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PM Weekly Market Commentary – 05/22/2020

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  • Sat, May 23, 2020 - 11:16am

    #1

    davefairtex

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    PM Weekly Market Commentary – 05/22/2020

On Friday, gold climbed +11.38 [+0.65%] to 1753.70 on moderately heavy volume, and silver rallied +0.25 [+1.43%] to 17.72 on moderate volume. The buck shot higher [+0.48%], SPX moved up slightly [+0.24%], crude fell [-1.03%], and bonds moved up [the 10-Year yield fell -2.0 bp].

The metals sector map shows silver leading gold, with the miners a bit scattered; senior miners were at the bottom of the pile, while the juniors and the silver miners outperformed gold. Most items remain above all 3 moving averages, even though this week’s map is a bit of a mess.

For the week, gold fell -10.42 [-0.59%] to 1753.70 on moderately heavy volume. The long black candle was a bullish continuation, forecaster dropped, but remains in an uptrend. Gold is in an uptrend in the weekly and monthly timeframes.

Gold/euros fell -21.00 [-1.29%] to 1610.03 on moderately heavy volume. The bearish harami candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. Gold/euros is in an uptrend in the weekly and monthly timeframes.

COMEX GC open interest fell -2.5K contracts on Friday, and rose +7.6K contracts this week. Current open interest for GC: 49% of global annual production, up +0.71% this week.

Gold commercial net fell -12K contracts, which was +19K new shorts and +7.7K new longs. Gold managed money net rose +4.8K contracts, which was +5.1K new shorts, and +9.9K new longs. Commercial shorts piled into gold this week – but they also went long too, which is a little odd. It’s hard to know what to make of these moves.

While gold corrected sharply on Thursday, it managed to bounce back somewhat on Friday, ending the week back above the 9 MA. The week ended in a state of a very modest weekly uptrend for gold, and in a state of no-trend on the daily. This is improved over where things were on Thursday night.

Silver rallied +0.63 [+3.69%] to 17.72 on moderate volume. The opening white marubozu 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 +1.4K contracts on Friday, and rose +16K contracts this week. That was 32 days of global annual production in new paper added to the market. Current open interest for SI: 90% of global annual production, up +9.03% this week.

Silver commercial net fell -6.7K contracts, which was +5.0K new shorts and -1.7K fewer longs. Silver managed money net rose +3.5K contracts, which was -2.8K fewer shorts, and +725 new longs. A fair number of new shorts from the commercials, plus a fair number of new longs by managed money.

The gold/silver ratio dropped -4.26 to 98.97. That’s very bullish.

Silver has now entirely retraced the February losses; the brisk sell-off on Thursday has relieved much of the “overbought” situation for silver (RSI-7 is now 71, down from 89). The gold/silver ratio plunge looks quite bullish. After Friday’s bounce, the silver uptrend remains intact. I thought we might see more of a correction – but – maybe this is all we get.

GDX dropped -2.79% on moderately light volume, and GDXJ rose +1.11% on moderately light volume. XAU fell -1.87%, the long black candle was a bullish continuation, forecaster dropped, but remains in an uptrend. XAU is in an uptrend in the weekly and monthly timeframes.

The GDX:gold ratio dropped -2.26%, while the GDXJ:GDX ratio climbed +3.86%.

The miners didn’t look particularly good on Friday – they were the weakest metals component – but they did manage to remain above the 9 MA. Barely. The daily forecaster doesn’t look happy either. Still, no reversal bar for the weekly candle print, so that’s a plus.

Platinum rose +65.11 [+7.36%], and palladium climbed +108.51 [+5.49%]. These two items were at the top of the sector map this week, even after a huge drop in platinum on Thursday, and a two-day drop for palladium right at end of week. Platinum looks considerably better than palladium at this point.

Copper rose up +0.06 [+2.58%] to 2.39 on moderate volume. The spinning top candle was a bullish continuation, forecaster climbed, rising into an uptrend. Copper is in an uptrend in the weekly timeframe.

