PM End of Week Market Commentary – 11/11/2016
Been there a few times Dave… sucks!
Funny (not) but this is my 2nd source for COT results that hasn't published yet (the other one is always in by 5:00 pm Friday)… Hmmmm
Clearly Putin and/or Trump up to no good again.
Good news is the redo usually goes pretty well… hope yours does, and thank you for the extra effort required!
That is depressing.
It's happened to me a few times, notably when I accidentally click outside of the comment box without noticing and then hit the backspace key which takes me back a page.
Now I compose nearly everything in word and then paste to avoid that issue, because it is so demoralizing.
Alternatively I "select all, copy" l as I go…with the frequency defined by my low tolerance for losses.
We go now to the latest weather forcast:
DROUGHT INFORMATION STATEMENT NATIONAL WEATHER SERVICE NEW YORK NY 226 PM EDT THU OCT 27 2016 ...SEVERE DROUGHT CONDITIONS HAVE BEEN EXPANDED THROUGH THE REMAINDER OF NORTHERN NEW JERSEY... ...SEVERE DROUGHT CONDITIONS ARE IN EFFECT ACROSS LONG ISLAND, SOUTHERN CONNECTICUT, QUEENS, BRONX, RICHMOND, WESTCHESTER, PUTNAM, ORANGE AND ROCKLAND COUNTIES IN NY AND ACROSS NORTHERN NJ... SYNOPSIS... A PERSISTENT, DRY WEATHER PATTERN THAT BEGAN THIS SPRING AND SUMMER HAS CONTINUED THROUGH THE MONTH OF OCTOBER. RAINFALL DEFICITS OF TWO TO THREE INCHES CONTINUED ACROSS THE SEVERE DROUGHT AREA DURING THE LAST MONTH. RAINFALL DEFICITS SINCE JANUARY 1ST RANGE FROM EIGHT TO TWELVE INCHES. ALTHOUGH RECENT RAINS HAVE HELPED TO IMPROVE DROUGHT CONDITIONS, A SUSTAINED PERIOD OF NEAR NORMAL PRECIPITATION WILL BE NECESSARY TO RETURN TO NORMAL LEVELS OF WATER AVAILABILITY. THE OCTOBER 27TH RELEASE OF THE U.S. DROUGHT MONITOR SHOWED SEVERE DROUGHT CONDITIONS EXPANDING THROUGH MOST OF THE LOCAL HYDROLOGIC SERVICE AREA. THE DROUGHT MONITOR IS UPDATED WEEKLY WITH THE LATEST CONDITIONS AVAILABLE ONLINE. SUMMARY OF IMPACTS... THE LATEST NEW YORK...NEW JERSEY AND CONNECTICUT STATE DROUGHT MANAGEMENT TASK FORCE CONTINUED SEVERE DROUGHT CONDITIONS ACROSS MOST OF THE HYDROLOGIC SERVICE AREA. SOIL MOISTURE CONDITIONS... THE LATEST CROP MOISTURE INDEX ISSUED BY THE CLIMATE PREDICTION CENTER INDICATED ABNORMALLY DRY SOIL MOISTURE ACROSS THE AREAS UNDER THE SEVERE DROUGHT CONDITIONS. GROUNDWATER CONDITIONS... THE USGS GROUND WATER LEVEL NETWORK SHOWS THAT NUMEROUS WELLS ACROSS AREAS UNDER THE SEVERE DROUGHT CONDITIONS ARE RUNNING BELOW NORMAL TO MUCH BELOW NORMAL. IT TYPICALLY TAKES A LONG TIME ON THE ORDER OF WEEKS FOR GROUND WATER TABLES TO RESPOND TO RAINFALL...OR TO THE LACK OF RAINFALL. RIVER AND STREAMFLOW CONDITIONS... FLOWS ON STREAMS ACROSS AREAS UNDER THE SEVERE DROUGHT ARE MUCH BELOW NORMAL. PRECIPITATION/TEMPERATURE OUTLOOKS... THE 6 TO 10 DAY OUTLOOK ISSUED BY THE CLIMATE PREDICTION CENTER VALID FROM NOVEMBER 1ST THROUGH THE 5TH SHOWS TEMPERATURES ABOVE NORMAL AND PRECIPITATION BELOW NORMAL. THE 8 TO 14 DAY OUTLOOK VALID FROM NOVEMBER 3RD THROUGH THE 9TH SHOWS TEMPERATURES ABOVE NORMAL AND PRECIPITATION BELOW NORMAL.
