PM Weekly Market Commentary – 12/20/2019

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  • Sat, Dec 21, 2019 - 03:12am

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    davefairtex

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    PM Weekly Market Commentary – 12/20/2019

On Friday, gold inched down -0.52 [-0.04%] to 1484.31 on light volume, while silver climbed +0.15 [+0.88%] to 17.28 on moderately light volume. The buck jumped higher [+0.32%], as did SPX [+0.49%], crude fell [-1.10%], and bonds closed unchanged.

Given the strong move in the buck on Friday, gold actually did fairly well to avoid a larger loss.

The metals sector map shows silver leading gold higher, but the miners lagged badly, with the junior miners doing worse than the seniors. Things are a bit confused right now – why did silver do so well, while the junior miners sold off? I don’t know. Looking at the moving averages, both gold and silver remain above the 9 MA, but neither have managed to close back above the 50.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver $SILVER 1.56% 16.38% rising falling rising falling ema9 on 2019-12-11 2019-12-20
Copper $COPPER 0.87% 3.31% rising rising falling rising ma200 on 2019-12-06 2019-12-20
Gold/Euro $GOLD:$XEU 0.61% 21.02% rising falling rising falling ema9 on 2019-12-18 2019-12-20
Gold $GOLD 0.16% 17.27% rising falling rising falling ema9 on 2019-12-11 2019-12-20
Platinum $PLAT -2.05% 14.56% rising rising rising falling ema9 on 2019-12-20 2019-12-20
Senior Miners GDX -2.13% 31.25% rising falling rising falling ema9 on 2019-12-20 2019-12-20
Junior Miners GDXJ -2.59% 31.65% rising falling rising falling ema9 on 2019-12-20 2019-12-20
Silver Miners SIL -2.78% 20.52% rising rising rising rising ema9 on 2019-12-20 2019-12-20
Palladium $PALL -4.45% 53.13% falling rising rising rising ema9 on 2019-12-20 2019-12-20

Gold moved up +2.33 [+0.16%] to 1484.31 on light volume. The short white/NR7 candle was unrated, and forecaster dropped, but remains in an uptrend. Gold remains in an uptrend in both daily and weekly timeframes. Gold/Euros is flat on the daily, but in a downtrend on both weekly and monthly timeframes.

COMEX GC open interest rose +11K contracts on Friday, and rose +37K contracts this week. That was 16 days of global annual production in new paper added to the market. Current open interest for GC: 91% of global annual production, up +4.61% this week. This week marked a new all time high for gold OI.

The futures markets are projecting a 4% chance of a rate increase by the Fed’s next meeting in January, 2020.

Gold commercial net fell -16K contracts, which was +15K new shorts, and -942 fewer longs. Gold managed money net rose +18K contracts, which was -2.4K fewer shorts, and +16K new longs. Commercial shorts are just slightly below their all time high (set a few weeks back), while managed money shorts are near their lows. Curiously, commercial longs are also relatively close to their highs as well. The whole pattern right now is nonstandard – to say the least. I do not think the normal COT analysis applies right now to gold.

Silver rallied +0.27 [+1.59%] to 17.28 on moderately light volume.  The swing low candle was a probable bullish reversal (59%), and forecaster dropped, but remains in an uptrend. Silver remains in an uptrend in both the daily and weekly timeframes. On Friday, silver staged a surprisingly strong rally that stopped right at the 50 MA. On the daily chart, silver is quite near a breakout. Silver remains in an uptrend in both the daily and weekly timeframes.

COMEX SI open interest rose +1.4K contracts on Friday, and climbed +5.9K contracts this week. That was 12 days of global annual production in new paper added to the market. Current open interest for SI: 119% of global annual production, up +3.36% this week.

The gold/silver ratio dropped -1.23 to 85.90; that’s bullish.

Silver commercial net fell -7.8K contracts, which was +7.9K new shorts, and +55 new longs. Silver managed money net rose +6.3K contracts, which was -2.6K fewer shorts, and +3.6K new longs. The silver COT does not look as though it is at any sort of turning point right now.

The miners moved lower this week, mostly due to the decline on Friday. GDX dropped -2.13% on moderately light volume, and GDXJ plunged -2.59% on moderately light volume. XAU fell [-2.71%], the dark cloud cover candle was a possible bearish reversal (34%), but forecaster climbed, moving higher into its uptrend. Although weekly forecaster still looks reasonably good, the daily dropped into a downtrend on Friday’s decline, and also closed below the 9 MA as well. That all looks fairly bearish. Even so, miners remain in an uptrend in both weekly and monthly timeframes.

The GDX:gold ratio dropped -2.34%, and the GDXJ:GDXJ ratio dropped -0.48%. That’s bearish.

Platinum fell -19.10 [-2.09%], palladium fell -84.80 [-4.65%], while copper rose +0.02 [+0.86%]. All of platinum’s weekly loss came on Friday – $24 [-2.60%]. Ouch. Palladium was smashed even harder than platinum on Friday: -85.40 [-4.48%]. Double-ouch! I don’t know what’s up with the other metals on Friday, but it sure wasn’t very pleasant for anyone long: platinum and palladium have dropped into strong (daily chart) downtrends.

USD

The buck climbed +0.50 [+0.52%] to 97.24 on moderately light volume. The short white candle was unrated, and forecaster climbed, but remains in a downtrend. The buck remains in a downtrend in both weekly and monthly timeframes, but that monthly may be ready to reverse. This week’s rally in the buck took it back above the 200 MA, which is a positive sign.

Major currency moves included: GBP [-2.45%], EUR [-0.72%], AUD [+0.34%].

Some of the bloom came off the Brexit rose this week; there is now chatter about a “cliff edge Brexit” all because Johnson put a 12 month clock on negotiating the deal with the EU. (Ticking clocks seem to work well to motivate the EU; likewise, having no clock has been demonstrated to work poorly. Predictably, the EU complained about this clock, and the concern was promptly echoed in “Remainer” news organizations.)

SPX rallied +52.42 [+1.65%] to 3221.22 on extremely heavy volume. The opening white marubozu was a bullish continuation, and forecaster climbed, moving higher into its uptrend. SPX remains in a strong uptrend in all 3 timeframes. There does not appear to be any sort of “sell the news” effect from the US-China trade deal. Perhaps that is because of the ongoing flood of new money from the Fed.

Communication services [+2.54%] led, along with utilities [+1.89%] while industrials [-0.33%] and financials [-0.10%] did worst. This was a bearish sector map.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Telecom XTL 2.74% 12.52% rising rising rising rising ma200 on 2019-12-16 2019-12-20
Utilities XLU 1.93% 18.51% rising rising rising falling ema9 on 2019-12-13 2019-12-20
Healthcare XLV 1.80% 22.12% rising rising rising rising ema9 on 2019-12-04 2019-12-20
Energy XLE 1.74% 7.29% rising rising falling rising ema9 on 2019-12-06 2019-12-20
Technology XLK 1.63% 48.32% rising rising rising rising ema9 on 2019-12-10 2019-12-20
REIT RWR 1.46% 15.19% falling falling rising falling ema9 on 2019-12-20 2019-12-20
Cons Discretionary XLY 1.12% 29.32% rising rising rising rising ema9 on 2019-12-06 2019-12-20
Materials XLB 0.73% 23.34% rising rising rising rising ema9 on 2019-12-11 2019-12-20
Cons Staples XLP 0.51% 23.31% rising rising rising falling ema9 on 2019-11-26 2019-12-20
Homebuilders XHB -0.07% 41.19% falling rising rising rising ema9 on 2019-12-20 2019-12-20
Financials XLF -0.10% 31.11% rising rising rising rising ema9 on 2019-12-06 2019-12-20
Industrials XLI -0.33% 27.57% rising rising rising rising ema9 on 2019-12-20 2019-12-20
Defense ITA -1.53% 30.77% falling rising rising falling ema9 on 2019-12-16 2019-12-20
Gold Miners GDX -2.13% 31.25% rising falling rising falling ema9 on 2019-12-20 2019-12-20

The US equity market was ranked #2 this week; Emerging Asia did best.

The VIX fell -0.12 to 12.51.

Rates & Commodities

TLT plunged [-1.56%], the opening black marubozu candle was a bearish continuation, and forecaster remains in a downtrend. 30-Year Yield rose +8 bp to +2.34%

TY dropped [-0.54%], the short black candle was unrated, and forecaster dropped, moving deeper into its downtrend. This was a new weekly closing low for TY. TY remains in a downtrend in all 3 timeframes. 10-Year Yield rose +10.0 bp to +1.92%.

Bonds sure look like they are ready to break down. This does fit with the “inflation” thesis.

JNK moved higher [+0.10%], but the gravestone doji candle was a likely bearish reversal (83%), and forecaster ended the week in a downtrend. This week saw a large failed rally for JNK – all of it happened on Friday. Hmm. What’s that about? BAA.AAA differential was unchanged this week at +87 bp. There are still no real worries about credit quality right now.

Crude moved up +0.68 [+1.14%] to 60.24 on moderately heavy volume. The short white/spinning top candle was a bullish continuation, and forecaster climbed, moving higher into its uptrend. Even so, Friday saw a fairly brisk sell-off in crude; the daily swing high was a probable bearish reversal (60%), and the daily forecaster dropped into a downtrend. Crude remains in an uptrend in the weekly and monthly timeframes.

The EIA report on Wednesday was slightly bearish: crude -1.1 m, gasoline +2.5m, distillates +1.5m. The release did not affect prices much at all.

Physical Supply Indicators

* The GLD ETF tonnage on hand dropped -0.29 tons, with 886 tons remaining in inventory.

ETF Discount to NAV:

* CEF -3.78% [increase]

* PHYS -1.49% [increase]

* PSLV -1.87% [increase]

Bullion Vault Premiums:

* gold: discount -0.55

* silver: discount -0.02

Gold dealer big bar premiums:

* gold [kg]: +1.09%

* silver [1000 oz]: +3.14%

Grey Swans & Geopolitics

  • US-China trade: Lighthizer lays out the schedule: the 86 page agreement will be signed by himself and Liu He sometime in early January, following the review by lawyers for both sides. It will be released publicly at that time. It is expected to take effect 30 days afterwards. The current delay: translation. https://www.bloomberg.com/news/articles/2019-12-20/trump-says-formal-signing-of-china-trade-pact-being-arranged

  • Fed Not-QE: Fed Balance Sheet: headline 4137.1B, +41.6B (+1.00% w/w) (prior +0.73% w/w). Or, in English, another $42 billion dollars in new money just this week. This might explain the new all time high in SPX.

  • Hong Kong: attached is a Reuters special report on the backstory in Hong Kong. The big reveal: Beijing was behind it all. After reading this article, it is hard to understand why Carrie Lam remains in place. Useful for Beijing, I suppose – but why on earth doesn’t she just resign? https://www.reuters.com/investigates/special-report/hongkong-protests-extradition-narrative/

  • Iran: is apparently testing new centrifuges which is yet another violation of the nuclear agreement. How far this will all go – that’s the question. https://www.foxnews.com/world/iran-nuclear-testing-uranium-enrichment-president-hassan-rouhani

  • Italy – migration: Statistics show a resounding victory for anti-migration advocates in Italy; 2019 saw just 11k migrants landed, vs 181k landed at the peak of the migration impulse in 2016. The largest drop happened in 2018. This is another example of elections having consequences. Still – most of those migrants remain in Italy; fully 10% of Italy’s population isn’t native-born, although most foreigners are from the EU, not Africa. https://www.statista.com/statistics/623514/migrant-arrivals-to-italy/

  • BRExit: The UK Parliament passed PM Johnson’s withdrawal agreement on Friday, setting in motion the UK’s exit from the EU on January 31, 2020. The act also rules out extending the “trade talks” transition period which will end in December 2020. As mentioned earlier, the Dec 2020 end date puts pressure on the EU to conclude a trade agreement. A year, apparently, isn’t long enough to conclude a trade agreement; perhaps they want 3 years? A decade? How about – never? “This is just too complicated! We don’t like ticking clocks!” 

    New Rule: if an EU leader doesn’t like something about Brexit – it is probably something that needs doing.

    https://www.theguardian.com/politics/2019/dec/18/cliff-edge-brexit-will-hurt-uk-more-than-eu-says-von-der-leyen

  • Yield Curve Inversion: the 1-10 spread rose +12 bp to +40 bp this week. 1Y: 1.52% (-2 bp), 10Y: 1.92% (+10 bp). We continue to move farther away from inversion.

  • North Korea: twas the week before Christmas, and all through the house, not a missile was launching, not even an MLRS. What will be the DPRK’s Christmas gift? Nobody knows. Some think: a brand new ICBM launch! https://www.businessinsider.com/general-says-us-readying-for-possible-north-korean-missile-test-2019-12

Recession Watch

  • Industrial Production: headline +1.08% m/m (prior -0.89% m/m) manufacturing: +1.14% m/m (prior -0.70% m/m). Not recessionary.

  • Personal Income: headline +0.54% m/m (prior +0.12% m/m) +3.73% y/y; Consumer Spending: +0.44% m/m (prior +0.35% m/m) +4.56% y/y; Core PCE: +0.14% m/m (prior +0.14% m/m) +1.41% y/y. Income & spending both rising; expansionary.

  • PMI Composite Flash: headline 52.2 (prior 51.9) manufacturing 52.5 (prior 52.5). Not recessionary.

  • Real GDP: headline 2.1% (prior 2.1%). In line with expectations. Not recessionary – as long as you believe the deflator of 1.8%.

Summary

Well, it looks like a lot of interesting (bearish) things happened on Friday. On the daily charts, JNK reversed, crude might have reversed, a number of the other metals definitely reversed, the miners reversed, the buck jumped higher, as did silver – of all things. I looked around – I’m not sure what exactly caused all the fuss. The usual suspect – the trade deal – remains on track. Perhaps it was related to options expiration (OPEX). I’m not sure. Maybe it is just noise.

SPX continues to pile on to new all time highs; was that due to the $42 billion in new cash printed by the Fed this week? Where else could all that cash go? I suppose it could have gone into excess reserves. [checking]. No, it (probably) didn’t go there. And it certainly isn’t going into the long bond, which fell this week. And the dollar rallied, which suggests inflows into the US. So – money printing = equities go higher.

Really curious that JNK reversed so strongly on Friday. I’ll be watching that one closely. It might mean something.

This week’s economic reports were all positive; industrial production recovered after the GM strike ended, personal income showed higher income and spending, the PMI flash was modestly positive, and last quarter’s GDP was mediocre but not recessionary.

Big bar premiums on gold and silver both increased slightly. ETF discounts have increased somewhat as well..

Gold OI made a new all time high this week. What’s that about? Commercial shorts are close to a new all time high too. This is either signaling a top here – which I doubt – or it is the sign of an increase in official intervention.

Two more weeks left until the new year: 2020. Where did this decade go?

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