PM Daily Market Commentary - 2/22/2016

By davefairtex on Tue, Feb 23, 2016 - 3:45am

Gold lost -17.70 to 1208.90 on moderately heavy volume, and silver fell -0.16 to 15.19 on heavy volume.  Gold sold off steadily from the open in Asia, while silver fell off a 30 cent cliff right around 8 am GMT.  Silver eventually recovered much of its losses, while gold did not.

Causes?  A strong move higher in the buck, money flowing into risk assets such as equities, and junk debt, as well a strong rally in oil.

While gold's move lower today was unpleasant, it still was able to close above its 9 EMA, and remains within the boundaries of a pennant chart pattern - which is generally seen as an indication of higher prices to come.  The 1200 support level looks to be key support, while a close above 1235 would signal a possible resumption of the uptrend.

Silver sold off hard just before the market opened in London; the move pushed silver below its 200 MA, and while it did manage to recover much of the losses by the end of the day in New York, the spike through the 200 MA definitely has me concerned.  It looks like the head & shoulders pattern is playing out, with the usual denouement being a drop through support.   Remember the COT report: commercials are starting to go heavily short right now.  Its just what they do at the top of the cycle.

Miners opened lower because of the sell-off in gold, but the market's reaction to the low opening was a burst of buying in the first half hour that shot miners back into the green.  GDX ended up closing +0.82% on moderate volume, while GDXJ fell -1.38% on moderate volume too.  The miner rally on a day when gold dropped $17 is nothing short of astonishing.  The bid under the mining shares is incredible.  Dips last for half an hour at this point.  Its a bit of a buying frenzy.  It looks like miners will continue moving higher as long as the 9 EMA support remains.

Platinum fell -1.15%, palladium dropped -0.58%, but copper rallied +1.73% to 2.12.  Hmm.  Copper rallied again?

Copper has been chugging steadily higher over the past month or so and may be preparing to execute a cup & handle breakout.  This would suggest increased economic activity - possibly that 500 billion dollars in Chinese credit growth in January will end up actually doing something.  All the news is pretty horrid these days, advisor sentiment is at extreme bearish ratings...from a contrarian point of view, its a time when a rally could show up.  While I'm fully prepared for the banking system to melt down, copper is giving us a different signal.  That's interesting.  Its comforting to read the stories that conform to our biases, but that also could result in us getting caught flat-footed.

We should not ignore what copper is saying.  If the breakout doesn't happen, its "back to your regularly scheduled meltdown."  If the breakout does happen...that means something may be up.

The buck rose a big +0.78 to 97.39, making a new high and pushing price above both the 9 EMA and the 200 MA.  Today, the story was about the GBP [-1.78%], and to a lesser degree, about the Euro [-0.91%].  Across the pond, it is looking more likely that the UK will leave the EU; UK PM Cameron was unable to secure enough concessions from Brussels to satisfy his allies, and several important Tories have stated they will work for BREXIT ("Vote Leave"):  The government is...shall we say, in a state of disarray.  Democracy is a messy business.

Mr Cameron on Monday answered questions in the Commons for three hours as he set out his case for remaining in the EU.

However, he then found himself in the unprecedented position of having his remarks immediately rebutted by a member of his own Cabinet.

Unprecedented indeed.  It is as if Sec State Kerry took pot-shots at Obama immediately following the State of the Union address.  I mean its not exactly like that - but its pretty close.  Interestingly enough, the FTSE (UK stock market) actually rallied on the news, up +1.47%.

SPX rallied alongside the rest of the world markets, climbing +27.72 [+1.45%] to 1945.50.  SPX may soon be testing its 50 MA, which happens to be right around the previous high at 1950.  A close above 1950 would be bullish for equities in the near term.  Leading sector today was energy, followed by cyclicals, materials, and industrials.  Banks did well too, with BKX up +2.14%.  It all looked relatively bullish.  VIX fell -1.15 to 19.38, the lowest level for VIX since early January, 2016.

JNK staged an impressive rally, up +0.99%.  Its moving strongly alongside oil, and it is also giving a clear risk on signal.  These price moves in JNK is why I say the whole debt crisis will be greatly ameliorated if oil prices manage to recover.

