PM Daily Market Commentary - 5/11/2015

davefairtex
By davefairtex on Tue, May 12, 2015 - 2:34am

Gold fell -4.00 to 1183.20 on moderate volume, while silver dropped -0.12 to 16.30 on moderately light volume.  Gold dropped about $10 in about 30 minutes after 10:00 EDT - I didn't see an economic release that might have caused the selling, but silver sold off at that time as well.  Both metals rebounded somewhat, reducing losses by end of day.  Gold remains in its steady, slow downtrend.

In spite of gold's modest drop, mining shares managed to eek out a gain today, with GDX up +0.25% on very light volume, while GDXJ climbed +0.59% on light volume.  Junior miners continued last week's outperformance, and both mining ETFs continue to outperform gold itself.  The current junior miner performance is a source of amazement to me right now, since I consider them the highest risk gold investment there is.

The buck rose +0.20 to 95.10 - the third straight positive day now - but the bounce off 94 support is looking more like the dead-cat-bounce from a week ago rather than a durable trend reversal.  In the rest of the currency world, the pound (GBP) is racing higher following the election in the UK (+0.93% today), while the Euro is retreating a bit after its recent strong rally (-0.42%).

SPX (US equities) attempted to break out to new highs in the morning but failed, selling off for the rest of the day, closing down -10.77 to 2105.33.  VIX rose +0.99 to 13.85.

Bond ETF TLT was absolutely crushed, dropping -2.43%, making a new low, and generally looking quite ill.  What's the change in yield that caused such big losses?  0.13%.  A small change in yield, multiplied by a 20+ duration, equals a big loss of capital for bondholders.

Which brings up something I've been thinking about.  Bonds in Europe started having issues starting April 29th, and they continue to sell off.  Here is a possible trigger - a failed German bond auction: http://www.bloomberg.com/news/articles/2015-04-29/euro-area-bonds-decline-before-13-billion-of-debt-auctions.

Those German 10-years that used to yield 0.08% in mid-April and now yield 0.61% (!) are down 5% in price.  Hope the buyers didn't lever up.  http://www.free-online-calculator-use.com/bond-value-calculator.html#calculator.  When things get over-extended, the snap back moves can be pretty dramatic.  Yesterday's "sure thing trades" become today's death traps.

The CRB (commodity index) fell -0.39%, remaining above its 9 EMA but is starting to look weak. The swing high last week suggests to me that the CRB may be entering a correction phase.

WTIC (west texas crude) dropped -0.17 to 59.30, tracking sideways after last week's swing high.  WTIC remains above its 9 EMA also, but it too looks it might be ready to correct.  Brent oil has already dropped below its 9 EMA and is looking a bit more iffy.

Money is fleeing bonds, the dollar looks a bit weak, gold also; only the miners continue to show signs of life - and the junior miners are looking the best of all.  Miner performance seems positive to me.  Can the miners continue to climb while gold languishes?  So far, the answer seems to be a cautious "yes".

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