PM End of Week Market Commentary - 9/4/2015

davefairtex
By davefairtex on Sat, Sep 5, 2015 - 7:22am

On Friday, gold fell -2.20 to 1122.30 on moderate volume, while silver dropped -0.14 to 14.55 on moderately light volume as well.  Gold and silver traded mostly sideways until the Nonfarm Payrolls release at 08:30 Eastern; silver ended up selling off and closing down, while gold initially sold off, but then mostly recovered.

By end of day, the effects of the Nonfarm Payrolls report was slightly dollar negative, somewhat negative for equities, and negative for commodities also - copper, oil, and silver all closed lower.  Gold did fairly well by comparison.

On the week, gold fell -10.30 [-0.91%], silver lost -0.03 [-0.21%], GDX fell -6.04% and GDXJ dropped -5.03%.  Platinum was off -2.50%, palladium fell -1.83%, and copper dropped -1.20%.  Last week's commodity rebound ran into some trouble this week.

Gold has formed a clear descending triangle pattern; if COMEX buyers don't appear to push gold above its downtrend line, most likely it will head lower, potentially re-testing support at 1080.

Silver's two week rally off the 14.00 level has been totally uninspired.  It could not even touch the 50 MA on the highest point of its highest day, and now it appears to have lost momentum.  Silver looks destined to re-test the 14.00 lows set two weeks ago, and in the fairly near term.  Part of the problem is that silver has not really followed its commodity brothers higher - it has underperformed oil, copper, and the CRB overall over the past few weeks.  While silver eagles are selling at absurd premiums (30%!), buyers at the COMEX are much thinner on the ground.

Miners

Miners had a bad week; after rallying to close last week, miners more or less sold off all week long, finding a few buyers down around support right at end of day Friday.  While buyers do exist for the mining shares, if gold breaks down, miners will probably drop through 13 support and end up selling off hard.  The GDX:$GOLD ratio isn't showing anything bullish for the miners, with the ratio near all-time lows.

The juniors are doing somewhat better; they are still perhaps 5% above the lows set back in July.

The USD

The dollar moved convincingly through the downtrend line this week, but the rally had trouble moving through the 50 MA.  The buck looked strong after the Nonfarm Payrolls report, but then encountered selling as it approached the 50, and ended down on the day.  Will it continue moving higher?  If I look at the other currencies, none of them look particularly strong: AUD made new lows, CAD looks ready to break down, the Euro's momentum looks to be pointing lower, GBP is strongly selling off - JPY is the only one with some strength.  More likely than not, the dollar moves higher next week.

US Equities/SPX

SPX fell this week, dropping a big -67.65 [-3.40%] to 1921.22.  Last week's hammer candle on the weekly chart was definitely not confirmed - it did not lead anywhere.  My sense is, sellers outnumber buyers, and SPX is likely to retest its lows in the near future.  To my mind, the selling is now more of a domestic affair, and is not quite so heavily driven by Europeans and Japanese traders.  VIX rose +1.75 to 27.80.

Gold in Other Currencies

Gold dropped in most currencies this week, except for the Ruble and the BRL where gold moved strongly higher because of the currency effect vs USD.  Gold's rally in Brazil looks pretty impressive.


 

Rates & Commodities

Bonds (TLT) rallied modestly this week, climbing +0.48%.  Given the large SPX move lower, I would have expected more out of bonds - they have mostly been chopping sideways for the past 8 days.

Junk bonds (JNK) drifted sideways this week, rising just +0.01%.  Looking at the chart, it just feels like a shorting opportunity.

The CRB (commodity index) also moved sideways this week, first rallying strongly, then selling off hard, then rebounding and finally closing down -0.20%.  On the daily chart the commodity rally still looks good, but the weekly chart tells a different picture - commodities have quite a ways to go before a recovery can be said to be happening.

WTIC had some pretty extreme moves this week but ended up by +0.46 [+1.02%] to 45.77.  Oil's short-covering phase seems to be over, and now it appears to be deciding if it will continue moving higher or if it will end up collapsing once again.  My computer suggests its more likely to move down than up.

Physical Supply Indicators

* Premiums in Shanghai over spot are now at +8.29 over COMEX, up over last week.  The SGE was closed on Thursday and Friday.

