PM End of Week Market Commentary - 5/8/2015

davefairtex
By davefairtex on Sat, May 9, 2015 - 3:47pm

On Friday, gold rose +3.40 to 1187.20 on moderate volume, while silver climbed +0.11 to 16.42 on moderately light volume.   Nonfarm Payrolls caused some volatility, but was eventually viewed as modestly gold-positive by end of day.

On the week, gold ended up +10.00 [+0.85%], silver rose +0.30 [+1.86%], GDX fell -1.48% and GDXJ was up +0.96%.

Gold attempted to rally this week, but it still appears weak.  There is no discernable chart pattern I can see, other than a slow move downhill over the past six weeks or so, exemplified by the slow decline of the (blue) 50 MA.  Gold needs a close above previous high at 1212 to start looking a little stronger.  The best I can say is, gold avoided making a new low this week.

The USD

The buck dropped again this week, losing -0.54 [-0.57%] to close at 94.90.  The buck appears to have bounced off 94 support, and while the pace of the decline has slowed somewhat, dollar-buyers do not appear to be too enthusiastic.  As long as the buck remains below its 9 EMA the short term trend remains clearly down.

Support at 94 looks reasonably strong, but the downtrend in the buck looks quite steep as well.  If the dollar drops below 94, we probably get another reasonably large leg down.

Miners

Both miner ETFs had setbacks this week, failing to continue their breakouts from last week.  GDX looked weakest, actually closing below its uptrend line for a day.  Senior miners did eventually manage to catch a bid and rallied back by end of week and they returned to their breakout point.  On the daily chart, the damage looks a bit worse, and I'm a bit concerned for the senior miners.

Junior miners did better, remaining above their breakout point.  As a result, the GDXJ:GDX ratio is finally starting to show some modest improvement after months of tracking sideways.  Junior miners are the risky plays, and so when this ratio starts to improve, that's a sign that traders are becoming more positive on the PM space overall.  The "green shoots" are faint, but as you can see in the chart below, this week was the first time the ratio has been over its (weekly) 9 EMA since October 2014.  Its something to watch going forward.

US Equities/SPX

This week, the equity market sold off, and then snapped back higher on the strength of the Nonfarm Payrolls report released on Friday, closing up +7.81 to 2116.10, only a handful of points away from yet another all time closing high.  VIX was up +0.16 to 12.86.

Manufacturing continues to be weak due to the strong dollar, as does mining due to the low oil price.  Services are strong.  Where that leaves us from a macro viewpoint seems to be marginally positive: Atlanta Fed GDP Nowcast is saying +0.8%.  Woo hoo.  In normal times this lame GDP print would probably lead to an equity-market selloff, but given the constant hunt for yield (and an unknown number of central banks possibly eager to diversify their reserves out of iffy sovereign debt), marginally positive is still better than zero.  Money continues to flow into equities, albeit a lot less steadily than before.

Gold in Other Currencies

Gold rallied in most currencies this week; if we use XDR as our proxy, then gold had a decent week even after removing currency effects.

Rates & Commodities

Bonds (TLT) fell again this week, dropping -1.20%.  Bonds briefly dropped below their 200 MA, but managed to crawl back above by end of week.  My guess: US treasury bonds are simply echoing the weak long bond markets worldwide.  For what its worth, NN thinks it sees a reversal (up) for TLT.

Junk bonds (JNK) dropped earlier in the week but rallied back, closing up +0.25% and moving ever closer to new all time highs.  The worry over shale debt seems mostly over, from the viewpoint of the junk bond buyers.

The CRB (commodity index) rose +0.53%, the 8th straight week of improvement in the CRB.  This week, we saw the CRB print a doji candle, which could mark a top in this move.  Commodities are up about 10% over the past 8 weeks.

WTIC had a volatile week, touching 62.58 at one point but then falling back to close up only +0.21 to 59.47.  WTIC printed a gravestone doji on Wednesday which was confirmed the following day.  This could well mark a top in oil - I keep saying that, and maybe one day soon I'll be right.

Reality has yet to impact the shale companies, mainly because they can still raise money via bank credit lines as well as secondary offerings in the equity market.  Through Q1 2015 they have continued drilling programs funded by ongoing capital raises.  When will the capital markets pull the plug on shale?  That I don't know.  The apparent lack of any requirement to mark well assets to the current realized oil price is helping the party to continue.

Rig counts dropped more slowly this week, with the total US land rigs down only -10 to 858 rigs.  Rig counts are now down to the same levels they were after the 2008 crash.  The ability of the drillers to access the capital markets to fund their drilling programs allows drilling to continue - in addition, with so many out-of-work drill crews, costs of drilling have dropped substantially, so perhaps the drillers have a lower break-even point on wells drilled today.

