PM End of Week Market Commentary – 3/17/2017
On Friday gold rose +2.80 to 1228.90 on light volume, and silver climbed +0.08 to 17.41 on light volume also. Gold and silver continued to follow through from swing low printed on Wednesday.
The metals bounced back this week courtesy of the Fed; everyone expected the rate increase, but the accompanying commentary wasn’t as hawkish as the market had feared. In response, gold rallied sharply and the buck fell.
This week, the PM sector map looks reasonably strong, with junior miners leading the seniors, and silver (just) leading gold. All PM elements have moved back above their 9 EMA lines, and (along with the flurry of swing lows) is an important step towards a trend reversal.
|Name||Chart||Chg (W)||52w ch||EMA9||MA50||MA200||50/200||Last Crossing||last|
|Silver Miners||SIL||4.81%||28.47%||rising||rising||rising||rising||ema9 on 2017-03-15||2017-03-17|
|Junior Miners||GDXJ||4.58%||30.50%||rising||rising||rising||rising||ma50 on 2017-03-16||2017-03-17|
|Senior Miners||GDX||4.33%||10.96%||rising||rising||falling||rising||ema9 on 2017-03-15||2017-03-17|
|Palladium||$PALL||4.00%||30.95%||rising||rising||rising||falling||ma50 on 2017-03-16||2017-03-17|
|Copper||$COPPER||3.52%||17.61%||rising||rising||rising||falling||ma50 on 2017-03-15||2017-03-17|
|Platinum||$PLAT||2.34%||-1.99%||rising||rising||falling||rising||ema9 on 2017-03-17||2017-03-17|
|Silver||$SILVER||2.08%||9.26%||rising||rising||rising||rising||ema9 on 2017-03-15||2017-03-17|
|Gold||$GOLD||2.03%||-2.36%||rising||rising||rising||rising||ema9 on 2017-03-15||2017-03-17|
The FOMC announcement on Wednesday was the key driver for gold this week, resulting in a swing low and three days of upward movement. Gold closed up +24.40 on the week. Friday’s short white/NR7 candle was neither bullish nor bearish – when that happens, its a “continuation” meaning the current trend remains intact.
The June (#2) rate-increase chances stand at 58%. The December (#3) rate increase chances stand at 58% also.
COMEX GC open interest rose +12,866 contracts.
As with gold, silver broke higher on Wednesday following the FOMC announcement, moving silver back above its 9 EMA. Silver closed the week up +0.36. Silver’s first attempt to move through the 50 failed, but the candle print on Friday was a somewhat bullish-looking spinning top. There appear to be some buyers for silver even after the big move higher on Wednesday. The gold/silver ratio fell -0.04 to 70.59.
Miners reacted very positively to the FOMC announcement, jumping dramatically higher on very heavy volume. However on Thursday and Friday some selling appeared, resulting in a two-candle swing high on Friday. Candle code says this is a 63% chance of marking the top. I’m less certain; the low volume on the swing high doesn’t seem quite that bearish. The GDX:$GOLD ratio improved overall this week, even with the difficulties on Thursday and Friday. Perhaps the miners just got ahead of themselves. The relatively narrow trading range for GDX on Friday didn’t look like a panic out of the miners – although the juniors took a much larger hit.
The buck fell -1.00 to 100.11 this week, driven lower by the fallout from the FOMC announcement on Wednesday. Friday’s candle print was a spinning top/NR7, which the candle code says has a 27% chance of marking a low. Downside momentum for the buck does seem to be slowing down; perhaps we will see a bounce at round number 100.
That said, over a multi-week timeframe, the dollar appears to be tracing out a head & shoulders pattern; a break below (approximately) 99.50 could lead to a breakdown to perhaps 95. What might cause that? A problem with the US debt ceiling might be one such driver. This would almost certainly be gold positive. Armstrong thinks we might get a two-month drop in the buck as a result of a (manufactured) debt ceiling crisis, but that he believes this is by no means a meaningful longer term trend change for the dollar – it would be more of a headfake that gets everyone going the wrong way.
