PM Daily Market Commentary – 09/08/2020

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  • Wed, Sep 09, 2020 - 03:04am

    #1

    davefairtex

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    PM Daily Market Commentary – 09/08/2020

Gold inched down -1.78 [-0.09%] to 1941.01 on moderately heavy volume, and silver fell -0.26 [-0.96%] to 26.86 on moderately light volume. The buck shot higher [+0.78%], SPX dropped hard [-2.78%] as did crude [-6.40%], while bonds moved higher [the 10-Year yield fell -4.0 bp].

Gold chopped sideways in Asia, fell during the London session, making its day low 20 minutes into US trading. Gold then bounced back strongly into the early afternoon, fading somewhat into the close. The doji candle was a bearish continuation, but forecaster climbed, rising into a state of no-trend. Gold is in an uptrend in the monthly timeframe.

Gold/euros climbed +5.02 [+0.31%] to 1646.14 on moderately heavy volume. The doji candle was a bearish continuation, forecaster climbed, rising into an uptrend. Gold/euros is in a downtrend in both the weekly and monthly timeframes.

COMEX GC open interest rose +7.2K contracts. Current open interest for GC: 52% of global annual production, up +0.67% today. 104 GC contracts stood for delivery at COMEX today.

While there was a fair amount of shorting today, alongside a very strong rally in the buck, gold nevertheless managed to bounce back from its initial losses; there looked to be a fair amount of dip-buying. In the face of all that, I think gold’s performance today was strong.

Silver was pounded down along with gold just before the US market opened, and like gold, made the day low at around 9:45, down more than a buck. But after bottoming out, silver rebounded strongly, erasing all its losses, only to fade into the close. The high wave candle was a bearish continuation, but forecaster climbed, rising into an uptrend. Silver is in an uptrend in the daily and monthly timeframes.

COMEX SI open interest rose +433 contracts. Current open interest for SI: 92% of global annual production, up +0.25% today. 286 SI contracts stood for delivery at COMEX today.

The gold/silver ratio climbed +0.63 to 72.26. That’s bearish.

No short-covering in silver today; while the intraday bounce off the lows was quite strong (resulting in a long lower shadow which I think is generally positive), silver still underperformed gold, and the candle print was also bearish. And yet daily forecaster disagreed, jumping back into an uptrend. We have diverging signals right now; I’d feel more bullish if I saw the banksters covering.

The miners gapped down hard at the open, bottomed out along with gold and silver in the first 20 minutes of trading, then rallied for most of the day, finally drifting lower into the close. GDX fell -0.69% on moderately light volume, and GDXJ moved down -1.85% on moderate volume. XAU dropped -1.07%, the long white candle was a bearish continuation, and forecaster fell, moving deeper into its downtrend. XAU is in an uptrend in the monthly timeframe.

The GDX:gold ratio dropped -0.60%, and the GDXJ:GDX ratio dropped -1.19%. That’s bearish.

While intraday the miners sure seemed to attract buyers, this was not a bullish reversal; the candle print pointed lower, and forecaster was largely neutral too. Still, the near term trends for the miners remains almost flat, and given the heavy selling in equities (which often negatively affects the mining shares), I’d say that’s a somewhat positive outlook.

Platinum fell -2.83 [-0.31%], and palladium dropped -25.38 [-1.10%]. Platinum looks weak, while palladium is just edging lower off the recent high.

Copper plunged -0.05 [-1.63%] to 3.01 on heavy volume. The long black candle was a possible bearish reversal (38%), forecaster dropped, falling into a state of no-trend. Copper remains is in an uptrend in the weekly timeframe.

Ok, a bearish candle print, and the forecaster drops back to flat. Copper ended the day right at the 9 MA. It doesn’t feel like a bearish reversal just yet.

But the goods-buying spree comes from stimulus, non-payment of rent & mortgages, and folks transferring their spending from the COVID-scary “services” to the perceived safety of “goods”. That, plus temporary shortages due to COVID-driven mine stoppages in the third world, has combined to propel copper higher for now.

This will not continue forever. Or, I suspect, much longer. At some point, restaurants will open again, people will travel again, evictions will occur, rent will be paid once more as will mortgages, and the goods-spending will reflect the underlying economic weakness (properly represented by oil consumption) once again. And the mines in the third world will reopen, once they achieve herd immunity, which is (most likely) not far off.

