Investing in precious metals 101

PM Daily Market Commentary – 8/13/2018

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  • Tue, Aug 14, 2018 - 04:43am



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    PM Daily Market Commentary – 8/13/2018

Gold plunged -18.61 [-1.53%] to 1201.20 on extremely heavy volume, while silver dropped -0.33 [-2.15%] to 14.98 on very heavy volume. The buck was virtually unchanged, copper just edged slightly lower – only the precious metals group was hit today. And of that group, it was platinum that was hit worst of all, driven down -2.99% on very heavy volume.

So why platinum? Is there a solid-platinum asteroid being towed into earth orbit?  Will there soon be platinum enough to pave the streets?  Perhaps let’s look at the open interest changes, along with the percentage change in OI this resulted in:

  • gold OI +10,840 [+2.27%] price -1.53%

  • silver OI +2,646 [+1.09%] price -2.15%

  • copper OI -827 [-0.29%] price -0.38%

  • palladium OI +256 [+1.04%] price -1.88%

  • platinum OI +3,647 [+4.41%] price -2.99%

So platinum’s price was hit hardest, and it also had by far the largest change in the open interest. From this evidence, I deduce that the price moves today were not about longs bailing out for some fundamental reason, the moves were about a large increase in short positions, and by far the largest increase in short positions (as a percentage of total open interest) came in platinum.

Notice too that copper actually saw some short-covering today – and its price move was relatively mild. Both copper and platinum tend to move on economic events; copper is very closely correlated with moves in platinum, as is silver, and aluminum.  When copper drifts lower, and platinum craters, it doesn’t make all that much sense.

And the only meaningful event on the radar today was the problem in Turkey. The USD/TRY bounced around in a very large 11% trading range, from 6.40 to 7.11, ending the day relatively near the highs.

So why would concerns over contagion from the Turkish currency crisis result in a massive increase in the platinum short interest, resulting in a huge plunge in platinum prices, while copper’s move was relatively mild – as was the entire industrial metals group?

Only platinum was singled out for the beating by the shorts, with some additional pressure on gold and silver. To me, this is all about manipulation. However, I believe that the manipulation is being done more cleverly now – instead of hitting the gold price directly, they hit the whole PM group, because its more cost-effective to do so. And I also am starting to think it is no longer the “commercials” that do this; I think this manipulation may be showing up in the “managed money” category.

To me, the platinum pounding down here practically at the dead lows says two things. First, our central planners are terrified of what is going on in Turkey. They are so scared for the system in Europe, they want to make 1000% sure that there is no flight to safety into gold, so they pre-emptively pound the PM group in the futures markets (with gold just barely above triple-RSI-accumulate!) to make sure nobody gets the idea that gold could ever be a safe haven.

This panicky behavior reinforces my belief that the Turkish problem is very serious indeed – quite possibly leading to a banking crisis in Europe.

Second, gold remains a safe haven in physical form for “the little people.” Ask people in Turkey if they’d prefer the TRY over a little gold bar at this point. I showed you that graph over the weekend. Gold in TRY has just screamed higher. I’m guessing there aren’t any gold bars left at retail in Turkey at this point – unless Erdogan managed to convince his loyal followers to sell their gold in exchange for the failing Lira.

Isn’t it interesting? On Friday, gold was showing clear signs of safe haven behavior over in Europe. But Monday, after the central planners had time to sort through their reaction to the situation, platinum gets hit with a flood of short-selling, and gold’s safe haven behavior apparently vanishes.

Gold fell all day long, starting in Asia and stopping in the afternoon in the US session. Gold made a new low to 1198.60, bouncing off a previous low that dates back to March 2017. The strong line candle was bearish. Forecaster dropped just -0.02 to -0.16, which is a relatively weak downtrend. If 1199.30 breaks, the next support level for gold is in the 1130 range. Gold is now back into the triple-RSI accumulate state. Somewhat surprisingly, gold in Euros remains in an uptrend; unlike gold in USD, it has not broken down.

