PM Daily Market Commentary – 5/16/2016
Gold rose +1.20 to 1275.50 on moderately heavy volume, while silver rose +0.04 to 17.17 on moderate volume. Gold rallied strongly in Asia and London, topping out at 1290.40 just before the US market opened. After 10:15 Eastern, both gold and silver fell off a cliff, with both metals losing most of their gains for the day.
So I didn’t see any of the normal correlations which might have caused gold to tank after 10:20; there might have been a news report I missed, or this might have just been the commercials trying desperately to stop a gold breakout. If it is the latter, that will only work if managed money has run out of firepower. I can’t blame this on copper or the buck. On the daily chart, the $15 drop after 10:20 turned a bullish break above the downtrend line into a gravestone doji candle print. Gold’s candle print looks unpleasant. A headfake above a downtrend line could lead to a test of 1260 support. But if this was just a game by the commercials, miners will continue to rise, and the dips will continue to be bought – we will see how this plays out at gold 1260.
Silver’s failed rally doesn’t look quite as bad – silver printed a doji candle which is indecision rather than bearish. Rally was stopped at the downtrend line, and silver remains below its 9 EMA. Copper managed to rally too, avoiding making a new low, but the move higher in copper showed indecision, much like silver.
Miners did well today. GDX rose +1.82% on moderate volume, and GDXJ climbed +2.39% on moderately heavy volume. Both miner ETFs made new short-term highs, and are within easy striking distance of a breakout. Intraday, miners held up fairly well even though gold lost almost all its gains on that 10:20 downdraft. If gold can avoid dropping tomorrow, we might well see that miner breakout.
Platinum was flat, palladium fell -0.24%, and copper rose +0.65%. Copper remains well below its 9 EMA, and looks to be struggling to put in a low here at around 2.075. If it can put in a low, that will be supportive of gold and silver. I’m not saying that happy days have returned if copper avoids a further plunge, only that the copper-related beatings might stop for a time.
The USD fell -0.04 to 94.55; it looks as though the 50 MA is acting as resistance. If the buck manages to break conclusively through the 50, that could lead to a much stronger rally. So far, it has been unable to do so. If it happens, a rising USD will make things more difficult for gold. Armstrong wrote an article today that suggests a “line in the sand” for the Euro (my words, not his) is 112.15. Euro closed today at 113.20, resting on its 50 MA. On the daily chart, a drop through 112 would indeed look ugly – and that would imply a strong dollar rally.
WTIC staged a sharp breakout, up +1.58 [+3.36%] to 48.61, making a new high for this cycle. Oil’s continued strong move higher is encouraging oil equities, but not with the same multiple that gold encourages the miners; XLE was up just +1.69%. Can oil break $50? So far, it doesn’t seem to be stopping. No doubt the shale drillers are starting to hedge at these prices. This should start to cap the upward move of oil, but that hasn’t shown up yet in prices. If oil equities were acting as bullishly as gold equities, SPX probably would have broken out to new highs by now.
SPX staged a decent-sized rally, up +20.05 to 2066.66, wiping out Friday’s losses. SPX is now back above its 50 MA. Once again, commodities led the market higher, with materials (XLB:+1.72%) and energy (XLE:+1.69%) the leading sectors. Utilities (XLU:+0.12%) were the laggards. Is the retail-led sell-off over? A lot of retail stocks have been hard hit but now may be bottoming out for now. VIX fell -0.36 to 14.68.
TLT fell -0.86%, a large loss, printing a swing high, and finding support on its 9 EMA. While TLT remains above its 9 EMA and is in an uptrend, if SPX continues to rally, TLT may well break down. Risk on signal.
JNK rallied sharply, up +0.60% moving back above its 9 EMA. JNK finally rallied on strong oil prices. Looks like risk on signal to me.
CRB rallied +1.12%, making a new short-term high and is quite close to breaking out to a new multi-month high as well, led by energy and agricultural products.
We need to see if 1260 support holds for gold. If not, that’s trouble; managed money may have run out of firepower. If it holds, the struggle continues. Likewise, if copper holds 2.075 that’s also good news, mostly for silver. Wildcard remains the buck. Its tough to see the Euro doing well going into BRExit, which is coming up on June 23rd, although that should also be gold positive too. Lots of cross-currents right now. I’m left with gold support at 1260 to guide me.
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I have only skimmed the article, but I am curious if Dave or Jim have any reactions to this….
This allows ICBC to take physical delivery of gold in London in a big way. The vault can hold 2x the entire inventory of GLD. That's a lot of capacity.
There was this article written by one of Jim's goldbug writers TF, posted a while back by JimH, who claimed that a really clever way to "get gold" was to raise the price in Shanghai using the new Chinese Gold Fix and that would suck gold out of London. I suggested that an even more clever way to capitalize on the difference was to buy the cheaper physical gold in London and ship it back to Shanghai.
Well, ICBC can now buy the cheaper gold in London with this new vault of theirs, and then presumably ship it back to Shanghai – or store it there in London and re-sell it when the price pops back up again.
This will allow the ICBC to engage in arbitrage between Shanghai and London, buying cheaper London gold whenever the LBMA price drops too far below that in Shanghai.
And if the Chinese banks decide not to play ball with the other bullion banks at LBMA, it should make it much more difficult for the other bullion banks to wang prices around . And I think that's a good thing overall.
I'd also guess that this is another overseas asset that this Chinese bank can buy using RMB prior to the big RMB devaluation that I suspect is coming soon.
And certainly, if the Chinese government (or this Chinese bank) wanted to take delivery of a whole bunch of physical gold in a hurry, this 2000 ton vault would definitely be a quick way to do that. Certainly, if ICBC saw an RMB devaluation coming soon (which I think is likely), or a coming gold shortage, they might just do that. Its a way to guarantee that "allocated gold" really is allocated – if the gold is actually sitting in your vault, that's superior to some digital marker on someone else's inventory management software package. A vault eliminates counterparty risk for ICBC.
It would also allow ICBC to market an "allocated gold stored in London" product to its Chinese customers. Not sure if that's important or not.
Those are my thoughts anyway.