PM Daily Market Commentary - 6/18/2014

By davefairtex on Wed, Jun 18, 2014 - 11:44pm

Gold closed up +5.90 to 1277.70 on moderately light volume; silver was up +0.15 on moderate volume.  Gold traded mostly sideways with a slight bullish bias into the FOMC meeting; at 1400 EDT it did its usual oscillation around the time of the FOMC statement, moved a bit higher and then broke up even more right after market close.  Silver did much the same, only its upward bias was stronger, as was its after-market break.  Silver made a new cycle high today, while gold did not.

Silver continues to outshine gold, and is within 10 cents of regaining the 20 handle, which also happens to be a previous high.  A break above 20 would cause a lot of short covering.  This is the 8th straight up day for silver.  Gold on the other hand has yet to cross its 50 MA, is trading with relatively low daily volume, and has been unable to rise above 1280 resistance.

Here are the two charts side by side.  Its really easy to see silver's outperformance over the past three weeks.  The gold/silver ratio summarizes this, folding two charts into one.  Since May 1, the gold/silver ratio has steadily dropped, from 67.50 down to 64.22.

One new bit from the FOMC statement: there was some discussion about a further future reduction in the balance sheet by not rolling over the principal from bonds that were paid off.  If they ended up doing this, the Fed would slowly shrink its balance sheet back to normal over time.

The buck traded lower into the FOMC statement release, had a very wide trading range just after 1400 EDT spiking almost up to 81, and then continued lower into the close, off -0.18 to 80.53.  It seems to me that continued tapering plus talking about a reduction in the balance sheet would be dollar-positive, but what do I know?  In looking at the other currency moves, everything did have a bit of "risk on" flavor to it - so perhaps the whole view is "we're getting back to normal, time to put on those carry trades again."  That's not my suggestion mind you, I'm just reporting what I see.

Miners advanced before 1400, retreated momentarily just before release, and then shot higher and rose into the close; GDX was up +2.65% on heavy volume, while GDXJ was up +4.57% on extremely heavy volume.  Both mining ETFs closed quite near the highs for the day, and both scored new cycle highs.  Miners clearly liked the FOMC statement release.  All the ratios read bullish.

SPX traded sideways into 1400 EDT, had a brief dip lower at the time of release, and then rose rapidly, closing up +15 points to 1957 to a new all time high.  The VIX was absolutely hammered in response, dropping down to a new multi-year low of 10.61.

Bonds were a bit less positive - although they too rallied immediately after 1400, they closed a bit off the highs, with TLT up +0.77%.  TLT failed to break higher out of its recent consolidation zone and is still more or less hovering right above its 50 MA.

Brent Crude was up again today, closing +0.81 to 114.26 scoring a new closing high for this cycle.  Previous high was 117.50 back in Febrary 2013.  Volume today was again quite strong.  Price of Brent Crude diverged further from its US-based West Texas cousin WTIC, which dropped -0.56 closing at 106.04.  Our lesson from yesterday is driven home further: there is no one international price for oil.

In trying to get a sense of the money flows today, the picture was a bit confusing.  That's because pretty much everything went up - equities, bonds, gold, silver, and the gold mining shares, as well as brent crude, while the dollar itself went down.  In reading over the meeting summary as well as the press conference notes, I didn't see anything that was super bullish - or bearish.  Perhaps the actions of further tapering plus the possibility of actual balance sheet reduction was seen as a positive forecast for the future, but its hard to say.

Perhaps money is tired of earning 0.25% in excess reserves, and is finally leaving in search of better returns and as a result it is pouring into all these different asset classes, including emerging markets.  If so, we should find out in a month.



davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
there's our silver breakout

Silver popped above 20 this morning - its looking seriously overbought, but that doesn't seem to be stopping it from continuing to climb.  Someday it will take a rest, but apparently not today.

Particularly good news that gold seems to be following along.  Clearing that 1280 resistance was important.  now its looking much more dangerous for the shorts.

If this was all about safe haven moves, gold would be leading silver - so I think its something else.  Can't tell you what it is, though, because I don't know..

Wildlife Tracker's picture
Wildlife Tracker
Status: Gold Member (Offline)
Joined: Jan 14 2012
Posts: 403

It feels good to be right about price movements. $

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