PM End of Week Market Commentary - 2/20/2015

davefairtex
By davefairtex on Sat, Feb 21, 2015 - 7:42am

On Friday gold fell -3.40 closing at 1203.30 on moderately light volume, while silver dropped -0.11 to 16.24 on moderate volume.  Gold and silver didn't move all that much Friday - there was an attempted rally during the London session, only to fall during NY with a small rally into the close.  The news that Greece (more or less) signed up for an extension to their bailout was gold-negative, but not dramatically so.

It appears that a successful can-kicking operation had already more or less been built into the price of most instruments.

Both gold and silver are now below their 50 MA as well as their 9 EMA; short and medium term bearish.  Gold needs a close above that 9 EMA as a first step to ending the downtrend.  If gold drops below 1166 (the previous low) that would mark the end of the bullish 4-month "higher lows higher highs" pattern, and that would mark the end of the current medium-term uptrend.

Miners fell slightly, with GDX down -0.44% on light volume, while GDXJ dropped -1.60% on light volume as well.  Miners continue to follow gold lower, but are generally in better shape than gold.

On the week, gold fell -24.60 [-2.00%], silver dropped -1.08 [-6.26%], GDX dropped -3.81%, and GDXJ fell -4.33%.  Silver and the miners dragged gold lower, although miner charts still look healthier than both gold and silver.

The USD

The buck rose +0.21 to 94.43, remaining within its four-week trading range, chopping sideways but remaining solidly in its uptrend.  It even closed above its 9 EMA.  Even though the turmoil regarding Greek debt seems more or over right now, the dollar remains well bid.

Miners

Miners didn't have a great week, but overall they remain stronger than gold.  You can see in the chart below that senior miners have found support at the rising 50 MA, while at the same time encountering resistance at the falling 9 EMA.  A close above the 9 EMA would be bullish - and it would also probably mark a (bullish) swing low as well.  My guess is, if gold continues dropping, so will the miners.

You can see in the ratio chart below how much stronger the senior miners are vs gold.  While gold dropped below its 50 MA seven days ago, the ratio chart remains well above its 50 MA.  If the ratio chart looks like this in the middle of a correction, it indicates there is a decent bid underneath the mining shares and/or that traders are hanging on to their mining shares through the current gold correction rather than dumping them wholesale as is usually the case.

US Equities/SPX

SPX continued its breakout this week, rising +13.31 to 2110.30, setting yet another all time closing high on the news of the settlement in Greece on Friday.  The move Friday was not all that dramatic - it seems the equity market had already more or less assumed there would be an agreement reached at the last minute.

The VIX dropped -0.66 to 14.30.

Gold in Other Currencies

Gold has continued its correction in all currencies.  Ruble strengthened vs USD, so of course it fell the most.

Rates & Commodities

Bonds (TLT) continued dropping this week, closing off -1.29%.  The pace of the decline has slowed, and it appears that long bonds are trying to put in a low.  They were almost able to mark a swing low on Friday, but buyers were not quite able to push prices through resistance at 128.

Junk bonds (JNK) had a moderately good week, up +0.30%.  Junk managed to close above its 200 MA, which is a bullish sign.  Rising junk bond prices are a sign of "risk on."

The CRB (commodity index) sold off this week, falling -1.93%.  It appeared to run into resistance at its 50 MA, and was unable to move above it.

WTIC also fell on the week, dropping -1.92 [-3.65%] to 50.75.  WTIC too is having trouble with its 50 MA, not able to remain above it for longer than a day.  Still, WTIC is forming an ascending triangle pattern, which is generally bullish.

Physical Supply Indicators

* The SGE was closed this week for Chinese New Year.

* The GLD ETF rose +2.99 tons of gold, and it has 771.25 tons remaining.

* GC futures are not quite in backwardation, spread of the first two month contracts is +0.10

* ETF Premium/Discount to NAV; gold closing (15:59 close price on February 20) of 1200.60 and silver 16.195:

  OUNZ 11.98 0.09% to NAV [down]
  PSLV 6.51 3.85% to NAV [up]
  PHYS 10.00 0.41% to NAV [up]
  CEF 12.15 -6.22% to NAV [up]
  GTU 41.79 -5.78% to NAV [down]

ETF premiums mostly increased, which is positive in a falling market.  Often western ETF holders bail out under these circumstances.

Futures Positioning

The COT report was through Feb 17, when gold was trading at 1208.10 and silver 16.37.

In gold, Managed Money dropped -12.2k longs and added +11.6k shorts.  Hedge Fund longs continue to be washed out by the drop in gold although losses this week aren't as bad as last week.  However now they are starting to load up short, although positions aren't at a point yet that could mark a low.