* The GLD ETF lost -0.24 tons, with 682.35 tons remaining.

* GC futures are not in backwardation, with the current two-front-month spread at +0.50.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on Sept 4th) of 1121.30 and silver 14.56:

 PHYS 9.25 -0.32% to NAV [up]
 PSLV 5.63 +0.29% to NAV [down]
 CEF 10.80 -9.29% to NAV [down]
 GTU 38.64 -6.13% to NAV [down]

ETF premiums were mostly down.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no significant premium for gold, and a 1-2% premium for silver [14.74-14.84] in Zurich, Toronto, and Singapore.

* HAA big bar premiums are unchanged for gold [2.2% for 400 oz bars in NYC], but slightly higher for silver [4.01% for 1000 oz bars in NYC].

Futures Positioning

The COT report covered trading through Sep 1st, when gold closed at 1139.80 and silver 14.62.

Both gold commercials and Managed Money reduced short postitions: commercials dropped -3.3k contracts, while Managed Money covered -6.7k shorts.  In spite of the changes, positioning remains bullish.

In silver, commercials covered -9.5k shorts, a large change.  Managed Money also covered short a smaller -2.8k shorts.  Positioning remains bullish - this hasn't done us any good at all recently, but if and when the COMEX buyers appear, the current positioning in both gold and silver will provide rocket fuel for the liftoff.

If and when those buyers finally appear.

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

The ongoing correction in PM has moved everything back into the red once again.  As an asset class gold is performing best; its 52-week performance is "only" down 11% while everything else is performing at least twice as bad.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 1.20% -48.65% falling falling falling falling ema9 on 2015-09-01 2015-09-04
Senior Miners GDX 0.07% -45.83% falling falling falling falling ema9 on 2015-08-31 2015-09-04
Gold COMEX.Gold -0.28% -11.46% falling falling falling falling ema9 on 2015-09-03 2015-09-04
Silver Miners SIL -0.93% -49.61% falling falling falling falling ema9 on 2015-08-31 2015-09-04
Silver COMEX.Silver -1.07% -23.98% falling falling falling falling ema9 on 2015-09-04 2015-09-04
Platinum COMEX.Platinum -1.75% -29.53% falling falling falling falling ema9 on 2015-09-04 2015-09-04

Summary

Gold continued slowly selling off, while silver attempted to rally but largely failed.  Miners continued lower.  The whole PM complex looks weak right now, and if the trend continues, will likely re-test their lows in the near future, with the miners leading the way down.

The gold/silver ratio fell -0.55 to 77.13 but remains at the extreme high end of its trading range.  The GDX:$GOLD ratio fell sharply on the week, looks quite bearish and made a new all time weekly low, while GDXJ:GDX continues to climb and looks bullish.  Buyers continue to buy the junior miners in spite of the selling in the rest of PM.

The COT reports show no major change in position.   The potential remains for quite a bit of short covering, but as of yet its just still potential, as it has been for months now.

Gold physical shortage indicators grew somewhat; in the west, ETF premiums were down, GLD tonnage was unchanged, and there is no backwardation at COMEX.  In the east, premiums in Shanghai increased.  Big bar premiums are increasing somewhat, more in silver than in gold.

Commodity prices tried moving higher this week but failed.  Next week we get to see if the 7-day commodity rally was just a dead cat bounce or possibly the start of something more durable.

My computer is mildly negative on gold and silver, and more substantially negative on the miners, oil, and copper.  I think my computer is voting for the "dead cat bounce" outcome.  Let's hope my computer is wrong.

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.

14 Comments

blackeagle's picture
blackeagle
Status: Silver Member (Offline)
Joined: May 16 2013
Posts: 223
HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 761
16 tons

That's around 16 (metric) tons of Ag.  Whoever stole it got a lot more than just another day older and deeper in debt.

Denny Johnson's picture
Denny Johnson
Status: Gold Member (Offline)
Joined: Aug 13 2008
Posts: 348
Another PM heist

A bit dated, but I don't see it posted at PP.

http://www.mystatesman.com/news/news/local/downtown-austin-vault-of-precious-metals-turns-up-/nnYS2/

By the time auditors and lawyers got access to Bullion Direct’s 14th-floor offices six weeks ago, there were only a handful of gold and silver coins in an office safe. A second vault it had recently rented held only slightly more.

