PM End of Week Market Commentary - 2/27/2015

davefairtex
By davefairtex on Sun, Mar 1, 2015 - 1:30am

On Friday gold rose +4.40 to 1213.70 on moderately light volume, while silver was up +0.05 on light volume.  PM continued its slow move higher, with both gold and silver moving above their respective 9 EMA lines but without much vigor.

The next resistance line gold faces is its 50 MA.  Right now, gold does not look to be in any sort of hurry to get there.

Miners also continued rallying, with GDX up +1.53% on moderately light volume, while GDXJ was up +0.76% on very light volume.  Senior miners continue to do relatively well, while the juniors are lagging.  Light volume suggests a lack of enthusiasm.

On the week, gold rose +10.40 [+0.86%], silver climbed +0.34 [+2.09%], GDX was up +4.06%, and GDXJ rose +2.86%.  It was a mildly positive week, but the junior miners are underperforming.

The USD

The buck jumped higher this week, rising +0.89 to 95.32 and breaking just above its recent trading range.  It looks like the dollar is on course to test the highs on January 26th, which was the first trading day following Syriza's election victory.  That victory could have led to a "sell the news" event for the buck, but it appears now that it simply resulted in a pause in the dollar's uptrend.

Trends in motion tend to stay in motion.

Miners

The senior miners found support on their 50 MA this week, and managed to rally through their 9 EMA, although the move higher was a bit tepid and the volume on the move was low.  The next step for GDX is the 200 MA at around 22.30.  Given the current volume on the miners, I'm not certain they will make it that far.  Volume indicates enthusiasm, and you can see in the chart below that volume has been declining for months now.  In November 2014 volume was quite heavy, but these days, not so much.

That said, the GDX:$GOLD ratio is actually looking pretty healthy.  The correction in the ratio never even made it as low as the 50 MA - it found support above the 50, and now looks ready to test its 200 MA.  A break above the 200 would be a bullish sign for PM overall. 

Based on the behavior of the ratio, the miners appear to be a "buy-and-hold" trade right now, even though gold itself is not looking so strong.  Why might that be?  Here's that same ratio chart, but from a much longer timeframe.  This "monthly" ratio chart says that the miners are very cheap relative to gold on a historical basis.  Even though they have rallied off the lows, they still have a great deal of potential upside once gold's long correction ends.  If gold returns to $1900/oz, that's a 57% gain vs the current gold price.  That's an awesome move, but the miner gain would be as much as 350% total return assuming the ratio returns to its 2011 level alongside that rebound to $1900.  The mining companies have put a lot of effort into reducing their cost structures - mining is perhaps break-even around current price levels.  If gold rallies, miners will be quite profitable.  As always, the crappiest highest-cost miners will rally the most on a percentage basis, assuming of course they don't go under while waiting for gold to rally.

