PM End of Week Market Commentary - 11/28/2014

davefairtex
By davefairtex on Sat, Nov 29, 2014 - 6:32pm

On Friday gold dropped -32.30 to 1165.80 on very heavy volume, while silver dropped -1.10 to 15.36 on very heavy volume too.  PM's move lower came alongside a virtual collapse in oil prices; both gold, silver and oil all closed at their day lows, and volume was heavy.

From the technical perspective, gold was unable to move above its MA 50 over the past week; when an uptrend meets resistance, it sometimes backs off for a time, and sometimes it sells off hard.  Gold chose the "sell off hard" option, likely influenced by oil's Friday price collapse.  If buyers at COMEX don't appear soon, gold will retest the 1130 lows.  I believe  oil and politics will play an important part in the outcome.

Silver had an even worse time than gold, and is not far from its 15.04 lows set four weeks ago.  Given the velocity of the drop on Friday, silver appears likely to retest those lows quite soon.  The massive drop in silver on Friday caused the gold/silver ratio to leap higher, up +3.11 (in one day!) to a new multi-year high of 75.87.

Gold mining shares had a terrible day with GDX down -8.66% on extremely heavy volume, and GDXJ dropped -11.95% also on extremely heavy volume.  The massive selling, almost panic selling in the ETFs came on what is normally a very slow trading half-day in the US.  Interestingly, volume in the actual mining shares was not nearly as heavy as the trading in GDX.

For the week, gold was down -35.70 [-2.97%], silver dropped -1.06 [-6.45%], GDX lost -7.62% and GDXJ was down -12.50%.

The USD

On Friday, the buck climbed sharply higher, up +0.73 to 88.41.  Best I can figure is, the collapse in oil prices drove traders into the buck.  The Yen, the Pound, and especially the Canadian dollar had bad days vs the dollar.

On the week, the dollar rose +0.05 to 88.41.  This week, the USD dropped three days in a row, then rallied hard on Friday.  Every time the dollar looks like it might correct, something happens, and back up it goes.

Miners

For most of the week, the miners looked positive, climbing slowly higher and at one point closing just barely above the MA 50.  Everything was looking reasonably bullish right up until Friday.  When gold sold off, traders unceremoniously dumped their mining shares.

When the other metals and energy sell off hard, the instinctive reaction of the western hedge fund traders is to dump PM and especially the mining shares, and so we see behavior like this:

This week, GDX:$GOLD ratio knifed lower, as did GDXJ:GDX.  Because of the huge drop in silver, the SIL:$SILVER ratio is actually still doing relatively well.

US Equities/SPX

The US equity market moved up +4.06 to 2067.56.  The collapse in oil didn't seem to affect US equity prices much at all - well, except for the prices of energy equities, which were hammered harder than the miners!  Even so, SPX managed to make a new weekly closing high once again.

Here's a peek at the oil services ETF I follow: compare it to the mining chart above; it gapped down below the previous low, and just kept selling off.  Its a massive loss in one day for oil services.

Gold in Other Currencies

While gold had a bad week in most currencies, gold screamed higher this week when valued in in Rubles.  That's because over this past week, the Ruble dropped 10% against the dollar - 10% in just one week!  This is a really massive move.  For all of the fine words spoken by the Russians, for all that Putin is seen by some in the West as the Grand Chess-master, big money is panic-selling out of Russia.

The majority of the move came in the past three days.  The moves in the Ruble over the past six months are very closely correlated with the price of oil.  If I hadn't already included so many charts in this report, I'd give you a chart of that too.

Rates & Commodities

Bonds (TLT) broke sharply higher this week, breaking out of its 5 week consolidation, closing up +1.99%.  It was a good week for bonds.

JNK sank on Friday - likely all those junk bonds issued by the shale companies dragging JNK lower - closing down on the week -0.73%.

