Investing in Precious Metals 101 Ad

PM Daily Market Commentary – 11/23/2016

Login or register to post comments Last Post 2295 reads   15 posts
Viewing 10 posts - 1 through 10 (of 15 total)
  • Thu, Nov 24, 2016 - 02:21am

    #1

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    count placeholder

    PM Daily Market Commentary – 11/23/2016

Gold fell -21.70 to 1190.30 on very heavy volume, while silver dropped -0.30 to 16.43 on heavy volume.   A strong dollar rally through the previous high of 101.54 was the probable proximate cause of gold’s tumble today; the buck ended up +0.64 to 101.66, but hit a multi-decade high of 101.86 intraday.

The drop in gold/the dollar rally started right around the time of the Durable Goods report at 08:30, which showed an unexpectedly strong new order reading; new orders being the forward-looking reading of how durable capital goods are projected to be in the near future.  My guess is, the commercials took full advantage of the dollar rally to pound gold; the “nobody cares” sense in the west probably caused the recent dip-buyers to panic out.

On the daily chart we see gold plunging through 1200 support; the 1200 level was a very important level to hold, and the close below this level suggests a much more intense decline is potentially ahead.  If the Euro loses the 105 level, that strongly suggests a crisis in the Eurozone, and that projects a much stronger dollar rally and/or a further large drop in the Euro.  Weaker Euro = stronger dollar = weaker gold.  That’s how things stack up right now anyway.

Candle print today is a two candle swing high, which the candle code says is quite bearish: 92% chance of this marking a high.

Rate rise chances have risen to 98%.

Gold open interest at COMEX fell a huge -21,654 contracts.  Commercials are covering, I suspect.

Here’s the weekly chart for gold, to provide some perspective as to why I said the 1200 level was a critical one.   Note that after we lost 1200, all we can see on the chart is a whole lot of air between where we are and the previous low at 1045.  That’s not to say we immediately head there, but that’s where the price will probably go if a new catalyst for gold doesn’t appear, and/or the Euro cracks 105 and the dollar continues to rally.

Silver’s chart doesn’t appear to be quite as bad, but it too broke below the previous low set last week, and it also printed a two-candle swing high/“confirmed bearish high wave” – that second pattern just means a high wave that prints a new high within a 3-candle range, followed by a nasty red candle.   It all adds up to a 95% chance of this marking the high for silver.  That sounds pretty bad, but silver does have some chart support at 16, and then again at around 14.50-15.00.  That, plus the gold/silver ratio actually fell today, dropping -0.27 to 72.56.


The miners gapped down big, sold off hard, and then managed to rebound somewhat; GDX fell -4.92% on heavy volume, while GDXJ dropped -5.59% on very heavy volume.  Miners did manage to find support at the previous low – unlike both silver and gold, the miners avoided making a new low, which is a somewhat positive sign, especially compared with gold and silver which both made new lows.  The candle print was a spinning top, which the candle code gave as only a 10% chance of printing a low.  Hmm.  That’s not very optimistic.  More likely than not, we go lower.  If the miners crack the previous low, the selling could prove very intense.  As in, another 8-10% down day as traders panic out.

Platinum fell -0.76%, palladium fell -0.83%, and copper was up +2.80%.  Unbelievably, copper is continuing to move higher, closing at 2.62 today, up 52 cents (25%!) off the lows set just one month ago.  COT says the commercials continue to go short; they’ll eventually be right, I suspect, but when?

Crude was more or less unchanged, rising +0.04 to 47.94.  Today’s candle print was a doji, which in this context provides no directional information at all.  Crude is above all 3 moving averages, which puts it in a near-term uptrend.  The petroleum status report showed a -1.3 million barrel crude inventory draw, which is bullish, and a 2.3 million barrel gasoline inventory build, which is bearish.  The upcoming OPEC meeting, which starts on Nov 30th, will probably decide ultimately what happens with oil in the medium term.  One wildcard: Trump has vowed to tear up the Iran nuclear deal on day 1; if the US reimposes sanctions and gets everyone to go along (China?) then that could knock a few million barrels of production offline.  It could also raise the geopolitical premium for oil also.  That would be unquestionably bullish for oil.  What Trump will actually do, on the other hand, is much less certain.

http://oilprice.com/Energy/Crude-Oil/What-Happens-To-Oil-If-Trump-Tears-Up-Iran-Nuclear-Deal.html

SPX rose just +1.78 to 2204.72, squeezing out another new all time closing high.  DJIA and RUT both made new highs also.  Industrials (XLI:+0.74%) led, while utilities (XLU:-1.00%) trailed.   SPX is starting to become reasonably overbought, but so far, shows no real signs of topping out.   VIX rose +0.02 to 12.43.

