PM End of Week Market Commentary – 4/1/2016
On Friday gold fell -10.70 to 1223.20 on heavy volume, while silver was hit for -0.40 to 15.05 on very heavy volume. Nonfarm Payrolls caused a lot of volatility as usual, but by end of day, the conclusion seemed to be just about commodity prices – they ended lower almost across the board.
This week, gold rose +6.50 [+0.53%], silver fell -0.15 [-0.99%], GDX rose +3.39%, and GDXJ was up +4.86%. Platinum rose +1.13%, palladium fell -1.43%, and copper was down -3.08%. Miners were the winners once again.
Gold found support this week first in the 1200-1210 support zone, and once again at the 50 MA on Friday, but gold has not been able to close above its downtrend line. Gold appears to be forming a bearish-looking descending triangle pattern – and gold denominated in Euros looks even more bearish.
Gold did shoot higher momentarily on Chair Yellen’s dovish-sounding speech on Tuesday, but by Friday the effects from that speech were mostly erased. Gold remains in a short term downtrend, and if it breaks below “round number” 1200, risk for a more substantial decline in gold increases.
Silver is now below the 50 MA, it made a new low below the 200 MA, the volume on Friday was quite large, and down-day volume is vastly higher than up-day volume. Silver is in a clear downtrend, it broke below the 15.20 support zone, and it now appears headed to re-test 14.60 support. That all sounds pretty bearish to me. If commodities continue to fall – especially copper – we probably won’t see good news out of silver either.
Miners found support at 19 once again this week, and managed to move back above their 9 EMA. However, at the moment it appears that all they did was form a lower high, and at this point the miners appear to be forming a descending triangle pattern. Friday’s price action looked decent, but volume was low. While the GDX:$GOLD ratio continues to slowly climb, risk to the miners will increase if gold and silver remain in a downtrend.
One risk for individual equities: SLW (Silver Wheaton) announced a secondary share offering this week, which ended up hammering the price down about 10%. They are raising $500 million which they will use to repay a bank loan. How many more miners will do this to address debt issues? If you are a shareholder, its ok long term but its not so fun to take a 10% haircut. Miners are famous for diluting their shareholders – in the old days, it was to pay for acquisitions. Now, perhaps, it will be used to repay debt. Something to watch anyways.
The buck fell -1.56 [-1.62%] to 94.62, with most of the losses coming after Chair Yellen’s dovish speech on Tuesday. Given that gold rallied just +0.53%, we can say that golds gain was entirely about currency – and in fact gold did quite poorly, as it rallied much less than the dollar dropped. In fact, gold in Euros was off -1.33% on the week. USD made a new low on Thursday, and on Friday, the USD was more or less unchanged after all the dust settled from Nonfarm Payrolls.
Given gold’s very modest rally with a dropping USD, if the dollar manages to put in a low here, gold’s fall will likely accelerate.
US equities rallied this week, rising +36.84 [+1.81%] to 2072.78, confounding the bearish expectations from the swing high printed last week. In spite of weakening commodities, SPX is approaching a previous “lower high” at 2081.56, led this week by homebuilders as well as “anything with a yield.” VIX fell -1.64 to 13.10. Buying VIX below 12 has been a decent trade in recent years. We aren’t quite there yet, but we are getting closer.
I thought weakening commodity prices would cause SPX to start to sink, but that just didn’t happen. Commodities definitely weakened, but Yellen’s dovish speech on Tuesday reversed the mild bearish momentum. You can gnash your teeth and get angry – or just cover your short and wait for the next signal.