Commodities dropped -2.68%, with all of that move happening on Friday.  Commodities made new lows, dragged down by the collapse in oil prices.  Many different commodities (mostly energy and metals) had a very bad week:

  • Copper -5.56%
  • WTIC Crude -13.99%
  • Gasoline -11.01%
  • Natgas -6.99%

With WTIC being the poster child for losses this week, this requires a chart.  We can see that WTIC did manage to squeak over its EMA-9 last week, only to sell off this week with the big crash happening on Friday, as oil blew through the previous low at 73.25.  The bad news (for oil) from OPEC happened at the same time the old low was broken, which just piled selling on top of selling.  Oil closing at its dead lows doesn't help the picture either.

We can see what this did to the rest of the commodity index.  Primarily it was metals and energy that were hit, but you can see that the overall index had a bad day because of oil's collapse.

Physical Supply Indicators

* Premiums in Shanghai vs COMEX jumped +10.63 to +9.07 over COMEX.  Delivery volumes are also strong.  Premiums say that gold is getting scarce in Shanghai right now.  Something to keep an eye on.

* The GLD ETF fell -3.28 tons, with 717.63 tons remaining.

* ETF Premium/Discount to NAV; gold closing (12:59 close price on November 28) of 1166.60 and silver 15.46:

  OUNZ 11.66 +0.17% to NAV [up]
  PSLV 6.20 +3.40% to NAV [up]
  PHYS 9.64 -0.52% to NAV [up]
  CEF 11.12 -11.14% to NAV [down]
  GTU 38.53 -10.68% to NAV [up]

Most ETFs increased premiums (or had shrinking discounts) this week.

Futures Positioning

There is no COT report this week because of the Thanksgiving holiday.

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 big drop in gold and silver on Friday took the EMA-20 right back to negative again for both metals.

Summary

Everything looked great this week in PM until oil prices collapsed after OPEC decided to keep pumping oil, which seemed to surprise the energy market and led directly to a collapse in oil prices.  Energy and metals are relatively closely correlated, so when oil drops hard, PM tends to follow.  To make matters worse, the buck rose sharply as well.  Who wants inflation protection when oil is at $65/barrel and the dollar is rising?  Apparently none of the hedge funds, whose big money tends to drive PM prices at the COMEX.

From a ratio & averages perspective, the big decline on Friday caused the EMA-20 to start dropping once again for both gold and silver.  That's bearish.  The gold/silver ratio rose a big +2.72 on the week, which is bearish.  GDX:$GOLD dropped and is starting to look bearish, GDXJ:GDX dropped too, and only SIL:$SILVER still looks somewhat bullish.  In one day, things have turned quite a bit more bearish.  Blame OPEC.  It turns out that when oil prices collapse $7 in one day, it is bearish for inflation expectations, and thus is bearish for PM.

Shanghai premiums jumped sharply higher, ETF premiums mostly rose, and gold continued leaving GLD.   What's more, physical deliveries at Shanghai are quite strong this week as well.  This showcases the difference between buyers in China and buyers in the West.  This week, physical demand seems strong - and premiums suggest that gold is scarce in Shanghai.  This should help put a floor under the price of gold.

The big drop in gold came just before the Swiss Gold referendum scheduled for this Sunday.  This timing was quite convenient - perhaps too convenient.  I believe the Swiss banking power structure does not want to have their hands tied when it comes to the ability to print money, and this referendum would do exactly that.

When oil and the other metals drop, the path of least resistance for PM is downhill, since they all tend to move in the same general direction.  Given how fortunate this move lower in gold is for the Swiss banking establishment, I would not be surprised if they tried to help matters along by pushing gold lower.  While it is exceedingly difficult to control the trend over long periods of time, it is not that difficult to push prices quickly lower under conditions where they would already tend to be heading downhill.  To me, it is equivalent to pushing a guy down a hill when he was starting to walk slowly down by himself: with the push, he gets to the bottom a whole lot faster than he otherwise would have.

If the initiative passes, I'd expect this to be quite bullish for PM, especially after this recent sell-off.  I'd expect the snap-back of gold to be sharp, with silver trailing behind.  My sense is the referendum probably won't pass, but I hope I'm wrong.