An estimated $30 million in cash, metal bullion and valuable coins, meanwhile, had vanished.

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1182
oops,I remember some PPf's

got caught up in this. bullion direct issue

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2245
Learning "If you don't hold, you don't own it" the hard way

Hi Denny-

   Thanks for posting this article; I hadn't seen it before and it is an insightful read.

   I was one of the people here burned by Bullion Direct going bankrupt.  "Luckily", I didn't lose that much.  But it was enough to make me think longingly about how I could have productively spent that $... ("let it go, let it go").  And enough to learn the lesson that "if you don't hold it, you don't own it" the hard way!  

 

blackeagle's picture
blackeagle
Status: Silver Member (Offline)
Joined: May 16 2013
Posts: 223
Not easy to hold gold...

Not easy to hold gold outside the system. They want (need) complete traceability of the metal. Easy to take it out, but costly to bring it back as there are essay costs (which also reduces the value of the bullion). The larger the bullion, the more potential for fraud and hence the more complications. And what about when the government requires tons of information about the seller. On the other hand selling the metal to people who ask nothing, is an open door to some problems difficult to solve in the legal yard..

This is a situation I didn't found an acceptable solution yet: having physical metal in hand and still be able to easily and securely trade it when needed.

Much easier for silver than gold because of its lower price. Well, today...

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5420
strong commodity rally

Strong commodity rally started in Asia today - after a morning sell-off, in the afternoon the buck, copper, oil, and silver all started moving higher at once.  Copper seemed to be the strongest, and now oil is catching up, with gold bringing up the rear.

Not sure what its about...but its certainly welcome news.  Its especially nice to see silver do well for a change.  A close above 15 would drag silver back above its 50 MA and erase my concerns of a breakdown to 14.

 

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1447
Copper up, oil down.  Casino

Copper up, oil down.  Casino action?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5420
copper = china

My gut says its something about China.  Usually when copper is involved, so is China.

And when they all move together, its usually something interesting.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5420
US equities: extremely bearish retail sentiment

A trader I respect has pointed out that the US equity market has an extremely high level of bearish sentiment right now, and that these levels typically lead to a rebound in the very near term.

The trend has changed, we're most probably going down further, but shorting is never easy money, especially when everyone has moved to one side of the boat.

Big guys know exactly what's going on.  When retail is all leaning one way, its probably best to not be following suit.  To me this situation suggests we break higher in a retail short-covering rally.  The PPT will get the credit, but it is usually the big guys collecting the money.

Expert card players have a term for this: "don't tap the glass" (and disturb the fish).  Meaning, don't disabuse foolish retail of their belief in the PPT and its unstoppability - there is no percentage in it.  Instead, use this belief system to make money.

If I were trying to cause a short-covering rally and hose the retail shorts, I'd definitely want everyone to believe it was the unstoppable plunge protection team doing the work.

Just my two cents.

 

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 716
reversal

I tend to think there's a confluence of factors that push markets when they align. Bearish sentiment, maybe a little goosing by central planners and insiders buying, and voila, we get a rally that forces all the "a crash is coming" shorts to cover, That pushes markets even higher, and then China announces a build in its reserves (or equivalent) and yowza, another leg up that crushes everyone who shorted the first leg up.

If the Fed stays its hand on the 17th we could see a quick 1000 points up in the DJI IMO.

When dead-companies-walking like JCP are soaring, it tells me the speculative bubble is far from spent...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5420
articles of faith

Charles-

I get the sense you're desperate to include the Fed as  a key "non-economic" causal factor here.  Given just how short retail is, there's just no need.  The entire thing can be explained as follows:

When sentiment moves to extremes of pessimism, there is nobody new left to sell and push prices lower - at least today, at these prices.  If you look at the chart, all this new retail selling has not been able to push the market lower at this point.  Once you reach the extremes of pessimism, there are no more new sellers (shorts) left to enter, and then we only have one direction left to go, and that's up.

Occam's Razor would slice out the Fed from the explanation, as its an unnecessary factor.  Its like saying the Fed is responsible for Apple's big move immediately following an unexpected doubling of revenues. With, or without "official non-economic activity", when sentiment gets to this extreme, rallies occur.

