PM Daily Market Commentary - 12/22/2014

davefairtex
By davefairtex on Tue, Dec 23, 2014 - 1:38am

Gold fell today, losing -17.50 to 1177.00 on moderate volume higher today, while silver dropped -0.39 to 15.68 on light volume.  PM traded sideways until mid-morning in NY, where it just fell right out of bed starting at around 1030 EST, and the selling didn't stop until the market closed.  Silver was hit harder than gold, pushing the gold/silver ratio +0.73 to 75.06, quite near the cycle high.  A rising gold/silver ratio is bearish for PM.

The buck continued higher, rising +0.10 to 89.94, on target to break the 90 barrier for the first time since 2006.  Back then the Euro was at 120, and the Yen was right about where it is now.  George Bush was President, we had a surge going on in Iraq, and it was the top of the housing bubble.  It feels like a lifetime ago.

Mining shares were crushed today, with GDX hit for -5.15% on heavy volume, while GDXJ dropped -7.27% on very heavy volume.  Once again, that 50 MA has proved too much for the senior miners, and that GDX:$GOLD ratio is now falling hard.  Is it just about tax loss season?  Who knows.  Senior miners are off 21% this year, making them a good candidate for tax loss selling.  This year, same as last year.

SPX has slowed somewhat, but continued rising from post-Fed "patience", closing up +7.89 to a new all time closing high of 2078.54.  VIX dropped -1.24 to 15.25.

TLT rose +0.14%, slowly moving back to test its cycle high.  JNK fell slightly, off -0.13%.  Something tells me that we probably won't be seeing new highs in JNK the way we are in SPX.

Credit spreads (yield of junk bonds vs high quality treasuries) are a relatively big deal, as they can be leading indicators of market movements - canaries in the coal mine, as it were.  In 2008, rising spreads accurately forecast the coming crash, while in late 2011 they only foreshadowed a more modest correction.  Spreads are expanding fairly rapidly right now.  My question: are they forecasting another market correction?  Or will it be a crash?  The reason credit spreads are leading indicators - the weak (CCC-rated) companies are the first ones to have their credit lines cut off, and that's why spreads are a leading indicator of market downturns.

The overall commodity index fell hard, with the $CRB down -1.53%, dropping harder than gold and making a new multi-year low.  WTIC did its part to contribute to the trend, dropping -4.14% to 55.38.  Once again there seems to be a floor of support for oil at 55, but no enthusiasm to chase prices higher.  If oil prices drop through the lows at 53, we will probably sell off down to the high 40s relatively rapidly.  Natgas absolutely cratered today, dropping -7.89% to 3.17, down 15% in the past two days.  As always, falling commodity prices signal to western hedge fund COMEX buyers that inflation is nowhere in sight.

The Chinese in Shanghai didn't get the memo on gold - they continue to buy big on the dips in price.  However, they do not have enough money in aggregate to counter the hedge fund selling in the west.  Of course if Chinese buying continues at its current rate, at some point there will start to be actual gold shortages, and that will change the market place dynamic fairly significantly, but we are not there yet.  No premiums = no actual shortages, at least according to my view of the world.

Today was a bad day for commodities overall, and PM did not receive an exemption from the downdraft.  Miners are back to looking weak vs gold, although gold has not yet made new lows and so 1130 low remains intact.  Hopefully the picture will change with the new year and the end of the tax loss selling season.

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3 Comments

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 839
Are you watching palladium?

I ask if you're watching palladium, because it seems decoupled from gold. I don't know if that's because its industrial applications are more significant than its PM applications, but palladium seems set to rise (IS rising), while Gold and Silver are continuing their fall.

Look at the 5-year graphs to see what I'm seeing.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5420
palladium

I look at it every now and then - like platinum.  Turns out, palladium use is mostly about catalytic converters (70% gross demand) and a little bit about electronics (11%), and so it tends to follow car manufacturing trends.  Growth is mostly in China.  See the "platinum 2013" report from refiner Johnson Matthey.

http://www.platinum.matthey.com/documents/market-review/2013-interim/full-review/english.pdf

Palladium = "industrial metal"

It also has only a few sources - Russia, and South Africa (together: 75% of world mine supply).

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