COMEX GC open interest rose 10,840 contracts. Gold fell due to pressure from increasing short interest.

Rate rise chances (September 2018) remains at 96%.

Silver fell a bit more slowly initially, but then sold off more abruptly after about 9:30 in the US, making a new low to 14.97 in the early afternoon. Silver forecaster fell -0.25 to -0.36; silver’s downtrend is back on again. You can see the breakdown below support on the chart. Next major support for silver is…I guess…down at the previous low of 14.34.

COMEX SI open interest rose 2,646 contracts.

The gold/silver ratio rose +0.51 to 80.16. That’s bearish.

Miners sold off for most of the day; GDX plunged -2.82% on extremely heavy volume, while GDXJ fell -3.40% on extremely heavy volume also. XAU was in the middle, losing -3.05%. That resulted in new lows, a plunging forecaster (-0.21 to -0.35) and a break of support. The next major support level is about 30% lower, and dates back to early 2016. Traders no longer want to be holding the mining shares.

The GDXJ:GDX ratio fell -0.59%, and the GDX:$GOLD ratio fell -2.15%. That’s quite bearish.

While platinum cratered, and palladium moved lower, copper ended the day with only minor losses. Copper has avoided any serious selling pressure, which suggests the selling pressure the rest of the metals are seeing has little to do with any fundamental economic cause. i.e. the beating on platinum is just trickery by our central planners.

Crude edged lower until about 11 am, at which point it cratered, dropping about $1.70 in a couple of hours. It then rebounded just as strongly, regaining all of its losses, ending the day down just -0.36 [-0.54%] to 66.55. This momentary plunge may have been the result of China deciding to impose a 25% tariff on all US oil imports. The takuri line candle print was bullish (34% bullish reversal) and forecaster jumped +0.39 to +0.25, which is a buy signal for crude. This might mark the low for the 7-week crude correction.  Sometimes the market rallies on bad news – when it does, that’s really bullish.

SPX fell -11.35 [-0.40%] to 2821.93. Selling pressure started about 11am, fell for a few hours, then bounced around through end of day. Forecaster issued a sell signal, dropping -0.40 to -0.35. Sector map had utilities leading (+0.13%) while energy did worst (-1.28%). It was a relatively bearish sector map.

VIX rose +1.62 to 14.78.

TLT fell -0.21%, encountering a bit of selling after the recent large move higher. TY edged lower also, losing just -0.02%. TY is now in an uptrend in all 3 timeframes.

JNK also crept lower, down -0.03%, more or less no change at all. JNK remains in a downtrend, but not a very strong one.

CRB fell -0.73%, with all 5 sectors moving down, led by PM (-1.68%).

Not much more to conclude, really, than what I laid out at the start. I believe our central planners whacked platinum really hard in order to make it easier to push the price of gold lower. Which worked, of course. However, the miners were the primary casualties: they are marginally profitable at gold $1250, and another 4% drop in the price of their product, that pushes them further into negative earnings territory.

I’ll leave you with my RSI table for the PM group; it shows gold, silver, and platinum in the triple-RSI accumulate state, with the junior and senior miners not far behind. Silver miners look in deepest discount.

name symbol last RSI-D RSI-W RSI-M
Palladium PA.V 884.40 30.1 30.1 38.4
Gold/Euro GC.EUR 1052.79 48.0 31.2 35.3
Copper HG.V 2.73 40.5 27.7 33.9
Junior Miners GDXJ.N 29.56 12.2 16.2 32.4
Senior Miners GDX.N 19.98 16.2 13.9 30.4
Gold GC.V 1200.50 24.3 11.0 28.5
Silver SI.V 14.98 24.9 14.7 25.4
Platinum PL.V 804.00 30.0 13.3 24.9
Silver Miners SIL.N 25.65 19.7 11.9 21.9

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