PM End of Week Market Commentary - 2/21/2014

davefairtex
By davefairtex on Sat, Feb 22, 2014 - 7:11pm

Gold finished Friday up +3.30 to 1326.00 on moderate volume, silver was up +0.02 to 21.83 on moderate volume.  The gold/silver ratio rose +0.10 to 60.73.  GDX was down -0.52% on moderate volume, while GDXJ dropped -0.51% on moderately heavy volume.

For the week, gold was up +7.10 [+0.54%], silver up +0.35 [+1.63%], GDX +0.68%, and GDXJ down -2.57%.  This week was a week of rest, the PM market seemingly trying to decide whether or not it was going to correct.  GDXJ saw some selling, while the senior miners were more or less flat.

US Equities/SPX

The US equity market is also trying to decide which direction it will take.  SPX was down -0.13% on the week, with a couple of minor distribution days (down day volume exceeded up day volume).  SPX tried breaking out on two different days, only to fail each time.

Miners

Senior miners moved mostly sideways this week, where the only distribution day was followed immediately by a strong rally.   Volume is declining and while it still looks like there is a strong bid beneath the mining shares, it may be that we will see a consolidation rather than a correction.  Down-day volume still seems (mostly) lower than up-day volume, and that's a bullish sign.  The 50 day MA is now moving up strongly towards the 200 MA, and the 200 MA is starting to move to neutral, which are both bullish trend signs.

The GDXJ chart looks similar to GDX, except the 20 MA has already crossed the 200 MA, which is yet another bullish marker.  GDXJ continues to be strongly bid every time there is a correction, with a buy-the-dip mentality that is especially evident in the junior miners.  Once again volume is a clue, with down-day volume being lower than up-day volume.

The USD

The USD put in a low this week at 80 support, bouncing weakly higher, closing up +0.15% to 80.30.  However, the buck is now clearly below its 50 day MA which is starting to fall, and overall the chart of the buck does not look particularly strong.  A dropping dollar should provide a boost for gold overall.

Rates & Commodities

The 10 year treasury rates tracked sideways, dropping 1 basis point to 2.75% this week.  Bonds may be awaiting the outcome in the equity market.

Commodities continued their crazy race higher, jumping +2.89% on the week.  Towards the end of the week the move slowed down a bit, but the overall commodity index hasn't had a down day for the past 8 trading sessions.  On the weekly chart, three straight up weeks has moved the weekly RSI-7 indicator to a strongly overbought level.  I'd like to say this can't continue at the current velocity, but that's not true - it would just be quite out of the ordinary.  If I knew why the commodity complex was on fire I'd feel better, but I'm not one of the insiders.  A move like this in commodities will eventually feed through to inflation numbers which will be bullish for PM.

Physical Supply Indicators

* Shanghai premiums on the Au9999 contract are down -2.07 on the week, and moves to a discount at -1.50 below COMEX.  Delivery volumes within the SGE remain elevated, but compensation is now being paid from longs to shorts, suggesting gold is no longer in shortage at SGE.

* The GLD ETF lost -2.94 tons of gold this week, and is down to 798 tons.

* Registered gold at COMEX rose 0.26 tons, to 20.17 tons of gold.  It is still a relatively low level, but overall the loss of gold from COMEX seems to have stopped.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1323.80 and silver 21.81:

   PHYS 11.0 -0.19% to NAV [down]
    PSLV 8.84 +4.06% to NAV [down]
    CEF 14.87 -4.25% to NAV [down]
    GTU 47.24 -3.63% to NAV [down]

Although PM was higher on the week, premiums on the ETFs suffered across the board, with all of them dropping between 0.5% to 1.5%.

Shanghai premiums are now negative, COMEX registered is growing slowly, GLD lost a bit of gold, and the ETF buyers are selling rather than buying.  This paints a somewhat negative physical picture to me - the one exception is PSLV with its 4% premium.

