PM Weekly Market Commentary – 02/14/2020

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  • Sat, Feb 15, 2020 - 05:18am

    #1
    davefairtex

    davefairtex

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    PM Weekly Market Commentary – 02/14/2020

On Friday, gold climbed +7.83 [+0.50%] to 1588.45 on moderately light volume, and silver rose +0.09 [+0.51%] to 17.78 on moderate volume. The buck moved slightly higher [+0.04%] as did SPX [+0.18%] and bonds [10-Year yield fell -2.0 bp], while crude had a reasonably strong rally [+1.45%].

The metals sector map is more than a little confused this week; palladium led, along with copper, gold led silver, and the miners led the metals. Gold/Euros was the best-performing PM component. What does it all mean?

Well, the sector-leading move in palladium (with copper #2) suggests that the pandemic threat is easing. At the very same time, gold leading silver is a safe haven move. Which signals should we believe?

My attempt to tea-leaf-read: the metals markets are unsure if China can actually get back to work while under threat of pandemic. After all, if Leader Xi orders people back to work – presumably they all dutifully go back to work, yes? So big money is hedging its bets; shorts cover in copper, just in case, while money continues to flow into gold – especially over in Europe, where the wheels are slowly coming off the manufacturing wagon and there are hints that the ECB will cut rates even further into negative territory – doing more of what has been proven not to work. Some day confidence in that approach will snap. Is the breakout of gold to new all time highs (in EUR) a sign? Maybe it is.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 5.54% 67.71% rising rising rising rising ema9 on 2020-02-10 2020-02-14
Copper $COPPER 2.08% -6.17% rising falling falling rising ema9 on 2020-02-10 2020-02-14
Gold/Euro $GOLD:$XEU 1.86% 25.49% rising rising rising rising ema9 on 2020-02-06 2020-02-14
Junior Miners GDXJ 1.79% 26.72% rising rising rising falling ema9 on 2020-02-13 2020-02-14
Senior Miners GDX 1.36% 27.87% falling rising rising falling ema9 on 2020-02-13 2020-02-14
Gold $GOLD 0.86% 20.58% rising rising rising rising ema9 on 2020-02-13 2020-02-14
Silver Miners SIL 0.72% 16.52% rising rising rising falling ema9 on 2020-02-14 2020-02-14
Silver $SILVER 0.17% 13.63% rising rising rising falling ema9 on 2020-02-14 2020-02-14
Platinum $PLAT -0.24% 22.62% falling rising rising rising ema9 on 2020-02-14 2020-02-14

On the week, gold climbed +13.55 [+0.86%] to 1588.45 on moderately light volume. The bullish harami candle was a bullish continuation, and forecaster climbed, moving higher into its uptrend. Gold is in an uptrend in all three timeframes. Note this happened in the face of a reasonably strong rally in the buck.

Gold/euros rallied +26.72 [+1.86%] to 1464.99 on moderately light volume. The closing white marubozu was a bullish continuation, and forecaster climbed, moving higher into its uptrend. Gold/euros remains in an uptrend in all three timeframes.

COMEX GC open interest rose +18K contracts on Friday, and rose +40K contracts this week. That was 13 days of global annual production in new paper added to the market. Current open interest for GC: 64% of global annual production, up +3.69% this week. The shorts are piling in – perhaps official intervention – as gold/Euros breaks out to a new all time high.

Futures markets are projecting a 11.1% percent chance of a rate cut at the next FOMC meeting.

Gold commercial net fell -6.1K contracts, which was +11K new shorts and +4.8K new longs. Gold managed money net rose +14K contracts, which was -6.3K fewer shorts, and +7.7K new longs. The COT report does not appear to be at a turning point at this time.

Silver rose +0.04 [+0.23%] to 17.78 on moderate volume. The doji/NR7 candle was a bearish continuation, and forecaster dropped, moving deeper into its downtrend. Silver is in an uptrend in just the daily timeframe. Still, silver remains above both the 50 and 200 MA lines, which looks reasonably positive.

COMEX SI open interest rose +1.9K contracts on Friday, and rose +2.5K contracts this week. That was 5 days of global annual production in new paper added to the market. Current open interest for SI: 131% of global annual production, up +1.43% this week. OI is nowhere near a high.

