PM Monthly Market Commentary – 07/31/2020

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  • Sat, Aug 01, 2020 - 05:28am

    #1

    davefairtex

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    PM Monthly Market Commentary – 07/31/2020

On Friday, gold climbed +20.93 [+1.06%] to 1994.44 on moderate volume, and silver shot up +0.99 [+4.16%] to 24.76 on heavy volume. The buck moved higher [finally:+0.34%], SPX rallied too [+0.77%], as did crude [+0.22%], and so did bonds [the 10-Year yield fell -1.0 bp].

The monthly sector map shows silver in the lead, up an incredible 33%. Silver led gold, and the miners were in the middle; they continue to lag, although the silver mining shares almost were able to keep pace with the metal itself. The other metals did well, but weren’t nearly as strong, and Gold/euros brought up the rear, which hints that a dollar plunge probably provided a significant boost to gold/USD.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver $SILVER 32.63% 50.64% rising rising rising rising ema9 on 2020-06-19 2020-07-31
Silver Miners SIL 30.58% 71.18% rising rising rising rising ema9 on 2020-06-22 2020-07-31
Junior Miners GDXJ 21.90% 53.17% rising rising rising rising ema9 on 2020-07-31 2020-07-31
Senior Miners GDX 17.07% 54.18% rising rising rising rising ema9 on 2020-07-31 2020-07-31
Gold $GOLD 10.17% 36.82% rising rising rising rising ema9 on 2020-07-17 2020-07-31
Palladium $PALL 9.14% 49.62% rising falling rising falling ema9 on 2020-07-30 2020-07-31
Platinum $PLAT 8.03% 7.37% rising falling rising falling ema9 on 2020-07-30 2020-07-31
Copper $COPPER 5.11% 9.16% falling rising rising rising ema9 on 2020-07-30 2020-07-31
Gold/Euro $GOLD:$XEU 5.00% 28.38% rising rising rising falling ema9 on 2020-07-21 2020-07-31

In July, gold shot up +184.03 [+10.17%] to 1994.44 on moderate volume. The closing white marubozu candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. Gold is in an uptrend in all three timeframes.

Gold/euros climbed +80.58 [+5.00%] to 1691.70 on moderate volume. The closing white marubozu candle was a bullish continuation, forecaster dropped, but remains in an uptrend. Gold/euros is in an uptrend in all three timeframes.

COMEX GC open interest fell -26K contracts on Friday, and rose +14K contracts this month. That was 4 days of global annual production in new paper added to the market. Current open interest for GC: 52% of global annual production, up +1.27% this month.

Gold had a great month, breaking out to a new all time high, and holding that high through to the close. In fact, Friday (the last day of the month) was also an all time closing high too. This is quite bullish.

There was also a large drop in OI on Friday as well – the First Notice Day for GCQ20 – and this was likely the key to the puzzle for gold’s big rally. It appeared to me that the banksters bailed out of their short positions, right here at the top, rather than risk having to cough up physical gold. I mean, that’s a guess. But have I ever seen a massive drop (26k contracts!) while the market makes new highs? I have not. Mostly, the commercials go short at new highs.

Silver screamed higher, up +6.18 [+33.26%] to 24.76 on heavy volume. The long white candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. Silver is in an uptrend in all three timeframes.

COMEX SI open interest rose +5.7K contracts on Friday, and rose +22K contracts this month. That was 45 days of global annual production in new paper added to the market. Current open interest for SI: 111% of global annual production, up +12.42% this month.

The gold/silver ratio plunged -16.89 to 80.55.

This was the 4th best month for silver in the history of the series, dating back to 1963. Better months? Mostly, 1979, up 51% [Dec] and 55% [Sep]; surprisingly, the follow-on months did not lead to a huge wave of selling.

There was a huge difference in open interest change for silver compared to gold, but the OI levels for silver still remain well below where they were at the start of the year. The gold/silver ratio is now unwinding at a rapid pace; how much farther this will go in this cycle is an open question, but the uptrends remain in place and are reasonably strong. Daily RSI7 for silver has dropped to 74, which is just slightly overbought.

GDX gained +17.07% on moderate volume, and GDXJ shot up +21.90% on moderate volume. XAU rallied +19.64%, the long white candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. XAU is in an uptrend in the weekly and monthly timeframes.

The GDX:gold ratio climbed +5.90%, and the GDXJ:GDX ratio climbed +3.97%. That’s very bullish.

While the mining shares outperformed gold, they did not outperform silver – not even the silver mining shares did so. Normally, miners should rise faster than metal, since the miners – representing years of supply of metal in the ground – are a leveraged play on the metal itself. Mostly this suggests that the market believes metals prices might be a little ahead of themselves at this point.

Platinum rose +69.93 [+7.59%], while palladium rose +191.65 [+8.95%]. Both metals are in longer term uptrends, but they have not kept pace with either gold or silver.

Copper rallied +0.14 [+5.15%] to 2.86 on moderately heavy volume. The long white candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. Copper is in a downtrend in both the daily and weekly timeframes.

While copper’s monthly chart looks strong, copper ended the week in downtrends for both daily and weekly timeframes; the daily actually looks pretty unhappy, and copper is well below the 9 MA – although prices have yet to meaningfully correct. Friday marked the lowest close for copper in more than two weeks.

The buck plunged -4.02 [-4.13%] to 93.33 on very heavy volume. The opening black marubozu candle was a low-percentage bullish reversal (17%), forecaster dropped, moving deeper into its downtrend. The buck is in a downtrend in all three timeframes.

Major currency moves included: CAD [+1.73%], EUR [+4.69%], GBP [+5.62%], JPY [+1.85%], AUD [+3.51%].

It was a bad month for the buck, and GBP and EUR were major beneficiaries; the last time EUR/USD was at 1.18 was back in early 2018. However, on Friday the buck actually rallied, printing a bullish engulfing (46%), but it was not enough to pull daily forecaster back into an uptrend – and the buck remains well below the 9 MA. The dollar downtrend remains strong.

Crude rose +0.70 [+1.76%] to 40.54 on moderate volume. The northern doji candle was a bullish continuation, but forecaster fell, dropping into a downtrend. Crude is in a downtrend in all three timeframes.

Crude looked weak all month – basically crude just side-tracked – but it may have tipped into a downtrend on the last two days of this past week. A reversal in crude could lead to a sell-off in equities also. Trends in crude are relatively weak.

SPX shot up +170.83 [+5.51%] to 3271.12 on moderately heavy volume. The short white candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. SPX is in an uptrend in all three timeframes.

Utilities [+7.23%] led, along with communication services [+7.04%], while energy [-5.05%] and financials [+3.70%] did worst. This was a slightly bearish sector map.

The VIX plunged -5.97 to 24.46.

It was a good month for equities – this marks a new monthly all time closing high for SPX – although not a new all time high. Friday looked reasonably strong also. The SPX uptrend remains reasonably strong.

The 10-Year yield fell -12.0 bp to +0.54%. The short black candle was a possible bullish reversal (38%), forecaster climbed, but remains in a downtrend. The 10-Year yield is in a downtrend in both the weekly and monthly timeframes.

The 10-year ended the month at the all time low yield – set reached back on March 9 2020

. Treasury market = destroyed.

JNK screamed higher, up +4.88%. The long white candle was a bullish continuation; JNK is in an uptrend in the daily and weekly timeframes. No monthly forecaster for crappy debt, the ETF is too new for it to resolve. Risk on signal from crappy debt.

Physical Supply

The GLD ETF tonnage on hand climbed +63.05 tons, with 1242 tons remaining in inventory.

ETF Discount to NAV:
* CEF -1.48%
* PHYS -0.95%
* PSLV -3.20%
Gold dealer big bar premiums:
* gold [1kg]: +1.53%
* silver [1000 oz]: +11.64%

Physical ETFs have moved into stronger discount, especially PSLV, while physical bars look scarce; the kilo bars have a fairly high premium, as do the silver bars too.

Economic Reports

Fed Balance Sheet: -133.3B, Liquidity Swaps: -157.5B, Reverse Repos: -7.5B, Treasury Securities: +96.2B, MBS: -10.1B. Fed is still buying lots of treasury bonds; no other central banks need dollars.

Nonfarm Payrolls: headline +4.8M (+3.48% m/m), avg hourly earnings: -0.35 (-1.19% m/m). Strong headline number; perhaps 30% recovery.

Durable Goods, new orders: headline +13.58% m/m, shipments: +4.17% m/m. That’s more than a 50% recovery.

Personal Income: headline -1.12% m/m, Consumer Spending: +5.33% m/m. Personal income is still 5% above what it was pre-pandemic (thanks to those checks), while consumer spending has recovered perhaps 70%: people are saving money.

Durable Goods, new orders: headline +6.77% m/m, capital goods new orders: +3.17% m/m, shipments: +12.94% m/m. 50% recovery.

Existing Home Sales: headline -10.74% m/m, Mean Sale Price: -1.8K, monthly home supply: 4.80, +0.80. Rising supply, dropping prices, dropping sales. That’s bad, if you’re a seller.

Median new home sales price: +19K (+5.77% m/m), SF new home sales: +94K (+12.11% m/m), monthly home supply: 4.70, -0.80 (-17.02% m/m). Fewer homes for sale, at higher prices, which is good if you’re a home manufacturer.

Auto/Light Truck Sales: headline +6.57% m/m, Auto Sales: +8.73% m/m, Heavy Truck Sales: +11.15% m/m. Perhaps 50% recovery in auto/light truck sales.

