PM End of Week Market Commentary - 7/3/2015

davefairtex
By davefairtex on Sat, Jul 4, 2015 - 9:12am

On Friday, the US market was closed for the 4th of July weekend.

On the week, gold fell -8.50 [-0.72%], silver fell -0.10 [-0.60%], GDX dropped -2.54% and GDXJ lost -4.10%.  It was another bad week for PM.

Gold rallied briefly on the news out of Greece, but then immediately sold off, dropping through the 1170 support region, and making a new low of 1155.80 on Thursday.  If your goal is to spot a bottom, you probably should not be enraged by all the cries of manipulation, which even if true, won't help you spot the reversal when it takes place.  At some point, the buyers will overwhelm the shorts and momentum will flip.  Until then just keep watching and looking for the signs.  At this rate, we'll test 1140 next week.

Silver made a new low this week, and has not been able to close above its 9 EMA - trend is down.  The previous low at 15.25 is not far away, and I expect it will be tested next week.  If we close below 15.25 that's a bad sign; if we just slice through it then bounce back, that's somewhat bearish but likely leads to a reversal in the short term.  If we can't penetrate 15.25, that's bullish.

The USD

The dollar rose +0.64 [+0.67%] to 96.29 on the week, breaking out above its 50 MA.  The buck sold off after the Greek announcement Monday, but then climbed for the rest of the week, suggesting a flight to safety.  No doubt the dollar strength harmed PM at least to some degree, since dollar and gold are negatively correlated.

The news out of Greece is uniformly bad - pictures of old pensioners crying in front of ATMs out of fatigue and frustration, with the Oligarch families that own media in Greece making certain that the blame for all the suffering is placed squarely on the shoulders of Syriza.  Not on themselves for avoiding taxes, not on the previous governments who were owned by those same Oligarchs, and not on the Troika for imposing austerity for five long years.  Bad Syriza, we'll show you for trying democracy.

http://www.latimes.com/world/europe/la-fg-greece-media-20150703-story.html

In a widely circulated examination of how the six biggest TV networks treated the rival referendum rallies Monday and Tuesday, freelance journalist Markos Petropoulos found that the pro-government "no" demonstration got about 81/2 minutes of coverage, whereas the "yes" protest received more than five times that much.

In another newscast, one network devoted 18 minutes to warnings and statements from European leaders about the breakdown of bailout negotiations with Athens and the surprise referendum announcement that had precipitated it. The Greek government's position got two minutes.

The bias toward the "yes" side reflects the fact that many of Greece's biggest news outlets are owned by corporate titans and other "oligarchs" whose business interests would be directly threatened by a "no" victory and the potential abandonment of the euro in favor of the drachma, Leontopoulos said.

Polls show an uncertain outcome right now, with YES slightly in the lead but well within the margin of error of the poll.  However the eventual outcome is certain - if Syriza and the anti-austerity forces lose this particular battle, you can be certain that ever-more austerity will eventually bring about a different outcome farther down the road.  Unpayable debt will remain unpayable, austerity will remain deflationary.  The only question is, do people want it to end right now, or at some point down the road.

Sometimes people just need time to figure out what path they need to take.

And to tie in my rant to currencies - here's my guess as to market reactions based on outcomes.  A NO vote and a default would probably drive the buck higher.  Oddly enough, so might a YES vote depending on what the Troika and the government does.  If Greece installs a "temporary technocrat government" (i.e. a person or group willing to shill for Brussels - they used to call that role a Quisling back in the day) the buck would probably fall, but anything short of total and immediate can-kicking capitulation will probably push the buck higher.

If Greece votes YES, could the Troika continue to punish the Greek people for their effrontery?  They just might.  Its World War 1 reparations all over again - impose a whole lot of pain on your defeated adversary because...well because you can, and it scores cheap political points at home.  In the longer term it doesn't end well, but the gang in Brussels have not shown themselves to be particularly thoughtful.  Those who ignore history = doomed to repeat it.

Miners

Senior miners sold off relatively hard on the week making a new cycle low as well as a new yearly low, and were only saved from an even more unpleasant outcome by Friday's rebound.  If this rally fails, I expect the selling to get quite intense, as a drop below the March low in the mining shares will be a very bearish sign.

Even the junior miners may have finally started to capitulate - the GDXJ:GDX ratio has finally started dropping.  While it still remains bullish in the medium term, the drop this week is a warning sign.  If traders give up on the juniors, the selling could turn much nastier.  Its something to watch.

US Equities/SPX

The equity market finally picked a direction this week, aided by the referendum announcement by Greece on Monday: it sold off, dropping -24.71 [-1.18%] to 2076.78.  When contrasted with Shanghai, which lost 13% over the same timeframe it doesn't sound like much, but the move confirmed a pattern of lower highs and lower lows which suggest that the SPX trend has changed.

A drop through the 200 MA will be very bearish for SPX - which might well happen if Greece votes NO.  The weak rally looks like a shorting opportunity, but by the time the market opens on Monday, the futures will have already substantially discounted the direction.

VIX closed the week up +2.77 to 16.79.

Gold in Other Currencies

Gold fell in every currency except the Ruble.  In XDR, it was off $6.67.

Rates & Commodities

Bonds (TLT) rose +0.88%, the sell-off in equities not enough to enable bonds to break its downtrend.  Even with the modest rally, TLT ended the week below the 9 EMA, a poor performance given all that is going on.

Junk bonds (JNK) sold off a little on the week, dropping -0.05%.  Junk is hanging tough, which is risk-on behavior.

The CRB (commodity index) fell this week, dropping -0.15% and is continuing to move sideways.  Commodities are being pulled in two directions - lower by oil, and higher by ag products, which have staged a monster rally over the past two weeks on crop issues in the US.

