PM End of Week Market Commentary - 5/13/2016

davefairtex
By davefairtex on Sat, May 14, 2016 - 8:18am

On Friday gold rose +9.60 [+0.76%] to 1274.30 on moderately heavy volume, while silver climbed +0.13 to 17.13 on moderate volume.  Gold and silver both managed to overcome strong headwinds from a good-sized rally in USD; with the buck up +0.47, simply closing even is an accomplishment, and both gold and silver did better than that.

This week, gold fell -15.40 [-1.19%], silver dropped -0.38 [-2.14%], GDX lost -1.35%, and GDXJ was down -1.41%.   Platinum fell -2.64%, palladium dropped -2.52%, and copper plunged -3.44%, down another 7 cents this week.  It was a down week for the metals, led lower by copper.  China may be turning off the debt-growth spigot going forward; this potential change in policy could well be why the price of copper has more or less collapsed over the past few weeks, and the rest of the metals (both industrial and precious) seem to have followed copper lower.

This week gold fell, but much of the move was a currency effect; with the buck up +0.76%, that accounts for the bulk of gold's -1.19% drop.  In addition to currency effects, I believe the large move lower in copper is the other influence pulling gold prices lower.  If you look at the timing of gold's peak, it corresponds nicely to the peak in copper prices, as well as the low point in the dollar.

Gold is now in a short term downtrend; it is struggling to remain above its 9 EMA.  If copper prices continue to plunge, gold probably will fall too.  That said, gold is performing the best of all the metals, and if copper does mark a low, gold might very well take off.  Gold appears to have support around the 1260 level.  A close below 1260 would be a bearish sign.

Last week there were hints that silver was weakening along with copper; this week the signs were even clearer.  On both Monday and Thursday, copper was hit hard, and so was silver.  On the other days, copper was unchanged, and on those days silver managed to rally.  Silver has support around round number 17.00; several times the shorts have tried to drive price below 17, only to be met with enough buying pressure to move price right back above 17.

Can 17 support hold for silver if copper continues to drop?  I don't think so; I think if copper falls through its current support level, we'll probably get another leg down in silver too.  I know the report is starting to sound like all-copper all-the-time, but that's just the correlation I'm seeing.

Miners

Miners more or less chopped sideways this week; GDX remains above its 9 EMA and its chart looks stronger than gold and substantially stronger than silver.  If the miners could be said to be in a short-term downtrend, it is a very shallow one.  Miners remain well bid, but volume is trailing off.  I think traders in the mining shares are waiting for direction.

The USD

This week we saw a swing-high headfake in the buck on Wednesday which was completely erased by Friday's strong USD rally.  The buck closed up +0.71 [+0.76%] to 94.59, printing a swing low on the weekly chart.  The reversal in the buck seems to be more than a short term phenomenon; perhaps that too is China-related.  The buck printed its low the day after copper reversed; that's not a smoking gun but it feels to me that there is a strong connection between the two.

I can't state strongly enough how impactful to the world it will be if China truly decides to stop printing (private debt) money.  There is an almost inescapable chain of events that will emerge from the decision to stop the ponzi lending over there, and while the Chinese government will probably print money to make sure that a massive debt deflation doesn't occur, somebody will still end up eating the losses - through inflation and currency depreciation.  My guess is that gold will become much more popular in China because of this, but the buying power of the Chinese people will drop along with the currency.  I'm not sure which effect will end up winning.

Note that if China had gold-backed its currency, money printing would no longer be an option to avoid a massive debt deflation.

US Equities/SPX

US equities fell -10.53 [-0.51%] to 2046.53.  Friday saw SPX drop -17 points, closing below its 50 MA for the first time in three months.  The DJIA did even worse, since it actually formed a new low to end the week.    If SPX prints a new low next week, things could start to pick up.  Although we are seeing a steady increase in oil prices (WTIC:+5.54%), oil equities were actually down on the week.  Money appears to be rotating out of oil equities even as oil prices rise.  If this pattern continues, rising commodity prices won't be providing much support for the broader market.  What's more, there have been a fair number of earnings disasters in the retail space.  Unless foreign money comes racing in to buy the dip, momentum seems to be headed lower.   VIX rose +0.32 to 15.04.

Looking at the sector map, we see utilities at the top, and homebuilders & consumer discretionary at the bottom.   This is a more typical configuration for a correction; money rotates from risk and growth sectors into income and safety.  If you are short the market, this is the pattern you want to see.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 1.15% 17.06% rising rising rising rising ema9 on 2016-04-27 2016-05-13
Telecom XTL 0.44% -5.65% falling falling falling falling ema9 on 2016-05-11 2016-05-13
Cons Staples XLP 0.00% 10.09% falling rising rising rising ema9 on 2016-05-13 2016-05-13
Healthcare XLV -0.06% -5.31% falling rising falling rising ma200 on 2016-05-12 2016-05-13
Technology XLK -0.09% -0.99% falling rising rising rising ema9 on 2016-05-11 2016-05-13
Energy XLE -0.43% -19.12% falling rising falling rising ema9 on 2016-05-13 2016-05-13
Materials XLB -0.45% -8.45% falling rising rising rising ema9 on 2016-05-13 2016-05-13
Industrials XLI -1.06% -1.60% falling rising rising rising ma50 on 2016-05-13 2016-05-13
Financials XLF -1.08% -5.83% falling rising falling rising ma200 on 2016-05-13 2016-05-13
Gold Miners GDX -1.35% 20.09% rising rising rising rising ema9 on 2016-05-10 2016-05-13
Cons Discretionary XLY -1.48% 4.37% falling rising falling rising ma50 on 2016-05-13 2016-05-13
REIT RWR -1.79% 5.20% falling rising rising rising ema9 on 2016-05-13 2016-05-13
Homebuilders XHB -2.03% -7.63% falling rising falling rising ema9 on 2016-05-11 2016-05-13

