PM Weekly Market Commentary – 12/27/2019

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  • Sun, Dec 29, 2019 - 01:40am

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    davefairtex

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    PM Weekly Market Commentary – 12/27/2019

On Friday, gold fell -0.60 [-0.04%] to 1518.50 on moderately light volume, and silver dropped -0.14 [-0.78%] to 17.86 on moderate volume. The buck dropped hard [-0.59%], SPX was unchanged [+0.00%] along with crude [-0.05%], while bonds moved slightly higher [10-Year Yield -2.0 bp].  Gold did poorly on Friday given the strong move lower in the buck.

The metals sector map has silver leading gold, miners leading metal, and juniors leading seniors. This is the classic bullish PM pattern. All items (except palladium) are back above all 3 moving averages. Why did this sudden breakout occur on a typically low-volume holiday trading week? Boy, I have no idea. But it sure did.  Check out the 52-week change for gold: +18%!!

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 8.02% 29.42% rising rising rising rising ema9 on 2019-12-23 2019-12-27
Junior Miners GDXJ 8.01% 39.14% rising rising rising rising ema9 on 2019-12-23 2019-12-27
Senior Miners GDX 6.41% 37.67% rising rising rising rising ema9 on 2019-12-23 2019-12-27
Platinum $PLAT 4.53% 18.94% rising rising rising rising ema9 on 2019-12-23 2019-12-27
Silver $SILVER 3.30% 16.64% rising rising rising falling ma50 on 2019-12-23 2019-12-27
Palladium $PALL 2.90% 56.62% falling rising rising rising ema9 on 2019-12-20 2019-12-27
Gold $GOLD 2.30% 18.53% rising rising rising falling ma50 on 2019-12-23 2019-12-27
Gold/Euro $GOLD:$XEU 1.36% 20.96% rising rising rising falling ma50 on 2019-12-23 2019-12-27
Copper $COPPER 0.91% 5.58% rising rising falling rising ma200 on 2019-12-06 2019-12-27

On the week, gold rose +34.19 [+2.30%] to 1518.50 on moderately light volume. The confirmed bullish nr7 candle was a reasonably strong bullish reversal (40%), and forecaster climbed, moving higher into its uptrend. Gold ended the week in an uptrend in the daily and weekly timeframes, while the monthly is now in a state of no-trend. Gold/Euros looks quite similar.

COMEX GC open interest rose +12K contracts on Friday, and rose +41K contracts this week. That was 18 days of global annual production in new paper added to the market. Current open interest for GC: 95% of global annual production, up +5.06% this week. This week marked yet another new all time high for gold OI – this with gold well down from its recent highs – and the increase was large. What would gold have done without all this new paper?

COT report shows that 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. Are the “economic actors” (i.e. the commercials) really doing all this shorting? It doesn’t fit their historical behavior pattern. At least – mostly it doesn’t.

Silver shot up +0.58 [+3.36%] to 17.86 on moderate volume. The opening white marubozu candle was a reasonably strong bearish reversal (41%), but forecaster climbed, moving higher into its uptrend. Like gold, silver ended the week in an uptrend in both daily and weekly timeframes, with the monthly in a state of no-trend.

COMEX SI open interest rose +161 contracts on Friday, and jumped a massive +17K contracts this week. That was 34 days of global annual production in new paper added to the market. Current open interest for SI: 128% of global annual production, up +9.46% this week. But even with this huge increase, silver OI remains well below the all time highs.

The gold/silver ratio dropped -0.88 to 85.02. 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 miners had an extremely good week. GDX screamed higher +6.41% on moderately light volume, and GDXJ did even better, up +8.01% on moderate volume. XAU rallied strongly [+7.76%], the long white candle was a possible bearish reversal (31%),and forecaster dropped, but remains in an uptrend. XAU ended the week in a strong uptrend in all 3 timeframes. The miners broke above the recent prior high to levels not seen since 2016. That’s a bullish sign.

The GDX:gold ratio climbed +3.86%, and the GDXJ:GDXJ ratio climbed +1.48%. That’s very bullish.

Platinum rose +41.30 [+4.33%], palladium moved up +52.90 [+2.82%], and copper climbed +0.03 [+0.90%]. The other metals had a good week, but mostly it was about PM, rather than the industrial metals. In fact, copper had an unpleasant-looking swing high/bearish engulfing on Friday (43% bearish).

USD

The buck plunged -0.75 [-0.77%] to 96.49 on moderate volume. The closing black marubozu candle was bearish, and forecaster dropped, moving deeper into its downtrend. The buck ended the week in a downtrend in all 3 timeframes. Most of the damage happened on Friday; while the buck has yet to make a new low for the current downtrend, it is not far from it.  Is this caused by all that money printing? Or is this a risk-on sign? Its hard to say.

