PM End of Week Market Commentary - 5/20/2016

davefairtex
By davefairtex on Sat, May 21, 2016 - 3:34am

On Friday gold fell -2.80 to 1252.90 on moderately heavy volume, while silver rose +0.04 to 16.55 on moderate volume.  It was a relatively quiet day.

This week, gold fell -21.40 [-1.68%], silver dropped -0.58 [-3.39%], GDX lost -2.99%, and GDXJ was down -0.86%.   Platinum fell -2.81%, palladium dropped -5.55%, and copper moved down -1.33%.  It was a third bad week for the metals - with the primary driver being the surprisingly hawkish FOMC minutes released on Wednesday driving the dollar higher, and the metals lower.

Gold has now been in a downtrend for three weeks; gold's top at 1306 came at the same time the dollar made its 91.80 low, and copper printed its recent high at 2.30.  Now the buck is at 95.29, and copper is around 2.05, and so these moves have dragged gold off its highs to where it is today.

Gold ended the week right at its 50 MA, after failing to confirm the reversal bar that happened Thursday.  My guess is that gold's fate will continue to be strongly influenced by the dollar as well as copper.  Not that copper is the be-all of everything - it just seems to be pretty well correlated with gold at this moment.  Maybe its an indicator of the willingness of Chinese speculators to put money into the market.  I don't really know for sure.

Last week I asked (rhetorically) if 17 support would hold if copper kept dropping.  Clearly, 17 support failed, and silver plunged down to the next rough support zone around 16.25 / the 50 MA.  The bounce we saw on Friday was minimal, and the volume was light.  To me this doesn't bode so well for silver.  It continues to look much weaker than gold.  I mean, I've seen silver prices collapse much more rapidly than this, but it does appear that the previous strong bid under the (COMEX) silver market is now much weaker than it was before.

Miners

Miners looked great right up until the FOMC minutes were released; once the unexpected hawkishness was revealed, miners sold off hard, and on Thursday, made a lower low.  The bounce on Thursday and Friday were quite a bit weaker than the drop on Wednesday, and the pattern of lower highs and lower lows that is now in place tells me that the miners have now entered a downtrend.  Price is moving reluctantly lower, but it is moving lower nevertheless.

This is the first time we have seen a lower-low pattern out of the miners since the start of the rally back in January.  While it is easy to get caught up in the day-to-day price movements, the simple lower-high-lower-low pattern will not be ignored by other traders.  Also, the volume pattern is bearish too - the heavy down-day volume looks like big money distribution.

The USD

USD has rallied now for three straight weeks, up +0.70 to 95.29.  USD broke through its 50 MA on Wednesday, after the FOMC released the minutes from the previous meeting which sounded surprisingly hawkish - suggesting as though a June rate increase was substantially more likely than the market had anticipated.  USD has now rallied above a previous high, and appears to be in a relatively solid uptrend.

Ahead of us we have the BRExit vote coming on June 23rd; if you believe the current polling data, "Remain" still has the edge over "Leave."  https://ig.ft.com/sites/brexit-polling/

As an example of the enthusiasm the leadership has for keeping the Brits in the EU, the man who for me epitomizes the reality of what we are dealing with said the following:

Jean-Claude Juncker, president of the European Commission, has warned British voters that “deserters will not be welcomed back with open arms”.

Seems more like a high school in-group sort of thing to me, but this is the guy who said "when it becomes serious, you have to lie" in one of this truthier moments.  I'm sure he's telling the truth this time too.

This is the kind of man you want in charge of the fate of your nation?  Ok I'm biased, I admit it.  I think the gang at the EC are a bunch of weasels for what they did to Ireland and Greece, among other things.

US Equities/SPX

US equities rose +5.71 to 2052.32, ending Friday on a positive note after a fair amount of back-and-forth.  On Thursday, SPX made a new low, but rallied back, printing a "takuri line" reversal bar that was subsequently confirmed on Friday.  This bounce wasn't quite enough to move SPX back above its 9 EMA or the 50, and SPX does remain in a downtrend - but that downtrend is a very slow-moving affair at the moment.  VIX rose just +0.16 to 15.20.