From the video logo, I could see it going both ways. (I know there's a drought in NY… whether it's that bad, I'm not sure.)
On Friday gold fell -31.20 to 1227.40, silver dropped -1.24 to 17.36, both on heavy volume. The collapse started just after 09:00 Eastern, and continued through afternoon in NY, with silver falling more heavily than gold. A dollar rally certainly didn’t help, but was not the primary cause of the rout.
On the week, gold fell -77.80 [-5.96%], silver dropped -1.06 [-5.75%], GDX plunged -16.55%, and GDXJ plummeted -17.65%. That’s some bad news. In addition, platinum dropped -5.38%, but palladium rose +9.59%, and copper jumped +10.77%. That’s a massive divergence between gold and silver versus palladium and copper. It felt to me as though the market transitioned in a couple of days from a worried, flight-to-safety mood into an expansionist, reflationary celebration.
Here’s one example of the sudden mood-shift that happened the night of the election:
Stan Druckenmiller says he sold all his gold on election night and is short bonds globally in a bet on stronger economic growth and rising interest rates.
“All the reasons I owned it for the last couple of years seem to be ending,” he said of gold in an interview on CNBC Thursday.
If you factor out the election on Wednesday, it appeared that gold just steadily moved lower off the swing high printed on Monday, culminating with a massive support break on Friday which resulted in a “bearish strong line” candle which definitely doesn’t mark a low. Gold appears headed for a re-test of the round number 1200 support level. The downside velocity is pretty extreme right now, but gold is not that oversold, so we could see some more selling before gold stops dropping.
If you look at the chart, you can see how the 50 MA acted as resistance during the recent move. Failure of gold to convincingly move above the 50 was “the tell” that the buy-side mojo had faded. The swing high on Monday was the sign to bail out.
December rate-increase chances jumped up to 81%
This week, gold open interest fell by -14,071 contracts.
This week silver took several more shots at the 50 MA, closed above it briefly, and then was crushed on Friday as a massive wave of selling drove silver through all three moving averages and down to 17.13 support. My sense is, silver’s drop may be more of an artifact of the gold correction than anything else. Up until Friday, silver seemed to be fairly well bid, while gold was selling off. Even now, silver has avoided making a new low, even though Friday’s drop was dramatic. However given the “bearish strong line” candle print, I am pretty sure we will see price move lower; I think its unlikely that 17.13 support will hold. Next support is down at 16.
The miners tried rallying through the 50 MA, but the rally failed; Thursday and Friday saw very heavy selling (with accompanying high volume) that drove the miners to new lows. GDX printed a black marubozu on Friday, which is very seldom a low. Next support for GDX is down around 19. If GDX acts “normally”, we can expect it to move slowly downhill over the next week, eventually making a low within the next 3-5 days.
While last week the buck didn’t like the thought of a President Trump, this week the reality of President Trump caused it to rally. The dollar rally took USD up +1.95 [+2.01%] to 98.99, completely retracing its losses from last week and moving the buck back up to 99. The buck appears to be ready to break to new highs in the near future. If it does this, that would probably drive PM prices lower. Note that on the day of the election, the buck staged a huge drop, followed by a huge rebound, with a massive 2.6 point trading range. This huge sell-off followed by an even larger rebound helped yank the price of gold around also, with the dollar rebound killing off the rally in gold.
