PM Daily Market Commentary – 03/16/2020
Gold fell -15.35 [-1.00%] to 1515.60 on heavy volume, while silver cratered, dropping -1.80 [-12.23%] to 12.92 on moderately heavy volume. The buck fell [-0.76%], SPX cratered too [-11.98%] along with crude [-12.34%], while bonds raced higher [10-Year yield fell -18.0 bp].
The Fed’s Sunday-night rate cut [to 0%] and money printfest [at least $700 billion] apparently did not reassure the markets at all. The Fed had a meeting scheduled for Tuesday/Wednesday of this week, but instead they met over the weekend and announced their response just before market open in Asia, presumably in an attempt to head off the selling in the markets that we saw today.
Gold gapped up at the open in Asia, but then started to fall, finally dropping off the cliff during the London session, and only recovering after the US market opened at 9:30 am. Gold was able to regain most of the early losses by market close. The long black candle was a reasonably strong bullish reversal (41%), and forecaster moved slightly higher, but remains in a strong downtrend. Gold remains in a strong downtrend in both the daily and weekly timeframes.
Gold/euros fell -25.52 [-1.84%] to 1357.96 on heavy volume. The long black candle was a possible bullish reversal (39%), but forecaster dropped, moving deeper into its downtrend. Gold/euros is in a downtrend in all three timeframes.
COMEX GC open interest fell -8.8K contracts. Current open interest for GC: 53% of global annual production, down -0.81% today.
Silver also gapped up at the open, moved lower during Asia, and then once Asia closed, it was absolutely smashed, plunging almost $3 over about 4 hours, making a new decade low to 11.77. Silver smashed through 3 different prior lows before finding buyers at price levels last seen in July 2009. The strong line candle was a bearish continuation, and forecaster fell, moving deeper into its downtrend. Silver remains in a downtrend in all three timeframes.
No reversal seen for silver.
This was the 5th worst single-day decline in silver’s 57 years of trading history.
COMEX SI open interest fell -2.6K contracts. That was -5 days of global annual production in paper removed from the market. Current open interest for SI: 97% of global annual production, down -1.50% today.
The gold/silver ratio climbed +13.30 to 117.31. That is…astonishing. It was also the largest single-day move in the ratio in history, by a factor of two.
The miners gapped down at the open, but then screamed higher virtually all day long. GDX jumped +18.37% on extremely heavy volume, and GDXJ rallied +20.34% on extremely heavy volume also. XAU advanced just +7.00%, the long white candle was a probable bullish reversal (50%), forecaster climbed, but remains in a downtrend. XAU remains in a downtrend in all three timeframes.
Why the huge difference between the miner ETFs and the index? Rumor had it that the ETFs were trading at a massive discount to NAV, and that discount unwind (i.e. “free money snapped up by traders”) accounted for a big chunk of today’s move higher.
Miner price action today was incredibly bullish. That said – while this could well be a reversal, we should remember that markets these days scream higher one day, and then crater the next.
The GDX:gold ratio climbed +16.37%, and the GDXJ:GDX ratio climbed +1.64%. That’s very bullish.
Platinum plunged -95.20 [-14.26%], and palladium dropped -202.04 [-13.86%]. Palladium has dropped nearly 50% over the last 12 days. Intraday, platinum was down nearly $200, an absurdly large move. By end of day, platinum closed at levels not seen since 2003. If you ever wanted to buy some platinum, now would seem to be the time to do so. 2003 prices! And even after the very substantial bounce that chopped platinum’s losses in half, this was the largest single-day percentage decline for platinum in history – with the second-largest decline happening just 3 trading days ago!
Copper plunged -0.11 [-4.58%] to 2.39 on moderate volume. The bearish engulfing candle was a bearish continuation, and forecaster fell, moving into a downtrend. Copper is now in a downtrend in all three timeframes. This is a new 3-year low for copper.
The buck plunged -0.75 [-0.76%] to 98.15 on moderately light volume. The bearish harami candle was a reasonably strong bearish reversal (47%), and forecaster dropped, but remains in an uptrend. The buck is still in an uptrend in the daily and monthly timeframes.
Major currency moves included: EUR [+0.47%], JPY [+2.13%], AUD [-1.11%]. Today marks yet another 12-year low for AUD – it is rapidly approaching the previous low [0.6073] set during the GFC back in October, 2008. If China is getting back to work, the AUD/USD currency pair isn’t noticing.
Crude plunged -4.12 [-12.34%] to 29.28 on moderate volume. The long black candle was a bearish continuation, forecaster fell, dropping into a downtrend. Crude is now back in a downtrend in all three timeframes. Crude has closed below round number 30, which is a very bearish sign.
While Trump promised to buy oil for the SPR – “filling it to the top at these low prices” (which I think is actually a brilliant trade – very unusual in government – while also supporting our domestic shale industry) – it didn’t seem to move the needle very much at all.
SPX cratered -324.89 [-11.98%] to 2386.13 on heavy volume. The long black candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. SPX is in a strong downtrend in all three timeframes.
