PM Daily Market Commentary – 2/14/2017
Gold rose +3.10 to 1229.20 on moderate volume, and silver climbed +0.14 to 17.95 on heavy volume. In spite of a moderately strong dollar rally, gold and silver managed to move higher, with silver doing especially well.
Gold rallied in Asia and London, rising about $7 into the US market open. Then Chair Yellen’s testimony before Congress began, and something she said caused the buck to jump sharply, and gold to sell off – gold dropped about $12. But by end of day, although the buck managed to hold on to most of its gains, traders bought the dip in gold, and gold managed to close green in spite of the strong dollar.
Today’s candle print for gold was a spinning top, which looks neutral to the candle code. Gold’s modest move brought it back above the 9 EMA. In contrast, when viewed in Euros, gold moved up +0.29%, and appears to be in a clear uptrend, above all 3 moving averages and threatening to break out to new highs.
Open interest at COMEX for GC rose by +10,073 contracts.
Rate rise chances (May 2017) rose to 36%, probably as a result of Yellen’s testimony.
Ahead of Yellen’s comments, silver rallied strongly, breaking out to new highs. Then the comments by Yellen caused silver to sell off along with gold as the dollar rallied, but the drop did not last long as the buyers showed up and bought the dip in silver. The 200 MA continues to act as resistance, but from what I can see, that shouldn’t last too much longer. Silver looks ready to break out in the near future. The gold/silver ratio fell -0.36 to 68.46, which is bullish.
Miners were mixed; GDX fell -0.12% on moderately light volume, while GDXJ rose +1.26% on moderate volume. Candle print for GDX was just a “long black” candle, which the candle code found to be relatively bearish. Print for GDXJ was a doji, which appeared bullish. GDX is now back below its 200 MA, which is somewhat bearish.
Platinum rose +0.32%, palladium climbed +0.66%, while copper fell -0.77%. Copper printed a bearish engulfing candle after making a new high. Platinum looks to be headed lower, palladium remains in a strong uptrend, while copper may be topping out, but it remains within a few cents of its recent multi-year high.
USD moved up once more, climbing +0.27 to 101.17, rising as a result of those hawkish-sounding comments from Yellen at her bi-annual speech to Congress. What did she say that might have caused the buck to pop? Well, she opined that waiting too long to raise rates would be “unwise”. And in the Q&A, she hinted that the Fed’s 1.74 trillion in MBS would be allowed to run off (i.e. no more Fed buying of MBS) once the economy was “solid” and rate normalization was well underway. The market treated this collection of comments as dollar-positive. Bonds were not happy, selling off hard during her testimony.
Crude rose today, up +0.17 to 53.34. However, under the covers things looked a bit more bearish; crude was up about 60 cents until the API report came out at 16:30. The API report showed a 9.94 million barrel crude inventory build; that’s a very bearish reading. The report caused oil to drop about 30 cents right at end of day, resulting in what looks like a shooting star candle – a failed rally. Print was actually just a “high wave”, but the candle code found it to be bearish.
SPX rose +9.33 to 2337.58, making yet another new all time high. SPX is now quite overbought, with RSI7=86. Financials led once again (XLF:+1.16%), while utilities sold off (XLU:-0.73%). The move in the financials today was all driven by Yellen’s comments. Higher rates by the Fed means more income from the 1.86 trillion in excess reserves for our friendly bankers; with each 25 basis point rise, it means 4.65 billion dollars per year added straight to the banking industry’s bottom line. VIX fell -0.33 to 10.74.
TLT fell -0.72%, dropping below its 50 MA. Rising equities and Yellen’s hawkishness were not good for bonds. The selling was initially much worse, but bonds did manage to recover a fair amount of the initial losses.
JNK rose +0.14%, driving steadily higher to within a few pennies of its recent multi-year high. JNK remains in a strong uptrend and is signaling risk on. Its hard to see an equity market correction with JNK doing so well.
CRB rose +0.11%, with 3 of 5 groups rising. CRB remains in a longer term uptrend, but in the shorter term, commodity prices appear to be retreating just a bit.
Gold really held up well in the face of Yellen’s nominally hawkish commentary. While it initially reacted downward, traders bought the dip and prices managed to rise even though the buck did well, and bonds sold off. Silver did especially well – the steadily falling gold/silver ratio looks bullish. It appears to me that the “inflation trade” is currently winning the war at COMEX. Gold even managed to squeak back above its 9 EMA.
What’s more, gold’s chart looks a whole lot better when viewed in Euros; above all 3 moving averages, moving strongly higher.
The bounce back after Yellen’s testimony coming at the same time as the rate-rise forecast increased to 36% was a strong showing by gold. When a market manages to rally on what is ostensibly bad news, that’s bullish.
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QUESTION: What should readers of your blog like myself invest in before this whole government bubble bursts? It seems to me that when it does burst, equities and bonds will crash at the same time.
ANSWER: Do not put equities in the same boat with bonds. The ship is sinking, but that is concerned with debt – not equity. Keep in mind that the collapse of a financial system has historically unfolded to different degrees. If we are talking about a Dark Age, then you are into the Mad Max situation. Then the only thing that has value is food – not even gold. That was the fall of Rome. People effectively sold themselves as serfs to work the land, retain 20% of the crop in return for protection behind the castle walls. Medieval coinage really appears only in silver and are rarely found more than 20 to 30 miles from where the coins were struck. This illustrated the isolation of city states. Money was not really necessary for there was really no major trade interacting within Europe – hence the Dark Age.
In order for tangible assets like stocks, gold, art, antiquities, etc. to survive, the fundamental infrastructure must survive. That means there must be ample food for gold to have any value whatsoever. So you must stop short of the Mad Max event for anything tangible to have a safe haven value.
The typical scenario painted by the doomsday crowd involves the German hyperinflation. However, that did not wipe out the structure of surrounding countries. This mean all tangible assets retained value because they could still be sold elsewhere. The German government replaced the hyperinflation currency in 1925 with a new currency backed by land. So art, gold, property, and equities survived. Even after the Berlin Wall fell, old claims of ownership in the East resurfaced.
Therefore, if we are only talking about a reset of the world financial system, then tangible assets retain value that becomes translated into the new currency. Hence, equities will survive, government debt and currency will not. Only going all the way to a Mad Max event would everything lose value except food. Not even gold survives for trade comes to an end.
Do not put equities in the same boat with bonds. The ship is sinking, but that is concerned with debt – not equity.
Makes sense…just be sure you know how much debt you are getting with your equity!