PM Daily Market Commentary - 12/19/2013

davefairtex
By davefairtex on Fri, Dec 20, 2013 - 1:25am

Gold closed down -30.70 20 1187.10 on very heavy volume, while silver closed down -0.49 on heavy volume.  The gold/silver ratio dropped marginally, off -0.02 to 61.75.  Gold was flat until the afternoon in asia, when it was hit with a series of short assaults knocking gold below 1210.  These continued through the end of the day in NY, driving gold below 1200 finally hitting the low point of the day at 1186.  The heavy volume in gold lent emphasis to the price move.  Gold had a really bad day.

While silver too was hammered for a loss today - about the same percentage move as gold - it has remained above the December lows of 18.89 and the June low of 18.17.  Silver's chart looks substantially better as a result.  There is clear support for silver, and so far, not much support for gold.

So what happened?  Gold's behavior intraday today on the move through 1210 (and the anemic rally that followed) says to me that the buyers that stepped forward in early December when gold hit 1210 decided not to do so this time around - my guess: because of the Fed tapering.  Again, what we care about is not that gold was hammered through 1210 by a short assault, but what the market did immediately after that assault.  This time, not enough buyers showed up to buy the dip.  And so the shorts were emboldened by the change in buyer behavior, the modest rallies were sold repeatedly, and gold headed lower, and lower, closing at the lows of the day.

The dollar closed the day up +0.54 [+0.68%], clearly pleased by the Tapering decision by the Fed.  Most of this move came yesterday (the dollar's "closing price" is actually relatively early in the afternoon) but the dollar continued moving slowly northward all during the day today.  The dollar moving up is bad for gold, but this move today was not dollar related, in my opinion.

Bonds didn't like Tapering - the 10 year Treasury was down again, causing another 4 basis point rise in yield, to 2.92%.  Another few days of this and we should see the 10 year treasury yield possibly breaking 3%, an important psychological level and a multi-year cycle high in rates.  This is not what the Fed wants at all, and its why I suggested the Fed wouldn't taper (hmm, that prediction didn't work out so well), since rising rates will act as a brake on both housing as well as the rest of the economy.

GDX was down -1.73% on average volume, while GDXJ was down -2.88% on heavy volume.  Miners opened low because gold was hit so hard prior to the NY open, but then as gold continued dropping, the miners just moved sideways.  When gold drops, and the miners move sideways, its because traders are buying miners, and we've been seeing this behavior for a while now.  What does this mean?  Possibly some hedge funds put on a "long gold short miners" trade and now they are unwinding it.  Or miners could be giving us a clue that the gold descent is overdone.  Who knows for sure, but its clear miners have a bid, unusual given the fact miners are usually leveraged to the price of gold, and tend to suffer more heavily than gold during declines.

So, miners doing (relatively) well, silver remaining above support, while gold hammered to within shouting distance of the June 2013 $1179.40 low on very heavy volume.  What comes next?

1180 gold is not far away.  I expect it will be tested relatively soon.  Will the buyers show up?  That I don't know.  If they don't...next support is 1150, then 1050, and then...1000.  That's not a prediction of a gold price disaster, I'm just looking at the charts.  Let's hope 1180 holds.

 

2 Comments

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1889
London Gold Vaults Are Empty

Zerohedge carried a short interview where

Bloomberg's Ken Goldman reports, "you could walk into a vault in London and they were packed to the rafter with gold, and the gold would trade from me to you to somebody else. You could walk into these vaults today and they are virtually empty. All that gold has been transferred out of London, 26 million ounces....."

He explains that the gold held in western vaults has been shipped to Switzerland, recast, and taken to China where new, very high volume vaults have been built to hold it.

This gold will never be seen in the west again.

Maybe this IS actually happening!

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
london gold vaults

Sand_Puppy-

That's a really interesting clip.  I poked around about the person making the claim, Kenneth Hoffman, and he looks like a very serious metals and mining analyst with a great deal of experience in the space.  He seems quite credible.  His claim is that 26m ounces has left London - about 800 tons.  I believe him.

Now, I have always been a bit puzzled by comments like "the gold is going east and its never coming back"; this would make sense if the gold were going into the vaults of a central bank, but in my experience individuals in asia are happy enough to offer up their gold when the price rises high enough.  People in asia are not goldbugs per se, gold is just a part of the culture.  Its why the bid/ask spreads are so narrow.  High prices means gold gets sold.  Low prices means gold gets bought.  There is much less attachment to gold jewelry.  Need a new iphone?  Gold necklace gets sold.  And most everyone has a sense of what the price is, within a few hundred bucks anyway.

Western goldbugs tend to get very emotional about gold and related issues.  In asia, it just doesn't happen.  "Oh you trade gold?  So does my grandmother."  Yawn.  No ridicule, no gasp of horror, but also no real excitement at all.

So I don't believe the bit about "gold never coming back."  It will just need to be a higher price than $1200/oz...which I think is a good thing...I expect gold $1800 would result in a whole lot of gold coming back, for instance.

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