PM Daily Market Commentary - 12/17/2013

By davefairtex on Wed, Dec 18, 2013 - 1:01am

Gold closed down -9.60 to 1230.50 on moderate volume, while silver closed down -0.03 to 19.93 also on moderate volume.  The gold/silver ratio fell again -0.37 to 61.74.  Gold tried rallying twice; once in asia, and another time in NY, but failed both times, closing near the low of the day.  Silver followed the same general pattern, but performed substantially better, more or less flat on the day.

The dollar closed the day flat. It too attempted a rally that failed.

GDX was down -0.89% on light volume, while GDXJ was down -2.02% on moderately heavy volume.  Miners opened down, tried to rally along with gold, failed, and ended up closing where they opened.

With the Fed meeting ending tomorrow, it seemed that most PM related instruments were in a bit of a holding pattern, with gold looking somewhat weak with two failed rallies on the day.  Once again we find our "free market" awaiting the whim of our 12 lords and masters at the Fed; meeting ends tomorrow at 14:00 EST, with a press conference at 14:30.

For the past few days, silver has been quite a bit stronger than gold - gold/silver ratio has been dropping, which is usually a bullish sign for PM.  Trader Dan Norcini had an explanation.  Two days ago there was a big move up in a closely-watched monthly series called Industrial Production (INDPRO, for the FRED geeks among you, which likely just means me).  INDPRO jumped 1.1% in one month, which would mean an industrial production growth rate of 13% annualized if such a move continued.  INDPRO is one of the big four metrics used to assess the strength of the US economy: INDPRO, Real Personal Income, Nonfarm Payrolls, and Real Final Sales.  Taken together, these are used to predict recessions in more or less real time, and so a big move up in INDPRO signals accelerating strength in the US economy.

Bringing this back to silver - since silver is an industrial metal, this implies improving demand from industry for silver, and also the possibility for higher inflation, which also provides motivation to buy silver.  To further complicate things, a rise in INDPRO also suggest a higher likelihood of tapering, but also rising corporate profits and an improving US economy, at least for those of us who haven't dropped out of the workforce.



1 Comment

hammer6166's picture
Status: Bronze Member (Offline)
Joined: Apr 30 2010
Posts: 33
Growth in inventories

The 1.1% INDPRO number jumped out at me.  The INDPRO growth seems to cover the quarter as well as the month, since most of the growth happened this month.

The BEA reported an unexpected rise in inventories of about 1.1% this quarter:

"The change in real private inventories added 1.68 percentage points to the third-quarter change in
real GDP, after adding 0.41 percentage point to the second-quarter change."

Perhaps the inventory growth is additional stocking for the Christmas shopping season?  Anecdotal early results seem to indicate growth for low end and very high end stores.  Stores in the middle are flat to slightly down.

It seems the INDPRO number could be measuring Christmas inventory building.  IMO, retailers are having a lackluster session (some winners, some losers, many flat to down), so INDPRO growth is likely to revert to being no growth.

Is there a way to break up the inventory growth into narrower segments?  Consumer Metrics has  numbers for a few sector.  The numbers they show generally lead and only measure the portion of the economy that can be tracked by the Internet.

Thanks again,



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