Silver commercial net fell -1.1K contracts, which was +3.6K new shorts and +2.5K new longs. Silver managed money net fell -511 contracts, which was -182 fewer shorts, and -693 fewer longs. As with gold, the silver COT report is not signaling either a high or a low.

The gold/silver ratio climbed +0.56 to 89.34. That’s bearish — suggests a flight to safety.

GDX moved up +1.36% on moderately light volume, and GDXJ rallied +1.79% on moderately light volume. XAU climbed +0.67%, the doji candle was a bearish continuation, andd forecaster dropped, moving into a downtrend. XAU is in a downtrend in all three timeframes. While the forecasters are bearish, the miners remain above both 50 and 200 MA lines – that’s still reasonably positive. The forecasters are attempting to look ahead to where it thinks the mining shares will go in the next few time periods.

The GDX:gold ratio climbed +0.49%, and the GDXJ:GDX ratio climbed +0.42%.

Platinum fell -2.30 [-0.24%], palladium rose +124.75 [+5.35%], and copper rose +0.06 [+2.31%].

Copper rallied strongly, up +0.06 [+2.36%] to 2.60 on moderate volume. The long white candle was a possible bearish reversal (33%), and while forecaster climbed, iit remains in a downtrend. Copper is in a downtrend in both the daily and weekly timeframes.

The buck rose +0.40 [+0.41%] to 98.74 on moderately heavy volume. The short white candle was a bullish continuation, and forecaster climbed, moving higher into its uptrend. The buck remains in a strong uptrend in all three timeframes.

Major currency moves included: CAD [+0.37%], EUR [-1.09%], GBP [+1.19%], AUD [+0.59%]. The Euro hit a new 4-year low this week, over concerns about the ongoing manufacturing recession in Germany and elsewhere. Will the ECB drop rates further into negative territory in order to “stimulate the economy”? That’s another concern. Consumption in China is falling off a cliff due to the pandemic, which will also impact exports from Europe.

Crude jumped +2.00 [+3.95%] to 52.64 on moderate volume. The swing low candle was a probable bullish reversal (55%), and forecaster climbed, but remains in a downtrend. Crude is in an uptrend in the daily and monthly timeframes, but the weekly is right on the edge of a bullish reversal too.

EIA report: crude +7.5m, gasoline -0.1m, distillates -2.0m. That’s quite bearish, but it didn’t do much to derail the optimism this week over – maybe – China going back to work and overcoming the pandemic…somehow.

SPX rallied +52.45 [+1.58%] to 3380.16 on moderate volume. SPX made yet another new all time high this week. The long white candle was a bullish continuation, and forecaster climbed, moving higher into its uptrend. SPX remains in an uptrend in all three timeframes.

REITs [+4.63%] led, along with discretionary [+2.57%], while materials [+0.69%] and financials [+0.80%] did worst. This was a bearish sector map.

The VIX fell -1.79 to 13.69.

TLT rose +0.08%. The short black/NR7 candle was unrated, forecaster dropped, but remains in an uptrend. TLT is still in an uptrend in the weekly timeframe. The 30-Year yield fell -1.0 bp to +2.04%.

TY fell -0.03%. The short black/NR7 candle was unrated, and forecaster dropped, but remains in an uptrend. TY remains in an uptrend in all three timeframes. The 10-Year yield was unchanged at +1.59%.

Bonds holding steady while risk assets rally says – the markets are definitely not sure about this whole “risk on” move just yet.

JNK rallied +0.51%. The long white candle was a bullish continuation, and forecaster climbed, rising into an uptrend. JNK is now in an uptrend in the daily and weekly timeframes. JNK is supporting the risk-on sentiment. Money printing from China and the US may be helping sentiment in the crappy debt sector.

Physical Supply Indicators

The GLD ETF tonnage on hand climbed +7.91 tons, with 924 tons remaining in inventory.

ETF Discount to NAV:

* CEF -2.28% [increase]

* PHYS -0.28% [decrease]

* PSLV -0.96% [increase]

Bullion Vault Premiums:

* gold: -1.40

* silver: +0.01

Gold dealer big bar premiums:

* gold [1kg]: +1.06%

* silver [1000 oz]: +2.99%

Grey Swans & Geopolitics

  • COVID-19 (formerly “corona virus”). China claims to be going back to work. The case of the Diamond Princess cruise ship shows a highly infectious virus, suggesting China’s reported case numbers are hopelessly under-reported. Transmission in other countries (Thailand, Japan, Singapore, US) to people with no contact with any known cases hint at a hidden epidemic caused (possibly) by asymptomatic individuals. Meanwhile, the CCP is working overtime to deflect blame away from the center: throwing local officials under the bus, and lauding individual heroes, some of whom are safely deceased, while ramping up censorship: https://www.hongkongfp.com/2020/02/15/heroes-villains-beijing-crafts-narrative-virus-outbreak/

  • Fed Balance Sheet: headline 4182.7B, +16.0B (+0.38% w/w) (prior +0.36% w/w). This is a new 2-year high in the balance sheet; money printing continues.

  • Yield Curve Inversion: the 1-10 spread rose +1 bp to +11 bp this week. 1Y: 1.48% (-1 bp), 10Y: 1.59% (+0 bp). That’s a very slight improvement.

  • Hong Kong: the city is almost completely focused on COVID-19, as best I can tell; it does not appear as though many view Beijing as an ally during this time, although that’s just tea-leaf-reading from afar.

  • US-Iran: the US Senate passed a limited “war powers resolution” (although not with a veto-proof majority) that would prohibit US military action against Iran without Congressional authorization. Once again, Trump is a catalyst for change – positive change – probably without specifically intending to do so. “Do we really want to give Trump that sort of power?” No, you probably don’t want to give any US president that sort of power. As the framers clearly intended in Article 1, section 8: “The Congress shall have Power . . . To declare War, grant Letters of Marque and Reprisal, and make Rules conquering Captures on Land and Water…”

  • North Korea: No news.  Well, one item: DPRK executed an official for breaking quarantine.  Gotta love the enthusiasm of that regime.

Economic Reports

Retail Sales: headline +0.14% m/m (prior +0.02% m/m), ex-autos: +0.29% m/m (prior +0.63% m/m). This was a weak retail sales report. Since these numbers aren’t adjusted for inflation, it was contractionary, at least in real terms.

Industrial Production: headline -0.31% m/m (prior -0.39% m/m), manufacturing: -0.09% m/m (prior +0.06% m/m). Industrial production is now contracting for two months. That’s recessionary.

CPI All Urban: headline +0.15% m/m (prior +0.24% m/m), CPI less-food/energy: +0.24% m/m (prior +0.12% m/m). No inflation in the headline number, but there does seem to be inflation in the “core” category – at an annualized 2.88% rate.

Summary

More happy noises this week from the CCP; head doctor said he thought the epidemic would peak next month – based on what, I don’t know. Perhaps because next month isn’t very far away? Let’s see if he says the same thing next month. He said this last month too. Number of infected reported by the CCP seemed to be leveling off – right up until they allegedly changed the diagnosis mechanism and promptly found a whole lot more infected people. Death count soared, and was then inexplicably chopped in half due to “double counting.” Beijing seemed to be working overtime on shaping the narrative. “Local heroes” and “local villains” were all used to deflect blame and attention from the center. Xi was seen wearing a mask.

Risk assets saw all of this and decided to rally; JNK moved back into an uptrend, and SPX made yet another new all time high. Apparently the conclusion is, the US will be immune from any supply chain issues, never mind that our imports from China total more than $2 trillion per year; mostly we just do “services” these days, which (reductively) nets to banksters, lawyers, and sickcare-cartel harvesting operations. China is going back to work this week. Goodies are on the way. The pandemic will peak next month. Leader Xi (or one of his minions) said so.

Both copper and crude rallied this week; crude printed a strong-looking swing low, and is on the verge of a weekly-chart bullish reversal, while copper’s candle print (33% bearish reversal) hinted at a dead cat bounce, and copper forecaster remains in a downtrend. Crude is optimistic; copper, not so much.

This week’s economic reports – the data lags by a month – hints at a slowing US economy. Industrial production fell, retail sales are just above stall speed, while even government-measured “core” inflation is starting to heat up. That feels a little bit like stagflation.

