PM Daily Market Commentary - 10/2/2014

davefairtex
By davefairtex on Fri, Oct 3, 2014 - 1:41am

Gold closed up +1.30 to 1214.80 on heavy volume, while silver was down -0.08 to 17.08 on moderately heavy volume.  Gold spiked higher early in Asia to 1224 but afterwards it sold off, ending the day barely above where it started.  It was yet another failed breakout in a long line of failed breakouts - futures traders are buying, but so far they are not willing to take gold home overnight.  EMA-9 for gold is now at 1218.

The USD dropped -0.27 closing at 85.74, having dipped down to touch its EMA-9 several times during the day only to rebound by the close.  It was the early weakness in the buck in Asia that encouraged gold to break out, but the dollar quickly bounced and that's likely what encouraged gold to fade.

All the traders know about moving averages, the current relationship of the buck to PM, etc, and so when breakdowns happen in the buck, traders get excited and buy PM and the price spikes higher.  However when the breakdown in the buck doesn't hold, those same traders have no problem reversing course and selling minutes later.   That's just how the markets work, especially in an established trend.  You always respect the trend in place.

Mining shares split today - with GDX up +1.03% on moderate volume, while GDXJ was off -0.50% on light volume.  GDX steadily sold off from the opening bell making a new cycle low by mid-day, only to rebound in the afternoon eventually ending the day in the green.  While volume was just moderate, its nice to see the seniors rally after making a new low.  The juniors weren't so enthusiastic, although their selloff was relatively gentle and the volume was light.

SPX was sold hard again today through the first part of the day, at one point down 20 points, but then it staged a strong rally, rebounding back to even by the close.  Volume on the day was heavy.  The price action resulted in a doji print for SPX, which likely marks the low for this particular cycle.  VIX dropped -0.55 to 16.16.  A close over 1952 tomorrow will confirm the rebound in SPX.

Are new highs likely for SPX?  That's harder to figure, but the moderately high volume doji is a pretty clear sign of a low, and the dropping VIX suggests the shorts are covering.  This doji print, plus the very long uptrend suggests it is likely we bounce from here.

Long term treasuries (TLT) dropped -0.87% today; bonds were not so happy even before the equity market rallied, and then on the rebound the selling in bonds increased.  If equities rally, likely bonds will retreat.

Commodities were little changed, up +0.04%.  There were major fireworks in oil today; WTIC sold off really hard in early London trading hitting 88 at one point, only to rally strongly through the rest of the trading day closing up +0.70 to 91.70 on extremely heavy volume.  This should mark the low for WTIC - at least I think it has a high probability of doing so given the massive volume and the long-legged hammer candle print.  Brent wasn't quite as enthusiastic, closing down -0.74 to 93.42.  A low in WTIC should help PM.

All the actors in the PM space remain below their respective EMA-9, which means nothing has changed: we remain in a downtrend.  It would not take much to change this picture but until that change occurs, we need to respect the trend in place: really super cheap can always get even cheaper.

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15 Comments

davefairtex's picture
davefairtex
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drivers of the gold price

While PM has been engaging in its recent unpleasant antics (with gold looking to make a new low even as I type this), I've been researching what drives prices in gold.  To do this, I enlisted the aid of a fast and clever machine learning program, and after a few weeks, I was able to come up with some conclusions after trying a bunch of different combinations.

Gold prices are driven by the following things:

  • Mortgage rates [MORTG]
  • Price of Silver; Tin also works, but less well; both are proxies for "commodities in general"
  • Credit Conditions (NFCICREDIT)
  • Changes in M1 in USD (US, India, China, and Europe)
  • USD (exchange rates: TWEXM)
  • Gold Supply [Mine Supply + Central Bank Sales]

I'm still trying to sort it all out, but the model definitely predicted the drop in gold from the highs, driven mostly by the dramatic drop-off in the rate-of-change of M1.  (That is, M1 didn't drop - it just stopped growing so fast, which apparently gold doesn't like very much).

That, and mortgage rates dropped, and the credit excitement calmed down, and USD rallied, and Silver prices dropped.  All of it together drove gold lower.  Note that silver is just a proxy for overall commodity prices.  Price of tin works too, for some reason.  Crude doesn't work as well.

Heres a chart of recent M1 changes, converted into USD.  Notice how China dominates.  I only have M1 data for China dating back to 2000.

More later as things develop.

davefairtex's picture
davefairtex
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good NFP report - buck higher, PM makes new lows

Buck screamed higher on the 0830 nonfarm payrolls report, now +0.98 to 86.67.  Euro touched 1.2528.

Gold bounced off 1198, silver 16.64.  Cheap can always get cheaper.  Heed the moving averages.

