PM Weekly Market Commentary - 4/8/2016

davefairtex
By davefairtex on Sun, Apr 10, 2016 - 10:55am

On Friday gold fell -1.90 to 1240.10 on moderately light volume, while silver rose +0.13 to 15.36  for -0.40 to 15.05 on moderate volume.  While gold struggled, silver popped back above its 50 MA, closing near the highs for the day.  Perhaps silver's rise was about oil, which had a big move higher - up +2.13 to 39.66.

This week, gold rose +16.50 [+1.35%], silver climbed +0.31 [+2.06%], GDX rose +6.56% and broke out to a new high, and GDXJ was up +7.25%, also breaking to a new high.  Platinum rose +0.89%, palladium fell -4.29%, and copper was down -3.83%.  It was a mixed bag in the metals: copper looks quite weak, while the mining shares did very well.  What does that all mean?  Let's go through the details and see if anything pops out.

Last week gold found support around the 1200-1210 range; this week gold rode 50 MA support higher, finally breaking above the downtrend line on Thursday.  Gold tried to sell off on Friday, but the dip down to the (former) downtrend line was bought.  Gold is now above its 9 EMA once again, and the MACD is approaching a possible bullish crossover.  Gold has the potential to break out to new highs, if the managed money longs can manage to overpower the commercial shorts.  If this happens, it would be a big deal.

Gold-in-Euros managed to close above its 9 EMA for the first time in six weeks, but ran into resistance at the 50.  Gold in Euros also looks like it is about to have a bullish MACD crossover.

After last Friday's big sell-off, silver tried to move lower, found support on the 200 MA for three days, then managed to break back above its 50 MA in addition to closing above its downtrend line.  Both are bullish - well - maybe momentum changed from bearish to neutral.  It looks as though silver was influenced (at least to some degree) by this week's rally in oil.

Miners

After a bad start on Monday, miners popped back above the 9 EMA and never looked back, gapping up above the downtrend line Thursday and scoring a new cycle high on Friday, closing quite near the highs.  Momentum indicator MACD executed a bullish crossover on Friday.  While volume is increasing to some degree, it remains a bit weak, especially compared to where things were in February and March.  Even so, miners appear to be leading us higher - you have to look pretty hard to find bad news in this sector.

The USD

The dollar crept slowly lower for most of the week, losing -0.37 [-0.39%] to 94.25.  The bulk of the losses came on Friday.  Still, the mover lower seems to be a slow motion affair; the candle prints over the past seven trading days have shown a high level of indecision, although with a relatively wide trading range.   The FOMC minutes release on Wednesday caused a flurry of activity, but no real lasting trend change.

When all is said and done, the buck remains in a clear downtrend, below all 3 moving averages and apparently headed (slowly) for "round number" 94 support.  Hints of a low last week simply didn't materialize.  A break of 94 could lead to a bigger move lower, which would help PM.

US Equities/SPX

US equities fell, losing -25.18 [-1.21%] to 2047.60.  SPX also executed a bearish MACD crossover at the beginning of the week, and finally printed a swing high on Thursday - with the high actually being marked last Friday.   VIX rose +2.26 to 15.36.

Energy and the miners managed to rally while the overall market fell.  Financials led the move lower, which is what you'd like to see if you are a bear.  Still, the drop remains quite new, with only a little more than half the sectors below their 9 EMAs.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 6.56% 13.38% rising rising rising rising ema9 on 2016-04-05 2016-04-08
Energy XLE 2.15% -21.83% rising rising falling rising ema9 on 2016-04-08 2016-04-08
Healthcare XLV 1.17% -5.56% rising rising falling rising ema9 on 2016-03-29 2016-04-08
Cons Staples XLP -0.39% 7.88% rising rising rising rising ema9 on 2016-04-08 2016-04-08
Homebuilders XHB -0.56% -6.92% rising rising falling rising ema9 on 2016-03-28 2016-04-08
REIT RWR -0.74% 2.09% rising rising rising rising ema9 on 2016-04-08 2016-04-08
Telecom XTL -1.43% -5.02% falling rising falling rising ema9 on 2016-04-07 2016-04-08
Materials XLB -1.59% -10.17% falling rising falling rising ema9 on 2016-04-07 2016-04-08
Technology XLK -1.81% 4.70% falling rising rising rising ema9 on 2016-04-07 2016-04-08
Industrials XLI -1.83% -2.62% falling rising falling rising ema9 on 2016-04-04 2016-04-08
Utilities XLU -1.93% 10.20% falling rising rising rising ema9 on 2016-04-05 2016-04-08
Cons Discretionary XLY -1.96% 1.91% falling rising falling rising ema9 on 2016-04-07 2016-04-08
Financials XLF -2.86% -9.07% falling rising falling rising ema9 on 2016-04-05 2016-04-08