My guess: copper’s current strength has an end-date. I just don’t know when that end date will be. Now – or two months from now. Just my sense.

The buck climbed +0.72 [+0.78%] to 93.42 on extremely heavy volume. The confirmed bullish nr7 candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. The buck is in an uptrend in the daily timeframe.

Major currency moves included: CAD [-0.79%], GBP [-1.17%], AUD [-0.56%].

The buck made a new one-month high today, and it closed quite near the highs as well. If this holds through end of week – and I suspect it will – it will be a strong weekly swing low for the buck.

Crude plunged -2.54 [-6.40%] to 37.13 on extremely heavy volume. The strong line candle was a bearish continuation, and forecaster dropped, moving deeper into its downtrend. Crude is in a downtrend in all three timeframes.

Oil was just crushed today; the plunge dropped crude into a downtrend in all 3 timeframes. Art Berman’s forecast of a 5-6 mbpd US oil production is still 10 months in the future. The cause was supposedly Saudi Arabia cutting its official selling price – but since crude dropped into a downtrend a few days back, today’s “cause” was just a continuation of the trend.

https://www.cnn.com/2020/09/08/investing/oil-prices-drop-saudi-arabia/index.html

The selloff comes after Saudi Arabia, the de facto leader of OPEC, slashed its official selling price to Asia and the United States, Bloomberg News reported. It’s never a good sign when the world’s leading oil exporter feels compelled to cut prices to draw buyers.

“That is a double-blinking warning sign,” said Yawger. “OPEC kind of panicked today by putting out a bad signal to the energy community.”

Again, trend was already in place. See the break below the 50 MA from last Friday? Today was just was action by Saudi Arabia that was aligned with that breakdown.

SPX plunged -95.12 [-2.78%] to 3331.84 on heavy volume. The long black candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. SPX is in a downtrend in both the daily and weekly timeframes.

Tech [-4.73%] led the market lower, along with energy [-3.78%], while utilities [-0.56%] and REITs [-1.29%] did best. This was a very bearish sector map.

The VIX rallied +0.71 to 31.46.

Notice that as badly as energy did, tech did even worse. That’s really bearish. TSLA absolutely cratered, dropping -21%. I wonder how many Robinhood traders will end up broke when this is all over?  It looks like dotcom and CSCO all over again.

Once again, when the Wall Street banksters refuse to execute a secondary offering – run, don’t walk.

That said – Tuesdays after a big Monday plunge are sometimes referred to as “Turnaround Tuesday”. Once Monday’s selling pressure is over, we get a bounce on Tuesday. Is this a thing? Maybe it is.

https://decodingmarkets.com/testing-turnaround-tuesday/

TLT climbed +0.61%. The long black candle was a bullish continuation, forecaster climbed, rising into an uptrend. TLT is in an uptrend in the weekly timeframe. The 30-Year yield fell -6.0 bp to +1.41%.

No data for TY today.

The 10-Year yield fell -4.0 bp to +0.68%.

It was a relatively feeble move for bonds, what with the huge inflows into the buck, and the sharp drop in equities. Bond market = destroyed by the Fed. That’s my only conclusion.

JNK dropped -0.61%. The spinning top candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. JNK is in a downtrend in both the daily and weekly timeframes.

That’s a new 2-month low for crappy debt. It isn’t sinking as rapidly as equities, but it does echo risk off.

Physical Supply

The GLD ETF tonnage on hand was unchanged at +0.00 tons, with 1250 tons remaining in inventory.

ETF Discount to NAV:
* CEF -2.53%
* PHYS -1.32%
* PSLV -3.13%
Gold dealer big bar premiums:
* gold [1kg]: +1.08%
* silver [100 oz]: +7.29%

Physical ETF discounts have increased, and premiums on the big bars are slowly falling. That’s not a great sign for PM.

Economic Reports

Yield Curve Inversion: the 1-10 spread fell -3 bp to +56 bp today. 1Y: 0.12% (-1 bp), 10Y: 0.68% (-4 bp).

Summary

In spite of a very large dollar rally, gold actually did fairly well, while both the miners and silver did less well. What has me worried is the lack of short covering in either metal, and (possibly related) the dropping of premiums on physical gold and silver.

