PM End of Week Market Commentary - 3/6/2015

davefairtex
By davefairtex on Sat, Mar 7, 2015 - 8:01am

On Friday gold was smashed, losing -29.30 to 1168.20 on very heavy volume.   Silver fared better, dropping -0.28 to 15.93 on only moderate volume.

Gold was trading sideways right up until 08:30, when a surprisingly strong Nonfarm Payrolls report was released showing unexpectedly high job growth in the US.  The report sent the buck screaming higher, and this dollar move drove gold decisively through 1190 support.  Once that support level was broken, gold found no buyers until early afternoon, touching a low of 1162.90.  During that downdraft, gold also managed to break below its previous low of 1167, ending the pattern of "higher lows and higher highs" that defines an uptrend.

Next support level: 1141.  Gold really doesn't like the strong dollar.

Before Friday, miners were already looking weak, and Friday's gold sell off resulted in a massive down day for the mining shares.  GDX gapped down at the open, and then sold off for most of the day, losing -7.47% on extremely heavy volume, while GDXJ fell -7.25% on heavy volume.  It was a really terrible day for miners; traders just wanted out of mining shares and so they sold and sold and sold.  Likely, the only buyers were the shorts who rang the cash register after the big move down.  We may be nearing a capitulation point - perhaps we are not there just yet, but I suspect we are getting close.  GDX 18 may provide some support, but we will have to see.

On the week, gold dropped -45.50 [-3.75%], silver fell -0.65 [-3.92%], GDX was down -12.69%, and GDXJ dropped -11.82%.  Miners were absolutely crushed.

The USD

The buck staged a massive breakout this week, jumping +2.35 [+2.46%], blowing through the previous high of 96 and moving to a new closing high of 97.67.  This was more or less a result of a minor collapse in the Euro, which fell -3.53 [-3.15%] on the week closing at 108.43.  The Euro looks to be headed towards "parity", meaning 1.00 to the buck.  If that happens, based on current price action, gold will almost certainly fall through 1130 support, which is only 3% away from the current price of 1168.

While in the past gold and the dollar rose together in the "flight to safety" trade due to the Greek drama, right now dollar strength leads directly to gold weakness.  For instance, much of the dollar's strength on Friday came from the bullish Nonfarm Payrolls report - namely, good economic news led to a rising dollar, as opposed to bad news from the Eurozone leading to a rising dollar.

Miners

Last week's tepid low-volume miner rally off the 50 MA led directly to this week's sell-off that culminated in a dramatic breakdown on Friday triggered by a huge move higher in the dollar.  Low-volume rallies in a downtrend always make me nervous, because bad things usually follow, as they did this week.

The "Tell Of The Week" was the dropping GDX:$GOLD ratio, which after encountering resistance at the 200 MA, fell three straight days on Mon-Wed.  This was a distinct change from the recent bullish trends in the ratio, and it really got my attention.  It was almost like a switch flipped somewhere - "traders no longer wanted to hold mining shares."  I don't know how they saw it coming, but somehow they seemed to know bad news was ahead for gold.  Possibly it was just linked to worries about dollar strength.

Some of you might say to me, "But Dave, just last week you were saying traders were engaged in 'buy and hold' in mining shares!", and its true, that is what I said.  I said this because that's what the charts were saying to me.  But then on Monday the message suddenly shifted.  I mentioned this on Monday's daily report.  Something happened.  I don't know what it was, but I have learned that ignoring changes like this can be quite dangerous - in this case, it led to a 12% loss in one week's time.  I actually sold a bunch of miners Monday when I saw that happening.

In shorter-term trading, you have to remain mentally flexible and open to new evidence with each new day.  Ego will end up losing you money.  Sticking to an old message - its a bad idea.  But that's trading.

If you buy something with a much longer term viewpoint and you are early on the trade, you have to be willing to ride out potentially long periods of time when you are wrong.  Periods like this week.  Kyle Bass had to do that with his housing trade back in 2007.  He is having to ride out strength in Japan now too.

Just looking at the set of interacting prices, perhaps the miners might not be ready for a "long term (multi-year) buy" until the dollar stops its mad rush higher.  Gold is really not liking dollar strength right now, because it is all about US economic success rather than Eurozone problems.

