PM Daily Market Commentary – 08/05/2020

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  • Thu, Aug 06, 2020 - 03:17am

    #1

    davefairtex

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    PM Daily Market Commentary – 08/05/2020

Gold climbed +16.08 [+0.79%] to 2054.08 on moderately heavy volume, and silver shot up +0.84 [+3.18%] to 27.24 on extremely heavy volume. The buck fell hard [-0.56%], SPX rallied [+0.64%], as did crude [+1.73%], while bonds fell [the 10-Year yield rose +3.0 bp].

Gold made its gains mostly during the London session, chopping sideways into the close in the US. The spinning top candle was a possible bearish reversal (33%), forecaster dropped, but remains in an uptrend. Gold is in an uptrend in all three timeframes.

Gold/euros climbed +13.65 [+0.79%] to 1743.40 on moderately heavy volume. The spinning top candle was a bullish continuation, forecaster dropped, but remains in an uptrend. Gold/euros is in an uptrend in the daily and weekly timeframes.

COMEX GC open interest fell -6.8K contracts. Current open interest for GC: 51% of global annual production, down -0.63% today.

1822 contracts stood for delivery today.

That’s another new all time high for gold. What’s more, we are continuing to see short-covering as prices rise. I believe this is at least part of what is fueling gold’s ongoing rally. At the very least, there is nothing “capping” the rally, unlike in the past. RSI-7=91.

Silver’s rally mostly took place during the London session, with silver closing near the highs by end of day. The long white candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. Silver is in an uptrend in all three timeframes.

COMEX SI open interest rose +34 contracts. Current open interest for SI: 118% of global annual production, up +0.02% today.

The gold/silver ratio dropped -1.79 to 75.41. The ratio continues to race lower. How much lower will it go? During 2011, it dropped all the way down to the 30s. That said – “things don’t go to heck in a straight line.”

Silver broke out to a new 7-year high today, last seen in March 2013. Silver’s RSI-7=84. Shorting has stopped, at least for now.

The miners gapped up at the open, rallied for the first hour, sold off hard into early afternoon, and bounced back somewhat into the close. GDX inched up +0.11% on moderately heavy volume, and GDXJ climbed +1.39% on moderate volume. XAU rose +1.12%, the long black candle was a low-percentage bearish reversal (29%), but forecaster climbed, moving higher into its uptrend. XAU is in an uptrend in all three timeframes.

The GDX:gold ratio dropped -0.68%, and the GDXJ:GDX ratio climbed +1.26%. That’s neutral.

Selling pressure hit the mining shares today; That has been a common theme in the mining shares for a while. Is it goldbug sentiment? Let’s take a poll. Check in with your emotions. Do you feel you should:
1) buy gold before its too late!
2) hold; gold’s time has finally arrived (Gold 2000 hats!)
3) sell gold now, and try to re-enter on the inevitable correction
4) sell gold now; this rally could vanish at any moment!

My own emotions usually hover between 3 and 4, with an occasional trip to 2, depending on the day. Fortunately, I do not let them push the “sell” button in my trading account! Still, emotions are useful information, as I am probably feeling what “the herd” is feeling too.

Platinum rose +34.10 [+3.42%], and palladium climbed +48.39 [+2.16%]. Platinum is moving closer to that 2020 high, but is not there quite yet.

Copper climbed +0.02 [+0.69%] to 2.92 on moderately heavy volume. The spinning top candle was a low-percentage bearish reversal (26%), forecaster climbed, moving higher into its uptrend. Copper is in an uptrend in all three timeframes.

Today’s move took copper back above the 9 MA. It is now clearly back in an uptrend.

The buck dropped -0.52 [-0.56%] to 92.86 on moderate volume. The spinning top candle was a bearish continuation, forecaster fell, dropping into a downtrend. The buck is in a downtrend in all three timeframes.

Major currency moves included: AUD [+0.52%].

Ouch. Not quite a new low, but the buck has definitely dropped back down to support. The Euro is back up testing the 119 level; this isn’t some sort of long term resistance level, however, so moving through 119 should not be a problem. The dollar’s dead cat bounce – it seems like that anyway – has now dropped the EUR/USD RSI-7 down to 73, freeing it to move higher.

It certainly seems as though the buck is slowly turning to confetti.

Crude staged a large rally mostly during the London session – it was up almost $2 at one point. But then, crude sold off fairly hard in the afternoon in New York, losing much of the gains by the close. It sure looked like a failed rally to me. Crude moved up +0.72 [+1.73%] to 42.34 on very heavy volume. The long white/shooting star candle was a reasonably strong bearish reversal (46%), but forecaster climbed, moving higher into its uptrend. Crude is in an uptrend in the daily and monthly timeframes.

EIA report: crude -7.4m, gasoline +0.4m, distillates +1.6m. The positive report came as crude was chopping sideways at the day highs – it did not seem to materially affect prices.