WTIC fell hard, down -3.15 to 56.50, breaking down out of its consolidation and closing below 57 for the first time in 10 weeks.  It appears that the oil sell-off that my code has long predicted may be upon us.  Perhaps the gain of 7 rigs in the Permian, Williston, and Eagleford regions has something to do with that, or maybe its perceived progress in the Iran nuclear agreement which would likely bring 1 million bpd added to the world oil supply once signed.

Physical Supply Indicators

* Shanghai premiums rose to +8.33 over COMEX.

* The GLD ETF lost -1.79 tons, with 709.65 tons remaining.

* GC futures are not in backwardation, with the current two front-month spread at +1.10.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on July 2nd) of 1173.70 and silver 15.74:

 PHYS 9.59 -0.57% to NAV [down]
 PSLV 6.14 +1.93% to NAV [up]
 CEF 11.607.35% to NAV [down]
 GTU 40.77 -4.86% to NAV [down]

ETF premiums were mostly lower.

* 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 30th, when gold closed at 1171.80 and silver 15.55.

The gold commercials decreased their short exposure by -12.8k contracts; this nudged them lower but they still remain more or less neutral right now.  Managed Money added +14.6k shorts, which has moved them to a historically short position. This generally happens at the lows.  Half of the puzzle is in place for a gold rebound.  We still need those commercials to close their shorts out for everything to fall into place.

In silver, all the pieces remain in place from the COT report perspective; Managed Money is historically short (and increased shorts again this week by +1.5k), while the Commercials closed a further -5.9k shorts, placing them well within the range for a rebound to happen.

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

Platinum is the sole bright spot managing to cross its 9 EMA, with every other PM component dropping on the week.  After underperforming gold over the past year, perhaps Platinum is recovering first?  That's the optimist in me showing.  Its a possibility, but don't take it too seriously.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 2.76% -42.19% falling falling falling rising ema9 on 2015-06-22 2015-07-02
Silver Miners SIL 2.55% -40.46% falling falling falling rising ma50 on 2015-06-23 2015-07-02
Senior Miners GDX 1.97% -32.98% falling falling falling falling ema9 on 2015-06-19 2015-07-02
Silver COMEX.Silver -0.10% -26.90% falling falling falling rising ema9 on 2015-06-23 2015-07-02
Platinum COMEX.Platinum -0.30% -28.22% rising falling falling rising ema9 on 2015-07-01 2015-07-02
Gold COMEX.Gold -0.50% -12.58% falling falling falling falling ema9 on 2015-06-30 2015-07-02

Summary

Gold rallied briefly on the Greek referendum announcement, and then proceeded to drop for the rest of the week.  Nobody at COMEX wants to buy gold, and the COT report suggests its Managed Money that is pushing prices lower.  None of the hopeful-loooking hammer candles have been confirmed in recent weeks; this is why we wait for confirmation before marking a low.  During a downtrend, the market just doesn't have enough buyers, and waiting for confirmation lets you avoid grabbing a falling knife until the buyers really do show up.

This week, the gold/silver ratio fell -0.09 to 74.45, but is at the higher end of its 8-month trading range.  That's bearish, but improving slightly.  The GDX:$GOLD fell hard and made a new low.  The GDXJ:GDX ratio also turned down for the first time in several months.  Almost all moving averages look bearish.

The COT reports show a partially bullish position for gold, and a very bullish position for silver where Commercial shorts have covered, and Managed Money has gone heavily short.  Now we just have to wait for something to happen to cause the reversal.

Physical demand is somewhat positive; in the west, ETF premiums were generally lower, GLD tonnage fell slightly, no backwardation at COMEX, but premiums in Shanghai are strongly positive.

Commodities are moving sideways, but WTIC is starting to correct.  Falling energy prices may be good for miners, but generally are not good for PM.

Just as a matter of interest, my code is now predicting short-term reversals in gold, silver, and the HUI (GDX).  I think its a bit optimistic, but I thought I'd put it out there.  Note that moves predicted might well be relatively short term bounces (i.e. 3-6 weeks) as versus "the low is now in" multi-year trend changes.  This is the same code that predicted a top in oil - some 9 weeks ago.

PM overall continued falling this week.  The COT report strongly suggests a silver rebound is coming soon, but the price charts don't show any sign of this just yet.  Could we drop below 15.25 in silver?  Yes, we could.  It is not that far away.  And that Greek referendum will be decided before market open on Monday.  Interesting times!

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4 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5073
Greece: generational divide

Armstrong had a very short but fascinating piece on who is voting YES vs NO in Greece.  It makes total sense.

http://www.armstrongeconomics.com/archives/34441

We find the same situation in Greece that we saw in Scotland. The vote is divided by generation. The youth hate the Troika and wants to leave Europe for they see no future. The elderly listen to radio all day long and will vote YES to preserve their pensions. The youth are forced to leave or are living with their parents. There is no middle ground. This is a generational battle exactly as we saw in Scotland. The elderly will screw the future of the youth – socialism at its best.
davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5073
Varoufakis: resigns as FinMin

How petty can you get?

"We'll only talk peace with you Greeks if you dump that annoying FinMin..."

I suppose they have to feel like they managed to win something, after having being humiliated by the referendum results.

http://www.ekathimerini.com/199009/article/ekathimerini/news/varoufakis-announces-resignation-as-finance-minister

“Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today,” wrote the economist, who has become a controversial figure during his brief tenure.

 

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1429
Re: Varoufakis: resigns as FinMin

Maybe he will orchestrate from behind scenes.  I would have like him to be the point negotiator. 

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2770
Re: Varoufakis: Resigns As FinMin

All of this plays like a poorly written soap opera.  Just more distraction while the can is kicked just a little bit further...

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