PM End of Week Market Commentary - 7/31/2015

davefairtex
By davefairtex on Sat, Aug 1, 2015 - 1:06pm

On Friday, gold rose +7.10 to 1095.00 on heavy volume, while silver climbed +0.06 to 14.76 on moderately heavy volume.  Both metals sold off steadily during the Asia and London sessions, but rose abruptly once the ECI (Employment Cost Index) report was released at 08:30 EDT - the dollar tanked hard, and that drove both gold and silver higher.

Unfortunately, the dollar drop was short-lived; by end of day, most of the buck's losses were erased, and as a result both gold and silver lost about half of their gains on the day.

On the week, gold fell -3.40 [-0.31%], silver rose 0.05 [+0.34%], GDX dropped -2.34% and GDXJ lost -0.77%.  Platinum was down -0.58%, and palladium fell -2.14%.  This week PM largely stopped falling, but was not able to find enough buyers to push prices higher.

After last Friday's rally, gold found itself unable to print a swing low, trading mostly sideways with a downside bias.  Even this Friday's rally in gold did not materially change the trend of the past five days, which remains down.  That said, the RSI (a momentum indicator) shows a bullish divergence - this happens sometimes prior to a rebound.  We're still waiting for a swing low in gold, which requires a close above 1103.

Silver did manage to print a swing low on Wednesday, however it has not managed to move much higher than that over the past few days.  By simply moving sideways, silver is actually outperforming the rest of the commodity index.  PM's fate is most likely tied up with the overall commodity trend - which in recent months has been almost all downhill.

The USD

The dollar didn't really go anywhere this week, rising +0.09 [+0.10%] to 97.44.  The dollar was initially hurt badly on Friday after the ECI report strongly suggested that wage inflation was nowhere to be seen (and thus a Fed rate hike in September was most probably not going to happen), but the bad feelings only lasted a few hours.  By end of day, the recovery in the buck managed to erase most of the losses by end of day.  The clear strength in the buck is a concern, if you are long PM.

Miners

Senior miners moved slowly lower this week, unable to capitalize on the high volume rebound that happened last Friday.  The 9 EMA has acted as resistance for the past several months.  A good first step for the miners would be to close above its 9 EMA.  Probably they would mark a swing low at the same time.  Moving averages are a good way to discipline yourself - to avoid the "I'm buying because prices are low" syndrome.  Its much safer to buy once momentum turns; that way you reduce your chances of grabbing a falling knife.

Although we don't have a low yet, we do have a bullish divergence in the GDX RSI, which suggests that the downside momentum has greatly slowed for the miners.  This sometimes happens prior to a rebound.  I look at the RSI divergence as a possibility - a possibility that must be confirmed by a close above the 9 EMA at 14.05.

Junior miners actually managed to print a swing low, and have performed better than the senior miners on the week.  This outperformance has been happening since April, and the junior miners appear to be in a modest short term uptrend.  Still, the junior miners have also been unable to close above their 9 EMA for six weeks.  The conclusion seems close at hand - either the juniors will rally, or they will dive dramatically lower.

US Equities/SPX

The equity market rose +24.19 to 2103.84, after finding support on Monday at the 200 MA.  Last week it looked like perhaps SPX had put in a high; this week's move managed to avoid making new lows, but it also didn't make a new high.  Jury is still out as to direction for SPX at the moment.

VIX fell -1.62 to 12.12.  Historically, VIX levels down around 12 are usually a decent buy if you are looking at puts.

Gold in Other Currencies

Gold appears to have rallied in all currencies this week - this is because of the funny "closing time" problem where COMEX gold officially closes, and then trading continues for a few hours afterwards.  Last Friday, in the "after market" trading, gold rocketed higher, and so last Friday's official closing price was about $12 lower than the "stockcharts" closing price, which is what I use for my charts.  So now we're seeing this here in this report - gold looks like it did pretty well this week, but $12 of that was because of this closing price artifact.

In reality, gold was mostly flat on the week - except for Rubles and BRL, where gold did quite well.

Rates & Commodities

Bonds (TLT) rose +0.94%, managing to rise right alongside equities.  Bonds appear to have broken their downtrend, and are now slowly moving higher.

Junk bonds (JNK) managed to rally +0.74%, which is its best performance in a number of months.  Is it just a sharp bounce off the lows or a sign of renewed risk on?

The CRB (commodity index) tried to rally this week and failed, falling -1.20% and making a new low.

