PM Weekly Market Commentary – 07/03/2020

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  • Sun, Jul 05, 2020 - 04:13am

    #1

    davefairtex

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    PM Weekly Market Commentary – 07/03/2020

On Friday, gold climbed +7.28 [+0.41%] to 1801.31 on moderate volume, while silver fell -0.02 [-0.11%] to 18.28 on moderately light volume. The buck moved higher [+0.15%], SPX rose also [+0.45%] along with crude [+1.43%] and bonds [the 10-Year yield fell -2.0 bp].

Gold/euros inched up +2.75 [+0.17%] to 1603.15 on moderate volume. The northern doji candle was a low-percentage bearish reversal (28%), forecaster dropped, but remains in an uptrend. Gold/euros is in an uptrend in all three timeframes.

COMEX GC open interest rose +2.7K contracts on Friday, and rose +20K contracts this week. That was 6 days of global annual production in new paper added to the market. Current open interest for GC: 52% of global annual production, up +1.87% this week.

Silver climbed +0.20 [+1.11%] to 18.28 on moderately light volume. The long white candle was a reasonably strong bearish reversal (48%), forecaster dropped, but remains in an uptrend. Silver is in an uptrend in all three timeframes.

COMEX SI open interest rose +265 contracts on Friday, and fell -10K contracts this week. That was -22 days of global annual production in paper removed from the market. Current open interest for SI: 96% of global annual production, down -6.05% this week.

The gold/silver ratio dropped -0.73 to 98.54. That’s bullish.

Open interest fell every single day this week – during the week, silver went up, and it went down, but open interest dropped each day. We didn’t get a COT report because of the Friday holiday, but it seems as though the commercials are bailing out. This is a potentially very bullish sign. The weekly candle print was fairly ugly, and the trends look relatively weak, but if the commercials are bailing out of their short positions, that’s a bullish sign.

GDX moved up +2.78% on moderate volume, and GDXJ rallied +3.67% on moderate volume. XAU rose +3.38%, the long white candle was a possible bearish reversal (34%), forecaster climbed, moving higher into its uptrend. XAU is in an uptrend in all three timeframes.

The GDX:gold ratio climbed +2.36%, and the GDXJ:GDX ratio climbed +0.86%.

The miners looked reasonably strong this week; the candle print was mildly bearish, but the uptrend is strengthening, according to forecaster. We might even see a breakout to a new 8-year high next week. It could happen.

Platinum rose +13.56 [+1.64%], and palladium rose +29.47 [+1.54%]. Platinum is back in a weekly uptrend, but it looks relatively feeble. Palladium remains in a downtrend.

Copper rallied +0.08 [+3.01%] to 2.74 on moderately light volume. The opening white marubozu candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. Copper is in an uptrend in all three timeframes.

Copper hit a new 6-month high this week; its ascent is relentless, even stronger than crude was a few weeks back. That’s a risk on signal.

The buck fell -0.10 [-0.10%] to 97.30 on moderate volume. The short black candle was a bullish continuation, forecaster climbed, but remains in a downtrend. The buck is in a downtrend in all three timeframes.

Major currency moves included: CAD [+0.79%], GBP [+1.03%], JPY [-0.34%], AUD [+0.86%].

The buck tried to rebound this week but failed. Still, the buck ended the week above the 9 MA, and the longer term downtrends have grown quite weak. It could still go either way.

Crude shot up +2.13 [+5.58%] to 40.33 on moderate volume. The unknown candle was unrated, forecaster climbed, rising into an uptrend. Crude is in an uptrend in all three timeframes.

EIA report: crude -7.2m, gasoline +1.2m, distillates -0.6m. The report was bullish, but the market didn’t really seem to care.

Crude has moved back above the 9 MA, and is also back in an uptrend in all 3 timeframes. It is also back above round number 40. These are all positive signs for crude. Call this a risk on sign as well.

SPX shot up +120.96 [+4.02%] to 3130.01 on moderately light volume. The long white candle was neutral, forecaster inched lower, and remains in a shallow downtrend. SPX is in an uptrend in the daily and monthly timeframes.

REITs [+5.36%] led, along with materials [+5.28%], while financials [+1.70%] and energy [+2.22%] did worst. This was a bearish sector map.

The VIX fell -0.94 to 27.68.