In the meantime, oil and the dollar will most probably continue to strongly influence gold and silver prices.  If oil continues lower, and/or the dollar continues rising, gold and silver are probably going to continue having trouble.  Based on the speed of the decline, silver looks especially vulnerable.

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14 Comments

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 761
Ruble oil price correlation

Davefairtex wrote:

...over this past week, the Ruble dropped 10% against the dollar - 10% in just one week!  This is a really massive move. ...big money is panic-selling out of Russia.

The majority of the move came in the past three days.  The moves in the Ruble over the past six months are very closely correlated with the price of oil.  If I hadn't already included so many charts in this report, I'd give you a chart of that too.

I am too much of a chart klutz to plot $USDRUB against Brent on one chart, but I am able to look at two charts side by side.  Here they are, for a two year time scale:

Another obvious factor is the effect of sanctions.  There have been three rounds of Western sanctions against Russia this year, in March, in April, and in July.  Unfortunately, this XE currency chart doesn't label the x-axis by month.

Another look at the ruble and its relationship to the price of oil (Forbes blog, from 2012)

Here is the Wall Street Journal article on the fall in the Russian Ruble on Friday.  Best piece of data from that:  

"...around 50% of the country’s annual budget revenue stems from oil and gas exports."

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5464
silver hit in Japan

About 35 minutes after the opening of trading in Japan, silver was driven down to 14.15 in a massive spike lower, which cleared out a bunch of stops and within 30 minutes bounced back up to the 14.80s.  That's a $1.35 [9%] trading range for silver, which is a really massive move.  I'd like to see price return to 15.50 before I label the rebound as possibly bullish, however.  If it doesn't, we probably go lower just because the momentum in commodities is downhill right now.

The shorts will continue hammering at price until buyers step up at COMEX.  You and me buying silver coins won't stop the bleeding, big money needs to decide owning silver is a good idea.

We will get to buy those silver coins cheaper as a side effect, however, which is always nice.

 

dryam2000's picture
dryam2000
Status: Gold Member (Offline)
Joined: Sep 6 2009
Posts: 292
Silver going way lower

Silver will be going way lower.  US equities will continue to stay up in a magical way as everything else deflates.  

Trun87114's picture
Trun87114
Status: Bronze Member (Offline)
Joined: Apr 28 2013
Posts: 80
Swiss Miss

I know Dave is primarily a technical analysis type but from a fundamental pov, the drop could have been related to the Swiss gold referendum failing today.  Maybe some big money thought to take advantage of that, got what they could and then covered?

AKGrannyWGrit's picture
AKGrannyWGrit
Status: Gold Member (Offline)
Joined: Feb 6 2011
Posts: 474
Side Effect

Yep Dave - love that side effect of cheaper coins! Sometimes it's painful to buy more but better to buy low and just sit back and watch when the price starts to move. It's amazing to me how few people I talk to actually have precious metals.  Was sad the Swiss gold vote didn't pass.  Common sense is scarce these days.

AK Granny

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
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Posts: 5464
swiss or oil

trun-

Certainly part of the move down could be about the Swiss referendum, but my gut says that would affect gold more than silver.

Silver is more the industrial metal, and I see it as more correlated with oil than gold is.   From what I can tell, silver loves commodity price inflation, and gets upset when the rest of the commodities are deflating.

Check out the weekly oil chart.  Especially last week's Big Red Candle of Capitulation.

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 761
Swiss gold initiative as seen by Zurich and Geneva newspapers

Translate tools needed in order to render these articles in English:

Neue Zürcher Zeitung:  "Credibility of the National Bank Secured"

Tribune de Genève:  The Swiss have not disavowed themselves of the elites regarding the gold of the Swiss National Bank

A nice comment, translated from German, following the NZZ article:

GionSaram • 8 hours ago

Why should I trust a National Bank that has, in principle, outsourced the decisions on the interest rate and the exchange rate of the franc to the ECB? [While the national bank is hedging only a little with gold], we the citizens can still [hedge in gold] on a private basis.

