PM Daily Market Commentary - 10/9/2014

By davefairtex on Fri, Oct 10, 2014 - 7:04am

Gold closed up +2.00 to 1223.90 on very heavy volume, while silver was down -0.03 to 17.34 on heavy volume.  Both gold and silver rallied strongly during London trading hours, with gold reaching 1234 and silver rising to 17.72, but a brisk dollar rebound put an end to the hopes of higher PM prices for the day, and by end of US trading both gold and silver were back to their starting points.

Silver printed a clear tombstone doji - not something you want to see three days into a rally.  As you can see in the chart below, tombstone dojis sometimes lead to more selling, since they are a signal to the shorts that the longs aren't all that enthusiastic to buy the breakout.

The buck sold off in Asia and London trading, hitting 85.01 at one point, but at around 0800 EDT the dollar started to rally, and it didn't stop until it was back up 0.63 points, printing a candle that looked quite a bit like it might be a reversal in the brief dollar downturn.  This strong dollar rebound retracing almost all of yesterday's dollar losses likely caused the failed rally in PM.

Mining shares absolutely did not like the rebounding dollar, selling off for most of the day in spite of the fact gold closed higher.  In the last hour of trading miners managed to rebound cutting about half their losses, but GDX was still off -3.28% on very heavy volume, and GDXJ was down -4.53% also on very heavy volume.

After the huge move in the miners yesterday I expected some profit-taking, but this was much heavier than that.  NEM (Newmont Mining) even made a new cycle low before rebounding at end of day.  Miners remain very sensitive to movements in the dollar.  Many mining companies lose money with gold prices at these levels, and that is possibly why traders are willing to toss them off the lifeboat so rapidly.  The risk that miners might have to raise capital, or sell holdings, increases the longer gold prices stay depressed.

Like the mining shares, SPX did not like the dollar rally - equities sold off hard, closing down -40.68 to close at 1928.21, wiping out yesterday's gains and then some, closing at the lows of the day.  One day up 30 points, next day down 40 points.  The market is casting about for direction, and isn't afraid to move strongly on heavy volume.  The heavy volume reversal today caused the VIX to scream higher, closing up +3.65 to 18.76, the highest value the VIX has seen in 9 months.

Long term treasuries (TLT) sold off somewhat, down -0.44%.  The heavy drop in equities did not seem to benefit bonds - my sense is, traders are taking money off the table rather than taking risk.  Junk bonds support this thesis: JNK was absolutely crushed today, closing down -1.02% and wiping out 5 days of gains at a single stroke printing a big nasty red candle.  That long IEF/short JNK trade continues to look good.

Commodities followed the day's risk off mood, closing down -0.40%.  Oil particularly was a big loser, with WTIC down a whopping -3.37 points to 84.34.  It started selling off in London trading, and it kept selling even after the US equity market closed at 1600 EDT.  The oil move seems to be about rising supply meeting slow economic performance in Europe and Japan.  Brent was down a less violent -1.33 to 90.05.  Both were new cycle lows.  Oil affects silver; to me its a miracle silver avoided catastrophe on a day with oil off more than $3.

While the buck has marked a high, and the miners managed to keep 50% of their gains from yesterday's big move up, things remain at a sensitive juncture.  A rebound in the buck will probably drive miners to new lows.  We just have to watch and see where things will go.  Honor those stops - if the dollar breaks out to the upside, my guess is that mining shares will sell off, possibly quite violently.

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davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5740
strong dollar

Strong dollar rally today, up +0.41 to 86.07.  Gold is hanging tough however, as is silver, at least so far.  Those are positive signs, as it indicates gold & silver are actually rallying in other currencies.  Gold in euros is up 0.42% today, for instance.

Miners aren't happy though.  Miners don't like 1220 gold very much, I suspect, or 17.30 silver...

A dollar breakout will be no fun at all for PM if it happens.  86.87 is the previous high for the buck.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
Oil Stocks..

Dave,  Besides the miners.. the miners of Oil are getting killed as well.  All manner of oil related stocks are getting battered.  It seems to me that babies are getting thrown out with the bathwater here.. for instance, look at SDRL;

PE = 2.6, EPS $8.50, Div $4.00, Div 16% !!!!!   and it's down another 8% in share price today.  You would think from the share action that the price of oil will never be going up again.  Hah.  

Some of these energy-related falling knives would seem worth catching.  If you can buy something like SDRL at the point where the relative yield is 20%, then get QEx sometime in 2015...  one could probably retire on the compound yield.      

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