PM End of Week Market Commentary - 9/12/2014

davefairtex
By davefairtex on Sat, Sep 13, 2014 - 4:09am

On Friday gold dropped -9.60 to 1231.50 on moderately heavy volume, while silver was down -0.09 on moderate volume.  After breaking down early in asia, silver rebounded and traded sideways closing down only modestly.  Gold just sold off all day long, closing near the low.

On Friday mining shares dropped again, with GDX off -1.61% on moderately heavy volume, while GDXJ was down -2.60% also on moderately heavy volume.  GDXJ seems to be doing somewhat better than GDX this week, and miners overall seem to be doing better than gold - minus the one bad day on Monday.

For the week gold was down -37.80 [-2.98%], silver dropped -0.60 [-3.12%], GDX down -4.75%, and GDXJ off -4.61%.  The gold/silver ratio was up a very modest +0.10 to 66.14.  Gold, silver, and the senior miners have all broken their various support levels and are more or less in free fall.  The only hint of good news comes from the junior miners, which have been tracking sideways over the past four days rather than simply plummeting.

Gold breaking support at 1240 was a big deal from a chart perspective.  An uptrend is characterized by a sequence of higher highs, and higher lows.  Once that "higher low" is broken (1240 for gold), the uptrend is over.  This will result in more selling pressure for gold.  At least according to charting rules, gold is now trading in a range - and looking at the chart, the top part of the range is steadily declining...which forms a descending triangle, which are typically bearish and often result in a break lower.

Silver's long term chart looks worse than gold.  It is clearly in a descending triangle, and is much closer to a breakdown than gold.  If silver breaks 18.17 long term support, disciplined traders will throw their COMEX silver futures right out of the lifeboat and a whole lot of selling pressure will happen.  Something needs to change in overall sentiment to reverse the current long term trend.  Right now, the commodity index is telling us that inflation is nowhere to be seen, and silver is the primary victim of this in the PM space.

The USD

It was another bullish week for the buck, with the dollar gaining +0.44 [+0.53%] to close at 84.24.  As has been the case for weeks now, a rising dollar didn't help gold or commodities at all.

The particulars of this week's dollar move changed a bit - it was no longer about the Euro, but "the rest" of the currencies. The Euro actually managed to rally this week much as I'd hoped, a bit ahead of schedule finding a possible low around the 129 level.

The problems moved to the other currencies.   While the Pound dropped -0.36%, which seemed to be mostly about Scottish Independence issues, it was the Yen and the commodity currencies that caught my eye.

The Yen was off a big -2.10%, Canadian Dollar -2.08%, and the Australian Dollar off an even larger -3.63%.  What do these flows tell us?  They say "unwinding carry trades" to me, along with "China Problems", with more than a hint of an "Actual Japan Breakdown" in the offing.

While the overall size of the breakdown in Yen isn't huge just yet, its the timing that mattered to me.  When placed alongside the moves in the commodity currencies, it suggests to me that Japan may be starting to lose its "safe haven" status.  "Risk-off" money leaving Canada and Australia (and Brazil, and Russia) has a choice of where to flee right now - and Japan is clearly not on the list.  What's more, it appears that "risk off" money is also leaving Japan!  Whether that is Mrs Watanabe or foreigners (or even central banks) we can't tell just yet.  All we know is that money is leaving.

Miners

Mining shares had another bad week.  GDX had an unpleasant Monday, and continued dropping with intermittent rallies throughout the week.  Distribution is still evident, with the red volume sticks larger than the grey ones, and no support level appears to have been reached.  GDX is below all 3 moving averages, and while senior miners do have buyers and GDX is dropping more slowly than gold itself, the buyers still don't outnumber the sellers just yet.  Likely gold needs to mark a low for that to happen.

The junior miner chart looks significantly better; while GDXJ also had a bad Monday, it found support near its 200 day MA, and it chopped sideways along that line for the remainder of the week.  This chart of the junior miners is the most positive chart in the PM complex - which is not to say this is a positive chart, its just the least-dirty shirt in the hamper.  A close above 39 would be a reversal signal for the juniors.

US Equities/SPX

SPX sold off on Friday, closing down -12 to 1986.  Equity prices dropped for most of the day, looking a bit frail going into the weekend.  Dip-buying was evident during the week, but the close on Friday didn't look so great.  VIX was up +0.55 to 13.31.  For the week, SPX was down -22 [-1.10%]. 

