PM Daily Market Commentary – 7/1/2019
Gold plunged -24.84 [-1.75%] to 1393.41 on very heavy volume, and silver fell -0.18 [-1.17%] to 15.18 on moderately light volume. The buck screamed higher [+0.75%], SPX rallied [+0.75%], along with crude [+1.68%], while bonds fell [10Y yield +3.4 bp].
Most of today’s moves came as the direct result of the G-20 meeting between Trump and Xi, which effectively restarted the US-China trade negotiations. SPX and crude both more or less liked this news, while gold did not.
Gold gapped down hard in Asia, and fell some more; several attempts at a rally failed, and gold closed near the lows. The candle prints pulled in both directions: the confirmed northern doji was bearish (53%) but the opening black marubozu was bullish (57%); I’m not sure where that leaves us. Forecaster moved lower, pulling gold deeper into a downtrend. Today’s move pulled gold below its 9 MA, which is not a good sign. Also, weekly forecaster dropped into a downtrend as well. This puts gold in a downtrend in both daily and weekly timeframes. Gold has yet to break below the breakout point of 1382, however, so this is still within the range of what we might expect in a correction, but the drop today was fairly significant.
COMEX GC open interest rose +17,035 contracts, or 8 days of global production in new paper. That’s a fair number of new shorts.
Futures are projecting a 21% chance of a rate cut in July, a 100% chance of at least one rate-cut by December, an 89% chance of at least 2 rate cuts, and a 53% chance of at least 3 rate cuts. That’s down a bit from Friday.
Silver gapped down a bit at the open, traded in a range, but closed at the low. The confirmed bearish NR7 was bearish (52%) and forecaster fell, dropping silver into a slight downtrend. Weekly forecaster dropped hard, and moved into a downtrend as well. This puts silver in a downtrend in both daily and weekly timeframes. Silver also fell through its 9 MA today too.
COMEX SI open interest rose +2,718 contracts, or about 6 days of global production. No short-covering for silver on the decline, which is bad news.
The gold/silver ratio fell -0.60 to 91.79. Even though silver was hit, it didn’t get hit as hard as gold. That tells us this was a safe haven unwind.
The miners gapped down hard at the open, the open, fell until about mid-day, and then recovered into the close. GDX lost -0.74% on moderately heavy volume, and GDXJ fell -0.52% on moderately heavy volume also. XAU dropped -0.39%, the short white/spinning top was unrated, and forecaster inched higher but remains in a downtrend. XAU is in an uptrend in both the weekly and monthly timeframes.
The GDX:gold ratio fell -0.77%, and the GDXJ:GDX ratio climbed +0.23%. That’s somewhat bearish.
Platinum fell -0.38%, palladium rose +0.76%, while copper dropped -1.12%. Copper actually gapped up at the open in Asia, but then sold off all day long, ending the day in the red.
The buck shot up +0.72 [+0.75%] to 96.32. It rallied in Asia, dipped before the US market opened, and then shot strongly higher during the US session closing at the highs. The confirmed bullish spinning top (white marubozu) candle was quite bullish (61%), and forecaster shot higher, just barely moving into an uptrend. The buck’s rally moved it above both the 9 and 200 MA lines today. The buck remains in a downtrend in both weekly and monthly timeframes, but the currently forming candle patterns on the longer-term timeframes both look bullish.
Large currency moves included: GBP [-0.53%], EUR [-0.79%], AUD [-0.73%], CAD [-0.40%], JPY [-0.58%].
Crude gapped up at the open in Asia, tried to rally further but failed, selling off during the US session. The long legged doji was bearish (56%), and forecaster fell, moving crude into a slight downtrend. Crude remains in an uptrend in both weekly and monthly timeframes. The “bullish case” from the restarting of the trade talks may have been a “sell the news” event.
SPX gapped up strongly in the futures markets in Asia, rallied during the day, but then sold off for most of the US trading session, managing to move back up in the last hour of trading. SPX ended the day up +22.57 [+0.77%] to 2964.33, which is a new all time closing high. The long black/spinning top was a bullish continuation, and forecaster moved higher into a strong uptrend. SPX remains in an uptrend in all 3 timeframes.
Sector map had tech (XLK:+1.59%) and financials (XLF:+1.20%) leading, while utilities (XLU:-0.25%) and REITS (XLRE:-0.19%) doing worst. This was a bullish sector map.
VIX plunged -102 to 14.06.
TLT fell -0.43%, remaining in a slight downtrend. TY moved down -0.12%, the spinning top was neutral, and forecaster moved lower, but remains (just barely) in an uptrend. Today’s move took TY below the 9 MA, which is a bad sign. TY remains in an uptrend in all 3 timeframes. The 10-year yield rose +3.4 bp to 2.03%. The 2.00% yield level remains a strong resistance point for the 10-year.
JNK plunged -0.48%, the confirmed northern doji is quite bearish ((59%) and forecaster dropped, but remains (barely) in an uptrend. The plunge in JNK was curious – more than a little bit out of step with the rally in equities and crude. The BAA.AAA differential rose +1 bp to 1.06%. BAA.AAA differential remains in an uptrend.
CRB rose +0.05%, with 2 of 5 sectors rising, led by livestock (+1.08%).
At least half of today’s drop in gold happened at the open, the result of good news out of the G-20 meeting between Trump and Xi. The shorts definitely piled in – the 17k in new open interest no doubt helped prices to fall. Will gold drop back through its breakout point? It might, it all depends on how much the market believes that the US economy will end up being saved by the restarting of the trade talks.
Unfortunately I don’t have the answer to that question. So far, buyers haven’t shown up in gold after the $50 correction. We need to see those commercials starting to cover. In Asia today, gold is up $7 off the lows, which is good, but the plunge was large, and this bounce (so far) is relatively small, and we are a long way from the close.
Monday’s strong dollar rally was at least half the reason for gold’s big drop. If the buck continues moving higher, gold will most likely keep dropping, as the two are tied together with the expectation of Fed rate cuts – roughly speaking anyway.
Today’s SPX “rally” was possibly bullish for gold longer term. SPX was up maybe 35 in the futures markets overnight, but then it started selling off immediately at 9:45, after the PMI manufacturing index report was released, which came in at 50.6, which is just slightly above contraction – and the second-lowest reading in 10 years. The ISM report at 10:00 am was a bit less bearish – but only a bit.
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SP’s report about VP Pence’s plane flying back to Washington due to an emergency…or maybe, not an emergency – a “situation” – nothing to do with Trump, or his health (what?) or Putin’s cancelling his own event…the versions of the story change faster than you can blink.
All the fuss seems to have affected the price of our favorite metal:
Gold +21.20 [+1.52%] to 1410.60, with the main move starting roughly at 10:30 AM Eastern. No spikes, just a reasonably strong rally. It will be really interesting to see just how much new open interest appears today after market close.
Meanwhile crude is down a massive -4.67%, with the drop in crude starting at the US open (9:30) and continuing to right this moment. The 10-year yield is now down -5.5 bp to 1.98%.
Looks like a safe haven move to me.
It is instructive to watch and see where money runs when uncertainty appears.
As of right now, that place would be gold. And to a lesser extent, the 10-year treasury.
You just have to ask yourself, do you think we will see more uncertainty, or less, as the year goes on?
Because we are part of something bigger we can feel peace as the end approaches. http://ernestbecker.org/