PM Daily Market Commentary - 8/12/2014

davefairtex
By davefairtex on Wed, Aug 13, 2014 - 2:06am

Gold closed up +1.00 to 1310.40 on moderate volume, while silver was off -0.09 to 19.92 on moderately heavy volume.  Gold rallied strongly up through the morning in NY, but sold off after mid-day, losing almost all its gains by the close.  Silver underperformed once again, causing the gold/silver ratio to rise +0.35 to 65.78.

The USD closed up +0.05 to 81.57, but printed a bearish-looking shooting star candle - having rallied as high as 81.75 before dropping back down by end of day.  The dollar is trading sideways within a range right now, seemingly waiting for the Euro to figure out if it wants to rally, or fall further.  There is some evidence that suggests the Euro is getting ready to rally, and the pace of the euro's decline is definitely slower than before, but from a macro viewpoint it seems difficult to imagine why one would want to buy Euros right now.

The senior miners did quite well today, with GDX up +1.71% on moderate volume, however GDXJ was up only +0.31% on moderately light volume.  Senior miners are looking great, breaking out above resistance for both the GDX itself and the GDX:$GOLD ratio, with the whole picture looking quite bullish.  One standout performer is the senior miner Newmont (NEM), which actually broke out three days ago and now going vertical.  NEM is 8% of GDX.  http://finance.yahoo.com/q/hl?s=GDX+Holdings

GDXJ is looking quite a bit worse, barely able to have a positive day, and closing near its lows for the day.  Looking at the GDXJ:GDX ratio, we see the slow but steady underperformance of the junior miners relative to the seniors starting mid-July.

To have senior miners rallying while juniors underperform is unusual.   Under normal circumstances, I'd interpret this to be bearish for PM overall, but - all I can guess is that it reflects some sort of safe haven move.  We aren't seeing large premiums in Shanghai, so it doesn't seem to be physical demand - at least not physical demand in asia.  And there are no large premiums for the physical ETFs, which leaves the COMEX and the LBMA as sources for the gold demand.

SPX fell back a bit today, closing down -3 to 1934.  Even so, the VIX was off slightly as well, closing at 14.13.  SPX is now at a bit of a decision point.  Yesterday it encountered resistance at its 20 EMA on its attempt to rally.  The 20 EMA has acted as good support as SPX rose over the past few months; will it now act as resistance on the way up?  If SPX fails to rally above 20 EMA now, we could get quite the selloff.  It really all depends on sentiment - will traders use this rally as a chance to get out, or to buy more?  Steadily declining volume suggests a lack of enthusiasm for the rally.

Long term treasuries (TLT) dropped more significantly today, closing down -0.65%.  It is hard to say where that money is going - it isn't going into equities, commodities, nor is it leaving the country.

Brent diverged from WTIC today - it broke down hard, dropping -1.66, closing at 103.02 and making a new cycle low.  WTIC remains within its trading range, off only -0.67 to 97.18.  I feel the decline in brent crude in the face of double handfuls of unrest in the heart of oil country is trying hard to tell us something.  I'm struggling to understand what it is, but I feel the steady drop especially under these conditions may be quite significant.  And my first suspect is not "unlimited money printing by the Fed" or manipulation.  Too many markets are acting oddly.

If I'm right about this, something is dreadfully amiss somewhere, and its a near term thing, not something off in the distance.  Major eurozone banking issue, perhaps?  Deflation?  Eurozone economy?  Ebola epidemic?

And I think silver's weakness, and gold's strength is tied in with this picture as well.

1 Comment

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
On safe haven moves and shanghai

For more on safe haven moves and shanghai, pop over to Mish – Mike Shedlock. Pay special attention to comments by Jenn Hanover; she tends to be quite rational.

Things that may be dreadfully amiss might include the Crimean war, and the possibility of Russian war; the Shanghai ghost banking collapse, the prosecution of corrupt chinese who expatriated money; there may be other issues as well.

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