PM Daily Market Commentary - 6/2/2015

By davefairtex on Wed, Jun 3, 2015 - 12:35am

Gold rose +3.90 to 1193.20 on moderate volume while silver rose +0.04 to 16.77 on moderately heavy volume.  That all sounds fine, except that the buck dropped -1.64% on the day, so gold's rally was far less than it should have been.  In Euro terms, gold plummeted -1.71%, since the Euro rallied +2.07%.

So what's the deal with the Euro?  My belief is that the talks with Greece are now getting down to the wire (the Greeks really, really will run out of money in June), both parties have concrete proposals on the table, and - I also believe that the big trading banks often get information from friendly sources in government (who have an eye on their next job) that comes in advance of what the great unwashed masses receive.  I believe that for the modest sum of 7 billion Euros, the can will be kicked once again.

And for those who wonder why on earth this torture has taken so long - if you are Germany, and you want to see a lower Euro, the single best thing you can do is prolong this crisis right up until the end.  Euro gets moved lower for five months, your exports do well during that period, and all the others in Europe (Ireland, Portugal, Spain) receive an object lesson about the penalty for complaining about footing their own share of the Franco-German bank bailouts.  I don't see a lose here for Germany - well as long as you don't worry about throwing a fellow Euro member's failing economy and suffering population right under the bus.  "Lazy Greeks deserve it for all the lying they did back in 2001."

Cynical?  Maybe a little.  But we have to ask, in all of this, cui bono?  Who benefits from how this has played out?  Answer: Germany.

As for gold, here is the chart that I believe matters the most: gold in Euros.  That's because I believe that most of the price action driving gold has come from Europe in recent months.  The chart is much more regular than gold-in-dollars.  Gold-in-Euros has been tracking the 9 EMA much more clearly, both up and down.  Gold spiked when Syriza was elected, fell once they didn't stage an immediate default, then rallied again slowly as no settlement came, and is now dropping with news of concrete proposals in the first week of June.

Miners performed signficantly better than gold, with GDX up +1.49% on moderately light volume, while GDXJ rose +1.76% on moderate light volume as well.  It has taken five trading days, but the senior miners have crawled back over the 50 MA.  They don't appear to be in any hurry to move higher - I mean its nice that they're rallying rather than plummeting, and its good that the seniors are back over the 50, but it aligns with my impression that gold is weak right now.  Gold is weak, the miners are a bit less weak.

The buck fell -1.60 to 95.88, a truly massive one-day move.  The buck started dropping early in Asia trading, and the move accelerated downward about an hour before the market opened in NY, with a very large number of DX futures changed hands around 09:15-09:20 on or near the break below the 50 MA.  I'm not sure exactly when the news hit the wires about the Greek situation, so I can't tie events to price action, but there were no economic reports released at that time so I'm assuming the move was Greek-news-driven.

SPX (US equities) ended down -2.13 to 2109.60, with a fair amount of volatility intraday.  The equity market doesn't seem to be in the mood to collapse just yet, but the sense I get right now is a slow move downhill.  VIX rose +0.27 to 14.24.

Bond ETF TLT is looking ugly, dropping a big -1.40%.  Money flowing out of USD is coming largely from the bond market.  This would seem to align with the "unwinding of flight to safety" story if the Greek situation was actually moving closer to a settlement.

The CRB (commodity index) had a decent day, rising +1.05% and pushing back above its 9 EMA.  Commodities usually like a weaker dollar.

WTIC (west texas crude) rallied also, climbing +0.80 [+1.33%] to 61.04, likely also benefitting from the drop in the buck.  Oil could be heading for a re-test of the 62.50 price level set back in early May.  I have my doubts, but I've been wrong about oil for quite a while now.

If gold can't rally on a massive drop in the buck, that's a bad sign.  I had assumed that a stronger dollar would cause problems for gold, and now it looks like a weaker dollar isn't helping much at all.  I think we have to wait for something else to appear to get the western gold buyers back into the game.  Miners are the sole bit of happy news in the PM space - the fact that many miners are able to make money with gold at $1200 may be their saving grace.  Low oil prices helps that substantially.

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