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PM Monthly Commentary – June 2019

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  • Sun, Jun 30, 2019 - 10:39am

    #1

    davefairtex

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    PM Monthly Commentary – June 2019

On Friday, gold rose +0.13 [+0.01%] to 1418.25 on heavy volume, while silver rose +0.06 [+0.39%] to 15.36 on light volume. The buck was unchanged, SPX fell [-.29%], while crude rallied [+1.04%].

The June metals sector map shows clear signs of a strong PM rally; miners are leading the metal, but seniors are tied with juniors, and gold is leading silver. Silver is near the bottom of the heap, along with copper. This gives this month’s metals rally a distinct odor of a safe haven move, although the miner rally is quite strong. Perhaps the miners are just exhibiting the signs of a long-beaten-down sector finally moving out of the cellar.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 18.39% 16.55% rising rising rising rising ma50 on 2019-05-31 2019-06-30
Junior Miners GDXJ 18.39% 8.57% rising rising rising rising ema9 on 2019-06-11 2019-06-30
Silver Miners SIL 16.31% -5.43% rising rising rising rising ma200 on 2019-06-17 2019-06-30
Palladium $PALL 15.47% 62.75% rising rising rising rising ma50 on 2019-06-07 2019-06-30
Gold/Euro $GOLD:$XEU 10.27% 10.82% rising rising rising rising ema9 on 2019-06-18 2019-06-30
Gold $GOLD 8.20% 12.96% rising rising rising rising ma50 on 2019-05-30 2019-06-30
Platinum $PLAT 5.85% -1.55% rising falling rising falling ma50 on 2019-06-28 2019-06-30
Silver $SILVER 5.46% -4.30% rising rising rising rising ma200 on 2019-06-18 2019-06-30
Copper $COPPER 3.17% -8.28% rising falling rising falling ema9 on 2019-06-17 2019-06-30

Gold shot up +107.50 [+8.20%] to 1418.25. This month, gold broke out above both the previous high of 1382, as well as round number 1400, and managed to hold above both levels by end of month. Long term, this is a very significant development, and signals a major change in trend for gold. The monthly opening white marubozu candle is bearish (66%), but the forecaster jumped higher into a strong uptrend. Gold’s weekly candle (a shooting star) also suggests a reversal (81% bearish), and daily dropped into a downtrend on Thursday. The signs of bearishness after such a strong rally suggests to me that we could see a correction back to the breakout level.

COMEX GC open interest jumped +137k contracts this month. That’s 62 days of global production in new paper, an increase in OI of 31% vs last month, and the largest monthly OI increase on record, dating back to 1975!! Wow! “Someone” sure did pile in short this month.

The July rate-cut chance ended the week at 28% and the Dec 2019 rate-cut chance closed at 100%, with an 92% chance of 2 rate cuts, and a 60% chance of 3 rate cuts. That’s a large increase in rate-cut chances vs the previous month, if you are looking at December.

COT report shows the commercial net fell -150k contracts this month, which was 119k new shorts (the largest monthly increase in history), and 31k fewer longs. Managed money net rose +151k contracts, which was 66k shorts covered, and 86k new longs. The commercial short position (420k contracts – 1306 tons of paper gold) could well be signaling a near-term top for gold, as could the managed money short position.

Silver rose +0.79 [+5.46%] to 15.36. . The swing low candle print was very bullish (84%), and forecaster moved into a moderate uptrend. Both daily and weekly forecasters weakened, but ended the week in uptrends, leaving silver in an uptrend in all 3 timeframes.

The gold/silver ratio jumped +2.62 to 92.39. Thats very bearish. It is another 27-year high for the ratio. You can see on the chart that silver has just moved off its lows, while gold has broken out to a new 5-year high. That tells you just how badly silver is doing by comparison.

COMEX SI open interest rose +7,232 contracts this month. That’s 15 days of global production in new paper – a relatively small increase compared to what happened with gold.

The miners screamed higher this month, with XAU jumping +20.15%. The swing low candle print was very bullish (82%) and forecaster jumped into a strong uptrend. While the miners have not broken out to new 5-year highs (they have underperformed gold now for years) they are doing substantially better than silver. This month we saw a breakout above the previous high set in February, a break above the longer term downtrend line, and that really strong swing low pattern. While the daily forecaster is now looking quite weak, XAU managed to end the month in an uptrend in all 3 timeframes.

The GDX:$GOLD ratio jumped +9.41%, while the GDXJ:GDX ratio was unchanged. That’s very bullish.

USD

The buck fell -1.61 [-1.66%] to 95.60. The bearish engulfing/swing high candle print was very bearish (82%) and forecaster dropped more strongly into a downtrend. While the buck tried to rally this week, it was a feeble attempt; DX remains in a downtrend in all 3 timeframes. A dollar downtrend should help gold to move higher. Much of the drop in the buck came following the FOMC meeting mid-month, where the Fed held rates steady, but projected 2 rate cuts by end of year – at least if you look at the dot plot – and the Fed also removed the word “patient” from their policy statement, which the tea-leaf readers took as a transition to a move dovish position.

This month, the big currency moves were: GBP [+0.62%], EUR [+1.92%], AUD [+1.20%], JPY [+0.73%], CAD [-3.19%], and CNY [-0.52%].

US Equities/SPX

SPX jumped +189.70 [+6.89%] to 2941.76. The long white candle was more bearish (64%), and forecaster moved a bit higher, into a relatively modest uptrend. SPX ended the week in an uptrend in all 3 timeframes.

The sector map had materials and homebuilders leading, while REITs and Utilities did worst. This was a somewhat bullish sector map.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 18.39% 16.55% rising rising rising rising ma50 on 2019-05-31 2019-06-30
Materials XLB 10.90% 1.09% rising rising falling rising ema9 on 2019-06-24 2019-06-30
Homebuilders XHB 8.65% 6.25% rising rising rising rising ema9 on 2019-06-27 2019-06-30
Technology XLK 8.55% 12.29% rising rising rising falling ema9 on 2019-06-26 2019-06-30
Energy XLE 8.41% -15.58% rising falling falling falling ma50 on 2019-06-28 2019-06-30
Industrials XLI 7.45% 8.31% rising falling falling rising ema9 on 2019-06-28 2019-06-30
Cons Discretionary XLY 7.45% 9.25% rising falling rising falling ema9 on 2019-06-28 2019-06-30
Healthcare XLV 6.14% 11.23% rising rising rising rising ema9 on 2019-06-26 2019-06-30
Financials XLF 6.11% 3.80% rising rising falling rising ema9 on 2019-06-27 2019-06-30
Defense ITA 6.08% 11.63% rising rising rising rising ema9 on 2019-06-28 2019-06-30
Cons Staples XLP 4.42% 12.63% falling rising rising rising ema9 on 2019-06-21 2019-06-30
Telecom XTL 3.75% -5.80% rising falling falling falling ema9 on 2019-06-24 2019-06-30
Utilities XLU 2.37% 14.94% falling rising rising rising ema9 on 2019-06-25 2019-06-30
REIT RWR 0.44% 5.45% falling rising rising rising ma50 on 2019-06-25 2019-06-30

The US was the top performer in the global equity market this month.

VIX ended the month at 15.08.

Rates & Commodities

Bonds made new highs this month; TLT rose +0.74%, while TY climbed +0.94%. The long white candle was bearish (81%), but forecaster moved higher into a very strong uptrend. TY broke out this month to a new 2-year high, and remains in an uptrend in all 3 timeframes. The monthly 10-year yield fell -13 bp to 2.01%. The candle code thinks we’re at a near-term top, but forecaster still sees an uptrend.

BAA rates fell -19 bp this month, a large move down – a strong rally for lower quality debt. (Junkier cousin JNK rose +2.63%, a fairly nice move, supporting the risk on sense in equities). The BAA.AAA differential moved up +5 bp to 1.05%, and printed a swing low candle pattern (72% bullish), and forecaster moved into an uptrend. The credit quality concerns are continuing to rise, but remains only at a “moderate” level.

Crude ralled +4.75 [+8.88%] to 58.24 this month. The bullish harami was just mildly bullish (40%), and forecaster moved slightly higher, but remains in a downtrend. Crude ended the month in an uptrend in both daily and weekly timeframes. At the monthly level, although things have improved, crude has yet to actually reverse higher.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +50.83 tons, with 794 tons remaining in inventory.

* ETF Discount to NAV:

PHYS 11.46 -1.10% to NAV
PSLV 5.71 -0.34% to NAV
CEF 13.23 -3.96% to NAV

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no premium for gold, and a 2c premium for silver.

* Big bars premiums were: gold [1kg] 1.24%, and silver [COMEX 1000 oz] 3.63%.

Grey Swans & Geopolitics

  • Ebola: total cases 2277, with 1531 deaths (case fatality rate: 67%). That’s 87 new cases this week, down from last week. There are ongoing “sporadic reintroduction events” where new cases appear after the 21-day incubation period passes, but things don’t seem to be getting materially worse. Good news: no new cases from Uganda, where 103 contacts were identified, all of whom remain asymtomatic. More than 1000 people were vaccinated, including 249 health workers. https://www.who.int/csr/don/30-may-2019-ebola-drc/en/
  • EU Elections: After the recent EU elections, the EU is now in the throes of “selecting” its next group of leaders. It appears to be a shockingly undemocratic smoke-filled room sort of process. For some reason, popular participation in the process of leadership selection is deemed unacceptable in the EU.
  • BRExit: Boris Johnson and Jeremy Hunt are the two final candidates for leader of the Tories; final deadline for vote counting will be July 21st. Current odds suggest a greater than 80% chance that BoJo will be selected. I expect a very different negotiating style coming up 3 weeks from now.
  • Italy – minibot: will Italy be fined by the EU for having too large a deficit? (Presumably a whopping fine is just the thing to fix a deficit problem.) Process is ongoing; no new news. So is the (related) Italian effort to launch mini-bots, allegedly mini treasury bills that are made of paper, and look suspiciously like banknotes – and can be used to pay taxes, but are not otherwise legal tender.
  • US-China Trade: Trump and Xi met on the sidelines of the G-20 summit, and agreed to restart trade negotiations. Trump agreed not to impose new tariffs “for the time being”, and American companies will once again be allowed to sell components to Huawei as long as it doesn’t involve “parts that could threaten national security.” Trump appeared willing to continue the “one China” policy, and China said they were willing to play a “constructive” role to facilitate the US-North Korea talks. It sounds like a flurry of quid-pro-quo statements that could work for both parties.https://www.scmp.com/news/china/diplomacy/article/3016636/xi-trump-summit-osaka-brings-trade-truce-more-talks-and-hope
  • Yield Curve Inversion: the 1-10 spread jumped by 14 bp to 0.07%, moving out of inversion. That’s because the 1-year rate plunged 27 bp, while the 10-year rate only fell 13 bp.
  • North Korea: Trump and KJU met briefly in a surprise meeting at Panmunjom, a border village at the DMZ in Korea on Sunday. According to Trump, the US-Korea nuclear disarmament talks will resume in two or three weeks. https://www.scmp.com/news/asia/east-asia/article/3016673/historic-handshake-donald-trump-and-kim-jong-un-bond-border
  • Iran: several tankers were attacked, one sunk, by parties unknown. Pompeo blamed Iran, Trump agreed. A US drone was shot down by Iran, the location of which is disputed by the two parties. This event was the second half of the reason for gold’s big breakout. Trump seems to imagine that any sort of war would be a quick one. I suspect that’s true of literally every President who got into a war in recent years. “We’ll have the boys home by Christmas” was the line used by MacArthur in the Korean War almost 70 years ago. (Spoiler Alert: The Boys were NOT Home by Christmas).
  • Spygate: no news. I did run across a long, long, long piece at Epoch Times (a pro-Trump and anti-communist-China news organization) detailing chapter and verse on the whole history of Spygate. Did I mention the piece is long? https://www.theepochtimes.com/spygate-the-inside-story-behind-the-alleged-plot-to-take-down-trump_2833074.html

Recession Watch

Here are the economic drivers for this week:

  • Chicago PMI: another manufacturing survey comes up with a recessionary result; headline number was 49.7, the first sub-50 reading in 30 months, and was well below consensus lower end of 52.
  • Personal Income: +0.5% m/m, consumer spending +0.4% m/m. Oddly, wages & salaries rose just +0.2% m/m. That suggests big gains came to those who receive income from “sources other than wages & salaries”…
  • New Home Sales: median sales prices fell -8% m/m, while supply jumped +0.5 to 6.40 months. This was a very large drop in price in May, which followed an almost-as-large increase in price in April. My read: they tried to raise prices in April, but people didn’t bite, so down they came again in May. The housing market remains bearish, even with the 30-year mortgage at 3.73%.

Summary

So this month: the headline was a big gold rally and a breakout above a 5-year trading range. Gold’s breakout occurred in spite of a record-breaking increase in open interest at the COMEX – literally the most new OI ever created in any month since 1975. Huge amounts of paper was dumped on COMEX, and it was not enough to do more than slow the move higher. The breakout occurred likely because of two back-to-back events: a dovish announcement and press conference by the FOMC, followed perhaps six hours later by a shoot-down of a US drone by an Iranian anti-aircraft missile.

Related – the massive increase in commercial shorts is signaling a possible COT top for gold, although not for silver.

The monthly close above 1400 is a very big deal. A huuuuge deal. A spike is one thing, but a breakout-and-hold above resistance is much more significant.

However, the breakout does not guarantee that gold’s next move will be straight to 1900. Instead, I suspect we will probably see a dip back down to the breakout point. The large commercial short position will lead to a correction, into which the commercials will cover, and then the uptrend will resume.

Perhaps the correction in gold will be aided by the weekend-full of good news about the US-China trade negotiations hitting on Monday morning. No doubt Trump wants a deal (the fact that he says he’s in no hurry suggests to me that he is actually in a hurry), and Xi would probably prefer not to have more US companies flee for Vietnam or other more competitive manufacturing regions in Asia, so I suspect he is motivated too.  If he wasn’t, he wouldn’t have agreed to talk with Trump.   So is there some sort of a win-win deal to be done? Possibly there is.  It might include North Korea too, just for good measure.

Meanwhile, manufacturing is back to looking ill, at least according to the surveys, the housing market is continuing to look ill, while “the consumer” continues to do all right on average – with rich consumers probably doing a whole lot better than the poor slobs who rely on wages & salaries.  Will this be enough to keep that Fed dovish?  Its hard to say.  I suspect it all depends on what happens with “services”.

Current Trends – Monthly:

Uptrend: miners, gold, palladium, gold/Euros, 10-year treasury, silver, utilities, SPX, DJI.

Downtrend: USD, crude, copper, platinum.

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  • Sun, Jun 30, 2019 - 11:36pm

    #2

    davefairtex

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    No Other Major Democracy

Here’s a fun article from Reuters that details the current struggle within the bowels of the EU to select their political leadership for the next 5 years.  Sadly, Reuters buried the lead – right at the end of the piece, there was this jewel:

Dutch liberal EU lawmaker Sophie in’t Veld said on Twitter, “No other major democracy in the world has such a bizarre and arcane method for choosing its political leadership.”

https://www.reuters.com/article/us-eu-summit/still-no-deal-on-top-eu-jobs-despite-all-night-haggling-idUSKCN1TW1FN

Go Sophie!  But she needs to take it one step further, to make that logical connection: if you don’t get to vote for your leadership, then your government is not a democracy.

Perhaps they should try electing the leadership.  Hmm.  Now there’s an idea.

  • Mon, Jul 01, 2019 - 12:05am

    #3

    davefairtex

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    SPX +35, gold -27 in asia

The trade talks are back on: gold has been hit hard.  Now we will have to wait and see at what point the commercials will start to cover.

