PM End of Week Market Commentary - 12/05/2014

davefairtex
By davefairtex on Sat, Dec 6, 2014 - 7:23pm

On Friday gold dropped -13.40 to 1192.60 on moderate volume, while silver dropped -0.20 to 16.28 on light volume.  PM took a hit at 0830 EST at the time of the Nonfarm Payroll report, which significantly exceeded expectations.  This news was good for the buck, and bad for PM.

Mining shares sold off, with GDX down -2.34% on moderate volume and GDXJ down -3.97% also on moderate volume.  GDX broke cleanly below its EMA 9 and the juniors actually made new lows.  Miners are not looking great right now, with juniors leading the way down.

For the week, gold was up +26.80 [+2.30%], silver rose +0.83 [+5.37%], GDX was up +2.12% and GDXJ actually fell -2.10%.  You can see that the mining shares are definitely underperforming metal at this point, and that's generally bearish for PM.  This might be tax loss selling in the mining shares - seemingly the same situation as last year around this time.

The USD

On Friday, the dollar screamed higher after that Nonfarm Payrolls reoprt, breaking to new highs, closing up a big +0.72 to 89.36.  Virtually every bit of good economic news from the US causes this reaction these days.  The Euro made new lows, Dollar/Yen made new highs, Pound made new lows - it was a sea of selling other currencies and buying the buck.

On the week, the dollar was up +0.95 [+1.07%] +0.05 to 88.41.  The dollar uptrend remains firmly in place.

Miners

On Monday, mining shares shot higher, recovering most of the losses from last week.  For the rest of the week however, miners just were not able to break above the MA 50, which acted as resistance, and they finally sold off on Friday.

The junior miners didn't even make it as high as the 50, they look much weaker than their larger cousins.  I never like it when juniors underperform, it always seems to lead someplace bearish sooner or later.

US Equities/SPX

The US equity market inched higher Friday, up +3.45 [+0.17%] to 2075.37.  Given that the buck was up +0.81%, such a tepid move higher in SPX on great payroll numbers may mean that SPX is getting tired.  When markets only rally modestly on great news, that's a sign of weakness.  On the week, SPX was up +7.81 [+0.38%].  VIX was down this week -1.51 to 11.82.  Sub-12 VIX on the weak SPX move suggests to me that the bears have given up.

For me that's a contrary indicator; the market enjoys disappointing the largest number of participants.  Perhaps once all the bears give up, then we'll get a correction.

Gold in Other Currencies

Gold had a decent week in dollars, but with the strong dollar, that means gold in other currencies really moved higher.   For instance, Euro, Ruble, and Yen holders are seeing much stronger appreciation gold than we are.  Gold works really well as a store of value (vs other currencies) when your own currency is deprecating.

Rates & Commodities

Bonds (TLT) had a see-saw battle this week, rising, then falling - closing the week down -1.12 by the end.

JNK dropped too, down -0.67%.  Junk bonds from shale miners are probably contributing to the downfall. 

Commodities were down slightly this week, off -0.38%.  WTIC dropped -0.36, Brent was down -1.08.  It was a mixed bag for commodities overall this week, with all the good news happening on Monday, followed by a slow and steady descent through the other four days.  On the weekly chart WTIC looks ok, but the behavior after the large rally Monday has not been reassuring.

Physical Supply Indicators

* Premiums in Shanghai vs COMEX dropped -4.33 to +4.74 over COMEX.  Deliveries also dropped off this week.  Demand still seems reasonable but it has weakened somewhat.

* The GLD ETF gained +3.28 tons of gold, and has 720.91 tons remaining.

* ETF Premium/Discount to NAV; gold closing (12:59 close price on December 5) of 1191.90 and silver 16.29:

  OUNZ 11.89 +0.03% to NAV [up]
  PSLV 6.38 +0.97% to NAV [down]
  PHYS 9.86 -0.34% to NAV [up]
  CEF 11.58 -10.45% to NAV [up]
  GTU 40.20 -8.72% to NAV [up]

Most ETFs increased premiums (or had shrinking discounts) this week except for PSLV, which lost 3% of its premium.  (You can see this declining premium in the chart PSLV:SLV at stockcharts.com).

Futures Positioning

The COT report is good through Dec 2, 2014, when gold was trading at 1198.40 and silver was trading at 16.48.

This week's COT report in gold saw Managed Money drop -10.4k shorts and increase +3.8k longs, while Producers sold -6k longs and added +2.6k shorts.  It looks like most of the rally was short-covering action.

In silver's COT report, Managed Money dropped -1.5k longs but also covered 7.3k shorts, while Producers added +1.8k shorts and 1.7k longs.

From my perspective, silver seems to be seeing more buying than gold; gold's big move was mostly short covering, which says that the move was more about shorts running in fear than it was about traders wanting to go long.  It is only traders going long that will keep gold moving higher over the longer term.

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

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

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

The rally in PM brought the EMA 20 to UP for gold, and NEUTRAL for silver.

Summary

Gold and silver (and many other commodities) fell hard on Monday in Japan trading only to rebound strongly on massive volume during London hours - the price action looking to me like both gold and silver most likely had put in a significant low.  However, over the next four days, none of the commodities I watch were actually able to close above the high they made on Monday, so the lows remain as of yet unconfirmed.  It seems hard to imagine that the massive rebound that silver had Monday won't end up marking a low - but it is possible.

From a ratio & averages perspective, the big rebound on Monday pulled the EMA-20 for gold up to positive, and for silver to neutral; the other averages remain falling, and bearish.  The gold/silver ratio dropped -2.20 to 73.23; that's good, but the ratio still remains in an uptrend, which is bearish.  The miner underperformance has caused GDX:$GOLD to turn bearish, GDXJ:GDX to turn quite bearish, with SIL:$SILVER somewhere in the middle.  The miner underperformance makes me nervous.

Physical demand seems modestly positive, down from last week.  Often when gold rallies, those Shanghai premiums drop off.  Western ETF buyers seem to be a bit more eager, however.

If the buck continues rallying, it will make life harder for gold viewed in USD terms - and the miners seem to sell off relatively often on dollar rallies too.  Chairman Draghi of the ECB has said he will start a QE program in January.  Will this help gold?  Maybe it will only help gold in euro terms; it may well cause the Euro to drop further, the dollar to rally, and so the Europeans will see price of gold go up for them.  What we see, of course, may be different.

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1 Comment

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 364
50 Day Moving Average

Dave,

In a number of your posts you refer to commodities in relation to 50MA. Why this particular value? Does it confer confidence that a rally is sustainable?

Cheers,

Luke

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