Oh doctor, the folllowing matrix looks bad.  Even a short term trader would wait until he saw some green on the first column.  When Goldcorp drops -7.93% in one day, you know it was no fun out there for the miner traders.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Allied Nevada ANV 2.30% -84.39% falling falling falling rising ema9 on 2015-03-05 2015-03-06
Silver Standard SSRI -3.21% -59.23% falling rising falling rising ma50 on 2015-02-20 2015-03-06
Pan American PAAS -3.71% -37.09% falling rising falling rising ma50 on 2015-02-20 2015-03-06
Pretium Gold PVG -3.91% -20.09% falling rising falling rising ema9 on 2015-03-02 2015-03-06
Silver Wheaton SLW -4.13% -27.81% falling falling falling falling ma50 on 2015-02-19 2015-03-06
Franco-Nevada FNV -4.29% -5.95% falling rising falling rising ema9 on 2015-03-03 2015-03-06
New Gold NGD -5.12% -43.41% falling falling falling falling ema9 on 2015-03-06 2015-03-06
Eldorado Gold EGO -5.48% -31.10% falling falling falling falling ema9 on 2015-03-02 2015-03-06
Randgold GOLD -5.81% -18.24% falling rising falling rising ma200 on 2015-03-04 2015-03-06
First Majestic AG -5.82% -52.42% falling rising falling rising ema9 on 2015-03-04 2015-03-06
Iamgold IAG -6.42% -48.09% falling falling falling falling ema9 on 2015-03-03 2015-03-06
Fortuna Silver FSM -6.46% -11.74% falling falling falling falling ema9 on 2015-03-02 2015-03-06
Aurico Gold AUQ -6.67% -36.63% falling falling falling rising ema9 on 2015-03-02 2015-03-06
Barrick Gold ABX -6.97% -44.28% falling rising falling rising ma50 on 2015-03-06 2015-03-06
Anglogold Ashanti AU -7.09% -48.57% falling rising falling rising ma50 on 2015-03-03 2015-03-06
Newmont Mining NEM -7.91% -6.54% falling rising falling rising ema9 on 2015-03-03 2015-03-06
Goldcorp GG -7.93% -31.50% falling rising falling rising ma50 on 2015-03-02 2015-03-06
Yamana Gold AUY -8.33% -63.79% falling falling falling rising ema9 on 2015-03-04 2015-03-06
Agnico Eagle AEM -8.46% -13.57% falling rising falling rising ma50 on 2015-03-06 2015-03-06
Gold Fields GFI -8.59% -0.78% falling falling falling falling ma200 on 2015-03-03 2015-03-06
Kinross Gold KGC -8.73% -49.70% falling falling falling rising ema9 on 2015-03-02 2015-03-06
Royal Gold RGLD -8.86% -10.03% falling rising falling rising ma50 on 2015-03-04 2015-03-06
Newcrest Mining NCMGY -9.67% -13.29% falling rising rising rising ma50 on 2015-03-06 2015-03-06
Coeur Mining CDE -10.02% -55.92% falling rising falling rising ema9 on 2015-03-04 2015-03-06
Hecla Mining HL -10.27% -16.34% falling rising rising rising ma50 on 2015-03-06 2015-03-06

US Equities/SPX

SPX had a bad day on Friday also, dropping a big -29.78 [-1.42%], but it still remains above its 50 MA.  Why did SPX fall even though there was a fantastic Nonfarm Payrolls report on Friday?  Well according to what I read, the thinking goes as follows: an unemployment rate of 5.5% will encourage the Fed to raise rates sooner rather than later - and a Fed rate rise is a universal sign to traders that 'the party in equities is over."   So now - good news is actually bad news, at least for SPX anyway.  Good news is still good news for USD.  Got that?  Of course that's speculation, but in this case, it makes a certain amount of sense to me.  Now we just need to see if that pattern continues.

On the week, SPX fell -33.24 [-1.58%] - most of the drop this week happened on Friday.  Last week's tiny "shooting star" candle was confirmed by this week's drop.  That's a weekly "swing high" which is a sign of a top.

We've seen a "swing high" many times in this long SPX rally, but each time it still manages to get my attention.  We probably get at least a short correction here at minimum - now we have to see if/when the buyers show up for SPX.  One new element: right now, USD strength is not leading to SPX strength, which is another change from recent behavior, and it is a bearish signal.

The VIX climbed +1.86 to 15.20.

Gold in Other Currencies

Gold fell in all currencies.  You can see how the fall in the Euro resulted in gold dropping the least in that currency.  Gold in Rubles dropped most; Ruble has recovered about 16% since the high in early February.