SPX rose +5.65 to 2378.25, with all of the gains this week coming on Wednesday following FOMC. Friday’s trading range was narrow, but the candle print was a “closing black marubozu” which the code found surprisingly bearish: 48% chance of marking a top here. SPX remains above all 3 moving averages, but internally some sectors are looking distinctly unhealthy. Financials may be on the cusp of breaking down; the candle combo on Friday had a 63% chance of marking a top. Financials tend to lead the market overall, and so this is a bad sign for equities in general. If you wanted to start thinking about shorting something, financials might be a decent candidate right about now.
VIX fell -0.38 to 11.28. Puts remain cheap. If you wanted to go short, I’d pick a sector rather than the overall market.
The sector map shows the miners and “things with a yield” doing well, with financials and healthcare doing worst, a clear indication that the market was a bit surprised by the Fed’s relative dovishness.
|Name||Chart||Chg (W)||52w ch||EMA9||MA50||MA200||50/200||Last Crossing||last|
|Gold Miners||GDX||4.33%||10.96%||rising||rising||falling||rising||ema9 on 2017-03-15||2017-03-17|
|Telecom||XTL||2.19%||26.64%||rising||falling||rising||falling||ma50 on 2017-03-16||2017-03-17|
|REIT||RWR||1.80%||-3.40%||falling||falling||falling||falling||ema9 on 2017-03-17||2017-03-17|
|Homebuilders||XHB||1.16%||13.32%||rising||rising||rising||rising||ema9 on 2017-02-09||2017-03-17|
|Cons Discretionary||XLY||0.59%||11.56%||rising||rising||rising||rising||ema9 on 2017-03-10||2017-03-17|
|Utilities||XLU||0.53%||3.89%||rising||rising||rising||rising||ema9 on 2017-03-13||2017-03-17|
|Materials||XLB||0.44%||15.31%||rising||rising||rising||rising||ema9 on 2017-03-15||2017-03-17|
|Technology||XLK||0.43%||21.95%||rising||rising||rising||rising||ema9 on 2017-02-01||2017-03-17|
|Cons Staples||XLP||-0.13%||3.76%||falling||rising||rising||rising||ema9 on 2017-03-17||2017-03-17|
|Industrials||XLI||-0.24%||18.47%||falling||rising||rising||rising||ema9 on 2017-03-16||2017-03-17|
|Energy||XLE||-0.30%||9.47%||falling||falling||rising||falling||ema9 on 2017-03-16||2017-03-17|
|Healthcare||XLV||-1.08%||13.36%||falling||rising||rising||rising||ema9 on 2017-03-17||2017-03-17|
|Financials||XLF||-1.37%||33.05%||falling||rising||rising||falling||ema9 on 2017-03-17||2017-03-17|
Gold in Other Currencies
Gold rallied in all currencies except the Ruble; gold in XDR was up +20.56.
Rates & Commodities
TLT jumped up +1.19%, marking a swing low and moving back above its 9 EMA. It closed strongly on Friday also, appearing to benefit from the modest sell-off in SPX. TLT really needs a close above the 50 MA to get back into a more bullish stance, but the FOMC announcement definitely helped TLT to put in a low.
JNK rallied very strongly after FOMC, closing up +0.83% on the week. JNK has now moved back above its 9 EMA. It really needs a close above the 50 to start moving back into an uptrend again.
CRB rose +1.00% this week, with a swing low printed on Wednesday. Its not clear just yet if this is a dead cat bounce or a real trend change; CRB has yet to move back above its 9 EMA.
Crude oil bounced this week, rising +0.53 to 49.15, making a new low to 47.47 before rallying back on the strength of a bullish API crude inventory report. This week’s EIA report was also bullish, showing a modest crude inventory draw, but the market was really not all that excited by the data. Attempts to move price through the 9 EMA failed, and Friday’s doji candle print was neutral. Crude did manage to move back above its 200 MA, but this week’s rally looks to be more like a dead cat bounce than anything else. There really was no follow through at all from Wednesday’s swing low.