We can see in the Miner matrix below many new green boxes in the EMA 9 column.  There are a number of miners that were in a short term downtrend last week that have now reversed trend.  You can also see that not all miners are created equal.   Longer term, the MA200 and the 50/200 columns show that most miners remain in a downtrend.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Eldorado Gold EGO 4.88% -13.56% rising rising falling rising ema9 on 2015-02-20 2015-02-27
Coeur Mining CDE 4.47% -45.98% falling rising falling rising ma50 on 2015-02-23 2015-02-27
Fortuna Silver FSM 4.41% 5.14% rising rising rising rising ema9 on 2015-02-27 2015-02-27
Iamgold IAG 3.81% -35.19% rising rising falling rising ema9 on 2015-02-26 2015-02-27
Newcrest Mining NCMGY 3.09% 10.00% rising rising rising rising ema9 on 2015-02-25 2015-02-27
New Gold NGD 2.70% -37.13% rising falling falling rising ema9 on 2015-02-26 2015-02-27
Kinross Gold KGC 2.53% -45.07% rising rising falling rising ema9 on 2015-02-27 2015-02-27
Barrick Gold ABX 2.04% -37.10% rising rising falling rising ema9 on 2015-02-19 2015-02-27
Aurico Gold AUQ 1.72% -28.19% rising rising falling rising ema9 on 2015-02-26 2015-02-27
First Majestic AG 1.64% -43.66% rising rising falling rising ema9 on 2015-02-25 2015-02-27
Pretium Gold PVG 1.48% -2.69% rising rising falling rising ema9 on 2015-02-26 2015-02-27
Yamana Gold AUY 1.43% -57.93% rising rising falling rising ma50 on 2015-02-26 2015-02-27
Goldcorp GG 1.10% -18.80% falling rising falling rising ema9 on 2015-02-17 2015-02-27
Pan American PAAS 1.04% -31.78% falling rising falling rising ma50 on 2015-02-20 2015-02-27
Anglogold Ashanti AU 0.99% -35.93% falling rising falling rising ema9 on 2015-02-17 2015-02-27
Gold Fields GFI 0.87% 24.00% rising rising rising rising ema9 on 2015-02-26 2015-02-27
Silver Wheaton SLW 0.70% -15.37% falling rising falling rising ma50 on 2015-02-19 2015-02-27
Randgold GOLD 0.24% -0.99% rising rising rising rising ema9 on 2015-02-25 2015-02-27
Royal Gold RGLD 0.19% 5.42% rising rising rising rising ema9 on 2015-02-25 2015-02-27
Agnico Eagle AEM 0.12% -1.98% rising rising falling rising ema9 on 2015-02-25 2015-02-27
Newmont Mining NEM 0.08% 11.62% rising rising rising rising ema9 on 2015-02-20 2015-02-27
Hecla Mining HL 0.00% -2.35% falling rising rising rising ema9 on 2015-02-26 2015-02-27
Franco-Nevada FNV -0.32% 4.54% rising rising rising rising ma50 on 2015-02-26 2015-02-27
Silver Standard SSRI -0.75% -49.71% falling rising falling rising ma50 on 2015-02-20 2015-02-27
Allied Nevada ANV -2.91% -81.13% rising rising falling rising ma50 on 2015-02-27 2015-02-27

US Equities/SPX

SPX fell this week, dropping -5.80 [-0.27%] to 2104.50.  On the weekly chart, SPX printed a small shooting star, which is a sign of a failed rally.  On the daily chart, we can see a swing high printed on Friday.  While SPX remains above all 3 moving averages, the likelihood of a near-term correction is growing.

The VIX fell -0.96 to 13.34.

Gold in Other Currencies

Gold started to reverse trend this week; the largest gainer is gold in Euros, which was up $34 on the week.  Naturally, that's because the Euro dropped vs the USD.

Rates & Commodities

Bonds (TLT) marked a swing low this week, and then promptly rallied +2.36%.  TLT is having some trouble with its 50 MA which appears to be acting as resistance.  If the equity market corrects, likely TLT will move higher.

Junk bonds (JNK) had another good week, up +0.58%.  There have been no dramatic moves, just steady accumulation almost every day for the past month; JNK is above all 3 moving averages.  It looks quite bullish.

The CRB (commodity index) sold off this week and then rallied, closing down -0.30% but remaining above its 9 EMA.

WTIC also fell on the week, dropping -1.23 [-2.42%] to 49.52, but it was unable to remain above its 9 EMA.  Brent oil is doing a whole lot better; on the week, Brent rose +2.13 to 62.18.  That's a big difference between the two oil prices - the spread between Brent and WTIC has widened to $12, up from around the $4 range late last year.  Likely this has to do with storage limitations in Cushing, OK.  So which oil price is "correct"?  If you're a US shale producer, its WTIC.  If you produce oil internationally, more likely its Brent.

Physical Supply Indicators

* Premiums at the SGE are relatively strong, +9.99 over COMEX.

* The GLD ETF tonnage was unchanged this week, with 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 27) of 1210.60 and silver 16.575

  OUNZ 12.08 0.09% to NAV [flat]
  PSLV 6.59 2.73% to NAV [down]
  PHYS 10.08 0.39% to NAV [down]
  CEF 12.36 -5.89% to NAV [up]

ETF premiums were mixed, but mostly down.

Futures Positioning

The COT report was through Feb 24, when gold was trading at 1196.90 and silver 16.18.

In gold, Managed Money dropped -4.0k longs and added +2.2k shorts.  From the long side, it looks like Managed Money is mostly washed out, but the shorts have yet to be re-established.  Neither position is extreme enough to indicate a major low is near.

