PM Daily Market Commentary - 5/7/2015

davefairtex
By davefairtex on Fri, May 8, 2015 - 4:26am

Gold fell -6.90 to 1183.80 on moderately heavy volume, while silver dropped -0.19 to 16.32 on moderate volume.  While gold was weak for most of the day, the low point was hit immediately following the 08:30 EDT Jobless Claims release, which was surprisingly positive - possibly hinting that tomorrow's Nonfarm Payrolls report might be stronger than expected.

Gold remains weak; silver looks somewhat stronger.

The mining shares opened lower because of gold's drop in the early morning.  During the day the miners rallied gently, and then rallied hard in the last 30 minutes of trading.  GDX ended the day up +0.61% on moderately heavy volume, while GDXJ rose +0.20% on light volume.  To me, it looked like someone wanted to be long miners prior to the Nonfarm Payrolls report, which is released prior to market open tomorrow at 08:30 EDT.

The buck rallied today, up +0.57 to 94.75, regaining at least some of its recent losses.  The buck remains in a short term downtrend.  I'd expect the buck to resume dropping if we get a bad payroll report tomorrow.

SPX (US equities) rallied +7.85 to 2088.00, not quite regaining its losses from yesterday.  SPX remains below its 50 MA, and traders did not appear to be too eager to get long before the report comes out.  VIX fell just -0.02 to 15.13 - this confirms a decent amount of uncertainty right now.

Bond ETF TLT rallied today, closing up +1.34%, with the rally stopping right underneath the 200 MA.  Bonds might have put in a (short term) low yesterday - or maybe its just some short covering in advance of tomorrow.

The CRB (commodity index) fell hard, down -1.49% and closing below its 9 EMA.  The commodity uptrend remains intact, but things are a bit more iffy after today's move lower.

WTIC (west texas crude) dropped -1.73 to 58.97, confirming the swing high from yesterday's gravestone doji.  Its looking more and more like we've marked a top in oil.  In fact, on the weekly chart, a bearish hammer candle is forming.  My code has been signaling a top for the past few weeks - it looks like the code may have been just a bit early.

I know I'm sounding like a broken record, but the Nonfarm Payrolls report is a very important indicator of US economic health.  In the past, once the payrolls report starts going negative, the market invariably tips over and sinks.  As always, its less about the absolute number and more about the market's reaction to it that matters most.  Still, I imagine an actual negative number for payrolls would lead to very heavy selling in equities.

It feels to me that oil & commodities are getting ready to correct; possibly US equities too.  We'll know more after 08:30 EDT tomorrow.

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3 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
Nonfarm Payrolls +223k

Looks like equity market was positively surprised by the number: e-mini futures up +19 to 2102.  Dollar was briefly hit, then rallied back to even.  Gold & silver briefly rallied as a result, but now back to even.

 

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Silver Phages

I watch the green line for silver Dave. It is still firmly negative with no sign of a point of inflection.

http://www.kitco.com/charts/techcharts_silver.html

I don't know why, but let me throw some speculation about.

  • Automation and the Singularity make human decisions about the value of commodities irrelevant. That which The Machine (insert scary music here) decides is valuable, is valuable. (Rare earths?)
  • Everyone is accepting that money is debt. Corollary: Savings are Not money. (More scary music).
  • Money is a way keeping score. Therefore it is "just" information. (Happy music?) Silver and gold are not money anymore, any more than tally sticks are money.

If the above is correct then silver is an industrial metal, and gold is tinsel. It might be necessary to watch for substitutes for the unique properties of silver, such as carbon nano tubes for conductivity, and bacteria phages as a substitute for its biocide properties. 

http://www.bacteriophagetherapy.info/ECF40946-8E2F-4890-9CA6-D390A26E39C...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
the green line

Arthur-

I watch the green line for silver Dave. It is still firmly negative with no sign of a point of inflection.

Yes, the green line doesn't lie.  The 200 MA is the relatively long term trend.  Once it starts to point downhill, the trend is down, and that makes traders want to sell rallies rather than buy dips.

I don't know why, but let me throw some speculation about.

  • Automation and the Singularity make human decisions about the value of commodities irrelevant. That which The Machine (insert scary music here) decides is valuable, is valuable. (Rare earths?)
  • Everyone is accepting that money is debt. Corollary: Savings are Not money. (More scary music).
  • Money is a way keeping score. Therefore it is "just" information. (Happy music?) Silver and gold are not money anymore, any more than tally sticks are money.

My feeling is - for what its worth - let's not overthink things.  The commodity cycle peaked (alongside silver) in 2011.  Now commodity prices have dropped sharply over the 2011-present period.  Commodity "green lines" are also pointing down - not because there is some revolution in what people consider money, but just because there is more capacity for producing these items than there is people needing them for building projects.

Dropping commodity prices = lower inflation/deflation = less demand for an inflation hedge like gold and silver.

I don't think we've had a revolution of any sort in "thinking" about money.  If inflation returns, gold will pop and silver will pop even harder.  That green line will turn up and we'll all cheer.

If Greece exits the eurozone, gold will pop, silver less so, and we will cheer, but less loudly.

That's my thought anyway.

 

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