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PM Daily Market Commentary – 03/18/2020

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  • Wed, Mar 18, 2020 - 11:48pm

    #1

    davefairtex

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    PM Daily Market Commentary – 03/18/2020

Gold plunged -41.58 [-2.72%] to 1489.39 on moderate volume, and silver dropped -0.65 [-5.15%] to 11.97 on moderate volume. The buck shot higher again today [+1.74%] while SPX plunged [-5.18%], crude cratered [-14.96%], and – surprisingly – bonds plunged too [10-Year yield rose +16.0 bp].

Gold fell steadily all day long. The long black candle was unrated, and forecaster climbed, but remains in a downtrend. Gold is in a downtrend in both the daily and weekly timeframes. Gold’s plunge was exacerbated by another massive dollar rally today – more than half of gold’s loss was just a currency effect.

Gold/euros fell just -19.67 [-1.41%] to 1373.79 on moderate volume. The long black candle was a possible bearish reversal (38%), and forecaster climbed, but remains in a downtrend. Gold/euros is in a downtrend in all three timeframes.

Unlike gold, silver’s drop was a series of stair-step high volume down spikes, which eventually took silver to a new multi-decade low of 11.64 before silver rebounded into the close. The long black candle was a bearish continuation, forecaster moved a bit higher, but it remains in a downtrend. Silver is in a downtrend in all three timeframes.

COMEX SI open interest fell -1.9K contracts. That was -3 days of global annual production in paper removed from the market. Current open interest for SI: 95% of global annual production, down -1.09% today.

The gold/silver ratio climbed +3.11 to 124.43. That’s another all time high for the ratio.

Miners gapped down at the open, rallied briefly in the first 30 minutes, then sold off hard through end of day, with a slight rally into the close. GDX plunged -22.82% on extremely heavy volume, and GDXJ dropped -24.67% on very heavy volume. XAU fell -13.59%, the swing high candle was neutral – not a bearish reversal, but forecaster dropped, falling into a downtrend. XAU is back in a downtrend in all three timeframes.

The GDX:gold ratio dropped -20.67%, and the GDXJ:GDX ratio dropped -2.46%. That’s very bearish.

Platinum fell -37.70 [-6.03%], and palladium fell -49.57 [-3.41%]. Just looking at the chart, palladium seems to have found support down around 1500.

Copper plunged -0.15 [-6.49%] to 2.17 on moderate volume. The long black candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. Copper is in a downtrend in all three timeframes.

Copper is now catching up with the other metals – today’s plunge was quite dramatic; there was a large initial plunge that took place during the Asia trading session, and copper just continued dropping for most of the day. Today, as I write this, copper has continued to plunge – down around 0.12 [-5.75%].

I usually interpret moves down in copper as a signal that all is not well in China – but today’s massive plunge may also be related to projections about the global economy.

The buck shot up +1.74 [+1.74%] to 101.54 on moderately light volume. The long white candle was a bullish continuation, forecaster dropped, but remains in an uptrend. The buck is in an uptrend in all three timeframes.

Major currency moves included: CAD [-2.40%], EUR [-0.82%], GBP [-4.19%], AUD [-4.21%]. AUD continues to make multi-decade lows, and CAD is right on the cusp of doing so as well. GBP hasn’t seen these levels (1.16) since 1984. Money is fleeing the UK right now.

For those expecting the buck to turn into confetti — you will have to wait a bit longer, it seems. Currency flows into the buck are extremely strong. This is bad news for everyone in foreign countries that have taken out dollar-denominated loans, as they have just become substantially more difficult to repay, and that difficulty is increasing with each jump higher in the buck.

When we add a dollar rally to a drop in economic activity, it adds up to a lot of debt default for foreign USD borrowers.

Crude plunged -4.13 [-14.96%] to 23.47 on heavy volume. The opening black marubozu candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. Crude is in a downtrend in all three timeframes.

EIA report: didn’t affect price, I won’t bother. Intraday, crude’s plunge was just a parabolic line down; the only thing stopping the decline was the pit close at 2:30 pm, after which crude bounced back somewhat. There was a contract roll today – the closing price of the new contract was actually 20.52.

Any way you slice it, the plunge in crude took prices down to around 2002 levels – below levels hit during the GFC in 2008. More historic moves.  Will crude be given away for free soon?

SPX plunged -131.09 [-5.18%] to 2398.10 on heavy volume. The high wave candle was a probable bullish reversal (52%), but forecaster dropped, moving deeper into its downtrend. SPX is in a downtrend in all three timeframes.

SPX spent most of the overnight session in the futures markets down 5% in a lock limit freeze, then sold off more after market open and then made a new low. However SPX rallied sharply in the last few hours of trading, resulting in that takuri line print, wiping out a good chunk of the day’s losses. Will this rally hold? As I write this, the futures have sold off once again, and are back down near to those (2260) lows once more.

Energy [-16.76%] led the market lower, along with financials [-9.28%], while staples [-2.64%] and sickcare [-3.43%] did best. This was a bearish sector map.

The VIX rose +0.54 to 76.45. In spite of today’s bounce, VIX is still showing a four-alarm fire.

TLT plunged -5.64%. The long black candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. TLT is in a downtrend in both the daily and weekly timeframes. The 30-Year yield rose +14.0 bp to +1.77%.

TY dropped -0.73%. The long black candle was a bearish continuation, forecaster fell, moving deeper into its downtrend. TY remains in an uptrend in the weekly and monthly timeframes. The 10-Year yield rose +16.0 bp to +1.18%.

The bond bull market is rapidly unwinding. It appears that trillion dollar government handouts are bad for bonds. Who knew?

JNK plunged -4.27%. The long black candle was a probable bullish reversal (52%), forecaster dropped, moving deeper into its downtrend. JNK is in a downtrend in both the daily and weekly timeframes.

Crappy debt made new lows today. The 4% and 5% plunges are really dramatic moves for JNK, and it does not look as though it is confirming that bullish-looking candle print for SPX.

Physical Supply

The GLD ETF tonnage on hand was unchanged at +0.00 tons, with 930 tons remaining in inventory.

ETF Discount to NAV:
* CEF -5.61%
* PHYS +0.15%
* PSLV +3.67%
Bullion Vault Premiums:
* gold: -0.99
* silver: +0.84

Well look at that – PSLV has moved into premium. Was it something I said? Also, premiums for silver at BV continue to be very strong. There is a shortage of physical silver right now – at least at COMEX SI prices anyway.   [FD: I’m long PSLV]

Economic Reports

Yield Curve Inversion: the 1-10 spread rose +28 bp to +100 bp today. 1Y: 0.18% (-12 bp), 10Y: 1.18% (+16 bp). Trillion dollar handouts and the Fed dropping rates to zero mean inversion is far, far away.

Summary

The big news for me today was the dramatic plunge in copper; after slowly but steadily moving lower over the past month, the pace of copper’s decline really accelerated this week, culminating with today’s big drop. Copper is usually about China, but in these circumstances – where Europe and the US both go essentially offline for a time – perhaps it is more than China this time around, and is more about a projection of global industrial activity.

Likewise, the initial very strong move into long-dated US treasury bonds is now being just as strongly unwound. Is it money printing? The trillion dollars added to the deficit? Both together? The promise by the Fed to basically buy it all up with freshly printed money does not seem to have comforted the buyers of 30-year debt who picked it up last week at a yield of 1%. The current 30-year yield at 1.77% is still ridiculously low, but the losses to the holders who got it at 1% are … about 16%. Over 7 trading days. Now just imagine if they levered up to do it.

Currencies also are telling us a story. GBP is at 30-year lows, AUD is at 15-year lows, and so is CAD. Money is racing into the USD. Not into equities, or long term bonds, and certainly not into commodities.

Gold, silver, and the miners do not appear to have put in any sort of durable low just yet. Gold and the miners did avoid a new low today – better than can be said for a lot of instruments – while silver did make a new low. But in spite of the selling pressure at COMEX, premiums for those who want to buy actual, physical silver have shot higher, and even the semi-physical instruments (PSLV, bullionvault) are seeing premiums materially expand. While coin premiums have shot higher due to the shortage of a particularly well-liked form factor, even the annoyingly-heavy COMEX bars are at a premium. Eventually this physical demand will flow through to move COMEX SI prices, but it might take a month or two before this happens.