WTIC dropped for the 5th week in a row, losing -1.19 [-2.48%] to 46.77.  Oil tried to rally this week off a good Petroleum Status report on Wednesday, but it was not enough to put a durable floor under oil prices.  Brent fell even harder, down -2.75 [-5.04%].

Physical Supply Indicators

* Shanghai premiums fell to +4.92 over COMEX.

* The GLD ETF lost -7.45 tons, with 672.70 tons remaining.

* GC futures are now in backwardation, with the current two front-month spread at -0.20.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on July 31st) of 1094.40 and silver 14.69:

 PHYS 8.99 -0.78% to NAV [down]
 PSLV 5.66 -0.14% to NAV [down]
 CEF 10.42 -11.48% to NAV [down]
 GTU 37.87 -5.88% to NAV [down]

ETF premiums were down across the board.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no significant premium for gold; spreads remain a bit wide for silver.

Futures Positioning

The COT report covered trading through July 28th, when gold closed at 1096.20 and silver 14.59.

The commercials covered a huge 19k shorts this week, pushing the overall level of commercial shorts to their lowest level since 2008.  As prices fall, commercials continue to reduce their short position - from the standpoint of the COT report, we really are ready for a rally, but I've been saying that for weeks now.  Managed money remains unchanged - they have a historically high short position, which usually happens at the lows.

Silver remains unchanged; Managed Money is still very heavily short, and the commercials have positioned themselves to take advantage of any rally in silver.

Both gold and silver COT reports look like a rally is ready to happen any day now.  I just wish the prices were cooperating with this positioning.

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

Silver crossed over its 9 EMA on Friday.  That's the sole sign of good news in the PM complex.  Silver generally leads, so this is a possible sign of hope.  Everything else is still buried in red territory.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 2.00% -46.58% falling falling falling falling ema9 on 2015-06-19 2015-07-31
Junior Miners GDXJ 1.84% -53.16% falling falling falling falling ema9 on 2015-06-22 2015-07-31
Silver Miners SIL 1.52% -52.01% falling falling falling falling ma50 on 2015-06-23 2015-07-31
Gold COMEX.Gold 0.60% -14.55% falling falling falling falling ema9 on 2015-06-30 2015-07-31
Silver COMEX.Silver 0.37% -27.74% rising falling falling falling ema9 on 2015-07-31 2015-07-31
Platinum COMEX.Platinum -0.49% -32.77% falling falling falling falling ema9 on 2015-07-06 2015-07-31

Summary

PM chopped sideways attempting to find support; since the overall commodity complex continued dropping, support was thin on the ground, and the momentum for gold appears to remain bearish, with only hints from the RSI about a momentum change and a potential rebound.

The gold/silver ratio fell, dropping -0.48 to 74.19, continuing its slow retreat.  Its not bullish yet, but at least it isn't extremely bearish anymore.  The GDX:$GOLD ratio continued to fall, and is very bearish.  The GDXJ:GDX ratio continued climbing, and this behavior is bullish.  At least, when the ratio did this in the past, it tended to lead to higher PM prices.

The COT reports show an increased bullish positioning for gold, and a continuing bullish positioning for silver.  We've been here for a while, and the gold commercials keep covering more and more of their short positions.  That's usually a good sign.

Physical demand is slightly positive;  in the west, ETF premiums were down, GLD tonnage fell significantly, but there is now backwardation at COMEX.  In the east, premiums in Shanghai are somewhat positive and unchanged.

Commodity prices continued to fall this week - there was an attempt at a rally mid-week, but it failed.  The overall commodity downturn has yet to meaningfully reverse.  Brent oil looks particularly bad.

My guess is, gold and silver won't reverse until their traveling companions in the commodity space reverse too.  We are still waiting for that swing low in gold; a close above 1103.  This week we saw one for silver, perhaps next week it will be gold's turn.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

10 Comments

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 590
coin dealer update

I spoke with my local coin dealer today.  July was the best month in sales he has ever had. About 50% of his customer base is new.  This is a very recent event.  I asked him why the new customers were purchasing PM's at this time:

1) They have lost faith in and no longer trust government.  (he doesn't follow Martin Armstrong)

2) They are concerned about asset confiscation and feel PM's can be concealed from the government.

Several years ago silver dollar (Morgan and Peace dollars) valuations decoupled from spot silver prices.  He sees junk silver doing the same today (a rich premium).  His reasoning is that junk silver is easily recognized by the masses and will become 'money' when the dollar goes the way of all fiat currencies.

