PM Daily Market Commentary - 5/17/2016

By davefairtex on Wed, May 18, 2016 - 4:32am

Gold rose +4.80 to 1280.30 on moderately heavy volume, while silver rose +0.10 to 17.27 on moderately light volume.  Apart from a brief drop after the CPI release at 08:30 Eastern, PM traded higher in a narrow range today, as the buck and copper moved sideways and commodities overall rallied.

Gold ignored yesterday's shooting star candle and ground higher, closing a bit more emphatically above its 9 EMA, and managing to close above the old downtrend line.  Gold is now moving more or less sideways rather than down; if it can stay above that 9 EMA, it could well trace out a rough cup & handle pattern - which sometimes ends in a breakout to higher prices.

While silver rallied alongside gold, it was unable to close above its downtrend line.  It did manage to crawl back above the 9 EMA by a few pennies.  Volume is declining, which isn't a positive sign.  While gold appears to be improving, silver is lagging behind by a few days.   If copper prices collapse, I do not think 17 support will hold for silver.  If copper rallies - nah, thats too much to ask for.  But if it happened, that would help silver.

Miners continued to move higher.  GDX rose +1.35% on moderate volume, while GDXJ climbed +2.97% on very heavy volume, breaking out to a new high.  The breakout and heavy volume in the junior miners show that traders have a preference now for taking risk - which is a risk on signal overall for PM.  Senior miners are lagging behind, and volume remains lackluster, but they should be dragged higher by the juniors in time.

Platinum rose +0.25%, palladium fell -0.94%, and copper fell just -0.07%.  Copper has been chopping sideways now for the past three days, but it remains below all 3 moving averages and still looks quite weak.  If it can stabilize here, that's good news for silver.

The USD fell -0.02 to 94.53; it attempted to move above the 50 MA today and failed.  The CPI report at 08:30 Eastern showed an unexpectedly high print (0.04 - a 4.8% annualized inflation rate: and this is "government inflation" which we know to be corrupt) which caused a brief spike higher in the buck, which was then sold for the rest of the day.

WTIC continued moving higher, up +0.63 [+1.30%] to 49.24, making a yet another new high for this cycle.  Everything is going right for higher oil prices right now; if its not a massive wildfire that swept through Fort McMurray (the very site of 1 million barrels/day of Canada's crude production), its a bunch of rebels (economic freedom fighters?) attacking oil infrastructure in Nigeria.  What is the line from Goldfinger?  "Once is happenstance.  Twice is coincidence.  The third time it's enemy action."  Its enough to make a guy wonder.  With huge gobs of national revenue depending on higher oil prices, "it is just a coincidence" that 1.5 million barrels of production are now offline.  Hmm.  What do you think?  I think nobody cares about Nigeria, and "nobody likes" those tar sands anyway.

Who benefits?  Well the Saudis want lower prices, and so that leaves...Russia.  They benefit.  I don't think the GRU is out of business.  But Putin wouldn't do that sort of thing, he's a nice guy.  Ask anyone - well ask anyone except the Chechens.

SPX was sold all day long, dropping -19.45 [-0.94%] losing almost all of yesterday's gains, in spite of a good Industrial Production reading released today at 9:15 Eastern that registered decent expansion in manufacturing.  The equity market is thrashing back and forth, casting about for direction.  SPX is once more below its 50 MA, just pennies away from making a new low.  A rally in energy (XLE:+0.47%) was not enough to stem the losses in consumer staples (XLP:-1.96%) and utilities (XLU:-1.70%).  What's the loss in utilities from?  Earnings, perhaps?  VIX rose +0.89 to 15.57.

TLT rose just +0.17%, a tepid move given the significant sell-off in equities.  It remains in an uptrend above all 3 moving averages, but for some reason it isn't catching a bid from falling equity prices.  No signal from TLT.

JNK fell -0.09%, dropping on a day when oil gained.  While JNK remains in an uptrend, above all 3 moving averages, this is a risk off signal to me.

CRB rose +0.69%, breaking out to a new high for CRB.  Once again energy and agriculture did the heavy lifting for the commodity sector.

GDXJ says "risk on" for PM, there is a general trend lower for equities, oil is rising, propelled higher by geopolitical-activity "force majeure", and since copper and the buck are cooperating, gold is slowly moving higher.  I say: follow the miners, they seem to know what's going on.  Risks include a dollar breakout, and a plunge in copper below 2.075 support.

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davefairtex's picture
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FOMC minutes @ 14:00 Eastern

Apparently, a June rate rise is all but baked into the cake.  2Q is going to be fantastic.  Some members wanted to raise rates at the April meeting.  Of course, not a peep of this was mentioned in April.

Buck screamed higher, is currently well over its 50 MA, and every commodity I track (gold, silver, copper, oil) just tipped over and sank in unison, as did US equities.  TLT is off a massive -1.6%.

Miners are quite upset, down -5% and through the 9 EMA.  If we close here, swing highs all around.

If this has legs, our commodity rally is at an end.  I'm specifically concerned about the buck; if it follows through tomorrow and Friday, things could get ugly.

I wonder if we'll see a parade of Fed speakers emerge from their hidey-holes this weekend and say "gosh, we didn't really mean rate rise after all."

I wonder what would happen if we tossed them all on a desert island for a year.  I bet the market would calm down and learn to function on its own.

Econoday summarizes:

FOMC policy makers were talking up a June rate hike at the April meeting, just like they talked up an April hike at their March meeting. Minutes say there was a strong bias among the 17 participants for a June hike if the conditions warranted. The majority felt the second quarter would prove much better than what they considered to be temporary slowing in the first quarter. A few were ready in April to hike rates immediately. Doves cited continued downside risks to the economy and also downside risks to the inflation outlook. Today's minutes sound hawkish and will likely awaken new talk, at least for a time, of a June rate hike.

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