PM End of Week Market Commentary - 7/8/2016

davefairtex
By davefairtex on Sat, Jul 2, 2016 - 8:09am

On Nonfarm Friday, gold rose +5.60 [+0.41%] to 1367.40 on heavy volume, while silver jumped +0.60 [+3.06%] to 20.35 on heavy volume also.  Metals were hit fairly hard at the time of the initial report, but buyers appeared almost immediately pushing prices of both gold and silver right back up - with silver behaving much more strongly than gold.

To me the surprising result was not the rise of silver, it was the bid under gold.  In recent times, a positive NFP report would end up hurting gold probably due to rate-rise considerations.  Now it seems as though every news item good or bad results in traders buying gold.  That's bullish!  It suggests to me that traders see no possibility at all of a rate increase regardless of how good the payrolls report happens to be.

On the week, gold climbed +22.50 [+1.67%], silver climbed +0.50 [+2.49%], GDX moved up +5.13%, and GDXJ rose +8.88%.  Platinum climbed +3.60%, palladium moved up +2.10%, and copper fell -4.39%.  Copper was a real fly in the ointment this week.  If not for the NFP report, silver most likely would have turned in a loss this week.  All the gains in silver came on Friday.

On the chart we see that gold broke out to new highs this week, and there was a $30 dip on Friday that was bought.  Volume on both the breakout and the rebound from the NFP-related selling were both strong.  The open interest for gold continues to climb (about 33k contracts just this week - 100 tons of paper gold) and still price continues to rise.  The bid for gold remains quite strong.

Silver's first couple days this week involve a high volume failed rally, which to me is always a sign of trouble.  That, combined with a change in trend for copper (it is now in a downtrend) suggested we probably will see lower silver prices going forward.  That was true right up until NFP Friday, where a 50 cent sell-off was almost immediately bought, followed by a steady rally through the reminder of the day.  Now its hard to know where we are; Friday saw a "bullish engulfing" candle print which is bullish 40-55% in this context.

Can silver continue to rally if oil and copper keep falling?  That's the question.  Just looking at the reaction to the NFP report, answer appears to be yes, but I remain cautious.  Silver is not as dreadfully overbought as it was previously, but it still remains in danger at RSI=82.

Miners

Miners spent most of the week moving higher, with the one-day dip on Thursday being bought on Friday.  Even a 3% discount brings those buyers out of the woodwork.  Not much else to say - that's bullish.  Candle print on Friday was a mid-range "bullish tasuki line" which marks a low 32-46% of the time.

The USD

The buck moved higher this week, up +0.61 to 96.33, aided by a -2.39% drop in GBP (to 129.50) and an -0.78% drop in the Euro, now hovering around 110.  BRExit and the Italian banking crisis continues to pressure currencies.

 

US Equities/SPX

US equities followed through on last week's rally, up +26.95 [+1.28%] to 2129.90, only 5 points shy of the all time high at 2134.72 set back in May 2015.   As with silver, all of the gains in SPX this week came on Friday following the strong NFP report.  A new high for SPX is likely, in my estimation.  It is not so very far away, after all.  VIX fell -1.57 to 13.20.  That's half of where it was just two weeks ago.

