PM Year End Market Commentary - 2015

davefairtex
By davefairtex on Sat, Jan 2, 2016 - 7:08am

This year, gold fell -125.60 [-10.61%], silver dropped -1.80 [-11.57%], GDX was down -25.35%, and GDXJ lost -19.72%.    Platinum lost -26.30%, while palladium fell -29.61%.  It was a bad year for PM - gold actually did the best of anything, as seems to usually be the case during downtrends.

For the end of year review, I'm going to use monthly charts to assess the current general trend.  These trends guide traders in how they approach market moves.  Do they buy dips, or sell rallies?  When the weekly and monthly trends are down, rallies get sold, as each high is followed by a lower low.  And not to spoil the surprise or anything, but trends right now in PM are clearly down.

In the charts that follow, I'm going to use the monthly 9 EMA, as well as the monthly "parabolic SAR" (or "stop and reverse"), which acts as a falling stop line during downtrends.  This means that when price reverses and hits the SAR, the trade gets stopped out and a trend reversal may be happening.

Why do we use such indicators?  Indicators are used by traders to deal with their own emotions.  Indicators don't lie to you the way hope will.  If SAR says it's a downtrend - it's a downtrend, regardless of the hope you have that silver will start to rise because its really cheap.  I mean, silver IS really cheap, but that doesn't necessarily mean price will start to rise.  Cheap can get cheaper, and then really super cheap, and then it can become way below cost of production - after which it can drop further in price.  You've heard me say that before, I think.  Often the things I write are also intended to remind myself, so I don't forget.

Anyhow, on to the monthly charts:

Gold had a pair of attempts at trying to break its downtrend this year - once in January when it closed above the monthly 9 EMA for one month, and once more in October when price spiked up and hit the SAR, but both breakouts were brief and the downtrend resumed.  That SAR is a pretty clear indicator for trends in gold.

Silver looked even worse, as it had no downtrend breaks in 2015 at all.  The last hints of possible trend change for silver was mid-2014 when silver managed to close above the 9 EMA for one month, and it also flipped the SAR for two months, but that was short-lived.  By fall 2014 silver was clearly back to a downtrend.  Can silver get even cheaper?  Of course it can.  I hope it doesn't - but that's why I watch the SAR and the 9 EMA, so I don't get seduced by hope.

The mining shares tracked silver, for the most part.  GDX was below the SAR for the whole of 2015, and it managed to close above the 9 EMA just once, in January, for all of one month.   Currently, mining shares are bumping along the bottom - they seem to be moving sideways while gold and silver continue to decline, but I'm not sure this can continue if gold plunges to new lows.

Platinum, which I don't follow quite as closely, had a really terrible year.  You can see in the chart below that the decline in platinum has started to accelerate, and it appears that it will soon be testing the 2008 lows.  Last SAR reversal was mid-2012.  Platinum survived the 2013 gold smash, but tipped over and sank hard starting around mid-2014, and is now moving closer to those 2008 lows..  The "gold/platinum" ratio is currently at 1.19 - the highest it has been in 33 years.  The only higher point was in 1982, when it hit 1.43 briefly near the top of the gold rally.  More often than not, platinum is more expensive than gold.  So right now, platinum seems cheap too.  Can it get cheaper?  You tell me.

The buck [+8.93% for 2015] has been in a clear uptrend since mid-2014, when it first closed above the 9 EMA, and then hit the descending SAR two months later.  Today, the buck remains relatively close to its previous high, and if the USD can avoid a monthly close below that 9 EMA, it is more likely than not to break out to new highs.  Trends in motion tend to stay in motion.  A close below the monthly 9 EMA would be an early signal of a trend change for the buck, which would be supportive of PM, oil, and commodities in general.

