PM End of Week Market Commentary - 1/29/2016

davefairtex
By davefairtex on Sat, Jan 30, 2016 - 5:08am

On Friday, gold rose +2.80 to 1118.40 on moderate volume, and silver was up +0.02 to 14.26 on moderately light volume.  Today was all about the BOJ's decision to charge banks money for excess reserves - a negative rate policy.  Pretty much everything rallied as a result.

Gold did very well, managing to put in a positive day when the dollar rose +1.03.  In point of fact, on Friday literally everything rallied.  Why wouldn't it?  Those Japanese banks have to put that money somewhere.  Markets are moving in anticipation of the steady flow of capital from Japan's Excess Reserves into "everywhere else."  Think about it: if you were a bank, pretty much anywhere that didn't end up charging you money would look better than the BOJ.

On the week, gold rose +20.20 [+1.84%], silver climbed +0.23 [+1.68%], GDX went up 9.06%, and GDXJ rose +7.85%.  Platinum was up +4.81% and palladium rose +0.62%, while copper climbed +2.62%.  It was a good week for the metals, commodities, bonds - for everything really.

This week gold continued to rally, breaking out above resistance at 1113, then retracing back to the point of the breakout, finding support at the 9 EMA.  Both the breakout and the retracement were relatively mild, but the whole operation allowed gold to rise without becoming overbought.  Gold remains above both the 9 EMA and the 50 MA; next target is the 200, which is currently at 1132.84.  Things look pretty good right now for gold.  If it can break above that 200 MA, things will look even better.

Silver followed gold higher, breaking above its previous high, but some crazy shenanigans with the London silver fix caused silver to be hit hard, dragging prices down to silver's uptrend line.  The uptrend line held, and silver did manage to close just at the 9 EMA, but the whole event left silver's chart looking a whole lot less positive than gold's chart.  Still, silver is in a (short term) uptrend, and that's good news.

Longer term, the best I could say is that silver is bumping along the bottom.  The weekly chart shows silver possibly scooping out a saucer-shaped low right around 14, while the monthly has silver just barely above the low set last month, and its downtrend line unbroken since the high in 2011.  Once that downtrend snaps, silver's rise could be astonishing - silver has crazy moves once it gets a bid.

Miners

Miners had all good news this week, with GDX rallying up through both the 9 EMA and the 50 MA.  Currently, GDX is consolidating above the 50, which is a bullish sign.  The forced selling the miners endured several weeks ago is a distant memory.  The GDX:$GOLD ratio is looking a lot more healthy - it isn't bullish just yet, but it will be next week if the trend continues.

The USD

For the first four days this week, the buck fell, dropping through its 9 and 50 MAs, and it looked for sure as though it would enter a downtrend.  Then came Friday, and the BOJ's decision to charge money for excess reserves.  On Friday alone the buck rose +1.03 to 99.65, wiping out the losses of the week and dragging the buck back into an uptrend.

The fun chart is the dollar-yen daily chart: it shows the yen dropping 2% in one day.  The longer term chart shows a low of 80 for dollar-yen last year, and a steady rise to 86 since then.  Apparently, BOJ doesn't like the strengthening yen, and so this is what they do: encourage Yen to leave the country.  "Your Yen are not welcome at the BOJ, go find another home."

US Equities/SPX

Monday-Thursday, SPX chopped sideways; it was unable to close convincingly above the 9 EMA, and I thought it was more likely than not we'd see lower prices in the near future.  Then came Friday and the BOJ action.  If you are a Japanese bank, would you rather own a dividend paying US stock (say, a utility ETF yielding 3.67%) or would you rather be charged -0.10% on reserves deposited with the BOJ?

So with the market leaning short after four days of bearish-looking chop, the surprise BOJ action caused a massive short covering rally on Friday, with SPX climbing +46.88 [+2.48%] to 1940.24.  This break above the recent trading range printed a clear swing low on the weekly chart.  VIX fell -2.14 to 20.20.  My guess is, the move higher in SPX will be driven by both short covering as well as capital flows from Japan to the US.  Once that surge dries up, SPX will probably continue moving lower once again.  It remains in a longer term downtrend.

