PM End of Week Market Commentary - 6/26/2015

davefairtex
By davefairtex on Sat, Jun 27, 2015 - 1:24pm

On Friday, gold rose +1.30 to 1173.70 on moderately light volume, while silver dropped -0.06 to 15.74 on heavy volume.  Silver was hit at around 3am EDT, with silver plunging 35 cents to 15.45 on a huge spike lower.  Gold made its low right before US market open at 9:15 EDT.  Both metals recovered, with silver's bounce being the more dramatic of the two.

Silver made new lows on the day. 

On the week, gold ended down -26.10 [-2.18%], silver fell -0.30 [-1.90%], GDX dropped -2.95% and GDXJ lost -2.74%.  It was an unpleasant week for PM.

Gold has fallen around 30 points after testing the 200 MA and failing at the end of last week.   Gold may be starting to consolidate here around the 1170 support level, but it needs to find actual (COMEX) buyers who want to load up on gold at these prices in order to get any sort of rally started.  And the downtrend is obvious to see - just look at the falling 200 MA which gold can't seem to cross for any length of time.

After a six week downtrend, silver just may have marked a swing low on Friday; it will depend on if enough buyers appear on Monday, but a deep drop followed by a decent recovery coming at the end of a long down cycle often mark cycle lows.  Right at the bottom, "someone" ends up pushing the market briefly lower which flushes any remaining longs, and that sets the stage for the rebound.  I was unsure of exactly how deep the flush would go, or when it would happen.  Based on my analysis, this is probably it right here, more likely than not.

The USD

The dollar rose +1.38 to 95.65 on the week, climbing back up to its 50 MA.  It feels to me like the dollar is setting the stage for a move higher, consolidating for four days right under its 50 after the strong rally on Tuesday.  The higher the number of times the buck tries to get through that moving average, the more likely it is to succeed.  A breakout of the buck may cause PM some trouble.  As usual.

Underlining the strength in the dollar is the situation in Greece, where PM Tsipras has decided to let the Greek people vote on the best deal he was able to get out of the Troika.  The much-feared referendum option, which when it was first proposed actually caused former Greek PM Papandreu to lose his job back in 2011 (via a Brussels behind-the-scenes regime change operation), was selected by Tsipras who does not like the best offer the Troika was willing to make:

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_27/06/2015_551569

“After five months of tough negotiations, our partners unfortunately resorted to a proposal-ultimatum to the Greek people,” Tsipras said. “I call on the Greek people to rule on the blackmailing ultimatum asking us to accept a strict and humiliating austerity without end and without prospect.”

Yeah.  That sounds like a "please vote no" suggestion.

Vote comes on July 5 - next weekend.  As it stands, nobody knows at the moment how the Greek people will vote.  Brussels certainly would much prefer the Tsipras government to eat crow, and/or break apart under the strain.  That's my best guess as to why the Troika refused to budge on the critical, pro-recessionary terms of the deal.  PM Tsipras is trying to sidestep the trap, place the blame on the Troika, and has passed the ultimate decision onto the people, keeping his government intact.  Move, and counter-move.  Greeks are now lining up at the ATMs sucking money out of their bank accounts.  Likely this leads to capital controls early next week and limits on withdrawals.  How will that affect the vote?  Heaven only knows.

Next week, I'd expect some volatility as more information becomes available, as the Greek people are frantically polled by the regime in Brussels and the west to see how things might go down.

This is probably dollar positive, and possibly gold positive as well.

Miners

Senior miners dribbled lower on the week, remaining below their 9 EMA, making new lows.  My impression is, there simply aren't any buyers for the senior miners given the downtrend in place for PM overall, and so price is slowly dropping as traders bail out one by one.

The junior miners fell as well, however they have managed to avoid making new lows this week.  In fact, it appears that the juniors are undergoing a consolidation rather than a downtrend, having moved sideways over the past five weeks.  Juniors continue to outperform the seniors, and this remains an ongoing (and bullish) curiosity given the far more risky nature of the junior mining companies.

US Equities/SPX

The equity market tried to make a new high this week and failed, dropping -8.50 [-0.40%] to 2101.49, and moving back below its 50 MA.  It remains in the middle of its recent trading range, needing a break above 2130 for a bullish move and a break below 2072 to confirm a lower high. 

VIX closed the week mostly unchanged, up +0.06 to 14.02.

Gold in Other Currencies

Gold fell in every currency; in XDR, it was off $22, which was actually one of the better performances of the week.

Rates & Commodities

Bonds (TLT) fell -3.23%, another big drop, making a new low just on Friday.  Bonds look quite weak, and are mired in a cycle of lower highs and lower lows that are characteristic of a downtrend.

