PM Daily Market Commentary - 10/17/2013

By davefairtex on Fri, Oct 18, 2013 - 1:12am

Gold closed up +38.00 to 1319.80 on heavy volume, with silver up +0.47 to 21.88 on heavy volume as well.  The gold/silver ratio rose +0.45 to 60.32.  At around 0310 EST - mid-afternoon in asia - the dollar started dropping, and a few minutes later, this was followed by the start of a rally in both gold and silver.  The move in PM started slow, but then it started rocketing higher at around 0349, gold rising $35 to 1320 in about 10 minutes, 6 spikes of 2000 contracts each.  This quite conclusively confirms the doji/hammer reversal candles from two days ago.

While both metals moved more or less in sync at the start, as the day went on, it was clear that gold was outperforming silver.  Whatever forces had decided to bid up PM had a preference; the yellow metal closed quite near the day highs, while silver could not retain its spike high reached earlier in the day.

The buck was down hard today - it dropped all day long from open to close, with a particularly heavy move starting about 30 minutes before the gold rally.  The buck closed -0.85 [-1.06%] to 79.72, making a new cycle low and closing near the dead lows for the day.  My guess?  Currency markets figured out that tapering is simply off the table for a while after all these damaging political maneuvers, and so the buck was sold.  It is possible there was also an element of lost safe-haven status.  What responsible government simply decides to not pay its bills, even though it has the ability?  Not confidence-inspiring for all the dollar-holders out there.

The move today in the buck was about as large as what happened after Fed No Taper.  If the buck continues down - to my mind a more likely result based on the downtrend in place - it should be gold price positive.  Next support for the buck is on the weekly chart, at 79.

Bonds and equities rose as well; TLT was up +0.91%, while SPX rose +0.67% hitting a new all time high of 1733.  Looking deeper into the equity market move, the market was led higher by Utilities +1.62% and REITs +1.54%, not the usual group of Financials +0.90% and Technology +0.03%.  When the leading sectors are slow-growth dividend payers...its a very unusual market move.  I don't trust it.  I'm not shorting it, but I don't trust it.

Gold mining seniors had a great day; miners gapped higher with the move in gold and were bought all day long right up until 1 hour before the NY close, after which time they basically sold off.  GDX was up +5.24% on heavy volume, with GDXJ up +5.77% also on heavy volume.  The sour note at the close was a bit disagreeable (it was about a 2% move) and it tells me that traders just don't want to hold mining shares overnight - even after gold rallies $38 and closes near the high!  Experience bears them out; most rallies over the past few months have been one-day wonders leading to sell-offs the very next day, so traders sitting on miner gains seemed to want to ring the cash register early.

Today's move in the miners looked to me like the standard burst of short-covering that happens when we get a big move in gold prior to the NY open after a long downtrend, with a bit of early profit-taking at the end of the day.  Still and all, I believe that miners will eventually follow gold; if it can hold onto its gains, miners will eventually follow.

While we've pretty conclusively established gold support at 1251, restored the "13 handle" back to gold, and broken the downtrend line that started back in late August, a move past 1331 - not so far away - is still needed to break the pattern of lower highs and lower lows.  If and when we break 1331, it will most likely result in another burst of short-covering.  Also - try and find the last time we've had three positive days in a row for gold.  That was back in August.  That along with the good volume gives you a sense that the trend may have changed.

Here's the chart:


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