PM Daily Market Commentary - 1/20/2015

davefairtex
By davefairtex on Wed, Jan 21, 2015 - 4:29am

Gold continued moving higher for the third trading day after the SNB de-pegged from the Euro, closing up +13.90 to 1294.20 on very heavy volume; silver rose +0.22 to 18.00 on heavy volume.  Most of the gains in gold came during London trading hours.

I have to think this consistently strong move higher is almost all Eurozone-related, ahead of the Greek elections and the upcoming ECB QE announcement later this week.  Volume is climbing as price rises, which is a good sign.  Still, sometimes a rally prior to big news events can end up with a "sell the news" result, and gold is starting to look a little overbought.  But even shorter-term traders should hang on until the market sends us a signal that it is topping out.  Very likely, the shorts are bailing out left and right, with the pressure from the near term news events making them nervous.  Who wants to be short gold prior to a possible Eurozone breakup event?

To end the longer term downtrend, gold needs a close around 1350.  That will break the bearish pattern of "lower highs" that has been in place since 2011.  I'm not sure ECB QE will get us there, but if Syriza wins the Greek elections with a majority in parliament - that might just do it.

The USD continued climbing, up +0.35 to 93.33, yet another closing high for this dollar rally.  With all the news from the Eurozone looking bearish, money continues to flee the zone ahead of the big events scheduled for this week.

Mining shares moved higher on the continuing gold rally, with GDX up +3.52% on heavy volume, while GDXJ was up +4.19% on moderate volume.  The senior miners are slowly catching up to gold, closing above their 200 MA today - something gold did three days ago.  Still, rising gold is still leading to rising miners, which remains positive.

SPX rose slightly, closing up +3.13 to 2022.55.  VIX dropped -1.06.   I think equities look a whole lot weaker than they have in months past; we're seeing no clean, steady ramp higher the way we did before, but rather a general choppy move lower, with down-days outnumbering up-days.  This suggests to me the bias is down, and the dip-buyers reluctant to commit.  Once again, the buck rose today and US equities didn't, which feels bearish to me.

Long bond ETF TLT rallied yet again, up +1.33%, making another new closing high.  JNK was flat, unchanged on the day.  US bonds continue to benefit from the rising dollar.

The overall commodity index ($CRB) suffered a big loss today, down -2.35%.  Once again oil was the culprit, dropping -2.27 to 46.64, wiping out the gains from the big oil rally last Friday, dropping below its EMA-9 once again.  There was no clear reason for the big drop in oil prices - buyers and sellers seem about equally matched at the mid-40s.

Gold's recent immunity to the weak commodity index demonstrates to me that gold has two aspects to it; sometimes gold acts like a commodity (i.e. it is commodity-inflation driven), and sometimes it acts like a currency.  After several years of following the CRB lower, in early November it started to diverge.  Now it is exploding higher, while the CRB continues to languish.

Along those same lines, the GOLD:WTIC ratio (barrels per ounce of oil: 27.75) is close to the highest levels in the past 30 years.  The ratio has doubled in the past four months.  You can see that the last time we had a move like this was back in the 2008-2009 period.  If only oil was as easy to store as gold...I'd sell gold and buy oil.  Unfortunately, storing oil in sufficient quantity isn't cheap or easy.

Fun historical fact: one barrel of oil is 42 gallons.  This dates back to the 1860s, where oil was actually transported in wooden barrels.  So why 42 gallons?  Once full of oil, each barrel weighed 300 pounds, which was the maximum amount of weight that a grown man could reasonably handle.  Much like the width of train tracks derived roughly from the space required for two horses together in harness, our standard measure of oil was driven by limitations of human strength.  So - one ounce of gold = 27.75 barrels = 8,325 pounds of oil.  US per capita oil consumption per year = 22 barrels.  Got space in your garage for 220 barrels (66,000 pounds) for your next 10 years of energy use?  Per person?

The current gold:oil ratio says that 1 pound gold = 99,000 pounds of oil.

Some pretty pictures here:

http://aoghs.org/transportation/history-of-the-42-gallon-oil-barrel/

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8 Comments

Arthur2014's picture
Arthur2014
Status: Bronze Member (Offline)
Joined: Jul 17 2014
Posts: 56
gold prior to a possible Eurozone breakup

davefairtex wrote:

“I have to think this consistently strong move higher is almost all Eurozone-related, ahead of the Greek elections and the upcoming ECB QE announcement later this week. 

….  Who wants to be short gold prior to a possible Eurozone breakup event?”

 

Possibly you????                ;-)

Wed, Jan 7, 2015

davefairtex wrote:

“Yes, I do believe that we might have another downspike in 2015.  If we have another Lehman-style event caused by a Grexit, gold and literally every other commodity will probably be hammered by deleveraging.  My guess is gold will probably rebound relatively rapidly, … , but I think that's an entirely possible scenario that may not be too far in the future.”

http://www.peakprosperity.com/discussion/90905/pm-daily-market-commentary-152015

 

Is any rational, justified  expectation at all possible?

