PM End of Week Market Commentary - 8/28/2015

davefairtex
By davefairtex on Sat, Aug 29, 2015 - 9:51am

On Friday, gold rose +7.60 to 1132.60 on moderate volume, while silver climbed +0.11 to 14.58 on moderate volume as well.  Gold and silver rallied alongside copper and oil starting right at the US market open.  As the day wore on the rally faded somewhat, but both gold and silver retained about half of their initial gains into the close.

The buck rallied +0.48 [+0.50%] on Friday, which makes the rally in gold look somewhat more encouraging.

On the week, gold fell -27.30 [-2.35%], silver plummeted -0.74 [-4.83%], GDX fell -7.41% and GDXJ dropped -4.30%.  Platinum was off only -0.14, palladium fell -2.58%, and copper rallied +2.18%.  It was a turnaround week for PM and commodities, but the numbers don't reflect this at all; rallies on Thursday and Friday were quite strong.

This week gold experienced 3 down days each of which had very heavy volume, followed by two up days where the volume was much lighter.  This is generally a bearish thing to see - the sellers are enthusiastic, while the buyers are not.

While gold sold off this week and had a modest recovery, silver was basically crushed on massive volume, making a new 5-year low.  The subsequent recovery on Thursday and Friday managed to pull silver slightly above 14.50 resistance, but the moves higher in silver do not get silver out of trouble just yet.  We have to hope that the commodity complex continues to rally for silver to regain any sort of bullish momentum.  Sorry I don't have better news, but those two ugly candles on Monday and Wednesday do not inspire confidence.

Miners

Senior miners had real trouble when the US equity market got into trouble; it was the worst performing sector for several days.  Apparently when equities get in trouble, nobody wants the relatively speculative gold mining stocks, and they appear to be the first thing tossed off the lifeboat.  That said, the rebounds on Thursday and Friday were decent, on decent volume too.  Miners actually look better than gold itself, although my strong sense is, if the equity market starts to get in trouble again, those miners will once again get thrown overboard.

The juniors fell more strongly than the seniors, and have bounced back more strongly too.  Throughout this recent correction, juniors have maintained their relatively bullish out-performance over the senior miners.

The USD

The dollar had a strong week this week; after plunging dramatically through the 200 MA on Monday in tandem with the US equity market, the buck rebounded four straight days, rising back almost to the 50 MA.  The buck is on the cusp of recovering; a close above that 50 MA would probably seal the deal.  Currently, it seems that the dollar is key to the performance of the equity market: falling dollar = falling US equities.

There were hints this week that the troubles in China (Big Trouble in Big China) may well be ignored by certain members of the FOMC: http://www.bloomberg.com/news/articles/2015-08-28/fed-s-mester-bullard-say-u-s-outlook-justifies-raising-rates.

Only problem is, Mr Bullard always says its time to raise rates - dating back to 2012 (google it!) and as of yet, of course, we have no rate raise.

US Equities/SPX

SPX rallied this week, rising +17.98 [+0.91%] to 1988.87, printing a lovely-looking hammer candle on the weekly chart.  This conceals a massive drop on Monday, and two large rallies on Wednesday and Thursday.  Will SPX continue its recovery?  It might.  Friday's move looked a bit tired, perhaps the dip-buyers are done, and traders looking for a breakout to new highs will need to show up to push prices higher.

From a technical viewpoint, the multi-year uptrend has broken, and momentum has now shifted to the downside.  Traders will most probably be looking to sell rallies.  I can practically guarantee there will be progressively more selling that appears as equity prices rise - but I cannot tell which side will end up winning the struggle or when.  But my feeling is, the higher we go, the lower the risk of a short entry.

The VIX fell on the week, dropping -1.98 to 26.05, but not before first hitting 53.29 as the high for the week, set on Monday.  It was a very volatile week.

Gold in Other Currencies

Gold dropped in all currencies this week, down -$28 in XDR which provides probably the best approximation of how gold performed worldwide.


 

Rates & Commodities

Bonds (TLT) had a terrible week, falling -3.20% and printing a massive bearish engulfing candle on the weekly chart.  If the equity market resumes selling off, will bonds get a bid?  I'm not so sure.  This bearish engulfing candle looks ominous - it may mark the top in bonds for this particular move.

Junk bonds (JNK) more or less collapsed on Monday, but rallied strongly for the rest of the week, closing up +0.74%.  JNK still remains in a strong downtrend, but a continued rise in oil prices should help JNK to recover.

The CRB (commodity index) staged a huge recovery this week - after falling for the first part of the week, it rallied strongly to end the week closing up +3.01%, printing a swing low, and closing above its 9 EMA two days running - for the first time in months.  The importance of the commodity turnaround cannot be overstated for PM followers; its my only hope for a recovery in silver, for instance.