The USD rally (really, a plunge in EUR/USD) appears to be a sign of an increasingly dim economic picture over in the Eurozone. EUR/USD broke down to a 4-year low this week. This, combined with a reasonably strong gold market, has caused Gold/Euros to break out to a series of new all time highs. This breakout should encourage money across the pond to continue flowing into the yellow metal.

All of this netted out to a confused forecaster map; bitcoin is once again in the lead.

item period trend strength change
BTC.USD week strong up +0.88 +0.26
DX.CW week strong up +0.70 +0.18
GC.CW week strong up +0.57 +0.45
JNK.N week up +0.29 +0.51
$SPX.N week up +0.28 +0.15
TLT.N week up +0.25 -0.28
GC.EUR week up +0.24 +0.07
TY.CW week up +0.13 -0.42
CL.CW week slight down -0.03 +0.72
SI.CW week down -0.13 -0.03
PL.V week down -0.18 +0.40
$XAU.N week down -0.26 -0.39
HG.CW week down -0.28 +0.33

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  • Sun, Feb 16, 2020 - 10:27am

    #2

    JAG

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    Stock-to-Flow Ratio on Silver = 3?

Hey Mr. Dave,

I remember seeing a realvision video last fall with a bitcoin analyst on twitter (planB) where he was talking about stock-to-flow ratios for various hard money assets, primarily gold and bitcoin.

I think he said at one point that the S2F of silver had dropped from 22 to 3. I’m going to have to subscribe again to realvision to confirm that, but I think that is accurate.

That would imply that silver has lost its monetization value and now it is valued solely as an industrial metal. That would explain the aberration in the gold/silver ratio.

What do you think? Is there a good chance that all the expectations for silver to catch up with gold are just flat-out wrong at this point?

I’m seriously thinking about punting on silver. Selling my silver eagles and silver miners and adding to my bitcoin position.

Bitcoin is a pain in the butt to invest in, but that makes me more inclined to just buy and hold for the long haul, which is probably good in my case. Plus, Bitcoin’s S2F ratio should be about equal to gold’s S2F ratio after the next halving in May, and it seems less correlated to the markets overall.

I’ll let you know when I sell my silver so that you can double down and enjoy the resulting bull market, lol.

Also, do you cover bitcoin anymore?

Many thanks….Jeff

  • Sun, Feb 16, 2020 - 12:22pm

    #3
    Nate

    Nate

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    silver

That would imply that silver has lost its monetization value and now it is valued solely as an industrial metal. That would explain the aberration in the gold/silver ratio.

What do you think? Is there a good chance that all the expectations for silver to catch up with gold are just flat-out wrong at this point?

I’m seriously thinking about punting on silver. Selling my silver eagles and silver miners and adding to my bitcoin position.

I’ll let you know when I sell my silver so that you can double down and enjoy the resulting bull market, lol.

I’m no expert on PM’s, but JAG’s current thinking makes me think we are near the bottom.  Armstrong continues to tell us that gold and silver are not ready for prime time.  Yet.

He also mentions that boomers (the moneyed crowd) still value gold and silver, while millennials (few assets at this time) have little interest in them.   I am going to continue to hold, and if the prices do take off, will totally liquidate.

  • Sun, Feb 16, 2020 - 06:34pm

    #4
    davefairtex

    davefairtex

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    silver

JAG,Nate-

Well FWIW I agree with Nate.  “Its different this time” (when price seems to be behaving badly) is often the sign of a low.  FWIW I’m not selling my silver miners, some of which have done quite well off the lows.

I don’t have specifics (like stocks to flows numbers).  Just a general contrarian instinct.  Is there still a market for silver jewelry?  Is it declining?  Why would I sell at near-record gold-to-silver ratios?

The relatively huge short interest in silver (as a percentage of annual production) is unique as far as I know.  If/when that reverses, it could lead to…some pretty dramatic outcomes.

I know this is the perennial story out of KWN, but this one I believe in.

I’m staying long.

I think bitcoin is useful – especially for those oligarchs in China that want to sneak their money out the back door as capital controls become more strict.  I think China & COVID-19 are driving bitcoin’s recent rally.  My belief is, bitcoin isn’t a safe haven, its an escape hatch.  I know Charles feels differently.

