PM End of Week Market Commentary - 1/8/2016

davefairtex
By davefairtex on Sat, Jan 9, 2016 - 9:28am

On Friday, gold fell -4.60 [-0.41%] to 1104.10 on heavy volume, while silver was crushed, losing -0.38 [-2.66%] to 13.93 also on heavy volume.  Once again silver looked weak while gold managed to find a bid.

On the week, gold rose +43.60 [+4.11%], silver rose +0.10 [+0.72%], GDX climbed +5.83% and GDXJ was up +4.42%.  Platinum fell -1.42%, while palladium dropped a massive -12.17%.  Plummeting oil and commodity prices put a drag on silver, while gold seemed to attract a relatively solid safe haven flow.

On the daily chart, gold confirmed the double-bottom with a close above 1088 as well as a close above the 50 MA.  On the weekly chart, gold printed a weekly swing low.  These are all bullish signs.  Next steps for gold are a close above the 200 MA at 1140, and the weekly downtrend line at 1155.  Closing above the weekly downtrend line will take gold out of its longer-term downtrend.  Computer model remains long gold.

For gold to move into a medium term uptrend, it really needs a close above the previous high at 1190.

Silver managed to rally up to the 50 MA, whereupon it met resistance and then sold off the next day, printing a bearish engulfing candle pattern.  Silver continues to look much weaker than gold, and is now back below its 9 EMA too.  This has pushed the gold/silver ratio to 79.29, a level seen briefly at the end of August 2015 and during the 2008 market crash.

Miners

The senior miners broke smartly above the 50 MA this week, then broke above the previous high of 14.75.  On Friday, when silver suffered its big loss, the miners retreated but found support at the 9 EMA.  This is all well within the typical pattern of a rally; in spite of the drop on Friday, miners continue to get a bid printing a relatively healthy-looking doji candle to end the week.  Computer model is still long, but wavering due to Friday's drop.

The USD

This week, the buck printed a swing high, falling -0.15 to 98.60 with a particularly large drop on Thursday.  The buck ended the week below its 9 EMA and 50 MA, which is bearish.  Still, the buck has yet to break its uptrend line, and until it does, it remains in an uptrend.  Computer model is short the buck.

US Equities/SPX

SPX started the new year with a horrid sell-off, dropping -121.91 [-5.96%] to close at 1922.03.  SPX is now apparently heading for a re-test of its September 2015 low of 1872.  VIX rose +8.80 to 27.01.  Computer model remains short equities.

In spite of the drop, the overall US market actually performed the best of the regions this week.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
United States VTI -6.07% -7.28% falling falling falling falling ema9 on 2015-12-31 2016-01-08
Eurozone EZU -6.28% -7.34% falling falling falling falling ema9 on 2015-12-31 2016-01-08
Europe IEV -6.46% -9.85% falling falling falling falling ema9 on 2015-12-31 2016-01-08
Developed Asia VPL -6.51% -6.64% falling falling falling falling ema9 on 2015-12-31 2016-01-08
Emerging Asia GMF -8.02% -19.49% falling falling falling falling ema9 on 2015-12-30 2016-01-08
Latin America ILF -8.73% -39.14% falling falling falling falling ema9 on 2015-12-17 2016-01-08

Gold in Other Currencies

Gold jumped higher in every currency, performing especially well in Rubles [+141] and BRL [+111].  Gold in XDR was up +41 which says that gold's move was not just a currency effect but a real rally.


 

Rates & Commodities

Bonds (TLT) rose +2.31% this week, rising due to the move lower in equities, moving to the higher end of its recent trading range.  Bonds do not seem to be receiving much benefit from the money fleeing equities; they are rising, but not to the extent I would have expected given this sort of drop.

JNK fell -1.27%, once again falling below the 9 EMA and apparently heading back to a test of the prior low set back in mid-December.  JNK continues to look quite weak.

The CRB (commodity index) fell -4.36%, setting a new low and erasing the recent commodity dead-cat-bounce.  The new year may have brought higher gold prices, but commodities have yet to benefit.  Bad news from China = bad news for commodities overall.

