PM End of Week Market Commentary - 6/5/2015

davefairtex
By davefairtex on Sat, Jun 6, 2015 - 5:29am

On Friday, gold fell -4.60 to 1171.80 on moderately heavy volume, while silver rose +0.02 to 16.09 on very heavy volume.  Both gold and silver were battered by a huge rise in the buck, which happened as a result of an unexpectedly positive Nonfarm Payrolls report released at 08:30 EDT; by end of day silver had recovered all its losses on the day, while gold remained in the red.

On the week, gold ended down -18.70 [-1.57%], silver dropped -0.61 [-3.68%], GDX fell -3.83% and GDXJ was down -2.76%.  Silver led the way down, hit hard on Wednesday and Thursday for big losses.

Gold continued falling this week, even though the dollar actually fell also during the period, suggesting that gold's weakness was not simply a currency effect.  I believe at least part of the problem for gold was the unwind of the Greek safe haven trade, on speculation that Greece would finally receive its long-awaited bailout.  Not enough buyers appeared on Friday to stop gold from plunging below the previous low of 1168, but it did manage to rally somewhat by end of day printing a hopeful-looking hammer candle.

Silver was clobbered this week with two days of heavy selling, only to end on Friday on a hopeful note.  I always like to see high volume doji candles after a number of days of heavy selling, since it shows that the buyers are showing up in force and overpowering the sellers - and most likely, the happy (commercial) shorts are ringing the cash register too.  Often such a candle marks the end of the decline, although we require a rally on Monday to confirm.

If we get a close above 16.16 on Monday, I think it is probably a buying opportunity for silver.

The USD

The dollar was volatile this week, losing -0.62 [-0.64%] and closing at 96.36.  The buck sold off hard earlier in the week on the news that Greece was coming to an agreement with their lenders (not true, alas), and then on Friday the buck rallied hard on the surprisingly strong Nonfarm Payrolls report, which suggested to traders that the Fed might be raising rates as soon as the upcoming Fed meeting.

Greece, the Fed - its a tug of war right now, with more than 1% moves each day when various news releases drive the market one direction or another.

After consolidating for a few days around 80-80.50, the Yen broke down further on Friday, closing at 79.67, crashing through the 2007 lows.  Below 80, you have to go back to 2002 to see the Yen's previous low.  The Nikkei is up at highs not seen since 2000.  It appears to me that the BOJ is facilitating a "debt-to-equity" swap for Japan's pension funds.  They might say they're trying to create inflation, but just perhaps the endgame is for the BOJ to end up owning all the JGBs, with the pension funds owning all the equity.  At that point, an increase in interest rate on JGBs can't hurt the government, since BOJ remits the interest payments.  The currency pays the price, of course.  Perhaps all those JGBs just end up there on the balance sheet forever...

Miners

Last week GDX dropped through its uptrend line; this week GDX tried to rally through its 50 MA, failed, and then sold off, making a new low.  On Friday, GDX printed a hopeful-looking doji candle which might mark a low for the mining shares.  We need a confirmation on Monday with a close above 19.00.  As is usually the case, what happens to gold will drive how the miners perform, but I do like the relative lack of heavy selling days as the miners made new lows.

Inexplicably, the junior miners continue to do quite well relative to the seniors, and are continuing their relative outperformance.  Anecdotally, I've noticed relatively good behavior in the few junior mining shares I own - they seem to resist dropping, at least most of the time, even when gold does poorly.  There appears to be a bid underneath the junior miners, which is something that runs counter to the overall negativity in the PM space these days.

There are a smattering of miners that have resisted the overall downward pull of the PM complex, but not many.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Newcrest Mining NCMGY 1.77% 13.49% falling falling falling falling ma50 on 2015-06-03 2015-06-05
Kinross Gold KGC 0.82% -36.60% rising falling falling rising ma50 on 2015-06-03 2015-06-05
Iamgold IAG 0.49% -42.30% falling falling falling rising ma50 on 2015-05-26 2015-06-05
Eldorado Gold EGO 0.22% -21.92% falling falling falling rising ema9 on 2015-06-03 2015-06-05
New Gold NGD 0.00% -42.62% falling falling falling rising ema9 on 2015-06-03 2015-06-05
Royal Gold RGLD -0.12% 0.02% falling falling falling rising ema9 on 2015-06-03 2015-06-05
Silver Standard SSRI -0.62% -7.64% rising rising falling rising ema9 on 2015-05-28 2015-06-05
Hecla Mining HL -0.98% 5.94% falling falling falling falling ema9 on 2015-06-03 2015-06-05
Franco-Nevada FNV -1.03% 7.58% falling falling falling rising ma50 on 2015-06-03 2015-06-05
Silver Wheaton SLW -1.06% -9.76% falling falling falling rising ema9 on 2015-06-03 2015-06-05
Coeur Mining CDE -1.27% -23.35% falling rising falling rising ema9 on 2015-06-05 2015-06-05
Pan American PAAS -1.29% -24.63% falling falling falling rising ma50 on 2015-06-03 2015-06-05
Fortuna Silver FSM -1.36% -11.03% falling falling falling rising ma50 on 2015-06-04 2015-06-05
Anglogold Ashanti AU -1.47% -44.98% falling falling falling rising ma50 on 2015-05-19 2015-06-05
Randgold GOLD -1.56% -5.05% falling falling falling rising ema9 on 2015-06-03 2015-06-05
First Majestic AG -1.83% -44.21% falling falling falling rising ema9 on 2015-06-03 2015-06-05
Barrick Gold ABX -1.88% -27.95% falling rising falling rising ma50 on 2015-05-26 2015-06-05
Aurico Gold AUQ -1.89% -12.89% falling rising falling rising ma50 on 2015-06-03 2015-06-05
Yamana Gold AUY -1.99% -52.61% falling falling falling rising ema9 on 2015-06-03 2015-06-05
Goldcorp GG -2.05% -24.32% falling falling falling rising ema9 on 2015-05-19 2015-06-05
Gold Fields GFI -2.45% -8.86% falling falling falling falling ema9 on 2015-06-03 2015-06-05
Agnico Eagle AEM -2.65% 0.82% falling rising falling rising ma50 on 2015-06-05 2015-06-05
Newmont Mining NEM -3.32% 13.05% falling rising falling rising ema9 on 2015-06-02 2015-06-05
Pretium Gold PVG -3.92% -13.53% falling rising falling rising ema9 on 2015-06-05 2015-06-05

US Equities/SPX

This week, the equity market dropped for the second week in a row, closing down -14.56 [-0.69%] to 2092.83.  Equities managed to drop below the 50 MA on Thursday, and were unable to rally back on Friday due to the...strong Nonfarm Payrolls report.

In the exciting trading world dominated by Fed tea-leaf-reading, the strong Nonfarm Payrolls report which normally woud have propelled the equity market higher actually caused the market to fall.  How's that, you say?   How is it that rising employment hurts the economy?  Of course, it doesn't.  But a strong payrolls report increases the perceived chance that the Fed will raise rates at the upcoming meeting, and everyone knows that a rate raise means the six-year ZIRP party is coming to a close.  As a result - there is a slow motion stroll towards the exits.  Just in case.

SPX did break below a short-term prior low, and the market is slowly starting to show some weakness, although the market is as yet only down 1.8% from its 2130 all time high.

Pulling back to the monthly timeframe, we see distinct signs of waning momentum for equities.  An MACD crossover, and a bearish RSI divergence all suggest that SPX is definitely slowing down.

That, and two different versions of my code are both suggesting the top is in, and a correction is coming.  :-)  Although its time horizon is months, not weeks, so don't expect an immediate collapse.

VIX rose +0.37 to 14.21.

Gold in Other Currencies

Gold fell against almost every currency except the Ruble, which dropped 8% vs the dollar this week.  In XDR, which we can use as the general currency basket, gold dropped $27, which indicates how badly gold was hit this week.  Gold in Euros actually dropped $52!  From that perspective, gold in dollars actually outperformed.

Rates & Commodities

Bonds (TLT) were stomped this week, falling -3.96% putting a new low, echoing the world-wide bond sell off which has driven EU core-nation 10 year rates up by almost a full percent over the past six weeks.

Junk bonds (JNK) sold off as well, dropping -1.10%, breaking down out of a 8-week consolidation range.  This move reinforces the "risk off' story demonstrated by the drop in SPX.

The CRB (commodity index) dropped this week, closing down -0.29%.  Commodities are trying to decide on direction; there are both bullish and bearish near term signs to be found in the charts, but the longer term trend is still down.

WTIC once again was hit for losses during the week but found support right at its 50 MA, closing down -1.35 [-2.24%] to 58.88.  For the second week in a row, a bullish Friday [+0.90 +1.55%] saved oil from a very unpleasant weekly close.  Brent oil made a new low; however it did manage to regain its 50 MA as it too had a bullish rebound on Friday.

