PM Daily Market Commentary - 11/07/2013

davefairtex
By davefairtex on Thu, Nov 7, 2013 - 8:05pm

Gold closed down -10.00 to 1307.20 on heavy volume, and silver closed down -0.14 to 21.66 also on heavy volume.  The gold/silver ratio dropped -0.09 to 60.35 - it has been chopping sideways for quite some time now, giving us no indication of a PM trend.  Today gold had some large price moves intraday - the first was a $10 move up after the ECB dropped rates to 0.25% at 0745 EDT, and then 45 minutes later, gold tanked $20 on extremely heavy volume on the 3Q GDP print of 2.8% at 0830 - the GDP print was unexpectedly high, which in today's market, is interpreted to mean a higher chance of tapering.  Silver behaved much the same way, also on high volume.  Both metals ended up printing "spinning top" candles on the daily chart, which is a sign of indecision.  In this case, indecision, but with a very high volume attached.

That said, gold did show good support down below $1300 - it hit 1296 at one point, but spent only two minutes at that level.  Buyers quickly brought gold back above 1300, but they did not chase prices too far.  So the support at $1300 is a good sign, but the support was not strong enough to mark a possible rebound.

The dollar had a really big day.  On both the ECB rate drop, and the GDP release the buck jumped higher, at one point reaching 81.56, one full point higher than yesterday's close, which is a really large one-day move.  However, it soon lost most of those gains, ending the day up only +0.33 [+0.40%] at 80.89, below the magic 81 resistance level and still within that consolidation area.  I interpret this as bearish - a close tomorrow of USD below 80.50 will mean a likely trend change, back to "down" for the buck, which would be good news for gold.

GDX opened down, rallied for the first hour, and then sold off all day long, closing at the day low.  Does that pattern sound familar?  GDX closed down -2.6% on moderate volume, while GDXJ was off -3.8% on moderate volume as well.  GDXJ broke support, and is looking like it will retest its mid-October lows, while GDX is still within its recent trading range.  Price action today was distinctly bearish, but perhaps not surprising given gold's wild moves intraday.

It is earnings season right now, and at this point, most mining companies have reported earnings.  Most companies are actually still making money, if just barely, and most are engaged in cost-cutting programs in an attempt to keep mine inflation under some semblance of control - with varying degrees of success.  "How much does it cost to mine an ounce of gold" is an interesting question.  There are many different answers to this simple question: cash costs, cash costs net of co-products, and all-in sustaining costs.  Long term, the last metric is the most important; it includes all costs including exploration and royalties.  The cash cost number is also interesting, however - its the bare minimum required to keep operations running. 

Some examples: NGD gives its cash costs (net of co-products) as $280/ounce of gold, that's the lowest I've seen.  On the high side, IAG has its all-in-sustaining-costs (AISC) at $1216.  To make matters more fun, some companies don't report cash costs, some don't report the sustaining costs, so its tough to compare apples & apples.  And mining companies can close down their more expensive operations, reducing output in exchange for lowering costs, which will end up changing the numbers around.  Overall, my sense is that cash costs are around $600-$900, and AISC is around $900-$1100 per ounce of gold.

In individual cases, these costs tell you how vulnerable your mining company is to gold price movement.  From a larger perspective, it also tells you that - on average - mining companies will likely stop exploring at gold $1100, and the really indebted ones start dying at gold $900.

 

6 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5071
good nonfarm payrolls = gold off -15

The NFP report, with expectations between -300k to 168k, printed an unexpectedly good 204k, pounding gold down $15 to 1290 on a 9000 contract one-minute spike, and at the same time sent the buck blasting through 81 again to 81.30.

Now we see if buyers show up.  If they can bring gold up and past 1307, the point of departure, we might have a reversal in gold.

 

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 691
wedge busted or reversal?

I've been watching a wedge in gold (bottom in July and the top in late August, with a diminishing price range since) and today it looks like it's testing the lower line of that wedge (around 1280). If it busts through that, technically it's not positive. If it holds and recovers 1300, as Dave observed, it's positive.

Traders are dumping gold because the "good" jobs report (how many of those are part-time/low-wage jobs?) is supposed to allow the Fed to start tapering in Dec.  My read is the Fed is boxed in and cannot taper, so the market is set up for a "surprise" at the next Fed meeting Dec. 17-18. 

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1148
I went [email protected]:45EST

"come on in boys, the water iz fine." Delmar

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5071
intraday gold

I agree with Charles, the Fed most likely won't taper, especially with rates on the rise (the 10 year is up 14bp today to 2.75%), so we're set up for a surprise.  That said, Dec 17th is a long way away.  For my trading activities, I don't mind not getting the exact low point - I don't mind paying a bit more to wait for a clearer signal that a bottom is most likely in.  Low prices can keep getting lower.

Still, if you are buying little gold bars, prices under $1300 seem to be good opportunities - its the lower end of the recent trading range.  Weigh that against a rising dollar, and the possibility of even lower prices if the buck moves back up to the mid-80s.  Maybe - dollar cost average?

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 691
seasonality

I agree with Dave, Dec. 18 is a long way off. Being an expert at counting my chickens before they hatch, I do note that Nov. and Dec. are seasonally good months for gold. I also note that GDX/GDXJ got crushed this a.m. as expected but have recovered a bit while POG is still being hammered.  If the wedge holds and doesn't break down, I would count that as positive.

Hrunner's picture
Hrunner
Status: Gold Member (Offline)
Joined: Dec 28 2010
Posts: 256
Happy to be the contrarian

Dave, Charles,

While I agree with you that practically the Fed cannot taper, I believe they will.

The main issues against taper is the rising nominal unemployment rate, and the falling labor participation rate.  

However, in recent years, realize that the Fed has increasingly become fixated on 'optics'

 I would call it PsyOps (against the American and world people), but they call it "communication tools". 

Add to that the fact that they are a chummy group of peers, that want to burnish the reputation of their alpha male, Mr. Bernanke, Janet Yellen will be under pressure from congressional hearings by budget hawks and this all adds up to a symbolic taper of $10 billion. 

Here is the sequence:

A contentious congressional hearing will be held where the likes of Rand Paul scorch Janet Yellen on her destructive and savers-repressive policies.  The corrupt media criticizes Paul and Cruz for their 'anti-woman' attitudes.  Of course all the while having no discussion about objective data and the substance and facts of the arguments against Yellen's monetary policy, regardless of whether she is man or a woman or a martian et al.  Yellen is confirmed with a hail of cheers from the state-controlled media for a "historic" nomination as the first woman, etc, etc.

Yellen announces $10 billion USD taper in Dec.

The Fed and the corrupt media will laud Bernanke the Great and shower him with praise as the man who saved Western Civilization.

Market promptly falls by 5% in the next week.  10 year bond yields rise precipitously to 3.3%

The current job report will be revised by a "surprise" downward number from +204,000 to +130,000.  It will be blamed on lack of data due to the government shutdown.  Of course, Yellen and co. have known these numbers for weeks.

The Fed will hold an emergency meeting.  Followed by an emergency announcement of an increase of QE to $100 billion.  Just temporarily of course, to "stabilize" the global financial markets. 

Stock markets rebound to all-time highs.  6,000 contracts of gold will  be paradoxically dumped (nothing to see here Dave) in very thin overnight Globex pushing price to 1200.  It will be ascribed to the recovering world markets now that "sufficient" QE is in place.  All is well.

All setting the stage for what Yellen has her highly educated and erudite finger ready to do- press the print button to QE $150 billion, $200  billion, $300 billion next year as the world crumbles.  Buckle up kiddos.

H

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments