PM End of Week Commentary - 7/15/2016

davefairtex
By davefairtex on Sun, Jul 17, 2016 - 12:30am

On Friday, gold rose +2.10 to 1337.70 on moderate volume, while silver fell -0.07 to 20.30 moderate volume also.  A strong Retail Sales report on Friday caused the buck to jump and gold to drop before the US market open - but both gold and silver's losses vanished right before market close as buyers showed up in force.  Perhaps traders didn't want to be short going into the weekend.

On the week, gold fell -29.70 [-2.17%], silver fell just -0.06 [-0.27%], GDX dropped -2.19%, and GDXJ declined -1.34%.  Platinum fell -0.30%, palladium shot up +5.12%, and copper rose +5.13%.  PM and industrial metals diverged strongly this week.

On the chart we can see that gold has executed a crossover of the 9 EMA on Tuesday, which then acted as resistance for the remainder of the week.  In addition, the MACD trend-following indicator also executed a crossover as well this week, suggesting that gold has moved into a downtrend.  Down-day volume is exceeding up-day volume which suggests money was flowing out of gold, at least in the West - that is borne out by the decline in GLD tonnage as well as the decline in open interest at the COMEX, which declined by -48,081 contracts or about 150 tons of paper gold.

On the positive side of the ledger, the 1320 price level acted as support during the decline this week, which also happened to be the closing price for gold on BRExit Thursday two weeks ago.

Silve spent the week more or less moving sideways; that means it outperformed gold, since gold dropped more heavily on the week, but on the chart below we see that silver's momentum definitely appears to have slowed substantially.  This is confirmed by the standard MACD (sub-chart #1) which appears to be heading towards a crossing event.

However, a custom MACD (sub-chart #2, below) that reacts faster to trend changes shows that the MACD crossover event has already occurred.  Why did I pick these faster settings?  I asked one of my programs to pretend to trade silver using a wide variety of different MACD settings - and I picked the setting that made the most money since 2008.  The settings were 7/14/9 - instead of the standard 12/26/9.  Simply buying each bullish cross and shorting each bearish cross would have you up $55 since Jan 1, 2008.  Given that buy-and-hold silver would have you up $5...I'd say this MACD was a win - although it did require some 230 trades, which is a trade every 8 days!  This same setting also worked consistently well starting from 2011 onwards.

Silver currently remains above its 9 EMA, but a crossing could be a violent event; silver's movement down off the highs can be $1/day affairs.

Miners

Miners chopped sideways this week, ending slightly lower but remaining within their recent 2-week trading range.  We see one distribution day from the sell-off on Tuesday, which is somewhat bearish, and GDX printed a swing high this week as well.  The miners continue to hold up better than the metal, but they do appear to be weakening.  The close this Friday was a bit of a sour note; miners closed down, while gold closed up.

The USD

The buck rose +0.24 to 96.56.  This wasn't a particularly large move - but that was not true in other places: the Pound rebounded +1.83%, while the Yen lost a massive -4.11% after Bernanke and Abe had a "secret" meeting where the topic of conversation was presumed to be monetary aviation.

Pressure from BRExit is starting to recede.  UK has a new government which appears headed in a clear direction which is relieving the selling pressure on the Pound.  In turn, I believe this is contributing to the weakness in gold.  BOE decided against raising rates, which briefly surprised the markets, but had no lasting effect.

US Equities/SPX

US equities rallied strongly for the third straight week, up +31.84 [+1.49%] to 2161.74, breaking to a new all time high.  Contributing bullish macro events were a strong retail sales number, a strong Industrial production number, last Friday's strong Nonfarm Payrolls number, and declining credit stress.  Independent of the good macro data, my sense is that the cause of the move was (possibly) pension money deciding to buy the BRExit rally.  Pension funds simply can't afford to miss a move higher these days.  VIX fell -0.53 to 12.67.

As for sentiment - dumb money is now into the "extreme optimism" area, while the smart money is moving rapidly towards extreme pessimism.  According to this sentiment indicator, we are probably nearing a high.  That doesn't mean the next step is a market crash - it just means that the chance of a near-term correction has increased.  VIX at around 12.50 has also been a relatively good time to buy puts.

