PM Daily Market Commentary - 9/10/2013

davefairtex
By davefairtex on Wed, Sep 11, 2013 - 12:00am

Gold was down $23.60 on average volume to 1363.30, with silver down $0.73 to 23.01 also on average volume.  The gold/silver ratio rose to 59.25.  Both gold and silver started being sold in asia, and were sold all day long in Europe and America.  There was a bounce late morning in NY trading, but it was anemic at best.  There appears to be support at gold 1350-1360 and silver 23, but traders are definitely not chasing prices higher.  Silver and gold right now are at support.  If these levels crack, the move down could get ugly.  At the same time, a big brisk downward move might lead to the reversal I have been waiting for...all we can do is watch.

The dollar was flat today closing +0.01 [+0.01%] to 81.83.  The buck is in "no-mans land" between a rising 200 MA and a falling 50 MA, which illustrates pretty well the current lack of trend in the buck.  Perhaps it too is awaiting the taper/no-taper outcome next Wednesday after the FOMC meeting.

Gold miners were down hard today - they gapped down at the open through their support level, and sold off all day long on high volume, with GDX off -3.91%.    GDX closed the day below its 50 day MA, and its 20 day EMA is turning down.  This is a distinctly bearish sign.  If miners don't find support soon, they could easily be re-testing their August lows.  Some of the senior miners had terrible days: Goldcorp (GG) was off -6.42% on massive volume, after breaking its "descending triangle" pattern.  Juniors didn't perform as badly (relatively speaking) - while GDXJ was off -4.33%, it has not broken support yet, and GDXJ remains well above its 50 day MA.  This is a bullish sign; normally I'd expect GDXJ to be hammered much harder on a day like today.  However, that is not enough to get me to buy at this moment.

One cause of trouble for miners may be the 3-day rally in SPX.  After the high volume reversal day on Friday (perhaps you remember, it was the day I talked about a big selloff in the morning), its been up on good volume ever since.  If I had to guess, money is rotating out of miners and into the other sectors in the equity market that are rallying.

So to sum it up - no reversal sign in PM, no reversal sign in the miners.  For gold to break its pattern of lower highs, it has to close above 1395, preferably 1400.  We're approaching oversold conditions in the mining shares, but we aren't quite there yet.

2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5417
trader dan, miner hedging, GOFO, and the backfire effect

I know the whole GOFO topic is controversial with some people here.

My theory: an increase in miner hedging caused the gold lease rate to rise, and thus GOFO to drop below zero given low LIBOR rates.  To that end, I bring you Dan Norcini who has evidence about miners who are engaging in modest hedging programs.

http://traderdannorcini.blogspot.com/2013/09/miners-hedging-back-in-news.html

So now we know for sure that hedging is actually occurring - and it wasn't before.  Does it have the effect I claim?  I don't know for certain.  It's a theory!  I'd love for someone actually in the industry to either confirm or to set me straight on how things really work, but short of that - all I can do is collect evidence, and see how the prices move in relation to activity to try and confirm one way or the other.  According to my theory, if either LIBOR moves up, or the hedging comes off, negative GOFO should disappear.  All we can do is watch and see what happens.

Now then, regarding the controversy a few weeks back, that Backfire Effect article link posted by Time2Help was really helpful to me.  Now I can see that assaulting someone's article of faith with a new theory only makes their resolve stronger.

I am reminded by the concept brought out by the famous scientist Max Planck: "Truth never triumphs—its opponents just die out.  Science advances one funeral at a time."

That backfire effect again.  When confronted with new facts, even scientists who are supposedly most amenable to things being proven correct using facts suffer from this effect as well.  They have to die before science advances!  Clearly it is a rare man who will allow his pet theory to be questioned due to new information, once he is bought in.  That includes me too, of course!

This whole condition of our mind's structure just happens to be the trader's greatest enemy.  When confronted with "the facts" of a bear market, many people just get more and more stridently bullish, and more and more angry at "the manipulation" that is causing them to lose money.  The test I use is if people can notice and accept "manipulation" to the upside as well.  If they can't - that makes me think they are a victim of the Backfire Effect, which ultimately will not serve them well as a trader - nor will it serve me, if I am considering following their advice.

Any tool we can find that lets us fight this bit of human nature that makes us as a species so resistant to changing our views is something to be cherished and nurtured.  Indeed, the Backfire Effect is most likely the single reason why this site and all it says is so consistently dismissed by the mainstream. How long did it take any of us to accept Peak Oil?  Perhaps we can also be more understanding about Bernanke and the Fed and their seeming inability to understand and/or properly address the debt bubble pop.

If we are able to look at the world around us and see it as it really is in spite of our own ideas we've held tightly to for a year, a decade or a lifetime, that is a priceless gift that few can do with any regularity.  Remember Max Planck and his scientists - who are likely our most brilliant people - and who also cannot see the world for what it really is if it runs counter to their own belief systems.

Note: I'm not suggesting my theory is correct!  Just - now I understand people (including myself) a little better, that's all.  The resistance - sometimes even violent resistance - is easier for me to understand and put in perspective.

 

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 761
Very cool, Dave.

Thanks again for the updates and the Max Planck quote. Looks like those of us, like me, who have come to the precious metals game rather late might have at least a bit more time to build up a core position.

Hopefully we all have the potential to see things differently, if justified, than just die out and make room for those who were born learning a newer paradigm that is more helpful, by which I basically but not exactly more accurate.  Popper says that all beliefs and narratives are imperfect models of a reality that we can only sort of describe, and that therefore knowledge must always be provisional, and subject to revision.  

That's all I got.  Arthur, now it's your turn to blow our minds with a perhaps deeper (but so tricky) approach to understanding things.

Hugh

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