SPX rose every day this week, recovering from last week’s sell-off. Thursday’s 30-point rally looked good on paper, but the spinning top candle print was bearish (39%), and the close looked weak also. Finally, weekly forecaster remained in a downtrend, and that’s not a good sign. On the other hand, forecaster is back in an uptrend. I think it could go either way.

TLT fell -1.00%. The unknown candle was unrated, forecaster dropped, but remains in an uptrend. TLT is in an uptrend in the daily and weekly timeframes. The 30-Year yield rose +6.0 bp to +1.43%.

TY was unchanged this week. The doji candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. TY is in an uptrend in the daily and weekly timeframes. The 10-Year yield rose +3.0 bp to +0.67%.

Bonds moved a bit lower, but that 10-year remains glued to that recent trading range where it has been since April.

JNK climbed +0.75%. The long white candle was a probable bullish reversal (51%), forecaster climbed, but remains in a downtrend. JNK is in an uptrend in the daily timeframe.

Crappy debt staged a decent rally this week; the candle print was reasonably strong, the daily forecaster has reversed, but the weekly has yet to be convinced. This is a cautious risk-on sign from crappy debt.

Physical Supply

The GLD ETF tonnage on hand climbed +12.57 tons, with 1191 tons remaining in inventory.

ETF Discount to NAV:
* CEF -0.25%
* PHYS +0.03%
* PSLV -0.04%
Bullion Vault Premiums:
* gold: -0.33
* silver: +0.06
Gold dealer big bar premiums:
* gold [1kg]: +1.16%
* silver [100 oz]: +11.06%

Physical ETF discounts have dropped substantially, BV premiums are mixed, and silver big bars remain relatively scarce.

Grey Swans and Geopolitics

China & Decoupling: perhaps not just the US will be decoupling. 94% of Australians want to reduce economic dependence on China. Other places are having their issues too: India and China had a “firearm free” 6-hour border skirmish (first since 1975) where 20 Indian soldiers were killed with an unknown number of Chinese casualties. While China maintains it was the victim, India responded to the incident by sending 30,000 troops to the border, banning 59 Chinese phone apps including spyware app TikTok, raising tariffs on Chinese products, and restricting Chinese investments in India. Its not just the US doing decoupling.
https://nypost.com/2020/07/04/the-world-is-finally-uniting-against-chinas-bully-tactics/
https://www.hindustantimes.com/india-news/20-indian-soldiers-killed-in-lacstand-off-with-chinese-troops/story-1qTQWKJjba6xXAKwyMh2aM.html

Second Wave: actually the first wave for many states; New York & New Jersey (and possibly Pennsylvania & Illinois) most likely have herd immunity, while in other states they are experiencing their first real wave. No peak in cases yet for the new states, but nationwide deaths are not accelerating to match the rise in cases. Deaths are climbing in some states, however.

Treatment: Lots of new, positive studies were released this week on reduced mortality on patients treated using HCQ/AZI/Zinc.

Second Stimulus: this article says it is “increasingly likely” to happen. Rough timeframe: either early August, or mid-September.
https://www.cnet.com/personal-finance/when-could-you-get-a-second-stimulus-check-we-might-have-a-pretty-good-idea/

Eurozone Breakup: No news. German court ruling takes effect in 30 days.

Hong Kong: China passed the national security act; China security agents can now operate in the city openly, trials involving “state secrets” can be held behind closed doors without juries, China now claims “universal jurisdiction”, which makes it risky for anyone criticizing Beijing to travel to Hong Kong – or even transit through the Hong Kong airport. And if there are any issues between the two systems, China’s law takes precedence. Mainland officials are now inside Hong Kong’s government. Hong Kong is rapidly becoming just another mainland Chinese city. Note to self: no transits through HKG.
https://hongkongfp.com/2020/07/04/five-ways-hong-kong-has-changed-under-chinas-security-law/

US-Iran: US wants the UN Security Council to extend the arms embargo on Iran. Ending the embargo was a key goodie in the Iran nuclear deal, which the US bailed out of when Trump became President. Apparently, a “close reading” of the nuclear deal allows the US to invoke “the snapback of sanctions” – even though the US is no longer a party to the deal. The US is threatening to invoke this clause if the UNSC doesn’t vote to continue sanctions on Iran.
https://www.msn.com/en-us/news/world/us-to-seek-un-vote-on-iran-arms-embargo-this-month-craft-says/ar-BB16dRcv

North Korea: has “no plans” for face-to-face negotiations with the US prior to the US election in November.

