PM Daily Market Commentary - 2/05/2014

By davefairtex on Wed, Feb 5, 2014 - 10:14pm

Gold closed up +3.20 to 1257.30 on moderate volume, and silver closed up +0.39 to 19.88 on heavy volume.   The gold/silver ratio dropped -1.09 to 63.26, another big drop.  Both gold & silver moved briefly higher today starting at about 0819 EST - it was not one of those one-minute wonders, but at one point gold hit 1274.50 and silver 20.33 accompanied by the usual flurry of short-covering resulting in large volumes of COMEX contracts traded. 

However neither gold nor silver could hold their day highs, with gold losing its move within about an hour, while silver retained about 1/3 of its move through the close.

These more or less temporary spikes higher look to me like more stop-gunning to the upside today by some big player - the quick sell-off after the spike higher said it wasn't a real move, more likely just a quick raid looking to cash in on the large managed money short position.

Still, for the second day in a row silver has outperformed gold, reversing a trend dating back to the beginning of 2014.  That's a bullish sign to me.

Possibly helping silver's recovery, the overall commodity complex rose today, with the CCI up +0.57%.  The three-day rally, while not earth-shaking has started to become noticeable on the weekly commodity index chart.  If commodities can break out of their long multi-year downtrend, this should be a bullish influence on gold & especially silver

The USD had a dramatic drop at 0815 EST, concurrent with a negative ADP employment report, but the move down was brief, and the buck recovered most of its losses almost immediately, eventually closing down just -0.11 [-0.13%] to 81.13.  It is possible this move helped PM in its momentary spike higher - they happened right around the same time, although there is no exact correlation so its hard to know for sure.

GDX had a rare bad day, closing down -1.61% on light volume, while GDXJ was down -1.51% on heavy volume.  Mining shares opened modestly higher, but sold off all day long, closing at the lows of the day.  The relatively low volume (compared to the volume on the up-days) suggests to me that no serious distribution is taking place, at least for now.

Equities tested their Monday lows today but failed to break down, rallying back to close down only -0.20%.  There were a few positive news reports - one at 10:00 EST [an ISM Non-MFG Index report] seemed to suggest things weren't as bad as the dreadful manufacturing report of two days back, but this positive news failed to lift equities for more than a few brief minutes.  That's not a great sign - when the market fails to rally on good news especially after a large move down, it suggests market weakness.  At the same time, there are a lot of traders looking to buy the dips in equities - after a 5 year bull market, buying the dips has been the right move for a very long time, and they'll keep doing this until the strategy is conclusively shown to fail.

Equities were likely aided by a drop in bonds, which had TLT down -0.92%, a pretty big one-day move.  If the bond rally has hit an interim peak, it will likely provide support for equities.


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