Rates & Commodities

Bonds (TLT) more or less collapsed this week, dropping -4.47%.  They are down almost 11% off their recent highs.  In recent weeks, bonds have not benefitted from the rising dollar at all, nor did bonds benefit from the falling equity market.  It looks like traders may be preparing for a rise in interest rates by the Fed.

Junk bonds (JNK) fell also, but not nearly as badly as TLT; they dropped -0.94%.

The CRB (commodity index) fell -1.76% - hurt by the rising dollar.  The CRB remains solidly in bearish territory.

WTIC rose this week, climbing +0.26 to 49.78.  US oil has retreated from its recent highs, but continues to stick relatively close to its 50 MA.  Rig counts in the US dropped again this week, with 75 rigs going idle - of a total of 1133.

Physical Supply Indicators

* Shanghai was down when I wrote this report, so I was unable to get this week's premium.  I'll update as soon as it comes back up.

* The GLD ETF lost -14.93 tons of gold, with 756.32 tons remaining.

* GC futures are not in backwardation; spread of the first two month contracts is +0.20.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on March 6th) of 1164.50 and silver 15.85

 PHYS 9.67 0.11% to NAV [down]
 PSLV 6.25 1.93% to NAV [down]
 CEF 11.64 -7.66% to NAV [down]
 GTU 40.05 -6.91% to NAV [down]

ETF premiums were all down.

Futures Positioning

The COT report was through Mar 3, when gold was trading at 1204.00 and silver 16.26.

In gold, Managed Money dropped -9.3k longs and added +7.2k shorts, in line with the trend which was down.  Managed Money is usually right about the trend.  Note: this report was prior to Friday's big smash.  I'm guessing even more longs were wiped out in that move.  Probably, Managed Money is approaching a low point in long exposure, and that likely heralds a low coming soon.  For whatever reason, the market sometimes refuses to bounce until Managed money is mostly washed out of their COMEX longs.

In silver, longs continued to sell off, down -3.7k while shorts increased by +4.8k.  The reduction in silver longs is starting to look bullish, but short interest isn't high enough to make that conclusive.

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

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum COMEX.Platinum -1.80% -21.96% falling falling falling rising ema9 on 2015-03-04 2015-03-06
Silver COMEX.Silver -2.16% -26.73% falling rising falling rising ema9 on 2015-03-02 2015-03-06
Gold COMEX.Gold -2.66% -13.88% falling falling falling rising ema9 on 2015-03-02 2015-03-06
Silver Miners SIL -4.97% -40.25% falling falling falling rising ema9 on 2015-03-02 2015-03-06
Junior Miners GDXJ -7.24% -45.80% falling rising falling rising ema9 on 2015-03-02 2015-03-06
Senior Miners GDX -7.47% -30.20% falling rising falling rising ma50 on 2015-03-03 2015-03-06

This week, every price indicator turned red, with only hints of formerly happy news in the still-rising 50 MA for silver, GDX, and GDXJ.  Colors (red/green, grey/gold) lead, and the trends (rising/falling) follow.

Summary

The nascent gold rally from last week ended abruptly; the renewed downturn started with a failed rally on Monday, and selling happened every day thereafter, culminating in the big breakdown on Friday as two support levels were breached as the buck screamed higher.  It was a bad week for gold, not quite as bad for silver.  It was simply horrid for mining shares.

The short term averages have all turned down.   The gold/silver ratio rose +0.13 to 73.36, mostly unchanged. GDX:$GOLD abruptly turned bearish on Monday and fell all week dropping dramatically on Friday, while GDXJ:GDX actually rose on the week but remains bearish.  Price is below moving averages in all timeframes.

The COT report shows continued liquidation in long exposure, and is starting to hint that we may be nearing a low.  I'm not sure we're there quite yet, however.

Physical demand from the west is negative; I'll fill in Shanghai's premium later when I get it.

The strong dollar helped push commodity prices lower - crude bucked the trend, but only slightly.  Commodity prices remain in a downtrend.

Equities and bonds both dropped; they did not benefit from the strongly rising dollar.  This is a relatively new phenomenon, and perhaps it is signaling a peak in US assets.  It is possible that the market is beginning to price in a higher likelihood of a near term Fed rate rise.  Let's call it "the party is over" trade.  I'm not sure what that means for gold.