Today’s SPX decline was the third-worst percentage decline in the history of the series; #1 was the 1987 crash [-20.5%], and #2 was October 28, 1929 [-12.3%]. To say that today’s drop was historic – not hyperbole at all.
REITs [-19.05%] led the market lower, along with tech [-16.03%], while staples [-7.28%] and sickcare [-10.94%] did best. This was a bearish sector map.
The VIX rose +24.86 to 82.69. This does not exceed the peak during the GFC [89.53], but — we are definitely getting close.
TLT screamed higher, rising a massive +6.48%. The swing low candle was a likely bullish reversal (68%), forecaster jumped higher, moving back into an uptrend. TLT is back in an uptrend in the daily and weekly timeframes. The 30-Year yield fell -21.0 bp to +1.35%.
TY rallied +1.34%. The bullish harami candle was a reasonably strong bullish reversal (46%), forecaster climbed, moving into a state of no-trend. TY is in an uptrend in the weekly and monthly timeframes. The 10-Year yield fell -18.0 bp to +0.76%.
JNK plunged -5.76%. The gap down doji candle was a reasonably strong bullish reversal (42%), but forecaster dropped, moving deeper into its downtrend. JNK remains in a downtrend in both the daily and weekly timeframes.
My belief is that crappy debt is only holding it together because of massive amounts of Fed money printing in the repo markets.
ETF Discount to NAV:
* CEF -6.42%
* PHYS -3.58%
* PSLV -3.13%
Bullion Vault Premiums:
* gold: +3.00
* silver: +0.40
While the ETFs have been pounded into discount, physical at bullionvault – especially for silver – are signaling very strong physical demand at these prices.
Yield Curve Inversion: the 1-10 spread fell -8 bp to +48 bp today. 1Y: 0.28% (-10 bp), 10Y: 0.76% (-18 bp).
While we are seeing historic declines in equities and crappy debt, and the bid is now back underneath treasury bonds (and for that, I think we can thank the Fed’s Sunday-night promise to spend “at least” $700 billion to keep a bid under said assets – to “keep the market functioning”), the PM components of silver and platinum were utterly smashed today.
Tinfoil hat time here on the PM report. I think its all about correlations. In the process of making my models, I have learned that, for the models to behave correctly, I need to include movements in other items that have the highest positive – or negative – correlation to the asset I’m trying to predict.
SPX negative corrrelations:
GC positive correlations:
Why do we care? I think there are a lot of models out there that use this same approach, models that real traders with real money use to buy and sell. So if your goal is to prop up SPX – the avowed goal of the PPT, the Fed, and of course Trump himself – then one of your tools might be to smash the living daylights out of the negatively correlated items, so that the money connected to all those models will shove money into SPX. What’s more, if your goal is to keep money from rushing into heavily-disliked gold, it turns out that smashing PL and SI help there too.
What happened today? All the following items are closely tied to economic performance. And yet, platinum [-12.23%] and silver [-12.44%] were smashed – historically smashed – while copper [-4.58%] and lumber [-2.10%] were much less affected.
Markets are, at the core, about discovering a price for an item based on supply & demand for that item. The real item. Problem is, when the PPT engages in smashing price for an item in order to move a different market, the price of the smashed item is no longer being properly discovered. The silver market has been turned into a “market” – it is now just a lever used to keep the preferred market (SPX) from collapsing, and to keep money from flowing into the not-preferred market (gold).
Because of this, it is my belief that the silver “market” price is well below the actual (supply & demand) price. Silver, at $12, is dramatically mis-priced, as a result of PPT smashing it in order to prop up SPX.
If the PPT continues in this way, at some point, public confidence in the deformed Potempkin “markets” will snap, and they will lose all their utility. What is the breaking point? Nobody knows, and certainly not me. But as long as SPX continues to drop, the PPT will probably continue to smash the negatively correlated markets. We’ll see if they end up breaking this time around.
Crisis always brings opportunity. What do you do when something is grossly mispriced? Well, you might consider buying some of it. Assuming you can locate some of the real item for sale at something near the PPT-driven “market” price.
Not financial advice, of course.
Bullish reversals: TLT, XAU, gold, gold/Euros, JNK
Bearish reversals: USD, copper
Bearish continuation: SPX, crude.
had the misfortune to go all in silver and then the broker that i was dealing with encouraged me to collateralize it… i was sitting there… thinking that silver could only go up…. and bang. now have lost it all. plus owe more money for their service. Wish that some of you guys had been warning us against this form of gambling that is severely assymetric in risk. now some bank had my product and im in a bad place.. got to love the ppt and bis and all those guys tilting the tables to get real assets rolling their way.
Is there a big move in place to swap paper silver for physical? That might account for the spread – the drop in paper price, rise in premiums for physical, and shortage of physical.
The size of the silver market may also be a factor. It wouldn’t take that much to empty the shelves. And with panic increasing, there may not be many willing to sell their physical right now.
One thing that could help price discovery would be a website reporting premiums from many dealers.
One thing that could help price discovery would be a website reporting premiums from many dealers.
Did I hear the sound of a volunteer? 🙂
I agree it would be a great service. I scrape the CEF/PSLV/PHYS premium/discounts, but that’s it.
