PM End of Week Market Commentary - 2/6/2015

davefairtex
By davefairtex on Sat, Feb 7, 2015 - 9:49am

On Friday gold was hit hard, dropping -31.70 to 1233.30 on heavy volume, finally finding support on its rising 50 MA.  Silver fell -0.31 to 16.72 on heavy volume also.  Both gold and silver traded mostly sideways right up until the Nonfarm Payrolls report was released at 0830 EST, which caused the buck to scream higher (up +1.08 to 94.76), and that coincided with a spike down in the metals kicking off the selling for the day.

Gold's drop right at end of week was the culmination of a three-week descending triangle pattern, where we saw a series of ever-lower rallies in gold, with support provided by the 200 MA.  To me, the Nonfarm Payrolls report wasn't really a reason for gold to plummet - the massive spike higher in the buck may have been a more likely cause, and that pushed gold through support.  Once gold lost support, it was just sold hard until prices reached the 50 MA and the buyers finally appeared.  All those new longs from the SNB de-peg three weeks ago have now been washed out.

Miners were hit hard after gold fell through support, with GDX off -5.54% on heavy volume; GDXJ was down -5.23% on moderately heavy volume.

For the week, gold fell -50.40 [-3.93%], silver dropped -0.54 [-3.13%], GDX dropped -4.31%, and GDXJ was off -3.97%. 

The USD

The buck had a lot of volatility this week, but ultimately dropped only -0.20 to 94.76 after briefly dipping as low as 93.40.  There were three days this week where the dollar moved more than 1.00 points, which really are huge moves for the dollar.  By the end though, it was all mostly a wash.

For its part, the Euro looked like it might rally for a time, but it ended up printing a relatively bearish-looking doji candle that represents a failed rally.  By end of week, the Euro ended up only +0.25%.

The rest of the major currencies also tried to rally vs the dollar, with varying degrees of success.  Best effort was the Pound, up +1.10% while the worst performer was the Yen, off -1.41%.

Miners

While the miners dropped more than gold by the numbers, the chart tells a different story.  While gold drove through its 200 MA making a new low for this cycle, GDX remained within its consolidation zone, ending the week well above its own 50 MA.  If you scroll back and look at the ugly drop in gold, you can definitely see how much better the senior miners are doing, relatively speaking.

The juniors also didn't suffer all that much from gold's big drop on Friday.  They too avoided making new lows, which given how poorly they've been performing in recent months, I will treat as a gift from the trader gods.

As a result, the GDX:$GOLD ratio remains somewhat bullish, and the GDXJ:GDX ratio actually rose gently off its all time lows.  Perhaps anyone who might actually sell the juniors on a decline have already been more or less washed out of the market.

US Equities/SPX

SPX rallied sharply this week, up +60.48 [+3.03%] to 2055.47, rising to the top of its recent trading range.  That sounds great except for a significant sour note on Friday, when SPX first broke out on the happy Nonfarm Payrolls report, but then could not hold its gains and sold off towards end of day.  This "failed rally on good news" is a bearish sign for SPX.  If a market can't rally on good news, it suggests that the next move will likely be lower.

So for Monday the situation is as follows: the first half of a "swing high" condition is in place.  If the market confirms the swing high by closing below Friday's low (2049.97), given that this would also be a "lower high", and also given that the market failed to rally on good news, those three things are a very bearish combination.  My guess is, the market will sell off shortly thereafter.

VIX was off -3.68 this week, closing at 17.29, however it seems to be sensing the possibility for this swing high on Monday - VIX remains elevated even though equities are poised only 45 points (a bit more than 2%) away from another all time high.

Again, its not the news that matters (it was a good Nonfarm Payrolls report), but rather the market's reaction, which was a drive higher, followed by a sell-off.

Gold in Other Currencies

Gold corrected in all currencies this week, but losses were highest in the Ruble, which rose vs the dollar this week by 4.72%.

Rates & Commodities

Bonds (TLT) sold off hard this week, one of the worst weeks in more than a year.  This week, TLT fell -5.10%, plunging through the daily EMA-9 and apparently headed to test support at the 50 MA.  In spite of this horrid performance, if we pull back to the weekly chart, we can see that the weekly EMA-9 has acted as very strong support for bonds all during the big 13-month bond rally.  What's more, we can see that TLT remains above its weekly EMA-9, so it remains in a strong uptrend even after this week's sell-off.

Sometimes the market just gets ahead of itself; we'll see if this results in a trend change, or yet another correction in a long bull move.  I suspect that TLT will resume its uptrend once the next Greek shoe drops.

As a contrast, JNK broke sharply higher on the week, rising +1.22% breaking out of a six-week consolidation.  The rebound in junk has been reasonably strong.

