PM End of Week Market Commentary – 11/20/2015

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  • Sat, Nov 21, 2015 - 09:49am



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    PM End of Week Market Commentary – 11/20/2015

On Friday, gold fell -4.60 to 1076.70 on moderately heavy volume, and silver dropped -0.09 to 14.15 on moderately heavy volume also.  It appeared to me that renewed strength in the buck took its toll on PM, shutting down any follow-through from the swing low on Thursday.

On the week, gold fell -6.70 [-0.62%], silver dropped -0.08 [-0.60%], GDX dropped -1.61%, and GDXJ lost -2.18%.  Platinum fell -0.66%, while palladium rallied +4.06%.

It was an eventful week for gold, even though price didn't change all that much.  Gold broke lower after a failed rally on Monday, marking a new multi-year low on Wednesday.  However the breakdown did not lead to a large price drop – instead gold printed a swing low on Thursday egged on by a strong dollar decline.  On Friday, gold attempted to rally but the rebound in the dollar probably caused the rally to fail.   Still, now that a swing low has been marked, this means that the downside momentum has stopped and possibly reversed.  Next step is a close above the 9 EMA.  Computer is long gold.

While silver printed a swing low on Thursday alongside gold, it had more than a hint of a failed rally about it.  Silver has tried to rally many times over the past few weeks, but each rally has met with selling, so silver has been unable to sustain any sort of upside momentum through end of day.  Currently silver is moving sideways after its swing low; downside momentum has stopped, but its hard to say that momentum has reversed.  Computer is short silver.


The miners are struggling a bit for direction.  This week saw a high volume breakdown, a swing low, followed by another high volume "bearish engulfing" pattern.  You are forgiven if this confuses you – it confuses me too.  After all the fuss, miners have ended up about where they started.  My computer is long miners, but another strong selling day next week will probably cause it to reverse.


The dollar rose +0.53 to 99.62 on the week, making a new closing high for this cycle on Wednesday of 99.75.  The buck has faded a bit since then; the RSI momentum indicator is showing a bearish divergence for the dollar, and MACD looks like it is quite close to rolling over into bearish territory.  The buck dipped briefly below its 9 EMA on Thursday but bounced back immediately on Friday.  The dollar needs to make new highs to keep its uptrend intact; if it does this, gold may have difficulties executing on its rebound.  Computer is short the buck.

US Equities/SPX

SPX rebounded sharply this week, climbing +66.13 [+3.27%].  There was no particularly clean swing low to trade, but the shallowness of the correction followed by a steady rally suggests to me that buyers are all too ready to push prices to new highs.  That's my guess at least.  VIX fell -4.61, entirely reversing its rally from last week.

I do not think equities will be selling off due to bad earnings.  It appears that capital flows are trumping everything at this point.  For whatever reason, this part of the cycle is not about valuation, its all about capital flows.

Gold in Other Currencies

Gold fell in every currency this week, although gold in XDR was only off $4.


Rates & Commodities

Bonds (TLT) continued to rally this week, up +0.64% – which is actually a reasonable performance given the strength of the equity market.  Bonds still look bearish in the medium term, but in the longer term they are more or less tracking sideways.

Junk bonds (JNK) continued to fall, dropping -0.42% on the week.  This is much milder move than last week, but junk continues to signal risk off – a sharp contrast to the strength shown by equities.

The CRB (commodity index) dropped -3.28% on the week, making a new six-year low on Friday.  That won't help PM.

WTIC rebounded modestly after last week's sell-off, rising +0.73 [+1.79%] to 41.46.  The rally was a bit fictional given that this week saw a contract roll that saw a $1 contango applied to the price.  Brent actually fell -0.04.  Oil is struggling to put in a low, and my computer is short oil at this point after flipping briefly bullish mid-week.

Physical Supply Indicators

* Gold in Shanghai was trading at a 4.47 premium over COMEX on Thursday, the last day for which I have data.

