PM Daily Market Commentary - 12/30/2014

davefairtex
By davefairtex on Wed, Dec 31, 2014 - 12:16am

Gold rose +17.40 to 1200.30 on moderately heavy volume, while silver rallied +0.47 to 16.27 on moderate volume.  Gold shot higher starting around at around 0820 - prior to the NY open - causing the shorts to run for cover; perhaps it was the prospect of an possible Grexit in the future, or maybe just a decline in tax loss selling, its hard to know.  Silver followed gold higher.

By end of day, gold managed to close above its 50 MA for the first time in weeks, but silver could not quite do so.  For gold, there is a possible pattern of higher lows forming - it requires a break above 1240 to confirm.  Perhaps after the new year we will see it.  A close above 1240 would be a big deal, since it would also end the medium-term downtrend that started in August.  The close above the 50 MA was a good sign.

The buck fell today, closing down -0.24 to 90.29.  Perhaps this aided gold and silver in their move higher.  The dollar's drop is a bit surprising given the situation in Europe - but looking closer, I see a rising Yen, Canadian Dollar, Aussie Dollar, and British Pound alongside a flat Euro.

Martin Armstrong's "danger sign" for the Euro is a yearly close below 121.56, basically 0.01 below where the Euro closed today.  A bearish Euro close for 2014 would, in his words, indicate "a realistic potential for Greece to leave the Euro and this will open the door to sovereign defaults."

Part of the problem is, the people who created the Eurozone had no idea what impact joining the Eurozone would have on the pre-existing debts of Southern Europe:

http://armstrongeconomics.com/2014/12/30/yearly-bearish-in-euro-121-56-woe-is-europe/

Politicians and economists have NEVER understood what they have done. Southern Europe saw their national debts RISE in real terms with the Euro. Hence, repaying any debt to them was more akin to strip-mining the national wealth. Let’s say you agreed to borrow gold at $300 and it comes time to repay the loan but gold is now $1,200. The debt appreciated rather than declined. The Euro has been one giant bad trade gone seriously wrong for all of Europe. The Greeks have really been hurt deeply by the rise in the Euro.

I never realized this until Martin explained it.  If you have debt in a weak currency, and that gets swapped for debt in a strong currency, and then that currency appreciates - as the debtor, you're hosed.  Strong currencies are good for creditors, not debtors.  That is what happened when Southern Europe joined the Eurozone - debtors effectively got their Lira/Peseta/Drachma debt re-denominated in Deutchmarks/Euros, and then the Euros spent the next ten years almost doubling in price - from 85 in 2001 to 155 in 2008.

Miners had a good day, with GDX rallying +3.54% on moderately heavy volume, and GDXJ up +5.33% on heavy volume.  Senior miners rallied right up to their infamous 50 MA by mid-day but were not able to cross, and retreated somewhat into the close.  Still, it was a good day for the miners, with the juniors looking stronger than the senior miners, and both outperforming gold.  The strong volume on the miner rally was also a good sign too.  It looks like traders could be front-running a possible sector rotation in January when beaten down sectors receive money flows from those that outperformed in 2014.  Still, the market has to prove to me its enthusiasm for mining shares by a significant close above that pesky 50 MA, which it has been unable to do since August.  Shorts see the falling 50 MA as a good entry point and they've been right three different times.  Hopefully this time is different.

SPX sold off today, dropping -10.22 to 2080.35, marking a high.  The dropping dollar probably didn't help.  VIX rose +0.86 to 15.92.  The equity market may be setting up for a near-term correction in the next week or so.

TLT rallied today, up +0.27%, slowly climbing back towards its previous high.  JNK is moving sideways, down -0.08%; it may be leading SPX lower.

The overall commodity index ($CRB) rose modestly, up +0.10%.  WTIC did (relatively) well too, closing up +0.15 to 53.91.  The fact WTIC isn't selling off after the break to new lows yesterday is a good sign, but it still needs to string together two days where the price isn't dropping.  A close above 54 would accomplish that, and a close above that falling EMA-9 (55.76) would be even better.

As the year draws to a close, PM remains in a downtrend, but there are hints of strength, and it would not take much of a move higher to turn the charts to a reading of "early bullish".  We have one day left in 2014, it will be interesting to see where we close.

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1 Comment

joesxm2011's picture
joesxm2011
Status: Gold Member (Offline)
Joined: Mar 16 2011
Posts: 259
Jim Cramer recommending gold

I just saw an article on yahoo saying that Jim Cramer is now recommending up to 10% gold as mandatory in your portfolio.

Given my prior experiences following Jim Cramer recommendations, I guess this is the "kiss of death".

Of course he recommends GLD unless you are uber-rich and can buy large amounts for vault storage.

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