PM End of Week Market Commentary - 4/3/2015

davefairtex
By davefairtex on Sat, Apr 4, 2015 - 7:01am

Friday was a holiday in the West; the futures markets were closed.

On the week, gold rallied +4.20 [+0.35%], silver fell -0.22 [-1.30%], GDX rose +0.80% and GDXJ climbed +0.51%.

The two key actions that occured this week for PM?  An unexpectedly negative ADP employment number on Wednesday sent gold shooting higher by $20, and the big Nonfarm Payrolls miss that occurred on Friday when the futures markets were closed.  Since the market was closed Friday, the shoe has yet to drop, but I'm guessing we will see something along the lines of a $20 move when the markets open on Monday.

The USD

The buck was mostly flat this week, closing up +0.15 [+0.16%] to 97.67.  The dollar's two day rally early in the week was eliminated by that ADP payroll miss on Wednesday and the continuing decline on Thursday.  The buck printed a gravestone doji candle, which is not something you want to see if you are a dollar bull.  The dollar is in the process of forming a "lower high" on the daily chart.  It looks like the market is quite upset about US economic weakness, and had a rate rise built into the price of the dollar, which is now being unwound.  How far down this will take us probably depends on continued economic news out of the US.

The Atlanta Fed's GDP Now forecast (when do you want it?  Now!) currently has 1Q 2015 real GDP at 0.1% - this without taking into account the bad NFP release Friday.  I suspect we may end up going into contraction for Q1.  This is bad for the USD, since I believe there is no way Yellen will raise rates under these circumstances, assuming the bad news continues to flow.

Of course, there is always Greece.  Latest fun story:

http://www.telegraph.co.uk/finance/economics/11513341/Greece-draws-up-drachma-plans-prepares-to-miss-IMF-payment.html

Greece is drawing up drastic plans to nationalise the country's banking system and introduce a parallel currency to pay bills unless the eurozone takes steps to defuse the simmering crisis and soften its demands.  [n.b. introducing "not-the-drachma"]

Sources close to the ruling Syriza party said the government is determined to keep public services running and pay pensions as funds run critically low. It may be forced to take the unprecedented step of missing a payment to the International Monetary Fund next week.

Greece no longer has enough money to pay the IMF €458m on April 9 and also to cover payments for salaries and social security on April 14, unless the eurozone agrees to disburse the next tranche of its interim bail-out deal in time.

“We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” said a senior official.

That's a soft default, but within the Eurozone.  "You want to cut us off?  That's fine, we'll nationalize our banks, and use our new not-the-drachma to pay our domestic bills while you guys ponder the size of the Target2/ECB/EFSF bill you will all be stuck with if you kick us out and/or force us to default for real."

How that plays out may end up with the dollar spiking higher once again, regardless of the US economic situation.

Miners

This week the miners dropped for the first two days - driven by the dollar rally during those same two days.  Then on Wednesday we had that surprisingly bad ADP employment report, which caused both gold and the mining shares to jump higher.  For me, this was a very positive outcome, since it suggested that the mining shares may very well rally on bad US economic news going forward - mainly because of the effect on the buck.

It is not always the case that "bad economic news is good news for gold" - that is just true today, because of the effects on the currency that are in place right now.

The GDX:$GOLD ratio is looking somewhat better after the rally Wednesday, but it is still bearish.  The GDXJ:GDX ratio has tracked sideways now for two months.  I am watching it closely - if it breaks higher, that of course would be a bullish sign.

Mining shares still show a generally woeful sea of red, with only a select few having a 52 week change that is positive.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Pretium Gold PVG 3.65% -7.19% rising falling falling falling ema9 on 2015-04-01 2015-04-02
Fortuna Silver FSM 0.79% -1.28% falling falling falling falling ema9 on 2015-03-26 2015-04-02
Newcrest Mining NCMGY 0.39% 15.46% rising falling rising falling ema9 on 2015-04-01 2015-04-03
Franco-Nevada FNV -0.36% 7.96% rising falling falling falling ema9 on 2015-04-01 2015-04-02
Silver Standard SSRI -0.42% -53.63% falling falling falling falling ema9 on 2015-03-27 2015-04-02
Gold Fields GFI -0.47% 11.90% rising falling rising falling ema9 on 2015-04-01 2015-04-02
Aurico Gold AUQ -0.69% -32.71% falling falling falling falling ema9 on 2015-03-26 2015-04-02
First Majestic AG -0.72% -45.54% falling falling falling rising ema9 on 2015-03-30 2015-04-02
Randgold GOLD -0.81% -6.49% falling falling falling falling ema9 on 2015-04-02 2015-04-02
New Gold NGD -0.82% -29.26% rising falling falling falling ema9 on 2015-04-01 2015-04-02
Goldcorp GG -0.84% -22.71% rising falling falling falling ema9 on 2015-04-01 2015-04-02
Coeur Mining CDE -1.05% -51.09% falling falling falling falling ema9 on 2015-03-26 2015-04-02
Barrick Gold ABX -1.08% -35.33% rising falling falling rising ma50 on 2015-04-02 2015-04-02
Agnico Eagle AEM -1.52% -2.24% rising falling falling falling ema9 on 2015-04-01 2015-04-02
Hecla Mining HL -1.55% -0.31% rising falling rising falling ma50 on 2015-04-02 2015-04-02
Yamana Gold AUY -1.58% -55.79% falling falling falling rising ema9 on 2015-04-02 2015-04-02
Newmont Mining NEM -1.67% -7.42% falling falling falling falling ema9 on 2015-04-02 2015-04-02
Kinross Gold KGC -1.69% -45.67% falling falling falling falling ema9 on 2015-04-02 2015-04-02
Eldorado Gold EGO -2.22% -16.23% falling falling falling falling ema9 on 2015-04-02 2015-04-02
Pan American PAAS -2.29% -29.54% falling falling falling falling ema9 on 2015-04-02 2015-04-02
Iamgold IAG -2.46% -43.75% falling falling falling falling ema9 on 2015-04-02 2015-04-02
Anglogold Ashanti AU -2.48% -45.86% falling falling falling falling ema9 on 2015-04-02 2015-04-02
Royal Gold RGLD -2.78% 2.73% falling falling falling falling ema9 on 2015-04-02 2015-04-02
Silver Wheaton SLW -3.18% -16.05% falling falling falling falling ema9 on 2015-04-02 2015-04-02

