PM Daily Market Commentary - 8/7/2014

By davefairtex on Fri, Aug 8, 2014 - 12:53am

Gold closed up +7.60 to 1314.50 on moderately heavy volume, while silver was down -0.06 to 19.99 also on moderately heavy volume.  The continuing divergence between gold and silver caused the gold/silver ratio to rise +0.58 to 65.77.

Gold closed above its previous lower high, which from a chart perspective ends the downtrend for gold.  The volume is just ok - ideally I'd like it to be larger than the prior down-day volume sticks.  Still, gold appears to be well bid.  With premiums in Shanghai just barely positive (+1.37 over COMEX today) this seems to be all about western demand for paper gold.

Alongside gold's 5 day rally, the parallel rise in the gold/silver ratio is giving us an important clue: the recent move higher in gold is most likely a "safe haven" move, rather than a concern over inflation, money printing, and so on.  The chart of the ratio can give us a clue as to when this started: July 25th is the date I'd pick.  Unfortunately I can't say why - I can only say when.

For what its worth, Trader Dan spotted this behavior back on Tuesday; he was looking at the continually falling commodity prices, the rising USD, and how gold was moving relative to it all:

With the US Dollar attempting to gain some further upside traction and with the commodity indices plunging, as well as the idea that interest rate hikes are coming to the US sooner rather than later, the headwinds against gold are gathering.

Gold bulls had best be thanking their lucky stars for all the geopolitical risk in place right now. Were it not for that, it is unlikely gold would be maintaining itself above key support near $1280.

The USD rose today, up +0.09 to 81.59, but it was not quite able to make a new high.  While the bearish technical divergences in the dollar remain in place, the dollar "rollover" is still theoretical and has yet to occur.  The same impulse that encourages traders to buy all that paper COMEX gold as a safe haven trade could also be encouraging them to buy the buck - it is possible we might see a dollar rallying alongside gold.  When this happens, gold priced in other currencies is experiencing a very strong move higher.  Here's an example: gold priced in euros is quite close to a breakout.   In fact in many other currencies, the gold chart looks substantially better than it does priced in USD.

The miners traded sideways most of the day a bit unenthusiastically, with GDX up +0.27% on light volume, while GDXJ was actually down -0.14% on moderately light volume.  The ho-hum reaction of the miners to gold's move higher is a bit disconcerting, and supports the whole "safe haven" thesis.  Earlier this week miners looked to be quite strong, but now?  Perhaps they are just dragged down by the continued move lower in the equity market.

SPX made a fresh new low, closing off -11 to 1910.  SPX traded sideways right up until about 1040 EDT, after which selling started and didn't stop until just before the market closed.  There's no hint of a bottom forming in today's price action.  Buy the dip, as we have experienced it for the past few years, is just not happening.

Long term treasuries (TLT) closed up a big +0.93%, scoring a new closing high for this cycle.  Yield for the 20 year is 2.97%.  The 10 year (IEF) looked even better, breaking out more strongly on its chart and hitting a new high as well.  Although it is moving less rapidly (+0.45%) that's only because of its shorter duration.  Long bonds did well today, clearly money is moving into bonds from stocks.

Crude oil is trying to find a low, with Brent up +0.85 to 105.44, while WTIC up +0.78 to 97.62.  That sounds great, but the chart picture is more of an attempt at consolidation rather than the start of some sort of rally.



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