PM Daily Market Commentary - 6/27/2016

By davefairtex on Tue, Jun 28, 2016 - 3:23am

Gold rose +8.50 to 1327.60 on heavy volume, while silver fell -0.01 to 17.81 on heavy volume also.  There was a great deal of movement in the currency markets again today; money fled risk and moved into perceived save havens.  Banks were weak, especially those in Europe.

Gold opened higher after a weekend of frothy news and uncertainty, and traded more or less sideways for most of the day.  While gold in dollars only moved up only modestly, gold in other currencies did extremely well.  Here's a chart of gold in GBP: we can see it was up more than 4%, making a new high.  The candle print looks mildly bearish (its a spinning top, too short to be a shooting star) - but that's still a 4% move.

Gold in dollars is continuing to move higher; on the chart it appears that we have a rough support zone just above 1300.  Once something breaks out, the former resistance area (in this case, 1300-1307) becomes a new support zone.  This is the place where dip-buyers will appear if price drops back down to 1300.  Everyone who "missed out" on the breakout will be looking to buy there.

Again, since the buck moved up more than a full point, it was a pretty good day for gold.

In this chart (July 2016 Silver) we see that silver moved up a penny printing a doji candle, which represents indecision.  Given the strong dollar rally, I wouldn't read too much into the doji; the "northern doji" pattern is only a 20-30% chance of a top.  It probably helped that copper managed to gain too.

Miners were mixed; GDX rose +1.31% on moderately heavy volume, while GDXJ went up only +0.05% on moderate volume.  The miners aren't giving us much of a clue about what happens next; GDX looks to have printed a doji candle (although my code says its a "high wave"; I guess a 9 cent difference is too much for a doji), which is basically indecision.  Miners aren't looking particularly strong.  It looks like the days of the big "white marubozu" breakouts are a thing of the past.

Platinum fell -0.58%, palladium rose +1.06%, and copper closed up +0.59%.  The fact that copper managed to rally so soon after BRExit - and given the dollar's big move higher today - is a positive sign.  Copper managed to squeak back over its 50 MA.

The buck followed through on Friday's big move, rising +1.13 [+1.18%] to 96.70, closing above its 200 MA for the first time in four months.  The buck also made a new high.  Mostly, this was due to the Euro (XEU:-0.72%) and the Pound (XBP:-3.28%), which was crushed for a second straight day.  The pound made a multi-decade closing low today.  The close below former support at 136 and change is a bearish sign for the pound.  Most likely, it will continue to fall.

I encourage you to take note of where money flees when uncertainty strikes.  To date, it continues to be the USD.  Europe is starting to move down the path towards a breakup, and the response of big money is to flee towards the dollar.  Those who imagine a dollar collapse will happen anytime soon given this dynamic just isn't paying attention.

WTIC fell -0.96 [-2.02%] to 46.61, closing below its 50 MA for the first time since February 2016.  Oil was pressured for most of the day; my guess its a combination of the uncertainty of BRExit combined with the strong move higher in the buck.   Oil has now made a lower high and a lower low, which is the sign of a downtrend.  Its probably better to be on the sidelines now in regards to oil.

SPX fell again today, down -36.87 [-1.81%] to 2000.54, blowing through its 200 MA in another high-volume selloff.  Materials (XLB:-3.37%) energy (XLE:-3.20%) and financials (XLF:-2.85%) led the market lower, however the banking sub-sector (BKX:-5.11%) had particular trouble.  Most of the losses occurred in the first 90 minutes of trading.  VIX actually fell, losing -1.91 to 23.85.  I guess traders expected more of a drop.

TLT rallied strongly, up +2.50% making a new closing high for bonds.  Yield on the 20 year is 1.83%; 30 year yield is 2.28%.  Strong sign of risk off.

JNK cratered, falling -1.74%, is now solidly through its 50 MA, and has now printed a lower high and a lower low.  JNK is now in a downtrend, and is strongly signaling risk off.

CRB dropped -0.59%, driven lower primarily by energy.  CRB has moved into a downtrend.

Confusion still prevails.  Will a second referendum ("Brussels, I promise I'll rig this one properly") occur?  It certainly could.  TARP took two tries before the banks got what they wanted.  Current meme is: "voters are so stupid, they didn't even know what they were voting for - they only googled 'what is the EU' after the votes were cast." (Conclusion: better to not let them vote on such weighty matters).  French are talking about eliminating English in Brussels.  Germans want to avoid a nasty breakup.  And bank stocks are cratering.  Spin machine is on full.