Junk bonds (JNK) sold off a little on the week, dropping -0.31% - a far cry from the pummeling of the higher quality TLT.  Junk is still holding up quite well by comparison.

The CRB (commodity index) rose this week, climbing +1.24%.  Commodities are trying to figure out where they are headed next, and have been chopping sideways in a range now for the past four weeks.

Copper rallied +2.62%; its not clear the downtrend is over, but at least the bleeding has stopped for now.

WTIC was virtually unchanged, down -0.04 to 59.65.  WTIC traded in its usual 58-62 range, still chopping sideways now for the 8th straight week.  Brent rose slightly, up +0.34 but printed an inverted hammer; Brent had a failed rally on the week, and it continues to look a bit ill.  For what its worth, oil equities are tracking the falling Brent, rather than the side-tracking WTIC.

Physical Supply Indicators

* Shanghai premiums rose to +2.23 over COMEX.

* The GLD ETF gained +9.54 tons, with 711.44 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 26th) of 1173.70 and silver 15.74:

 PHYS 9.67 -0.52% to NAV [down]
 PSLV 6.14 +1.05% to NAV [up]
 CEF 11.72 -7.17% to NAV [up]
 GTU 41.12 -4.84% to NAV [up]

ETF premiums were mostly higher.

* 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 23rd, when gold closed at 1176.50 and silver 15.73.

The gold commercials increased their short exposure by +21k contracts, a big change, and not indicative of a low.  Managed Money closed -4.6k shorts, something they would typically do as price rose.  Commercials loading up short is typically not something you see around a low - its usually something that happens at highs.  Managed Money is almost historically short, which is something you see at the lows.  In gold, things are a bit confused, and it is not clear if we are at a low point or not.

In silver, things are clearer, with Commercials remaining at a relatively low short position, and Managed Money increasing short exposure by +8.5k contracts, a large move, to a historically high short position.  Silver is showing signs of a low.

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

Everything dropped again this week, dragging almost all PM components back into the red.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold COMEX.Gold 0.12% -10.94% falling falling falling falling ema9 on 2015-06-22 2015-06-26
Junior Miners GDXJ -0.20% -39.34% falling rising falling rising ema9 on 2015-06-22 2015-06-26
Platinum COMEX.Platinum -0.34% -26.49% rising falling falling falling ema9 on 2015-06-25 2015-06-26
Senior Miners GDX -0.39% -29.75% falling falling falling falling ema9 on 2015-06-19 2015-06-26
Silver COMEX.Silver -0.46% -25.45% falling falling falling rising ema9 on 2015-06-23 2015-06-26
Silver Miners SIL -1.23% -37.30% falling falling falling rising ma50 on 2015-06-23 2015-06-26

Summary

Gold fell on Monday and Tuesday, pulling gold back below its 50 MA.  Silver dropped on Tuesday, and may have put in a low on Friday based on volume, candle print, and market response.  PM is still looking weak; the signs of a reversal in silver are there, but is as of yet unconfirmed.

This week, the gold/silver ratio fell -0.21 to 74.54, still at the higher end of its 8-month trading range.  That's bearish, but improving slightly.  The GDX:$GOLD ratio was mostly unchanged but remains bearish, while GDXJ:GDX rose slightly and remains bullish.  Almost all moving averages look bearish.

The COT reports show a confused position for gold, and a very bullish position for silver.  Commercial shorts have covered, and Managed Money has gone heavily short.  Silver may have marked a low on Friday - perhaps this is the start of the reversal for silver I've been hoping to see for a few weeks now.

Physical demand is modestly positive week; in the west, ETF premiums were generally higher, GLD tonnage rose, no backwardation at COMEX, and premiums in Shanghai are  positive.  June/July is a historically weak period for PM.

Commodities are moving sideways as is WTIC, copper may have put in a low and rebounded this week.  This is somewhat more supportive of PM prices vs last week.

Gold's rally last week was short lived; it sold off this week and is right back at 1170 support.  Silver was hit even harder, making a dramatic new low on Friday.  Will Managed Money be right about silver?  Will we see a break below 15.25 where Managed Money actually gets to ring the cash register for a change?  That would be a first, and I don't expect such a miracle to take place.  No doubt Greece and their referendum, capital controls, and continued finger-pointing will throw some volatility into the mix, clouding my neat picture.  It keeps life interesting, I suppose.

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5 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
referendum week: market reaction

Market reaction for the start of this referendum week in Greece:

  • SPX -33.50 [-1.60%]
  • Gold +9.70 [+0.83%]
  • Silver +0.14 [+0.89%]
  • 30 Year US Treasury [+2.48%]
  • WTIC -0.89 [-1.49%]
  • USDX +0.64 [+0.65%]

Best performer is the US long bond.  Looks like the market didn't expect the Greek default, but the move in the buck isn't all that big.