Gold in Other Currencies

Gold rallied in every currency this week except the Yen; in XDR, gold was up +18.40.  What's up with JPY?  It screamed up +3.27%, breaking to new highs vs the USD.  Don't ask me what the story there is, I don't know.  All I can think of is a carry trade reversal.

Rates & Commodities

Bonds (TLT) moved higher, up +1.02%.  TLT has been in an uptrend for the past four weeks, and now appears to be supported by the fall in equity prices.  TLT is signaling risk off, and is quite close to its previous high set back in February.

JNK was flat this week, completely unchanged.  I attribute this to a pull higher from the strong rally in oil, alongside risk-off selling pressure from falling equity prices which left JNK unchanged.

The CRB (commodity index) rose +1.79%, moving back above its 9 EMA.  I'm not so sure about the sustainability of the CRB reversal, but it is a positive sign.  I need to see a few more days of this before I will feel comfortable - the big drop in copper this week suggests all is not well in commodity-land.

WTIC reversed course this week, rising +3.03 [+8.27%] to 39.66, regaining all of its losses from last week, printing a swing low, and closing back above its 9 EMA.  The reversal happened after a bullish-looking Petroleum Status report on Wednesday, which revealed a drop in inventories of -4.9 million barrels.  Volume on the up-days was massive.  I'm a buyer of this rebound; oil is rallying on good news, which is the second-best outcome.  (Rallying on bad news = even more bullish).  High volume suggests "they aren't playing around, either."

WTIC was unable to break above its 200 last time around; that looks to be key resistance this time also.  A close above the 200 could bring buyers out of the woodwork, perhaps like it did for gold.  Next week's Petroleum Status report may well be the key to how the drama ends up playing out.  Oil's rally does seem to have helped silver, at least to some degree.

Physical Supply Indicators

* Premiums in Shanghai rose to +3.68 vs COMEX.

* The GLD ETF tonnage on hand fell -0.28 tons, with 817.81 tons remaining.

* ETF Premium/Discount to NAV; gold closing of 1241.30 and silver 15.36.

 PHYS 10.21 -0.30% to NAV [down]
 PSLV 5.92 +0.53% to NAV [down]
 CEF 12.13 -5.50% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no particular sign of premium for gold or silver.

* HAA big bar premiums are higher for gold [3.73% for 100 oz bars in NYC], higher for silver [3.46% for 1000 oz bars in NYC].  Silver Eagle premiums fell [17.58% in NYC].

In a not-so-amusing event for holders of PSLV, Eric Sprott executed a secondary offering, which took the PSLV +5.95% premium and hammered it down to the current +0.53% overnight.   http://finance.yahoo.com/news/sprott-physical-silver-trust-prices-130917067.html.  Is there a shortage of big-bar silver?  You tell me.  Here's a chart that shows the change in premium (vs SLV).  Sucks if you bought PSLV Thursday at a +5% premium.  "Can't buy silver in size" though, right?

Futures Positioning

COT report covers trading up through April 5th.

Not much change for the positioning in gold; here's a chart that gives you a sense.  Gold commercials are still heavily net short, and that changed by just 719 contracts this week, which is a miniscule change.  Managed money is also heavily net long, and that changed by a tiny -1447 contracts.  COT continues to scream top, and gold just broke up above its downtrend line.  This will be resolved one way or the other, and relatively soon I think.

In silver, the commercials covered -4.8k shorts and added +3.6k longs; a fairly significant change.  Managed money didn't change much, adding just +1.8k shorts.  You can see in the net chart below that the commercials are still relatively heavily net short, and have a long way to go before they return to a bullish position - and yet silver is rallying.  Could managed money be right this time around?  If commercials start to cover during a rising price situation, that would be a very interesting development.

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

All PM elements are now back above their 9 EMAs, and platinum executed a golden cross.   Moving averages suggest that the PM correction may be over.  Juniors are up 29% over the last 52 weeks!