US Equities/SPX

SPX rose +5.94 [+0.29%] on the week, closing at 2066.96.  SPX rallied this week but was unable to hold its gains, printing a modest doji candle on the weekly chart.  That said, on Friday after the Nonfarm Payrolls report miss was released, the e-mini SPX futures market promptly dropped 20 points, hinting at a relatively severe negative reaction come Monday - unless some other news trumps that report over the weekend.  As a result of the action in the e-minis, I think its a better-than-even chance we drop below the 2035 prior low on Monday, which would be a definite bearish signal for SPX.

While Chris is seeing oil prices as a signal for weak economic performance worldwide, I'm focused on macro data here in the US that in the past has been a solid leading indicator for US equity market performance.  Several of those indicators are flat or turning lower.  We both see something similar, but we are using different tea leaves.  His are international, while mine are domestic.  :-)

Equally as important, I am now seeing the market react lower on negative reports.  Economic weakness + negative market reaction to economic weakness = a market downturn.  Its really that simple.

VIX closed down on the week -0.40 to 14.67.  Puts remain relatively cheap.

Gold in Other Currencies

Using my software, gold was more or less unchanged on the week - largely because my code does funny things on 4-day trading weeks.  (It compares prices vs 7 days ago, instead of "end-of-week" to "end-of-week" ... a bug I need to fix).  Over that 7-day period, gold tanked in Ruble and Brazilian Real terms, because both of those currencies appreciated vs the dollar significantly.  Gold in Yen and Euros continues to do well.

Even gold in SDRs (Gold.XDR) is doing relatively well.  That 20% rise in the buck over the past 6 months has gold hurting for us in America.  Notice that we are almost the lowest line on the chart below.  It is not evil manipulators keeping prices down - its just a currency effect.  I know some are looking for a "manipulator scapegoat" to blame, but if even the goldbugs at KWN can see this, perhaps you might consider adjusting your worldview.

Rates & Commodities

Bonds (TLT) were flat this week, dropping -0.04%.  TLT remains above its weekly 9 EMA - TLT is weakening, but remains bullish.

Junk bonds (JNK) rose +0.51%, and it has risen above the 9 EMA and the 50 MA and is looking moderately bullish at this point.  JNK is doing well, and that is surprising given the less positive picture in the equity market.

The CRB (commodity index) had a reasonably good week, rising +0.43%.  The CRB is slowly struggling higher - hopefully a weaker dollar will help it out.

WTIC had a decent week, rising +1.12 [+2.31%] to 49.55.  This marks the first weekly close above the weekly 9 EMA since June 2014.  It did not make it by a large amount, but it is the second bullish sign to appear on the longer term WTIC weekly chart, the other being the bullish divergence on the weekly RSI.  The move this week is definitely not the beginning of the end - as Churchill famously said - but perhaps it is the end of the beginning.

Rig counts continued dropping this week, but the rate of the drop has dramatically slowed down.  Total US Land rigs are down -17, or -1.68% vs last week.  That's the smallest drop dating back to mid-December.  Market was closed when that information was released - so its unclear what effect that might have on oil prices.

Physical Supply Indicators

* Shanghai premiums jumped up to a massive +27.98 to +31.05 over COMEX - my guess is, this may be due to the Nonfarm Payrolls miss on Friday when the COMEX was closed. 

* The GLD ETF was unchanged this week, with 737.24 tons remaining.

* GC futures moved back into slight backwardation on Tuesday and remains there today; spread on the first two month contracts is -0.10.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on April 2nd) of 1185.00 and silver 16.71:

 PHYS 9.92 +0.97% to NAV [up]
 PSLV 6.49 +0.45% to NAV [down]
 CEF 12.05 -7.31% to NAV [up]
 GTU 40.79 -6.77% to NAV [up]

ETF premiums were mostly up, with the non-delivery ETFs gaining most.