Physical Supply Indicators
* SGE premium to COMEX is at +16.44 over COMEX. And I made an error last week; premium was actually $22 over COMEX. Here’s a fun chart to make up for my error: you can see that premiums remain elevated.
* The GLD ETF tonnage on hand rose +8.88 tons, with 834 tons in inventory.
* ETF Premium/Discount to NAV; gold closing of 1228.90 and silver closing of 17.41:
PHYS 10.13 +0.24% to NAV [up]
PSLV 6.58 -0.37% to NAV [down]
CEF 12.59 -6.0% to NAV [down]
* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for gold or silver .
* Big bar premiums are higher for gold [2.26% for 100 oz bars in NYC], higher for silver [+3.40% for 1000 oz bars in NYC], and lower for silver eagles at +17.86% [NYC].
COT report covers trading through Tuesday March 14th, when gold closed at 1198.50 and silver 16.88. Note this did not cover the big move following the FOMC announcement.
In gold, commercials closed -26k shorts, while managed money bailed out of -29k longs and added +14k shorts. Commercials have used the recent downtrend to close more than 50k shorts, while managed money has bailed out of at least that many longs. Overall, the positioning in gold looks much more like a low than a high; the gold COT supports this reversal being a real trend change possibility.
In silver, commercials closed out -7.9k shorts, while managed money bailed out of -13.9k longs. This was a huge move by managed money; about 15% of the total managed money longs were dumped last week. For this to become a reasonable low, we’d have to see another 20k longs get dumped; we’re still not out of the woods yet with silver from a COT perspective.
In oil, managed money bailed out of -35k longs, and added a massive +68k shorts. These were huge changes, but perhaps not enough to move to a bullish posture just yet. The oil market might need another leg down for Managed Money to get there. Interestingly, commercials did not cover any shorts, but they added a gigantic +92k longs. This long-buying is, and it might indicate a low for crude at these levels.
Gold Manipulation Report
There were no after-hours spikes seen this week.
The Netherlands election held this week was a non-event from the standpoint of a threat to the EU; however the “victory” proclaimed by the winning party was not nearly as terrific as the subsequent spin suggested: TAE had the story from on the ground. https://www.theautomaticearth.com/2017/03/winners-are-losers-and-left-is-right/.
Executive summary: PM Rutte’s VVD party went from 44 to 33 seats. This made them the “winners”, along with their coalition partners PvdA, which went from 38 seats down to 9. The big “loser”: nationalist PVV went from 16 to 20. I guess it all depends on how you define “winner” and “loser”.
Le Pen and the French elections are up next, with the first round at the end of April, which Le Pen is expected to win, but not win outright, which leads to round 2 which will happen mid-May. TAE believes Le Pen is a much more reasonable candidate than the Netherlands counterpart Wilders, and he further thinks that the market is currently underestimating Le Pen’s chances.
If Le Pen wins, its the end of the Euro as we know it. Things really are that clearly defined. She is running on a return to the Franc, among other things, and if France leaves the Eurozone, its hard to see how the zone survives. Could this all happen by mid-May?
Polls say no. As in, really – no. The likely two winners in round 1, Le Pen and Macron, has Macron winning in round 2 63-37. Le Pen stands a much better chance against Fillon – still losing by 56-44, but a much closer battle. However according to the recent polls, Fillion won’t make it past round 1. (Helping to assure this outcome are the charges of embezzlement filed three days ago against Fillon; being charged with corruption is really unfortunate when you’re running on an anti-corruption platform.)
Just as a matter of perspective, Trump/Clinton was within 4 percentage points on election night. Le Pen/Macron are 26 percentage points apart. We do have two months until the date of the election, however, and I’ll be watching this closely.
Then, there’s the perennial threat from GRExit. The IMF is taking a hard line, threatening to walk away from the Greek bailout unless there is real debt reduction, and it appears to have support from the Trump administration for this position. Given the upcoming German elections, and the view amongst the German people that the Greeks are undeserving of any sort of debt forgiveness, I’m not sure how this gets resolved. I’m guessing there will be some kind of can-kicking fig leaf plastered over the situation to get past the tight German election, after which we may well see GRExit.