TLT dropped once more, falling -0.39%, making a new low.  Candle print was a “spinning top/short white” candle, which the candle code assigns a surprisingly high 58% chance of marking a low.  Might we have an intermediate low for bonds?  This puts the 20 year rate at 2.71%, which is a full 100 basis points higher than the all-time low set back in early July.  What did that do to TLT?  That’s a 20% drop in value; from 142 down to 120.  Ouch.  A 1% increase in yield resulted in a 20% loss to capital.  Now just imagine this happens another 2 times.  That gets long rates back where they were in 2008.

JNK dropped -0.44%, dropping back below its 50 MA.  The outperformance of JNK might be nearing an end; JNK:IEF is showing signs of topping out.

CRB moved up +0.07%, the industrial metal rally offsetting the plunge in PM.

Yesterday I said that if the buck broke above 101.54, gold would probably snap the 1200 support level.  Now that gold is through 1200, it is at a high risk of a much more substantial decline.  If you thought we had been punished too much and the beatings were about to end…go back and look at that weekly chart.  The pro traders see that sort of chart breakdown, and they head for the exits.  That, or they load up short.  Trend is down, support gets broken = run, don’t walk, until the situation changes.

My sense is, the only way gold puts in a low here is if the Euro holds 105, and/or the buck immediately tops out and starts to decline.  With the Italian referendum coming up Dec 4th – Europe just doesn’t look very good right now.  If you were the BOJ or the PBOC, would you be buying Euros here?  If you lived in Europe, would you be loading up on Euro sovereign debt, or would you be eyeing the exits?

And if this all weren’t gold-unfriendly enough, there is talk that India might ban gold imports entirely.  Gold would still be smuggled into India, of course, and the government would not get the tax revenue from the import duty, but if Modi is really serious about a war on cash – gold definitely acts like cash, and so this would be a logical next step.  Of course, gold sellers in India profit from people who panic-buy in this situation, so its hard to know if this is just a scam run by the Indian gold sellers to pump up premiums, or if its a real thing.  If it does happen, COMEX gold probably gets sold hard in response.  That’s the common view, and I agree with it.  Will it happen?  That’s much harder to know.  An Indian gold ban might take gold down to $1100 – aided no doubt by the enthusiastic commercials, which would probably take the opportunity to ring the cash register and cover.

Right now, there’s a lot of downside risk to gold – from the super-strong buck, mostly, and from India at least to some degree.  Armstrong suggests gold may break $1000 sometime in 2017, probably driven lower by the currency moves I’ve already talked about.

We could see a rally back up to 1200 in the near term, but if it isn’t accompanied by the buck putting in a convincing swing high, I’d sell the rally, not buy it.

Note: If you’re reading this and are not yet a member of Peak Prosperity’s Gold & Silver Group, please consider joining it now. It’s where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the “Join Today” button.
 

  • Thu, Nov 24, 2016 - 11:10am

    #2

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    count placeholder

    fun bond yield chart

Here's a chart of the 20 year treasury yield since 1991.  The 50 month moving average has acted (roughly) as resistance during that time.  Its imperfect, but at least since 2008 the 20 year yield hasn't moved above that 50 for very long.

If it manages to do so this time, we might have a real trend change on our hands.  A move back to 2006 yields means about a 2.7% increase in yield vs where we are today, which would result in (perhaps) a 40-50% drop in the value of any 20 year bonds you happen to own.

Remember, a stock market crash leads to a recession; a bond market crash results in a depression, because so much value gets destroyed.  You can bet I'll be watching how this unfolds.

  • Thu, Nov 24, 2016 - 09:45pm

    #3

    New_Life

    Status Bronze Member (Offline)

    Joined: Apr 18 2011

    Posts: 185

    count placeholder

    Silver price on the dashboard showing Sept?

On the home page still says $19 for silver….

 

  • Thu, Nov 24, 2016 - 10:16pm

    #4
    reflector

    reflector

    Status Bronze Member (Offline)

    Joined: Aug 20 2011

    Posts: 252

    count placeholder

    widget stuck

[quote=ScubaRoo]

On the home page still says $19 for silver….