Bitcoin appears to have stabilized around the 5000 level, having chopped sideways now for about a week. That said, weekly forecaster is still pointing lower. At least the wave of forced selling appears to have passed.

In the meantime, where do you go to hide? The 3-month bill yields…0.02%, and even the 1-year is at just 0.21%. Basically you just get your money back, which is where Europe has been now for almost a decade.

Speaking of which, in an unscheduled meeting on Wednesday night, the ECB announced it would print $750 billion Euros, and use the freshly printed money to buy public and private sector debt, to include commercial paper for the first time in its history. [Commercial paper is an unsecured short-term debt instrument issued by a company, used for financing accounts receivable, inventories, with a duration of typically less than a year.] The Euro popped briefly following this announcement, and then unwound the gains relatively rapidly. Money printing just isn’t the panacea it once was.

I’m going to close with a line I got from reading Peter Lynch’s book long ago: “Sometimes it’s always darkest before the dawn, but then again, other times it’s always darkest before it goes pitch black.”

Some of the risk assets on sale today are going to be the fantastic deals of tomorrow. Others are going to be bankrupt wipeouts. At least with the metals, you know that at the end of the day, the metal will still be there.  That’s assuming you buy the real stuff, and not paper.

That might sound like formulaic goldbug talk, but right now we are in a situation when rules can and will be suddenly changed to protect the insiders. Markets might be shut down, economies locked down (can’t have the old elites getting sick), banks might be closed (but you can’t withdraw your cash in advance, naturally) – the rules really aren’t on your side.  In these situations, assets in hand beat “assets” that are actually some insider’s liability.

  • Thu, Mar 19, 2020 - 01:07am

    #2
    jmone

    jmone

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    PM Daily Market Commentary – 03/18/2020

I’m in Oz and have pivoted from Silver, Plat, and Equities into 50/50 Cash and Gold.  For us Gold is at an all time high.

The Yanks are getting smashed by the exchange rate.  While gold looks good in AUD, Silver and Plat has been smashed for us as well.  Both of these are industrial metals which was way I pivoted away.  I’m also wary of retail physical products due the the very large spread.

FYI – There was a post asking if you can buy unallocated Silver.  I have a Perth Mint account and trade between unallocated Silver, Plat, and Gold.  I like my Perth Mint account as you are trading at competitive international Spot Prices instead of “retail” prices but if/when you want a retail product you just pay the making cost + shipping (more for coins, less for bars etc).  I checked earlier today on their Buy/Sell Spread and it was A$2618 / 2598 (under 1%).  You can also go to allocated for Gold but then you pay for both making costs + a yearly storage charge (incl insurance).  These spreads are low compared to the retailers and accounts can be opened for as little as $5K.  They also have an ASX exchange program but I have no experience with that.

  • Thu, Mar 19, 2020 - 01:38am

    #3

    davefairtex

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    thanks

jmone-

Thanks for your report from down under.  The AUD has really been annihilated lately, and so its no wonder that gold looks good to you guys.  Once this thing passes, the snapback for AUD should be pretty amazing, but in the meantime, its not much fun.

Related: gold might have a bit of a dip for you guys if/when the pandemic thing abates.

That’s a pretty good premium rate for Perth Mint.  Its nice to have the ability to take delivery from your unallocated holdings on demand.  HAA says their 100 oz bars are selling for $1476 – a 22% premium over COMEX SI prices.  Holy crap.  Even the COMEX bars ($12,910) have a 6.7% premium vs COMEX SI (12.09).

https://hardassetsalliance.com/product/silver-1000oz/

I think your rotation out of industrial metals (which silver is, at least partially) was pretty clearly the right thing.  Something I didn’t do, sadly.  I did other things right that covered for my mistake, but seeing all the red in my ETF silver isn’t much fun.

Here’s that decline in AUD I was talking about.  The last month – a 12% drop!

  • Thu, Mar 19, 2020 - 02:18am

    #4

    davefairtex

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    chloroquine & the media

It appears as though the media has finally learned about hydroxychloroquine and the recent success of a trial in France:

https://www.covidtrial.io/

A recent well controlled clinical study conducted by Didier Raoult​ M.D/Ph.D, et. al in France has shown that 100% of patients that received a combination of HCQ and Azithromycin tested negative and were virologically cured within 6 days of treatment.