 

  • Mon, Jul 01, 2019 - 04:50am   (Reply to #3)

    #4

    Cold Rain

    Status Gold Member (Offline)

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    re: SPX +35, gold -27 in asia

We should know that by your report in the morning. 🙂  I will be surprised if gold gets back to and holds above $1400 for any length of time again soon.  I’m not sure why trade talks being back on (implying the Fed will hold on rate cuts) would be bad for gold and good for stocks.  But it’s the backward world we live in where everything is positive for stocks.

  • Mon, Jul 01, 2019 - 07:44am

    #5

    davefairtex

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    USPTO approves UFO patent; assignee: USN

This is potentially the biggest news item, well, literally ever.

Executive Summary: the US Navy has just informed us all that it is working on constructing a UFO-like craft using room temperature superconductors and microwave generators.  The evidence: a public, issued US Patent assigned to the US Navy.

https://patents.google.com/patent/US10144532B2

The backstory behind this patent application is fascinating, and suggests this is could be than just a “crackpot just-in-case” patent application, and instead, it reflects technology actually under development by the Navy at this very moment.

Here are the highlights of the story:

* the initial patent filing was by a researcher at the Naval Air Warfare Center Aircraft Division (NAWCAD) in Patuxent River, MY, for a “hybrid aerospace-underwater craft”.

* patent was initially rejected by the PTO as “failing to comply with the enablement requirement” – i.e. the examiner said, basically, the thing couldn’t be built.

* In response, the CTO of the US Navy’s “Naval Aviation Enterprise”, Dr. James Sheehy wrote to the patent examiner in support of the application; he explained the state of the current research, and further asserted that the Chinese are working on the same stuff, and “I would prefer we hold the patent as opposed to paying forever more to use this revolutionary technology.”  And then he invited the examiner to give him a call if he had more questions.  Sheehy’s letter to the examiner was made public as a part of the filing.

* USPTO then grants the application.

* critically, the patent attorney for the US Navy elected not to check the box marked Request Not to Publish on the patent application form, which would have kept the patent secret.  This tells us that the US Navy wanted this to be public.

Here is the article that detailed the chapter and verse of how the application made its way through the patent office, complete with the letter from Sheehy written in support of the application, the CV of the researcher, and other details.  The article is a bit hyperbolic in places (drawing conclusions that aren’t supported by the evidence), but – just look at the source material it presents.

https://www.thedrive.com/the-war-zone/28729/docs-show-navy-got-ufo-patent-granted-by-warning-of-similar-chinese-tech-advances

[EDIT]

As a side note – I am listed as an inventor on perhaps 25 issued US patents, which is at least partly why I found this story particularly fascinating – above and beyond the bit about the US Navy constructing UFOs.  See below for claim #1.  It looks … very broad to me.  Although if extra-terrestrial UFOs do exist (and I suspect they do), and the US government had shot one down previously and reverse-engineered it (and I suspect they have), then “someone” could conceivably file suit to invalidate the patent on the grounds that it was neither novel, nor non-obvious.  Of course they’d need the evidence to support their case…preferably the downed craft…  🙂

What is claimed is:

1. A craft using an inertial mass reduction device comprising:

an inner resonant cavity wall;
an outer resonant cavity wall, the inner resonant cavity wall and the outer resonant cavity wall forming a resonant cavity; and,
microwave emitters such that the microwave emitters create high frequency electromagnetic waves throughout the resonant cavity causing the outer resonant cavity wall to vibrate in an accelerated mode and create a local polarized vacuum outside the outer resonant cavity wall.
2. The craft of claim 1, wherein the resonant cavity is filled with a noble gas.
3. The craft of claim 1, wherein the outer resonant cavity wall is electrically charged.
4. The craft of claim 1, wherein the resonant cavity is axially rotated in an accelerated mode.
  • Mon, Jul 01, 2019 - 09:59am

    #6

    sand_puppy

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    Whoa!

Whoa!  That is all I can say.

Like when the first 4 minute mile was run, suddenly everyone know it was possible and many others were able to do it too.  Seeing a “tic-tac” craft maneuver and seeing the insides of a downed “disc” might do the same kind of thing, I would imagine.

Too bad I’m not more educated in physics and quantum theory.

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