Gold and Silver Update: Another Leg Down?

down-fall-smashWhile the leveraged longs in the futures markets may be selling, the unleveraged longs are buying – we can see this behavior in the increasing premiums and the rise in GLD tonnage.  At some point, we’ll run out of leveraged players and gold will snap back.
If the buck keeps rallying, there will probably be more long liquidation at the COMEX, the commercials will push prices lower – perhaps we could even get another significant leg down, depending on how badly the managed money panics –  and premiums will likely rise further.

 

From Peak Prosperity:

On Friday gold fell -7.30 [-0.58%] to 1252.10 on moderately heavy volume, while silver dropped -0.09 [-0.51%] to 17.43 on moderately heavy volume also.   The rising dollar [+0.49%] approximated the loss in PM; today’s move was mostly just a currency effect.

On the week, gold fell -6.50 [-0.52%], silver dropped -0.15 [-0.85%], GDX was down -0.04%, and GDXJ fell -0.03%.    Platinum dropped -3.68%, palladium fell -2.86%, and copper moved down -2.84%. 

SilverMapleSDBullionThis week, gold was unable to confirm last week’s high wave candle, and instead slowly moved lower, heading for a retest of the 1243 low.  Certainly the strongly rising dollar acted to pressure gold lower, along with the market’s assessment of an increasing likelihood of a rate rise this December.  As to why the prospects of a single quarter-point rise results in such a move in the buck, that’s one of those unfathomable things about the market.  Certainly a 25 basis point increase means a direct transfer from the Fed to the banks via increased payments on “Excess Reserves” – about 4.65 billion dollars each year (1.86 trillion in excess reserves x 0.25%).  That’s cash money, paid to our friendly bankers, for taking no risk at all.  No wonder financials rally every time rate-rise prospects increase.

If the previous low of 1243 fails, the next stop is probably 1200.

December rate-increase chances rose to 64%, according to CME futures.

This week, open interest fell by -13,736 contracts – 42 tons of paper gold went away.

Much like gold, silver spent the week slowly moving lower, apparently headed for a retest of the recent low at 17.11 and/or the 200 MA.  Some of silver’s weakness could be attributed to the four-day rout in copper prices, and perhaps the rest is about the dollar rally.  Rising rate prospects, dropping copper, and a rising dollar is not an environment which encourages silver buyers to appear.  At least not at the COMEX anyway.  If the 200 MA fails, next stop is probably a little below 16.

Miners

The miners did a little better than the metal, managing to rise briefly back above the 200 MA, but even that rally ended up printing a bearish shooting star, which was confirmed on Friday.  Candle code gives that a 31-50% chance of marking a “top” (i.e. continuing to move lower).  Unlike the metals, GDX made a new low this week.  It appears as though momentum for the miners continues to be down.

The USD

The USD continued moving higher this week, climbing +1.34 to 97.96.  Partly this appears to be rate-rise concerns, and partly its about the plunging Euro (and Pound), which lost -2.06% and -2.09% respectively.  Pound is down to 121.78, while the Euro has dropped to 109.71.  Its interesting to read the news this week about “hard BRExit” and how horribly the pound is doing – but nobody talks about the Euro dropping at the same rate.  If you weren’t looking at prices, you might think that the EU was winning a “battle of the currencies.”  Last week the pound dropped vs the Euro, but this week it was flat.

You have to remember that the bankers in London are desperate to retain access to the EU; if the price is both continued unlimited immigration for the UK (and the spreading of a few false narratives), well its all in a good cause, right?

Gold was actually up +2.39% in EUR, and up +2.42% in GBP.  In fact, when measured in GBP, gold has tracked sideways ever since the strong rally after BRExit.  Check out the following chart:

100 oz RCM Silver Bars at the Lowest Price Online
Just 49 Cents/oz Over Spot ANY QTY 
100-oz-rcm-silver-bar

 

Of course in USD terms, gold has been dropping, and its likely if the dollar continues its mad rush higher, gold will continue to fall, egged on by our friendly commercials at the COMEX.

US Equities/SPX

The US equity market fell -20.76 [-0.96%] to 2132.98.

The technical picture for SPX is starting to break down, from what I can see.  Even though it printed a reversal bar on Thursday (candle code gives it a 25-40% chance of marking a low), on Friday we see a failed rally – it wasn’t quite a shooting star (the upper shadow wasn’t long enough) but it still looks pretty disagreeable.  SPX remains below its 9 EMA, and it feels to me that price is heading lower.  Oh, and something else – the support break on Thursday puts in place a pattern of “lower highs and lower lows” – with Thursday being the lower-low.   That’s probably the most important outcome from the week.  I guess I buried the lead.  VIX rose +2.64 to 16.12.

The sector map shows that utilities and REITs managed to recover somewhat, but they remain clearly in bearish territory – below all three moving averages.  These are sectors you’d expect to do well during a correction.  Sickcare looks especially ill.  So to speak.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 1.34% 9.58% falling falling rising falling ema9 on 2016-10-14 2016-10-14
REIT RWR 1.02% 5.85% falling falling rising falling ma200 on 2016-10-05 2016-10-14
Cons Staples XLP 0.08% 8.52% falling falling rising falling ma200 on 2016-10-04 2016-10-14
Gold Miners GDX -0.04% 37.28% falling falling rising falling ma200 on 2016-10-14 2016-10-14
Technology XLK -0.52% 14.78% falling rising rising falling ma50 on 2016-10-14 2016-10-14
Industrials XLI -0.57% 10.17% falling falling rising falling ema9 on 2016-10-07 2016-10-14
Financials XLF -1.02% -15.62% falling falling falling falling ema9 on 2016-10-11 2016-10-14
Cons Discretionary XLY -1.07% 2.50% falling falling rising falling ema9 on 2016-10-11 2016-10-14
Energy XLE -1.15% 3.27% falling rising rising rising ema9 on 2016-10-13 2016-10-14
Materials XLB -1.15% 6.79% falling falling rising falling ema9 on 2016-10-07 2016-10-14
Homebuilders XHB -1.76% -7.30% falling falling falling falling ma200 on 2016-10-11 2016-10-14
Healthcare XLV -3.13% 1.89% falling falling falling falling ma200 on 2016-10-12 2016-10-14
Telecom XTL -3.22% 13.78% falling rising rising falling ma50 on 2016-10-13 2016-10-14

Gold in Other Currencies

Gold rose in most currencies this week; this suggests that gold’s drop in USD was entirely a currency effect.

Rates & Commodities

TLT fell -1.74% this week, dropping for the third week in a row.  TLT made a new low, closing below its 200 MA for the first time in 10 months.  TLT has broken support and appears to have entered a more serious downtrend.

JNK fell -0.27% on the week, making a new high and then retreating, printing a swing high.  JNK did manage to close the week above its 9 EMA – but only by a penny.  JNK is hinting at risk off

CRB rallied +0.61%; commodities overall were a mixed bag, with agriculture performing best.  CRB remains above all 3 moving averages, and is slowly moving back into a longer term uptrend.

Crude rallied moved higher again, up +0.81 [+1.63%] to 50.36.  Crude tested the previous high at 51.67 but was unable to close above it.  The petroleum status report this week was bearish, showing a 4.9 million barrel inventory build, but all oil did was execute a $1 head-fake lower before reversing course and closing up for the day.   A rally on a bearish inventory build is bullish behavior.  Crude still needs to break above 51.67 to keep that upside momentum going.

Physical Supply Indicators

* The Shanghai Au9999 contract is trading at a +4.68 premium to COMEX.

* The GLD ETF tonnage on hand rose +6.53 tons, with 965 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1252.60 and silver of 17.45.

PHYS 10.38 +0.67% to NAV [up]
 PSLV 6.71 +0.90% to NAV [up]
 CEF 13.06 -3.89% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for either gold or silver.

* Big bar premiums are higher for gold [2.09% for 100 oz bars in NYC], lower for silver [+2.97% for 1000 oz bars in NYC ], and unchanged for silver eagles at +13.9% [LA].

Based on premium increases for the ETFs and at Shanghai, it appears as though physical buyers are buying the dip – even in the West, which is a change in behavior.  If gold takes another leg down due to selling pressure at COMEX, I’d guess the premiums will increase.

Futures Positioning

COT report covers trading up through Tuesday October 11th.  This covers the three down days following the large drop last week.

Gold commercials covered -50k shorts, while managed money sold -42k longs and added +10k shorts.  This marks the second week of large changes in the COT report positions.  Managed money has bailed out of almost 100k longs over the past few weeks, while the commercials have covered around 100k shorts – more than 300 tons of paper gold.  To get back to “reversal territory” the commercials still have to close out perhaps 100k more shorts.  I’m not going to say that requires another $70 drop for gold – but certainly that sort of drop would probably do the trick.

Silver commercials covered -10k shorts, while managed money sold -16k longs and added +2.6k shorts.  This week managed money bailed out of their longs wholesale.  Its hard to know where reversal territory is for silver.  Another two weeks of this and we’ll probably be close.

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

There was almost no change this week; the miners have stopped leading lower, which is a positive, but more or less things are moving sideways, with half the items still below their 200 MA.   Platinum continues to be beaten like the proverbial rented mule – it is actually down on the year.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ -0.03% 64.34% falling falling rising falling ema9 on 2016-09-29 2016-10-14
Senior Miners GDX -0.04% 37.28% falling falling rising falling ma200 on 2016-10-14 2016-10-14
Gold GC.V -0.52% 5.84% falling falling rising falling ma200 on 2016-10-11 2016-10-14
Silver SI.V -0.85% 8.10% falling falling rising falling ema9 on 2016-09-27 2016-10-14
Silver Miners SIL -1.68% 61.64% falling falling rising falling ema9 on 2016-09-29 2016-10-14
Platinum PL.V -3.68% -6.83% falling falling rising falling ma200 on 2016-10-04 2016-10-14

Gold Manipulation Report

There were no meaningful after-hours spikes for PM this week.

Summary

While last week saw a massive drop, this week was more of a slow move downhill.  Given the COT report showing massive short-covering by the commercials, I’d guess all the short-covering is what kept gold from collapsing further in price.  Last week’s drop seemed to snap the morale of managed money; this week they bailed out wholesale right near the lows, selling even more this week than they sold last week during the big decline.

The gold/silver ratio was virtually unchanged, falling -0.06 to 71.99. The GDX:$GOLD ratio was unchanged and remains bearish, and the GDXJ:GDX ratio was also unchanged and is somewhat bearish.  No change in ratios – they remain bearish.

The gold COT shows the commercials heavily covering short, while managed money engaged in more long liquidation.  Silver showed a similar pattern.

Gold and silver big bar shortage indicators show some signs of shortage; Shanghai premiums rose, and the ETF premiums increased even though price fell – unusual behavior for Western gold buyers, and GLD tonnage increased for a second straight week.

While the leveraged longs in the futures markets may be selling, the unleveraged longs are buying – we can see this behavior in the increasing premiums and the rise in GLD tonnage.  At some point, we’ll run out of leveraged players and gold will snap back.  When that will happen – I can’t say.

If the buck keeps rallying, there will probably be more long liquidation at the COMEX, the commercials will push prices lower – perhaps we could even get another significant leg down, depending on how badly the managed money panics –  and premiums will likely rise further.

Until the dollar rally shows signs of slowing down, it is probably a good idea to continue being careful out there.