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PM Weekly Market Commentary – 03/27/2020

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  • Sat, Mar 28, 2020 - 08:36am

    #1

    davefairtex

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    PM Weekly Market Commentary – 03/27/2020

On Friday, gold rose +2.51 [+0.15%] to 1654.00 on moderately light volume, and silver moved up +0.03 [+0.21%] to 14.64 on light volume. The buck fell hard once more [-0.93%], SPX fell too [-3.37%] as did crude [-2.64%], while bonds rallied [the 10-Year yield fell -15.0 bp].

The gold sector map [included in a second post following this one due to site formatting problems] shows silver leading gold, the miners leading metal, and the junior miners leading the seniors. This is a typical PM bullish configuration. Many of the moves this week were gigantic – palladium jumped an absurd 41%, and most of the rest of the items were up double digit percentages. Copper, however, barely moved, and remains in a downtrend, below all 3 moving averages. From the PM sector mapp perspective, this remains a safe haven play – only gold (and gold/Euros) ended the week above all 3 moving averages.

This week, gold screamed higher, up +150.08 [+9.98%] to 1654.00 on moderately light volume. The swing low candle was a likely bullish reversal (76%), forecaster climbed, rising into an uptrend. Gold is in an uptrend in all three timeframes.

Gold/euros rallied strongly +82.28 [+5.84%] to 1490.18 on moderately light volume. The swing low candle was a likely bullish reversal (76%), forecaster climbed, but remains in a downtrend. Gold/euros is in a downtrend in both the weekly and monthly timeframes.

Quite the difference between gold and gold/Euros. That’s all due to the huge plunge in the buck.

COMEX GC open interest rose +2.2K contracts on Friday, and fell -25K contracts this week. That was -8 days of global annual production in paper removed from the market. Current open interest for GC: 49% of global annual production, down -2.33% this week. Open interest continues to decline – even after a massive jump in price. The usual patterns (commercials loading up short on price increases) are not happening right now.

Gold commercial net fell -10K contracts, which was -8.9K fewer shorts and -19K fewer longs. Gold managed money net rose +3.3K contracts, which was -9.3K fewer shorts, and -6.0K fewer longs. All participants are deleveraging; there remain a large number of commercial shorts.

Although gold retreated during the 3-day equity market rally, it remains poised to break out to higher levels.

Silver screamed higher, up +2.01 [+15.91%] to 14.64 on light volume. The long white candle was unrated, and forecaster climbed, but remains in a downtrend. In spite of this week’s big rally, silver is in a downtrend in both the weekly and monthly timeframes.

COMEX SI open interest rose +525 contracts on Friday, but plunged -18K contracts this week. That was -37 days of global annual production in paper removed from the market. Current open interest for SI: 81% of global annual production, down -10.40% this week. Silver’s OI is down to 8-year lows right now. This suggests that the low is probably in for silver.

Silver commercial net rose +10.0K contracts, which was -11K fewer shorts and -1.1K fewer longs. Silver managed money net fell -7.9K contracts, which was +756 new shorts, and -7.2K fewer longs. Enough managed money longs have been rinsed out to signal a COT low for silver, although enough commercial shorts remain to cloud the picture.

The gold/silver ratio dropped -6.10 to 112.98. That’s quite bullish.

While the miners spent Thursday and Friday selling off, the numbers, the miners did fairly well. GDX rallied +18.59% on moderate volume, and GDXJ jumped +21.29% on moderate volume. XAU moved up +16.67%, the spinning top candle was a reasonably strong bearish reversal (42%), forecaster climbed, but remains in a downtrend. XAU is in a downtrend in both the daily and weekly timeframes.

The GDX:gold ratio climbed +7.26%, and the GDXJ:GDX ratio climbed +2.23%. That’s bullish.

All that said – from the larger picture viewpoint, the miners are really looking weak. Something I haven’t looked at for a while – the XAU/gold ratio – is sliding back down towards the January 2016 lows. What’s that all about? Maybe: that’s the same thing that happened to them back in 2008. As the current move in the metals remains a mostly safe haven move, miners don’t do so well during those times.

Platinum rose +131.10 [+17.66%], and palladium rose +649.80 [+43.10%]. Platinum’s recovery (and its chart) is looking a whole lot like silver, while palladium has recovered much of the losses suffered in the last few weeks.

Copper rallied +0.01 [+0.63%] to 2.16 on moderately light volume. The doji candle was unrated, forecaster climbed, but remains in a downtrend. Copper remains in a downtrend in all three timeframes. Copper spent Thursday and Friday moving slowly lower. Copper is the worst-looking metal in the metals sector map. Perhaps a China restart doesn’t matter, if the rest of the world isn’t buying.

While the CCP is pulling out all the stops on an international China Face-Saving Campaign, on the ground, all of its customers are no longer interested – or able – to buy much of anything except medical supplies. When a recession strikes, for whatever reason, it is the manufacturing power that suffers most.

The buck cratered this week, dropping a huge -4.97 [-4.80%] to 98.53 on light volume. The bearish harami candle was a reasonably strong bearish reversal (48%), forecaster dropped, but remains in an uptrend. The buck is in an uptrend in the weekly and monthly timeframes.

Major currency moves included: CAD [+3.62%], EUR [+3.75%], GBP [+6.81%], JPY [+2.87%], AUD [+6.35%]. All of last week’s massive losses in all of these currencies were unwound this week, and more besides. When stuff like this happens, I “worry” about losses at trading firms who play with derivatives. Being short an option when the underlying executes a 1-year move in just 5 days can kill companies who don’t expect these sorts of “long tail events.”  And due to the ending of Glass-Stegall (thanks Robert Rubin & Bill Clinton), the place where YOUR bank deposits are stored could be playing with exactly these sorts of derivatives. After all, what could possibly go wrong?

Here’s my guess as to what is driving these currency moves.

Last week, the US looked as though it was doing relatively well. Little to no testing helped to foster this illusion. This week, all that changed. Plus, the Fed’s interventions unleashed a torrent of money onto the market.

One example effect: AAA corp debt ended last week at 4.12%. This week, it fell to 3.07%. This was a massive plunge. The crappier debt (BAA) rates also fell, but by much less: from 5.15% down to 4.87%. The Fed’s new programs allowed Wall Street to hoover up AAA debt with Fed money, and BAA debt too, but “for some reason” it wasn’t as popular.

Crude rose +0.33 [+1.33%] to 25.06 on moderately light volume. The short white candle was unrated, and forecaster dropped, moving deeper into its downtrend. Crude remains in a downtrend in all three timeframes. No low for crude this week.

SPX screamed higher, up +236.55 [+10.26%] to 2541.47 on moderate volume. The bullish engulfing candle was a likely bullish reversal (68%), and forecaster climbed, but remains in a downtrend. SPX is in a downtrend in both the weekly and monthly timeframes.  Even with all the fuss this week, forecaster is not yet convinced that the trend has changed.

Utilities [+14.12%] led, along with REITs [+12.98%], while staples [+5.81%] and communication services [+5.94%] did worst. This was a bearish sector map. Utilities in the lead = bad news.

The VIX fell -0.50 to 65.54. A strong equity market rally and yet – almost no reduction in the fear in the market at all.

TLT shot up +5.19%. The bullish engulfing candle was a likely bullish reversal (71%), forecaster climbed, moving higher into its uptrend. TLT is in an uptrend in the daily and weekly timeframes. The 30-Year yield fell -31.0 bp to +1.24%.

TY climbed +1.03%. The spinning top candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. TY is in an uptrend in all three timeframes. The 10-Year yield fell -24.0 bp to +0.68%. This week wasn’t a record – but it is pretty close to one. In spite of the prospect of a $2 trillion dollar spending plan, the 10-year appears unconcerned, at least for now. I’m guessing the Fed is a major buyer right now.

JNK screamed higher, up +9.57%. The long white candle was a probable bullish reversal (57%), forecaster climbed, but remains in a downtrend. JNK is in an uptrend in the daily timeframe. Forecaster isn’t yet convinced about JNK’s reversal either.

Physical Supply

The GLD ETF tonnage on hand rose +56.48 tons, with 965 tons remaining in inventory.

ETF Discount to NAV:
* CEF -0.65%
* PHYS +0.11%
* PSLV -1.11%
Bullion Vault Premiums:
* gold: +2.88
* silver: +0.12
Gold dealer big bar premiums:
* gold [1kg]: sold out
* silver [1000 oz]: sold out

PSLV’s premium has now dropped back into discount; the cheapest 100oz silver bar: 19.28% premium, and the 1-kilo gold bar has a +4.6% premium. Silver remains in shortage.

https://findbullionprices.com/closest-to-spot

Economic Reports

Fed Balance Sheet: headline $5,254B, +586.1B (+11.15% w/w) (prior +7.63% w/w). This was a massive amount of money printing this week, sending the Fed’s balance sheet up to a new record high. Any bets they’ll be able to unwind this after everything is all said and done? “It will be just like watching paint dry.”

