PM Daily Market Commentary – 12/8/2016
Gold fell -3.10 to 1172.40 on light volume, and silver dropped -0.09 to 17.09 on moderately light volume. A very strong rally in the buck following the ECB meeting at 07:45 pulled gold and silver prices lower, although the price drop in PM were quite mild considering the size of the currency moves. Gold actually rallied nicely when viewed in Euro terms.
The ECB announced their new plan: taper-but-extend. Money printing dropped from 80 down to 60 billion Euros per month, but the printing was extended through the end of 2017. In addition, the ECB also changed the lower bound yield for purchases; previously, they would not buy any bonds with a lower yield than -0.4%, but now that limit has been removed.
Initially, the buck tanked and gold shot higher, but that soon reversed, and by end of day the buck was up +0.87 to 101.01. The Euro was hit hard, dropping -1.42 [-1.32%] to 106.14. Remember that support for the Euro is around 105, and a significant break below 105 would probably lead to a much larger move down.
Gold’s reaction to the ECB release was to sell off; it moved steadily lower, ending the day more or less at the lows, but avoiding any sort of dramatic sell-off. And in Euro terms, gold actually rallied, just missing a swing low and closing right at the 9 EMA. When viewed in Euros, today’s move was decently bullish. On the USD chart, the candle print was a spinning top, which was actually mildly bullish. Gold’s MACD is just about to roll up, the RSI is showing a bullish divergence – stars and moons seem aligned for a low for gold in the next few days. It might even come tomorrow, if the buck can keep from moving too strongly higher.
Rate rise chances remained at 95%.
Gold open interest at COMEX rose 2,460 contracts.
Silver sold off along with gold, ending the day a little bit off the lows. Candle print was a “spinning top”, which is somewhat bearish (25% chance of the top here). Still, given the strength of the dollar rally, silver’s drop was relatively small. In fact, in Euro terms, silver actually managed to rally above its 50 MA. For both gold and silver, the drops were entirely currency effects.
Miners sold off at the open, but rallied back, eventually closing slightly in the green; GDX climbed +0.09% on light volume, while GDXJ rose +0.17% on light volume also. While the “spinning top” candle print doesn’t appear particularly consequential, the ability of the miners to remain positive and above the 9 EMA in the face of such a strong dollar rally appears bullish to me. I have seen the miners do very poorly following a big dollar rally, but that definitely didn’t happen today.
Platinum fell -0.44%, palladium rose 0.87% and copper dropped -0.74%. Copper’s fall today has dragged it below the 9 EMA for the first time since this massive copper rally started back in late October. This is a danger sign if you own copper. On a related note – some gold & silver miners produce a fair amount of copper as a byproduct; I have read that some of these miners were hedging their copper production at the $2.50-$2.60 levels. This helps gold miners lower overall production costs (net of byproducts), which helps them to weather the storms of gold price drops. This is why we have futures markets; so producers can lock in high prices and insulate themselves from big price drops. So when you see copper rally, think “that may help my gold miner too.”
Crude rallied back strongly, up +1.12 [+2.25%] to 50.96, seemingly finding support at the 9 EMA. Candle print was a strong “bullish tasuki line” which is a 72% chance of marking a low here. My strong sense is that dips are being treated as buying opportunities in crude; “OPEC has our back.” This may not last if non-OPEC decides not to cut, but I think they will. The money involved is just too big, and they’ve been hit hard by “the crude oil futures market vigilantes.” Of course, that’s just a guess, and since I’m long, I’m also talking my book.
Oil equities continue to do well (XLE:+14% off the Nov lows), but the home-run plays have been in offshore-related services. One of my holdings, BRS (a helicopter/rig support company) has been a double off the lows. Sadly I didn’t get in at the lows, but it has still been very good, after a four-month holding period. These are the “picks and shovels” companies for the oil industry – extremely highly leveraged to drilling activity, which has largely ground to a halt in the last year or so. Most of them will probably be a further triple from here, if oil prices “normalize” back to (say) $90/bbl, but it might take two years for that to happen. And if OPEC does any backsliding, prices in these names will probably collapse in junior-goldminer-like style. So for people looking for “resource plays” in other-than-miners, offshore oil services are high-risk and high-reward. I’d probably wait for a correction before jumping in, however. The corrections can be really intense, so be warned.
SPX continued higher, up +4.84 to 2246.19, printing a useless spinning top candle, which probably doesn’t mark the top. SPX is fairly heavily overbought, with RSI-7=83. Financials led (XLF:+0.94%), while the industrials – yesterday’s leaders (XLI:-0.56%) trailed. VIX rose +0.42 to 12.64.
TLT sold off today, dropping -1.18% and dropping back below its 9 EMA. Boy, just when I think bonds are ready to recover, down they go again. Bonds remain quite bearish, unable to hold above that 9 EMA for longer than a day.
JNK fell just -0.08%, remaining in an uptrend, and headed for a re-test of the previous high set two months ago.
