PM End of Week Market Commentary - 10/9/2015

davefairtex
By davefairtex on Sat, Oct 10, 2015 - 8:00am

On Friday, gold rose +17.40 to  to 1155.60 on moderately heavy volume, while silver rose +0.15 to 15.82 on moderate volume.  Gold rose steadily all day long, peaking out after noon in NY at 1159.30.  Silver topped out much earlier, and lost much of its gains by end of day.  Gold outperformed silver, a departure from recent performance.

On the week, gold rose +18.00 [+1.58%], silver climbed +0.59 [+3.84%], GDX rallied a huge +12.22% and GDXJ moved up +7.83%.  Platinum was up +7.87%, while palladium rose +1.72%.

With all the progress made in recent weeks in PM, I'd like to pull back our focus to longer term trends; in that spirit, I'm going to use weekly charts today rather than daily charts.

Gold continued the rally following last week's Nonfarm Payrolls report, making a new high at 1159.30.  On the weekly chart we notice that gold still has a fair amount of work ahead of it.  Gold is now clearly above its weekly 9 EMA and it has crossed the relatively steep downtrend line.  These are both early signs of a trend reversal - or at the very least, the end of the weekly downtrend.  However, gold has yet to establish an uptrend in this timeframe.  As its next step, gold must close above its previous high at 1170, and then above the weekly 50 MA at around 1180.  If it does this, gold still won't be in an uptrend in the weekly timeframe, but the chart will look considerably more hopeful.  Right now, gold still appears weak.

This week silver managed to break out of its recent congestion zone and touch its weekly 50 MA, which is something it hasn't done for at least six months.  A close above the 50 is not far away, and silver's difficulty with its 50 MA has been much more severe than gold's.  As such, a close above the 50 for more than a few weeks would be seen as quite significant.  Next target for silver is the previous high at 17.77, but my feeling is that sentiment for silver would change dramatically after a few weeks above the 50 MA.

Silver appears to have spent more time consolidating (i.e. moving sideways), its weekly chart downtrend line is shallower and as such, it may well have an easier time changing trend.

Miners

Progress in the mining shares has been quite substantial - a 12% gain in one week is pretty astonishing.  Of course, that's only because the miners have fallen so far already.  GDX is right at the cusp of confirming its double bottom reversal pattern and breaking above the previous low set in November of 2014.  Once it does this, the next target is a break above the weekly 50 MA and a close above the downtrend line which are at approximately the same place.  You can see that even with the weekly gain of 12%, the miners are a ways away from the 50 MA.

An uptrend for the miners is when they close above 23.22, the high dating back to January 2015.

The USD

The dollar fell again this week, dropping -1.08 to 94.88.  While the buck fell against the major currencies, it really tanked against the emerging market currencies I track.  Emerging markets breathed a great sigh of relief after Nonfarm Payrolls last Friday.  You can see the raft of trend reversals in all the red EMA9 and MA50 crossings in recent days.  In this case, red is good - for emerging nation debtors, and for "risk on" sentiment.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Chinese Yuan USD.CNY -0.13% 3.54% falling rising rising rising ma50 on 2015-10-02 2015-10-09
Indian Rupee USD.INR -0.67% 6.06% falling rising rising rising ma50 on 2015-10-02 2015-10-09
Philippine Peso USD.PHP -1.12% 3.30% falling rising rising falling ma50 on 2015-10-05 2015-10-09
Thai Baht USD.THB -1.65% 10.05% falling rising rising falling ma50 on 2015-10-08 2015-10-09
South Korea Won USD.KRW -1.71% 7.86% falling falling rising falling ema9 on 2015-10-02 2015-10-09
Mexican Peso USD.MXN -1.79% 23.39% falling rising rising rising ema9 on 2015-10-02 2015-10-09
South Africa Rand USD.ZAR -3.06% 86.10% falling rising rising rising ema9 on 2015-10-02 2015-10-09
Brazilian Real USD.BRL -3.79% 59.45% falling rising rising rising ema9 on 2015-10-02 2015-10-09
Australian Dollar USD.AUD -3.81% 19.54% falling rising rising falling ma50 on 2015-10-06 2015-10-09
Indonesian Rupiah USD.IDR -6.30% 11.40% falling rising rising falling ma50 on 2015-10-07 2015-10-09
Malaysian Ringgit USD.MYR -6.39% 27.44% falling rising rising rising ma50 on 2015-10-08 2015-10-09
Russian Ruble USD.RUB -6.46% 54.03% falling falling falling rising ema9 on 2015-10-05 2015-10-09

US Equities/SPX

SPX rose a big +63.53 [+3.26%] to 2014.89 on the week, echoing the rest of the equity markets worldwide.   SPX managd to close above its 50 MA, but it has not yet exceeded the previous high.

