PM Daily Market Commentary - 9/22/2014

By davefairtex on Tue, Sep 23, 2014 - 1:51am

Gold closed down -1.40 to 1215.50 on moderately heavy volume; silver was down -0.06 to 17.73 on extremely heavy volume.  While both gold and silver made new lows today and then subsequently rebounded, silver seemed singled out for abuse.  Early in asia trading it was pounded hard, resulting in a flood of selling and reaching a low of 17.34.  It then subsequently rebounded, climbing back almost to even.

So there are COMEX silver buyers out there for silver in the 17.50 range, which is nice to see.  What's more, this happened on high volume, so that is also a hopeful sign.  Big spikes down on high volume that end up with a rebound are much more likely to mark a low.

Price action certainly looks better than Friday's performance, which was all about traders selling.  In addition, silver is also very oversold, so we are in the right area for a low to be made.  But for a disciplined trader, we need to see the market prove to us that the low is in, and that happens when prices move above today's high and stay there into the close.

The buck made a new high today, hitting 84.98 briefly before selling off, closing down -0.07 to 84.79.  While the dollar did close down a bit today, the dollar has yet to mark a top.  Until it does, it will make it harder for PM to find its low.  The buck remains in a strong uptrend.

Miners continued lower today, with GDX off -2.12% on heavy volume; GDXJ was hammered, down -4.84% on extremely heavy volume.  Traders seem to have given up on mining shares, both juniors and seniors are now in free fall.  Now you see what I mean when I say "risk is high" when prices break below support levels.  Those disciplined traders all exit their positions creating a great deal of selling pressure.

While both ETFs remain well above their Dec 2013 lows, GDX is right above the low set back in May 2014; if broken, that will likely lead to yet more selling.  I would expect a bounce off GDX 22 - if only from the shorts covering their successful bets at a logical point for buyers to come in.

But from today's price action, there really is no good news here at all.  Even with gold only down modestly, traders were looking to bail out of miners.  The GDX:$GOLD ratio looks dreadfully bearish right now; with gold only off -0.12% today, for the miners to drop -2.12% is a really bad performance.  It reminds me of what we saw in 2013.

SPX sold off today, closing down -16 to 1994.29.  It was a decent-sized move, possibly driven by the failure of the market on Friday to rally.  The negative "existing home sales" report probably didn't help either, since falling sales numbers points to a decline in the housing market that already looks like it might have topped.  Might bad news start to matter again?  VIX shot higher, up +1.58 to 13.69.  A touch of fear has returned to the market.

Long term treasuries (TLT) were up +0.12%.  However, in context, that's not such a great performance.  After a strong move higher on Friday, to have TLT rising a mere 0.12% on a day when the SPX sells off is a bearish sign.  I expected it to do better.  The long bond looks to be having problems rising above its 50 MA.

Commodities continued lower - I keep saying that every day, but they really do keep dropping.  The commodity index was down -0.64%.  WTIC was off -1.10 to 90.67, while Brent dropped -1.42 making a new low and closing at 96.97.  Both oil contracts look weak, and unable to rally.

While silver might have put in a low today, it will be hard for PM to rally in the face of steady commodity weakness and continued new highs in the buck.  The story hasn't changed much; silver especially is quite oversold, but prices continue to drop.   The tone is still unrelentingly bearish, and we are waiting for the market to show us the low.

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davefairtex's picture
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Joined: Sep 3 2008
Posts: 5687
silver breakout in asia

Silver just broke out to 17.93, gold to 1227; at the same time the buck broke lower and is now down -0.18 to 84.68.  If silver holds this level through end of day, its a reasonably good chance we have our low in silver.

There are a large number of shorts right now that will ben driven to cover in a reversal.  If this marks the low in commodities and a top in the buck all at the same time, this could end up being a violent move higher in PM.


Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Must Watch, Debate Over.

There can be no denial now. Chris Powell, chairman and treasure of GATA (Gold anti-Trust Action Committee) and veteran reporter discusses Gold Manipulation with Dr Larry Parks about the Fact of gold manipulation.

The debate ends here.

Question. Did God in his wisdom make Africa a resource poor continent? So why is Africa beholden to the West? Is it because the people of Africa are naturally inferior? (Careful there Henrietta).

No. The Bankers have spun everybody a web of lies and fairy tales that our model making Left Brain takes as gospel. That Paper is more real than Reality itself.

As an African I have had my brother killed over this treason, my father died in abject poverty after a lifetime of contribution as a mechanic. Little children fight like animals over any sustenance at all from after weaning. The entire continent becomes a slum, both rural and urban.

Am I angry? No, I am as sweet as a nut.(BB is watching). Hey BB, choose sides.

On your knees or on your feet?

thc0655's picture
Status: Diamond Member (Online)
Joined: Apr 27 2010
Posts: 1714
Steady the course

Interesting analysis.

The author's conclusions:

What does this mean for holders of the physical?  More buying opportunities.  What
about those who bought at higher levels and have seen a “loss in value?”  Ask yourself
this question?  Are you going to sell any of your holdings at these low levels?  If no,
then do not be bothered about where price is, unless you are buying more.  One has
not “lost” anything unless one sells.  You have the best form of wealth preservation
insurance for what is inevitable, and 5,000 years of history is on your side.

We have purchases of silver when priced at 47, and gold at 1,800.  Is there any
concern over having paid much higher prices?  Not in the least.  The reason for
buying has not changed, and there was more buying of silver on Friday when price
was just under 18.  We practice what we preach.

It is wrong to focus on what one paid over the past few years as price peaked.  It is
necessary to look at the broader time frame.  Those who have been buying silver
since $4 and gold since $300 continue to do well.  Keep in mind, a quarter made of
90% silver still buys a gallon of gas at today’s prices.  When the price of PMs one day
jumps a few hundred percentages overnight, as is likely to happen, those who paid
top dollar for either metal will be overjoyed at their smart decision-making, although
that is not currently how they feel.

The preference is for silver over gold, at this point where the ratio is around 68:1.  In
fact, in line with the previous article, Use Magic Of Gold/Silver Ratio, we are starting
to look at switching some gold into silver.  As a reminder, assume you exchange 10 oz
of gold at 65:1, getting you 650 oz of silver.   At some point in the future, the ratio may
go under 35:1 or 30:1, and you switch back 650 oz of silver to gold at 40:1.  You will
then have 16 oz of gold, 60% more than previously held, all without risk, just by
“playing the ratio.”

Steady the course PM holders.  Add whenever possible.

davefairtex's picture
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Joined: Sep 3 2008
Posts: 5687
gold/silver ratio trade

Here's a trade for those of you who don't mind going the paper silver route - but it uses a Sprott fund that provides for delivery if you happen to have enough shares:

Long PSLV/short GLD.

This trade also has the virtue of taking advantage of the possibility of a possible future "problem" with GLD.

I'm not suggesting the timing for a ratio trade is correct right now; while 68 is relatively high in the past few years, at the depths of 2008 crash it was 84.3, and at the peak of the money-printing-inflation scare (early 2011) it dropped to 32.

In a deflationary washout, we can probably expect gold/silver to rise to the 80s once again.  Of course if the washout becomes too great, its probably better to have physical silver rather than shares in PSLV...

Bottom line: its a good trade to put on when you think the deflationary washout is at its peak, and you exit the trade when you feel inflation is topping out.

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