Investing in precious metals 101

PM Daily Market Commentary – 1/16/2018

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  • Wed, Jan 17, 2018 - 12:53am



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    PM Daily Market Commentary – 1/16/2018

Gold rose +0.50 [+0.04%] to 1338.80 on very heavy volume, while silver fell -0.04 [-0.20%] to 17.21 on very heavy volume also. The buck fell hard today, breaking to new lows, but in spite of the drop, copper, gold and especially silver suffered selling pressure today, with silver being especially hard-hit.

The majority of the selling pressure on the metals appeared during and after the Asia trading session.  While copper slowly dropped 8 cents over about 7 hours, with gold dropping also, silver initially followed along, but then at one point it was smashed for a 36-cent loss in 1 minute. Buyers showed up and pushed prices back up 40 cents erasing the losses from the smash, but if you were long silver and used a stop, it certainly would have been triggered by these shenanigans. Do we see this happen in copper? We do not. Copper is an important industrial commodity so it needs to have an orderly market.  Silver is the wild west, where such rules apparently do not apply.

Some of you may have heard of the “Spectre” and “Meltdown” security problems in Intel CPU architectures. Well I updated my server over the weekend and applied the patches, and now my candle predictor code just hangs. I can’t even kill the process. It makes some operating system call and just never comes back. Even testing this requires that I reboot my server every time it happens. So until I sort out what is going on – no candle predictions.

Gold fell along with the rest of the metals in Asia, but then rallied back in the afternoon in the US, roughly tracking the movements of the Euro. The forecaster fell -0.09 to +0.18; gold remains in an uptrend. Given the drop in the buck, it wasn’t the greatest performance by gold, but of all the metals, gold resisted the selling pressure today the best.

COMEX GC open interest rose by +9,098 contracts today.

Rate rise chances (March 2018) rose to 73%.

As mentioned, silver was smashed in the period after Japan closed, but before Europe opened, dropping 36 cents in 1 minute and making a momentary new low to 16.80. The trading range was huge, the candle was a ridiculously large doji candle, the volume was extremely heavy, and the forecaster saw all of that and dropped -0.15 to -0.12, issuing a sell signal for silver.

COMEX SI open interest fell -3,202 contracts today. I’m guessing those are longs that got stopped out by today’s silver-shenanigans.

The gold/silver ratio rose +0.19 to 77.79. That’s bearish.

Miners chopped sideways until the afternoon, and then they decided to rally for the remainder of the day. GDX rose +1.50% while GDXJ was up +1.80%, both on heavy volume. Both ETFs made new highs, with GDXJ finally breaking out above its previous high set two weeks ago. XAU forecaster fell -0.01 to +0.31; miners remain in a fairly strong uptrend. And since miners tend to lead…that’s bullish.

Today, the GDXJ:GDX ratio rose, as did the GDX:$GOLD ratio. That’s bullish.

Platinum climbed +0.52%, palladium plunged -2.75%, while copper dropped -0.12%. Like silver, copper also had a wide trading range, and although it managed to recover most of the day’s losses, it too issued a sell signal today, while both palladium and platinum remain in uptrends. Platinum is up 14% over the past 4 weeks – the surprise winner of the Dec/Jan metals rally.

The buck plunged -0.58 [-0.64%] to 90.07. This wasn’t about the Euro; most every currency rose against the buck today (EUR +0.51%, GBP +0.47%, JPY +0.52%, CAD +0.46%, AUD +0.52%). Money is fleeing the US, risk appears to be back on. How much farther can the buck drop? A whole lot farther. Next support is down around 82. That’s another 10%!  Note that the buck got two separate candles for Monday & Tuesday, while gold and silver lumped both days of activity into Tuesday.

Crude made a new high up to 64.84 before selling off, dropping -0.53 [-0.82%] to 63.83. However the forecaster actually rose, climbing +0.11 to +0.29. It saw something it liked somewhere. Crude remains in an uptrend, defying all the people who think it is “too high” (including me!). That said – the energy sector ETF XLE printed a bearish engulfing today, which could mark a top at for energy equities which have raced up 13% over the past 4 weeks.

SPX fell -9.82 [-0.35%] to 2776.42. Equities gapped up in the futures markets overnight, but then sold off all day long, resulting in a dark cloud cover candle which looks fairly bearish. Forecaster disagreed, rising +0.30 to +0.87. Sector map shows energy led the market lower (XLE:-1.27%) along with materials (XLB:-1.17%), while sickcare did best (XLV:+0.50%). Is this a near-term top for the commodity rally? Maybe.

VIX rose +1.50 to 11.66. We’re back in double digits all of a sudden.

TLT rose +0.42%, causing its forecaster to issue a buy signal (+0.23 to +0.06). TY wasn’t at all convinced, moving up just +0.02%; the TY forecaster remains mired in a downtrend (+0.06 to -0.59). Overall, bonds remain in a downtrend in all 3 timeframes. Utilities also fell today, down -0.22%; they are quite oversold on both daily and weekly timeframes – but at what point do you make a grab for the falling knife?

JNK rose +0.03%, basically going nowhere. Forecaster issued a buy signal anyway, rising +0.43 to +0.15.

CRB fell -0.48%; 3 of 5 sectors fell, led by energy (-0.76%). CRB is now chopping sideways right at its multi-year high of 195. A breakout here would be seriously bullish. With the falling dollar, rising bank credit in both Europe and Japan (yes, Japan too – see chart below where Japan made a new 30 year high in bank loan credit growth), my money is on a continued rally in CRB.

With the dollar continuing to decline, the commercials will be hard-pressed to keep the metals prices in check, although silver does seem to be more vulnerable than the rest of the metals to this sort of pressure. Certainly miners are signaling a continued move higher in the metals. They are usually the canaries in the coal mine, and so when they rally, that’s a good sign.

All of Trump’s policies appear to be pro-inflation. Controlling immigration – reducing H1b-visas, green card lotteries, illegal immigration, deporting people: it is all pro wage inflation. So is reversing globalization. More local jobs = less unemployment = higher wage inflation pressure. Borrowing money to provide tax cuts = inflation.

There is growing credit growth in Europe and Japan, and dropping unemployment in Europe too. It all points to a pickup in economic activity and growing inflationary pressures.

So with Trump turning the inflation crank, that seems to be hurting the buck, longer-dated bonds, and helping commodity prices. As long as that macro trend is in place, the metals should do well. Barring any sort of black swan, of course.

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