PM Daily Market Commentary - 12/12/2013

By davefairtex on Thu, Dec 12, 2013 - 9:31pm

Gold closed down -27.30 to 1224.60 on moderately heavy volume, while silver closed down -0.82 to 19.46 also on moderately heavy volume.  The gold/silver ratio jumped +1.18 to 62.93.  Gold traded sideways until Europe opened, after which it just dropped off a cliff, being pounded down by a repeated series of short assaults, with the vast majority of the decline coming before the NY open.  Silver fared even worse.  Both closed almost at the day lows.

The dollar rallied today, up +0.30 [+0.37%] to 80.18.  While the move higher in the buck wasn't specifically correlated to the move in PM today, it likely didn't help.

Given the massive moves in PM today, the miners did surprisingly well.  GDX was down -0.85% on light volume, while GDXJ was off -0.73% on moderate volume.  Some miners even closed up - Barrick (ABX) was up 0.49%!  Since gold was pounded down hard prior to the NY open, the mining shares opened down, even hitting a new year low for the year, but then buyers appeared, pushing share prices steadily higher throughout the day, finally closing at the highs.  During this miner rally, gold was either flat, or dropping.  This rather astonishing performance in the mining shares can only be interpreted as a bullish sign.

That said, its hard to imagine that miner bullishness remaining if gold drives through its 1210 cycle low with the same power the gold shorts showed today.

I did not see any particular news that drove the selloff in PM.  Most definitely the shorts were out to get gold today, and there didn't seem to be any sort of driver for it.  I haven't seen them hammer the price like this in a while; the sell-side pressure today was unrelenting right up until the NY open, after which it more or less let up.

Given the strong miner performance on a day where the futures did so poorly, it is possible that someone wanted to move the metals lower (taking a loss doing so) in order to buy mining shares at a discount.  This theory fits the price action today.  I definitely expected the mining shares to make new lows after their incredibly poor performance yesterday.  Think about this: on Wednesday, gold drops 0.8% and the miners drop 3.7%.  Then today, gold drops 2.2% while the miners are only off - 0.8%?  If the ratios had remained the same, today's drop in the miners should have been colossal - something more like 10%!  They "should" have blasted through the year low, selling off like crazy.  But they didn't.

So yesterday traders couldn't sell miners fast enough when gold was off just a bit, but today miners were well bid on a day when gold was trashed.

With all these cross currents, making any sort of sense of this is tough.  Right now, gold is only $10 off its lows; if the shorts renew the assault tomorrow, given their success today, gold "should" drive straight through 1210 and test the 1180 lows from June.  Yet last week strong COMEX buying appeared at gold 1210.  And those mining shares are doing well - today anyway.  Picking a consistent pattern from this?  I don't see one.  But when in doubt, I'll go with the big move in the price of gold today - risk is strongly to the downside, with a re-test of 1210 being likely.

Fed meeting next week: Dec 17-18.


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