Here's the sector map; its a bit of a mixed bag.  Homebuilders and discretionary doing well is typical for a bull move, as is utilities near the bottom, but its odd to see financials and energy continuing to do poorly.  Something remains amiss with what would otherwise be a fairly bullish arrangement.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 5.13% 81.94% rising rising rising rising ema9 on 2016-06-24 2016-07-08
Homebuilders XHB 3.35% -3.92% rising rising falling rising ma50 on 2016-07-06 2016-07-08
Telecom XTL 3.10% 8.28% rising rising rising rising ema9 on 2016-06-29 2016-07-08
Cons Discretionary XLY 2.22% 6.57% rising rising rising falling ma50 on 2016-07-06 2016-07-08
Healthcare XLV 2.12% 0.35% rising rising rising rising ema9 on 2016-06-29 2016-07-08
Industrials XLI 1.85% 8.54% rising rising rising falling ma50 on 2016-07-06 2016-07-08
Technology XLK 1.52% 9.77% rising rising rising falling ma50 on 2016-06-30 2016-07-08
Cons Staples XLP 1.46% 16.75% rising rising rising rising ema9 on 2016-06-29 2016-07-08
Materials XLB 1.29% 1.49% rising falling rising falling ema9 on 2016-07-08 2016-07-08
REIT RWR 1.20% 19.00% rising rising rising rising ema9 on 2016-06-28 2016-07-08
Financials XLF 0.79% -4.30% rising falling rising falling ema9 on 2016-07-08 2016-07-08
Utilities XLU 0.11% 26.32% rising rising rising rising ema9 on 2016-06-23 2016-07-08
Energy XLE -1.30% -7.39% rising falling rising falling ema9 on 2016-07-08 2016-07-08

Gold in Other Currencies

Gold rallied in most currencies again this week, doing a bit better in XDR (+30.6) because of the rise in the buck.  The only currency in which gold fell is JPY, which continues to climb against the rest of the world.  That's one I don't understand; how can the Yen continue to appreciate with the BOJ buying all those bonds with new money?  I just don't get the mechanism in play there.

Rates & Commodities

Bonds (TLT) broke to new highs this week again, up another +2.16%.  This week Treasurys were on their own in terms of attracting money; the 20 year bond yield fell to a new all time low of 1.69%.  The 30 year is at 2.16%, also an all time low, as is the 10 year at 1.37%.  All the concern about foreigners selling US treasury debt and turning the dollar into confetti?  Not this week anyway.  Here's what an all time low in the 30 year yield looks like.  If you own bonds, you are a very happy camper.

JNK rose too, up a big +1.52% making a new high for this cycle, with most of this week's gains coming on Friday.  It appears that all dollar-denominated debt is very popular this week, regardless of the drop in oil prices.  This is a new development.  Looks like risk on, at least from a US perspective.

CRB fell -3.65%, reversing last week's gains and making a new low.  Only the PM commodity component was up - energy, livestock, agriculture, and industrial metals fell this week.  While there was a modest recovery on Friday, CRB is now below its 50 MA - which is a serious warning shot across the bows of our 5 month commodity rally.

WTIC fell a huge -4.16 [-8.44%] to 45.12, breaking below 46 support and dropping below its 50 MA.  A big chunk of this week's losses came after Thursday's Petroleum Status report showed an inventory draw of "only" -2.1 million barrels.  "Not good enough" the oil traders howled and crude lost perhaps $2.00 in about 60 minutes.  At least that's how it looked to me when I was watching.  Market is selling off on nominally good news.  Most likely we have lower oil prices ahead.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +24.38, with 978.29 tons in inventory.

* Gold is not in backwardation; the two front month contracts differ by +3.60.

* ETF Premium/Discount to NAV; gold closing of 1346.80 and silver 19.77.

 PHYS 11.33 +0.53% to NAV [down]
 PSLV 7.82 +1.15% to NAV [up]
 CEF 14.85 -2.28% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no particular premiums for gold or silver.

* HAA big bar premiums are higher for gold [2.17% for 100 oz bars in NYC], higher for silver 1000 oz bars  [5.73% for 1000 oz bars in NYC], and higher for silver eagles at +16.02%.  The 1000 oz silver bar premiums are quite high for HAA - but another supplier had them for +2.75% over spot.

Futures Positioning

COT report covers trading up through Tuesday July 5th.  This includes the big failed silver rally on Monday & Tuesday.

Gold commercials added +11k to their short positions (current: 464k, record high in 2010: 485k) and sold -3.4k longs.  Managed money added +14k longs, which is a new record (300k).  Here's what that looks like in context.  Managed Money just keeps piling in.  Of course - so do GLD buyers and CEF buyers and PHYS buyers.  Its not all about managed money.

