PM Daily Market Commentary - 6/17/2014

By davefairtex on Tue, Jun 17, 2014 - 10:28pm

Gold closed flat at 1271.80 on moderate volume; silver was up +0.09 on moderate volume as well.  Both metals were hammered at the time of the CPI release at 0830 EDT, driving down to 1258 for gold and 19.43 for silver.  Both metals recovered soon after, and drove higher, with silver closing at its highs for the day with gold not too far behind.  Gold printed a doji candlestick, while silver printed a hammer - both bullish outcomes, with silver once again behaving more strongly than gold.

I expected gold to be tested, and some profits taken by traders from the run up, especially given its relatively weak volume in recent days.  That's what happened this morning.  The response from the longs was encouraging - the spike down was strongly bought, and quickly too.  On the basis of that evidence of strength, I think we may see a test of 1300 in the near future.  And if silver can regain its 20 handle - only 25 cents away - all those Managed Money silver shorts are going to start feeling awfully nervous.

I keep beating "the silver drum" not because I love silver (I think gold is much nicer looking) but because of the price action combined with the huge number of Managed Money shorts, alongside the fact it is below costs of production for many miners.  Taken together, it makes for a compelling story - and that story is backed up by actual price & volume action.  Just the story alone wouldn't sell me (the number of stories I've heard about "the next inevitable move in PM" could fill a book) but the fact that players at the COMEX seem to be willing to put money on this bet tells me that there is a decent chance we could see some really interesting moves in this metal in the near future.  In sum: when story meets price action, I get really interested.

The buck rallied today, up +0.17 to 80.71 - it still looks to be undergoing a topping process when looked at from a momentum viewpoint, although for the past 6 weeks it has managed to stay above its 20 EMA, which looks bullish from a trend viewpoint.  I guess we'll need some more time before we know which direction it will pick.

Miners were mixed, with GDX up +0.58% on moderately light volume, while GDXJ was off -0.54% on moderate volume.  Not enough movement, light volume - no directional signal right now from the mining shares.  Perhaps GDX is just playing some catch-up right now to GDXJ.

SPX closed up +4 points to 1942, while the VIX dropped substantially to 12.06.  The broader equity market seems immune to any of the various problems in the world - clearly someone or something has a bid under the market.  Is there a shift under way from bonds to equities for central banks, pensions, and sovereign wealth funds?  It makes as much sense to me as anything else.  Trillions in reserves need to park somewhere; wherever that money decides to move will have massive price support.

TLT dropped -0.79% today, moving back down to its 50 MA.  Four days after bouncing off its 50 MA it is back there once again.  A close below the 50 would be a strong sign to sell the long bond.  The 10 year treasury has already dropped below support.  If equities continue to avoid a selloff, we might just get to see a selloff in treasurys.

In oil, there is an interesting divergence between $BRENT and $WTIC right now - today Brent crude sold off but then recovered strongly, closing up +0.45% on some good volume.  $WTIC looked weaker, and closed flat on the day.

Turns out, there is no one international price for oil.  Each oil field produces oil of a unique chemical makeup, which affects costs to refine.  In addition, sometimes it can be difficult to transport the oil from a particular source to the refinery - Iraqi crude from some of its fields is probably selling at a substantial discount!  The divergence between Brent and WTIC is interesting, and is a relatively new phenomenon, at least partially because of the increased US shale production has resulted in a lot of oil arriving at Cushing, Oklahoma - which decreases prices for WTIC.  This means US oil prices (as determined by WTIC) won't jump quite as dramatically as the more internationally sensitive Brent crude price, which comes from the North Sea and is quite convenient for the refineries in Europe to purchase.

Bottom line - we should be watching Brent crude right now for clues about Iraq, rather than WTIC.

A key level to watch for Brent is the $117-$120 range, which is the recent multi-year high dating back to early 2013, not visible on this chart - and really not so far away either.  A move above $127.50 for Brent (the 2012 high) would really start to validate Chris's concern about $150 oil.

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