PM End of Week Market Commentary - 6/10/2016

davefairtex
By davefairtex on Sat, Jun 11, 2016 - 5:31am

On Friday, gold rose +3.80 [+0.30%] on moderate volume, while silver rose +0.05 [+0.29%] on moderate volume also.  That doesn't sound like much, except that many other things fell sharply:  platinum, palladium,  copper, and oil all dropped, while the dollar made a big move higher.  For gold and silver to remain in the green on such a day is a minor miracle.

On the week, gold rose +29.80 [+2.39%], silver shot up +0.89 [+5.41%], GDX climbed +2.49%, and GDXJ was up +5.14%.  Platinum rose just +0.48%, palladium fell -1.78%, and copper plunged -4.41%.  The divergence between gold & silver and the other components was surprising.

At least some of gold's move higher this week was follow-through from the disappointing Nonfarm Payrolls report released last Friday, however the move over the last two days could be something else entirely.  When gold and the dollar rally together, that means gold priced in other currencies is doing even better.

On the chart below, the area I marked "breakout after consolidation" came alongside the relatively supportive price action in other related items.  Fed most likely won't raise rates, oil was rising, CRB was rising, the dollar was steadily falling - in short, up through Wednesday, gold's action were neatly aligned with the actions of most of the other related items, and I trace it back to the "no rate rise" mindset that is now pretty firmly entrenched in the market.

But in the area marked BRExit - it is like night and day.  During those two days, oil plunged, the CRB started sinking, copper broke support, and the buck printed a convincing swing low and rose more than a full point in that two day period.  Even the mining shares did poorly.  It was at this time that a new poll came out that showed Leave was taking the lead in the UK.

And here we have gold in Euros - the pattern is clearer here.  Gold appears to be heading for a breakout in Euros.  Can Mario Draghi's money printing keep the UK in the EU?  It looks like the Thursday/Friday moves in gold were a flight to safety.

After consolidating for a couple of days, silver took off on Wednesday, and the rally just kept going into Thursday and Friday.  As with gold, the rally up through Wednesday made sense; Thursday and Friday was a different story entirely.  Silver is now clearly in an uptrend and is well above all its moving averages.  Silver isn't normally a flight-to-safety metal, but here it is, rising in the face of falling copper prices and a strongly rallying dollar.

Miners

Miners had one good day this week - they broke to new highs on Wednesday after gold and silver broke above their consolidation areas, but even on that day, it looked like big money was selling rather than buying.  And on Friday, we can see that GDX dropped -1.41% - this on a day when gold itself was green.  To my eye, miners are looking tired - perhaps the 12% rally day last Friday used up most of the remaining gas in the tank.  Although both GDX and GDXJ made new highs this week, there wasn't a lot of enthusiasm.  GDXJ printed an ominous-sounding "dark cloud cover" pattern (30% chance its a top) on Friday, and GDX avoided this fate only because it failed to make a new high on Thursday.

The USD

USD spent the first three days slowly moving lower, supporting both commodities and gold on its way downhill.  But then on Thursday there was a solid reversal, with the buck printing a swing low, and the follow-through on Friday was even stronger.  The dollar's two-day 1.1 point move seemed to cause trouble across the commodity space - every single commodity I track fell - that is, except gold and silver.

So this is a pretty big deal to me.  When gold and the dollar move together, that tells me there's a probable flight to safety going on, and gold is acting in its role as a safe haven currency.  Even more surprisingly, silver is not only being dragged along for the ride, its actually outperforming gold.

I think big money is looking to hide, and one of the places it is moving is gold.

US Equities/SPX

US equities dropped just -3.06, closing at 2096.07.  That conceals a break to a new high, followed by a 19 point sell-off on Friday to end the week, with SPX printing a convincing swing high and closing well below the 9 EMA.  The swing high on Friday in SPX looked to be caused by an apparent top in oil; energy equities (XLE) fell a big -2.16%.   VIX screamed higher, up +3.56 to 17.03.  Someone thinks this might be a top.  Traders definitely did not want to take SPX home for the weekend.

Now might be a decent time to go short; it is early (usually you want to short a lower high) but things do seem to be lining up bearish across the board.  You probably want to pick something that is underperforming the market, and its sector.

Sector map shows a bearish picture: financials, homebuilders, and discretionary are leading lower.  That's textbook bearish, with utilities and staples still in the black.  Energy remains positive, but I'm not sure it will do so for very long.

