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PM End of Week Market Commentary – 9/9/2016

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  • Sat, Sep 10, 2016 - 06:18am



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    PM End of Week Market Commentary – 9/9/2016

On Friday gold fell -10.50 to 1327.70 on moderate volume, while silver dropped -0.57 to 19.05 on moderately heavy volume.  Increased concern over an imminent Fed rate rise led to selling pressure in almost everything; gold actually held together better than most everything else.

On the week, gold rose +2.80 [+0.21%], silver fell -0.39 [-2.01%], GDX dropped -3.44% while GDXJ lost -4.08%.   Platinum fell -0.10%, palladium rose +0.88%, and copper actually rose +0.48%.  The week started with a big PM rally, but by the close on Friday, almost everything had reversed direction, led lower by silver and the mining shares.  So what’s the story that caused the reversal?

It seemed to be a combination of things; the immediate cause appeared to be a Fed governor who has a reputation for being relatively dovish.  He gave a speech suggesting that a near-term rate rise was something he would support.  Another cause was the ECB deciding to provide no more new stimulus, or even talk about any more stimulus programs.  The backdrop was important also; Europe is clearly not doing any better (so presumably, more stimulus is something one might reasonably expect to see), and the US economy is weakening, not strengthening, so presumably a rate rise is a bad idea.

So in this circumstance, a rational market actor would expect more stimulus from the ECB, and the Fed to at least hold off.  What we’re seeing is exactly the opposite.  On Thursday, Dragi smiles and says “all is well, no need to do anything at all”, while on Friday a rate-dove at the Fed talks about a rate increases in the teeth of a weakening economy.  Does this make sense to you?  It sure didn’t make sense to the market, as best I can tell.

My sense: the central bankers may have just changed the rules right here this week: away from a more predictable, data-driven policy, to one based on who-knows-what.  You want to own risk assets when you can no longer predict what the central bank will do from one meeting to the next?  Especially when support and the predictability of support has been the biggest force underpinning the market to date?   Plus, in the back of your mind, you might be getting the nagging feeling that they are completely out of options.  So what do you do?

You sell, that’s what you do.

This week, gold staged a grand rally on Tuesday, driven higher by a weak non-manufacturing ISM report that showed a dramatically weakening services industry in the US.  It was thought, bad news = no rate rise.  But that was “so three days ago.”  By Friday, the Fed had to resort to trotting out a dove to sing the rate-raise song.  Now gold is back below its 50 MA, and the 9 EMA also.  Momentum now appears to be down.

This week, open interest rose by +36,248 contracts.  Those commercials are helping prices lower at every opportunity.

Like gold, silver rallied strongly on Tuesday off that weak ISM report, but was unable to close above its downtrend line.  By Friday, silver was back below its 50 MA and the 9 EMA, and it closed right at the lows of the day, printing a “black marubozu” candle which is never a good sign.  It also printed a swing high.  Silver was outperforming gold last week, leading PM higher, and now silver is underperforming gold this week, leading PM lower.  If the rate rise talk continues, we’ll probably see a re-test of 18.50 support in the near future.


While the week started well with a rally off that weak ISM report on Tuesday, the miners weakened on Thursday when the ECB did nothing, and then they really threw in the towel on Friday after the hawkish chatter emerged from the Fed.

On the chart, GDX is now back below its 9 EMA, it printed a swing high, and is now back below its 9 EMA.  Volume on Friday was heavy, and there was only a very modest bounce at the close.  For me, the gap down below the 9 EMA was key: time to retreat to cash.  The heavy volume was just piling on.


The USD fell -0.54 [-0.56%] to 95.25, with most of the losses coming on Tuesday following that weak Non-Manufacturing ISM report, which led me (and most of the market) to believe there would be no rate increase by the Fed.  The buck bottomed out Thursday after the ECB did nothing, and then on Friday the renewed hawkish chatter from the Fed prompted a dollar rally, netting two directional shifts in just one week.  Is the dollar now going up or down?  Its hard to say.  Trend code has the dollar still in a downtrend, while the candle code shows a somewhat weak two-candle swing low (37-45% chance of the low) printed Friday.  It feels to me that the dollar itself is unsure at the moment.  In spite of the chatter – would the Fed really raise right into the teeth of rising economic weakness?

If the buck becomes more convinced, it will rally.  And that will hurt PM.

