PM End of Week Market Commentary - 5/29/2015

davefairtex
By davefairtex on Sat, May 30, 2015 - 9:28am

On Friday, gold rose +1.90 to 1190.50 on moderately light volume, and silver climbed +0.02 to 16.71 on moderately light volume also.

On the week, gold ended down -14.90 [-1.24%], silver dropped -0.40 [-2.31%], GDX fell -1.26% and GDXJ was down -1.34%.  All of gold's losses on the week came on Tuesday, a day where the buck screamed higher, and gold plummeted in response.

We can see on gold's weekly chart that it has been trading in a range from 1130-1300, and as the dollar continues to rally, gold is in the process of dropping back down towards the lower end of this range.  The uptrend dating back to March remains intact, but gold really needs to avoid a move below 1168 for this (relatively gentle) uptrend to remain intact.

The USD

The USD did well this week, climbing +0.88 [+0.91%] to 96.99.  The Euro [-0.23%] was not the primary victim of the dollar's rise, it was the other currencies: Yen dropped -2.08%, Pound was off -1.29%, Canadian Dollar down -1.23% and the Aussie dollar fell -2.29%.  The breakdown in the Yen is probably the most interesting bit of news, since the Yen has fallen through a support level that dated back to December 2014 and is now making new lows.  A drop of the Yen below 80 [it is currently at 80.54] would probably lead to a lot more selling, strengthening the dollar further.

The way I read things, the currency markets believe that the Fed will raise rates, and so the dollar is rising.  This creates headwinds for commodities and gold.

Miners

GDX dropped below its uptrend line this week, gapping down below the line on Tuesday because of gold's big drop.  The chart looks weak - after the gap down on Tuesday, the rally back was a bit feeble.  GDX has been unable to move back above its 50 MA.  It feels like the risks are to the downside right now for the miners.  A close back above the 50 MA would relieve some of this concern for me.

US Equities/SPX

This week, the equity market broke lower, dropping below its recent trading range, and marking a swing high on the weekly chart.  Buy-the-dip was definitely in evidence, but by end of week, the sellers appeared to be in control.  SPX closed down -18.67 to 2107.39.  The weekly swing high is a reasonably big deal; in the past, swing highs have led to corrections.  We'll see if it can affect our six-year-old bull market.

On Friday, Q1 GDP was revised lower, to -0.7%, down from the first-cut guess of +0.2%.  Also, a Chicago Manufacturing PMI report came in surprisingly negative, as have all the other manufacturing reports for the past few months.  One wonders why anyone continues to be surprised by this.  The strong dollar is causing major problems for manufacturing, but manufacturing provides only 8.7% of total US employment so manufacturing weakness doesn't automatically translate into problems for the overall economy.

SPX needs a close below 2068 before traders start to get seriously worried.

Here's a chart that helps explain why the market has been so resilient in recent months: $62 billion in new credit money was created for the express purpose of buying equities - $30 billion just in April alone.

Money pouring in = support for equity prices.  Its just that simple.  Of course, this game works in reverse too.  Once margin debt starts to decline, that will suck money right out of equities.  Also, money tends to flee substantially faster than it comes in.  Margin debt is a double-edged sword, to be sure.

VIX rose +1.71 to 13.84.

Gold in Other Currencies

Gold was mixed this week but generally lower, rising in Yen and especially Rubles, while it fell in all the other currencies.  In both USD and CNY, gold has been bouncing along the lows for the past 6 months.

Rates & Commodities

Bonds (TLT) moved higher this week, rising +1.92% and marking a weekly swing low.  Continued equity market weakness, should it continue, will probably help bonds to keep climbing.

Junk bonds (JNK) were mostly flat, up +0.10%.

The CRB (commodity index) fell for the first half of the week, only to rally on Thursday and Friday.  CRB ended up falling -1.06% but it printed a hammer candle which looks relatively bullish.

WTIC was hit hard during the week, dropping as low as 56.51 only to scream back on Friday, with oil ending the week up +0.24 to 60.23.  Someone is out there buying every dip in oil.

Physical Supply Indicators

* Shanghai premiums fell to +1.72 over COMEX.

* The GLD ETF gained +0.60 tons, with 715.86 tons remaining.

* GC futures moved out of backwardation on the roll of the front month GC contract.  Spread is now +0.40.

