PM End of Week Market Commentary - 12/04/2015

davefairtex
By davefairtex on Sat, Dec 5, 2015 - 6:52am

On Friday, gold rocketed higher, up +24.70 to 1085.80 on very heavy volume, and silver rallied even harder, up +0.48 to 14.55 on heavy volume.  Gold's move happened shortly after a moderately positive Nonfarm Payrolls report was released at 08:30 Eastern.  In past months this would have led to a gold sell-off, but that's not what happened this time.  Gold's rally off the positive report suggests this was a sell-the-news event.  Sometimes that happens at reversal points - fantastic earnings leads to selling, bad earnings leads to buying, and so on.  The reason this happens isn't manipulation, its because everyone is already "all-in" prior to the report.  In the case of gold, everyone who wanted to be short was probably already short, and so when the bad news hit, there was nobody left to sell.  And once traders notice the market doesn't drop as expected from the bad news, they know what that means - sell the news - so the shorts start to cover, longs start to buy, and pretty soon it turns into a rout.

On the week, gold rose +29.70 [+2.81%], silver climbed +0.48 [+3.38%], GDX rallied +10.26%, and GDXJ was gained +7.52%.  Platinum rose +5.41%, and palladium gained +3.30%.

Gold marked a swing low in a dramatic fashion on Friday, wiping out three weeks of decline in one day.  It also closed above its 9 EMA for the first time in six weeks.  Friday's event was clearly a short-covering rally; the key question is, will the move higher continue, or is this a one-day wonder?  Let's go through the full market analysis and maybe by the end, we can get a clearer picture of where we might be headed next.

Silver's move looked a whole lot like gold - printing a dramatic swing low, closing far above the 9 EMA.  Silver also outperformed gold percentage-wise, which is a bullish sign for PM.  Volume wasn't quite as high, but then again, the slope of silver's downtrend was more gentle so it hadn't declined quite as sharply.

Miners

The miners did quite well this week, breaking above their consolidation area, and managing to close above the 50 MA on Friday on ever-increasing volume.  Miners have looked the best of any of the PM instruments, and they continue to outperform.  Looking at this week's action on the price chart, you can just sense the bid underneath the miners.  The dips get bought which keeps them shallow, and the breakouts are bought as well.  The fact that the miners made it through the 50 suggests that there is no serious selling pressure; that, or the buyers simply overwhelm it when it appears.

The USD

The dollar fell -1.73 to 98.34 this week, with the loss (about 2.3%) coming on Thursday following ECB Chairman Dragi's failure to print as much money as the market had expected.  The buck smashed through the 9 EMA and appears headed for a test of the 50.  The rally on Friday was quite modest; this suggests to me that we probably have more downside ahead of us for the buck.

The various events (ECB meeting, Nonfarm Payrolls, etc) all serve to remove uncertainty from the market, all of which helps traders assess likely market direction.  In this case, not much more printing will come from the ECB, and the Fed rate rise is now pretty much baked into the cake.  The net-net of all this is that - probably - the Euro was oversold and the buck was overbought, so now the adjustment is taking place.

US Equities/SPX

SPX moved sideways this week with a fair amount of volatility - selling on Wednesday and Thursday was met with buying on Friday, ending up with SPX up +1.58 to 2091.69.  SPX seemed to find support on Thursday at the 50 MA, and is now back above the 9 EMA.  While the rally on Friday was extremely impressive (+42.07 [+2.05%]), it remains to be seen if the market can withstand the prospect of an actual Fed rate increase.  Normally, when the Fed increases rates, it marks "the end of the party" for equities.  It will be interesting to see if "this time is different."  I have my doubts.  VIX fell -0.31 to 14.81.

