PM Daily Market Commentary - 5/14/2014

By davefairtex on Wed, May 14, 2014 - 11:10pm

Gold was up +11.30 to 1305.50 on moderate volume - silver was up +0.22 to 19.70 on moderately heavy volume.  PM has been doing uncharacteristically well in London these days, today especially.  Buying started at 8am GMT and continued for the next five hours, with gold hitting 1309 and silver touching 20 exactly, before retreating into the close in NY.

Silver managed to break above its recent trading range,but it could not hold onto gains into the close.  However it did manage to close above its 20 EMA for the first time in two months, which is a sign that the buyers may be back at COMEX.  Next obstacle for silver is the 50 EMA, which is currently at the round number of 20 - exactly where the rally stopped today.

No doubt the recent bullish copper move has helped silver.  Copper is back up to 3.15, far above the 2.90 lows it reached back in March when everyone was worried about defaults in China.  Likewise, the bit about the silver fix going away Aug 14th might have helped as well - the earliest timestamp I could find for that news item was at 0244 EDT, which is right around the time silver started its rally.

Gold looks reasonably good right now too - it also closed above its 20 EMA, although its chart isn't forming as clear a bottoming pattern as is silver.  Still, all it would take is a close around 1320 and, like silver, the complexion of the gold chart would change entirely.

The buck took a rest today, after 5 straight up days, it closed down -0.07 to 80.12.

In spite of the fairly solid moves in PM, the mining shares had just a so-so day, with GDX +1.09% on light volume, and GDXJ +1.82% on moderate volume.   Another way to look at it is, the miners didn't confirm the rally in the metal today - at least not the way they did back in January.

Lest you think I have it in for the mining shares, here's a chart of GDX:$GOLD.  When this ratio rises, mining shares are outperforming gold, and that is often accompanied by some good volume, and rising prices.  When the ratio falls, mining shares are underperforming gold - this is what they did during a large section of 2013.  Notice how this ratio started rising in December prior to the rally in the shares that started January 1.  Usually this ratio leads - and right now, its heading downhill.  That's why I grumble about "no buyers for the miners."  If miners are leading, they're leading us in the wrong direction.

As a marker of a possible trend change for PM, I'd like to see the GDX:$GOLD ratio start rising - preferably crossing one of its moving averages, like the 20 EMA at least to start with.  I'd also like to see some decent up-day volume on the miners too, which we aren't seeing right now.

SPX traded mostly sideways until the last two hours, when it tipped over and sank, closing down -9 on moderate volume.  The higher risk names weren't sold heavily though, so I don't feel this was a conclusive move.  VIX agrees with me - a VIX of 12.17 (!) suggests serene complacency.  Clear skies ahead, nothing to worry about here.  Insurance is cheap.  Cheap cheap cheap right now.

Bonds rallied today - TLT opened up and rallied further, breaking out to new highs, up +1.08%.  The 10 year treasury yield closed at 2.54%.  Remember back at the beginning of the year it was trading at 3%?  Shorting bonds this year has been a very bad idea.

I just had a thought: the shrinking deficit may be eliminating the supply of new bonds faster than the Fed is tapering its purchases, resulting in a ... shortage of debt!  Let's call it a temporary shortage though - as Chris said, this is likely the best we'll get without further spending cuts or tax increases.

Some quick math shows the Fed is printing about 70 billion a month (for April) and the Treasury's deficit is averaging about 40 billion.  Perhaps the rally in the bond market really is all about supply & demand, rather than a money flow indicator (i.e. that the stock market is about to tip over).

It's a thought anyway.


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