PM Daily Market Commentary - 6/16/2014

davefairtex
By davefairtex on Tue, Jun 17, 2014 - 1:52am

Gold closed down -4.80 to 1271.80 on moderate volume; silver closed flat at 19.66 on moderately heavy volume.  Gold rose early in asia trading to 1285, peaked right at its 50 MA, and then fell for the rest of the day, printing a hammer candle.  Silver looked a bit better but had largely the same pattern - a peak to 19.87 in asia, followed by a slower drop to the end of trading in NY.  The behavior of both metals signals a possible reversal signal in our recent two-week rally off the lows.

Generally speaking, things don't drive straight up - they take breaks every now and then as some number of traders decide to take profits on the recent move higher.  Its possible we're seeing the start of such a "break".

The buck fell today, off -0.08 to 80.54.  One trend indicator I watch, the MACD, is in the process of "rolling over" for the buck.  Other indicators suggest the recent rise in the buck is most likely at an end.  Normally this would help gold out, but these days the correlation of dollar-gold isn't as strong as it used to be.

The mining shares sold off a bit - GDX was down -0.54% on moderate volume, with GDXJ down a more substantial -1.94% on heavy volume.  Neither mining ETF put in a "swing high" (a technical term that indicates selling was particularly intense, and may be leading to a general selloff) but quite clearly some traders were taking profits after the recent run higher.

Gold remains the weaker of the two metals, which has pushed the gold/silver ratio a bit lower - 64.69 - a level last reached in early April 2014.  This remains a bullish sign for PM.  I believe silver is still showing strength, and I'll take that as my "tell" for the PM complex overall.  The miners too are looking ok so far; a period of selling is to be expected after such a strong move higher.

SPX crawled higher, closing up 2 points to close at 1938, with some pretty high volume.   VIX has not declined even though SPX has slowly staggered higher over the past few days; I'd interpret this to mean the shorts are loading up on the failure of SPX to rally significantly.  Its unclear who will win this particular battle.  Dip-buying has been an incredibly rewarding strategy for a very long time now.  Still, a failure to rally is an invitation to jump in short, and it would appear that some are doing just that.

Bonds (TLT) rallied modestly, closing up +0.25% crawling slowly higher after finding support on the 50 MA last week.  If the shorts win the struggle at the SPX, I'd expect to see bonds take off.

Given all the fuss about Iraq, one would have expected oil to shoot through the roof.  Here's what the chart is saying.  We use a weekly chart for its more "strategic view" as well as a "North Sea Brent" value for oil since it is the more international price (vs the price of West Texas oil in Cushing, Oklahoma).  http://en.wikipedia.org/wiki/Cushing,_Oklahoma

Traders viewpoint suggests: "there is an issue here - but we are not quite sure how serious it is."  Traders may well be wrong about the outcome - recency bias, a long history of Trouble in Iraq that hasn't led to the downfall of anything serious just yet, but I give you their short term feedback as one bit of evidence you can consider.

Longer term, oil is clearly in an uptrend - you can see that from the rising 200 week moving average, where the weekly Brent Oil has found support for the past year and a half.  Over time, this should crack the equity market, since higher oil prices are deflationary, and definitely not conducive to the whole growth story.  This would seem to be less about Iraq, and more about the longer term supply situation, but that's just my own personal tea-leaf reading.  Perhaps this ties in with the IOC's reluctance to spend more in CAPEX.

As the traders say, "if you put a gun to my head - I'd say higher oil prices are likely bullish for gold."  Although a case could be made for the opposite too.

Login or Register to post comments