PM End of Week Market Commentary - 5/22/2015

davefairtex
By davefairtex on Sat, May 23, 2015 - 5:16am

On Friday, gold fell -0.90 to 1205.40 on moderately heavy volume, and silver dropped -0.06 to 17.10 on moderately light volume.

On the week, gold ended down -17.60 [-1.44%], silver dropped -0.42 [-2.40%], GDX fell -4.30% and GDXJ was down -2.51%.

Gold corrected this week, with the major drop happening on Tuesday; this week was "all currency all the time", as the dollar vaulted higher putting in a decisive low rising four days out of five.  Why did gold drop?  "The dollar did it."  Gold priced in Euros rose sharply this week, up +2.57%. 

Silver also fell hard on Tuesday, but has managed to remain above its 200 MA, which appears to be acting as support.  Given how poorly copper is doing [-4.68% this week] silver hanging tough is a positive sign.

The USD

As mentioned, the USD made its low on Monday and then it screamed higher, up +2.93 [+3.14%] in just four days, quite a large move.  The Euro fell -4.49 [-3.91%] to 110.13.  In recent months, the currency market moves have been pretty dramatic: up, then down, and now back up again.  If a US citizen holding dollars were to go to Europe, prices this week vs last week are now lower by about 4% on everything.  "Europe on sale!"

From what I can tell, this is all about the prospect of the Fed raising rates, alongside the Greek "will-she-or-won't-she" default prospects.  (Near term, I'm betting she won't, where near term is next few months.)

On friday, there was a CPI release which showed...are you ready?  Inflation!  An (annualized) 3.6% rise in the ex-food & energy CPI, which many people call "inflation ex-inflation" - but that number is what the Fed likes to follow, and it is a relatively high reading this month.  It raises the chances of a rate increase, or so the market is guessing, and so naturally the dollar races higher.

Miners

After the breakout last week, senior miners have sold off, with GDX dropping down to its uptrend line.  A drop below this line will likely lead to a fair amount of selling, as some number of traders bail out of their miner positions.  Once the uptrend is broken, the more disciplined traders don't want to be long.  Alternatively, this is also a good place to "buy the dip" - if support holds, price should move higher since the uptrend remains in play.

Junior miners continue to outperform seniors, dropping less than the seniors over the week.  They are approaching their uptrend line, but are still looking a bit more bullish than the senior miners.  The GDXJ:GDX ratio continues to improve, as it has for the past four weeks.  This is a bullish signal to me.  Nobody buys junior miners if they expect the price of gold to plummet.  Juniors are the very first thing tossed off the lifeboat in a PM downtrend.

Miners fell this week, with many dropping below their 9 EMA.  Most remain above the 50 MA, however, which suggests that so far all we're seeing is a correction in the middle of a medium-term uptrend.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Fortuna Silver FSM 2.38% -6.52% rising rising falling rising ema9 on 2015-05-22 2015-05-22
Newcrest Mining NCMGY 1.09% 18.03% falling rising rising rising ema9 on 2015-05-19 2015-05-22
Eldorado Gold EGO 1.03% -17.45% falling rising falling rising ema9 on 2015-05-19 2015-05-22
First Majestic AG 0.19% -42.72% rising rising falling rising ma50 on 2015-05-19 2015-05-22
Newmont Mining NEM 0.04% 16.17% falling rising rising rising ema9 on 2015-05-21 2015-05-22
Pretium Gold PVG 0.00% -18.73% falling rising falling rising ema9 on 2015-05-21 2015-05-22
Franco-Nevada FNV -0.21% 9.08% falling rising falling rising ema9 on 2015-05-21 2015-05-22
New Gold NGD -0.31% -39.25% falling falling falling rising ema9 on 2015-05-19 2015-05-22
Goldcorp GG -0.33% -24.00% falling falling falling rising ema9 on 2015-05-19 2015-05-22
Agnico Eagle AEM -0.40% 1.37% falling rising falling rising ema9 on 2015-05-19 2015-05-22
Randgold GOLD -0.51% -2.30% falling rising falling rising ema9 on 2015-05-19 2015-05-22
Hecla Mining HL -0.62% 10.31% rising rising falling rising ema9 on 2015-05-20 2015-05-22
Coeur Mining CDE -1.09% -30.22% falling rising falling rising ema9 on 2015-05-22 2015-05-22
Silver Wheaton SLW -1.12% -9.49% falling rising falling rising ma50 on 2015-05-21 2015-05-22
Barrick Gold ABX -1.21% -24.88% falling rising falling rising ema9 on 2015-05-19 2015-05-22
Kinross Gold KGC -1.23% -39.45% falling rising falling rising ema9 on 2015-05-19 2015-05-22
Royal Gold RGLD -1.24% 1.67% falling rising falling rising ma50 on 2015-05-22 2015-05-22
Yamana Gold AUY -1.31% -49.06% falling rising falling rising ma50 on 2015-05-20 2015-05-22
Iamgold IAG -1.38% -34.95% falling rising falling rising ema9 on 2015-05-19 2015-05-22
Silver Standard SSRI -1.43% -17.66% rising rising falling rising ma200 on 2015-05-13 2015-05-22
Aurico Gold AUQ -1.97% -3.86% falling rising falling rising ema9 on 2015-05-19 2015-05-22
Pan American PAAS -2.20% -22.26% falling rising falling rising ema9 on 2015-05-22 2015-05-22
Gold Fields GFI -2.26% -10.59% falling falling falling falling ma50 on 2015-05-06 2015-05-22
Anglogold Ashanti AU -2.73% -41.31% falling rising falling rising ma50 on 2015-05-19 2015-05-22

US Equities/SPX

This week, the equity market made a new high, and then proceeded to trade sideways for the remainder of the week, bouncing around in a very narrow range.  SPX rose on the week +3.33 to 2126.06.  For the market to move slowly higher in the face of consistently bad manufacturing data is perplexing - but markets don't rise or fall on data, they rise and fall on money flows.  Money continues to flow in.  I see risks as high, but what do I know?

VIX dropped -0.25 to 12.13.  Buying the VIX at around 12 has been a pretty good deal, at least in recent months anyway.

Gold in Other Currencies

Gold was mixed this week, rising in Euros, Yen, and BRL, while falling in USD, CNY, RUB, and INR.  Using the XDR currency basket as our baseline, gold was off a buck and change - mostly flat. 

Rates & Commodities

Bonds (TLT) fell -0.98% this week, printing another doji on the weekly chart, making another new low, and apparently still in search of a bottom.  Losses in TLT since the highs: about 13%, or more than 4.6 years of interest income.  Martin Armstrong suggests that an equity market correction will drive traders back into bonds, which will mark the top of the 30 year bond cycle - by October 2015.  But that's still a ways away.

Junk bonds (JNK) dropped just -0.18% on the week, not much change.

The CRB (commodity index) had a bad week, dropping -2.55%.  CRB closed below its 9 EMA for the past four days, which suggests that the commodity group as a whole is entering a correction period.

WTIC has held on, bucking the commodity trend.  Oil closed up +0.03 [+0.05%] to 59.99, head-faking lower during the week only to rebound back up to even.  Oil has chopped sideways within a range for the past three weeks; while the advance has stalled, traders seem to be willing to buy the dips, at least for now.

US land rig counts actually rose this week, up +3 rigs.  Shale areas Eagleford and Bakken both lost one rig each.  It appears that the great rig drop is over, at least with oil hovering around $60.  While the total rig counts are well below break-even production for shale, the not-yet-completed well backlog (about 5000 wells) hovers over the market like the proverbial Sword of Damocles.  Theoretically, any rise in price will be met by desperate shale drillers who will short oil to lock-in price and then run off to complete wells, in order to show a happy production story to investors and potential lenders.

NN still picks oil to reverse - fourth week now.

Physical Supply Indicators

* Shanghai premiums rose +1.45 to +2.83 over COMEX.

* The GLD ETF lost -8.65 tons, with 715.26 tons remaining.

* GC futures moved slowly deeper into backwardation; the spread of the two front month contracts is now -0.30.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on May 22nd) of 1204.80 and silver 17.08:

 PHYS 9.95 -0.33% to NAV [down]
 PSLV 6.53 -1.02% to NAV [down]
 CEF 12.20 -7.86% to NAV [down]
 GTU 41.84 -5.74% to NAV [down]

ETF premiums were down across the board.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no premium amongst its 5 locations.

Futures Positioning

The COT report covered trading through May 19th, when gold closed at 1206.90 and silver 17.05.  The coverage period included Tuesday's large drop in gold and silver.

Commercials added an incredible +50.8k short contracts this week; we now understand why gold stopped its ascent and sold off on Tuesday: commercials (and producers) simply dumped a huge quantity of shorts on the market.  This could be producers adding hedges at what are finally now profitable levels for them, or it could be just the commercials picking the top once again.  Still, gold commercial short positions aren't quite high enough just yet to suggest a major move lower.

Silver also saw a massive increase in commercial short positions (red line in the chart below) - they were up +18.6k.  However unlike gold, the silver COT position does suggest an imminent top, as commercials are at record high short exposure.  Silver managed money long positions are also at highs, and managed money shorts are at lows.  All the COT indicators are flashing "red" for silver.

