PM Daily Market Commentary – 10/12/2016
Gold rose +2.50 to 1256.80 on moderately light volume, while silver was mostly flat, closing up just +0.02 to 17.50. The dollar made a new high today, up 6 of the last 8 days.
The minutes from the recent FOMC meeting were published today at 14:00; this caused gold to eventually rally a few dollars, but it also caused the buck to rally also. That’s a relatively bullish performance out of gold under the circumstances.
The fact that gold managed to rally today alongside the dollar is good news. Gold also managed to avoid making a new low. However, gold remains below all three moving averages and it has yet to meaningfully recover. Today’s spinning top candle provided us no new information about the direction for gold.
December rate-rise projection is at 64%.
Gold open interest at COMEX fell – 5,674 contracts.
Silver didn’t move at all, printing a doji candle on the day. Silver remains above its 200 MA, which tells you it is doing a bit better than gold. Today’s doji is not useful in figuring out where silver will go next, but at least itt’s not a bearish candle print.
The miners rallied today, with GDX up +2.17% on moderate volume, and GDXJ up +2.65% on moderately heavy volume. GDX missed a swing low by a penny; the print was just a “closing black marubozu”, but it had a 23-40% chance of marking a low. Today’s rally was stopped by the 200 MA, which is now acting as resistance. Miners did fairly well today, especially considering the dollar rally. This looks relatively bullish.
Platinum fell -0.83%, palladium rose +0.15%, while copper moved down -0.41%. Platinum made a new low – it does not look good for platinum right now.
USD broke higher today, up +0.27 to 97.96, making a new high. Today’s rally was about the Euro, which dropped -0.40% and appears to be heading for the previous low at 109.50. I’m not sure why the Euro is ill; is it just US rate increase angst, or is it something more? The pound is struggling to put in a low here; it printed a bullish harami and rallied +0.66%, but the candle code won’t work unless I have volume info – which I don’t for the currencies.
Crude fell -0.85 [-1.67%] to 50.01. The plunge in oil started a little before 8 am and the selling went on for about 90 minutes. Oil’s correction has not yet caused a swing high print, but that willl probably happen if we don’t get a positive petroleum status report tomorrow at 11 am.
SPX rose +2.45 to 2139.18, managing to eek out a very modest gain after yesterday’s brisk move lower. Utilities (XLU:+0.98%) led, with sickcare (XLV:-0.47%) trailing. The gain in utilities was all about the FOMC minutes release at 14:00, which – presumably – didn’t look as rate-increase-y as the market was expecting. Candle print was a bullish harami, which was 23-35% chance of marking a low. VIX rose +0.55 to 15.91.
TLT rallied +0.10%, with the move higher coming after the FOMC minutes release at 14:00. TLT made a new low, and printed a spinning top candle.
JNK fell just -0.08%, coming to rest right at the 9 EMA. JNK remains in a strong uptrend.
CRB fell -0.58%, finding support at its 9 EMA also. CRB still looks like its in a medium term uptrend, but a move below the 9 EMA would start calling that into question.
There wasnt’ a whole lot of activity today; the miners gave off a fairly bullish signal, managing to put in a decent rally in spite of the dollar rally and the relative lack of movement from the metal. We will probably need to see the other currencies stop plunging before gold recovers meaningfully.
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The petroleum status report this morning showed a bearish inventory build of 4.6 million barrels. This caused oil to spike down hard, but then traders bought the dip and everything promptly reversed – oil rebounded sharply back into the green, and XLE is following along behind.
When something rallies on what should be bad news, that is a really bullish sign.
There are three main variables driving the price of oil: 1) softening demand secondary to economic contraction worldwide (not disputable in my mind) , 2) (non-existent) production cuts by all of the oil producing countries desperate for oil revenues, and 3) increasing worldwide political strife. We are seeing a reflection of the increasing geopolitical strife in the middle east, Russia/U.S., etc. When the drums of conflict/war are banging louder it is probably not a bad time to be diversified in energy.
Takeaway political conflict & I'd guess oil is headed for $20. With active political tensions it could easily go to $150-300+.
I’m not so sure about the $150 – $300 upper range limit. The reason for me is thus – who buys it at that price? Given that Brent is currently trading around the $50 mark what we are saying is that food and transportation costs increase anywhere from 200% to 500% per household. The economy will hit stall speed followed by an immediate plunge. Now your retort could be, “yes, but what will a dollar be worth at that point?” And maybe that’ll be the issue.
Personally, I think we go to a command economy before price will be allowed to explode. I don’t expect it to work for long but we are in the peculiar situation of “pump or die”.
Or, to quote one of my favourite sci-fi novels, “the spice must flow”.
I agree with your comments. The $150+ figure would be very much related to the value of the USD. It's a real possibility the Eastern & Western financial worlds could split apart leading to a currency reset. I'm not sure who has the strongest "real' economy, but the U.S.'s low productive capacity along with being heavily dependent on the service sector does not seem to stack up well with the over capacity of China combined with the energy of Russia. Everyone is drowning in debt, but it seems to me the U.S. is more broke on a basic, practical level than anyone else. America's 'economy', if you want to call it that, wouldn't be able to afford an oil price anywhere near $150+ and would grind to a halt very quickly. There would still be demand for oil from countries who could afford it on a relative basis.
It may seem obvious, but oil prices are the currency of production. The attached graph should give a glimpse of their relationship. Nothing happens without oil (or any cheap energy source). Note the lag of the CPI to oil prices. I used a 20 yr. view.http://www.macrotrends.net/1373/oil-prices-vs-the-cpi-historical-chart
Ok guys, so after all the macroeconomic-geopolitical-navel-gazing is said and done, is oil a buy here or not? 🙂
Hmm… only guesswork but maybe the oil rally continues to the $65 mark on jaw-boning and momentum. There’s also the refinement cycle I read about a while ago where oil rallies from autumn to early winter and again from spring to early summer to get to market before heat demand in the depths of winter and aviation demand in the peak of summer.
But long term I’m waiting for the washout and oil companies to start folding before looking at purchasing the stock of what’s left. That’s when I think it gets ugly – possibly even nationalisation of energy related companies. Just wait until the masses are freezing and starving – the impoverishment of the middle classes is sure to get a strongman in office.
I wouldn’t take investment advice from me though, I’m not qualified.
Local gas suppliers, here, are pushing 2 year contracts to consumers. From my contacts in the industry (Western Canada), it usually means an increase in production activity. Mind you, that isn’t necessarily about new drilling, however. Fracking companies are becoming a bit more active, recently, and service rigs are picking up. Looks like there is some modest hope that we might be in a mini-rally. Industry guys here have told me they have locked in some operating funds before Janet raises rates. Cash flow is everything in this business, so I’m putting a few more dollars into some of my under-performers. Or as I like to think: every dark cloud has some silver lining.
According to Barchart, the ETF which follows oil, USO, looks like a buy.