Copper’s move this week was mostly about Monday’s big rally; although it rallied this week, Friday’s drop pulled copper back into a daily-downtrend. Copper definitely ended the week on a bearish note, although as with XAU, no bearish candle print.

The buck fell -0.55 [-0.55%] to 99.88 on moderate volume. The spinning top candle was a bullish continuation, forecaster fell, dropping into a downtrend. The buck is in a downtrend in both the daily and weekly timeframes.

Major currency moves included: CAD [+0.62%], EUR [+0.70%], GBP [+0.38%], AUD [+1.80%].

The buck managed to bounce off support after declining for the first three days. Trends in USD are quite weak; it is hard to know where it goes next.

Crude jumped higher again this week, up +3.85 [+12.93%] to 33.63 on moderately light volume. The long white candle was a bullish continuation, and forecaster climbed, moving higher into its uptrend. Crude is in an uptrend in all three timeframes.

EIA report: crude -5.0m, gasoline +2.8m, distillates +3.8m. The EIA decline for crude was unexpected, and bullish.

This week, crude managed to close above round number 30. Friday saw an attempted sell-off in Asia (down more than $3 at one point) that bounced back almost completely by end of day. That’s a positive sign. Crude’s uptrend remains quite strong.

SPX shot up +91.75 [+3.20%] to 2955.45 on moderately light volume. The opening white marubozu candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. SPX is in an uptrend in all three timeframes.

Industrials [+6.86%] led, along with energy [+6.47%], while sickcare [-0.80%] and staples [+0.14%] did worst. This was a mildly bullish sector map.

The VIX fell -1.37 to 28.16.

This week’s move mostly came from Monday’s big rally. SPX ended the week in a reasonably strong uptrend.

TLT dropped -0.70%. The short white candle was unrated, forecaster climbed, but remains in a downtrend. TLT is in a downtrend in both the daily and weekly timeframes. The 30-Year yield rose +5.0 bp to +1.37%.

TY dropped -0.12%. The spinning top candle was a bearish continuation, forecaster dropped, but remains in an uptrend. TY is in an uptrend in the weekly and monthly timeframes. The 10-Year yield rose +2.0 bp to +0.66%.

The damage to bonds, such as it was, came on Monday, although bonds continue to mostly just chop sideways. The 30 year continues to look weaker than the 10-year. Both issues remain at near all-time low yields. Fed money printing no doubt helps; $100 billion this week alone.

JNK shot up +3.25%. The closing white marubozu was a bullish continuation, forecaster climbed, moving higher into its uptrend. JNK is in an uptrend in the daily and weekly timeframes.

Crappy debt moved higher every day this week. I don’t know what to tell you. These companies should be blowing up, but – who knows, maybe the Fed’s jawboning and “announcement effect” will enable these organizations to roll over their debt in perpetuity. Then again – Hertz went under this week. Fed couldn’t fix that. How many more are next?

Physical Supply

The GLD ETF tonnage on hand climbed +2.93 tons, with 1117 tons remaining in inventory. GLD’s alleged gold holdings are at an 8-year high.

ETF Discount to NAV:
* CEF -0.43%
* PHYS -0.14%
* PSLV -1.17%
Bullion Vault Premiums:
* gold: +6.50
* silver: +0.08
Gold dealer big bar premiums:
* gold [1kg]: 1.49%
* silver [1000 15.12%

The physical ETFs remain in discount, while BV is in slight premium. Shortages of physical silver remains.

Grey Swans and Geopolitics

China & Decoupling: A new poll shows that 40% of Americans won’t buy “Made in China” products. 55% don’t trust China to follow-through on the trade deal, 78% say they’d pay more for products if the company that made them moved manufacturing out of China, and 66% favor raising import restrictions. Views that originally were held just in Trump-land now looks to be entirely bipartisan.
https://www.bloomberg.com/news/articles/2020-05-17/what-do-americans-think-of-made-in-china-polling-latest

The Denominator: Iowa conducted antibody tests; about 14% of residents tested positive. Population: 3M. 410 Iowa residents have died from SC2. Herd Immunity Threshold could be much lower than 60% in a “natural” pandemic, especially in less-dense areas.