WTIC also staged a massive rebound, rising +5.02 [+12.46%] to 45.31.  Do we know why oil rallied?  We do not.  Still, the shorts all ran for cover as oil jumped $7 in four days off the lows at 38.  The 9 EMA was crossed, the volume was massive, and this happened for two days in a row.  The oil rally should be helpful for silver...theoretically anyways.  I'm still waiting for silver to respond.

Physical Supply Indicators

* Premiums in Shanghai over spot are now at +4.41 over COMEX, down slightly over last week.

* The GLD ETF gained +5.96 tons, with 682.59 tons remaining.

* GC futures are no longer in backwardation this week, with the current two-front-month spread at +0.50.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on Aug 28th) of 1133.60 and silver 14.57:

 PHYS 9.34 -0.45% to NAV [down]
 PSLV 5.66 +0.74% to NAV [up]
 CEF 11.01 -8.22% to NAV [up]
 GTU 39.22 -5.87% to NAV [up]

ETF premiums were mostly up, with CEF the big gainer on the week.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no significant premium for gold or silver.

Futures Positioning

The COT report covered trading through Aug 25th, when gold closed at 1138.30 and silver 14.65.

The gold commercials really ramped up their shorts, adding 23k short contracts on the week.  Managed Money covered -25.3k shorts, and also added +7k longs on the week.  Note: this includes 3 days last week when gold rallied $45 in 3 days; mainly it appears to be a managed-money short covering affair.  Plenty of short exposure remains however, and no doubt has even increased after this week's selloff.

In silver, not much has changed; Managed Money closed about 2.5k contracts in silver, but that's about it.

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

Gold corrected this week, while silver actually made new lows.  The divergence between gold and silver is quite visible in the moving averages, with gold remaining largely positive while silver is completely red.  Miners are somewhere in the middle.  Hope is not dead for the gold bounce, but silver's drop to new 5-year lows is not confidence inspiring.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 5.03% -50.45% rising falling falling falling ema9 on 2015-08-28 2015-08-28
Silver Miners SIL 4.40% -49.60% rising falling falling falling ema9 on 2015-08-28 2015-08-28
Senior Miners GDX 3.34% -45.79% rising falling falling falling ema9 on 2015-08-28 2015-08-28
Platinum COMEX.Platinum 1.56% -28.31% rising falling falling falling ma50 on 2015-08-28 2015-08-28
Gold COMEX.Gold 1.02% -12.12% rising falling falling falling ema9 on 2015-08-28 2015-08-28
Silver COMEX.Silver 0.92% -25.80% falling falling falling falling ema9 on 2015-08-24 2015-08-28

Summary

Both gold and silver suffered selling this week, with silver falling far more substantially than gold.  MIners fell as well, but managed to rebound relatively strongly once the commodity complex started its rally.

The gold/silver ratio rose +1.97 this week to 77.68, and is now at the extreme high end of its trading range.  GDX:$GOLD fell and made a new low and then recovered somewhat, while GDXJ:GDX continues to look at least somewhat bullish.  Gold/silver ratio looks quite bearish, but the senior miners appear to have reasonable support when the equity market isn't in danger of collapse.

The COT reports show some more significant short covering for gold, but still only a little for silver.   The potential is there in silver for quite a bit of short covering, but as of yet its just still potential.

Gold physical shortage indicators are modest and generally unchanged; in the west, ETF premiums were up, GLD tonnage rose, but backwardation at COMEX has gone away.  In the east, premiums in Shanghai dropped slightly, but remain positive.  I do not see a big bar shortage, although smaller silver bars and coins are in short supply.

Commodity prices finally rebounded, with oil playing a starring role jumping back into the mid 40s in just two days.  If the commodity index can continue its rally, silver should benefit.

Its a very volatile time right now; neither silver nor gold are prospering in the turbulence.  Armstrong says that's because gold insures against government misconduct, and the turbulence right now is more about  capital flows, interest rates, and the slowdown in China and less about specific government issues.  The commodity rally is a wildcard; my computer is not showing an extensive commodity rebound just yet.  I can't quite explain why, since it looks positive to me.  Perhaps its a head-fake.  The computer does think that gold is neither bullish nor bearish, while both silver and copper show an ongoing risk to the downside.  It will be interesting to see what actually happens.

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1 Comment

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 760
More pain for miners?

While I often post links to CNBC articles that seem like propaganda, this short article may be fairly accurate, although it is just the impression of a couple of traders.  It seems that, in spite of the incredibly low level that mining stocks have already fallen, they may fall further in the event that the deepening slowdown continues to make itself felt in equity markets. This piece may serve MSM's anti-gold agenda, but it may also prove to be correct, at least for the next few months.

Metals and miners are in for more pain: Traders

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