True?  We should know fairly soon.  I’ve been hearing about this now for a while.  Both China and South Korea have been using this as a treatment.  Supposedly.

From the 50,000 foot view, it is my belief that all the world really needed was to know there is a treatment.  The fear should abate if this is true, and once it becomes public knowledge.  That should enable the market to “look through” the current trouble.

It is probably not too early to sort out what you might want to buy if/when a real treatment appears.

Airlines are a possibility.  UAL was the company I bought puts on.  Sadly, I sold them about halfway through, but who knew it would drop from 90 down to 20? [No position]

Next, the list of sectors.  Energy has been hit hardest.  [FD: I’m long some energy equities.  And debt too, just recently.]

Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Cons Staples XLP -3.86% 1.85% falling falling falling falling ema9 on 2020-03-11 2020-03-31
Healthcare XLV -9.33% -8.71% falling falling falling falling ma200 on 2020-03-11 2020-03-31
Utilities XLU -11.31% -3.77% falling falling falling falling ma200 on 2020-03-11 2020-03-31
Technology XLK -15.60% 1.54% falling falling rising falling ma200 on 2020-03-11 2020-03-31
Telecom XTL -20.95% -26.48% falling falling falling falling ema9 on 2020-03-05 2020-03-31
Materials XLB -21.97% -25.82% falling falling falling falling ema9 on 2020-03-05 2020-03-31
Cons Discretionary XLY -24.50% -22.08% falling falling falling falling ma200 on 2020-02-27 2020-03-31
Gold Miners GDX -24.94% -11.07% falling falling falling falling ema9 on 2020-03-18 2020-03-31
Industrials XLI -26.01% -27.36% falling falling falling falling ma200 on 2020-02-25 2020-03-31
Financials XLF -27.83% -28.10% falling falling falling falling ma200 on 2020-02-26 2020-03-31
REIT RWR -31.64% -33.34% falling falling falling falling ema9 on 2020-03-05 2020-03-31
Defense ITA -38.57% -37.95% falling falling falling falling ma200 on 2020-02-25 2020-03-31
Homebuilders XHB -39.76% -32.01% falling falling falling falling ma200 on 2020-03-06 2020-03-31
Energy XLE -47.03% -62.72% falling falling falling falling ema9 on 2020-02-21 2020-03-31

Just saying – I think its probably good to have a “buy list” for when this thing passes.  With the old elites at risk of dying from this pandemic, even old, unprofitable, off-patent, easy-to-produce drugs (like chloroquine) will be investigated.

We can watch for signs on the buy list for when big money starts to figure out everything will be ok.  I mean – that assumes everything will be ok, and we will find some sort of treatment.  But with elite lives on the line (i.e. this isn’t just a “poor folks” disease – Trump himself had to be tested), they will spare no expense.

This is not financial advice.  Don’t blame me if you read something in one of my posts, then decide all on your own to “go all in”, use leverage, and then the market goes against you, and you lose everything and are out in the street.  I did NOT tell you to do that – because I DON’T GIVE FINANCIAL ADVICE.  I especially don’t encourage people to do really risky things like that.

Not to put too fine a point on it or anything.

  • Thu, Mar 19, 2020 - 03:53am

    #5
    jmone

    jmone

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    PM Daily Market Commentary – 03/18/2020

Hi Dave,

Here is the mfr & storage costs for Perth Mint – https://www.perthmint.com/storage/pricing.html

I’m thinking that the drop in the AUD is more about our Iron Ore / Coal exports than Gold.  So with a falling AUD to USD with a bump in Gold in USD will see more upside for me in AUD/Gold.  That said it is weird in the word this day.  I did not pivot to Gold for profit but more for wealth insurance.

Anyway, I see it is a very cost effective way for anyone in the world to get either unallocated/ allocated / physical delivery of Gold for little over spot from an actual refinery.  Please don’t buy retail, you are just going to be ripped.  Speaking to the Mint today, they are still flat out with new account openings and trades.