US Equities/SPX

The US equity market fell hard, down -52.17 [-2.39%], with all of that loss coming on Friday.  SPX smashed through both the 9 EMA and the 50 MA, printing a relatively rare “bear strong line” candle which suggests to me the selling is not yet over.  Intraday, price just fell from open to close – the selling was relentless.  VIX jumped up a massive +4.99 to 17.50.

Here’s the sector map just from Friday.  I think this is useful so we can sort out where the money was going, and from that try to figure out what the market is currently thinking.

Financials did best – they were down, but “only” -1.88%.  That suggests rate rise.  All the things at the bottom: miners, homebuilders, REITs, and utilities are rate sensitive sectors.  The sector map is telling us, “this move was about rates”, more or less.  Money didn’t flee everywhere at the same speed, that’s how we know.  Of course – that’s just Friday.  Depending on what our puppet masters do this weekend, by Monday everything could look very different.

Name Chart Chg (D) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Financials XLF -1.88% 6.74% falling rising falling rising ema9 on 2016-09-09 2016-09-09
Healthcare XLV -2.00% 3.48% falling rising rising rising ma50 on 2016-08-25 2016-09-09
Telecom XTL -2.13% 15.70% falling rising rising rising ema9 on 2016-09-09 2016-09-09
Cons Discretionary XLY -2.41% 6.27% falling rising falling rising ema9 on 2016-09-08 2016-09-09
Technology XLK -2.45% 16.87% falling rising rising rising ema9 on 2016-09-09 2016-09-09
Cons Staples XLP -2.71% 15.45% falling falling rising falling ema9 on 2016-09-07 2016-09-09
Industrials XLI -2.82% 13.98% falling rising rising rising ma50 on 2016-09-09 2016-09-09
Materials XLB -2.91% 13.06% falling rising rising rising ma50 on 2016-09-09 2016-09-09
Energy XLE -2.98% 12.33% falling rising rising rising ema9 on 2016-09-09 2016-09-09
Utilities XLU -3.75% 21.73% falling falling rising falling ema9 on 2016-09-09 2016-09-09
REIT RWR -3.82% 22.19% falling falling rising falling ema9 on 2016-09-08 2016-09-09
Homebuilders XHB -4.56% -5.96% falling rising falling rising ma50 on 2016-09-09 2016-09-09
Gold Miners GDX -5.34% 103.02% falling falling rising falling ema9 on 2016-09-09 2016-09-09

Gold in Other Currencies

Gold was mixed; mostly flat in USD and XDR, up in INR, down in JPY, BRL, and RUB.  Gold in XDR dropped -3.65.

Rates & Commodities

TLT has convincingly broken down out of its six-week trading range, losing -2.24% with the losses coming Thursday and Friday.   The long bond does not like it when rates rise, so this would be another vote for a “rate rise” storyline driving prices.  Bond in other countries have also been dropping, so this is not just a US-only phenomenon.

JNK fell also, losing -1.34% with most of its losses coming Friday.  JNK is now through its 9 EMA, although it appears to be faring better than many other things.  Its still a strong risk off sign.

CRB rallied +1.41% – but that’s after a -1.67% loss on Friday.  Commodities were on track for a fairly nice move this week until everything sold off, leaving them with only a modest rally.

Crude rose +1.51 [+3.42%] to 45.71; it had three fantastic days to start the week, followed by Friday’s big sell-off which saw oil drop -1.61 in just one day.  Where it goes from here is anyone’s guess; the swing high it printed on Friday wasn’t particularly vicious: 35-50%.  Lots of confusion in oil too: Thursday’s petroleum status report showed a massive inventory draw of -14.5 million barrels, the second largest draw in history, mostly because of shut-in production in the GOM due to a hurricane.  And on Friday everything sold off, so oil was caught in the downdraft.  Trend code says oil is in a downtrend.  Sure, I can believe it.

Physical Supply Indicators

* No information from Shanghai right now; I’ll update later.

* The GLD ETF tonnage on hand rose +2.05 tons, with 940 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1327.75 and silver 19.05.

 PHYS 10.96 +0.25% to NAV [down]
 PSLV 7.28 +0.24% to NAV [up]
 CEF 13.80 -5.25% to NAV [down]

* Bullion Vault gold (!/orderboard) showed no premium for gold or silver.