Here's the sector map: looks like the rally in industrial metals has driven materials equities into the lead.  Financials have recovered (somewhat) from BRExit issues, while utilities have tipped over and moved into a downtrend.  Still I wouldn't bet against those utility stocks - just look at a monthly chart.  They are up 300% since the 2009 lows, with every dip being a buying opportunity.  How crazy is that?

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Materials XLB 3.88% 3.33% rising rising rising rising ema9 on 2016-07-08 2016-07-15
Financials XLF 2.62% -6.08% rising rising rising rising ma50 on 2016-07-12 2016-07-15
Industrials XLI 2.55% 8.61% rising rising rising rising ma50 on 2016-07-06 2016-07-15
Telecom XTL 2.54% 6.96% rising rising rising rising ema9 on 2016-06-29 2016-07-15
Energy XLE 2.24% -5.59% rising rising rising rising ema9 on 2016-07-08 2016-07-15
Technology XLK 1.99% 6.75% rising rising rising rising ma50 on 2016-06-30 2016-07-15
Homebuilders XHB 0.83% -4.56% rising rising rising rising ma50 on 2016-07-06 2016-07-15
Healthcare XLV 0.53% -2.86% rising rising rising rising ema9 on 2016-06-29 2016-07-15
REIT RWR 0.47% 17.20% rising rising rising rising ema9 on 2016-06-28 2016-07-15
Cons Discretionary XLY 0.45% 3.36% rising rising rising falling ma50 on 2016-07-06 2016-07-15
Cons Staples XLP 0.02% 13.30% rising rising rising rising ema9 on 2016-06-29 2016-07-15
Utilities XLU -1.03% 22.05% falling rising rising rising ema9 on 2016-07-14 2016-07-15
Gold Miners GDX -2.19% 86.54% rising rising rising rising ema9 on 2016-06-24 2016-07-15

Gold in Other Currencies

Last week's move has reversed; this week gold fell in every currency except for the Yen, which had a very bad week.  Simply by showing up, Bernanke can still have an impact!  Gold in Yen did well, while gold in XDR fell -33.60.


 

Rates & Commodities

Bonds (TLT) printed a swing high this week and then proceeded to sell off hard, dropping a huge -3.63% and moving well below its 9 EMA.  TLT is now in a downtrend, and this was a big risk on signal this week.  Bond sentiment has moved down from "most excessively optimistic, ever" down to merely "excessively optimistic", although its my guess that it would probably take a continued move higher in equities and a resolution to the Italian banking crisis to continue pushing TLT lower for any length of time.

JNK was mostly flat, up just +0.11% and printing a weekly "northern doji" candle.  Might we have come to the end of the junk bond rally?  JNK has just chopped sideways this week - not exactly risk off, but it is possible that everyone who wants junk debt right now has bought.  JNK is up 18.4% off its lows from February.  We'll have to see what next week brings.  An oil rally could push JNK prices even higher.

CRB rose just +0.90%, managing to climb back above its 50 MA but its chart still looks relatively unhealthy.  CRB remains in a downtrend.  Energy recovered somewhat, and industrial metals did best, but PM, and especially livestock had a bad week.

WTIC rebounded modestly after last week's sell-off, closing up +1.16 [+2.57%], recovering a bit more than 25% of last week's loss.  Crude looked like it might recover more strongly until the Petroleum status report hit on Wednesday; it showed another inventory draw of -2.5 million barrels, but once again traders were not impressed and oil sold off losing $2 in 60 minutes.  Thursday and Friday were spent slowly recovering from that event.  Trend still appears to be down, even though crude managed to close back above its 9 EMA by about ten cents, and oil also managed to print a swing low.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -18.41 tons, with 962.85 tons in inventory.

* Gold is not in backwardation; the two front month contracts differ by +3.70.

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

 PHYS 11.035 +0.78% to NAV [up]
 PSLV 7.69 +0.09% to NAV [down]
 CEF 14.36 -3.65% to NAV [down]

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

* HAA big bar premiums are lower for gold [2.08% for 100 oz bars in NYC], and higher for silver 1000 oz bars  [6.04% for 1000 oz bars in NYC], and higher for silver eagles at +16.63%.  I have now seen two places that quote a 6% premium for big bar silver, although Apmex is still quoting them at $0.49 above spot.

Futures Positioning

COT report covers trading up through Tuesday July 12th.

