PM Daily Market Commentary - 10/30/2014

davefairtex
By davefairtex on Fri, Oct 31, 2014 - 3:36am

Gold dropped -12.80 to 1199.00 on extremely heavy volume, and silver dropped a massive -0.63 to close at 16.43 also on extremely heavy volume.  Both metals started selling off in the afternoon during the Japan trading session, and the selling just didn't stop until late morning in NY, with silver hitting lows of 16.33 and gold 1195.  Silver was absolutely clobbered, and the big volume happened when it was driven below the previous low of 16.63 at around 0830 EDT, when a bunch of longs were stopped out.  The gold/silver ratio rocketed higher today, closing up +1.94 to 72.89.

The dollar rallied early in the day in Japan and London trading, and spiked momentarily higher after the unexpectedly positive GDP release at 0830 EDT, but then fell back, losing most of its gains and printing an inverted hammer candle - which is not something you want to see if you are a dollar bull.  The buck was up +0.18 to 86.26.  In spite of the inverted hammer, I'd say the dollar still looks bullish.  My sense is, this is still upside momentum left over from yesterday's FOMC release.

The mining shares were crushed today - the breakdown below multi-year support yesterday led directly to panic selling today.  This was one of the worst days I've ever seen, with GDX off -7.33% on very high volume.  GDXJ looked worse, dropping -8.53% also on very high volume.  Breaking below support is usually a bad thing, and today was a good example of what happens a day after a very long term support level is broken.

Its also possible some of the miner selling was driven by the huge sell-off in silver.  Things build on each other, and right now anything with the tag "precious metals" on it is regarded as junk by the markets.  In the west, no inflation = "why should I care about PM" and every indication we have right now points at a very low CPI just about everywhere.  Trader Dan Norcini says:

In an environment in which most commodities are falling in price, and one in which the Dollar is holding up fairly well, and one in which inflation fears are nowhere in sight, there is not enough Western-based investment interest in the metal to push the price higher. The East can buy all the gold that they want but without an accompanying demand surge in the West, the best the Eastern-based buying can do is to slow the descent of the metal or keep it from plunging even more sharply than it otherwise might have done. It takes hot money flows from the West to generate a bull market in gold, or in any other market for that matter and the simple truth is that those money flows are MIA when it comes to all things gold for the moment.

This is capitulation territory.  Technically we aren't at capitulation levels just yet, but what I'm seeing right now in silver and the miners sure smells like it to me.

SPX dropped in the futures markets prior to market open, then rallied for the rest of the day closing up +12.35 to 1994.65.  Equities just keep pushing higher, and anyone getting in the way of this move by attempting to go short is getting their head handed to them.  VIX dropped -0.63 to 14.52.

Commodities retreated, losing -0.92%.  WTIC was off -0.93 to 81.02, and Brent was down -0.88 to 86.24.  Oil still looks like it could be forming a low, \but as time goes on and no move higher occurs, my concern increases.  The intense weakness in silver doesn't help.

I'm not seeing any bids at all in silver, or the mining shares.  Gold seems to have the most support, but the low in gold at 1179.40 is not so very far away.  A continued move lower in silver, or miners, or a move higher in the buck could push gold right through that level, and the selling that resulted from longs bailing out on a break through 1179 would likely be monumental.

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15 Comments

sand_puppy's picture
sand_puppy
Status: Diamond Member (Online)
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Posts: 1888
Really appreciate the commentary today

We have a bit of extra cash this month and are trying to read the tea leaves and make a purchase.

And gold has just fallen THROUGH the $1179 support level you mentioned.....

Jim H's picture
Jim H
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Trader Dan Statement

Dave, The trader Dan statement fails to speak to the fact that metals prices are, at least today, discovered in the Western paper futures markets.  I don't argue actually with the dynamic he points out... it is in fact how this works today.  I do though vehemently argue that the Eastern buying DOES matter.. maybe not to the Comex/Globex discovered price today, but to the eventual destruction of these Western paper markets.  

Looking at the Texas Precious Metals website, they are not out of many 90% junk Silver products, out of Phils, out of Maples, and just this morning, they have run out of the limited mintage, Birds of Prey Maples that they had in stock.  We have a 15 handle now as of this writing, and I think the breakage, i.e. the wiping out of Western physical stocks, is going to happen today.  I will update as the day progresses.. will be buying more as well.  

This is where the physics of unprintable money starts really asserting itself.... paper games be damned.  I have been totally in cash for the last week in my brokerage account waiting for this   : ) 

KugsCheese's picture
KugsCheese
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GDP 3.5% Really?

Consumer Spending contracted 0.2% in September.   3rd qtr GDP 3.5% really???

Let's wait until the elections are over.

Jim H's picture
Jim H
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Kugs....

Here is the drill down on the GDP;

http://www.zerohedge.com/news/2014-10-30/why-did-q3-gdp-jump-thank-isis-...

So just which aspect of government taxpayer fund recirculation was responsible for this sudden boost in US "growth" (leaving aside the philosophical debate whether government capital allocations ever lead to grwoth)?

