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PM End of Month Market Commentary – August 2019

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  • Sun, Sep 01, 2019 - 03:27am

    #1

    davefairtex

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    PM End of Month Market Commentary – August 2019

Friday fell on a month end, so I’m doing a monthly commentary this week.

On the last trading day of August, gold fell -7.37 [-0.48%] to 1530.86 on heavy volume, while silver climbed +0.11 [+0.60%] to 18.48 on heavy volume also. The buck shot higher [+0.40%], SPX was mostly unchanged [+0.06%], while crude fell [-2.50%].

The metals sector map has silver leading gold, but the miners are stuck in the middle.  That’s probably just fantastic news for silver, since the miners actually did pretty well.  Copper actually broke down to a new multi-year low this month; that was probably about tariffs.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver $SILVER 13.51% 26.66% rising rising rising rising ema9 on 2019-08-23 2019-08-31
Silver Miners SIL 13.20% 24.58% rising rising rising rising ema9 on 2019-08-21 2019-08-31
Senior Miners GDX 12.68% 59.76% rising rising rising rising ema9 on 2019-08-23 2019-08-31
Junior Miners GDXJ 9.35% 47.93% rising rising rising rising ema9 on 2019-08-23 2019-08-31
Gold/Euro $GOLD:$XEU 8.90% 34.59% rising rising rising rising ema9 on 2019-08-23 2019-08-31
Platinum $PLAT 7.82% 18.52% rising rising rising rising ema9 on 2019-08-21 2019-08-31
Gold $GOLD 7.34% 26.79% rising rising rising rising ema9 on 2019-08-30 2019-08-31
Palladium $PALL 0.78% 60.37% rising rising rising falling ema9 on 2019-08-30 2019-08-31
Copper $COPPER -4.40% -5.25% falling falling falling falling ema9 on 2019-08-30 2019-08-31

Gold rose +104.70 [+7.34%] to 1530.86 month. This was a new 6-year high, dating back to April 2013. That’s back when I started writing my gold and silver commentary! The long white candle was a bullish continuation, and forecaster moved higher into a very strong uptrend. Friday’s drop did take price below the 9 MA, and the daily forecaster is now in a downtrend; this leaves gold in an uptrend in the weekly and monthly timeframes.

For September, there is a 97% chance of 1 rate cut.  For December, there is a 99% chance of 1 rate cut, a 79% chance of two cuts, and a 30% chance of 3 cuts.

COMEX GC open interest rose +58k contracts this month.

COT report has the commercials have the second-largest short position in history (September 2010 was 2k larger); managed money highs are elevated, but are not near marking a high just yet.

Silver jumped +2.13 [+13.03%] this month, breaking out above a number of previous highs. The long white candle was a bullish continuation, and forecaster moved higher into a very strong uptrend. Silver has yet to rise above the 2016 highs, unlike gold; this tells us that silver is badly lagging gold over the last few years. Daily forecaster for silver dropped into a slight downtrend on Friday; that leaves silver in an uptrend in both weekly and monthly timeframes.

The gold/silver ratio dropped -4.39 to 82.84. Silver is slowly catching up to gold.

COMEX SI open interest fell -13.8k contracts; much of that was managed money short covering.

The silver COT report shows commercial shorts quite near all time highs, but at the same time, commercials remain surprisingly long as well, which puts the commercial net at just moderately bearish levels. Managed money net might be suggesting an interim top, but not anything more serious than that. There are still a fair number of managed money shorts left in play.

Miners rallied +12.94%, which took XAU clean though all the previous highs from 2017. The opening white marubozu was a bullish continuation, and while forecaster fell, it remains in a strong uptrend. Like silver, the miners have not kept up with gold; they dropped a lot harder during the downtrend, and while they are outperforming gold during the uptrend, it isn’t enough to make up for what happened during 2013-2017. XAU ended the month in an uptrend in both daily and monthly timeframes; the weekly forecaster turned lower just this week.

The GDX:$GOLD ratio rose +4.97% while the GDXJ:GDX ratio fell -2.95%. That’s mixed – I don’t like to see the juniors dropping relative to the seniors.

USD

The buck rose +0.47 [+0.48%] to 98.48. The buck broke out to a new multi-year high this month. The hanging man candle was a bullish continuation, and forecaster moved back into an uptrend. This puts the buck in an uptrend in all 3 timeframes.

Big currency moves include: AUD [-2.45%], EUR [-1.43%], JPY [+2.02%], CNY [+3.97%]. The sharp move higher in CNY was all about Trump imposing more tariffs on Chinese imports. There were some mildly positive signs at end of month, but they were not enough to move CNY much at all.

There may be factors at play with CNY other than trade; worries about Hong Kong, capital flight from the mainland from recession fears.

