PM Daily Market Commentary - 12/29/2014

By davefairtex on Tue, Dec 30, 2014 - 2:43am

Gold dropped -13.20 to 1182.90 on light volume; silver fell -0.28 to 15.81 on light volume as well.  PM sold off hard starting right around the NY market open, rebounding modestly in the late afternoon.

On the daily chart, it appears that gold attempted to rally above its 50 MA, but failed, and then sold off.  That behavior is bearish.

The buck had yet another good day, rising +0.21 to 90.53.  Its always something that causes the buck to rise.  Today, it seemed to be about the failed election of the President in Greece, which assures a snap election in which the more radical Syriza party is favored to win.  The Euro made new lows, down -0.38% to 121.56.  Greek bonds are doing poorly, but the currency market does not seem to be baking a Grexit into the cake just yet.

It may just be time for a country to leave the Eurozone.  It won't happen instantly, but that swing date of 2015.75 that Martin Armstrong's computer spit out long ago looms large in my thinking right now.  And the failed election of the President in Greece may just be the starting gun in this race.

What happens in a currency crisis?  Well, if you are living in the country with the crisis, gold is a pretty good hedge.  We saw that with how gold performed for people in Russia just recently.  Greeks don't need gold to protect themselves, not just yet.  They still have the Euro, which may be declining but not the way the Ruble did.  However if Greece exits the Euro, gold will be a fantastic way to protect against both Greek bank deposit bail-ins as well as a way to protect value during the local currency devaluation that is sure to follow.  Likely, a Grexit would be very gold-positive.

Mining shares fell today along with gold, with GDX off -2.38% on moderate volume and GDXJ down only -2.35%.  Currently, there is no clear direction from the charts on where the miners will go next.  The current trend in PM is down and so that's the likely path of least resistance, but if/when tax loss selling pressure abates, we might just see a nice rally as money rotates into the underperforming sector.

SPX squeaked out another gain today, up +1.80 to 2090.57, after being down almost 10 points earlier in the futures markets prior to the NY open.  The VIX rose +0.56 to 15.06.

TLT rallied once again, up +0.75% pushing through its EMA-9.  Right now, its all about equities and the long bond.  They both look strong.  JNK was up slightly, rising +0.12%.  Currently, it looks to me like junk bonds are in the process of forming a "lower high", unlike the price action in SPX.

The overall commodity index ($CRB) fell once again, down -0.60% making yet another new low.  Below you can see a relative performance chart for all the components of the CRB.  This shows the percentage change (over the last 200 trading days) of the various components: agriculture, energy, industrial metals, livestock, and PM.  While oil is performing the worst (down 43% since 17 March), others are also dragging down the index in recent months: industrial metals, and PM.

WTIC broke to new lows, dropping -1.38 to close at 53.76.  Until WTIC can close above its EMA-9 as a very first step, the trend in oil remains downhill.  Look at the chart below.  The recent oil rally - all it did was slow the downhill progress for 8 trading days, and it never managed to close above EMA-9, not once.  Trend in oil remains down.  Those moving averages really do provide good discipline for viewing market direction.  I for one hoped for an oil rally (I bought some oil equities - they continue to vastly outperform oil itself) but that falling EMA-9 is speaking the truth to me - its up to me to listen.

Gold is looking weak, commodities and oil also, while bonds, equities and especially the dollar continue looking strong.  Existing trends remain in place.

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davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
FRBNY gold withdrawals

Koos Jansen (whose attention to detail and strong focus on data warms my heart) reports that the FRBNY shipped out 47 tons of gold in November.

Looks like a new timeseries I'm going to have to chart myself.

Interestingly, this is not a timeseries reported by the Fed's own statistical database, FRED, so it's going to be a few hundred lines of annoying screen-scraping python code to write.

The other two items on this page of "foreign holdings" are included as timeseries in FRED, but this one is not.  Jim, perhaps you have a comment about this oversight by the stats keepers at FRED?

Once I get the time series in place, perhaps I can see if there is any correlation between monthly gold withdrawals from the Fed and changes in the GOFO rate.  Now wouldn't *that* be interesting?

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
earmarked gold

Ok, here's the Fed's earmarked gold chart for the last 6 months.  I believe it is worth watching and/or adding to my weekly "physical supply" report, I think, even though it only changes monthly.

Is this a smoking gun - gold repatriation influencing GOFO rates?  If this repeats, it does strongly suggest to me that the Fed has leased its gold into the marketplace, and that yanking gold out of the Fed will cause GOFO rates to drop (gold leasing rates to rise).

Its too bad we're losing the GOFO metric in January when they stop publishing it...

Michael_Rudmin's picture
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Posts: 919
volume versus price

Sometimes I see a significant price change on low volume; sometimes on high volume. Sometimes there is almost no change on low volume, sometimes almost no change on high volume.

What am I to make of this?

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
volume & price

No change on high volume is a good sign in a downtrend, and a bad sign in an uptrend.  (No change implies a doji candlestick which is a reversal bar, with high volume indicating that the bar is likely to be more definitive)

At holiday times, volumes drop, and that makes it easier for traders to push the market around.  Thus big moves on low volume aren't as significant (in terms of getting clues as to overall market strength or weakenss) as are the big moves on high volume.

One wrinkle: for $GOLD (and other commodity-based instruments), the data providers use the "front month" contract as their source for the price, and which contract that is changes from time to time.  During those rollover days, things are sometimes interesting.

Here are some examples: first $GOLD, then December 2014 Gold (^GCZ14), and then February 2015 Gold (^GCG15).

Since $GOLD is effectively a rolling window onto whichever gold futures contract the guys at stockcharts happen to pick, you can see that the switch-over from Z14 to G15 happened (probably) on November 26th.  But if they don't switch on the right day, volume in one contract can trail off, showing a "light" volume day when in fact the volume was heavy - just in a later-dated contract.

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