PM Weekly Market Commentary – 05/29/2020

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  • Sat, May 30, 2020 - 08:56pm

    #1

    davefairtex

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    PM Weekly Market Commentary – 05/29/2020

On Friday, gold climbed +11.63 [+0.67%] to 1744.51 on moderately light volume, while silver shot up +0.57 [+3.18%] to 18.52 on moderately heavy volume. The buck was mostly unchanged [-0.04%], SPX moved up [+0.48%], crude rallied strongly [+4.97%], and bonds rallied too [the 10-Year yield fell -4.0 bp].

The metals sector map was mixed this week; silver led gold, juniors led seniors, but those senior miners were actually the worst performers this week. What’s more, gold/Euros was near the bottom of the heap too. This was due to a large plunge in the buck this week, some -1.53%.

On the week, gold dropped -9.19 [-0.52%] to 1744.51 on moderately light volume. The spinning top candle was a possible bullish reversal (36%), forecaster climbed, moving higher into its uptrend. Gold is in an uptrend in the weekly and monthly timeframes.

Gold/euros plunged -36.55 [-2.27%] to 1573.23 on moderately light volume. The confirmed bearish spinning top candle was a probable bearish reversal (58%), forecaster dropped, but remains in an uptrend. Gold/euros is in an uptrend in the weekly and monthly timeframes.

COMEX GC open interest fell -23K contracts on Friday, and fell -45K contracts this week. That was -15 days of global annual production in paper removed from the market. Current open interest for GC: 45% of global annual production, down -4.22% this week.

Gold commercial net rose +16K contracts, which was -18K fewer shorts and -1.7K fewer longs. Gold managed money net fell -14K contracts, which was +5.6K new shorts, and -8.4K fewer longs. There was a lot of short-covering this week. This looks more like a low than a high.

The candle print looked reasonably bullish; from the USD point of view, gold’s uptrend remains intact. That’s definitely not true from across the pond; Gold/Euros printed a unfortunate-looking bearish reversal. Still, the short-covering was a positive sign; it wasn’t much of a decline, and the covering was fairly substantial.

Silver shot up +0.80 [+4.51%] to 18.52 on moderately heavy volume. The closing white marubozu was a bullish continuation, and forecaster dropped, but remains in an uptrend. Silver is in an uptrend in all three timeframes.

COMEX SI open interest rose +3.3K contracts on Friday, and rose +11K contracts this week. That was 23 days of global annual production in new paper added to the market. Current open interest for SI: 96% of global annual production, up +6.32% this week.

Silver commercial net fell -5.7K contracts, which was +5.3K new shorts and -408 fewer longs. Silver managed money net rose +4.6K contracts, which was -1.4K fewer shorts, and +3.2K new longs.

The gold/silver ratio dropped -4.77 to 94.20. That’s very bullish.

This week, silver broke above last week’s high, closing convincingly above round number 18, and – perhaps – on track for a break through round number 19 and the previous high set back in February 2020. Silver has erased all the losses from the pandemic crash at this point. While the shorts continue to pile into silver, they remain far below where they were back in late February. OI back then: about 240k. OI now: 163k. These are levels that happened back during the lows in 2016. We are far from any sort of top in silver.

Unlike gold, silver’s uptrend remains strong.

GDX plunged -3.46% on moderate volume, and GDXJ fell -0.75% on moderate volume. XAU dropped -3.33%, the swing high candle was a probable bearish reversal (52%), and forecaster fell, dropping into a downtrend. XAU is in a downtrend in both the daily and weekly timeframes.

The GDX:gold ratio dropped -3.04%, and the GDXJ:GDX ratio climbed +2.73%. That’s neutral.

While silver is looking good, and gold so-so, the miners look a bit feeble. Miners ended the week well below the 9 MA, and were unable to rally on Friday even though gold itself managed to move higher. They really don’t look great right now.

Platinum fell -10.87 [-1.24%], and palladium fell -22.24 [-1.14%]. Platinum is taking a break just below its 200 MA after a strong rally. Palladium – harder to say. It is trying to sort out direction.

Copper rallied +0.05 [+2.09%] to 2.44 on moderate volume. The long white candle was a bullish continuation, forecaster dropped, but remains in an uptrend. Copper is in an uptrend in all three timeframes.

After some selling pressure earlier in the week, copper managed to crawl back into an uptrend. It is moving higher, just very slowly.

The buck plunged -1.56 [-1.56%] to 98.32 on very heavy volume. The unknown candle was unrated, forecaster dropped, moving deeper into its downtrend. The buck is in a downtrend in all three timeframes.

Major currency moves included: CAD [+1.53%], EUR [+1.76%], GBP [+1.03%], JPY [-0.32%], AUD [+1.63%].