Worldwide, equity markets were mixed - but mostly unchanged.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Emerging Asia GMF 1.34% -8.83% rising rising falling rising ema9 on 2015-12-04 2015-12-04
Europe IEV 0.02% -6.17% rising rising falling rising ema9 on 2015-12-04 2015-12-04
Developed Asia VPL -0.02% -0.14% falling rising falling rising ema9 on 2015-12-02 2015-12-04
Eurozone EZU -0.19% -4.48% rising rising falling rising ema9 on 2015-12-04 2015-12-04
United States VTI -0.22% 1.64% rising rising falling rising ema9 on 2015-12-04 2015-12-04
Latin America ILF -0.86% -30.62% falling rising falling rising ma50 on 2015-11-27 2015-12-04

Gold in Other Currencies

Gold rallied in most currencies - it only fell in Euros, which rallied very strongly vs USD this week because of Draghi's apparent reluctance to print with wild abandon.  Gold in XDR was up +18.50.


 

Rates & Commodities

Bonds (TLT) were quite volatile this week, first rising, then dropping sharply on Thursday, only to rally Friday, ending the week down just -0.11%.  Bonds ended the week below all three moving averages, which looks bearish.

Junk bonds (JNK) tried to rally this week but failed, closing down -0.28%.  JNK remains quite bearish-looking, and continues to signal risk off.  The performance of junk bonds is a fairly reliable signal for projecting both market corrections as well as recessions over the long term.  I'm not so sure this time will be different...but this time maybe its all just about shale rather than the overall economy.

The CRB (commodity index) was flat, closing the week unchanged.   While it made a new low, it managed to rally back by end of week.  Commodities are bumping along the bottom right now, with the CRB sitting at all-time lows for the entire series that started back in 1981.

WTIC fell -1.63 [-3.90%] closing the week at 40.14, with crude trying to rally but failing.  Crude is right at the 40 support level; while it seems to have buyers at 40, its reaction to the outcome of the OPEC meeting (which resolved to leave supply unchanged) was not encouraging.  I'm guessing crude will have a re-test of the lows down at 38 as a result, sometime next week.

Physical Supply Indicators

* Shanghai premiums for the Au9999 contract were +8.35 vs COMEX, up +1.24 on the week.

* The GLD ETF tonnage on hand fell a huge -16.00 tons, with 638.80 tons remaining

* Gold is in backwardation this week at COMEX, with the spread in the first two contracts at -0.50.

* ETF Premium/Discount to NAV; gold closing of 1057.50 and silver 14.08.

 PHYS 8.92 -0.52% to NAV [up]
 PSLV 5.57 -0.55% to NAV [down]
 CEF 10.35 -11.06% to NAV [up]
 GTU 38.59 -2.60% to NAV [up]

ETF premiums were mixed, but mostly up.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no particular premiums this weekend.

* HAA big bar premiums are lower for gold [2.33% for 100 oz bars in NYC], higher for silver [3.91% for 1000 oz bars in NYC].  Silver Eagle premiums fell slightly [22.98% in NYC].

Futures Positioning

Gold commercials continued closing their shorts, dropping -9.2k shorts, but so far at least refusing to go long.  Managed Money increased their shorts - right at the lows, as it turns out - by +2.8k contracts.  Managed Money net (longs - shorts) was the most short in the history of the series, which started back in 2007.  Managed Money is hardly ever net short, but it is right now - just as it was at the lows four months ago.

Silver commercials closed -4.3k shorts, a large move which brings them into line with where we might expect a rally to start.  What a coincidence the rally started this Friday.  Managed Money added +1.6k to their long positions too.  I tell you, I might just stop writing about everything else and just focus on the COT report if things keep going this way.

Over the past few years, Managed Money has been steadily increasing long-side exposure to silver; it has more than doubled from 2012-present to 54k contracts - or 8400 tons, all the while price has dropped.  This is probably why silver has outperformed gold during this most recent downturn; hedge funds have (for the most part) refused to sell their longs as price has dropped.  This build in long interest is an interesting longer term trend, and I believe something to watch going forward.  Commercials have been unable to shake Managed Money loose, especially as prices dropped below 20.

