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

davefairtex
By davefairtex on Sat, Dec 13, 2014 - 11:20am

On Friday gold dropped -5.60 to 1222.10 on moderate volume, while silver dropped -0.06 to 17.03 on light volume.  Both metals traded mostly sideways for most of the trading day.

Mining shares were not so fortunate, with GDX selling off -1.82% on moderate volume, and GDXJ down -2.32% also on moderate volume.  GDXJ:GDX made new lows again, the juniors leading the senior miners lower.

On Tuesday, gold launched off its 50 MA to new highs on heavy volume, and so by Friday the momentum from that move pulled the EMA 20 through the MA 50.  After the high volume breakout, all the subsequent selling days have been modest and on relatively lower volume.  These are all positive signs.  All we need now is a breakout and a close above the previous high of 1257 to break the longer term downtrend pattern, and that should drag even more momentum buyers into gold.

For the week, gold was up +29.50 [+2.47%], silver rose +0.75 [+4.61%], GDX was down -0.53% and GDXJ dropped -2.55%.  Silver is leading gold higher, while junior miners are leading the seniors lower.  Its a curious state of affairs that doesn't happen too often.  Presumably if the metal keeps rising, the mining shares will eventually have to move higher too.  Theoretically anyway.

The USD

On Friday, the dollar dropped -0.33, moving below its EMA-9.  Money appears to be leaving both the US equity market and the dollar; possibly foreigners are ringing the cash register on their big dollar/SPX gains and bringing their money home.

On the week, the dollar was down -1.03 to 88.33, reversing last week's big gains.  This resulted in a bearish engulfing candle print on the weekly chart; along with a bearish divergence in the RSI, this suggests that the dollar may be slowing down and/or ready to reverse.  Of course I've said that before, and it has continued to move higher, so right now this is just a possibility.  One might even say its wishful thinking.

Miners

The miners continue to have trouble moving higher.  GDX can't seem to move above its falling 50 MA, which is not a great sign.  It hasn't broken down yet, but it isn't looking all that healthy.

The junior miner chart looks a whole lot more depressing.  GDX appears ready to make new lows.  I'm not sure what will rescue the junior mining shares - traders just aren't interested in junior miners right now.  If you are looking to buy, you might want to wait until some other traders show up first before trying to catch the falling knife.  Translated: wait until that GDXJ:GDX ratio starts climbing again.

US Equities/SPX

The US equity market sold off hard again on Friday, down -33.00 to 2002.33, with the selling stopping right at the 50 MA.  SPX closed at the dead lows of the day.  My sense is we have some more downside left based on the velocity of the current move down; between the failed rally Thursday and the big red candle Friday, its not looking like the "buy the dip" crowd is ready to show up just yet.  The VIX rose another +1.00 to 21.08.

On the week, SPX was down -73.04 [-3.52%].  It was a rare bad week for equities.

Gold in Other Currencies

Gold had another good week in dollars, but it was a mixed bag from the standpoint of foreign gold holders.  Gold in Yen was almost flat, while gold in Ruble terms went absolutely nuts.  The Ruble was down a full 9% this week vs the buck - that's probably because crude oil was down almost that same amount.

Rates & Commodities

Bonds (TLT) had a great week; dropping equities usually encourage bonds to rally, and this week they did so: TLT rose +4.30% breaking out to new highs.  The yield on the 20 year dropped to 2.45%.  Falling yields sure do look like deflation, egged on by the dropping equity market.

As well as TLT did, JNK did poorly, dropping -3.83% blowing through support and now in free fall.  Nobody is so eager to chase those yields now.  That IEF:JNK trade I mentioned a couple of months back is looking pretty sharp right now.

Commodities continued lower, off -0.71%.  That was a mere pittance compared with oil's plunge:  WTIC fell -8.14 [-12.40%] to 57.49, and Brent dropped -7.22 to 61.85.  Oil price continues to be hit by bad news; Friday the IEA suggested world oil demand would be lower than forecast.  As market readers, we don't care as much about the particulars of the news item as we do about the market's reaction to it.  If the market continues to sell off on bad news, we're probably headed lower.

As soon as the market stops selling off on bad news - that's a sign that the low might be near.

Check out the weekly chart on oil.  I haven't seen a weekly chart like this since 2008.

Remember last week how the SPX failed to rally on a great payrolls number?  That's an example of that same behavior, just in reverse.  When the market fails to rally on great news, its not manipulation, its just a sign that the market may be tired and perhaps is ready to fall.

The fact this isn't affecting gold - it just seems like a miracle to me.  Clearly there are a bunch of someones out there buying gold regardless of what antics oil is up to.