* The GLD ETF tonnage on hand fell -1.19 tons, with 660.75 tons remaining

* Gold is not in backwardation at COMEX, although it is close with the spread at $0.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on Nov 20th) of 1076.50 and silver 14.10.

 PHYS 8.85 -0.56% to NAV [up]
 PSLV 5.46 +0.57% to NAV [down]
 CEF 10.22 -10.74% to NAV [down]
 GTU 38.17 -3.04% to NAV [up]

ETF premiums were mixed.

* Bullion Vault gold (!/orderboard) shows about a 1% premium for silver, and none for gold.

* HAA big bar premiums are slightly lower for gold [2.32% for 100 oz bars in NYC], higher for silver [4.04% for 1000 oz bars in NYC].  Silver Eagle premiums rose [22.16% in NYC].

Futures Positioning

The COT report is as of Nov 17th, when gold closed at 1068.60 and silver 14.17.

Gold commercials closed -29k short contracts, while adding +14k longs.  This big change has moved the commercial net position right into the happy "reversal" area, where gold could reasonably expected to find a low.  Managed money added +29k shorts, which is what they generally do near the lows.  Managed money has few longs to liquidate – they too are at a point where lows are formed in gold.  From the COT standpoint, gold is ready to reverse higher.

Silver commercials closed -5k shorts and bought +9k longs, a good-sized change but not enough to move the commercials into that reversal zone just yet.  Managed money added +12k shorts, also not quite enough to move into the reversal zone either.  Viewing silver from the COT perspective, its not quite time for silver to rally.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

Although everything is red, gold is still performing best – both weekly and over the last 52 weeks.  Downtrend remains in place.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold COMEX.Gold -0.44% -9.62% falling falling falling rising ma50 on 2015-10-30 2015-11-20
Platinum COMEX.Platinum -0.64% -29.01% falling falling falling falling ma50 on 2015-11-03 2015-11-20
Silver COMEX.Silver -0.70% -12.66% falling falling falling rising ma50 on 2015-11-04 2015-11-20
Silver Miners SIL -1.10% -36.19% falling falling falling rising ema9 on 2015-11-20 2015-11-20
Senior Miners GDX -1.62% -31.57% falling rising falling rising ema9 on 2015-11-20 2015-11-20
Junior Miners GDXJ -2.18% -33.44% falling falling falling rising ema9 on 2015-11-20 2015-11-20

Gold Manipulation Report

There was one moderately strong "off-hours" up-spike this week in silver, seen on Monday, for 9 cents. Other than that, it was all quiet.


Gold finally managed to put in a swing low this week, potentially reversing direction after 15 trading days totaling $110 of downside move.  A continued move higher in gold probably depends on the dollar, which may have topped out on Wednesday, but is hanging tough right now, still above its 9 EMA.

The gold/silver ratio fell 0.02 to 76.12 – basically unchanged, remaining bearish.  GDX:$GOLD ratio fell on the week – it tried to rally, but remains bearish.  GDXJ:GDX moved slightly lower, but remains relatively bullish.  There was no major movement in the ratios this week.

COT reports show that gold is now ready to rally – commercials have largely covered and roughly speaking, should be ready to start buying in order to kick off the next cycle.   Silver COT reports show that silver is not quite ready yet.  Commercials still have a fair amount of short covering to do.

Gold and silver big-bar physical shortage indicators are unchanged; in the west, ETF premiums were mixed, and GLD tonnage dropped slightly.   Big bar premiums for gold at HAA were unchanged, while silver coin and bar premiums were both up.  Shanghai premium over COMEX remains slightly elevated.

I believe the swing low in gold will likely lead to some kind of rally for PM; how long it will extend, that's the open question.  Just judging from recent performance and the COT report, silver will most likely lag gold.

