Investing in precious metals 101

PM Weekly Market Commentary – 7/5/2019

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  • Sun, Jul 07, 2019 - 06:17am

    #1

    davefairtex

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    PM Weekly Market Commentary – 7/5/2019

On Friday, gold plunged -19.79 [-1.39%] to 1408.67 on extremely heavy volume, while silver plunged -0.33 [-2.15%] to 15.02 on heavy volume. The buck shot higher [+0.58%], crude rose [+0.49%], while SPX moved down [-0.18%] and bonds plunged [10Y yield +9.5 bp].

The Nonfarm Payrolls report was the cause of the big moves on Friday; the vast majority of all the price moves came following the release at 8:30 am. Put simply – the report was not recessionary.  More on that later.

Palladium was the star performer this week, making a new high and remaining in a strong uptrend. Gold/Euros did well also, moving higher, and remaining above all 3 moving averages. In the rest of the group, silver led gold lower, while the miners were mixed – seniors outperformed the juniors. The decent miner performance suggests the gold correction is not a serious one – likewise, the rally in gold/Euros tells us that gold’s plunge was a currency effect.  How’s that palladium rally: 66% move over the past 52 weeks.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 2.42% 65.90% rising rising rising rising ma50 on 2019-06-07 2019-07-05
Gold/Euro $GOLD:$XEU 0.69% 16.02% rising rising rising rising ema9 on 2019-07-02 2019-07-05
Senior Miners GDX -0.67% 11.95% rising rising rising rising ema9 on 2019-07-05 2019-07-05
Gold $GOLD -0.68% 11.29% rising rising rising rising ema9 on 2019-07-05 2019-07-05
Junior Miners GDXJ -0.89% 4.02% rising rising rising rising ema9 on 2019-07-05 2019-07-05
Silver Miners SIL -1.75% -9.89% falling rising rising rising ema9 on 2019-07-01 2019-07-05
Copper $COPPER -1.97% -5.79% falling falling falling falling ema9 on 2019-07-01 2019-07-05
Silver $SILVER -2.21% -6.68% falling rising rising falling ema9 on 2019-07-05 2019-07-05
Platinum $PLAT -3.06% -3.70% rising falling falling falling ema9 on 2019-07-05 2019-07-05

Gold fell -9.58 [-0.68%] to 1408.67. The weekly doji candle was neutral, but forecaster was hit hard, plunging into a slight downtrend. Daily also printed a swing high on Friday (48% bearish), and forecaster dropped into a downtrend on Thursday. Gold is now in a downtrend in both daily and weekly timeframes. Gold/Euros did much better; it avoided a weekly forecaster reversal; it is in an uptrend in both weekly and monthly timeframes.

The July rate-cut chance ended the week at 5% and the Dec 2019 rate-cut chance closed at 100%, with an 88% chance of 2 rate cuts, and a 46% chance of 3 rate cuts. That’s a big decrease over last week, and probably driven by the positive payrolls report.

COMEX GC open interest rose +3,885 contracts on Friday, and +27,717 contracts this week. That’s 13 days of global production in new paper.

No COT report due to the July 4th holiday.

Silver plunged -0.34 [-2.21%] to 15.02. All of the damage came on Friday following the payrolls report. The weekly long black candle was bullish (52%), but forecaster plunged hard, ending the week in a downtrend. The daily print on Friday was unpleasant: the confirmed high wave was quite bearish (58%), and the daily forecaster plunged into a downtrend. Silver ended the week in a downtrend in both daily and weekly timeframes.

The gold/silver ratio rose +1.33 to 93.72. That’s bearish.

COMEX SI open interest rose +390 on Friday, and +4,202 contracts this week – about 9 days of global production in new paper.

Miners moved slightly lower this week; XAU fell -1.13%, the weekly high wave candle print was a bullish continuation, and while forecaster fell, it remains in an uptrend. The daily forecaster dropped into a downtrend on Friday, but the takuri line candle print was very bullish (52%); while both gold and especially silver sold off hard, the miners fell for only 30 minutes, and then they rallied strongly for the rest of the day. It was a very good performance for the miners on a day with silver down more than 30 cents. XAU ended the week in an uptrend in both the weekly and monthly timeframes.

The GDX:$GOLD ratio rose +0.01%, and the GDXJ:GDX ratio fell -0.22%. That’s mildly bearish.

USD

The buck rose +1.18 [+1.23%] to 96.78. Big moves came on Monday (following the Trump-Xi meeting at the G-20) and Friday (following Payrolls). Right now, the linkage is, “good news” => a dollar rally, and a plunge in gold, most likely because both the buck and gold are tied to the expectation for rate cuts. The weekly swing low was very bullish (78%), but forecaster just moved slightly higher, remaining in a mild downtrend. Daily forecaster moved into an uptrend on Tuesday following Monday’s big rally. This leaves the buck in a downtrend in both weekly and monthly timeframes – but that monthly forecaster is right on the edge of a bullish reversal too.  More good news will probably keep that buck moving higher still.

The big currency moves: GBP [-1.46%], EUR [-1.35%], AUD [-0.50%], JPY [-0.65%], and CNY [-0.42%].

SPX rose +48.65 [+1.65%] to 2990.41, with SPX making a new all time high on Thursday. The weekly short white candle 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 telecom and tech in the lead, with defense and industrials doing worst. That looked somewhat bullish to me – tech near the top is generally a good sign.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Telecom XTL 2.73% -5.51% rising falling falling falling ma50 on 2019-07-03 2019-07-05
Technology XLK 2.45% 13.82% rising rising rising falling ema9 on 2019-06-26 2019-07-05
REIT RWR 2.42% 6.49% falling rising rising rising ema9 on 2019-07-02 2019-07-05
Cons Staples XLP 2.29% 14.10% rising rising rising rising ema9 on 2019-07-02 2019-07-05
Cons Discretionary XLY 2.10% 11.20% rising rising rising falling ema9 on 2019-06-28 2019-07-05
Financials XLF 2.03% 6.10% rising rising rising rising ema9 on 2019-06-27 2019-07-05
Utilities XLU 1.76% 15.01% falling rising rising rising ema9 on 2019-07-02 2019-07-05
Healthcare XLV 1.20% 10.57% rising rising rising rising ema9 on 2019-07-01 2019-07-05
Homebuilders XHB 0.94% 4.83% rising rising rising rising ema9 on 2019-06-27 2019-07-05
Materials XLB 0.72% 1.31% rising rising falling rising ema9 on 2019-06-24 2019-07-05
Defense ITA 0.16% 11.04% rising rising falling rising ema9 on 2019-07-03 2019-07-05
Industrials XLI 0.12% 7.79% rising falling falling falling ema9 on 2019-06-28 2019-07-05
Gold Miners GDX -0.67% 11.95% rising rising rising rising ema9 on 2019-07-05 2019-07-05
Energy XLE -0.97% -16.11% falling falling falling falling ma50 on 2019-07-03 2019-07-05

The US equity market was #2 this week, with Latin America in the lead.

VIX fell -1.80 to 13.28.

Rates & Commodities

TY fell -0.25%, the weekly doji candle was mildly bearish (34%), and forecaster moved sharply lower, but remains in an uptrend. The large plunge on Friday [-0.53%] resulted in a daily swing high (62% bearish), and daily forecaster dropped into a downtrend. This leaves TY in an uptrend in both weekly and monthly timeframes.

DGS10 (inverse of TY – the 10-year yield), rose +4 bp to 2.04%; but on the way, it made a new low to 1.95%. The big move higher in yield came on Friday, with the 10-year jumping +9.5 bp in just one day, as a direct result of that payrolls report. The weekly piercing candle print was bullish (53%) and and forecaster moved slightly higher but remains in a downtrend. The 10-year yield remains in a downtrend in both weekly and monthly timeframes. Is this 1.95% print a low for yields? If the economy gets better and we start to see some more happy numbers like we did in Friday’s payrolls report, I suspect yields will move rapidly higher.

JNK fell -0.30%. It was a bit odd to see JNK fall, in the face of a strong rally in equities and a plunge in the 10-year. BAA.AA differential fell -2 bp, dropping down to 1.04%, and forecaster fell also, but it remains in a modest uptrend. No signs of credit distress at the moment.

Crude fell -0.45 [-0.77%] to 57.79. Most of the damage happened on Tuesday – probably something to do with Venezuela’s production increasing by 26% this month due to sales to China. The EIA report was mildly bullish (crude: -1.1m, gasoline: -1.6m, distillates: +1.4m), which had just a momentary bearish effect on prices. The weekly candle prints were both bullish and bearish – call it neutral – and forecaster edged lower but remains in a strong uptrend. Daily forecaster tipped over on Monday, and ended the week in a mild downtrend. That left crude in an uptrend in both weekly and monthly timeframes.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +2.93 tons, with 797 tons in inventory.

* ETF Discount to NAV:

PHYS 11.23 -1.27% to NAV [decrease]
PSLV 5.59 -0.37% to NAV [decrease]
CEF 13.15 -3.41% 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 discount for gold, and a 5c premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.35% and silver [1000oz] 3.64%. Premiums are moving higher as prices fall.

Grey Swans & Geopolitics

  • Ebola: total cases 2369, with 1598 deaths (CFR: 68%). That’s 92 new cases this week, which is a decrease over last week. Healthcare workers continue to be at risk: now 130 cases (6% of the total). The primary problem (at least from my viewpoint) is the continuing high number of “community deaths”, which pretty much ensures each “community” death will infect their caregiver and possibly some of the mourners at their funeral. No new cases in Uganda; all 14 suspected cases have tested negative.  So far, Uganda appears to be a reasonably good example of how a rapid response in a nation where the government that is at least somewhat trusted by its people can deal with an infection.  https://www.who.int/csr/don/04-july-2019-ebola-drc/en/
  • Iran: plans to increase the level of uranium enrichment beyond the threshold allowed in the JCPOA deal from 3.67% to 5%. Move, and counter-move. How long would the mullahs have stayed in power if the US had just ignored them? A saying I heard somewhere: the best way to cure a nation of a desire to have a religious government is – 30 years of religious government. Related: a teacher of mine once said, “pushing against” something simply ensures that you get more of it.
  • Italy – minibot: the unelected EC has decided against leveling a massive fine against Italy over its deficit. Italy apparently wrote a letter pledging to reduce its deficit to 2.04% of GDP, and that was judged to be sufficient to avoid the fine. My sense is, the EC caved; there were probably some quid pro quo arrangements behind the scenes – because of the undemocratic “EU leadership selection process” happening this week, Italy’s support was probably seen as preferred vs the prospect of a “salutary public spanking for the populists.” Anyhow, no fine, all is well, nothing to see here, crisis averted. Italian 10-year yields plunged 100 bp over the past 30 days, and 50 bp over the past week.
  • China – Trade: Trump and Xi met at the G-20, and agreed to restart the trade takjs. This set the tone for the week – and was the cause for the dollar’s big rally on Monday, as well as gold’s drop. Trump is in “no rush” (which I suspect means he’d like to conclude this sooner rather than later), but I saw a TV talking head suggest that, perhaps, Xi gave away too much during the previous round, and the Chinese walkback was mainly driven by strong domestic resistance to Xi’s concessions. Who knows how things really work over there – where does the real power lie? Is Xi really the all-powerful dictator we assume him to be, or is he subject to strong domestic political influences – say from the flock of Chinese billionaires and their hangers-on who have become absurdly wealthy because of the current status quo? Just who has the power?
  • BRExit: a fascinating poll put the general electoral landscape in the UK in stark relief: Labor 25%, Tories 23%, the brand-new BRExit party 22%, LibDem 15%, Greens 8%. BRExit is a very big deal, and making it happen is required to keep the Tories relevant, and Boris Johnson is the man seen by the Tory rank & file as most likely to make that happen. Cursory language analysis of a Guardian article (below) on the prospect of BoJo’s almost certain ascension to the PM post provides a sense of the MSM’s panic-spin: “gulp”, “grasp the crown he has coveted for so long”, “major gamble”, “serious implications”, “flashing red light”, and so on. Lost in the faux gasping-in-horror (re “coveting”: it is unusual – and bad – for an MP to want to become the PM?) is that only a credible threat to exit with no deal is likely to move the EU to a reasonable compromise. Duh. When the center becomes utterly corrupt, people like BoJo gain an opportunity to rise to power. And you get the BRExit party too. Blame the disease, not the symptoms.  https://www.theguardian.com/politics/2019/jul/06/boris-johnson-win-fears-hunt-challenge-fades-tories-conservatives
  • Yield Curve Inversion: the 1-10 spread fell -3 bp to +5 bp. No inversion this week.
  • North Korea: Trump met with KJU at Panmunjom last weekend, and gave him an “excellent” letter – according to Kim. This week, North Korea expressed displeasure that the US was “talking out of both sides of its mouth”, and “hell-bent on hostile acts”, after the US, the UK, Germany, and France circulated a letter at the UN calling for the repatriation of all DPRK workers abroad. The current UN sanctions regime includes cutting off all North Korean exports, 90% of its trade, and disbanding its pool of workers sent abroad to earn hard currency. Ouch.

