PM Daily Market Commentary - 9/09/2013

By davefairtex on Tue, Sep 10, 2013 - 1:49am

Gold dropped $4.10 on light volume to 1386.90, with silver down $0.16 to 23.74 also on light volume.  The gold/silver ratio rose to 58.43.  It was not a particularly eventful day.  Both gold and silver remain above their 20 EMAs, but both are in a "descending triangle" formation which relatively often does not have a happy ending.  A descending triangle occurs when a series of lower highs form against a support level.  Bounces get lower and lower until either a breakout occurs, or support fails.

The dollar was down strongly today closing -0.37 [-0.44%] to 81.68 dropping back below its 50 day MA.  It appears the dollar's rally to 82.75 was as far up as we're going to get.  The move down in the buck should have been supportive of PM prices, but it didn't seem to help at all today.

Gold miners had a modest down day, with GDX off -1.29% and GDXJ off -0.25%.  While the GDX chart does not look great, the GDXJ:GDX ratio chart is still continuing to move up, which is a generally bullish sign.  The junior miner group is generally seen as more speculative, and it tends to really crash whenever miners as a group sell off.  So it would seem unlikely that GDXJ would be performing so well (relatively speaking) if a renewed bear market in PM equities was in the offing.

I continue to look for evidence of an end to the current correction, but nothing so far.

There was one interesting article I saw that is more in the 3-6 month timeframe - allegedly JPM was advising their customers to increase exposure to commodities and also PM:

Now the initial response from most of us might be a knee-jerk "don't believe anything these manipulative bastards say, this means they're gonna pull the rug out tomorrow!" which is quite an understandable response.  However.  It is my belief the big banks lie egregiously only at the ends of the trend, and not during the middle.

I think this particular article was interesting because I believe it represents the start of "phase 2" in a typical market move.  In phase 1, near the dead lows, a hypothetical Big Bank has just advised all their customers to sell, while they start to slowly accumulate; the public is largely selling in disgust after a long move down and is encouraged to sell more by Big Bank's pronoucement.  This is one spot where Big Bank lies, because they need volume from the public in order to go long without moving prices.

Once a large enough position has been accumulated and prices have started to move up, Big Bank starts to suggest a change in position in Phase 2.  Big Bank buys more, and so price moves up higher; some other buyers come in too.  In Phase 3 Big Bank then gets everyone excited, suggests overweight positions to their clients, comes up with exciting price targets (gold $1750?) that gets everyone greedy, many more people buy.  In Phase 4, Big Bank raises price targets to higher levels (gold $2500!), dragging in the last batch of reluctant people to whom Big Bank distributes their big positions right at the top.  This is the other spot where Big Bank lies because without Big Bank buying and once the very last reluctant buyer is finally convinced that you'd better buy now or be left out forever, prices peak (housing 2006, gold 2011, dotcom 2000) and then start to fall off, Big Bank starts selling short every rally, which eventually leads to a bear market - and the cycle begins anew.

Big Bank doesn't create the cycle.  The cycle is based on human psychology.  But Big Bank definitely accentuates the movement, takes advantage of it, and tries to manipulate people's fear/greed emotions at both ends of the cycle to their own advantage.  It happens in every market, not just gold.

Note: I'm not suggesting prices for gold won't hit $2500 - or higher someday.  It is just that I believe Big Bank talks about those price levels only in order to move the market the way they want it to go.  All markets move in cycles, and sometimes you can get a clue as to what part of the cycle you are in by watching Big Bank and what they say.

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