Futures Positioning

The COT report is as of February 18th.  Managed money both covered short (10k contracts) and increased long (6.5k contracts).  At the same time, Producers did basically the opposite - increasing short positions (9.5k) while liquidating longs (8k contracts).  There are 54k Managed Money shorts still left to cover.

Managed Money moving to a more long profile is exactly what is required to create a consistent move higher in gold, and that is what seems to be happening.  Shorts are covering, and new longs are being bought

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term UP, medium term UP, long term DOWN

Silver: short term UP, medium term UP, long term DOWN

No change this week in the moving averages, but the 50 MA is starting to rise more aggressively towards the 200 MA for both gold and silver.

Summary

PM is taking a bit of a break this week.  In terms of relative performance, silver has caught up to gold and even surpassed it: silver is consolidating well above its 200 MA while gold's consolidation is happening just above its 200 MA.  GDXJ sold off, but on relatively light volume.

Looking at the various ratios and averages, gold and silver is in an uptrend for both short and medium term timeframes (mostly bullish).  Price is also both above the 20, 50, and 200 day moving averages (bullish).  The rising 50 MA is gradually approaching the 200 - which will eventually result in a golden cross.  GDXJ:GDX took a dip but remains in an uptrend (bullish), while GDX:$GOLD remains clearly bullish.  The gold/silver ratio remains bullish as well, and appears to be consolidating around 60-61.

Shanghai is in discount and seems well supplied, COMEX registered rose slightly and the physical ETFs were sold.  GLD tonnage rose slightly.  All in all, it looks like physical demand is somewhat negative.

We got our dip - is one day the extent of the correction?  Hard to say.  Miners still have a strong bid, even the ones that miss earnings badly like NEM.  I think that as long as the commodity complex continues to rally, so will PM.  It will be interesting to see if gold continues to move up if and when the commodity complex corrects.

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9 Comments

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Gold is Irrelevant

The $US thrives on crises

The more the chickens' cage is rattled the more they rush to the $US. Qui Bono? If the $US has a crisis the chickens rush to the $US.

So why do you think the US keeps having crises? Not too hard to understand now, is it? Hence all the crises we are having, and why the melt down hasn't happened and is not going to happen. Qui Bono? Another day, another crisis, another billion dollars.

When Andrew Jackson paid off the US debt there was a recession. The more the US owes the world the stronger the $US.

The US has to keep their "promises to pay the bearer on demand" out there in circulation otherwise it will lose its Reserve Currency Status. No-one will use the $US for international trade if there are no $US to be had.

National economics and kitchen table economics are different.

Economics Professor speaks.

 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
Just wonderful Arthur...

To have you in the corner of the chartalists... the MMT'ers.... the Trillion dollar Pt coin gang.  Debt doesn't matter...math doesn't matter..  it's all about branding.. just gotta keep the (USD) brand strong and everything is OK. Just gotta not default.  What a great game!  Hegemonics. 

I will stick with Gold, Silver, and Palladium (not sold on Ni yet).  I have sped through much of the 2014 MIT cold fusion seminar on Youtube... Hagelstein is brilliant.  I am becoming increasingly de-skepticised.    

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Reply to Jim.

I don't stick my nose in this corner Jim because it is confusing by design.

But the good Argentinean Professor's discourse was refreshingly clear.

Did you notice at the end of the podcast he thought that the only thing that could cause trouble to the $US would be a new energy source that side-stepped the Arabs' Oil?

It it still amazing that Pons and Fleischmann were stomped on so brutally? They were well regarded electro-chemists.

Qui Bono?

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
This time is different

Arthur,  I listened to a bit of the podcast (I had followed links to the paper before) and my take on this professor is that he just does not get Gold.  His ideas are yet another variation on the wonderful theme, "This time will be different", the difference I am referring to being that this time an unbacked fiat currency is going to survive whereas all others in past history have failed.  As well he seems to think that the US position as world reserve currency is unassailable.  Here was the most telling quote for me, talking about the fact that oil and other international trade continues to be denominated in dollars;

"Gold does not provide the security that the dollar provides".

