PM Daily Market Commentary - 8/15/2013

By davefairtex on Thu, Aug 15, 2013 - 3:41pm

That was quite a day.

Gold finished the day up $30 on heavy volume to 1363.40, with silver up a massive $1.12 [5.18%] to 22.91 also on heavy volume.  The gold/silver ratio dropped to 59.51, the ratio plummeting yet again.  Silver blew through 22 resistance climbing a full dollar in under 30 minutes.  Gold followed in much the same timeframe.  Both moves resulted in large volume spikes as some fairly tough resistance levels were breached.

After the PM fireworks were largely over, the buck which had rallied all the way up to 82 earlier in the day suffered a big hit at 1315 EST - again, I didn't see any market-moving news, but I suspect there was something that caused it.  Regardless, its likely to be PM price supportive, the buck moving down -0.63% to 81.24 appearing to re-establish its downtrend.

The miners were up once again - GDX was up +6.03%, SIL +3.39%, and GDXJ +5.22%, with some individual names +10% and others only +1.5%.  Regardless, another up day for miners overall, on heavy volume again.  Most miners closed at or near their highs, a bullish sign.  Again.

A good question today is, "what caused the rally?"  My answer - I have no idea.  There was no news event that triggered this move that I could see.  After trading all day in asia and london around the 22 level, silver was hit for a 30 cent loss after a deluge of economic releases starting at 0830 EST, but then recovered slowly back to even.  Then someone started buying silver futures, starting at 12:47 EST, and continued buying them until the massive spike at 13:11 that resulted in 306 tons of (paper) silver changing hands in one minute, silver moving from 22.80 to 23.19 on that final spike.  From what I could tell, gold appeared to be reacting to silver's move.  Various news articles suggest it was some sort of "safe haven" move (if true, gold should outperform silver) but honestly, I think someone with some pretty deep pockets decided to "buy the breakout" as silver moved above its previous high for the day (21.16), and then every time there was a pause, they bought again, and this happened until silver hit 22.80 when the last batch of shorts gave up and the biggest spike occurred.

GIven the sheer amount of ink spilled in the "mainstream goldbug press" on the gold shortage, I have to say from the standpoint of the futures market, gold is acting as the poor stepchild to silver.  From what I can tell, someone decided to back up the truck on silver futures, starting 7 trading days ago.  Volume in silver has continued to escalate almost every day, likely a mixture of short covering and buying - possibly some traders moving from short to long.  You can see hints of this even further back, with silver's "up" days having significantly higher volume than its "down" days going back to July 31st.  When trying to read the tea leaves of the market, volume is a very important clue; in recent weeks silver has it, and except for today, gold doesn't.

Another clue: July 29-31 was the peak of the gold:silver ratio.  Isn't that an interesting coincidence?

The footprints of the big guys are there to read, if you are looking for them.  It is important to understand the fundamental picture as context, but don't neglect the price/volume data in the futures markets if you want to understand more about the forces acting on the futures markets in the daily timeframe.

So - silver closed near the high.  So did gold.  So did the miners.  Big volume for both, but with silver clearly the star.  That's all bullish price and volume action.  Prices are getting a bit extended - actually quite extended on the part of silver.  If we have a down day or two as might be expected after a big move, volume will be an important clue as to how far any correction might go.

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