PM Daily Market Commentary - 4/1/2015

By davefairtex on Thu, Apr 2, 2015 - 1:27am

Gold rose +20.50 to 1203.70 on moderately heavy volume, while silver climbed +0.31 to 16.93 also on moderately heavy volume.  PM traded mostly sideways until 0815 in NY - the release time of the ADP employment report - which came in unexpectedly low.  At that time, gold and silver both rallied sharply higher, and the rally continued through to the afternoon.  This time, PM managed to keep most of its gains into the close, which is a good sign.

Both gold and silver marked swing lows today.  Gold is now back above its 9 EMA, and silver popped back above both its 9 EMA and its 50 MA.

More importantly, from my perspective, is that both gold and silver are now rallying on weak economic reports.  And I especially liked the form the rally took today: it wasn't a one-second rocketship higher based on some pre-programmed algorithm's buy.  That may have been the first $7, but subsequent buying was done by actual traders, who seemed to decide that bad US economic news was good for gold - most likely because it was also bad for the buck longer term.

And since I feel that the past six months of strong dollar will lead to more US economic weakness, we'll probably get more of these type of reports, and - at least my hope is - gold will continue to rally when that happens.

The miners loved gold's move higher; GDX shot up +5.32% on very heavy volume, while GDXJ rose +6.12% also on very heavy volume.  Miners also marked swing lows, and have moved back above their 9 EMAs.  It was a great day for the mining shares, wiping out 3 days of losses.  The GDX:$GOLD ratio is looking somewhat better after today's action too.

The dollar did not move all that much.  Yes, it dropped -0.19 [-0.19%] to 98.47, but by the percentages, the move lower in the dollar should not have caused gold [+1.73%] to rocket higher in the way that it did.  This means that today's rally in gold was mostly not a currency effect - gold rallied today in all currencies.  And that's a really good sign.  If you are long gold, of course.

SPX dropped again today, with the bulk of the move happening in the first few minutes of trading.  SPX sold off hard at the open, and spent the rest of the day trying to recover, eventually closing down -8.20 to 2059.69.  SPX managed to avoid breaking below its previous low, which is positive, but the open didn't look great, and buyers didn't seem to be all that plentiful.  VIX dropped -0.18 to 15.11.  It did not appear that the equity market was specifically concerned about the ADP employment report - the futures showed no signs of dropping at the release time.  The drop just seemed to be about traders wanting out.

The Nonfarm Payrolls (PAYEMS timeseries at FRED) report has a huge effect on the market, mainly because once these numbers starts to turn lower, it usually signals a top in the economy.  I do not think there is any way that Chair Yellen will raise rates if PAYEMS actually tips over.  The next release  in this series comes this Friday.  Today's ADP employment report is used by traders to help guess how PAYEMS will go.

Bonds shot higher on the bad equity market performance - TLT rose +1.31%, nearing the previous high set last week.  If SPX continues to correct, TLT should do well.  That's the normal relationship, and it appears to be holding.

The CRB (commodity index) rallied strongly today, up +2.01%.  CRB is now back above its 9 EMA.  If it can close above that 50 MA, the chart for commodities would look a whole lot better.

WTIC had a great day, rallying +2.06 [+4.34%] to 49.55.  The oil rally was not about the buck or employment reports - Oil's rally started at the time of the Petroleum Status report at 1030 EDT.   At first glance the report appeared to be bearish, since it indicated a 4.8 million barrel raise in inventories, which is another 80-year record.  "Oil glut still in place."  But when you see the market rally on that sort of news (the release launched a $2 rally, starting at 1030 EDT and ending mid-afternoon that saw oil eventually move above $50), you can see that traders are unconcerned about the inventory builds.  Is it manipulation?  No.  Traders expected an inventory build.  My advice: ignore news, watch what the market does.  "Are you going to believe my news story, or your lying eyes?"

So today: commodities strong, oil strong, dollar slightly weaker, and gold & silver rallied on news of US economic weakness.  Since I'm guessing there will likely be more US economic weakness ahead (although - it might not show up in this week's PAYEMS update) that probably bodes well for PM.  And if the rally in commodities continues, that helps too.

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davefairtex's picture
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Greece - new drop dead date: April 9

Greece has an upcoming payment to the IMF on April 9th.

Greece's interior minister told Germany's Spiegel magazine, his country would not respect a looming €450m loan repayment to the fund on April 9, without a release of much-needed bail-out funds.

"If no money is flowing on April 9, we will first determine the salaries and pensions paid here in Greece and then ask our partners abroad to achieve consensus that we will not pay €450 million to the IMF on time," said Nikos Voutzis.

This dovetails with the outlines of a "soft default within the Eurozone" that I outlined a while back.  As best I can tell, no proposal from the Greeks short of simply executing on the previous (austerity) agreement will be tolerated by the gang in charge.  So they have meeting after meeting, and the response is always, "oh that's too amateurish" or "my goodness, it doesn't have enough detail", but the end result is always "no more money" because it doesn't cut pensions or salaries or whatever else the Eurozone wants the Greeks to do.

My sense is, Brussels and the leading powers desperately want the new Greek government to fail.  No room for democracy in the EU.

Now we have a new deadline.  If the Eurozone can't agree that the latest proposal "has enough detail" by April 9th, that's it.  (Although, truth be told, IMF won't declare a default for another 30 days after a late payment by a debtor - so its really not the end of the world.)

After a recent discussion about monetary architecture in another section of PP, I had an epiphany - since it is always and everywhere "flow of money" that enables debt repayment to be made, anything that ends up slowing down or restricting the flow of money will inevitably result in debtors having harder time making payments.  So cutting salaries: reduces flow.  Cutting pensions: reduces flow.  During hard times, cash stagnates.  People stop spending.  This makes sense, but its overall effect is that it also makes it extremely difficult for any debtors to make their payments.  Even if you do not change the quantity of money in the system, if you want to cause widespread defaults, just dramatically slow down the flow of money through the economy.

Again - its not quantity of money that matters, it is the rate of flow of money that enables debtors to pay. Printing a bunch of money that then sits as Excess Reserves helps no debtors at all.  That technique enlarged money quantity, without altering flow at all.

Ideally, you live within your means and don't get into a position where you have too much debt.  Failing that, the quick way out for the economy as a whole is to first default, and then devalue (and add in some deficit spending too) - which first reduces the debt burden, and then ensures the restart of monetary flow, which will enable any remaining debtors to actually be able to make the payments on the debt that still exists.


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