  • Sun, Feb 16, 2020 - 07:56pm   (Reply to #3)

    #5
    ao

    ao

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    the red headed step child, silver

I agree with Nate too except for one thing.  I won’t liquidate 100%.  I’ll keep about 10% silver forever, consider moving another 10% into whatever is the cheapest precious metal at that time, and take the remaining 80% as cash to be moved into whatever looks the most promising at the time.  Also, I will never get rid of an even larger percentage of gold when its day comes.  I like silver but I like gold even more.

If we’re to believe the reversion to mean principle, silver will have its day.  Of all the commodities, it appears to be the most undervalued, it has the most industrial uses, it has a historical monetary function, JPMorganChase holds a massive position, it is being depleted, and it is hated.  What could look more bullish?  If I had a place to store it safely, I’d buy some more.

By the way, rhodium hit $10,000 an ounce on Friday.  Amazing.

 

 

  • Sun, Feb 16, 2020 - 08:31pm

    #6
    ao

    ao

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    historical silver prices

I just satisfied my curiosity about historical silver prices going back beyond 1985, which is the farthest back Kitco goes now.  In February 1919, silver was $17.99 per ounce.  Isn’t it amazing that 101 years in the past, with all the dollar devaluation that has occurred over the past century, silver was worth more in nominal dollar terms than it is now?

 

  • Mon, Feb 17, 2020 - 09:17am

    #7

    JAG

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    New High in Speculation

Mr. Dave, it’s time to go lone wolf again.

Last week, the dumb money just bought to open nearly 24 million call options. Holy cow! And call selling at the week’s close was down 30%.

Over the last 7 weeks, the total calls bought to open minus the total calls sold to close exceeds 80 million contracts! 

This is the mother of all asymmetrical set-ups. Time to buy some puts.

I guess I will be holding on to my silver for awhile longer…..thanks for the feedback.

 

  • Mon, Feb 17, 2020 - 11:08pm   (Reply to #7)

    #8
    davefairtex

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    re: New High in Speculation

JAG-

This is the mother of all asymmetrical set-ups. Time to buy some puts.

Yeah.  I was early.  Sorry about that.

I have a new play after listening to Wolf Richter’s summary this weekend: UAL.  Do you see a dead cat bounce on the chart there?

Waiting for market open.

  • Tue, Feb 18, 2020 - 12:33am

    #9
    Nairobi

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    Reply To: PM Weekly Market Commentary – 02/14/2020

Gold has a terrific set up in play right now. The dollar may just top out here and fall back.  My target was 99.16 but futures have stalled at 99.14 and that may be all she wrote. If that is the case an explosive move in gold couldbe coming. I still think it’s possible to exceed 1650 during February although you know what they say about trying to get both time and price right together (yes, it’s a fools errand! Lol)….but I am trying anyway.

Gold is a strong buy in my books.

  • Tue, Feb 18, 2020 - 03:04am

    #10
    davefairtex

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    AAPL tosses revenue guidance

As Wolf Richter says, “It Starts”:

https://wolfstreet.com/2020/02/17/it-starts-apple-throws-revenue-guidance-out-the-window-on-supply-chain-woes-sales-collapse-in-china/

Apple announced this afternoon – a holiday for US markets and the last day of a long weekend, when no one is paying attention – that it threw its revenue guidance of January 28 out the window. Clearly, January 28 was not the time to sow doubt; the stock had to be driven higher.

Apple disclosed today that, as work is starting to resume at factories in China, “we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.”

An observation: if an Iphone consists of hundreds of parts, each made from a supplier somewhere in China, all it takes for one particular supplier to be doing badly, and the entire phone must wait on that one part.

The more suppliers required, the higher the probability that the final product won’t have all the pieces required to make it, and so on down the chain.

If there is a 90% chance of every supplier being online, but your product has 20 different suppliers, means that … uh oh, I did poorly in combinatorics … an 88% chance the phone won’t get made.  I think.  (0.90 ^ 20).

If you’re missing just one component, no product.  And of course, no products, no revenues.

The takeaway: complicated products won’t get made.  Complicated-product companies will see revenue drops – the more “just in time” they are, the bigger the drop will be.

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