PM Daily Market Commentary - 9/05/2013

davefairtex
By davefairtex on Fri, Sep 6, 2013 - 1:41am

Gold finished the day down $24.00 on heavy volume to 1367.30, with silver down $0.26 to 23.22 on moderate volume.  The gold/silver ratio fell to 58.88.  Gold was the big mover today; it was more or less range trading until 0830 EST when the Jobless Claims report was published.  At that point, gold started to move down, and it really sank after the ISM Non-MFG report at 10:00, which was quite positive.  Good news is bad news for gold.  Silver followed, although it seemed less affected, and bounced off 23 support.   Gold today closed below its 20 EMA for the first time in a month, while silver remained above its 20 EMA.

The dollar was up strongly today closing +0.48 [+0.58%] to 82.66 punching back above its 50 day MA.  It too appeared to be driven by the Jobless Claim and Non-MFG report releases, moving up strongly with each bit of good economic news.

Whatever support mining shares had yesterday just vanished today.  It wasn't total disaster, but the selling in the shares went on most of the day starting at the open and continuing through to the afternoon.  GDX was off -3.68% on heavy volume, and GDXJ was off -4.52% making a new cycle low, also on heavy volume.  It was a bad day for the miners.

The 10 year treasury yield jumped to a cycle high of 2.97%, and it is showing no signs of stopping.  It has moved from 1.6% to its current level since May 1, quite a substantial move, and its in a clear uptrend in all three timeframes.  This likely reflects concern over tapering, as well as currency flight from emerging markets nations.  I'd guess these same concerns are affecting gold as well.

Interestingly, the broad equity market is not responding to the good economic news as one might expect; SPX was up +2 [+0.12%] and showed only a very modest reaction to the economic news releases.

The correction in PM is in full swing now, with both miners and the metal moving down together with volume.  Intraday this shows up as a series of lower highs - each rally lower than the last.  Gold's 20 day EMA is about to turn down, reflecting the reality of this short term correction.

Could this turn into a more major trend change?  I'll start to worry if gold moves below its 50 day MA, which is currently at 1318.  I'd expect gold to find some support at 1350, which is not that far away.  That said, it is a long ways until the next Fed meeting, which is scheduled for September 17-18, and if the gold futures market worries about tapering for the next 9 trading days, it could get unpleasant.

During corrections, we look for signs of reversals.  We can muse about tapering, about all of these things that we imagine moves prices, but if the buyers show up, we stop the fretting, wait for confirmation, and then buy the dip.

3 Comments

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 761
T-bond yields and emerging markets

davefairtex wrote:

The 10 year treasury yield jumped to a cycle high of 2.97%, and it is showing no signs of stopping.  It has moved from 1.6% to its current level since May 1, quite a substantial move, and its in a clear uptrend in all three timeframes.  This likely reflects concern over tapering, as well as currency flight from emerging markets nations.  I'd guess these same concerns are affecting gold as well.

Thanks as always, Dave, for the very informative PM market commentary.  I have one question about the statement about currency flight from emerge markets in the above paragraph.  Typically, when I think currency flight, I think flight to safety and I would imagine that this normally leads to a fall in treasury yields.  That was the case in 2008 and 2011, if I recall correctly.  

I read a couple of articles on the rise in treasury yields yesterday, and one said that emerging market central banks, such as the Reserve Bank of India are selling treasuries and other reserve currency denominated assets as they anticipate Federal Reserve tapering and in order to try to prop up their own very devalued currencies (paragraphs 6-8).  OK, I get that.  

And I guess that the central bank selling is more influential than any potential buying of treasuries by savers in those emerging market nations who might be engaged in a flight to safety.  On the other hand, in his most recent Off the Cuff, Chris talks about hot money flows out of emerging markets, as the QE-triggered liquidity changes direction.  That to me suggest that as the liquidity flows out of emerging markets, US treasuries and other OECD gov't debt considered safe by most investors, should rise in price and fall in yield, all else equal.

Now, I personally don't consider T-bonds a flight to safety, but my impression is that a lot of people in the world still do, including my sister and brother-in-law.   So I guess  that one possibility is that potential bond buyers are starting to see that US and most other OECD government bonds may not be such a good investment because of the very high debt to GDP levels and the ultra-loose monetary policy.  So maybe that's a factor too.  Last week, Chris pointed out that foreign investors have become net sellers of treasuries, according to the Treasury International Capital report.  Without Chris pointing that out, I never would have known that such a report existed.  Just one of the many benefits of PP.

In that article, Chris suggests the net selling of US gov't debt by foreigners may be a game changer, so maybe  the reality about a flight to safety is changing, even if conventional wisdom on the subject hasn't yet changed.

I'd appreciate any insights you or anyone else has on the effect of the current emerging market crisis (which includes a currency crisis) on OECD debt instruments, whether in the short term or the long term.  

Thanks again!

Hugh

 
davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5423
nice spike in gold - 0830 EST

Gold had a super high volume spike this AM after the Nonfarm Payrolls number came out.  You can see the details of the report in the link below at econoday.com.  Reading them myself, I have no idea why these particular numbers caused this spike - perhaps it was the downward revision for last month.

http://mam.econoday.com/byshoweventfull.asp?fid=456027&cust=mam&year=2013&lid=0&prev=/byweek.asp#top

Amusingly, in the minute prior at 0829 there was a moderately impressive $10 spike down to a new cycle low to 1358, thus clearing out 1600 contracts worth of longs.  This was the setup for the big move up at 0830.

I haven't seen an 8500 contract $25 one-minute spike in gold for quite some time.  Perhaps since the crash back in April, although prices were going the other direction back then, as we might recall.  8500 contracts in 1 minute is huge - 26 tons of gold exposure (in futures contracts).  Lots and lots of shorts were cleared out.

Who is your daddy today?  JP Morgan.  JP Morgan is your daddy.  :-)

They call this, "bang 'em to buy 'em."  Others call it "manipulation" - especially if you were stopped out long at 1358!  Jesse Livermore described in his book about how he would sell 500 to hammer the price, and then buy 5000 for his real move up.  Jesse did his work back in the 1920s and 1930s.  I guess some techniques are timeless.

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davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5423
SPX - test of 50 MA & failure

Another thing I haven't seen in a while: a high volume selloff in the SPX in the morning. SPX tried moving above its 50 MA prior to market open. It couldn't hold the move. And then after the open, it was sold hard. This is (potentially) the third "lower high" in a row on the daily chart - a logical point for new shorts to come into the market. Shorts typically enter at the tops of (failed) rallies.

Of course, figuring out when a rally "fails" is always the tricky part. The more rallies that fail in a row, the higher your odds of success are. Likely that's because you'll have more company entering short on those interim lower peaks.

I have a small short position on SPX - entered yesterday. Not a recommendation.

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