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

 PHYS 9.82 -0.40% to NAV [down]
 PSLV 6.46 +0.07% to NAV [up]
 CEF 12.01 -7.82% to NAV [up]
 GTU 41.93 -4.30% to NAV [up]

ETF premiums were mostly up.  PSLV is now positive once again.

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

Futures Positioning

The COT report covered trading through May 26th, when gold closed at 1187.20 and silver 16.73.  The coverage period included Tuesday's large drop in gold and silver.

Commercials closed -18.8k shorts probably due to the big drop on Tuesday, but the other participants didn't do all that much.  The COT reports for gold are not providing any sort of clear signal at the moment.

Silver's positioning has not changed much at all.  Commercials are still at very high levels of short interest in silver, and from a historical perspective this suggests that there is more downside.  Managed Money is excessively long, and Managed Money also has a low level of short exposure as well.  Managed Money remains quite bullish - and it is usually wrong.

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

All PM components are below their 9 EMA and 200 EMA.  You can see that silver, silver miners, and the junior gold miners are outperforming because they remain above their 50 MA.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver COMEX.Silver 0.19% -12.17% falling rising falling rising ma200 on 2015-05-26 2015-05-29
Gold COMEX.Gold 0.14% -5.29% falling rising falling rising ma50 on 2015-05-26 2015-05-29
Silver Miners SIL 0.11% -21.26% falling rising falling rising ma50 on 2015-05-28 2015-05-29
Senior Miners GDX -0.10% -11.38% falling rising falling rising ma50 on 2015-05-26 2015-05-29
Platinum COMEX.Platinum -0.20% -23.68% falling rising falling rising ma50 on 2015-05-26 2015-05-28
Junior Miners GDXJ -0.27% -22.53% falling rising falling rising ema9 on 2015-05-21 2015-05-29

Summary

The drop in gold this week was mostly currency-driven, with the brisk drop on Tuesday coming on the same day that the buck screamed higher.  The very minor rallies in gold in the days following the drop did not have a particularly healthy look to them.  Momentum still appears to be downhill for gold priced in dollars.

This week, the gold/silver ratio rose +0.88 to 71.24, climbing back up into its 6-month trading range.  The gold/silver ratio is gradually becoming less bullish.  The GDX:$GOLD ratio is unchanged and is at the edge of bearishness, while GDXJ:GDX fell slightly but still looks bullish.  Moving average trends are all bearish short term, and 50/50 bearish medium term.

The gold COT commercials closed a large number of short positions, but not enough to shift the COT report to a bullish stance.  COT positions for silver are largely unchanged - for commercials and managed money they remain quite bearish.

Physical demand is mostly neutral this week; in the west, ETF premiums were up slightly, GLD tonnage is largely unchanged, the backwardation at COMEX is now gone, and premiums in Shanghai are barely positive.

The dollar's continued move higher made some trouble for commodities, all except for crude which has had strong buying interest each time WTIC fell substantially below $60.  The contrast between gold and oil is really stark; while gold did not suffer a 50% correction over the past 12 months (imagine what the goldbug press would have said if that happened to gold!), the continual strong bid underneath oil today has resulted in a refusal of oil to drop much below $60.  I keep expecting it to correct, and each week - no correction.

The COT report for silver has me worried, and gold needs to avoid a drop below 1168.  If the drop occurs and buyers fail to appear, I expect to see a retest of the 1130 lows.  My sense is, this unpleasant scenario would be precipitated by a continued strong move in the dollar in a re-test of 100.

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11 Comments

KugsCheese's picture
KugsCheese
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Gold Article Title Area Obscured

On my iPad I cannot see the Gold article title on the home page because of text over laying it to create jumble of text.  

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
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Image Load Issue on iPad

The first 4 images do not load on my iPad.  

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
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Posts: 1428
KugsCheese wrote: The first 4
KugsCheese wrote:

The first 4 images do not load on my iPad.  

 

Just jumped on my Mac.  The 4 empty image frames do not show on my Mac.  Very strange.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1428
KugsCheese wrote: On my iPad
KugsCheese wrote:

On my iPad I cannot see the Gold article title on the home page because of text over laying it to create jumble of text.  

 

The Daily Digest title is not wrapping on iPad and so covering over Gold title.

Luke Moffat's picture
Luke Moffat
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Joined: Jan 25 2014
Posts: 364
Browser perhaps?
KugsCheese wrote:

The first 4 images do not load on my iPad.  

I get the same issue when i view Dave's analysis at work (as of about 3 weeks ago). I reckon it's a browser issue as work insists on using Internet Explorer

davefairtex's picture
davefairtex
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headline: swiss gold exports drop to china 67%

Saw an article that suggested gold deliveries to China from Switzerland dropped 67% in April.  This sounded alarming, so I went to look at my SGE delivery stats.  Sure enough, big drop - month/month.  But everyone knows (!) that gold has a very seasonal pattern in China, so it makes more sense to compare year/year delivery volumes.  (And in fact, that was mentioned in the article, later on).  So what does that year/year comparison look like?

Gold deliveries are up Y/Y by about 50-60%.

http://www.mineweb.com/news/gold/swiss-gold-exports-to-china-drop-67-in-april/

Saw an article that

 

sand_puppy's picture
sand_puppy
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Posts: 1756
Thanks for keeping an eye on this

Appreciate your making sense of these kinds of confusing gold headlines.

davefairtex's picture
davefairtex
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Posts: 5063
PM Tsipras: Europe at Crossroads

Straight from the horse's mouth: a must-read article.  If Europe decides not to deal fairly and honorably with this Greek leader who sounds incredibly rational, the next Greek leader they will be talking to may well be wearing a swastika.  The swastika-wearers tend to be a whole lot less rational.

http://www.primeminister.gov.gr/english/2015/05/31/prime-minister-alexis-tsipras-article-at-le-monde-newspaper-europe-at-crossroads/

Today, Europe has the opportunity to make decisions that will trigger a rapid recovery of the Greek and European economy by ending Grexit scenarios, scenarios that prevent the long-term stabilization of the European economy and may, at any given time, weaken the confidence of both citizens and investors in our common currency.

Many, however, claim that the Greek side is not cooperating to reach an agreement because it comes to the negotiations intransigent and without proposals.

Is this really the case?

Because these times are critical, perhaps historic–not only for the future of Greece but also for the future of Europe–I would like to take this opportunity to present the truth, and to responsibly inform the world’s public opinion about the real intentions and positions of Greece.

theordore's picture
theordore
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NYSE margin loan expnasion

Does anyone here have hypotheses as to why the volume of margin loans on the NYSE would expand so much at this time? Second question: could a portion of this expansion be explained by a major growth in borrowing money to go short including buying puts? Third question: if little of this expansion involves people taking short positions, then why would the Big Boys responsible for this loan expansion expect that down the road that would be the Greater Fools anxious to come along and pay more for the stock and they're paying for them now? That is, what in the current fundamentals justifies the expectation of worthwhile future capital gains from going long the major market stocks/ETFs?

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1428
theordore wrote: Does anyone
theordore wrote:

Does anyone here have hypotheses as to why the volume of margin loans on the NYSE would expand so much at this time? Second question: could a portion of this expansion be explained by a major growth in borrowing money to go short including buying puts? Third question: if little of this expansion involves people taking short positions, then why would the Big Boys responsible for this loan expansion expect that down the road that would be the Greater Fools anxious to come along and pay more for the stock and they're paying for them now? That is, what in the current fundamentals justifies the expectation of worthwhile future capital gains from going long the major market stocks/ETFs?

 

To save the pensions?

davefairtex's picture
davefairtex
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Posts: 5063
Fed: will she or won't she?

Gold started rising soon after the Personal Income & Outlays report this morning at 08:30 EDT - it wasn't one of those pre-programmed jumps higher, it took about an hour to completely gather steam, but it finally took off about 09:20 and sprinted higher.  Right now gold is up $12 and silver +0.37, both very respectable moves, with gold back over $1200.

The buck lost its gains on the day and is back to flat.

http://mam.econoday.com/byshoweventfull.asp?fid=467032&cust=mam

The consumer started off the second quarter slow, putting income into savings and not spending. Consumer spending was unchanged in April with deep declines in spending on both durable and nondurable goods, down 0.7 percent and down 0.5 percent respectively...

The April retail sales report first signaled trouble for second-quarter spending that today's report confirms. The consumer, the economy's bread-and-butter right now given weakness in manufacturing, is sitting on their hands. This report pushes back the outlook for the Fed's first rate hike.

 

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