PM Daily Market Commentary - 6/30/2016

By davefairtex on Fri, Jul 1, 2016 - 4:13am

Gold rose 2.90 to 1324.70 on moderate volume, while silver jumped up +0.42 to 18.80 on moderate volume also.  Silver, platinum and palladium were big winners again, with gold bringing up the rear.

Gold once again had a hard time today, possibly because of a brisk rally in the dollar.  And when I say that, its only in relative terms, since the other PM components did so much better.

On the chart, gold continues to consolidate in its 1308-1340 trading range.  Gold needs a breakout above 1340 to get the ball rolling to the upside - and as long as silver and the other PM components continue to rally, a breakout is the most likely event.  Gold OI increased by 7644 contracts today; it was a fairly large increase, but nothing close to the 50k contracts added on the 27th.

Silver made another new high today, the second large rally day in a row, and $1.50 in the past 5 days.  The move in silver is starting to get a bit extended; daily RSI is now at 87, and the rally from base to peak has been 20% to date, with the past two moves being 18% and 22%.  If past is a guide, we might have another few like this before the buyers start to run low.  RSI levels in the high 80s suggest we're getting close to a near term top; that said, we should wait for an appropriate candle print to help tell us when that top has arrived.  You just never know how far any particular bull move will go.  Previous high was 21.50, set back in July 2014.  I'm not saying we hit that - that's probably the highest we might expect on this leg.  We could also correct tomorrow.

GDX rose +2.06% on moderately light volume, while GDXJ was up +1.31% on light volume.  GDX managed to make a new high by 5 cents, but I still consider it to be within its recent consolidation range.  GDX does look poised to break out to higher levels here, and if silver keeps moving up, it will do just that.  However, the miners are not moving with their old enthusiasm - the low volume on today's breakout is one bit of evidence.  In past months, a huge move in silver would have the miners racing higher; today was a bit ho-hum by comparison.

Platinum rose +1.49% breaking above its 50 MA, palladium climbed +1.87%, and copper moved up +0.25%, with all three metals making new highs for this cycle.  Is it reflation?  Inflation?  Hard to say.  Metals are firing on all cylinders right now; its this kind of move that is more dependable than a flight to safety.  Rising tide lifts all boats.

The buck rose +0.40 to 96.20, a fairly large move that mostly came at the expense of the pound (XBP:-0.92%).  BOE head Mark Carney gave a speech today where he spoke of a rate cut this summer.  At the same time, the FTSE made new highs.  Perhaps UK equities are expecting more money printing from the BOE.  BRExit has actually been good for equities in the UK.

WTIC suffered a brisk decline, dropping -1.14 to 48.40.  Allegedly the drop was about increases in output from Nigeria (where the "terrorist" attacks have subsided) and Canada, which is slowly coming back online after the wildfires, but from what I saw it appeared to be a massive assault that dropped prices about $1 in 5 minutes right before the 2:30 pit close.  I didn't see a news item that could have been tied to the drop; it appeared to me that someone wanted oil to close red today.  Perhaps that was an end-of-quarter artifact, or a banging-the-close trick for some bank's oil derivatives as per the whole LIBOR market-rigging scam.

SPX rallied for the third day in a row, up +28.09 to 2098.86, moving back above its 50 MA and officially wiping out all the losses from BRExit Friday.  It was another closing white marubozu - bullish candle.  Interestingly, consumer staples (XLP:+2.24%) and utilities (XLU:+2.16%) led.  Today was end of quarter, and perhaps a fair amount of movement into the high-yielding stocks was about managed funds wanting to dress things up in some way - perhaps to make the "yield" of the fund look better than it actually is.  Holding a utility stock only on the last day of the quarter means you got to count it as a holding, but your investors weren't around to actually collect the dividend.  (See the book: "Where are the Customer's Yachts?" if you have a problem with that).  VIX dropped again, down -1.01 to 15.63.

TLT rose today, up +0.37.  TLT has been chopping sideways at an all time high; it refuses to sell off.  Although momentum is fading, money just keeps pouring into TLT; 20 year treasury yield is 1.86%.

JNK rallied for the third day in a row, up +0.85% making a new high dating back to July 2015.  JNK is signaling risk on.

CRB fell -1.06%, mostly because of the drop in oil.  CRB remains above its 9 EMA, and is quite near its highs for the year in spite of today's drop.

Things were a bit odd today because of end-of-quarter money flows; certainly that would explain why utilities and staples were the leading sectors.  I also feel that a number of players have rapidly unwound short positions (and/or puts) they had added in advance of BRExit.

How much of the rally was constructed and/or aided by our central planners?  Some certainly, but probably not all.  I doubt they bought silver, copper, platinum, or palladium.  And I suspect they didn't buy JNK, nor did they buy the buck.  All the trades they made will need to be unwound if they are to preserve their firepower, and this will end up acting as resistance to further moves higher - or it will act as support in the case of gold.

We'll get more evidence as SPX nears its recent high.

As for silver, I suspect we are mid-to-late innings of the recent move.  Silver tends to go vertical as it moves closer to a near-term peak, and that's what the chart is starting to show now.  I'd guess 1-3 days before it is done, which makes now a high-risk/high-reward time to buy.  Under these circumstances, silver can move $1 in a day - in either direction, and sometimes, $1 up followed by $1 down in that same day.  Commercials know this, so they are standing by to unload short once they sense the buyers have started to dry up.  It is even possible they have helped cause this very rally, only to reverse short right at the top.  You just never know.

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