One note, and its a relatively important one: it turns out that stockcharts adjusts their prices for dividends – meaning, the chart is a “total return” chart. In other words, “the price really isn’t the price”; instead, the price on the chart is the historical price minus all the dividends received since that time. So for JNK, today’s price is 36.46, and the high a month ago was 36.54 – JNK is closing on its recent high. But for “_JNK”, where prices are not adjusted for dividends, the previous high was 36.91, and we are still quite some distance away from that previous high. Personally, I don’t like adjusted prices; I want the price to be the actual price. Going forward, I’ll be using un-adjusted prices, so if you go to stockcharts, make sure to add in the underbar prefix.
CRB rose +0.29%, printing a pretty-looking takuri line reversal bar. CRB appeared to find support roughly at the 9 EMA, with the energy rally doing most of the heavy lifting for CRB, which remains in an uptrend.
The ECB meeting today appeared to bring some western gold buyers out of hiding, especially when viewed in Euros. I think that’s a positive sign. Extending the money-printing operation through the end of 2017, and eliminating the lower bound requirement for bond yields sends a signal that European negative rates are by no means in the rear view mirror. This is gold-positive. I don’t know if its enough to kick off a major gold rally, but I do like seeing the almost-swing-low for gold in Euros.
I also have the sense we’ll eventually see oil move through 52, although that might need to wait for after the non-OPEC meeting scheduled for this Saturday (Dec 10th). There is a ton of production hedging going on at 50 (see https://www.bloomberg.com/news/articles/2016-12-05/oil-market-turns-upside-down-as-shale-rushes-to-hedge-post-opec) – so much so that the oil futures price curve actually moved into backwardation in the 2017-2018 timeframe.
While gold still needs a close above its 9 EMA to move back into even just a short term uptrend, TA is suggesting this could happen any day now. Higher risk to buy now, lower risk to wait for the actual close above the 9. I do put a fair amount of faith in the divergences and the MACD. Its about as positive as I can get without seeing evidence of an actual breakout. Only risk to this potential reversal is if the buck makes new highs.
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From Armstrong's blog:
India is moving now to confiscate gold after going after the cash. Currently, each married woman is entitled to 500 grams, each unmarried woman 250 grams, and each man 100 grams of gold. Everything that goes beyond is classified as illegal possession and thus will be confiscated. There is no restriction on the possession of the jewelry only if the jewelry was purchased by inheritance. Prime Minister Narendra Modi is giving more power to tax authorities rather than dealing with corruption. They will be shaking people down for money. Unlike FDR who confiscated gold from the banks, Modi is allowing the tax people to go door to door.
This is the problem I have been warning about with gold. It is losing it safe haven status for it is getting to the point you cannot travel with it, keep it in a safe deposit box, or show gold with jewelry. In Italy, if it looks like you have excessive jewelry, they pull you over and weigh it at the border.
This is all part of the Hunt for Taxes. India is setting the tone. The danger will be if others follow. Trump would stand in the way of such policies in the United States. But in Europe, we may see the same policies take effect to different degrees. All they need do is claim that terrorists are using gold to fund their operations.
Everything is still on target for the move under $1,000 into next year.
Here's a good article on the India move on gold:
DEC 4, 2016
India again posted world-beating growth numbers last week: Gross domestic product grew 7.3 percent in the quarter between July and September. But the question remains, so what? After all, none of this data covers the period after Nov. 8, the date Prime Minister Narendra Modi abruptly declared 86 percent of India’s currency would be withdrawn from circulation.
In the weeks since, the chaos accompanying “demonetization” hasn’t eased up noticeably. It seems likely the disruption to the economy, especially in cash-centric rural India, will hit growth sharply for at least a few quarters. It’s tough to say for how long and by how much; we are in uncharted territory here and guesses have varied widely. But many analysts agree with former Prime Minister Manmohan Singh, who’s predicting the new policy will knock 2 percentage points off that world-beating GDP growth rate.
It's too late for Modi to backtrack now, not least because demonetization remains, in spite of all the chaos, relatively popular politically. But it’s crucial that the government not compound its mistakes going forward.
Perhaps most importantly, the government should be careful not to strain its political narrative too much. Demonetization was originally sold as a “surgical strike on black money” — the illicit piles of cash many rich Indians have accumulated out of sight of the taxman. It’s now clear the policy has been anything but surgical.
Enforcement is naturally an important component of any tax administration. But India has experimented with a “Raid Raj” before and it's led only to corruption, harassment of ordinary citizens and the targeting of political enemies.
There’s already enough fear of such raids becoming common again that the government felt the need to step in to quell some of the anxiety. That didn’t help much. The government “clarified,” among other things, the rules governing when tax officials could seize gold: Nothing would happen “if the holding is limited to 500 grams per married woman, 250 grams per unmarried woman and 100 grams per male.” It also said that there would be no limits on jewelry “provided it is acquired… from inheritance.” Also, the “officer conducting [the] search has discretion to not seize [an] even higher quantity of gold jewelry.”