Gold commercials started closing out shorts this week, dropping -15k shorts while managed money sold -4k longs and added +10k shorts.  The bulk of the drop in gold OI (about 48k) happened on Wed-Fri, so we have to wait until next week's COT report to see who did what.  Commercials still have a vast number of shorts open - they would need to drop about 150k shorts to get back to something approaching normal.

In silver, commercials closed -1.7k shorts, while managed money added +3k longs and closed -2k shorts.  Not much happened this week in silver - which matches up with what happened on the chart.

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

Silver is continuing to lead the metals, probably because of the very strong performance by industrial metals this week.  We see that gold has crossed its 9 EMA; the safe havens did poorly this week, and gold suffered as a result.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 1.06% 112.59% rising rising rising rising ema9 on 2016-06-03 2016-07-15
Silver SI.CW -0.27% 35.80% rising rising rising rising ma50 on 2016-06-08 2016-07-15
Platinum PL.CW -0.32% 8.71% rising rising rising falling ma50 on 2016-06-30 2016-07-15
Junior Miners GDXJ -1.34% 122.49% rising rising rising rising ema9 on 2016-06-22 2016-07-15
Gold GC.CW -2.09% 17.07% falling rising rising rising ema9 on 2016-07-14 2016-07-15
Senior Miners GDX -2.19% 86.54% rising rising rising rising ema9 on 2016-06-24 2016-07-15

Gold Manipulation Report

There were no material spikes this week in either silver or gold.  There were a pair of spikes in silver on Monday - 1 spike up, and another down.

Summary

The US market has definitively broken higher; BRExit wasn't the end of the world, traders are retreating from their safe haven hidey holes, and the macro data in the US does seem to be improving: industrial production and retail sales are two big indicators I follow and they both look fairly decent right now.  That aligns with nonfarm payrolls.  As a result of all that, gold suffered a decline, and silver's upside momentum has slowed to a crawl.

The gold/silver ratio fell -1.28 to 65.91, which is bullish.  GDX:$GOLD was unchanged, but the ratio remains quite bullish, GDXJ:GDX rallied also looks quite bullish.   Ratios still look positive this week, in spite of the drop in gold.

COT report for gold and silver shows that the commercials are starting to cover, gold more so than silver.  There remains a huge overhang of commercial short positions; they will have to be bought back at some point, and I expect this will act to cushion the current gold downtrend we are now starting to see.

Gold big bar shortage indicators show no signs of shortage, but silver big bar premiums are now elevated in two places I monitor.  PSLV has no premium, however.

On the charts gold has moved into a downtrend, silver's upside momentum is starting to weaken, but if it continues, the industrial metals rally could continue to pull silver higher.  Oil's downtrend isn't helping, and the return to risk accompanied by the drop in other safe havens doesn't bode so well for gold short term.  Still, I think the covering by commercials will put a floor under gold's current downtrend.  150 tons of paper gold still needs to be bought back, minimum, and this might be the only chance they get to do so for a while.

Current view from the computer:

  • Uptrend: SPX, DJIA, crude, copper, USD.
  • Downtrend: gold, silver, miners, platinum, natgas, treasury bonds.

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8 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 149
Custom MACD

and I picked the setting that made the most money since 2008. The settings were 7/14/9 - instead of the standard 12/26/9.

Thanks for passing that along.  I just added that as a default indicator to my PM "Chartbook" on stockcharts...could be a valuable tool for the occasional short term trade. 

Have you applied that to Gold as well?

Steve

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
MACD for gold

Steve-

For gold, 2008-present: trades 205 ROI $1559 MACD 7-23/9

This setting does relatively well from 2012-present too, but it did poorly from 2000-2008.  It didn't actually lose money during 2000-2008, but it definitely didn't beat buy & hold.  In fact, buy & hold was the clear winner in 2000-2008 vs any MACD setting.

So treat this as "something interesting" rather than a sure path to riches.  :-)

I suspect it represents some underlying market rhythm or cycle.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Failure to smash....

Efforts by the cartel to smash in the quiet Sunday overnight are a total failure.  Most of my miners, and interestingly, my PHYS, are up this morning vs. Friday close.  In the past such a heavy dip would have led to follow-on selling.  Now, not so much.  The paper markets are being exposed as the joke that they are.     

