PM Daily Market Commentary - 2/12/2015

davefairtex
By davefairtex on Fri, Feb 13, 2015 - 3:03am

Gold rose +3.40 to 1221.70 on moderately light volume, while silver climbed +0.05 to 16.83 on moderate volume.   Both gold and silver spiked higher in London trading, but failed to hold those gains into the close in NY.  Both gold and silver had failed rallies today, with gold's failure being more apparent, gold printing an inverted hammer candle on the day.

My sense is, since the fall in oil has been arrested, silver is getting much more of a bid.  For silver to mark the end of its current downtrend, it needs to close above the downtrend line in the chart below.  A close below the 50 MA will likely lead to a lot of selling.  Buying silver prior to a break of the downtrend line is risky.  Silver really needs a close above "about" 17.10 to break the current trend.

The buck had a bad day, off a huge -0.96 to 94.22.  It just sold off hard through the London trading session all the way through to noon in NY.  The Euro did rally some (+0.52%), but the big gains were in the Yen (+1.04%) and the Pound (+0.97%).  Losses in the buck helped gold and commodities, but right now gold is in a downtrend priced in Euros, and I believe that is the current driver for PM at this time.

Mining shares rallied today, with GDX up +1.39% on moderately light volume, and GDXJ rose +1.22% on light volume.  After breaking support yesterday, mining shares avoided a sharp sell-off today which is a bit of a miraculous outcome from my perspective.  Possibly traders were encouraged by Agnico Eagle's 4Q filing, which reported lower than expected costs (omg!  never happens!) - due to lower fuel prices and weaker currencies in Canada and Mexico.   AEM rallied +5.65% on the day.  Is it possible that miners aren't going to die with gold at 1230?  Low oil prices and strong dollar to the rescue!

Miners are not out of the woods yet, but so far they have managed to avoid breaking down, which I think is positive.

SPX rallied strongly today, up +19.95 to 2088.48, a stone's throw from the all time high at 2093.55.  I can't tell you why the market decided to rally, but today's breakout above the recent trading range is a bullish sign.   Or if you were short, its a sign you should cover.  VIX dropped -1.62 to 15.34.

Long bond ETF TLT did not confirm the low from yesterday, dropping -0.33% but remaining above its 50 MA.  The possible low is still in play, but a breakout of SPX to new highs will probably lead to further selling in TLT.

The CRB (commodity index) rallied +1.85%, a strong move pushing it back above its EMA-9.  Right now commodities have been tracking sideways for the past few weeks.  That beats the steady decline we were seeing for the previous six months.  Another week of side-tracking and we probably end up above the 50 MA, which would be a bullish signal for commodities.

WTIC rose +1.90, a big day for oil.  It too has been tracking sideways for the past few weeks, unable to rise above 55 but finding support in the high 40s.  Oil services stocks are tracking sideways along with oil, while the E&P companies are rallying.  Brent is looking stronger than WTIC; it is now solidly above its 50 MA which appears to be providing support, while WTIC remains below its own 50 MA.

The Greek situation is still in a state of flux.  If the Greeks hold to their positions that the debt must be effectively written down (i.e. GDP-linked bonds and the perpetual bonds on the ECB's balance sheet), it will turn the Eurozone on its head.  Its a fascinating time to be watching.

Miners are signaing they have some buyers, silver is looking like it might have buyers too, commodity prices and oil are tracking sideways instead of collapsing; all we need now is for those buyers at the COMEX to show up and then hopefully this four week correction will end.  But until they show up, the near term trend remains down.

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3 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 149
Silver in a Deflation?

Dave-

Any thoughts/speculation on how silver might perform if we go down the "Deflation Path"?  Get treated like a "monetary safe-haven" or like an industrial commodity?  I suspect gold would hold up quite well, although a sharp spike lower would have to be expected.

Thx!

Steve 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
silver in deflation

Steve-

Silver does poorly during deflation, at least based on its performance after WW1.  You can read about the particulars in this book chapter here, entitled "The postwar decline in the price of silver: 1920-1933" which talks about the various supply & demand issues back then.  http://cowles.econ.yale.edu/P/cm/m04/m04-16.pdf

Book gives the all time low for silver at $0.25/oz, where the gold/silver ratio was about 80:1.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
China & Gold

Koos Jansen has a nice post on what I consider to be China's long game - namely that China will eventually gold-back its currency.  However, I believe this will be a real possibility only once they get their own private debt situation under control.

https://www.bullionstar.com/blog/koos-jansen/sge-withdrawals-59t-in-week-5-ytd-315t-what-is-china-up-to-with-all-this-gold/

Anyone notice how China loves to force its banks to lend money to goose the economy?  You can't do that if you're on a gold standard.  So they have to be willing to give up that particular lever, which I sense they are not yet ready to do.

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