In silver, longs finally sold off a bit, with Managed Money losing -3.9k longs, but also closed out -503 shorts.  Positioning of Managed Money is not at an extreme, and thus does not indicate a bottom.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 1.67% -30.52% rising rising falling rising ema9 on 2015-02-27 2015-02-27
Senior Miners GDX 1.53% -17.52% rising rising falling rising ema9 on 2015-02-26 2015-02-27
Platinum COMEX.Platinum 1.02% -18.32% rising falling falling rising ema9 on 2015-02-27 2015-02-27
Junior Miners GDXJ 0.76% -35.46% rising rising falling rising ema9 on 2015-02-26 2015-02-27
Gold COMEX.Gold 0.34% -8.85% rising rising falling rising ema9 on 2015-02-26 2015-02-27
Silver COMEX.Silver -0.42% -22.53% rising falling falling rising ema9 on 2015-02-26 2015-02-27

This week, we can see that most PM elements staged bullish crossings of their 9 EMA on either Thursday or Friday - all green in the first box.  That's the first early sign of a rally.  Miners look better than PM.  Long term, price remains below the 200, and the 200 continues to fall in every asset class.

Summary

This week both gold and silver made a swing low, crossed over their 9 EMA, and started to rebound.  Mining shares did so as well.  The rebound so far has been tepid and low volume, which suggests a lack of enthusiasm on the part of the buyers.

Gold's moving averages continue to look mostly bearish, as do silver's, although the rash of 9 EMA crossings this week are the first sign of a rally.   The gold/silver ratio fell -0.89 to 73.22, in the center of its recent 70-75 trading range and are looking slightly less bearish.  GDX:$GOLD has improved and looks bullish, but GDXJ:GDX remains bearish.  There are the first hints of a rally in PM.

The COT report shows relatively little change, and is not at an extreme position that would indicate either a top or a bottom.

Physical demand is positive; Shanghai was in serious premium most of this week, and Western gold buyers are perhaps neutral.

Commodity prices fell, as did WTIC crude, while Brent crude continued to rise.  Commodity prices remain in a downtrend.

The buyers finally showed up in PM this week.  Or, perhaps, the sellers were finally exhausted, its hard to say.  The light volume at COMEX and also in the mining shares to date makes me distrust the strength of this nascent rebound.  If gold can regain its 50 MA that will help my confidence in this move.  Higher volume would be good too.

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13 Comments

HoldGold's picture
HoldGold
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theordore's picture
theordore
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Forecasting next week's trading range for the silver spot price

  Another very helpful review, DaveFairtex.  Thanks.  
  In summary, I would like to reiterate a remark you made earlier in the week and which I found very insightful.  While the developed countries, and especially Europe, are experiencing or threatened with general price deflation, a key incentive for buying gold is weakened.  
   With the trading of PM ETFs in mind, my strategy includes forecasting a spot-price trading range for the next week or so, based on various considerations  Using Kitco charts and going back to about Feb 22, I see that recent near-term silver spot price support has come in at the 1620 to 1640 range, and an almost persistent “whack down” has popped up in the 1660 to 1680 range.  My inclination is to forecast 1630 to 1670 as the informal 90% confidence interval for the trading range for next week, unless a big unexpected development emerges. 
    Trying to make profits within the 1630 to 1670 range is like trying to catch a falling knife, since you have to position yourself near the range boundary, unless a new boundary becomes established (by some major unexpected event) during the week ahead and your position falls near the new boundary. Once the new boundary sets up, you may find that a price move toward the opposite boundary will mean a capital loss for you, and then you have to do some nimble trade adjustment to minimize your booked loss.

HoldGold's picture
HoldGold
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davefairtex's picture
davefairtex
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first bail-in in europe: austria

In a carefully choreographed event, Austria signaled that they would most likely bail-in the bondholders of Heta, the "Bad Bank" in the Hypo Alpe-Adria insolvency that has already consumed 5.5 billion Euros of Austrian taxpayer money.  Here is the bits that detail the chronology of the event:

http://www.bloomberg.com/news/articles/2015-03-01/austria-on-track-to-bail-in-heta-creditors-after-aid-stop

Heta notified the FMA Friday night at 9:20 p.m. Vienna time that an asset review that started last year led to write-down needs of as much as 8.7 billion euros, resulting in negative equity of up to 7.6 billion euros. It wouldn’t have enough funds to repay liabilities from next year, Heta told the FMA, according to the document.