Major currency moves included: CAD [+0.68%], EUR [+0.87%], GBP [+0.62%], AUD [+1.23%].

SPX moved higher, up +18.80 [+0.58%] to 3240.02 on moderately light volume. This week was yet another new all time high for SPX. The short white candle was a bullish continuation, and forecaster climbed, moving higher into its uptrend. SPX remains in an uptrend in all 3 timeframes, although the daily is starting to look a trifle weak.

Discretionary [+1.19%] led, along with tech [+1.04%] while utilities [-0.33%] and sickcare [+0.23%] did worst. This was a bullish sector map.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 6.41% 37.67% rising rising rising rising ema9 on 2019-12-23 2019-12-27
Cons Discretionary XLY 1.20% 28.69% rising rising rising rising ema9 on 2019-12-06 2019-12-27
Technology XLK 1.06% 49.35% rising rising rising rising ema9 on 2019-12-10 2019-12-27
Industrials XLI 0.56% 28.09% rising rising rising rising ema9 on 2019-12-23 2019-12-27
Energy XLE 0.52% 7.29% rising rising falling rising ma200 on 2019-12-23 2019-12-27
Materials XLB 0.46% 21.42% rising rising rising rising ema9 on 2019-12-11 2019-12-27
Financials XLF 0.29% 30.38% rising rising rising rising ema9 on 2019-12-27 2019-12-27
Cons Staples XLP 0.24% 25.07% rising rising rising rising ema9 on 2019-12-24 2019-12-27
Healthcare XLV 0.23% 20.89% rising rising rising rising ema9 on 2019-12-04 2019-12-27
Defense ITA 0.14% 31.44% falling rising rising falling ma50 on 2019-12-24 2019-12-27
Telecom XTL -0.27% 12.81% rising rising falling rising ma200 on 2019-12-16 2019-12-27
Utilities XLU -0.33% 22.16% rising rising rising falling ema9 on 2019-12-27 2019-12-27
Homebuilders XHB -0.46% 40.54% falling rising rising falling ma50 on 2019-12-27 2019-12-27
REIT RWR -0.59% 18.00% rising falling rising falling ema9 on 2019-12-26 2019-12-27

The VIX rose +0.92 to 13.43.

Rates & Commodities

TLT climbed [+0.49%], the bullish harami candle was a probable bullish reversal (51%), and forecaster climbed, but remains in a downtrend. TLT is in a mild uptrend on the daily, and a downtrend on the weekly. The 30-Year Yield fell -2.0 bp to +2.30%.

TY climbed [+0.30%], the short white candle was unrated, and forecaster climbed, but remains in a downtrend. TY ended the week in a strong downtrend in both the weekly and monthly timeframes. 10-Year Yield fell -4.0 bp to +1.90%. Bonds continue to look feeble, especially compared to gold.

JNK moved up [+0.25%], the short white/NR7 candle was unrated, and forecaster dropped, but remains in an uptrend. JNK ended the week in an uptrend in both daily and weekly timeframes. I added a JNK weekly trend forecaster this week – see below. BAA.AAA differential was unchanged this week at +87 bp. There are still no real worries about credit quality right now.

Crude moved up +1.28 [+2.12%] to 61.52 on moderately light volume. The long white candle was a bullish continuation and forecaster moved lower, but remains in an uptrend. Crude ended the week in an uptrend in all 3 timeframes.  This was another 6-month closing high for crude, which continues to move slowly higher.

The EIA report on Friday was unexpectedly bullish: crude -5.5m, gasoline +2.0m, distillates -0.m.

Physical Supply Indicators

The GLD ETF tonnage on hand climbed +7.32 tons, with 893 tons remaining in inventory.

ETF Discount to NAV:

* CEF -3.46% [decrease]

* PHYS -0.75% [decrease]

* PSLV -1.51% [decrease]

Bullion Vault Premiums:

* gold: -1.01

* silver: +0.04

Gold dealer big bar premiums:

* gold [1kg]: +1.11%

* silver [1000 oz]: +3.05%

Looks like money is moving into the gold ETFs faster than into COMEX. This week we saw gold and silver both rally, and the ETF discounts decline. That’s nice if you are already an owner.

Grey Swans & Geopolitics

  • US-China trade: China’s US ambassador says that China will honor its trade deal promises, but that the US must also live up to its promises on Taiwan (“Province of China”) issues. When you talk to actual people who live in Taiwan (that they call “Republic of China”), some are not so eager to formally change status to actually become a “Province of China”, especially after seeing what has happened with Hong Kong. Taiwan is having a national election in 2 weeks which will probably be viewed as a referendum on Taiwan’s eagerness (or lack thereof) to move politically closer to the PRC.https://www.scmp.com/news/china/diplomacy/article/3043811/china-will-honour-us-trade-war-deal-promises-talks-progress

  • Fed Not-QE: headline 4165.6B, +28.5B (+0.69% w/w) (prior +1.00% w/w). Another $29 billion in money printing. All that new money has to go somewhere. Maybe now at least some of it is going into gold?

  • Hong Kong: WAPO has an extensive article (including many videos) documenting the excessive use of force during the last 6 months – including statements from former HK police officers who have resigned as a result o this situation. Contributing to the problem: officers do not have any visible form of identification, so those who wish to act badly are able to do so without fear of consequence. Officers who are disgusted are leaving, and the ones who remain appear to view the protesters as cockroaches. https://www.washingtonpost.com/graphics/2019/world/hong-kong-protests-excessive-force/

  • Iran: a rocket attack on a US base in Iraq killed a US contractor and wounded 4 US servicemen. Who executed the attack? Nobody is sure – the US military suspects an Iran-backed group. Note that killing a US citizen by Iran is a “red line”, the crossing of which would lead to either a humiliating walkback, or US military response. Cui bono? Saudi Arabia, and Israel, both of whom would love for us to get into a shooting war with Iran. https://www.militarytimes.com/flashpoints/2019/12/28/senator-threatens-iran-following-kirkuk-attack-that-spilled-american-blood/

  • Italy – migration: No news.

  • BRExit: More complaining from the EU this week about how little time they have to negotiate a trade deal post-Brexit. PM Johnson continues to reiterate: no more delays. https://apnews.com/8380e269033e8ccd725c9d89f7fc063c

  • Yield Curve Inversion: the 1-10 spread fell -3 bp to +37 bp this week. 1Y: 1.51% (-1 bp), 10Y: 1.88% (-4 bp). We are a long way for a yield curve inversion.

  • North Korea: well Christmas has passed, and no “gift” from North Korea. Is the silence from the DPRK ominous – a portent of Trouble Ahead? https://www.38north.org/2019/12/rcarlin122819/

Recession Watch

  • Durable Goods, new orders: headline -2.06% m/m (prior +0.23% m/m), capital goods new orders (excl aircraft): +0.12% m/m (prior +1.13% m/m), shipments: +0.08% m/m (prior -0.09% m/m). This month: flat, next month: recessionary.

  • Median new home sales price: headline +4.20% m/m (prior +1.51% m/m), SF new home sales: +1.25% m/m (prior -2.82% m/m), monthly home supply: 5.40, -0.10. This suggests a possible recovery in home prices; supply is now back at a reasonable level.

Summary

The commodity rally is starting to become a thing. All groups moved higher this week, led by energy, which hit a 7-month closing high this week. The commodity group (CRB) made an 8-month high, and could be setting up for a breakout which would confirm a large double bottom pattern – quite bullish if it makes it that far. Is this about money printing? Certainly, the velocity of the growth in the Fed’s balance sheet is remarkable, and harks back to the money-printing days of 2013-2014.

Is that what is driving gold during this holiday-shortened trading week? It is hard to know. The massive growth in gold OI continues to restrain gold’s upward track. Based on the difference in silver vs gold OI, I think it continues to be official intervention.

Interestingly, with all the money printing going on, very little of it appears to be going into the longer duration bonds. While bonds have rallied slightly, the bounce was anemic, especially compared to what PM did during the same time period. Not long ago, the 10-year and gold moved in synchrony, but not any longer. This tells us that something under the covers – some sort of sentiment – has changed.

While SPX makes new highs, JNK’s move is starting to look anemic. Money flows into crappy debt have slowed way down. Copper too is looking a bit weak – weekly forecaster is hinting at a possible bearish reversal, although the candle was positive.

This week’s economic reports suggested hints of a recession next month: durable goods orders were negative, which is not good news. We might have a bounce in the housing market, though it probably needs more than one month to have confidence in this outlook.

Big bar premiums on gold and silver were little changed, while ETF discounts shrank. Money is flowing into the PM ETFs faster than it is into COMEX. This suggests goldbugs are buying the rally.

$SPX.N week strong up +0.59 +0.10
SI.CW week strong up +0.53 +0.35
GC.CW week strong up +0.34 +0.26
JNK.N week up +0.19 -0.28
DGS10 week up +0.16 +0.12
CL.CW week up +0.12 -0.28
HG.V week slight up +0.05 -0.35
BTC.USD week slight down -0.04 +0.02
TLT.N week down -0.14 +0.01
TY.CW week strong down -0.31 +0.08
DX.CW week strong down -0.37 -0.16

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