|Name||Chart||Chg (W)||52w ch||EMA9||MA50||MA200||50/200||Last Crossing||last|
|Homebuilders||XHB||4.00%||-7.84%||rising||rising||falling||rising||ema9 on 2016-03-28||2016-04-01|
|Telecom||XTL||3.56%||-2.82%||rising||rising||falling||rising||ema9 on 2016-03-29||2016-04-01|
|REIT||RWR||3.55%||0.15%||rising||rising||rising||rising||ema9 on 2016-03-28||2016-04-01|
|Gold Miners||GDX||3.39%||5.95%||rising||rising||rising||rising||ema9 on 2016-04-01||2016-04-01|
|Cons Staples||XLP||2.48%||9.14%||rising||rising||rising||rising||ema9 on 2016-03-28||2016-04-01|
|Technology||XLK||2.48%||8.05%||rising||rising||rising||rising||ma200 on 2016-03-01||2016-04-01|
|Cons Discretionary||XLY||2.42%||4.94%||rising||rising||rising||rising||ema9 on 2016-03-24||2016-04-01|
|Utilities||XLU||1.84%||11.81%||rising||rising||rising||rising||ema9 on 2016-03-03||2016-04-01|
|Financials||XLF||1.75%||-6.24%||rising||rising||falling||rising||ema9 on 2016-03-29||2016-04-01|
|Healthcare||XLV||1.72%||-4.78%||rising||rising||falling||rising||ema9 on 2016-03-29||2016-04-01|
|Materials||XLB||1.55%||-7.62%||rising||rising||falling||rising||ema9 on 2016-04-01||2016-04-01|
|Industrials||XLI||1.11%||0.54%||rising||rising||rising||rising||ma200 on 2016-03-01||2016-04-01|
|Energy||XLE||-1.26%||-21.44%||falling||rising||falling||rising||ema9 on 2016-03-23||2016-04-01|
Gold in Other Currencies
Gold was mixed this week, falling in Euros while rising in USD, CNY, and JPY. Gold fell just -1.16 in XDR.
Rates & Commodities
Bonds (TLT) rose +1.09%; bonds were a bit choppy this week but are slowly moving higher. Yellen’s speech helped bonds, presumably because if the Fed won’t raise rates, the 2.62% yield on that 30 year bond looks more attractive.
JNK did a funny thing this week; it rallied +0.51%, totally ignoring its normal correlation with oil prices. JNK is back above its 9 EMA, and while it hasn’t made new highs, it certainly isn’t falling. JNK also appeared to be rescued by Yellen on Tuesday.
The CRB (commodity index) had another bad week, losing -2.41%. Many of the items I track also had bad weeks. As of right now, momentum seems to be downhill once again for commodities.
WTIC fell again this week, dropping -2.96 [-7.48%] to 36.63. On Wednesday, WTIC did not react so positively to a relatively bullish Petroleum Status report, and on Friday came news of Saudi Arabia apparently backing away from its “freeze” promise if Iran didn’t agree also. This along with the mildly positive Nonfarm Payrolls report drove WTIC through 38 support. On Friday oil printed a long red candle and closed right at the lows. It looks like the decline in oil prices is starting to accelerate. Looks like the oil COT report that hinted at a potential top (due to large short-covering by managed money) was correct. Once all the managed money shorts covered, oil topped out and fell.
Physical Supply Indicators
* Premiums in Shanghai fell to -1.60 vs COMEX.
* The GLD ETF tonnage on hand fell -5.65 tons, with 818 tons remaining.
* ETF Premium/Discount to NAV; gold closing of 1222.30 and silver 15.06.
PHYS 10.07 -0.15% to NAV [up]
PSLV 6.10 +5.50% to NAV [up]
CEF 11.79 -7.40% to NAV [up]
* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no particular sign of premium for gold or silver.
* HAA big bar premiums are slightly lower for gold [2.21% for 100 oz bars in NYC], higher for silver [3.28% for 1000 oz bars in NYC]. Silver Eagle premiums rose [18.30% in NYC].
COT report covers trading up through March 29th.
During the coverage period, commercials slightly increased their net short position, adding +4.1k shorts and selling -4.1k longs. Commercial net short position once again increased. Managed Money loaded up on longs again, adding +9.6k longs, most likely after Yellen’s speech. Shorts were unchanged. Managed money continues to go long, while commercials continue to pile on the shorts. Historically bearish right now.
In silver, the commercials are starting to cover short, losing -9.2k shorts this week. Managed money sold -4k longs and added +6.2k shorts. Net positions are slowly beginning to reverse in silver, but there is a long way to go before any sort of bullish COT situation will be seen.
Gold COT: even more bearish now. Silver COT – downtrend has started, and will likely continue for a while longer.