Effective R0: turns out heat & humidity may be important modifiers to the effective R0 of SC2. Dry is bad, cold & dry is really bad. Hot and humid is good. Roughly speaking. This according to a “big data” study from Harvard. The statistics used by these guys was beyond my humble powers to assess. See Fig 1, Page 8 of the study below:
https://projects.iq.harvard.edu/files/covid19/files/weather_and_covid-19_preprint.pdf

Treatment: IHU/Raoult; IHU fatality outcome (0.54%) continues to be better than neighboring APHM (3.13%). In India, a retrospective analysis found a significant dose-response relationship between doses taken (prophylactically) and frequency of SC2 infection. India now recommends that all healthcare workers, and police involved with corona virus infection activities take HCQ as prophylaxis. I wish the US could be as smart as India.
https://kashmirobserver.net/2020/05/23/icmr-issues-revised-advisory-on-use-of-hydroxychloroquine/

Bailouts: This week the Senate refused to consider Pelosi’s HEROES act.

Eurozone Breakup: Italian poll, April 2020: 42% of Italians would like to leave the Eurozone; that’s up from 26% back in November, 2018. Italy’s GDP is forecast to drop 10% this year; this would leave Italian debt/GDP at 155%. This poll is what happens when the EU seemingly turns its back on suffering Italy.
https://eraoflight.com/2020/05/19/italians-drive-to-quit-bloc-surges-over-coronavirus-snub-eu-is-useless/

Hong Kong: Pompeo said that Beijing’s new national security law would be a “death knell for the high degree of autonomy Beijing promised for Hong Kong.” The so-called “nuclear option” involves the US pulling the MFN status for Hong Kong, which would likely lead to a cascade of unpleasant impacts on the city, Southeast Asia banking, and on China too. It is entirely possible that the CCP does not believe that the US will take this action.
https://hongkongfp.com/2020/05/23/security-law-us-mulls-nuclear-option-as-china-threatens-hong-kong-autonomy/

US-Iran: Iran and the US might be de-escalating going into the 2020 US presidential elections. Iranian calculus appears to be: war with Iran might get Trump re-elected. From Iran’s perspective, this would be bad. So – peace. For the next six months anyway.
https://www.nytimes.com/2020/05/19/world/middleeast/iran-us-relations.html

North Korea: No news.

Economic Reports

Fed Balance Sheet: headline $7,037B, +103.0B (+1.46% w/w) (prior +3.07% w/w). Printing reduced vs last week; that’s a $5.4 trillion annual run rate.

Yield Curve Inversion: the 1-10 spread was unchanged at +49 bp this week. 1Y: 0.17% (+2 bp), 10Y: 0.66% (+2 bp).

Summary

The semi-industrial metals did well this week; silver, platinum, copper, and palladium all moved higher, while gold & the miners ran into some selling pressure.

SPX continued moving higher too, as did crappy debt. The crude rally probably helped, at least to some degree; of the things I track, the uptrend in crude remains the strongest.

Bonds remain relatively close to their all time low yields; Fed money printing is no doubt helping. $100 billion this week. $100 billion here, $100 billion there, pretty soon you’re talking about real money.

There are so many things waiting to happen; the timelines are all over the map.

Eurozone breakup – constitutional court ruling reaction, ECB printing operations
Hong Kong MFN revocation – capital flight – banking crisis
Default wave in the US – foreclosures & bankruptcies. Hertz and JCP are just the down payments.
HCQ prophylaxis & treatment trials
Herd Immunity Threshold – antibody testing – temperature & humidity effects

Although India isn’t telling us just how effective HCQ really is, they are recommending that all their frontline workers take it as prophylaxis. (I’m guessing their leadership gets it too, since RHIP). No mention of anyone dying from any of the trials. Of course. Why don’t they cough up the data? Is it just that good, and they don’t want anyone else to know?

Tantalizing clues. A wildcard outcome.

  • Sun, May 24, 2020 - 01:17am

    #2
    jmone

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    PM Weekly Market Commentary – 05/22/2020

Aus Update:  Bit different for us down under.  ASX200, $AUD, and Silver were all up around 1.5-2% with Gold going down by 2.5%.  What I don’t get is the relative strength of the Aussie $.  We are getting all sorts of signals that China is boycotting our exports from Beef, Barley and now Coal and Iron Ore.  I’d have thought this would all put downward pressure on the AUD.  Clearly I’m wrong…. or that it is considered to be more words that action?  Time will tell.

 

  • Sun, May 24, 2020 - 09:00am

    #3

    davefairtex

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    AUD rally

jmone-

I’m perplexed too about the AUD and – to a lesser extent, the copper rally.

From all you say, China has cut you guys off.  But your currency says something else.  Perhaps it is getting inflows from … somewhere.

 

  • Sun, May 24, 2020 - 03:06pm

    #4
    jmone

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    PM Weekly Market Commentary – 05/22/2020

Well it could be nothing really changes (apart from the rhetoric).  China is our largest customer and represents about 1/3rd of our Export market (eg goods to China are A$90b out of a total of A$272b pa), of this

– Barley: Exports to China is A$1.3b (Global A$1.8b):  Tariff now being imposed and it looks very targeted as China is the main market for us.  On the surface it sounds like a big impact to barley growers but farmers can move to other markets are even other crops.   Barley does not have a big % of total Exports to China (1.x%)  Answer = Drink more beer!

– Beef:  Total exports to china is A$3b (Global A$10b).  They put a ban on 4 abattoirs, so not all of them.  I presume there is substitution between abattoirs on who is supply what markets.  We have also had a drought that has impacted suply.

Now for the “big ones”.  These are harder for China to Shift due to the size, reliance, and oddly for commodities there is differentiation as “Chinese steel mills are engineered to take particular blends of ore that Australia supplies “.  Our coal is also better than the China domestic product.  That said, we are dependent on their economic output to consume these inputs (2019 saw iron ore exports global rise 40%).  China is made statements that domestic coal consumption should be prioritised over Australian.  Iron Ore imports will receive higher levels of “Inspection” (unlike Brazilian).

– Coal: Exports to China is A$14b (Global A$65b)

– Nat Gas: Exports to China is A$16b (Global A$50b)

– Iron Ore:  Exports to china is A$80b (Global $100b).

 

There have also been statements on Chinese Citizens to boycott, Tourism, Education, and Wine.  Given COVID Tourism and Education is already impacted.

On the upside we are doing better than most with COVID.

 

  • Mon, May 25, 2020 - 07:27pm

    #8
    dryam2000

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    PM Weekly Market Commentary – 05/22/2020

DaveF,

I want to let you know how grateful I am to you.  Your commentary and response to one of my posts a couple months ago assisted me in making a 2000+% gain shorting the market right before the markets originally dropped because of CV-19.

Frankly, years ago I was at odds with you because I was skeptical of your intentions at PP.  I can be quite the skeptical person at times particularly on the internet.  I’ve read more and more of your postings over the years and completely realize Chris was exactly right when he responded to one of my posts saying you are a good guy.  I owe you a huge apology for all those antagonistic posts of mine.  Keep up the great work you do here at PP, and I hope you are doing well personally with CV-19 & such.

  • Tue, May 26, 2020 - 12:46am

    #10

    davefairtex

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    PM Weekly Market Commentary – 05/22/2020

dryam-

[Some weird site bugs; I posted this earlier, then it got deleted somehow.  I’ll post it again.]