Shortly after that notification Friday night, Heta and the FMA notified the Austrian government and asked whether it would recapitalize Heta to make sure the liabilities are repaid. It answered at 12:24 p.m. today that it wasn’t going to, according to the document.

Its also interesting that the timing of the "review" (my, those loans sure were bad!  Who knew?) happened only two months after the bail-in law came into force in Austria on Jan 1, 2015.

If anyone ever asks you to invest in a "Bad Bank", don't.  They almost always overpay for the loans they get, which are sure to be the biggest lemons of the bunch.  But that information (and the bill for the shortfall) always comes years after the taxpayer money is paid to the bankers for all those nonperforming loans, with the hope that everyone has long since forgotten about the whole thing, as well as who ended up getting 50 cents on the dollar for loan portfolios that happen to be worth about 20.

I'm guessing this won't be the last bail-in for Europe.

thc0655's picture
thc0655
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Apple to buy 1/3 of gold production for watches??

http://www.mining.com/apple-buying-a-third-of-worlds-gold-to-meet-demand-for-iwatch-14071/

Something's wrong here.  First, if a company was going to make a big splash in the gold market I'd think they'd want to keep it on the down low so as not to move prices up.  Second, 2 troy ounces of gold in a watch (no gold band) seems very high.

Technology giant Apple (NASDAQ:AAPL) may soon buy up one third of the world’s gold in order to meet the demands of its highly anticipated Apple Watch, according to reports.

Interest in the high-end model, featuring 18-karat gold casing, is picking up and the firm is already taking the necessary steps to have enough of them in stock. According to WSJ.com, Apple plans to start producing more than one million units per month in the second quarter of the year, anticipating high demand from Asian markets, mainly China.

Apple buying a third of world’s gold to meet demand for iWatch

This Apple Watch could cost as much as 10 iPads.

Josh Centers, from TidBits, estimates that each gold watch will contain 2 troy ounces (62.2 grams) of gold. So, based on the estimated sales figure, he concludes that Apple will need 746 tons of gold a year, or about 30% of the world’s annual production.

Assuming there's no large error there in the numbers they're using, I have to agree with the commenters at the bottom of the article: that's too much gold for such a watch and they're acquiring the gold for something else.  Maybe they're hedging against the USD crashing by building up an "inventory" of gold (allegedly for the watches). After all, they have those $billions in offshore profits they can't bring back to the US.  What a stroke of genius, if that's what they're doing!  

Can't wait to see what such a large, new buyer in the gold market does.  Alternatively, I can't wait for someone to come along and point out all the factual errors in the article.  Ought to be fun either way.

Time2help's picture
Time2help
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Apply by gold (for iCrap)

So Apple is stocking up on gold for their products.  Riiiiiiiiight.  More likely that stuff is going to sit "in inventory" pending...

davefairtex's picture
davefairtex
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one third of what, again?

Tom-

My vote is for "math error" in the original article.

First, the lead-in paragraph:

Technology giant Apple (NASDAQ:AAPL) may soon buy up one third of the world’s gold in order to meet the demands of its highly anticipated Apple Watch, according to reports.

So what they actually meant was, "one third of the world's annual mine production."  Minor error.  Off by a factor of, say, 70.  They correct this at the end of the article, but most people never make it all the way through.  In fact, most people just read the title, which makes the same silly claim.

What Chris feels about mainstream media and the Ukraine, I feel about Gold-related news stories like this.

Next, there are 3 types of apple watches: regular, sport, and 18k.  As detailed in this article here:

http://www.mtv.com/news/1925484/apple-watch-what-you-need-to-know/

My guess is, the 18k watch won't be the biggest seller.  Let's say it is responsible for 15% of the total Apple Watch production.