The ratio of buyers to sellers is 50:1.  Their are a few 'heavy hitters' that are really boosting sales.  The only sellers are from estate sales. 

He mentioned hiring someone due to the heavy sales volume. 

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Living in fantasy land.

If everyone is buying and no one selling, I am not budging, as tempting as it is to join the herd. I am waiting for blood on the streets before I buy. Once the price gets down to where people loose faith completely and throw in the towel is where I jump in. So I am hoping that the Fed can achieve their wildest dream and convince the street that PMs are an ancient relic.

Do I believe that will happen? Ha! I think I am living in fantasy land.

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1180
Arthur

i think there will be a hellacious margin call...buytime!

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Western demand for phys

Thank you Nate... Since Dave has always said that the ship (of paper price) will finally turn when Western demand ignites.. it will be interesting to hear his take on your anecdotal news.  Your news correlates with everything I am seeing.. Texas Precious metals is out of many Silver products, The Doc of Silverdoctors is saying their business is up, etc.  China is sucking up near record amounts of Physical.. so much that it makes the Comex look truly like a joke in terms of deliverable, and even total on store, volumes.  My take is that it's happening.. the breakdown between physical and the Comex paper pricing is happening.  In the past, allowing the metals to run back up a bit has always resulted in a recoupling - a drop back in phys demand that allowed the store shelves, and the supply chains, to get restored.  There will come a time when the price turnaround engenders the opposite effect.. i.e. buyers get even more aggressive because they think they may be missing the final bottom.  Will this be it?  The chaos is getting harder to hide.. the examples of whole countries losing their monetary mojo are expanding (Greece, Venezuela, Puerto Rico).  The longer the paper price remains suppressed without a relief rally, the more likely I think that this is it that will be, "the one".      

      http://jessescrossroadscafe.blogspot.com/2015/07/shanghai-gold-exchange-...

31 July 2015

Shanghai Gold Exchange Has 73.3 Tonnes of Bullion Withdrawn Its Third Largest Week

 

For the week ending July 24th there were 73.289 tonnes of gold bullion withdrawn from the Shanghai Exchange into China.

That is about 2,356,296 troy ounces in one week.

I have included the most recent statistics from the Comex Gold Warehouses below.  There are currently 351,519 ounces of gold available for delivery at these prices there for the month of August.

Nine out of ten Americans will notice that in terms of technical analysis this is 'a lot less.'

But as the very serious people like to point out, the Comex is not really 'a physical exchange.'  Yep.

 

 

 

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
comex default warning again?

JimH-

Thank you Nate... Since Dave has always said that the ship (of paper price) will finally turn when Western demand ignites.. it will be interesting to hear his take on your anecdotal news.  Your news correlates with everything I am seeing.. Texas Precious metals is out of many Silver products, The Doc of Silverdoctors is saying their business is up, etc.  China is sucking up near record amounts of Physical.. so much that it makes the Comex look truly like a joke in terms of deliverable, and even total on store, volumes.  My take is that it's happening.. the breakdown between physical and the Comex paper pricing is happening...

My standard line is that the state of coin shop inventory is not a good measure of the depth of global gold supply.  To me, its like suggesting the sum total of all the ice cube trays in residential freezers in America are a good measure of the total ice available on planet earth, and that if people in this country are starting to run out of ice (let's say it was a hot day in America, and everyone wanted a lemonade), we are therefore a heartbeat away from a catastrophic Global Ice Shortage.

US silver coins are 3% of total worldwide silver demand.  If we run out of coin inventory, it does not mean we're out of silver.

Seriously, how many times do we have to hear versions of this story?  During the 2013 crash, there were lots of breathless comments about how physical prices had decoupled from paper prices.  Guess what - it was just a coin and small bar shortage.  Soon enough, more coins and small bars were produced, and the shortage went away.

Have we learned nothing from this prediction failure?  How does today differ from conditions of 2013?  What's the state of the inventory where the vast bulk of gold and silver supply is stored?  Does anyone know?  Or care?

Your favorite gold promoter will talk their book, and say "coins are scarce - so a COMEX default is imminent, better run out and load up on coins and small bars - which I just happen to have here to sell you with a whopping premium attached."   They neither know, nor care about the status of the big bar supply.  After all, they aren't selling them.

