PM End of Week Market Commentary - 3/13/2015

davefairtex
By davefairtex on Sun, Mar 15, 2015 - 2:30am

On Friday gold rose +6.20 to 1158.40 on moderate volume, while silver rose +0.09 to 15.64 on light volume. PM fell initially on the higher dollar, but rallied after market close in NY, moving up strongly in the last few minutes prior to the weekend.  It was a curious ending to a bearish week.

Friday was the first positive close for gold in the last 10 trading days, and it came only after the market closed.  I'm not sure what to make of it, but its probably a positive thing.

Miners sold off early on Friday, but GDX managed to climb back to even by end of day, closing +0.00% on moderately light volume.  GDXJ actually moved into positive territory, up +1.91% on moderately heavy volume.  The strong rebound by the miners on a day when gold looked weak almost all day long I see as a bullish sign.

On the week, gold dropped -9.80 [-0.84%], silver fell -0.28 [-1.79%], GDX was down -2.74%, and GDXJ dropped -4.35%.  Most PM instruments printed hammer candles on the week, with GDXJ making a new all time low but then rebounding.

The USD

The buck continued its breakout, closing up +1.74 [+1.78%] to 99.41, trying but failing to close above the round number of 100.  Even so, the USD has not seen these price levels since 2003.  On the other side of the ledger, the Euro dropped -3.48 [-3.21%] to close at 104.96.  It was a very bad week for the Euro.

On Friday, the buck had a failed rally, printing a bearish shooting star doji on the day, almost a gravestone doji.  Either candle is bearish, and it just might mark the top in the buck, at least for a time anyway.  USD is very extended to the upside, and is due for a correction.

Determining what the dollar did on Friday wasn't as straightfoward as usual; stockcharts reports a failed rally and a close of 99.41, while the front month USDX futures contract closed up a much stronger 100.55 and it shows a stronger looking candle as well.  Which dollar index is "correct"?  Perhaps the futures market, but I am not sure.

Miners

This week saw buyers appear for the mining shares in the last three days of the week.  Wednesday saw a new low in miners, followed by a strong rally into the close on a day when gold continued to fall.  Friday was another strong day too, with an early morning sell-off reversing by end of day.

I believe that mining shares are often a good leading indicator for PM.  As a result, I interpret the miner strength as indicating a decent possibility of a low in PM in the near future.  So far gold has yet to cooperate with this vision, requiring a close of around 1170 to mark a swing low for gold.

On the weekly chart, GDX printed a hammer candle on relatively high volume.  This could mark the low for the miners, but the buyers need to continue bidding prices higher next week in order to confirm this low.

There are only two miners that have moved above their 9 EMA this week, Yamana and New Gold - both relatively low cost producers.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Yamana Gold AUY 5.63% -63.56% rising falling falling rising ema9 on 2015-03-13 2015-03-13
Silver Standard SSRI 3.83% -59.35% falling falling falling rising ma50 on 2015-02-20 2015-03-13
First Majestic AG 3.17% -54.70% falling rising falling rising ema9 on 2015-03-04 2015-03-13
Eldorado Gold EGO 2.54% -33.88% falling falling falling falling ema9 on 2015-03-02 2015-03-13
Pretium Gold PVG 2.15% -27.40% falling falling falling rising ema9 on 2015-03-02 2015-03-13
Silver Wheaton SLW 1.56% -28.14% falling falling falling falling ma50 on 2015-02-19 2015-03-13
Goldcorp GG 1.45% -32.33% falling rising falling rising ma50 on 2015-03-02 2015-03-13
Coeur Mining CDE 1.06% -55.52% falling falling falling rising ema9 on 2015-03-04 2015-03-13
Royal Gold RGLD 0.97% -13.24% falling falling rising falling ma50 on 2015-03-04 2015-03-13
Pan American PAAS 0.56% -36.77% falling falling falling rising ma50 on 2015-02-20 2015-03-13
Franco-Nevada FNV 0.47% -8.11% falling falling rising falling ema9 on 2015-03-03 2015-03-13
Fortuna Silver FSM 0.27% -19.17% falling falling rising falling ema9 on 2015-03-02 2015-03-13
Newmont Mining NEM 0.04% -12.10% falling rising falling rising ma50 on 2015-03-09 2015-03-13
Allied Nevada ANV 0.00% -86.22% falling falling falling rising ema9 on 2015-03-02 2015-03-13
New Gold NGD 0.00% -44.50% rising falling falling falling ema9 on 2015-03-12 2015-03-13
Agnico Eagle AEM -0.42% -18.01% falling rising falling rising ma50 on 2015-03-06 2015-03-13
Barrick Gold ABX -0.56% -48.32% falling falling falling rising ma50 on 2015-03-06 2015-03-13
Hecla Mining HL -0.69% -18.93% falling rising rising rising ma200 on 2015-03-09 2015-03-13
Kinross Gold KGC -0.85% -55.26% falling falling falling falling ema9 on 2015-03-02 2015-03-13
Newcrest Mining NCMGY -0.95% -15.85% falling rising rising rising ma200 on 2015-03-09 2015-03-13
Randgold GOLD -1.07% -16.35% falling rising falling rising ma200 on 2015-03-04 2015-03-13
Iamgold IAG -2.54% -54.29% falling falling falling falling ema9 on 2015-03-03 2015-03-13
Gold Fields GFI -3.15% -12.97% falling falling rising falling ma200 on 2015-03-03 2015-03-13
Aurico Gold AUQ -3.37% -43.95% falling falling falling falling ema9 on 2015-03-02 2015-03-13
Anglogold Ashanti AU -4.53% -54.29% falling falling falling rising ma50 on 2015-03-03 2015-03-13