I saw another estimate for the cost of the case - it was around $600, which means it could be at most 1/2 oz of gold, not 2 ounces.  List price was targeted at $1200, according to this article again.  This price point felt a bit low to me, especially if Apple wants to actually have its customary 50% profit margin.  There are enough "top 1%ers" out there who have cash for a $1.5k watch.  But possibly not a $5k watch, which would be required if the thing needed 2 ounces of gold and a 50% profit margin.

So lets say the high end $1500 watch does 15% of total sales, and each one uses 1/2 oz of gold, and total watch sales are 1M/month, which gives us 1.8 million 18k watches/year, meaning Apple will use about 900k ounces per year of gold for the case.  With annual mine supply being around 80M oz, the Apple Watch won't even move the needle.

More goldbug-style math.  "Always err on the side of the impending COMEX default."  So what if you're off by a factor of 6000?

 

Luke Moffat's picture
Luke Moffat
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Sober Analysis

Excellent, sober analysis again, Dave. Like you I've come to watch how the market responds to this apparent 'news'.

All, the best,

Luke

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theordore
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Weird price drop and recovery in Hong Kong near 9 PM March 2

      There’s a sharp drop and immediate recovery in the spot-price charts for gold and silver in Hong Kong trading near 9 PM eastern time last night (March 2). See the image at the Kitco site: http://www.kitco.com/charts/livesilver.html.  Any ideas on what may have happened?

     The pattern seems hard to explain as an outcome of real trading. 

 

davefairtex's picture
davefairtex
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HK price drop

Theo-

Your HK price drop is easily explained.  Shorts got all excited from yesterday's failed rally.  They wanted to take the market lower and make money by running the stops hovering just below 1190, and so they pounded price down, but unfortunately for them, buyers appeared around the 1195 level and forced them to cover.  We saw this happen about a week ago - the shorts had two bites of the apple below 1200, and they were rejected down there twice.

See, these shorts are not all powerful.  Sometimes the buyers show up, and the shorts lose, like they did earlier in HK.

Today seemed to reaffirm the 1190-1200 support zone, which I think is bullish for gold, as long as it remains in force.  If we can close above 1210, that would be gold-positive.  If we can't, shorts will probably try another attack tomorrow.

From what I can tell, buyers aren't too enthusiastic to push prices above 1210, but they do seem to be hanging tough at 1190-1200.

This isn't one of these "managed" things - buyers just don't want to chase prices higher.  They are content to let price come to them.

theordore's picture
theordore
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HK price drop

 I see!  Thanks Dave.

Volume must be really thin for such spikes and leaps to recur as often as I see them. No?

 

davefairtex's picture
davefairtex
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thin volume

Theo-

Yes the steady-state volume in gold is thinner than the volume in crude oil, for instance, so one player in gold can wang things around.  However, what that player doesn't know is where the bids have already been entered by the buyers until he hammers the price down to that level.  He can only find this out by dumping a bunch of contracts on the market and seeing what comes up.

More bidders = more support = less ability by one or two big players to move price.

You can also see this in the e-minis.  Its hard for one player to come in and really move price.  Too many other players will step up and buy or sell.

In my study of the gold market, I see regular attempts by players to move price - the key to spotting trend changes is analyzing the market's reaction to those attempts.  If the market buys a "smash attempt", that's generally pretty bullish, but only if the buying pushes the price back over the initial point of the smash and then some, and then holds that price through to the close.

If the market doesn't buy a smash attempt, that's bearish.  Smash attempts will continue until buyers appear.

Once trend changes to "up" smash attempts stop, and turn into buy spikes in the other direction.  The buy spikes continue until enough sellers appear, and cause a buy spike to fail.  Then buy spikes stop.

This is how gold works.  Silver too.  Not as much in crude, and not at all in the e-minis.

I see these spikes as basically probes regarding buy-side (or sell-side) depth.  Not enough depth: price ends up moving.

Now we can argue if is this a reasonable way for markets to operate.  I'd prefer things to be a bit more contiguous, but then again - now that I have a system that can understand what it all means, I'd miss out on some of that information so I wouldn't be able to spot the highs and lows quite as easily.

There is a lot of information you can get from the market reaction to spikes.  Without spikes, I get less information.

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theordore
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Thin volume

Dave, I seriously wish there was a way for you to charge me a fee for your comment. What a super piece of education! A BIG "thank you".

 

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