You can see in the sector map how financials, discretionary, and especially homebuilders are really underperforming the rest of the market.  The favorite bank-to-hate DB cratered on Friday, down -5.8%.  Traders are throwing rocks at the wet paper bag with that one.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 2.49% 39.72% rising rising rising rising ema9 on 2016-06-03 2016-06-10
Energy XLE 1.25% -13.43% falling rising rising rising ema9 on 2016-06-10 2016-06-10
Cons Staples XLP 1.06% 15.04% rising rising rising falling ema9 on 2016-06-01 2016-06-10
Utilities XLU 0.98% 22.17% rising rising rising falling ema9 on 2016-05-26 2016-06-10
Industrials XLI 0.86% 2.46% falling rising rising falling ema9 on 2016-06-10 2016-06-10
Materials XLB 0.17% -3.46% falling rising rising rising ema9 on 2016-06-10 2016-06-10
Telecom XTL 0.09% -2.19% falling rising rising falling ema9 on 2016-06-10 2016-06-10
Technology XLK 0.05% 4.08% falling falling rising falling ema9 on 2016-06-10 2016-06-10
REIT RWR -0.09% 12.70% rising falling rising falling ema9 on 2016-06-07 2016-06-10
Healthcare XLV -0.71% -3.34% falling rising rising rising ema9 on 2016-06-10 2016-06-10
Cons Discretionary XLY -0.78% 3.57% falling falling rising falling ema9 on 2016-06-10 2016-06-10
Homebuilders XHB -1.46% -7.11% falling falling falling rising ema9 on 2016-06-10 2016-06-10
Financials XLF -1.49% -5.96% falling rising rising rising ma50 on 2016-06-10 2016-06-10

Gold in Other Currencies

Gold rallied in dollars, and rallied even more strongly in most other currencies - except for BRL, which had a big move higher vs the buck this week.  BRL has been on a tear since the start of the year: up 20% over that time period, and up 3.7% just this week.  The newsflow may be bad, but money is clearly flowing into Brazil.

Gold moved up +35.50 in XDR.

Rates & Commodities

Bonds (TLT) continued to rally this week, with TLT rising +1.16% breaking to a new all time high for TLT.  Conversely, this makes for a new all time low for the 20 year Treasury: 2.02%.  All of the gains for TLT came on Thursday and Friday, coincident with the strong dollar rally.  Big money is flowing into US treasury bonds likely from Europe and the UK, and probably also from US equities.  That's clear risk off.

JNK rose +0.43% on the week, making a new high, but the more significant events happened on Thursday and Friday, where JNK printed a swing high, and then closed just below its 9 EMA.  In spite of the weekly gain, JNK is now signaling risk off - and that aligns fairly well with the bearish move in SPX.

The CRB rose +2.24%, a big move, but it too printed a swing high this week on Friday.  That doesn't mark the end of the commodity rally with any degree of certainty, but it is a warning sign; if the dollar continues to strengthen, commodities will have a hard time gaining ground.  CRB remains above its 9 EMA and is still in a strong uptrend.

WTIC was almost unchanged on the week, falling just -0.02 to 48.88.  This weekly result conceals a breakout above round number 50 that happened Tuesday and Wednesday, and a convincing swing high on Friday which saw oil drop a big -1.58, closing clearly below its 9 EMA.  The candle pattern on Friday was one of my own - I call it a "two day swing high" - that has a 50-70% chance of marking the top.  The weekly candle pattern is a bearish-looking gravestone doji.  Right now, it looks as though the breakout above 50 was a headfake, and the momentum in oil has reversed.

Physical Supply Indicators

* No quote for Shanghai gold this week.

* The GLD ETF tonnage on hand rose +12.48, with 893.92 tons in inventory.

* Gold is not in backwardation; the two front month contracts differ by +2.50.

* ETF Premium/Discount to NAV; gold closing of 1277.20 and silver 17.34.

 PHYS 10.67 +1.65% to NAV [up]
 PSLV 6.61 (no data)
 CEF 13.24 -3.60% 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 lower for gold [1.89% for 100 oz bars in NYC], slightly higher for silver 1000 oz bars  [3.03% for 1000 oz bars in NYC], and lower for silver eagles at +15.22%.

Futures Positioning

COT report covers trading up through Tuesday June 7th, including last Friday's Nonfarm Payrolls-driven rally, but missing the last 3 days of action.