And then;

"The dollar is an asset with zero risk"

To which I would respond that, while the US will always be able to print dollars and repay those holders of US debt., it is unclear what the buying power of those dollars will be.  Well before the inflation becomes outrageous, Gold will have proven to all where real the security lies.  

In the end, this discussion really has nothing to do with Gold.  It has to do with the unholy death cross that we are at the cusp of now between the post peak decline of most resources, led by oil, and a set of debt-based fiat monetary systems that must continue to grow.  Few can see it because if you overlay the charts of the grand Hubbert net oil curve, and world debt (money) growth, we are in the very early stages of the cross.... and who understands this stuff anyway?  Certainly not the good professor.   The divergence will be rapid from here as we fall down the net energy well, while more and more fake paper "wealth" is created in a desperate attempt to re-ignite growth. Nearly free energy would certainly help.. but you still need real stuff like Copper, Steel, rare earth's, and (more) Palladium to build out a free energy future... free energy will not be salvation to the current generation of debt-based, unbacked fiat currencies.  

Overlay these charts, and you have your death cross... happening right now for the first time;

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
Buy Gold, At Cost! FBN

Those commercials are bad for gold.  Infomercial ???

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Jim

So is this time different or not?

Still, leaving aside the cuteness, free energy would solve the set of acute problems predicaments that you describe and which are familiar to both of us, and present us with a new set. However it would give us time for the endocrine disrupters to work their magic.

Why the obsession with palladium? There have been a plethora of other discoveries of excess heat since P&F 25 years ago. Mitsubishi and now Toyota are transmuting calcium. Science and technology move on.

The US is where the dollar comes home to die- buy gold if you think that you can sell it for more than you bought it for- that much is obvious.

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 764
It's time to sell silver and a technicals question

Or at least that's what CNBC/YahooFinance says:

http://finance.yahoo.com/blogs/talking-numbers/why-the-rally-in-silver-i...

The first talking head, assigned with a fundamentals analysis, said that silver would not do well once the economic data picks back up later in the year.  Since my fundamental macro view expects continued economic difficulty, all else equal, I was reassured by the fact her claim that poor economic data was good for silver. 

The second talking head, charged with technical analysis, said that silver was "likely in another sideways range" where neither bears nor bulls would get the upper hand.  Dave, from a technical standpoint, what do you think of the merits of this claim of a sideways range in the "long term" (i.e. the technical long term, which, I think, is the 200 day MA)?

Thanks,

Hugh

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 764
and it's time to sell any gold we have left

Here's more on the demise of precious metals.  Gold, it turns out, is not a good inflation hedge or store of value, it's just a bet on fear.  Of course, since "Western economies tend to experience more stability than fear, gold is typically a risky holding there."

http://finance.yahoo.com/news/word-warning-gold-investor-fear-081900233....

Sameer Samana, senior international strategist at brokerage firm Wells Fargo Advisors, suggests clients use gold's rebound to sell anything they have left.

 

Thanks, Mr. Samana, for giving me another reason to be glad that I switched from Wells Fargo (after 2 acquisitions of the NC bank that I originally chose) to a fairly small regional midwestern U.S. bank.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
good economy = bad for silver?

HughK-

Wait - the analyst said that a good economy was bad for silver?  This makes no sense to me.  The "silver is an industrial metal" meme is a strong one, and its my sense that if the economy picks up, silver will outperform, along with many other commodities.

As for the other guy saying silver is in a range - that's too soon to tell.  We first need to see a correction before we can judge where the top is on some hypothetical range.

There is some really tough-looking resistance at 26 - the low from the April crash.  There are most likely a lot of trapped longs at above 26 who are looking to sell if silver ever makes it back up to those levels again.  If we are in a range, I'd expect to see a test of 26 and a fail.

I also think the upswing in commodities has helped to pull the PM group higher.  If the commodity index continues moving up, so will silver regardless of these two technical people.

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