Investing in precious metals 101

PM Daily Market Commentary – 10/9/2018

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  • Wed, Oct 10, 2018 - 01:22am

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    davefairtex

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    PM Daily Market Commentary – 10/9/2018

Gold rose +1.82 [+0.15%] to 1196.70 on moderate volume, while silver moved up +0.02 [+0.10%] to 14.41 on moderate volume also. The buck dropped -0.10%; really it was a failed rally, with the buck up +0.50% at one point before eventually falling back. PM moved more or less along with currency.

Gold rallied in Asia, drifted lower as the Euro plunged, and then slowly moved higher as the Euro came back. Trading range was narrow; the bullish harami candle was neutral, while forecaster moved up +0.22 to -0.18. The move is slowing, but it remains a downtrend. Gold remains in a downtrend in all 3 timeframes.  GC.EUR issued a sell signal today on the daily, but remains in an uptrend on both weekly and monthly timeframes.

COMEX GC open interest fell -4,000 contracts. That’s a curiously round number. There was what appeared to be a minor manipulative spike down today at 9:46 am; perhaps that was where the round-number-short-covering took place.

Rate rise chances (December 2018) is unchanged at 81%.

Silver moved higher in Asia, had a bit of a drop around 5 am, and then recovered for the remainder of the day. Like gold, the trading rang was narrow; the doji/NR7 candle was unrated, and the forecaster jumped +0.29 to -0.25; silver remains in a downtrend in all 3 timeframes.

COMEX SI open interest fell -582 contracts.

The gold/silver ratio rose +0.01 to 82.76. That’s neutral; the current level for the ratio suggests PM could be at or near a long term low.

Miners were hit fairly hard today, with GDX off -1.71% on moderately heavy volume, while GDXJ dropped -1.94% on moderate volume. XAU plunged -1.59%, with the forecaster dropping -0.51 to -0.39, which is a sell signal for XAU. The move pulled XAU back below its 9 MA; XAU is now in a downtrend in both the daily and weekly timeframes. Today’s sell-off is a sharp contrast to yesterday’s outperformance by the mining shares, and it looks bearish to me.

The GDX:$GOLD ratio fell -1.86%, and the GDXJ:GDX ratio dropped -0.23%. That’s bearish.

Platinum rose +0.63%, palladium dropped -0.43%, while copper shot up +1.89%. Copper issued a buy signal today as did platinum, while palladium might be topping out. Platinum is looking a whole lot better than both gold and silver right now.

The buck was driven by the Euro today, rallying during the London session (up almost +0.50% at one point), but then selling off after the US open, ending the day down -0.10 [-0.10%] to 95.23. The shooting star candle was neutral, but forecaster plunged -0.32 to +0.03, which is almost a sell signal for the buck. In spite of today’s failed rally, the dollar remains above all 3 moving averages, and it remains in an uptrend on both the daily and monthly timeframes.

The Italian budget remains front and center for Europe; Salvini said that Italy will not change its plan (a deficit of 2.4% – miniscule by US deficit-loving standards), saying that he is convinced that the “planned budget measures will create jobs and wealth.” In other words, he wants to inject borrowed money into Italy’s economy the same way Trump and the “deficit conscious” Republicans did to get the US GDP growth to 4%. Salvini is right, deficit spending works. Kind of. Of course, the unelected European Commission has stated they will reject Italy’s budget, and if Italy then refuses to back down, the EC will effect the “excessive deficit procedure” (EDP) which would involve economic sanctions on Italy. Of course, both France and Germany have had “excessive deficits” in years past, with nobody saying boo. “It’s good to be the king.” “Some are more equal than others.”

https://www.euractiv.com/section/economic-governance/news/commission-prepares-to-reject-italys-budget/

Market effects are that over the last 10 trading days, the Euro has dropped 2 percent, and Italy’s 10-year rate has jumped to 3.5% – up from 2.8%.  That’s a 70 basis point move. Has the ECB stopped buying Italian debt? I think so – because Italy must be beaten into submission. Never mind that I’m a deficit hawk; I’m even more of a blatant-hypocrisy hawk. Its fine when Germany and France have excessive deficits. Its not fine when Italy does so – most especially if it is governed by people that Brussels doesn’t approve of.