Gold in Other Currencies

Although I said earlier that gold's drop in USD was a currency effect, it looks as though gold dropped more or less across the board, doing the best in JPY and EUR.  Gold lost -14.10 in XDR.

Rates & Commodities

Bonds (TLT) had a good week, up +1.40%, and is nearing .  The money coming into the USD pretty clearly went into the bond market.  TLT continues to signal risk off.

JNK rose +0.29%, a relatively feeble performance given the strong rally in oil.  JNK sold off Friday, closing the week below its 9 EMA.  I'm going to award "risk off" to JNK this week for its underperformance.

The CRB (commodity index) staged a decent rally, climbing +1.47% and closing back above its 200 MA.  Agriculture and energy sectors did well, while PM slid, and industrial metals dropped harder.  If CRB can stay above its 200 MA, that's a positive sign for commodities.

WTIC rose +2.47 [+5.54%] this week, closing at 47.03 and making a new high.  Oil was driven higher as a result of an unexpectedly bullish inventory draw (3.4 million barrels) detailed in Wednesday's Petroleum Status report.  Another part of oil's move this week was due to a contract roll; it gained about +0.75 from contango.  How strong is the contango?  From July to August, its about 50 cents.  From July 2016 to July 2017, its about $2.40.  That is, you can buy oil for delivery in July 2017 for $49.41/bbl.  Or, if you are a driller, you can guarantee the price for next year's production at 49.41/barrel.  I'd expect the drillers to be adding hedges at around this price.  Lastly, the fire in Canada near Fort McMurray interrupted about 1 million barrels/day of oil production.  Likely that too impacted price, although its tough to know just how much.

Physical Supply Indicators

* Shanghai gold closed this week at a -0.99 discount vs COMEX.

* The GLD ETF tonnage on hand rose a big +16.94 tons, with 851.13 tons in inventory.

* Gold is not in backwardation; the two front month contracts differ by +0.80.

* ETF Premium/Discount to NAV; gold closing of 1274.90 and silver 17.14.

 PHYS 10.68 +1.58% to NAV [up]
 PSLV 6.53 -0.25% to NAV [up]
 CEF 13.15 -3.75% to NAV [up]

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

* HAA big bar premiums are lower for gold [2.19% for 100 oz bars in NYC], much higher for silver [10.56% for 1000 oz bars in NYC].  Silver Eagle premiums jumped too [23.75% in NYC].

This is the second week of increases in premiums for big-bar physical silver at HAA.  My other indicators aren't showing me the same thing, but I've never seen 1000 oz bars selling at a 10% premium at HAA.  I checked another bullion dealer; they are showing a COMEX bar for 17.73, or about a 4% premium.

Futures Positioning

COT report covers trading up through May 10th.

Gold commercials closed -3.3k shorts and added +6.5k longs, which is only a minor change.  Likewise, managed money dropped -2k longs and added +5.6k shorts.  Positions remain at extreme bearish levels, and today's report does not change this in any meaningful way.

In silver, commercials dropped -1.8k longs, while managed money added +5.7k longs and also 1.1k shorts.  Incredibly, managed money is increasing long exposure in the face of dropping copper prices and some fairly strong down days.  Managed money long positions continue to increase.  Normally that's a bearish COT setup - but just perhaps these guys are the reason why 17 support is holding.  Instead of being rinsed out of their positions by the commercials on the declines, they are buying the dip.

Again, for the commercials to win the stop-running game, managed money has to be employing stops...

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

Hints of a correction appeared in silver and platinum, which both dropped below their 9 EMA this week.  You can see pretty easily that platinum has been underperforming for quite a while.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 1.16% 22.98% rising rising rising rising ema9 on 2016-05-10 2016-05-13
Gold GC.CW -1.16% 4.05% rising rising rising falling ema9 on 2016-05-13 2016-05-13
Senior Miners GDX -1.35% 20.09% rising rising rising rising ema9 on 2016-05-10 2016-05-13
Junior Miners GDXJ -1.41% 41.27% rising rising rising rising ema9 on 2016-05-10 2016-05-13
Silver SI.CW -2.14% -1.92% falling rising rising rising ema9 on 2016-05-12 2016-05-13
Platinum PL.CW -2.64% -9.33% falling rising rising rising ema9 on 2016-05-12 2016-05-13

Gold Manipulation Report

There were no after-hours spikes in either gold or silver.