* Big bar premiums are higher for gold [2.22% for 100 oz bars in NYC], higher for silver [+3.18% for 1000 oz bars], and higher for silver eagles at +13.65%.

Futures Positioning

COT report covers trading up through Tuesday September 6th.

Gold commercials added a big +29k shorts, while managed money added +25k longs and closed -13k shorts.  Both sides moved back up towards their extreme positions this week.   I’m guessing that much of the change happened on Tuesday.

In silver, commercials added +5.5k shorts, managed money added +5.8k longs.  Silver is moving more slowly back to the highs, but it would take a month at this rate to get there.  Ultimately, there was not much change in silver COT positions this week.

Copper was actually pretty interesting – managed money added a huge +19k shorts (about a 30% one-week increase), which puts their short position at the highest level in four years, while the commercials covered -3k shorts and went long another +5k.  Copper’s COT still seems to “work” as a predictor; this suggests the low could be in for copper.  This should help silver, at least theoretically anyway.

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

Based on the moving averages, PM is once again back in a downtrend, with all elements below both the 9 EMA and the 50 MA.  In the recent past, when miners drop through that 9 EMA, bad things usually follow – at least for a time.  You can see that gold is doing best, while the junior miners are leading to the downside.  That’s typical of a downtrend.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold GC.CW 0.21% 19.62% falling rising rising falling ema9 on 2016-09-09 2016-09-09
Platinum PL.CW -0.10% 8.47% falling rising rising falling ema9 on 2016-09-09 2016-09-09
Silver SI.CW -2.01% 29.95% falling rising rising falling ema9 on 2016-09-09 2016-09-09
Silver Miners SIL -2.79% 142.05% falling rising rising falling ema9 on 2016-09-09 2016-09-09
Senior Miners GDX -3.44% 103.02% falling falling rising falling ema9 on 2016-09-09 2016-09-09
Junior Miners GDXJ -4.08% 135.96% falling rising rising falling ema9 on 2016-09-09 2016-09-09

Gold Manipulation Report

There were no meaningful after-hours spikes for PM this week.


My assumption last week that the Fed would continue to be “data driven” is now seriously in question.  A weak payrolls and a weak ISM report did not serve to dissuade the Fed from its campaign to raise rates, and I believe this caused a whole lot of selling on Friday – not just in PM, but in equities, bonds, and oil too.  Gold actually did fairly well, all things considered.

The gold/silver ratio rose +0.40, which is bearish. The GDX:$GOLD ratio turned down, and the GDXJ:GDX ratio fell also.  The bearish tone has resumed this week.

The COT reversed course this week, with the commercials once again loading up on shorts, while managed money went long.  Copper’s COT suggests a near-term low is in; it will be interesting to see if that plays out.

Gold and silver big bar shortage indicators show no signs of shortage; popularity of paper gold appears undiminished at the moment.

So where to from here?

I suspect a fair number of market participants are re-thinking their risk tolerance over the weekend.  The central bank’s supply of money (and the confidence that comes from that supply) has been a key force keeping prices aloft.  Until this week, the Fed has been careful to be predictable and appear to be data-driven.  Also, the Fed just doesn’t raise rates in a weakening economy, that’s a given.  Nobody would make such a bone-headed mistake, least of all the geniuses at the Fed.

Well its not a given anymore, as of this week.  And apparently Fed policy has nothing to do with data anymore.

Here’s my sense.  The market feels comfortable when it can roughly predict what the Fed will do based on the various economic reports that periodically appear.  Take that away, and the market has no real clue what the Fed will do, or why.  That damages confidence.  Add to that the sense that “nobody raises rates in a weakening economy” – this makes the Fed look like idiots.  That damages confidence also.

Will the quarter-point rate increase change things dramatically in any fundamental economic way?  No.  But a whole lot of financial assets might just get repriced in a hurry based on the changes to confidence I listed above.  If the most effective “human reward system” involves unpredictable intermittent rewards, I’d guess that the most stressful type of punishment system would be unpredictable and intermittent as well – in this case, unpredictable and intermittent rate increases.

And its also good to remember that “fundamental economics” is not underpinning the market.  It is just about money flows and confidence.  Once confidence snaps, money will flow right on out.  I think we’re about to see what that looks like in the near future.  Strong downside moves on Friday sometimes lead to thunderous crashes on Monday.  And this is September.  Ugly things happen all too often in September.