Physical Supply Indicators

* Premiums in Shanghai vs COMEX fell -6.73 to -1.99 under COMEX.  Shanghai is now in discount.

* The GLD ETF gained +4.84 tons of gold, and has 725.75 tons remaining.  Gold is flowing from East to West!

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

  OUNZ 12.21 +0.13% to NAV [up]
  PSLV 6.62 +0.25% to NAV [down]
  PHYS 10.10 -0.48% to NAV [down]
  CEF 12.04 -9.89% to NAV [up]
  GTU 41.20 -8.79% to NAV [down]

ETFs were mixed this week, but movements were relatively minor.

Futures Positioning

The COT data is valid through Dec 9, 2014, when gold was trading at 1231.50 and silver was trading at 17.08.

This week's COT report in gold saw Managed Money drop -9.2k shorts and load up on a big +12.8k longs, while Producers added +12.3k shorts as well as +2.7k longs.   Managed Money has covered about half their total short holdings, but the part I like best is that the new longs in Managed Money outnumbered the short covering.  That's what we need to see to get a sustained move higher - more new longs from Managed Money.

In silver's COT report, Managed Money mostly covered short, dropping -5.0k short contracts while adding only +594 longs.  Producers added +1.6k shorts and dropped -1.0k longs.  While silver is doing well, its not because Managed Money is backing up the truck and going long.

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

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

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

The continuing rally in PM now has both EMA-20 rising, and both 50 MA flat.  That's quite the improvement over six weeks ago when everything was heading downhill.

Summary

Gold and silver rallied strongly on Tuesday this week, rising through their respective 50 MAs and confirming the low on the big silver rebound from two weeks ago.  And after the Tuesday rally, buyers continued showing up to buy the intraday dips, which to me looks good.  Its all bullish price action in the metals, and that stands in stark contrasting to the mining shares, that rally weakly on the good days, and steadily sell off on all the other days.  At some point the selling pressure in the miners will end - perhaps when tax loss selling season is over.

From a ratio & averages perspective, the continuing PM rebound pulled both EMA-20 positive, and moved both MA 50 to flat, which is a bullish change.  The gold/silver ratio dropped again, -1.49 to 71.74, closing below its 50 MA for the first time since Aug 2014.  It too is looking bullish.  GDX:$GOLD ratio continues falling and looks bearish, and so does the GDXJ:GDX ratio which is making new lows almost every day.  It is giving off the most bearish signal of all the indicators.  Nobody wants the junior miners.

Physical demand seems slightly negative, down from last week.  Those buyers in Shanghai aren't as eager as they were last week; Shanghai often moves to discount after a gold rally.

The buck may be slowing down as it approaches 90 - that's what the technical indicators are suggesting to me anyway.  If the buck's advance is halted at 90, that should help gold continue rallying.

In the meantime, if the buyers can continue showing up at the COMEX, gold will move higher.  So far gold has continued higher in the face of some really atrocious downside price action by oil - oil is strongly signaling economic weakness, and yet both gold and silver seem to be powering higher.  Something is up here, I don't know what it is, but the standard relationships aren't holding right now.  We'll find out why in the due course of time, but for me right now its a puzzle.

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6 Comments

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Physical Gold

Dave said,

Something is up here, I don't know what it is, but the standard relationships aren't holding right now.  We'll find out why in the due course of time, but for me right now its a puzzle.

I believe that something is stress in the physical Gold market.  First off, when the GLD ETF adds 5 tons of Gold, while at the same time China SGE withdrawal stat's show continued demand at the 50+ ton level on a weekly basis, I would hardly call this movement of Gold East to West.  Here is the chart; 

https://www.bullionstar.com/blog/koos-jansen/china-net-gold-import-1212t...

Truth in Gold is hard to come by... it can only be arrived at by connecting dots diligently.  We have highly financialized and fractionally reserverd Gold markets whose sole purpose IMO is to obfuscate physical reality while allowing bankers to profit even more.  Today I want to connect some dots related to one particular trend in the physical Gold market that speaks to the increasing loss of faith in counterparties.  This is the same concern that is causing sovereigns to repatriate Gold from the US and England.  

The loss of faith in counterparties shows up in another way - the desire to shift unallocated Gold accounts to allocated Gold.  This is a huge hidden form of stress on the physical markets... because it takes Gold out of the paper pools and out of the "float".  

At 11:20 in the following interview, Andrew MaGuire talks about this, giving the example of one large pension fund that he knows of that has recently moved from unallocated to allocated.

  http://kingworldnews.com/kingworldnews/Broadcast/Entries/2014/12/13_Andr...

