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PM Weekly Market Commentary – 8/2/2019

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  • Sun, Aug 04, 2019 - 02:13am

    #1

    davefairtex

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    PM Weekly Market Commentary – 8/2/2019

On Friday, gold fell -4.88 [-0.33%] to 1452.71 on heavy volume, while silver dropped -0.12 [-0.76%] to 16.23 on heavy volume also. The buck fell [-0.30%] along with SPX [-0.73%], while crude rallied [+1.23%] along with bonds [10Y yield -3.9 bp]. The other metals plunged for a second day in a row – especially copper [-1.99%].

The two big news events this week were: FOMC lowered rates 25 bp as expected, but stated this was a “mid-cycle” adjustment, which sent the signal this was most likely the only cut they were making. The Fed also terminated its balance sheet roll-off two months early. The following day, Trump tweeted that the US was going to slap a 10% tariff on all Chinese imports due to there being no progress in the trade negotiations. These two events whipsawed the markets – gold, bonds, and the buck all first went one direction after FOMC, then sharply reversed following the tweet.

This week’s sector map shows gold leading silver, with the miners were at the top of the heap. Palladium, copper, and platinum did worst, with silver somewhere in the middle. Both gold and gold/Euros had a good week. The industrial metals were hammered following the 10%-tariff tweet.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 2.23% 26.26% falling rising rising rising ema9 on 2019-08-01 2019-08-02
Senior Miners GDX 1.80% 32.62% falling rising rising rising ema9 on 2019-08-01 2019-08-02
Gold/Euro $GOLD:$XEU 1.63% 24.87% rising rising rising rising ema9 on 2019-08-01 2019-08-02
Gold $GOLD 1.51% 19.44% rising rising rising rising ema9 on 2019-08-01 2019-08-02
Silver $SILVER -1.13% 5.91% falling rising rising rising ema9 on 2019-07-31 2019-08-02
Platinum $PLAT -2.37% 2.85% falling rising rising rising ema9 on 2019-08-01 2019-08-02
Silver Miners SIL -2.74% 2.75% falling rising rising rising ema9 on 2019-07-26 2019-08-02
Copper $COPPER -4.59% -5.85% falling falling falling falling ema9 on 2019-07-30 2019-08-02
Palladium $PALL -8.29% 54.22% falling rising rising rising ma50 on 2019-08-01 2019-08-02

Gold rose +21.56 [+1.51%] to 1452.71. All of this week’s gains came on Thursday, following Trump’s 10%-tariff tweet. The long white candle was neutral (actually, both bullish and bearish), and forecaster dropped down to just a slight uptrend. Gold remains in an uptrend in all 3 timeframes, but the weekly trend isn’t all that strong right now.

Gold/Euros continues to look stronger than gold/USD; it made a new high, and although the candle print was the same (neutral), forecaster dipped just slightly, and remains in a reasonably strong uptrend. Gold/Euros also made a new 6-year high this week.

The September rate-cut chance is 100% for one cut, and 4% for two cuts; the Dec 2019 rate-cut chance is at 100% for one cut, 76% chance of 2 rate cuts, and a 26% chance of 3 rate cuts. There was a big jump in rate cut probability after the 10% tariff tweet.

COMEX GC open interest rose +17,034 contracts on Friday, but fell -9,934 contracts this week.

The COT report showed commercial net was basically unchanged; commercials dumped an equal number (35k) of longs and shorts. Managed money net rose +7.5k, which was basically all new longs. The changes were very minor. The COT report is suggesting a top for gold – from the perspective of the commercial shorts.

Silver fell -0.18 [-1.13%] this week. All of the damage happened on Wednesday, both before and after the FOMC announcement. Silver’s recovery on Thursday didn’t look nearly as strong as gold’s, and Friday also looked a bit iffy. Silver remains in an uptrend in both weekly and monthly timeframes.

The gold/silver ratio jumped +2.28 to 89.18. That’s quite bearish. It is just my guess, but plunging prices in the other metals, especially copper [-4.59%] and palladium [-8.29%], possibly contributed to silver’s decline this week.

COMEX SI open interest rose +326 contracts on Friday, but fell -2,849 contracts for the week.