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

This week we see that pretty much every PM component has dropped back below the 9 EMA.  Silver looks the strongest, the only PM component that still remains above its 200 MA.  That said - remember that COT report, which is telling us that the "smart money" commercials are at record short interest, and that usually precedes a drop in price.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 0.04% -25.69% falling rising falling rising ema9 on 2015-05-21 2015-05-22
Gold COMEX.Gold -0.01% -7.00% falling rising falling rising ema9 on 2015-05-19 2015-05-22
Platinum COMEX.Platinum -0.31% -23.24% falling rising falling rising ema9 on 2015-05-21 2015-05-22
Silver COMEX.Silver -0.47% -12.62% falling rising falling rising ema9 on 2015-05-22 2015-05-22
Senior Miners GDX -0.55% -14.66% falling rising falling rising ema9 on 2015-05-19 2015-05-22
Silver Miners SIL -0.96% -22.45% falling rising falling rising ema9 on 2015-05-19 2015-05-22

Summary

This week's move was all about the dollar recovery; gold was more or less flat on the worldwide markets, but the strong dollar rally helped gold to fall, aided (probably) by a massive increase in commercial short positions as gold neared, and then briefly topped $1230.  This is why "buying the breakout" can be dangerous in a downtrend - because other participants are selling the high, such as the gold mining companies that haven't seen $1230 gold since February.

This week, the gold/silver ratio rose +0.68 to 70.47, moving back up after last week's big drop.  The gold/silver ratio remains relatively bullish.  The GDX:$GOLD ratio dropped and is now at the edge of bearishness, while GDXJ:GDX continued moving higher and looks bullish.  Ratios are a mixed bag this week, but I really like the bullish tone to GDXJ:GDX.  You just don't see that very often ahead of a move lower.

The COT commercials dumped a lot of short contracts into both gold and silver, causing the picture for silver to look seriously at risk.  Gold has moved from bullish to neutral from the COT perspective.

Physical demand is leaning positive this week; in the west, ETF premiums were down across the board, but GLD has lost tonnage, the backwardation at COMEX has grown slightly, and premiums in Shanghai are modestly positive.

The buck made its low and rebounded, and that caused commodities to tip over and start sinking.  However WTIC crude seems to have buyers on any drop significantly below 60.  I thought a dollar rally would cause crude to correct in the same way it did for commodities, but that just didn't happen.  Could crude break higher if the dollar reverses?  Perhaps it could.

The dollar was strong this week, and that didn't help PM or commodities (priced in dollars) very much at all.  Still, our friendly junior miners continue to do well.  Its a mixed bag this week; I'd expect a drop in silver, and perhaps side-tracking in gold as long as the dollar doesn't shoot the moon.

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9 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
dis-incentive for cash in Greece

Here's a new wrinkle for reducing use of cash in Greece - the idea being that businesses that are currently avoiding paying VAT will be trackable via the electronic transaction.

http://www.keeptalkinggreece.com/2015/05/19/lost-in-6-5-18-varoufakis-overhaul-of-v-a-t-system-may-skyrocket-food-utility-prices/

... There will be a flat Value Added Tax of 18% for cash-transactions and a 3% discount – ie. 15% V.A.T. –  for payments with credit or debit card.

In the past at retail, you used to get a discount for cash but the government of Greece is flipping that around.  Now you get a discount for plastic!

Unintended consequence: the poor unbanked people pay higher prices for stuff.

If it works in Greece and resulted in higher tax collection rates, it seems a sure bet it will be tried other places as well.

Its not that you can't USE your cash, you see, you'll just pay a higher tax rate if you do.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
I am fascinated by how the

I am fascinated by how the gold priced in foreign currencies has been diverging since 2003. The reason is not obvious to me. I am sure there is an insight there.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
The Guardian floats "real" money printing

Its getting more real now.  The gang in charge has figured out that giving money to banks ends up only pumping the asset markets.  Now they are proposing giving money to people, since they notice that real people will be more likely to spend it on real goods and services.

This is quite similar to Steve Keen's jubilee, except there is no requirement that the money printing be used for debt paydown, so it is likely to be substantially more inflationary.

I view this as a very serious trial balloon.

http://www.theguardian.com/business/economics-blog/2015/may/21/now-the-bank-of-england-needs-to-deliver-qe-for-the-people

Government policy is based upon a belief that now the crisis is over, the animal spirits of the private sector will awaken and interest rates gradually normalise. But this is policy-­making based on hope. A genuinely responsible government needs a contingency plan in case hope fails us. And if the Bank is to be the leader, as well as the lender of last resort, we should at least give them the tools to do the job.

