PM Daily Market Commentary - 8/31/2015

davefairtex
By davefairtex on Tue, Sep 1, 2015 - 12:36am

Gold rose +1.30 to 1133.90 on moderately light volume, while silver inched up +0.02 to 14.60 on light volume.  Both metals sold off immediately prior to the NY open, but then rallied alongside copper and oil as the dollar topped out and started dropping just before 11:00 ET.

In isolation, gold seemed to recover from its morning sell-off, but in the larger context of a drop in the buck and a strong rally in the CRB overall, gold continues to struggle to move higher after some high volume selling last week.

If I have mild worries about gold, I'm have strong worries about silver.  It currently seems to be capped by its 9 EMA, and when a rebound ends up running into resistance and starts to move sideways, that's the time when the shorts often jump in.  Given how enthusiastically oil and the rest of the CRB have rallied, silver has really been the poor stepchild, and if we can't get a close above that 9 EMA soon, I believe silver is quite vulnerable to a short assault.

Miners struggled today as well; perhaps traders decided to ring the cash register on two straight days of gains.  GDX fell -0.98% on moderate volume, while GDXJ fell only -0.73% on moderately light volume.  If not for another late-day buying spree that happened in the last 30 minutes of trading, the miners would have closed down perhaps 3%.  There are buyers out there for the mining shares, at least for now.

The USD fell today, dropping -0.28 to 95.85.  If the dollar remains true to its current downtrend, we may have hit the high point for the buck for a while.  If so, this does not bode well for the equity market, given the recent strong positive correlation between the buck and SPX.

SPX fell today, dropping -16.69 to 1972.18, dropping below the 9 EMA.  Has the SPX rally run out of steam?  This is what I meant about waiting for the rally to peter out before jumping in short.  A short entry here would be relatively low risk, putting a stop above Friday's high at 1993.48.  In any event, it is a LOT less risk than shorting last Monday down at 1900 when SPX had a 100 point trading range.  If you are wrong here, you don't lose much.  VIX rose +2.38 to 28.43.  Those puts are expensive now.  Remember when the VIX was 12?

Bond ETF TLT sold off today, falling -0.77%.  Bonds don't feel particularly good to me - a drop like this on a down day for equities just feels weak.  Something changed at the beginning of last week for bonds, and not for the better.

The CRB (commodity index) rallied for the third straight day, climbing a strong +2.53%.  How much of this is short covering after a very long decline?  Probably, quite a bit. 

WTIC (oil) continued its move off the 38 lows, climbing +2.85 [+6.29%] on some really heavy volume.  The rally took WTIC up to, but not through its 50 MA.  In the past 5 days, oil has rallied $10, a crazy strong rally in the world's most important commodity.  While I have been waiting for "the oil rally", now that its here, it makes me nervous, as I am not certain it will last.  My computer is giving me mixed signals; one of my indicators is warning oil will most likely retrace much of its recent gains, though the timeframe for that could be weeks away.  Adding to my concern is the sell-off in the XLE:$WTIC ratio over the past few weeks - traders have been selling energy equities in preference for oil itself.  For instance: OIH rallied +2.34% today when oil itself was up almost three times that much.  That's just not very good performance.

I'm thinking there will probably be another shoe to drop in the equity market, copper is looking a little lackluster, silver looks weak, gold is struggling, while oil is engaged in a massive rally.  Some of the puzzle pieces don't fit together, but they will sort themselves out soon enough.  Hopefully a weakening dollar will help PM.

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6 Comments

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
Look, here are some 100 oz Silver bars for sale!!!

Oops... They want you to pay today for a hamburger on Tuesday..... or more accurately, 9/28, one month from now.  And we are talking poured bars here.. no "coin blank" supply chain issues.  Silver is in short supply.

 

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100 ounce Silver Bar .999 - ASAHI

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I acknowledge the shipping delay

 
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Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
More on China M2 growth rate

I commented on this the other day... and here it is again, China M2 growth slow down being painted as some kind of deflationary event.  In this case, the "slow down" in the still epically positive growth rate of Chinese M2 is being blamed for falling PM prices.  Ha Ha Ha Ha... that's funny.  The money supply is not falling.. the growth rate has slowed to a mere 10%!!!  But hey... who would know the difference, right?  It's complicated and we are not exactly a nation of critical thinkers in the US.  Overlay two charts and tell any old story you want!  Correlation is causation in our new world order.  