Greek stock market will be closed, as will the Greek banks.

davefairtex's picture
davefairtex
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Joined: Sep 3 2008
Posts: 5683
referendum: krugman nails the essence

Lots of opinions out there miss the core reason for the referendum: forcing the Greek people to choose between more austerity and a deal with the Troika, or a default and possible Eurozone exit.  Since they are most affected, it makes sense that they get to weigh in on what comes to pass.

Wouldn't it be interesting if America had referendums to make momentous decisions?

http://krugman.blogs.nytimes.com/2015/06/27/europes-moment-of-truth/

First, if it wins the referendum, the Greek government will be empowered by democratic legitimacy, which still, I think, matters in Europe. (And if it doesn’t, we need to know that, too.)

Second, until now Syriza has been in an awkward place politically, with voters both furious at ever-greater demands for austerity and unwilling to leave the euro. It has always been hard to see how these desires could be reconciled; it’s even harder now. The referendum will, in effect, ask voters to choose their priority, and give Tsipras a mandate to do what he must if the troika pushes it all the way.

Contrast this with Bloomberg, who I suspect speaks for Brussels, the overall establishment: "These complicated issues are something far beyond your comprehension, stupid voters.  Just leave it to the neoliberal economist PhDs and the Troika to determine your fate."

http://www.bloomberg.com/news/articles/2015-06-28/tsipras-asking-grandma-to-figure-out-if-greek-debt-deal-is-fair

Economists with PhDs and hedge-fund traders can barely stay on top of the vagaries of Greece’s spiraling debt crisis. Now, try getting grandma to vote on it.

That’s what Prime Minister Alexis Tsipras is doing by calling a snap referendum for July 5 on the latest bailout package from creditors. The 68-word ballot question namechecks four international institutions and asks voters for their opinion on two highly technical documents that weren’t made public before the referendum call and were only translated into Greek on Saturday.

[h/t Ilargi at Automatic Earth]

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1708
Ever hear a swan in flight?

Have you ever heard a swan in flight?  The big, heavy wings kind of hum as they beat the air.  You can usually hear swans approaching before you actually see them.  On top of that, swans also honk while flying.  It's quite a racket.  I swear I heard that same humming and honking when Puerto Rico (!!) elbowed their way onto today's crowded stage.

http://www.nytimes.com/2015/06/29/business/dealbook/puerto-ricos-governor-says-islands-debts-are-not-payable.html?partner=socialflow&smid=tw-nytimes&_r=0

Puerto Rico?!  Today?!!!  Are you kidding? Couldn't you have waited until Friday late afternoon when everyone will be too tired and distracted to pay much attention?

Davefairtex wrote:

Contrast this with Bloomberg, who I suspect speaks for Brussels, the overall establishment: "These complicated issues are something far beyond your comprehension, stupid voters.  Just leave it to the neoliberal economist PhDs and the Troika to determine your fate."

Of course, I know you know the answer is: We already tried leaving it to the elite and the PhD's.  THAT'S HOW WE GOT HERE!!!  The great advantages of letting "we the people" decide are: 1) they are often wiser than one might have reason to assume;  2) when hard times must be borne, the people who must bear them should get to choose their flavor of poison; and 3) if "we the people" have chosen the path, then we are much more likely to work together to see it through united rather than dragging our feet and breaking up into factions to fight each other constantly.

"Welcome to the Hunger Games. And may the odds be ever in your favor."

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
thc0655 wrote: Have you ever
thc0655 wrote:

Have you ever heard a swan in flight?  The big, heavy wings kind of hum as they beat the air.  You can usually hear swans approaching before you actually see them.  On top of that, swans also honk while flying.  It's quite a racket.  I swear I heard that same humming and honking when Puerto Rico (!!) elbowed their way onto today's crowded stage.

http://www.nytimes.com/2015/06/29/business/dealbook/puerto-ricos-governor-says-islands-debts-are-not-payable.html?partner=socialflow&smid=tw-nytimes&_r=0

Puerto Rico?!  Today?!!!  Are you kidding? Couldn't you have waited until Friday late afternoon when everyone will be too tired and distracted to pay much attention?

 

I thought it was a brilliant move by the Puerto Rican governor. 

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Forming a queue.
I thought it was a brilliant move by the Puerto Rican governor. 
 
And I think that he has rushed to get to the head of the queue. Expect a conga line to form of national leaders saying that their debts are unpayable. 
Which is true.
Conclusion: If you don't have it in your possession,  you don't own it.

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