The sector map shows energy & financials in the lead; energy is up because oil rallied yet again, while the financial rally was due to the increased prospects of a rate increase.  Likewise, the drop in interest-sensitive utilities and REITs were also related to the rate increase prospects.  This is a small example of what happens when rate start to hint about normalizing.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 1.80% -17.80% rising rising falling rising ema9 on 2016-05-20 2016-05-20
Financials XLF 1.44% -4.62% rising rising falling rising ema9 on 2016-05-20 2016-05-20
Homebuilders XHB 1.25% -8.38% rising rising falling rising ema9 on 2016-05-20 2016-05-20
Technology XLK 1.23% -0.18% rising rising rising rising ema9 on 2016-05-20 2016-05-20
Telecom XTL 0.98% -5.26% rising rising falling rising ema9 on 2016-05-20 2016-05-20
Healthcare XLV 0.80% -5.89% rising rising falling rising ema9 on 2016-05-20 2016-05-20
Materials XLB 0.72% -7.65% rising rising rising rising ema9 on 2016-05-20 2016-05-20
Industrials XLI -0.04% -1.63% falling rising rising rising ma50 on 2016-05-18 2016-05-20
Cons Discretionary XLY -0.52% 2.36% falling rising falling rising ma50 on 2016-05-17 2016-05-20
Cons Staples XLP -2.03% 8.14% falling rising rising falling ema9 on 2016-05-17 2016-05-20
Utilities XLU -2.23% 12.17% falling rising rising falling ema9 on 2016-05-17 2016-05-20
REIT RWR -2.60% 6.80% falling rising rising rising ma50 on 2016-05-18 2016-05-20
Gold Miners GDX -2.99% 21.65% falling rising rising rising ema9 on 2016-05-18 2016-05-20

Gold in Other Currencies

Gold dropped in almost all currencies this week; gold in XDR was down -20.40.

Rates & Commodities

Bonds (TLT) were not pleased at the prospect of higher rates; TLT fell -1.61% and printed a swing high, although it managed to rally back somewhat by Friday.  If short rates ever moved back to normal, the losses in the long bond would be catastropic: say, 50%?  Long duration bonds are not a low-risk place to park your money in a rising rate environment.  I'm not suggesting we're going to realistically move back there in any sort of hurry right now, just making the point that there is substantial risk in holding long bonds at the top of a 40 year bond market rally.  If there is a bubble in anything right now, its in bonds.

JNK rose +0.55%, moving back above its 9 EMA after flirting briefly with a breakdown.  JNK is trading sideways, more or less, and it is looking more bullish than the equity market at the moment.

The CRB (commodity index) rose +0.91%, with energy doing the heavy lifting for the commodity sector.  Commodities remain in a relatively steady uptrend, above all 3 moving averages for the second week in a row.

WTIC rose +1.45 [+3.08%] this week, closing at 48.48, making yet another new high.  While oil inventories showed a small build this week, the world has about 1.6 million barrels of production offline because of the ongoing fire in Canada and troubles in Nigeria.  At this rate, oil will be testing 50 within the next few days; I'm guessing that round number 50 will provide a certain amount of resistance.  For the crude COT report, I see that the commercials are back up to levels last seen near the $60 highs in 2015.  Hmm.  Start a fire, cause some trouble in Nigeria, price runs up to 50, you go heavily short, and then everything calms down.  Shale drillers could ramp up production a bit too.  What happens to price then?  I think oil prices ultimately move back to 60, but we might see 35-40 again between now and then.

Physical Supply Indicators

* No quote for you this week at Shanghai.

* The GLD ETF tonnage on hand rose a big +18.13 tons, with 869.26 tons in inventory.

* Gold is not in backwardation; the two front month contracts differ by +0.90.

* ETF Premium/Discount to NAV; gold closing of 1252.90 and silver 16.55.

 PHYS 10.43 +0.96% to NAV [down]
 PSLV 6.32 -0.01% to NAV [up]
 CEF 12.81 -3.99% to NAV [down]

* 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 slightly higher for gold [2.20% for 100 oz bars in NYC]; silver quotes seem wrong.  I'm seeing big-bar silver other places for 3.55% over spot, and silver eagles for 15.5%.

Futures Positioning

COT report covers trading up through May 17th, prior to the big move lower on Wednesday.

Gold commercials were little changed on the week; they added +4.k shorts and sold 700 longs.  Managed money changed hardly at all.  It will be interesting to see how Wednesday's trading affected the numbers, but we have to wait until next week before we know.  Positions remain very bearish.

In silver, commercials also changed very little, while managed money added +2.3k shorts and sold -2.3k longs.  That's still a minor change.  Again, the big changes for silver happened after the coverage period of the COT, so we won't get to see who caused what until next week.

