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PM Weekly Market Commentary – 9/13/2019

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  • Sun, Sep 15, 2019 - 12:48pm

    #1

    davefairtex

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    PM Weekly Market Commentary – 9/13/2019

On Friday, gold fell -11.13 [-0.74%] to 1498.01 on very heavy volume, while silver plunged -0.67 [-3.68%] to 17.52 on heavy volume. The buck fell [-0.48%] along with bonds [10Y +12.2 bp] and crude [-0.51%], while SPX was mostly unchanged [-0.07%]. It was an ugly day for both PM and bonds.

Market-moving news this week was a combination of more happy news out of the US-China trade talks (tariff implementation will be withheld, China was signing up to buy more US ag products), as well as a surprising outcome at the ECB meeting. While Dragi told us about the expected printing-to-come, and asserted that there was consensus on the new plan, immediately afterwards some ECB participants vocally disagreed. In fact, Bloomberg reported that “Core Europe Resisted QE” – France, Germany, Netherlands all opposed Dragi’s plan. This remarkable display of public dissent by key Eurozone members to Dragi’s plan (and his public comments that assured us all there was so much consent that no vote took place) called into question just how long printing would occur after his term ends just 6 weeks from now.

https://www.bloomberg.com/news/articles/2019-09-12/draghi-faced-unprecedented-ecb-revolt-as-core-europe-resisted-qe

The combination of “risk on” US-China trade news together with some real uncertainty about money printing in Europe combined to hammer both gold, silver, and bonds.

While palladium broke out to new all time highs, and copper moved higher on the US-China trade news, PM had a terrible week. Silver led gold lower, miners led metal lower, and juniors led the senior miners lower. This is a classic bear move in the PM sector. All of the PM components are through the 9 MA, and all of the miners have dropped below the 50 MA. Things are starting to look more than a bit unpleasant.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 4.35% 65.03% rising rising rising falling ema9 on 2019-08-30 2019-09-13
Copper $COPPER 2.75% 1.17% rising rising falling rising ma50 on 2019-09-12 2019-09-13
Platinum $PLAT -0.31% 18.35% rising rising rising rising ema9 on 2019-09-10 2019-09-13
Gold $GOLD -1.43% 23.97% falling rising rising rising ema9 on 2019-09-05 2019-09-13
Gold/Euro $GOLD:$XEU -1.72% 30.66% falling rising rising rising ema9 on 2019-09-05 2019-09-13
Silver $SILVER -3.98% 23.27% falling rising rising rising ema9 on 2019-09-06 2019-09-13
Silver Miners SIL -3.99% 20.73% falling rising rising rising ma50 on 2019-09-13 2019-09-13
Senior Miners GDX -6.46% 47.26% falling rising rising falling ma50 on 2019-09-09 2019-09-13
Junior Miners GDXJ -7.52% 33.55% falling rising rising falling ma50 on 2019-09-09 2019-09-13

Gold plunged -21.71 [-1.43%] this week. The swing high candle print was bearish (73%), and forecaster moved a bit lower into its downtrend. Gold remains in a downtrend in both the daily and weekly timeframes. Gold/Euros is now in a downtrend in all 3 timeframes. Gold/Euros made a new low on Friday.

The September 2019 rate-cut chance is at 80%, and the Dec 2019 rate-cut chance is 93%, a 55% chance of 2 rate cuts, and a 13% chance of 3 rate cuts. This is down substantially from last week.

COMEX GC open interest rose +25 contracts on Friday, and +6,608 contracts this week. There was no short covering on the decline, which isn’t a great sign.

Commercial net jumped by +32k contracts; that was -24k fewer shorts, and +8k more longs. This was a reasonably large change; commercials are ringing the cash register on the decline, but they remain very heavily short. Managed money net fell by -25k contracts; that was all about -25k fewer longs. Managed money was heavily long right at the top, it would seem.

Silver plunged -0.72 [-3.95%] to 17.52, smashing through round number 18 on Friday, which is when most of the damage took place. The closing black marubozu was a bearish continuation, and forecaster dropped hard, entering a downtrend. This puts silver in a downtrend in the daily and weekly timeframes.

The gold/silver ratio rose +0.02 to 85.70. That’s neutral.

COMEX SI open interest fell -1,654 contracts on Friday, and -331 contracts this week.

Commercial net was virtually unchanged; -2k fewer shorts, and -2k fewer longs. Managed money net fell by -1.3k contracts, which was -1.4k fewer shorts, and -2.7k fewer longs. These were minor changes, and don’t change the picture: silver appears to be at or near a medium-term high.

Miners had a bad week, falling 3 days out of 5. XAU fell -5.06%, the closing black marubozu was a bearish continuation, and forecaster inched lower into a slight downtrend. I’m not sure why this week’s large percentage move didn’t convince the forecaster to drop more rapidly; right now the weekly trend looks quite weak, even though the drop was significant.  XAU is now in a downtrend in both daily and weekly timeframes.