In silver, there was an expansion in shorts by +4.96k, but very little long liquidation.  Hedge Funds are retaining their long silver exposure even with the big drop in silver this week.  You can see steady accumulation of silver futures since 2013.

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 UP, long term DOWN

Silver is now back below its 50 MA, dragging the 20 EMA negative once again.

Summary

This week gold continued dropping, after failing to rally above its 50 MA.  Silver sold off hard, falling through its 50 MA as well.  Gold's three-week correction has wiped out the vast majority of the gains from the strong move higher in January.  If the buyers don't show up soon for gold, I believe it will eventually re-test the 1130 low.

Gold's moving averages continue to look mostly bearish, as do silver's.   The gold/silver ratio jumped dramatically higher on silver's big drop Tuesday, up +3.22 to 74.12 and is solidly back in bearish territory. GDX:$GOLD continues to do reasonably well, but GDXJ:GDX is starting to weaken again.  The only positive indicator I can see is GDX:$GOLD.

The COT report shows Managed Money is continuing to bail out of longs in gold, while they largely retain their silver long positions.  Short exposure continues to increase for both gold and silver.

Physical demand is relatively positive; Shanghai was closed this week, but Western gold buyers seem to be avoiding their usual "dump gold on price drops" behavior, which I interpret as bullish.

Commodity prices fell, as did WTIC crude.  After such an extended move lower, sometimes things take time to recover from all the damage - price can sometimes bounce along the bottom for months prior to recovering. 

The US equity market broke higher on the news about Greece late Friday - it was not a dramatic move higher, but it was steady, and bullish for equities, which generally tends to be bad for gold these days.

While details remain to be worked out regarding Greece, the market continues to price in a successful can-kicking operation over in Europe.  It appears that Syriza is serious about trying to remain in the Eurozone for now.  I believe they will end up buying themselves four months of maneuvering room, possibly trading off an increased crackdown on corruption for a relaxation in austerity.  The unpayable debt remains, but it is no longer an imminent threat.

Looking back at the gold chart, it is clear that the date of the Syriza election victory was the sell signal for gold - it topped out at 1300 on January 22,  closed at 1292 on the Friday before the election, and then fell steadily thereafter.  There was not really any bullish chart activity after the top on Jan 22.  This was a classic "buy the rumor, sell the news" event.

During the last few weeks I was guilty of focusing too much on the political story, and not enough on what the charts were saying.  The charts clearly said "not enough buyers", especially for gold, and they kept saying that all the way through Friday, which is where we are today.  Regardless of the political news, until those buyers show up, gold will continue to drop.  While the miners look reasonably steady, they will follow gold lower too.

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7 Comments

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1517
Fascinating interview with Russian about Russian views on gold

http://www.internationalman.com/articles/what-you-need-to-know-about-russia-putin-and-gold

Jeff: So how does the average Russian view gold?

Dmitriy: To be honest, without any enthusiasm. Russian Business TV does regular polls on our investment and savings preferences, and the latest poll showed that of 13,442 respondents, 523 were in favor of “investing in precious metals”—less than 4% of those surveyed.

You have an established gold-bug community in the English-speaking world, with thousands of articles and personalities, whereas the topic here is a complete unknown to over 95% of the population.

I should mention that political ideology also plays a role in shaping Russians’ perceptions of gold. For liberals, the West is flawless and will reign forever, so there is no sense in betting against the masters of the universe and consequently, no point in buying gold.

For conservatives both communist and nationalist, the West is evil and forever scheming to undermine Russia. The Rothschilds and the CIA rule everything, and gold investment is another one of their frauds to rip off the Third World. It is amusing to note how both extremes view the West as all-powerful.

Jeff: I’ve seen a photo of Putin holding a gold bar, and I think he looks pretty appreciative. I’m not holding my breath that I’ll see Obama holding a bar of gold anytime soon…

Dmitriy: Yes, I know; it was the first picture of a major politician holding a gold bar since de Gaulle. And yes, the Russian central bank continues to buy gold. We now have more gold than the Swiss.

But does it make Putin a gold bug? No. He is a hardcore pragmatist above all else. And frankly, the picture of him holding the gold bar was done to make him look manly and prosperous. He has an excellent PR team.

The Russian leadership is perfectly aware of gold’s disruptive role to the US dollar. But to them, the yellow metal is just another tool. They don’t care about sound money at all—they are conservative statists, all of them.

For example, Elvira Nabiullina, Putin’s recent appointee at the Bank of Russia, is familiar with Ludwig von Mises and is well known in Moscow’s libertarian circles. Yet even she is about to introduce inflation targeting… not exactly a libertarian thing to do.