My sense: the banksters appear to be less worried than before about COMEX deliveries. Gun to my head, that probably means lower metals prices ahead, unless we see a big stimulus package and more money printing.

The equity market sell-off is beginning to become a thing; the tech darlings are selling off in a way reminiscent of the dotcom bust. Headlines are predictable to anyone who survived 2001 and 2008: “gosh, don’t you worry about this sell off, its a great buying opportunity.” Maybe. Do we imagine that TSLA-the-company has completed selling all the shares it is offering in the secondary? If not, they need bagholders to sell them to. I’m guessing that Wall Street front-ran the whole thing, and is making gobs of money on the decline. But I can’t know for sure – I didn’t buy the Dumb Money Trading data feed from the “free” RobinHood platform. They did.

Hint: if something is “free”, you are most definitely paying for it somehow, generally by “you” being the product in some way, shape, or form. Information, as they say, is power, and no more so when a group of people are making collective trading decisions. Wall Street can use them like clinical trial participants – poke their victims with news stories, see how they respond, poke them again to make sure, and presto, a harvesting formula is born.

Copper may have put in a high, while crude’s decline is really beginning to accelerate. Crappy debt is also now declining. That’s a mostly risk-off picture.

Bonds: the Fed has killed the bond market. For example, today the public might be have been buying Treasury bonds hand over fist, while the Fed might just have stopped buying entirely. Or – not. We just don’t know. The result for us is: no useful signal from that market any longer. The largest, most liquid market in the world, provides us no useful price signal.

I’ll leave you with the Weekly US Field Production (Crude Oil) chart, overlaid with the number of rigs in the shale areas – something I cooked up a few years back, but stopped paying attention to. That “lower high” in rigs (red line) in 2016 that resulted in a huge 4 mbpd spike in oil production was probably Art Berman’s “pad drilling” revolution; fewer rigs, but more production. But that equation also works in reverse too. If 700 rigs are required for (roughly) 10 mbpd, then 225 rigs will get you 3.2 mbpd, with “the rest” (perhaps 2.5 mbpd) coming from GOM (2 mbpd) and Alaska (0.5 mbpd).

Pad drilling giveth, and pad drilling taketh away – one more shoe that has yet to drop.

  • Wed, Sep 09, 2020 - 03:42am

    #2
    jmone

    jmone

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    PM Daily Market Commentary – 09/08/2020

Q2 2020 Platinum Quarterly Update – https://platinuminvestment.com/files/455578/WPIC_Platinum_Quarterly_Q2_2020.pdf

Summary: Here are the main points for those looking at the fundamentals in Plat 2020f vs 2019 (all in koz):
– Demand is down to 7,438 (-11%): Major sectors down are Auto 2,429 (-16%), Jewellery 1,813 (-14%), and Investment 1,060 (-11%). Industrial held std at 2,136.
– Supply is down 7,102 (-14%): Big moves was SA Mining down to 3,517 (-20%) due to the smelter being offline for 90 days + Covid Restrictions, and Recycling down to 1,915 (-12%)
– Above Ground Stick is down to 3,189koz (-10%) which helped offset the predicted change from a Surplus to a Deficit for the year.

Discussion: Overall 2020f is a poor year with lower demand but even lower supply. Supply should bounce back with the reopening of the SA mine. Demand still seems weak going forward. Auto could be interesting as there was a hint in the report that the Petrol Cat market is switching from Palladium to Platinum but they are keeping it a secret (to keep prices low). This would be very very bullish for Plat and bearish for Palladium. I’d been banking of this for 3 years (prior to Feb 2020) and saw nothing but weakness in Plat for most of that time.

The other area they plugged was that Investment demand potential as a “Cheap compared to Gold” argument spreads. This is what Dave was also thinking. Keep in mind that the existing Above Ground Stock is triple the total Annual Investment Demand and 5 to 10x’s the yearly Physical Investment Demand. That’s a lot of supply that can be sold into any rising Physical Investment market.

I still want to go back to long Plat, simply as it is “cheap” when looking at the AISC / Price ratio compared to Gold, Silver, Palladium…. but all that Stock, weak demand, and that supply will pick back up….. If that “hint” on Plat for Palladium substitution is true I’d be all over it, or is it just a “Pump and Dump”? I’m still waiting for that call (and it has been years).