As long as this situation continues, gold will have a bid.  That's what it boils down to, I suppose.  Money flees risk and uncertainty, and right now that's what we have.  I'm sure official intervention is happening across the spectrum (JimH pointed out the COMEX OI for gold jumped by 50k contracts - likely keeping a lid on gold prices for the moment) but that cannot last.  That's a seven billion dollar a day spend, and that's just at COMEX.  And that just serves to provide gold at a discount for those who want to buy.

Right now its risk off.  As long as that continues, risk assets will fall and safe havens will rise.  We just have to watch prices to see how things will proceed.  And if they continue to add short COMEX contracts, we can get a sense of the gold demand from the increase in OI, and also from what is happening in the currency markets.

At some point, they have to close those contracts out.  And that will serve to support the price.

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Penny551's picture
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
prescient Ted Butler comment...

"If this year has been anything, it has been a testament to the growing disparity between what has been transpiring in the world of actual gold and silver metal...and the world of paper trading on the COMEX. Simply put, continued signs of physical demand and tightness are evident in both gold and silver against a backdrop of historically large commercial short positions in COMEX gold and silver futures. And considering all that has transpired this week on both fronts, I don't think it's an exaggeration to say that we may be facing the ultimate test of the whole COT market structure premise. That's the premise that has largely dictated prices for decades and in which the commercials achieved mastery over the technical funds." - Silver analyst Ted Butler: 25 June 2016

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Worth his weight in Gold

Sir Martin in the vault.


Jim H's picture
Jim H
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Joined: Jun 8 2009
Posts: 2391
Excellent post Penny..

The writing is on the wall.. more and more people are waking up to the realities of how Gold and Silver are priced today.  Here is yet another, "expose" on this posted on ZH right now;

In short, as a measure of controlling the paper prices of gold and silver, The Bullion Banks that operate on The Comex act as de facto market makers of the paper derivative, Comex futures contract. This gives them the nearly unlimited ability to simply conjure up new contracts from thin air whenever demand for these contracts exceeds available supply and, almost without exception, these Banks issue new contracts by taking the short side of the trade versus a Spec long buyer. Never do these Banks put up actual collateral of physical metal when issuing these paper derivative contracts. Instead, they simply take the risk that their "deep pockets" will allow them to outlast the Spec longs and, without the risk of having to make physical delivery, The Banks almost always win. Eventually, an event like the runup to the Brexit vote or all of the Fed Goon jawboning of May will spook The Specs into selling and this Spec selling is used by The Banks to buy back (cover) their ill-gotten naked shorts and lower total open interest back down. (If you're confused by this, please click the second link listed above for a more detailed explanation of this process.)

How this influences price is simple. If the supply of the paper derivative futures contract was held constant on a daily basis, then price would have to rise or fall based upon simple supply/demand dynamics. When the amount of buyers exceeded sellers, price would have to rise to a point at which existing owners would be willing to sell. But this is NOT how the Comex futures market operates! Because the market-making Banks have the ability to create new contracts from whole cloth, they can instead flood the "market" with new supply whenever it's necessary. This mutes potential upside moves by imparting fresh new supply for the Spec buyers to devour. Price DOES NOT have to rise to a new, natural equilibrium. Instead, price equilibrium is found where demand meets this new supply.

As well, folks will eventually realize that GLD is not a viable way to hold Gold.. it is yet another form of derivative that Wall Street can create based on rehypothecated paper promises... As more and more folks and entities move to Gold and Silver investments.. and as they become more educated and move their investments away from paper representations and toward safer, physically owned options.. the bullion bank influence over price will give way.  

cmartenson's picture
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Joined: Jun 7 2007
Posts: 5969
The OI spike said it all

The spike in Open Interest (OI) on Friday for gold was very suspicious...well, not really, it looked like the bullion banks "doing whatever it took" to keep the price in check.

The CMe reports the daily open interest and looking at gold we see that there was a huge spike in OI of over 50,000 contracts on Friday which has only climbed somewhat higher since (along with steadily falling gold price.

(Source CME)

Given all that's happening in the world this seems like one place "they" know how to control and they maintained a firm grip throughout all of the other hoopla and market shenanigans that were happening.

Expanding an already elevated OI by nearly 9% is a pretty big deal....and I think they believe it was justified.  The last thing the plutos needed was for gold to be signaling any distrust in their beloved ""markets"" and ""leadership"" abilities.

This whole thing is a confidence game now, and so confidence is actually the most valuable asset left.


davefairtex's picture
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Joined: Sep 3 2008
Posts: 5683
COMEX default call?

Did I just hear someone calling for a COMEX default?

Is it imminent?  What's the timeline?

We haven't had one for the last three months or so - I think we're definitely due...

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