PM Daily Market Commentary - 9/2/2014

By davefairtex on Wed, Sep 3, 2014 - 4:00am

Gold was driven down -21.50 on very heavy volume; silver was down -0.33 on heavy volume.  This is why I don't like tepid, low volume rallies like we saw last week - they show weak buying interest, which tends to encourage the shorts to pounce.  Gold was hammered five different times intraday starting early in asia and ending just after 1030 EDT, breaking support and forming a new cycle low.  Silver was the follower rather than the leader, and at least judging by the charts looks stronger than gold.

Once again we're in a position where we have to wait for the buyers to show up in gold.  Today's move lower was extremely high volume, and closed at or near the lows of the day.  There are no buyers just yet.  There is clear support at 1240, the previous low set in June.  Likely when the buck tops, if and when it ever does, we'll probably see the low in gold.   Hopefully this comes before we reach 1240.

The dollar broke out again today, closing up +0.29 to 83.01.  New lows for the euro, new highs for the dollar. No doubt this, along with the tepid rally from last week on gold gave the shorts all the encouragement they needed to pound the daylights out of the metals.  In general, a rising dollar does gold no favors at all.

Right now, weekly RSI-7 for the euro is around 11, weekly RSI-7 for the buck is 90.  These momentum indicators are telling me that the dollar has gone up/euro has gone down without a break for quite a long while.  Normally markets move in waves, and the RSI indicator shows this by tending to oscillate between 30 and 70.  A reading of 90 says the buck is very overstretched to the upside, and that something unusual is taking place - and this situation does not often last very long.  There "should" be a pullback soon given the market's tendency to move in waves, unless something truly extraordinary is happening.

GDX did not have a good day, closing off -3.30% on heavy volume.  GDXJ was down -4.61% on heavy volume as well.  Both mining ETFs managed to remain above their respective support levels, but both are close to breaking down.  My guess: a continued drop in gold will eventually result in a mining share break below support, which will probably lead to several days of selling on high volume.  If you aren't long miners, that's your chance to buy in; if you are already long, you will probably not be so happy if gold cannot find buyers soon.

Oil may have been a co-conspirator in gold's big move down today, with both moves feeding off each other.  WTIC was off -2.59 to 93.25, and Brent was down -2.85 closing at 100.34.  Both moves were massive, high volume affairs, with no hint of a rebound, and Brent actually made a new cycle low.  Neither Brent nor WTIC have been able to close above their 20 EMA for weeks: the oil downtrend is alive and well.  Falling oil prices does not signal inflation, quite the reverse actually, and most likely will continue to drag down gold and silver.

Commodities overall also had a bad day, off -0.59%.

My suspicion - weakness in oil, gold, and silver along with steady selling of the euro is that this is a eurozone banking affair.  Eurozone banks are deleveraging, and holders of euros are bailing out of the zone prior to the publication of these stress tests.  That, and/or dollar-debt is being repaid.  This is generally not a gold-futures-friendly environment.  I'm mostly watching the buck and oil for clues right now.

After dropping perhaps 8 points intraday, SPX rallied into the close ending down -1 to 2002.28.  VIX had a large trading range but ended up only slightly to 12.25.  SPX was a non-factor today.

Long term treasuries (TLT) sold off really hard, down a big -1.73%.  TLT remains above its 20 EMA, but today's big move suggests that the long bond rally of 2014 may be getting a bit tired and could be due for a correction.

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Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Swan Dive.

It looks as though Nicolle Foss is winning this argument. She says that silver and gold will crash and then climb once we have had our little world-wide crash.

But then it is all a matter of the time scale at which you work. I think I will stack paper money for a while . .. .. no wait!

Expect the unexpected- swans everywhere.

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
nicole foss & gold


I have to agree - a steadily rising dollar, a possible flock of deleveraging banks, and falling commodity prices coupled with deflation in the eurozone don't seem to be encouraging people to buy gold.  The reverse, actually.  Managed Money continues to go short and drop long positions, and they appear to have the whip hand.

Will this selling continue (with even more vigor) if bail-ins in Europe start happening?  My guess is - probably yes.  If there are capital controls in Europe, however, all bets are off.  We might see a move out of the euro and a move into (physical) gold and the dollar simultaneously.

Plus, if the Fed (or possibly BOJ) actually does print money and hand it out to real people as laid out in the CFR article, sentiment in gold will probably flip 180 degrees - likely faster than any of us could actually react.


JayPaul's picture
Status: Bronze Member (Offline)
Joined: Aug 28 2014
Posts: 30

MHO: Gold gets slammed in a crash event, oil too, dollar is King. This crash event will happen and Europe, China, and every corner of the globe joins in the fun too. No escaping this one.


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