us back up again.

For the week gold was down -2.90 [-0.22%], silver -0.14 [-0.65%], GDX -0.45% and GDXJ -1.85%.

An Intraday Observation

On Thursday, I noticed that the shorts had a difficult time pushing gold prices lower.  Yes, they were able to run the stops of the longs causing a lot of liquidation in terms of numbers of contracts, but prices didn't really move much, and the rallies back were pretty decent, especially the one off the last assault of the day.  There were 3 short assaults, and by end of day, "all they got was 10 points."

The contrast with silver couldn't have been more more stark.  Silver was a pushover for the shorts.

On Friday, there were no further short attempts in Asia and London, and then during the NY session the breakouts started - and didn't stop until the losses of Thursday were completely erased, with even a nice long assault at 15:49 that tripped about 2000 short stops to close out the day.

My sense is - buy-side support on Thursday set up the bounce on Friday.  It will be interesting to see how it plays out on Monday.

Miners

The mining shares dipped briefly below their 20 EMA once again but did not stay down long.  GDX did not even make a new low this week, while GDXJ did - and briefly looked a bit more worrisome, only to rally strongly on Friday.  Thursday's candle on GDXJ did not appear to be any sort of reversal candle, however the strong, high volume move on Friday above Thursday's high looked pretty compelling.

GDX was even more bullish - having not really sold off much at all, and that on relatively low volume, GDX rallied strongly Friday wiping out days of lower volume losses at one shot.  Looking at the volume picture, it appears that the distribution period for GDX may be over.  Contrast the last 5 day volume picture with the period immediately preceding it - the 3 prior high volume down days suggests traders were unloading large positions, while this week they were not.  To me, that looks bullish: traders who wanted to take profits did so by end of last week, and the remaining traders mostly hung on to their senior miner positions in spite of the move lower in gold.

US Equities/SPX

While SPX scored yet another new all time high this week of 1991 on Thursday, it ended the week unchanged at 1978.  The VIX ended the week at 12.68, up +0.66 over last week.  Friday's 10 point drop in SPX apparently has the natives a bit restless.

The USD

It was another strong week for the buck - USD closed up +0.53 to 81.14, breaking strongly above the 81 level on Friday.  Last week we had a golden cross on the daily chart (50 MA crossing the 200 MA) and this week a breakout above resistance.  Even pulling back to the weekly chart, we see the effects of the breakout above resistance at 81, and we can see the various moving averages starting to be pulled higher by the recent move.  While before it looked like this was mostly about a weakening euro [-0.71%], this week other currencies moved lower against the buck: pound [-0.67%], canadian dollar [-0.71%], and yen [-0.48%].

Gold has been having a bit of a hard time during this period of dollar strength.  The buck is now seriously overbought, and is due for a rest.  When it does, this should help gold recover.

Rates & Commodities

Bonds were up yet again this week, with TLT up +1.00% continuing its breakout from last week.  I keep waiting for TLT to correct so I can buy-the-dip, but it is not cooperating.  Perhaps its the dollar strength that is continuing to move the long bond higher.  20 year rates are now 2.99%, a level last seen in June 2013.

Commodities moved a bit lower, closing off -0.13%.  It looks like the agriculture commodities might have found a bottom at last.  Brent crude has been in a choppy sideways consolidation, up one day, and down the next.

Physical Supply Indicators

* Premiums in Shanghai were up +4.10 this week; Shanghai gold is now trading at +1.92 over COMEX.  Premiums have returned.

* The GLD ETF lost -3.30 tons, with 801.84 tons total holdings.

* Registered gold at COMEX is up +0.31 tons to 29.24 tons total.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on July 25) of 1307.30 and silver 20.80:

  OUNZ 13.07 +0.06% to NAV [up]
  PSLV 8.31 +2.82% to NAV [down]
  PHYS 10.82 -0.47% to NAV [down]
  CEF 14.03 -7.06% to NAV [down]
  GTU 45.90 -5.05% to NAV [down]

ETF premiums were mostly down - CEF lost almost 2%; I haven't seen a 7% discount for CEF in a while.  OUNZ was the only premium that rose.

Futures Positioning

The COT report is as of July 22nd.  Gold Managed Money shorts covered 5k short contracts this week, most likely as a result of the airliner shoot-down last Thursday.  Producers increased their short positions by -1.6k.  Relatively little changed.

In silver, not much changed which is not surprising - during the coverage period of the report, the price of silver was mostly unchanged.

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

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

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

This week's PM correction pulled down both gold and silver's 20 EMA into a downtrend.  While we did get the rebound Friday, from a moving average perspective, things are decidedly mixed right now, with a modestly bearish coloring.

Summary

The PM correction continued this week, with silver and GDXJ looking weakest, breaking support and making new lows for this cycle.  Friday's rebound restored the picture significantly, although we are not out of the woods just yet.

Looking at the moving averages, the picture is more bearish than last week - with a top level view, we have 3 DOWNs, 2 NEUTRALs and only one UP.  The PM correction has taken its toll on the moving averages.  The gold/silver ratio rose another +0.27 to 62.92, still mostly bullish.  GDX:$GOLD remains clearly bullish - the senior miners have done the best during this correction.   GDXJ:GDX dropped some more, but still remains somewhat bullish.  In general, the picture from the ratios remains mostly risk on.

The COT reports this week are mostly unchanged - some minor short covering in Managed Money gold positions (probably from last Thursday's rally) is all that I saw of note.

Shanghai premiums are back - but modest, GLD tonnage dropped, ETF premiums are down sharply.  Physical demand seems neutral, perhaps slightly bearish.

The picture remains the same as last week - one of a correction in the context of an uptrend.  That is because ratios have remained relatively strong even though PM prices have dropped.  What's more, we may well have seen the low for this particular correction on Thursday, given Friday's strong move in the mining shares and in gold.

 

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