PM Daily Market Commentary - 4/28/2015

By davefairtex on Wed, Apr 29, 2015 - 3:56am

Gold powered higher today, rising +10.30 to 1211.50 on heavy volume, while silver rose +0.23 to 16.59 on heavy volume as well.  The majority of the move came at 10:00 EDT.  At that moment, there were two reports released, the Consumer Confdience report (which was surprisingly weak), and the Richmond Fed manufacturing index report, which was also weak.  The market responded by buying gold and silver, and selling the dollar.

Adding to the fun, the FOMC meeting started today, and tomorrow we have the usual Fed statement release at 14:00 EDT.  Who knows what they'll say?  No doubt the statement will be carefully parsed by tea-leaf readers everywhere for a sense as to whether a near-term rate rise is more likely or less likely.

Gold's move today [+0.86%] was slightly higher than the dollar's fall [-0.77%], but only slightly.  We could say that most of the move was currency-related: to underscore this point, gold in Euros rose only +0.06%.  Still, gold broke above resistance and closed there today, with traders taking gold home overnight.  This is a good sign, and suggests some decent momentum going forward, especially coming after the large move yesterday.  In the chart below, you can see gold clearly above its 9 EMA and its 50 MA.  Silver looks almost as good.

Miners celebrated gold's breakout by shooting higher, with GDX rising +3.90% on heavy volume, while GDXJ climbing +3.77% on moderately heavy volume.  While gold has not made new cycle highs just yet, the miners did, which is a bullish vote of confidence in the metal trend.  Yesterday, mining-share traders were clearly viewing gold's rally with suspicion, but today the sentiment is quite different.  GDX closed at its highs for the day, which tells me traders were confident enough to take the miners home for the evening.

The GDX:$GOLD ratio rocketed higher as a result, which is another bullish sign.

Perhaps the continuing drop in the buck is the reason for the change in sentiment in gold.  Today, the buck fell hard, dropping -0.75 to 96.19, closing below the 50 MA for the third day, with much of the move coming immediately following the two weak economic reports today at 10:00 EDT.  Every single manufacturing report I have seen in recent months is showing weakness, and for the most part, the currency markets continue to react lower on the news.  How will the Fed address this in tomorrow's announcement, I wonder?  Perhaps they will tell us everything will be fine, this is just a temporary phenomenon.  That will work, and we might get a dollar rally which will last right up until the next weak manufacturing report.

On the other side of the pond, the Euro closed above its 50 MA for the first time since last summer, rising +0.87 to 109.76.  Euro shorts have to be getting at least a little bit nervous at this point.

SPX (US equities) sold off in response to the bad economic reports, but the move lower did not last long.  The dip was bought, and SPX eventually closed up +5.84 to 2114.76.  SPX looks amazingly resilient in the face of bad news, which is never what you want to see if you're a bear.  VIX dropped -0.71 to 12.41.  Puts remain cheap.  Tomorrow, along with the FOMC announcement, we have 1Q GDP estimates.  GDPNow from Atlanta Fed projects +0.1% real GDP growth.  It will be interesting to see what our friends at the BLS come up with - likely if the number is higher, that's because we're in serious deflation.

Bond ETF TLT plunged today, dropping -1.38% making new lows.  US long bonds continue to look weak.  With the falling dollar and the strong equity market, money continues to flow out of bonds.

The CRB (commodity index) rose +0.32%, slowly creeping higher.  Commodities remain in their six-week uptrend, above the 50 MA as well as the 9 EMA, and they remain "early bullish".

WTIC (west texas crude) rose +0.33 to 56.98, helped to a degree by the falling dollar.  While WTIC remains above its 9 EMA, it has now moved sideways for the past 8 trading sessions.  The longer this consolidation lasts, the sharper the move once it decides to break in one direction or another.  We have a Petroleum Status report tomorrow at 10:30 EDT - no doubt it will contribute to volatility: something to watch if you own oil.

While yesterday I complained about the lackluster miner performance, today the picture is entirely different, as the big move in the mining shares today clearly support a bullish near term move in PM.  Gold closed above 1210 resistance, and even though it took a drop in the buck to do so, traders don't seem to mind.  A falling dollar is generally good for gold, for oil, and for commodities in general.  Now if we can get gold to close above its previous high at 1223, we'll really be off to the races.

The only concern: FOMC meeting tomorrow.  If the Fed indicates - or even hints - that a near-term rate rise is likely to happen regardless of how manufacturing and/or the economy is performing, that could cause problems for the nascent gold rally, since that would be quite dollar-positive.

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1 Comment

thc0655's picture
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1708
Somebody's betting big on a spike in gold

The greenback's retreat has sent money piling into gold. Now one trader is making a massive bet that bullion will rally more in the next couple of months. 

Since testing 12-year highs back on March 13, the U.S. dollar index has fallen 3 percent. In that same time frame, gold has gained almost 5 percent. After disappointing gold bugs for much of the first quarter of 2015, the yellow metal is now 2 percent up for the year. 

A trade in options on the SPDR ETF tracking gold (trading with the ticker symbol GLD) indicates some expect gold's rally to continue. Specifically, a trader purchased 50,000 contracts of the 120-strike calls expiring in June for $1.18 each. As each contract controls 100 shares, the trader is wagering $5.9 million that the GLD will close above $121.18, or at least 4 percent higher from Tuesday's close by mid-June. A call is a bullish bet giving purchasers the right to buy shares at a set price within a given time. 

According to Stacey Gilbert, head of derivative strategy at Susquehanna, the trader is clearly looking for a quick spike in gold prices. 

"This strategy is this is not a 'slow drift higher' type of strategy," she said. "If GLD were to just drift higher, these options are going to decay away and they are not worth nearly as much. This is a strategy that you would typically use if you were protecting a short position—you are afraid of a huge pop to the upside—or you're trying to look bullish and again looking for that pop to the upside." 

Getty Images

Read MoreDollar slides to 8-week low; traders eye Fed

Gilbert notes that this one trade's size was about equal to the average daily volume for all options in the the GLD. 

"The flow today is suggestive that if we move higher, it could definitely be an explosion more to the upside rather than a slow drift," Gilbert added.


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