Investing in precious metals 101

PM Daily Market Commentary – 1/24/2018

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  • Thu, Jan 25, 2018 - 01:15am

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    davefairtex

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    PM Daily Market Commentary – 1/24/2018

Gold rose +16.80 [+1.25%] to 1357.80 on extremely heavy volume, while silver shot up +0.52 [+3.05%] to 17.57 on very heavy volume. The buck plunged -1% today, dropping almost a full point – that’s a huge move for the buck, following through on yesterday’s break below round number 90.  This tells us that gold’s move today was mostly a currency effect.

What’s the story with the dollar? The press felt the plunge was driven by Treasury Secretary Mnuchin who said that he welcomed a weakening in the dollar. Certainly such a comment is a rare event from US treasury secretaries, who with few exceptions have historically maintained a “strong dollar policy.”  At least in public anyway.

Gold started rising mid-way through trading in Japan, and really didn’t stop until 2pm in the US. The track of gold more or less followed that of the Euro, which was up +0.86% on the day. Gold forecaster rose +0.16 to +0.57, which is a strong uptrend. Gold’s day high was 1361.60, which was fractionally below the previous high of 1362.40 set back in September of 2017. A close above 1362.40 would be bullish for gold. If the buck drops more, which seems likely, the previous high probably will not hold. The next high after that is 1374, which was set back in 2016. Today I have to show you a weekly chart, since gold’s rally has outstripped the daily chart.

COMEX GC open interest rose by +16,700 contracts today; 52 tons of paper gold. Just to give a sense, immediately after BRExit gold OI rose by 50,000 contracts, so this was a big addition and no doubt helped to cap the rally.

Rate rise chances (March 2018) fell by 8% to 65%.

Silver’s move started a few hours after gold, after the close in Japan, but silver made up for it in intensity, with silver blasting through several of its previous highs, managing to close above the 17.50 high set back in October. Forecaster shot up +0.75 to +0.81, which suggests a very strong uptrend. Silver’s rally was almost certainly aided by copper’s very strong rally. While over the past few months silver has looked weak, today silver was very strong.  Silver always leads during genuine PM bull markets, and it was the one factor I felt that was missing in the current (6-week) PM rally – until today.

COMEX SI open interest rose +6,286 contracts today; that’s 978 tons of paper silver, or about 13 days of mine supply. That’s a lot of new paper silver, which certainly helped to cap the rally.

The gold/silver ratio plunged -1.37 to 77.30. That’s very bullish.

The miners gapped up at the open due to gold’s rally, tried to move higher, but largely failed. GDX rose +2.07% on very heavy volume, and GDXJ climbed +2.03% on very heavy volume. The failed rallies generated a shooting star for GDX (52% reversal) and a doji for GDXJ (45% reversal). XAU forecaster was actually flat on the day, at +0.67. It sure looks like the miners ran into a fair amount of selling pressure on today’s rally, unlike the metals themselves which did quite well.

Today, the GDXJ:GDX ratio fell slightly, while the GDX:$GOLD ratio rose. That’s somewhat bullish.

Platinum rose +0.80%, palladium climbed +1.68%, while copper shot up an amazing +3.56%, completely erasing the heavy losses from yesterday’s plunge. The bullish engulfing/swing low candle pattern had an 80% chance of being a bullish reversal – that’s the highest rating the candle code gives.  Copper has seen some really dramatic moves in the past 6 months – some really large days, both up and down. Today’s rally resulted in a buy signal from the forecaster (+1.00 to +0.33). All 3 other metals are in uptrends now; I think they all like the weaker dollar.

As mentioned, the buck plunged -0.90 [-1.00%] to 88.90, which is a new closing low for the buck. The black marubozu candle could be a low (40% chance) but the forecaster plunged -0.29 to -0.70, which is a strong downtrend.  The follow-through off yesterday’s drop through round number 90 was quite dramatic – nobody wants to hold dollars right now.  Typically when there is a risk-on attitude, money flees the US where it can get higher returns overseas – in the emerging markets.  The pattern for a dollar downtrend isn’t just some straight-line move lower, however.  Usually there are a few days with large drops, followed by several days of regrouping.  I don’t expect we will see many days with moves this large unless there is some major event.

Crude climbed +1.41 [+2.19%] to 65.88. The move in crude started just after the EIA report was issued at 10:30 (crude: -1.1m, gasoline +3.1m, distillates +0.6m). The report was much less bearish than the API report yesterday, and the market responded with a rally. Again, when the market rallies on “less bearish than expected” news, that’s a strong bullish sign.  Regardless of the large overhang of commercial shorts, crude remains in a strong uptrend.

SPX fell -1.59 [-0.06%] to 2837.54, making a new all time high intraday before retreating. Tech led the market lower (XLK:-0.77%) while financials did best (XLF:+0.67%). Utilities fell today, down -0.61%. Things with a yield continue to have problems.

VIX rose +0.37 to 11.47.

TLT fell -0.54%, making a new low and invalidating yesterday’s swing low. TY dropped -0.20%, avoiding a new low but echoing the weakness seen in TLT. Forecaster for TY dropped -0.14 to -0.44. The 10-year yield ticked up to 2.65%.

JNK fell -0.08%, but remains in an uptrend with the forecaster rising +0.02 to +0.35. JNK is looking a whole lot better than the higher grade treasury bonds.

CRB shot up +1.30% to 199.51, breaking convincingly above the 195 resistance that has held for several years. All 5 sectors rallied, led by industrial metals (+2.19%).

Today it looked as though the plunge in the buck really got the attention of traders. Especially in the afternoon, it felt a bit as though traders were panicking into gold. Silver’s rally was very strong; today was the first 50-cent up-day in more than a year. Silver’s out-performance is a very good sign for higher PM prices going forward – if it continues.  Silver always leads in “real” PM uptrends, and now we’re beginning to see signs that it is starting to do so.

Is the dollar downtrend overdone, or will it continue? On the chart, there is no support at all until 82, which is 7 points below where we are today. Technically speaking, the selling could go on for a while, although the buck tends to move in fits and starts rather than just one long continuous move.

The ECB is meeting tomorrow (today?), with a press conference afterwards by Draghi which will provide him an opportunity to try and talk down the Euro. Press conference time: 7:45 am (Eastern). At some point, the ECB’s 0% rates and money printing operation will look increasingly foolish with rising commodity-inflation, rising bank credit, rising employment – and a bunch of Germans who aren’t particularly happy with the pro-inflationary policy carping from the sidelines. This limits his freedom to maneuver, and that could well be why the Euro continues to climb.

The current PM move is not just about the buck.  It is about commodities too, especially oil, as well as rising bank credit, rising wage pressures, debt-funded tax cuts – all the stuff of which “real” (consumer) inflation is made.

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