China's falling money supply since 2009 peak has driven down metal prices
click to enlarge

source:  http://lawrieongold.com/2015/09/01/chinas-economic-transformation-not-an...

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
And now the Truth about Chinese Gold consumption

Once again, (a version of) the chart TPTB don't want you to see - slowing growth rate of China M2 does not seem to be causing a slow down in Chinese Gold buying.. quite the opposite in fact.  The money has already been created... lots of it.. and we will continue to see more and more of it cycle in to Gold in China;

http://jessescrossroadscafe.blogspot.com/2015/08/shanghai-exchange-has-7...

http://4.bp.blogspot.com/-LR2cscomxw4/VeEL9tbD2pI/AAAAAAABCr8/g-JhAwnTm-k/s1600/SGEDeliveries4year.php.png

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5693
HAA silver prices

As much as I'd love to see the oft-predicted COMEX default, silver big bar premiums remain subdued.  Over the last month, there has been no change in big bar premiums, they remain at about 3.88% (in NYC).  There is still no big bar shortage, much as I would like for there to be one.

Smaller bars, like the 100 oz bars, continue to rise in premium, as you point out.  HAA will sell one to you (presumably today, not at some point in the distant future) for 6.5% above spot.  (Your quote was at 4.5% over spot - for a bar that has yet to be poured, presumably).

Coins are ridiculously expensive.  For silver eagles in NYC, you'll now pay 31% - the premiums were 18% in NYC just two weeks ago.  Moral of the story: its good to have silver in a popular form.

And Jim - you're wrong about your analysis on the China money growth situation.  Dropping rates of increase are extremely significant in terms of base metals prices, since money growth and construction go hand in hand.

Only newly created money adds to GDP.  If you create less new money than you did last year, GDP will actually drop, that is just math - although as you point out, people in our country have difficulty with math often enough if the numbers don't add up the way they want them to.

It is fortunate that China's gold buying continues rising apace.  It hasn't been affected in the same way that their copper consumption has been.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5975
I think that's an important point...
davefairtex wrote:

Only newly created money adds to GDP.  If you create less new money than you did last year, GDP will actually drop, that is just math - although as you point out, people in our country have difficulty with math often enough if the numbers don't add up the way they want them to.

I've seen the keen analysis but I'm not sold on it yet...the reason is that he simply adds new debt into the spending column, but I can imagine all sorts of new debt that does not impact spending at all.

What if I am a hedge fund and I borrow to purchase shares of the stock market, but the recipients of those dollars simply tuck them into their bank account?

What if I take out a loan to buy gold, and the gold is imported...doesn't that actually detract from GDP because imports are subtracted from exports?

I think the analysis needs to account for the idea that increasing levels of debt stimulating less and less economic activity has its roots in some more complicated dynamics than a simplified, and direct, relationship between debt growth and GDP spending manages to capture.

But still, I am good with the major point which is that less borrowing means less juice for the system, where ever and however that manifests.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5693
its the 80/20 rule

I think its an 80/20 rule thing.  Some of the new money does go into areas that doesn't result in economic activity, but I think most of it goes directly into spending.

That's certainly the case with government borrowing.  If you wanted to break it down, some types of debt creation is probably much more "powerful" than others at creating economic activity.  Home Loans for new houses (probably a multiple > 1) vs Hedge Fund Margin loans, etc.  But from the 30,000 ft level, I believe Keen is right.

"It's close enough for government work."

And most certainly, if LESS money is being created this year vs last year, that's just guaranteed to cause contraction in activity for the current year, if we assume debt creation in all areas is reduced pari passu.

Here's my simple formula, playing off your nomenclature:

Baseline GDP + Juice = Actual GDP

If the juice number declines, Actual GDP must drop.  (Juice = new money created this year via debt growth).

Austerity means reducing juice to be a negative number.  If Juice goes from positive, to negative, what happens to Actual GDP?  OMG.  China is having trouble just because this year's Juice is lower than last year's Juice.  If it went negative?  You'd have a nation the size of China having the Greek experience.  The mind is repelled...

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