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Another Great Postt

Dave-

Really appreciate your honest, "hype-free", fact-based analysis.  

About the comments above, there isn't a single analyst out there that doesn't reserve the right to change their opinion as the markets, facts,etc change.  If people want to come on here and harass you for a free service you provide, I would suggest that there are plenty of other TA subscriptions services that are more than willing to offer inferior analysis for $50+/mo.  

 

 

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
(No subject)

 

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
grexit effects: gold long or short?

arthur2014-

Let me resolve this conflict for you.

Right now, we haven't seen any banks fail.  No Grexit has taken place.  So prior to any failures, traders are apparently loading up the boat (they still have access to lots of leverage) on gold futures contracts and/or covering short, in advance of possible Grexit and Draghi's possible QE announcement, most especially after the de-peg from the SNB.

Can that leveraged position survive unharmed if we actually do have a Grexit and losses are taken on all those CDS and bonds, and banks are forced to deleverage?  Perhaps it can.  The market will tell us for sure.

Now then, the misunderstanding you have about me is that I would actually go short without seeing some market signal that suggests a particular scenario is playing out.  I absolutely would not.   I would wait and see what the market tells me.  I hope I didn't suggest otherwise in any of my posts, or recommend that anyone execute a trade based on speculation as to what they think the market might do.

I also think the de-peg from the Euro has changed the complexion of the gold market substantially.  Last week it looked like gold might be topping out at resistance, right up until that announcement.  Immediately afterwards, it blasted through the old high resistance like a hot knife through butter, and then the 200 MA, and it has gone up three days in a row.  We'll know more on Friday if that was short covering or new longs; for now all we can do is guess.

Lastly, I've always liked the saying: "When the facts change, I change my mind.  What do you do, sir?"

Penny- thanks for your kind words.  :-)

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
ECB trial balloon: 50 billion/month through end 2016

Trial balloon floated prior to the ECB meeting - they wouldn't want to actually decide something until they were able to gauge the market's reaction.

http://www.bloomberg.com/news/2015-01-21/ecb-said-to-propose-qe-of-50-billion-euros-a-month-through-2016.html

Immediate market reaction: Euro rallied, gold dropped, miners sold off, SPX rallied.

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
hints about the future from Bloomberg

Here's another bit of evidence supporting Chris's theory that some form of actual helicopter money will be the next trick of our money printing friends in Central Banking.  Here is a bloomberg editorial that advocates that the ECB take that exact course.

http://www.bloombergview.com/articles/2015-01-19/it-may-already-be-too-late-for-europe-s-economy

Suppose Draghi decided, as he should, to go for outright shock and awe. Then he could add that the ECB would not regard its 2 percent inflation target as a ceiling so long as demand in Europe was insufficient. He could call on governments to increase their borrowing and tell them that the ECB would buy the new debt directly, in a coordinated monetary and fiscal expansion. He could say that monetary policy, as he understands it, includes the option of "helicopter money" -- and that the bank would shortly begin sending out checks to every EU citizen.

I think of Bloomberg as the "Mouthpiece of Big Banking"...for the editors to be talking about such a thing, that has to be pretty high up on the wish-list of our friendly banking establishment.  With enough repetition,  we will all start to expect our Central Bank to dutifully print money and send us checks every month at the first sign of trouble here in the US.

Does anyone on the Editorial Staff realize and/or remember that the primary problem we're dealing with is one of too much debt?  And we imagine sending checks to people will result in solving that debt problem?

All helicopter money will do is let people make a few more debt payments, and the problem of the debt overhang will remain.  It would solve nothing.

But I suspect, that is by design.  Any success in attacking the actual problem would end up greatly reducing the income of the FIRE sector, so a direct approach to solving our underlying debt issues is to be avoided at all costs.

If the debt slaves can use newly printed money to make a few more interest payments to the creditor overloads, with the savers paying for it all, that sure seems like a good plan for our banker friends, doesn't it?

 

Arthur2014's picture
Arthur2014
Status: Bronze Member (Offline)
Joined: Jul 17 2014
Posts: 56
davefairtex wrote: Trial

 

davefairtex wrote:

Trial balloon floated prior to the ECB meeting - they wouldn't want to actually decide something until they were able to gauge the market's reaction.

Immediate market reaction: Euro rallied, gold dropped, miners sold off, SPX rallied.

on Wednesday January 20 the rumor speaking of 50 billion euros per month caused the Euro to rally, gold to drop, and miners to sell off.

But on Thursday January 21 the authoritative decision to spend 60 billion euros per month (20% more than expected) caused an inverse reaction.

Strange – peculiar – curious- odd

Best regards

Arthur

Arthur2014's picture
Arthur2014
Status: Bronze Member (Offline)
Joined: Jul 17 2014
Posts: 56
davefairtex wrote: What do
davefairtex wrote:

 What do you do, sir?"

Dear lord Dave,

I will never trade. That is my last way out in an environment I am unable to understand.

Arthur

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