The buck took a big drop this week; this was all about a strong relief rally in the Euro. France and Germany have agreed on a 750 billion Euro corona virus recovery package, with about 80 billion going to both Spain and Italy, although the rest of the EU still get to vote on the outcome. That’s 4.2% of GDP in grants to Italy. I don’t think it will avoid deflation (I don’t think the 2.7 trillion in US spending will avoid deflation either), but it does stop Italy from bailing out of the union next month, which is where things seemed to be headed just a few weeks ago.

Net result: Euro rally/USD plunge.

Crude rose +1.83 [+5.44%] to 35.46 on moderate volume. The confirmed bullish nr7 candle was neutral, forecaster dropped, but remains in an uptrend. Crude is in an uptrend in all three timeframes.

EIA report was bearish: crude +7.9m, gasoline -0.7m, distillates +5.5m.

That’s another new high for crude this week. Crude remains above both the 9 and 50 MA lines; uptrend in crude remains quite strong.

SPX rallied up +88.86 [+3.01%] to 3044.31 on heavy volume. The short white candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. SPX remains in an uptrend in all three timeframes.

Financials [+6.36%] led, along with industrials [+5.66%], while communication services [+0.57%] and energy [+0.72%] did worst. This was a slightly bearish sector map.

The VIX fell -0.65 to 27.51.

Just when you think equities can’t go any higher – they go higher. This is why you use stops.

TLT fell -1.18%. The doji candle was a low-percentage bullish reversal (29%), forecaster climbed, rising into an uptrend. TLT is in an uptrend in the weekly timeframe. The 30-Year yield rose +7.0 bp to +1.44%.

TY inched up +0.08%. The short white/NR7 candle was unrated, and forecaster was unchanged. TY is in an uptrend in all three timeframes. The 10-Year yield was unchanged at +0.0 bp to +0.66%.

I frequently claim this sideways chop in the 10-year is all Fed money printing, except – there wasn’t much this week, at least not in the treasury bond markets. Wolf has the gory details.

https://wolfstreet.com/2020/05/29/fed-tapered-helicopter-money-for-wall-street-further-mbs-fell-treasuries-barely-rose-liquidity-swaps-repos-stalled/

JNK rallied +1.70%. The short white candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. JNK is in an uptrend in the daily and weekly timeframes.

Wolf thinks that the Fed rescue has worked again; traders are back searching for yield once more. Certainly the rally in JNK aligns with the rally in equities. Uptrend for crappy debt is quite strong at this point.

Physical Supply

The GLD ETF tonnage on hand climbed +6.43 tons, with 1123 tons remaining in inventory. This is the largest inventory for GLD since early 2013, and it just continues to climb.

ETF Discount to NAV:
* CEF -0.60%
* PHYS -0.30%
* PSLV -1.23%
Bullion Vault Premiums:
* gold: +0.79
* silver: -0.05
Gold dealer big bar premiums:
* gold [1kg]: 1.73%
* silver [1000 oz]: 14.54%

The physical ETFs have moved into discount, BV premiums are mixed, and silver’s big bar premium continues to slowly move lower – as the price rises. Shortages remain in physical silver.

Grey Swans and Geopolitics

China & Decoupling: A flurry of articles, summarized: China doesn’t want decoupling, it would benefit no one, and it will lead to war.
https://www.msn.com/en-us/news/world/premier-li-says-china-doesn-e2-80-99t-want-cold-war-us-decoupling/ar-BB14HaSx

Treatment: Dr Raoult waved away the Lancet study that claimed HCQ caused serious heart arrythmia leading to deaths; to him, a “big data” AI-driven retrospective analysis is no match for his real world experience treating 3300 actual patients, where he saw no such thing. A gold-standard HCQ/RCT study has completed, manuscript is written and submitted a week ago, and is just awaiting publication. Apparently the publisher feels no sense of urgency to release the results. It’s not like people are dying or anything.

Bailouts: According to Senate leader McConnel, “If there’s another bill, and there may well be, it will be written in the Senate. It will be supported by the administration. … It will not be $3 trillion.” And it won’t happen for another month.
https://thehill.com/homenews/senate/500146-mcconnell-next-coronavirus-bill-will-be-final-covid-19-package

Eurozone Breakup: EU is going to bail out member states to the tune of 750 billion Euros; 500 billion in grants, 250 billion in loans. Can = kicked. Eurozone breakup goes on hold until “lockdown deflation” becomes more apparent.