Moving Average Trends [9 EMA, 50 MA, 200 MA]
Silver closed below its 50 MA; moving averages are confirming silver’s downtrend. Teflon-coated miners remain bullish.
|Name||Chart||Chg (W)||52w ch||EMA9||MA50||MA200||50/200||Last Crossing||last|
|Junior Miners||GDXJ||4.86%||20.19%||rising||rising||rising||rising||ema9 on 2016-03-29||2016-04-01|
|Senior Miners||GDX||3.39%||5.95%||rising||rising||rising||rising||ema9 on 2016-04-01||2016-04-01|
|Platinum||PL.CW||1.11%||-16.86%||falling||rising||falling||rising||ema9 on 2016-04-01||2016-04-01|
|Silver Miners||SIL||0.95%||2.79%||falling||rising||falling||rising||ema9 on 2016-03-31||2016-04-01|
|Gold||GC.CW||0.45%||1.89%||falling||rising||rising||rising||ema9 on 2016-03-30||2016-04-01|
|Silver||SI.CW||-0.95%||-9.88%||falling||rising||falling||rising||ema9 on 2016-04-01||2016-04-01|
Gold Manipulation Report
We had one relatively mild “after hours” down spike in gold on Monday, which resulted in a new low for gold (1206) which was relatively quickly bought, with a follow-through rally on Tuesday. No lasting effect from that spike.
There was an up-spike on Wednesday in Silver, which led to silver making a mild new high which was then sold. No effect from that spike either. Spike frequency seems to be increasing, along with the heavy short positions of the commercials.
Commodities have dropped now for two weeks, led by oil which is starting to accelerate to the downside. The COT tricks we have learned for gold also seem to be working relatively well for both oil and copper, and both reports for those two commodities look bearish, and that should serve to tug silver lower.
The gold/silver ratio moved higher again this week, up +1.23 to 81.28. The ratio moving back up into the 80s is not great news for silver. When it finally starts to reverse, silver will probably go nuts, but that’s not where we are right now. The GDX:$GOLD ratio rose this week, and remains bullish. The GDXJ:GDX ratio rose also, and continues to improve. Miners continue to retain a bid.
COT report shows an increasingly bearish concentration for gold, while the commercials have started to cover in silver which is consistent with a downtrend. Top continuing to form in gold, downtrend in place for silver.
Gold and silver big-bar physical shortage indicators show no signs of shortage except for PSLV, which now has more than a 5% premium to NAV.
Gold seems to be resisting the downtrend fairly well at the moment – although not in Euros – as do the miners. Silver, copper, and oil are all dropping, with oil leading the way. I still think risk is to the downside for gold, and definitely for silver. For the miners, buy the dip has worked for nine weeks, although I think risk is increasing.
Given the weakness of gold in Euros, if the buck manages to put in a low, gold could sell off fairly briskly. As long as the buck’s reversal didn’t involve an increase in the negative rate regime. Boy, there sure are a lot of moving parts these days.
So what does my computer say? This week, it says: long gold, miners, and equities, short silver, copper, crude, and USD.
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I thought the comment below by Ted Butler was pretty insightful. Patterns only work until enough people become aware of them. Could it be that be that traders are catching onto JPMs shennanigans and tomfoolery, making it harder for them to complete the "rinse" part of the cycle (flushing the momentum chasing, spec longs)…?
"…JPMorgan also knows that more are becoming aware of the silver (and gold) price manipulation daily and that can be seen in the growing commentary about the COTs and COMEX positioning. JPMorgan also knows that this isn’t a good development for it, as it would have much preferred not even being mentioned in terms of silver….all JPM has to do is stop capping prices on the next rally and that will guarantee soaring silver prices…"
It would make some sense that by the time dummies like me finally figgered out that you could make out well selling when the "Specs" were extremely net long and buying when they were short that doing so would no longer work!
Just a thought I hadn't previously considered. I do still think that the big banks will end up getting their way, covering their shorts at a lower price. The BIG question for me will be if they got enough of a scare in this cycle and perhaps will "cease and desist" allowing the next rally to proceed w/out them shorting the snot out of it…
Its a really interesting question, how much the banks going short at the tops of the cycles ends up materially "capping prices". Clearly it must have an effect, but how large is it? We know they go short as prices rise, and they cover as prices fall. This implies they are the ones buying during the downtrend. That would suggest they are cushioning the fall on the way down with exactly the same amount of force that they are capping prices on the way up.