TLT dropped just -0.05%, a very modest drop given the strong move higher in equities.  It looks like foreign money is keeping TLT propped up - normally TLT would fall with such a large move higher in equities.

CRB rose +1.88%, climbing above its 9 EMA but otherwise still remaining within its "bumping along the bottom" recent trading range.  While copper is looking constructive, the overall commodity prices are not.  CRB chart still looks ill.

Stockcharts is having all sorts of trouble with WTIC and contract rolling, so I'm going to use the CLJ16 (March Crude) chart for now.  WTIC rose +1.39 [+4.35%] to 33.35, a nice move that brings oil ever closer to test its 50 MA.   Oil was not able to make a new high today, and its not quite clear if WTIC is in an uptrend just yet, but a close above that 50 MA (34.95) would change matters substantially.  Oil equities don't seem to be suffering any such doubts: XLE closed above its 50 MA today for the first time since late Nov 2015.

There is an interesting bifurcation happening in the oil space.  Oil majors (CVX, XOM, ENI, TOT) are all rallying strongly, while shale drillers (OAS, CLR) still look like beaten dogs.

I think something may be going on right now; copper is strengthening, so is oil, the buck, junk debt, bank stocks, and so is the US equity market.  It may not last, it may be just a dead cat bounce - and then again, maybe it isn't.  Atlanta Fed GDPNow has 1Q GDP at 2.6%.  That's not recessionary.

If the good news continues, and if gold drops through 1200, I think we probably see a fair amount of selling and a general gold correction.  How long the miners hold up under that circumstance ... I'm guessing they will, but its hard to know how long the new miner share owners will stick around if gold starts to retreat.

Right now, I think for gold, good news is bad news.  And I'm starting to worry there may be good news on the way.

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debu's picture
Status: Silver Member (Offline)
Joined: Aug 17 2009
Posts: 241
Trader Dan

Heaven forfend!  Dan Norcini actually has nice things to say about gold.

Should we be nervous?

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

Yeah, I saw that too, including his convoluted logic about why India was holding back purchases.  They are holding back purchases, but it's because many players are waiting in anticipation of a cut in the current Gold import duty (tax) rate, which of course is just another form of market manipulation;


Jewellers and retail consumers are delaying purchases in the hope prices will correct and that India will cut its import duty by 4 percentage points in this month's budget, said Sudheesh Nambiath, a senior analyst at consultancy Thomson Reuters GFMS.


davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5740
ah trader dan

Yeah, Dan got kicked off KWN for saying the unthinkable: "gold is dropping and its not because of manipulation, its because nobody in the west cares."  Or words to that effect.

Back then, after hearing him utter this heresy, goldbugs gasped in shock, grabbed their chests like Fred Sanford of old ("Its the big one Elizabeth, I'm comin' to join you honey"), and promptly sent nasty notes off to both him and (presumably) Eric King. :-)  Now, four years later, commentators come on PP podcasts and say the same thing, and nobody blinks.  Progress.

That's an amazing flow of gold into GLD.  Here's a chart: COMEX Gold vs GLD Tons (in red).  The curious bit is the last tick: the COMEX price dropped $20, but 20 tons went into GLD.  (After writing some code...)  That's happened only one other time: 2008-09-19, when GLD rose 24 tons and gold dropped $32.  Normally when GLD tonnage rises, price rises too - sometimes by quite a bit.

I really like divergences like this.  I think they signal that something interesting may be going on.  Will be interesting to see what happens today.  I think this is far more interesting than COMEX.  Perhaps we should start watching premiums on GLD...


bubbagreen's picture
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Joined: Jan 22 2016
Posts: 5
COT report timing


As always, thank you for your insights.  You continue to remind us of the commercials' short positions appearing in the COT report.  As I understand it, the concern is a sudden take-down of the PM price where the commercials take out the bid stack through a sudden bout of shorting.  I'm curious as to what degree you think that the commercials are bashful about their tactics appearing in the Friday COT report and if, based on that possible concern, that a take-down was more likely to occur after the Tuesday reporting deadline, so as to give the commercials more time to buy back their shorts after the take-down and before the next reporting deadline.  In short, for those of us who dabble in PM and miners, I'm wondering if we should be more concerned about a take-down towards the end of the week than the beginning of the week. 

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