Domestically focused analysts who only look at earnings and cyclically adjusted PE ratios have probably gazed wonderingly at the US market's rally this week.  Maybe it was all about the Fed buying futures, perhaps?

Fact is, equity markets worldwide tend to correlate quite closely with each other, and this week every market I track had a rally.  Most of them were substantially larger than what we experienced here in the US.  This was true in the core - but most especially in the periphery.

Core nations:

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Germany EWG 5.63% 0.04% rising falling falling falling ema9 on 2015-10-02 2015-10-09
United Kingdom EWU 4.09% -3.62% rising falling falling falling ma50 on 2015-10-07 2015-10-09
Japan EWJ 3.86% 8.91% rising falling rising falling ma50 on 2015-10-09 2015-10-09
United States VTI 3.46% 6.05% rising falling falling falling ma50 on 2015-10-08 2015-10-09

Asia:

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Indonesia EIDO 22.95% -14.82% rising rising falling rising ma50 on 2015-10-06 2015-10-09
Malaysia EWM 11.57% -24.95% rising falling falling falling ma50 on 2015-10-07 2015-10-09
Singapore EWS 10.26% -14.13% rising falling falling falling ma50 on 2015-10-07 2015-10-09
Thailand THD 8.36% -15.34% rising rising falling rising ma50 on 2015-10-07 2015-10-09
South Korea EWY 6.63% -6.22% rising rising falling rising ma50 on 2015-10-01 2015-10-09
Taiwan EWT 4.27% -5.41% rising falling falling falling ma50 on 2015-10-02 2015-10-09
Japan EWJ 3.86% 8.91% rising falling rising falling ma50 on 2015-10-09 2015-10-09
China MCHI 3.71% 0.49% rising falling falling falling ma50 on 2015-10-07 2015-10-09
India INDY 3.19% -1.59% rising falling falling falling ma50 on 2015-10-05 2015-10-09
Hong Kong EWH 2.02% -2.65% rising falling falling falling ma50 on 2015-10-08 2015-10-09

Commodity Countries:

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Russia ERUS 12.32% -15.72% rising rising rising falling ma200 on 2015-10-08 2015-10-09
Brazil EWZ 9.69% -45.38% rising falling falling falling ma50 on 2015-10-08 2015-10-09
Australia EWA 7.62% -15.05% rising falling falling falling ma50 on 2015-10-07 2015-10-09
Canada EWC 6.72% -14.95% rising falling falling rising ma50 on 2015-10-06 2015-10-09
Mexico EWW 5.61% -17.83% rising falling falling rising ma50 on 2015-10-05 2015-10-09

When you are trying to analyze what is going on, you have a choice where your focus is.  I prefer to try and see as big a picture as possible.  I try to look beyond the borders of the US.  Big money has to go somewhere: equities, bonds, cash, or real estate.  This week, big money went into equities.

When looking at markets you can try to judge whether the move "makes sense" within your own worldview, or you can simply note what is going on and from that observation try to intuit global sentiment.  The way I see it, the market doesn't represent any sort of existential Truth or unerring prophetic statement; instead, price movements are the footprints of big money that are derived from changes in human sentiment.  What sentiment do I read this week?   Relief.  This week, Big Money looks relieved.

At the same time we read the sentiment, we must keep the current trend in mind.  Longer term, the trend remains down.  The monthly-chart uptrend line has been snapped, and once this relief rally runs out of steam, the trend will take hold once again, and we will most likely continue to head lower.

VIX dropped -3.86 to 17.08.  Puts are getting cheap(ish) again.

Gold in Other Currencies

Gold rose in most currencies - except for Ruble and Real, which staged massive rallies against the dollar this week.  Gold in XDR was up about $17.


 

Rates & Commodities

Bonds (TLT) fell -1.83%, as money moved from bonds back into equities.  However the selling in bonds was not as dramatic as one might have expected; my guess is that the world's central banks were not sellers this week given the large rebounds in currencies vs the USD.

Junk bonds (JNK) staged a big rally this week, rising +2.77%.  JNK was aided by a large rally in oil, and some other positive developments in the shale space - positive in the sense that the shale drilling companies probably won't have their credit tightened too much by their banker overlords.  At least not for this quarter anyway.  The ponzi remains alive and well in shale.