US Equities/SPX

SPX continued falling this week, dropping -17.86 [-0.86%] closing at 2053.40.  SPX marked a swing low on the daily chart on Thursday, but there was no follow-through on Friday.  To me, the downside momentum from the weekly swing high remains in place.  This is the third week overall that SPX has declined.

The VIX rose +0.80 to 16.00.

Gold in Other Currencies

There were some strong currency moves this week, which drove gold higher in several of the currencies we follow.  We can see that gold in Euros bottomed out three weeks ago and continues to climb: up +32.50 just this week.  Gold in Rubles also appears to have bottomed.

Gold looks particularly strong when viewed in Euros.

Rates & Commodities

Bonds (TLT) rallied, climbing +2.61%, managing to regain its 9 EMA.  Bonds remain below the 50 but above the 200, solidly in the middle of no-mans-land.  As a result, the longer term direction of TLT appears somewhat uncertain, but the medium term trend remains down.

Junk bonds (JNK) fell -0.38%, probably hurt by falling oil prices - all that junk shale driller debt.

The CRB (commodity index) had a terrible week, falling -4.29%.  CRB was hurt by the rising dollar and falling oil prices.  CRB made a new closing low this week, and is now only 5% away from the lows set in January/February 2009.  Deflation symptoms - especially when measured in dollars - reign supreme.

WTIC suffered big losses on the week, down -4.78 [-9.60%] closing at exactly 45.00.  Oil appears destined to re-test the 43.58 low set back at the end of January.  Rig counts fell once again, with the US land rig counts dropping -64 [about -5.7%].  According to the North Dakota DMR, oil production for Bakken peaked in December, and fell 37k b/d in January, and this performance is likely echoed across the other shale regions also.  Rig counts today are well below the level required to sustain shale production at its current level nationwide.  Even so, the oil market remains unimpressed.  My guess: 43.58 probably won't hold.  That guess is contigent on the ban on US crude oil exports remaining in place.

Physical Supply Indicators

* Shanghai premiums were +7.21, up slightly on the week.

* The GLD ETF lost -5.65 tons of gold, with 750.67 tons remaining.

* GC futures have moved into backwardation; spread of the first two month contracts is -0.20.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on March 13th) of 1154.40 and silver 15.55

 PHYS 9.58 0.06% to NAV [down]
 PSLV 6.13 1.89% to NAV [down]
 CEF 11.44 -8.11% to NAV [down]
 GTU 39.21 -8.07% to NAV [down]

ETF premiums were all down on the week.

Futures Positioning

The COT report was through Mar 10, when gold was trading at 1160.10 and silver 15.61.

In gold, Managed Money dropped -8.3k longs and added a large 16k shorts, in line with the current trend which was down.  The reduction in Managed Money long positions is now at a level consistent with a low in gold; while they are generally correct about the trend, Managed Money is almost always wrong at the turning points in gold.

In silver, Managed Money picked up +1.6k longs while adding +6.6k shorts at the same time.  While the short interest isn't high enough to mark a "screaming buy", the relatively low level of long exposure looks positive for silver.

