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PM Weekly Market Commentary – 2/22/2019

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  • Sat, Feb 23, 2019 - 03:23pm

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    davefairtex

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    PM Weekly Market Commentary – 2/22/2019

On Friday, gold rose +4.73 [+0.36%] to 1333.31 on heavy volume, while silver rose +0.12 [+0.73%] to 15.88 on very heavy volume. The other metals did extremely well, the buck was mostly unchanged [-0.09%], while SPX rallied [+0.64%] along with crude [+0.44%] as well as bonds [+0.60%]. It was a risk-on day, for the most part, driven by more happy news about the US-China trade negotiations.

What was the good news? Trump announced a possible meeting with Xi sometime in March. He also said that if there was enough progress in the next few days, he would extend the March 1 deadline, and that China has agreed to buy more US ag products – Trump says it will be the “biggest farm deal ever made.” Biggest. Deal. Ever.

The metals sector map shows a clear resurgence for the China-related metals; copper led, along with platinum and palladium. Silver led gold, and the miners led the metal, which is overall bullish for PM. All items are now above all 3 moving averages. The PM correction following the release of the FOMC minutes on Wednesday did not seem to affect the sector map at all.  And…for sure, something is up with palladium.  Craig Hemke of TF Metals suggests there might be a “failure to deliver” due to a shortage of palladium at COMEX.  Boy, I haven’t heard those three words in a long time: failure to deliver.  Hmmm.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Copper $COPPER 4.78% -8.81% rising rising falling rising ema9 on 2019-02-15 2019-02-22
Platinum $PLAT 4.60% -15.42% rising rising falling rising ma200 on 2019-02-22 2019-02-22
Palladium $PALL 4.02% 41.77% rising rising rising rising ema9 on 2019-02-01 2019-02-22
Silver Miners SIL 3.21% -8.81% rising rising falling rising ema9 on 2019-02-15 2019-02-22
Senior Miners GDX 2.81% 6.12% rising rising rising rising ema9 on 2019-02-15 2019-02-22
Junior Miners GDXJ 2.76% 7.36% rising rising rising rising ema9 on 2019-02-14 2019-02-22
Silver $SILVER 0.83% -4.25% rising rising falling rising ema9 on 2019-02-15 2019-02-22
Gold $GOLD 0.50% -0.22% rising rising rising rising ema9 on 2019-02-14 2019-02-22
Gold/Euro $GOLD:$XEU -0.34% 7.88% rising rising rising rising ema9 on 2019-02-22 2019-02-22

Gold rose +6.59 [+0.50%] on the week, breaking out on Tuesday, and then retracing back to the breakout point on Thursday where it seemed to find support. While the weekly candle was a shooting star, it was not a bearish reversal – although daily gold forecaster did issue a sell signal after the drop on Thursday, as did gold/Euros. Does it mean anything? Looking at the weekly chart, the uptrend remains in place, although it has weakened somewhat. Given all the good news in the US-China trade negotiations, that’s really not a bad performance at all. Gold remains above all 3 moving averages, and in an uptrend in both the weekly and monthly timeframes.

The March 2019 rate-increase chance is at 4%, while the Dec 2019 rate-cut chance is at 13%, and the rate-increase change is 3%. That’s not much change from last week.  For the most part, the market isn’t projecting any rate increases for 2019.

COMEX GC open interest rose +25,118 contracts this week. Most of that came on the day of the breakout – Tuesday.

COT report is still behind.  It seems as though managed money has been buying during this gold rally, although the increase has been pretty feeble compared to – say – early 2016. The rally from 1200-1250 looks to have been short-covering, but the move from 1250-1350? It wasn’t managed money longs. Their contribution has been minor. Something else, outside COMEX, is moving price higher. And managed money longs are very underinvested given the current price. At 134k longs, they are way below the 275k-300k longs they had last time gold was around 1350.  On a breakout above 1380, managed money will have to scramble to jump on board the train.  Things could get out of control.

Silver rose +0.13 [+0.83%] this week. While silver did better than gold by the numbers, the two charts look quite different. Silver did not manage to make new highs, and the sell-off on Thursday was more severe. While silver did manage to stay above all 3 moving averages, silver ended the week in a downtrend in both the daily and weekly timeframes.

The gold/silver ratio rose +0.78 to 83.76. That’s bearish. Silver is back to underperforming gold.

COMEX SI open interest rose +1,200 contracts this week.

Silver’s COT report looks fairly unpleasant; commercials are heavily short, and managed money net is consistent with what could be a top for silver. It appears to me that the reason for silver’s underperformance is the large increase in commercial shorts that been added during the last month or so – perhaps 50k contracts, give or take. That’s 103 days of global silver production in new paper over the past 5 weeks.

Miners were strong performers this week; XAU broke out to new highs, retraced slightly, but ended the week with most of its gains intact. Friday’s (daily candle) shooting star was not a bearish reversal, and the weekly long white candle was a bullish continuation. At the end of the week, XAU remained in an uptrend in all 3 timeframes. The miners ended the week looking pretty good.

GDX:$GOLD jumped +2.30%, while the GDXJ:GDX ratio fell -0.05%. That’s bullish.

USD

The buck fell -0.39 [-0.40%] to 95.98. The buck is meandering lower; most of the losses happened on Tuesday, which caused daily forecaster to issue a sell signal. The buck ended the week in a downtrend in both the daily and monthly timeframes. That said, the buck really looks to be in a state of indecision; the trends are not that strong right now, and the buck could end up going either way.

The struggle continues; BRExit chaos is the bullish force, while the US-China trade negotiations are bearish for the buck.

The big currency moves: GBP +1.27%, and CAD +0.85%.

US Equities/SPX

SPX rallied +17.07 [+0.61%] to 2792.67. Most of the gains came on Friday, when SPX made a new high, and closed right at the highs of the day. The weekly white marubozu candle was mildly bearish (33% reversal), but weekly forecaster remains in a strong uptrend. SPX is in an uptrend in all 3 timeframes.

Utilities did best, along with materials, while energy and sickcare did worst. You never like to see utilities at the top of the heap, and financials near the bottom.  It looks a bit bearish.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 2.81% 6.12% rising rising rising rising ema9 on 2019-02-15 2019-02-22
Utilities XLU 2.41% 16.26% rising rising rising falling ma50 on 2019-01-31 2019-02-22
Materials XLB 2.39% -7.65% rising rising falling rising ema9 on 2019-02-12 2019-02-22
Telecom XTL 1.73% 7.92% rising rising rising rising ma200 on 2019-02-15 2019-02-22
Technology XLK 1.47% 5.61% rising rising rising rising ma200 on 2019-02-15 2019-02-22
Homebuilders XHB 1.37% -6.89% rising rising falling rising ma200 on 2019-02-12 2019-02-22
Cons Discretionary XLY 0.95% 6.38% rising rising rising rising ema9 on 2019-02-12 2019-02-22
Industrials XLI 0.69% -1.08% rising rising rising rising ma200 on 2019-02-11 2019-02-22
Defense ITA 0.60% 3.77% rising rising rising rising ma200 on 2019-02-04 2019-02-22
REIT RWR 0.30% 16.80% rising rising rising rising ema9 on 2019-02-21 2019-02-22
Cons Staples XLP 0.15% 1.11% rising falling rising falling ema9 on 2019-02-15 2019-02-22
Financials XLF 0.11% -7.77% rising rising falling rising ema9 on 2019-02-15 2019-02-22
Healthcare XLV -0.32% 10.19% rising rising rising falling ema9 on 2019-02-12 2019-02-22
Energy XLE -0.54% -2.35% rising rising falling rising ema9 on 2019-02-13 2019-02-22

The US was #5 in terms of regional equity moves. Emerging Asia looked very strong.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Emerging Asia GMF 2.91% -11.48% rising rising falling rising ma200 on 2019-02-22 2019-02-22
Developed Asia VPL 0.88% -9.54% rising rising falling rising ema9 on 2019-02-12 2019-02-22
Eurozone EZU 0.87% -13.62% rising rising falling rising ema9 on 2019-02-15 2019-02-22
Europe IEV 0.80% -10.10% rising rising falling rising ema9 on 2019-02-14 2019-02-22
United States VTI 0.72% 3.65% rising rising rising rising ma200 on 2019-02-13 2019-02-22
Latin America ILF 0.66% -8.94% rising rising rising rising ema9 on 2019-02-14 2019-02-22

VIX fell -1.40 to 13.51.

Rates & Commodities

TLT was all over the map this week, but ended down -0.34%. The drop took TLT below its 9 MA. TY looks substantially better, rising +0.10% – it is more or less chopping sideways, but Friday it looked reasonably strong. TY remains in an uptrend in all 3 timeframes. Given the strong rally in equities over the past few months, bonds continue to do surprisingly well – TY remains quite near its highs. The 10-year yield fell -1.1 bp to 2.66%.

JNK rose +0.17% this week, moving slowly higher, remaining in an uptrend. HYB looks a touch weaker, but it too ended the week in an uptrend.

Crude rose +0.94 [+1.66%] to 57.46, making a new high. That said, momentum does appear to have slowed to some degree; the daily forecaster issued a sell signal on Thursday. The EIA report was mildly bearish (crude: +3.7m, gasoline: -1.5m, distillates: -1.5m), and that report did nothing to help prices move higher. The weekly candle was a short white, which was a bullish continuation, and weekly forecaster moved more strongly into an uptrend. Crude ended the week in an uptrend in the weekly and monthly timeframes.  While crude may show signs of putting in a top on the daily chart, the weekly still looks quite strong.

Physical Supply Indicators

* The GLD ETF tonnage on hand was unchanged, with 793 tons remaining in inventory.

* ETF Discount to NAV:

 PHYS 10.72 -0.93% to NAV [increase]
 PSLV 5.80 -2.89% to NAV [decrease]
 CEF 13.02 -3.31% 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 an 2c premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.25% and silver [1000oz] 3.43%.

Grey Swans & Geopolitics

  • Ebola: total cases 848, with 529 deaths, which is 25 new cases this week. New cases dropped sharply this week. Along with that, no new cases have been reported from the city of Beni for 21 days – a significant achievement, as it was originally an intense source of the outbreak.  Chalk up a win for the team on the ground in the Congo.  http://https://www.who.int/csr/don/21-february-2019-ebola-drc/en/

  • Germany – Migration: no news.

  • Italy – Migration: the Italian Senate voted to block an investigation of Salvini for allegedly “kidnapping” 150 migrants – he ordered them held aboard ship until other countries volunteered to take them in. A snap poll by 5-Star of its movement’s core supporters showed that 59% were in favor of protecting Salvini, and so the 5-Star Senators went along with the block. https://www.reuters.com/article/us-italy-politics/italy-senate-blocks-investigation-into-salvini-for-holding-migrants-on-ship-idUSKCN1Q81V9

  • China – Tariffs: The US and China have come to an agreement on currency manipulation, which is just 1 of 6 of MOUs they are negotiating. These include: forced tech transfers and cyber theft, IP rights, services, currency manipulation, agriculture, and non-tariff barriers to trade. Chinese Vice Premier Liu He said that “it is very likely that [a deal] will happen.” Trump has suggested that the Trump-Xi summit, tentatively scheduled for “sometime in March”, will be held at Mar-a-Lago, and that he expects the final issues to be hammered out between the two leaders.  https://www.reuters.com/article/us-usa-trade-china-deal-exclusive-idUSKCN1QA07U

  • BRExit: there have been a number of defections from both Labor and the Tory party over BRExit. Labor leader Corbyn has been accused of being – possibly – a “stealth BRExiteer”, so Remainers within Labor are upset. Corbyn’s allies dismiss the defectors of being under the sway of business interests. May, a Remainer, is in charge of negotiating BRExit.  How perfect is that?  Tory defectors are upset by May’s “pandering” to the BRExiteers. It is a mess, and it is almost certain that the EU bureaucrats are chortling with glee at all the chaos.  The big corps want to Remain (cheap labor from the continent is Good), while labor would benefit from BRExit.  But Labor-the-party?  That’s where things get complicated.  A whole lot of Labor isn’t actually for labor, it turns out.  Kind of like the Democrats in the US.  But neither are most of the Tories.  Truly a mess.  If a meaningful BRExit doesn’t happen, a major realignment of UK politics is practically guaranteed.  Or so I say anyway.