The CRB had a decent week, rising +2.75% and confirming last week's (bullish reversal) hammer candle.  While this is a good start, and the CRB is now above its daily EMA-9, the daily chart gives me the sense that the follow-through off the lows be a bit choppy.

WTIC had a fantastic week, rising +4.49 [+9.38%] to 52.34 on massive volume, also printing a swing low on its weekly chart.  The move higher in oil looks more emphatic than the move in the CRB, and the big volume tells me that a whole lot of money is changing hands.

Physical Supply Indicators

* Premiums in Shanghai vs COMEX rose +6.77 to 3.69 over COMEX.  Note this rise in premiums happened prior to the drop in the gold price on Friday.

* The GLD ETF rose +14.94 tons of gold, and it has 773.31 tons remaining.

* GC futures are not in backwardation (but spread is down to 0.20)

* ETF Premium/Discount to NAV; gold closing (15:59 close price on February 6) of 1235.60 and silver 16.73:

  OUNZ 12.32 0.00% to NAV [up]
  PSLV 6.71 3.59% to NAV [up]
  PHYS 10.28 0.29% to NAV [up]
  CEF 12.76 -4.42% to NAV [down]
  GTU 43.43 -4.82% to NAV [up]

ETF premiums mostly increased; CEF only dropped a tenth of a percent.

Futures Positioning

The COT report was through Feb 3, when gold was trading at 1259.70 and silver 17.32; note the time period of the report did not cover Friday's big move lower.

In gold, Managed Money dropped -5.8k longs and covered -889 shorts.  You can see in the chart below that Managed Money still has a large number of longs, and relatively few shorts.  Not much changed this week.

In silver, Managed Money dropped -1.5k longs and increased +1.4k shorts.  As with gold, the changes this week didn't really move the needle very far, especially for the Managed Money short position, which remains quite low.

We'll have to wait until next week to see what changed as a result of the big move down on Friday.

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

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

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

Drop in PM this week moved gold's 20 MA down again, and silver's 50 MA has turned flat.

Summary

This week gold formed a bearish descending triangle, culminating in a sell-off on Friday, dropping all the way down to the 50 MA where it found support.  Silver followed along, but for a change, outperformed gold.  Likely silver was influenced by the positive performance in commodities this week.

Moving averages for both metals took hits again.  Gold's 20 MA turned lower, and silver's 50 MA turned flat.  The gold/silver ratio fell slightly, -0.61 to 73.78, improving a little but still looking bearish.  GDX:$GOLD is doing reasonably well - bullish but perhaps a bit tired.  GDXJ:GDX has bounced off its lows, but remains quite bearish.  The short and long term averages are pointing lower, but the medium term uptrend remains in place, while the ratios are pointing in different directions.

The COT report shows no major changes; Managed Money remains at a low level of shorts and a relatively high number of longs - which is generally short-term bearish.  Of course, COT report lags by a week.

Physical demand is positive; Shanghai premiums are positive, and Western gold buyers remain enthusiastic, with most ETF premiums moving higher on the week.

Commodity prices have confirmed their low, and oil looks relatively strong coming off its lows.  This is probably helping silver to recover - the gold/silver ratio should fall if the commodity index overall rises.

The US equity market is on the cusp of something interesting; if it confirms the swing high Monday, we might have some excitement next week.  I think a drop in SPX would be help PM, and bonds too.

I hate to sound like a broken record, but right now, gold price movement has a great deal to do with Greece and debt.  Gold in Euros still looks quite good.  Check out this chart:

This chart, along with my observation as to when most intraday price moves take place, suggests to me that the current "center of gravity" of gold is probably in Europe right now.  Europe, debt, Brussels and Athens.  Someday, someone will have to take the losses on all this unpayable debt.  As the date of that denoument draws measurably closer, gold will take off.  Right now - Germans and the ECB have said NEIN! to Smart Debt Engineering, and now we await the Greek response.

In the meantime, its nice to see the charts can still give us some warning to step aside when the paper buyers look a bit thin.  If you're a trader, why not sell some of your paper gold as the gold market starts to look tired, only to reload again up when a low is marked.  This stuff goes in cycyles - like the rest of the universe.  In some sense, the charts quantify the whole market's current opinion on Greece and debt and how close in time the market thinks that the inevitable resolution will happen.  We don't have to read countless articles - just watch the charts, they are an "opinion summary."

Unless of course you believe that Gold Is Always Manipulated All of The Time.  If you believe this, your only option is to wait until your favorite newsletter writer predicts the date of the COMEX default, and then rush out and buy like crazy regardless of price.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

10 Comments

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 830
Watching and waiting...