On a personal note – I'm in Nepal right now visiting family.  Entertainment includes observing selection for the Royal Gurkha Rifle Brigade; thousands of Nepalese young men are competing for 230 slots in the RGR, and my brother-in-law is the operations officer for the base, and his house looks directly out onto the main parade ground.  Internet connectivity can be intermittent, but power is relatively steady – the base has a backup diesel generator which kicks in when the grid power drops.  Nepal is having a serious liquid fuel shortage, air travel is problematic (they won't confirm flights until day before – often flights are simply canceled due to lack of fuel), and things are unlikely to improve soon.  It is a fascinating window onto what life might be like if (when?) we in the west ever have a problem with access to liquid fuel.  All this to say that my mind won't be 100% on the PM market this coming week…if my reports aren't quite as detailed as usual, and sometimes they come in a bit later than normal, that's why.

For those who don't know why on earth the UK would be recruiting soldiers from Nepal, or what a Gurkha might be, try wiki:

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  • Sat, Nov 21, 2015 - 03:00pm



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    Enjoy your trip!

Thx Dave!  Take a break and enjoy the time w/ your fam.

  • Sat, Nov 21, 2015 - 04:17pm



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    COT data

Yes, enjoy the change of scenery, and we'll be especially forgiving if you're right about the COT data finally reflecting a rally 🙂  A decent rally target for gold IMO is the 50-week MA, which is $1173 and declining…  gold has been hammered every time it's poked above the 50-week MA, so if gold could close above that line and start making higher highs and higher lows, we might get some traction.

As'ers know, I have been a USD bull for years.  Long-term, I still am, but it's now a very crowded trade and the 'surprise" of a USD decline is likely.  That said, I have  also maintained that USD and gold can both rise in a sustained global crisis.

I have a new 2-parter on the USD which should be online next week.

  • Sun, Nov 22, 2015 - 04:59am



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    Unscheduled “Expedited” Fed Meeting – Monday

The US Fed has called an unscheduled meeting on Monday.  As in, tomorrow.  They announced this Friday, and nobody really knows what they are meeting about.  The announced reason is review of the advance and discount rates – presumably leading to some change.  (Why have an emergency meeting to leave things more or less the same?)   This could be a really big deal.  The Fed doesn't often call unscheduled meetings.

Advance rate: the size of the haircut applied to collateral (i.e. bonds) that banks who want to borrow money from the Fed.

Discount rate: interest rate charged on Fed-supplied loans.

Note there is also the Fed Funds Rate (which is a target set by the Fed and enforced by Fed open market operations), as well as the interest rate paid on Excess Reserves on deposit at the Fed.

It is anticipated that the closed meeting of the Board of Governors of the Federal Reserve System at 11:30 AM on Monday, November 23, 2015, will be held under expedited procedures, as set forth in section 26lb.7 of the Board's Rules Regarding Public Observation of Meetings, at the Board's offices at 20th Street and C Streets, N.W., Washington, D.C. The following items of official Board business are tentatively scheduled to be considered at that meeting.

Meeting Date: Monday, November 23, 2015

Matter(s) Considered
1. Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.


Here's a chart comparing the Discount Rate to the Fed Funds Rate.

  • Sun, Nov 22, 2015 - 12:36pm



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Any inkling on what this meeting will bring about?

  • Sun, Nov 22, 2015 - 03:53pm



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    fed meeting


I wish I knew.  I'm not sure what the emergency is about – why they can't wait for the meeting that's already scheduled maybe three weeks from now?  That's the intriguing bit.  If they want to raise rates, why do they have to do it as a fire drill?  Are they concerned about the November nonfarm payrolls report?

I'm pretty sure this will move the markets – even more so because of the fire drill.

  • Sun, Nov 22, 2015 - 07:13pm


    Jim H

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    Here’s what Kranzler says about the, “emergency” meeting…

The Fed’s “Expedited, Closed” Meeting Is Pure Kabuki Theatre

More like Theatre of the Absurd, will all due respect and apologies to Albert Camus and Samuel Beckett.

The Fed announced a “meeting under Expedited Procedures” that will take place on Monday, November 23.  The “matter(s) considered” is a “review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks (regional).   You can see the notice as posted on the Fed website.