The silver commercial net dropped -7.8k contracts, which was +10.3k new shorts and +2.4k new longs. This is a new high for commercial shorts, and makes a stronger case for an interim high for silver. Managed money net rose by +10.9k contracts, which was +4k new longs and -6.9k fewer shorts. This also reinforces the near-term top case for silver, but is not yet a major top.


Miners saw some extreme volatility this week, but XAU rose just +0.19%. All of the fuss happened on Wednesday (a huge drop) and Thursday (a huge rally). The doji candle was unrated, and forecaster plunged but remains in a slight uptrend. XAU managed to end the week in an uptrend in all 3 timeframes. It looked to me as though traders were buying the dip after FOMC.

The GDX:$GOLD ratio rose +0.29%, while the GDXJ:GDX ratio moved up +0.43%. That is mildly bullish.


USD

The buck rose +0.08 [+0.08%] this week. Under the covers, the buck hit a new multi-year high on Wednesday following FOMC, but then reversed on Thursday and Friday, printing a daily swing high (53% bearish), and ended up printing a weekly shooting star (80% bearish). Forecaster moved lower, but remains in an uptrend. DX remains in an uptrend in both daily and weekly timeframes.

The big currency moves: GBP [-1.79%], AUD [-1.63%], JPY [+1.78%]. AUD hit a new 10-year low (dating back to 2009!) and GBP is down to the post-BRExit vote 2017 lows. AUD is China’s supplier of resources, and AUD doesn’t like it much when copper prices drop.


SPX plunged -93.81 [-3.10%] to 2932.05. SPX fell Wed-Fri, ending the week just above its 50 MA. The weekly swing high candle print was bearish (73%), and forecaster dropped into a downtrend. This puts SPX in a downtrend in both daily and weekly timeframes.

Sector map had telecom and discretionary leading lower, while REITs and utilities did best. This was a near-classic bearish sector map. Financials and tech were both near the bottom of the pile. This is not just about China – this is the leaders selling off.  This supports the bearish signals from the forecasters.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 1.80% 32.62% falling rising rising rising ema9 on 2019-08-01 2019-08-02
REIT RWR 0.40% 6.42% rising rising rising falling ma50 on 2019-08-02 2019-08-02
Utilities XLU 0.28% 14.11% falling rising rising falling ema9 on 2019-08-01 2019-08-02
Healthcare XLV -1.11% 1.98% falling rising rising rising ma50 on 2019-07-31 2019-08-02
Homebuilders XHB -1.82% 3.89% falling rising rising falling ma50 on 2019-08-02 2019-08-02
Cons Staples XLP -1.89% 10.38% falling rising rising falling ema9 on 2019-07-31 2019-08-02
Defense ITA -2.81% 3.35% falling rising rising rising ma50 on 2019-08-02 2019-08-02
Materials XLB -2.93% -2.38% falling rising rising rising ma50 on 2019-08-02 2019-08-02
Energy XLE -3.28% -20.14% falling falling falling falling ma50 on 2019-08-01 2019-08-02
Industrials XLI -3.41% 0.05% falling rising rising rising ma50 on 2019-08-01 2019-08-02
Financials XLF -3.80% -1.29% falling rising rising rising ema9 on 2019-07-31 2019-08-02
Technology XLK -4.29% 9.09% falling rising rising rising ema9 on 2019-07-31 2019-08-02
Cons Discretionary XLY -4.41% 5.94% falling rising rising rising ma50 on 2019-08-02 2019-08-02
Telecom XTL -6.00% -6.10% falling falling falling rising ma50 on 2019-08-02 2019-08-02

US equities were actually #2 this week; Emerging Asia did worst, down -5.06%.

VIX jumped +5.45 to 17.61.

Rates & Commodities

TY jumped +1.36% this week, breaking out to new highs on Thursday and Friday following the 10% tariff tweet. The long white candle is a bullish continuation, and forecaster moved slightly higher and remains in an uptrend. TY is in an uptrend in all 3 timeframes.