The US equity market rallied +79.27 [+3.80%] to 2164.45, blowing through the 9 and the 50 MA. Small caps did even better, with RUT up a huge +10.22%. VIX dropped -8.34 to 14.17. That pretty well epitomizes the week – large moves by a lot of different things.
The sector map shows that financials were the golden child this week; in the immediate aftermath of the election, traders apparently think that Trump will do wonderful things for the bankers. An 11% move is a very strong one. Will it last? That’s harder to know. You can see that most of the gains were concentrated in about a third of the market’s sectors.
|Name||Chart||Chg (W)||52w ch||EMA9||MA50||MA200||50/200||Last Crossing||last|
|Financials||XLF||11.19%||10.64%||rising||rising||rising||rising||ema9 on 2016-11-07||2016-11-11|
|Industrials||XLI||8.11%||13.56%||rising||rising||rising||falling||ema9 on 2016-11-07||2016-11-11|
|Healthcare||XLV||6.03%||1.08%||rising||falling||rising||falling||ma50 on 2016-11-11||2016-11-11|
|Telecom||XTL||5.60%||17.01%||rising||rising||rising||falling||ma50 on 2016-11-08||2016-11-11|
|Homebuilders||XHB||5.51%||-6.20%||rising||falling||rising||falling||ema9 on 2016-11-07||2016-11-11|
|Cons Discretionary||XLY||3.90%||-0.14%||rising||falling||rising||falling||ma50 on 2016-11-10||2016-11-11|
|Materials||XLB||3.77%||9.83%||rising||falling||rising||falling||ma50 on 2016-11-08||2016-11-11|
|Energy||XLE||2.49%||4.85%||falling||rising||rising||falling||ema9 on 2016-11-11||2016-11-11|
|Technology||XLK||1.19%||8.12%||falling||falling||rising||falling||ema9 on 2016-11-10||2016-11-11|
|REIT||RWR||0.01%||0.48%||falling||falling||rising||falling||ema9 on 2016-11-09||2016-11-11|
|Cons Staples||XLP||-2.07%||4.75%||falling||falling||falling||falling||ema9 on 2016-11-09||2016-11-11|
|Utilities||XLU||-4.00%||7.80%||falling||falling||rising||falling||ema9 on 2016-11-09||2016-11-11|
|Gold Miners||GDX||-16.55%||55.31%||falling||falling||rising||falling||ema9 on 2016-11-10||2016-11-11|
Gold in Other Currencies
Gold was hammered this week, dropping heavily in all currencies. Gold fell -86 in XDR. Gold did best in Euros – “only” dropping $54. Clearly it was a bad week for gold everywhere.
Rates & Commodities
TLT was crushed along with gold, dropping -7.36% – the largest one-week drop I’ve ever seen for TLT. If we multiply these losses times the (roughly) 60 trillion dollar US bond market, the loss to capital in longer-dated bonds was immense. In five days, 20 year debt went from 2.26% to 2.58%. And looking at the chart, Friday’s “opening black marubozu” candle does not appear to be a reversal bar. Does this mark the top for the 30 year bond bull market? If so, then we have a whole lot of pain ahead of us. Armstrong likes to say that a stock market crash results in a recession, but a bond market crash ends with a depression – that’s because the bond market is three times the size of the stock market, so the crash ends up destroying a whole lot more value resulting in a much larger economic impact.
JNK fell too, dropping -1.93%, a fairly large drop for JNK also. JNK is full of long-dated junk bonds, which lose value in the same sort of way that treasury bonds do when rate expectations change.
CRB dropped -0.97%, with most of the drop happening on Friday. The PM component was responsible for the decline.
Crude attempted to rally this week but failed, falling -1.01 [-2.29%] to 43.12. Support for crude is at 43, which brings oil perilously close to another breakdown. Part of the problem was an IEA report which showed increased production from four OPEC countries totaling 450k new barrels/day in October. There is also some nervousness about the upcoming OPEC meeting, where the Saudis are back to engaging in brinksmanship with Iran about coming to an agreement on production cuts:
Physical Supply Indicators
No data from Shanghai this week.