If you expect prices in the market to reflect just your domestic understanding about price/earnings ratios, this sort of thing doesn't make sense.  The markets are global markets - capital flows both in reaction to, and in anticipation of events.  What looks ridiculous to you may make perfect sense to someone in another country having to deal with a very different set of circumstances.

Armstrong often talks about the currency effects on the 1987 crash.  Paraphrased, he said, the Japanese put lots of money into the US economy back in 1987.  Then the US authorities said they wanted to devalue the dollar by 40%.  If you were Japanese, and you heard this message: "you will lose 40% on all your US assets", what would you do?  SELL!  And they did.  Anticipation of a currency move caused the '87 crash.  If you are to make sense of price movements, you must consider prices in the context of both domestic economic activity as well as international capital flows.

Here are how the sectors did this week.  See if you can determine a pattern here.  In a bull market, you'd be seeing financials, tech, and consumer discretionary leading.  This week we see miners, energy, and utilities.  Does this confirm the thesis on capital flows searching for yield alongside a relief rally in energy?  I think it does.  When XLU is up +3.70% and homebuilders are up +0.89%, that's not a bull move.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 9.06% -34.18% rising rising falling rising ma50 on 2016-01-26 2016-01-29
Energy XLE 4.43% -21.75% rising falling falling falling ema9 on 2016-01-26 2016-01-29
Utilities XLU 3.70% -7.34% rising rising rising rising ema9 on 2016-01-22 2016-01-29
Cons Staples XLP 2.98% 4.44% rising rising rising rising ma50 on 2016-01-28 2016-01-29
Industrials XLI 2.78% -9.47% rising falling falling falling ema9 on 2016-01-29 2016-01-29
Technology XLK 2.13% 2.49% rising falling falling falling ema9 on 2016-01-28 2016-01-29
Financials XLF 2.07% -6.78% rising falling falling falling ema9 on 2016-01-29 2016-01-29
Cons Discretionary XLY 1.09% 5.09% rising falling falling falling ema9 on 2016-01-28 2016-01-29
Homebuilders XHB 0.89% -12.73% rising falling falling falling ema9 on 2016-01-29 2016-01-29
Materials XLB 0.68% -18.72% rising falling falling falling ema9 on 2016-01-29 2016-01-29
Telecom XTL 0.32% -10.47% rising falling falling falling ema9 on 2016-01-29 2016-01-29
REIT RWR 0.31% -10.76% rising falling falling rising ema9 on 2016-01-29 2016-01-29
Healthcare XLV -2.03% -5.27% falling falling falling falling ema9 on 2016-01-27 2016-01-29

Gold in Other Currencies

Gold rose in every currency this week except the Ruble - which screamed higher because of the rebound in oil prices.  Gold in XDR was up +16.  You can see gold ticking higher in almost every currency, dating back to the beginning of the year.

Rates & Commodities

Bonds (TLT) rose this week, climbing +1.56% and making a new closing cycle high just on Friday.  Before the BOJ action, bonds looked like they might be topping out, but on Friday bonds broke to new highs, invalidating the swing low from last week.

JNK closed up +0.76% this week, printing a weekly swing low.  This looks good on the chart, and most likely the improving commodity prices are helping.  JNK still remains in a downtrend in spite of this happy price action, and the likely outcome is for this rally to be sold.

The CRB (commodity index) rose +1.80% on the week, printing a weekly swing low. Of course, we've seen this happen three or four times during the downtrend that started in mid-2014, and nothing came of it, so I'm just cautiously hopeful.  Copper is back over $2, which is a good sign, but any real trend change in commodities is still in the early days.  Modestly, cautiously positive.

WTIC built on last week's rally, closing up +1.49 [+4.62%] to 33.74, printing a weekly swing low for oil.  We saw one of those back in August, which eventually failed, so that's not a guarantee.  But it is a positive sign, and it suggests we could see continued upward momentum for a while.  The current hopeful rumor is that Russia will cooperate with OPEC to throttle back production to eliminate the 2 mbpd surplus.

Physical Supply Indicators

* Shanghai premiums for the Au9999 contract rose +0.52 to +2.74 vs COMEX.

* The GLD ETF tonnage on hand rose +5.06 tons, with 669.23 tons remaining.

* Gold is no longer in backwardation, with the spread in the first two contracts now at +0.10.