GDX:$GOLD plunged -5.10%, while the GDXJ:GDX ratio fell -1.14%. That’s very bearish.

USD

The buck fell -0.12 [-0.12%]. The buck had some very wide trading ranges on Thursday and Friday, but ended the week mostly unchanged. The weekly high wave candle was a bullish continuation, and forecaster moved a bit lower but remains in a slight uptrend. The buck remains in an uptrend in both daily and weekly timeframes, but both trends are extremely weak.

The big currency moves: GBP: +1.42%, AUD: +0.42%, JPY [-1.21%], CNY [-0.47%]. GBP’s big move higher suggests the market believes that the Remainers may be able to successfully frustrate PM Johnson’s desire to execute BRExit on October 31st. The other currency moves draw a picture of generally positive sentiment regarding the US-China trade deal, which caused the buck to weaken overall.

SPX rose +28.68 [+0.96%] to 3007.39. The spinning top candle was a bullish continuation, and forecaster moved higher into a reasonably strong uptrend. SPX is in an uptrend in all 3 timeframes.

Financials and energy led the pack, with REITs and staples doing worst. This was a mostly-bullish sector map.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 3.83% 1.64% rising rising rising falling ma50 on 2019-09-05 2019-09-13
Energy XLE 3.47% -17.31% rising falling falling falling ma50 on 2019-09-10 2019-09-13
Materials XLB 3.32% -0.49% rising falling rising falling ma50 on 2019-09-10 2019-09-13
Homebuilders XHB 2.85% 8.43% rising rising rising falling ema9 on 2019-09-04 2019-09-13
Industrials XLI 2.78% 0.85% rising rising rising falling ma50 on 2019-09-05 2019-09-13
Telecom XTL 2.65% -8.78% rising rising falling rising ma200 on 2019-09-11 2019-09-13
Defense ITA 1.44% 7.33% rising rising rising rising ema9 on 2019-08-19 2019-09-13
Cons Discretionary XLY 0.45% 5.16% rising rising rising falling ma50 on 2019-09-04 2019-09-13
Healthcare XLV 0.26% -2.48% rising falling rising falling ma50 on 2019-09-11 2019-09-13
Utilities XLU 0.21% 15.30% rising rising rising rising ema9 on 2019-09-13 2019-09-13
Technology XLK -0.42% 8.21% rising rising rising falling ema9 on 2019-09-04 2019-09-13
Cons Staples XLP -0.65% 11.16% rising rising rising falling ema9 on 2019-09-13 2019-09-13
REIT RWR -1.26% 6.42% rising rising rising falling ema9 on 2019-09-13 2019-09-13
Gold Miners GDX -6.46% 47.26% falling rising rising falling ma50 on 2019-09-09 2019-09-13

The US was the second-worst performing equity market this week; Developed Asia was on top.

VIX fell -1.26 to 13.74. Risk is rapidly evaporating – probably because SPX is within 20 points of its all time high.

Rates & Commodities

TLT cratered this week, plunging -6.34%, and remains in a strong downtrend; DGS30 (the 30-year treasury yield) jumped +36 bp to yield 2.38%. That’s a very large move for the 30-year bond. You can see that if you own long-duration bonds at the wrong time, a market reversal can make what is normally thought of as a “safe haven” trade into a big money-loser.

TY dropped -2.06%, the swing high print was very bearish (75%), and forecaster dropped hard but not quite enough to move TY into a downtrend. Even after this week’s plunge, TY remains in an uptrend in both weekly and monthly timeframes, although the weekly trend is very weak.

DGS10, the 10 year yield, jumped +35 bp to 1.90% this week; the strong line candle was bullish (68%), and forecaster jumped higher, moving DGS10 into an uptrend.  Yield uptrend = bond downtrend.

The flight out of bonds this week was quite striking – the move higher in yield was much more violent than the pace of the drop over the last few months.  To me that’s a sign of short-covering.

JNK fell -0.06%; JNK actually sold off on Friday, with the forecaster moving into a downtrend. My guess: there is some doubt starting to creep into the junky debt market about the ECB’s willingness to buy up all the crap. BAA.AAA differential fell -3 bp to +87 bp; that says no worries right now about low quality debt.

Crude fell -1.76 [-3.12%] to 54.69. The long black candle was mildly bullish (32%) but forecaster inched lower, dropping crude into a slight downtrend. Crude ended the week in a downtrend in the daily and weekly timeframes.

That said, a drone attack this weekend on a critical Saudi oil facility appears to have taken 5 mbpd offline. It is unknown how long it will take to repair, but it is likely oil prices will scream higher at the open on Monday – so this week’s crude report is probably not all that predictive of where prices go next.

https://oilprice.com/Geopolitics/International/100-Oil-Drone-Strikes-Halt-Half-Of-Saudi-Crude-Production.html

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -15.24 tons, with 874 tons remaining in inventory.

* ETF Discount to NAV:

PHYS 11.92 -1.34% to NAV [decrease]
PSLV 6.39 -1.77% to NAV [increase]
CEF 14.41 -3.32% 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 a $2 premium for gold, and a 5 cent premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.19% and silver [1000oz] 3.13%.

Grey Swans & Geopolitics

  • Ebola: total cases 3091, with 2074 deaths (CFR: 67%). That’s just 37 new cases this week, which is a large decrease over last week. This is the lowest number of new cases since March 2019. The bulletin reminds us: “while these signs are promising, it remains too soon to tell if this trend will persist.” https://www.who.int/csr/don/06-september-2019-ebola-drc/en/
  • Iran: This week, Trump fired NSC head Bolton, which the crude oil market took as a signal that Trump wanted to re-engage with Iran – as a result, crude sold off. However, the drone attack on the Saudi oil refinery on Saturday took out more than 5 mbpd of exports, and there is speculation that Iran was behind the attack, even though the Houthis took credit for it. Certainly, Iran is happy whenever Saudi Arabia gets a black eye.  That happened after market close on Saturday, so we don’t know just how dramatic the effect on oil will be just yet.
  • Italy – migration: migrant Sea Taxis are back! The new (M5S-PD) Italian government allowed an NGO rescue ship to offload 82 migrants into one of its ports. Salvini, now out of power, tweeted his annoyance: “The new government has opened again its seaports to migrants. The new ministers must hate our country. Italy is back to being Europe’s refugee camp.” That’s not exactly true; the migrants will be dispersed across Europe; 25% to Germany, 25% to France, with other EU states taking in the remainder.
  • US-China: As the date for face-to-face negotiations approaches, olive branches are appearing. China is inquiring about purchasing US ag products, while Trump has declared he will withhold his 5% tariff increase on $250 billion in Chinese imports for 15 days. Something has changed in the trade-negotiation dynamic since things blew up a few months back. What was it? That’s hard to say, but clearly China feels it is in their national interest to re-engage. My guess: “decoupling” is a real thing.
  • BRExit: the Scottish Supreme court has ruled that PM Johnson’s suspension of the UK Parliament is illegal. Johnson will appeal this decision to the UK Supreme Court. There are allegations that the Queen was tricked by Johnson. Remainers seem to have the government on the defensive – this is causing the GBP rally.
  • Yield Curve Inversion: the 1-10 spread rose +21 bp to +3 bp. The yield curve is no longer inverted.
  • Hong Kong: my sense is that the protests have subsided somewhat, following Beijing’s seeming willingness to withdraw the extradition bill. A new wrinkle: pro-Beijing protesters have appeared, and have started attacking the remaining Hong Kong protesters. What will happen on October 1st – the CCP’s big celebration day? That’s coming up 2 weeks from now. https://www.aljazeera.com/news/2019/09/hong-kong-protesters-clash-pro-beijing-counterparts-190914140138713.html
  • North Korea: stated it is willing to start denuking talks later this month, and then promptly fired off some more short-range missiles. https://www.reuters.com/article/us-northkorea-usa/north-korea-says-it-is-willing-to-resume-nuclear-talks-with-us-in-late-september-idUSKCN1VU1MW

Summary

PM was hit with a double-whammy this week; first was all the good news from the US-China trade negotiations, where the sentiment has changed fairly dramatically, and the second was the confusion over the ECB’s money printing – Dragi said “yes yes yes” in his press conference, but France, Germany, and the Netherlands said “no no no” to money printing right afterwards, and Draghi’s term is up in 6 weeks. So more printing by the ECB is by no means certain at this time.

These two events caused PM and bonds to sell off fairly hard; silver and the miners were the largest casualties, but the 30-year treasury was not far behind: a 36 bp move in the 30-year resulted in more than a 6% loss for anyone unlucky enough to be long.

To me, the revolt against Draghi was actually a really big deal.  If he doesn’t print, southern Europe sovereign debt won’t have any buyers at current levels, and junky debt could start selling off hard – as traders were front-running the ECB’s money printing and may now exit their positions.  Basically: printing doesn’t fix anything, but its all they can think to do.  And they can’t really stop, because it allows the heavily indebted sovereigns (Italy, Greece, Spain) to continue funding their debts without paying high interest rates.  But if Northern Europe takes this off the table…what then?  The reset in expectations could be pretty exciting to behold.

Most likely, nobody will pay any attention to what Draghi thinks any longer.  Everything is up in the air.

We have an FOMC meeting coming up next week. More likely than not, the Fed will cut another 25 basis points, but after what happened at the ECB, this is by no means certain – the odds have floated down to 80%. And the better the news about the US-China trade deal looks, the less likely the Fed is to cut, since this issue was one of those important “cross currents” that Powell apparently has his eye on. Supposedly anyway.

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

The COT reports show the commercials covering as gold falls; silver looks to be at a medium-term high.

Watch crude Sunday night/Monday morning; it could be pretty dramatic. I have wondered for a long time how things play out if one of the big oil producers had their infrastructure hit by an adversary. Now we get to find out.

Weekly trends (in order of strength):

Uptrend: DJIA, platinum, SPX, copper, USD, bitcoin, 10-year treasury.

Downtrend: gold, gold/Euros, silver, miners, crude.

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  • Sun, Sep 15, 2019 - 03:07pm

    #2
    Nate

    Nate

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    Grant Williams

Great Grant Williams podcast with Erik Townsend.

Grant: I think the beauty of the gold universe is that it is actually, when all is said and done, pretty simple. It’s volatile as hell. You need a cast-iron stomach to trade these things. But when the metal goes, for the most part, the miners will go right along with it. And they will outperform because they do have that inherent leverage. So it’s actually pretty simple. If you believe that gold is going to go higher, and you want to trade it, and you want a leveraged exposure to the price, then great. I mean, the gold mining stocks are a great place to be.

And the point I was making in my presentation was, you don’t need to get too cute with these because, as much as you could dig through and you could find some companies that will be stellar outperformers from the rest of their peers, if the public decide to come for the gold miner stocks, they will come for the ETFs they’ll come for GDX, they’ll come for GDXJ. So you don’t have to be too cute. You don’t have to expose yourself a stock that we all know from experience, could have a mine collapse, or a permitting problem, or a hostile government come in. There are so many things that can wrong with gold mining stocks. But if this is a mainstream trade, and gold becomes the hot topic and gold miners become the hot stocks, you just have to own the ETFs, the GDX and GDXJ, because that where people that don’t really care what they do, they just want exposure to where the price will go.

So, for me, owning physical gold just for those insurance reasons is always something you need to do. If you are trend chasing, if you just think this is going to be a great trade for me, then absolutely you can get the leverage from the mining stock. And, let’s face it, you can get even more leverage from silver. And we should definitely talk about silver. That was one of the charts I had in this thing showing as perfect a 50-year chart as I’ve seen that suggests silver is going to have a massive breakout. And if you look at the gold/silver ratio, it’s hugely skewed towards gold right now. Silver is gold’s more volatile cousin. And so if it’s leverage you want, if it’s volatility you want, and exposure to potentially big upsides in a precious metals bull market, then silver is a great thing to look at right now. And, again, you’ve got ETFs that will do the job for you without you having to dig through company reports and trying to ascertain the quality of the company management, which is always one of the really difficult things to do with mining stocks.

[audio src="https://www.macrovoices.com/podcasts/MacroVoices-2019-09-05-Grant-Williams.mp3" /]

  • Sun, Sep 15, 2019 - 10:15pm

    #3

    davefairtex

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    Crude +4.91

Crude gapped up $6 at the open on Sunday evening, and has retreated somewhat but is still up +4.91 to $59.77.  This of course is all about the attack on the Saudi oil facility over the weekend.

How do you defend against a drone attack?  That’s the question.  Clearly the Saudis were unable to do so during the initial attack.  If they repair the damage – how do they prevent it from happening again?

  • Mon, Sep 16, 2019 - 12:49am

    #4
    David Allan

    David Allan

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    Reply To: PM Weekly Market Commentary – 9/13/2019

Man these pullbacks are a pain in the neck. I was looking at replenishing my wine cellar ( well less a cellar and more an unused corner of the garage) but then silver dropped  back into my buy-zone – only just. The decider was the drone strikes over the weekend and, being in NZ, the first country to see the new day – my bullion dealer opened an hour before global markets kicked off for the week so I was able to buy the bottom of the dip with the expectation of a bit of a pop. Just a tube but its always nice to see a quick gain. Of course it might be down twice as much tomorrow.

But more seriously, I’m curious about the record high commercial short positions (gold). They seem very confident in the face of a developing bull market These manipulators are best buddies of the central bankers and surely must have some inside knowledge of rate cuts (or not).  And also they’ll likely be front running any central bank interventions. Is there any limit to the level of shorting possible? For example, if there is a really desperate desire to contain the gold price could the open interest double from here? After all its only money which the Fed can just print.

  • Mon, Sep 16, 2019 - 03:31am

    #5

    Eannao

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    Executive Summary!

“My guess: there is some doubt starting to creep into the junky debt market about the ECB’s willingness to buy up all the crap.”

😆

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