NN still picks oil to reverse - third week now.  "But this time it's not kidding."

Physical Supply Indicators

* Shanghai premiums were about +10.56 over COMEX on Friday, which is up about $8 over last week.

* The GLD ETF lost a big -13.43 tons, with 728.32 tons remaining.

* GC futures are back in backwardation; the spread of the two front month contracts is now -0.20.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on April 24th) of 1177.50 and silver 15.68:

 PHYS 9.83 -0.11% to NAV [flat]
 PSLV 6.35 -0.22% to NAV [down]
 CEF 12.01 -7.20% to NAV [down]
 GTU 41.86 -4.35% to NAV [down]

ETF premiums were down.  I believe the negative values for the Sprott funds are due to his hostile takeover bid for CEF & GTU.  The takeover offer, if accepted by shareholders, would result in the printing of a vast number of PSLV and PHYS shares, in exchange for the gold and silver bars stored by the two funds - a great deal for CEF and GTU shareholders, and a not-so-great deal for PSLV shareholders who have seen their 3% premiums evaporate.  (How many times has that happened now?)  Sprott of course would do well because he'll get an annual 0.4% management fee on an extra $4 billion in gold & silver.  What's not to like about an extra $16 million/year?  I'd say its good overall for the industry - the market has long voted in favor of Sprott's structure vs CEF/GTU.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a modest $2 premium in New York vs the other locations.

Futures Positioning

The COT report covered trading through May 5th, when gold closed at 1193.20 and silver 16.55.

Today I'm going to show you the commercial positions for gold rather than managed money; even though managed money dropped -16k longs and increased +11k shorts, I believe the commercial positions are more interesting this week.  Specifically, look at the commercial shorts, which fell a big -20k contracts this week.  In recent years, when the gold commercial shorts were down at these levels, the low was close at hand.

In silver, Managed Money reduced shorts slightly and added to longs.  There was not much change.  Managed money shorts remain extended, which is somewhat bullish but not dramatically so.

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

Curiously, silver and the junior miners are doing better than the senior miners and gold at this point.  That should be a bullish configuration.  Long term trend remains depressingly down.  I bet things look better when measured in Euros.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver COMEX.Silver 1.04% -13.89% rising falling falling rising ema9 on 2015-05-08 2015-05-08
Silver Miners SIL 1.01% -25.52% rising falling falling rising ema9 on 2015-05-07 2015-05-08
Junior Miners GDXJ 1.00% -27.92% rising falling falling rising ema9 on 2015-05-08 2015-05-08
Platinum COMEX.Platinum 0.98% -20.50% rising falling falling rising ema9 on 2015-05-08 2015-05-08
Senior Miners GDX 0.71% -15.43% falling falling falling rising ema9 on 2015-05-06 2015-05-08
Gold COMEX.Gold 0.57% -7.64% falling falling falling rising ma50 on 2015-05-08 2015-05-08

Summary

The dollar continued falling this week but may have found support at 94; gold and silver managed some gains; this time it was the miners' turn to look weak.

The gold/silver ratio fell this week, down -0.72 to 72.28, continuing its move towards the lower end of the gold/silver ratio trading range of 70 to 75.  The GDX:$GOLD ratio dropped this week; it remains bullish but it is weakening.   GDXJ:GDX strengthened and now looks possibly bullish.  It was a mixed bag, call it "somewhat positive."

The COT commercial short position for gold is down to levels where bottoms usually appear within a week or two, which is bullish for gold - this is contrary to the charts, which look relatively negative.  Silver isn't looking to be at any particular turning point from the COT viewpoint.

Physical demand is positive this week; in the west, while the ETF premiums were down, the backwardation at COMEX is back, and premiums in Shanghai have risen and are now quite positive

Commodities continued moving slowly higher, and WTIC crude managed to hit $62/bbl before dropping back.  I'm worried about a correction - but I've been worrying since oil hit $55.

If we judge by the charts, gold measured in dollars appears to be lacking a catalyst.  In my opinion, we need US and European traders to become more interested in gold before the metal will take off again.  Regardless of the daily prayers of the goldbugs, China can't carry the worldwide gold market higher on its own.

And no, China won't suddenly gold-back its currency until it gets that debt overhang sorted out.  You can't order the PBOC to print up a bunch of money and buy up all those trillions in soured debt if your country is on a gold standard - and that's my sense as to how they'll get out of their debt bubble pop.

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