Investing in precious metals 101

PM Daily Market Commentary – 9/12/2019

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  • Fri, Sep 13, 2019 - 03:52am

    #1

    davefairtex

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    PM Daily Market Commentary – 9/12/2019

Gold rose +1.97 [+0.13%] to 1509.14 on very heavy volume, while silver fell -0.02 [-0.11%] to 18.19 on moderately heavy volume. The buck moved higher [+0.13%], along with SPX [+0.29%], while crude fell [-1.49%] along with bonds [10Y yield +5.8 bp].

Market-moving news of the day: the ECB decided to drop the deposit rate by 10 bp [to -0.50%], and also started printing money at the rate of 20 billion euros/month. The market initially responded with a rally in gold and a plunge in Euros, but that quickly reversed, with the Euro ending up closing higher on the day. It appeared as though the market was expecting more out of the ECB than they ended up delivering.

Gold spiked higher on the ECB announcement at 7:45 am, peaked out at 8:35, and then fell for the remainder of the day. The doji candle was a bearish continuation, but forecaster moved higher, pushing gold back into a slight uptrend. Gold is now in an uptrend in both daily and monthly timeframes.

Gold/Euros remains in a downtrend in both daily and weekly timeframes.

COMEX GC open interest rose +3,620 contracts.

Futures are projecting a 87% chance of one rate cut in September. There is now a 96% chance of one rate cut in December, a 65% chance of two cuts, and a 19% chance of three cuts.  Rate cut chances are declining as the September Fed meeting approaches.

Silver followed gold – rallying on the ECB announcement, then falling afterwards. The doji candle was a bit bearish, and forecaster moved lower into a downtrend. Silver remains in an uptrend in both weekly and monthly timeframes.

COMEX SI open interest rose +605 contracts.

The gold/silver ratio rose +0.20 to 82.97. That’s slightly bearish.

Miners gapped up at the open, and then sold off all day long. GDX dropped -1.62% on heavy volume, and GDXJ fell -1.95% on heavy volume also. XAU fell -1.38%, the closing black marubozu was a bearish continuation, and forecaster inched higher but remains in a strong downtrend. XAU remains in an uptrend in both weekly and monthly timeframes.  The miners were fairly unhappy about today’s ECB decision.  They could be leading us lower – and the daily downtrend sure does look strong.

The GDX:gold ratio fell -1.75%, and the GDXJ:GDX ratio dropped -0.33%. That’s bearish.

Platinum rose +0.77%, palladium rallied +2.97%, and copper moved up +0.92%. Palladium broke out to a new all time high today – the other metals are all doing reasonably well.

The buck moved up +0.12 [+0.13%] to 98.30. Trading range was very large, and driven entirely by the ECB meeting and press conference. The spinning top candle was somewhat bearish (35%), and forecaster inched lower but remains in an uptrend. DX remains in a uptrend in both daily and weekly timeframes.

Large currency moves included: EUR [+0.47%]. It sure looked as though the currency market was disappointed by the ECB’s stimulus efforts. “Is that all you got?” – it seemed to be asking.

Crude fell -0.83 [-1.49%] to 54.97. The long black candle was mildly bullish (37%) but forecaster fell deeper into a downtrend. Today’s move pulled weekly forecaster into a downtrend too, which leaves crude in a downtrend in all 3 timeframes. The trends are not particularly strong, however.

SPX rose +8.64 [+0.29%] to 3009.57. The northern doji was a bullish continuation, and forecaster inched lower but remains in an uptrend. SPX remains in an uptrend in the daily and weekly timeframes.

Materials did best (XLB:+0.78%) along with REITs (XLRE:+0.59%) while energy (XLE:-0.62%) and sickcare (XLV:-0.03%) did worst.

VIX fell -0.39 to 14.22.

TLT plunged -0.66%, the long black candle was a bearish continuation, and forecaster moved higher but remains in a downtrend. TY fell -0.22%, the spinning top was a bearish continuation, and forecaster moved slightly higher but remains in a strong downtrend. Even after the recent 6-day correction, TY remains in an uptrend in the weekly and monthly timeframes. The 10-year yield rose +5.8 bp to 1.79%.

JNK rose +0.04%, the short black candle was a bullish continuation, and forecaster plunged but remained (just barely) in an uptrend. BAA.AAA differential rose +1 bp to +88 bp. No worries from the low-quality credit market.

CRB rose +0.42% with 3 of 5 sectors rising, led by livestock (+2.55%).

Apart from the “not nearly enough” stimulus news out of the ECB, the US-China trade news continues to improve. Trump announced that the US will delay the 5% increase in tariffs as a goodwill gesture ahead of the upcoming talks scheduled for early October.  China announced for their part they will remove tariffs on selected US imports also.

In addition to that, today’s CPI report showed a headline change of +0.1% m/m (1.2% annualized), but a +0.3% m/m change in “core” CPI (i.e. CPI less food-and-energy), which included an +0.7% m/m increase in sickcare costs.  That helps explain why “services” are doing so well; the sickcare industry continues to extract money from the US population.  Hospital services were up +1.4% m/m.  Do we imagine this is because care at hospitals just got that much better?  Econoday hints that the +0.3% m/m increase in core inflation might make it harder for the Fed to drop rates at the next meeting, but I really don’t think hospitals ramping up their take is a sign of too much easy money.

As long as the trade news continues to improve, that should keep a bid under risk assets, and continue to put pressure on both bonds and gold.  That’s at least how things are behaving right now anyway.

FOMC meeting next week.

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  • Fri, Sep 13, 2019 - 04:15am

    #2

    davefairtex

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    Draghi lied again?

After posting my report, I ran into Wolf Richter’s article on Draghi’s lies at the press conference, specifically his claim that the consensus on restarting money printing was so broad there was no need for a vote.

Apparently this was not true – and the insiders on the ECB that disagreed so vehemently with Dragi were (apparently) so annoyed, they leaked what really happened to the press.

https://wolfstreet.com/2019/09/12/ecb-policy-decision-loses-legitimacy-after-unprecedented-revolt-against-draghis-efforts-to-restart-qe-and-draghi-lied-about-it/

And here’s the bloomberg article that was his source:

https://www.bloomberg.com/news/articles/2019-09-12/draghi-faced-unprecedented-ecb-revolt-as-core-europe-resisted-qe

Perhaps this, then, was the reason for gold’s abortive rally.

  • Fri, Sep 13, 2019 - 08:39am

    #3

    Snydeman

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    Question!

Does anyone know if there is any recourse for ECB members to un-do this policy measure, given that it was not a unanimous decision? I know nothing of how the ECB structure and voting works.

  • Fri, Sep 13, 2019 - 10:24am   (Reply to #3)

    #4

    davefairtex

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    re: Question!

Yeah that’s a good question.  I have no idea what the legal process for how the ECB actually decides on what things will occur.  I presumed that votes occurred on everything, but in poking around, I noted comments at the ECB website that “things usually work on consensus” which is what Draghi said in his press conference.

It is possible that the ECB structure allows voting members to request an actual vote, but for some unknown reason, decided not to do so – actual votes seem to be very rare events.  It could also be that Draghi can simply look around the room, announce that there is consensus, and what he says, goes.  I just don’t know which is true.

Draghi’s term ends October 31, 2019.

https://www.msn.com/en-us/money/markets/draghi-faced-unprecedented-ecb-revolt-as-core-europe-resisted-qe/ar-AAHctwO

Despite the disagreement, Draghi presented the decision to relaunch QE as having enough support to move forward. There was no vote on the matter, in line with typical ECB practice. Such a ballot would be a rare occurrence, but if one had taken place, under the Governing Council’s system of rotation to streamline decision-making, the French and Estonian governors would have been unable to cast a vote this month.

  • Fri, Sep 13, 2019 - 11:10am

    #5

    Snydeman

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    Seems like

That seems like a pretty easily distorted or abused system, given that Draghi apparently just pushed through this thing without anyone being able to stop him. No wonder so many British want out! It’s hardly democratic.

  • Fri, Sep 13, 2019 - 02:41pm   (Reply to #5)

    #6

    davefairtex

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    anti-democratic

That seems like a pretty easily distorted or abused system…No wonder so many British want out! It’s hardly democratic.

Anti-democratic.  Welcome to the EU.

  • EU President: selected by a smoke-filled room.
  • EU Parliament: unable to either initiate or repeal legislation.

No need to have even the fig-leaf of (corporate-dominated) popular feedback that happens in most national governments; in the EU, Those Bureaucrats Know Best.

Do you think Juncker would win an EU-wide popular vote?

Me either.

I know, I say this way too often.  It annoys the Europhiles.  Sorry about that.

  • Sat, Sep 14, 2019 - 02:21am   (Reply to #5)

    #7
    phusg

    phusg

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    re: anti-democratic

> I know, I say this way too often. It annoys the Europhiles. Sorry about that.

Haha, yes you and Snydeman’s blunt comments have annoyed me enough to wield my keyboard in the EU’s defence once again…

Sure the EU and the ECB have some democratic deficits, but when they are pointed out without any context it just comes across as bigoted and short sighted.

> That seems like a pretty easily distorted or abused system, given that Draghi apparently just pushed through this thing without anyone being able to stop him. No wonder so many British want out! It’s hardly democratic.

Draghi’s power grab was very disturbing and shows this relatively young institution needs to democratize further to stop this from happening again. I have no doubt that is exactly what these highly publicly critical bank presidents are currently lobbying for (although as the article points out the vote would’ve gone in his favour according the voting rules).

To then suggest that the Brits want out of the EU (they’re are not a member of the eurozone) because they have much higher standards of democracy is pretty ridiculous given we’ve just witnessed the British parliament voting repeatedely against any proposal put forward to implement the referendum result and the subsequent unlawful suspension of parliament by an unelected prime minister!

> Do you think Juncker would win an EU-wide popular vote?

Do you think Trump would win an America wide popular vote without the nigh unlimited election budget that he is allowed to deploy? And based on proportional representation rather than the disenfranchising first past the post system? The two party systems that America and Britain have are hugely polarising from where I sit in Northern Europe.

So, much like discussions about currency, none of us has a clean shirt, just on occasion a less dirty one than the rest. It would be nice if this was a place where that was acknowledged. After all, it’s not as if I want to run off and join a Russion or Chinese forum as I doubt they would save our ***** if WW3 broke out.

  • This reply was modified 1 month, 4 weeks ago by  phusg.
  • This reply was modified 1 month, 4 weeks ago by  phusg.
  • Sat, Sep 14, 2019 - 07:24am   (Reply to #5)

    #8

    davefairtex

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    re: re: anti-democratic

phusg-

I’m simply delighted to have actual Europeans here to complain about my constant complaining about the EU.  🙂

And I agree that the FPTP structure results in two-party systems.  There Are Better Ways.

And I also agree that the UK Parliament demanding to be able to effectively override an actual popular referendum is also horribly anti-democratic too.

But these things are matters of degree.  At least Trump got elected.  Juncker did not.  Even Johnson got elected by “some” kind of limited-semi-popular vote where campaigning was actually required – within his own party, to be sure.

Did Juncker campaign?  He did not.  Not outside that smoke-filled room anyway.

And not being able to initiate or repeal legislation is a BFD.  Its worse than the FPTP democratic deficit.  Its awesome to have proportional representation – but its rendered meaningless because those “properly” elected representatives have virtually no power.

This really did shock me when I found out.  I have always looked at modern Europe as “the Western Democracies”, and once I found out that the EU structure was modeled after the Duma from the FSU, I really was appalled.

Let me ask you something.  Do your countrymen know?  Did you know, before I started whining about it?  [I certainly didn’t know until I went down this particular rabbit hole a few years back.]  Are they OK with it?  Or do they just shrug and – don’t really care too much?

Here’s my issue.

The US is not lacking in undemocratic, shady behavior.  You may have noticed that I go on about that too…but the shady behavior here isn’t structural – the US has a corrupted system which needs some serious cleaning up, but the basic structure is relatively sound.  That’s not true for the EU.  If you guys cleaned up corruption in (say) the EU parliament, nothing would change, since the structure makes sure that the sole popularly elected body has basically no power.  And this was a deliberate design decision by your Founders.  Its just a simulacrum of democracy, where the US system is corrupted but actual democracy.

I guess that’s my beef.  Our Founders gave us mostly-democracy, which we have allowed to become corrupted.  What your Founders gave you was anti-democratic from the very beginning, dooming your system to eventual failure because it results in Rule By Bureaucrats without any mechanism where the people can insist that change takes place.

So, question #1: Do the people of the EU know this?

If you guys went off and allowed the EU parliament to initiate and repeal legislation…well now.  All hell would break loose!  Things would get exciting.  Don’t you think?

And question #2: Would you Northern Europeans still want to be a part of a democratically-run EU?

  • Sat, Sep 14, 2019 - 04:46pm

    #9

    Snydeman

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    He pretty much covered it

So, what he said.

 

But, also, I was referring to Brits wanting out (and French, too, if I understand the polls correctly, which is why no referendum will happen there), I was more referring to what seems to be a complaint among many Brits that the EU ignores the will of the people they supposedly represent. If the system is as undemocratic as it seems, then that would only add fuel to the notion that the EU serves the interests of bureaucrats and elite rather than the actual people of the various nations of Europe. I’d be pissed too.

 

I’m sorry if I seemed to say the Brits have a better standard of democracy. They don’t: the people said “fuck off, EU” by a fairly decent margin, but the elected representatives seem to be doing everything they can to ignore that. I will say that the Brits have a far more entertaining form of democracy…I mean, watching Parliament during a contentious vote is just pure political theater at its BEST. They hiss and throw insults at each other! American democracy seems far too banal by comparison. Oh, to have the days of caning one another and duels across the Potomac back again!

 

PS- I’m often blunt. Sorry. I respect that in return, though, so please know that I’ll take any medicine I dispense here.

  • Sat, Sep 14, 2019 - 05:34pm

    #10
    nedyne

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    Saudi drone attack

Maybe that will give the gold price a little nudge:

https://www.bloomberg.com/news/articles/2019-09-14/saudi-aramco-contain-fires-at-facilities-attacked-by-drones

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