DGS10 (the 10-year yield, inverse of TY), plunged a massive -24 bp to 1.84. The strong line candle was very bearish (77%) and forecaster dropped into a downtrend. The 10-year yield is now down to 2016 levels. DGS10 is in a downtrend in both weekly and monthly timeframes.

JNK plunged -0.93%, selling off strongly on both Thursday and Friday. JNK ended the week in a strong downtrend, and has fallen below its 50 MA.  This is a risk off signal, supporting the correction in equities.

BAA.AA differential fell -2 bp this week, ending at +88 bp. This was almost a 52-week low for the differential; it is not signaling any sort of trouble in the credit markets. I’m wondering now if – perhaps – this is because the markets are expecting the ECB to buy up all of the crappy debt – and the recent sharp decline in the ratio is simply traders front-running the ECB. Certainly, with the ECB’s deposit rate at -0.4%, buying crappy debt is one of the few things that the ECB can do to “stimulate” the economy. And by “stimulate”, I mean, “save some more zombie companies from immediate failure.”

Anyone want any 100-year Austrian debt? It yields 1.17%. Only reason this happens is the ECB.  Your great-grandchildren can be there to collect the principal in 2119.  https://www.ft.com/content/abe7c3fa-9807-11e9-8cfb-30c211dcd229

Crude fell -1.06 [-1.88%] to 55.21. Crude rallied on Monday and Tuesday, but then sold off hard on Thursday following the 10%-tariff tweet. The spinning top candle was neutral, and forecaster was unchanged, remaining in a downtrend. Crude is below all 3 moving averages, and is in a downtrend in both daily and weekly timeframes.

The EIA report this week was fairly bullish (crude: -8.5m, gasoline: -1.8m, distillates: -0.9m) but it appeared to be overwhelmed first by the FOMC announcement, and then later by the tariff tweet.

Physical PM Supply Indicators

* The GLD ETF tonnage on hand rose +12.62 tons, with 831 tons in inventory.

* ETF Discount to NAV:

PHYS 11.52 -1.57% to NAV [increase]
PSLV 6.08 <b>+0.40% </b>to NAV [decrease]
CEF 13.75 -3.40% 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 premium for gold, and a 2c discount for silver (London).

* Gold dealer big bars premiums were: gold [1kg] 1.24% and silver [1000oz] 3.27%.

Grey Swans & Geopolitics

  • Ebola: total cases 2713, with 1823 deaths (CFR: 67%). That’s 101 new cases this week, which is an increase over last week.  Beni continues to be the current Ebola hotspot. https://www.who.int/csr/don/02-august-2019-ebola-drc/en/
  • Iran: The US imposed sanctions on Iran’s Foreign Minister Zarif.  I’m not really sure what this is supposed to accomplish.  The UK said there would be no “tanker swap.”  Zarif, who also knows how to tweet, said: “The US’ reason for designating me is that I am Iran’s ‘primary spokesperson around the world’ Is the truth really that painful?  It has no effect on me or my family, as I have no property or interests outside of Iran. Thank you for considering me a huge threat to your agenda.”
  • Italy – migration: Italy allowed 116 African migrants to disembark from its coast guard vessel after striking a deal with 5 other EU nations who agreed to take them in.
  • US-China: Trump decided to levy 10% tariffs on all Chinese products as of Sept 1, 2019 because he believes the Chinese are not negotiating seriously and are just trying to stall until the 2020 election.  There were a flurry of tweets accompanying this move.
  • BRExit: The latest spin from the media is that Boris Johnson will end up breaking up the UK.  That’s because Scotland and Northern Ireland voted against BRExit, while England and Wales voted for it.  GBP was hit hard this week [-1.79%], which is a new multi-year low.  Mostly, the establishment hope for avoiding BRExit rely on Parliament “doing something” when it returns to session after the summer recess in early September.  PM Johnson has refused to meet with other EU leaders, including Merkel or Macron, until they first agree to drop the “Irish Backstop” provision from the withdrawal agreement.
  • Yield Curve Inversion: the 1-10 spread fell -10 bp to -2 bp.  The yield curve is inverted once more.
  • North Korea: more missile launches from North Korea this week; Trump says they aren’t a problem since there was no specific agreement on testing “short range missiles.”  Tea-leaf-readers suggest variously that Kim is trying to “increase the sense of urgency” and to gain an advantage in the upcoming talks.  KJU does seem to be pushing the envelope.  I suspect he feels as though his issues are not getting enough attention.

US Recession Watch

Here are the economic reports for this week:

  • US ISM Mfg Index: headline 51.2 down from June (51.7). Manufacturing continues to slow down. Still not recessionary, but the continued decline doesn’t bode well.
  • Nonfarm Payrolls: Headline +164k, manufacturing +16k, avg hourly earnings +0.3% m/m. This is roughly in line with consensus. The “working part time/slack work” series actually fell this month, which is a positive sign. Both the headline and the part-time work series point in the same direction: not recessionary.

While the ISM Mfg index points to continued slowing in the manufacturing sector and a possible manufacturing recession ahead, payrolls continues to point to continued expansion in the rest of the economy.

Summary

So going into this week, all eyes were on the Fed, but the real market-moving news were the tariffs on China.  In retrospect, it appears as though Trump had a plan. The US-China trade negotiations were not going well; the Chinese were stalling, hoping that a less trade-driven Democrat President might be elected in 2020. My guess is, Trump told Powell about his plan to increase tariffs, and encouraged him to cough up a 25 bp rate cut to help cushion the blow for the economy.

The markets were whipsawed as a result.  The Fed was seen as “too hawkish” (the “mid-cycle adjustment” language didn’t suggest a flurry of cuts was going to happen), but then the 10% tariff news entirely changed the mood the very next day.   It was gold-positive, dollar-negative, and strongly negative for equities. Reading the tea leaves further, the markets seem to be projecting a number of rate cuts in the next 4 months, as well as a bad outcome for US economic activity.

However the markets are also suggesting that China will be hit a lot harder than the US. I say this because the two-day plunge in copper prices was very strong – copper dropped to multi-month lows.  Copper is now in a downtrend in all 3 timeframes, and is also right on the edge of a multi-year breakdown. A drop below (roughly) $2.52 – just 5 cents away – could lead to a very large sell-off in copper, perhaps down to the $2 level set back in 2016. Tie this in with the plunge in AUD to 10-year lows, and it suggests that very bad news for China is ahead.

Big bar gold premiums on both gold and silver were mostly unchanged, and ETF discounts fell – notably, PSLV moved into premium for the first time in many years. Goldbugs appear to be buying the dip in silver. No shortage in the bars, but that PSLV move into premium suggests that goldbug buyers are loading up. (PSLV is a bit of an esoteric instrument – “normal people” buy the more mainstream SLV, which has 20x the daily trading volume vs PSLV).  You will of course remember back in May when PSLV was trading at a 3-4% discount to NAV.

The COT report continues to show gold at a longer term COT high, especially when looking at the commercial shorts, where the levels are getting close to historic. Silver is moving more strongly into a near-term high.

The economic reports all continue to look relatively non-recessionary, and that includes this month’s payrolls report, which kind of got lost with all the Fed and Tariff fuss this week.  The Working Part Time/Slack Work series declined substantially this month.  That’s a positive sign – not recessionary.

Next week we will get the services ISM report, and the PPI.  And perhaps the Chinese will respond in some way to Trump’s tariffs.  If it is true that China isn’t interested in negotiating until after 2020, that could be really positive for gold.  We will just have to see.

Weekly trends (in order of strength):

Uptrend: USD, silver, gold/Euros, 10-year Treasury, DJI, platinum, miners, gold.

Downtrend: copper, crude, SPX, bitcoin.

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  • Sun, Aug 04, 2019 - 10:52am

    #2

    Eannao

    Status Bronze Member (Offline)

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    Posts: 152

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    Graphics not working

Hi Dave,

FYI, the sector map and some of the other graphics don’t seem to be working.

  • Mon, Aug 05, 2019 - 01:10am

    #3

    Eannao

    Status Bronze Member (Offline)

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    Posts: 152

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    Vault storage in Hong Kong

Hi Dave,

I purchased platinum a while back using Goldmoney and randomly chose to store it at a Loomis vault in Hong Kong.

Given the recent political turmoil in Hong Kong, it seems increasingly likely that China may send the PLA into Hong Kong (as per Kyle Bass on Twitter). Have you been following this situation and do you think it would be prudent to move my PMs from there? It would cost me 0.75% to transfer to a vault in another country.

I would appreciate your opinion. Thanks, E.

  • Mon, Aug 05, 2019 - 05:57am

    #4

    Chris Martenson

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    I'd move it…

Have you been following this situation and do you think it would be prudent to move my PMs from there? It would cost me 0.75% to transfer to a vault in another country.

No question.  I’d pay 0.75% to be in SWI vs HK right now.

Who knows how the things in HK play out?  Maybe nothing, maybe really super chaotic.  Maybe there’s a new rule change coming that prevents vault transfers.  Who knows?

Uncertainty of that sort is easily, no question about it, worth paying 0.75% to relieve.

  • Mon, Aug 05, 2019 - 08:17am   (Reply to #3)

    #5

    davefairtex

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    re: Vault storage in Hong Kong

Yeah, I’m with Chris on that.  Run, don’t walk.

If China acts logically, they won’t kill the goose that lays all those golden eggs for all their Oligarchs.  HK is a trustworthy destination for money in Asia.  At least, it used to be.

How will China react to the people of HK expressing their “concern” that they will find themselves extradited to China if they get out of line?  Clearly the people are terrified of how things work on the mainland.  (I would be too!)  Especially the young people.  They can’t all flee to other jurisdictions – unlike the leader of HK, Carrie Lam, whose children and husband all have British passports.  Her family doesn’t have to eat the dog food she’s serving up to everyone else.  (It’s GOOD to be king!)

The future of everyone in that 7-million-person city is on the line.  Really anything could happen.  How much dissent will the Chinese tolerate?  They could simply march in and take over.  Given what they did in Xinjiang province…its absolutely not unthinkable.

The latest from HK: a $168,000 reward for information leading to the conviction of the person who took down the Chinese flag and threw it into the sea.

Ask yourself, when was the last time someone offered even $1 for information leading to the conviction of someone tearing down the US flag and – say – burning it, or whatever?  Things are different in Asia.

Unless Lam withdraws that bill, anything could happen.

  • Mon, Aug 05, 2019 - 09:26am

    #6

    thc0655

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    Vault storage

I confronted the various vault storage issues and risks in 2010 and haven’t (yet) regretted my decision. I chose a US vault I can drive to back and forth in one day. I trust the US more than any other locations, though just barely (and it’s a very low bar). If I have major concerns like I would about Hong Kong right now, I would simply go pick up my stuff (secretly and with a couple of heavily armed friends). When the US is no longer willing and able to be The World’s Policeman large chunks of the globe will become chaotic, unpredictable and violent. I would put everything in the orbit of China at the top of that list.

  • Mon, Aug 05, 2019 - 12:35pm

    #7

    Eannao

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    Vault transfer – hidden costs

Gents, thanks for the insights.

So the Goldmoney transfer fee is indeed 0.75% but there is also the spread between the Sell price and the Buy price to be factored in. This brings the real cost of transfer to 1.7%, which isn’t ideal, but probably still worth it. Just something to bear in mind.

  • Mon, Aug 05, 2019 - 02:49pm

    #8

    Eannao

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    Unable to transfer PMs from HK vault!

Tried to transfer my platinum with Goldmoney from Hong Kong vault to New York and found they have imposed a 150g transfer limit!!!!

This is roughly 1/10th of my holding, so 9/10ths remains in Hong Kong!! Not cool, Goldmoney!

Update: Thankfully, I was able to place an order to sell the remainder for cash and then I will be able to buy-in again tomorrow. Fingers crossed!

  • This reply was modified 2 weeks, 6 days ago by  Eannao.
  • Mon, Aug 05, 2019 - 03:15pm

    #9

    Cold Rain

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    Wow

What a day!  Yuan devalued, China to quit buying US ag, Dow down a cool 767, US 10 yr yields below 1.80, gold closed over $1460, and now China labeled as a currency manipulator.  Futures are cratering and gold is now over $1470.

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