PM Daily Market Commentary - 9/18/2013

By davefairtex on Wed, Sep 18, 2013 - 4:19pm

The news is out: NO TAPER!

Gold was up $54 on heavy volume to 1364, with silver up $1.21 to 23.00 also on heavy volume.  The gold/silver ratio dropped to 59.30.  After breaking 1300 support and touching 1291 earlier in asia, gold rallied back to 1300 and traded mostly sideways until a few hours prior to the FOMC announcement.  At that point, gold started to slowly ramp up in anticipation of the announcement.  After the Fed released the minutes indicating there was to be no change in policy - i.e. NO TAPER, not even a token amount - both gold and silver raced higher, closing the day near their highs, shorts running for cover.  The initial move took place on a 7500 contract $21 spike, although there was some interesting activity a few minutes prior that might lead one to speculate that the news wasn't kept as secret as one might have hoped.

Or perhaps it was just nervous shorts deciding to reduce risk at the last moment.

The dollar was hammered today, mostly as a result of the Fed announcement; it dropped -1.07 [-1.31%] closing the day at 80.23.  The dollar blew through 80.60 support.  The next support I see is at 79.  The dollar chart looks dreadful right now - it had been weakening recently, but this move through support is quite dramatic.  In one or two days, the buck's 50 day MA will most likely plunge through the 200 MA, executing one of those "death crosses" - a longer term trend change which the longer term traders use to guide their investments, probably resulting in more dollar selling.  A dropping dollar should propel gold higher even faster.

GDX closed the day up +8.95% on massive volume, while GDXJ rose +11.25% on heavy volume too.  Remember yesterday I mentioned that GDX appeared to be in an accumulation pattern, while gold itself was being sold off.  This was an interesting clue that perhaps gold wasn't in such dismal shape as the chart suggested.  Traders call that sort of thing a bullish divergence, and its something we look for as part of the price/volume evidence in our tea leaf reading.  Still, its tough to buy when gold itself is showing absolutely no buying interest.  Of course if trading was easy, they'd call it "collecting money" - right?

One way to place in a buy order in conditions like this is called a "buy stop" order; if your chosen (miner, let's say) breaks above resistance, your order gets filled and you don't have to get your emotions involved.  Then of course you enter a stop below the cycle low, in case it was a headfake.  Reward for taking the risk: +10% today.  After it moves up some more, you can move the stop higher to protect your gains.

In other areas, the 10 year treasury yield dropped to 2.7%, TLT (20 year bond fund) rallied through its 20 EMA finally giving me the bond rally I've been waiting for, and SPX broke out to new highs.

This outcome came as a surprise to me.  I did think there was a good chance we'd have some kind of rally on the news today, but I did not expect the Fed would simply not taper at all.  Adam suggested this was a sign of things to come.  I'll claim that's above my pay grade, and I will leave the Fed-watching/prognostications to Adam and Chris!

So to sum it up: the futures market buyers have returned!  Goldman Sachs and their prediction for gold 1000 came at the perfect time - within days of the correction's low point.  One wonders what their prop desk was doing while the muppets were selling gold near the cycle low.  (Why on earth does anyone listen to those guys anyway?)

Over the next week or so we will see how willing buyers are to chase PM prices higher, now that tapering isn't happening.  Given the large volume today, I'd say the bias is certainly up!  Price may stall for a few days after such a large move, but we should be back to buying dips rather than selling rallies.

No taper.  I guess they really are scared to pull the rug out - even if it is just a very small rug.

1 Comment

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5809
trader dan's thoughts

He's not so bullish; he sees this move today as more short-covering driven.  He also has some good insight into the mechanics of these last few months, leading up to today's surprise announcement.

The key to gold will be whether or not the speculative world believes that the continuation of the Fed's QE4 policy unabated will generate any long-anticipated inflation. Obviously the bond market does not expect any or bonds would not be moving sharply higher. Thus far inflation has been tame. It is going to take a change in perceptions in that regard to bring in a brand new wave of hot fund money into gold as well as the rest of the commodity complex.

If new money comes back into PM we'll be able to see it - dips will be bought, higher lows will occur, and so on.  If not, and this was really all just about short covering, we'll see that too.


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