PM Daily Market Commentary - 8/08/2013

davefairtex
By davefairtex on Fri, Aug 9, 2013 - 2:08am

Gold finished the day up 25.60 on good volume to 1312, with silver up 0.67 to 20.22.  The gold/silver ratio plummeted to 64.90 - through its 20 EMA and down to the 50 MA.  Silver today was just fantastic, a textbook case of silver leading gold up through resistance on good volume.  As a result, gold intraday just would not be denied, grinding upwards and breaking out repeatedly, triggering a number of short covering spikes starting at 1295 and continuing to the high of 1313.80.  Interestingly, both gold and silver stopped ascending right around their respective 50 day MAs.

The dollar made its contribution, by continuing down -0.27% to 81.08; the dollar's 20 EMA and 50 MA are dropping fairly forcefully - it will be interesting to see if 80.50 support will have any effect on the dollar's move down.  However today's PM move was not currency-driven; someone just decided they wanted to buy a bunch of futures.

In reaction to gold and silver, the miners went absolutely nuts.  Most miners were up on heavy volume, making up for Tuesday's drop and then some.  GDX was up +8.18% on massive volume.  Given the extremely poor sentiment in the miners, this was likely short covering.  During the long downtrend, we have seen many such short-covering days; following such a day usually comes several days of selling.  During this long miner downtrend, when someone makes 8% on a gold miner, they figure its probably time to cash it in before it vanishes.  That's the psychology of the long downtrend at work.  If the market changes behavior and miners continue up tomorrow and avoid the selling, I'd call that bullish because it is showing us that trader psychology has shifted.  This would demonstrate that rather than worrying about losing profits, traders are worried about missing out on the big move up.  We will have to see.

So when do you buy such a move?  We'll use GG as an example.  If you suspect through the rest of your analysis that gold (and GG) may have made a "reversal day" yesterday (the move of gold to a 1290-1295 trading range in asia - along with a silver breakout too - was my clue), you are looking for a "confirmation day" today.  Confirmation comes when the price of GG rises above yesterday's high: 25.68.  Rather than trying to buy at the low point, you wait and "buy the breakout" - letting the market show you that other people out there are eager to own the stock.  This would have worked out great today, but you would have either had to put in a buy-stop order at 25.69 or be watching intraday for your buy point for this to work.  You'd put your protective sell-stop somewhere below 24.87 once the buy stop was triggered.

Going forward, at this point silver appears to be decisive.  It is poised for a breakout, it rallied today on good volume, it has been consolidating for a few weeks in a relatively narrow range between 19 and 20.30.  It would not take much to push it up through the 50 day MA and if it does that, it could easily rally a dollar on that move - next resistance is at 21.30 and at 22.  All it would take is another day like today, where someone decides its time to buy a bunch of silver futures.  And when silver moves, gold will likely follow.  Of course it could also consolidate underneath its 50 MA too - or it could sell off.  But I think we do have a bit of upward momentum right now, helped along by the dropping dollar, some more positive news out of China, and that silver/gold ratio is looking quite positive.

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