The answer is shown in the chart below showing the quarterly change in US National Defense spending: at by $30 billion, it was the most since 2008!

In short: thank you ISIS and renewed war on terror.

defense%20spending_0.jpg

bwh1214's picture
bwh1214
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As of Friday morning I think

As of Friday morning I think we have met the capitulation point.  Beyond the technical which I don't follow to much being a long term investor I think things are looking great for anyone who is in the accumulation phase of precious metals investment as I am.  

Even the fundamentals that are touted as the "reason" for the fall are bullish in my eyes.

1. The 'good' GDP print was mostly driven by increased govt spending due to ISIS and Ebola.  Government spending through borrowed money is bullish for PM's.

2. The End of QE should be neutral considering it was known for some time and should have been priced in, and the fact that even a little quiver in the equities markets had Fed Governors talking about QE4 faster than even I thought they would should also be bullish.  They must be pretty scared.

3. The final reason is the dollar strength against the yen due to the supercharged QE that was announced last night.  I consider any money printing, especially in the light of proving QE is a one way street should be bullish for metals. 

Now for the recent stories that are being ignored that are bullish.

1. Greenspan clearly trying to change his well deserved legacy for causing much of this mess says to invest in gold.  Considering his age this is nothing more than telling the truth in the twilight of life to "get into heaven."  This ultimate insider said to buy gold at a point in life when he is most likely to tell the truth and it was ignored.

2.  Though we have been talking about the Swiss gold initiative for weeks on alternative sites I have just started seeing main stream media.  Of course it is derided as as ridiculous but it would have huge effects on the gold market.

Say what you will about the manipulation camp but I see this slam down in prices right after the above two hugely bullish stories this week as yet another puff of smoke pointing toward the likely hood of manipulation fire. 

I expected there to be much better prices over the past few years and have dry powder into the six figures, and though I thought those better prices were going to be in equities, I am glad to put it to work in PM's.  I'll be buying my first 100 ounce silver bar next week if these prices hold or go down further.  If there is a bounce it may be a bit less but either way I'm buying. 

davefairtex's picture
davefairtex
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two methods

Some thoughts about where we are:

Prices are in the process of dropping.  Each day seems to be bringing lower prices - some days it has been dramatic.  Today, we have a 15 handle on silver.  (Anyone expect this?  Probably some of you - but not many.  I certainly didn't.)  Could we go lower and see a 14 handle?  Yes, we could.  Could today be the low?  Yes, it could.

Likewise, we broke below the previous low on gold.  The odds we go lower still are high, unless the buyers show up right away.

So when risk of continued decline is high we have two choices:

1) Buy now, and hope the buyers show up; if we're right, we get the best price possible since we have correctly guessed that today (out of all the 500 days since the gold crash of 2013) is the real low and not just one more move down in a  long correction process.  Odds of success: 1 in 500.

2) Wait until someone else buys first, and we see some evidence on the charts of this behavior by money that is larger than us.   Typically this is a two-day process; by end of day 1 there is a reversal candle where prices drop a long way, and then rebound, closing relatively close to the open: a doji, or a hammer, and volume is high.  Day 2, if prices continue higher - that's the day to buy.  We don't get the lowest price possible (and in fact we might be 5% above the dead lows, or more), but our odds of success are substantially higher than 1:500, and likely we get some number of days of upward momentum at the very least.

This morning, some of the bigger mining shares are starting to see bids - not all, but some.  Goldcorp (GG) has printed a nice hammer candle so far, even though it is down -2.53% and it was absolutely smashed yesterday (I think it was down 13%).  But the day is still young, and we may end the day in a sell-off just like many many other days we have seen.

bwh1214's picture
bwh1214
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Bought GDX at 17.10

davefairtex

Good points.  

I bought some mining shares this morning because this pullback felt too good to pass up but it was not time to buy physical and I am pretty strict with my purchase dates.  So I bought some GDX with play money. 

For physical I like the system I have come up with.  The dollar amount purchased increases as the ratio of spot price to my average purchase price falls.  I also bump up the ratio based on any increases in my base salary to account for inflation.  I am currently buying about 1500 bucks worth a month, if it goes up that number gradually drops, if it goes down than I buy more. It takes the guesswork out of it. I just do what my little spread sheet tells me to.  When I first started it was more about emotion, I feel much better now that I have a set system. I'm excited now because with a 15 handle I will be cleared to start buying 100 ounce bars.

davefairtex's picture
davefairtex
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first hour fun

bwh-

Something that is a relatively well-known phenomenon is that the first hour of trading is when retail tends to buy.  So take today - GDX popped higher in the first hour, as retail jumped in to buy the dip, only to see the buying fall off after that first hour finishes.

And just my opinion but I think a disciplined approach that removes emotion is pretty good way to buy your rmetal.

thc0655's picture
thc0655
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Fall, baby, fall!

Cross posted:

I had to wait until this morning to get assets moved around, and I was rewarded with another 2.75% drop in silver.  Me and a co-worker went in on an order together (Texas Precious Metals). We got in at $1166 gold and $15.85 silver.  And I'm not out of dry powder.  Still hoping for a brief period of lower prices after a stock market plunge.