Now for the chart that provides a clearer picture of currency effects on gold.  Below you see a chart of gold in euros: $GOLD:$XEU [-1.18% for 2015].  This is what gold's chart looks like to traders in Europe.  You can see the SAR flip into an uptrend in mid-2014; prices peaked in January 2015, and have drifted lower since then.  In Europe, gold bottomed out in late 2013.  This looks quite a bit different from the chart of gold in USD, doesn't it?  Right now gold/XEU seems to be moving more or less sideways.

WTIC oil [-30.2% for 2015] also started tipping over in mid-2014.  Oil's plunge was dramatic, and except for the 3-month headfake in April-June, the SAR shows that oil seems to be on course for a re-test of the 2009 lows, which are not so very far away.   Currently, downside velocity seems quite strong.  When looking at the monthly chart, I'm not sure those lows will hold.

WTIC hasn't closed above its monthly 9 EMA since May 2014.

Since mid-2014, oil has lost an astonishing 65%.

Commodities overall (represented below by GCC, a commodity fund - normally I use $CRB but there's a bad tick for CRB in stockcharts that confuses the SAR) have had troubles since mid-2014.  At the same time price hit the SAR, GCC also saw a close below the 9 EMA too.  But generally speaking, commodities have been dropping ever since the peak in April 2011.  The drop starting mid-2014 is really the second leg in the 4 year commodity bear market.

SPX [-0.73% for 2015] isn't so clearly correlated with PM, commodites, or the buck.  It may be starting to correct - SPX ran into its SAR after the 10% correction in August, and has yet to recover.  Of course, since the lows in 2009, the SPX has had two 4-5 month head fakes, and a one-month blip in late 2014, so the SAR isn't as good an indicator for SPX as it is for PM.  Still, you definitely get the sense that the SPX uptrend is in question, which I think aligns with how SPX has been trading recently: it has shown an inability to make new high following that 10% correction, and afterwards it has printed a series of lower highs and lower lows.  Whether this leads eventually to a larger correction is uncertain, but as with gold, once things drop into a downtrend, rallies get sold, and the longer the downtrend remains in place, the higher the selling pressure becomes.

Summary

If you take all the charts above, minus SPX, you start to see a pattern.  Something disagreeable happened in summer 2014 - you can trace the trouble in most of the charts above back to that date.  What's more, we're not seeing any signs that the trouble is coming to an end.  The more things we look at, the more confirmation we have that the current direction remains down.  If history is any guide, a breakout in the buck might well kick off yet another strong move lower in the commodity complex.

If you look a bit further back into the past, many of the charts topped around the same time too.  GCC peaked in April 2011, gold peaked in June 2011, silver peaked in March 2011, copper in Feb 2011, palladium in Feb 2011 too...and the buck made an interim low April-May 2011.

You can see that all these things tend to move either in loose synchrony, or in opposition.  Each chart is a small bit of evidence - taken together, the overall pattern forms a pretty clear picture.

 

The patient, long term trader will wait for the SAR to reverse, perhaps using a 9 EMA crossing as an early guide.  And even then, it could be a headfake, since we've seen a number of those during the long downturn that started in 2011, so the long term trader might want to wait for several items to confirm the reversal prior to going all-in - and then stop himself out if there is a fall back through the 9 EMA.  The concept is, avoid the the bulk of the losses from a continuing downtrend while remaining ready to take advantage of a true trend change.

Martin Armstrong provided his end of year closing numbers: gold avoided a drop through 1044 which means gold is neutral for 2016, and oil avoided dropping through 35 - which Armstrong interprets as a potential sign of war in the middle east, but also neutral for oil.  After all, if those SCUD missiles launched at the Saudi oil terminals start to get through, oil could jump $10 in a hurry.  Armstrong says that the Dow closing below last year's closing level suggests more lows for 2016, but also projects a sharper "phase transition" (extreme rally) for the 2017-2020 period, as money flees public (treasury) and moves into private.

