PM End of Week Market Commentary - 6/19/2015

davefairtex
By davefairtex on Sat, Jun 20, 2015 - 12:33pm

On Friday, gold fell -1.20 to 1199.80 on light volume, while silver dropped -0.08 to 16.05 on moderately light volume.  Gold took a rest after yesterday's big move higher, while silver spiked lower at 11:00 EDT, rebounded, but then faded by end of day.  The shorts can't seem to force silver much below 16, but the longs aren't able to push prices much above 16 for any length of time.  Result: stalemate.

On the week, gold ended up +19.20 [+1.63%], silver rose +0.12 [+0.78%], GDX was up +0.49% and GDXJ climbed +3.02%.  Gold had a nice week, and the junior miners once again outperformed.

Gold had a nice rally this week, managing to close above its 50 MA, encountering resistance at the 200 MA.  A close above the previous high of 1232 will turn gold back to medium-term bullish again.

Silver found buyers in the band 15.75-15.90, but each time it tried to rally much above 16 silver has encountered heavy selling.  There have been a number of failed rallies in recent weeks - on Thursday silver made it to the 50 MA before it was pounded down by the sellers.  Silver's underperformance has pushed the gold:silver ratio up to 74.75, which is at the high end of the gold/silver ratio's range over the past 8 months.

The USD

The dollar continued falling this week, dropping -0.71 [-0.75%] to 94.27.  The dollar doesn't seem to be particularly concerned about the upcoming Greek default - it seemed to be more focused on the dovish FOMC statement on Wednesday that suggested a rate rise would only happen if there was improvement in the labor market.

The buck remains below its 9 EMA and its 50 MA, but above its 200 - a kind of no-mans-land of long-term bullish but perhaps turning bearish.  The dollar has been in a steady downtrend since hitting a high of 100 back in March.

Miners

Senior miners managed to put in a positive week, but not by very much.  The strong rally on Wednesday after the FOMC statement release ended up being sold again on Friday; traders don't really want to be holding senior miners right now for some reason.  The GDX:$GOLD ratio has been moving steadily lower for the past 6 weeks.  Even the good-sized miner rally on Wednesday was not enough to break the ratio's downtrend line.

Juniors on the other hand look much better; the rally on Wednesday moved the juniors back above their 50 MA and above their shallow downtrend line.  The ratio chart (not shown) looks stronger.

US Equities/SPX

The equity market rose +15.88 [+0.76%] to 2109.99, climbing back above its 50 MA and seeming to regain a bit of bullish momentum.  The dovish FOMC statement may have helped, but its hard to say.  Right now the market seems range-bound; would good economic news propel it higher?  Quite possibly not - since any good news would be seen as a prod to the Fed to raise rates.  It feels to me like SPX is mostly driven right now by the timing of the Fed rate-raise decision.

VIX closed the week up +0.18 to 13.96.

Gold in Other Currencies

Gold rallied in all currencies except the Ruble; it was a decent week for gold.

Rates & Commodities

Bonds (TLT) rallied +0.96% this week, slowly moving higher off the low marked last week.  However to break the pattern of lower highs and end its downtrend, TLT needs a close above the 200 MA, which is still quite a distance away from where it is now.

Junk bonds (JNK) was largely unchanged on the week, up +0.03%.  Worst that could be said: junk is mildly bearish; JNK is just a few percentage points away from its all time high.  Traders still like junk bonds.

The CRB (commodity index) fell this week, dropping -0.63%.  Commodities have yet to set a direction, but they aren't looking particularly strong at the moment.  Part of the problem could be copper, which has done nothing but sell off since mid-May, down 15% from 2.95 to 2.57.  Copper's chart looks horrid, and that doesn't bode so well for silver.  Why do I say that?  Well, copper is historically well correlated with silver - gold is the only instrument with a closer correlation.

WTIC fell -0.25 to 59.69, moving sideways within its 58-62 trading range once again.  Brent on the other hand is looking weaker, off -1.88 [-2.91%] and dropping below its 50 MA.  The Brent/WTIC spread has dropped to $3.11, down from $12.50 earlier in the year.  I'm still wondering which oil I should follow; WTIC looks strong, while Brent is slowly weakening.

Physical Supply Indicators

* Shanghai premiums fell to just +0.45 over COMEX.

* The GLD ETF lost -2.08 tons, with 701.90 tons remaining.

* GC futures are not in backwardation, with the current two front-month spread at +0.40.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on June 12th) of 1180.40 and silver 15.89:

 PHYS 9.92 -0.23% to NAV [up]
 PSLV 6.25 +0.67% to NAV [up]
 CEF 11.90 -7.79% to NAV [down]
 GTU 40.92 -7.40% to NAV [down]

ETF premiums were mixed, with the Sprott funds gaining.

* 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 16th, when gold closed at 1180.50 and silver 15.96.  The coverage period did not include the days where gold rallied strongly; we'll have to wait for next week to see what happened there.