But goldbugs only ever talk about the "capping" part. They don't talk about the "covering" part. But given there is a wash-and-rinse cycle (as they like to say over at KWN), the evil banks are the ones buying the lows during the rinse. They have to be, in order to get back to flat again. That's just how the mechanics have to work.
If we liken the effect of the banks on the complete cycle to something from physics, it is like the banks provide friction on the way up (by going short as prices rise), but also friction on the way down (by covering short at the lows). A whole lot of someones out there have to be selling, if the banks are covering AND price continues to drop at the same time. Logic dictates that the banks have to be substantially smaller than the overall market for this mechanism to work.
So if they stop "capping prices" on the way up, that means they won't be supporting prices on the way down. I know that standard goldbug assumption is that if not for the banks, prices for gold would be at $5000 and silver would be $200 (in spite of the overall commodity downturn and the 4-year deflationary impulse and all the correlations and the price evidence to the contrary), but what if they're wrong? Perhaps all the banks do (big-picturewise) is flatten out both the peaks and the valleys?
I still think the banks will attempt to continue to ride the cycle as they always have done. Whether they are as successful at picking the tops and bottoms as they have been in the past – that's the question.
We know they go short as prices rise, and they cover as prices fall. This implies they are the ones buying during the downtrend. That would suggest they are cushioning the fall on the way down with exactly the same amount of force that they are capping prices on the way up.
Wow, really good point and one that I'm kinda surprised that I haven't considered previously. Just simple logic. It does take time, I suppose, to deprogram after yrs of following the KWN / GIAMATT crowd for so long. I've since become more balanced, but the fairly obvious point about the banks covering on the way down providing "cushioning" is a point that would NEVER be mentioned on one of those sites. Blasphemy! 🙂
Part of the reason I can be a little testy with the goldbug crowd is that by following them and believing their logic, I lost money. I found this experience to be very disagreeable, and at least 50% of my annoyance is directed at myself for getting caught hook, line and sinker by such an absurd set of arguments.
"What was I thinking?"
Turns out, I wasn't. Not critically anyway.
I recall several yrs ago, w/ PMs somewhere around $1500/$26 respectively, a gentleman (whose name rhymes w/ Sim Jinclair) declared w/ almost omnipotent confidence that March__, 2013 was THE low. Being firmly on the GIAMATT/KWN camp, I dutifully put all of my remaining PM capital into the metals, only to watch those levels give way in short order. Later, when asked why he determined that specific day would be the low, he laughed and said it was bc that was his birthday.
I get your point about the effective equal and opposite forces for the capping/covering but I do not think it is quite so simplistic as the banks altruistically smoothing out the markets bumps if for no other reason than they wouldn't be making much money that way. You can have very different effects on the two sides of the market depending on how you deploy those forces. If I drop a ream's worth of paper one sheet at a time I will not make much of a stir but if I drop the whole thing at once I'm likely to get people's attention. The same thing would happen with how the banks (or whomever) express their presence in the markets.
They are almost by definition big enough players to move the market if they so choose. I do not think they can be all powerful but you or I cannot make the faintest wiggle in the prices no matter how much we try (unless you have a lot more money than I!). The banks, whether they do it legitimately or by underhandedly knowing how people's buy/sell points are arrayed in advance, can 'wang' the market around, as you say, forcing a larger market reaction. The only question is whether they can trigger overall sentiment to create follow through. If they do know the bid stack then they can most likely do the deed with little or no risk of losing any money if they cover quickly at the cost of those forced out.
On the longer cycle, it seems that if they work in big tranches to blunt/cap price rises and then cover slow and steady on the price pull backs that they can have a net effect of knocking prices down for now. Of course, if they so choose they could play the same game if they wanted to run prices higher too. If there were any real regulation of the markets anymore we probably wouldn't be having this discussion.
The goldbug mantra may be colored with a lot of wishful thinking but to think of the bank's presence as net neutral in effect is as much a fantasy in my humble estimation.
Dave says that a Comex failure would shock the system due to loss of 1500 tons of paper Gold. That's not the problem at all.. almost nobody holding those contracts wants to or thinks they are going to get physical Gold,.
