PM Daily Market Commentary - 3/12/2014

davefairtex
By davefairtex on Wed, Mar 12, 2014 - 10:40pm

Gold closed up +17.70 to 1367.20 on extremely heavy volume, while silver closed +0.44 to 21.32 on heavy volume.  Gold basically rallied all day long - in asia, london, and then again in NY, closing with most of its gains intact, spiking steadily and repeatedly higher, stopping out the shorts again and again.  Silver followed but was significantly lagging until copper made its low at 0530 EST - at which point silver too caught fire.

If you watch the intraday price movements and see how things are synchronized by time, you can see how the commodity prices affect one another.  That's why I say these things - I like to focus on inter-market relationships.  This is mainly because these relationships along with prevailing trends actually seem to have predictive power.  As a contrast, for the life of me I can't understand how to use the standard mainstream goldbug paradigm: "The Fed Stands Ready to Stomp Gold 24/7" as any sort of guide of when to profitably buy and sell gold and the miners.

The buck dropped today, down -0.18 [-0.23%] to 79.58.  The dollar has been making a series of big downside moves, followed by small rallies - that's because it is in a downtrend.  And that is because the eurozone is in deflation, causing its currency to rise and causing the dollar to drop.  A deflating currency like the euro is worth more and more, which is something we're not used to after 50 years of Fed-engineered steady inflation.  The US is not in credit deflation (credit growth: +3.54%) while the eurozone most definitely is (credit growth: -4.79%).

If you read news these days, they talk a lot about deflation in the eurozone.  Who would have guessed this would happen?  Well if you were following credit growth, and you noticed that back at the end of 2012 year-over-year credit growth plunged through 0%, you would have been able to predict this CPI-deflationary outcome.  The EU CPI has just now caught up to what credit had been doing for a year now.  It doesn't take a genius.  Credit growth drives money growth, which drives inflation.  a -> b -> c.  Too bad they don't teach this in economics.  At least, I never learned it.

GDX was up +3.02% on moderately heavy volume, with GDXJ up +3.94% on heavy volume.  Both miner ETFs are a hair away from breaking out.  GDX is at 26.92 and the resistance point is 27 - it would not take much to push GDX right up and over the edge - resulting in a flurry of short covering and perhaps even "buying of the breakout" by traders who are starting to believe in gold's move higher.  Why has gold "broken out" while the miners are still below their breakout point?  It is because for a while now, the miners have been underperforming gold.  We see this by looking at the GDX:$GOLD ratio.  Normally in a PM bull market, miners outperform gold and this chart moves higher, but that's not what has happened for the past month.  This underperformance of the miners is something to watch.  Either the miners will jump and catch up, or gold's rally will fail.  My money is on miners playing catch-up; we're in an uptrend, so give the benefit of the doubt to the current trend.

Commodities were up +0.05% today, basically flat on the day.  Copper too was dead flat on the day, closing unchanged.  However beneath that "no change" lies a tale - quite possibly signaling a bottom for "the other yellow metal":

The doji candlestick (meaning "unchanged on the day") signals that the buy and sell side pressure was even today - and the volume gives that emphasis.  We can't be sure of a reversal until price rises above today's high, but I'd rate this as "probable bottom" for copper.  And if copper bottoms here, it signals that China is not going to let things get out of hand.

Why do we care?  If you look at intraday price movements, you'll see that at the very moment copper bottomed out at 0530 EST - so did silver.  And for those of us with silver or silver mining shares, we definitely care about silver...so we also care about copper.  And if copper bottoms, and then silver starts to catch up to gold, it will make the whole PM complex feel better.

So stop focusing on the Fed, and root for copper!  That's the bottom line!

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4 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5064
russian invasion of Ukraine?

So the Mail today had an article describing the massing of Russian forces on the various borders of the Ukraine:

http://www.dailymail.co.uk/news/article-2579168/Ukraine-warns-scale-invasion-Russia-moves-artillery-close-borders-Kiev-security-chief-says-Putins-troops-run-three-hours.html

Using some simple math, it looks like a single armored division, along with a flock of smaller infantry units.  I don't think one armored division could take Ukraine - back in the day it took the German Army dozens of armored divisions and a whole flock of infantry to do the same job.  But who knows, maybe more are on the way.

Little known fact: 70-odd years ago, some Ukranian units fought alongside Germany and against Russia.  They really didn't like the Russians much.  My guess is, they still don't.

And I suspect realtime satellite intel plus some air support would make it quite difficult for a single armored division to have its way with a vast country that really didn't want to be occupied.  It may be tank country - but its also Air Power country too.

Honestly, it seems to be a question of - are the people of the Ukraine really serious about resisting the Russians?  And is NATO really serious about supporting them?  If so - its a vast country, and the Russian army is small enough that while it might be able to drive around for a while initially unopposed, it certainly cannot occupy such a vast place if the people there really don't want them to do so - and if NATO airpower makes an appearance.

