PM Daily Market Commentary – 8/28/2018
Gold fell -10.17 [-0.83%] to 1208.63 on moderately heavy volume while silver dropped -0.19 [-1.27%] on extremely heavy volume. The buck drifted lower, down -0.07%. For gold and silver to fall on a day when the buck also moves lower tells us that the metals are not doing very well. Palladium and platinum were down harder than gold, while copper rallied. It was a real mixed bag.
Ok, so yesterday I made a big thing out of the fact that Trump didn’t deal with the low-wage situation in Mexico. So about that – turns out I was wrong. Trump DID address this; the US Trade Representative released a fact sheet on the US-Mexico trade agreement (here: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/august/modernizing-nafta-be-21st-century) which provides a thumbnail sketch of what was in the agreement. In the “Labor” section, there is a “labor value content rule” which says that at least 40% of auto content must be made by workers earning at least $16/hour. And 75% of the car must be made in North America to qualify for no-tariff treatment, up from 62.5% under NAFTA.
In other places, I saw the headline: “Car prices will rise” – which suggests that this labor rule will result in more income for workers, at least over time anyway. Mexican auto workers make $3/hour right now, so either their pay will have to rise, or more of the car will be made in the US where workers earn around $30/hour, or the car will not be tariff-free any longer.
Gold rallied in Asia, making a new high to 1220.70, but then gold dropped hard starting at 10 am, then continuing to fall throughout the rest of the day, eventually closing almost at the lows. The bearish engulfing candle was a 44% bearish reversal, and gold forecaster dropped -0.24 to +0.11. Gold remains above its 9 MA, and in an uptrend, at least for now. Weekly forecaster is still showing a buy signal, while the monthly remains in a downtrend.
COMEX GC open interest rose +4,461 contracts. Perhaps that was the reason for some of the selling pressure today.
Rate rise chances (September 2018) fell to 96%.
Silver tracked gold, making a new high to 14.95 at around 6 am, and then it sold off relatively hard, ending the day relatively near the lows. Silver’s bearish engulfing was a 39% bearish reversal. f Since today was a contract roll off. Silver’s short white candle was a bullish continuation, and silver forecaster jumped +0.15 to +0.16, which is a buy signal for silver. Silver remains in a downtrend in the weekly and monthly timeframes.
COMEX SI open interest fell -4,940 contracts. That’s a substantial amount of short-covering; more than 2%, or about 8 days of global production. Perhaps it had something to do with the contract roll.
The gold/silver ratio rose +0.36 to 81.83. That’s bearish.
Miners fell, with GDX off -1.87% on heavy volume, while GDXJ dropped -2.26% on very heavy volume. XAU dropped -1.95% and printed a bearish engulfing candle (31% bearish reversal) which didn’t look all that horrible. Forecasters for the miners didn’t look all that worried about today’s move; GDX and GDXJ forecasters dropped a bit, but remain in an uptrend, and XAU actually rose +0.23 to +0.45. Forecaster seems to be saying this is just a sell-off in an uptrend. XAU remains above its 9 MA, which is a positive sign. I was a lot more concerned about today’s move than the forecaster; it will be interesting to see where things go next.
The GDX:$GOLD ratio fell -1.04%, while the GDXJ:GDX ratio dropped -0.40%. That’s bearish.
Platinum plunged -1.66%, palladium dropped -1.90%, while copper rallied +0.89%. I can’t explain copper’s rally – it seems out of alignment with everything else. While palladium’s drop was larger percentage-wise, platinum’s chart looks worse. Both remain in uptrends, at least for now anyways.
The buck fell -0.07 [-0.07%] to 94.31; it was a fairly uneventful day. The bullish doji star did look mildly bullish (36% reversal), and forecaster was unchanged at -0.38. The buck remains in a downtrend in daily and weekly timeframes, while it is in an uptrend on the monthly.
The TRY fell again, losing -1.69%. I still maintain that problem is not solved, and we know this because of the 10-year bond yield, which closed at 20.86%.
Crude fell -0.39 [-0.57%] to 68.24. Crude seemed to fall along with the metals, although the drop wasn’t that significant, and the trading range was fairly narrow. The short black candle was a bullish continuation, and forecaster actually ticked up +0.12 to +0.19. Maybe crude is just taking a rest. The API report after market close was slightly bearish (crude: +38k, gasoline: +21k, distillates: +982k), which hit crude for just -0.13. After crude rallied $4 last week, today’s retracement is fairly mild. Weekly and monthly remains in an uptrend.
SPX inched up +0.78 [+0.03%] to 2897.52; it was a new all time high, but just barely. The short black candle was a bullish continuation, and forecaster remains in a strong uptrend at +0.58. SPX is in an uptrend in all 3 timeframes. Sector map showed REITs doing very well (not sure what that’s about, while homebuilders (XHB:-0.44%) doing worst. I’m not sure we can get much much from today’s sector map.
VIX +0.34 to 12.50.
TLT was hit hard, dropping -0.60%, following through on yesterday’s sell signal. TY also plunged, losing -0.22%. Today’s drop pulled TY into a downtrend in both the daily and weekly timeframes. The 10-year yield rose +3.6 bp to 2.88%.
JNK was unchanged. It remains in an uptrend.
CRB fell -0.60%, with 4 of 5 sectors moving lower, led by livestock (-1.81%). 1%, with 3 of 5 sectors rising, led by livestock (+3.25%). CRB remains above its 9 MA, but below the 50 and 200.
With more details emerging from the US-Mexico trade deal, it looks as though Trump is still trying to keep his campaign promises to his base. Sorry for getting it wrong yesterday. The agreement with Mexico puts more pressure on China. I think Trump has orchestrated this fairly well. First the EU, then Mexico. Then Canada is probably next. It doesn’t look like a revolution anywhere, but they do appear to be solid, incremental changes.
While my code doesn’t seem to be too worried about the rash of bearish engulfings in the metals, I’m a little bit more concerned. The Euro appears as though it might be topping out and/or the buck might be putting in a low here. During today’s move, at one point the Euro was actually doing fairly well, but gold was selling off hard. This happened at 10 am, right after a consumer confidence report came out that was the strongest since October 2000.
We have Nonfarm Payrolls coming this Friday. Supposedly, the consumer confidence numbers can provide hints as to how good the payrolls numbers will be. Those particular tea leaves say it should be a strong report.
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