PM Daily Market Commentary - 9/24/2014

By davefairtex on Thu, Sep 25, 2014 - 2:11am

Gold closed down -6.20 to 1217.30 on moderately heavy volume; silver dropped -0.10 to 17.67 on heavy volume.  PM tried a very modest rally early in the day, it failed, and then it traded lower in a range for the remainder of the day.   Gold slightly outperformed silver again.  Yesterday's failed rally along with yet another dollar breakout were the probable causes of the renewed drop in PM.

The dollar was up a big +0.36 today, breaking higher to close at 85.15, yet another new high.  The Euro was the primary cause/victim, dropping -0.53% making a new low of 127.80.  The euro is in a support zone right now - if it breaks below the support zone, the selling in the euro could get quite intense, driving the dollar even higher.

The dollar right now remains ridiculously overbought on a weekly chart basis, having gone up for 11 straight weeks now without a correction.  I read a stat that said the last time this happened was back in the 1960s when LBJ was President.  The buck is also at extremely high bullish sentiment ratings, which usually helps to identify price peaks.  Problem is, during "interesting times" the historically high sentiment can always get even historically higher, as whatever motivation is impelling the Big Money to flee so steadily remains in place.  As I watch the market in Asia trading right now, the dollar has broken out still higher, trading at 85.44 (up +0.28) - the AUD and the Euro are both making new lows and gold is sitting around 1210.

At some point it will all reverse, and the higher it goes, the more violent the snap-back, but I just can't tell you when that will happen.  And in the meantime according to the current correlations in play, PM will continue to suffer.  If the euro keeps dropping/dollar keeps rising, I'm not sure the 1180 low in gold will hold, and the miners will likely react poorly to that as well.

Miners sold off today, with GDX down -1.46% on moderate volume, while GDXJ was off -1.43% on moderate volume also.   Mining shares tried a brief rally in the morning, and then slowly sold off for the rest of the day.

SPX sold off a bit in the first hour of trading, only to rally strongly for the rest of the day, closing up +16 to 1998.30.  VIX fell -1.66 to 13.27.  The US equity market has been trading in a range from 1980 to 2020 for the past six weeks now.  Internal indicators continue to look weak but so far, that hasn't seemed to deter the dip-buyers in SPX.

Long term treasuries (TLT) dropped -0.55%, dropping back below the 50 MA.  I'm guessing the strength of the US equity market was mostly to blame.

Commodities rallied, up +0.68%.  WTIC was up +1.15 to 92.87 on an oil-positive inventory number, while Brent made a new low but managed to rally back to close up +0.10 at 96.95, printing a hopeful-looking doji.  A commodity rally would be supportive of PM if it lasts longer than a day, but I'm not sure how long it will continue given the dollar strength.

Once again, I believe it is all about the continually rising dollar.  You are probably as tired of reading that as I am of writing it.  Trader Dan says the currency move is all about interest rate differentials, but I think its money fleeing Europe ahead of some issue we don't know about yet.  Eleven straight positive weeks without a correction tells me something is up.  We will find out eventually what it is, but until then, I expect PM will continue to be weak until it stops.

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thc0655's picture
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Overnight currency and gold revaluation

Mike Maloney discusses the possibility of an overnight currency and gold revaluation.

davefairtex's picture
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Posts: 5694
yes exactly

The currency reset is exactly what I'm talking about.  Some sort of System Reset that happens overnight.  That's why Russia and China have their hedges in place.  That's why we all should have our hedges in place.

But - if you are looking for it to happen tomorrow because silver dropped to $17.39 per ounce, I gotta say, you're likely to be disappointed.  Most likely it will happen after a massive deflationary issue.  It may come as a "tactical surprise" but it won't happen out of a clear blue sky.

In the meantime, enjoy life!  Something exciting will definitely happen eventually, but worrying about it every step along the way just gets tiring.

"Cowards die many times before their deaths; the valiant never taste of death but once.  Of all the wonders that I yet have heard, it seems to me most strange that men should fear; seeing that death, a necessary end, will come when it will come."

Rephrased - things will blow up in their own time.  While winter may be coming, and we should understand and prepare for all that implies, why not enjoy summer while it lasts?  We have no duty to be gloomy along the way.

Time2help's picture
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Silver Hammered

Someone is out of silver and needs some more.  From the Hedge:

Silver Tumbles To 4 Year Lows As Massive Sell Order Hits At Market Open


davefairtex's picture
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silver hammering at 0930

Yeah, I saw that one.  It smacks of a last flush prior to a rebound, at least to me.  See how quickly it was bought?  That's actually a good sign, if price can hold above the breakdown point.

Now if the dollar will cooperate and top is looking pretty happy so far...

robie robinson's picture
robie robinson
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I saw it and bought

some physical @17.87/oz delivered. Gainsville will give me an expected ship date, twill be interesting

sand_puppy's picture
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Who benefits from this 9:36 am Sell Order?


Maybe you could help here from the traders perspective.  Who, or what type of player, would benefit from this type of market moving attempt?  Someone trying to ignite downward momentum so as to unload short positions?

davefairtex's picture
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who benefits

Here's my thought on who did it, and why:

The sale was the usual Managed Money short-gunning attempt, trying to cash in on all the stops just below the previous 17.32 low set three days ago.  Below cycle lows there are typically a big cluster of stops.  So as price dropped closer and closer to that old low, the shorts salivated, imagining they could make a pile of quick cash if they could push price below 17.32.  So they dropped 500 or 1000 contracts on the market at about 17.40, hoping to cover their shorts on the backs of all the automated sell stop orders below 17.32.  Unfortunately for them, there were a lot of bids down at 17.25, so many that the price almost instantly reversed back to its starting point.  A bunch of stops were triggered, but there were so many bids, the price spent just moments below 17.40 before bouncing back up again.

After a reception like that, the shorts are probably a bit nervous to try that one again.  Likely it only happens if the buck screams higher in the next few days.  Which it could.  Hopefully it doesn't.

Whoever did this trick probably ended up losing money on the deal - indeed, whoever the big buyer was that snapped price right back up again, they were the ones who cashed in, picking up silver at 17.27-17.40.

That's why I love seeing stuff like this.  I look for it, I wait for it, and when I see it, I celebrate.  Its evidence from the market of support at a given price level.  I'd be even happier if it happened a second time.


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