Economic Reports

Fed Balance Sheet: headline $7,009B, -73.3B (-1.05% w/w) (prior -0.17% w/w). Another week of a declining Fed balance sheet.

Yield Curve Inversion: the 1-10 spread rose +4 bp to +51 bp this week. 1Y: 0.16% (-1 bp), 10Y: 0.67% (+3 bp).

Nonfarm Payrolls: headline +4.8M (+3.48% m/m) (prior +2.03% m/m), avg hourly earnings: -0.35 (-1.19% m/m) (prior -1.04% m/m), manufacturing: +356K (+2.94% m/m) (prior +2.13% m/m).  The headline number was much higher than expected.

Durable Goods, new orders: headline +13.58% m/m (prior -22.40% m/m) capital goods new orders (excl aircraft): +1.56% m/m (prior -7.03% m/m) shipments: +4.17% m/m (prior -23.11% m/m). This projects positive economic activity going forward.

Existing Home Sales: headline -10.74% m/m (prior -21.71% m/m), Mean Sale Price: -1.8K (-0.56% m/m) (prior +1.56% m/m), housing inventory: 1.6M, +90K (+5.81% m/m), monthly home supply: 4.80, +0.80 (+16.67% m/m). Rising supply, dropping prices, dropping sales. That’s bad, if you’re a seller.

Summary

This week gold broke out above round number 1800, surpassing the year high set back in 2012. The event was met (the very next day) with a wall of selling by “someone” eager to – probably – move gold prices lower. In spite of that, miners did well too, and appear close to a breakout point of their own.

Silver is lagging, although there is a lot of uncharacteristic short-covering going on – this doesn’t generally happen near the highs. Could the silver shorts be sniffing out a potential blockbuster rally? I mean, I’m long silver so I’m certainly hoping this is true. But I don’t generally see consistently dropping OI near the highs very often.

Equities had a good week, which ended on a little bit of a whimper. The risk on mood was supported by rising crude, copper, and crappy debt.

The falling Fed balance sheet was mostly about declining liquidity swaps [-50B] (apparently other central banks don’t need dollars anymore), along with declining MBS [-32B], while treasury bonds rose [+21B]. Wolf tells us that the Fed has stopped supporting asset prices; well, all except for treasury bonds, which they continue to buy at a 50% QE3 rate.

https://wolfstreet.com/2020/07/03/qe-unwinds-feds-assets-drop-for-3rd-week-another-76-billion-3-week-total-163-billion/

The now-sharply rising case counts (I was “somewhat premature” – i.e. wrong – in calling the case count top for Arizona; I’d have been stopped out if it was a trade) do not seem to be bothering risk assets right now. Well, except for the banksters who have been declining relative to the index over the past 3 weeks.

The shoe has yet to drop on the deflationary impacts from the pandemic response. Defaults take time.

An observation I heard this past week: Rule in Washington: in an election year, everything that happens is about the election. Regardless of how things may appear to be unconnected, rest assured, its all about the election.

This got me to thinking.

We’ve seen a pandemic, caused by an escaped gain-of-function virus, apparently paid for with US tax dollars, from a leaky Chinese lab, with realtime updates on “pandemic progress”, the interpreting of the “pandemic progress”, or lack thereof, by the media, an economically-lethal response to said virus, mass protests erupting immediately post-response, looting, statue-toppling (of even Union Civil War generals!), and a parallel coordinated, widespread, and partially-effective campaign to kneecap a really effective (and cheap) treatment by “the official medical establishment.” Large parts of “the system” appear to have turned completely sociopathic. [It may always have been so; perhaps I just wasn’t paying attention.]

But this brings me back to “Rule in Washington”, above.  Maybe – might all of these things be about the election? Something I really never thought about before. At least, not on this scale anyway.

Gold: 9 year high. Just this week.

  • Sun, Jul 05, 2020 - 04:55am

    #2
    Nate

    Nate

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    missing money

Dave,

Keep thinking about the Skidmore podcast.  Is there any way to run the Treasury debt roll over backwards in time to determine if the debt has been building slowly over time or if this represents a relatively recent spike in debt?

