PM End of Week Market Commentary - 12/13/2013

davefairtex
By davefairtex on Sat, Dec 14, 2013 - 11:51pm

Gold finished Friday up +13.40 to 1238.00 on moderate volume, silver was up +0.20 to 19.66 on moderate volume.  The gold/silver ratio moved up slightly +0.04 to 62.97.  GDX was up +0.48%, while GDXJ was up +1.10%, both on relatively light volume.

On the week, gold was up +8.00 [+0.65%], silver up +0.14 [+0.72%], GDX +2.18% and GDXJ +4.64%.  This week we saw gold attempt a rally that failed at 1260 whereupon it was sold hard, but eventually found support at 1220.  We're not exactly back to where we ended last week, but - its pretty close to that.  Silver more or less followed gold.

The miner ETF GDX may be forming a low with support at 20.50 - but just for reference, GDX was trading at around 60 back in 2011.  For a buy & hold investor that entered the market during maximum hype back in 2011, average losses have been 2/3 of invested capital, with losses in the junior gold miners at around 80%.

Where are we now?  Support is holding at 20.50 but that is likely conditional on gold not breaking the 1210 lows set last week.  Tax loss selling pressure remains an ongoing negative issue for the miners at least through the 3rd week of December.

The USD

The dollar was basically unchanged this week, down -0.06 [-0.08%] to 80.21.  It attempted to move below 80 earlier in the week, but rallied weakly to close pretty much where it started.  I see two things driving the dollar - on the one hand, the euro is quite close to a previous high of 138, where it is encountering resistance.  If the euro double-tops, it would strengthen the dollar.  On the other, if we get yet another No Taper from the upcoming (Dec 18th) FOMC meeting, that will most likely weaken the buck.  Current trend in the buck is mild but consistently down over the past six months, which should be supportive overall of gold.

Physical Supply Indicators

* Shanghai gold premiums have dropped slightly; at 1530 CST 2013-12-13 Shanghai physical gold (the Au(T+D) contract) closed at a premium of +$3.00 to COMEX, with the premium being down -$1.35 over last week.

* The GLD ETF lost -8.11 tons of gold this week and is down to 827 tons.  The drop in GLD's inventory has been almost continuous since the beginning of 2013.  In January, GLD had 1350 tons, which is a drop of 523 tons.  At this loss rate, GLD will be empty of gold in 2 years.

* Registered gold at COMEX dropped -3 tons this week - down to 18.69 tons, near the low for the year but not below it.  Another 6 tons of contracts remain to be delivered upon for the big December delivery month.  Given there are 18+ tons remaining, I must conclude that there will be no COMEX default during this delivery month.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1238.00 and silver 19.70:

CEF 13.51 -5.62% to NAV [down]
PHYS 10.20 -1.21% to NAV [down]
PSLV 7.70 +0.30% to NAV [down]
GTU 43.16 -5.94% to NAV [down]

Discounts on the ETFs have increased over the past week.  Specifically PSLV is just barely positive while PHYS is quite substantially in discount, unusual for the sprott ETFs.

Shanghai premiums are only slightly positive, which is surprising given the drop in price (and the anecdotes from the Swiss refineries that are running 24/7 to construct kilo bars destined for China).  Still, premiums, the drop in GLD inventory, and the small inventory of gold at COMEX would seem to be at least mildly supportive of the gold price.  It is interesting that premiums in India have fallen down to match the 10% import tax - around $120.  Either the quantity of smuggled gold has increased, or demand has dropped, or both.

Futures Positioning

The COT report shows little change from last week - Producers sold a bit, while Managed Money covered some shorts.  Positioning is still quite bullish, with both main participants at historic levels that have indicated market turning points in the past.  The "Producer" group specifically remains net long for the first time in the history of the series.  Last time they were anywhere close to these levels was back in late 2008.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term DOWN, medium term DOWN, long term DOWN

Silver: short term DOWN, medium term DOWN, long term DOWN

There is no change from last week.  Gold and silver trends are down in all three timeframes, with the price of both gold and silver both below all three of their moving averages.  This is bearish.

Summary

This week saw gold prices head-fake upwards but then drop back down to support making a slightly higher low at 1220.  We can call this mildly positive, but a close above 1265 is the next step to actually causing a change in trend.

Looking at the various ratios and averages, gold and silver both remain in a moving-average downtrend in all three timeframes (bearish),  GDXJ:GDX is rising (bullish), GDX:$GOLD is flat (neutral),  while gold/silver ratio is generally dropping (bullish).  MACD for gold, silver, and the miners shows a bullish crossover.  Conclusion from the trends and ratios is mixed, but with the potential for a reversal given the somewhat bullish behavior of the mining shares as well as the MACD.

While moving averages are pointing lower, and the other indicators are mildly bullish, the COT report suggests that the participants who usually correctly identify the bottoms are signaling a low is likely not far away.

The pressure from tax-loss selling should abate by the end of next week.

Shanghai remains in a slight premium, gold continues to leave GLD and COMEX is still in the process of its big Dec delivery month.  Indian premiums have backed off to $120, which is right around what one might expect from the 10% import tax on gold.  To me, this says physical buying is mildly supportive of gold.

A downtrend means, the shorts will try to sell rallies, simply because this strategy has been a money maker for quite some time now.  If something works, traders are most likely to continue doing it until it stops working.  COMEX buyers need to chase the price of gold above 1260 for that process to start, and preferably above 1300 to move the price back above gold's 50 MA.

FOMC meeting Dec 17-18, with press conference to follow.  Taper or No Taper?

 

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