Here's my view: talk to me when the big bars get scarce.  Then I'll sit up and take notice.  But not until then.

Sheesh.  I have a memory, after all.  2013 wasn't that long ago.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
oil lower, plus armstrong on gold

Oil continues to fall, with WTIC now with a 45 handle, trading at the moment at 45.50 down more than a buck-fifty from Friday's close.  This is dragging silver lower, while gold appears to be holding up a little better.

I had hoped oil would perhaps stop dropping short of the 42 level, but that's not looking so likely at this point.

Armstrong sees a likely bounce coming in gold.  He suggests this bounce won't signal the final low, but it will result in a flurry of short covering.  The "Monthly Bearish" he talks about in the quote below are magic price + time levels that represent pressure points that his computer calculates - if an item ends the month below a "monthly bearish" number, it signals that the bottom is not yet in.

That said, his experience is that if the "reversal election" is far below the specific level, there is usually a bounce back up (in this case, from 1090 to 1155) prior to resuming the decline.

August and September are also historically more positive months for gold, so there's that too.

http://www.armstrongeconomics.com/archives/35597

Gold elected the Monthly Bearish at 1155 and we did so well below that level, holding the 1084 number both weekly and monthly. Our energy models are turning positive, so it does not appear that we will have major follow-through at this time. When you elect a Bearish Reversal that far from the number, you typically bounce back to retest it before proceeding further.

We have a Directional Change back to back for August, September, and July. So, we may see a reaction to the upside to flush out the shorts since we have excessive bearishness building in the press, as the WSJ commented that gold is the “pet rock”.

A reaction rally at this point BEFORE new lows will relieve the short positions, but this is not likely to last beyond September. Therefore, we are more likely than not going to see the final decline stage into the Benchmarks. Gold is within the channel so the resistance is forming at the 1155 level followed by 1225-1300. Support will remain at 1084 on a closing basis with key support at 900.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Comex default

Dave,  You response is essentially to say that it hasn't happened yet, so it's not going to happen.  The emperor has no clothes.  The ability for a paper futures exchange to set price for a rare physical commodity is going to end sooner, or later.  I don't know which.  When it does happen, it's not going to be advertised in advance.. it's going to happen like all other official defaults... it will be denied up to the end, then it will happen overnight.  

Comex is back to all time high leverage, leverage being a combination of high open interest and low phys stocks (obviously).  I have no idea why you are such an apologist for the powers that be and their confidence game called the Comex;

  http://www.zerohedge.com/news/2015-08-03/comex-edge-deliverable-gold-dro...

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/08/Gold%20coverage%20ratio.jpg

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
the unclothed emperor

JimH-

Dave,  You response is essentially to say that it hasn't happened yet, so it's not going to happen.  The emperor has no clothes.  The ability for a paper futures exchange to set price for a rare physical commodity is going to end sooner, or later.  I don't know which.  When it does happen, it's not going to be advertised in advance.. it's going to happen like all other official defaults... it will be denied up to the end, then it will happen overnight.

No, that's not what I said.  I said that COMEX will default when there is a big bar shortage, NOT when there is just a shortage of silver coins at retail.  Retail runs out of stuff all the time.  Its not a very good indicator for signaling a COMEX default.

I am very interested in any evidence of an actual, non-retail physical shortage, because I believe that may very well signal an impending COMEX default.

Where are we?

Backwardation (yes), shanghai premiums (modest), bullion vault premiums (none), PSLV/PHYS premiums (none).  My read: no big bar shortage.

Once a "big bar" shortage happens, then all you said will probably transpire: it won't be advertised in advance, it will be denied up to the end, and then it will happen overnight.

If all you do is look at retail, you will give a large number of COMEX default false alarms.  Dare I say it - this is probably another one.  Chicken little, boy-who-cried-wolf, the metaphors abound.  Does it serve the community to run around saying "COMEX is defaulting!  COMEX is defaulting!" every few months whenever your coin shop runs out of silver eagles?

I have no idea why you are such an apologist for the powers that be and their confidence game called the Comex;

You're just sore because you (and your gold promoter websites) expect each and every retail coin shortage to turn into a COMEX default, and to date you've been disappointed.  A lot.  One would expect credibility to wane after so many predictions didn't pan out, but no.

When we have indications of a big bar shortage, I'll be right there.  So far, no such indication.

 

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Here's why I am sore....