This doesn't mean blue skies ahead, it just says we probably zig higher for a few days hosing all those new shorts, and then we see what happens.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
New record Comex paper leverage ratio!!!! Go paper!

Nothing to see here.. move along.

http://investmentresearchdynamics.com/the-comex-is-now-a-100-artificial-...

The Comex Is Facing A Gold Crisis

Sure, you can’t eat a bar of gold and it just sits in storage like a Pet Rock that’s been cast aside by its bored owner.  But try selling the Indians or Chinese a paper gold bar and see how far you get.  You might end up with a knife in your forehead.

The stench has been growing stronger by the day.  Many of us have been writing for years about the extreme imbalance between the paper futures open interest vs. the underlying amount of gold being reported as available for delivery.   The latest disclosure from the CME is that the ratio of paper gold vs. the amount of deliverable ounces has spiked to over 200:1.

As of last Friday, JP Morgan had 89.4k ounces withdrawn from the  “customer”/ eligible account in its vault and it moved 122k ounces of gold from its “deliverable”/ registered account into its customer account.  What the true nature of those transactions were – i.e. who the counterparties were and did in fact any real gold actually leave JP Morgan’s gold vault – is anyone’s guess due the intentional opacity of disclosure on the Comex.

But the bottom line is that, as of last Friday, the Comex vaults collectively now show 202k ounces of gold in the “registered” / deliverable accounts of the Comex vault custodians.  As of today’s trading, the “preliminary” gold futures open interest rose to 419k contracts representing 41.9 million ounces of paper gold.  This would, preliminarily, put the ratio of paper gold to deliverable physical gold at an astonishing 207:1 ratio.

The amount of “deliverable” gold on the Comex is the lowest that I’ve seen it in the time I’ve been following the Comex data avidly since 2002.  Please note that the preliminary open interest is almost always revised, most typically a bit lower, by the time the Final report is issued the next day.  But based on many years of tracking this data, it is likely that any revision will not move the “needle” on that 207:1 ratio by much in either direction.

Nothwithstanding all the other information contained in this disclosure, this number represents the confirmation that the Comex is nothing more than a pure paper gold market.  It’s nearly 100% derivatives.  It’s the imposition of derivatives by the Fed and the U.S. Treasury – via their agent bullion banks – on the gold market in order to control the pricing discovery mechanism.

In other words, the Comex gold market is now a 100% artificial gold market.

I find it it quite interesting that the elitists overseeing this operation on the Comex are willing to advertise the 200:1 paper:gold ratio when they have the means at their disposal to hide that number or to make it look a lot smaller.

There’s some kind of message they’re sending to anyone who cares about this sort of thing. It’s either “f*ck you” we’re in control” or “help, we’re in trouble on our paper gold short position.”  Or a combination of both.

The implications embedded in all three of those possibilities are quite horrifying to contemplate.

It’s quite obvious that there’s a problem with the supply of physical gold that is readily available for delivery.  The same is true of the retail silver market, in which available supply at the retail level shrinks by the day.  Premiums on a simple roll of 20 silver eagles are now over $5 at big coin dealers claiming to have inventory.  Most dealers have been wiped out of most if not all of their entire inventory of silver SKU’s.

In my opinion, that head-splitting 200:1 ratio of paper to deliverable gold on the Comex is the surest sign that the market for gold and silver is in crisis mode. The term “crisis” also describes the state of condition of the U.S. stock market and, ultimately, the entire current U.S. financial and economic system.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5420
premiums

JimH-

Your gold promoter's excitement is understandable; if I were selling silver eagles at a 35% premium (and that's what they are right now: 32% in NYC, 35% in Singapore) I'd be excited too.  I'd cry shortage and get everyone to run, not walk, to their store and buy.

But what are the "real" premiums for the big bars, the form in which the vast majority of the world's supply is in?

  • Big bar premium for 1000 oz silver bars is +4.10% in NYC.
  • Big bar premiums for 100 oz gold bars is +2.37% in NYC.

I know, its not nearly as exciting as yelling "COMEX DEFAULT COMEX DEFAULT".  Someday I hope to report something different, but - alas - that is not today.

Likewise, premiums in Shanghai are hovering around $6.50 over COMEX.  Its a reasonable premium, to be sure, but its not suggesting any sort of massive gold shortage/imminent default the way our breathless commentator is doing.

 

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