Those of us without Armstrong's computer can still just look at the trend.  For PM, and commodities, it is currently down - our simple indicators of the monthly 9 EMA and the monthly SAR show this clearly.  Until this changes, we should expect lower prices ahead.  That's where the momentum is carrying things, and sometimes prices sink lower than one might have thought possible just four short years ago.

I'd say "happy new year" but I'm talking to a bunch of goldbugs, so - no promises!

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20 Comments

KennethPollinger's picture
KennethPollinger
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Thanks Dave

Great analyses throughout the FULL year.  Well done!!!  I've learned much from you and really want to thank you for that.  Now, just send me the bottom, please.   Just kidding.  Ken

str8flexed's picture
str8flexed
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using this to DCA

although I hate to hear about lower prices and seeing a loss in terms of FRN's, looking at 2016 to make some positive moves in DCA my purchases.

Penny551's picture
Penny551
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DCA / Premiums / Delays

For longer-term stackers, I think a regimented DCA strategy is the way forward because even if PM prices continue down, premiums (& delays) will likely rise by an almost equal (or greater) amount.  At this point, I think a $2 move down in AG would prob result in premiums rising by about $2 accompanied by delays and availability issues.  

Also, there's the real possibility of a sudden "reset" of price upwards which could potentially burn those delaying purchases until the trend reverses.  The list of potential black swans that could precipitate a large gap up in price is growing exponentially. 

Dave, I second KP's comments; I've been learning a lot from your commentary this year.  Thx again for all the hard work!

davefairtex's picture
davefairtex
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HAA premium charts

So here are some premium charts for gold and silver at HAA that I've been tracking since August.

Gold Eagles appear to have somewhat elevated premiums, but the big bar premiums have not moved.  They may be a bit lower, if anything.

Silver eagle premiums have been all over the map, but are "only" 23% right now.  You can see the silver big bar premiums haven't moved much at all - perhaps they are slightly lower too.

Penny551's picture
Penny551
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Data

Is there any data that you do not track and chart?    lol

davefairtex's picture
davefairtex
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what happened mid-2014?

I think DCA (dollar cost averaging) is a pretty decent strategy, especially at these price levels.  I honestly don't think you can go too far wrong buying below cost of production.  Just realize the price could continue to drop from here for a while longer.

My main unresolved issue from my end of year post is this: what the heck happened in mid-2014 that ended up tipping the whole thing over?  Dollar up, oil and literally everything else down?  The price moves are super clear.  Something important happened.  What was it?  Its hard for me to remember that far back!  I am too focused on daily charts!

Anyone have any thoughts?

If we don't know what caused it to tip over, then it could be challenging to figure out when the beatings might stop.

Arthur Robey's picture
Arthur Robey
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A plan.

Imagine if Karen Hudes and Isaac Asimov  are correct and all the gold that has ever been mined is still in existence somewhere. Imagine that it is a truly humongous heap. And it is being dribbled out to suppress the price. No matter how much gold is bought there is still more.

Imagine too that the end goal is to have a single world gold foil note protected in plastic,  the Aurum. Would it not serve the formulators of this plan let all the gold out into the wild so that market forces would set the value of the gold.  

Then the PTB could recall the gold, turn it into foil notes and return it to it's owners. 

Arthur Robey's picture
Arthur Robey
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Max and Egon von Greyerz

Max and Egon von Greyerz discuss gold, currency and the economy. 

 

This may shed some light. I got little out of it that shed any light on why PM's are still cheap.
I'm sticking to the idea above.

KugsCheese's picture
KugsCheese
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Arthur Robey wrote: Max and
Arthur Robey wrote:

Max and Egon von Greyerz discuss gold, currency and the economy. 

 

This may shed some light. I got little out of it that shed any light on why PM's are still cheap. I'm sticking to the idea above.

Great discussion.  Thanks Arthur!

CrLaan's picture
CrLaan
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Thoughts

http://fofoa.blogspot.be  (another, foa)

davefairtex's picture
davefairtex
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Shanghai market off -7% to start 2016; trading halted

Now that's something sure to chill a long-positioned trader's bones: the words "trading halted."  No way to get out.  Lots of reasons this happened, some listed below.  There may be other reasons, not listed.