* The GLD ETF tonnage on hand fell -15.13 tons, with 935 tons in inventory.
* ETF Premium/Discount to NAV; gold closing of 1227.40 and silver closing of 17.36:
PHYS 10.12 0.20% to NAV [up]
PSLV 6.64 +0.43% to NAV [down]
CEF 12.56 -5.70% to NAV [down]
* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for either gold or silver.
* Big bar premiums are lower for gold [2.07% for 100 oz bars in NYC], higher for silver [+3.15% for 1000 oz bars in NYC ], and higher for silver eagles at +15.09% [NYC].
There was no COT report this week because of the Veterans Day holiday. Happy Veterans Day to my Uncle, who served in the US Army Infantry in Vietnam in 1968.
Moving Average Trends [9 EMA, 50 MA, 200 MA]
Gold’s rally last week was just a head-fake. This week we have a sea of red ink – literally every component is below all 3 moving averages. There’s just no sugar coating this – it was an ugly week for PM.
|Name||Chart||Chg (W)||52w ch||EMA9||MA50||MA200||50/200||Last Crossing||last|
|Platinum||$PLAT||-5.38%||7.60%||falling||falling||rising||falling||ema9 on 2016-11-10||2016-11-11|
|Silver||$SILVER||-5.75%||21.77%||falling||falling||rising||falling||ema9 on 2016-11-11||2016-11-11|
|Gold||$GOLD||-5.96%||13.18%||falling||falling||rising||falling||ma200 on 2016-11-08||2016-11-11|
|Silver Miners||SIL||-14.88%||86.69%||falling||falling||rising||falling||ma200 on 2016-11-11||2016-11-11|
|Senior Miners||GDX||-16.55%||55.31%||falling||falling||rising||falling||ema9 on 2016-11-10||2016-11-11|
|Junior Miners||GDXJ||-17.65%||79.45%||falling||falling||rising||falling||ma200 on 2016-11-10||2016-11-11|
Gold Manipulation Report
There were no meaningful after-hours spikes for PM this week.
Gold spent the entire week selling off, starting with the swing high on Monday and culminating with the big support break Friday. The flip in market sentiment on Wednesday was dramatic.
On the week, the gold/silver ratio fell -0.16 to 70.68; the ratio fell steadily for four days, then jumped higher on Friday. Momentum seems to be bearish. The GDX:$GOLD ratio plunged, which is definitely bearish. GDXJ:GDX dropped slightly, and it is starting to look bearish.
No COT report this week.
Gold and silver big bar shortage indicators show no signs of shortage; the ETF premiums were mixed, and GLD’s tonnage dropped.
Gold in India at retail jumped in premium, reaching as high as 70% after the government executed a surprise demonetization of the larger banknotes in an attempt to fight “corruption” and “terrorism”; if you had cash, it suddenly became worthless, so what you could do is take the demonetized cash into a jewelry store, buy gold, and get the merchant to back-date the receipt prior to the demonetization. Jewelry shops charged a big premium for this service. People were also buying train tickets with cash, and then immediately canceling them – you ate the cancellation fee, but at least it was better than losing everything. There were all sorts of schemes to “use up” the money before its value went to zero. This was less about gold than about the government defaulting on cash: a real lesson in “how to undermine faith in currency.” Of course if your savings were in gold, you didn’t lose anything. I’m sure this lesson wasn’t lost on the Indian people. This is a trick the government can play just once; and it virtually guarantees a higher demand for gold going forward.