There were a few attempts on Friday to push silver prices lower, but they happened during "normal" trading hours in London.  The spikes down were almost instantly bought.  I take that to be a bullish sign.  In one sense those commercials are doing us a favor; by testing the market with their spikes, they reveal just how strong the support actually is.

Summary

Commodities were mixed this week, but industrial metals and PM both dropped, with copper leading the way lower for the metals for the second week in a row.  The dollar continued to strengthen.  My hopes last week for a gold breakout ran aground on the rocks and shoals of the falling copper price.  Its good to have a scapegoat when things go wrong.

The gold/silver ratio rose +0.71 to 74.39 this week; silver continues to underperform.  The GDX:$GOLD was flat, but remains very bullish.  There was also no change in the GDXJ:GDX ratio, which is less bullish than GDX:$GOLD.  A note about that - I believe when the gold bull market really gets going, we will see this in the GDXJ:GDX ratio.  That's one true sign of risk on in the PM space, in addition to the GSR - when traders are willing to pay up for not-even-being-mined gold in the ground.

COT report for gold and silver show relatively little change this week.  Positions remain very bearish, but once again this week the commercials have been unable to force prices significantly lower against the constant buying of managed money at the COMEX.

Gold big bar shortage indicators show mixed signs of shortage; HAA big-bar silver premiums jumped higher, but PSLV remains more neutral and other bullion dealers I checked showed more normal big-bar premiums.  CEF's discount is steadily vanishing.

If not for copper's plunge again this week, I'd say things look reasonably bright for gold right now; on Friday gold managed to rally in spite of the dollar having a pretty good day - all because copper simply avoided tanking.  When will copper put in a low?  That's anyone's guess; I have no special insight.  But as long as copper sinks and the dollar rises, PM (and industrial metals) will feel the pressure.

Current view from the computer: Uptrend: USD, 20 year treasury, natgas, crude.  Downtrend: US equities, gold, silver, copper, and the miners.

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3 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Snagged this chart from Clive's site...

Maybe it really is diff, but th CoT alone is convincing enough for me to be content having taken some off the table and adding a hedge or 2. Should be very interesting to see how this gets resolved. 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5459
different this time

Steve-

Well, in the past, several times it really was different.  Commercials were forced to cover without a major dip.  It didn't happen very often, but it did happen.  I'd say the odds are against it, but until prices start to show me some weakness...I think PM remains in its medium term uptrend.  Now copper and the buck just have to cooperate.

Again, I'm just looking how the prices have been moving.  Gold does have support.  Attempts to push it lower haven't done so well.

COT report represents something that's already happened.  Its not some looming store of potential energy that can drop like a stone on the market at any moment.  They are paper gold contracts already constructed.  They've already done their price suppression work.  To continue to keep price from moving higher, the commercials will have to short even more.

My sense is, the reason why the COT pattern "works" is that it represents the rough amount of time at which managed money runs out of firepower.  Commercials try to time their short accumulation to that "peak deployed firepower" for managed money.  But if something has changed, then the time at which managed money runs out of firepower will also change.  Eventually the money will run out for a given cycle, but that time does not yet seem to be upon us.  I am not saying "next stop: gold 5000!" just that this cycle appears to be abnormally extended, and gold may well pop above 1307 as a result.

From a "gold fundamental" viewpoint, I could see a bid under gold going into the BRExit vote.  And if the UK really does exit (and I think the EU will move heaven and earth to do everything possible to rig the election), gold could go absolutely ape.

If not, the (temporary/2016) high for gold could be that BRExit vote.

That's all just guesswork.  I'm trying to align my "future predictions" with how I see prices moving today.

In asia trading, gold has popped up to 1285, oil just broke above 47, the buck is flat, as is copper.  If copper can continue to move sideways, I suspect we'll see higher gold prices.

Its also quite possible that Trump is also a driver for gold.  My internationally-aware friends are universally appalled at  Trump's victory.  My sense is, they think America has just gone nuts.  Bush looked like an idiot, Obama was a vast improvement, and Trump appears to be a clown.  Behind the curtain, who knows - this is just the foreign viewpoint anecdotes that I'm reporting.

The Hillary email investigation has the potential to blow things off the rails (i.e. another "gold positive" outcome).  If the US deep state figures out that foreign powers have copies of these emails, and these end up being a smoking gun in terms of exposing "Clinton Cash" corruption ("contribute to the Clinton Charity and you'll get a quid-pro-quo from Sec State" - perhaps an impeachable offense?), they won't want that Sword of Damocles to be held over the future President, so they may well end up insisting the FBI actually execute on its investigation, taking her out before she becomes a serious liability.  More uncertainty regarding the US elections = stronger bid under gold.

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Thx Dave, as always, for the

Thx Dave, as always, for the insight.

Btw, if you change your mind on not making the call on "Next Stop: Gold $5000!!" let me know, bc I'm thinking about starting a website called SteveWorldNews and you could be my first guest! ;)

 

 

 

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