Hong Kong: On Friday, Trump started the process of pulling the plug on Hong Kong’s MFN status. He said a number of very critical things about the government of China, but in terms of actions, as the article below states, “he was light on specifics.” Perhaps it can be walked back.

https://hongkongfp.com/2020/05/30/it-is-one-country-one-system-donald-trump-strips-hong-kong-of-privileges/

US-Iran: “Because of our pressure, Iran’s leaders are facing a decision: Either negotiate with us or manage economic collapse,” (US Special Representative to Iran) Hook told reporters during a conference call.
https://www.reuters.com/article/us-usa-iran-nuclear-hook/u-s-gives-iran-a-choice-negotiate-or-manage-economic-collapse-idUSKBN2333AB

North Korea: No news.

Economic Reports

Fed Balance Sheet: headline $7097.3B, +60.1B (+0.85% w/w). Money printing is really slowing down.

Yield Curve Inversion: the 1-10 spread was unchanged at +0 bp to +49 bp this week. 1Y: 0.17% (+0 bp), 10Y: 0.66% (+0 bp).

Personal Income: headline +9.51% m/m, Consumer Spending: -15.76% m/m, Core PCE: -0.40% m/m. Consumer spending has fallen off a cliff, income has risen; the net savings rate has gone through the roof. That’s deflation in action.

GDP: second estimate, headline -5.0% (revised from -4.8%). Recessionary.

Durable Goods, new orders: headline -20.82% m/m, capital goods new orders (excl aircraft): -6.14% m/m, shipments: -21.56% m/m. Not largest drop on record, but – dreadfully recessionary for both shipments (now), and orders (future).

Median new home sales price: headline 310K, -17K (-5.49% m/m), SF new home sales: 623K, +4.0K (+0.64% m/m), monthly home supply: 6.30, -0.10. This was a very large drop.

Summary

The buck was the star – well really it was the Euro, rising +1.79% on the happy news that money will be forthcoming to support hard-hit southern Europe. The threat of near-term deflation and probable Eurozone exit by Spain and Italy has been pushed into the future by the prospective deluge of cash.

The good news also hit gold and the miners, which both moved lower.

Silver shot higher, while the other metals were mixed; copper rallied, while platinum and palladium moved lower.

Risk assets did well too; both SPX and crappy debt made new post-crash highs. Crude made new highs as well.

The major news items were the Eurozone rescue, and Trump starting to pull the plug on Hong Kong following China’s decision to seize control over the city 27 years early. And yet, while Trump’s speech was bellicose, the actions he announced were actually much softer. There is still room to walk this back if China wants to backtrack. I don’t think they will, but Trump is giving them every consideration prior to actually pulling the plug.

As a result, the market has yet to price in the USD-HKD peg snap. SPX actually rallied on Friday post press conference; gold fell as well.

The true target of Trump’s wrath: the WHO, which appears to have prostituted itself to China for $40 million per year, vs the US which provides $500M. Trump, apparently annoyed at not getting good value, slapped the WHO right in the funding. If the WHO wants to stick with China, someone somewhere will have to come up with that $500 million. Per year.

Fourth turning: confidence in institutions crumbling. Certainly, I used to respect the WHO, until this pandemic. Same with the CDC. The same with most of “science.” Now? They are – clearly – for sale. Worse yet – they have actually been sold already, and not to anyone that values my life and health.

Note: the Fed still retains popular confidence, as does the US dollar. These are dominoes still left to fall.

My things to watch:
Eurozone breakup – on hold. “Threat Offline”
Hong Kong MFN revocation – happening now. It is the next near-term flashpoint. Gold positive, bank negative.
HCQ prophylaxis & treatment trials – near term. Results could appear anytime. Gold negative, risk-asset positive.
Herd Immunity Threshold – medium term. Like defaults, it will take time to develop. Gold negative.
Default/deflation – medium term. Currently, personal savings is at all time highs; we just haven’t seen many actual defaults yet. Eventually, gold positive, bank negative. The inevitable rescue will be very expensive.

  • Sat, May 30, 2020 - 11:53pm

    #2

    Eannao

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    PM Weekly Market Commentary – 05/29/2020

Dave, the Summary in this commentary deserves to be re-read multiple times…. both for style and content. Excellent stuff!! Thanks so much.

  • Sun, May 31, 2020 - 02:59pm

    #3
    jmone

    jmone

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    PM Weekly Market Commentary – 05/29/2020

The Oz perspective for the week:  While the S&P200 (ASX) was a bolter this week up almost 8% on by Thursday, it did finish the week off it’s lows at 5% and the other star was the AUD, which is now almost back to pre-COVID rates.  This is in large part due to Iron Ore hitting $100t with Brazil’s mines in shutdown.  Discussions about the AUD sliding to around 55cents seems to have been shelved.  The result of the strengthening AUD keeps putting downward pressure on the PM space with Gold the main detractor, down again this week.  Silver however bucked the trend after the markets closed locally on Friday to finish the week up 2%

The trends since the late Feb melt down has now seen

– the continued rise of the AUD : This will not be pleasing the RBA who (like most central banks) will want a weaker domestic currency to help exports at present.

