PM Daily Market Commentary – 07/29/2020

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  • Thu, Jul 30, 2020 - 04:09am

    #1

    davefairtex

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    PM Daily Market Commentary – 07/29/2020

Gold climbed +15.02 [+0.76%] to 1986.98 on heavy volume, while silver fell -0.10 [-0.41%] to 24.55 on heavy volume. The buck fell -0.22%, SPX rallied +1.24%, crude climbed also +0.61%, and bonds moved slightly higher [the 10-Year yield fell -1.0 bp]

The excitement today, such as it was, happened during Powell’s press conference. I listened to the whole thing, and the most interesting thing to come out of it was pretty obvious stuff – the June increase in cases seemed to be leading to “a slowdown in the recovery.” Gold first shot higher, then it retreated, then bounced back again, ending the day in the green.

As I said yesterday, the front month contract is now GCZ20 – December gold. However, today’s $15 rally wasn’t about the gains from the contract roll, it really was about a move higher in the (calendar weighted) price. Intraday, gold hit a high of 1998.40.

Gold climbed +15.02 [+0.76%] to 1986.98 on heavy volume. The spinning top candle was unrated, forecaster dropped, but remains in an uptrend. Gold is in an uptrend in all three timeframes.

Gold/euros inched up +5.05 [+0.30%] to 1685.76 on heavy volume. The unknown candle was unrated, forecaster was unchanged at. Gold/euros is in an uptrend in the daily and weekly timeframes.

COMEX GC open interest rose +1.5K contracts. Current open interest for GC: 55% of global annual production, up +0.14% today.

Virtually no shorting happened today. Gold remains in an uptrend. That said; RSI-7=93.

Silver also bounced around fairly dramatically during the press conference; it was more than a $1.50 trading range. The high wave candle was unrated, forecaster dropped, but remains in an uptrend. Silver is in an uptrend in all three timeframes.

COMEX SI open interest rose +461 contracts. Current open interest for SI: 106% of global annual production, up +0.27% today.

The gold/silver ratio climbed +0.94 to 80.94. That’s bearish.

According to the forecaster, the daily silver uptrend is slowly weakening. Still no bearish reversal though; RSI-7=82. Sil
ver remains well above the 9 MA.

Miners dropped hard at the open, then rallied back at 2pm after the FOMC statement, then sold off once more during the press conference, but regained most of its losses into the close. GDX fell -0.99% on moderately heavy volume, and GDXJ moved down -0.29% on moderately heavy volume. XAU dropped -1.00%, the last engulfing bottom candle was a reasonably strong bullish reversal (40%), forecaster climbed, moving higher into its uptrend. XAU remains in an uptrend in all three timeframes.

The GDX:gold ratio dropped -1.77%, and the GDXJ:GDX ratio climbed +0.70%. That’s somewhat bearish.

A last engulfing bottom pattern is an odd pattern to appear here; not one I’m too familiar with. Call it a “spinning top”, which was also bullish. I think that’s because the big AM dip ended up being bought, creating a reasonably long lower shadow. Short term trends for the miners are fairly weak; RSI-7=73, which is just mildly overbought. Miners remain well above the 9 MA.

Platinum fell -26.64 [-2.76%], and palladium dropped -126.02 [-5.63%]. Platinum: bearish engulfing (39%), palladium: vicious swing high (63%), likely bearish reversal. Both are now in downtrends.

Copper climbed +0.02 [+0.69%] to 2.93 on moderately light volume. The long white candle was a bullish continuation, forecaster climbed, rising into an uptrend. Copper is in an uptrend in the daily and monthly timeframes.

Copper is back above that 9 MA – and back in mostly-bullish territory.

The buck fell -0.21 [-0.22%] to 93.43 on heavy volume. The long black candle was a possible bullish reversal (36%), forecaster climbed, but remains in a downtrend. The buck is in a downtrend in all three timeframes.

Major currency moves included: EUR [+0.46%], GBP [+0.31%].

The candle print was mildly optimistic today; that’s probably because the buck did bounce off the lows intraday, and it is quite oversold (RSI-7=9). We will need confirmation tomorrow to confirm today’s very tentative reversal.

If the buck reverses – I’m guessing – so will gold.

Crude climbed +0.25 [+0.61%] to 41.41 on moderate volume. The short white/NR7 candle was unrated, forecaster climbed, but remains in a downtrend. Crude is in a downtrend in all three timeframes.

EIA report: crude -10.6m, gasoline +0.7m, distillates +0.5m. The surprisingly bullish report didn’t seem to affect prices on release.

Crude just refuses to correct. While all the forecasters are pointing lower, crude doesn’t seem to care. It seems to be acting like treasury bills – pinned to a narrow range. Trends are very weak.

SPX rallied +40.00 [+1.24%] to 3258.44 on moderate volume. The opening white marubozu candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. SPX is in an uptrend in all three timeframes.

Energy [+2.04%] led, along with REITs [+1.86%], while staples [+0.14%] and utilities [+0.46%] did worst. This was a bullish sector map.

