PM End of Week Market Commentary - 11/21/2014

davefairtex
By davefairtex on Sat, Nov 22, 2014 - 1:17am

On Friday gold rose +7.50 to 1201.50 on heavy volume; silver was up +0.19 to 16.42 on extremely heavy volume.  Both metals made new highs for this cycle, and both ended the week on a high note, which is remarkable given the strong rise in the dollar on Friday.  This says that gold is rising substantially in other currencies - for instance, gold in euros was up +1.94% on Friday alone.

Gold's move higher on Friday came on the heels of two events - the PBOC (China Central Bank) reduced rates, and the ECB Chairman Draghi announced that he really, really is going to print money and buy bonds.  The market seems to believe him, at least for now.

For gold, the EMA-9 has been acting as support this week, and the rally on Friday peaked right at the MA 50.

Miners had modest gains on Friday, with GDX up +0.84% on moderate volume, while GDXJ was up +1.05% also on moderate volume.  Miners were up more substantially, but sold off during an intraday plunge in gold after trading in Europe closed.  Gold recovered from that loss, but the miners really didn't.

For the week, gold was up +13.60 [+1.14%], silver rose +0.12 [+0.74%], GDX was up +4.50% and GDXJ +9.30%.  Steady gains were made everywhere except silver, with abnormally high volume occuring over the last three weeks on gold, GDX, and GDXJ.   Continuing high volume on rising prices supports the case that the low for gold and most likely the mining shares is in, at least for a time.  Silver remains a bit of an outlier.

The USD

On Friday, the buck jumped sharply (and the Euro sold off hard, down -1.29% on the day) when ECB Chairman Draghi announced that he was for sure going to print money this time.  The dollar closed up a big +0.76%, making a new cycle high at 88.36.  The fact that this big move higher didn't absolutely collapse gold and the miners suggests something material has changed in the PM market.  Its bullish.  My sense is, the (COMEX Paper) gold buying may be happening in Europe, based on some intraday trading patterns.

On the week, the buck rose +0.78 [+0.89%] to 88.36, most of the rally happening on Friday.  My hope from last week that the dollar had topped out was invalidated by Friday's rally and the new intraday high in the buck of 88.48.  On a longer term basis, there is some resistance in the dollar chart from previous highs at 89 (dating back to June 2010) and another previous high as 90 set in March of 2009.  That was quite a long time ago.  Its a bit astonishing to think about what was going on back in March of 2009, and to see the dollar nearing that same point.

Miners

During the week, the miners continued moving higher, and are fast approaching their MA 50s.  Normally this moving average acts as resistance on rebounds, so it would not be surprising to see miners take a rest and/or sell off after hitting these averages.  What's more, miners had a nasty sell-off on Wednesday on high volume, which makes me a bit nervous.  One day of heavy selling isn't enough to end the rally, but if we get another one or two, the miners will likely reverse and start to drop.

Price closing above that MA-50 would be bullish, as would the EMA-9 crossing over the 50.  You can see in the chart below what happened the last time the EMA-9 crossed the 50 to the downside...miners dropped for three straight months.

The GDX:$GOLD ratio climbed again this week, GDXJ:GDX is now climbing as well, and SIL:$SILVER is doing the best of all, moving clearly above its MA-50.  Go silver miners!  Traders are bidding up silver miners well in advance of silver itself.  I assume silver miners are leading silver itself higher.  Well, I hope they are.

US Equities/SPX

The US equity market broke higher this week, up 23.68 [+1.16%] to 2063.50.  My thoughts of a possible correction (that didn't pan out) really point out just how strong this equity market is right now.  Is this because of US buyers?  Check out this chart of SPX valued in Yen.  Market is up 24% in five weeks from the viewpoint of Mrs. Watanabe in Japan.  Do you see any hint of a top from Mrs Watanabe's viewpoint?

Martin Armstrong suggests that if you view financial asset prices through the lens of just your own currency, you will only have a partial view of what is actually going on - "and you might as well send your money to the big boys in NY."  I need to keep reminding myself of that whenever I look at these charts.

Gold in Other Currencies

With that last comment in mind, I'd like to start a new section this week - viewing gold's price action from other currencies.  In the chart below, I'm charting gold starting from 2013 from a collection of foreign currency perspectives.  I've converted them all into dollars for easier viewing, but each line is the pattern traced out for gold as though it were viewed starting from Jan 2013 through today in each of the nations listed.

Note how well gold in Rubles is faring.  The ruble itself has fallen about 35% vs the dollar since 2013.  In ruble terms, gold has actually rallied since then!  So when Russian readers of PP read the site, they are probably wondering why the Americans are whining about manipulation.  Holders of gold in Russia are sitting pretty!  In Japan, they are also probably wondering what all the fuss is about.  Gold is down maybe 6% from their perspective.

Its only here in America that gold is off 30% from January 2013.  I'm not saying gold is in a bull market, but I am suggesting that we can't simply view gold just from the US perspective.

Rates & Commodities

Bonds (TLT) moved slowly higher this week, closing up +0.51%, and look ready to break up and out of its five week trading range.  Money flow into the buck seems to be helping TLT at least to some degree.

JNK had a big rally on Friday, wiping out losses from the other four days this week.  It ended up flat on the week as a result.  On the daily chart it still looks weak, but if we are trying to use weakness in JNK as a signal of what might happen to SPX, so far weakness in JNK hasn't translated over to SPX.

Commodities rose this week, squeaking out another gain and closing up +0.33%.  On the daily chart, the commodity index has moved higher above its EMA-9, and it is rising slowly to meet its descending MA-50.  We might have a low in commodities at long last.  If the commodity index crosses its MA-50, that will be a big deal.  This in turn should help silver, and then gold.