* ETF Premium/Discount to NAV; gold closing of 1117.90 and silver 14.26.

 PHYS 9.15 % to NAV [down]
 PSLV 5.47 -0.23% to NAV [up]
 CEF 10.73 -8.80% to NAV [up]
 GTU 39.42 -2.99% to NAV [down]

ETF premiums were mixed; CEF had a 2% drop in premium.

* 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 higher for gold [2.32% for 100 oz bars in NYC], higher for silver [4.02% for 1000 oz bars in NYC].  Silver Eagle premiums rose [20.59% in NYC].

Futures Positioning

COT report covers trading up through January 27th.  Some interesting things are happening in the reports this week.

During the coverage period, the gold commercials net position fell, but mostly because the commercials sold -25k long contracts - a huge change in just one week.  They also closed -5.7k shorts.  Commercials selling longs, especially in such size, is quite unusual at this point in the cycle.  What's more, commercials generally increase shorts as the gold price rises.  Managed Money net position increased; they bought +11.7k longs and closed -4.7k shorts.  This is a more normal result.

The commercials dropping gold longs AND shorts in this way definitely got my attention: is there less producer hedging at these low prices?  Are commercials bailing out of the COMEX casino before it burns down?  There are several interpretations we could put on it, but the selling is helping to cap the gold price.  But this time its not the much-talked-about naked short selling, its just the commercials leaving the market, both long and short.  I'd expect this sort of thing to happen prior to a COMEX default...not saying one is impending or anything, but the commercials are the insiders, and I'd definitely expect them to flee before it exploded.  I'm going to be watching this a whole lot more closely going forward.  This was a big change, a big unexpected change, and it doesn't make sense given where we are in the cycle.

Silver saw the commercials increased +5.8k shorts and sold -3.2k longs, while managed money closed a large -7.5k shorts.  Managed Money long positions haven't changed substantially in this cycle.  Unlike gold, silver looks more or less normal.  As I observed last week, all the crazy one-day 40-cent silver market spikes (both up, and down) since December have resulted in about 50% of the managed money shorts being closed out.  Another 50%, and silver will be at another bearish turning point - perhaps that's 3 weeks away at this rate?  Commercials have found a way to rinse managed money shorts out of the market without having the usual up-cycle.  Clever fellows, those commercials.

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

Miners joined in this week - they are back in the lead, and that's what we like to see in a bull market move for PM.  The only fly in the ointment is silver's performance; strange things are happening with silver right now - at COMEX, and at the LBMA.   Notice how the silver mining firms are actually doing great - this week anyways.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 12.49% -39.54% rising falling falling rising ema9 on 2016-01-26 2016-01-29
Senior Miners GDX 9.06% -34.18% rising rising falling rising ma50 on 2016-01-26 2016-01-29
Junior Miners GDXJ 7.85% -28.21% rising falling falling rising ma50 on 2016-01-29 2016-01-29
Platinum COMEX.Platinum 4.52% -31.09% rising rising falling rising ema9 on 2016-01-25 2016-01-29
Gold COMEX.Gold 1.83% -11.02% rising rising falling rising ema9 on 2016-01-15 2016-01-29
Silver COMEX.Silver 1.35% -21.32% rising rising falling rising ma50 on 2016-01-25 2016-01-29

Gold Manipulation Report

There was no meaningful "after-hours" spikes to report; one silver up-spike happened on Wednesday, which I believe is part of the commercial's campaign to hose the managed money shorts that we see playing out in the COT report.  The silver down-spike that happened at the LBMA happened during London trading time - it was quite impactful, but since it wasn't "after hours" (i.e. after US market close through to just before the London open) it isn't counted in the stats.

The silver down-spike was a big one - almost 40 cents - and it resulted in a definite weakening of PM prices for that day.  However, the daily chart shows just a mild sell-off for gold with a rally the next day, and even silver which was hit for 37 cents in one minute still managed to retain its uptrend on the daily chart.

Summary

Commodites, oil, and equities all confirmed last week's swing lows, printing weekly swing lows as a follow-on to last week's daily swing lows.  The surprise BOJ decision resulted in capital flight, which caused money to flee Japan for places that didn't look like a risk asset.  That meant gold, treasury bonds, and dividend paying stocks.