 

  • Thu, Mar 19, 2020 - 03:59am

    #6
    jmone

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    PM Daily Market Commentary – 03/18/2020

You yanks are getting robbed.  If I wanted I call pull unallocated to coins at between  4-5% or as low as AUD$240 for a 400oz good delivery bar + Delivery.

  • Thu, Mar 19, 2020 - 04:30am

    #7
    jmone

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    PM Daily Market Commentary – 03/18/2020

….I should also say, I’m not a day trader.  While I appreciate the effort that is spent on the daily charts we are in new territory.  I’m trying to take a step back to see the woods from the trees.

– Money poring in the the USD

– Money printing all over the world

– Gold is a reserve and is only 15% industrial.

– Silver is not a reserve and is 70% industrial.  Run.  The supply is enormous.  I don’t care about the Gold / Silver ratio, it is long gone.  Current coins are cupro-nickel, would you buy up on that?

– I worry about countries dumping /selling down their Reserve Gold Holdings (I made $ off this in the 1999 sell down).  I’m guessing / hoping that this time if any countries do any trades it will be off market or else it will be a massacre.  Imagine if Italy drops their 2,451.8 tonnes onto the market.

The last time I actively traded Gold was in 1999 back when it was sub UD$300.  I found then (as so far now) it is both a hedge in the price of gold and the AUD/USD exchange rate.

Turns out the Year of the Rate will be only prospers for some.

  • Thu, Mar 19, 2020 - 04:41am

    #8
    Haiku4U

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    PM Daily Market Commentary – 03/18/2020

Thanks for ALL of your hard work and efforts Dave!

I am a long time lurker here at PP,  (going back to 2010) but just recently became a paid subscriber.

Just wanted to let you know that I really appreciate the time that you are putting in to these market reports. I read through them entirely (sometimes 2 or 3 times) to try and understand as much information as I can. There is SO much information to be had in your reports and I just wanted to let you know how valuable I think your reports are.
(For instance your comment today that PSLV is now on the +side of NAV!  I have added to my PSLV holdings in the last few days, so that gives me something positive to think about as most of the markets are getting trashed). It has been tough to see the drop in PSLV over the past month, however maybe this is an indicator that people are starting to see the value here.

Thanks again for all that you are adding to the PP community!

John

 

 

 

  • Thu, Mar 19, 2020 - 08:41am

    #9

    sand_puppy

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    PM Daily Market Commentary – 03/18/2020

Deflationary Collapse, starting with the banks.  From Simon Black.

Banks are about to drown in an ocean of defaults.

…briefly:

  • There’s $250 TRILLION in global debt right now– mortgages, credit card debt, business loans, government debt, etc.
    And banks own a large portion of that debt.
  • This virus crisis is going to trigger a wave of defaults from consumers, businesses, and even governments.
  • Tourism alone makes up 10% of global GDP. Revenue in that entire sector– hotels, airlines, cruise ships, etc. has collapsed, and many of those companies aren’t going to survive.
  • The crash in oil prices is going to wipe out countless oil companies.
    Many large retail chains, which were already struggling in the age of e-commerce, will likely declare bankruptcy.
  • Countless businesses around the world have ‘temporarily’ closed due to public health policies, and many of them will go out of business entirely.
  • MOST of these businesses owe lots of money to the banks, whether it’s a small business working line, or the $34 billion in debt that American Airlines owes. So the defaults are going to be massive.
    On top of that, millions of people are going to lose their jobs and be unable to make payments on their credit card debt, auto loans, and even mortgages.
  • Again, there’s $250 trillion in global debt right now. Total bank capital worldwide is less than $10 trillion.

So if the coming defaults trigger a mere 4% loss in total debt, it will exceed the entirety of global bank capital.

This looming wave of loan defaults over the next few months could spark a crisis in the global financial system.

In this setting, which seems safer:  Dollars (cash) versus paper gold?

  • Thu, Mar 19, 2020 - 09:02am

    #10

    Jim H

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    Texas Precious Metals sold out of ALL inventory

Texas PM’s will be interesting to watch going forward as a surrogate for physical demand.  They are currently posting what they expect inbound and when – though they won’t take orders on it until it arrives.  My point is, as a result of this transparency, it will be pretty obvious how quickly they sell the 125K 2019 Silver Eagles that are inbound for next Tue.  I for one will be following closely

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