WTIC rose this week, up +0.79 [+1.04%], managing to close above its EMA-9 for two days in a row.  It hasn't done this for two months.  Brent rallied +1.18 [+1.49%] on the week, and managed to close above its EMA-9 on Friday.  It is possible we have a bottom in oil - although after such a long downtrend, I'd be a bit cautious about popping the champagne corks just yet without a little more upward progress.

If you have been waiting for oil to print a low before buying oil equities - you're too late.  They bottomed about a month ago.

Physical Supply Indicators

* Premiums in Shanghai vs COMEX are down -1.56 to -1.27 over COMEX.  Delivery volumes remain quite strong, but premiums at Shanghai are now negative.

* The GLD ETF gained +0.29 tons, with 720.91 tons remaining.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on November 21) of 1200.03 and silver 16.45:

  OUNZ 11.93 -0.40% to NAV [down]
  PSLV 6.52 +2.18% to NAV [down]
  PHYS 9.88 -0.90% to NAV [down]
  CEF 11.64 -10.74% to NAV [down]
  GTU 39.41 -11.20% to NAV [down]

Premiums are down across the board, most by at least 1% if not more. 

Futures Positioning

The COT report is as of November 18th, when gold was trading at 1197 and silver at 16.17.  During this time, PM staged a massive rally on heavy volume - it all happened last Friday.  Let's see what showed up in the COT.

For gold during this period, Managed Money covered short -8.7k contracts and bought +9.1k longs, a significant move.  Producers added +9.7k shorts, but also added +7.3k longs.  Managed Money looks to have started reversing its short position on the big move higher last Friday.  Its even more reassuring this rally wasn't just about short covering, it was also about Managed Money actually going long.  That's bullish.

In silver, Managed Money covered -2.4k shorts, while longs were mostly unchanged.  Producers added +1.3k shorts but also +2.6k longs.  Not much changed - it does not look like Managed Money is particularly convinced that silver will be moving higher.

In both metals, Producers are actually increasing long exposure.  This is unusual behavior to me - I have to think its bullish.

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

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

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

Rally in PM has finally started to move the EMA-20 back up again for both gold and silver - and price for both metals are now above their respective EMA-20s as well.

Summary

Gold continued moving higher, while silver was engaging in a bit of a cup & handle pattern on the week, with a modest breakout on Friday.  Its all bullish activity, even more so given the big dollar rally that happened on Friday.  China lowered rates, and Dragi said (once again) that he was really going to print money, and gold (in Euro terms) had a great day.  Even in dollar terms, things worked out fairly well.

For both PM and the miners, price has crossed over the EMA-20 and that has enabled the EMA-20 to start rising for all items.  The longer term MA-50 and MA-200 are still heading downhill.  I call this state "early bullish."  The gold/silver ratio rose +0.34 on the week, which is bearish, and it remains above its EMA-20, lagging behind the metals and the miners. GDX:$GOLD moved higher and looks bullish, GDXJ:GDX has recovered and now looks bullish, while SIL:$SILVER has exploded higher and looks the most bullish of all.  Ratios are all positive, gold/silver ratio is lagging, and the moving averages are now starting to turn bullish too.

The COT reports showed Managed Money reversing their short position in gold, while producers added a few more shorts than longs.  In silver, there was some short covering from Managed Money and a few increased shorts from the Producers and a few more longs.  Producers in both categories seem to be going long, which is unusual for them.

Shanghai premiums have gone negative, ETF premiums fell, but gold stopped leaving GLD.  I'd say physical demand is neutral right now.  Still, deliveries of gold in Shanghai are quite high.  I'm just not seeing premiums.  Perhaps Shanghai changed how it operates in some way?  I need to investigate further.

The big news of the week is that gold did well even though the dollar staged a large move higher.  Gold is starting to do well in other currencies, which is great news.  Silver is still underperforming; hopefully that will change if (when?) the commodity index starts to rally.  At that point, all the factors will be in place for the gold rally to continue.

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3 Comments

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3083
Fantastic update

Dave -

Just wanted to applaud a particularly fantastic update this week. Really like the new section viewing gold priced in other currencies - as MA says, we're only seeing part of the story if we merely look through the lens of the US$.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 837
gold line : Russia

hmm, looking at what's happening with the Ruble, I wonder if that also has to do with the military drama we've been seeing over the Baltics and Canada?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
thanks adam

Glad the chart worked.  It was a struggle figuring out a way to display other-currency performance for gold in a framework people can understand - if you use dollars, "gold in rubles" doesn't provide you with much of a sense.

Armstrong really has affected my thinking.  In some sense, he is the "markets" version of Treebeard.  He sees all markets as connected - fractally - just as in the physical universe, in both time and in price, around the world.  The central planners (or politicians) trying to manipulate things in some basic, straightforward way end up disturbing a complicated web they really don't understand and as a result surprising unintended consequences result.  But just as in the physical world, "the markets bat last."  (My words, not his).

It reminds me of the descriptions of the complexity of our gut biome, or of a forest ecosystem.  "If we just poke here...it should solve the problem."  Or not.

In 1985, the G-5 manipulates exchange rates to help trade, USD drops 40% - foreign money sells US assets and flees, nothing changes domestically, but the 1987 stock market crash is the result.  Surprise.

Another example was "the taper tantrum" last year.  Fed spends 3 trillion to move long rates lower, only to have the market reverse all that "progress" once they announced the taper.  Its only because the Eurozone and Japan are doing so much worse (and money is pouring in from outside the country) that it didn't happen again.

The Fed isn't in control of anything, they have a hammer and every problem looks like a nail, so they pound away and hope for the best.  Luckily for them, the US is the core economy.  Money comes here to hide, so the Fed ends up looking good.  Its all true until it isn't, of course.  At some point, the chickens will come home to roost here too, once everything else blows up.

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