I don’t think silver’s recent price collapse was driven by anything other than some big player trying to smash price. Happened to platinum too.
I say we all go and buy PSLV, push it into premium, and then Eric Sprott will use that extra cash to go get a bunch of bars from COMEX.
I’m doing my part.
Wallpaper, sorry to hear that buddy. Hope you’re doing okay.
Bought May 20 13.0 Strike SLV Call Options looking for a bounce. So much easier than lugging a 500 box of silver eagles around, lol.
April contracts would have probably been better but too expensive for me.
According to this website the 40 cheapest silver bullion deals online vary from 15 to 36% premiums. The low end includes starter pack deals and 40% junk silver. The 20th item has a 28% premium, so there’s that for whatever it’s worth.
An Explanation of Rising Premiums
Most of you are now aware that the inventory of most precious metals dealers has evaporated. Premiums on common products have skyrocketed. I am writing this to offer some insights into these price changes so that you can make informed decisions. I will use the US Mint as the proxy for all mints.
What is a product premium? The premium is the markup for a precious metals coin or bar above the spot price. Several factors contribute to a coin’s premium, the most significant of which is the minting (manufacturing) cost. While the underlying spot price of precious metals are tied to financial markets, the fundamental reality is that retail precious metals (coins and bars) are manufactured goods. As anyone familiar with manufacturing knows, to increase manufacturing output by as little as 10% generally requires planning and lead time. Capex, personnel, throughput, raw materials and other factors all create ramp up constraints. For this reason, the US Mint leverages authorized distributors to carry large stocks to help dampen the unique elasticity in the precious metals markets. These distributors purchase Silver American Eagle coins, as an example, from the US Mint at a premium of $2. This premium pays for the manufacturing costs of producing these coins. The authorized purchasers sell to the largest dealers in the U.S. at a slight markup, and the dealers, in turn, sell at a small markup to retail clients. At the largest dealers in the U.S., you can generally expect to pay a premium anywhere between $2.30-$2.60 for a monster box (500 coins) of Silver Eagles, which nets the dealer a small gross profit of generally 1% or less.
The fixed manufacturing cost doesn’t change in tandem with the price of the underlying metal. To oversimplify, if the spot price of silver is $2, the premium for the coin will be ~100% over spot. If the spot price is $50, the premium will 4% of spot.
The demand experienced industry-wide over the past 5 days has been unprecedented. This is worse than Y2K, 9/11, or the Great Financial Crisis. It is the speed at which demand spiked (seemingly overnight) that has crippled the industry. Volume is up over 10x (in some cases much more) in a matter of days. This has strained customer service, logistics, and – relevant to this article – supply. The industry is built for elasticity. We are used to big spikes in demand. We can handle a 1 or 2 standard deviation move. We can’t handle a 5 standard deviation move in 5 days.
Distributors sold out of stockpiles in 48 hours. Dealer inventory disappeared immediately. Precious metals are the toilet paper rolls of the financial markets – under appreciated until there isn’t much left. To be sure, there is ample raw material, just like there are plenty of trees to make paper. Getting the raw material into the form that you want is the problem.
To accommodate for depleted inventories, the distributors place desperate orders with mints, which are caught flatfooted, and immediately attempt to ramp up production. This requires insourcing raw materials and beefing up staff. Since a 1,000% output is impossible, the mints create allocations to distributors which are estimated deliveries tied to production (but not certainties) and represent only a fraction of what they need. The distributors forward sell this expected (but uncertain) volume to dealers, and make up any shortfalls by bleeding into expected allocations which are even further out in time. In normal times (i.e. no National Emergency) the allocations are tenuous at best. During a time of rising civil shut-ins, the distributors are selling future production at historic premiums with unknown delivery dates. That is where we stand today. All production from Europe is entirely cut off at this point, which compounds the supply shortage dramatically.
The extreme supply/demand constraints spike prices, as dealers are willing to pay much, much higher premiums to secure coins for faster delivery. This is economics 101. The premiums get bid up in the market place. Dealers can afford these higher premiums because customers are willing to pay almost any price to secure precious metals in physical form at the onset of what is now a national calamity and a burgeoning financial crisis.
What Does the Future Hold?
We now find ourselves on one of two paths. One possibility is that the national crisis blows over quickly, demands subsides, supplies catch up, and premiums gradually return to normalcy (a period likely to last at least two months by current estimates). The other possibility is that shut-ins become pervasive nationwide (as they have in France, Spain, and Italy) halting the entire supply chain for weeks and creating an almost insurmountable backlog of demand.
Let’s all hope it is the former. I hope this explanation is helpful.
I don’t think silver’s recent price collapse was driven by anything other than some big player trying to smash price.
Yes you do, you think margin calls also played a part 😉
If you think there’s potential for further stock market downside, then surely there’s also scope for silver to go even lower than this, whether by downward manipulation to support stocks and/or by margin calls.
FD: I sold my paper silver longs yesterday into the 50 cent ‘strength’ and also my bitcoin position and switched into unleveraged long miners.