PM Daily Market Commentary - 12/31/2013

By davefairtex on Wed, Jan 1, 2014 - 12:54am

Gold closed up +8.80 to 1204.80 on moderately heavy volume, silver closed -0.12 to 19.43 also on moderately heavy volume.  The gold/silver ratio rose +0.85 to 62.01.  Gold was hammered to within an inch of the year low on big volume, bounced back hard, and managed to close above $1200 - and the point of departure of the short assault.  The low could be in for this cycle.

The dollar was up +0.12 [+0.15] to 80.29; although today it was up, it seems to be in a general downtrend since the Fed meeting, and it is moving quite independently of gold at this time.

GDX was up +2.37% on moderately heavy volume, GDXJ was up +3.16% on heavy volume.  By the time NY opened, gold was already down around 1185 and so the miners opened low - but even so, it was clear to me there were buyers for the miners since they did not sell off hard but instead traded sideways, and then when gold rallied 25 minutes into the trading day, GDX took off.  It traded mostly sideways for the remainder of the day, eventually closing relatively near its high, which is a bullish sign.  GDXJ printed in a "bullish engulfing" candle today while at the same time it moved right to the top of its trading range, and moved above its 20 EMA.  Given GDXJ should be leading the rest of the miners to the upside in a bull move, this is all quite bullish.

For me, the big news of the day was gold's test of the 1179 cycle low that happened back in June.  This test was done at very high volume, 1179 held, and the resulting rally moved gold past the point of departure.  This happened in silver as well.  I have seen these intraday patterns at market turning points - they don't always define a turning point, but they often do.  That is why, even though they are not so fun to experience, they make me happy because what they tend to lead to is a trend change.

I'm forever harping on the phrase "buyers showing up" - you'll hear me complain on a given day that the buyers didn't show up, so gold dropped again, etc.  Well today is a perfect example of the buyers showing up.  At 0847 EST gold was pounded down hard on high volume to within a dollar or two of the low.  At that point, the buyers "bought the dip" in a big way; presumably there were a large number of orders sitting right there at around 1181-2, and the shorts just could not get through, gold having been pounded down far enough to be extremely attractive to "someone."   Then, after the shorts could not muster a second attempt to the downside (there looks to have been solid buying at the 1185 level), then "someone" bought enough contracts at 0953 to cause the $30 short-covering rally that followed.

For this to be a valid signal, it has to be a high volume affair, and it was.  Volume tells us that a lot of money changed hands.  It wasn't just a price-only show, somebody won, and someone else lost in a big way.

If we get lost in emotional charges and counter-charges of manipulation, big guys controlling the world, etc, we might miss the clear signal that the market gave today.  We might end up convincing ourselves that "the big guys can and will do whatever they want to gold, whenever they feel like it" and we might be so tired of prices dropping that we become afraid to take a risk when the odds are in our favor.  That's why I try not to go there, to keep my mind clear so I can spot the signal when it arrives, and take advantage of it.

From the point of view of the shorts, when the buyers show up like this, the game is over.  No more easy pickings, at least not at 1180 anyway.  Now we will see if those buyers will chase gold higher into the new year, and if so, how much higher.  Its still possible for some exogenous news event to cause another test of the 1179 lows - like when the unexpected Fed tapering caused gold to blow through the 1210 level a few weeks back that seemed pretty solid - but barring any major market surprise, I think we move up from here.

GDX and GDXJ are backing up this storyline, as was silver until today - silver didn't do quite as well as gold on holding its rebound into the close, but it displayed a similar intraday pattern of test and reversal that tends to mark the lows.

So while I'm not an advocate for buying just because of "low prices", when the prices are low AND we get a signal like this, well, then I feel it is time to buy, because the successful test of the lows puts the odds in our favor that the market won't continue to drop.


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