Gold commercials started to go short again, adding +9k shorts, and selling a big -21k longs.  Normally the commercials don't play much on the long side - this sale represents about 20% of their total long position.  Managed Money added +20k longs, and closed -8.8k shorts.  Mostly the rally last Friday was about Managed Money going long; only some of it was short covering.  While the commercials are down off their highs in terms of short interest, the overall setup remains bearish.

In silver, a curious thing happened: commercials closed -7.6k shorts and also dumped -3.5k longs.  Managed money added +2.2k shorts and sold -2.5k longs.  So what's curious about that?  Well, this is the first time I've seen the commercials close out a short position when a big rally takes place.  This is only one week, so I'm not prepared to call this the dawn of a new age, but if it happens again next week - this new pattern would be a huge deal, and it would explain why silver is outperforming gold: the commercials are being forced to bail out of their large (20,217 ton) short position as the price rises.

But don't freak out yet; let's wait until next week to make sure.

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

Everything except platinum is back in the green.  The divergence of platinum (and palladium) from the gold/silver rally this week is interesting.  Platinum fell on Thursday and Friday, while gold rose; it doesn't look to be much of a safe haven; same thing for Palladium.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver SI.CW 5.47% 8.58% rising rising rising rising ma50 on 2016-06-08 2016-06-10
Junior Miners GDXJ 5.14% 60.48% rising rising rising rising ema9 on 2016-06-03 2016-06-10
Silver Miners SIL 3.80% 41.49% rising rising rising rising ema9 on 2016-06-03 2016-06-10
Senior Miners GDX 2.49% 39.72% rising rising rising rising ema9 on 2016-06-03 2016-06-10
Gold GC.CW 2.39% 8.12% rising rising rising rising ma50 on 2016-06-08 2016-06-10
Platinum PL.CW 0.50% -10.08% falling rising rising rising ema9 on 2016-06-10 2016-06-10

Gold Manipulation Report

There was one after-hours spike up in silver this week on Wednesday - in the direction of the trend.  It kick-started Wednesday's breakout in silver.

Summary

This week looked to be a collection of trend reversals; oil went from up to down, as did SPX and JNK, and the buck flipped from down to up.  "The dollar did it" is one explanation, but I think the move in the buck is more of a symptom than a cause.  Gold and silver just kept moving higher, flying in the face of the standard patterns, which is a clue in and of itself that something is up.

The gold/silver ratio fell -2.17 to 73.65, which is bullish for PM.  GDX:$GOLD was unchanged - the miners are looking a bit tired.  GDXJ:GDX actually rose, which is a bullish sign, and in fact the juniors continue to do better than the seniors.  Miners look to have undergone a fair amount of selling after their breakout.  I get the sense they don't like the strengthening dollar.

COT report for gold shows that the commercials have started to short gold once more, but in silver, the commercials covered during the period - the first time I've ever seen them cover during a silver rally.  This could explain why silver is rallying strongly even though it generally doesn't behave as a "safe haven" item.

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

With a rate raise off the table (and from what I can tell, more or less on the back burner), BRExit has moved front and center.  Big money is starting to flee in earnest from both Europe and the UK: it is flowing into the USD, treasury bonds, and gold, and money everywhere is starting to bail out of risk.

Silver's move and out-performance is an anomaly - which itself might be a sign of a different sort of sea change.  Will commercials be forced to cover in the face of a rally?  That would be huge news in the goldbug community for sure.

If this commercial short-covering we saw on this week's COT report happens next week too, it will strongly suggest to me that:

  1. the bullion banks are not all powerful
  2. they don't have infinite resources
  3. they cannot stuff every rally
  4. they are in too deep on silver, and they're looking for a way out.

We have an FOMC meeting next week, with an announcement on Wednesday June 15th at 14:00, with a Chair press conference at 14:30.  Can Chair Yellen possibly say anything hawkish with BRExit breathing down her neck?  I believe that her game plan may have been overtaken by events.

Vote on BRExit is June 23rd.

Armstrong likes to say that big money moves in anticipation of events.  I believe we are seeing that now.

Current view from the computer:

  • Uptrend: USD, gold, silver, miners, treasuries, natgas
  • Downtrend: crude, copper, SPX, NDX.

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1 Comment

pieffe's picture
pieffe
Status: Member (Offline)
Joined: Nov 3 2013
Posts: 6
Silver COT anomaly reading

Ciao Dave...absolutely interesting your silver  cot reading .....compelling at least .....BUT....This is not the first time commercial shows some crack in their short position ....may be I'm wrong ....but a similar behavior  was observed in Oct Nov 2015  ....didn't you recall  ?!?!? .....thanks ....Pierfrancesco

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