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

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 1.91% -49.64% falling falling falling rising ema9 on 2015-03-02 2015-03-13
Silver Miners SIL 0.24% -42.26% falling falling falling falling ema9 on 2015-03-02 2015-03-13
Gold COMEX.Gold 0.04% -16.00% falling falling falling falling ema9 on 2015-03-02 2015-03-13
Platinum COMEX.Platinum 0.03% -24.52% falling falling falling falling ema9 on 2015-03-04 2015-03-13
Senior Miners GDX 0.00% -34.17% falling falling falling rising ma50 on 2015-03-03 2015-03-13
Silver COMEX.Silver -0.10% -26.89% falling falling falling rising ema9 on 2015-03-02 2015-03-13

We are bearish in every moving average indicator I track.  All moving averages are falling, price is below all moving averages: it is a sea of depressing red.

Summary

PM dropped for almost the entire week, seemingly only finding buyers willing to hold COMEX gold futures overnight on the very last part of Friday.  Mining shares attracted buyers on Wednesday and again on Friday; miners can be a leading indicator, and they are hinting that perhaps the PM downtrend may be nearing an end.

All moving averages are pointing lower, and price is below all moving averages.  From a trend standpoint, the news is bad and getting worse.   The gold/silver ratio rose +0.71 to 74.07 and is bearish.  GDX:$GOLD rebounded somewhat but still remains bearish, while GDXJ:GDX has crossed its 9 EMA possibly marking a low and is hinting at the very beginnings of a recovery.  The ratios can be used to detect an early indication of a trend change, while the moving averages describe what the current momentum happens to be.

The COT report shows continued long liquidation, and is at levels which will support a low in gold and silver.  Commercial short interest has declined, which is also a positive sign.

Physical demand from the west is mixed - ETF premiums are falling/discounts are increasing, while gold backwardation is a positive sign.  Premiums in Shanghai remain positive.

Commodity prices remain in a downtrend, and have made new multi-year lows, with oil helping to drag the index lower.  "Lowest aggregate commodity prices since 2009" and before that, 2003.  A continually rising dollar didn't help.  Deflation symptoms are everywhere.

It is hard for gold to do well when its commodity cousins are at decade-long lows, and the dollar is at decade-long highs.  Those two things are related, by the way.

One last note.  A research project of mine - a neural network I've trained to detect reversals - has indicated that gold, silver and the HUI (mining shares) are all preparing to reverse trend.  The neural network is sometimes early (it predicted a low in crude about four weeks before the actual low), and it certainly is more optimistic than I am.  Still, I thought I'd mention it because all three components of PM that I follow are showing the same sign, not just one, and that doesn't happen all that often.

The neural net also correctly predicted the high in gold back at the end of January at 1300.  If it turns out to be right this time too, I'll consider adding it as a regular feature.

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5 Comments

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
When will gold and silver rally?

  Here's a theory on a process by which huge blocks of buying power can get drained out of the PM markets for the indefinite future (i.e., until some major unanticipated events prompt that buying power to flow back to the PMs).  Let's say the traders/investors in this market are a largely closed set of people/institutions.   That is, only rarely is there is a relatively large influx of new players.
    In a more normal market, buying and selling would be going on in a pattern where the trader sellers would before long use their revenues from sales to do renewed buying later on within the same market.   In this market, however, you have a block of dominant traders who periodically make huge sales (remember the huge short positions?), and then they proceed to either 'sit on the money' they receive for the sales OR deliberately take it into another market.  
     To get compensating buying power into this market you need a new pool of entrants with impressive buying power they are ready to use.  
  But what if there is no such block of new entrants to the buying population because there is a relatively closed pool of PM market players?  In that situation, with the best will in the world the buyers cannot muster enough force to overcome sellers for any substantial and sustained price move upward.
 As I said, this is just a theory; but I am using it make sense of my historical charts where I compare price and volume patterns for large sectors since the months of the last peak in gold, and I see depressing evidence of major leakage of money going out of the PM sector.
  Please note  -- this theory is *not* about the buying and selling of the underlying hard assets.  That's a whole different story, as everybody knows.  It has to be one of the wonders of the world that the supply-demand fundamentals in the hard-asset business are so radically detached from the paper-trading business.

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

theo-

I agree with your analysis, I think it's just spot on.  "The best will in the world" doesn't feed the Admiral's bulldog.  Only a flow of new money into a market will make prices rise.  And when money flees from a market, prices drop.  Its not manipulators, it's money flow.

And because COMEX involves leverage, traders there can get $16 of impact (in either direction) per $1 spent, while the physical buyers only receive $1 of impact per $1 spent.

This behavior is consistent with there being little interest in the west for exposure to gold prices during a commodity downturn.  My guess: only buyers these days at the COMEX are traders who think its an oversold asset class and speculate that it may be ready for a rebound.  Same with the mining shares.

