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PM Daily Market Commentary – 3/27/2018

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  • Wed, Mar 28, 2018 - 02:16am

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    davefairtex

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    PM Daily Market Commentary – 3/27/2018

Gold fell -8.80 [-0.65%] to1344.60 on extremely heavy volume, and silver fell -0.18 [-1.08%] on very heavy volume. At the same time, the buck rallied +0.43%, and that dollar rally seemed to cause trouble for PM today.

Gold tracked the movements of the Euro fairly closely; it rallied early in Asia, and then sold off after Japan closed, moving lower into the afternoon in the US.  Candle print was a bearish engulfing pattern (29% reversal); GC forecaster edged down -0.01 to +0.19.  That would seem to be no big deal for gold. Volume continues to be extremely heavy. Does this engulfing pattern mark the top? It doesn’t look like it, not according to the numbers anyway.

COMEX GC open interest fell -18,973 contracts today; 59 tons of paper gold gone. That’s a big change, and it is a bit odd for a flood of short-covering to happen at this point on the chart. Perhaps it has to do with an upcoming futures contract expiration; I don’t know the inner workings of the market that well.  We’ll get more details on Friday from the COT report about who closed what.

Rate rise chances (June 2018) dropped to 74%.

Silver fell a bit harder than gold; the print was just a long black candle, but it had a 40% chance of marking the top. Forecaster plunged -0.46 to -0.08, which is a sell signal for silver. Volume was also heavy. While gold’s technicals remain relatively strong, silver looks as though it may have put in a high here; unlike gold, it didn’t make a new high. Worse, silver made a new low about two weeks ago. Lower low, lower high = a downtrend.

COMEX SI open interest rose by 1,878 contracts today.

The gold/silver ratio rose +0.35 to 81.37. That’s bearish.

Miners gapped down at the open, tried to rally and failed. GDX fell -2.01% on heavy volume, while GDXJ dropped -1.67% on very heavy volume. GDX printed a swing high (49% reversal). XAU forecaster plunged -0.71 to -0.38, which is a sell signal for the miners. While gold might be clinging to an uptrend, that’s just not the case for either silver or the mining shares – traders are bailing out of the risk-on components in PM.

Today, the GDXJ:GDX ratio rose, while the GDX:$GOLD ratio fell. That’s neutral.

Platinum fell -0.40%, palladium dropped -0.33%, and copped moved down -0.03%. While the industrial metals continue to look relatively weak, platinum appears unsure as to where it will go next. Industrial metals are giving us a hint about future economic activity, and the hint isn’t a positive one.

Looking at the larger picture, platinum is in a similar place with silver, in that the gold/platinum ratio is at a near-historic high at 1.42. Last time the ratio was at these levels was back in the early 1980s. Either gold is overvalued, or platinum is undervalued. Looking at the chart, you should have swapped your platinum for gold in May 2008 (gold $935, platinum $2200, ratio: 0.4), and right now, you should (theoretically) be swapping your gold for platinum (gold $1344, platinum $949, ratio: 1.42).  Not financial advice – just reading the chart, and assuming relationships like this eventually revert to the mean.

The buck rallied +0.38 [+0.43%] to 88.98. Candle print was a bullish harami (32% reversal), however the forecaster remains in a show-me mode, rising just +0.01 to -0.49. There has been so much back-and-forth over the last few months, it is hard to know where the buck will go next. Sideways, if the recent past is any guide.

Crude fell -0.82 [-1.25%] to 64.67. Yesterday the forecaster looked pretty unhappy, and today things got worse; crude printed a swing high (43% bearish reversal) and the forecaster fell -0.23 to -0.20, which is a sell signal for crude. Crude also moved into a downtrend on the weekly chart as well – assuming we close at these prices at end of week. The API report looked relatively bullish to me [crude +1.7m, gasoline -5.8m, distillates -2.2m], but that caused a 40 cent drop immediately after the report was released. (Market sells off on good news: that’s bearish).  Was this drop in crude just a side effect of the falling equity market?  Possibly so.  Certainly oil dropped less than equities, so that’s a cautious positive.  Still, I expect if equities continue to plunge, so will crude.

