PM Daily Market Commentary - 6/4/2015

By davefairtex on Fri, Jun 5, 2015 - 1:12am

Gold fell -9.10 to 1176.40 on moderately heavy volume while silver was hit hard, losing -0.40 to 16.08 on heavy volume.  PM slowly dropped for most of the day, with the selling accelerating after about 08:20 EDT.  I didn't see anything specific that caused the selling.  Gold ended up recovering somewhat by end of day, while silver sold off into the close.  Silver looked much weaker than gold.

Gold in Euros remains at or near support; although gold dropped today, so did the Euro.  Perhaps buyers for gold are actually starting to show up, at least in Europe anyway.

Silver has had a bad three weeks, suffering four high-volume selling days along with a high volume failed rally.  In Japan they have a saying: "the nail that stands out gets pounded down."  Silver was doing very well, but then it definitely got pounded down.

My guess is, that COT report from the last few weeks showing that the Commercial Shorts had a very large short exposure is playing out as it has historically.  When the commercials get a large short position, that usually leads to a subsequent sell-off.  In the chart below you can see that there is not an absolute "level" of short interest that leads to selling, but it is remarkable how often that the peaks in short interest correspond to the peaks in the price of silver.

Miners sold off as well, with GDX dropping -1.75% on moderately light volume, while GDXJ lost -1.87% on light volume.  Senior miners have now made a new low, dropping below support, but that did not lead to a large sell-off as I had feared.  In truth, miners are behaving much more bullishly than I had expected, especially the silver miner group which has managed to outperform silver over the past couple of weeks.  My conclusion is that although silver is getting pounded, traders are continuing to acquire silver miners at the same time - or at the very least, they are generally hanging on to the ones they already own.

Whenever I look at markets, I try and look for something that doesn't fit the picture.  Today silver prints a horrible red candle with high volume, yet silver miners print this tiny little red candle and don't even make a new low.  The silver miner chart doesn't look bullish - it is the relative performance that is catching my eye.  Something is up.  It kinda makes me want to buy a silver miner.

The buck fell -0.02 to 95.49, printing a doji candle and appearing to find some buyers after several days of selling.

SPX (US equities) were sold all day long, dropping slowly but steadily for most of the day.  SPX ended up losing -18.23 closing at 2095.84, clearly below the 50 MA and the 2100 support level.  Although we are seeing selling, it is a slow-motion affair; there was no great alarm when SPX went through the 50 MA.  So far things are very orderly.  VIX rose +1.05 to 14.71.

Tomorrow we have the critical Nonfarm Payrolls report - this is one of the big four economic indicators which tends to move the market; various recent reports suggest strong employment numbers, so my expectation for the report is that it will be relatively strong, and likely the market is expecting this too.  If this doesn't happen, it will almost certainly generate several days of selling, since the market has already violated one support level and right now it is in a rather precariously high position.  Odds are we get a rally, but wake up at 08:30 and watch what happens.  Sometimes it is as good as a Fed meeting for moving prices around.

Here's a chart that shows the relationship between the NFP report and US equities:

Bond ETF TLT rallied today, rising +1.30% probably as a result of the sell-off in equities.  Is the bond tantrum over yet?  I think its too soon to tell.  I do think the tantrum stops if equities sell off, however.

The CRB (commodity index) fell -0.86%, dropping below the 50 MA.  The loss on a day when the buck was stable suggests the commodity index is weakening; this is borne out by a peek at a $CRB:$XEU chart, which shows a six-week steady downtrend in commodities, independent of currency effects.

WTIC (west texas crude) sold off today, losing -1.63 [-2.73%] to 57.98.  While WTIC is just barely outside its rough 58-62 trading range and clearly above its 50 MA, Brent looks much weaker, as it drove through its 50 MA today.  Looking at the Brent chart (and I think Brent is leading here), I see bad things ahead for oil - momentum just feels like it is heading lower.  That collection of "lower highs" and the clear downtrend should make every oil bull nervous.  A close much below 62 for Brent and we could see a lot of selling in a hurry as a bunch of longs bail out and/or oil companies add hedges "while they still can."

