PM Daily Market Commentary – 2/4/2019
Gold fell -5.18 [-0.39%] to 1317.17 on moderately light volume, while silver fell -0.04 [-0.25%] to15.87 on very heavy volume. The buck moved higher [+0.26%] as did SPX [+0.68%], while crude fell [-0.83%] along with TLT [-0.45%]. For the most part it was a “risk on” day.
Gold fell more or less as the buck rose, but the drop was fairly mild, and the volume relatively low. The long black candle was a bearish continuation, and forecaster dropped, but not enough for a sell signal. Gold printed a 3-candle swing high, which suggests a reversal. Gold remains in an uptrend in all 3 timeframes. Gold/Euros (daily) did issue a sell signal today. Declining volume on a pullback suggests a correction in an uptrend rather than an actual trend reversal; perhaps the buyers have just dried up for now.
COMEX GC open interest fell -1,392 contracts.
Futures are showing a 4% chance of an increase in March, and a split in December (8% increase, 8% decrease).
Silver sold off fairly hard for the first half of the day, bottoming out at 7:30 am, and then bouncing back almost as hard. However, the takuri line candle was a bearish continuation, and the daily forecaster issued a strong sell signal for silver. Volume was fairly heavy – it could mean silver is under some selling pressure. Silver is now in an uptrend in the weekly and monthly timeframes.
COMEX SI open interest rose +2,690 contracts. That’s 5 days of global production in new paper. Contrast with gold, where the OI actually dropped today.
The gold/silver ratio fell -0.17 to 82.63. That’s mildly bullish.
Miners gapped down at the open, but rallied in the first hour, recovering much of the gap-down loss. GDX fell -0.35% on moderately heavy volume, while GDXJ dropped -1.13% on moderate volume. XAU was down just -0.12%; the rally off the lows was quite strong. While the long white candle was a bearish continuation, and forecaster fell, it didn’t drop by much; XAU remains in a strong uptrend. XAU remains in an uptrend in all 3 timeframes. Miners certainly look the best of the 3 right now. The miners had every chance to sell off today, but instead, traders bought the AM dip. Since they tend to lead – in both directions – this is good news for PM.
The GDX:$GOLD ratio rose +2.24%, while the GDXJ:GDX ratio fell -0.19%. That’s quite bullish.
Platinum fell -0.36%, palladium rose +1.06%, while copper climbed +1.06% also. That’s a new high for copper – it is now back to 2.80, towards the upper end of its 6-month trading range.
The buck rose +0.25 [+0.26%] to 95.26. Today’s long white candle was a bullish continuation, a 3-candle swing low, and also a buy signal from the daily and weekly forecasters. It was also enough to pull the buck back above the 9 MA. What’s more, the monthly forecaster is looking as though it might also issue a buy if prices move much higher. That’s quite a change over last month.
The large currency changes today include: AUD [-0.64%], EUR [-0.34%], GBP [-0.31%]. It was a bit odd to see AUD plunge while copper rallied, on a generally risk-on day.
Crude fell -0.46 [-0.83%] to 55.20. Crude rallied to a new high of 55.75, then sold off hard, plunging more than $2.50 before bouncing back into the close. The high wave candle was mildly bearish (32% reversal), but forecaster dropped fairly substantially, suggesting a reversal might be ahead. Still, crude remains in an uptrend in all 3 timeframes, and the monthly forecaster’s uptrend is quite strong.
SPX rose +18.34 [+0.68%] to 2724.87. That’s a new high for SPX; all of today’s move happened during the trading day. The closing white marubozu was a bullish continuation, and forecaster moved higher into an uptrend, which is now starting to look quite strong. What’s more, the monthly forecaster will issue a buy signal if we close here by end of month. That puts SPX back into an uptrend in all 3 timeframes. Next stop for SPX: the 200 MA, which is just 17 points away.
Sector map had tech leading (XLK:+1.60%) along with industrials (XLI:+1.29%), while sickcare (XLV:-0.29%) and materials (XLB:-0.12%) trailed. That’s a largely bullish sector map.
VIX fell -0.41 to 15.73. This is down substantially from 36, which is where VIX was on the night before Christmas, 2018.
TLT fell -0.45%, moving deeper into downtrend. TY fell too, losing -0.22%, causing forecaster to issue a sell signal for TY. The move also took TY through its 9 MA. However, TY remains torn; it is in an uptrend in both the weekly and monthly timeframes, but that monthly is now looking substantially weaker than it looked back in January. The 10-year yield rose +3.3 bp to 2.72%.
JNK climbed +0.23%, pulling junky debt into a slightly stronger uptrend. JNK has been moving steadily higher, but its uptrend is not nearly as enthusiastic as that of SPX.
CRB inched up +0.03%, with 3 of 5 sectors rising, led by livestock (+1.76%). Industrial metals (+1.28%) also did well.
It feels as though optimism is continuing to grow that some sort of settlement will be reached between China and the US. Prices are suggesting this (and when they falter, we have Trump tweets to keep things moving higher) – but it is not just US equities, copper too is moving up, as is the SSEC, albeit a bit more slowly than SPX.
Trump and Xi are set to meet in Vietnam on Feb 27/28, just a day before the tariff deadline. There is nothing like a little deadline pressure to get everyone focused on the deal. Even if you know what is going on, its still tough to avoid feeling the pressure to make something happen before the hammer comes down. Even if Chinese numbers look good, both the CIA and the Chinese themselves know the real numbers, and I’m just guessing they are fairly bad. In spite of Xi being nominally President for Life, there is an asterisk in that title; in China, if you lose the Mandate of Heaven, you’re out, regardless of title.
In spite of the happy news from “risk-land”, gold and the miners continue to look fairly strong, while silver is starting to feel a bit of pressure. Bonds are also hanging in there, although they are weakening somewhat.
There are 22 more days until that Trump-Xi meeting in Vietnam.
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A fascinating post by Wolf Richter, quoting an NBER report/model that found lowering rates too far, for too long, gives an undue advantage to the market leader. This reduces competition, which in turn reduces productivity, and also ends up concentrating wealth.
The rich get richer. No more competition. Capitalism turns into crony-monopoly-capitalism. Big guys eat little guys. Productivity falls through the floor – if you don’t have competitors, there is no need to be competitive. Just harvest, and harvest, and harvest…
Study here: https://www.nber.org/papers/w25505
Support for the model’s key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.
Wolf’s article here:
A reduction in long-term interest rates tends to make market structure less competitive within an industry. The reason is that while both the leader and follower within an industry increase their investment in response to a reduction in interest rates, the increase in investment is always stronger for the leader. As a result, the gap between the leader and follower increases as interest rates decline, making an industry less competitive and more concentrated.
When interest rates are already low, this negative effect of lower interest rates on industry competition tends to lower growth and overwhelms the traditional positive effect of lower interest rates on growth.
This produces a hump-shaped inverted-U production-side relationship between growth and interest rates.
Take a victory lap, Chris. It really is the Fed’s fault, and now we have a big organization backing you up.