  • Sun, Jul 05, 2020 - 06:34am

    #3

    davefairtex

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    treasury debt

Skidmore did a graph about this – its at solari.com in the missing money update, towards the end.  Reissuance started to really ramp up around 2016.

https://missingmoney.solari.com/missing-money-update-may-2020/

It would probably help to have a copy of that accounting database lying around, so you could run a few thousand queries against it and see when things changed and what happened.

  • Sun, Jul 05, 2020 - 09:07am

    #4

    JAG

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    Election, TGA, and Tokenized Gold

DF: But this brings me back to “Rule in Washington”, above.  Maybe – might all of these things be about the election? Something I really never thought about before. At least, not on this scale anyway.

Don’t worry, you’re boy Trump will trump them when he spends 1.58 Trillion of the TGA into the markets in September.

The real question is what will gold do? Gold is such the “no-brainer” trade that everyone loves right now. Maybe the commercials are right to sell at this resistance.

I’ve been tempted to sell my physical gold for tokenized gold (PAXG). One can make 8.20% APR on tokenized gold. What did Buffet say, “gold has no return?” You can even exchange tokenized gold for real gold.

The math for this during a modest bull market in gold is interesting:

  • Lets say that you buy 10 units of tokenized gold at a price of $1800/unit (oz) right now and hold it in a crypto savings account that pays 8.2% APR in tokenized gold, compounded weekly, for 5 years.
  • Let’s assume that the price of gold goes up $150/year over the next 5 years.
  • At the end of 5 years, you would have 15.07 units of tokenized gold in the savings account, but the dollar value of that account would double to $36,168.00. That’s an annualized ROI of 14.98%, versus an annualized ROI of 7.21% if you just held 10 gold eagles over the 5 year period.

Let’s get more bullish and say the price of gold doubles in 5 years:

  • At the end of 5 years your tokenized gold savings account would hold 15.07 units and be worth $58,896.00.
  • That’s an annualized ROI of 26.75% for the tokenized gold versus 14.87% for gold eagles.

That’s pretty exciting math Not to mention that you don’t have to pay any dealer premiums, and tokenized gold is taxed as a commodity instead as a collectible.

Toke it up dude.

  • Sun, Jul 05, 2020 - 09:43am

    #5

    davefairtex

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    tokenized gold!

I recall that KWN was talking about crypto gold for a while.  Haven’t heard anything about it in a long time.  I looked under the covers.  Getting gold into the crypto system was the fun part.  They did it by offering a yield too.

So presumably, someone will have to store the gold backing tokenized gold, and pay the storage fees.  It will exist in some jurisdiction.  The token is only as good as the gold backing it up.  Stored somewhere.  Plus, someone else will have to pay that yield.

So if you are a buyer of tokenized gold, you’re going to be paying those storage fees and that yield, one way or the other.  Your tokenized gold value would seem to have to depreciate by that yield paid to the issuer (that’s you, JAG) plus the storage fees too.

I mean, no free lunch right?

Just wondering who will buy it, that’s all.  It sure sounds like a good deal from the person putting their gold in.  Who, presumably, will be able to get it back out again.

I think in the old days they had another name for tokenized gold:

It was called “a warehouse receipt.”

As I recall, one of the problems of those stablecoins was turning them into actual USD.  Warehouse receipts again.  It all works great right up until there’s a problem.  Then…lo and behold…they won’t cough up the gold for your receipt.

I don’t mean to be an old crank about the tokenized gold thing.  I know, it’s crypto, so it’s new and cool and won’t have problems like this.  🙂

[If you want to spill on how this product will allow gold, a yield-free instrument, to produce a presumably-risk-free yield…I’d be happy to hear the story]

[oh and FWIW I agree about a whole series of events that are happening now to benefit El Presidente; declassifications, charges being dropped on Flynn, new stimulus (good luck getting Pelosi to say yes), arrest of Maxwell, replacement of that SDNY AG, all of that is about the election too.  I think he waited to execute all of these operations, when many of them could have happened a year or so ago.  There are no coincidences during an election year.]

  • Sun, Jul 05, 2020 - 11:56am

    #6

    JAG

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    tokenized gold!

Yeah I thought the math was interesting, but I was really just pulling your leg. I do think Pax Gold is legit and the tokenization of everything is coming soon, but it’s a bad idea for gold.