I really appreciate that.  I’m glad the trade worked out.  In retrospect, I think your trade was better than the one I picked.  FWIW.  You really did a great job.  It is really hard having the guts to execute, and then its even harder to hold during the decline – and then also hard to figure out when to sell.  Executing on all 3 is…a real achievement.

I remember back in the day – I was “shill for the bankers.”  I’d look around at my apartment, and my annual tax filing, and think to myself, “I’m a really underpaid shill.”  🙂   I recall Tom saying he’d come to a meeting (presumably armed) with Jim and myself, so make sure I wouldn’t do anything untoward.  If I hadn’t lived so far away, I’d have done it!  It would have been fun.  Those were the days.

Now I find myself jumping all over new posters because I think they are trolls for various organizations, so I understand how that sort of thing happens.  Shoe on the other foot.

CV19 – good so far.  I live in an area with few cases.  A surprising oasis in the pandemic.  As they say, “things are always working out for you.”

Thanks for your apology; completely accepted.  I feel like all the old-timers like yourself are my friends now.  Now we are facing the real test, it seems.

And who knows.  Maybe we’ll even see that long-awaited COMEX default.  🙂  It seriously could happen.  Fed printing trillions!  A member was expressing interest in joining a group that took delivery of 5 1000 oz COMEX silver bars – with all participants signing up to get 1 bar.  Wouldn’t that be a fun PP event?

Supposedly, very few people take delivery.  It would probably put us on a list somewhere.

  • Tue, May 26, 2020 - 03:16am

    #11
    Aus

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    PM Weekly Market Commentary – 05/22/2020

Hi DaveF,

I am new to PP blogs but have been watching since early Feb20. Thank you for your posts they have helped me.

Your comment “so many things waiting to happen and timelines all over the map”, do you have a gut feel for how things will play out re sequencing and timing?

 

  • Tue, May 26, 2020 - 03:57am

    #12

    davefairtex

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    PM Weekly Market Commentary – 05/22/2020

Aus-

I really don’t.  I wish I did!  Case counts are easy math.  Figuring out when the wave of bankruptcies are going to hit – much harder.

And that’s what I think will drive the next wave of excitement.

Hertz going under this weekend was a sign of things to come, I think.  They won’t be unique.  That should hit bond funds regardless of Fed jawboning.  A few more of those – might cause trouble.  Certainly banks don’t like defaults.  Lots of people have delayed paying rent and mortgages.  Will that improve?

We just don’t know.  My guess is – a little.

And the eurozone difficulties.  I thought trouble would strike already.  So far though, nothing.

  • Tue, May 26, 2020 - 07:23am

    #13
    Steve

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    PM Weekly Market Commentary – 05/22/2020

We must be in that window of time when those with the financial control have decreed “all is well.”

They will have you believe the Memorial Day holiday was proof that opening back up was long overdue and a great success.

Hopefully this will prove to be a window of opportunity to purchase gold at a bargain for those who haven’t fully invested yet.

So far, the rollercoaster ride seems to be mostly up. Katy bar the door when we finally go over the peak.

  • Tue, May 26, 2020 - 08:53am

    #14

    davefairtex

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    eye of the hurricane

I don’t think the opening up (or staying closed) is the real issue here.

Even if we open up, I think we are still in the eye of the hurricane. The first wall of wind coming at us are all the people who bought stuff they really couldn’t afford using a lot of debt and no money down – running out of extensions and finally giving up.

How long does it take for people to give up hoping for everything to return back to where it was?  3 months?  6 months?

With the media running the 24/7 fear campaign (OMG a second wave, OMG you won’t have immunity, OMG the CHILDREN are dying, OMG infections are spiking, OMG Trump is playing golf!  Golf!!) things won’t get back to where it was for … quite some time.  Defaults will occur.  And I’m guessing it will be the banksters that get hit.  And then rescued by You-Know-Who.

When its all said and done, the media will have destroyed the economy by crushing consumer confidence – and they will have utterly destroyed their own credibility in the process.

Mueller report was just the down payment.  “The walls are closing in.”

Fourth turning, I guess.

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