The best refutation of Putin’s alleged gold-bug sympathies is the fact that he has not abolished the VAT on bullion bars, though there were rumors of such several years ago. Russia is overburdened with social obligations, and the people in charge do not wish to draw undue attention to the real alternative to the existing monetary regime. Western gold bugs should keep in mind that the US dollar is not the only fiat currency around.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
testing new content

I'm testing some new software that tries to summarize what is going on in a given group of items.   It is sorted by pct change on the most recent trading day.

The colors under the "MA" and "EMA" columns: green = "price is above the MA", red = "price is below MA".  The text within the box indicates whether the MA itself is rising or falling.  The 50/200 color: gold = "golden cross", grey = "death cross".   EMA9 is short term trend, MA50 is medium term trend, MA200 is longer term trend, and the 50/200 crossing is the longest term trend.  Ok, that's enough technical stuff.

At a basic level, green and gold are good.  Red and grey are bad.   3 greens and a gold indicates price is above all 3 moving averages, and a golden cross has occurred.  3 reds and a grey indicate price is below all 3 moving averages, and a death cross has occurred.

The idea is that you can look at a matrix and see, generally speaking, how various components of a sector or market have been doing in different timeframes just by looking at the colors.

First, mining shares:

Name Symbol Change 52w ch EMA9 MA50 MA200 50/200 crossings last
Newmont Mining NEM 4.58% 5.57% rising rising rising rising ema9(2015-02-19) 2015-02-20
Eldorado Gold EGO 2.79% -29.02% rising falling falling falling ema9(2015-02-19) 2015-02-20
Iamgold IAG 0.87% -42.61% falling falling falling rising ema9(2015-01-22) 2015-02-20
Newcrest Mining NCMGY 0.65% 9.95% rising rising rising rising ema9(2015-02-19) 2015-02-20
Barrick Gold ABX 0.55% -37.82% rising rising falling rising ema9(2015-02-18) 2015-02-20
Goldcorp GG 0.37% -20.47% falling rising falling rising ema9(2015-02-18) 2015-02-20
Hecla Mining HL 0.29% -3.91% rising rising rising rising ema9(2015-02-17) 2015-02-20
Yamana Gold AUY 0.00% -61.92% falling falling falling rising ema9(2015-02-13) 2015-02-20
Franco-Nevada FNV -0.10% -3.85% falling falling rising falling ema9(2015-02-05) 2015-02-20
Gold Fields GFI -0.70% 8.67% falling falling rising falling ema9(2015-02-05) 2015-02-20
Anglogold Ashanti AU -0.86% -35.78% falling rising falling rising ema9(2015-02-13) 2015-02-20
Royal Gold RGLD -0.88% 4.53% falling rising rising rising ema9(2015-02-18) 2015-02-20
Randgold GOLD -1.03% -5.17% falling rising falling rising ema9(2015-02-05) 2015-02-20
Silver Wheaton SLW -1.34% -16.49% falling rising falling rising ema9(2015-02-13) 2015-02-20
Pretium Gold PVG -1.68% -15.32% falling rising falling rising ema9(2015-02-17) 2015-02-20
Aurico Gold AUQ -1.76% -35.45% falling falling falling rising ema9(2015-02-05) 2015-02-20
Agnico Eagle AEM -1.78% -10.52% falling rising falling rising ema9(2015-02-13) 2015-02-20
Kinross Gold KGC -1.81% -48.67% falling falling falling rising ema9(2015-02-05) 2015-02-20
New Gold NGD -2.23% -44.90% falling falling falling falling ema9(2015-01-27) 2015-02-20
Fortuna Silver FSM -2.77% -8.08% falling falling rising falling ema9(2015-02-05) 2015-02-20
Allied Nevada ANV -3.16% -83.60% falling falling falling rising ema9(2015-02-18) 2015-02-20
Coeur Mining CDE -3.63% -49.96% falling rising falling rising ema9(2015-02-13) 2015-02-20
First Majestic AG -4.95% -54.49% falling rising falling rising ema9(2015-02-18) 2015-02-20
Silver Standard SSRI -6.24% -48.18% falling falling falling rising ema9(2015-02-13) 2015-02-20
Pan American PAAS -6.45% -30.22% falling rising falling rising ema9(2015-02-13) 2015-02-20

Then PM in general:

Name Symbol Change 52w ch EMA9 MA50 MA200 50/200 crossings last
Gold COMEX.Gold -0.22% -8.56% falling rising falling rising ema9(2015-02-02) 2015-02-20
Platinum COMEX.Platinum -0.25% -16.91% falling falling falling rising ema9(2015-02-05) 2015-02-20
Senior Miners GDX -0.44% -22.83% falling rising falling rising ema9(2015-02-05) 2015-02-20
Silver COMEX.Silver -0.66% -24.95% falling rising falling rising ema9(2015-02-13) 2015-02-20
Junior Miners GDXJ -1.60% -39.66% falling rising falling rising ema9(2015-02-18) 2015-02-20
Silver Miners SIL -2.28% -35.69% falling rising falling rising ema9(2015-02-13) 2015-02-20

After our recent 3-week correction, we only have one sad, solitary green for GDX.