Weakening commodity prices, a possible sell-off in oil, and the pounding in silver all paint a pretty negative picture right now for commodities and PM.  Still, since since the big drop in silver happened on Wednesday & Thursday, we won't know until next week what that important COT report looks like.  Is the selling pressure exhausted yet?  Its hard to tell.  If the uptrend in PM is to stay alive, buyers need to show up soon.  Will they?

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davefairtex's picture
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Nonfarm Payrolls +280k

Headline number was quite strong, exceeding concensus estimates.  Average hourly earnings also increased significantly; up +0.3% month/month (or 3.6% annualized).  I'll have to wait for later to figure out if this is a part-time or full-time job boom; FRED doesn't update their data until hours after the report release.

The strong report caused the buck to scream higher, and is now up +1.17 [+1.23%].  You can guess what that did to gold: it was fortunate to lose only -6.80 and is now hovering around 1168.

In the fun world where good news is actually bad news, SPX sold off on the release; apparently, the thought is, the strong NFP report will encourage the hawks on the FOMC to possibly even raise rates at next week's meeting!

From what I can see, a prospective rate raise is good for the USD, bad for stocks, bad for bonds, and bad for gold and silver.  Presumably money is rushing to hide in bank deposits!


KugsCheese's picture
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davefairtex wrote: ...
davefairtex wrote:

... Presumably money is rushing to hide in bank deposits!

To earn positive interest?  That would be nice!

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More chilling government intrusions re: cash

So apparently some in federal law enforcement are comfortable prosecuting individuals for withdrawing legally acquired cash from their own account WITHOUT any underlying crime.  I guess that's why it's called FINANCIAL OPPRESSION.

Dennis Hastert has not been indicted on a charge of sexual abuse, nor has he been indicted on a charge of paying money he was not legally allowed to pay. The indictment of Mr. Hastert, a former House speaker, released last week, lays out two counts: taking money out of the bank the wrong way, and then lying to the F.B.I. about what he did with the money.

Does that make sense? Conor Friedersdorf of The Atlantic, for example, is worried that the indictment constitutes government overreach, punishing Mr. Hastert for concealing payments whose disclosure he may have thought would be damaging to his reputation, but which were not illegal.

Federal prosecutors allege Mr. Hastert was paying hush money in exchange for wrongdoing that happened long ago. But Mr. Hastert is charged with structuring: making repeated four-figure cash withdrawals from his bank in order to avoid the generation of cash transaction reports, which banks are required to send the government about every transaction over $10,000. These reports have been required since 1970, with the intention of helping the federal government identify organized criminals and tax evaders.

To be clear: It’s not illegal simply to take $8,000 out of the bank repeatedly.

“The criminal provisions there do have strong mens rea (criminal intent) requirements: The government has the burden to prove that the defendant knew about the reporting requirement and intended to evade it,” said Jim Copland, who directs the Center for Legal Policy at the Manhattan Institute, a right-of-center think tank. “So this is quite unlike many of the regulatory crimes that can ensnare the unsophisticated.”

“Whether a former House Speaker who presided over the Patriot Act’s enactment can show absence of mens rea here, of course, may be doubtful,” he added.

Prosecutions for structuring without any charge of an underlying offense with the money are not unusual, said Peter Djinis, a lawyer focusing on laws against money laundering, who until 2002 was executive assistant director for regulatory policy at the Financial Crimes Enforcement Network, the arm of the Treasury Department that enforces these rules.

“In many cases, the most attractive route to take when you can’t prove the underlying crime is to go with the activity that’s in front of you,” Mr. Djinis said.

Of course, that’s exactly the sort of prosecutorial approach Mr. Friedersdorf is worried about, since it assumes the existence of an underlying crime. As he notes, a person who engages in structuring because of “a simple aversion to being monitored,” despite having no intention of using the money for an illegal purpose, is committing a crime.

And over time, the size of the transaction you can make without the government watching has fallen in real terms. The reporting threshold has not been raised since the Bank Secrecy Act was passed in 1970, and $10,000 today is equivalent to just $1,640 in 1970 dollars. Actions by Congress have also tightened the rules around moving cash: Congress banned structuring in 1986, started requiring banks to report smaller-but-still-suspicious transactions in 1992, and added further reporting requirements in the Patriot Act, under Mr. Hastert’s watch.

With the reporting threshold having fallen so much in real terms, about 15 million cash transaction reports are filed annually for transactions over $10,000, plus about 1.6 million reports of otherwise suspicious transactions below $10,000.

