PM Daily Market Commentary – 8/5/2019

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  • Mon, Aug 05, 2019 - 11:20pm

    #1

    davefairtex

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    PM Daily Market Commentary – 8/5/2019

Gold shot up +23.11 [+1.59%] to 1475.82 on extremely heavy volume, while silver rose +0.18 [+1.11%] to 16.41 on heavy volume. The buck was hit hard [-0.54%], SPX was crushed [-2.98%], oil moved lower [-0.63%], and bonds jumped to new multi-year highs [10Y yield -12 bp].

The Chinese government retaliated against Trump’s tariff declaration by saying they would no longer buy US agricultural products, and they also devalued the RMB to the lowest level in 11 years. In turn the US government declared that China was a “currency manipulator.”

Gold rallied steadily all day long until it ran into heavy selling pressure a little before 11 am, and again at 3 pm. The selling seemed to cap gold at (roughly) 1480. The long white candle was somewhat bearish (40%) but forecaster moved a bit higher and remains in a reasonably strong uptrend. Gold is in an uptrend in all 3 timeframes. The breakout to new 6-year highs is a strong positive sign, although at least a third of gold’s rally was a currency effect.

COMEX GC open interest jumped 13,927 contracts. Thats 43 tons of paper gold, or about 6 days of global production.

Futures are projecting a 100% chance of one rate cut in September, a 27% chance of two rate cuts. The December projection is 100% chance of one rate cut, a 91% chance of two cuts, a 53% chance of 3 cuts.

Silver shot higher in early Asia trading, but then sold off again a little before 11 am in the US. The spinning top candle was bearish (56%), and forecaster hardly moved, remaining in a slight downtrend. SI is right at its 9 MA. Silver remains in an uptrend in both weekly and monthly timeframes.

COMEX SI open interest rose 322 contracts.

The gold/silver ratio rose +0.32 to 89.50. That’s mildly bearish. Silver is back to underperforming gold once again.

The miners gapped up at the open, tried to rally but failed, due to the selling pressure on gold. GDX rose +2.99% on very heavy volume, and GDXJ climbed +4.24% on very heavy volume also. XAU rose +3.59%, the opening white marubozu was bearish (57%) but forecaster shot higher and is now in a strong uptrend. Today was a new multi-year high for XAU, dating back to early 2017. XAU remains in an uptrend in all 3 timeframes.

The GDX:gold ratio rose +1.38%, while the GDXJ:GDX ratio climbed +1.21%. That’s quite bullish.

Platinum rose +1.26%, palladium climbed +0.99%, while copper dropped -0.72%. That’s a new multi-year low for copper.  Platinum appears torn between being an industrial metal (bearish) and a gold-surrogate (bullish).

The buck plunged -0.53 [-0.54%] to 97.07. The buck sold off pretty much all day long – a rough mirror image to gold. The opening black marubozu was a bearish continuation, and forecaster moved into a slight downtrend. The buck is now in a downtrend in the daily and monthly timeframes, and the weekly is just about to drop into one as well. It appears as though the increased prospect for rate cuts are causing people to flee USD.

Large currency moves include: EUR [+0.81%], AUD [-0.57%], JPY [+0.47%], CNY [-1.61%].

The USD/CNY broke above round number 7 today; it has dropped maybe 2.6% over the past 3 days. This won’t completely offset the 10% increase in tariffs, but it does help somewhat. Problem is, if China lets the CNY crater too severely, money inside China will start to flee for real – who wants to hold a devaluing currency? I believe that is what is causing the recent bitcoin rally; I suspect that bitcoin is used as a capital flight instrument in China.

Crude fell -0.35 [-0.63%] to 54.86. The spinning top candle was a bearish continuation, and forecaster moved higher but remains in a downtrend. Crude is in an uptrend in both weekly and monthly timeframes.

SPX plunged -87.31 [-2.98%] to 2844.74. Much of the damage happened in the futures markets overnight, but the selling continued during the trading day as well. There was a 20 point bounce in the last hour, which faded after market close. The opening black marubozu was bullish (64%), but forecaster fell, moving SPX into a very strong downtrend. Today’s move was enough to move SPX into a downtrend in the monthly timeframe too – SPX is now in a downtrend in all 3 timeframes.

Sector map was led lower by tech (XLK:-8.23%) and discretionary (XLY:-6.52%), while REITs (XLRE:-0.32%) and utilities (XLU:-1.66%) did best. This was an almost-perfect bearish sector map.

VIX jumped +6.98 to 24.59. Just last week, VIX was 12.

TLT climbed +1.73%, another very strong day for bonds. The closing white marubozu was a bullish continuation, and forecaster moved higher into a very strong uptrend. TY also did very well, up +0.84%, the white marubozu was a bullish continuation, and forecaster screamed higher and is now in a very strong uptrend. TY remains in an uptrend in all 3 timeframes. The 10-year yield plunged another -12 bp to 1.74%. This is another multi-year low for the 10-year yield.

JNK plunged -1.09%; forecaster remains in a strong downtrend. -0.45%, with the forecaster dropping into a strong downtrend. The BAA.AAA differential fell -2 bp to +0.87. There is still no concern at all about low grade credit.

CRB fell -1.08%; only 1 sector fell: industrial metals (-1.83%).

I know some people are concerned about manipulation.  I always maintain that while you may be able to manipulate prices when nobody cares, once people start to care, manipulation always fails – unless the manipulator is willing to pony up enough cash to buy literally everything that’s on sale.  My evidence: if manipulators tricks were so powerful, the Fed would not have had to buy 4 trillion in US treasury bonds to cause long rates to drop.  If the Fed could use fancy computer tricks, why engage the balance sheet?  The answer is simple: tricks don’t work when push comes to shove.