Yield Curve Inversion: the 1-10 spread fell -20 bp to +57 bp this week. 1Y: 0.11% (-4 bp), 10Y: 0.68% (-24 bp). No inversion.

Personal Income: headline +0.56% m/m, Consumer Spending: +0.19% m/m, Core PCE: +0.16% m/m. Positive for this month, with relatively low inflation.

Durable Goods, new orders: headline +1.15% m/m, capital goods new orders (excl aircraft): -0.80% m/m, shipments: +0.84% m/m. Positive for new orders and shipments. That’s expansionary.

Median new home sales price: headline +21K (+5.96% m/m), SF new home sales: -35K (-4.58% m/m), monthly home supply: 5.00, +0.20. Higher prices, fewer homes sold, with larger supply. Bearish for prices in the housing market.

Summary

Gold mostly erased the big plunge this week – all of the move came on Monday & Tuesday. Partially this was a currency effect, but if you look at the gold/Euro chart in a longer timeframe, you can see that – roughly speaking – gold in both currencies remains relatively close to its recent highs.

I’m not seeing any signs of official intervention. OI continues to drop as prices move higher. Players appear to be deleveraging – both managed money, and the commercials.

Silver is at 6-year lows in terms of open interest. I’m guessing this is telling us that we’ve seen the low price for silver – unless we move into Great Depression 2. I don’t think that will be the outcome, for a variety of reasons. The Fed has all the power it needs to avoid this outcome, and it certainly has exhibited all the will in the world to do “whatever it takes” to avoid it. The outcome will be different this time around. Will the outcome be better or worse?  That’s above my pay grade to answer. Ask me again in 10 years.

The miners – they don’t like equity market crashes. The Gold/XAU ratio looks really bad right now. Mining shares will (probably) only recover as a class once the market stops fearing the deflationary outcome.

The long-term bond remains in a strong uptrend, regardless of the $2 trillion in new issuance looming on the horizon. I suspect Infinite QE plays a role in this. If the Fed stands ready to buy however-many bonds at the market price, then price won’t drop. But – something must give. I suspect that “something” is the value of the US dollar. Is it finally turning to confetti? This week it sure did.

Both crude and copper continue to look weak. Even if China “restarts” successfully, nobody is ordering anything from them except medicine and ventilators. They will be all dressed up, with nowhere to go. They infected their customers, and now – surprisingly – their customers aren’t doing any ordering. Maybe next time they won’t arrest the (Chinese) doctors trying to warn everyone. Or complain about travel bans – which they are now implementing themselves.

From the 50,000 ft view, short rates are now at 0%, and the 10-year is at 0.68%. The Fed has declared Infinite QE. Balance sheet is at a new record, with $586 billion printed in just one week. That’s $1,831 new FRNS for every man, woman, and child in America. That was … just this week.

My guess is – and this is just a guess – the virus crisis will pass. I believe it is more likely than not that we have far more infections than we currently assume. Iceland’s random testing is suggesting this. What’s more, I believe we also have some treatments that will help to ameliorate the situation.

Currently, I believe there is a behind-the-scenes death-match between Gilead (maker of the experimental drug Remdesivir; best price – $260/treatment, allies China & WHO) and proponents of the much cheaper Hydroxychloroquine/Plaquenil ($20/treatment) which has been around forever. This hidden rivarly confuses the situation. (To make it worse, Trump likes the cheaper treatment, which automatically means that those who don’t like Trump hate it, and really want it to fail.) To Gilead, this means tens of billions of dollars. To others, it means embarrassing the Bad Orange Man. Normal people like you and me (and our doctors and nurses) are the casualties.

China is putting its finger on the scales, by not releasing the data on the HCQ trial they ran in February. Why are they keeping it secret? Well, why does the CCP do anything? It is not to their advantage to release the data at this time.

But we should know the answer soon. Bad Orange Man will see to it.

So, given my current thesis – the R0 is higher than we think, and thus the CFR is lower than we fear, and a treatment is on the horizon – can we “look through” the the current situation to see what is beyond? Maybe that’s too much to ask at the moment. But let’s try a thought experiment, just for fun. What would you buy, if you could know for certain that the current “fear environment” would (largely) be over within a month? What would you sell?

Some things to think about. The bloom is off the “10-year expansion” rose. There will be a large number of unforeseen consequences from the pandemic, even after the fear component is largely past. Decoupling with China will speed up. There will (likely) be a fair number of defaults, even after things return to normal, as “iffy” companies die off. And – how will having to “self-isolate” for a number of weeks affect the psyche of US society? Lastly – the Fed will probably not be able to withdraw that new money printing. What will that do?

https://www.britannica.com/science/Gedankenexperiment

Note: using the time frame of “a month” and the concept of this being “largely over” are just part of a thought experiment. They are NOT FINANCIAL ADVICE!