Jim H's picture
Jim H
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Let'em push Silver to the 16's and then see what happens

Here is what the 17-handle is causing to happen,

http://investmentresearchdynamics.com/silver-eagle-sales-hit-a-one-day-r...

The last day of September, the U.S. mint reported silver eagle sales of 750,000 coins.  One day later, they reported another 1.65 million.  Both were one day records.  The two-day total – 2.35 million – was more than the entire months of August and July:

Untitled

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Jim H
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Labor participation rate down to 1978 levels = strong dollar!

Yeah!  Go dollar!  This all makes perfect sense, as we live in a world of opposites. 

http://www.zerohedge.com/news/2014-10-03/labor-participation-rate-drops-...

While by now everyone should know the answer, for those curious why the US unemployment rate just slid once more to a meager 5.9%, the lowest print since the summer of 2008, the answer is the same one we have shown every month since 2010: the collapse in the labor force participation rate, which in September slide from an already three decade low 62.8% to 62.7% - the lowest in over 36 years, matching the February 1978 lows. And while according to the Household Survey, 232K people found jobs, what is more disturbing is that the people not in the labor force, rose to a new record high, increasing by 315,000 to 92.6 million!

And that's how you get a fresh cycle low in the unemployment rate.

participation%20rate%20sept%202014_0.jpg

davefairtex's picture
davefairtex
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"them" pushing down silver

Remember in 2009 when oil hit $30/barrel?  That wasn't "them" pushing oil down, its just what markets do during a time of very serious deleveraging.

Same thing here.  Price will drop below cost of production, and it will stay that way as long as the deleveraging is going on.  Once the pressure comes off, price will bounce back up again.  As long as you aren't on margin, it shouldn't be a problem.

Do you imagine many companies could produce oil for $32/barrel?  Oil could not stay down at that level for any length of time.  And it didn't.

 

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cmartenson
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People just don't want to work.


Jim H wrote:

Yeah!  Go dollar!  This all makes perfect sense, as we live in a world of opposites. 

Jim, clearly people just don't want to work anymore.

According to the BLS the number of "unemployed" dropped from 9.8M to 8.9M, a whopping drop of 825k that fed the big plunge in the unemployment rate to 5.9%.

Whohoo!

Just don't look too closely at the sister number which is the "not in labor force" figure which climbed from 91.8M to 92.5M for an increase of 750k.

See what they did there?  They simply shuffled 750k people right off of the rolls of the unemployed and - voila! - the US is now a rapidly improving economy, clearly the place you want to immediately buy more of its currency and sell more PMs in its 'free-est and fairest markets(tm)".

And right as an election is coming up...hmmm....where have I heard this before?

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Jim H
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"Them"

Dave,  I believe that the story of "them" will be coming out shortly.  This is the story of whistle blowers whose voices were heard by the CTFC but never acted on.  The documentation of the saga appears to be caught in some legal red tape for the moment, but I expect the details should be public soon;

http://www.tfmetalsreport.com/blog/6176/andrew-maguire-responds-cohan-in...

By Ned Naylor-Leyland
Investment Director
Quilter Cheviot Investment Management
London, England, United Kingdom
Tuesday, September 30, 2014

Last week I wrote about financial journalist William Cohan's unpublished article about silver market manipulation and a regulatory cover-up. This week Cohan has claimed that lawyers for London metals trader and market-rigging whistleblower Andrew Maguire were stopping him from publishing his article.

Cohan is demanding that the main perpetrator of metals manipulation (the institution also known as Voldemort) be named specifically in the article. Without this, Cohan says, he won't publish.

Contrary to his claim, this was never agreed by Maguire's lawyers and for legal reasons cannot happen. But since everyone has a pretty good idea who the institution is anyway, I find it ridiculous that Cohan is making a demand that cannot be met and using that as a reason to remain mute. Contrary to what he appears to be saying, this detail wasn't agreed in the version of the article he wanted to put in newspapers.
Cohan appears to want this all to go away, which it won't.

I repeat: Cohan told me that his article "got killed everywhere I took it" and that it is "an amazing story that really should be out there." These statements and that he did see the evidence and did write a long expose of the subject are unavoidable.

Cohan's thoughts on the matter, in light of his reputation, would be worthwhile indeed and metals investors deserve to have this subject cleared up. If, as well may be the case, silver and gold prices are being managed with not just impunity but also with the collusion of the government, then this truly is a monster of a story with far-reaching implications.

Let's just review that last sentence again.....

If, as well may be the case, silver and gold prices are being managed with not just impunity but also with the collusion of the government, then this truly is a monster of a story with far-reaching implications.

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phecksel
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Chris, Did you forget to take

Chris,

Did you forget to take your red pill today?