This will probably echo through the rest of the worldwide equity markets.  US futures are currently off 1%.

http://www.reuters.com/article/us-china-stocks-trading-halt-idUSKBN0UI0CU20160104

A private survey early in the day showed China's factory activity contracted for the 10th straight month in December, and at a sharper pace than in November.

An official survey on Friday, which focuses on larger, state-owned firms, showed a fifth month of contraction, though a pick-up in the services sector could cushion the impact on the broader economy.

Investors also dumped stocks ahead of the imminent expiration of a share sales ban on listed companies' major shareholders, which had been imposed during the market crash last summer.

"The slump apparently triggered intensified selling, while the triggering of the circuit breaker seems to have heightened panic, as liquidity was suddenly gone and this is something no one has experienced before," said Gu Yongtao, strategist at Cinda Securities

"It was a stampede.”

cmartenson's picture
cmartenson
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Rough start for equities

You know, we saw this pattern in 2007 as well...declining volume on a pathetic rise into the very last dregs of the year and then a big sell-off in January to start the year.

So an inauspicious start for equities across the globe.

Time to watch the edges of the bond market for real signs of distress...if confirmed, then the deflationary wave that began in commodities might be finally making its way to the much larger and more important (to the financial world) equity and bond markets.

Once the deflationary wave gets rolling, look to below!  Everything will get smacked.  Volatility will spike.  Confusion will reign.  

Then the Fed, et al., will panic and we'll get another round of jawboning, easing, and money printing.  

hugho's picture
hugho
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No safe havens

Thank you Dave.  You and Chris are almost certainly correct. All of us need to step back and stop concentrating on trees(graphs, ratios, cost of production, moving averages etc). I think we have structural failure in most markets. Many are rigged in one way or another as many have stated. The banks are the dominant force in the world economy and the central banks are nothing more than bank cartels. The money supply is controlled by commercial banks and debt issuance is out of control. Without inflation and economic growth, debt cannot be adequately serviced.

You cannot have infinite growth on a finite planet and whether that growth is economic, or population, or pollution growth, you will eventually hit a wall. It is clear to me that we are approaching that wall  and the societal and political instability  evident worldwide is part and parcel of this structural failure of markets and capitalism in general. Capitalism is no longer  a reliable system that can determine the value  of anything, whether a commodity, or a business because it is now crony capitalism.  The banks and the central bank polices have destroyed our markets. There is no way to know how a particular commodity will fare  in worldwide structural instability. Step back from those trees  and look at the forest. It is a forest in peril.

davefairtex's picture
davefairtex
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reversal numbers for monthly SAR

Here are the price levels [and the current price] which would cause the monthly SAR to reverse into an uptrend:

  • gold: 1191.70 [1074.60]
  • silver: 16.37 [13.86]
  • crude: 54.62 [36.71]
  • SPX: 2116 [1999.43]
  • copper: 2.66 [2.08]
  • natgas: 3.36 [2.35]

Gold really seems to be getting a safe haven bid today.  Silver, not so much.

Most of these things have a whole lot of work ahead of them to even start hinting at a possible long term trend reversal.

Jim H's picture
Jim H
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HughO...

I agree with most of what you say, but be careful not to throw out the baby with the bathwater, so to speak;

  Capitalism is no longer  a reliable system that can determine the value  of anything

What we have now bears little resemblance to capitalism.  

Mark Cochrane's picture
Mark Cochrane
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Place your bets...

Gee, what is the chance that the S&P will be allowed to finish the day below 2000? Currently 1998.

davefairtex's picture
davefairtex
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another waypoint

Mark-

Gee, what is the chance that the S&P will be allowed to finish the day below 2000? Currently 1998.

