PM Daily Market Commentary - 1/29/2015

davefairtex
By davefairtex on Fri, Jan 30, 2015 - 2:40am

Gold plunged -24.20 on very heavy volume, while silver was crushed, losing -1.05 also on very heavy volume.  Selling started in Asia, continued through London, and accelerated in NY as both metals dropped (or were pushed?) off a small cliff shortly after 1030 EST.   Mostly here I'm talking about silver - its losses on the day were astonishing, and the selling pressure on silver was far more intense than on gold.

Some suggest it was about elevated margin requirements, others are sure the selling was about COMEX futures contract expiration.  Could be.  From a technical viewpoint, it looks like the 200 MA acted as resistance - silver made four separate attempts to close above the 200 MA, failed four times, and then sold off a few days later.  This is a relatively common pattern.

Once momentum is lost in an uptrend, the shorts start to become more excited.  In an uptrend, dips get bought by the longs, but once momentum shifts, it is rallies that get sold, and that pattern was distinctly evident today on the intraday charts.

To me, it appears that silver was the cause of the trouble, not just from the magnitude of the move, but also because it seemed that intraday, the minute-by-minute movements were much more well-defined in the silver futures markets than in gold.  Its not always this way - but it certainly was today.  In my experience, the shorts will keep attacking until the technique stops working, until those buyers show up.  So far, no buyers have shown up, so my sense is that momentum remains to the downside.

Gold ended its day hovering above the 200 MA, which along with a previous high from three months ago, seemed to be offering some support.  I'm looking more at 1240 and then the rising 50 MA at 1218 as likely places for the buyers to show up.  I'm not convinced the selling is over just yet.

The USD moved higher, closing up +0.18 to 94.94.  The Euro had a failed rally today but still managed to stay green, so today it was a fall in the commodity currencies that pushed the buck higher: CAD down -0.70 to 0.79 (last seen in March 2009), and AUD down -1.62% to 77.66.  If its not one thing, its another.

Given the virtual collapse in silver and the bad day in gold, mining shares did surprisingly well; GDX dropped only -1.73% on moderate volume, while GDXJ fell -3.76% on heavy volume.  Miners are now below the EMA-9, but the senior miners actually rebounded at end of day, and avoided making a new low.  The GDX:$GOLD ratio is actually holding up relatively well, but GDXJ:GDX made new all time lows just today.  I'm not sure what to make of the mixed message in the mining space.  A sign of hope that we're simply enduring a correction within a larger uptrend, perhaps.

SPX recovered from yesterday's drop, rising +19.09 to 2021.25.  SPX is now apparently range-bound, with 1980 marking the low, and 2065 the high.  As for market direction: SPX is spending a fair amount of time below its 50 MA, which I interpret as generally negative.  VIX dropped -1.68 to 18.76.

Long bond ETF TLT dropped -0.66% retreating from the highs, but still remains in a strong uptrend.

Can anyone guess what commodity prices did?  The overall commodity index ($CRB) dropped again, losing -1.09% making a yet another new low.  The CRB isn't quite at its 2009 lows but it is getting closer every day - only another 6% to go.

WTIC made a new intraday low at 43.58 but rallied relatively strongly off that low, closing up +0.21 to 44.59 and printing a doji.  Sounds great, but I am still waiting for a WTIC close above its EMA-9; something which has happened only twice in the last four months, and only for a day each time.

The big story of course was that silver was crushed today.  Sign of the apocalypse, evidence that there isn't real price discovery anywhere in markets anymore, definitive proof that central bankers control the price of PM anytime they want, or just shorts run wild in a market where the buyers have temporarily gone away?  PIck your favorite story.  Mine is: upside momentum died off, and then the shorts saw weakness and decided to pounce.

Of course, the shorts could be evil central bank manipulators, Commercials, or the Devil Himself.  I can't tell from where I sit, and I am content with the answer, "I don't know."  But if I can see the potential for it happening in price charts and my other indicators that give me the ability to momentarily stand aside - I am content.

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5 Comments

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
The "bombling" of silver yesterday (Jan 29)