There is risk for us here in the gold space.  Gold has done well so far, but managed money is historically long COMEX gold GC contracts.  If there is a really big move down in the overall market, and managed money needs to sell its COMEX contracts because they have to deleverage, the price of gold and silver will crater, just like what we saw in 2008.  Miners would drop even more.  That’s the risk.  Ultimately gold should come out the other side in a very happy place, given the choices available to our central planners, but the ride could get bumpy between now, and then.

What do I mean by that?  We might even retrace the entire 2016 rally.  It could happen.  Positions are just that big.  It all depends on how large the Fed-induced downdraft ends up being – how much air ends up coming out of the tire, and how fast.

Line in the sand for gold, according to Armstrong, is 1275.

Last point.  Technical analysis doesn’t work in a news-driven market, and that’s where we seem to be right now.  It can tell you what the trend currently is, but when the trend can change following one guy’s speech…it is of “limited predictive value.”

Next (scheduled) major market-moving event: FOMC announcement, September 21st, at 14:00 Eastern.

Current view from the computer:

  • Uptrend: gold (but just barely), natgas.
  • Downtrend: silver, platinum, crude, USD, treasury bonds, SPX, DJIA.

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  • Sat, Sep 10, 2016 - 05:34pm



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Thanks as always Dave…

Look forward to your wrap each week!

One of the few technical analysts ready and willing to express a balanced view on it limits, in this managed market.

The COT looms very large here… the banks have clearly struggled to push the specs short for many months now (unprecedented in last couple of years or so), and I was caught short based on the COT set up. Never gave covering a thought though, as I just don't see how JPM would accept that kind of loss, or the prices the metals would go to if they did cover.

Excellent point on the MM de-leveraging, although a lot of that would naturally occur if the banks decide to pull the plug… driving them to the short side (actually just close to flat) to cover the longs.

Sure would be nice to have a functioning metals market again…

  • Sat, Sep 10, 2016 - 07:08pm


    Mark Cochrane

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    Just not buying the Fed rhetoric….


I think your analysis is astute but I just can't believe the central banker's Kabuki theater. Like I said the other day, I don't think the Fed and other central bankers feel that they can become completely predictable. If they are they are irrelevant. That said, they can't really raise rates in the cratering economy. What to do? First have Drahgi act like he never had intention of providing more stimulus. Then trot out a 'dove' to sound hawkish. Really? After resisting thorough all of the stronger arguments for rate increases, he suddenly thinks now is the time to do so? What was it that Juncker said "When it becomes serious, you have to lie". I think it is probably downright desperate about now. What I think that they want to do is use further Fed statements and the upcoming Japan central bank meeting to modulate the market expectations such that there is enough belief that the Fed might raise rates that when they don't do it in September they get a relief rally in the market. Stimulus from nowhere because 'tightening' was being 'priced in'. Enough smoke and mirrors to limp through the election. That said, if the market craters too much, as you allude might happen, they have a good excuse not to raise rates, Draghi and Japan can ease etc…

Can I get my tinfoil hat now?


  • Sun, Sep 11, 2016 - 07:54am



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    staying relevant


Here's the thing.  They don't strike me as a bunch of gamblers.  "Sure, by sending the doves out there to chatter about a rate rise, we may cause a market crash, but at least they know we're relevant."  Does that feel right to you?  They seem pretty timid to me.  Over the past six years, as an organization, they did everything they could possibly do to avoid raising rates.

Now it feels as though there is a new urgency that has broken through the timidity.

Here's a thought.  Maybe they are feeling an existential threat from somewhere.  Perhaps too many important people have insisted they raise rates (including their good buddies, the bankers), and so now they're just following orders.

"Raise rates, or else we're going to have some 'Fed Reform' – and you really don't want the door opened on that one, do you?"  If we already know that the independence of the Fed is a fiction…then it follows when they diverge dramatically from their previous playbook, isn't it likely they are being pressured?

I know a lot of people think they are the Big Bad Fed pulling all the strings, but – what if they're just water-carriers for the real people in power?  They really aren't paid all that well, especially compared to their buddies in banking.  They need to wait until after their time is over to get the big bucks, while people like Dimon get paid big bucks throughout their career.

And if you wanted someone people could blame if it all went south – you would probably want to have some front guy to take the hit while you slipped away out the back door.  Maybe the Fed is just that fall guy.

Its a thought anyway.

