PM End of Week Market Commentary - 8/29/2014

davefairtex
By davefairtex on Sat, Aug 30, 2014 - 4:16am

On Friday gold was down -2.00 to 1288.00 on moderately light volume, while silver was down -0.02 to 19.51 on light volume.  Silver had yet another failed rally although this one was more modest than the last, while gold generally just moved lower within a trading range.  For whatever reason, traders did not look particularly eager to pick up gold or silver futures contracts before the holiday weekend.

Over the past week, gold has managed to move higher, but without much enthusiasm.  Still the price is now back above the 200 MA, which is certainly better than being below it.

Mining shares were up on Friday - GDX was up +0.87% while GDXJ rose +1.10%.  Both mining share ETFs were down initially on the day and rallied strongly into the close, a bullish performance considering the lackluster behavior of the underlying metal.

For the week gold was up +6.20 [+0.48%], silver rose +0.11 [+0.57%], GDX up +2.26% and GDXJ +2.83%.  The gold/silver ratio dropped again this week, but only modestly, and the mining shares looked reasonably strong.

Miners

Mining shares started the week with a test of support on Monday, only to rally for the rest of the week.  Even a tepid rally in gold helped mining shares - miners are back above their 50 MA, although the volume on the rally is low.  Overall my sense is that traders are afraid to miss out on a mining share rally, which is a bullish sign.  I do not get that same sense in gold.

Juniors remain a bit weaker than the seniors.  This reinforces my suspicion that some big funds may be looking to accumulate a large position in mining - its hard to put a lot of money to work in the juniors because the market caps are so small.  If you are a big fund looking to "move the needle" you have to hunt elephants, not mice.

US Equities/SPX

SPX made another new all time closing high Friday, closing up +7 to 2003.37.  Traders pushed prices higher into the close, which is generally bullish; they wanted to be holding SPX for the long weekend.  VIX dropped a bit to 11.98.  On the week SPX rose +15 [+0.75%].

For me, the real test is when everyone comes back to work after Labor Day and we move into September.

The USD

The dollar was up +0.33 [+0.40%] on the week, setting new cycle highs and continuing its strength.  The buck is up 7 straight weeks - mirrored by the 9-week drop in the euro.  The strong support for Euro at 127.50 is still a ways away.  If the euro really does fall that far, gold will most likely continue to have problems rallying.  Such a drop would make some amount of sense from a macro standpoint - those pesky Eurozone bank stress tests won't be published until October, and in the meantime everything is still peachy in the US, with our 2Q GDP growth of 4.2% and the talk of the Fed raising rates "sooner than expected" because of our fantastic economic performance.  So in the meantime, money is flowing from Europe to the US, and landing in US stocks & bonds.

Rates & Commodities

Bonds rallied sharply, with TLT up +1.50% on the week.  It seems that every drop in bonds has been a buy-the-dip opportunity for the past 8 months.  20 year rates are currently at 2.83%.  While the "taper tantrum" from May 2013 that caused long rates to spike 110 basis points is not completely wiped out, it is getting there.  (Note: the chart below is the 20 year bond yield - a dropping yield means a rallying bond)

Commodities finally rallied for the first time in two months, with the commodity index up +1.60% on the week.  If commodity prices can continue to move up, perhaps the herd effect will encourage gold & silver to move higher as well, even if the buck continues to rise.  There was a particularly large rise in WTIC on Friday, up +1.26 to 95.84.  At least WTIC may have found a low at these prices.

Physical Supply Indicators

* Premiums in Shanghai were down -1.90 this week; Shanghai gold is now trading at +1.63 over COMEX.

* The GLD ETF lost -5.08 tons of gold, with 795.00 tons total holdings.

* Registered gold at COMEX is at 35.76 tons total, up 1.2 tons on the week.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on Aug 29) of 1288.30 and silver 19.51:

  OUNZ 12.86 -0.06% to NAV [down]
  PSLV 7.90 +4.26% to NAV [up]
  PHYS 10.68 -0.27% to NAV [up]
  CEF 13.81 -5.22% to NAV [up]
  GTU 45.11 -5.28% to NAV [down]

ETF premiums were mixed, but more up than down.  Sprott's PSLV fund is doing especially well.

Futures Positioning

The COT report is as of August 25th, when gold was trading around 1281.  Gold Managed Money dropped 10.4k longs and added 11.6k shorts, a big change.  Producers closed 11.3k shorts, a big move for them too.  While Managed Money pushed gold lower, Producers saw this as an opportunity to close out some of their hedges.  In recent weeks they have been relatively quiescent, but this week they seemed to see value at the 1275 level, which will support the price of gold.

In silver, Managed Money added 3.4k short but also 1.4k longs; the Producers added 1.4k shorts and 1.6k longs.  The mixed viewpoint (increasing both short and long positions) gives us no clear direction - there are forces pulling silver both up and down.  This does match up pretty well with silver's recent failed rallies, 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

The moving averages are all pointing neutral or down at this point.  They are more or less unrelentingly bearish.

Summary

This week gold and silver both found lows and started modest rallies, but the intraday price action was not confidence-inspiring since several of the rallies (especially in silver) failed to retain their gains through end of day.  The strong dollar probably didn't help.

From the moving average perspective, gold is mostly bearish, while silver is bearish in all timeframes.  The gold:silver ratio dropped slightly to 66.02, which is not significant enough to matter.  GDX:$GOLD has returned to full bullish mode, while GDXJ:GDX was unchanged, slightly bearish. SIL:$SILVER is looking better, and is now bullish.  Summarized - senior miners look good, but the metals don't.

The COT reports this week saw more shorting and long liquidation by Managed Money in gold, while Producers covered short.  In silver Managed Money and Producers added both shorts and longs, which matches silver's actual (confused) performance this week.  Out of all this, perhaps we can read a decent amount of support for gold at 1275, while silver remains more on the fence.

Shanghai premiums are down a bit this week, GLD tonnage dropped, and the ETF premiums were mixed.  Let's call physical demand neutral.

The buck continued moving higher.  The PM complex overall has rallied in spite of this, possibly because of the overall commodity rally, but if that euro keeps dropping, gold will have a hard time moving higher.

Money continues to flow into SPX, bonds, and the USD driven by the falling euro.  Commodity prices may have bottomed, which should help PM.  Traders seem concerned about missing out on any miner rally, which results in the continued bullish GDX:$GOLD ratio.  From what I can tell, miners are currently a good "buy the dip" candidate.  I would not say that same thing about the metal, at least not this week anyway.

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1 Comment

TexasCanuck's picture
TexasCanuck
Status: Member (Offline)
Joined: Jun 27 2013
Posts: 10
INflation must kick in for gold to rise substantally

Inflation will be signalled when Oil starts rising in earnest. Oil will start rising when supply goes down, ie when limits are hit in shale oil production, which will be in 5 to 10 years according to Crash Course. For reasoning on this listen to Financial Sense with Jim Puplava. Dead certainty that oil spiggot will slow flow down , So safest investment now is gold and silver but be prepared to hold till 2020s.

Keep up the good work

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