Dave, I am sore because commentators who don't recognize the flagrant hyprocrisy of our manipulated markets are going to, in the end, give readers comfort (that doom is far off) where comfort should not be given. 

Here's my read:  The only person/entity that can decide whether the US mint stops minting Silver coins is Jack Lew, Treasury Sec.  Why would he make such a decision?  I'll tell you why:  So that the strained Silver supply chain can keep supplying the big bars that industry uses... in other words, to avert the big bar shortage that you speak of.  The price being too low for supply to keep up with, our Gov't masters will make the decision as to who gets the remaining supply.  Investors don't compete much with Industry for these bars, hence the decision to stop minting coins is a decision to stick it to investors (and effectively lift the premium via limiting mintage) and provide the benefits to industry.  I am not saying I would not do the same if I were High up in our corpratocracy... just that we should recognize what is happening under the covers here.  The bars are clearly the thing that will go last, and as I think we agree, there will be no forewarning when it does break.  

    http://investmentresearchdynamics.com/physical-gold-there-will-not-be-an...

....

The precious metals; gold and silver, have a 5000 year history of being the ultimate safe haven for wealth preservation. Gold and silver bullion and bullion coins held outside the U.S. banking system is the insurance that will provide the wealth preservation. Today the precious metals asset class is held in total utter contempt by the U.S. public and financial industry while at the same time being the most sought after asset by Europe as well as the eastern world ( China, India, Russia, Indonesia are buying inordinate amounts of gold and silver and have been for the last 4 years). The demand however, is still so strong in the U.S. that the sales of gold and silver Eagle coins have been suspended by the U.S. mint because of shortage of bullion supply. This contemptuous attitude will change very quickly as it is only a question of when not if. When it does change, it will be a sudden and immediate event that will not allow time for new passengers to board the train. The time to act is now. Noah did not wait until it started raining to build the Ark.

All the wealth held inside the banking system will be seriously impaired or destroyed. The ETF’s GLD and SLV used by the mainstream financial community as an “investment in precious metals” is a sham used only for the manipulation of the precious metals markets and does not eliminate the counter party risk. Inside the banking system includes all 401k’s, IRA’s not held by alternative investment custodians, mutual funds and stock portfolios at brokerage firms.

The precious metals asset class is very small and given the enormous amount of money that has been printed in the last 7 years; even a slight shift in demand will have the effect of trying to divert Niagara Falls through a funnel. The survivors of the coming financial crises will be those who have managed to preserve at least a portion of their wealth......

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
coin manufacturing

JimH-

Dave, I am sore because commentators who don't recognize the flagrant hyprocrisy of our manipulated markets are going to, in the end, give readers comfort (that doom is far off) where comfort should not be given.

Ha.  You want me to panic everyone, every single time your coin shop runs out of Silver Eagles.  I get that.  Problem is, I like my credibility, so I'm going to wait until I see signs of a big bar shortage (and/or chart evidence) prior to whispering "fire" to my few thousand close friends here in the crowded theater.

The only person/entity that can decide whether the US mint stops minting Silver coins is Jack Lew, Treasury Sec.

Well, it could be they run out of silver coin blanks.  It could be that the capex required to deploy coin stamping machines is large, the profit margins are relatively thin, and that the market is a little bit crazy - sometimes there's tepid demand, and sometimes the demand is outrageous.  So during the outrageous times, there are shortages.  And during the tepid times, its hard to make a profit if you overinvest in coin stamping machines.

I know, that's a boring answer, so nobody will like it.  "Its all Jack Lew's fault and he's doing it to avoid a COMEX default!" is far more exciting.

Only problem with that story is, if they stop making silver coins, the net effect on annual silver demand is miniscule.  But gold promoters never let facts get in the way of a good conspiracy story.  They'd prefer you race out and pay massive premiums - from them, of course.

Bill Fleckenstein had a good perspective on this over at KWN.  He's a pretty rational guy - he likes his gold, but he is perfectly willing to acknowledge that western gold demand is pretty lackluster at this point, and that's a very important factor in why prices are declining.  "Gold is a Pet Rock" stories in WSJ are a good indication of where western gold demand is.

http://kingworldnews.com/bill-fleckenstein-8-2-15/

I think it also suggests we're relatively close to a low - perhaps even a major low, although Armstrong's prediction of a drop to $1000 makes me a bit nervous.

Still, when the whole commodity index drops to 2003 levels, gold dropping to 2008 levels doesn't seem like all that much of a stretch.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments