PM Weekly Market Commentary – 01/17/2020

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  • Sat, Jan 18, 2020 - 12:27am

    #1
    davefairtex

    davefairtex

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    PM Weekly Market Commentary – 01/17/2020

Gold rose +4.57 [+0.29%] to 1562.35 on moderate volume, and silver climbed +0.09 [+0.50%] to 18.08 on moderate volume. The buck moved sharply higher [+0.30%], SPX climbed too [+0.39%] as did crude [+0.39%], while bonds moved lower [10-Year yield rose +2.0 bp].

The metals sector map has gold leading silver, but the miners are leading metal by a slight amount. From the gold/silver perspective, things look confused. Meanwhile, palladium is doing ridiculously well, with platinum in the #2 slot. Is this about the signing of the US-China trade deal? The nutty palladium rally – is that still about diesel cars being swapped out in Europe for gasoline cars because of the VW scandal? And platinum: trouble in South Africa? Regardless, gold has been consigned to the back burner of the metals sector by explosive moves in other metals. Even copper did well. Ok, regardless, everything is above both the 50 and 200 MA lines, so that says we remain in bull market territory.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 8.56% 65.68% rising rising rising rising ema9 on 2019-12-30 2020-01-17
Platinum $PLAT 4.40% 26.33% rising rising rising rising ema9 on 2020-01-09 2020-01-17
Copper $COPPER 1.14% 5.52% rising rising falling rising ema9 on 2020-01-10 2020-01-17
Gold/Euro $GOLD:$XEU -0.09% 23.69% rising rising rising falling ema9 on 2020-01-17 2020-01-17
Senior Miners GDX -0.11% 37.56% falling rising rising falling ema9 on 2020-01-17 2020-01-17
Junior Miners GDXJ -0.12% 34.95% falling rising rising rising ema9 on 2020-01-16 2020-01-17
Gold $GOLD -0.34% 20.49% falling rising rising rising ema9 on 2020-01-17 2020-01-17
Silver Miners SIL -0.42% 23.59% falling rising rising falling ema9 on 2020-01-17 2020-01-17
Silver $SILVER -0.50% 15.98% falling rising rising falling ema9 on 2020-01-13 2020-01-17

Gold fell -5.37 [-0.34%] to 1562.35 on moderate volume. The bearish engulfing candle was a reasonably strong bearish reversal (43%), forecaster dropped, but remains in an uptrend. Gold is in an uptrend in all three timeframes.

COMEX GC open interest fell -6.0K contracts on Friday, and rose +2.1K contracts this week. Current open interest for GC: 73% of global annual production, up +0.19% this week.

Gold commercial net rose +6.3K contracts, which was +13K new shorts and +19K new longs. Gold managed money net rose +702 contracts, which was +617 new shorts, and +1.3K new longs. That’s yet another new all time high in commercial shorts for gold. Normally, this would suggest the top may be in for gold.

Silver fell -0.09 [-0.50%] to 18.08 on moderate volume. The spinning top candle was a bearish continuation, forecaster dropped, but remains in an uptrend. Silver is in an uptrend in all three timeframes.

COMEX SI open interest fell -1.1K contracts on Friday, and rose +424 contracts this week. Current open interest for SI: 135% of global annual production, up +0.24% this week.

Silver commercial net fell -1.2K contracts, which was -1.4K fewer shorts and -2.6K fewer longs. Silver managed money net rose +165 contracts, which was +2.6K new shorts, and +2.8K new longs. That’s not much change from last week – while silver commercial shorts aren’t at an all time high, they are at a medium-term peak, which also suggests we may well move lower from here.

The gold/silver ratio climbed +0.13 to 86.41. That’s neutral.

GDX dropped -0.11% on moderate volume, and GDXJ fell -0.12% on moderately light volume. XAU fell -0.40%, the long legged doji candle was a bearish continuation, and forecaster dropped, moving into a downtrend. XAU is in an uptrend in the daily and monthly timeframes. Right now the miners look to be in no-mans land in the shorter term, while the longer term they are still in an uptrend.

The GDX:gold ratio climbed +0.24%, and the GDXJ:GDX ratio dropped -0.02%.

Platinum rose +43.30 [+4.22%], palladium rose +164.26 [+7.35%], and copper rose +0.04 [+1.42%]. Palladium continues to just go nuts – new all time highs every day this week. Copper also broke out to new 8-month highs, and platinum broke out to a new 3-year high. It was a good week for the other metals.

USD

The buck climbed +0.25 [+0.26%] to 97.21 on moderate volume. The spinning top candle was a possible bearish reversal (33%), and forecaster dropped, moving deeper into its downtrend. The buck remains in an uptrend in the daily and monthly timeframes.

Major currency moves included, GBP [-0.37%], JPY [-0.66%], AUD [-0.38%].

SPX rallied +64.27 [+1.97%] to 3329.62 on moderately heavy volume. This was another new all time high for SPX. The long white candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. SPX remains in an uptrend in all three timeframes.

Utilities [+3.54%] led, along with tech [+2.85%], while energy [-1.17%] and financials [+1.10%] did worst. This was a somewhat bearish sector map. Utilities leading is never a particularly good sign, although the strength in the tech sector confuses things a bit.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 3.66% 25.77% rising rising rising rising ema9 on 2020-01-09 2020-01-17
Telecom XTL 3.28% 7.59% rising rising falling rising ema9 on 2019-12-31 2020-01-17
Homebuilders XHB 3.16% 36.16% rising rising rising rising ema9 on 2020-01-08 2020-01-17
REIT RWR 3.01% 14.35% rising rising rising falling ma50 on 2020-01-15 2020-01-17
Technology XLK 2.94% 50.88% rising rising rising rising ema9 on 2019-12-10 2020-01-17
Materials XLB 2.62% 16.15% rising rising rising rising ma50 on 2020-01-15 2020-01-17
Industrials XLI 2.01% 22.55% rising rising rising rising ema9 on 2020-01-02 2020-01-17
Cons Staples XLP 1.85% 23.13% rising rising rising rising ema9 on 2020-01-09 2020-01-17
Healthcare XLV 1.64% 19.07% rising rising rising rising ema9 on 2020-01-06 2020-01-17
Defense ITA 1.59% 25.85% rising rising rising falling ema9 on 2020-01-02 2020-01-17
Cons Discretionary XLY 1.31% 21.49% rising rising rising rising ema9 on 2019-12-06 2020-01-17
Financials XLF 1.11% 21.40% rising rising rising rising ema9 on 2020-01-16 2020-01-17
Gold Miners GDX -0.11% 37.56% falling rising rising falling ema9 on 2020-01-17 2020-01-17
Energy XLE -1.15% 1.02% falling rising falling rising ema9 on 2020-01-10 2020-01-17

The VIX fell -0.46 to 12.10.

Rates & Commodities

TLT dropped -0.30%. The doji candle was a low-percentage bearish reversal (28%), and forecaster dropped, but remains in an uptrend. TLT is in an uptrend in the weekly timeframe. The 30-Year yield rose +2.0 bp to +2.30%.

TY closed the week unchanged. The doji/NR7 candle was unrated, but forecaster dropped, moving into a downtrend. TY is now in a downtrend in both the daily and monthly timeframes. The 10-Year yield was unchanged at +1.83%.

Bonds look weak, although not dramatically so. From my perspective, with equities making new all time highs on a weekly basis, a weak bond market isn’t too much of a surprise.

JNK moved up +0.04%. The doji candle was a bullish continuation, but forecaster fell, moving into a downtrend. JNK is now in a downtrend in both the daily and weekly timeframes. This week marked a 2-year high for crappy debt, but the forecaster reversal in spite of the new high is surprising. Is my model broken? Or is it something else?

Crude moved down -0.21 [-0.36%] to 58.80 on moderately light volume. The doji candle was a bearish continuation, and forecaster fell, moving deeper into its downtrend. Crude remains in an uptrend in the daily and monthly timeframes.

The EIA report was bearish: crude -2.5m, gasoline +6.7m, distillates +8.2m. Crude dropped immediately after this report was released, but bounced back a few hours later. As I said on Wednesday, when the market rallies on bad news – or in this case, failed to sell off on bad news – that’s a bullish sign. On the daily timeframe crude may have put in a low this week, but the evidence is not showing up on the weekly chart just yet.

Physical Supply Indicators

The GLD ETF tonnage on hand rose +24.30 tons, with 899 tons remaining in inventory.

ETF Discount to NAV:

* CEF -3.13% [decrease]

* PHYS -0.28% [decrease]

* PSLV -1.18% [decrease]

Bullion Vault Premiums:

* gold: -0.01

* silver: +0.01

Gold dealer big bar premiums:

* gold [1kg]: +1.10%

* silver [1000 oz]: +3.08%

PM ETF premiums dropped across the board. That’s a positive sign for the metals.

Economic Reports

  • Retail Sales: headline +0.35% m/m (prior +0.40% m/m), retail sales (ex-autos): +0.74% m/m (prior -0.05% m/m). Expansionary.

  • Industrial Production: headline -0.30% m/m (prior +0.82% m/m), manufacturing: +0.16% m/m (prior +1.05% m/m). This is somewhat recessionary.

  • Producer Prices: headline +0.10% m/m (prior +0.25% m/m) -0.90% y/y. This is neutral.

  • CPI: headline +0.22% m/m (prior +0.26% m/m), CPI less-food/energy: +0.11% m/m (prior +0.23% m/m). This is modestly inflationary – although as we know government-measured inflation dramatically under-reports actual costs to real people. Somewhat inflationary.

Grey Swans & Geopolitics

  • US-China trade: US and China signed the long-awaited trade agreement on Wednesday. Agreement has protections for IP theft, forced transfers, and has provisions for enforcement and a forum for dispute resolution. This is not just pork-and-soybeans, but neither does it address everything. However, if a President has the will to use tariffs to enforce it, it does look like a positive step forward for US workers. This event leaves the list today.

  • Fed Balance Sheet: headline $4,175.9B, +26.3B (+0.63% w/w) (prior -0.58% w/w). Money printing is back – last week’s drop may have just been a blip. Perhaps this helps explain the equity market rally? Junky debt certainly didn’t get much of a boost, however.

  • Yield Curve Inversion: the 1-10 spread fell -2 bp to +28 bp this week. 1Y: 1.55% (+2 bp), 10Y: 1.83% (+0 bp). We are still far from inversion.

  • Hong Kong: it appears as though “someone” is “suiciding” HK protesters. In a relatively high profile recent case, a newly arrived older couple (67 and 61 years old, respectively) with British passports, both supporters of the protests, decided to write suicide notes (in both Chinese and English – how helpful) and jump – in their swimsuits – from the 30th floor of their serviced apartment. HK police ruled it a suicide. There is a lot of that going around: allegedly there have been 282 cases of suicide-by-falling since the start of the protests.

  • Iran: blamed the US for its shoot-down of the civilian Ukrainian airliner, and announced it no longer felt bound by the nuclear deal. This has the Europeans upset, and they triggered a “dispute mechanism” to try and bring Iran back into compliance. https://apnews.com/76ef3722e781efed91a832a44d25917d

  • North Korea: no news.

Summary

The PM sector mostly went nowhere this week; there were hints of a reversal mid-week, but no follow through. Miners continue to look weak in the medium term, while both gold and silver both look to be back in uptrends – at least according to my model anyway.

Bonds remain weak, but not horribly so. With equities making strong new highs, one might expect a brisk sell-off in the 10-year, but that’s not happening. If we do ever get a correction in equities, this suggests bonds will probably do well. Theoretically.

And speaking of equities – the index overall looks strong, although the new all time highs in utility stocks are a cautionary note. Still, tech continues to race higher. AAPL is more than a double off the 2018 lows; its a $1.4 trillion dollar company at this point, with a P/E of 27. Hmm. Not on sale right now.

While equities shot higher, crappy debt only managed a very slight gain. This, with another $26 billion in fresh cash from the Fed, says maybe this is as good as we get for the crappy debt sector.

This week’s economic reports were mixed; the retail sales report was reasonably strong vs a modest drop in industrial production, and no particularly strong move either way in producer prices or CPI. Probably no recession in the offing.

Big bar premiums on gold and silver were little changed, while ETF discounts shrank further; PHYS is getting close to moving into premium. Goldbugs continue to move into higher quality paper gold.

The US-China trade deal is now in the history books. Whether China adheres to it – well, I’m guessing they will as long as Trump remains in office. He has a certain “tariff credibility” about him that other US Presidents have lacked. Iran remains a wildcard; while WW3 seems off the table for now, it doesn’t look as though peace is about to break out. After all, without an external threat to blame for their troubles (perhaps legitimately, given the sanctions regime and all), the Mullahs might just lose their grip on the people of Iran. Great Satan + Mullahs = a match made in heaven. So to speak.

But they say in Rules for Rulers:: popular revolts are largely a fiction. They only happen when the Court lets them happen – if/when the Mullahs lose control over their Keys to Power. So far, I don’t see that happening. That sucks for those in Iran tired of 40 years of religious government, but what can you do?

Which brings us to Not-QE. Status: Still Printing, $416 billion since September 2019. We are now past end of year, which was supposedly the reason for the latest burst of printing, but here we are, this week, +$26 billion. So what is their excuse now? We have a Fed meeting in two weeks. I wonder if the feckless press (they tell us that “Democracy Dies in Darkness”) will have more than two questions about Not QE this time. If every single member of the press decided to ask questions about Not QE, the Fed couldn’t get them all fired. Could they?  But asking those questions would require courage. It would require more than just “Orange Man = Bad!”, which seems to be about all the press can manage these days.

Weekly Trends:

item period trend strength change
BTC.USD week strong up +0.62 -0.02
GC.CW week strong up +0.53 -0.22
$SPX.N week strong up +0.52 +0.17
PL.V week strong up +0.51 +0.08
HG.V week strong up +0.30 +0.44
SI.CW week up +0.22 -0.14
TY.CW week up +0.17 -0.07
TLT.N week up +0.09 -0.21
DGS10 week down -0.14 -0.06
$XAU.N week down -0.16 -0.27
DX.CW week strong down -0.32 -0.22
JNK.N week strong down -0.34 -0.56
CL.CW week strong down -0.57 -0.22

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  • Sat, Jan 18, 2020 - 02:50am

    #2

    Eannao

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    Awesome Commentary

My favourite gems this week:

“it appears as though “someone” is “suiciding” HK protesters”

“He has a certain “tariff credibility” about him that other US Presidents have lacked.”

” “Orange Man = Bad!”, which seems to be about all the press can manage these days.”

Great stuff Dave!

  • Sat, Jan 18, 2020 - 06:20pm

    #3
    David Allan

    David Allan

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    A bedtime story

Hi Dave , please don’t be offended by this. It’s a compliment really and I do get tremendous value from your posts. While I like to position myself as a homesteader, permaculture consultant and landscaper the reality is that I spend a fair bit of time on my knees pulling out weeds – and my brain has to do something. So…

Once upon a time in a faraway land there lived a golden boy. Nature was benign; bears foraged in the forest while bulls roamed the grasslands. It was a golden age – life was good and the golden boy observed the world with genuine Open Interest. He felt confident that things were in an uptrend in all three timelines.

Then one fateful day a dark shadow fell upon the earth. The golden boy looks up to see a horrifying sight – a spinning black marubozu spirally down from a BANK of clouds. “I’m innocent” he cries out, “please don’t manipulate me!” At the same time he noticed a bear break out of the forest and lope in in his direction. Quick as a flash he lights a doji candle to deter the dual threats. But it’s not enough! The marubozu swoops lower and the bear is so close the golden boy can smell its fetid breath.

Now the golden boy is becomming rather FED up. Desperate measures are called for so out come the big guns – a bearish engulfing candle is lit with a probable bearish reversal (85%). Luckily it works and sends the ursus arctos rebounding back to the forest. Encouraged, the golden boy next selects a long black candle, lights it and holds it skyward. The rapacious marubozu is dazzled. It retreats half blinded with singed feathers and a short squeeze to the nether regions.

Whew, crisis averted, for today at least. But I’m not entirely sure that everyone lives happily ever after.

  • Sat, Jan 18, 2020 - 08:49pm   (Reply to #3)

    #4
    davefairtex

    davefairtex

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    re: A bedtime story

Wow!  That’s really … poetic!

I have always found the japanese names for the candle patterns to be pretty charming.  They also serve to provide a descriptive mnemonic for what went on.

As a tidbit:

I’ve been updating my models recently.  You might have noticed (but probably not) that the gold daily now has a “4” when before it had a “2”.  I did this because I wanted to fine tune the look-ahead mechanism for the model, and to represent better what it is trying to do.

So: the GC 4 model is trying to predict the 4-point moving average over the current day, plus 3 days in the future.  (3 + 1 = 4).  Sometimes, it is too hard for the model to predict forward 3 days – so instead I pull it back to predicting the MA4 using yesterday, today, and 2 days into the future; I call that 4-lag-1.

“Strength of uptrend” is really just the slope of the predicted MA4.

  • Sat, Jan 18, 2020 - 08:51pm   (Reply to #2)

    #5
    davefairtex

    davefairtex

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    re: Awesome Commentary

Thanks Eannao.  Glad you enjoyed it.

  • Sun, Jan 19, 2020 - 07:22pm

    #6
    ao

    ao

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    rhodium hits $8,000/ounce

Trying for a second time to see if anyone here has any information about a dealer whom they trust who is buying rhodium.  Thinking of trying Kitco but reviews are surprisingly absent.  No one here has bought any rhodium?  I have a hard time thinking I’m the only one who bought it a few years ago when it was trading well under $1,000/ounce.  Have to wonder what’s driving it.  Hedge fund leveraging?  South African miner’s strike? Any informed thoughts or recommendations would be appreciated.

 

  • Mon, Jan 20, 2020 - 04:10am   (Reply to #6)

    #7
    davefairtex

    davefairtex

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    re: rhodium hits $8,000/ounce

Well I know zip about Rhodium.  Other than it is just one word, near the end, in Tom Lehrer’s “The Elements” song.

https://youtu.be/AcS3NOQnsQM

But I digress.  Congrats on the trade, ao, it has indeed gone nuts – roughly a 400% move over the past year.

Sadly no, I don’t have any.  🙂

  • Mon, Jan 20, 2020 - 11:43am

    #8
    davefairtex

    davefairtex

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    Armstrong: repo crisis

Armstrong has been quite cagey about the REPO issue – he’s got an expensive report where he supposedly lays out his thoughts, but … I’ve been watching his posts looking for some tea leaves to read, and here’s the latest:

https://www.armstrongeconomics.com/world-news/banking-crisis/the-coming-crisis-what-to-watch/

…The first was the inverted yield curve which led many to think we were heading into a recession last summer. Then the Repo Crisis hit and despite being touted as just a fluke due to taxes, after more than three months the Fed cannot get out of providing liquidity without stepping back and allowing the free markets to raise short-term rates.

The ECB will have to deal with the whole negative interest rate crisis they have created. They will be forced to allow rates to rise or all member states will have to agree to allow the ECB to adopt the same policies as in Japan — buy all government debt without limit.

Keep an eye on Europe. I do not see any way of avoiding this crisis. Politicians are too busy with other things. The free market will push rates higher and the central banks will be unable to prevent the rise in rates ahead.

This, then, is his prediction.  Big Money will start to panic out of certain types of debt – in Europe – and then rates will start to rise in earnest.  And he doesn’t think the ECB will be able to contain it.

There is a lot of negative-yielding debt out there in the EU.  When that all starts to unwind, the losses to the traders holding those bonds will be – remarkable.

I think one big risk is to anyone in a crappy debt bond fund.  Crappy debt is illiquid, and once money starts to flee these funds, they will halt redemptions, and if you are one of the slow ones, your money will be locked up “until things quiet down”, assuming the crisis isn’t bad enough to take out all the crappy indebted companies, which would leave the bagholders with pennies on the dollar.

Armstrong’s advice is to keep an eye on Europe.

I think I’ll add this to my list.  I’ll have to add sovereign debt yields of the usual suspects.

  • Mon, Jan 20, 2020 - 10:01pm   (Reply to #8)

    #9
    MKI

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    re: Armstrong: repo crisis

Money must go somewhere in a crisis, and the USD seems the only safe place for big institutional money that needs to stay liquid. PM may or may not get a bump; if it does, then the crisis is probably the real thing so watch out! Europe & China seem a mess in any crisis, as discussed. Japan & Korea and the like I’ve no clue…

  • Tue, Jan 21, 2020 - 01:38am

    #10
    phusg

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    Reply To: PM Weekly Market Commentary – 01/17/2020

The ECB will have to deal with the whole negative interest rate crisis they have created. They will be forced to allow rates to rise or all member states will have to agree to allow the ECB to adopt the same policies as in Japan — buy all government debt without limit.

Well here’s to hoping that Lagarde won’t be allowed to fire off Draghi’s bazooka printing press again and that rates are finally allowed to slowly rise, which would be just in time to put a dampener on the mind set seemingly switching wholesale from ‘austerity’ to a full on deficit spending splurge.

Highly likely I would say is kicking the can with Japan’s policies. It being 2020 you have to wonder how far this can can be kicked? Another 12 years?!?

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