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 7.25% 29.34% rising rising rising rising ema9 on 2016-04-05 2016-04-08
Senior Miners GDX 6.56% 13.38% rising rising rising rising ema9 on 2016-04-05 2016-04-08
Silver Miners SIL 5.58% 9.16% rising rising rising rising ema9 on 2016-04-06 2016-04-08
Silver SI.CW 2.13% -5.01% rising rising falling rising ema9 on 2016-04-07 2016-04-08
Gold GC.CW 1.42% 3.97% rising rising rising rising ema9 on 2016-04-07 2016-04-08
Platinum PL.CW 0.89% -16.30% rising rising falling rising ema9 on 2016-04-07 2016-04-08

Gold Manipulation Report

There were no after hours spikes to report this week.

Summary

Commodities modestly reversed course this week, helped a great deal by oil, which made its low on the news of a drop in oil inventories at Cushing.  SPX looks to be tipping over and copper seems to confirm, as does TLT which is moving higher in a sign of risk off.  Within this relatively confused picture, PM has a reasonably strong bid, especially the miners - although even in PM, platinum was up only modestly, while palladium tanked hard.

The gold/silver ratio fell this week, down -0.57 to 80.74.  That's not exactly bullish, but it is an improvement.  The GDX:$GOLD ratio rocketed higher this week, and remains bullish.  The GDXJ:GDX ratio rose also, but not by much.  Money appears to be concentrating on the senior miners for now.

COT report for gold continues to show an almost historic bearish commercial short concentration, while silver is beginning to recover from its bearish positioning.

Gold and silver big-bar physical shortage indicators show no signs of shortage.

Its a messy picture again this week.  How can oil rally hard while copper moves the other direction almost as dramatically?  My guess: I think oil is a special case.  The current oil price is a "phantom menace" - besides being the worst movie of the Star Wars franchise, its also an "oil glut" creation of Saudi Arabia.  I believe that oil is simply recovering from an over-reaction off its lows, while copper is more the true indicator of where the global economy is headed.  The current 1Q US GDP estimate has dropped to an 0.4% growth rate, GAAP earnings for SP500 peaked back in 2015 and have been sinking every quarter, and the rest of the world doesn't look any better.

What's a "fair price" for oil in today's economy if Saudi Arabia wasn't playing games?  Well, my wild-assed guess is somewhere north of $60 - definitely lower than the prior $100, but way above the current $40.  If we keep getting inventory draws, we could move back there relatively quickly.  Of course, that's a big "if".

I think its pretty clear that a recessionary economy (hinted at by copper) won't result in rising rates by any central bank.  That puts the wind at gold's back worldwide.  If things continue to get worse and the Fed actually has to start considering dropping rates, gold could well just go nuts, in spite of all those commercial shorts.  That's what price action is telling me.

Miners have already broken out.  It could be they are the leading PM indicator we should be following.

So what does my computer say about the current trends?  This week, it says: long gold, silver, miners, and oil, short equities, copper, and USD.  That's not a prediction, it is just what the computer thinks is the current trend.  This helps me when things get confusing.

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10 Comments

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

What's up with JPY? It screamed up +3.27%, breaking to new highs vs the USD. Don't ask me what the story there is, I don't know.

According to Rickards, the Shanghai Accord = higher JPY, EUR and a lower USD, CNY going forward.  In effect, that devalues the CNY against their largest trading partners.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
PSLV

Yes it sucks that the market beats down PSLV whenever a new buy is announced.. but whatever.  The fact is, Sprott is going to be buying a little less than 10% of the yearly mine supply;

The Sprott Physical Silver Trust has announced a secondary offering to buy $75 million worth of silver

http://www.silverdoctors.com/silver/silver-news/sprott-scarfing-down-mor...

So, regardless of Dave's sarcasm;

"Can't buy silver in size" though, right?

We shall see what Sprott faces as he goes into the market, and we shall also see what if any discernable effect this has on the market.  My contention is that the low paper price, determined by supply vs. demand of paper futures contracts, obscures how tight the physical market really is, as well as the longer term trends that are playing out;

1)  supply destruction, especially in cases where Silver is a secondary byproduct of Cu mining, etc. 

2)  recycle destruction;  not much 90% being melted anymore... in strong hands now.   