However when viewed through the lens of equity markets around the world this week, the US equity market was one of the best.  Worst equity market performance was Brazil, down -11%; the BRZ (Brazilian Real) was off a massive 4.15% this week also.  "Money fleeing Brazil."

Rates & Commodities

Bonds had another bad week, with TLT down -2.03%.  TLT has fallen through a couple of support levels, has driven through its 50 MA, and the velocity of the selloff is starting to increase.  20 year rates have jumped to 3.10% from the lows of 2.82% set at the end of August.  So although money is moving into the dollar, long treasury bonds are not benefiting.  This continues to paint a picture for me of debt paydown and general deleveraging, and I'm now starting to wonder if there is some Taper Tantrum happening as well.  Perhaps some leveraged bond players are selling off their longer term treasuries and paying back some of that borrowed money.  Losses in the 20 year over the past two weeks: 4.9%, more than 19 months of interest payments!

Commodities dropped again this week, off -2.00%, and are now threatening to break down below their multi-year lows.  Lest you feel that gold was singled out by the manipulators for "special beatings", traders in the overall commodity index have lost 14% since May.  Gold, since its high of 1350 reached in late June, is only off 9.6%.  Gold: outperforming the rest of the commodity index - at least since early June.

Oil continues to be hurt, especially Brent which was down -3.71 to 97.11 - Saudi Arabia was able to stop the decline for a day by announcing a cut in production to "defend the $100 price level" only to have oil continue dropping the following day.  Energy is one reason why the commodity index has dropped so dramatically; the other reason is the agriculture sector, which is down even harder than oil.

Physical Supply Indicators

* Premiums in Shanghai were up +2.89 this week, with the premium now +4.78 over COMEX.  With the decline in gold, Shanghai buyers are starting to return.

* The GLD ETF gained +2.68 tons of gold, with 788.40 tons total holdings.

* Registered gold at COMEX dropped -1.49 tons, with 31.45 tons remaining.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on September 12) of 1231.20 and silver 18.66:

  OUNZ 12.29 -0.05% to NAV [up]
  PSLV 7.56 +4.33% to NAV [up]
  PHYS 10.16 -0.73% to NAV [down]
  CEF 13.01 -6.62% to NAV [down]
  GTU 42.38 -6.93% to NAV [down]

ETF premiums were mostly neutral or down except PSLV, which surprisingly jumped higher.  US physical buyers like silver at this price, it would seem.  Note how the two Sprott funds have managed to maintain their premiums to NAV pretty well even during the recent price drops, while the older funds that don't have the ability to take delivery are not treated as kindly by the market.

Futures Positioning

The COT report is as of September 9th, when gold was trading around 1258.  During this period (in which gold was down perhaps $8 over the previous week), Managed Money both increased shorts (+5.3k) and longs (+2.6k).  Producers added equal numbers of shorts and longs.  This was an odd report - it didn't cover the Wed-Fri period where the drops were the largest, but it also seems to show two distinct groups of players, both of whom are increasing their bets - but in different directions.

In silver, the picture looked more regular, with Managed Money adding 1.5k shorts and dropping 1.8k longs.  However Producers during this period increased both shorts +2.3k and longs +2.6k, similar to what happened in gold.

It is possible some producers are getting nervous about the price drops and are increasing their hedging "just in case" PM continues to fall.

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

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

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

The moving averages are all pointing down.  That's bearish.

Summary

This week gold and silver were pushed below their previous "higher low"; gold dropped below its 1240 support, and silver was forced below 18.70.  From a technical chart perspective, this has just invalidated the uptrend for PM in 2014, which will probably bring on more selling pressure for PM.  Miners followed PM lower, with the juniors seeming to find support while the senior miners continued selling off, although more slowly than gold itself.

From the moving average perspective, gold and silver are bearish in all timeframes.  The gold:silver ratio rose +0.10 to 66.14, moving up slightly.  GDX:$GOLD moved lower and continues looking bearish, while GDXJ:GDX has improved slightly, and looks neutral.  SIL:$SILVER moved lower and looks bearish.

The COT reports this week saw reduced activity by Managed Money in gold and silver - they are increasing shorts, but not dramatically - although the period of the COT report did not cover the big drops Wed-Fri of this week.  Producers are increasing their short positions somewhat, which suggests they may be worried about lower prices ahead and are choosing to lock in current prices while they still can.