The CRB (commodity index) jumped up a massive +4.42%, closing above the 50 MA for the first time since June.  Commodities registered a new high for the cycle.  The turnaround took place immediately following that Nonfarm Payrolls report last Friday.

WTIC broke sharply higher this week, rising +3.83 [+8.39%] to 49.49, making a new high for this cycle.  Oil has clearly broken up out of its descending triangle pattern, and is now driving on its 200 MA.  A bearish Petroleum Status report took the starch out of the oil rally for only a day.

Physical Supply Indicators

* Premiums in Shanghai are now at +4.09 over COMEX, up vs last week.

* The GLD ETF tonnage on hand fell -2.06 tons, with 687.20 tons remaining

* GC remains in backwardation, with the current two-front-month spread at -0.40.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on Oct 9th) of 1155.60 and silver 15.82:

 PHYS 9.51 -0.51% to NAV [up]
 PSLV 6.18 +1.40% to NAV [up]
 CEF 11.31 -9.59% to NAV [up]
 GTU 41.00 -3.15% to NAV [down]

ETF premiums were mostly up.

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

* HAA big bar premiums are higher for gold [2.34% for 100 oz bars in NYC], and for silver [3.88% for 1000 oz bars in NYC].  Silver Eagle premiums dropped substantially [29.08% in NYC].

Futures Positioning

The COT report covered trading through Oct 6th, when gold closed at 1146.80 and silver 15.98.

Gold commercials increased their shorts by another 14.2k, as they usually do when price rises.  Gold commercial shorts are moving higher, but are not yet high enough to be of any real concern.  Managed money covered only 2.5k shorts this week, hardly any move at all.  Plenty of short covering fuel remains for gold.

In silver, commercials added a big 11.4k shorts, but are not yet at a level of concern, while Managed Money covered 12.1k shorts, which is somewhat more concerning.  Much of it was probably burned through in last Friday's big silver rally.  Another week of short covering like this by Managed Money, and they will be more or less out. 

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

The moves this week were quite impressive for many of the PM components, with the senior miners leading the way.  Now even silver's 200 MA is starting to rise.  Next stage for all PM components is a 200 MA crossing.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 12.22% -22.87% rising rising falling rising ema9 on 2015-10-02 2015-10-09
Silver Miners SIL 11.11% -26.14% rising rising falling rising ema9 on 2015-10-02 2015-10-09
Platinum COMEX.Platinum 7.96% -23.37% rising falling falling rising ma50 on 2015-10-09 2015-10-09
Junior Miners GDXJ 7.53% -32.64% rising rising rising rising ema9 on 2015-10-02 2015-10-09
Silver COMEX.Silver 3.64% -9.20% rising rising rising rising ma200 on 2015-10-08 2015-10-09
Gold COMEX.Gold 1.73% -5.63% rising rising falling rising ema9 on 2015-10-02 2015-10-09

Summary

The halo effect from last Friday's disagreeable Nonfarm Payrolls report continues to bless commodities, equities, junk bonds - all risk assets have benefitted from the prospect of no rate rise and the related big currency moves in the emerging market nations.  Will this continue?  At some point, bad economic news might actually translate into poor equity market performance but for now, the story remains about the absence of monetary tightening from the Fed.  This translates into relief by all the US dollar debtors around the world, who are no longer quite so worried about rising debt burdens.  All the fuss was really much more about large currency moves than the prospect of a 25 basis point rate increase.

The gold/silver ratio fell this week, dropping -1.62 to 73.05, which is bullish.  The GDX:$GOLD shot dramatically higher this week; it is now well above the 50 MA, and is now looking bullish.  GDXJ:GDX ratio continued falling this week and now looks bearish.  Two out of three of our ratios are showing bullish signals right now.

The COT reports show that gold still has plenty of short-covering fuel, while silver's fuel is running a bit low.  In silver we are rapidly approaching the time where we will definitely need the buyers to start showing up to keep prices moving higher.

Gold and silver big-bar physical shortage indicators are slightly more bullish; in the west, ETF premiums were mostly higher, GLD tonnage fell, and gold futures remain in backwardation at COMEX.  In the east, premiums in Shanghai are up a bit.   Big bar premiums at HAA are more or less holding steady, while silver coin premiums have dropped sharply.