What this means, unfortunately, is that India’s income tax officers have just won the lottery.
During a raid, they can, on the spot, decide whether or not to confiscate a family’s gold holdings. And remember, India has an enormous amount of gold — 20,000 metric tons, much of it inherited. (The rules governing simple searches are different, but few know that.) Rather than cleaning up tax administration, the government has handed tax officials more power than they’ve had for decades. The rich will pay what they need to escape harassment; the rest will suffer.
It’s clear just how explosive this move really is. There’s not much that us human primates hate more than deeply unfair policies. I know the culture of favors and corruption are deeply entrenched in India, and therefore tolerated to a large extent, but this is really a very big move by Modi.
I remain confused by it to this day.
The gold move may be linked to India’s need for additional foreign reserves to fight the swings in the rupee’s value that have plagued India over the past few years.
But this is a really underhanded way to go about gathering up foreign reserves.
Potentially explosive, so well worth watching carefully, which you can be sure other governments are.
Maybe Harry Dent is right and gold will get down to $400/oz after all. Be a good time to load the boat at those prices.
I guess most gold investors/owners would be discouraged to see the spot price fall to $1,000 or less. I, however, would love it and I am crouched and ready to pounce on it at that price. My main dilemma will be to decide when we're approaching a bottom so as not to pounce too soon. If our future is indeed a "Ka-Poom" (deflation followed by big inflation) then a temporary collapse in the gold price is a likely scenario. However, I've mostly given up on it emotionally, though financially and intellectually I'm still ready for it. My investing window is 10-15 years today, so I can be patient.
^ Good post. I agree with you. Personally, I think it's a very smart thing to be prepared for a financial crisis and temporary economic shut down. I own some PMs, have some cash on hand, do my best to stay out of debt, have some food stored, etc…, but I have been reading about and studying about a financial collapse, dollar collapse, economic collapse, financial system reset, etc for years. It's becoming clear to me that there are more ways to keep the current system up and running and the markets lifted than any of us realize. Just when we think we have a handle on just how far it can go, they come up with something else. Don't get me wrong, it'll come crashing down one day, but it's probably going to be much, much, much longer than any of us realize.
I agree, that the powers that be have some tools, not as many as they used to though. Very crazy things happening with regularly. I personally have become somewhat numb to all the bad econ news. I hate this because constant vigilance is needed. So many bombs out there.. Deutsche Bank, several Italian banks, quadrillions in derivatives, crazy amounts of sovereign debt, not to mention all of the unfunded liabilities. As we all know the list goes on and on..
If you listen to Harry Dent he does think gold is going lower but he follows with "good luck buying any at $50-60 over spot." If the price does go that low you and a lot of others will find gold attractive. There are two markets (physical and paper) and they both will operate differently if/when gold heads a lot lower.
Personally, I have felt a 'euphoria' since the election. A mixture of thank goodness it's over and grateful Hillary didn't win. This is not a helpful thing though because it's false. I believe Trump will try and fix things but they are not fixable without facing reality. Forget inflation and deflation, reality is enough to do it!
Could be wrong of course I wasn't remembering Japan!
When expenses exceed revenues, governments, no matter how benign, will always enlist the services of the "revenuers" to fill in the shortfall. Modi is just another example of what is becoming a world wide quest for the "Deep State" approach in acquiring the means to continue their existence. A large part of the penance require by heretics of the middle ages was confiscation of property and goods. If you didn't agree with the "Holy See", you could find yourself in front of the ecclesiastical tribunal and then the secular court. Mr. Obama kicked that into high gear with the FATCA laws on foreign holdings. So far, as the article points out, it is estimated that they have collected around $10 billion from compliant expatriates. It is estimated that there are 9 billion of them living offshore with holdings all over the place. I'm not sure how many of the G20 countries are seeking membership in this club, but it wouldn't surprise me if they all do.
How serious might they get? Just ask some of the Jewish survivor's families in Britain.
The FBAR requirements are now part of:
For decades, Americans have been required to file FBARs—now called FinCEN Form 114, Report of Foreign Bank and Financial Accounts.They are not filed with the IRS, but with FinCEN, the Financial Crimes Enforcement Network, part of the Treasury Department. FinCEN’s existing regulations say you must file if you have a financial interest in, or signature authority over, foreign financial accounts with a total value exceeding $10,000 during the previous calendar year.
Or am I being paranoid? Now where did I put Granny's heirlooms?
Frankly my main plan is NOT to buy new physical gold if the spot price drops below $1,000. I too seriously doubt I could find physical gold at that price. My plan is to withdraw some of the gold coins in my IRA and pay the tax on them. Better to pay the tax on gold at say $700 an ounce in 2017 than pay the tax on gold at $6,000+ per ounce in 2025.
"Welcome to the Hunger Games. And may the odds be ever in your favor."