Shanghai premiums are up this week, GLD tonnage increased, and the ETF premiums (except for PSLV) were down.  Physical demand is starting to pick up with the drop in prices.

Currency movements are playing a part in the continued weakness in PM - or maybe a better way of saying it is, the current set of currency moves paint a strong "risk off" picture, and during those times commodity prices typically fall, and PM is just one of those commodities that has been caught in the downdraft.  Falling commodity prices always seems to encourage the shorts in PM.

While I had hoped a low in the euro would mark the low in PM, it was not to be.  Continued moves out of emerging market assets as well as Japan continue pushing the buck higher, and falling commodity prices have encouraged PM to continue dropping.  Falling commodity prices do not disturb our central planners; perhaps falling bond prices will.

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13 Comments

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
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Sinking Deeper

And even things that aren’t overbought, like gold, gets sold and you just get caught in the down draft. When the Titanic is sinking all kinds of things get pulled down. It’s just how it works.

CM

And McGilchrist here has been plucked by me out of context where he mentions that Money becomes more real than the things it represents, (to the Left Brain's take).

To elucidate; if money has become more real than gold to the common meme and madness then we can anticipate the PMs becoming less desirable as we sink ever deeper into our insanity.

https://www.youtube.com/watch?feature=player_detailpage&v=rn1_mb1wqU0#t=...

davefairtex's picture
davefairtex
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Posts: 5064
many ways to describe the elephant

Arthur-

Money becomes more real than the things it represents...

I think this is a great example of the elephant described by a bunch of blind men.

I wouldn't use the phrase "money is more real" - but it does have a certain poetry to it that I can appreciate, and it definitely does describe some aspect of what happens.   Since I'm more of a systems guy, I would say that the mechanism for what causes that great Titanic-sinking force is the sudden and widespread desire to repay debt across the society.  As a result, whatever society's debts are denominated in becomes the item people suddenly need to acquire to retain their houses, cars, etc.  If debt was denominated in gold, then gold would become sought after.  These days, its dollars (at least in the US) and so dollars will be sought after.

So to me it is not that money is suddenly more real - it is simply the only way that you can discharge your debts.  And so people run around trying to trade "stuff they don't need" for dollars, in order to pay down their debts, so they can retain control over the assets they want to keep.

When everyone suddenly wants something, demand skyrockets.  When debt suddenly becomes a bad idea, demand for cash will skyrocket.  That is just how things work.

Of course this will be the scenario right up until the government executes some sort of reflationary action.  Like printing money and handing it out to citizens, for instance...

Arthur Robey's picture
Arthur Robey
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Lay your Money Down.

I think what I am hearing Dave, is that people will be selling their PMs for cash to pay off their debts.

This has the ring of truth to it.

Let me see if I can integrate that Idea into Nichole Fosses insight that money is a claim on assets. And when there are too many claims on the underlying asset then, as you say, people will sell off their gold to obtain the only way to reinforce the legitimacy of their claims to their (house, car, boat, company, etc), Money. Cash, Lucre.

Nicole did say that after the claims dispute PMs might regain their value. It looks to me as though we are into the first part of the story- the mad scramble for cash. This May be the biggest opportunity to ever come our way- as Mike Maloney (Rhymes with Baloney, I wish it didn't) proselytizes. But then he would, wouldn't he? He sells the stuff.

Never-the-less one has to throw the die. So I am betting on three and a half.

 

davefairtex's picture
davefairtex
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paying off debts, PM, deflation, etc

Arthur-

I think what I am hearing Dave, is that people will be selling their PMs for cash to pay off their debts.

Well I believe that a number of traders are selling their COMEX futures right now to lower their risk.  Going forward, if things get worse, real people in debt will sell everything including PM to keep food on the table and a mortgaged roof over their heads.  And given how much debt we collectively have - well that's just a whole lot of debt to be paid, and not so much cash to do it with, so asset sales of other types will have to happen.  The longer the deflationary period, the cheaper the non-core assets will get.

Nicole Foss has always said that after the great deflation, there would eventually be a reflation where gold would be really handy to have.  The key was to have enough cash to last you through the deflationary period.   And if you happen to have some extra cash, you might be able to pick up some "non-core" assets quite cheaply.