  • Wed, Sep 09, 2020 - 06:32am

    #3

    JAG

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    Forecaster

I bought a couple of call options on a few big miners into the close yesterday. I think I bought way too soon.

DF,

I’ve noticed that you often write “forecaster disagreed”. Didn’t you write the code for that software? Hence, shouldn’t it agree with you? LOL

What market factors does the forecasting software rely heavily on for its calculations?

  • Wed, Sep 09, 2020 - 07:20am

    #4

    davefairtex

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    platinum timeframes

jmone-

According to what I read, the AISC for platinum is about $1100/oz.  But mines already built don’t care as much about that number.  And mines last a long time.  So my sense is, cash costs will determine supply over the near to mid term – that number will provide a price floor over that timeframe.

It sounds like you want to buy, but you just don’t want to buy too soon.

Maybe you are putting too fine a point on all this?  I mean, everyone wants to catch the move at exactly the right time.  But that’s hard, unless you are a well connected insider.

In talking this over, I probably want to try platinum out too.  Maybe the right answer is to wait until we get a PM correction – perhaps during the upcoming election chaos? When Team Blue tries their anarchist/military coup.  (I really do think that’s a 50-50 shot.  How crazy is that?)

Looking at history, platinum does poorly during recessions, so it – probably – won’t be a safe haven.  Gold: more mixed.  It might rally.  Its hard to say.  So maybe buy during the next “recession” – but before the next money printing event takes place.

I think we might have a window between now, and the inauguration/coup, where we might see a correction.  For platinum anyway.

Maybe.

  • Wed, Sep 09, 2020 - 07:28am

    #5

    davefairtex

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    forecaster model for gold

JAG-

Yeah, forecaster is a neural net trained on 40 years of daily data.  And moving averages, and on balance volume, and some daily candlesticks, and open interest, and various ratios (gold/silver, gold/copper, gold/lumber, gold/SPX).  And Armstrong’s ECM too for good measure.

So it figures things out all on its own.  It knows more than me for sure.  It remembers relationships from 1976.  But sometimes it is wrong – or slow – or draws the wrong conclusion given a relationship that held true 15 years ago but maybe not now.

If I take the time, I can ask it, “hey, so what were the factors you used in coming up with today’s conclusion – vs yesterday.”  And it will tell me.  But that’s a PITA, so I don’t do it too often.  🙂

What I can’t do is ask it which training session or which historical event it was that led it to generalize a particular relationship between the different items.  This was pointed out to me by some smart math guys at one point.  “Yes, but are you SURE this stuff works?  How do you KNOW?”  And then I got a lecture in Baysean theory which I was only partially able to comprehend.  Being three beers down didn’t help.

Not sure if that helps.

  • Wed, Sep 09, 2020 - 02:17pm

    #6
    jmone

    jmone

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    PM Daily Market Commentary – 09/08/2020

Dave –

AISC (is a mining metric that estimates all direct and recurring costs required to mine a unit of ore):  This # is unique to each mine, moves all the time based on the conditions each year, and mixed production mines also have other metals as well so to me it is more a guide.  The biggest producer in the world is the Anglo American Platinum and in their 2019 Interim Results had their average AISC well down to only US$517oz sold (somehow they got a negative $292 from “Mogalakwena” which is the biggest in plat mine in the world).   Also of interest is this (2017) report that shows the AISC across various SA mines and is around US$950 for 2017 and shows a large range of coss.  Anglo had done a good job of driving down cost, but 2020 is not going to look good for them with the closures.

Timing:  As some background I first went long on Plat in 2017 @ A$1,286, then doubled my exposure in 2019 @ A$1,192.  Sold it all in Feb 2020 @ A$1,420.  So while OK, it was nothing great.  I still see upside potential but my personal experience is pretty much as per this long term chart.  You need to get the timing right as it was grinding lower over time till turning up in 2019 prior the the March 2020 crash.  It is of course a complicated product to price as it is (mostly) got a cost base in ZAR, is priced in USD, and (for me) purchased in AUD.

The question will be – what is going to drive it higher?  I think you are correct that it will be cheapest during the recession(s) to come, but the big jumps will be on the back of a shift in Demand (eg Pet Auto Cat rumours), or maybe a change in Supply (eg more Mine Issues / Nationalisation ?).

 

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