3)  Investment coin and bar demand increasing.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Waiting for the next buying opportunity...

Who is sitting on their hands still waiting for the next buying opportunity?  This is where it gets really tough.. because the market is running away from you if you have been waiting.  It feels like, "buying high".  But is it? 

Silver about to break 16.... punctuated equilibrium.  

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
buying breakouts

Jim, its perfectly acceptable to buy breakouts in addition to buying dips.  It just depends on how strong the market is.  This one seems pretty strong, so buying the gold break above the downtrend line would have been a perfectly reasonable strategy - especially on Friday, as it bounced off the (former) downtrend line support.

As for the market selling PSLV whenever there is a secondary - that's because Eric Sprott is (more or less) printing a bunch of new shares and then buying a bunch of silver with the cash.  Like everything, PSLV has supply & demand constraints.  When a bunch of new PSLV share supply comes in, price drops.  That's just how the markets work.  Sprot gets a 0.45% management fee per year (about $3.7 million at current prices), so he's motivated to print as many shares as the market can stand.  More shares = more income.

As long as silver is available for him to buy, Sprott will be doing this.  You might even call this a "non-shortage indicator."  So yeah.  I'm being snarky.  Did you buy with the premium at 4-5%?  Had I done so, I'd have been mightily annoyed.

Nice move in silver though.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
PSLV...

Thanks Dave.. no, I have been adding miners and sitting on core positions of PSLV and PHYS.  I exhausted my cash earlier today.

The miners are doing extraordinarily well... SA, MUX, IAG, PVG, EXK, all up hard today.. yet again.  The bullion banks can print paper futures for Gold, but they cannot print shares of the miners... something to remember as we talk about the idea that miners might be leading the metals here.  The metals can smell trouble coming....  

     http://www.zerohedge.com/news/2016-04-10/full-blown-panic-mode-fed

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
More on PSLV...

Dave said,

As long as silver is available for him to buy, Sprott will be doing this.  You might even call this a "non-shortage indicator."  So yeah.  I'm being snarky.  Did you buy with the premium at 4-5%?  Had I done so, I'd have been mightily annoyed.

I look at it differently.  I do not look at the PSLV premium and associated new buys from the Silver supply side, but as an indicator of the investment grade, "paper"  Silver demand side.  The premium would not have started moving up again had there not been increasing demand for the shares, and a willingness on the part of some (like me) to hold with strong hands.  If Sprott will not/cannnot increase the size of the fund when the premium is zero or negative, he can (and should) when it starts to rise, until such time as the paper Silver market finally breaks and we get true price discovery.  My belief that this process is inevitable explains my holding with strong hands.  Sprott's action will only help to accelerate this process, hence I commend him for it.      

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
paper silver demand

JimH-

I actually agree with your view as well.  (Please don't die of shock!).  The secondary does represent increased demand, and at least for Sprott, PSLV shares translates directly into big-bar physical demand.

But the fact that he can get the silver - that says there's no current shortage.

I think both are correct.

However as an individual investor, it sure would suck if you buy PSLV at a premium, and it promptly drops into discount.  That's a 5% hit to your position. You can talk about strong hands all you want from a theoretical basis - but a 5% loss is still a 5% loss.

AaronMcKeon's picture
AaronMcKeon
Status: Bronze Member (Offline)
Joined: Apr 29 2014
Posts: 73
Sitting on Hands...

I've been sitting on my hands for a bit now and it's somewhat driving me crazy.  I find myself hoping for a downtick so I can keep buying at better prices but also worrying that things may run away.  That being said, I just made my first purchase in a while this morning simply because I fell below my bare minimum % of net worth allocation.  Still waiting though to continue regular buying...  It's a conundrum for me because I believe ultimately gold will go a lot higher in dollar terms but in the short-term it seems overbought.

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 654
Yes, see Rickards' The NEW Case for Gold

He specifically talks about this conundrum and almost always says: Do not try to find the bottom, buy now because . . .and the book will convince you.  Good luck.

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 319
Agonizing over Marginal Costs

If you truly believe PM values will increase over time and you're in it for a longer time horizon, then don't worry about price differences of cents, just make your purchase. Incremental purchases allows for cost averaging which really is the best practice. Some want to squeeze out the nickels but you'll beat yourself up agonizing over marginal costs. Just count the dollars later. 

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