So the question I have is, what scenario is playing out here?  Is this South Korea - whose soldiers fought hard to resist invasion, or is it South Vietnam, whose leadership was hopelessly corrupt and whose people at a core level really didn't care so much.

We might end up having a referendum, but not the kind where you put a vote into a ballot box.

It all seems good for gold.  Bad for the world, but good for gold.

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 760
Ukraine conflagration
davefairtex wrote:

So the Mail today had an article describing the massing of Russian forces on the various borders of the Ukraine:

http://www.dailymail.co.uk/news/article-2579168/Ukraine-warns-scale-invasion-Russia-moves-artillery-close-borders-Kiev-security-chief-says-Putins-troops-run-three-hours.html

Using some simple math, it looks like a single armored division, along with a flock of smaller infantry units.  I don't think one armored division could take Ukraine - back in the day it took the German Army dozens of armored divisions and a whole flock of infantry to do the same job.  But who knows, maybe more are on the way.

Little known fact: 70-odd years ago, some Ukranian units fought alongside Germany and against Russia.  They really didn't like the Russians much.  My guess is, they still don't.

And I suspect realtime satellite intel plus some air support would make it quite difficult for a single armored division to have its way with a vast country that really didn't want to be occupied.  It may be tank country - but its also Air Power country too.

Honestly, it seems to be a question of - are the people of the Ukraine really serious about resisting the Russians?  And is NATO really serious about supporting them?  If so - its a vast country, and the Russian army is small enough that while it might be able to drive around for a while initially unopposed, it certainly cannot occupy such a vast place if the people there really don't want them to do so - and if NATO airpower makes an appearance.

So the question I have is, what scenario is playing out here?  Is this South Korea - whose soldiers fought hard to resist invasion, or is it South Vietnam, whose leadership was hopelessly corrupt and whose people at a core level really didn't care so much.

We might end up having a referendum, but not the kind where you put a vote into a ballot box.

It all seems good for gold.  Bad for the world, but good for gold.

Hi Dave and all,

I think there are a few reasons that some Ukrainians fought alongside Nazis against the Soviets.  One is certainly the bitterness sown during the Holodomor of 1932-1933, Stalin's famine-genocide in which 7 million Ukrainians died due to starvation and sometimes execution, and which the Soviet leader used as a way to suppress nationalistic feelings in the Ukraine.  Another is that in some parts of Europe - especially Eastern - there was already a lot of homegrown anti-Semitism when the Nazis showed up, so there was also some amount of Ukrainian collaboration during the Holocaust.  And, of course, some people changed sides because they thought the Nazis were going to emerge victorious.

We have about 20 Ukrainian students and some 50+ Russian students at my school right now.  Some of the Ukrainians are fairly nationalistic and support clear independence from Russian influence, and others don't like the idea of Russian troops in Ukraine, but they are supportive of close ties with Russia.  They are not representative of Ukraine's population, of course, because - with the exception of a couple of scholarship students - they are from the top 1%.  Nonetheless, I get the sense from listening to them and from what I'm reading/seeing, is that there are some parts of the Ukraine that are quite pro-Russian.  I don't believe much of what I see on Russia Today regarding this conflict, and I have little doubt that both the Russians and the US/EU are supporting "grass roots" movements and demonstrations that favor their respective sides.

I don't have any idea whether or not a Russian invasion of Eastern Ukraine is imminent, but I would guess that it will not happen because Putin will lose too much credibility if he does that.  I also can't imagine NATO taking military action against a Russian occupation of any part of the Ukraine.  I think it's fairly clear now that on Sunday the Crimeans are going to vote to join Russia, and based on the high percentage of Russian-speakers (as a mother tongue) in the Crimea, Russian organizers will not have to rig this vote; it will go in their favor even if it's fair.  If/when this referendum passes, I'll bet that there will be sanctions against Russia, but no military action regarding Crimea.

This whole incident has made me think about the probability of nuclear war triggered by geopolitical instability, which, in turn, is triggered by economic and civilizational stability.  If the world suffers a series of economic shocks, falling agricultural production and distribution due to falling oil supply (and also climate change on a longer time scale), what are the chances that some leader will not press the red button?

But, I don't think that NATO and Russia will have a significant military confrontation over Ukraine, even if Putin occupies the Eastern parts of the country, because the risk is too great for either side.  If a significant military conflict between NATO and Russia were to emerge, well, then I don't think we'd have to worry much about whether we've bought the S&P, gold, or bitcoin.

I don't spend a lot of time worrying about nuclear war, but I am aware that the possibility is there and that it seems to be more of a danger now than has been during most of the post-Cold War period.

Cheers,

Hugh

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Dave and Hugh - thank you for the discussion of Ukraine

Lots of good insight.. I really appreciate the picture Hugh paints based on his students. 

joesxm2011's picture
joesxm2011
Status: Gold Member (Offline)
Joined: Mar 16 2011
Posts: 259
100 year anniversary

This thread made me think of the 100 year anniversary coming up this summer.

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