  • Sun, Sep 11, 2016 - 12:01pm



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    metals markets


The COT has been quite the puzzle for me.  I think the commercials were just swamped by all the western buying – I'm guessing they were taken quite by surprise.  Next cycle they may well not be as aggressive.

One possibility: many miners had a near death experience during the last year or so.  The 750 tons of recent, new paper gold (commercial short interest rising from 200k to 440k contracts) is about 30% of global annual mine supply.  If all the miners hedged just 30% of one year's production, instead of this ramp in commercial shorts being some scam, it would be an actual legitimate operation.

Anyone know if the miners are doing any serious hedging?  Or are they all happy to be naked in this environment?

I'd hate to wrongly accuse the bankers of actually performing a legitimate service for their customers without actual evidence to back it up.  🙂

  • Sun, Sep 11, 2016 - 12:10pm



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    three Fed speakers Monday

Well, we have the special treat of three different Fed mouthpieces speaking on Monday.

1) 08:00 Dennis Lockhart

2) 13:00 Neel Kashkari

3) 13:00 Lael Brainard

Art Cashin pointed this last one out as one to watch closely.

I could actually see the Fed wanting to keep the expectation of a rate rise above a certain percentage, and if it falls below that percentage, they trot out a speaker or two.  Hmm.  That's your Kabuki Theater.

That provides some elements of a rate rise effect on the markets without actually executing a rate rise.


  • Mon, Sep 12, 2016 - 01:16am


    Mark Cochrane

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So are you saying that someone/entity has a gun to the Fed's head now telling them to raise rates come hell or high water? The blitz of talking Fed heads are therefore trying to talk up the risk of the Fed raising rates so that they don't 'shock' the market if they actually do so in September? I suppose they could also have a model somewhere telling them they are going to turn into pumpkins if they don't raise the rates a few more times before the end of the year.

It will be interesting to see if the three (3!!!) Fed speeches tomorrow are coherent with one another. I'd also love to know if they've been written yet or if they will be dynamically calibrated to whatever the market is doing about 8am and 1pm respectively. At a guess, I'd say Lockhart talks up the market in the morning while Kashkari and Brainard give two nuanced sides of the same coin. Does Brainard double down on the new found hawkishness of doves or does she walk things back a bit? Intrigue abounds…

As the week drew to a close and the Fed's "quiet period" before meetings was about to settle in, investors recoiled over news that the central bank's most dovish official, Governor Lael Brainard, will be delivering a previously unannounced speech Monday at The Chicago Council on Global Affairs. (link)

Is the Fed:

1. A slave to the stock market?

2. Data driven?

3. Puppets to some external influence?

4. Bumbling along trying to meet their mandates?

5. Plain confused and afraid?

How idiotic have markets become when they must wait with bated breath for various Fed speakers talking at cross purposes so that they can try to read the tea leaves of their exact words all in an effort to weight the likelihood of a potential 0.25 point rate increase? I submit that this is clear indication of a global economy tip toeing on egg shells, thin ice, and other appropriate metaphors…


  • Mon, Sep 12, 2016 - 01:55am



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    Fed Feel monday:

Some experts believe Govenor Brainard will overshadow the Atlanta and Minneapolis Fed Presidents.Brainard has always been very cautious.If her speech on Monday signals no change that would encourage softer yields,a weaker dollar and support the equities market.The opposite signal would trigger a violent reaction the other way…

  • Mon, Sep 12, 2016 - 02:18am


    Cold Rain

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Their game has been, and I believe continues to be, easing by jawboning.  They have to try and maintain their credibility.  When they keep running the same plays, the market catches on.  So, have some doves come out dressed like hawks.  You don't have to raise rates if you can pretend to raise rates.  But you can't pretend to raise rates by telling the story the same way each time and have the market believe you when you ultimately fail to do it.  But vary the story just a little bit, and you can maybe buy a little more time with the extend and pretend plan.  It's all they have left.  I mean, are they actually going to raise rates right before the election and crash the markets and watch Trump win?  I doubt it.  But get the doves to play hawk and maybe you can fool people and kick the can just a little longer.  I'm surprised the market is still buying it though, even with this little tweak in the story.

  • Mon, Sep 12, 2016 - 02:21am


    Cold Rain

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 By the way, Dave, I appreciate your daily analyses.  Very informative.  Currently, silver down over 2%, but gold is only down about 0.4%.  So much for the safe haven trade, I guess.

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