PM Daily Market Commentary - 4/20/2015

davefairtex
By davefairtex on Tue, Apr 21, 2015 - 3:55am

Gold fell -8.00 to 1195.80 on moderate volume, while silver dropped a big -0.31 to 15.94 on heavy volume.  PM started falling prior to the NY open - the rising dollar did not help, and a big drop in copper on the day dragged PM prices lower.  Silver made new cycle lows on the day.

Gold in Euros was just slightly negative on the day - thus, gold's drop today was mostly a currency effect.  Gold has been trading sideways within a range for the past two weeks.  Gold needs a close above 1210 to break out of this range to the upside.  However if the dollar keeps rising, it will be harder for gold to remain within its range.

The miners did well today, with GDX up +0.56% on light volume, and GDXJ rose +0.65% also on light volume.  Both mining ETFs remain within its (bullish) ascending triangle pattern.  This is good news, especially considering the weakness in silver.  Traders seem to be slowly accumulating miners, at least for now anyways.

There are two very different signals coming from the ratio analysis I do.  The gold/silver ratio jumped higher, climbing +0.92 to 75.02, which is nearing the high end of the recent range for the ratio, and its bearish for PM in general.  At the same time, the GDX:$GOLD ratio is slowly climbing higher, which is a bullish signal for PM.  I'm not sure which of these will end up being "correct".

The dollar rose +0.45 to 98.16, having found support on Friday at the 50 MA.  In the past month or so, each time the buck starts selling off, buyers appear at the 50 MA to push the buck right back up again.  At the same time, the buck seems capped at 100.   Which direction the dollar finally chooses to break will influence the price of PM.

SPX rallied strongly today climbing +19.22 to 2100.40, almost completely wiping out the losses from Friday's worldwide equity sell-off.  There was no economic data that inspired the rally.  Possibly, it was driven by the PBOC dropping their bank reserve requirement by 1%, which makes it easier for banks to lend: "printing money the old-fashioned way."  A new all time high is just 20 points away.  VIX fell -0.59 to 13.30.

Bond ETF TLT fell -0.88%; bonds were hurt by the money flowing into equities.  Bonds have traded sideways for the past 4 weeks.

The CRB (commodity index) fell -0.54%; commodities did not appreciate the dollar strength.  Still, CRB remains above its 50 MA, and its 5 week uptrend remains intact.

WTIC climbed +1.86 [+3.32%] to 57.93 today; most of that move was based on the mechanics of futures expiration and the strong contango in the oil market.  In case you don't know what that is, I'll explain:

Futures contracts have a current price, and a delivery month.  That's what a future means - a price attached to a month where the commodity is actually delivered.  Listed below are the first four months of oil futures contracts.  Note how oil for delivery in June is $1.50 more expensive than oil for delivery in May.  That's what contango is: prices further out in the future are higher than prices now.

NYMEX.Crude.CL1 (May 2015)  56.38
NYMEX.Crude.CL2 (Jun 2015)  57.88
NYMEX.Crude.CL3 (Jul 2015)  59.05
NYMEX.Crude.CL4 (Aug 2015)  59.75

http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_quotes_settlements_futures.html

Each month, when the "front month" (CL1) approaches delivery time, traders "roll off" the front month contract to the next month (CL2) - they sell CL1 en masse and buy CL2.  Then, CL1 expires, and any trader still holding a CL1 contract is the proud owner of 1000 bbls of oil somewhere at Cushing, OK.  Then CL2 becomes CL1, CL3 becomes CL2, and so on.

That's a long winded way of saying we had a futures contract roll yesterday from May to June, which ended up popping the price by +1.50 from the contango.  Why does anyone care about this technicality?  Well, if you own the USO ETF, which consists entirely of WTIC futures contracts (http://www.etf.com/USO), you can see that it underperforms the price of oil substantially in a contango situation.  See the ratio chart below: the big spikes down during the last three months were all about contango.  Bottom line: USO will lose value each month during the roll - the steeper the contango, the larger the loss.  Right now, its around a 2.6% loss.

Silver is looking weak right now, gold is tracking sideways, and the miners are rallying.  Its a confused picture, and that leaves me with little clear direction for PM at the moment.

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3 Comments

Jbarney's picture
Jbarney
Status: Silver Member (Offline)
Joined: Nov 26 2010
Posts: 233
Gold Theft

https://gma.yahoo.com/fbi-finds-1-gold-bar-4-9m-highway-145720960--abc-n...

 

Makes you wonder about the "security" of gold, especially if/when the price starts to scale upward again.  It may not be safe to hold PM in our homes....but at least this scenario reinforces fears some of us have allowing others to hold them.

Food for thought.

Jason

Jbarney's picture
Jbarney
Status: Silver Member (Offline)
Joined: Nov 26 2010
Posts: 233
Chris, Dave, Jim

http://www.zerohedge.com/news/2015-04-21/mystery-chinas-gold-holdings-co...,

 

Saw this over on Zero Hedge, wondering what you guys thought about it.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
china & gold

It will be interesting to see how the China thing plays out.  They've been accumulating gold, no question about it.  How much will they reveal of what they actually have?  That I don't know.  Is it to their advantage to reveal all and spike the gold market higher?  It will depend on if they feel they have enough gold right now.  I can see a case for them to understate their holdings, so as not to kill the golden market goose laying the golden kilo bar eggs.  Not to mix metaphors.

I do not think they will gold-back their currency at this time.  They are in the process of goosing their economy via various stimulus mechanisms, and it would seem unlikely they'd give up that power to play games with their economy at this point.

They definitely want a more international presence for the RMB, and gold is part of the price of admission to that club.

 

 

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