US Equities/SPX

SPX rallied +79.35 [+2.79%] to 2926.46. SPX fell early in the month, and spent the rest of the month chopping sideways and recovering. The swing high candle print was bearish (81%), and forecaster fell but it remains in an uptrend. SPX ended the month in an uptrend in both daily and monthly timeframes.

The sector map had energy and financials doing worst, while utilities did best. This is a bearish sector map.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 12.68% 59.76% rising rising rising rising ema9 on 2019-08-23 2019-08-31
Utilities XLU 5.09% 16.54% rising rising rising falling ema9 on 2019-08-15 2019-08-31
Defense ITA 3.03% 7.28% rising rising rising falling ema9 on 2019-08-19 2019-08-31
REIT RWR 2.37% 6.08% rising falling rising falling ema9 on 2019-08-29 2019-08-31
Cons Staples XLP 2.17% 12.86% falling rising rising rising ema9 on 2019-08-28 2019-08-31
Homebuilders XHB 0.96% 5.15% rising rising rising falling ma50 on 2019-08-29 2019-08-31
Healthcare XLV -0.59% -2.37% falling falling falling falling ema9 on 2019-08-29 2019-08-31
Cons Discretionary XLY -0.94% 2.65% rising falling rising falling ma50 on 2019-08-30 2019-08-31
Technology XLK -1.54% 5.28% rising rising rising falling ema9 on 2019-08-29 2019-08-31
Industrials XLI -2.65% -1.67% rising falling rising falling ema9 on 2019-08-29 2019-08-31
Materials XLB -2.83% -4.64% falling falling rising falling ema9 on 2019-08-29 2019-08-31
Financials XLF -4.71% -5.08% rising falling rising falling ema9 on 2019-08-29 2019-08-31
Telecom XTL -6.03% -12.99% rising falling falling falling ema9 on 2019-08-29 2019-08-31
Energy XLE -8.33% -23.38% falling falling falling falling ema9 on 2019-08-29 2019-08-31

Internationally, the US was the worst-performing region, while Latin America and Emerging Asia did best.

VIX ended the month at 25.42.

Rates & Commodities

TLT jumped up a massive +10.83%; that’s better than gold, not quite as good as silver. TY did reasonably well, up +3.03%. The long white candle was a bullish continuation, and forecaster moved higher into a strong uptrend. TY is approaching the highs set back in 2016, and remains in an uptrend in both weekly and monthly timeframes; TY faded a bit at the end of this week, and dropped into a slight downtrend just on Friday.

The 10-year yield plunged -52 bp, down to a low of 1.50%. DGS10, the 10-year yield chart, shows a huge drop. The black marubozu was a bearish continuation, and forecaster remains in a strong downtrend.

JNK rose just +0.20% this month; this slight gain contrasts with the loss in equities. BAA debt rallied almost as strongly as AAA debt, which means the differential just rose slightly [+2 bp] to +91 bp; there are no signs of concern from the credit markets. The differential remains in a downtrend in both weekly and monthly timeframes.

Crude fell -3.02 [-5.21%] to 54.93. The spinning top candle was mildly bullish (38%), and forecaster inched lower but remains (barely) in an uptrend. Crude ended the month in a downtrend in both daily and weekly timeframes, but all trends in crude are very tentative right now.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +54.89 tons, with 878 tons in inventory.

* ETF Discount to NAV:

PHYS 12.26 -0.66% to NAV
PSLV 6.80 -0.75% to NAV
CEF 14.95 -2.86% to NAV

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a $1 premium for gold, and a 7c premium for silver.

* Big bars premiums were: gold [1kg] 1.16%, and silver [COMEX 1000 oz] 3.03%.

