PM Daily Market Commentary - 2/26/2014

davefairtex
By davefairtex on Thu, Feb 27, 2014 - 12:27am

Gold rose early in asia to a new high, then sold off hard through London and New York trading, bouncing off 1320 support, and then finally closing off -12.80 to 1329.90 on heavy volume.   Silver was crushed, dropping -0.74 to 21.22 on very heavy volume, with silver's descent only stopping at the 200 MA support.  This caused gold/silver ratio to skyrocket, +1.54 to 62.67.

LIke most of the PM complex, silver yesterday was forming a bearish divergence in the RSI momentum indicator, which was signaling that the momentum of the ascent was weakening.  A correction following a bearish divergence isn't guaranteed, but neither is it particularly surprising.  If things are starting to look iffy, silver and GDXJ are the things that will be sold the hardest.

And the heavy volume in today's silver selloff along with only a minimal rebound tells us that the sellers meant business.  If the 200 MA doesn't hold, we're likely to see a move to 20.50 support - which might be a decent point to buy, if that support looks like it is holding.

The USD had a good day, rallying +0.25 [+0.31%] to 80.44.  If it continues to rise, that will likely encourage gold to correct further.

GDX was off only -1.06% on moderate volume, while GDXJ was off a more severe -3.20% on heavy volume.  Downside volume is starting to pick up, which suggests the selling is starting to get a bit more serious.  GDX is outperforming GDXJ, which is a bearish sign.  Another way of saying that is, juniors are now leading the market lower.

The commodity index $CCI was off -0.54%.  All the correlations seem to be working pretty well.  Dollar up, commodities down, gold down, silver and the junior miners down hard.  Some might imagine gold's drop today is the workings of a Desperate Fed - but when PM seems to be following the rest of the commodities, and when corrections occur at a point when momentum indicators are in the "deeply overbought" zone, what would William of Ockham say?

From my viewpoint, both PM and commodities had a very extended move up, and a correction of some sort was inevitable.  Prices move in waves, and that's what the momentum indicators are for - to give you a sense when the current wave is getting over-extended, and a correction is becoming increasingly likely.

4 Comments

rascalfc's picture
rascalfc
Status: Member (Offline)
Joined: Feb 17 2014
Posts: 1
Gold & Silver

I have purchased silver dollar coins in my past. I have friends that buy silver bars. When the dollar is devalued out of existence what is the best to hold, bars or coins?

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Online)
Joined: May 26 2009
Posts: 2935
It depends

rascalfc -

There isn't a completely clear answer on this one.

First off, I'm assuming you're talking about physical bullion that you'll be taking personal possession of.

Bars are the most economical (meaning you get the most silver for your dollar). Coins are best if you ever envision using them as a means of exchange at some point.

From my experience, dealers are happiest to accept product they clearly recognize. Sovereign coins top that list, followed by rounds (e.g. Buffalo, Sunshine Minting) and bars (Engelhard and Johnson & Matthey are the two biggies) made by reputable mints.

If you walk in with a silver round or bar to sell from a mint your local coin dealer (or his customers) isn't familiar with, he's going to demand a discount.

Also, my own coin dealer doesn't like dealing with junk silver. It's a hassle to build the bags, and even more so to inspect a bag a seller brings in. He's warned me that if it ever gets as busy in his shop as it did during 1980, he's going to be buying those bags at a sizable discount because he won't have the bandwidth to verify them properly.

exomatosis's picture
exomatosis
Status: Bronze Member (Offline)
Joined: Feb 2 2014
Posts: 37
Adam Taggart wrote: rascalfc
Adam Taggart wrote:

rascalfc -

There isn't a completely clear answer on this one.

First off, I'm assuming you're talking about physical bullion that you'll be taking personal possession of.

Bars are the most economical (meaning you get the most silver for your dollar). Coins are best if you ever envision using them as a means of exchange at some point.

From my experience, dealers are happiest to accept product they clearly recognize. Sovereign coins top that list, followed by rounds (e.g. Buffalo, Sunshine Minting) and bars (Engelhard and Johnson & Matthey are the two biggies) made by reputable mints.

If you walk in with a silver round or bar to sell from a mint your local coin dealer (or his customers) isn't familiar with, he's going to demand a discount.

Also, my own coin dealer doesn't like dealing with junk silver. It's a hassle to build the bags, and even more so to inspect a bag a seller brings in. He's warned me that if it ever gets as busy in his shop as it did during 1980, he's going to be buying those bags at a sizable discount because he won't have the bandwidth to verify them properly.

Bars aren't necessarily the most economical.  Have you seen the premium on Engelhard bars?  Also, large size bars will be less liquid because of their larger denomination (which would be amplified in a dollar collapse).  Rounds remind me of funny money.  I stay away from them.  So do most of the other folks I know who aren't Johnny come latelys to this game.

The situation in 1980 was very different from what will occur in a dollar collapse.  People were selling their silver to make a killing.  I know.  I was one of them.  In a dollar collapse, you won't be selling your silver to dealers.  You'll be hanging on to it.  One ounce coins will be too large a denomination for some exchanges.  Here's where smaller size (dime and quarter) junk silver comes more into play as a medium of exchange.

For a dollar collapse (not the same as the situation of holding and then selling back to a dealer for profit), here's some information about junk silver, the pre-1965 coins that contain 90% silver:

    Dimes - dimes are the most compact to store
        Mercury dimes
        Roosevelt dimes
    Quarters - quarters have the lowest price relative to spot
        Washington quarters
    Half dollars - half dollars are the easiest to count
        Walking liberty half dollars
        Franklin half dollars
        Kennedy half dollars (but only pre-1965)
 
The reason I prefer them is:
    1) their dates verify their silver content
    2) they are known worldwide as currency
    3) they have a known face value with no need for assay
    4) they are legal tender
    5) they are difficult to impossible to counterfeit
    6) they have a low premium relative to spot - at times they can be obtained for under spot (BTDT)
    7) they are readily available
    8) they are US coins
    9) being 90% silver rather than purer silver like eagles and especially maple leaves, they're better suited as
        a barter/transactional currency because they're not as soft
Three main reasons
    1) lowest premium
    2) readily available
    3) recognized world wide at face value without assay
They can be purchased in face value bags - each face value dollar contains .715 oz. of silver
    1) $1000 face value bags have the lowest premium but their 55 lbs. weight is heavy and they are large to
        store
    2) $500 are more convenient to store
    3) $100 are easy to buy via cost averaging and may not be reported
 
That being said, I hold junk silver, sovereign coins, and bars since at different times and in particular situations, each has particular advantages.  But I like gold better.  And right now, I like platinum and palladium even more.

 

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 760
Exomatosis, platinum and palladium?

Hi exomatosis,

Can you share more about why you like platinum and palladium so much right now?  I'd love to hear more.

Thanks,

Hugh

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