You see, elections are anti-Europe. Just look at the structure of EU. Unelected people have all the power, with the one elected group having powers that were patterned after the Duma in the former Soviet Union. All the elected European Parliament can do is vote yes or no to legislation put forward by the Politburo. Excuse me, I mean the European Commission. Same role, different names, that likely accounts for my confusion. Can the population of the EU elect its chief executive? No, of course not. That would be anti-Europe to have such an election.  Instead, that person is appointed by the EC.

The EC and the ECB got rid of Burlusconi back in 2011. Now they’re trying to deep-six Salvini and Di Maio using the levers of power they have control over. It will be interesting to see how that plays out.

More Europe, anyone?

Crude rose +0.45 [+0.61%] to 74.49. Candle print was a neutral-looking spinning top, with crude’s forecaster ending the day down -0.05 to -0.08. That’s a slight downtrend. Crude remains in an uptrend in the weekly and monthly timeframes. Right now, the oil markets just aren’t sure how much production will be taken offline with the Iran sanctions, how much will be replaced by the Saudis and Russians, and what other geopolitical issues might crop up along the way, however that long term trend remains up.

SPX fell -4.09 [-0.14%] to 2880.34. The futures trading range was fairly wide, but the high wave candle was just neutral. Forecaster rose +0.17 to -0.42, which leaves SPX still in a downtrend. SPX closed the day right at the 50 MA, where it seems to have found some support. SPX is in a downtrend in both the daily and weekly timeframes. Materials led the market lower (XLB:-3.32%) along with industrials (XLI:-1.54%), while energy did best (XLE:+0.89%). This is a bearish sector map.

What’s the story about the massive drop in XLB? PPG Industries, a chemical company, issued an earnings warning that said commodity costs are rising at the fastest pace in 2 years, as well as activity in China is slowing down. That resulted in a brisk sell-off for the companies in the materials sector.

VIX rose +0.26 to 15.95.

TLT rallied +1.01%, but the confirmed bull NR7 candle pattern was just neutral rather than being a bullish reversal. TLT’s forecaster did issue a buy signal. ;TY al, but not all that strongly, up +0.15%, printing a swing low which was a 62% bullish reversal. That’s a pretty strong reversal for a relatively weak rally. Forecaster jumped +0.27 to -0.26, which is still a downtrend for TY. TY remains in a downtrend in all 3 timeframes. The 10-year yield fell -2.5 bp to 3.21%. Based on the candle print I think this could well be a near-term low, but I suspect the longer-run monthly forecaster holds the key to rates over the longer term: they are going higher.

JNK rose +0.11%, rising for the first time in days. The bullish harami was more neutral (it wasn’t a bullish reversal), and while forecaster improved substantially, it remains in a strong downtrend.

CRB rose +0.31%, with 3 of 5 sectors moving higher, led by industrial metals (+0.92%). That’s probably copper, which did quite well today.

After the large dip in PM yesterday, the dip-buyers didn’t put in much of a showing today. Today’s relative weakness in PM wasn’t about currency, since the buck actually fell, and the miners are looking especially bad, selling off briskly even though the metals actually moved higher.  The metals sector looks pretty feeble right now – perhaps its a bit shell-shocked after yesterday’s hammering.

What to make of the XLB sell-off? Well it definitely seems to be a signal of commodity-push inflation.  Will that make it into gold and silver prices?  Well so far, it hasn’t.  Certainly nobody seems to care about gold right now, and (probably) with some help by official intervention, it remains below 1200, even though Turkey is heading inexorably towards default (74% annualized inflation!), Italy is playing chicken with the EU on its budget, and the emerging markets in general are looking pretty shaky because of the rising dollar.  And of course, there’s also the rates breakout.

Here’s the key point for me: commercials remain net long both gold and silver, which is a very rare place for them to be.  They are positioned for a big gold rally.  Of course, that will only matter when it matters; that COT report is not great at signaling timing.  But given how well-connected our friendly bankers are, when you know that they won’t benefit from a big drop in the price of gold, that suggests to me, we probably won’t be seeing one.

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