In silver, commercials added just +2.6k shorts, while managed money added +2.4k longs.  The net changes in the silver COT were surprisingly modest, but the overall concentration remains quite bearish.

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

This is a poster child for a PM bull market.  Juniors lead seniors, and silver leads gold.  While a lot of fuss happened during the week, by the end, everything remains in place in terms of a bullish picture for PM.  123% 52w change for the junior miners.  That's pretty good, but if you bought them in 2011, you're still severely underwater.  Buying the highs = a bad idea.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 8.88% 123.88% rising rising rising rising ema9 on 2016-06-22 2016-07-08
Silver Miners SIL 6.57% 106.62% rising rising rising rising ema9 on 2016-06-03 2016-07-08
Senior Miners GDX 5.13% 81.94% rising rising rising rising ema9 on 2016-06-24 2016-07-08
Platinum PL.CW 3.60% 7.58% rising rising rising rising ma50 on 2016-06-30 2016-07-08
Silver SI.CW 2.49% 32.40% rising rising rising rising ma50 on 2016-06-08 2016-07-08
Gold GC.CW 1.71% 18.08% rising rising rising rising ema9 on 2016-06-24 2016-07-08

Gold Manipulation Report

There were a ridiculous number of spikes - in both directions - that occurred on Monday and Tuesday of this week in silver.  First on Monday, silver spiked higher repeatedly - it is said, due to commodity traders in China deciding they wanted to jump on the silver train.  Then on Tuesday, the reverse happened - repeated spikes down took prices lower ending up with silver being "mostly unchanged" for the two-day period, but printing a failed rally for that time.  Chart ended up looking quite bearish.  Jury is out as to whether or not this will mark the high.

Summary

I think we're still dealing with a market struggling to find a direction.  When risk assets rise, and copper & oil fall, that's two forces pulling in opposite directions - rising copper and oil prices being typical signs of growth in the economy.  That probably won't last too long.  While this is going on, bonds and stocks are rallying together, and junk debt rallies while crude falls.  I can't see that lasting too long either.

The gold/silver ratio moved a bit lower, down -0.58 to 67.19, with all of that move happening on Friday.  That's bullish.  GDX:$GOLD rallied, and looks bullish, GDXJ:GDX rallied as well and also looks bullish.   All systems go from the ratios.

COT report for both gold and silver shows more builds in commercial short positions.  COT grows ever more bearish, but managed money continues to load up long.  Managed money continues to win the struggle.  It appears that money continues to pour into the PM space.  What, you'd rather have a bond where you pay the government?  Gold looks infinitely better - especially now that its going up again.

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

To me, it appears that there is a lot of money out there looking for a zero-penalty home - and the budget for suppressing price moves in gold appears to be significantly lower than that potential money flow looking for a zero-penalty safe haven.  The increase in OI at COMEX for gold cost about $6.4 billion for this week.  There is 11 trillion dollars just in the negative-yield bonds alone.  11 trillion >> 6.4 billion.  As in, factor of 1000.

The current problem on deck is the Italian banking situation.  This shows up in the share prices of the banks.  Although risk assets rose, the bank index is still dramatically underperforming the SPX, and some banks in Europe are underperforming the bank index.  Just look at a chart of DB:$BKX and you'll see what I mean.  All you had to do was buy the bank index, and then short DB, and you'd be insulated from changes in the banking sector overall while making yourself a 60% gain - assuming you put the trade on in 2014.

Do I expect the ECB to order the Italian banks to die, thus precipitating a banking crisis in the Eurozone?  No.  There will probably be some negotiated can-kicking settlement where the taxpayers foot at least part of the bill in some clever new way.  Perhaps the ECB will turn into a "bad bank."  All we are concerned about are the terms.  Bank stocks will bounce when this happens, more likely than not, but banks will remain problem children.  No economic growth = no loan growth, and ZIRP means continuing problems for bank profitability.  Its not a great sector to be in right now.  I'd sell that rally.

