PM Daily Market Commentary - 12/15/2014

davefairtex
By davefairtex on Mon, Dec 15, 2014 - 9:01pm

Gold was hammered for $28.30 to 1193.80 on moderately heavy volume, while silver was crushed, dropping -0.85 to 16.18 on moderate volume.   Everything seemed to be doing all right until the early afternoon in US trading, when gold, silver, and the miners just started selling off - first slowly, and then more rapidly in a series of waterfall moves lower.  The selling didn't stop until the market closed.

It is possible PM was being sold in advance of the FOMC meeting, scheduled to start tomorrow and finish on Wednesday.

The losses drove both gold and silver below their respective 50 MAs, and came alongside losses in other commodities (copper, oil, and the overall index) along with a rise in the buck.

The dollar was up +0.36 to 88.70 today, moving back above its EMA-9.  For those fans of a close linkage between the JPY and gold - JPY rallied today up +0.58 while gold moved lower.

The USD/RUB had a massive loss, off 11% in one day, possibly an impact of the US Congress passing new sanctions on Russia.  Imagine gold in Ruble terms - up 9% in one day.  Think they want to buy gold over there right now?   The Russian Central Bank held an emergency meeting after the drop, and in the middle of the night raised short term rates from 10.5% to 17% to try and stem the flood of capital leaving the country.  The Bank has spent $6 billion trying to stop the currency from depreciating just this month.  The Ruble is down 50% year-over-year.  Perhaps this rate-raise will do the trick.  It might end up protecting the currency, but sharp rate-rises always end up crushing credit creation and usually ends up depressing economic activity.

http://www.investing.com/news/forex-news/forex---russian-ruble-tumbles-to-fresh-lows-320259

GDX dropped hard following gold lower, down -7.02% on heavy volume.  GDXJ sold off even harder, making new all-time lows, down -8.24% on very heavy volume.  The GDX:$GOLD ratio is at an all time closing low, as is GDXJ:GDX, indicating continued underperformance in the miners.  Until mining shares start doing better, I remain concerned that rallies in PM will be limited.

Bonds dropped -0.21%, looking a bit tired after a long steady run higher.  JNK may have put in a low today, at first selling off hard and then rebounding, printing a long-legged doji candle closing up +0.29%.  Possibly this marks the end for this leg lower in junk bonds?  It requires confirmation tomorrow.  It may also foreshadow a low in SPX.

SPX rallied nicely in the futures markets, but sold off steadily after the open in NY, closing the day down -12.70 to 1989.63.  SPX is below its 50 MA at this point, and while it hasn't marked low, velocity does seem to be slowing down.  Although popular articles suggest this was due to oil's continued move lower, I didn't see any linkage intraday.  VIX actually dropped -0.66 to 20.42, supporting the thesis of slowing velocity.

Commodities dropped to new lows, down a big -0.90% today.  Copper was down almost -2%, WTIC off -2.08 to 55.41.  Oil just can't seem to find a bottom.  Every rally is being sold.  Brave talk from the shale drillers will end up just being talk - in my opinion.

Interestingly, there is a very strong divergence between oil equities, and oil itself.  Big Money appears to be buying more oil equities the farther oil itself drops.  Check out these two charts: first, OIH - the oil services ETF that includes all the big oil services companies.  Its a pretty depressing chart, having rallied very modestly in mid-October only to gap down in December.  No bottom in sight.

Now look at the same chart, only this time as a ratio with WTIC, the same as our usual GDX:$GOLD.  While GDX:$GOLD is looking atrocious, the same ratio OIH:$WTIC has a very different cast to it.

Notice how the bottom in the ratio happened Oct 15, and it has rallied steadily off the lows.  As oil has dropped, the ratio has continued climbing.  Almost every oil major and land services company exhibits this same pattern - XOM, CVX, TOT, HAL, SLB, with some showing very steady accumulation.  It is as though the drop in oil has been an invitation for big money to buy the large oil companies on the cheap.  Note: deep-sea drillers and shale drillers do not exhibit this pattern.

If I saw GDX showing the same pattern as Big Oil, I'd be a bit more sanguine about gold's prospects after this latest drop.  I'm not sure where things will go from here in PM, but I really am nervous when miners dramatically underperform gold itself.

I watch the ratios daily, and when GDX starts to outperform gold again, I will be a lot happier.

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1 Comment

Jbarney's picture
Jbarney
Status: Silver Member (Offline)
Joined: Nov 25 2010
Posts: 233
"This is it"

Interesting reading Dave.  However, my attention was peaked by Chris's subtitle to those who are paying members in his most recent article.  "This is it".....those are words which I wish I had a paid membership to read the details.  

The collapse of silver today is another buying opportunity.

Jason

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