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PM Monthly Market Commentary – 11/29/2019

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  • Sun, Dec 01, 2019 - 10:18am

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    davefairtex

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    PM Monthly Market Commentary – 11/29/2019

Since this Friday marked the last trading day of the month, you get a monthly report this weekend.  I like doing these reports best.

On Friday, gold jumped +9.55 [+0.65%] to 1470.71 on moderately heavy volume, while silver moved up +0.05 [+0.29%] to 17.10 on moderately heavy volume too. The buck fell [-0.09%] along with SPX [-0.40%], crude was smashed [-4.68%], and bond edged lower too [10y yield +0.9 bp].

The monthly metals sector map has silver leading gold lower, but the miners are roughly in the middle of the pack; they outperformed silver, with the juniors doing best. In spite of most of the components falling in price this month, all items except copper remain above the 200 MA, and a number remain above both the 9 and 50 MA lines too.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 2.43% 56.90% rising rising rising rising ema9 on 2019-11-18 2019-11-30
Copper $COPPER 0.32% -4.92% rising rising falling rising ema9 on 2019-11-29 2019-11-30
Gold/Euro $GOLD:$XEU -2.08% 23.52% falling falling rising falling ema9 on 2019-11-29 2019-11-30
Silver Miners SIL -2.21% 27.09% rising rising rising falling ema9 on 2019-11-29 2019-11-30
Junior Miners GDXJ -2.70% 42.09% rising falling rising falling ma50 on 2019-11-29 2019-11-30
Gold $GOLD -3.28% 19.57% falling falling rising falling ema9 on 2019-11-21 2019-11-30
Senior Miners GDX -3.80% 41.26% rising falling rising falling ema9 on 2019-11-29 2019-11-30
Platinum $PLAT -4.18% 9.29% rising falling rising falling ema9 on 2019-11-27 2019-11-30
Silver $SILVER -5.52% 18.91% rising falling rising falling ema9 on 2019-11-26 2019-11-30

Gold fell -49.90 [-3.28%] to 1470.71. The long black candle was somewhat bullish (36%), but forecaster dropped into a downtrend. Daily forecaster reversed back into an uptrend on Friday – this leaves gold in a downtrend in both weekly and monthly timeframes. Gold/Euros looks much the same.

The Dec 2019 forecast is now looking at a rate increase: 4% chance.

COMEX GC open interest rose +6,014 contracts on Friday, and +17,669 contracts this month. Current open interest for gold: 83% of global annual production. This is a new all time monthly high for gold open interest; this behavior (rising OI) is very unusual to see during a price decline. To me, this pattern strongly suggests official intervention.

Silver plunged -1.00 [-5.525] to 17.11. All of silver’s losses this month happened during the first week of the month. The long black candle was mildly bullish (33%), and forecaster fell but remains in an uptrend. Silver ended the month in a downtrend in both daily and monthly timeframes.

The gold/silver ratio jumped +2.50 to 86.01. That’s quite bearish.

COMEX SI open interest fell -1,515 on Friday, and -15,969 for the month. Current open interest for silver: 116% of global annual silver production. In contrast to gold, silver’s OI dropped sharply this month as price fell. This is the standard pattern; commercials ring the cash register on their shorts as prices decline. That has been the pattern for decades in both gold and silver.

Miners were basically unchanged, down -0.10%. The doji candle was a bullish continuation, and forecaster moved higher into its uptrend. Miners ended the month in an uptrend in all 3 timeframes, and above all 3 moving averages as well. This was a strong performance for the mining shares.

GDX:$GOLD fell -0.54%, while GDXJ:GDX ratio climbed +1.14%. That’s somewhat bullish.

USD

The buck climbed +0.90 [+0.93%] to 97.83. The short white/NR7 candle was unrated, and forecaster jumped higher, and has moved back into an uptrend. The buck is now in an uptrend in the daily and monthly timeframes.

The big currency moves: EUR [-1.22%], AUD [-1.81%], CAD [+1.06%], JPY [+1.23%].

SPX rose +103.42 [+3.40%] to 3140.98. The opening white marubozu was a bullish continuation, and forecaster moved higher into its uptrend. This was a new monthly all time high for SPX. Friday saw a swing high candle print, but it was not particularly bearish (36%). SPX remains in an uptrend in all 3 timeframes.

This month, tech and defense were in the lead, while utilities and REITs did worst. This was a bullish sector map.