The VIX fell -1.34 to 24.10.

Well yesterday’s forecaster turned out to be right – SPX is back above the 9 MA, and it appears to be headed higher once more. Sector map: bullish too. Uptrends actually look pretty strong. That’s why I wrote all this code; to tell me what the trends are independently of what I might think should be happening.

TLT dropped -0.17%. The doji candle was neutral, forecaster dropped, but remains in an uptrend. TLT is in an uptrend in the daily and weekly timeframes. The 30-Year yield rose +2.0 bp to +1.24%. Perhaps the 30-year has topped out.

TY inched up +0.05%. The long white candle was a bullish continuation, forecaster dropped, moving deeper into its downtrend. TY is in a downtrend in both the daily and monthly timeframes. The 10-Year yield fell -1.0 bp to +0.58%.

Bonds are slowly inching higher. Powell is going to keep buying them for the forseeable future. “Assuring functioning markets” is the claim – destroying markets is the result. Markets that only go up due to Fed buying – not markets at all.

JNK climbed +0.60%. The long white candle was a bullish continuation, forecaster climbed, rising into an uptrend. JNK is in an uptrend in the daily and weekly timeframes.

New high for crappy debt, reasonably strong uptrend. Supports risk on.

Physical Supply

The GLD ETF tonnage on hand dropped -1.17 tons, with 1242 tons remaining in inventory.

ETF Discount to NAV:
* CEF -0.86%
* PHYS -0.83%
* PSLV -1.45%
Gold dealer big bar premiums:
* gold [1kg]: +0.91%
* silver [100 oz]: +11.03%

Physical ETF premiums declined somewhat today; silver larger bar premiums remain in place. First notice day for GCQ20 happens tomorrow; the number of contracts standing for delivery could be important in determining if PM will continue to move higher.

Economic Reports

Yield Curve Inversion: the 1-10 spread fell -0 bp to +45 bp today. 1Y: 0.13% (-1 bp), 10Y: 0.58% (-1 bp).

Summary

At the FOMC press conference today, Powell supported my own thesis: as cases go, the recovery falters. He has realtime information from credit and debit card spending, and I have – common sense, I suppose.

For whatever reason, risk assets liked the outcome today, although the equity market rally wasn’t aligned with the FOMC statement at all – prices started to rise much earlier in the day. Crappy debt and equities both rallied fairly strongly, while copper and crude moved higher too.

But what of gold, silver and the miners? Powell said that Fed support of the markets was going to continue well after things had recovered – money printing and zero percent rates are with us for a long time into the future. This is an extremely good environment for gold.

And so far at least, the buck has not yet reversed. There were positive signs today, but it was also a new low too.

At the end of the day, I feel like that four handed economist:

1) On the one hand, the buck could be preparing to reverse; cases in the US are just now starting to move lower. Cases in Europe are actually starting to rise again. That could lead to a reversal in the buck, and a topping out for the Euro. This would provide headwinds to gold/USD, and it would also reduce the need for a non-USD safe haven.

2) On the other hand, the complete lack of shorting – and the possible elimination of the wash & rinse cycle – and indeed all those people standing for delivery at COMEX, could be a game-changer in terms of both manipulation and rally-capping that used to be standard practice. We are seeing that happen right now; very little shorting is taking place, right as gold blew through the previous high without much of a murmur. Perhaps the one led to the other, it is hard to know for sure.

3) On the other hand, gold and silver are both overbought – with gold being horribly overbought (RSI-7=93) Is it really different this time?

4) On the other-other hand, we have another stimulus package on the way. More free money, monetized by the Fed, handed out to real people. Some amount will get saved, while some will get spent. Powell’s “disinflationary shock” will probably be met with more stimulus; the people who lost service jobs will get free money.

Boiling it all down, my best guess is: I think gold retreats a bit from here, just to take pressure off RSI-7=93. Gold is at RSI 93 just 20 times in 11,448 trading days. The odds are really high that we get some kind of correction. Worst case, we get a more significant correction, as the buck reverses, and “things get better” in America.

Longer term – it is psychologically really hard to get back in long during a strong bull market move. If you sell now, thinking you will just jump back in after the correction, that’s really hard to get right. Bill Fleckenstein would probably tell you: “for heaven’s sake, if you held on through the 2013 smash, this rally is what you’ve been waiting for over 7 long years!” (You might consider listening to this pretend-Bill Fleckenstein quote – but I did actually hear him say something like this about a year ago)

I did do a little selling recently; I sold my GDXJ calls a few days back, and just today, I wrote some out of the money silver miner covered calls. Covered calls are something you write at RSI=90. If the underlying rises a lot, I’ll lose it (it will get taken from me – a big gain, but also a taxable event) and this will cap my gains. If the underlying rises a little, stays the same, or drops, I’ll collect the premium, and keep the underlying. Covered calls are just some incremental added returns you can scalp at what might be intermediate tops. They are risk free, unlike naked calls and puts, which are highly risky.