My theory that large channels invalidate smaller channels, and represent (unknown) restrictions on the performance of the asset... still stands.  And as such, it makes my investment in Pd make sense (and it makes my waiting on gold make sense).  But oh, it's hard to wait when Pd sits at the bottom of its channel (and indeed DOVE to the bottom of its channel the moment I first bought, and then -- as it was rising up, DOVE back down again.)   Even more, when the news I see seems to imply "sell, the channel won't work".

And it's hard to wait on the gold, when all the news that I understand says "Buy".... but the downward channel still holds.  Oh, well.   Still waiting.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
channels

MR-

Thanks for showing us your charts.  I always like a good chart, and I think channels are a fine way to represent the current trend.  I also agree with the current gold trend as represented by your channels - it is currently in a long term downtrend.

But only in USD.

In virtually every other single currency, gold looks quite different.  I encourage you to measure gold in Yen, gold in Euros, gold in Pounds, AUD, and CAD.  Because gold is traded internationally 23 hours a day, with traders buying and selling in currencies whose aggregate buying power effectively surpasses the USD, the buying and selling pressure from people in these other currencies has an effect beyond what can be seen just by looking at the somewhat-more-depressing USD gold chart.

For instance, perhaps you could tell me if you see the same thing I do in this chart of gold, priced in Euros:

Perhaps this chart is saying, "if you live in Europe, you should buy gold to protect yourself from currency devaluation."  However, that same chart in dollars is saying, "for you guys in America, its not yet time."

Based on my macro assessment, this feels right to me.  The US chart shows that the buck remains strong, so there is no need to buy protection just yet.

But in many, many other places, their gold charts are saying something quite different.  In pretty much every other major currency, the gold chart is saying, "buy me, my trend has changed."  And so traders in these other currencies are responding to that signal, pushing gold higher.

As a result of this bullish response from the other markets, we may be seeing more bullish behavior in gold than we otherwise might expect given gold's more bearish USD chart.

Also, when calculating support, resistance, and breakout possibilities, charts in other currencies are useful there too; the larger the economic area using the currency, the more useful the chart - because shorts exist in every currency, and so breakouts in another currency will result in short covering that won't be apparent to a US-centric market analysis.

So that's why I look mostly at Gold:Euros and Gold:Yen, since both of those areas have a lot of purchasing power.

Just something to think about.

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
Channels
      Thanks a lot for two extremely interesting and helpful comments.
      I have a theory which implies that we should not expect any kind of long-term trend in the prices of PMs that are effective competitors of the official currencies.  (These PMs  have been accepted by "the people" for centuries as mediums of exchange and store houses of value regardless of what is the official policy.)  The "officialdom" will forever consider the management of prices in thesePMs as being part of normal official exchange-rate management and support of confidence in the official currency.  And, in my opinion you cannot blame them.  (There is an issue as to how much the official currency ought to be anchored to selected hard assets, such as gold; but that is a separate matter.) 
    What I want to emphasize here is a key implication of the theory. These "competing" precious metals will forever swing up and down within trading ranges.  A range is set by the locations of deep support below and "official" resistance above.  There is also nonofficial resistance above; but at the end of the day we will never be able to get rid of the official resistance above, except during a "confidence storm". 
     So the trick is to find reasonable estimates of the upper and lower bounds of the trading range over the near-term time horizon.  We should expect prices to swing up and down within that range in patterns that often seem not to make sense, especially now that we have competing computer algorithms doing much of the trading.
   But what about the times when there is massive loss of confidence developing,  or perceived (by big traders) to be on the near-term horizon, in the official currency(ies)? That is what I call a "confidence storm".  In such a storm, if it is major, it will be easy for the nonofficial traders to overwhelm the official traders, and then the precious metals prices might literally go through the roof.   And it may take a long time for normal trading to resume; but we should regard these periods of turmoil as being storms, and only hope that we will not lose our shirts, or better yet make some profits, during the storms.
     There is another scenario whereby PM prices will explode because one or more major governments decide to anchor their currencies to gold.  
   All of the above is just one of the various theories that people might use to make sense out of the price-change patterns we are seeing in certain PMs.  Nothing I say here is new.  I am just trying to put a theoretical framework around the idea of perpetual absence of substantial trends in the prices of PMs that are thought to be legitimate grounds for official pricing interventions.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
absence of substantial trends?

theo-

I hear what you are saying about the official resistance, and I do think there may be something to it.  Somebody goes short and takes advantage of the tops, and then someone else covers the shorts at the bottoms and collects their reward.  The Legacy COT report calls that group "Commericals", but that also could include central bankers who are trying to squeeze some income out of their gold portfolio - as mentioned in the French Central Banker's speech I referenced a week ago or so.