WTIC suffered heavy losses this week, dropping -4.19 [-11.30%] to 32.88, dropping below the 2009 crash lows.  There is zero good news for oil right now - not in the news, and not on the price charts.  Last week's brief move above the 9 EMA lasted only three days.  Computer model remains short oil.

Physical Supply Indicators

* Shanghai premiums for the Au9999 contract were +6.79 vs COMEX.

* The GLD ETF tonnage on hand rose +7.22 tons, with 649.59 tons remaining.

* Gold moved out of backwardation, with the spread in the first two contracts now at +0.20.

* ETF Premium/Discount to NAV; gold closing of 1103.80 and silver 13.94.

 PHYS 9.06 -0.65% to NAV [down]
 PSLV 5.35 -0.22% to NAV [up]
 CEF 10.46 -9.63% to NAV [up]

ETF premiums were mostly higher.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no particular premiums for gold and a 1% premium for silver.

* HAA big bar premiums are slightly lower for gold [2.03% for 100 oz bars in NYC], lower for silver [3.77% for 1000 oz bars in NYC].  Silver Eagle premiums fell [21.44% in NYC].

Futures Positioning

COT report covers trading up through January 5, prior to gold's breakout.

During the coverage period, gold commercials closed -6.5k shorts and also sold -3.6k longs leaving the net position relatively unchanged - and still bullish.  Managed Money closed -4.4k shorts, which changes the net position relatively little there as well.  Both remain bullish - there are a lot of managed money shorts to cover, and the commercials have a very low short position, both of which continues to signal a low for gold.

Silver is mostly unchanged, with commercials adding 1.5k longs, and managed money closing -1.1k longs and adding +1.6k shorts.  Silver remains relatively bullish, but not as bullish as gold.

Basically - no major changes in COT positioning as of Tuesday evening.  My guess is, we'll see some larger changes next week after gold's big move higher.

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

There is a really clear division between gold and the miners who are now above both the 9 EMA and 50 MA, versus silver and platinum, who are not.  This suggests a safe haven move to me.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 5.83% -26.63% rising falling falling falling ma50 on 2016-01-06 2016-01-08
Junior Miners GDXJ 4.42% -23.78% rising falling falling falling ema9 on 2016-01-04 2016-01-08
Gold COMEX.Gold 3.61% -9.10% rising falling falling falling ma50 on 2016-01-06 2016-01-08
Silver COMEX.Silver 1.16% -14.98% falling falling falling falling ema9 on 2016-01-08 2016-01-08
Silver Miners SIL 1.03% -36.20% falling falling falling falling ema9 on 2016-01-08 2016-01-08
Platinum COMEX.Platinum -1.31% -27.97% falling falling falling falling ema9 on 2016-01-08 2016-01-08

Gold Manipulation Report

On Friday, there were a total of 2 down-spikes in silver for a total loss of 0.15, with the largest spike happening at 02:07 Eastern.  In fact, half of silver's loss on Friday came during that one spike at 02:07.  Looks like someone wanted silver's price lower - there was no obvious support level that broke, at least not that I could see.

There were no spikes for gold this week.

Summary

Gold managed to rally this week, the move seemingly triggered by the selloff in Shanghai and the related drop in equity prices worldwide.  Commodities were not so fortunate; given the bad news from China, commodities and oil both fell hard.  Silver was stuck somewhere in the middle, basically going nowhere.

The gold/silver ratio rose a big +2.58 to 79.29, a huge move, bearish for PM, and is the highest weekly close for the ratio dating back to the 2008 crash.  This emphasizes how strongly silver is underperforming - or how well gold is doing, relatively speaking.   GDX:$GOLD moved higher, and is modestly bullish.  GDXJ:GDX fell, and looks slightly bearish.  There is no clear trend emerging from the ratios right now.

COT remains bullish for gold, and somewhat bullish for silver.