Grey Swans & Geopolitics

  • Iran: No progress.
  • Italy – migration: 5-star and PD are trying to form a government after Salvini pulled out of the Lega-5-Star coalition in a bid to force early elections. There was early optimism among those rooting for a “not-Salvini” government, but Di Maio stated on Friday that if the PD didn’t agree to support a series of 5-Star programs, there would be no deal – including accepting a recent law aimed at stopping the “migrant sea taxis.”
  • US-China: Trump’s September 1 tariff increase appears ready to go into force; in a surprisingly dovish move, China decided not to retaliate. The US and China are still discussing whether face-to-face talks will resume. https://www.scmp.com/economy/china-economy/article/3024910/china-still-discussing-next-round-trade-war-talks-amid
  • BRExit: PM Johnson suspended Parliament; Remainers who are attempting to avoid executing on BRExit were annoyed – there were protests and suggestions of a coup, which seem to be largely supported by the media. Mish has more details on Johnson’s strategy – there are a lot of moving parts: https://moneymaven.io/mishtalk/economics/boris-johnson-s-deviously-clever-brexit-strategy-unfolds-t9P1o3wFqECjhrH2bAD0lA/
  • Yield Curve Inversion: the 1-10 spread is now at -27 bp. This is a strong inversion.
  • Hong Kong: More protests this weekend; a march was rejected by police, so protesters turned it into a religious march which cannot be rejected. It is now clear that Carrie Lam is just a sock puppet for Beijing; more than a month ago, she proposed to withdraw the extradition law, but her proposal was rejected by Beijing. Media is portraying the protesters as increasingly violent: headline “Hong Kong Burns” sounds pretty awful; the only thing burned were piles of debris lit on fire by the protesters, and gasoline bombs thrown by either protesters, or undercover agitators, take your pick. https://www.scmp.com/news/hong-kong/politics/article/3025238/hong-kong-burns-during-another-weekend-violence-live-shots
  • North Korea: no progress on denuking; more irritation from DPRK displayed towards Pompeo.

Summary

There was a large flight to safety this month; a 50 bp monthly move in the 10-year yield doesn’t happen all that often. Gold, silver, and the miners all made new highs. Gold/Euros broke out to new all time highs. The Fed cut rates by 25 bp, and then said it was probably only a one-time thing. And there were both positive and negative events in the US-China trade war; both China and the US both increased tariffs,  probably to aid the stock market, and by China to paralyze the US from weighing in too heavily on the Hong Kong protests.  That declaration of “sufficiently autonomous” – if Hong Kong lost that, I believe it might actually cause a banking crisis.  Certainly a currency crisis anyway.

Not to put too fine a point on it, but there really isn’t a lot of good news – unless you own gold of course.

The discounts on the ETFs are relatively low, and the big bar premiums remain within reasonable ranges. There are no shortages of big bar gold at this time.

There are lots of things that are threatening to happen.  Money is moving out of the Euro, out of GBP, and out of CNY – and probably out of the HKD too.  A rising buck makes foreign company’s US dollar loans (of which there are a lot) more difficult to service (your payments are in rising USD, but your earnings are in falling EUR/GBP/CNY) so the more money flees, the more difficulty dollar debtors are in – which generates more worry, and more currency flight.  This is pretty much what Armstrong predicted; anyone expecting the buck to turn to confetti has been disappointed by what has actually gone on.

I’m guessing we will just see more of this.  Objects in motion tend to stay in motion.  And the US economy, as weak as it is, is doing better than the others.

Current Trends – Monthly:

Uptrend: silver, gold, miners, 10-year treasuries, platinum, gold/euros, utilities, palladium, SPX, crude, USD.

Downtrend: housing, copper.

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  • Tue, Sep 03, 2019 - 06:35am

    #2

    sand_puppy

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    Silver?

  • Tue, Sep 03, 2019 - 07:25am

    #3

    sand_puppy

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    Silver touches $19

wow

  • Tue, Sep 03, 2019 - 07:43am

    #4

    Snydeman

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    Tariff related?

a response to the tariffs going into effect maybe?

  • Tue, Sep 03, 2019 - 09:36am   (Reply to #3)

    #5
    ao

    ao

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    re: Silver touches $19

The trader designated responsibility for silver take-downs must have died at his desk.  Or an algorithm went haywire.  Or JPMC has decided the time to take profits has come.  Or hell has froze over.  Nice to see though.:-)

  • Tue, Sep 03, 2019 - 09:49am

    #6

    travissidelinger

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    Almost all smiles

If only I could have accumulated more. But this will be nice to watch.

  • Tue, Sep 03, 2019 - 10:19am

    #7

    thc0655

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    Wake me…

when it hits $49 again.

  • Tue, Sep 03, 2019 - 01:05pm

    #8

    Penny551

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    Interesting Long Term GDX Chart…

  • Tue, Sep 03, 2019 - 01:10pm   (Reply to #6)

    #9

    Penny551

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    re: Almost all smiles

Silver is *still* ridiculously cheap.  I am fairly certain that AG is the only commodity trading below it’s 1980 peak…and by a LOT.  I wouldn’t necessarily chase it here if you already have a position, but dollar cost averaging still makes a lot of sense, IMO.  By the time this bull market is over, $48 silver will look like a bargain.

  • Tue, Sep 03, 2019 - 04:28pm   (Reply to #6)

    #10

    travissidelinger

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    re: re: Almost all smiles

Ohio now has a new tax law in place. Three days ago I paid zero taxes on silver, but not now. Sure, once it’s at 100$/oz I won’t care about 15$ vs 19$. But the money I would have spent on more silver is now tied up elsewhere and I can’t get it back for a few months.

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