PM End of Week Market Commentary - 8/31/2013
Gold finished Friday down $10.60 on average volume to 1396.20, with silver down $0.35 to 23.56 also on average volume. The gold/silver ratio rose to 59.26. It appears that the correction from seriously overbought silver is proceeding apace, although the lack of particularly strong volume on the down-days I interpret as a bullish sign overall - that the uptrend remains in place even though PM prices are now correcting.
The three day correction in gold and silver has relieved the overbought condition in both metals. Looking at the charts, gold 1380 and gold 1350 should act as good support, and I see silver 23 as good support also. Those are not "red lines" or anything, just prices at which traders will be more likely to buy the dip.
For the week gold was down $0.10 [-0.11%] while silver was off $0.49 [-2.02%].
The dollar this week rebounded, up 0.69 [0.85%] to 82.10. The buck appears to have broken out of its medium term downtrend. It is not clear if the dollar will move dramatically higher, but as it has been in a rough trading range with 80.50 on the bottom ane 85 on the top, it is not unthinkable that another move towards the top of its trading range is in store. If this occurs, it is likely to encourage further moves lower in PM. It seems that the euro weakness is the reason for the strength in the buck.
The gold/silver ratio has rebounded this week, in line with the correction currently under way in PM. Gold is suffering less during the correction than silver, but a rising GSR is a bearish sign.
Mining shares were down on Friday; GDX -1.44%, and GDXJ -1.71%, with the juniors underperforming. Volume was heavy in GDX, although less so than the past three days. Declining volume on corrections is generally a positive thing, although mining shares closed at the lower end of the days trading range which being the end of the week, suggests traders don't want to hold risk over the weekend - perhaps understandable in the middle of a correction given Monday is a holiday.
Intraday it appears that traders really do want to buy miners, but any weakness in PM tends to short-circuit any upward momentum that develops.
Physical Supply Indicators
* Gold premiums in Shanghai were up this week $0.51 to $4.89.
* The GLD ETF gained +0.90 tons of gold this week.
* The COMEX lost -2.08 tons of registered gold this week, and is now down to 22.58 tons.
* Premium/Discount to NAV: Based on 16:00 EST Friday prices, gold 1394.50 and silver 23.50, CEF 16.203 -2.07%, PHYS 11.81 +1.43%, PSLV 9.57 +4.26%. Premiums are up across the board, especially PSLV.
It would appear that western ETF buyers are back, especially in silver; CEF is lagging somewhat. Gold demand in China is still positive even with $1400 gold, but GLD ETF is no longer losing gold. COMEX registered gold is still dropping; the supply situation, especially at COMEX still appears constrained. Given India's 10% tax and a virtual halt on gold imports, this has to be interpreted as generally positive for gold prices.
The COT report for gold shows some big changes; Managed Money closed 20k short gold contracts (38% of the total Managed Money short) just this week, while Producers decreased longs and increased shorts by a more sedate 8k contracts net total. Smart money continues to take profits and managed money shorts continue fleeing. To provide context: Managed Money had 81k short contracts on July 12; now they only have 36k remaining.
Overall, positioning is still bullish, but growing steadily less so. As the weeks pass fewer managed money shorts remain to cover, and at the moment it does not seem that Managed Money in either gold or silver wants to go long. The short squeeze isn't quite over yet, but it is getting lower on fuel. At some point not far in the future, the shorts will largely be gone and additional buying from speculative money will need to come in to push prices higher if the uptrend in gold is to be maintained.
Moving Average Trends [20 EMA, 50 MA, 200 MA]
Gold: short term UP, medium term UP, long term DOWN
Silver: short term UP, medium term UP, long term DOWN
Gold this week moved from medium-term neutral to up. Both gold and silver prices remain above both the 50 MA and the 20 EMA, which is bullish.
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