PM End of Week Market Commentary: GDX, GDXJ, GOLD, Silver, USD

0

On Friday, gold dropped -11.50 to 1132.30 on moderately heavy volume, dropping briefly below the 1130 low before rebounding slightly.  Silver fell -0.13, continuing its slow decline targeted on retesting the low set two weeks prior.

While the buck rose on Friday and that seldom helps gold, it looked to me more like the shorts were trying to push gold below support, so they could run the stops and collect some quick profits.  They couldn’t quite make that happen, as the brief drop to 1129.60 wasn’t deep enough to trip the long stops that were probably set a bit further down, but the stage is set for a second attempt early next week.

On the week, gold fell -30.70 [-2.64%], silver fell -0.76 [-4.88%], GDX dropped -7.94% and GDXJ lost -5.30%.  Platinum was down -3.93%, while palladium dropped -5.80%.  It was really bad week for PM.

There was just not any good news this week for gold – it dropped all five days, and ended up breaking briefly below the previous low.  That’s a bad sign, as the rally off the low was practically nonexistent.  Unless there are massive bids lying underneath 1130, it will not take much for a well-heeled short to push prices lower come Monday morning in Asia.  Whether buyers will appear at COMEX after all those long stops get triggered – that’s the question that remains unanswered.  If that happens, we could see a nice rally develop as the new shorts are whipsawed.  If COMEX buyers don’t appear, and as the rest of the commodity complex also appears to be pointing lower, breaking 1130 support will probably lead to a lot of selling.

Silver also endured 5 straight days of selling, but it avoided making a new low – simply because the previous low was so dramatically lower it didn’t quite make it down that far.  I expect silver too will test its 14.62 low this week, and most likely it will fail.  If buyers appear after the failure, we could see a nice rally.  If not…we’re probably off to test the 14.15 low.  How the other commodities perform will likely influence what happens to silver.  If they all sell off, its likely silver will follow.

The USD

The dollar rose +1.82 [+1.89%] to 97.99 on the week, moving higher on 4 out of 5 days.  Dollar strength alternated between concerns about Greece and the market’s assessment that a Fed rate rise is really going to happen as a result of higher inflation numbers and continued positive payroll reports.  Manufacturing remains weak because of the strong dollar, but since manufacturing is only 8.6% of US payrolls, and payrolls drive most everything, it isn’t decisive.

You may well say to yourself, “the Fed will never raise rates” – but my sense is, the market believes they will, and that belief pushes the dollar higher.  And of course, dollar strength right now ends up pushing commodities (and PM) lower.

Miners

Senior miners sold off quite hard this week, dropping to new lows and ending Friday with hints of a capitulation, dropping to new lows last seen in October 2008.  Miners haven’t quite broken that 2008 low, but it is not so very far away.   Here’s a monthly chart to give you a sense.  Gold isn’t the most unloved asset class in the world – that status is reserved for the gold mining shares.  Miners have had a 77% drop since the peak back in 2011.

Junior miners also went through a minor capitulation this week, but the juniors have managed to avoid breaking below the March lows.  Junior miners are still outperforming the seniors, which tells me that someone is out there accumulating junior miners on the way down.

US Equities/SPX

The equity market launched this week, perhaps impelled by the Greeks accepting the unconditional surrender terms of a new “bailout.”  SPX climbed +50.02 [+2.41%] to 2126.64, and is closing on the 2135 all time high set back in May.

VIX fell -4.88 to 11.95.  Put options on SPX tend to be a good deal when the VIX drops below 12.  That said, my models aren’t showing a peak here for SPX.  In fact, they show a (bullish) rebound from last week, so I’d be cautious going short.  My guess: we may have a dip this week, but I’m guessing it will be bought, and we’ll see a new all time high relatively soon.  The bounce is quite strong.

Gold in Other Currencies

Gold fell in every currency except the Euro – where it has been moving more or less sideways for the past seven weeks.  In XDR, it was off $16.  It appears that gold has been falling in most currenciesfor the past month or so.

Rates & Commodities

Bonds (TLT) rose +2.30%, rallying four days out of the past five.  Bond buyers have pushed TLT back above its 50 MA.  It is interesting bonds are attracting money while equities rise; I’m not sure what to make of it.

Junk bonds (JNK) sold off a little on the week, dropping -0.16%.  No signal right now from JNK.

The CRB (commodity index) dropped -1.70%, mirroring the +1.89% rise in the dollar.  Overall commodity weakness appears to be a currency effect.

WTIC continued dropping this week, losing -2.04 [-3.86%] to 50.78.  The oil correction continues apace, which has continued to hurt oil equities both E&P as well as services.  My models are conflicted, with one projecting a low in oil, while another suggests WTIC has another $5 to drop before it hits bottom.  The one predicting a bounce has been early in the past, so I’m cautious.

How much more will oil fall on the signing of the Iran nuclear deal that happened on Friday after market close?  Is this news already baked into the cake?  We might have a spike lower on Monday that gets bought.

Physical Supply Indicators

* Shanghai premiums fell to +3.82 over COMEX.

* The GLD ETF lost -11.63 tons, with 696.25 tons remaining.

* GC futures are not in backwardation, with the current two front-month spread at +0.60.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on July 17th) of 1132.60 and silver 14.85:

PHYS 9.32 -0.63% to NAV [down]
PSLV 5.84 +1.90% to NAV [down]
CEF 10.88 -9.92% to NAV [down]
GTU 39.36 -5.57% to NAV [down]

ETF premiums were all lower.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no significant premium for gold, but in silver the premium ranges from 10-25 cents in Toronto, Singapore, and Zurich.

Futures Positioning

The COT report covered trading through July 14th, when gold closed at 1153.50 and silver 15.29.

The gold commercials increased their short exposure by 7.3k contracts while at the same time growing their long position by +11.4k contracts.  The commercial net (long – short) position looks bullish in that the net position spikes up when bottoms are near, but these things can sometimes take a while to play out.  We could easily see a further drop in gold to mark the actual low and this would still be a valid signal.  Managed money remains very short, unchanged over last week, another sign of a low.

In silver too the commercials remain at a relatively low short position, which is bullish, while Managed Money has covered some of their shorts but remains overall very heavily short.  These conditions have been in place for several weeks, but silver has yet to respond.  That’s why I tend to say that the COT reports are not necessarily good timing indicators, although historically they have tended to work pretty well.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

Everything is a sea of red.  No good news anywhere in the moving averages.  However looking at the 52 week change, you can see that gold has done the best of all the PM components.  During those 52 weeks, USD has climbed 21%, from 80.57 to its current level of 97.98.  How much of gold’s drop is currency?  As it turns out – all of it.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver COMEX.Silver -0.96% -29.72% falling falling falling falling ema9 on 2015-07-13 2015-07-17
Gold COMEX.Gold -1.05% -14.05% falling falling falling falling ema9 on 2015-06-30 2015-07-17
Platinum COMEX.Platinum -1.10% -33.40% falling falling falling falling ema9 on 2015-07-06 2015-07-17
Junior Miners GDXJ -4.21% -52.13% falling falling falling falling ema9 on 2015-06-22 2015-07-17
Senior Miners GDX -4.46% -42.45% falling falling falling falling ema9 on 2015-06-19 2015-07-17
Silver Miners SIL -4.64% -48.11% falling falling falling falling ma50 on 2015-06-23 2015-07-17

Summary

Gold, silver, copper, platinum, palladium, miners, oil – all of the commodities I track fell this week.  Gold actually held up better than most.  However, gold also made a new 5-year low, which suggests to me that there is danger ahead.  This tells me that, more likely than not, gold will break lower before it rallies significantly.

This week, the gold/silver ratio broke out to new highs, rising +1.76 to 76.46; once again, we have to go back to the 2008 crash to find similar levels for the gold/silver ratio; that’s bearish.  The GDX:$GOLD ratio continued to collapse, making a new low, which is bearish.  The GDXJ:GDX ratio resumed climbing this week, which is the only bullish note amongst all the ratios I watch.  Someone continues to buy those juniors.

The COT reports show a bullish positioning for gold, and a bullish positioning for silver – managed money is short, while the commercials have mostly covered.  The snap-back should be impressive, but we could easily make new lows before it happens.

Physical demand is at best neutral; in the west, ETF premiums were lower, GLD tonnage fell slightly, no backwardation at COMEX, and premiums in Shanghai are only mildly positive.

Commodities are all looking bad.  Dollar is rising, which is the likely cause for many of them.  Oil is continuing to correct and has yet to find its low.  None of this is good for PM.

No catalyst yet for gold, or for silver, or for most of the commodity complex.  Physical buying does not trump COMEX, and Shanghai doesn’t look particularly excited to buy at the moment.  Right now is a seasonally weak period for gold, improving somewhat in August.  Likely, new lows are ahead.  I hate to be a Gloomy Gus, but that’s what I see.

Note: If you’re reading this and are not yet a member of Peak Prosperity’s Gold & Silver Group, please consider joining it now. It’s where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the “Join Today” button.

Source: PM End of Week Market Commentary – 7/17/2015

LEAVE A REPLY

Please enter your comment!
Please enter your name here