Today, money wanted out of risk assets.  Both SPX and JNK plunged, and the safe havens of bonds and gold made new highs.

Curiously, copper does not appear to be selling off further.  I view copper as the market’s proxy for “where China is going next.”  Perhaps the markets think that China can – by manipulating its currency and maybe through stimulus deal effectively with the 10% tariff imposition.  Or maybe copper is so oversold (RSI-7=17) that the initial group of sellers are now gone.

Regardless, this is yet another new high for gold.

Silver is back to underperforming gold once more.    Both silver and platinum appear torn between their industrial use and their “precious metals” nature.  This is a guess: later on in the PM rally, once the trend becomes more established in the popular mind, both silver and platinum will become much more popular.  Both will be seen as “discount gold” (“looks like gold, but is lots cheaper””) and they will catch up in a big hurry.

We saw hints of this a few weeks ago, but now silver is back to suffering once more – underperforming gold.  I think this is an opportunity, but then again, I’m long silver, so take what I say with a grain of salt.  And – not financial advice either.  🙂

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  • Tue, Aug 06, 2019 - 07:52am

    #2
    Lions

    Lions

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    Regarding Platinum

I think it is good to keep an eye on Platinum as many people feel that the government could very well use gold as part of a bail-in when they do a monetary reset. After looking at this, it is actually hard to see why they wouldn’t do this, if for no other reason than because they can. To my knowledge, Platinum has never been confiscated.

  • Tue, Aug 06, 2019 - 03:21pm

    #3

    sand_puppy

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    Michael Snyder: We are not understanding the magnitude

Michael Snyder: We are not understanding the magnitude of the effect that the major rift in trade with China will have on our lives.  He believes there is no going back.  And the impact of this is not yet appreciated public.  Major pain and disruption of systems are approaching.

When will Americans start to wake up and realize what is happening? 

The sequence of Chinese stalling/backing out, Trumps 10% tariffs, the Yuan devaluation and backing out of US agricultural purchases, the designation of China as a “currency manipulator” is the trade war equivalent of a nuclear bomb.

In 2017, the Chinese bought 19.5 billion dollars worth of U.S. agricultural products, and that number dropped to just 9.1 billion dollars in 2018.

Now that number is going to zero.

President Trump, has today determined that China is a Currency Manipulator.  This …. is the kind of move that would not be made unless all hopes for a trade deal were completely gone. …The Chinese also are “signaling that they have lost confidence that they can reach an agreement with Trump.”

But now that our two economies are so deeply integrated, trying to decouple is going to be an exceedingly painful process.

According to economist Neil Shearing, we could literally be looking at “the end of the world as we know it”…

Among the implications for more deterioration in the global picture that Shearing cites are the “disintegration of the rules-based system” that has governed international commerce since the end of the World War II, and a potential “Balkanization” of the world economy as the U.S. and China develop their own standards, tech platforms and payment systems.

“It’s too soon to say exactly how events will pan out, but this casts the escalation in the US-China trade war over the past year in an altogether more ominous light. We may be witnessing the end of the world as we know it,”

Having said that, it is imperative that the American people understand that a messy breakup with China is going to cause an extraordinary amount of pain for us, for them and for the whole world.

It looks like this trade war could be the spark that plunges the global economy into utter chaos, and right now very few Americans seem to understand the true scope of the economic nightmare that appears to be headed our way.

 

  • Tue, Aug 06, 2019 - 04:22pm

    #4

    sand_puppy

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    Jim Quinn and Charles Hugh Smith Saying Similar

Jim Quinn at The Burning Platform

Strauss and Howe, when writing The Fourth Turning in 1997, did not know the exact circumstances and events which would propel the next Turning. But their study of economic and demographic trends along with the attitudes of generations and historical precedents in prior Fourth Turnings, led them to conclude the driving factors of this Crisis would be debt, global disorder and civic decay.

The economic, social, political, and military distress pervading the world should be terrifying the average American, but most are blissfully ignorant of the coming anguish when the best laid plans of central bankers and corrupt politicians blow up once again…

And Charles, drawing parallels to the Decline of the Roman Empire says something similar: we are heading towards a cliff, unaware.

Befuddled and blind, we wander toward the cliff without even seeing it, focusing on our little screens of entertainment and self-absorption.

…we’ve absorbed the narrative that the gulag is secure and permanent.

We’ve also absorbed the understanding that escape will be punished. Dissent will quickly be suppressed or vilified, and the dissenter socially and economically marginalized.

….the entire system clings to a veneer of normalcy that is increasingly difficult to maintain.

We dare not realize [that] the crises we’re about to face are novel…

Befuddled and blind, we wander toward the cliff without even seeing it, focusing on our little screens of entertainment and self-absorption. The bottom of the cliff beckons, and filled with the magical sense of security bestowed by the Gulag of the Mind, we imagine we can walk on air and escape unhurt.

  • Tue, Aug 06, 2019 - 05:01pm

    #5
    Time2help

    Time2help

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    Window Dressing

Sand_puppy wrote:

“Michael Snyder: We are not understanding the magnitude of the effect that the major rift in trade with China will have on our lives.  He believes there is no going back.  And the impact of this is not yet appreciated public.  Major pain and disruption of systems are approaching.”

The rift with China is somewhere on this chart. See if you can spot it.

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