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PM Weekly Market Commentary – 10/4/2019

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  • Sun, Oct 06, 2019 - 01:25am

    #1

    davefairtex

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    PM Weekly Market Commentary – 10/4/2019

On Friday, gold edged down -0.52 [-0.03%] to 1514.12 on heavy volume, while silver dropped -0.02 [-0.11%] to 17.64. on light volume. The buck fell slightly [-0.06%], while crude [+1.36%], SPX [+1.42%], and bonds [10Y yield -2.1 bp] rallied, with SPX looking strongest of the bunch.

PM Sector map shows a bit of a mixed bag; miners led metal higher, juniors led seniors higher, but gold led silver, which isn’t ideal. Platinum was at the bottom of the pile, along with the other more industrial metals. Many of the PM (safe haven) components have moved back above the 9 MA lines, and gold is back above all 3 moving averages. The sector map is hinting that the recent PM correction might be over.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 1.70% 37.41% falling falling rising falling ema9 on 2019-10-04 2019-10-04
Senior Miners GDX 1.53% 48.64% falling rising rising falling ema9 on 2019-10-04 2019-10-04
Gold $GOLD 0.47% 25.47% falling rising rising rising ema9 on 2019-10-03 2019-10-04
Gold/Euro $GOLD:$XEU 0.09% 31.46% falling rising rising rising ema9 on 2019-10-04 2019-10-04
Silver $SILVER 0.06% 20.38% falling rising rising rising ma50 on 2019-10-02 2019-10-04
Silver Miners SIL -0.79% 20.24% falling rising rising falling ma50 on 2019-09-27 2019-10-04
Palladium $PALL -0.80% 56.66% rising rising rising falling ema9 on 2019-10-03 2019-10-04
Copper $COPPER -1.29% -7.91% falling falling falling falling ema9 on 2019-09-17 2019-10-04
Platinum $PLAT -5.39% 7.16% falling rising rising falling ma50 on 2019-09-30 2019-10-04

Gold rose +7.09 [+0.47%] to 1514.12. The high wave candle was bullish (49%), but forecaster declined, and moved in a downtrend. Gold’s daily reversed back into an uptrend on Wednesday, which leaves gold in an uptrend in both daily and monthly timeframes. Gold/Euros did even better, ending the week in an uptrend in all 3 timeframes.

The October 2019 rate-cut chance is at 77%, and the Dec 2019 rate-cut chance is 89%, and a 42% chance of 2 rate cuts. This is a substantial increase over last week.

COMEX GC open interest rose +1,788 contracts on Friday, but fell -7.93170 contracts this week.

Commercial net jumped +41k contracts, which was all covered shorts; managed money net dropped -47k contracts, which was almost all about long liquidation (-46k). There were two large down days during the coverage period – it looks like managed money panicked out, and commercials rang the cash register – this is normal behavior. This is a positive sign, but from the COT perspective, the move isn’t enough to start thinking about a low for gold just yet.


Silver rose +0.01 [+0.06% to 17.64. The doji candle was a bearish continuation, but forecaster moved higher, flipping back into an uptrend. Like gold, silver daily flipped back into an uptrend on Wednesday’s rally. As a result, silver ended the week back in an uptrend in all 3 timeframes – although the trends at this point are not that strong. Silver is definitely lagging behind gold, which is not a great sign for a PM reversal.

The gold/silver ratio rose +0.35 to 85.83. That’s mildly bearish.

COMEX SI open interest fell -944 contracts on Friday, and -1,840 contracts this week.

Commercial net rose +2k contracts, which was -2.8k fewer shorts, and -850 fewer longs. That’s a tiny change. Managed money net fell -4.7k contracts, which was -3.5k fewer longs and +1.2k more shorts. Silver was hit really hard during the coverage period, but there was little short-covering on the part of the commercials – and not all that much long liquidation by managed money.