The gold commercials were little changed; they are at a relatively low point in terms of short exposure, and Managed Money is at a high.  This is a bullish configuration, in that lows usually occur when Managed Money short exposure is high and Commercial short exposure is low.  During the coverage period Managed Money increased short exposure.  Perhaps this helps explain why gold rallied on the week: "its time to squeeze managed money."

Silver commercials continued to cover short, while Managed Money dumped another +9.1k short contracts onto the market.  These are really big changes in silver - not as big as last week's historically large jump in shorts, but still quite large.  As long as managed money continues to increase their short position, silver will find it difficult to move higher.  However, these are the guys who are generally wrong at the turning points.  Perhaps they are betting on the Copper/Silver correlation I spoke of earlier and selling all of the rallies in silver.  Its a whole lot of fuel for a rally, once the selling peters out.

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

Gold staged a nice recovery this week, dragging the junior gold miners and silver miners along behind.  Senior miners still look ill.  From the longer term perspective, the entire PM complex is still mired in a multi-year bear market, and is more or less bumping along the bottom.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum COMEX.Platinum 0.37% -26.29% falling falling falling rising ema9 on 2015-06-11 2015-06-19
Gold COMEX.Gold 0.00% -8.54% rising rising falling rising ema9 on 2015-06-18 2015-06-19
Silver COMEX.Silver -0.27% -21.98% rising falling falling rising ema9 on 2015-06-18 2015-06-19
Junior Miners GDXJ -1.27% -40.21% rising rising falling rising ema9 on 2015-06-17 2015-06-19
Silver Miners SIL -1.61% -35.01% rising rising falling rising ema9 on 2015-06-15 2015-06-19
Senior Miners GDX -2.30% -28.05% falling falling falling rising ema9 on 2015-06-19 2015-06-19

Summary

Gold rallied sharply on Thursday, pulling gold back above its 50 MA and looking somewhat more bullish in the short term.  Silver is still suffering selling pressure, most likely from Managed Money who have decided in the past few weeks to sharply ramp up their short positions on silver.  This has most likely kept silver from rallying during that time.

This week, the gold/silver ratio rose +0.62 to 74.75, moving to the higher end of its 8-month trading range.  That's bearish.  The GDX:$GOLD ratio continued to fall this week and remains bearish, while GDXJ:GDX rose sharply and continues looking bullish.  SIL:$SILVER rose as well and looks bullish also.  The shorter term moving average trends have improved and are now looking "early bullish".

The COT reports show a relatively high bullish configuration for gold, and a very bullish position for silver.  Commercial shorts have covered, and Managed Money has gone heavily short.  Silver is in a particularly extreme position; I believe a break higher for silver is more likely than not in the next week or so.  Of course I said that last week, and nothing happened except for Managed Money piling on short even harder.  COT is not perfect as a timing indicator.  There, that's my excuse.

Physical demand is neutral this week; in the west, ETF premiums were mixed, GLD tonnage dropped slightly, no backwardation at COMEX, and premiums in Shanghai are just barely positive.  Summer is a historically weak period for PM.

Commodities are slowly weakening, WTIC oil is trading sideways, and copper has dropped 5 weeks in a row, down 14% in that time with this past week down -3.83%.  This isn't supportive of PM.

Gold woke up this week, while silver remains under pressure.  Will Managed Money be right about silver?  If so, that would be a first.  Still, the copper downtrend has my attention, as does the poor performance of the senior mining shares.  The summer months are historically weak for PM.  Greece doesn't seem to be having an impact.  Indicators point in different directions, which says "no clear direction yet.  I'd be happier if more of my indicators were lining up in one direction or another.

Maybe next week.

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3 Comments

tolky1's picture
tolky1
Status: Member (Offline)
Joined: Jun 11 2014
Posts: 5
Copper And Silver Correlation

Hi Dave Fairtex:

I am puzzled about the copper/silver correlation.  Is this because of the industrial use for silver?  Many say copper diagnoses the state of economy, as it is needed apparently in cars and home building, so the almost 5 year  low copper price we have now, some say, is the best indicator of a weak or spiraling economy.  And yet a weak economy characterized by inflation, for instance, would seem to be bullish for silver, as in the late 1970s?  Is this correlation only a partial correlation with copper being a primarily industrial metal and silver being a partial industrial metal, perhaps?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
partial industrial metal

tolky1-

As with a lot of these things, its tough to know for sure.  I know for some mines,silver is a bi-product of copper production (and vice versa) so a shortage in one may be linked to a shortage (or surplus) in the other.  Definitely silver has an industrial component.

Whats more, the correlation is stronger in recent years than what it was in the 80s and 90s.  Is that solar panels?  Other tech?  The 00-12 China/india driven commodity bull market?  Hard to know.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
greece relief rally

Looks like that gold rally last week was at least partially about Greece; gold is selling off, silver is remaining steady, and the US equity market is rallying on a positively received Greek offering document.  Looks like the can gets kicked once again.

When was the last time you saw gold down -19 while silver was flat?  I'd say that's positive for silver.

Also, GREK is up +8% on the day.  Its just now getting back to my buy point!  "somebody was too early."

 

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