 

[/quote]

yes it's been stuck at 19.06 for a month.

  • Thu, Nov 24, 2016 - 10:41pm

    #5
    reflector

    reflector

    Status Bronze Member (Offline)

    Joined: Aug 20 2011

    Posts: 252

    count placeholder

    value?

[quote=davefairtex]

Remember, a stock market crash leads to a recession; a bond market crash results in a depression, because so much value gets destroyed. 

[/quote]

"value" gets destroyed?

when a forest fire happens, it burns away the deadwood and other crap, and brings new life to the forest. it's not value being destroyed, but rather the detritus that the forest is better off without.

the depression does not happen as a result of value being destroyed.

as john mill put it:

"Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works."

lending money to a bankrupt federal government so that they can carry out unprecedented wars of aggression halfway around the world, and prop up failing banks, is indeed something i'd consider unproductive works.

as doug casey says, those who foolishly loaned money to the federal government will get what they deserve, and they will get it good and hard.

  • Fri, Nov 25, 2016 - 07:37am

    #6

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    count placeholder

    depression results from value destruction

the depression does not happen as a result of value being destroyed.

Ok, let's get down to basics.  When a person takes $10,000 in savings, uses it to buy a 20 year bond, and then interest rates rise, and then the treasury drops in value down to $5,000, that person experiences a destruction-of-value event.  Do you dispute this?  Please don't quote some economic-philosopher, speak directly to the real human's emotional experience of seeing a $10,000 bond turn into a $5,000 bond, and try to explain why they will not actually experience the emotion of loss.

when a forest fire happens, it burns away the deadwood and other crap, and brings new life to the forest. it's not value being destroyed, but rather the detritus that the forest is better off without.

Regardless of how "morally necessary" you believe it is to "burn away the deadwood", I believe that the widespread destruction-of-value event that will take place in a bond market crash will end up causing a depression because of the emotional impact across the real human beings that comprise the economy.

There are exactly zero humans who currently hold 20 year treasury bonds that, if they drop 50% in value, will view this as a salutary burning-away of detritus.  Humans just don't work that way.  Instead, they will see their savings melt away, and they will react as any normal human would: with great dismay.

as doug casey says, those who foolishly loaned money to the federal government will get what they deserve, and they will get it good and hard.

Oh sure, you can take your victory lap and laugh at all the idiots who ended up losing, but the nation will still be in a depression because of the mass emotional impact of the large loss-of-value event.

I'll leave the victory-lapping and schadenfreude to you.  My goal is only to figure out the systemic effects.

And I still maintain: a mass loss-of-value event in the bond market will lead to a depression.

  • Fri, Nov 25, 2016 - 10:11am

    #7
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1611

    count placeholder

    VALUE …

Dave,

This is to me a really interesting conversation, but can I offer an alternative view? Goes back to the fundamental idea that money and currency are both calls on value, but not value themselves. This goes against the common idea that money is a store of value. It is not, it a means of purchasing and trading value, over time. This is key. 

Real value is in the food we eat, the energy we consume, the shelter we live in, and all the other forms of physical capital that we use in our daily lives.

It seems to me that currency inflation and bond crashes do not result in a destruction of value but, rather, in a destruction of the holder's ability to purchase future value as a result of his or her efforts in the past. Yes, the loss in trading value of the currency or bond will result in a huge emotional shock for the holder. But the value still exists out there, he or she no longer has the means of purchasing it. There has, as Chris often says, been a transfer of wealth, that is a transfer of the ability to purchase value.

It's difficult to work out how the overall stock of human value changes, but it seems intuitively clear to me that it is through the consumption of energy that we increase it and that otherwise it probably depletes as a result of value depreciation, wear and tear and so on. There must come a time, perhaps its already here, where the reduction in energy supplies is such that our ability to create new value is outweighed by the depletion of existing value through depreciation.

If so, then the overall stock of human value is at best static, and perhaps even declining. And yet the volume of the means that we use for trading value – currency and currency look alikes such as debt and bonds – are actually increasing, and exponentially thanks in no small part to Western economic policy and, more fundamentally and as Hubbert recognized, the simple problem of compound interest.

It surely follows that, if the stock of value is static or decreasing and the stock of currency and its lookalikes is increasing exponentially then the value purchasing power of the latter must decline. Inflation initially, hyperinflation eventually.