Silver and the miners continue to lead PM higher, which is a continuing bullish sign for PM.  Ratios look mostly good, and my computer continues to like gold, silver, and the HUI.  Which is to say, it hasn't shown a bearish reversal just yet in either daily or weekly timeframe.

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4 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
negative rates: gold catalyst?

Mish wrote up an article on negative rates, and the Fed's apparent enthusiasm for the prospect, based on a Marketwatch article:

http://www.marketwatch.com/story/fed-officials-seem-ready-to-deploy-negative-rates-in-next-crisis-2015-10-10?siteid=rss&rss=1

Although negative rates have a “Dr. Strangelove” feel, pushing rates into negative territory works in many ways just like a regular decline in interest rates that we’re all used to, said Miles Kimball, an economics professor at the University of Michigan and an advocate of negative rates.

But to get a big impact of negative rates, a country would have to cut rates on paper currency, he pointed out, and this would take some getting used to.

For instance, $100 in the bank would be worth only $98 after a certain period.

Unintended consequences?  Just imagine what each of us would do with our savings accounts if faced with the prospect of significantly negative rates.  And WTF does he mean by cutting rates on paper currency?  Cash is simply worth less as time passes?

  • pay down debt - to the limit of comfort and possibly beyond
  • pay taxes early
  • buy assets - equities, gold, real estate
  • flee USD into currencies that don't have negative rates.

I see this as triggering a next leg higher in an asset bubble.  The economists imagine that aggregate demand will increase.  I think that spending won't increase so dramatically - instead, "savings" will flee into things that don't have a built-in decline in value.  Likely, too, the buck will tank, as money flees to anywhere that its not being taxed.

I do wonder what will happen to all those excess reserves at the Fed.  We could have a hyperinflation - not in CPI-based consumer items, but in asset prices.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1447
A week or so ago, you said

A week or so ago, you said 1157 for gold would be bullish turning point.   Are you still holding to that close for sentiment?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
timeframes

Kugs-

In the daily chart timeframe, 1157 was an important resistance level.  Closing above that level cements the breaking of the downtrend, as well as keeping alive the uptrend off the 1075 lows for gold - there's now no chance of a "lower high" being formed off the 1157 level, and that changes the calculus of the shorts.  Some number of them will be forced by their rules to cover on the break above 1157.

The 1170 level (which we almost hit today) is also quite important.  If we break above that in a convincing way, we should see another batch of short covering.  We might even get above the 200 MA on that momentum.  Even if we don't, touching the 1170 level is good, since it starts an "ascending triangle" formation, which is a bullish pattern and often ends with a breakout.

Each of these waypoints is another nail in the coffin of the major downtrend.  Downtrends reverse level by level. First, daily timeframe.  Downtrend is over in the daily timeframe, in my opinion.  If we can close above the 1170 level, that puts us in a daily-chart uptrend.  Above the 50, above the 9 EMA, nearing the 200, repeatedly breaking above resistance - these are all a bunch of positive signs and they increase the odds of gold continuing to move higher.

That's because all these things are signs to other traders that its time to start buying dips, rather than shorting rallies.

Risks include economic data releases that might indicate a Fed rate rise in the near future, as well as anything that woud push the buck higher.

From a trading perspective, its probably not the right time to buy.  Wait for the mini-cycle to turn down - gold will eventually hit resistance, sell off, and fall back down for a week or two.  Or three.  That's the dip you should buy.  But each breakout we can get now increases the odds the next cyclical move lower will just be a buy-the-dip affair, rather than a crash through 1075.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
Glencore and commodity futures deleveraging

Article on commodity trading house Glencore and the potential impact of its failure.

http://www.telegraph.co.uk/finance/markets/questor/11923223/Commodity-contagion-sparks-second-credit-crisis-as-investors-panic.html

I'm just guessing, but I'll bet these guys have massive positions outstanding in metals futures, including gold and silver.  If Glencore has to be wound down, all those positions - both long and short - will have to be liquidated.  I have no idea if they are net short or net long.  It just makes me nervous when a big trading house starts to show signs of trouble.

Last time we had this happen: Bear Sterns went under.  However Bear wasn't unwound - they were acquired (minus their dodgy debt positions, which the Fed took the losses on) for a couple of bucks by one of my favorite banks - JP Morgan - so we avoided the torrent of selling.

The last real unwind we had was Lehman.  The selling that happened around that time was legendary.

I'm guessing they'll try a re-run of the Bear Stearns "acquisition" if Glencore does go under.

 

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