Traders do transfer money between asset classes.  They rotate money from a sector that is overbought, and into a sector that is oversold, hoping to sell high and buy low.  If they guess right, they make lots of money.  Guess wrong and buy into a falling market, and they're out of a job.

COMEX gold contracts are one asset class open to traders, and there are constantly those who imagine that gold has bottomed out.

Problem is, it hasn't.  Not yet.  And so the new COMEX longs get repeatedly rinsed out by the market every time it corrects.  We can see this in the COT report: "managed money" longs drop each time we have a downturn.  A whole bunch of MM longs bought during the SNB de-peg event.  "Now gold will rally, let's buy the breakout."  But alas, they all ended up bailing out three weeks later in the correction.

This isn't unique to gold.  It is a normal bottoming process.  The market (all markets) want to shake out as many new longs as possible before it ends up rallying.  They have always been this way.

Check out oil today.  It made a new low, so did many of the offshore drillers, a bunch of people sold, and now even though oil is still negative, the driller equities are (surprisingly) rallying and many are back in the green again, or close to it.  A bunch of longs bailed out on the oil drop to 42.85.  If the buying continues tomorrow, that's likely a "swing low" in the drillers, which is a buy signal.  Even though oil made a new low!  If that bit of price action doesn't make sense to you, welcome to trading.  One explanation: some big guys are out there "buying the dip" probably because they believe oil equities are a bargain down at these price levels.  Did I predict this?  No.  But you can bet I'm paying attention.  Whenever anything "funny" shows up, its probably best to pay attention.

That said, anything is a high risk buy right now - the Fed is meeting this week, and may well remove the word "patient", which could cause all sorts of fuss & bother.  Or they could leave it in, which could also cause fuss & bother.  Who knows how the market will react to our latest central planner operation.

 

tolky1's picture
tolky1
Status: Member (Offline)
Joined: Jun 11 2014
Posts: 5
Morality of Buying

Hi All:

I am so thankful for all of this, but I have one question that I do not see often discussed.  I don't really see what I buy as so much a numbers game but as a morality issue.  At least in today's environment, I mean generally, not always but generally, an investment in pms is a vote against central banking, money printing, and dishonest weights and measures, an investment in the DJIA is a vote for crony capitalism, and an investment in the dollar is a vote for the opposite of pms.  When the above changes, and the DJIA is a vote for freedom, and gold is overbought by crony capitalists and bankers et al., I'll reweight.  So, if I never gain one cent from my investments, puny anyway, I think I'll feel fine about what I did, and isn't that the most important thing?

Sincerely,

tolky1

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Trading/investing is neither moral or immoral
tolky1 wrote:

Hi All:

I am so thankful for all of this, but I have one question that I do not see often discussed.  I don't really see what I buy as so much a numbers game but as a morality issue.

<snip>

So, if I never gain one cent from my investments, puny anyway, I think I'll feel fine about what I did, and isn't that the most important thing?

Sincerely,

tolky1

tolky -

The short answer is "no, that's not the most important thing"

I've never quite understood the "morality" argument or the argument that someone would NEVER trade/invest a "sin stock" (liquor, casino, Vegas, tobacco, etc.) or your statement that trading/investing in one vehicle or another is a vote for one system over another.  It's about generating working capital - cash - via trading (whatever vehicle - stocks, ETFs, currencies, futures, commodities, etc.).  Cash that can then be rolled into a long term investment that you will likely hold all your life.  Think of old, boring mature companies whose stock price doesn't really fluctuate with rapid market swings.  And what is old and boring to me, might not be old and boring to someone else, but I think most would agree that GE, XOM, CAT do not have the volatility of AAPL, GOOG, CMG, PCLN, etc.

Several years ago, my wife and I did what we call a 'hurricane trade'.  Typically, you can expect a price movement to the upside in oil, nat gas, oil drilling, etc., companies sometime after a hurricane forms, but before it makes landfall.  Our hurricane just happened to be Katrina.  We didn't make a lot of money, about $16K profit on $4K into the trade.  When we saw the devastation, we kept enough back to pay commissions and taxes and sent the rest off in a check for hurricane relief through the Red Cross.  Did we make money on "bad news"?  Sure, but I've had no problems sleeping at night with my actions afterwards. 

Trading/investing vehicles and the systems they function in are neither moral or immoral.  There certainly are people who participate who choose to do immoral or unethical things to exploit the system(s), but the underlying vehicles are but tools. 

The most important thing is what you do with your profits.  That you'll have to answer for someday - even if it's only to your own conscience.

I expect that some will disagree with me.  That is why Baskin-Robbins has 31 flavors.

Carry on......
 

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