PM Daily Market Commentary - 5/18/2015

By davefairtex on Mon, May 18, 2015 - 11:07pm

Gold rose +2.30 to 1225.30 on moderate volume, while silver climbed +0.18 to 17.71 on moderate volume too.  While gold ran into some difficulty due to a very strong dollar move, silver continued powering higher.  Gold in Euros rose +1.52%, which was a nice gain on the day, confirming that gold's problems are currency-related.

Both gold and silver made new highs today.  The gold/silver ratio dropped -0.60 to 69.19, the lowest that the ratio has been since September 2014, and definitely below the trading range of 70-75.  Silver is on a bit of a tear right now, and that's generally bullish for PM.

Mining shares rallied a bit initially, but faded as the dollar strengthened.  GDX rose +0.14% on very light volume, while GDXJ was up +0.04% also on very light volume.  Traders seem unenthusiasic to bid the miners higher at these levels, and senior miners particularly appear to be having problems with the 200 day MA - they have been unable to close above the 200 MA three days running now.  This is a bit of a warning sign.  After a decent period of outperforming, mining shares are now fading a bit.

The buck was bought all day long, starting in Asia, through London, and into the close in NY, climbing +1.09 [+1.17%] to 94.27.  There was not one particular event that caused the move, it was just steady buying pressure all day long.  The buck has climbed back to just under its 9 EMA, and it marked a swing low today.  Unless the cause is a major problem in Greece (resulting in a flight to safety), a renewal of strength in the buck will likely cause trouble for gold.

SPX (US equities) broke out of their multi-month consolidation today, climbing +6.47 to 2129.20, yet another all time high.  The rally did not have much volume behind it, and the VIX rose as well, climbing +0.35 to 12.73.  Still, the breakout must be respected - the equity uptrend is still intact, in spite of US poor economic performance, high company valuations, dropping profitability due to a strong dollar, and all the other stuff we all know about.  Money is flowing in, and that pushes prices higher.

Bond ETF TLT was hit hard today, dropping -1.68%, dropping it back below its 9 EMA.  Bonds were under selling pressure most likely due to the rising equity market.  Still, the drop in bonds was more severe than I expected given the relatively lackluster breakout in equities and the large move up in the dollar.  Money is flowing to dollars - but bonds did not benefit at all.  To me, the market is telling me to stay away.

The CRB (commodity index) sold off, dropping -0.34% but remaining above its 9 EMA, still in an uptrend.  Commodities did not like the stronger dollar - they usually don't, but today's selling was modest.

WTIC (west texas crude) tried to rally today and failed, rising only +0.40 to 60.36 and printing an inverted hammer candle.  After Friday's dragonfly doji I expected oil to bounce and it did, but the rally did not hold.  Oil is searching for direction right now.  If the dollar rallies here, oil will probably drop.  Like gold two weeks ago, oil needs a catalyst.

Miners are taking a break, gold is encountering headwinds due to a stronger dollar, but silver remains strong.  Is this because of JP Morgan's massive silver stash?  Well, if they already have the stash, then no.  Only new money flowing into the market makes prices rise.  I'm suspicious of such things - our friendly bankers love a good scam, and this feels like it might be one of them.  Part of my doubts come from the fact that the miners have faded a bit; if this was the real deal, silver miners should be screaming higher, but they aren't.

While the PM picture looks good, not all the pieces are in place just yet.  The fading miners have me cautious.  If this was the real deal, miners should be screaming higher, but they aren't.

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davefairtex's picture
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Greek bailout a done deal - my evidence

So while the Greek government has been saying a deal is close, I didn't believe it until I saw the following:

German Chancellor Angela Merkel is trying to head off a potential revolt from as much as a third of her bloc’s lawmakers as she tries to up line support for a compromise deal with Greece, party officials said.

Caucus leaders of Merkel’s party are working on the objectors, telling them they may be asked to approve further aid to ward off a default even if Greece refuses to implement all changes demanded by creditors, according to three officials.

Merkel has been calling small groups of dissenters to the chancellery to tell them that Greece leaving the euro area would risk causing geopolitical instability in the region, one of the people said. All the officials asked not to be identified because the discussions are private.

Lining up support isn't necessary unless there is a change to the existing program pending, and there's no point in going through that exercise until there is a sense that an acceptable deal is on the table.

We all know that Brussels is desperate for Syriza to fail - and they tried all the tricks in the book to strangle the Greek economy while pretending they weren't actually strangling them - but clearly they are even more desperate for Greece not to default, nor do they want their fingerprints on the murder weapon.

But what broke things loose?   I believe it was the IMF repayment on the 12th that broke the deadlock.  Greece was ready and willing to default - they didn't have the 750 million euros - and after the IMF head received a "so sorry, we're broke" letter from the Greek PM, suddenly the IMF suggested that the Greeks could use their own SDR-filled account to repay their real-money debt to the IMF.

To me, that's tantamount to your bank telling you to pull five thousand dollars from your Monopoly game and use it to make your monthly mortgage payment!

Here's that situation explained, laid out for us by Fin Min Varoufakis.

“On May 12, we were not going to pay,” he said. “And the prime minister had announced this with a letter. And, as if by a miracle, IMF money was found to pay the IMF. Neither we nor they want a rupture.” The funds for the repayment were taken from a Greek account at the IMF.

[Left unsaid - the Greek account at the IMF contained SDRs, which was basically fictional money printed up by the IMF years ago, just sitting around doing nothing - hey, but it turns out, that money is actually useful for something after all if it can be used to liquidate IMF debt...]

So, bottom line, I believe the Greek bailout will happen, its a done deal.


davefairtex's picture
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Posts: 5687
Senator Warren - against "greasing the skids" for TTIP

My favorite US senator had a fantastic interview with Bloomberg TV where she made it really clear what she was for, and what she was against in this debate.  My new favorite expression: "greasing the skids."  As in, Warren is definitely not in favor of greasing the skids for the TTIP prior to the document being made public.

I.e., no "fast track" approval.  Free & fair debate - prior to the skid greasing.  I have to say, the lengths that they went to hide this from We the People, that suggests there must be something pretty awful inside.

Or as CAF might say, "I think perhaps Mr. Global wants this trade deal to go through."

[Related: "What is Mr Global up to these days?" 


I'm seeing more and more mailed fist, and a whole lot less velvet glove.  How else can we explain such silly tactics like making a trade bill so secret that the staffers can't even read it and take notes.

Elizabeth Warren is awesome.  I do hope she has a food taster.  I mean, I hate to say stuff like that, but I suspect she has a lot of enemies.  I wish we had 10 more like her.

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