From the gold-owner's perspective, we have ZIRP and effective negative rates as far as the eye can see, with hints of banking crisis popping up here and there, and a side dish of uncertainty courtesy of BRExit.  Gold really likes this environment.  I don't see anything that changes this situation coming anytime soon.

Current view from the computer:

  • Uptrend: gold, silver, miners, TLT, USD, SPX, DJIA.
  • Downtrend: copper, and crude.

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14 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Gold:Silver

I believe I posted this when the ratio was >80...

I wish I acted on it :)  I'm still roughly 75/25 in favor of silver and plan to re-balance to 50/50 when the ratio gets back to that 45:1 and continue to transition more heavily towards gold as the ratio decreases towards a longer term target of ~10:1  or so  ...

-Steve

www.ProTrader1.com

 

Oliveoilguy's picture
Oliveoilguy
Status: Platinum Member (Offline)
Joined: Jun 29 2012
Posts: 578
Silver bullishness

Figured there would be some profit taking and positioning before the weekend. Seems very bullish when Silver Longs are so confident. But..... you can't go vertical forever. The other thing I noticed is that the silver chart seems to have smoothed out. I've become accustomed to a roller coaster ride on the Kitco live silver chart, but the chop has stopped. Might be an indication that manipulators have thrown in the towel?

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Olive, Good points.

Olive,

Good points.  Regarding the commercials throwing in the towel; that will only be confirmed when their short positions are closed.  The extreme positions on both sides need to be resolved, and if it's the bankers that capitulate, that would mean them covering their shorts into a rising price.  Now, that would be fun to watch :)  I'm not holding my breath on that one, but at the same time it's hard to imagine them engineering the kind of major sell-off they would need to close out their positions profitably in this environment.

Dave/JimH, correct me if I'm wrong on that.

Steve

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5462
i wish so too

Steve-

I wish I acted on it too.  Silver does crazy things.  Fleck had some good comments on that over at KWN.  He's one of the more dependable commentators.  He usually has wise things to say.

In my study of the 2010-2011 move, the commercials basically get hammered when the longs get the bit in their teeth.  Once the managed money folks decide they don't want to get stopped out, and/or they buy the dips hard, commercials just have to suck it up.  As for them covering - in the past, I remember them covering once during a rally (in 2011) - but just that once.  I've also seen them cover on a very gentle correction.

So far, no covering during this move - but we haven't seen Wed-Fri COT report so we don't really know for sure.

I think the only thing we need to worry about is a massive attack of deflation from a banking crisis - China, or Europe/Italy.  It will happen at some point, and if they don't respond with a reflationary move, we could get a severe drop in commodity prices which would probably reverse the move in the gold/silver ratio.

Silver would suffer, I suspect.  Copper would be hammered.  Just my thoughts.

locksmithuk's picture
locksmithuk
Status: Silver Member (Offline)
Joined: Dec 19 2011
Posts: 126
Hi ho silver

While you our US friends have been sleeping soundly prior to your 4th of July jiggery, the price of silver has exploded (relatively speaking of course). As I write this the market has been open for 2.5 hours for a +3.1% movement since Friday's close.

 

Wake up sleepyheads, and welcome to USD20.00 silver (you especially, Jim). Sadly, I don't think it'll last. I'm sure Dave will watch & comment as the longs [probably] start to drop off a bit.

 

 

 

[Edit 1: +4.6%, 3.0 hours].... reaching for a hankie to deal with the imminent nosebleed. 

[Edit 2: +6.3%, 3.5 hours]... that's now $21.00. Oh boy, you're all going to wake up with a huge shock.

[Edit 3: I'm removing "relatively speaking" from my opening comments in this post]

Jim H's picture
Jim H
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Posts: 2387
Thanks Locksmith

I literally was oblivious to the market opening until I read your post.  Watching fireworks off the bay side of Long Beach Island on the Jersey Shore.  Best to All.  Let's see if we can hold these gains

davefairtex's picture
davefairtex
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Posts: 5462
capping the rally

Now here's an apparent attempt to cap the rally in silver.  On the chart, once the price rose above 21 (21!), you can see an almost-horizontal line at around 21.15 for about 10-15 minutes.  Someone was out there, willing to sell "any number" of contracts at that price, and so as a result, the price was not able to move any higher - there was one brief spike, which was quickly sold.

After price ran into this wall, it promptly sold off hard.

"Any number" here was perhaps 1000 contracts, just looking at the volume.  I think perhaps the buyers ran out of steam.  Price is now at 20.25.

Previous high (resistance) is 21.65.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
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Posts: 5462
[duplicate]

[EOM]

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5462
more fun in the EU

Here's an old video of Juncker, apparently drunk, on camera, and on stage.  Imagine if you were one of the other European heads of state.

http://www.telegraph.co.uk/news/2016/07/03/angela-merkel-to-oust-jean-claude-juncker-as-europe-splits-deepe/

The divisions within the EU are becoming apparent - at least more apparent to me anyway.  It seems that the EC was happy to see the UK go, but Merkel, not so much.  Who knew?  I guess if you want an EU army (commanded by Juncker??) and the UK stands in your way, its nice to be rid of them.

 

 

 

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 853
Ooookaaaayy... Fireworks done, let's put in a PM short

... until I've slept off this hangover.

Dave, what does your algorithm say? Was that a short on all PMs at 10:30 PM? And how does that coincide with the timing of the end of the fireworks display in NYC?

And does the market really care?

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5752
The silver slam was fully expected....

...now let's see what happens next.  That was a very typical high-volume during a low-volume moment silver slam.

Not at all unexpected when the big 8 are record short in terms of world production (this is obscene, by the way,...should never be allowed to get this ridiculous):

If you were this record short, what would you do?  I'd just keep piling on the shorts and hope that things never got away from me because the chance of a default is very high down that path.

So far, 'they' have never lost this battle, but it does seem like things are entering a new phase. 

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Where to?

Holding $18.50 on this pullback would be huge.  After that, a rising 50MA seems to be the next logical target.  I would love to see us go all the way back to the 50 for an opportunity to add a few more miners, especially if we arrive there w/ a cleaned out CoT.

Steve

 

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5752
So far so good...

I'll bet this slam meets Dave's criteria for 'funny business.'

A few interesting things to note.  The first is the test slam that gave warning that a bigger one was on the way.  I wonder if they are always so kind as to give notice?

The second is the slam itself, just a thing of obvious beauty.  The volume applied was waaaaaAaaaay above average for that time of day.  

The third is that there was no follow through really.  The plunge low was $19.61, which it then (much) later sort of re-tested at ~6:15 a.m. by hitting $19.66.  However it is now nearly 30 cents higher than that.

My observation is that these slams are usually just the opening move and much lower values follow, but not this time.  So far, I should add.  We shall see.

But the buying afterwards and lack of post-slam selling conviction would be very concerning to me if I were the slammer....time to quadruple down for them?

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5462
fully expected

Well...we can focus on slams and manipulation and all of that - but none of that matters when the longs have the bit solidly between their teeth.  Slams simply don't work.  At least that's what I notice.

But slams work particularly well both during downtrends, and when the market is very extended - like when the RSI value gets into the 90s.

And there was a whole lot of activity that showed up on my "manipulation scanner" during BRExit.  It was signal overload.

As for the Sunday event - I would guess the first one was probably a low-cost probe, to see what the depth of the bids looked like, and they liked what they saw so they got more serious and down she went.  To me, that just says "not enough buyers."

For me, cycles happen.  Just - avoid buying when that RSI climbs high.  Doesn't matter the instrument, its a time to watch for a decline.  Particulars vary as to why the denouement occurs, but it always seems to happen.

Think of it as a chance to get into the miners at a cheaper price.  That's what I do.

 

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