With fiscal policy off the table, and existing monetary tools exhausted, we propose that the government legislates to empower the Bank of England with the ability to make payments directly to the household sector – QE for the people. With this tool the Bank would be equipped to mitigate any sharp slowdown in the economy, caused by domestic or external factors, such as a deflationary shock from a Chinese or US recession, or a continued slump in the eurozone.

The empirical evidence from analogous policies – such as tax rebates in the US – suggests that transfers to the household sector would have a far greater impact on demand at a fraction of the size of QE. Consumers appear to quickly spend between a third and a half of any cash windfalls. So to increase consumption by 1% of GDP, you would need a transfer of 3% of GDP. UK QE currently stands at about 20% of annual GDP. The Bank of England estimates this raised GDP by 3%. Further QE would likely have less effect. So cash transfers to consumers are a far more effective stimulus than that provided by more QE for a lower spend.

Consistent with operational independence of the Bank of England, the size of payments and their timing should be solely under its control, and subject to the inflation target. Parliament needs to equip the Bank with the infrastructure to administer payments, and determine in advance the recipients. An equal payment to all households is likely to be the least controversial rule. It would have an immediate impact on spending and it is transparent and fair – favouring neither borrowers nor savers, rich nor poor, nor one demographic over another.

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1707
QE for the people

I saw that too Dave, and I agree it's a very serious trial balloon.  And I don't see anybody rising up against it (discounting crack pots like us), so maybe the UK will go down this path.  I hope they don't do something pathetically small, like maybe sending every household a checque for 200 Pounds.  If they're going to run an experiment in how to blow up your own currency I think they should go big or go home.  300 Pounds/week?  10,000 Pounds in one checque? Go for it!  I've always liked watching things blow up.  crying

BTW, I followed your advice and spent several hours Fri and Sat collecting the documentation I might one day need to prove that the cash I possess was legally acquired.  Now that I have a system, it will be quick and easy to continuously update the documentation every time I add to my stash.  And if I ever need the documentation it will only take me 5 minutes to pull it out.  If I ever have to deposit a lot of cash (say, for the down payment on a retirement home) I'll just bring the documentation with me and tell the bank manager to submit it with his SAR. cool

Tom

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 384
But they told me it worked!

But they told me it worked!

Taken from the Bank of England Paper (which is an interesting read in itself);

Quote:

“Our results suggest that, at the median, an asset purchase shock that results in the central bank purchasing government bond worth 1% of nominal GDP, leads a rise of about .18% (.36%) of real GDP and .3% (.38%) in CPI in the UK (US).”

“Overall, these findings are encouraging, because they suggest that unconventional monetary policy in form of asset purchases, can be effective in stabilising output and prices.”

Given the recent mention of ‘QE for everyone’ it looks like they are sensing deflation is on the way despite this resounding success of Central Bank purchases. I guess Keynesians don’t believe in the business cycle… or at the very least that it should not have any meaningful influence upon supply and demand.

Also, a nice little summary for our American cousins;

Quote:

“The Federal Reserve also announced open-ended purchases of government bonds at a rate of $US 45 bn per month in 2012. It is unclear how to translate the magnitude of this announcement to one that is comparable to other US asset purchase announcement. At the time of the announcement, guidance was also provided that the federal funds rate would stay low until unemployment had reached the 6.5% threshold. FOMC minutes that accompanied the announcement suggested that this would be met in 2015, implying that purchases would continue for at least three years. One way of calculating the economic impact of the open-ended QE announcement is therefore to calculate the present value of an asset that pays $US 45 bn each month, for thirty-six months. This suggests that the economic impact of the open-ended QE announcement was about 1217bn USD.”

In 20 years time, who knows… maybe we’ll all be Marxists. At least those of us lucky enough to live under this regime of benevolence… Think I need a drink

All the best,

Luke

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Steve Keen via Mike

Here SK outlines the outputs of his Instability Model.

Synops. 

  • Tranquility
  • Economic inequality
  • Rising private debt.

I believe it is all going to plan. Someone else's plan.

https://damnthematrix.wordpress.com/2015/05/25/debt-inequality-and-crisis/

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
And Rickards Concurs.

With Steve Keen. The models are wrong, and it will take 50 years to fix them.

James Rickards - The Death of Money - 04-30-15:

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 656
The Big Drop

by Jim Rickards is even more up to date and has much more relevant info, with his barbell strategy to position oneself for either/and inflation/deflation.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
KennethPollinger wrote: by
KennethPollinger wrote:

by Jim Rickards is even more up to date and has much more relevant info, with his barbell strategy to position oneself for either/and inflation/deflation.

 

Works as long as the counter-party can cough up.  What is the risk of counter-party default?  We have no idea because of CB policies.

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