This was a very bearish single candle print, but forecaster is still pointing higher. Probably – crude could go either way here – that’s what the monthly forecaster is saying anyway.

SPX climbed +21.26 [+0.64%] to 3327.77 on moderate volume. The white marubozu candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. SPX is in an uptrend in all three timeframes.

Industrials [+1.88%] led, along with materials [+1.44%], while utilities [-1.30%] and REITs [-0.75%] did worst. This was a bullish sector map.

The VIX plunged -0.77 to 22.99.

That’s another new 5-month high for SPX; it is just relentless right now. RSI-7=74, which means “slightly overbought.”

TLT fell -0.87%. The swing high candle was a likely bearish reversal (62%), forecaster dropped, dropping into a downtrend. TLT is in an uptrend in the weekly timeframe. The 30-Year yield rose +4.0 bp to +1.23%.

TY dropped -0.24%. The bearish engulfing candle was a probable bearish reversal (50%), forecaster dropped, but remains in an uptrend. TY is in an uptrend in the daily and weekly timeframes. The 10-Year yield rose +3.0 bp to +0.55%.

Today’s bond move wiped out yesterday’s rally, but that’s about it.

JNK moved up +0.16%. The white marubozu candle was neutral, forecaster was unchanged, leaving JNK in an uptrend in the weekly timeframe.

JNK continues to creep higher, but it doesn’t look nearly as strong as SPX.

Physical Supply

The GLD ETF tonnage on hand climbed +10.23 tons, with 1268 tons remaining in inventory.

ETF Discount to NAV:
* CEF -1.70%
* PHYS -1.08%
* PSLV -2.27%
Gold dealer big bar premiums:
* gold [1kg]: +1.84%
* silver [100 oz]: +10.46%

While physical ETF discounts remain relatively wide, the premiums sharply increased on physical bars today; silver big bars are back above 10%.

Economic Reports

Yield Curve Inversion: the 1-10 spread rose +5 bp to +43 bp today. 1Y: 0.12% (-2 bp), 10Y: 0.55% (+3 bp).

Summary

Both gold and silver just keep shooting higher, with the miners lagging much more seriously behind. Miners tend to lead: why are they trailing now, with silver screaming higher? That’s the puzzle.

I looked back at the 2005-present time period, and I noticed that the miners underperformed silver from 2006-2016, with a particularly bad performance during 2010-2011, when silver tripled, moving from $17 to $50 in about six months.

For me the takeaway was, miners underperform silver during phase transitions.

Are we in the middle of a silver phase transition? We might just be.

Risk on remains a thing; equities continue rising, and at this rate, will probably be re-testing all time highs in the near future; we are only 60 points away from doing just that. Crappy debt and copper are semi-reluctantly supporting this move.

Is crude about to execute a bearish reversal? It has been about to do so for months. I’ll believe it when I see it.

Finally, the buck. What might have been a feeble bullish reversal is now looking like a dead cat bounce. The buck is now at (roughly) 93, and major support is down around 88. Could it go there? Yes, it could. That’s probably supportive of gold.

I still believe that falling cases will lead to more domestic tranquility, and greater confidence in the buck. Nationwide, cases continue to move slowly lower, while cases and deaths in Arizona are rapidly dropping in what is now “the usual pattern.” Rough guess: by end of August, Arizona will be done with its epidemic. The other states will be 1-2 weeks behind – although not as sure about Texas.

Will things clear up by mid-to-end September? That’s still my schedule. Certainly by October. Hmm. They call those things “an October surprise.” We might see one of those from Ghislane Maxwell too. Unless she “commits suicide.”

Will this be enough to overcome Campaign Fear (“lockdown again!! because – science!!”) AND the money printing, w.r.t the buck? I think so for cases, but the projected stimulus continues to increase. Mnuchin has already caved on Pelosi’s “states” slush fund to the tune of $200 billion. Which we get to pay for. And that’s just his first cave. Maybe the whole thing ends up being $2 trillion, of which some small fraction ($300 billion, maybe?) goes to actual people like you and me.

But since we aren’t the Keys to Power for either Pelosi or Mnuchin – are you in the Donor Class? I’m certainly not – so we shouldn’t expect to get very much “treasure” in this money-printing exercise. I project: we will get about 15% of the take. That’s a rough measure of the influence we have over government at this point in time.

Meanwhile Bezos – owner of the Washington Post – has been the true winner here. The more we “shelter in place”, the longer local business remains closed “for our safety”, the longer the schools remain closed – “for the children!”, the larger the share of the US economy he will end up owning.

If this isn’t part of the ongoing plan, it sure is a fantastic accident for Mr Bezos. Who does his newspaper support again?

  • Thu, Aug 06, 2020 - 06:46am

    #2

    JAG

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    Goldbug Sentiment

1) buy gold before its too late!
2) hold; gold’s time has finally arrived (Gold 2000 hats!)
3) sell gold now, and try to re-enter on the inevitable correction
4) sell gold now; this rally could vanish at any moment!

Emotionally, I am 4) all the way. Take the money and run! I am talking about my trading account, not my physical gold.

HOWEVER, with GLD and SLV trading at a premium to NAV, I’d be a fool to abandon ship now. Check out this chart to see what happened the last time these funds traded at such a premium to NAV:

If we can believe the historical precedent, this PM bull market is just beginning. Accordingly, I have moved all my call options out to 2022. That makes it easier to take short term pain and puts any gains in the long-term capital gains tax category (maybe).

  • Thu, Aug 06, 2020 - 07:34am

    #3
    Nate

    Nate

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    Goldbug Sentiment

1) buy gold before its too late!
2) hold; gold’s time has finally arrived (Gold 2000 hats!)
3) sell gold now, and try to re-enter on the inevitable correction
4) sell gold now; this rally could vanish at any moment!

Definately #2 for both physical and shares – what on earth would you with the proceeds if you sold now?

  • Thu, Aug 06, 2020 - 07:45am

    #4
    Steve

    Steve

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    Call Options

Hey JAG,

Which call options are you buying?

Thanks!

  • Thu, Aug 06, 2020 - 08:14am

    #5

    JAG

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    PM Daily Market Commentary – 08/05/2020

Nate: what on earth would you with the proceeds if you sold now?

Toilet paper, of course. I like the one with Trump’s face on it, but it does give me a rash.

 

Steve: Which call options are you buying?

These are the PM call options that I own:

  • SLV Jan 21 2022 45 call
  • GDX Jan 21 2022 55 call
  • GDXJ Jan 21 2022 70 call
  • SILJ Feb 19 2021 20 call (longest option available)

FD: Be careful taking investing advice from a lucky Texas dumb-ass.

What have you bought?

  • Thu, Aug 06, 2020 - 11:50am

    #6
    MGRS

    MGRS

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    PM Daily Market Commentary – 08/05/2020

I’m definitely a number 2, with occasional emotional lapses into 1 and 3 that I do my best to resist.

Dave, what do you mean when you refer to a phase transition?  And what does that mean for the miners once the transition period ends – assuming the trend is still up, they catch up?

To my primitive way of thinking, I expected some miner lag due to covid, as mines could be shut down.  Hopefully that possibility gets more remote, they ramp up production with high margins, and shares continue up.

I’m still thinking miners could be the place for PM value, but it’s psychologically hard to buy more into a position that’s already way up.

  • Thu, Aug 06, 2020 - 01:17pm

    #7
    kunga

    kunga

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    JP Morgan, Let my Silver go

This has probably already been mentioned, but the Miles-Franklin blog, today said the Justice Department has finally come down hard enough on JP Morgan for their market manipulations.  The ruling is that the must stop “spoofing” the silver market and start selling most of the billion ounces they are hoarding.  They are selling to their other short buddies so they can cover, this is the only reason silver is not $100 per ounce right now.

  • Thu, Aug 06, 2020 - 02:31pm

    #8
    Pulari

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    PM Daily Market Commentary – 08/05/2020

1 and 2 👍

  • Thu, Aug 06, 2020 - 03:30pm

    #9
    TWalker5

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    PM Daily Market Commentary – 08/05/2020

I loosely trade a little paper gold and paper silver but I have a substantial stack of physical silver that I have been underwater on for years. Sometimes it seemed that I’d never get back to black, so it’s awfully tempting to sell it at a profit. However, the reasons that I bought it haven’t changed. If anything those reasons have strengthened. And while I’m no economist, I am quite confident in my understanding that the non-stop printing and borrowing the Fed and Treasury are doing is bound to continue to debase the dollar and drive up real assets.

T.

  • Thu, Aug 06, 2020 - 03:52pm

    #10
    jmone

    jmone

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    PM Daily Market Commentary – 08/05/2020

#3 : FWIW.  As of yesterday I’m 100% cash taking profits in PM due to the big spike (and I’m now see that both Silver and Gold are over twice their AISC).  My thought is I’ll sell into the strength now and hoping to “buy the dip” to increase PM holdings with same nominal cash amount.  Platinum is now also of interest to me as it is still not much above it’s AISC (but has a big above ground surplus).  We will see if their is a “buy the dip” opportunity or not but…. must resist FOMO as the price continues to shoot higher (for now).   Also prepared to short Equities again but I’ll wait till the market sentiment changes.

Some transparency in “talking my book” here is the trades this year as I swapped from Equities/SLV/PLAT in Feb to Cash then to PM’s in several tranches (note: I’ve never been “all in” any one segment, with at least 50% cash on hand).  I also had a couple of goes “shorting” Equities using Negative Geared Leveraged ETF.  First one did really well over just 10 days, but I gave up 25% of those profits with a losing position on the 2nd bet.  I can say with certainty, I can’t predict the the top, bottom, or even (in the case of my 2nd ETF short) the direction…. but overall – so far so good.

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