I think the only difference that any of us has with Nicole is the estimated length of time of the deflationary period.  From my sense, Nicole might say it would be a 4-7 year period.  I get the sense from Chris (from my conversations with him) that he feels the deflationary period will be *substantially* shorter, ranging from one weekend to a handful of months after a big deflationary event.

One interesting thought.  Things haven't gone bad yet.  No banks have gone under, no bail-ins have happened, no capital controls, no market crashes - everything is allegedly still just fine, and we're still seeing some pretty interesting effects from capital flows.

Armstrong would say that we are seeing capital move in anticipation of events.  Some amount of Big Money already knows how this game will play out because they have copies of the policy documents along with lunchtime conversations with various Deputy Ministers of Finance from the major players, and so capital is fleeing and deleveraging/de-risking is happening well in advance of the actual denoument - whatever it will be.

That's why I say "market provides information" when it comes to capital flows.  If we don't bog ourselves down with thoughts of "manipulation causing every market move", ideally we'll be able to see the result of Big Money's connections and the conclusions they have drawn, free of charge.  The only price we really need to pay is to keep an open mind, and not get too hung up on what our ego (or our favorite newsletter-writer - even Nicole Foss) says what must be happening because of some article of faith.

 

TexasCanuck's picture
TexasCanuck
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Bearish sentiment for gold high

No 1 gold timer (Tom McLellan) feels new bottom will probably be in around 1190. I have been feeling increasingly desperate, sell all gold and silver. Just read Harry Dents forecast--very depressing. Go to paper dollars he says, deflation will rule the future 10 to 30 yes. So i guess we must be close to a turn, hope so anyway. All bears will have sold!!

Anyone feel we will see a rise in oil prices in 4 -5 years? Shale bubble is blowing here in Texas. We have enough oil to last 100 years!!!!! You think.  But oil from Texas is almost all shale oil, and that will grow fast for about 4 years, then slow fast-- according to Chris Martinson and Andrew Hall and Arthur Berman. Higher oil prices in 4 to 5 years will push up inflation which will be good for gold.

davefairtex's picture
davefairtex
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INDPRO went negative in August

INDPRO (Industrial Production) went negative this month; it is one of my more important indicators, and during the run-up to the 2008 market crash, INDPRO was a good coincident indicator of market trouble ahead.  One negative report won't tip us over (we've seen a few of those along the way to SPX 2000) but several in a row just might.

So in my "negatives list":

* INDPRO, negative in August

* NYSE Margin credit, peaked in April

* Full Time Employment, peaked in June

* Junk bond spreads (over Treasury bonds): started rising mid-August

* Total Bank Credit, leveled off last week

Jim H's picture
Jim H
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Everyone must do their own due diligence.

With DaveF getting seven up votes when he says,

Well I believe that a number of traders are selling their COMEX futures right now to lower their risk.

I hardly feel like wasting my breath around here anymore.  This place is a veritable wasteland of commodity correlation talk.  

You are being misled by your metals analyst.  The above statement, at least in the case of Silver, relating to the action late last week, is categorically wrong.  But that does not matter to Dave.. he has a narrative to provide you with.. good luck with that when there is no Silver to buy.  For me, I just split a monster box with a friend that DOES understand what is going on.

Here's what really happened last week - you will see it is NOT what Dave describes above.. in fact, it is the opposite;

    The total open interest in silver ROSE on Thursday a whopping 6,268 contracts.  This represents more than 31 million ounces of silver in one day!  Does this “silver” even exist?  I am going to say “no way, not even a chance,” let me explain why in a minute.  The total inventory of silver registered and available to deliver is roughly 60 million ounces.  Do you see the problem here?  The price of silver dropped over 2.5% because there were “more sellers than buyers” …but, the sellers were selling paper “contracts” not real, touchable and usable silver.  Explaining a little further, if there was a panic to sell real silver the “longs” would sell to “close” their position and open interest would decline.  This clearly did not happen as the open interest rose, the sellers “sold” to OPEN positions…31 million ounces worth of positions!

http://blog.milesfranklin.com/the-price-is-being-made

Why does everyone on this website put up with this constant misinformation flow?   Why doesn't anyone else speak out? 