Miners were basically flat; XAU rose +0.04%, the spinning top was bullish (48%), but forecaster moved lower into its downtrend. Still, XAU daily popped back into an uptrend on Friday. That leaves XAU in an uptrend in both daily and monthly timeframes. Both the forecasters, and the charts give you the sense that XAU is lagging behind the metals overall; this is not a great sign for a strong PM reversal. The buyers really haven’t returned to the mining shares just yet.

GDX:$GOLD rose +1.05%, while GDXJ:GDX ratio climbed +0.17%. That’s mildly bullish.

USD

The buck fell -0.31 [-0.31%] to 98.38. The bearish harami pattern was bearish (41%), and forecaster moved lower, but remains in an uptrend. Daily DX forecaster dropped into a downtrend on Thursday; this resulted in the buck ending the week in a downtrend in both daily and monthly timeframes.

I redid the monthly forecaster – it looks to be a bit more accurate now, so I trust the sense it has of a dollar downtrend at this point. I’m guessing the dollar bearishness has to do with the strong rallies in 1 and 10 year bonds.

The big currency moves: EUR [+0.38%], CAD [+0.56%], CNY [+0.37%], JPY [-1.12%].

SPX fell -9.78 [-0.33%] to 2952.01. The high wave candle was a bearish continuation, and forecaster moved lower but remains in an uptrend. Strong rallies on Thursday and Friday rescued SPX from what would have been an ugly week. Friday’s (40 point) rally appears to have been sparked by the payrolls report at 8:30 am, which was good for 20 points of the day’s move. Daily forecaster moved back into an uptrend on Friday’s rally. This pulls SPX back into an uptrend in all 3 timeframes, but the trends are all quite weak.

On the week, energy and telecom led the market lower, while tech and sickcare did best. The sectors that fell really did much worse; energy was especially hard-hit. The sector map looks quite bearish, in spite of the minor rally in tech.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 1.53% 48.64% falling rising rising falling ema9 on 2019-10-04 2019-10-04
Technology XLK 1.08% 8.03% rising falling rising falling ema9 on 2019-10-04 2019-10-04
Healthcare XLV 0.90% -4.52% falling falling rising falling ema9 on 2019-10-04 2019-10-04
Cons Staples XLP 0.46% 14.79% rising rising rising falling ema9 on 2019-10-04 2019-10-04
REIT RWR 0.15% 15.86% rising rising rising rising ema9 on 2019-10-03 2019-10-04
Homebuilders XHB 0.11% 16.36% rising rising rising falling ema9 on 2019-10-04 2019-10-04
Utilities XLU 0.11% 22.62% rising rising rising rising ema9 on 2019-10-04 2019-10-04
Cons Discretionary XLY -0.38% 5.42% falling falling rising falling ma50 on 2019-10-01 2019-10-04
Defense ITA -2.12% 1.69% falling rising rising falling ma50 on 2019-10-04 2019-10-04
Financials XLF -2.17% -2.42% falling falling rising falling ma50 on 2019-10-04 2019-10-04
Materials XLB -2.43% -3.03% falling falling rising falling ema9 on 2019-10-01 2019-10-04
Industrials XLI -2.46% -4.70% falling falling rising falling ma200 on 2019-10-03 2019-10-04
Telecom XTL -2.62% -13.29% falling falling rising falling ma50 on 2019-09-26 2019-10-04
Energy XLE -3.77% -25.64% falling falling falling falling ma50 on 2019-09-26 2019-10-04

The US equity market was #4 of 6 this week; Emerging Asia did best.

VIX fell -0.18 to 17.04.

Rates & Commodities

TLT climbed +0.59%, making a new high on Friday. The closing white marubozu was a bullish continuation, and forecaster ended the week in an uptrend. The 30-year yield fell -12 bp to 2.02%. That’s a pretty strong move. The all time low yield for the 30 year is 1.96%, which is not very far away at all.

TY rose +1.16%, the long white candle is a bullish continuation, and forecaster jumped back into an uptrend. TY ended the week back in an uptrend in all 3 timeframes.