Regardless of GionSaram's sentiments, or ours, most Swiss seem to see gold more like how Charlie Munger and Willem Buiter see it. 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5464
PM bounced back

I'm surprised and delighted that both silver and gold have bounced back dramatically from their lows earlier today.  Gold is back in the green and printing a hammer candle, while silver is still down slightly, and is printing a doji.  Both are extremely positive outcomes from my perspective - if they do nothing but hold these prices through to the close today, it's a very good outcome.  Then tomorrow we just need a close above today's high and PM will have probably marked a low.

I really love these deep drops that get bought.  They make great trend reversal signals, and they don't happen all that often, so when they appear, they are usually pretty meaningful.

It will help if oil and copper can recover too.

Let's just hope these prices hold through to the close.

 

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2247
I wondered

...what things would look like in the PMs this morning, after watching gold dive and silver drop under $15 oz last night! 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2387
miners biasing higher this morning in premarket

Looks like the bounce is being interpreted as a capitulative bottom of sorts... especially after Friday's rout in the miners.  Lot's of physical buying over the weekend and into last night.  Word is Provident is out of Eagles.  Texas PM's still has Eagle monsters, but they have no other sovereign Silver ounce coins. 

Signs of awakening;

http://www.zerohedge.com/news/2014-12-01/three-reasons-why-moodys-just-d...

Duh. 

Dave,  I have now heard from two sources in recent podcasts... one being Jim Willie (OK, edgy for sure).. the other being Rob Kirby (not so edgy) in the interview below... that if you want Gold, in ton quantities, in Asia, you are going to pay 35% (Willie) to 50% (Kirby) over spot to get immediate delivery.  Kirby actually does sourcing for clients, so I don't have any reason to believe he is lying... are you hearing anything like this? 

  http://usawatchdog.com/gold-selling-for-at-least-50-over-spot-in-asia-ro...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5464
premiums

JimH-

I haven't heard anything about premiums being 50% over spot.  My read on Shanghai (as of Friday) was the premium was around $9.

The reversal earlier today was really impressive.  The shorts are running for the hills right now.  Trader Dan thinks it has to do with Moody's downgrade of Japan; I'm not so sure, but in some sense it doesn't matter.  Whatever the cause is, the correct answer for me is buy.  This reversal looks stronger than the one off the 1130 lows, and since that low held overnight, for me this is bullish - gold made a higher low and a higher high in the same day!

Copper is rallying hard too, so is oil, and silver is outpacing gold.  If it were just gold on its own, I'd be less confident.

Miners were a bit late to the party, but they are catching up now.

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2840
Arrythmia

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5464
reversals

Reversal days like today happen because the shorts try to push the market lower - and in the case of silver, they even succeeded wildly for a time.  But at some point, the buyers appear, and then those victorious shorts have to scramble and cover, and that combination of buy-to-cover from the shorts and buying from the new longs (who bought at deep discounts, yay for them!) results in a very powerful rebound.

This scares even more shorts, and brings in more buyers, who don't want to miss out at getting in on these really low prices - and were just waiting for the reversal before jumping on board.

In some sense, the more wildly the shorts succeed, the more vicious the rebound can be once the real buyers appear.  And the lower it goes, the more buyers will show up, resistance levels get popped one by one, resulting in more shorts bailing out, etc.

That's why I say its very difficult and/or expensive to manipulate the trend.  Once the fundamental buyers decide that the price is too good to pass up, it gets extremely expensive to keep the market down.  And then these fundamental buyers will start demanding delivery, and then all the paper gets converted into real stuff...and if there is even a whiff of shortage, then things really move higher.

Looks like silver's rally has stopped at its 50 MA.  Gold has kept on going.

Oliveoilguy's picture
Oliveoilguy
Status: Platinum Member (Offline)
Joined: Jun 29 2012
Posts: 578
Buy and Hold Guy

As a buy and hold guy I have to say that days like this keep me happy for a long time.  OK ..back to building my greenhouse.

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