Name Chart Chg (M) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Technology XLK 5.37% 31.00% rising rising rising rising ema9 on 2019-11-25 2019-11-30
Defense ITA 5.20% 21.16% falling rising rising falling ema9 on 2019-11-29 2019-11-30
Financials XLF 5.05% 12.37% rising rising rising rising ema9 on 2019-11-22 2019-11-30
Healthcare XLV 5.00% 5.89% rising rising rising rising ma50 on 2019-10-15 2019-11-30
Industrials XLI 4.50% 14.20% falling rising rising rising ema9 on 2019-11-25 2019-11-30
Materials XLB 3.18% 10.23% falling rising rising falling ema9 on 2019-11-26 2019-11-30
Telecom XTL 2.09% -2.02% falling rising falling rising ema9 on 2019-11-25 2019-11-30
Energy XLE 1.60% -11.08% falling falling falling falling ma50 on 2019-11-29 2019-11-30
Cons Staples XLP 1.37% 10.91% rising rising rising falling ema9 on 2019-11-26 2019-11-30
Cons Discretionary XLY 1.32% 14.22% rising rising rising falling ema9 on 2019-11-25 2019-11-30
Homebuilders XHB 0.86% 29.64% rising rising rising rising ema9 on 2019-11-25 2019-11-30
REIT RWR -1.39% 10.59% rising falling rising falling ma50 on 2019-11-29 2019-11-30
Utilities XLU -1.87% 15.10% rising falling rising falling ema9 on 2019-11-26 2019-11-30
Gold Miners GDX -3.80% 41.26% rising falling rising falling ema9 on 2019-11-29 2019-11-30

The US equity market was #1, with Latin America doing worst.

VIX closed the month at 12.62.

Rates & Commodities

DGS10, the 10 year yield, rose +8 bp to 1.77%. The opening black marubozu was a bullish continuation, and forecaster jumped into an uptrend – for the first time in 12 months. The weekly moved back into a downtrend, however, which leaves DGS10 split: downtrend on the weekly, uptrend on the monthly.  Reminder: DGS10 uptrend = bond market downtrend.

The BAA.AAA differential rose +2 bp to +90 bp. There are still no real worries about debt quality right now, although forecaster is now back into a slight uptrend.

Crude rose +1.18 [+2.18%] to 55.37. Mostly, this month looked like a failed rally; the spinning top candle was mildly bearish (30%), but forecaster moved higher into its uptrend. On Friday, crude was crushed, plunging -2.72, which was enough to drag both daily and weekly forecasters back into a downtrend. While the monthly trend remains pointing higher, Friday’s huge move suggests a change in trend may be ahead.

Driving the market: Saudi Arabia reportedly is tired of overcompensating for other nations’ cheating on their oil production quotas; the market appears concerned this will lead to overproduction. The next OPEC+ summit will occur next week, and if the Saudis decide to abandon their role as compensators-in-chief, we could see a very brisk move lower in oil prices. Is this just a bluff or a real thing? That’s hard to know. Since the US is an “oil exporter” for the first time in 70 years, we theoretically don’t care any longer.

Or – just wait until Warren gets elected and bans fracking. Oil will shoot through $100 faster than you can blink. Any bets she gets campaign contributions from the Saudis and the Russians?  If I were them, I’d shovel money at her as fast as humanly possible.  Too bad she doesn’t have a “Warren Foundation.”

https://www.bnnbloomberg.ca/saudi-arabia-signals-it-s-had-enough-of-opec-cheating-on-quotas-1.1354996


Physical Supply Indicators

* The GLD ETF tonnage on hand fell – 19.95 tons, with 896 tons remaining in inventory.

* ETF Discount to NAV:

PHYS 11.71 +0.44% to NAV
PSLV 6.24 -1.57% to NAV
CEF 14.07 -2.81% to NAV

* 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 3 cent premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.15% and silver [1000oz] 3.18%.

Grey Swans & Geopolitics

  • US-China trade: whether the “phase 1” pork-and-soybeans deal gets done appears to depend entirely on whether or not Trump will agree to rolling back tariffs on Chinese products. If he does so, the deal will essentially be a “fake” deal and there are no hopes of any follow-on deal; if he does not roll back the tariffs, then I suspect no deal will happen. The calculus of this may change if the House decides to vote to censure Trump rather than “impeach” him.
  • Fed Not-QE: the Fed balance sheet rose +22.6 billion to $4.05 trillion this week, and rose +84.2 billion during November.
  • Hong Kong: district elections saw pro-democracy candidates win in an electoral landslide; 17 of 18 districts are now controlled by pro-democracy groups. Any suggestions that a “silent majority” of Hong Kongers actually supported Beijing were utterly demolished. Trump signed the HK Human Rights and Democracy Act, which angered Beijing but did not seem to affect the prospects for the US China trade deal at all. This should tell you just how badly the ultra-sensitive face-conscious CCP (images of Pooh Bear = banned because Pooh was deemed a threat!) wants those tariffs to go away.
  • Iran: Iran’s military was able to suppress a protest ignited by a 50% increase in gasoline prices; more than 100 people were killed, and between 1000-4000 people were arrested. A senior commander within Iran’s military called for “maximum punishment” of the protest leaders. Exiles, the US, Israel, and Saudi Arabia were blamed for stirring up the protests.
  • Italy – migration: No news.
  • BRExit: 2 weeks before the election, Tories are projected to win a majority in Parliament. If this occurs, the expected outcome is that Johnson’s withdrawal agreement will be approved by Parliament, and the UK will at long last leave the EU. Trading in USD/GBP has been relatively flat in November, which supports this projection.
  • Yield Curve Inversion: the 1-10 spread fell to +17 bp. 1Y: 1.60% (+7 bp), 10Y: 1.77% (+8 bp).
  • North Korea: wants sanctions relief prior to taking actions to denuke, and is expressing its frustration by “testing” short range missiles and making rude remarks about various leaders it dislikes. The DPRK has given the US until end of year to give in, or it will resume testing long range missiles and nuclear weapons.

Recession Watch

  • Consumer Sentiment: headline 96.8 (prior 95.7), best score since July.
  • ISM Non-Mfg Index: headline 54.7 (prior 52.6), new orders 55.6 (prior 53.7).
  • ISM Mfg Index: headline 48.3 (prior 47.8), new orders 49.1 (prior 47), backlogs 44.1 (prior 45.1)
  • Retail Sales: headline +0.3% m/m (prior -0.3% m/m), less-autos-and-gas +0.1% m/m (prior +0%).
  • Industrial Production: -0.8% m/m (prior -0.4% m/m), manufacturing -0.6% m/m (prior -0.5% m/m), business equipment -0.6% m/m, consumer goods -0.8% m/m
  • CPI: headline +0.4% m/m (prior +0.0%), less-food-and-gas +0.2% m/m (prior +0.1%).
  • Nonfarm Payrolls: headline +128k (prior 138k), manufacturing -36k (prior -2k), avg hourly earnings +0.2% m/m.

Summary

Gold, silver, and bonds all fell this month, while equities rallied to new all-time highs. It was a risk-on month. Was this because of the US-China trade deal, or a torrent of money-printing by the Fed? Certainly the trade deal is no closer to completion than it was a month ago.

The Fed’s Not-QE program did $84 billion this month, a brisk increase. This might account for the strong equity market rally. The Fed is printing truckloads of money [factoid: about 9600 bills can fit in 1 cubic foot; a 53-foot semi trailer holds 3400 cubic feet, so $84 billion = 25 “truckloads” of $100 bills] to paper over “something”, which they are keeping secret from the great unwashed, lest we panic. And they are lying about doing it. Does this make you feel warm and fuzzy?

The US economic indicators continue to show a contraction in manufacturing, producer prices, a flat CPI, and modest expansion in consumer spending, retail sales, employment, and services.

Big bar premiums on gold and silver have declined, and ETF discounts have shrunk. PHYS has even gone into premium. That’s a positive sign.

So what’s the technical environment right now for gold? Well, it was a strong risk on month for equities, there was a reasonably strong dollar rally, and the Fed has said there will be no more rate cuts. That’s all gold-negative.

Then there’s gold’s open interest. The gold OI made a new all time high around mid-month (very odd to see OI increase during a gold price decline – unprecedented, really), but then the OI declined through the end of the month. This suggests two things to me: the recent 3-month gold decline (and gold’s current downtrend) is an artifact of official intervention, and that for whatever reason, the intervention is over, at least for the past 2 weeks.

During all of this – negative gold environment, and official intervention – the miners managed to stay flat even though gold dropped by almost $50. That’s a fantastic performance by the mining shares. In the bad old days (2013-2017) a $50 drop in gold would have given the mining shares a heart attack. Not any longer.

And in the overall financial market, something is still amiss. It is not a small something. Not-QE is continuing – roughly 25 53-foot trailers stuffed full of $100 bill-equivalents are being “printed” per month. What is the Fed covering up with all that money?

Most likely, it is something that – if it broke – would imperil the entire financial system.

Monthly trends (in order of strength):

Uptrend: SPX, miners, DJI, palladium, USD, crude, silver, copper.

Downtrend: gold, gold/Euros, platinum, 10-year treasury, utilities.

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