For us at least, gold is a safety asset, something to hold on to some value in the worst circumstances. Tokenizing gold eliminates this safety aspect. But if your investing in gold via an ETF or Trust, Pax Gold may be a better option.

I am using this strategy with bitcoin, however. Most bitcoin enthusiasts see it rising 50-100X in the next five years but I don’t entrain such conspiracy theories, lol. I’ll be happy if it “just” doubles.

$90 Trillion question:

If that is true, why hasn’t the money supply increased dramatically? Selective accounting practices by the FED?

  • Sun, Jul 05, 2020 - 12:39pm

    #7

    JAG

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    Gold on the Blockchain

Just to be fair to PAX Gold, I think you may have some misconceptions:

Getting gold into the crypto system was the fun part

I’m not sure what you are saying here, but the process is simply buying PAXG on a crypto exchange with your bank or savings account (USD), then transferring the PAXG to a crypto savings account.

So presumably, someone will have to store the gold backing tokenized gold, and pay the storage fees.  It will exist in some jurisdiction.  The token is only as good as the gold backing it up.  Stored somewhere.  Plus, someone else will have to pay that yield.

The gold backing PAXG is LMBA-accredited London Good Delivery, stored by Brink’s vaults. The yield payed by the savings account has nothing to do with gold, but is derived from the loaning of crypto (PAXG) to institutional investors.

If you want to spill on how this product will allow gold, a yield-free instrument, to produce a presumably-risk-free yield…I’d be happy to hear the story.

It’s called Decentralized Finance (DeFi) and it’s way too big of a story for me to even comprehend let alone explain, lol. But it’s the future and it’s really coming on strong right now. I’ve had a blast learning about this whole new financial space.

There is no risk-free yield in this world, but that doesn’t stop every pension fund in the world from seeking it out.

Again, most goldbugs own physical and GLD or some other trust asset. This PAXG is no replacement for physical gold, but a great alternative to the ETF/Trust.

  • Mon, Jul 06, 2020 - 10:02pm

    #8

    davefairtex

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    AZ deaths heading lower

While I’m not going to actually call the top, having learned my lesson, I will say that a top might be in.  Possibly.  At least they aren’t moving higher.

We have definitely seen the top in Georgia, at least in deaths; lowest deaths/100k since (around) April 1, while having the highest case counts ever.  It has been 5 weeks since cases started to spike, and there was a brief spike in deaths, but it didn’t last.

FWIW: New York deaths/100k = 0.14, while GA = 0.11, and AZ = 0.45.

I’m with Trump on this one.  A chunk of the rise in cases is just an artifact of increased testing.  “In an election year, everything is about the election.”

“We don’t have enough testing!”

[Ok, here’s more testing]

“OMG So many people are testing positive now!”, x 21 news cycles.

  • Tue, Jul 07, 2020 - 02:58am

    #9
    Sabemenos

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    PM Weekly Market Commentary – 07/03/2020

Yeah I’m not so sure about Arizona.  It might turn out a little differently than Georgia.   There are so many elderly and retirees there.  A friend in Arizona picked it up from visiting her husband in rehab for a knee replacement She’s been getting sicker all week and her doctor is sure she has Covid   19 but she had to wait days to be tested and 5 days after getting tested she’s still waiting in the results.  Clearly Arizona is getting hammered

  • Tue, Jul 07, 2020 - 03:25am

    #10

    davefairtex

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    be careful, but hopeful as well

Yes its probably good to be individually careful during the herd immunity process.  Which is where we are going – and where we will get – regardless of what the vaccine-makers want us to believe.  They are an incredibly disempowering group; “your body isn’t good enough”, “your immune system will only work with our injection”, etc.  I believe that to be a load of crap.  We have a vote in how this all turns out for ourselves.  I suggest we might want to use it.  None of us need to become a statistic.

The much-maligned Sweden is already at herd immunity.  “Someone” out there posts bad news about Sweden all the time here at the site.  I can’t imagine why, since their numbers look good, and are getting better every day.  Who might benefit from dissing Sweden?  Let’s see.  Follow the money.  Who might that be?

Rough CFR for Sweden is 2.3%.

Sweden is what “herd immunity” looks like; Arizona will get there soon enough.

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