PM Daily Market Commentary - 10/15/2013

davefairtex
By davefairtex on Wed, Oct 16, 2013 - 12:41am

Gold closed up +7.30 to 1280.10 on heavy volume, with silver up +0.03 to 21.29 also on heavy volume.  The gold/silver ratio rose +0.26 to 60.13.  Gold was hammered in late asia trading down to 1251, and then rallied for the rest of the day, recovering all it lost and then some.  The bulk of the excitement happened prior to the NY open.   Silver looked much the same, although silver's drop was more dramatic, and it lost a bit towards the end of the day.  Both formed what I would call a high volume daily reversal candle, requiring confirmation tomorrow.  A close above 21.55 for silver, and a close above around 1290 for gold would be confirmation of the reversal.

The buck was up +0.14 [+0.18%] to 80.34.  The buck tried to set a new high and failed; it continues side tracking since Fed No Taper.  The dollar is currently doing its own thing, and doesn't seem to be well correlated with PM prices.

Gold mining seniors had a rare good day; GDX was up +2.81% on moderately heavy volume, while GDXJ was up +2.29% on relatively light volume. Miners opened lower, and then as gold continued to rebound off its lows, miners rallied right into the close, ending at the high for the day.

Gold's ability to rebound strongly off 1251 with good volume suggests there is good buy-side support around that level.  Miners are confirming this; perhaps traders were just waiting to see where significant support in gold materialized.  Taken together, this is a bullish sign, although the light volume in GDXJ does spoil the perfect picture somewhat.  Will buyers be willing to chase gold higher, moving gold through 1290 tomorrow?  That's the key question.  Clearly they're willing to buy at 1251.

Looking ahead, we need to move gold above about 1330 to break the pattern of lower highs and truly mark the end of this 7 week downtrend.  So 1290 tomorrow, and 1330 going forward are the price levels to watch.  The shorts will still be out there hoping to keep the downtrend alive - things stay in motion until the longs prove that the trend has really changed.

Reading the Taper Tea Leaves, I'd guess the Fed would hold policy constant given all the fuss and bother in the marketplace from the fun in Washington.  I can't see how they'd want to inject themselves as any sort of factor of uncertainty at this point in time.  This is not a particularly bold statement - supposedly a poll of economists all said much the same thing as well.

Sheesh, if its not one thing, it's another.

 

2 Comments

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 800
Debt Ceiling Approaches (Again)

Dave,

I know you prefer to let price and volume do the real talking, but there is a big story out there that needs to be considered. The US still hasn't agreed on a fiscal budget to fund the government AND we're closing in on the deadline where monetary shenanigans can't be used to cover our debt obligations (debt ceiling.)

If things were normal, I'd expect quite a bit of safe haven buying of precious metals. Given the wacky markets this year, I don't know what I should expect. Could the enhanced buying today be triggered by some safe haven buying followed by momentum players closing shorts? The rally will be short lived if DC gets a compromise on the debt ceiling and/or the budget.

Brinksmanship will continue as long as it can. Both sides know that they both lose if a compromise isn't found. They may push the game into Friday (and allow a default for part of the day,) but they will come to their senses then and pass something to allow us to get deeper in debt. They may continue the government shutdown a while longer; however, a grand deal wouldn't surprise me either.

After everything is "back to normal," the same forces that have driven PM pricing down this year will show themselves again. The safe haven won't seem as necessary or as attractive as it does now. Until the threat of effective bear raids is gone, trepidation will be the order of the day. My powder is still dry.

Grover

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
news driven markets & COMEX/GLD

Grover-

I don't follow the political news realtime, so I can't be certain how much correlation there is between government shutdown/debt limit newsflow and gold/safe haven buying.  As a result, I am staying neutral, since I could see a case for either risk off or risk on depending on how you viewed GLD and default, inflation, no-tapering.  Its a quagmire.  :-)

Hmm.  Here's a thought.  If we take the equity market as a proxy for "driven-by-shutdown/default" rumors both positive and negative, I'd have to say any "safe haven" bid for GLD/COMEX gold is pretty mild.  Perhaps more people are picking up little gold bars, but I don't have any visibility there.

1 Month treasury bills, on the other hand, are doing some pretty crazy things.  0.32% as of today, up from 0.03% not so long ago.

Hmm again.  If we hypothesize that the difference between gold & silver in the rally yesterday is because of safe haven buying - I could buy that.  Its pretty modest.

Regardless of the turbulence, we still don't have confirmation on the rebound from yesterday.  PM is not looking particularly strong today.  Nobody is chasing gold higher - for whatever reason - and the poor miners are suffering as a result.  Again.

"There isn't enough thrust in all of Christendom to get that ... miner off the deck."  GDX -2.10%.

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