Those who imagine that some all-powerful external force controls prices should think twice about trading based on that belief system.  It is a form of "target fixation."  Its a lot safer to just watch prices, avoid preconceptions, and you will be a lot better able to read what's actually happening.

Take today, for instance.  While you are eyeing the close and thinking about the all-powerful "they" controlling everything, you may well not have noticed that DJIA just made a lower low, and so did SPX, and so did NDX.  That's in the can.

In other words, today is another waypoint for the equity market downtrend, regardless of where we close.

I believe if the SSEC doesn't get successfully levitated by the Chinese government tomorrow, all bets really are off.  We broke support today, and on the chart there is a vast air pocket underneath the market.  We've seen three lower highs and three lower lows in the past two months, right after failing to make a new high after a long multi-month rally.  What does that mean?

Bulls are extremely nervous right now.  We could drop 50-100 SPX points tomorrow if we get some "unpleasant" price action in China.  Round number 2000 simply won't matter.  Close today won't matter.  Futures markets will drop 50 points and the selling will be massive at the open.

Not saying this will happen, but only that it might.  The setup is there.  And where we close today won't affect that setup in the slightest.  It is simply irrelevant.

Any anyone trading on this, going long because they assume the Fed will be able to levitate the markets "as they always have done", could be setting themselves up for a colossal loss tomorrow.

Seriously.  Be careful out there.  We are at a very sensitive juncture.

Mark Cochrane's picture
Mark Cochrane
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Doing or trying

Dave,

I get the point about governments, even the all powerful FED, getting steamrollered if things go seriously wrong but in your post you say:

I believe if the SSEC doesn't get successfully levitated by the Chinese government tomorrow, all bets really are off.

which seems to indicate that they (governments) sure try to have an effect. The Chinese have been more hamhanded about it but I doubt any of the big governments aren't monkeying with their systems to try to tailor desired impressions. They are NOT all powerful but hubris isn't in great supply either. What are the chances for coordinated efforts by central banks overnight to 'try' to stabilize things again? Would rising futures be potentially indicative of such actions?

With the new Chinese 'circuit breaker' policy in place though perhaps no one wants to meddle given the uncertainty of the outcomes. The 7% circuit breaker level seems to be a goal post now, any one who wants out will have to get out earlier or risk being trapped while the shorts will want to reach 7% so they are safe from late day market rallies. Will the government start putting the short sellers up against the wall and shooting them?

Interesting to see what tomorrow brings.

Mark

 

Michael_Rudmin's picture
Michael_Rudmin
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so... my conclusion too. But what to do?

In the end, I am convinced there will come a day of freedom, just as it was in the invasion of Rome by the Vandals. Moreover, as in the movie Sparticus, it is a mistake to move to force one's freedom too soon. The day it can't not happen is the day of freedom. One day before is a day too soon.

However, the question remains: until then, what?

davefairtex's picture
davefairtex
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Posts: 5065
remaining humble

I guess my primary point is to encourage everyone to remain humble and not assume you "know what will happen."  A humble mental state will help you to more clearly see what's happening rather than filtering the price data through the lens of your favorite story.

Channeling folks like Zero Hedge may be fun, it may give you the happy feeling you know what's really going on, but from a trading standpoint, if you have that (relatively arrogant) mental attitude, that way lies disaster.

"Market can't possibly crash - Fed is in control - see the market closed above 2000, therefore they can set prices to anything they want."

Given the evidence - perhaps you recall a mini-crash that happened in August 2015? - buy the dip will work right up until it stops working.  Everyone who thought they knew the "real score" will be shocked into silence, those who followed arrogance right off the cliff will lose lots of money, and we will hear no more about the Fed controlling the markets - right up until the next uptrend, of course.

Of course the gang in charge are using varying amounts of effort to keep prices elevated.  However, it is arrogance to imagine that these efforts will always bear fruit, and/or have the desired effect.  Market is a complex system, and is larger than any single player.

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