Could part of the drop have been caused by Alan Greenspan whose remarks indicating there is going to be trouble in the economy as the Fed tries to exit and saying that this is a good time to buy gold hit the media the last couple of days?  For the conspiracy minded, maybe the TPTB saw Greenspan's remarks and slammed the precious metals down to discourage would-be investors.  Then the "great" 3.5% US GDP print might have added fuel to the fire.  Are people that dumb?  Most of the GDP was accounted for in increased government spending for weapons and military!  And overnight Japan announces a huge money printing flood will now begin.  They may actually be printing the money to buy nearly 100% of the government's bonds each month (100% monetization) from this point on!!  Well, there's a laboratory experiment in real time we can all watch with baited breath.  So, if the US GDP print and Japan's money printing announcement caused the PM's to collapse, I'm thrilled.  I know how that is going to end.  And if Japan blows up before we do, that will create a "teachable moment" for us and the rest of the world.  Will we pay attention?  We can always hope we will pay attention (and that it won't be too late for us, which it probably already is).

Tom

"Welcome to the Hunger Games. And may the odds be ever in your favor."

I agree there is a good chance of a temporary physical shortage in the next week because of the buying at these prices.  I also agree Texas Precious Metals is a good barometer of that because they only sell what they have in stock (and it's dropping fast yesterday and today).  That's why I am serenely peaceful buying silver at $15.85 without knowing if this is THE bottom. At least I got it, and got it at a decent premium.  If it drops to $14 or $12 I'll buy more.  And then one day it'll blast off and I'll just sit back and watch.  And if there's a 3-5 year "Rip Van Winkle" time lag, no problems.  

And I'm watching the gold:silver ratio (about 1:72 today).  The silver I got today was with the intention of trading it for gold when the ratio hits 1:35 or lower.  Or maybe not.  That strategy doesn't risk me finding myself stuck with fiat in a period when I'm desperate for gold/silver which is unavailable for some reason.  Trading back and forth between gold and silver on the basis of the ratio swinging back and forth keeps me safely in one PM or the other.

bwh1214's picture
bwh1214
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Posts: 38
Agreed, I put in a limit buy

Agreed, I put in a limit buy order at 17.10.  It hit and bounced, but that was all luck.  Again it was play money so no big deal.  I just wanted to take advantage of this dip. 

Jim H's picture
Jim H
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Cognitive Dissonance

PM's at all time recent lows on the announcement that Japan will increase it's QE program enough to account for the entirety of the Japanese government's debt issuance.. in other words, total monetization.  Total ponzi. 

  http://www.zerohedge.com/news/2014-10-31/charting-banzainomics-what-bojs...

Still confused what the BOJ's shocking move was about, aside from pushing the US stock market to a new record high of course? This should explains it all: as the chart below show, as a result of the BOJ's stated intention to buy 8 trillion to 12 trillion yen ($108 billion) of Japanese government bonds per month it means the BOJ will now soak up all of the 10 trillion yen in new bonds that the Ministry of Finance sells in the market each month.

In other words. The Bank of Japan’s expansion of record stimulus today may see it buy every new bond the government issues.

davefairtex's picture
davefairtex
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policy vs effects

JimH-

I totally hear you about all the printing by Japan.  However, the sense I have of the market is that traders no longer reflex-buy based on money printing policies in Japan.  Until effects show up in prices (CPI, etc) they are taking more of a "show-me" stance.

Also, ECB chat seems to have lost its magic too.

We might be on the downslope of Peak Jawboning.

Time2help's picture
Time2help
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Cognitive Dissonance...

...oddly enough, also happens to be the name of my teddy bear.

I refer to him as "Our Cognitive Dissonance", or "OCD" for short. surprise

Arthur Robey's picture
Arthur Robey
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Posts: 3936
Contradictions.

Thanks TTH.

Count me amongst the profoundly stupid who gaze on this with mouth agape thinking " Eerm, What's going on?"

Who trusts paper? Yet cash is king.

I expect silver to dive to $10 an ounce, but it is a safe haven just in case civilization manages to survive (If and only if Cold Fusion is real). Can the banker head the cattle away from this avenue of escape? Don't underestimate our superiors. And don't fear them either.

In which case I spend my money on things that enable choices for me and mine in the future.

In the future? Aye, there is the rub. It is all about timing. Rome took 200 years to fall. That was Rome. We live on the slope of all sorts of exponential curves. Future shock.

When the knot gets this complicated, take to it with a sward. There must be simplicity in there somewhere. A warm dry bed, a good nights sleep and a full tummy.

Arthur2014's picture
Arthur2014
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Posts: 56
to davefairtex's post: "two methods ..."

My style of writing in my answer to thc0655 is perhaps somehow clumsy and “wooden”.

http://www.peakprosperity.com/dailydigest/88504/daily-digest-1030-we-economy-peak-gold-here-stay

But the methodological reasoning / consideration behind is the same as in davefairtex’s  post “Two Methods - Some thoughts about where we are in his much more illustrative way.

Best regards

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