Investing in precious metals 101

PM Weekly Market Commentary – 6/21/2019

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  • Sat, Jun 22, 2019 - 04:43am

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    davefairtex

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    PM Weekly Market Commentary – 6/21/2019

On Friday, gold rose +11.17 [+0.80%] to 1407.29 on extremely heavy volume, while silver fell -0.07 [-0.49%] to 15.34 on extremely heavy volume also. The buck fell for a third day [-0.44%], SPX edged lower [-0.13%], while crude rose [+0.80%]. Bonds fell hard; 10-year yield rose +6.7 bp.

Of course for us, the big story is gold breaking – and managing to close the week – above round number 1400. In spite of 104 “tons” of paper gold dumped into the COMEX on Thursday, plus another 41 “tons” just on Friday, eager buyers pushed price into nosebleed RSI-7 levels (92) on incredibly high volume.

The metals sector map shows miners outpacing metal, juniors leading seniors, but silver trailing gold. Silver remains the poor stepchild. Industrial metals copper, palladium and platinum brought up the rear, with platinum looking the most sickly. All of the primary PM components are above all 3 moving averages, and most have executed golden crosses. This is a mostly-bullish sector map. If we could only convince silver to lead gold, things would be perfect. The fact that silver is lagging tells us that this move is a safe haven move.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 9.08% 6.08% rising rising rising rising ema9 on 2019-06-11 2019-06-21
Senior Miners GDX 8.06% 15.06% rising rising rising rising ma50 on 2019-05-31 2019-06-21
Silver Miners SIL 6.75% -8.33% rising rising rising falling ma200 on 2019-06-17 2019-06-21
Gold/Euro $GOLD:$XEU 5.74% 8.23% rising rising rising rising ema9 on 2019-06-18 2019-06-21
Gold $GOLD 4.37% 10.47% rising rising rising rising ma50 on 2019-05-30 2019-06-21
Silver $SILVER 3.30% -5.95% rising rising rising falling ma200 on 2019-06-18 2019-06-21
Copper $COPPER 2.80% -10.77% rising falling rising falling ema9 on 2019-06-17 2019-06-21
Palladium $PALL 2.25% 58.23% rising rising rising falling ma50 on 2019-06-07 2019-06-21
Platinum $PLAT 0.75% -6.32% rising falling rising falling ema9 on 2019-06-19 2019-06-21

Gold rose +58.98 [+4.37%] to 1407.29. Almost all the move came following the FOMC announcement on Wednesday. The weekly long white candle was a bullish continuation, and forecaster moved higher into a very strong uptrend. Gold remains in an uptrend in all 3 timeframes. Friday’s daily spinning top candle was also a bullish continuation. So far, no technical signs of a top, although with RSI-7 values of 92, gold is quite overbought.

The July rate-cut chance ended the week at 32% and the Dec 2019 rate-cut chance closed at 100%, with an 94% chance of 2 rate cuts, and a 65% chance of 3 rate cuts. That’s substantially higher than last week.

COMEX GC open interest rose +62,452 contracts this week, and 13,154 contracts just on Friday. It was 28 days of global production in new paper. These were commercials going short, and there was probably some official intervention as well. It didn’t seem to matter much.

Note: COT report did not include the 3 largest rally days this week. We have to wait until next week before the weasel banksters tell us what they did. The commercial net fell by -22k contracts; that was 26k new shorts, but also 4k new longs. Managed money net rose by +21k contracts, which was 22k new longs, and 770 new shorts. From the standpoint of the commercial shorts, we are getting closer to a COT top for gold.

Silver rallied +0.49 [+3.30%] to 15.34 this week. Silver’s move took place Tuesday-Thursday, while on Friday silver retraced a bit. The long white candle was a bullish continuation, and forecaster jumped higher, into a very strong uptrend. Silver ended the week in an uptrend in all 3 timeframes. Friday’s spinning top was also a bullish continuation – no reversal on the daily chart for silver.