This meeting appears to be much ado about nothing – with all due respect to Shakespeare. Why?  The matter to be considered is the rates charged to banks under the Fed’s “Primary Credit” program – LINK.   This is commonly, generically referred to as the “discount window.”

Historically the discount window was the mechanism used by the Fed to enable member banks to borrow on a short term basis to meet temporary liquidity issues.  With the development of financial market technologies and the liberal use of the printing press since 1980, the discount window – i.e. the Primary Credit program – is rarely used.  The current rate charged to discount window borrowers is 50 basis points above the Fed Funds rate.

Let’s take a look under the hood (click on image to enlarge):


The table above is from the Fed’s latest update on its balance sheet. I’ve shaded in yellow the assets (loans to banks) that would be subject to the Fed’s “advance” and “discount” rates, which are the topic of the “emergency” meeting. If you take a magnifying glass to the numbers, you’ll see that there’s only $105 million that’s been borrowed from the Fed’s “discount window.” It’s next to meaningless in the context of the Fed’s $4.4 trillion balance sheet.

If you are interested, you can read the press releases from the last two monthly meetings which dealt with the discount rate policy:  LINK

It is highly likely that the Fed will raise the discount rate at Monday’s meeting.  It will have absolutely no affect on the Fed’s overall monetary policy and no affect on the economy. However, it will definitely reinforce the Fed’s poker face with regard to the outcome of its December FOMC monetary policy zoo-fest.

In fact, the Fed has in the past raised the discount rate to signal a tighter stance in monetary policy only to whiff on raising Fed Funds rates.  It’s pure Kabuki Theatre.

I really don’t know if the Fed will call its own bluff and raise the Fed funds rate.  It doesn’t really matter.  If the Fed raises rates it will trigger another move straight up in the dollar, which will further crush U.S. manufacturing exports.    I also have a feeling, although I can’t prove it, that even a small increase in bank funding rates (repo rates) would possibly trigger an “uncoiling” of some big derivatives trades in which the TBTF’s are stuck.

One last comment.  The KC Fed manufacturing survey was released today.  It nudged into positive territory after registering negative to highly negative readings for the previous 8 months in  a row.  It turns out, if scan through the details of the report – KC Fed manufacturing survey – you’ll see that the reading of 1 (“one”) in the composite index was achieved using “seasonal adjustments.”

It appears that the composite index was “juiced” both with seasonal adjustments and with expectations six months out – aka the “hope index.”  A further, deeper reading of the report shows that on a not seasonally adjusted year over year comparison basis  the “composite index” was -5 (negative five) for November.  In addition, the production index was negative to deeply negative on this basis for 10 of the last 11 months.  Ditto for average employee workweek, shipments and new orders for exports.  In other words, the economy is in bad shape and getting worse.

The Fed may well raise in December.  But if it does, it will throw the U.S. economy into a depression that will make the 1930’s depression look fun.  Having said that, I believe that the sudden and covert meeting called for Monday is nothing more than an opportunity to use a hike in the meaningless discount rate to jawbone/frighten the market into believing in December’s Santa Clause appearance just after the FOMC meeting.

  • Mon, Nov 23, 2015 - 03:18am



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    market open

Market appears to believe the Fed will take some sort of hawkish action on Monday; commodities have dropped further, and the USDX is right at 100.  A close above 100 would be bad for gold, PM in general, and the commodity complex overall.

I'm not quite sure why this Kranzler fellow thinks an 0.25% rate rise will lead inexorably to "a depression that will make the 1930’s depression look fun."  It would seem unlikely that such a small move would lead to such a dramatic outcome.

If we do somehow get this super-massive depression that makes 1930 look like fun as a result of an 0.25% rate rise, gold will most probably be badly hurt as a side effect.  Dollar would likely move up very strongly.  Just looking at the charts, it is easy to see that the price of gold gets pulled lower whenever the overall commodity complex drops – and of course the reverse happens when commodities rise, as they did from 2000-2011.


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