As well, Koos Jansen shows unequivically, from central bank data, how Austria has been doing the same, shifting 50 of the 75 tonnes of unallocated Gold they held at the beginning of 2013 to fully allocated as we approach the end of 2014... that is like a stealth 50 tonne demand on the market over this period.  Multiply this many times and you get the idea what is happening.  

The Golden bank run is happening, but it won't be advertised.  You will have to connect dots to see it before it all blows up.  Once it does blow up, believe me, those entities that have been suppressing Gold and Silver will be on the right side of the trade - who is buying up all these miners via the ETF?;

From Winter Actionables ;

http://winteractionables.com/?p=17202

     http://winteractionables.com/?p=17202  

Energy assets will be scarfed up for pennies on the dollar, similar to what has happened with precious metals assets. As the last chart shows, someone scarfed all the GDXJ shares over a two month period of relentlessly high volume. Something heavy handed like this lies in store for energy assets as well.

Atreat's picture
Atreat
Status: Bronze Member (Offline)
Joined: Dec 4 2011
Posts: 33
Dave and Jim H

Just a word of thanks about how helpful your dialog and respective analysis is to me, I really can't overstate this.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Thank you Atreat..

I see I forgot to add the link to Koos' piece on the Austrian Gold that contains the chart showing reduction in unallocated ;

https://www.bullionstar.com/blog/koos-jansen/why-austria-is-likely-to-re...

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Messing with my Mind.

Is there any merit in the idea that the FED might be messing with our minds?

This is my thought- We know their money printing amounts but do we know how much much money they are feeding into the furnace? (Digital furnace too for the pedantic.)

And then a narrative is fed to us that the reason that the money is not getting into MY wallet is that the greedy 0.01% are stuffing their mattresses with the stuff.

OK I get that the Carry Trade is repatriating the dollar and offering support.

But what would their motive be? The price of oil went to one hundred and thirty something dollars which popped the housing bubble causing popular sentiment for the FED to DO something. So I am proposing that what they did was purely for the optics- they opened up the faucet but secretly pulled the plug.

It may not be gold and commodities that are being manipulated but our minds and our money.

It is truly amazing what the psychosis that lack of Vitimin B12 causes.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
gold bank runs

JimH-

The loss of faith in counterparties shows up in another way - the desire to shift unallocated Gold accounts to allocated Gold.  This is a huge hidden form of stress on the physical markets... because it takes Gold out of the paper pools and out of the "float".

Yes that account of gold moving towards allocated from unallocated piqued my interest too.  It does align pretty well with the central bankers pulling their gold out of the Fed.  I'm not sure I'd call this a gold bank run - it feels more like a "gold bank walk" since it is taking place over months rather than days, but I do agree in principle.

I don't get the sense there is an actual shortage of physical gold (premiums in Shanghai are actually discounts right now), but I'm feeling there is increasing pressure on the pool of gold available for leasing.   That GOFO rate spike really got me interested.

China physical demand is causing pressure, as is India, and movement from unallocated to allocated removes gold available for leasing, and now the slow march of central banker repatriation is yet another pressure.  My guess is, even if they aren't repatriating it, central bankers are now slowly pulling their gold from the leasing pool.  Its not like they make that much money from it anyway.  But that's just a guess.

It all does reflect a decline in trust.  Which does align pretty well with the current sentiment in the world.  Trust in various institutions is failing, slowly but steadily.

Will the "gold bank walk" turn into a run?  It might, if it had a cataylst of some sort.

Again, I claim it will show up first in premiums.  There's no substitute for prices as indicators, at least for me.

I suspect that 10 years ago, if the Netherlands had asked for their gold back, a quick phone call from the Chairman would have stopped all of it in its tracks.  We are in a different world today.  For that whole operation to have made it through the political and banking elites in the Netherlands speaks volumes.  I'd guess that Central Banker is more of a figurehead doing the bidding of the establishment there.  This one means more to me than the Bundesbank's non-repatriation, which really smacks more of satisfying some group by pretending to do something, then not doing it.

The Netherlands really did want their gold back, they weren't kidding around, and eventually, they got it.

Trust is breaking down.  Slowly, behind the scenes.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
nice bid under oil

Looks like a nice bid under oil this morning in Asia.  Oil dropped initially and hit 56.25, but has now rebounded $2.  It needs a close today above 60, but if it can manage that, it will print one of those "bullish engulfing" candles that could signal a low.

The number of frenzied articles this weekend, some suggesting the possibility of $30 oil, tells me that if oil bounces instead of collapsing in the face of the deluge of negative commentary, we might establish at least a temporary low right around here.

Then again, it might just be short covering too.  :-)

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