US Recession Watch

Here are the economic reports for this week:

  • PMI Manufacturing Index: 50.6, the second-lowest reading in 10 years. This is an almost-recessionary reading.
  • Construction spending: -0.8% m/m, with residential -0.6% m/m. Consumer discretionary spending is down -22% y/y. The only spot of “good” news: multifamily construction spending is up 9.3% y/y – which reflects the high cost of the SFH category.
  • PMI Services Index: 51.5, which was above the high end of consensus, and although slow, was not recessionary. This was weaker than the ISM’s Non-MFG index, which came in at 55.1, slightly lower than consensus but still reasonably strong – and also not recessionary.
  • Nonfarm Payrolls: headline +224k, with +17k manufacturing, +191k private payrolls. Part time employment: -8k, part time (slack work): +61k, part time (only ptw available): -2k. While the slack work number might look mildly alarming, it was a very small change in the context of the quarter (-202k). Payrolls blew out the top end of expectations, and it definitely not recessionary. It caused half of the buck’s move this week, and most of the drop in gold, and all of the plunge in silver.

While the manufacturing numbers look a bit weak, services look somewhat better, and the payrolls data looks quite strong. No recession.

Summary

This week was dominated at the start by the Trump-Xi rapproachment over the weekend, and at the end by Nonfarm Payrolls, both of which were viewed as being positive for the economy, reducing the chances of rate cuts by the Fed. This caused a strong dollar rally, and a drop in gold, the miners, and most especially silver, which moved to yet another 27 year high in the gold/silver ratio on Friday of 93.72!

But even with all the good economic news, gold managed to hold above 1400, the miners printed a strong-looking reversal which tells us that buyers jumped at the chance to buy the miners at a momentary discount, and even poor, beaten-down silver managed to close above 15. Poor silver. And we can see from gold/Euros performance that the move down in gold was all just a currency effect, as gold/Euros actually rallied this week.

Big bar gold premiums on both gold and silver rose, while ETF discounts mostly decreased. Premiums rising, and discounts falling when prices drop are a sign of accumulation in the “real metals” space. Physical buyers are also “buying the dip”.

No COT report due to the July 4th holiday.

So far – at least according to my data – the recession remains in the future. Manufacturing has picked up slightly, services have slowed, but the economy remains above stall speed. That’s true domestically anyway – I don’t follow things overseas as closely as I should, as there is just not enough time in the day.

Will the US avoid war with Iran? Is there enough common ground (and freedom of maneuver for Xi) between the US and China for some kind of trade deal to come together? So far, the futures markets are projecting no July rate drop. At some point, failure of the Fed to deliver a rate decrease and/or the continuing ability of the US economy to dodge a recession could cause a major kerfuffle in the bond market. Bond yields at 2% only make sense if a recession is just around the corner.

All we can do is await the next set of data. While we do, we should probably take note of the fact that gold, regardless of the very strong dollar rally, remains above 1400, and the miners continue to be very well bid. Premiums on the big bars are slowly rising, ETF discounts are declining – all the signs are there that money continues to flow into gold.  In spite of all the good news.

I hate to say “silver is a good deal” here at 15. I mean, it is, but, still. You are probably really tired of hearing this. Premium for PSLV, the physical ETF over at Sprott, has almost disappeared.  27-year highs in the gold/silver ratio will eventually matter.  When?  I have no idea.

Weekly trends (in order of strength):

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

Downtrend: copper, silver, USD, gold.

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  • Mon, Jul 08, 2019 - 07:54am

    #2

    Chris Martenson

    Status Platinum Member (Offline)

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    You set your watch by this

In a future fiction novel I might write, the hero of the story loses their phone and doesn’t have a watch….but a quick glance at a TV playing CNBC which is showing a gold chart tells them instantly where they are in reference to 8:00 a.m.

If it’s 8:00 a.m. – the US “players” are busy selling gold.

  • Mon, Jul 08, 2019 - 11:01am

    #3

    davefairtex

    Status Diamond Member (Offline)

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    8am assault

Yeah I have to say that all looks pretty odd.  The selling in gold doesn’t correlate with anything else.  Just a bunch of selling starting at 8am.  It looks like “whoever it is” wants gold below 1400.

Funny though – the miners are green.

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