– Silver continue to trade well above the range it broke out of in Mid May

– Equities lat week well and truly broke out it’s trading range but will be tested this week.  There is still heaps of heady optimism driving the market higher.

– Gold is still firmly stick in it’s trading range drifting side wards trying to fight off the strengthening AUD and equities enthusiasm.

Silver: Physical supply continues to ease and so has margins on some formats like 1oz Silver Kangaroos.   These are now trading for A$32 a coin in retail vs $27 spot.  1KG bars are also available for A$1,030 vs $952 spot.  This has been a massive fall in the retail premium where 1oz cons were running around $45 a few weeks ago (and the price of silver at that time was much lower).  To me this is interesting, we have supply increasing, retail premiums dropping significantly and while the spot price jumped over the last couple of weeks.

Gold: Availability is good for most common formats and the margin is still low with premiums around A$50-60 per oz.

 

  • Mon, Jun 01, 2020 - 06:33am

    #4
    phusg

    phusg

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    PM Weekly Market Commentary – 05/29/2020

Spain rolling out a universal basic income (UBI) ASAP: https://www.linkedin.com/feed/news/spain-passes-universal-basic-income-4139801/

They apparantely feel confident enough to finance this with the eurobonds in the pipeline.

I personally don’t see how this pushes up wages and/or creates more jobs, but there are certainly plenty who need something to help them out of poverty/unemployment. I can see the mental health benefits of not feeling insecure about being able to get by.

  • Mon, Jun 01, 2020 - 10:05am

    #5

    JAG

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    PM Weekly Market Commentary – 05/29/2020

Fantastic report Boss! You continue to outdo yourself.

I need your help with something. Did the Fed withdrawing liquidity the two weeks before the crash actually cause it?

I looked at your Weekly reports back in Feb and saw this:

(Feb 21) Fed Balance Sheet: headline 4171.6B, -11.1B (-0.27% w/w). Money printing went in reverse this week.

(Feb 27) Fed Balance Sheet: headline $4,158.6B, -12.9B (-0.31% w/w) (prior -0.27% w/w). Money printing unwind this week.

Those amounts appear to be insignificant but maybe it’s just about the rate of change for such a liquidity-driven market.

Can we just boil down all market analysis to a two-week lagging liquidity measure? LOL, I seriously doubt that you think so but would appreciate your feedback.

Thanks Mr. DF.

  • Mon, Jun 01, 2020 - 12:29pm

    #6

    davefairtex

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    withdrawing liquidity

JAG-

Short answer: I don’t think so.

Long answer: I think the panic selling caused the crash.    All those politicians bailed out after getting those classified briefings; Wall Street noticed, and then they bailed out too.  (Do you think those politicians accounts are monitored?  Unless the banksters are colossally stupid about such things – and they are not – they are definitely monitored).   And that was that.

But I do think the printing caused the rebound.  Is printing coming to an end?  Last week it sure looked like it.  Who knows about this week though.

  • Tue, Jun 02, 2020 - 07:00am

    #7

    JAG

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    withdrawing liquidity

Thanks DF….you are the graph master. I appreciate your time.

  • Tue, Jun 02, 2020 - 08:47am

    #8

    davefairtex

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    we all play a part

And sometimes, asking the right question question is just as important as the answer that happens to pop out.

We all can only see the stuff around us.  The more people that are involved, the more complete is our vision.  Here in our little group we have people from Europe, from Australia, from Asia, and the US.  How cool is that?

I didn’t really realize just what the percentage jump was, or the timing, until I constructed that chart.  If I had known, I’d have posted it long ago!

  • Wed, Jun 03, 2020 - 12:20am

    #9
    phusg

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    PM Weekly Market Commentary – 05/29/2020

Here in our little group we have people from Europe, from Australia, from Asia, and the US. How cool is that?

Hahaha, so you are an internationalist after all Dave 😉

  • Wed, Jun 03, 2020 - 01:45am

    #10
    Aus

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    PM Weekly Market Commentary – 05/29/2020

What Virus? The only thing that makes sense right now is the “Euphoria” sentiment. In Australia the mood feels more than euphoric despite the announcement of a technical Recession, ASX is up and dollar strong.  We kicked the can down the road back in April.  Govt. raised too much in bonds to cover a wage subsidy scheme as a way of deferring unemployment, now all sorts of industry people are making up ways of spending the cash.  I hear from the Banking sector they know there is much worse to come, some calling on SME’s to wind up while they can. Globally what’s the fallout? What happens? How? And When?  News doesn’t seem to impact the way it used to.  What’s really happening?

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