PM Daily Market Commentary - 2/13/2014

davefairtex
By davefairtex on Thu, Feb 13, 2014 - 8:29pm

Gold closed up +8.50 to 1300.10 on moderate volume, and silver closed up +0.18 to 20.40 also on moderate volume.   The gold/silver ratio dropped -0.13 to 63.75.  Gold dropped a bit in asia, and then moved steadily higher right through the close in NY, setting a new cycle high, and closing above the psychologically important 1300 level.  There was little drama in the PM move today, just a steady bid all day long.  Silver behaved similarly, and for a change actually outperformed gold.

Some factoids: gold has either been flat, or risen, for the past 7 days in a row.  Silver, even though it has underperformed gold, has been either up or flat for the past 9 days.

The USD was hit pretty hard today, dropping -0.40 [-0.50%] and closing at 80.36.  Although there wasn't a direct correlation, the move down in the buck most likely helped gold - and most of the commodity complex - move higher.

On the daily chart, the commodity complex is blasting higher.  Even on the longer term weekly chart, the move up is getting more noticeable - it is up perhaps 5% since the beginning of the year.  PM and the other commodities tend to move together, so the continued move up in commodities seems to be helpful for gold.

GDX had a massive day, up +4.44% on heavy volume, regaining all it lost yesterday and slightly more besides, setting a new cycle high for the mining shares.  GDXJ was even more impressive, up +6.25% setting another new high for volume, and also setting a new cycle high.

I was concerned about PM miner distribution because of yesterday's selloff, but buyers of mining shares answered yesterdays dip with a massive rally.  Once again, the market's reaction is key.  Gold moved up gently but steadily, and the miners absolutely thundered higher.  Right from the open the mining shares jumped higher, and then they were just bought all day long.  I'm fresh out of superlatives to describe the whole affair.

These days, it seems like "dips" in the mining shares last only one day.  Blink, and you miss them.  What a change from last year.

So for all you fundamental traders out there - what really did change?  This is what used to drive me crazy when I focused entirely on fundamentals.  To me, nothing has changed.  Except perhaps that the Fed has bought into the whole tapering thing, which would seem to be bad for gold, not good.  And yet here we are, in the middle of a big miner rally, and quite a decent-sized rally in gold as well.

My thought is - trends last longer than you think they will, perhaps longer than they "should", until buyers decide the discounts are so great, enough of them start buying, and the sellers/shorts stop making money, and then slowly the market turns.  And before you know it, share prices are crossing the 200 day MA on massive volume as the shorts run for cover, and we wonder how it all came about.

That's why I like to focus on technicals.  I have no reason for mining shares to be rising so dramatically.  But they are.  And because I watch the technical price & volume data, I don't talk myself out of buying them.

Last thought.  In reading a selected set of mining company quarterly reports, it is clear they are all laser-focused on cost reduction.  The managements at mining companies heard the message of the market loud and clear now.  Its not about total ounces, its about profitable ounces.  So mining companies will end up reducing production - which is gold price supportive - but at the same time they're ensuring both their survival without adding more debt or selling more shares.

And if/when gold really recovers, those miners will happily start mining the lower grade ores again, ramping up production relatively cheaply, and that should really spike mining share prices.

 

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6 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
sneaky market-riggers: silver to 20.85

In the dead of night, the sneaky market-rigging bullion banks drove silver to new highs, stopping out 1600 short COMEX contracts, pushing silver up to 20.85 in one massive move.

Well ok, it was 10:15 JST - morning in Japan, but - do they trade over there?  Are you sure?

exomatosis's picture
exomatosis
Status: Bronze Member (Offline)
Joined: Feb 2 2014
Posts: 37
Better than bootlegging
davefairtex wrote:

In the dead of night, the sneaky market-rigging bullion banks drove silver to new highs, stopping out 1600 short COMEX contracts, pushing silver up to 20.85 in one massive move.

Well ok, it was 10:15 JST - morning in Japan, but - do they trade over there?  Are you sure?

I guess history is bereft of examples of big players making money during market downturns followed by market upturns of completely spontaneous origin?

Wait a minute ... besides bootlegging, didn't Joe Kennedy accumulate some pocket change in this manner?

Oh yeah ... and didn't Matt Taibbi write about something like that?

http://www.rollingstone.com/politics/news/the-great-american-bubble-mach...

You know, a thought just came to me.  Maybe, just maybe, JPMorgan might be doing the same thing with silver?

Naaahhh!  Silly me!  My tin foil hat must be messin' with my brainwaves again.

I know.  It's the return of the Hunt Brothers.  Or maybe Uncle Warren back to taking a second shot at silver.  Or maybe aliens are hypothosynthesizing nanosilver.

What think you Dave?

 

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
just maybe

exo-

You know, a thought just came to me.  Maybe, just maybe, JPMorgan might be doing the same thing with silver?

Ok, you convinced me.  :-)

Oliveoilguy's picture
Oliveoilguy
Status: Platinum Member (Offline)
Joined: Jun 29 2012
Posts: 578
PM's are really going to move

So why is Gold (and Silver) up? 

 Bad data is surfacing in the employment arena.  Yellen has told us that nothing will change in the short term at the FED so that she can have a smooth transition. We can expect FED to mildly support the markets for the next month or so. I would just be WRONG to have a major market dislocation on the eve of the appointment of the first woman to head the FED.  But confidence in her is not yet established. She could be a loose cannon and, God Forbid, do the right thing. (ie. let the market correct). Institutional money and hedge funds are nervous and need a place to park some $$$$$ and where better than in the highly beat-to-a-pulp PM market and the commodity sector. They have little downside risk there, but great downside potential in the Dow and S&P. 

 

 

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
PSLV premium now over 4%

Dave and team PP.com...  one thing to take note of is that the Sprott Silver trust (PSLV) premium is now climbing again into strong positive territory;   4.38% above Spot right now.  This is not super high from a longer term historical perspective, but it is high from a more recent perspective (do you have a chart for this Dave?) 

http://sprottphysicalbullion.com/sprott-physical-silver-trust/net-asset-...

I think that this is happening because naked shorts MUST buy real shares on the market if they want to cover.. and since PSLV is not a Silver price tracking vehicle like SLV.. well... you gotta pay a premium if you want to dislodge enough of those shares from strong handed holders.

Bottom line is that the shorts are covering.. both here in Sprott and on the Comex.  

One interesting scenario is presented here by trader Toby Connor.. he seems to have predicted pretty accurately the start of this "stealth" bull market in commodities;

  http://www.goldscents.blogspot.com/2014/02/another-piece-of-puzzle-falls...

http://www.goldscents.blogspot.com/2014/02/the-great-inflation-of-2014.html

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
PSLV, commodities

Yes I noticed the move in PSLV premium.  It is getting more interesting.  You can find NAV values here:

http://cef.morningstar.com/quote?t=PSLV

However be warned, the calculations are often off on days when silver makes big moves - don't rely on the values for trading.  Over the long haul however it is accurate.  Over the past few years, PSLV hasn't had a massive premium (likely because Sprott did a secondary offering every time the premium floated above say 6-7%) but in the old days of the 2011 bull market, the premiums got as high as 25%.

I'm not sure I'd buy PSLV with a premium much over 5% - Sprott will happily sacrifice that premium in order to increase the size of his fund (and thus raise his management fees).

I couldn't find any short interest for PSLV.

Toby Conner seems like a smart guy and his scenario is believeable, but it is only one possible outcome, and it is a lot of moving parts.

I have to say the current commodity move has me intrigued.  That, and the escape of the printed money from excess reserves.  It will be interesting to see how that evolves over time.

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