Futures Positioning

The COT report covered trading through March 31st, when gold closed at 1183.10 and silver 16.58.  Note - this did not include the large PM rally on Wednesday; we'll have to wait until next week to get that data.

Managed Money blew out of -19.6k short positions, a huge drop and likely a result of the massive spike higher in gold last Thursday to 1220.  You can see that managed money is still relatively short and they also have a relatively low long exposure - this is bullish for gold.

Also, the Commercials (not shown here) blew out of a massive -34k long contracts, probably also on the spike high last Thursday.  Did they ring the cash register at the top or what?  As usual Managed Money loses, and the Commercials win.  Still, the commercials have yet to build up a large short position - and that too is bullish for gold.

In silver, Managed Money covered short again, dropping -7k shorts and adding +4.9k longs.  There is now a somewhat worrisome concentration of longs in Managed Money; the number of shorts is somewhere in the middle.  If we refer to the silver Commercial position for confirmation (not shown) we can see it is not yet at a point of concern, but Commercial short interest is definitely rising.  Silver still has room to run, but not too much longer.

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

The moving average picture remains roughly the same - hints of early bullish signs, but PM remains in its long term downtrend.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold COMEX.Gold -0.60% -6.94% rising falling falling falling ema9 on 2015-04-01 2015-04-02
Platinum COMEX.Platinum -0.98% -19.71% rising falling falling falling ema9 on 2015-03-31 2015-04-02
Senior Miners GDX -1.15% -21.40% rising falling falling falling ema9 on 2015-04-01 2015-04-02
Junior Miners GDXJ -1.62% -36.78% rising falling falling falling ema9 on 2015-04-01 2015-04-02
Silver Miners SIL -1.83% -33.90% falling falling falling falling ema9 on 2015-04-02 2015-04-02
Silver COMEX.Silver -2.10% -16.70% falling falling falling falling ema9 on 2015-04-02 2015-04-02

Summary

The surprisingly negative ADP employment report cut short an incipient dollar rebound this week, sending PM and the miners into a strong rally on Wednesday.  A new dynamic may be in place - bad news in the US economy is now good news for gold.  What's more, we still have to see how the poor Nonfarm Payrolls report is received by the market.  We may have a decent-sized PM rally waiting for us when the market opens Sunday night in Asia.

The gold/silver ratio rose +1.18 to 71.79; the ratio remains in bullish territory but it is weakening.  GDX:$GOLD recovered somewhat, but is still bearish.  We need another strong miner rally to get that ratio back to bullish mode again.  GDXJ:GDX ratio remains short term neutral, long term bearish.  The moving averages suggest a modest short term bullish tone, while medium and longer term remains bearish.

The COT report shows massive short covering by Managed Money on the spike in gold to 1220 last Thursday; just when they thought it was safe to get back into the market short, they get hosed.  That's long-side manipulation for you.  Our friendly Commercials still have very low short interest, so that remains bullish for gold.  Silver is starting to look a bit more worrisome.

Physical demand is more positive this week; in the west, ETF premiums changes were mostly bullish, and the slight backwardation in COMEX gold is positive too.  Premiums in Shanghai jumped dramatically, but that was probably due to the Nonfarm Payrolls miss when the COMEX was closed.

Commodities are slowly slogging higher.  Oil actually closed above its weekly 9 EMA for the first time in 9 months.  Oil is slowly getting better along with commodities.

A new NN I am training is suggesting we might see a correction coming in SPX.  I can query the internals of why it makes this prediction, and it does seem to make some amount of sense.  Currently, the magnitude of the projected correction ranges from 5-12%.  Like the Atlanta Fed's GDP Now forecast, that's what it sees at the moment.  As the days and weeks go by, it will refine its projection.  It is hard to know how accurate it is today - only time will tell if my approach is sound.

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
Proposal for the new Not-Drachma

One possible implementaion of electronic IOUs, printed "out of thin air" by the government, valid for paying taxes on a 1:1 basis with the Euro - a local parallel currency.  Money is created by government, paid to people, then destroyed when taxes are paid.

https://rwer.wordpress.com/2015/03/28/a-detailed-program-proposal-for-creating-a-parallel-currency-in-greece/

The additional (“parallel”) circulating medium of exchange to be proposed may be designated a Tax Anticipation Note (TAN), a term introduced by Parenteau. The TANs are used by the government to partly pay wages, pensions and for domestic purchases. The TAN enjoys confidence since anyone can use it to pay taxes with one TAN counting as one euro (more on this below).

Transactions are done via mobile phone/SMS, and automatically received and accounted for on a server with ample capacity at the country’s Central Bank or perhaps preferably, for political reasons, at a bank-like facility established for this purpose at the Treasury – from now on just called the TB: “Treasury Bank”. Such a mobile-based transaction system may be implemented through one of the technically proven schemes already in successful operation in some developing countries, also recently put in operation by the central bank of Ecuador. The system may be implemented to work also with older models of mobile phones, since it may be SMS-based (but there will be apps for smartphones).

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