Note that the gold didn’t “run out” – they still have lots of gold in India, its just that the premiums have shot through the roof. It now takes a much higher price to bring the gold out of hiding. That’s why I say gold will never run out – 170k tons of above-ground supply guarantees that – it is just that the premiums will explode when some event causes retail demand to unexpectedly surge. This is a reasonable proxy for what the US might expect if we have some sort of currency crisis: a massive surge in premiums, and a reactive government cracking down on gold purchases to shut off escape hatches. Seems best to avoid the fuss and get gold now prior to the event.
Could the US demonetize the $100 overnight, to “get rid of dirty money?” I suppose it could. Most likely, this would happen in other countries first, but certainly if such a thing did occur, that would be a pretty decent time to sell your gold. Imagine that, a 70% jump in price overnight?
But apart from India living the goldbug dream, internationally-priced (paper) gold is now under pressure from selling by people like Druckenmiller whose viewpoint on economic expectation has changed practically overnight. We see the buck and equities moving higher, while bonds and gold are plunging.
Yet one analyst (Fleck, at KWN) suggested that post-election moves are often retraced, once it becomes clear that there will be a lot of steps required between now and the actual spending of government money and that the details of what will happen are substantially more uncertain than it appeared in the hours and days post-election.
In other words, this could all change tomorrow. Thus according to him, it is probably not a great idea to lay on big positions right now in the expectation that the trend must continue. The current moves may well be overdone.
The charts suggest we probably have further to fall in gold and the miners. Noodling about when moves will take place and what Trump will probably do is entertaining, but ultimately we need to just watch what the prices are doing. Its a lot less confusing. Right now, in PM, they’re going down. Once buyers appear, that will be the time to try an entry…but not until.
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I have been down that road way too many times. Like Chris, I make use of Word most of the time to minimize my losses. That said, whenever I forget to be paranoid I loose an hour of work. My rule of thumb is that if I ever think in passing, gee I'd hate to lose this, I quickly copy and paste to Word. Amazing how many times it still bites me when I think that maybe this time will be different…
Thanks for all your notes of sympathy, I really appreciate it.
My remedy was to immediately treat myself to a nice dinner, open a bottle of my favorite 1er Cru white burgundy, and to basically just forget about it for a time.
That seemed to work. 🙂
Also thanks for the good ideas. While I don't have word (I'm a mac user) I'll give open office a shot and see if I can make that work. Failing that, apple has "pages", maybe that will work. For sure I need to change my workflow and make sure this doesn't happen again.
I've tried the copy-and-save-before-posting approach, and it used to work (and still does, for short posts – like this one), but these days PP won't let me copy my entire article once it gets too long any more. The "selection" vanishes after I try to grab more than a few pages. New behavior probably related to the site migration.
Chris: regarding the "backspace" problem – that happened to me so many times that I went and changed the behavior of backspace in my (firefox) browser. Now it just scrolls up a page (the "microsoft" behavior) rather than going back a page in the history.
So what actually happened was this:
Prior to posting, I always check to see if PP is accessible. (having it NOT be available = a decent chance of losing my post, so I always check first). So I open a new pp.com. It showed that for this new page, I was no longer logged in. (Another failure mode; not being logged in = chance of losing my post). I had seen that before – my fix was to log in. So I tried logging in, but it didn't seem to take. I was still not logged in. Very odd. Then I noticed that all my other PP pages were refreshing. Heart sinking, I went to check – sure enough, my just-completed post on the previous page was just gone.
I now realize this is a failure mode I've noticed very occasionally: sometimes, changing something in one PP instance results in ALL my other PP windows refreshing. Fun and games, until someone loses an eye!
Next time, I'm going to write the whole blessed thing in an editor. 🙂 Otherwise I'll run through my (much depleted) burgundy collection way too fast!
Many thanks for re-posting the PM End of the Week Commentary, especially this week. I always look forward to your insights and was very interested to hear your take on the volatility PM's are experiencing in the post election chaos. You certainly deserved that dinner and bottle of wine – cheers !
Cut&paste from noaa.gov
Thanks for recreating the post. Your insights are always appreciated.