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

Last week's correction in silver and platinum has spread to the rest of PM this week.  Everything is now below its 9 EMA.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ -0.86% 42.69% falling rising rising rising ema9 on 2016-05-18 2016-05-20
Silver Miners SIL -0.87% 25.55% falling rising rising rising ema9 on 2016-05-18 2016-05-20
Gold GC.CW -1.62% 4.13% falling falling rising falling ema9 on 2016-05-18 2016-05-20
Platinum PL.CW -2.81% -11.10% falling rising rising rising ema9 on 2016-05-18 2016-05-20
Senior Miners GDX -2.99% 21.65% falling rising rising rising ema9 on 2016-05-18 2016-05-20
Silver SI.CW -3.39% -3.40% falling rising rising rising ema9 on 2016-05-18 2016-05-20

Gold Manipulation Report

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

Summary

Commodities did moderately well this week led by oil, but the industrial metals continued to move lower and the unexpectedly hawkish FOMC minutes pushed the dollar higher.  The last two items helped gold and especially silver to move deeper into a correction.  Specifically, copper broke below 2.075 support, and now appears headed for 2.00.

The gold/silver ratio jumped up +1.31 to 75.70 this week; silver prices fell sharply through support while gold moved lower more slowly.  The GDX:$GOLD retreated, and is now giving a more neutral short term reading.  GDXJ:GDX moved higher, and remains bullish.

COT report for gold and silver show relatively little change again this week.  Positions remain very bearish.  Silver is tumbling probably because of both copper and a rising dollar.  No doubt the commercials are helping - they clearly benefit from lower prices - but their magic is working much better for silver than it is for gold. If those commercials were all-powerful, gold would have been hit just as hard as silver.

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

Gold looks to be in a state of managed retreat, while silver is correcting more swiftly.  Its the same story from last week: as long as copper drops and the buck rallies, PM will have trouble.  The BRExit referendum arrives in a little more than 4 weeks.  We have an FOMC meeting before that - on June 14/15.  If "Vote Leave" looks likely, do we imagine they'll raise rates?  Ha.  On the other hand, if "Vote Remain" looks to be the likely outcome, we might well see an increase.  Those are the things I see moving gold around right now.  If you want a gold rally, pray for Vote Leave - that's my sense anyway.

Current view from the computer: Uptrend: USD, crude, and now SPX.  Downtrend: DJIA, gold, silver, natgas, copper, and the miners.  Trends in motion tend to stay in motion.  Be careful out there.

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7 Comments

scradley's picture
scradley
Status: Member (Offline)
Joined: Apr 18 2016
Posts: 1
USD

Thanks for these reports Dave I really appreciate them.

I'll be watching what happens here closely with the USD and if it doesn't break out the channel I'll go long Gold.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
thats a nice chart

scradley-

Wow.  I love your chart.

I swear, the comments here can be so helpful.  Sometimes a chart is worth a thousand words.

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 653
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KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1428
Shanghai Accord

If the Shanghai Accord holds, then USD move is a head fake to fleece some more on the way down.

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
Financial Newsletters

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davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
shanghai accords

Kugs-

While I find those sort of "shanghai accord" stories interesting, I find them actually credible when the price chart lines up nicely with the story.  That's not happening here.  Buck looks to have put in a sturdy bottom.

And to further stick nails into this shanghai story coffin, now we hear the Flock of Fed governors talking up a rate-raise.  They would not be doing that if there were some secret agreement to hose the buck.  Likewise, Sec Treas Lew would not be publicly hinting that Japan better stop playing currency games.

None of the "jawbone activity" is lined up with an accord, and so far, neither is the price chart, so I think either it was just a couple-of-months break for the EM gang to catch their breath, or its just wishful thinking on the part of the dollar bears who are just talking their book.

In a very real sense, for the buck to drop meaningfully, you're basically telling me that you're bullish on the Euro.  That's how DX works, in large part anyway.  Are you interested in buying Euros and selling Dollars?

Of course if we hit the top of the channel and break down, I will change my mind in about thirty seconds flat.  :-)

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1216
Talk is cheap?

now we hear the Flock of Fed governors talking up a rate-raise.

I'm becoming very contrary minded these days. So much effort is being put into convincing the market of the possibility of a rate rise in June that I am all but convinced that there is absolutely no chance that this will actually happen. They seem to be jawboning the dollar up to keep it from crashing since they felt no one had any doubt about the Fed actions (or inaction). In short, I don't think they are telling us anything, they are just trying to maintain the mystique of the Fed.

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