PM Daily Market Commentary – 7/25/2016
Gold fell -3.90 to 1319.50 on moderate volume, while silver fell -0.04 to 19.65 on moderate volume also.
On the chart, we see that gold found support today at around 1310 before popping back up to close just below that old 1320 support level. However that’s not exactly how things closed from my perspective; the “settle price” for gold futures is at 13:30 Eastern, and that’s the price stockcharts uses for its candle prints. However, my trading app shows that gold ended the day (at 16:59) at 1315.30, which is an uglier close.
To add in even more confusion, gold is just about to have a contract roll, and these days, gold is in contango; at this moment, GCQ16 (Aug 2016 gold) is trading at 1321.70 while GCZ16 (Dec 2016 gold) is trading at 1329.60. So if you just look at $GOLD which tries to string these contracts together to form a “continuous” contract chart, yesterday you saw prices for GCQ16, and today you see prices for GCZ16. Presto, gold rises by $8 overnight. But it really didn’t. Look at GLD (-0.70%) and you will see what I mean.
Bottom line: close-to-close, gold probably dropped $7 overnight.
On the positive side of the ledger, we did see the open interest decline by a substantial -10,493 contracts. I believe the commercials continue to cover; whether this is enough to stop gold from breaking below 1310 support, that’s hard to say.
Silver has yet to confirm its low from last Thursday; instead, it appears to be forming a descending triangle pattern, similar to gold. While its hard to know just from this chart which way silver will break, the rest of the commodity complex is falling also, and that suggests the more likely resolution to silver is a breakdown through 19.25 support. The gold/silver ratio continued to climb, and rose +0.34 to 67.55 today.
Miners are starting to look a bit ill; GDX fell -3.65% on heavy volume, while GDXJ dropped -4.48% on heavy volume also. GDX made a new low on the day, and while it managed to close somewhat above the lows, the bounce back at end of day wasn’t enough to cause any sort of reversal bar candle print.
The miners have formed a pattern of lower highs and lower lows, which define a downtrend. The 9 EMA is acting as resistance. It looks to me as though a drop down to the 50 MA is the more likely near term outcome.
Platinum was unchanged, palladium rose +0.39%, and copper fell -0.83% blowing through its 9 EMA and just perhaps marking a top in copper. Copper has yet to print a swing high, but it had 6 shots to make a new high over the past few weeks and it has failed. Copper COT report tells us that the commercials are heavily short copper – and we know what this can mean for prices from our experience during the bad old days of gold’s downtrend. The most likely near-term direction for copper is lower – and that probably won’t help silver, or commodities overall.
The USD fell -0.19 to 97.33. The buck remains in an uptrend, above all three moving averages. Its continued rise probably depends to some degree on what comes out of the upcoming FOMC meeting, which will give us an announcement and a press conference in two days – on Wednesday. Do we anticipate a rate rise? No we do not. However the FedWatch tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html) tells us that the market is pricing in a 19% chance of a rate rise coming in September. If the Fed starts to talk this up in the announcement or the subsequent press conference, it will likely affect prices – boosting the buck, and most likely hurting gold. Will they start the chatter up again with oil prices falling once again and the dollar on the rise? Its hard to say. Its possible. I think there’s a zero percent chance they’d actually raise rates, but they have shown that they really love to talk – endlessly – about the possibility. That might be enough to force gold through 1310.
WTIC continued dropping again today, down -1.06 to 43.13, making a new low and closing relatively near to its day low too. Crude continues to look weak, trend remains down, and no support will appear until the 39-41 level. Perhaps oil will get some help from the petroleum status report due out on Wednesday at 10:30. Oil equities suffered for the first time in a while, with XLE down -1.99%
SPX fell -6.55 to 2168.48. Energy was by far the worst performing sector; the rest of the sectors were just down 0.1-0.2% on the day. If the equity market is topping out, it is doing so in slow motion. VIX rose +0.85 to 12.87.
TLT was off just -0.07%, giving us little clue as to where things go next. TLT is trying to put in a low.
JNK fell -0.55% and printed a two-candle swing high – but it was a low percentage swing high, only a 25-36% of being an actual high. Often a swing high can be a big deal, but this particular swing high doesn’t seem to be one of them.
CRB dropped yet again, losing -0.87%, making a new low. CRB has dropped for 7 straight days. Only livestock was green today – the rest of the sectors were red, with energy looking the worst. Falling commodity prices should hit silver the worst, and this downtrend could continue for a while longer.
Both gold and silver continue to trend lower, and the rest of the commodity complex is dropping more rapidly, led by oil. Until we catch a break from the commodity downtrend, the trend for lower prices in gold and silver will likely continue, with the FOMC meeting perhaps being a short-term driver.
The energy downturn is starting to pull SPX lower too. While SPX remains above its 9 EMA, it may not do so for much longer.
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