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

Miners are once again outperforming this week, which is generally bullish.  We even saw a 50 MA crossing for the senior miners.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 10.26% -22.25% rising rising falling rising ma50 on 2015-12-04 2015-12-04
Junior Miners GDXJ 7.52% -20.98% rising falling falling rising ema9 on 2015-12-03 2015-12-04
Platinum COMEX.Platinum 5.36% -29.32% rising falling falling falling ema9 on 2015-12-03 2015-12-04
Silver Miners SIL 5.24% -27.03% rising rising falling rising ema9 on 2015-11-24 2015-12-04
Silver COMEX.Silver 3.90% -12.21% rising falling falling falling ema9 on 2015-12-04 2015-12-04
Gold COMEX.Gold 2.71% -10.18% rising falling falling falling ema9 on 2015-12-04 2015-12-04

Gold Manipulation Report

There were no meaningful 0.5% "after-hours" spikes in PM during the past week; silver did have an $0.08 spike on Wednesday, but it didn't seem to affect price - no new low was made.  All the major price movement in PM took place during London and NY market hours, driven primarily off the ECB announcement (and attendant currency volatility) as well as the Nonfarm Payrolls reports.

Summary

Every PM component printed swing lows this week, driven largely by the rally on Friday off the Nonfarm Payrolls report.  There are a few reports which really drive the markets; Nonfarm Payrolls is probably the most important regular report, along with Fed and/or ECB meetings where a big decision is expected.  The report on Friday turned out to be no different.  Uncertainty about the Fed rate rise was more or less eliminated, which resulted in a surprising short-covering rally by PM, a form of "sell the news", which aligned almost perfectly with the bullish COT report.

The gold/silver ratio fell 0.41 to 74.65, another small improvement but still not enough to turn the ratio bullish.  GDX:$GOLD ratio rallied dramatically, and is now looking bullish.  GDXJ:GDX moved lower, and is now starting to look somewhat bearish.

COT report continues to signal a low for PM - just in time for the big rally on Friday.  This is a positive indicator for a continuation of the rally past Friday's move higher.  Even if we have a retracement, the commercials have no material interest in moving prices substantially lower.

Gold and silver big-bar physical shortage indicators are looking tighter; in the west, ETF premiums were slightly higher, and GLD tonnage dropped dramatically.   Gold is in backwardation at COMEX.  Big bar premiums for gold at HAA were down, silver's premiums rose, while silver coin premiums dropped slightly.  In Shanghai, premiums have risen to $8 vs COMEX, which is "elevated" as they say in the homeland security biz.

We finally got a clear signal out of PM, in the form of a nice rally across the board on Friday in every PM element I track.  Silver is leading gold, miners are leading the group as a whole, and the COT report shows a typical "bottom" pattern in both silver and gold - but gold most strongly of all.  All of this suggests we should have continued momentum, assuming the dollar continues to cooperate.  There are a few small flies in the ointment: we might see some renewed nervousness about the Fed as we approach Dec 16th, commodities still haven't started to rally just yet, and oil is looking more like it will hit $38 after the Friday OPEC meeting.  But if the dollar remains relatively weak, I suspect momentum will keep moving PM higher.

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4 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
CoT

Dave,

Regarding the "Commercials" in gold, I'm fairly certain that they have never been net long and that this is the lowest  Commercial net short position on record.  That being said, the CoT data was captured on Tues and Wed was a fairly big down day, so the commercials were very likely net long (Gold) for at least 24 hrs on Wed for the first time ever before the squeeze on Thurs/Fri.

In my mind, the big question going forward will be how aggressively the Commercials short the next rally.  I suspect that when "they" let the metals start to really run towards where we all know they are eventually going that the Commercials will be on the long side and not aggressively shorting a rising price.

Thx again for the great work!

 

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 377
Mike Maloney

Here's the latest Mike Maloney presentation at the 2015 silver summit for those who haven't seen it. It mirrors Chris' narrative; i.e. deflation then big inflation.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5417
commercial net position

Here's the commercial net position going back to 1986.  I don't normally look that far back.  Turns out, during the 80s and 90s the commercials were often net long, but they haven't been net long since (about) 2003.

I'm guessing the commercials will try to do their thing playing the cycle on the way up the same way they did on the way down.  That's assuming the COMEX doesn't run out of gold, of course.  Its down to 3 tons.  Any bets as to whether it breaks down in the next month or so?

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 716
extreme positioning by hedgies

Backing up your COT  data--

http://www.zerohedge.com/news/2015-12-06/extreme-gold-positioning-grows-hedge-funds-add-record-shorts
Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

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