Oil rig counts were down -7 rigs in the US overall, but rose +3 in the EagleFord shale region, suggesting to me that at least some producers in that area can make money on $60 oil.

OPEC kept its production quota unchanged on Friday, which effectively meant they'd continue to produce as fast as they could.  Oil sold off initially, but then rebounded strongly - one trader (who had a long oil position) suggested this was because OPEC saw demand firming as a result of lower oil prices.  The oil shorts were calling the rally a "relief rally."  Me - I don't know what to think.  I have observed a serious bid underneath WTIC.  Brent looks weaker, and the Brent-WTIC spread has narrowed from $12 in February to $4.30 here in June.

I think I'll wait to see if Brent can rise above its downtrend line come Monday/Tuesday.  If it can't, oil probably goes lower, as the sellers in Brent will continue to outnumber the buyers.

Physical Supply Indicators

* Shanghai premiums rose to +2.35 over COMEX.

* The GLD ETF lost -5.97 tons, with 709.89 tons remaining.

* GC futures are not in backwardation, with the current two front-month spread at +0.30.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on June 5th) of 1170.20 and silver 16.05:

 PHYS 9.68 -0.15% to NAV [up]
 PSLV 6.24 +0.67% to NAV [up]
 CEF 11.76 -7.37% to NAV [up]
 GTU 41.30 -4.15% to NAV [up]

ETF premiums were up across the board.

* 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 June 3rd, when gold closed at 1194.10 and silver 16.80.  The coverage period entirely missed the strong move lower in both gold and silver this week.

Commercials net position changed very little - they closed some shorts, and sold some longs.  Managed money also tweaked their positions, adding some short exposure.  We have to wait until next week to see the results of the move lower in gold on the COT.

Silver's positioning was also substantially unchanged on the week as well.  Next week we'll know more.

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

All PM components now red.  It's a mess out there, with all items below all moving averages.  Even the well-behaved junior gold miners have now faded - dropping below the 50 MA on Friday.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL -0.45% -24.05% falling falling falling rising ma50 on 2015-06-04 2015-06-05
Gold COMEX.Gold -0.60% -6.80% falling falling falling rising ma50 on 2015-05-26 2015-06-05
Platinum COMEX.Platinum -0.66% -24.43% falling falling falling rising ma50 on 2015-05-26 2015-06-05
Silver COMEX.Silver -0.74% -16.24% falling falling falling falling ma50 on 2015-06-03 2015-06-05
Junior Miners GDXJ -1.03% -26.86% falling rising falling rising ma50 on 2015-06-05 2015-06-05
Senior Miners GDX -1.26% -16.32% falling falling falling rising ema9 on 2015-06-03 2015-06-05

Summary

The drop in gold this week was not currency related - gold fell sharply in all currencies except the Ruble.  Still, there are starting to be signs of hope.  Gold in Euros managed to avoid breaking support, silver may have put in a low after a three week swoon (requiring confirmation Monday), and even gold printed a possibly-hopeful hammer candle on Friday.  Senior miners printed a hopeful-looking candle as well.  The metals complex are oversold enough for this to be a reasonable level for a low to appear.  But all this "hope" sums up to just a possibility - it requires buyers to actually show up next week and move prices higher.

This week, the gold/silver ratio rose +1.56 to 72.81, solidly back in its 6-month trading range, and is back in bearish territory once again.  The GDX:$GOLD ratio dropped significantly this week and is now solidly bearish, while GDXJ:GDX rose and continues looking bullish.  Moving average trends are all bearish.

The COT reports did not cover the time period of the drop in gold and silver this week; they remain mostly unchanged over last week's report.  As a result, gold COT is not giving us any sort of signal, while silver is still showing a strongly bearish tone - the COT did seem to do a good job of predicting the drop in silver this week.  Another win for the COT Commercial shorts.

Physical demand is slightly positive this week; in the west, ETF premiums were all up, GLD tonnage dropped, no backwardation at COMEX, and premiums in Shanghai are modestly positive.

The Brent / WTIC spread continues to shrink - this is allowing the bearish-looking Brent to continue dropping while WTIC is managing to stay within its trading range, at least on a closing basis.  The strong bid under WTIC remains in place.  Commodities are in no-mans-land and looking for direction, but with a bearish tone to them.

The correction in silver I was concerned about last week appeared; my only question is, has it spent its fury, or is there still more gas left in the tank?  There are signs of a possible low in many parts of the PM space based on my reading of the charts, but the technicals may be trumped by large, unexpected currency moves in the buck as well as positive news out of Greece.  Junior miners still appear well-bid, at least on a relative basis.

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