And there’s Turkey, and the migrant flood that Turkey is holding back in exchange for money. Turkey is in the process of changing from a secular state to a theocratic state. If Erdogan achieves a much stronger degree of political control over the country, I do not think they will remain in NATO for too much longer. If Turkey decides to let loose the flood of immigrants upon Europe, that could have unpredictable effects on all of the elections – especially Le Pen in France.
Perhaps lastly, there is the Italian election, which needs to happen by 2018, but there is a fair amount of pressure to hold them early; Renzi wants them to occur by June 2017. He’s afraid if he waits too long, his own party will toss him out. Grillo of the 5-Star party wants early elections too. Most importantly, while Renzi’s pro-Euro party is still polling at 30%, the next 3 parties are all anti-Euro, and they would easily have enough votes to form a government if they join forces. So if Italy declares an early election, things will suddenly get really interesting. Lastly, Berlusconi (tossed out of power in a quiet coup organized by Brussels in 2011) is reportedly out for blood. He’s able to run again in 2018.
Netherlands; March 2017: ruling party hurt, but not out. Incremental gains by anti-immigrant forces. Ruling party survived in part by adopting anti-immigrant stance. EU non-event.
French Presidential Elections; May 2017: currently, a probable EU non-event (Macron 63, Le Pen 36)
German Elections; October 2017: Merkel/Shulz are tied. Both parties are pro-Euro. AfD polling at 10%. EU non-event, although the tight contest drives Greek bailout options.
Greek bailout; Summer 2017: big debt payments due. IMF likely to walk. My guess: a can-kicking exercise will push the Greek problem past the German election date at the cost of a few billion Euros. Money can still fix the problem, so it will probably be fixed. Probable EU non-event.
Italian Elections; 2017 or 2018: voting in Italy probably would lead to a Eurosceptic government being formed if M5S decides to join the other parties in a coalition. Major EU event possible – maybe even likely, based on current polling data.
Turkey & the migrants: any decision by Turkey to deliberately loose another multi-million-person flood of people onto Europe has the potential to dramatically change electoral outcomes across Europe, most specifically in France.
It was all about the unexpectedly dovish FOMC this week; PM, commodities and bonds all rallied, while financials and the dollar both dropped. Silver led gold, miners led metal, and although there was some disagreeably brisk selling in the junior miners on Friday, from the week perspective, it still appears to be a reversal to the upside.
Gold COT looks bullish – the commercials have now exited almost all their recent new short position. Managed money has finally started dumping their silver longs – right before the bounce after FOMC. However, silver is not yet in a bullish configuration.
Gold and silver big bar shortage indicators shows no signs of shortage in the west; ETF premiums were mixed, and GLD tonnage rose. In Shanghai, premiums remain even after the recent rally; this indicates a shortage of gold in China.
In looking in more detail at the current political climate in Europe, it appears that there are no current existential threats to the EU in the near term, unless Italy decides to have an early election. Italy must have one by 2018 – but that’s a whole year away. In the meantime, unless we have some exciting exogenous event – and the only one I see right now would come from Turkey – 2017 will be a year of can-kicking, dealing with BRExit, and more or less business as usual. That said, Italian polls tell us this is just a matter of time. The glum faces in Brussels right now suggest that they’ve done the math too, and they know where this whole thing is headed. ECB can buy all the debt they want, but they can’t “QE” the Italian electorate.
My guess is that UK’s PM May also realizes this, and assumes that in one year the UK will be negotiating with nobody about BRExit; she’ll look like a genius for departing the Titanic prior to the rush for the lifeboats. If she can just hold things together for another 12 months, then Scotland won’t vote to leave because – why would they vote to join a disintegrating union anyway?
In the meantime we probably have a turn in PM prices. It would be helpful for PM if commodities would turn too, but that means crude needs to reverse, and the crude chart is looking a bit like a dead cat bounce right now. Crude COT says we might have a low here, but its not a sure thing. Perhaps we’re in for one more scary plunge this week to flush out some more longs and then the real reversal will happen on Wednesday?
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Thanks Dave. Excellent information as always.