Deflation is still solidly in place, we have a temporary respite from the Greek debt situation, and the rising dollar smashed gold through its support levels.  We are rapidly approaching the 1130 lows in gold, and unless the buyers show up soon, we could see a breakdown in gold next week, especially if the buck keeps rising the way it has been doing.  Watch the miners and that GDX:$GOLD ratio.  If miners keep selling off, its a danger sign that should not be ignored.  Conversely, if miners start rallying, we might be nearing a low

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.

5 Comments

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
What will bring new major buying force back into the PM sector?
      Could it be that a large segment of what used to be potential buying force has moved their money from PM (gold esp.) to other sectors?  To the extent that this has been happening, we should ask the following question: "what is going to bring them back into the PM market as a buying force?" IF the answer focuses on a financial Black Swan or a "geopolitical event" then the return of this buying force could be a long way off, in addition to having unpredictable timing.
     This is not to say that substantial latent buying force is absent, only that it may have been reduced.  If you look at the comparative patterns of percentage price changes across several sectors over the past few months it looks as if money is moving out of the PM sector big time.
Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Just me.

A week is a long time?
I have not purged from my thinking that we may be watching The Singularity. It goes something like this- the FED is right, gold is the Barbarous Relic, and they have pushed it onto the Barbarians for what the
FED considers "money", debt.
Wierd, I know, because we are backing the historical role of gold.
If this thinking holds water tben we are in the midst of a process. It's going to get wierder for fossils like me.

hammer6166's picture
hammer6166
Status: Bronze Member (Offline)
Joined: Apr 30 2010
Posts: 32
New charts

Thanks for adding the new charts Dave. When looking at them, I find myself frequently returning to your first post with the charts which has many patterns to look for:

http://www.peakprosperity.com/comment/176897#comment-176897

Without making the post too bulky, I wonder if there is a way to include the patterns with the charts?

Thanks again,

Brian

 

HoldGold's picture
HoldGold
Status: Member (Offline)
Joined: Apr 24 2008
Posts: 13
theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
Is gold losing its historic role?

     Arthur Robey wrote: "Wierd, I know, because we are backing the historical role of gold."  This prompts me to rejoin with a question that keeps bugging me: are we in a fundamentally new kind of market, where some of the key things we learned from the "old masters" have to be abandoned if we are to avoid losing our shirts?   I can't be more specific than that (for now); but here are some things that keep coming back to me.  
     In the days of Weimar Germany wanton money printing had to be done on paper; but now all you need is a few computer key strokes!  And, in theory, the supply of electronic money can go upwards towards infinity with no sweat (except for the particular groups that will be seriously hurt in that process) until the Powers decide to reboot the system and start all over again.  Unless there is a serious financial Black Swan whose consequences they cannot control, that decision to reboot could come decades into the future!  Such is the capacity of electronic money.

    "But what about the mountains of debt owed by various parties", you ask?  No problem!  You simply forgive the debt, and leave those owed the money to lick their wounds.  Meanwhile the system stays afloat.
     What does all that have to do with gold?  The Powers have unlimited ability to manage how alternative currencies compete (in attracting confidence) with the blessed currency.  And, to me, you cannot blame them; because currency chaos helps no one.
     And that's not all.  We now have robots trading under the control of computer programs, and their owners can program them to execute orders in any of the PM markets!  I am sick of waking up to see that most of a day's price change came about in a price gap at the beginning of the day.  That's so common with the PMs!  And last week Friday I saw the same thing in the general market  -- across several sectors the big change of day took place at about 10:00AM.  How is a Little Guy going to keep up with that kind of action?
     It gets worse  -- some of those owners of computerized traders have unlimited access to money.  When they lose on a trade they just go into a back room and print more money (electronic), or they get new money so dirt-cheaply that they might as well have printed it.  In the Death of Money, Jim Rickards describes what he saw when he went to the trading area of one of the Canadian Banks.  That area covered *two* floors of a major Toronto skyscraper.  As I recall, he said there were screens all other place.  To imagine what this means, remember that one of the Canadian banks did a 2 billion write-off due to involvement in USA sub-prime loans in 2008-09, and soon afterwards it was showing profits in its earnings reports.  How can we be in the same market with these financial behemoths and compete successfully?

   I know, I've wandered all over the place, instead of talking about PMs; but what I say is relevant.  The question is whether the nature of the functioning of the market has changed so much, even for PMs (and perhaps especially for PMs), that the Little Guy has to go back to Square One and ask "what the hell am I doing in this shark tank?"
 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments