PM Daily Market Commentary - 7/24/2013

davefairtex
By davefairtex on Wed, Jul 24, 2013 - 3:09am

Gold finished the day up $14 on reasonable volume to 1348, while silver was flat.  Gold/silver ratio moved up to 65.84, and gold closed above its 50 day moving average, a bullish sign likely to bring in more big money.  While most of the day gold was down modestly in asia and europe, it took off in the afternoon in America, and closed at its day high.

At 14:17 EST something lit a small fire under gold, silver, and the mining stocks, and they all were well bid into the close.  But the form of the $10 advance was unusual.  When gold broke 1300 in Japan, it happened over the course of two minutes - bang, gold is now at 1320.  But this advance today was a slow and mostly steady move up, with a series of small volume spikes as stops were triggered.  It doesn't appear this was a stop-running or price-moving game by a big player, it feels more like someone really just wanted to either buy more gold or to exit their short position at that moment, and it appears that they were actually trying hard NOT to move the price too dramatically.  I have to interpret that as positive.  Moving up steadily into the teeth of 1350 resistance is great to see if you're a bull.  [Resistance isn't just a line I draw, it happens because price action tells us there were a lot of people who bought around 1350, endured big losses in the move down to 1180, and vowed to sell as soon as they "got back to even."  Anyone ever feel like that?]

Mining shares had another great day, with GDX (gold mining shares ETF) up 3.3%, with excellent volume in most miners that I track.  Its always important to make sure that high volume accompanies the big moves up (or down) for the price signal to be meaningful.  Continued high volume is a good sign, it affirms the rally and says money is flowing into the shares.

From a strategy point of view, its hard to get on board in a low risk way when the shares gap up and keep on moving up.  This really has to be no fun if you're a short - dips are few, things just keep moving higher.  Some of the laggard juniors I track had 8% days, another one BAA had a 16% day.  High reward doesn't come without high risk, however.  They drop that much on the way down too, if not more.

GDX:GLD is a ratio that shows how mining shares moves relative to the metal.  The following ratio chart shows how gold senior shares dropped faster than gold on the way down (which is why miners were off 50% while gold was off 30%), and now mining shares are rising faster than gold on the way up.  How much faster?  Ratio was 0.19 at the bottom, and is now 0.219 - about 15%; so if gold is up 12% off the bottom (roughly 1200) then miners are up 12% + 15% = 27% off their bottom.  Of course, nobody picks the exact bottom - this is just a math exercise to convey a sense.  GDX:GLD should be climbing in any rally, and since it is, this helps to confirm the authenticity of the rebound.

Gold Trend: short term UP, medium turn DOWN, long term DOWN

Silver Trend: short term UP, medium term DOWN, long term DOWN

Positives:

  • gold breaking the 50 MA was a significant milestone, should bring in more money
  • steady accumulation in gold intraday - visible signs of short covering or buying
  • closing at the high indicates a feeling that "traders want to take gold home" and/or its risky to be short
  • continued dollar weakness should aid gold
  • GDX:GLD ratio increasing - miners are leading gold
  • short term trend is up

Negatives:

  • resistance at 1350 looks tough
  • medium & long term, trend is still down
  • gold/silver ratio still moving up; silver still lagging overall, silver remains below its 50 MA [21.02]

Outcomes:

1) 20% clean move through 1350 to at least 1400 without consolidation

2) 20% move through 1350 to 1400, retrace to 50 day moving average (now acting as support)

2) 40% consolidation, trading range 1310-1350, outcome unsure

3) 20% drop back below 1300, shorts resume control

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