Rector's picture
Rector
Status: Gold Member (Offline)
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Posts: 490
Because We Are Ignoring It

I (for one) have no interest in the day-to-day price of Gold or Silver.  I bought some at $525 and some at $1850 and I don't GAS.  I am absolutely certain that the market is manipulated openly and heavily.  I am absolutely certain the the price of PM's is going to be volatile as the financial system dies.  I am confident because I know that the manipulation is a sign of desperation.  The fact that it must be controlled is evidence of what will happen when it cannot be controlled.  I don't need anyone else to agree with me (as I said before I don't GAS).  I am willing to let the chips fall where they may and all the people who are too stupid to see it, too clever, or too sophisticated can talk amongst themselves.  I don't GAS.

Rector

Jim H's picture
Jim H
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Posts: 2379
The deficit is shrinking...

At least this is what Dave will tell you.  That's why, "inflation is low" and Gold is where the "free" market thinks it should be.  But is this true?

  http://sgtreport.com/2014/09/the-u-s-national-debt-has-grown-by-more-tha...

The idea that the Obama administration has the budget deficit under control is a complete and total lie.  According to the U.S. Treasury, the federal government has officially run a deficit of 589 billion dollars for the first 11 months of fiscal year 2014.  But this number is just for public consumption and it relies on accounting tricks which massively understate how much debt is actually being accumulated.  If you want to know what the real budget deficit is, all you have to do is go to a U.S. Treasury website which calculates the U.S. national debt to the penny.  On September 30th, 2013 the U.S. national debt was sitting at $16,738,183,526,697.32.  As I write this, the U.S. national debt is sitting at $17,742,108,970,073.37.  That means that the U.S. national debt has actually grown by more than a trillion dollars in less than 12 months.  We continue to wildly run up debt as if there is no tomorrow, and by doing so we are destroying the future of this nation.

Why does Dave tell us lies? 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
The Gold market is not manipulated...

Or so Dave will tell you over, and over, and over again.  But Alasdair Macleod knows this market better than Dave.... and here is what he says,

http://www.zerohedge.com/news/2014-09-14/why-rigging-gold-market-matters

Therefore, gold is unlike other assets because a rising gold price reflects an increasing perception of general financial risk, ensuring downward pressure on other financial asset prices. So while the big banks are making easy money ignoring risks in equity and bond markets, they will not want their party spoiled by warning signs from a rising gold price.

This is a long way from proof that the gold market is manipulated. But the big banks, and we must include central banks which are obviously keen to maintain financial confidence, have the motive and the means. And if they have these they can be expected to take the opportunity.

So why does it matter if the gold price is rigged? A freely-determined gold price is central to ensuring that reality and not financial bubbles guides us in our financial and economic activities. Suppressing the gold price is rather like turning off a fire alarm because you can’t stand the noise.

Be careful how you pick your pundits. 

 

Jim H's picture
Jim H
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Posts: 2379
Thank you Rector...

I need to take a chill pill and learn from you. 

davefairtex's picture
davefairtex
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Posts: 5064
commodity correlation wastelands

JimH-

I hardly feel like wasting my breath around here anymore.  This place is a veritable wasteland of commodity correlation talk.

So Jim, I'm a big believer in "what works" - in this case, what works to try and pick a point where buying (or selling) gold and silver seems to make more sense than otherwise.  Once deflation has its way with us, PM will have its day for sure.  On the way to that endpoint, it seems to make sense to me to buy in at a cheaper price rather than a more expensive price.

We all have our different strategies as to how to sort out where prices may be going.  I'm not quite sure what yours is, but mine is evolving over time to try and construct a picture of the world and see how it all fits together.  And so - for me its correlating gold with other stuff that seems to move in the same general direction at the same general time.  Right now, that's other commodities and (inversely) the buck, and that's why I talk about them so much: because it seems to work at least right now.

So what works for you?  How do you determine a good buy point?  Put a different way, what patterns in the past, what indicators, what information can you point to in your experience that told you NOW was a good time to buy - and that actually worked out for you?

Sell indicators are equally interesting.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5064
total debt chart

Here's the reason why debt grew by a trillion dollars.  This chart is a test that requires you to remember events that happened a year ago - see if you can figure out why the debt is up a trillion between last August and now, while the deficit is recorded as only about 600 billion.

This chart is why I insist people not provide numbers in isolation, but rather provide me with a chart that shows context.  It is way too easy for one number, plucked out of context, to give the wrong impression.

Data source: Treasury Direct (TreasuryDirect.gov).  Sorry the data is a bit stale, site is offline right now (!) so I can't update.

 

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