It's the unallocated holders who probably think they control real Gold. It's the unallocated, and even some of the allocated (think MF Global) account holders that are going to get screwed when the system fails… that is where the real leverage is;
The bulk of global trading in gold and silver is conducted on the over-the-counter (OTC) market. London is by far the largest global centre for OTC transactions followed by New York, Zurich, and Tokyo. Exchange-based trading has grown in recent years with Comex in New York and Tocom in Tokyo generating most of the activity. Gold is also traded in forms of securities, such as exchange-traded funds (ETFs), on the London, New York, Johannesburg, and Australian stock exchanges.
Although the physical market for gold and silver is distributed globally, most wholesale OTC trades are cleared through London. The average daily volume of gold and silver cleared at the London Bullion Market Association (LBMA) in November 2008 was 18.3 million ounces (worth $13.9 billion) and 107.6 million ounces (worth $1.1 billion) respectively. This means that an amount equal to the annual gold mine production was cleared at the LBMA every 4.4 days, and to the annual silver production every 6.2 days. The Gold Anti-Trust Action Committee claims that clearing data substantially understates the true amount of gold traded, due to the netting of trades in the calculation of Clearing Statistics. They claim the LBMA market is $21.6 billion per business day ($5.4 trillion a year).
Much, much bigger. If annual production is ~3000 tons, and that much is traded every 4.4 days… as usual it appears that the paper markets are acting like there is much more Gold than really exists.
Musical chairs. It will end someday, and there will not be anywhere near as many seats as one would think given the low price today.
To me, open interest is the critical number.
Your goldbug writers find the largest number out there – trading volume – and then they divide it by mine supply, and then everybody gasps in horror. I know that's their goal: everyone needs to gasp in horror every day. That's what promoters do: sell through fear. Similar to the GWOT, actually, but just with a golden twist. I don't like it when the government does it, and I don't like it when the goldbugs do it.
Please, I beg you, THINK about it: if we are truly talking about a "musical chairs" problem, one would think that the simple question: "how many people would not have chairs when the music stops playing" might be an interesting number to talk about. Yes? In gold terms, what is the current gold demand that would end up being defaulted upon if a default occurred? I.e. what's total unallocated gold worldwide?
Put slightly differently: how many warehouse receipts are there, versus how much gold is in that warehouse?
Its a very simple question.
I get your point about the effective equal and opposite forces for the capping/covering but I do not think it is quite so simplistic as the banks altruistically smoothing out the markets bumps if for no other reason than they wouldn't be making much money that way.
Eh, I don't recall saying, claiming, or even suggesting that the banks are doing anything altruistically. And if you look at my whole body of work, how many times have I stated that the banks are in this to skim as much out of the market as possible? My goodness.
And you're just about as wrong as you could possibly be about your analysis. If the banks were selling the high, and covering at the low, as I have stated they do, they'd make the theoretical maximum amount of money it would be possible to make on the cycle. Sell high + buy low = best outcome possible.
Again, no altruism involved. It's what I'd like to do too. Who wouldn't like to buy low and sell high? And truth be told, everyone who does this properly helps cushion the lows but also caps the highs. That's just how the mechanics work.
You can have very different effects on the two sides of the market depending on how you deploy those forces. If I drop a ream's worth of paper one sheet at a time I will not make much of a stir but if I drop the whole thing at once I'm likely to get people's attention. The same thing would happen with how the banks (or whomever) express their presence in the markets.
Chart below is the weekly gold price vs the weekly net change in commercial shorts, with a 3 period moving average added. You can see that there are times when the banks go short quite rapidly. You can see there are also times when the banks COVER short quite rapidly too. It looks roughly symmetrical to me.
Thing is, banks must buy the lows in order to remain neutral over the course of the cycle. Have you ever heard a goldbug mention this fact? And, do we imagine this activity has no market impact?
My sole point is that goldbugs very rarely provide both sides of the equation. They only provide the side that supports their case. "Bullion banks short the highs and cap rallies!" and everyone gasps in horror. Covering short? Crickets. "Tide comes in and washes away everything before it!!" (Gasp!) Tide goes out? Crickets.