DGS10, the 10 year yield, fell -16 bp to 1.53%. The black marubozu was a bearish continuation, and forecaster dropped back into a downtrend. DGS10 is back in a downtrend in both weekly and monthly timeframes. The multi-year low in the 10-year is just 1.50%, just 3 bp away.

JNK fell -0.91%, falling for the first 3 days, and then rebounding on Friday. The opening black marubozu was a bearish continuation, and forecaster ended the week in a downtrend. That said, Friday’s daily swing low was bullish (50%), so we will have to see how things go come Monday. BAA.AAA differential rose +1 bp to +89 bp. There are still few worries from the credit markets about low quality debt.

Crude plunged -3.18 [-5.67%] to 52.90. The opening black marubozu was a bearish continuation, and forecaster moved lower into what is now a reasonably strong downtrend. Crude did bounce off 51 support on Thursday, and the daily chart swing low print on Friday was quite bullish (57%), but the move higher in the daily forecaster wasn’t quite enough for a daily uptrend. Crude ended the week in a downtrend in all 3 timeframes.

Wednesday’s somewhat bearish-looking EIA report was a part of the problem: crude: +3.1m, gasoline: -0.2m, distillates: -2.4m. This caused prices to drop, certainly, but didn’t account for the bulk of the correction in crude, much of which took place on Monday.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +0.88 tons, with 924 tons remaining in inventory.

* ETF Discount to NAV:

PHYS 12.07 -1.13% to NAV [increase]
PSLV 6.43 -1.70% to NAV [increase]
CEF 14.56 -3.17% to NAV [decrease]

* Premium for physical (via Bullion Vault: https://www.bullionvault.com/gold_market.do#!/orderboard) vs spot gold (loco New York, via Kitco: https://www.kitco.com/charts/livegoldnewyork.html) shows no premium for gold, and a 4 cent premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.18% and silver [1000oz] 3.26%.