    Thanks DaveFairTex.  I was really looking forward to your commentary on a day when silver got a “Dresden bombing”.   I looked at the volume spikes in SLV (starting with 768,000 just after the bell) spread over the day , and there were several big ones on price step-downs.  As you said, you could smell trouble as you watched the spot price move in Hong Kong the night before, and then see the down draft intensify in London; but the scale of the bombing in New York was really something to behold.
  You have a nice list of all the possible factors, and I wonder why hedge fund unwinding of hedges built up pre the FOMC meeting was not on your list.  Help me please  —  is this a reasonable thought as to one of the sources?
  BTW, I feel there is too much bi-variate analysis in the financial commentary I read. Every time something big happens all sorts of experts chime in with “it was due to X”.  The real world is not that simple.  Often it’s a combination of X1, X2, …, Xn,  and we never have the data (or the modeling) needed to sort out their relative importance.
  Also, while it was a big day alright, if you start measuring *after* the price gap that took place  right at the bell, you could not have made much money buying puts yesterday, unless you had a huge block of capital and were looking only for a couple of pennies per contract at the end of the day. To get a big shift per contract on the down side yesterday, you had to be positioned the night before.
  Anyway, this ball game is not by any means over, and all the bombers can do is keep the lid from blowing off the prices, as more and more of the world wakes up to the need to search for store houses of value that do not need "official blessing".   I support the almost daily "policy whacks" on gold; because our world is not ready for a serious crash of confidence in fiat money.  (It's a storm for which we are almost totally unprepared, except for a few parties.) What’s more, all you have to do is estimate the range of “ceiling prices” that will likely trigger the bombs.  To me, that greatly reduces my trading risks, at least compared to the stocks I trade where I am constantly wrong on forecasting trading ranges.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5463
oil breakout, dramatic gold recovery

Oil looks to be breaking above that elusive EMA-9 for the first time in weeks.  Right now it is trading at 47.50, and if it closes around these levels, it will both technically mark a swing low and cross the short term EMA-9 average, which are two bullish events in one day.

As a result of this, I'm seeing a lot of money flow into energy equities right now - drillers, E&P companies, etc.

PM is also having a very nice day, much to my surprise.  Buyers may not have been apparent yesterday, but they sure came out today.  Gold is performing better than silver, and it will probably regain all of its losses from yesterday, if current levels hold.

Perhaps it was this: http://www.bloomberg.com/news/articles/2015-01-30/greece-shuns-eu-bailout-cash-before-dijsselbloem-visit

My spidey sense is telling me that traders really don't want to be short gold or oil going into the weekend.

Got COMEX gold futures?

Just checking to make sure you're paying attention, Jim :-)

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5752
Note the volumes...

Oil is spiking on massive volume, truly huge which is what you tend to see during a short covering rally.

Now wander over to gold.  Look at the huge volume to the downside yesterday...now note the relative absence of volume to the upside today.

This is a mystery to me...why the volume to gold is always to the downside...I spent plenty of my trading time short this and that and I am quite familiar with the cadence of a short covering rally...

For some odd reason, gold does not seem to participate in that dynamic...

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2387
Look who's buying Gold!

Why, those insider of insiders.. Central Bankers!

Central banks around the world bought a net 461 tonnes of gold in 2014 — 13 per cent higher than the previous year and the second-highest level since the collapse of the gold standard in 1971 — as they continued to diversify their currency reserves following the financial crisis. They have added 1,800 tonnes to their holdings in the past six years.

http://investmentresearchdynamics.com/pomp-and-circumstance/

Theordore said,

I support the almost daily "policy whacks" on gold; because our world is not ready for a serious crash of confidence in fiat money.

I guess I have to agree with you here... the important thing in my book is that folks understand that the Gold price is officially manipulated so that you have the correct positioning.  For me, that means holding a large core of PHYS in my IRA regardless of price movements, but holding off on miner exposure for now (I have a little bit).

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5463
volumes

This is a mystery to me...why the volume to gold is always to the downside...I spent plenty of my trading time short this and that and I am quite familiar with the cadence of a short covering rally...

First, I've seen plenty of high volume gold short-covering rallies.  I have a software tool that tracks intraday events and looks for markers that I ascribe to a short covering event; they usually crop up on a rebound from a deep down-spike, or on a break above major resistance.  They don't generally happen after just a one-day move like yesterday.

In recent weeks, the highest volume short covering rally we've had is on the SNB de-peg day (272k contracts for the front month vs 233k for yesterday's action).  Prior to that, there was one on Dec 1 (327k contracts), where there was a huge dip down, and then a whole raft of shorts were popped on the astonishing rebound that followed.  $80 range on that day.

My tool uses one-minute data and counts the number of resistance/support breaks on any given day that result in large volume spikes, and assumes those result from traders being stopped out.  It differentiates between breakouts and breakdowns.

My sense for yesterday's downside gold volume: a bunch of new longs were stopped out - likely the ones that bought the breakout over the 200 MA.

Here's the short interest in gold from last week - its relatively low right now, so that's probably why there wasn't a lot of short covering in gold's rally today.

Now then, about oil.  Oil's had an extremely long downtrend, and so of course the short interest is quite high, so anytime it looks like a bounce is happening, there's a rash of short covering.  Not surprising after a 7 month continuous downtrend.  Everyone is already leaning far to one side of the boat.

 

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