Still, privacy concerns need to be balanced with the entirely valid purpose of anti-money-laundering laws, that is, disrupting the activities of illegal businesses and tax evaders. Even in this case, there is a tax angle: Large cash transactions that go unnoticed by the government might go unreported to the Internal Revenue Service.

Paul Caron, a tax law professor at Pepperdine University, noted that the person who was paid money by Mr. Hastert may have owed income tax on the payments, whether they constituted a settlement, extortion or something else. Yes, even proceeds from extortion are taxable income; there was a Supreme Court case about the matter in 1952.

Luke Moffat's picture
Luke Moffat
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9:40 be the time

Public vs. Private?

Anyhoos, it seems like USD is now in direct competition with both gold and S&P500. Armstrong forecasting anyone? What happens when the dollar gets too strong? 






Luke Moffat's picture
Luke Moffat
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Graphs didn't turn out as spectacular as I'd hoped. Anyway, you get the idea.

At 9:40 EDT (post US jobs report)

USD Index = 96.88 (up)

Gold = 1164 (down)

S&P500 = 2086 (down)

jimtw's picture
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gold as insurance - where to park cash

As a new member,( this is my first post) I have to say, I am not very sophisticated on gold trading and can become upset about the effect of precious metal market gyrations on my savings. I have always viewed gold as a scarce commodity that doubles as a physical money, one that cannot be debased and floats freely against fiat currencies. Intellectually, I expect it to trade up and down against those currencies and am not sure how important that is on a day to day basis. Over the long term, I believe gold will hold its value. However, emotionally, I have trouble keeping that perspective and I have to remind myself why I have purchased gold.

I became interested in gold not so as an investment, but as a form of insurance, one that provides some security against a monetary/economic collapse. For me, the premium on that catastrophe insurance (holding gold) is the loss of earnings that I would  otherwise earn on stocks or bonds ( thanks ZIRP !). I have to remind myself that the insurance premium is a pure expense and that when I buy insurance, I am actually hoping the catastrophe will never materialize. When I remind myself of my goal, I am less worried about current market changes. That said I am increasingly worried that we might all collect on our gold insurance given the total irresponsibility of our leadership.

Two areas where I would very much appreciate suggestions from other members are the best sources for purchasing physical gold and silver and the safest places to hold cash , e.g., a savings account, an insured money market account, a CD, a short term Treasury ETF or ???


reflector's picture
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buying gold
jimtw wrote:

Two areas where I would very much appreciate suggestions from other members are the best sources for purchasing physical gold and silver and the safest places to hold cash , e.g., a savings account, an insured money market account, a CD, a short term Treasury ETF or ???

best places to puchase PMs:

i'm bought a bunch from, and from, excellent experiences with both

here's the peakprosperity section with recommended vendors if you scroll down a bit:

i normally look to buy gold & silver with lowest possible premiums, here's my 2 current favorites:

silver at 38 cents over spot:

gold at $8 per oz over spot:


safest places to hold cash:

under your mattress! (only half kidding). why hold your money in a bank or CD or money market that pays no interest? plus, leaves you exposed to counterparty risk? your intelligent comments above lead me to believe you have some understanding of the risks inherent in our current financial system. the next financial crisis, and there will be a next one, will see banks fail, and the banks' depositors' hard-earned savings wiped out. you're familiar with the concept of "bail-in", like what happened to depositors in cyprus during their financial crisis recently? this bail-in concept had been adopted by western nations in preparation for the next crash - legally, when you deposit cash in a bank, it becomes the bank's cash, and you become an unsecured creditor. the cover story is that it's to protect taxpayers from having to bail out banks. the reality, is that it's a way for wall street cronies to continue to plunder the savings of the people.

in addition, there's other downsides to keeping cash in a financial institution - such as bank runs, bank holidays, banks arbitrarily imposing limits on how much of your cash you can withdraw, etc. - why leave your power in their hands?

it seems to me, it's prudent to keep enough cash on hand for 6 months worth of expenses - that's green cash, federal reserve notes, to keep in a secure location, that i can access any time i wish, without limitations.

jimtw's picture
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Posts: 3
Thanks for your insights. Any

Thanks for your insights. Any thoughts on where to safely park IRA money that has to stay with an institution ?


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