Retail Sales: headline +6.01% m/m (prior +14.61% m/m) retail sales (ex-autos): +6.81% m/m (prior +10.77% m/m). Headline number is now higher than it was pre-pandemic.

Industrial Production: headline +5.14% m/m (prior +1.36% m/m), manufacturing: +6.86% m/m (prior +3.78% m/m). 30% recovery.

CPI All Urban: headline +0.56% m/m (prior -0.05% m/m) -0.48% y/y CPI less-food/energy: +0.23% m/m (prior -0.06% m/m) +0.09% y/y. Perhaps 35% recovery.

Producer Prices: headline +0.89% m/m (prior +1.80% m/m) -4.13% y/y. Maybe 40% recovery.

Summary

It was a “silver” month this month – the 4th best month for silver since the series started back in 1963, and the best month in 40 years. If you are long silver, that’s substantially better than a poke in the eye with a sharp stick. Did anyone remember me saying that I was putting all my “cash” into PSLV? I don’t normally do that sort of thing, but I got this one right for sure. So far anyways.

Silver was also a reversion to the mean trade; the plunge in the gold/silver ratio (16 points – to 80) brought the ratio back to still-elevated levels; the previous two PM highs saw the ratio at 1980:19 and 2011:31, which is far below where we are now. At 80, we are in no danger of marking a long-term top.

In PM rallies, silver leads PM higher. At long last, silver is leading now. It feels as though a beach ball, long held below the surface of the water, was finally released.

Gold and the miners did well also – gold broke out to a new all time high, and the miners are back to levels last seen in January 2013. The big drop in OI on Friday was a positive sign too; most likely due to the banksters bailing out immediately before being asked to cough up the physical metal by people standing for delivery.

In fact, this behavior – standing for delivery – by people who want physical gold, with no premium, and no default risk, is a new thing. And it is very bullish for gold. It will either lead to higher prices (eventually), or the long-awaited-by-goldbugs COMEX Default event, where COMEX itself runs out of gold. Only one issue: I think we have another 3 months (or is it six?) to wait for the next delivery month for gold.

The 10-year bond yield has fallen to all-time lows (thanks to 96 billion in purchases from Mr Powell), and both equities and crappy debt had a good month. Everything goes up with enough money printing.

Copper rallied too, but ended the month looking weak; crude chopped sideways, and also ended on a weak note.

Free money: there is a new tranche of free money being discussed in the Senate; everyone wants to give Americans more free money, but the primary issue is whether or not to shovel a trillion (or more) additional dollars at semi-bankrupt states, most of which are run by Team Blue. How much will the donor class get? That I don’t know.

Cases: appear to have peaked in the US. Possibly related: it is also possible that the buck is bottoming out, although that is much less certain.

Defaults: not happening yet. Everyone is still extending & pretending. How this plays out will drive a lot of things. Japan and 30 years of slow deflation? Or 1931 – a rapid explosion of massive deflation? If I were in charge, I’d do the “Steve Keen Debt Jubilee”, where every citizen would receive $50k in cash that would go first to pay down their debts, and any remaining cash would be handed to them. The Jubilee would be very hard on the banksters (all that interest income would vanish – especially all those payday loans and 30% credit cards), but it would deflate the debt bubble at a stroke. No foreclosures. No repossessions. And no deflationary depression.

Probably won’t happen. Not enough wealth transfer would occur to please the gang in charge.

Economic reports suggest we’ve bounced back – maybe halfway – after dumping maybe 2.8 trillion (12.7% of GDP) in newly printed money into the economy. More dollars + fewer goods & services (a lot fewer people are working) = inflation, but only if people spend all that new money. They are starting to do so.

Is Europe doing this? Yes, but the ECB total assets have risen just 500B Euros. They are printing, but only a fraction (4.1% of GDP) of what the US is doing. And that German court ruling is due to take effect basically next week. Perhaps this partially accounts for the plunge in the buck.

When the cases in the US start to materially decline, and if the civil unrest subsides, we will start to get more information as to the factors are that are driving both gold and the buck.

  • Mon, Aug 03, 2020 - 08:37am

    #2

    JAG

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    Natural Gas and the Bond Market

Good Monday morning to you DF, and thank you for another excellent report!

Natural Gas

Looks like something has changed for natural gas. I have a couple of call options on UNG to offset inflation in my electricity bill and they are moving up significantly (35+%) today. The last few months they floundered around, only rising on days when the market was down.

Was there some news regarding natural gas?

Bond Market

DF, I have another one of my famous dumb questions for you: Are we overlooking the action in the bond market?

TLT is signaling strong deflation ahead while the dominant market narrative is all about inflation. Sure, it could just be the FED buying treasuries creating a false signal but what if it is not so simple?

What is that saying?

It’s not what you don’t know that hurts you but what you think you know for sure that just ain’t so.”

The bond market is typically the smart money, maybe they are selling to the FED or maybe they are buying with the FED. What do you think?

Thanks for your time and brain cells.

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