PM Daily Market Commentary - 10/27/2014

davefairtex
By davefairtex on Mon, Oct 27, 2014 - 9:56pm

Gold dropped -5.90 to 1225.50 on light volume, and silver was down -0.09 to 17.10 also on light volume.  Gold and silver traded in a relatively narrow range, trailing off at the end of the day and closing at the lows.  The light volume suggests little interest on either side, with the mood remaining bearish.

The dollar dropped today, closing down -0.19 to 85.60; its failure to break to new highs means the new dollar downtrend remains in place.  It was a bit surprising that gold didn't perform better given the dollar's drop - but not a bullish sort of surprise for PM.

The release of the ECB bank stress test results on Sunday didn't result in any sort of catalyst for the Euro that I could see.  The market seems to be saying that, once again, the stress tests were relatively stress-free for most of the participants.  It seemed like a primarily political exercise, with no major banks thrown under the bus.  Even the 25 losers got the regulator-equivalent of forty lashes with a wet noodle, except perhaps the third largest Italian bank - Banca Monte dei Paschi di Siena.  Zero Hedge has chapter and verse:

http://www.zerohedge.com/node/496210

"My goodness, we wouldn't want any banks to *really* fail.  That would undermine confidence."  Once again our regulators are far more interested in attempting to manufacture confidence by a dog and pony show rather than actually inspiring confidence through a rigorous examination process.  At least, that's what the market is telling me.

Mining shares dropped yet again, with GDX off -1.76% on moderate volume and GDXJ was down -4.46% on moderate volume also.   GDXJ scored a new low - not quite to the December lows from 2013, but those are not too far away.   Mining shares just can't find buyers right now.  You probably shouldn't be one of them unless and until other buyers show up first.  Wait at least for that GDX:$GOLD ratio to close above its EMA-9 before you are tempted to step up to the plate.

SPX sold off this morning but dip-buyers showed up, dragging the index right back up again; it closed down only -2.95 to 1961.63.  SPX looks to be having trouble rising above its 50 MA, but buy-the-dip is still alive also.  VIX was mostly unchanged, down -0.07 to 16.04.

Long term treasuries (TLT) were up +0.18% today, treading water and likely waiting for direction from equities.  JNK fell -0.32%, hinting that perhaps "risk on" may be taking a breather.

After getting hit early, commodities ended the day slightly up, +0.08%.  WTIC made a new low, hitting 79.44 at one point before rebounding, closing down -0.63 to 80.67.  Brent did a bit better, off only -0.30 to 85.83.

Price remains below EMA-9 for gold, silver, GDX, GDXJ, SIL, oil, and commodities.  It would not take much of a move to change this picture - but I'm waiting for the market to "show me the money."

FOMC meeting starts tomorrow, with the market-moving minutes release scheduled for Wednesday at 1400 EDT.

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1 Comment

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 761
First E scenarios

Hi all,

While this is not really PM related, I have question/request that is related to economics and since Dave's market commentary is well-frequented, I thought to post it here.

I was wondering if anyone would be willing to give their input on some fictitious economic scenarios that I may include as test questions after a brief study of political economy with some of the 11th graders at our school. Any feedback that people have would be most appreciated, either in the thread or directly to me, and I'm likely to include your ideas in some shape or form, either by changing the questions or exposing the students to another viewpoint about the assumptions they contain.  

The data and countries are fictitious, but still meant to give the students some practice as they learn about different theories on fiscal and monetary stimulus.  I expect the questions are fairly easy for most PP members.

This comes as we finish our abbreviated study of mainstream political economy, and before we start looking into the more unconventional approach of biophysical economics, which includes a look at peak oil and other energetic and resource limits.

Thanks! -Hugh

Scenario questions:

1.   Answer the following questions about the country of Mexizuela, based on the data.

Data

Questions

Mexizuela’s annualized change in GDP (real)

2015 - Q1

+1.5%

2015 - Q2

+0.6%

2015 - Q3

 -0.6%

2015 - Q4

 -2.4%

2016 - Q1

 -1.9%

2016 - Q2

 

2016 - Q3

 

2016 - Q4

 

Mexizuela’s 2015 Debt to GDP ratio: 20%

Mexizuela’s 2015 unemployment rate: 19%

Mexizuela’s 2015 inflation rate: -0.5%

1. At what point did Mexizuela enter a recession?

2. Does Mexizuela seem like a good candidate for Keynesian fiscal stimulus?  Justify your answer using as much of the data as possible.

 

2.  Answer the following questions about the country of Polarabia, based on the data.

Data

Questions

Polarabia’s annualized change in GDP (real)

2015 - Q1

 +4.5%

2015 - Q2

 +2.1%

2015 - Q3

 -0.2%

2015 - Q4

 -2.3%

2016 - Q1

 -1.7%

2016 - Q2

-1.5%

2016 - Q3

 

2016 - Q4

 

2015 Debt to GDP ratio: 70%

2015 unemployment rate: 9%

2015 interest rate: 8%

2015 inflation rate: 57%

1. At what point did Polarabia enter a recession?

2. You are the President of the Polarabian National Bank and your Chief Economist proposes to fix the economy by providing monetary stimulus.  He says that the National Bank must lower the interest rate and engage in quantitative easing (QE).  Would you approve his plan or reject it?  Justify your answer based on the data.

 

3. Answer the following questions about the country of United Korea, based on the data.

Data

Questions

United Korea’s annualized change in GDP (real)

2015 - Q1

+1.5%

2015 - Q2

+2.1%

2015 - Q3

 +1.8%

2015 - Q4

 +2.0%

2016 - Q1

 +0.8%

2016 - Q2

 

2016 - Q3

 

2016 - Q4

 

2015 Debt to GDP ratio: 45%

2015 unemployment rate: 5.5%

2015 inflation rate: 2.5%

1. At what point did United Korea enter a recession?

2. Does United Korea seem like a good candidate for monetary stimulus, such as lowering the interest rate or increasing the money supply in other ways?  Justify your answer using as much of the data as possible.

4. Answer the following questions about Catalonia based on the data.

Data

Questions

United Korea’s annualized change in GDP (real)

2015 - Q1

+1.3%

2015 - Q2

+0.9%

2015 - Q3

 -0.2%

2015 - Q4

 -0.7%

2016 - Q1

 +0.3%

2016 - Q2

 

2016 - Q3

 

2016 - Q4

 

2015 Debt to GDP ratio: 110%

2015 unemployment rate: 16%

2015 inflation rate: 6%

1. At what point did Catalonia enter a recession?

2. Does Catalonia seem like a good candidate for Keynesian fiscal stimulus?  Justify your answer using as much of the data as possible.

 

  1. Match the countries listed above with the following economic situations:

 

A healthy economy, with moderate growth:  _____________________

A mild recession:  _____________________

A depression (a deep recession): ________________________

Hyperinflation: ________________________

 

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