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
all-powerful cartels

JimH-

If the paper markets were under the complete control of the cartel, the way you have always claimed, smashes would never fail.  And yet, they are failing, much to my satisfaction.

Why am I satisfied?  If you recall, I predicted that once western buyers came back, cartel smashes would just stop working because the excited longs would be buying every dip.  And that's exactly what has happened.

Turns out we didn't need a COMEX default to cause gold to rally, we just needed managed money.  Turns out, cartel can't print infinite contracts and stuff any rally.  Turns out, there seems to be a limit on the number of short contracts they are willing to have open.

Imagine that.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Cartel power has always waxed and waned...

The cartel asserted itself in 2011 and 2012 and they maintained the power to smash until earlier this year.  Then something changed... This is a complex environment where the underlying demand is changing, the available buffers of metal (mostly Gold) is changing, and the ability to make smashes that cannot be arbitraged (since the new SGE Yuan price fix came into being).  

So we are in a phase transition where the ability of the cartel to control price by smashing it and driving waterfalls downward is waning.  For those willing to open their eyes to the nature of the manipulation, the prize (a final break between paper and phys) is easy to discern. 

http://investmentresearchdynamics.com/more-evidence-the-fed-is-losing-co...

More Evidence The Fed Is Losing Control Of Gold And Silver

“Chinese miners are competing to secure gold assets, because there’s a consensus that domestic demand will far outstrip local supply due to fast-growing investment demand,” Wang Rong, an analyst at Guotai Junan Futures Co. said – in response to the news that the Silk Road Fund is spending $2 billion to buy a gold mine from Glencore

I am highly confident of two facts that will be difficult to prove with certainty until after the event: 1) the eastern hemisphere is accumulating more physical gold and silver than can be possibly tracked by western propaganda sources; 2) the western Central Banks are losing their ability to control the price of gold and silver with paper derivatives (Comex futures, LBMA forwards, OTC derivatives, lease agreements, hypothecation agreements).

#2 is occurring because the supply/demand deficit of physical gold and silver that can be delivered to the buyer demanding delivery is exerting powerful upward force the on oversupply of fraudulent paper metal. GATA predicted this event would begin to occur eventually back around the turn of the century. It took longer than any of us thought it could but here we are....

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
cartel power

JimH-

Cartel power has always waxed and waned...

The cartel asserted itself in 2011 and 2012 and they maintained the power to smash until earlier this year.  Then something changed... This is a complex environment where the underlying demand is changing, the available buffers of metal (mostly Gold) is changing, and the ability to make smashes that cannot be arbitraged (since the new SGE Yuan price fix came into being).

The contortions you guys go through in order to explain the inner workings of the gold market are astonishing.  In the mainstream goldbug view of the world, cartels have to be all powerful when price drops, and then the cartels suddenly lose this incredible, all-dominating power when price goes up.

Trend changes couldn't possibly be due to changing money flows from western gold buyers.  Nope, its gotta be Yuan fixes and gold buffers and whatever else they can come up with to entertain their readership.

I'm still going to take my victory lap.  Things happened exactly the way I said they would.  As soon as the western gold buyer returned, gold went up in price, and the apparent ability of the cartels to "stuff any rally" vanished.

M-ole's picture
M-ole
Status: Member (Offline)
Joined: Sep 10 2009
Posts: 15
OK ... I didn't see the

OK ... I didn't see the article that Jesse had on his site (http://jessescrossroadscafe.blogspot.com/) ...

Check this out and let me know what you think -

http://www.silverseek.com/commentary/greatest-lie-ever-told-15774

p.s. I always look for insights from Jesse ... not only on the precious metals market ... and have grown wiser in the process.

M-ole's picture
M-ole
Status: Member (Offline)
Joined: Sep 10 2009
Posts: 15
I also like what Doug

I also like what Doug Eberhardt has to say and I always look forward to his articles on Seeking Alpha ...

Here's one that may be of interest, although may be at odds with the other article that I cited (at least in the short-run) -

http://seekingalpha.com/article/3989504-gold-miners-decline-coming-cauti...

(I also like what Jim Puplava has said on his Financial Sense podcast ... which is that he likes to have people on his program that disagree with him in order to challenge his views since it always helps him evaluate why he has taken any given position).

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