Calls are time sensitive; option value trickles away as time passes. That’s not true for metal, or for equities. You can hold both of the latter without penalty. That’s why I sold the calls, but retain both equity and metal at what I think might be a near-term top.

Last point: this is a daily report, so I talk about daily fluctuations. If you are a long term holder, my guess is, we have not hit gold’s multi-decade high just yet. But it would be boring to log in and just read, “keep holding, not there yet.”

  • Thu, Jul 30, 2020 - 05:45am

    #2

    JAG

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    Time to get the heck out?

Great report DF, I enjoyed the 4 hands conundrum.

I’m surprised you sold your GDXJ calls…though it looks like the price action today will make you look like a genius. GDXJ has seemed relatively strong to me in this downturn.

It’s really starting to look gloomy out there to me. Gold and the miners could be the dead canary in the coal mine. I’m thinking going with dollar calls and VIX calls only.

Hedge funds have their lowest exposure to the dollar in several years. This has backtested to show a strong correlation to a bottom in the dollar and a top in gold over the next year.

And then there is this from sentimentrader.com:

So a top could be in for the Nasdaq 100 too.

On the other hand (is that the 5th hand ?), I know it is the summer and you can never trust anything that happens in the markets while everyone is on vacation.

But the risk/reward here is getting dangerous. Oh yeah, and there is that pandemic thingy.

  • Thu, Jul 30, 2020 - 07:04am

    #3
    phusg

    phusg

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    PM Daily Market Commentary – 07/29/2020

4) On the other-other hand, we have another stimulus package on the way. More free money, monetized by the Fed, handed out to real people.

Am I right in thinking that, intricacies aside, the Fed is largely monetizing stimulus, whilst the EU isn’t?

If so, along with deteriorating Hong-Kong/US/West/India – China relations, how long a way would that go to explaining dollar weakness and PM strength I wonder? Is the dollar’s influence on gold larger than just it’s currency effect?

I read a commentator suggesting that the non-monetized EU rescue package is a result of that recent German court ruling, which basically limits the ECB and has forced the politicians into action this time (instead of ECB/IMF as per Greece crisis).

  • Thu, Jul 30, 2020 - 08:31am

    #4

    Cold Rain

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    PM Daily Market Commentary – 07/29/2020

Here comes our crap-out to make sure we have a poor monthly close.

  • Thu, Jul 30, 2020 - 09:10am

    #5

    davefairtex

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    german court ruling

phusg-

I read a commentator suggesting that the non-monetized EU rescue package is a result of that recent German court ruling, which basically limits the ECB and has forced the politicians into action this time (instead of ECB/IMF as per Greece crisis).

I think that’s exactly right.  EU now has to go through the democratic process and really articulate the spending of money – with all the sausage-making that goes along with that process – instead of it happening invisibly, painlessly, behind the scenes, and substantially funded by the Germans.

I mean, it seems like the right thing to me.  But I’m a crank.  And maybe German in a past life.  🙂

If so, along with deteriorating Hong-Kong/US/West/India – China relations, how long a way would that go to explaining dollar weakness and PM strength I wonder? Is the dollar’s influence on gold larger than just it’s currency effect?

Definitely.  If the buck loses its safe haven status – even a little bit – then the dropping buck is just a part of the reason for gold’s advance.

But I honestly don’t think the buck is about US-China issues.  It seems more about the US and its ability to handle the virus (rising cases!), social unrest, and the upcoming election, without blowing itself up into civil war.

US-China:

Right now, China seems like a real basket case.  It does to me anyway.  It is the confluence of a whole bunch of different things, a number of them self-inflicted.  CCP is trying to bully everyone, and while that approach might work in a time of relative peace, we are in a time of maximum chaos.  You can’t bully India, Vietnam, Australia, Phillippines, the US, and Europe, while having your industrial and agricultural heartland (literally) flooded – with a potentially catastrophic dam break – after getting smacked hard from a pandemic while suffering industrial decoupling at the end of globalism, at the peak of a debt bubble, while having to effect the seizure of Hong Kong 27 years early (with half the talent in the city eyeing the exits – to the UK, and US), as well as the fallout from the Xinjiang concentration camps which have finally made it onto center stage,  while Taiwan flees into the distance, and even Europe has started to figure out that – maybe – Huawei really might be an arm of the PLA.  Even India has banned TikTok after a bunch of their border guards were killed by PLA wielding clubs.  (And for what?)

Bad Orange Man has his hands full, but I think Pooh is having a much more difficult time.  I suspect the whole Wolf Warrior approach will end up being seen as a mistake, in retrospect.  When even Sweden has had enough…it might be wise to have a rethink…but they won’t…and it will all go further downhill.

So – I don’t think the US-China issues are all that critical to USD.  I think the injury to USD are partially virus-based, and partially self-inflicted due to the Red/Blue struggle and domestic unrest.  Inflicting a bunch of economic damage on your own country in order to try to win an election isn’t a great way to inspire confidence in your currency.

 

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