The $64,000 question for me is not whether we will see this destruction of purchasing power in the fiat currencies – that's obvious and its simply a question of time – but much more subtly whether we will also see this destruction of value purchasing power in the money that we here, at this site, hold dear, i.e. gold and silver.

Answers on a post card …

Steve Jermy

  • Fri, Nov 25, 2016 - 02:25pm

    #8
    jtietz79

    jtietz79

    Status Member (Offline)

    Joined: Sep 10 2015

    Posts: 6

    count placeholder

    Gold Price Drop – India?

Do you think the price plunge also has to do with the rumors in India of them banning imports? If this rumor holds, how does it affect price of gold going forward?

http://www.zerohedge.com/news/2016-11-24/reason-why-gold-prices-are-plunging

Thanks.

 

 

  • Fri, Nov 25, 2016 - 02:41pm

    #9
    reflector

    reflector

    Status Bronze Member (Offline)

    Joined: Aug 20 2011

    Posts: 252

    count placeholder

    value

[quote=davefairtex]

Ok, let's get down to basics.  When a person takes $10,000 in savings, uses it to buy a 20 year bond, and then interest rates rise, and then the treasury drops in value down to $5,000, that person experiences a destruction-of-value event.  Do you dispute this?  Please don't quote some economic-philosopher, speak directly to the real human's emotional experience of seeing a $10,000 bond turn into a $5,000 bond, and try to explain why they will not actually experience the emotion of loss.

[/quote]

ah. the emotion of loss. you want to talk about feelings, then. yes, i'm sure that special snowflake will feel sad that other market participants did not agree with their estimation of value.

 

i don't know why you have an issue with the john mill quote, but it's appropriate – it's not the market crash that kills the value. the value was lost previously when the mal-investment occurred. it just took a while for the market to price in the mal-investment.

 

[quote=davefairtex]

 

There are exactly zero humans who currently hold 20 year treasury bonds that, if they drop 50% in value, will view this as a salutary burning-away of detritus.  Humans just don't work that way.  Instead, they will see their savings melt away, and they will react as any normal human would: with great dismay.

[/quote]

i agree with you, people who buy such shoddy investments will no doubt feel that way.

but hopefully they will also reflect, will learn from their mistakes, and not trust the federal government with their money again.

 

[quote=davefairtex]

 

Oh sure, you can take your victory lap and laugh at all the idiots who ended up losing, but the nation will still be in a depression because of the mass emotional impact of the large loss-of-value event.

I'll leave the victory-lapping and schadenfreude to you.  My goal is only to figure out the systemic effects.

And I still maintain: a mass loss-of-value event in the bond market will lead to a depression.

[/quote]

dave, the depression is already here, even if phony government statistics don't reflect it.

the mass loss of value event you mention has already happened, when the funds were given to the government which then squandered those funds and then proceeded to rack up a bunch more debt.

the so called market may take a while to price in such realities, and yes it won't be pretty when it happens

 

  • Fri, Nov 25, 2016 - 03:49pm

    #10
    Doug

    Doug

    Status Platinum Member (Offline)

    Joined: Oct 01 2008

    Posts: 1353

    count placeholder

    value of cash

I've never understood the argument over whether value rests in cash or equivalents, or in actual useful things.  On a purely superficial level, the value of cash is precisely what you can exchange it for at any given moment.  Plus a premium for its liquidity as a medium of exchange.

Of course the value of cash is subject to the whims of inflation or deflation, but so is everything else.  I tend to think in concrete terms, so tractors and land strike me as things that retain value.  Land value varies tremendously depending on other values like fertility, proximity to development, access to water, vistas and the presence of toxic waste.  Each of those values in turn can vary tremendously also.  The value of a tractor is, to some extent, inversely related to energy availability and directly related to its usefulness in producing other kinds of value like food, shelter or water, or in modifying the landscape.

Of these assets only cash retains the liquidity value.  Without that we are reduced to a barter economy.  Can I buy your land with my tractor?  Only if we have coincident needs.  But if I have enough cash, I can probably buy both your land and your tractors because you value cash.  Isn't that what value, at least in a monetary sense, is all about?

As far as destruction or enhancement of value, isn't that always measured in cash terms?  If the value of your bond goes from $10,000 to $5,000 haven't you lost real value in everything the cash value could be used for?  The whole argument seems to be analogous to angels dancing on the head of a pin.  Am I missing something important?

Viewing 10 posts - 1 through 10 (of 15 total)

Login or Register to post comments