Now the US equity market, broken down into sectors:

Name Symbol Change 52w ch EMA9 MA50 MA200 50/200 crossings last
Healthcare XLV 1.05% 24.30% rising rising rising falling ema9(2015-02-09) 2015-02-20
REIT RWR 1.04% 27.58% falling rising rising rising ema9(2015-02-18) 2015-02-20
Telecom XTL 0.88% 4.43% rising rising rising rising ema9(2015-02-02) 2015-02-20
Industrials XLI 0.85% 15.51% rising rising rising rising ema9(2015-01-30) 2015-02-20
Cons Discretionary XLY 0.71% 17.54% rising rising rising rising ema9(2015-01-30) 2015-02-20
Technology XLK 0.51% 21.59% rising rising rising falling ema9(2015-02-02) 2015-02-20
Homebuilders XHB 0.47% 12.99% rising rising rising rising ema9(2015-01-21) 2015-02-20
Materials XLB 0.29% 14.36% rising rising rising rising ema9(2015-01-30) 2015-02-20
Cons Staples XLP 0.28% 22.02% rising rising rising falling ema9(2015-02-09) 2015-02-20
Utilities XLU 0.02% 16.79% falling falling rising falling ema9(2015-01-29) 2015-02-20
Financials XLF -0.41% 13.47% rising falling rising falling ema9(2015-02-02) 2015-02-19
Gold Miners GDX -0.44% -22.83% falling rising falling rising ema9(2015-02-05) 2015-02-20
Energy XLE -0.47% -6.47% rising falling falling rising ema9(2015-01-30) 2015-02-19
Junior Gold Miners GDXJ -1.60% -39.66% falling rising falling rising ema9(2015-02-18) 2015-02-20

Looks like some recent topping action in REITs and Utilities, miners are having issues, and energy equities look like they are bottoming out.

Understanding all the bits and pieces is involved, but the concept is, you can look at the overall picture quickly just using the colors, and for the stuff that is interesting, you can study it more carefully.

Here are some patterns and what they mean:

  • red-green-red-grey: medium term rally off a long term low, enduring a correction (GDX)
  • green-red-red-grey: market hinting that it might have hit bottom
  • green-green-red-grey: market bottoming (XLE - energy)
  • red-green-green-gold: market hinting that it might top out (REIT - real estate inv trusts)
  • red-red-green-gold: market topping out (XLU - utilities)
thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1517
I love it

I love it!  Thanks Dave.  Are you going to be presenting this regularly?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
presentation

Tom-

Yes, the plan was to present some every day, and the miner list at end of week.  It will depend on when I can get closing prices for the various items.  I didn't want to overload people with too much data each day.

The miner matrix is pretty interesting.  I did not expect such diversity in the mining shares.  Some are actually doing all right.  It is fun when the data surprises me.

If you have requests, I can add them - assuming I have the symbol.  I can get Canadian stocks pretty easily - pretty much, whatever is on yahoo.  It would be nice if it was also on stockcharts too.  I'm going to add a link to a chart too for each symbol that has one.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
possible low in silver today

Saw something intraday that indicates a possible low in silver for this cycle.  There was the usual intraday spike down (the kind you see almost every day during a downtrend) with a big volume burst that indicates a bunch of longs were stopped out on the down spike, but then buyers showed up and pushed price back into the green again, way past the point of departure.

If we close green today, its a reasonably high probability we have a low point for silver for this cycle.  I say this based on my study of how the market reacts to these events.  Once the shorts run into trouble, they back off, and the momentum reverses.

Gold doesnt look as good, for whatever reason.

 

Cornelius999's picture
Cornelius999
Status: Gold Member (Offline)
Joined: Oct 17 2008
Posts: 373
Very helpful Dave.  Thanks.

Very helpful Dave.  Thanks. I'm especially interested in the miners. GoldStockAnalyst does a recommendation of five gold and five silver miners each month, for anybody who's interested.  Apart from subscribing, I've no relationship with them. You can pay for just one month's list, up to two years.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
silver today

cornelius-

Sadly, silver didn't close so well - many of the new buyers ended up bailing out towards end of day in NY.  Although we closed green, it wasn't by much.  From what I've seen in the past, this lessens the likelihood of the low being marked today.  Its not out of the question - just less likely than it appeared to be earlier on.

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