I just don't get it.  Normalcy Bias plays a big part, but this stuff just screams to me of complete and total manipulation.  WAY back when we were much younger, it was all about tri-lateral commission and one world order.  At the time, I dismissed it as a bunch of hooey.  Now I'm not so sure.  Glen Beck's book, "The Overton Window", shook me to my core.

So few people seem to understand what is going on, unemployment is down, auto sales are up, stock market is up, housing is mostly recovered, life is good.  There are times I begin to question my own position that something is going on and will come to a head in the very near future.

Just metals alone... given the HUGE amount of monetization, metals should be exploding in price.  IDK...

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Jim H
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today's unemployment report - I miss Wildlife Tracker

pheck.... I see Chris did forget to insert the requisite, "sarcasm off" at the end of his comment.. so you can be forgiven.  

I was just reading this unemployment report comment from Dave Kranzler, and it made me think of WT and how much I miss his comments wink;

I’m not going to even dignify the employment report by commenting on it.  I mentioned to a colleague that analyzing, discussing and debating the merits of the Government economic reports has the same merits of discussing the difference in smell between dog shit and pig shit.   If you like to have serious discussions animal scatology, have at it. These shit-stains who get on CNBC and Bloomberg and tear their hair out over these numbers are complete clowns.

http://investmentresearchdynamics.com/revelations/

LOL.  Sorry.. I had to go there.  I do sincerely miss WT's contributions. 

phecksel's picture
phecksel
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Jim, Even tho I tagged Chris

Jim,

Even tho I tagged Chris and have been reading him long enough to understand his occassional sarcasm, my point is serious.  How can such a large majority of people miss data points that to the small group of us is so obvious?

Kind of like the old joke, who are the crazies, those in the asylum, or those outside?

Jim H's picture
Jim H
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That really is the big question my friend... how on earth

How on earth can (almost) everyone be asleep like this?  If Chris and Adam could figure that out, they would have 20,000,000 subscribers and us early adopters would get rich on our PP.com stock options.

What?  you didn't get the stock options in 2010?  sorry PHeck's... sorry man.   

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davefairtex
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one good note from the NFP report

One of the things I track is the FTE number, which is actually up today reasonably well.

I have some other market-moving indicators which are flat (Margin Credit, AWHI, INDPRO) or tipping over (Case-Shiller 20), but the FTE indicator is doing all right.  Red line is SPX.

davefairtex's picture
davefairtex
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outing "them"

Definitely there is hanky-panky going on in gold, that's clear from the intraday moves.  We need to limit overall position sizes - heck, keep 'em all to 5% of the market, and that should stuff all their shenanigans.  If that comes to pass as a result of all this discovery, I'd be super happy.  It would really calm down intraday price action, and I think that would be an excellent outcome.  As a trader, I'd certainly be happy.

Whether this ability to move prices intraday maps into effective control long term is another matter entirely.  The sense I have from my model-making is that the effect on gold of China's massive M1 growth will not be stopped by some under-funded group of bankers playing with the COMEX (with a wink and a nod from the friendly regulators at the Fed).

Short term it is definitely played with, that's clear to everyone, much as the LIBOR was played with over the very short term - to the benefit of our friendly TBTF bankers.

I really hope all this leads to something.  A less volatile intraday gold futures market would make me much happier.

 

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Arthur Robey
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Feedback.

Thanks for this image Dave.

As an instrument tech. if I saw this printout I would say that the feedback loop that kept everything nice and stable lost control in 1995, but started degrading in 1975. This thing is well advanced now. The next thing I expect to see is a flatline somewhere. The New Normal.

Oil priced in $US has been more volatile since the the Yom Kippur war. Oct 1973 (Price of a barrel of oil $3.50c  !)

Source WTRG

Note the effect of the Suez crisis. This tells me that the supply of oil in '57 was robust but not so in '71. (The perturbation had no effect on the availability of oil in '57.)

The Glass Steagall repeal of 1999 was s symptom of the collapse of oil supply.  The price signaling mechanism was broken at that moment because money was created out of thin air.

The feedback link has fallen off, causing the whole system to become unstable.

How will this effect the price of PMs? Expect increasing volatility.

Edit: The markets have become a HFT Algorithm heaven with lots of price movement to ratchet up profits for the Uber Wealthy who can afford one of these nano second bot babies.

Bot babies? You wait till these things grow up! The Oh-So-Smart monkeys will be grinning from the other side of their faces then.

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phecksel
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Posts: 204
Edit: The markets have become

Edit: The markets have become a HFT Algorithm heaven with lots of price movement to ratchet up profits for the Uber Wealthy who can afford one of

Day trading grown up and on steroids

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