PM Daily Market Commentary - 10/16/2013

By davefairtex on Wed, Oct 16, 2013 - 11:27pm

Gold closed up +1.70 to 1281.80 on moderately heavy volume, with silver up +0.12 to 21.41 on moderate volume.  The gold/silver ratio dropped -0.26 to 59.87, and is continuing to show no particular direction.  Gold attempted a breakout of 1285 in asia, failed, tested 1270 on the downside after the NY open where it found support, and then rallied to close more or less unchanged at the end of NY trading.  Silver's trading range was narrower - it neither broke out nor sold off, and closed modestly higher by end of day in NY.  So far, longs don't seem to be interested in moving PM higher, but neither have the shorts been able to force the metal lower.  The bias is slightly bullish given yesterday's high volume rebound.

The PM rebound from yesterday is still valid; we are awaiting a close above yesterday's high to confirm.

The buck was up +0.03 [+0.04%] to 80.57.  That very modest move covers a wider trading range, with the buck attempting to rally past the cycle high at 80.86 and failing, closing basically flat. 

Gold mining seniors gave back a bunch of what they gained yesterday; GDX was off -2.02% on moderate volume, while GDXJ was off only -1.09% on light volume.  Miners sold off early, tried to rally in the afternoon, and failed, closing near the lows of the day.  Given that gold was even modestly positive, this is quite a poor showing by the miners.  The interest in mining shares simply hasn't returned just yet.  Rallies in mining shares have been confined to exactly one day, and they are sold the following day.

This is all the more galling because every other single sector was up today given the highly anticipated pre-shutdown/default-relief rally in SPX of +1.38%, which closed to within 0.5% of its all time high.  Examples: Energy +2.1% Healthcare +2.13% REITs +1.82% Retail +1.7% Tech +0.96% and even Homebuilders were +0.92%.  Miners were the only thing that sold off.  Gold Mining: welcome to the Most Unloved Sector Ever!

We are entering earnings season; late October through mid-November most mining companies will report earnings.  This most likely will drive prices in individual stocks, and if a trend starts to become established, it might drive prices in the sector overall too.  Unlike the metal which sits quietly in your desk drawer, miners have operational and country risk.  It may be "gold in the ground" but as the old proverb says, "there's many a slip twixt cup and lip."

Likewise, with the government operating again, we'll start to see more economic news releases that will move prices too.  It is possible we won't see any tapering until next year; can you imagine the Fed taking away even a cup or two out of the punchbowl as Ben Bernanke's Last Act?

Upcoming Fed Meetings: October 29-90, and December 17-18.



davefairtex's picture
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5683
early stages of hyperinflation next year!

I saw this prediction in a reference to an article by John Williams of Shadowstats, and was curious: how many times has he predicted imminent hyperinflation?  Here's just a taste:

April 2008: "Hyperinflationary Depression Remains Likely As Early As 2010"

December 2009: "risks are particularly high of the hyperinflation crisis breaking within the next year."

September 2012: "Hyperinflation by 2014 is virtually assured"

October 2013: "Early stages of hyperinflation next year"

That last one was what prompted me to post this article.  If 2014 comes and goes without a hyperinflationary outcome, make a note.  Perhaps a bunch of GLD holders had a similar experience in 2009, bought gold, and when it didn't happen (as promised), they sold their GLD in disgust.

The funny thing is, I agree with Williams about all the problems, all the promises we've made that won't be kept, about how they aren't being addressed, how we should be addressing them, and that at some point, there will be trouble.  I just haven't seen any evidence of imminent trouble, and my model for how stuff works differs from his in some important ways.

So should we worry about imminent hyperinflation - i.e. in 2014?

Stripped of dates, we do have a good solid indicator to focus on: John Williams thinks that a dollar sell off will trigger hyperinflation.  So no sell-off, no hyperinflation.  So if you are concerned about hyperinflation, watch the buck and see for yourself.

My viewpoint?  The US isn't Zimbabwe or defeated Weimar Germany, we're the sole remaining superpower.  And when superpowers die, they don't do it the Zimbabwe way.  Zimbabwe hyperinflated because nobody would lend it money.  Nobody would buy Zim Bonds, so they had to print to fund the government.  As long as people still buy US bonds (either willingly because of safe haven flows, or through savings & pension confiscation) hyperinflation is not going to be the route we take.

Timing-wise, trouble starts in the periphery and only then moves towards the core, which dies last.  Whoever was the current Emperor in Rome had a great time right up until the city fell.  Distant Britannia had less of a great time, and fell much sooner.  Japan - I'm not sure how they'll go, the Eurozone is on a track to collapse from deflation, and then the US will have its outcome (inflation?  deflation?) but only after the other areas have had their denoument and its attendant capital flight.  Unless we have some sort of black swan specific to the US happening first - something military, or geological.

Long story short: I believe the buck won't crash as long as there are worse places to put your money and the relatively free movement of capital.  But don't believe me.  Just watch the buck every week, and you'll see the evidence for yourself.  If $USD drops below 73, then you might start to worry.

I think we'll have time to react when it comes to financial assets, assuming no Black Swan.  For resiliency measures that take substantially more time to execute - planting gardens, buying or selling houses, moving, that's another matter entirely.


davefairtex's picture
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5683
asia gold breakout - 1320

Gold spiked up in asia, the big move starting at 0349 EST, taking 10 minutes to move $35.

Silver followed gold up, hitting 22.18 at its peak.

Still researching on what caused the move.

janb's picture
Status: Bronze Member (Offline)
Joined: Mar 11 2008
Posts: 61
Hey Dave,   I'll be looking

Hey Dave, 

   I'll be looking for your thoughts on what is happening with PM's.  Thanks for being our PM information scout!  Jan  

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