Which brings me to SPX, which dropped -45.93 [-1.73%] to 2612.62. Today’s plunge erased much of yesterday’s “tariff relief rally”; today was all about plunging tech company stock prices. It is possible that the pin has finally found the bubble in Silicon Valley. TSLA: -8.22%, FB: -4.92%, NFLX: -6.14%, GOOG: -4.57%, AMZN: -3.58%. Sector map confirms: tech led lower (XLK:-3.21%) along with cyclicals (XLY: -1.96%) while utilities moved up strongly (XLU:+1.43%). What’s going on? Facebook has become the disappointed-HRC-voters’ new punching bag, via Cambridge Analytica.  And a Tesla car had a fatal accident. Was it in self-driving mode? (Errant thought: hacker goes short TSLA, hacks into the autonomous systems, causes a number of fatal crashes, then covers short.) It seems that the bloom is off the tech rose. And we are seeing some strong moves into utilities, which is risk-off behavior.

VIX rose +1.47 to 22.50.

TLT staged a very strong rally, up +1.07%, making a new high. Forecaster jumped +0.41 to +0.55, which is a strong uptrend. TLT is moving steadily higher, up roughly 4% off its lows set last month. TY confirms the move, up +0.47%. TY forecaster jumped +0.32 to +0.61 – that’s a strong uptrend too. TY also managed to close above its 2-month trading range today; it doesn’t look as bullish as TLT, but it is slowly improving. The 10-year treasury closed at 2.78%. Weekly TY forecaster is in an uptrend as well. It looks as though bonds are finally set to move higher, which supports the risk-off mood in equities.

JNK fell -0.14%, a very mild move considering the plunge in equities. While JNK is in a downtrend (forecaster: -0.07 to -0.16) it does not look as though it is any sort of hurry. The less-junky cousin – the BBB (lower grade) corporates – are selling off a bit more briskly.

CRB fell -0.11%, with 3 of 5 sectors dropping, led by PM (-0.95%). CRB remains above both the 50 and 200 MA, but the inflation thesis does not appear to be pushing commodity prices higher right now. CRB has more or less just chopped sideways since January.

Is it too soon to say that Facebook’s goose is cooked? It turns out that when you can accurately profile your userbase (i.e. “your product”), you can sort out which of them might be vulnerable to various internet scams: miracle diet pills, muscle builders, brain boosters, penile enlargements, “your computer may be infected”, and so on. In other words, Facebook already knows if you’re a sucker. And guess what? This turns out to be a serious money machine for them.

https://www.bloomberg.com/news/features/2018-03-27/ad-scammers-need-suckers-and-facebook-helps-find-them

I’m going to say “run, don’t walk” if you are the owner of Facebook stock. Regulation is coming. To Facebook, and probably to Google as well. This is what Axel Merk said in the “Off the Cuff” that dates back to last week (https://www.peakprosperity.com/insider/113870/cuff-fed-may-less-worried-stock-plunge-we-think).  Smart guy, that Axel. I predict hearings. Lots of hearings. Executives will be dragged in front of committees, because “something needs to be done.” Which I actually agree with. Users of a system need to give informed consent as to how their data will be used.  “Yes!  I’m a sucker!  Please send me various internet scams so I can waste my money!”

Tech are largely the market leaders in the equity space, and as the leaders go, so goes the market. With FANG stocks under pressure, this strongly suggests that SPX will head lower.

Currently, gold does not seem to be deriving much benefit from the drop in equities; it remains the plaything of the currency markets. Gold is the last element of the PM group clinging to its uptrend. If the buck continues to rise, that won’t last. But if the buck continues to chop sideways, we still might see a gold breakout, even if the mining shares remain relatively weak.

Last thought. Gold/Silver ratio at 81.37, and gold/platinum ratio at 1.42 both suggest relative lows in both silver and platinum prices. That’s not to say prices couldn’t drop further, but – we’re supposed to buy straw hats during the wintertime, right? And right now, it does seem to be winter for both silver and platinum.

Just saying.

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