The gold/silver ratio rose slightly, up +0.13 to 78.46.  It remains bearish, bouncing around the 6-year high.  GDX:$GOLD has improved greatly, and is about to move back into bullish territory.   GDXJ:GDX is falling, and looks bearish.  Juniors haven't been doing all that well for the past five months.

COT remains bullish for gold, and still somewhat bullish for silver, with the silver position getting less bullish by the week.  Managed money silver positions continue to get rinsed by the large, market-moving intraday price spikes (presumably) executed by the commercials.  If you want to play with COMEX silver contracts, put a bid 30-40 cents under the market, and make sure to get out by end of day.  Just an idea.  If I were going to put a bunch of quotes around the word 'market', I'd apply it to COMEX silver.  It doesn't mean you can't make money, but it does mean you need to understand what game is being played.

Gold and silver big-bar physical shortage indicators are unchanged; 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 were slightly higher.  In Shanghai, premiums remained at $2 vs COMEX.  Supply doesn't look all that tight.

Gold's near-term chart looks increasingly positive; silver's near-term chart looks somewhat positive, and the miner near term chart looks downright optimistic.  Commodities are starting to rally led by oil, in spite of bad news from China, daily articles on deflation, commentator interviews on how the end of the world is nigh, how Iran will soon pump an extra million barrels per day, how we have the highest oil inventory levels since 1930, and so on.

How long will the capital flows from Japan last?  We have to watch prices - dollar/yen, SPX, and treasury bonds to get a sense.  Once those flows slow down and the short-covering starts to fade, I expect lower equity market prices.  It might even be a good time to enter short.

At this rate, gold continues to have a bid, so do the miners.  Even the retracements for gold look bullish.  If the commodities continue to rally, I think silver will probably catch up to gold - and given its track record, it could do this in a real hurry.  50 cents a day for a whole week would not surprise me.  Certainly the setup is there.  Will it happen next week?  I have no idea.  But it could.

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5 Comments

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
David Morgan on those crazy shenanigans.

I'm not the full bottle on how the wizard controls the price of Silver but as far as I can tell the lever just broke off in his hand. 

I note that hoarding gold and silver is a historical reaction to collapse. It is not clear to me that it is effective. 

 

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 922
What is meant by "broke off in his hand?"

Let me begin by saying that my PM of choice is Palladium, which is down 40% from when I bought it.

So there's no "my analysis is better than yours" to my statement, but...

I will not consider Silver to have broken until I see it leave the downward track caused during the last year and a half. Within that downward track, yes: it goes up and down.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Broke off in his hand.

Broke off in his hand is a metaphor alluding to the wizard in "Yellow Brick Road" which was itself a metaphor for the gold standard. (The yellow brick.)

Metaphors are a right brain phenomenon. I'm trying to encourage its use. The Right brain has been neglected since the Enlightenment. It's abandonment has had unfortunate consequences.

 

 

https://en.m.wikipedia.org/wiki/The_Master_and_His_Emissary

RoseHip's picture
RoseHip
Status: Silver Member (Offline)
Joined: Feb 5 2013
Posts: 150
A little homework

As I take notice of our friend Arthur his behavior has come into focus for many here. Which makes his most recent post really interesting as I have noticed his tendencies reflect the tin man from yellow brick road, he references. Which is also consistent with a high D, high C personality type. 

https://www.axiomsoftware.com/disc/interpretations/disc-interpretation-h...

And upon further review I also suspect the S is also fairly elevated in our complex friend.

https://www.axiomsoftware.com/disc/interpretations/disc-interpretation-h...

Which lends toward the ruling emotions being anger and fear, filtered by being non-emotional in stressful situations.

Here is some more reading.... http://www.discprofiles4u.com/blog/2012/disc-classic-profile-creative-pattern-5-of-16/

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Bingo

Anger and fear. Bingo.  Can't deny that Rosehip. Not that one should hijack a gold and silver analysis with the personality profile of a detail.  I am one of 9 billion souls on this planet. As are you. The issues at stake are far greater than you or me.

They are worth being angry about. They are worth being afraid of. If this  is not clear to you then you have misunderstood our situation. 

Men are expendable agents. Women are precious objects.

Karen Straghn, Girl writes what.

Your expendable agent,  Arthur 

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