  • Sat, Mar 28, 2020 - 08:42am

    #2

    davefairtex

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    HTML tables

Here’s the PM Sector map:

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 41.33% 63.09% rising falling rising falling ma50 on 2020-03-27 2020-03-27
Platinum $PLAT 21.44% -12.08% rising falling falling falling ema9 on 2020-03-24 2020-03-27
Junior Miners GDXJ 21.29% -5.68% rising falling falling falling ema9 on 2020-03-23 2020-03-27
Senior Miners GDX 18.59% 8.75% rising falling rising falling ema9 on 2020-03-24 2020-03-27
Silver Miners SIL 16.24% -8.04% rising falling falling falling ema9 on 2020-03-23 2020-03-27
Silver $SILVER 15.75% -2.43% rising falling falling falling ema9 on 2020-03-24 2020-03-27
Gold $GOLD 9.98% 27.71% rising rising rising rising ma50 on 2020-03-24 2020-03-27
Gold/Euro $GOLD:$XEU 5.84% 29.29% rising rising rising rising ma50 on 2020-03-23 2020-03-27
Copper $COPPER 0.67% -24.69% falling falling falling falling ema9 on 2020-03-05 2020-03-27

 

And the equity sector map too:

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Defense ITA 23.42% -24.50% rising falling falling falling ema9 on 2020-03-25 2020-03-27
Homebuilders XHB 19.57% -20.62% rising falling falling falling ema9 on 2020-03-25 2020-03-27
Gold Miners GDX 18.59% 8.75% rising falling rising falling ema9 on 2020-03-24 2020-03-27
REIT RWR 16.93% -26.68% rising falling falling falling ema9 on 2020-03-25 2020-03-27
Utilities XLU 16.44% -3.77% rising falling falling falling ema9 on 2020-03-26 2020-03-27
Industrials XLI 14.57% -20.67% rising falling falling falling ema9 on 2020-03-25 2020-03-27
Cons Discretionary XLY 11.66% -13.43% rising falling falling falling ema9 on 2020-03-24 2020-03-27
Telecom XTL 11.61% -16.74% rising falling falling falling ema9 on 2020-03-24 2020-03-27
Financials XLF 11.11% -18.06% rising falling falling falling ema9 on 2020-03-25 2020-03-27
Technology XLK 10.04% 7.25% rising falling rising falling ema9 on 2020-03-24 2020-03-27
Energy XLE 9.55% -55.94% rising falling falling falling ema9 on 2020-03-24 2020-03-27
Materials XLB 8.80% -19.56% rising falling falling falling ema9 on 2020-03-24 2020-03-27
Healthcare XLV 7.46% -5.64% rising falling falling falling ema9 on 2020-03-26 2020-03-27
Cons Staples XLP 6.17% -4.00% rising falling falling falling ema9 on 2020-03-26 2020-03-27
  • Sat, Mar 28, 2020 - 09:28am

    #3

    Eannao

    Status Bronze Member (Offline)

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    All roads lead to gold

Hi Dave,

Thanks for a particularly excellent Weekly Commentary.

The thought experiment was great. IMO, all of the likely scenarios look good for gold.

I was at 25% allocation to PMs, but I’m keen to increase that. Any thoughts on going this heavy into PM?

I’ve been buying silver over the past couple of weeks. I know it has a greater industrial component than gold, but it’s just SO cheap relative to gold. I’d say I’m approaching 50:50 split (Gold:Silver) after my recent purchases.

PMs just currently feel like both the safest place to be and simultaneously, the place with possibly the best upside potential.

Cheers.

  • Sat, Mar 28, 2020 - 02:43pm

    #4

    Cold Rain

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    PM Weekly Market Commentary – 03/27/2020

I don’t really understand why we’d ever have a depression again if the Fed can just print as much as it wants.  Why not have a balance sheet of a quadrillion?  Seriously asking.  What’s to prevent that?  If every other country is printing into oblivion, we’re still always going to be the cleanest shirt in the laundry.  Why can’t they just do this forever and bail out every recession to come?  Sure there will be bankruptcies, but that’s just the way it is and nobody important will ever be allowed to fail.  But the population doesn’t care as long as the bars are open and the TV still works.

I’m really not kidding.  The risk is the money printing erodes confidence over time.  But will it?  Stocks are going to rocket higher after the crisis ends.  We’ll have a brief recession, and the Federal and Fed’s balance sheets will explode.  So what?  What makes it stop?

