PM Daily Market Commentary - 9/17//2013

davefairtex
By davefairtex on Tue, Sep 17, 2013 - 1:57am

Gold was down $14.10 on moderate volume to 1313.60, with silver down $-0.45 to 21.83 on average volume.  The gold/silver ratio rose to 60.17.  After opening up $7 in asia, gold was once again sold all day long, a steady pattern of lower highs and lower lows.  There was a rally when NY opened, but it too was steadily sold.  After the NY market closed, at 16:17 EST with gold at 1308, a sharp high-volume move took gold down to a new low of 1302 and I was fully expecting it to waterfall down further, but at that moment buyers appeared over the next 30 minutes to bring gold to 1313 where it closed the day.  To me it seemed that someone stepped in to save the gold market from a further move down.  This was surprising, especially given how bearish the intraday chart looked.  As to who, and why - that's above my pay grade.

The dollar was off -0.44 [-0.53%] with much of that coming from a gap down open, most likely due to the withdrawl of Larry Summers from consideration as Bernanke's replacement earlier during the weekend.  The buck didn't seem to affect gold trading today.

GDX was off -0.94% and GDXJ -1.0%.  As is the usual pattern during this reversal period, many miners opened up and rallied early.  Most did not hold their gains.  Some traded sideways in a range (but closing at the lows), while others were just sold all day long.  Given the poor performance of gold today, mining stocks actually performed all right; I'd say miner performance today was modestly bullish.

A number of miners operating mines in Mexico were hit hard by the news that Mexico was considering a mining tax.  The impetus for the new mining tax was driven at least partially by declining revenues from PEMEX, the Mexican oil company.  How's that for cause and effect - peak oil in Mexico eventually results in a tax on gold & silver mines!  With governments struggling for revenue, over the longer timeframe it would seem country risk for miners will continue to increase.  One wonders sometimes if its not simply a better idea to just buy the metal and forget about the miners.  Peak ore grades along with peak cheap oil resulting in a steady inflation of mining costs, and now increased taxes.  Miners don't have it easy.  Longer term, this must affect mine supply, which would be supportive for PM overall.  But this "longer term" is in the 5-20 year timeframe; it won't affect PM price movements in the daily-weekly timeframe.

http://www.bloomberg.com/news/2013-09-09/mexico-bill-would-reduce-pemex-tax-burden-increase-mining-take.html

For now, it appears gold has some pretty good support at or near 1300.  While the reversal from Friday has not been confirmed (gold would need to close above 1331), neither has it been invalidated; a close below 1300 would invalidate the reversal.  Gold remains below its 50 MA.  Silver is looking better; it needs a close above 22.30 and it remains above its 50 MA.

Just a reminder: Wednesday at 1400 is the end of the two-day FOMC meeting.

1 Comment

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 800
The Revenue Struggle
davefairtex wrote:

A number of miners operating mines in Mexico were hit hard by the news that Mexico was considering a mining tax.  The impetus for the new mining tax was driven at least partially by declining revenues from PEMEX, the Mexican oil company.  How's that for cause and effect - peak oil in Mexico eventually results in a tax on gold & silver mines!  With governments struggling for revenue, over the longer timeframe it would seem country risk for miners will continue to increase.

Dave,

It seems that trends occur at the periphery and work inward. Mexico has relied on revenue from Pemex for generations. The population has grown accustomed to receiving far more than their taxes support. Now that petroleum production is down, the government is struggling to replace those revenue streams. If they do the right thing and reduce expenditures, there will be revolts. That means that politicians will lose their careers and perhaps their heads. Obviously, that won't be their first option.

Similar events will happen here ("here" being everywhere.) Will local governments ratchet up taxes uniformly across the board, or will they focus on easier targets as long as they can? In the '30s, gold was confiscated. If windfall profits are increased substantially, wouldn't that have the same effect? Could this be a mechanism for "confiscation" in the future?

Grover

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