Grey Swans & Geopolitics

  • Ebola: total cases 3197, with 2136 deaths (CFR: 67%). That’s just 22 new cases this week, which is a decrease over last week. There has been a shift in cases from the cities to the countryside; this has caused a change in transmission dynamics. In the countryside, there are more “community” deaths, and fewer transmissions from healthcare facilities. Countryside transmission causes logistical challenges – teams have to travel further to engage in contact tracing and vaccination, so – the drop in cases may just be a lack of detection & reporting. https://www.who.int/csr/don/03-october-2019-ebola-drc/en/
  • Iran: The Iranian-supported Houthi rebels in Yemen have claimed a major victory over “3 Saudi brigades” – Yemeni mercenaries fighting on the side of Saudi Arabia. The attack allegedly took place on August 25th; why they waited more than a month to announce it is an open question. Saudi Arabia has declined to comment. Iran has said it wants to make Yemen the “Saudi Vietnam.” Then just yesterday, the (failing) New York Times reported that Saudi Arabia has asked Pakistan to mediate in indirect talks between Iran and Saudi Arabia, driven by Trump’s refusal to attack Iran in response to the attack on the Saudi oil facility. NYT hints this was a Trump failure; to me, avoiding yet another mideast quagmire is a victory. Still, a Saudi-Iran detente, while presumably good for the world overall, may well hammer the price of oil through $50. https://www.aljazeera.com/news/2019/10/saudi-arabia-iran-steps-indirect-talks-nyt-191005171357718.html
  • Italy – migration: No news.
  • US-China trade: talks are scheduled to resume this week, starting with deputy-level discussions on Monday-Tuesday, then progressing to talks between Liu He and Lighthizer/Mnuchin on Thursday-Friday. The key: will China go back to where things were in May? Trump told us on Friday he thinks there is a “very good chance” of making a deal, for whatever that’s worth!
  • BRExit: PM Johnson has submitted his own withdrawal agreement to the EU, which responded that more concessions are needed if an agreement will be reached. Behind it all is the threat of no-deal; UK Parliament has passed a measure requiring Johnson to request an extension if a deal isn’t agreed to. For his part, Johnson has repeatedly said he will not ask for a delay, but neither will he break the law. How that contradiction gets resolved is the big mystery. October 19 is the “request-for-a-delay” deadline – next Saturday!  https://www.reuters.com/article/us-britain-eu-court-extension/uk-pm-johnson-will-ask-for-brexit-extension-if-no-deal-by-october-19-court-told-idUSKBN1WJ1BR
  • Yield Curve Inversion: the 1-10 spread fell -2 bp to -7 bp. The yield curve continues to be inverted. (1Y: 1.60%, 10Y: 1.53%)
  • Hong Kong: just yesterday, HK leader Carrie Lam invoked a 1922 colonial law allowing her to essentially govern by fiat – legalizing internment, suspending due process, and censoring the media. Her first act was to outlaw mask-wearing during assemblies of more than 50 people. (1 year in prison, $3,200 fine). The metro (best metro system in the world) is now closed down, banks are closed too (to prevent bank runs? Probably). Thumbnail sketch of the protester’s viewpoint: “If we don’t stand up and resist, then it could be that 2047 has already come.” Many are literally children; a 14-year old boy was shot during yesterday’s protests. (Chinese culture note: I can’t imagine Chinese children protesting without the tacit approval of their parents.) The children see no future under CCP rule; their “social credit” score is already at zero. Will capital flee from Hong Kong for real now? An unintended consequence: the CCP has revealed itself to be a less-than-benevolent force in the world. It certainly has changed my view of them. Anyone who has actually been to Hong Kong…the business-oriented Hong Kongers are the very last people you would expect to act like this. https://www.aljazeera.com/news/2019/10/hong-kong-public-transit-suspended-friday-night-protests-191005055213294.html
  • North Korea: US-North Korea held talks in Sweden which ended after 8 hours of discussion; the US side opined that “70 years of hostility could not be overcome in 1 day”, while the North Korean side said the US “disappointed us greatly and dampened our enthusiasm for negotiation by bringing nothing to the negotiation table.” Perhaps the removal of Bolton had raised the expectation on the part of North Korea that sanctions could be lifted prior to talks; that wasn’t on the table, apparently, so North Korea was not pleased.

Recession Watch

  • Nonfarm Payrolls: headline 136k (prior 130k), hourly earnings flat (prior +0.4%), manufacturing -2k (prior +3k). My favorite series “working part time, slack work”, fell -90k (prior +293k). This is a somewhat weak report, but it is not recessionary just yet, especially in view of the drop in the part-time (slack work) series.
  • ISM Non-Mfg Index: headline 52.6 (prior 56.4) new orders 53.7 (prior 60.3). This number shows services slowing, but is not yet recessionary.
  • ISM Mfg Index: headline 47.8 (prior 49.1), new orders 47.3. This is recessionary, at least for manufacturing.

Summary

After making new lows on Monday, gold, silver, and the miners all rebounded this week, driving back above the 9 MA lines, and causing the daily forecasters to reverse too. However it wasn’t enough for the weekly to reverse; it is hard to know if this week’s bounce is just a reaction rally or a more substantive reversal. Bonds look a whole lot stronger – the 10-year yield is within 3 bp of its multi-year low, and the 30-year is only 6 bp from its all-time low. If the bad economic news continues to roll in, I’d expect bonds to break to new highs/new yield lows in both the 10 and 30 year durations.

Rate cut chances also continue to increase; a rate cut in October is likely, and there is a decent chance of another cut in December.

So why is gold lagging? It certainly could be suppression, but the larger “open interest” picture hasn’t changed very much at all – OI doesn’t bear out the suppression case. That leaves a lack of interest on the part of the buyers. What might be causing the hesitation?

The Brexit picture looks positive – at least to me – that some sort of resolution will happen in the near future. GBP/USD looks to be confirming this, at least more or less. A resolution to the seemingly endless attempts by the Remainers to avoid a real Brexit will probably end up being somewhat gold negative.

By end of next week we could also get some clarity on the US-China trade deal. Will the Chinese return to the May almost-agreement? Will they return with some tweaks to said agreement? Certainly the Chinese are motivated; 4 months of dreadfully embarrassing Hong Kong unrest, along with a slowing world economy will impact them more seriously than everyone else, and that’s happening alongside an increasing US campaign to make “decoupling” a real thing. The CCP’s actions in Hong Kong no doubt contributes to the increasing “decoupling” sentiment. Perhaps they now think they should strike while there is still an opportunity.  A reasonably successful conclusion to the trade situation would also be gold negative.

Maybe that picture explains why gold buyers are a bit cautious right now, even though rates appear to be on a relentless path lower.

Big bar gold premiums on gold are inching higher, and ETF discounts mostly declined. There is no shortage of gold or silver at these prices.

The COT reports show some cash-register ringing by the commercials in gold, although (in the classic COT model) a lot more of that needs to happen if gold is to put in a low. Silver, well, there was almost no short-covering in silver.

Weekly trends (in order of strength):

Uptrend: 10-year Treasury, USD, NDX, silver, SPX.

Downtrend: platinum, crude, bitcoin, miners, gold, copper, DJI.

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  • Mon, Oct 07, 2019 - 02:17am

    #2

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3206

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    JPM – traders charged under RICO, wire fraud, bank fraud, commodities fraud, price manipulation

Boy, this was a long time in coming.

Anyone imagine if HRC had made it into office (after all her “speeches”) that her DOJ would have done anything about this?

Notice: individuals have been criminally charged, rather than “organizations”, which suggests to me that the punishment won’t be the usual a fine.  Maybe someone will even roll on someone else.  A guy can hope.  It might even dissuade future scammers.

And now we also know that manipulation wasn’t just a conspiracy.  Well – it WAS a conspiracy, but a conspiracy of traders at the metals desk at JPM.

Looks like a little bit of “banking system” swamp might be getting drained.  Banks are not allies of Trump, so…they are fair game.  Unlike with HRC.

https://www.justice.gov/opa/pr/current-and-former-precious-metals-traders-charged-multi-year-market-manipulation

Two current precious metals traders and one former trader in the New York offices of a U.S. bank (Bank A) were charged in an indictment unsealed today for their alleged participation in a racketeering conspiracy and other federal crimes in connection with the manipulation of the markets for precious metals futures contracts, which spanned over eight years and involved thousands of unlawful trading sequences.

“The defendants and others allegedly engaged in a massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants,” said Assistant Attorney General Brian A. Benczkowski. “These charges should leave no doubt that the Department is committed to prosecuting those who undermine the investing public’s trust in the integrity of our commodities markets.”

“Smith, Nowak, Jordan, and their co-conspirators allegedly engaged in a complex scheme to trade precious metals in a way that negatively affected the natural balance of supply-and-demand,” said FBI Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office. “Not only did their alleged behavior affect the markets for precious metals, but also correlated markets and the clients of the bank they represented. For as long as we continue to see this type of illegal activity in the marketplace, we’ll remain dedicated to investigating and bringing to justice those who perpetrate these crimes.”

Each of the three defendants was charged with one count of conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity (more commonly referred to as RICO conspiracy); one count of conspiracy to commit wire fraud affecting a financial institution, bank fraud, commodities fraud, price manipulation and spoofing; one count of bank fraud and one count of wire fraud affecting a financial institution. In addition, Smith and Nowak were each charged with one count of attempted price manipulation, one count of commodities fraud and one count of spoofing.

  • Mon, Oct 07, 2019 - 05:34am

    #3
    dryam2000

    dryam2000

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    Joined: Sep 06 2009

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    Mixed bag

On one hand, the way to effect change is to go after individuals with criminal charges and prison sentences.  On the other hand, going after a small number of individuals gives the impression the pricing schemes are very isolated instead of being a more systemic problem.

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