  • Sat, Mar 28, 2020 - 04:47pm

    #5
    @SilverChartist

    @SilverChartist

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    Re: MMT

CR-

I respect your honest question.

You’re essentially asking if Modern Monetary Theory (MMT) can work.

Charles Hugh Smith did an excellent write-up on this very topic in Oct ’19.

Could Modern Monetary Theory (MMT) Actually Save Us?

The short answer: It cannot work, but they will (ARE) going to try.

  • Sat, Mar 28, 2020 - 05:14pm

    #6
    @SilverChartist

    @SilverChartist

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    PSLV Premium/Discount to NAV Chart

Thought some peeps might find this interesting…

Exec Summary:

-At major peaks, PSLV trades at a significant premium to NAV

-At major bottoms (Mar ’20?), PSLV briefly trades at slight discount to NAV.  This presents the opportunity to gain exposure to low silver prices when premiums on physical are often extreme.  Once price rebounds, you can then sell PSLV and purchase physical w/ the proceeds at a more reasonable premium.  Beware tax implications / short-term capital gains…

  • Sat, Mar 28, 2020 - 09:41pm

    #7

    davefairtex

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    what makes it stop

CR-

I’m really not kidding. The risk is the money printing erodes confidence over time. But will it? Stocks are going to rocket higher after the crisis ends. We’ll have a brief recession, and the Federal and Fed’s balance sheets will explode. So what? What makes it stop?

If/when the new money leaks into the real economy, it will cause inflation.  Eventually, inflation will cause confidence to snap, as it did during the 70s.  I can’t say when that might be.  This isn’t any sort of formulaic thing.  But once people figure out that printing money won’t solve whatever-problem-it-is (and that’s really the only tool the Fed has), and/or the unintended consequences of printing start to become quite serious, at that point, things will go nuts.

Regardless, I do not think our outcome will be deflationary.  That’s the only case where silver would get crushed.

My thoughts right now are about silver, maybe too much, because of the explosion in the GSR, and the 6-year low in open interest just seems like such a strong signal to me.  (And Penny’s PSLV premium/discount to NAV chart adds some flavor too)

When will this all play out?  Who knows.  Deglobalization and restricting immigration should lead to an increase in domestic wages.  This will cause inflation too.  Slowly.  Labor will have a bit more power.

I do wonder what happens with all that bad crappy debt.  Does the Fed simply buy it all?  It will be interesting.

  • Sun, Mar 29, 2020 - 02:35am

    #8
    jmone

    jmone

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    PM Weekly Market Commentary – 03/27/2020

And here is the Ozzie perspective for the week:

– A$Gold traded in a tight range between 2% down to 6% up settling about even.  In contrast the US$Gold gained almost 9%

– A$Silver had a good run up to almost 10% but nothing compared to the 17% in US$Silver

– For us it was all about the change in the A$/USD$ rate with the Aussie making a big up (from very low lows).

– PM’s are very hard to find in stock and if you can you are paying 85% above spot for silver!  Interestingly, you can get some gold for 3% above spot.

– The S&P200/ASX ended up flattish but was down at one point 8% and up 8%.  So a big 16% trading range.  Madness.  No one really knows what direction it is taking.

  • Sun, Mar 29, 2020 - 02:58am

    #9
    jmone

    jmone

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    PM Weekly Market Commentary – 03/27/2020

I guess I’m the contrarian to Dave.  I hope Dave is right, but if I look forward 1 month, I’d suggest:

– Deaths in the hundreds of thousands.

– More announcements of miracle cures and treatments that will just not arrive in time.

– Countries tying to un-lock down but struggling to contain new cases

– Rapidly rising unemployment that Govt tries to offset with “furlough” payments

– China finding economic output is down due to a lack of demand

– Lots of defaults and business failures

I’d not be surprised if we also see either a failure or mind boggling support to prevent:

– Failure of (a) large financial institution(s)

– Sovereign Default(s)

 

Given this is a possible scenario, I’m on the equity sidelines.  No way I’m trying to catch the falling knife.  Even when it all passes (and it will), I think the psyche of the individual will be changed and much more prudent in spending.  If so, we enter the slow grind down on the equities market.

  • Sun, Mar 29, 2020 - 04:02am

    #10

    Eannao

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    Surprises to the downside

This virus had continually surprised everyone by how bad and damaging it has been. The Chinese, the Italians and now the US. It continues the be worse than we anticipated. And I think this is how it will continue to play out. That is why I’m tending towards the more severe predictions for the future, rather than the more optimistic possibilities. This honeybadger is one tough for.

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