  • Yield Curve Inversion: the 2-10 spread rose +2 bp to 16 bp. Still no inversion.

  • North Korea: Trump is lowering expectations for the Trump-Kim meeting scheduled for next week. “We’re in no rush whatsoever. … As long as there’s no testing, I’m in no rush. If there’s testing, that’s another deal.”

  • Mueller Investigation: There was a flurry of speculation that Mueller would issue his report next week; this was denied by the DOJ. Otherwise, no news. The media is now preparing their audiences for Mueller to come back with relatively little, suggesting breathlessly that “this is only Chapter One.”  We should be reassured – Trump’s (evidence-free) Hell is Just Beginning!  https://www.vanityfair.com/news/2019/02/donald-trump-bill-barr-robert-mueller-report

Summary

It looks to me as though we are two to three weeks away from a trade deal with China. The level of specificity in the latest reporting is quite encouraging, as are the comments from the Chinese leadership on the progress of the talks, as is Trump’s explicit willingness to extend the 25% tariff deadline. Even the US press has backed off Trump on the trade negotiations – they are no longer calling him a fool for having gone down this path, and there are no more articles suggesting that Trump will cave and that “Beijing will get everything it wants.” Perhaps that’s the strongest sign that a deal is close. Lastly, there is the burst of money flooding into the other metals; platinum saw an extremely strong rally this week, copper broke out of its recent trading range to the upside, and palladium made another new all time high.

Interestingly, equities do not seem to be on fire with the news; unlike the other metals, they continue to move higher, but at a relatively sedate pace. I could easily see the agreement being a sell-the-news event for equities. That’s what the setup appears to me anyways.  Equities really do seem to be running low on fuel.  Sell the news.  That’s my thought.

Gold doesn’t appear particularly worried about a settlement. Nor, it seems is gold concerned over any sort of Fed hawkishness. The impact of the FOMC minutes release on Wednesday seemed relatively contained – although we will know more next week. Miners continue to look quite strong. Longer term, they have seriously lagged the increase in gold, and if (when?) gold does execute a breakout above 1380, I firmly believe that the miners will probably go nuts. Then again, I’m long, so take what I say with a grain of salt.

It is possible that some of gold’s bid comes from the chaos surrounding BRExit. If there is a resolution of some sort – if Parliament signs off on May’s Unconditional Surrender document, we could see the Euro scream higher, and gold (in Euros at least) plunge in relief. The buck will drop, but perhaps gold in USD would remain relatively level.  It’s hard to know for sure.

Big bar gold premiums on gold remain low, and ETF discounts declined. There is no shortage of gold or silver at these prices.

For right now, at least, just about everything is moving higher.  Especially palladium.  Boy, what a boat I missed.  The palladium boat, I mean.  Is there a COMEX Default in palladium in the offing?  Certainly, there seems to be a very small amount of physical palladium at COMEX backing a very large number of short contracts in existence.  Craig Hemke tells us that the ratio of contracts-to-physical are as follows:  gold 4:1, silver 6:1, and palladium?  67:1.  That’s lots of paper, and very little metal, for palladium.  Here’s the article at Sprott by Hemke: https://www.sprottmoney.com/Blog/the-magic-palladium-bullet-craig-hemke-20-022019.html

A COMEX default.  Wouldn’t that be fun?  After all these years.  And in palladium, of all things.

Weekly trends (in order of strength):

Uptrend: platinum, SPX, DJI, crude, miners, copper, 10-year Treasury, gold, gold/Euros, USD.

Downtrend: silver.

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