But my contention is, they only have decisive influence if/when the buying pressure weakens.  If buying pressure is strong (and by that, I mean paper buying at COMEX), then all those "official sellers" can do nothing to stop it.

In the chart below, I claim that for 11 straight years, buying pressure overwhelmed any "official attempt" at creating a trading range for gold.  My sense is, gold buyers just ran out of gas at 1900 after 11 straight years up, and so gold needed to take a break.  Its had a 3 year break since then.

The fact that the commodity index sold off during that same period just reinforces this impression for me.  Commodity index does have an influence on gold directionality - the amount waxes and wanes over time, but overall, if commodity prices drop, gold will generally tend to drop too.

 

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
Absence of substantial trends
     Thanks for your correction, Dave.
 
     The chart supports your key and important point, so far as there was a long-term uptrend curve from about 2000 to 2013.  That observation damages the theory as I laid out its outlines above. Allow me to amend it as follows.
    The length of the period of trendless trading within a range is determined by the timing of the arrival of major developments, or the anticipation of same,  that cause the centroid of the trading range to shift to a degree not explainable by chance (random walk).  A series of such shifts in the same direction will lay out an intermediate or long-term trend curve, contrary to what  I suggested earlier.
     Between such 'moments' of centroid shift, we will have periods of trendless swings within a range and the periods will have varying length.  
   Nothing new in the description just given.  It brings us to the challenge faced by a trader in February 2015.  Have I been in a trendless trading range, and am I ready to cope when a (some) centroid-shifting event(s) hit us?  I feel we are in such a period now.  Looking at your chart you will see that there were various periods covering varying numbers of months in which the price went more or less sideways (swinging up and down within  a range).
      My evidence of official controls comes in the daily price action, and the recurrence of over-the-cliff price drops taking place mostly in the pre-lunch period.  I am new to PM trading (via the ETFs and SLW), and I cannot recall any other stock sectors I've followed for a long time where this peculiar intra-day price pattern keeps coming back again and again. 
      I also learned that President Reagan formed an exchange rate stabilization working group on which the big banks were represented.  They were mandated to exercise such controls as seemed needed, according to my reading. I understand that that working group exists to this day.  Could it be that the pattern of more visible official interventions started after the second QE?
   That is not to say that official fire power is great enough to overwhelm that in the private sector when the latter 'gets going' in the same direction.  And I agree that's a plausible message of your chart.
    Thanks for correcting my errors.

 

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Another look at the COT..

 

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
(No subject)
psebby's picture
psebby
Status: Member (Offline)
Joined: Jul 4 2009
Posts: 11
Gold vs. S&P

I have a very unscientific measure of whether or not most people have woken up to the issues discussed on this web site:

On the PP home page, if I see the price of gold go up while the S&P goes down, when those two numbers cross (gold becomes higher than the S&P) then I'll know that we're in a new world.

For quite a while we've been stuck in the 1200 vs. 2000 paradigm, but I'm sure there will be a paradigm shift someday, someday....

 

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 830
To dave on Au/JPY Au/Eur

Dave, absolutely, I do see a different graph on XAUJPY or XAUEUR.  And it has its own set of channels:  indeed, the channels are crossing high in Eur or Jpy. 

And one part of me says, "those values are valid"; one part of me says, "those values are in flux, and not a good measure."  One part of me says, "those values will drive gold up, maybe to the top of its channel.  One part of me wonders if those Eur and Jpy values will not destroy auto sales, and crush Pd, making it drop right out of its channel.

I *really do* allow for the fact that, all my right theory not withstanding, every single investment choice I make could be the worst possible choice.

Yet it looks to me like Pd should rise to the top of its channel, even as Xau falls, and *that* should be the time to make the switch.  But ...  really, who knows.

Like you, I am not much of a conspiracy theorist.  Not to say that the conspiracies don't happen, but my channel method absolutely depends on me NOT knowing what is causing the channels, but just accepting that they are what they are. 

So I can groan about bad performance; but "the sellers showed up, the buyers didn't" is about as complete an analysis as I can give, because I really don't know the industry.

 

 

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
Conspiracy theory and PM price movements

I too do not support the "conspiracy theory" approach to understanding PM price movements.  States have had their blessed currencies from time immemorial, and  the management of orderly changes in the value of a state's currency, as well as promotion of confidence in the currency, are in everybody's interest, in contrast to currency chaos which will help no one.  That management implies the need to take into account alternative media of exchange and store houses of value that are "un-blessed" but nevertheless supported by "the people", as we see in Indian society where gold is used actively at the household level as an alternate to official currency.

 

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