The gold/silver ratio rose +0.95 to 91.38. Silver continues to lag gold; even with the rally this week, the gold/silver ratio actually pushed even higher! Its at a 28-year high now.

COMEX SI open interest fell -3,378 contracts this week, and plunged -7,122 contracts just on Friday (15 days of global production in paper, taken off the board in just one day). That was a huge amount of short-covering on Friday. Who might have covered? I don’t know. Silver looked weak on Friday. That suggests it was the commercials that were bailing out of their short positions on the intraday drop, which was about 32 cents peak-to-trough. Did the commercials use the brief drop to cash out? Very curious. We’ll have to wait a week to find out.

In silver, the commercial net fell -9.3k contracts, which was 13.6k new shorts, but also 4.3k new longs. That was a large number of new shorts. Managed money net rose +4.3k contracts, which was 7.4k new longs and 5k fewer shorts. Managed money is covering short, but not very rapidly – they still have a large short position. Silver is far from a COT top.

Miners screamed higher this week; XAU jumped +8.35%, a huge move, breaking out to a new multi-year high. The closing white marubozu was a bullish continuation, and forecaster remains in a very strong uptrend. XAU ended the week in an uptrend in all 3 timeframes. All uptrends are strong, and the monthly swing low candle pattern is exceptionally strong too (82% bullish).

The GDX:$GOLD ratio rose +3.54%, and the GDXJ:GDX ratio rose +0.94%. That’s very bullish.

USD

The buck plunged -1.38 [-1.42%] to 95.68. Losses for the buck happened Wednesday-Friday, following the FOMC meeting. I have not seen the buck plunge like this for quite some time. The closing black marubozu was a bearish continuation, and forecaster crept lower into a reasonably strong downtrend. The buck made a multi-month low just on Friday. Daily forecaster looks extremely bearish. The buck is in a downtrend in all 3 timeframes, and on Friday, it blew through its 200 MA too.

The big currency moves: GBP [+1.00%], EUR [+1.31%], AUD [+0.88%], JPY [+0.98%], CAD [+1.27%], CNY [+0.79%].

Was the big plunge in the buck responsible for the PM rally? It definitely helped, but gold/Euros also rallied this week too. The buck was not the cause of the PM rally, but it probably added some fuel to the fire.

SPX jumped +63.48 [+2.20%] to 2950.46. That’s a new weekly all time closing high for SPX. The opening white marubozu was a bullish continuation, and forecaster moved higher, putting SPX in a strong uptrend. SPX is in an uptrend in all 3 timeframes.

Sector map has energy and defense at the top, with homebuilders and consumer staples doing worst. This was a neutral sector map..

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 8.06% 15.06% rising rising rising rising ma50 on 2019-05-31 2019-06-21
Energy XLE 4.18% -13.74% rising falling falling falling ema9 on 2019-06-06 2019-06-21
Defense ITA 3.51% 11.05% rising rising rising rising ema9 on 2019-06-18 2019-06-21
Technology XLK 2.90% 10.25% rising rising rising rising ma50 on 2019-06-07 2019-06-21
Healthcare XLV 2.72% 10.86% rising rising rising rising ma200 on 2019-06-07 2019-06-21
Industrials XLI 2.21% 6.52% rising rising rising rising ema9 on 2019-06-18 2019-06-21
Telecom XTL 1.19% -6.14% rising falling falling falling ema9 on 2019-06-18 2019-06-21
Cons Discretionary XLY 0.87% 7.18% rising rising rising rising ma50 on 2019-06-10 2019-06-21
REIT RWR 0.32% 10.01% rising rising rising rising ema9 on 2019-06-21 2019-06-21
Utilities XLU 0.30% 21.01% rising rising rising rising ema9 on 2019-06-05 2019-06-21
Financials XLF -0.07% 0.07% falling rising falling rising ema9 on 2019-06-21 2019-06-21
Materials XLB -0.35% -0.02% rising rising falling rising ema9 on 2019-06-21 2019-06-21
Cons Staples XLP -0.63% 14.67% rising rising rising rising ema9 on 2019-06-21 2019-06-21
Homebuilders XHB -0.89% 2.52% rising rising rising rising ema9 on 2019-06-21 2019-06-21

The US equity market was #3 out of 6 markets this week, with emerging asia on top.

VIX rose +0.12 to 15.40.

Rates & Commodities

TY rose +0.16%, the high wave candle was a bullish continuation, and forecaster inched lower but remains in a strong uptrend. TY’s daily candle on Friday was a swing high (48% bearish); the forecaster remains in an uptrend, but not by much. TY remains in an uptrend in all 3 timeframes.

Close cousin DGS10 (the 10-year yield) moved down -2.5 bp to 2.07%, making a low for the week of on Thursday to 1.97%. The 10-year yield reversed strongly on Friday, bouncing back +6.7 bp. This resulted in a bullish-looking spinning top (39%), and forecaster moved higher, but remains in a strong downtrend. DGS10 weekly forecaster is a bit slow in responding – this could actually be a reversal for the 10-year yield, but we will have to wait for next week to be sure.

JNK rose +1.30%, jumping to a new multi-year high dating back to early 2018. This is a clear sign of risk on from junky debt. However, BAA.AA differential is up 4 bp on the week, moving slowly higher even after the junky debt rally. This tells us that money is preferring the safer issues to the higher risk ones, which is a sign of increasing (but still quite moderate) concern over credit quality. BAA.AAA differential is in a moderate uptrend, which tells us that credit concerns are projected to increase.

Crude jumped +4.76 [+9.00%] to 57.64. The big gains came on Tuesday and Thursday. Friday’s short white candle was a bullish continuation. The weekly long white candle was also a bullish continuation, and a weekly swing low. Forecaster screamed higher, and is now in a strong uptrend. Crude is in an uptrend in both daily and weekly timeframes, and the monthly bullish harami looks reasonably strong (58% bullish), although the monthly forecaster has yet to flip to an uptrend. EIA report was modestly bullish (crude: -3.1m, gasoline: -1.7m, distillates: -0.6m), but the EIA report itself didn’t seem to lead to any substantial price movement. Instead, crude seemed to be propelled higher by talk of a nice phone call between Trump and Xi, as well as concerns over the US-Iran situation.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +34.93 tons, with 799 tons in inventory.

* ETF Discount to NAV:

PHYS 11.16 -1.95% to NAV [increase]
PSLV 5.74 -1.75% to NAV [decrease]
CEF 13.20 -3.93% to NAV [increase]

* 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 discount for gold, and a 3c discount for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.21% and silver [1000oz] 3.56%. Silver premiums have dropped off their highs.

Grey Swans & Geopolitics

  • Ebola: total cases 2190, with 1470 deaths (CFR: 67%). That’s 106 new cases this week, which is an increase over last week. The current problem is the reappearance of Ebola to previously affected areas. Part of the problem there is transmission via healthcare workers, who treat Ebola patients without knowing the patients are infected, they catch Ebola, and then pass it on to their patients. Another issue is funding; apparently all this epidemic-fighting is expensive, and the WHO is out of money. It seems like they are a good investment to me. https://www.who.int/csr/don/20-june-2019-ebola-drc/en/
  • Iran: The plot to get the US into a war with Iran ramped up this week; last week you will remember that someone else’s tankers were damaged by – mines, torpedos, take your pick – and that didn’t seem to be quite enough to get the President to start a war. This week, the provocations escalated: a US drone was shot down by Iran, and that got Trump to momentarily authorize a strike, which he thought better of and decided to abort, reportedly because it would kill 150 Iranians. He explained that he felt this airstrike, as punishment for shooting down an unmanned drone, was “disproportionate.” While the US media headlines focused on an amusing mis-spelling in Trump’s tweet, they effectively buried the lead: an Iranian general claimed that at the time of the shoot-down, a large, manned US military maritime surveillance aircraft (reportedly a military version of a 737: https://en.wikipedia.org/wiki/Boeing_P-8_Poseidon) was flying close to the drone, carrying a crew of 35 Americans. WTF??! Who sent a big, lumbering P-8 on a mission next to that drone, and why? My guess: the P-8 is a sitting duck, a casus belli-in-waiting constructed by some neocon weasel looking to create some dead Americans to push Trump to act. Bolton should be sent, himself, on the very next P-8 spyplane mission in the gulf. Our troops do NOT deserve this sort of sacrificial-lamb treatment by those neocon eternal-warmongers in Washington. We dodged a bullet this week for sure. https://www.aljazeera.com/news/2019/06/iran-tensions-latest-updates-190621103437644.html
  • Italy – minibot: Next step for the EU’s disciplinary procedure against Italy: supposedly the EC met at the end of the week to hear Italy’s counter-arguments. Meanwhile, Salvini said this week that Italy would move head with a plan to settle overdue government payments by printing minibots – the banknote-sized paper Italian Treasury bills that look a whole lot like currency. “If there is a smarter way of doing this, someone should say so, otherwise we’ll stick to it.”  https://www.reuters.com/article/us-italy-ics-minibot/italy-will-stick-to-mini-bot-plan-unless-someone-has-a-better-idea-salvini-idUSKCN1TJ0VV
  • China – Trade: Trump called Xi and apparently had a lovely conversation. The US and China trade teams will start work ahead of meeting between the two leaders at the G-20 summit. In related news, Apple requested that its suppliers to come up with cost estimates for changing their supply chains to rely less on China going forward. The two actions, taken together, could lead to some sort of settlement of the US-China trade conflict. It seemed to me that the news of the phone call and the renewed negotiations (broken by Trump via tweet, of course) pushed the US equity market to new all time highs this week.
  • BRExit: Now that Boris Johnson is a heartbeat away from becoming the next PM of the UK, Big Tech is getting involved. According to the headlines of the articles I saw, BoJo is “contemptuous of business”, “woefully unprepared” to be PM, “spells danger for the Sterling”, “blustering”, his plans are “dead already”, he’s “pouring fuel on to the fire”, “accused of making contradictory Brexit promises” – boy, he is one lame-assed guy. Curious. The whole tone has changed from last week. Do a google search (“past week”) for “boris johnson brexit”, this is what you see. But I’m sure google isn’t putting its thumb on the search engine scales or anything. Never that. Except, that’s exactly what they do. And it works really, really well. Which is, of course, why they do it.  An article written by an actual researcher on this matter follows:

https://www.usatoday.com/story/opinion/2018/09/13/google-big-tech-bias-hurts-democracy-not-just-conservatives-column/1265020002/

Is there evidence of actual favoritism in Google’s search engine? Well, the European Union certainly thinks so, having fined Google $2.7 billion last year for having biased search results. In the months leading up to the 2016 election here in the U.S., I led a team that used objective methods to preserve 13,207 online election-related searches and the 98,044 web pages to which the search results linked. These data showed that Google’s search results favored Hillary Clinton (whom I supported) in all 10 positions on the first page of search results — enough, perhaps, to have shifted two or three million votes in her direction over time.

  • Yield Curve Inversion: the 1-10 spread rose +3 bp to +12. We are moving away from inversion.
  • North Korea: Xi and Kim are meeting in North Korea this week, which is Xi’s first state visit to the impoverished country. Isn’t it interesting that Xi visits North Korea right before meeting with Trump at the G-20? That’s not something Trump can possibly miss. Then again, it might be just a dangle.

US Recession Watch

Here are the economic reports for this week:

  • PMI Composite Flash: manufacturing: 50.1, services: 50.7. Flat = 50. These are multi-year lows, with the manufacturing at a 10-year low and services at a 3-year low. This report is a survey of 1000 manufacturing & service companies, with this “flash” version coming out 10 days early at 85% complete. This is a recessionary reading.
  • MBA Mortgage Apps: y/y mortgage applications rose +4%. Note that mortgage rates are 73 bp lower (now 3.84% vs 4.57%) vs 52 weeks ago. It does point to a possible move higher in housing.
  • Existing home sales: down -1.1% y/y. Home sales are very seasonal, so the y/y numbers provide seasonal adjustment. This is less-worse than last month’s -4.4% y/y value.

The PMI flash looks recessionary. It also appears as though plunging mortgage rates have stimulated mortgage applications – presumably a precursor to an increased number of home sales.

Summary

This week we had the Fed turning at least somewhat dovish (2 rate cuts projected for 2019), a very near miss of a pointless, expensive, and destructive war with Iran, and a “very nice” phone call from Trump to Xi and the subsequent restart of the US-China trade negotiations. This group of major events resulted in gold breaking out to a new 6-year high, silver was scraped off the pavement into a modest uptrend, and the miners screamed higher as traders rushed to get positions. Equities also broke out to a new all time high as well.

I believe the particulars of gold’s breakout are important to review. The spike higher on Thursday came about as a direct result of the Iranian shoot-down of a US drone, but the day ended with a close well above the previous high of 1382, and it came in spite of 102 “tons” of paper GC contracts dropped onto the COMEX, presumably some of which was official intervention. Momentary spikes through resistance are one thing, a daily close above resistance is quite another. Gold spiked to 1415 on Friday, and then closed relatively near that high at end of week. Prospects of war, plus a dovish FOMC and a plunging dollar was an unbeatable perfect storm for gold. This resulted in a 6-year high, and the all-important close above round number 1400.

Does the gold rally ultimately point at declining confidence in government? Cumulatively, I believe it does. A pointless war with Iran isn’t great for confidence, or for the US treasury, or for the buck. But it is great for gold. The US has a structural deficit which will only get larger if Trump and the Democrats end up working together on “infrastructure” (i.e. deficit-funded goodies for their friends in the construction industry), alongside a possibly slowing economy. Falling rates means that gold (which pays no interest) becomes progressively more attractive, and the buck becomes less attractive, which helps gold some more0. If the Fed goes the route of the ECB and goes “negative”, gold becomes even more attractive vs the buck and Treasury notes.

Big bar gold premiums on gold fell slightly, silver’s premium also dropped, while ETF discounts mostly increased. There is no shortage of gold or silver at these prices.

The COT report for gold continued to show commercials going short, while managed money covered. We are moving closer to a COT top in gold. Commercials also went short in silver, but the number of managed money shorts didn’t decline much – there are still a lot of managed money shorts left to provide fuel for a hypothetical silver rally. That probably helps explain the 28-year high in the gold/silver ratio.

It is possible that the fuss with Iran will die down, some enlightened being in the DoD will put a stop to these “please shoot me down and kill Americans and start a war” P-8 missions in the Gulf, and the drumbeat towards war will die down a bit. Gold would fall if that happened. But the upside damage to the gold chart has already been done.  I suspect new highs for gold are just a matter of time.

A note: my code is reasonably good at assessing what the trend is, and what it might be.  It isn’t as good at picking the tops.  We could well be at one.  This is a news-driven market.  Again, if peace broke out, Friday could mark the top in gold for a time.  That’s just one caveat after a great week.

And one more thing. Bitcoin broke out to new post-crash highs this week: it closed at 9917, and the uptrend for bitcoin is quite strong. No doubt the fact I noticed it probably means it is near a top. This week, bitcoin has the strongest uptrend of all the asset classes I follow.

Weekly trends (in order of strength):

Uptrend: bitcoin, miners, gold, silver, gold/Euros, 10-year Treasury, SPX, DJI, crude.

Downtrend: USD, copper, platinum.

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