PM Daily Market Commentary - 7/26/2013

davefairtex
By davefairtex on Fri, Jul 26, 2013 - 12:37am

Gold finished the day up $11 on good volume to 1333, while silver was up $0.03 to 20.18, once again underperforming.  [I don't have it in for silver - I'm just reporting the facts!]  Gold/silver ratio moved up again to 66.06.  Gold's move closed above the 50 day moving average.  After the close, gold continued up - as of this moment its trading at 1340 in early trading in asia.

Prior to the NY open, gold had moved as low as $1308 in trading in London close to the time of the London AM fix (1030 GMT, or 0630 EST) - it has a habit of putting in daily lows right around that time.  Contributing to the recovery was a big move down in the USD (-0.68%) that started about the same time as gold rebounded, the dollar closing at 81.86.  It appears the dollar is again acting as a strong influence on gold.

By moving down to 1310 and rebounding, gold has technically "shown support" at the 1310 level, which means that when the price moved down to 1310, buyers appeared and caused gold to rally.  This places gold in a modest trading range of 1310-1350, but as I said before I believe the bias is up based at least partially on the dollar's continued move down.  As some have said - "gold didn't go up, its the dollar that went down."  Gold up 0.83%, dollar down 0.63%.  This behavior has been happening for about a month - since about June 8th.  Buck has dropped about 4% in the time gold has risen about 11%.  You can see the ratio isn't 1:1.  Intraday, sometimes the influence is even more obvious.  A gold rally will start within minutes of the time the dollar starts to decline.  This linkage isn't always present between the USD and gold, but it appears to be a factor right now.

Since the Fed isn't printing any more or less than before, this likely isn't a story about "renewed dollar debasement" - its more likely about what other currencies are doing.

 

After yesterday's pounding, gold stocks recovered some of their losses, although the ratio GDX:GLD was basically flat - indicating the miner's recovery was due entirely to the rebound in gold.  As we have seen before, sometimes miners rally a lot more strongly than gold does, but that's not the case right now.  GDX remained above its 50 day moving average - a bit better than gold, which is a positive sign.  If gold moves through 1350, gold miners will likely go nuts.  If your thesis is that one of the many fundamental supports gold has (including a downtrending USD) will push it through 1350 eventually, a gold miner will likely give you a better ROI than gold itself.

And I don't mean to be favoring gold miners.  Silver miners are also looking decent too.  An example: SLW (I have no current position, but I'm considering a buy) is a silver mining stock followed by a lot of the big funds, which means that when they decide to be interested, it moves like a rocketship.  It is a funny beast - SLW has no mines, but it has contracted to buy silver from other companies for $3.50 per ounce.  Its called a royalty company.  Anyhow, it is forming a nice consolidation pattern above its gap up on Monday.  Here, take a look:

The nice thing about SLW is, because it is a royalty company, it isn't exposed to mine cost inflation, although stoppages at the various mines it has royalty agreements with will reflect on its income.  If your thesis is that silver will (eventually) outperform gold, SLW is a decent bet.  Based on its past performance, those big hedge funds load up on SLW during bull cycles, so you should have plenty of help in moving the share price higher once the trend is firmly established.  You can see that SLW's 50 day moving average (blue line) is going flat now, and will start to turn up assuming SLW price remains above the 50.

All that said, any miner buys should have stops employed, because a prolonged dollar rally will likely encourage the shorts, causing PM and the miners to move down again with vigor, and its probably better to lose 3% than to have your position turn that ugly red color and be down 20%.  Anytime you are stopped out, you can always buy it back again when the charts improve.

Gold Trend: short term (20 EMA) UP, medium term (50 MA) DOWN, long term (200 MA) DOWN

Silver Trend: short term (20 EMA) UP, medium term (50 MA) DOWN, long term (200 MA) DOWN

3 Comments

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3099
JPMorgan To Exit Physical Commodity Business

Just in over at Zero Hedge:

JPMorgan To Exit Physical Commodity Business

After weeks of emptying of their Gold vaults and making headlines in recent days over their oligolopolization of commodity warehousing, it seems the threat of a probe has excited Blythe and her colleagues to dump while the dumping is good:

  • JP. MORGAN TO EXPLORE STRATEGIC ALTERNATIVES FOR ITS PHYSICAL COMMODITIES BUSINESS

Options include sale, spin-off, or strategic partnership as they re-confirm that they are "fully committed to traditional banking activities," as they look to drop the holdings of commodities assets and the physical trading business. 

I'll need to digest this more, but it seems this could have important implications for the precious metals. Could this signal and end (or at least a reduction) in JPM's ability to influence the paper prices of gold & silver?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5455
JPM leaving commodities: a good first step

Sounds like JPM is trying to sell the house before the cops dig the bodies up.  Call me cynical, but I'm kind of wondering what got the DOJ off its collective butts to investigate bankers.  Again, my viewpoint is not that the banks serve the Fed - rather, the banks serve themselves, and exaggerate the trends in both directions depending on what position they hold, while the Fed, the CFTC, and the SEC pretend not to notice.

We all have our own conspiracy theories, I guess.

Meanwhile JPM has some more time to milk the market.  Hopefully since they're long now, they'll manipulate it upwards before they bail out of the business.

Perhaps this is a quiet backroom quid pro quo deal brokered by the Fed and agreed to by the DOJ.  They won't pursue JPM if JPM dumps the offending business.  No egregious fraud is revealed, JPM pockets years of profits from their operations, the trading desk all gets big bonuses, and everyone goes home happy.

At least this beats: "we promise not to do this anymore."

They ALL need to be out of the business of ALL trading.  Unless they don't want to take deposits, of course.

 

Denny Johnson's picture
Denny Johnson
Status: Gold Member (Offline)
Joined: Aug 13 2008
Posts: 348
What will they be doing differently?
davefairtex wrote:

They ALL need to be out of the business of ALL trading.  Unless they don't want to take deposits, of course.

Agreed, but, from the JPM release in the ZH article:

Following the internal review, J.P. Morgan has also reaffirmed that it will remain fully committed to its traditional banking activities in the commodity markets, including financial derivatives and the vaulting and trading of precious metals. The firm will continue to make markets, provide liquidity and offer advice to global companies and institutions that have, for years, relied on J.P. Morgan's global risk management expertise.

What is it that they will be doing differently?

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