Gold and silver big-bar physical shortage indicators are a bit lower; in the west, ETF premiums were mixed, GLD tonnage rose, and gold moved out of backwardation at COMEX.  Big bar premiums for gold at HAA fell.  In Shanghai, premiums rose to $7 vs COMEX.  Perhaps higher prices helped premiums to fall.  Premiums say there is no big bar shortage at the moment.

The picture I see is a gold safe haven move, amplified by the overweighted managed money COMEX short positions.  My sense is, when gold starts to get a bid, the short covering from managed money tends to boost the price moves and at the same time, the commercials have no incentive to cap the gold gains.  Silver isn't so fortunate; falling commodity prices weaken the bid for silver at COMEX, and managed money still has a large long position that might tempt the commercials to run the stops.   Meanwhile, miners continue to get a bid because they are dreadfully undervalued relative to the price of gold (see HUI:GOLD ratio, down by a factor of 5 since 2008).

So where to from here?  I think gold can continue to rally - especially if Shanghai (and the worldwide equity markets) continue to move lower.  Silver's fate probably depends on what happens to oil which so far at least, hasn't managed to find a low.

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8 Comments

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
Brent Oil In 'Today's Markets' Problem

Please remove this graph as it hasn't updated for weeks.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
Brent Oil In 'Today's Markets' Problem - Duplicate

Duplicate.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
"Meanwhile, miners continue

"Meanwhile, miners continue to get a bid because they are dreadfully undervalued relative to the price of gold (see HUI:GOLD ratio, down by a factor of 5 since 2008)."

For the miners I look at they either have no profits or are overvalued vs earnings.  Do gold stocks tend to trade at higher P/E multiple because of shiny metal?  If gold price increases 50%, can we expects miners earnings to materially increase?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
no profits

So right now the miners are barely staying afloat - at current gold prices.  Profits should dramatically increase if gold price increases.

Gold miners have done a poor job of managing costs for a while.  They paid too much for acquisitions, they weren't so well managed, they basically got sloppy because they had an easy life after the 11 year bull market.  Now after the "four years of lean" they've improved.  Everyone thought most of them would go under with prices this low, but so far they've been able to stay afloat.  The drop in oil prices has helped from the expense side too.

Here's a website that lets you forecast company earnings by changing assumptions.  This link points at SLW, a silver streaming company.  Click on each revenue source (mine) and drag the silver price up to $50/oz to see how it affects net income.  With silver at $50/oz, net income triples, so the current P/E of 30 turns into a P/E of 10.

http://www.trefis.com/stock/slw/model/trefis?easyAccessToken=PROVIDER_7dd7a29579af2a79a590e35d77c19c0123af74c3&from=search

M-ole's picture
M-ole
Status: Member (Offline)
Joined: Sep 10 2009
Posts: 15
Re: No Profits

I found this article on the miners very revealing (which is making me think that trading them on price improvements is a better strategy than holding them as a leverage on the price of gold) -

https://srsroccoreport.com/gold-undervalued-due-to-massive-stock-dilutio...

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
Gold vs. Oil

Interesting chart posted on KWN today - Gold vs Oil hitting a 70 year high.. must mean something;

http://kingworldnews.com/the-gold-market-has-just-experienced-a-stunning...

70-Year Breakout In Gold vs Oil Ratio!

KWN I 1:11:2016

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
gold/oil ratio

JimH-

I've been watching that for a while now.  I think that particular ratio might be an artifact of storage costs and/or limited storage space for our Master Resource.  If it were easy & cheap to store oil, I suspect oil prices would not have dropped quite so low.

reflector's picture
reflector
Status: Gold Member (Offline)
Joined: Aug 20 2011
Posts: 279
gold/oil ratio broken
Jim H wrote:

Interesting chart posted on KWN today - Gold vs Oil hitting a 70 year high.. must mean something;

yes, it does jim.

i think most PPers know what it means: the flood of cheap credit has caused mal-investment in the energy sector, bringing much more to market than what was needed, just as recession was setting in.

in other words, oil is now extraordinarily cheap.

belangp did an excellent commentary recently on how the gold-oil-ratio (GOR) as a signal is temporarily broken:

 

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