PM Daily Market Commentary - 8/20/2013

By davefairtex on Wed, Aug 21, 2013 - 1:09am

Gold finished the day up 5.40 on moderate volume to 1370.40, with silver down -0.14 to 23.00 on moderately heavy volume  The gold/silver ratio rose to 59.57 for the first time in weeks.  Earlier in the trading day in asia, silver suffered an 80 cent moderately high volume selloff that was mostly bought.  It tried rallying further, but could make no progress and eventually closed slightly down.  This ended up printing a relatively high volume hammer candle, which I interpret as a bullish sign - it indicates that even after a long rally, there are still buyers who will come in and buy silver when it trades at a discount.  Support for silver is now established at 22.28

Today was notable also because it was the first appearance of serious shorting activity in PM in quite a while.  This was not a "raid" in the classic sense of the April crash occurring Monday morning in Japan, but it was definitely an attempt by the shorts to trigger a larger correction in the metal.  After a long move up, markets are sometimes vulnerable to this sort of thing because traders have sell-stops in place in order not to lose the large gains they have made, and dip-buyers are often reluctant to chase prices higher when the market has gone up for too long.

Gold was dragged along for the ride through all of this, but looked stronger overall than silver - it dropped less during the selloff, and closed more strongly at end of day

The dollar sold off most of the day continuing its downtrend, making a new cycle low at 80.77, eventually closing down -0.42%.  The fall in the buck may have helped PM's recovery, but the initial move down in silver was not currency related.  Support for the buck is at 80.50.

Copper and oil sold off around the same timeframe as silver, but the move was much less dramatic.

Mining shares rallied on heavy volume.  GDX was up +3.76%, GDXJ +2.81%.  It appears the mining shares are setting up for a breakout within the next day or two; some names tried to break out today but were unable to do so.  The positive move by the mining shares today is one reason I interpret silver's rebound as being potentially quite bullish, even though silver closed down for the day.  If silver can move above today's high of 23.31 confirming the bullish hammer candle, the mining shares will most likely break out.  If silver can arrange to do this before market open in NY, mining shares may well gap up at the open.

If silver does not confirm, mining shares will likely suffer.

Some might interpret silver's move today as "manipulation".  In the sense that there are both longs and shorts in the marketplace, this was an attempt by the short side to move prices.  The long side has been pretty darned successful moving prices for the past few weeks.  This short side attempt failed, because the balance of futures supply and demand right now appears to be stronger on the demand side at this moment.  In other words, long side manipulators are stronger than short side manipulators.  Or if we remove the word "manipulators" from the discussion, we could just end up saying that the dip was bought and seize the opportunity to avoid the whole emotional perpetrator/victim discussion that might distract us from watching the prices and the volume.

Indeed, without the attempt (that failed) to move prices lower, it is unlikely mining shares would have rallied while silver dropped 14 cents on the day, so one could look on this as a gift rather than as an unfortunate occurrance.

Just a thought anyway.

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