PM Daily Market Commentary - 8/27/2014

By davefairtex on Thu, Aug 28, 2014 - 12:09am

Gold closed up +2.10 to 1283.70 on light volume, while silver closed up +0.10 to 19.43 on heavy volume.  Both metals are starting to form a low; silver is forming a trading range and has closed to right up against its downtrend line, and appears to be leading gold higher for the first time in a long while.

In the chart below, we can see that all silver really needs to do is move sideways in order to break out of its 6-week downtrend.  Silver also appears to have pretty good support at 19.27, having bounced five times off that level in the past five days.  Given the improvement in the gold/silver ratio, the decent up-day volume, and the support, I'd say it is more likely than not we have a low at 19.27.  A close above 19.50 tomorrow would seal the deal.  A whole confluence of different signals says this to me, not just the silver chart, but the market still needs to cooperate.  And of course if silver can rally, gold will probably follow.

The dollar finally had a bad day, closing off -0.20 to 82.49.  It still remains in an uptrend; it will need another big day down to mark a possible reversal.  Of course there is no reason to reverse - nothing has really improved in the eurozone.  However, the buck has gone a long way in one direction, and the tendency of markets is to move in waves; sometimes it is just time for things to drop for a while after a long move up.  A dropping USD would definitely encourage silver and gold.

GDX was off -0.31% on very light volume, and GDXJ was down -0.29% also on very light volume.  Miners appear to be in a wait-and-see mode with respect to the underlying metal; the light volume suggests no real selling pressure, but neither are buyers of mining shares eager to bid prices higher without some follow-through from the metal itself.  That's how I read things anyway.

The SPX closed up +0.10 to 2000.12 - a second straight day above 2000, let the celebrations continue!  VIX moved up slightly to 11.78.  SPX may be getting a bit tired here, although we need to see a close below (about) 1995 to confirm this.  Labor day is approaching, the summer is behind us, and the historically difficult month of September is just a few days away.  Will traders want to hold SPX at all time highs going into Labor Day Weekend?  That's an interesting question - the close on Friday will answer that for us.  The Big Dogs come back to work next Tuesday.  What will they do?

Long term treasuries (TLT) were were up +0.85%, another big day, setting a new cycle high for the long bond ETF.  The TLT ETF is up 18% on the year.  And while you pocket the impressive capital gains, don't forget to add in the yield of 2.89% on the bonds themselves.  Total return might be around 20% - this compared to a gain of 8.6% for SPX year to date.

Brent crude was up +0.22 to close at 102.72 - it too looks to be trying to break its downtrend line.  Nothing definitive yet though.  The fact that Managed Money is at 16 month lows on the NYMEX Crude COT report is supportive of a low around this level, since these guys tend to be wrong at turning points just as they are in the metals.

If commodities in general rally, that will support silver and gold.

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1 Comment

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5694
silver: breakout!

Another "wee hours of the morning" move - 0720-0900 London time if you happen to live outside the US and are running an international trading desk - silver broke out touching 19.95 at its high point.  If a decent amount of this price move holds through the close in NY, we will have our PM breakout.  Gold is following, but a bit less energetically.

It took five bounces off 19.27 for the shorts to become convinced to cover - and for the longs to come out of hiding.

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