PM Daily Market Commentary - 6/8/2015

By davefairtex on Tue, Jun 9, 2015 - 2:48am

Gold rose +1.40 to 1173.20 on moderately light volume while silver fell -0.17 to 15.93 on heavy volume.  Gold tried to rally and mostly failed, while silver just slowly sold off.  Given the dollar dropped more than a full point on the day, this was a dismal performance for gold.

Gold in Euros has now dropped through support, and is in danger of encountering a significant amount of selling pressure.

Miners on the other hand look pretty good, with GDX up +1.01% on moderately heavy volume, while GDXJ climbed +1.76% on moderately light volume.  Juniors are back above their 50 MA, which is nice to see, and both ETFs have marked a swing low.  Miners continue to be the happy note in the PM space.

The buck fell -1.04 [-1.08%], another big down day, selling off after finding resistance at the 50 MA.  The dollar is looking weak, which normally would be helping PM, but right now that's just not happening.  The Euro had a big day, up +1.86 [+1.67%] to 112.86.  Money is flowing back into Europe.  The Greek stock market is not doing well (GREK down -3.15%), so why did the Euro have such a good day?  I read a news article that suggests its because Obama said something about the strong dollar being a problem during the G-7 meeting.  This causes the buck to drop a full point?  I don't think so.

I still feel that we're nearing the end of the latest round of the Greek drama, and some sort of can-kicking resolution is not far away.  Of course...I could be wrong...

SPX (US equities) were sold all day long again today, attempting a rally late in the day but failing, with SPX closing at the dead lows, down -13.55 to 2079.28.  VIX rose +1.08 to 15.29.  We are fast approaching the important 2068 support level; a close below that and things start to get a bit ugly.

The dropping dollar isn't helping; losses from the viewpoint of the Europeans are substantial.  US equities were down -2.28% today in Euro terms, but only -0.65% to traders in the US.

Bond ETF TLT dropped modestly today, off -0.11%.  Even with the sell-off in US equities, US bonds are having trouble rallying.

The CRB (commodity index) staged a modest rally, up +0.23% - this is a poor performance, with the USD down -1.08% on the day.

WTIC (west texas crude) did worse, losing -0.62 [-1.05%] to 58.26, still within its recent trading range but looking weak.  For oil to drop on a day with the dollar so weak is a bad sign.  Brent also looked weak, falling back below its 50 MA.  Perhaps we'll finally get that oil correction I've been waiting for.

Gold, oil, and the other commodities all look weak.  Gold still could put in a swing low in USD terms, but it really needs to stop dropping in Europe to convince me its ready for prime time.  Money appears to be leaving the US for Europe, and bonds continue to sell off.  It still feels to me like the Greek default trade is being unwound - at least that's what the big money seems to be saying.  I can't imagine the Euro rallying +1.67% if Greece really was thought to be moving closer to a default and exit.

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sand_puppy's picture
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 2033
Dave Kranzler Thinks "Something Blew-Up" last week

I would love to hear the thoughts of our financially savvy pp-ers, as I am not sophisticated enough to evaluate independently the likelihood that Dave Kranzler is correct.

A Derivatives Bomb Exploded Within The Last Two Weeks

1.  He cites the downturn in the Dow Transportation Index as confirmation that the economy is contracting.

2.  He notes that a highly leveraged financial system will come under extreme stress from an economic downturn.

3.  Treasury yields have risen quickly in the last 7 days.  This is not what would be expected given an economic contraction.  [Am I understanding him correctly?]

I believe the illogical movement in 10yr Treasury yields reflects the fact the Fed is losing control of its tight grip on the bond market and longer term interest rates. Note that German bunds have also experienced a similar spike up in interest rates and volatilty.... [M]y view that there was a derivatives accident somewhere in the global banking system in the last two weeks.

4.  Paul Singer has recommended "shorting all long term claims on paper money."

Another clear indication that something has melted down “behind the scenes” recently is an ominous market call by self-made hedge fund billionaire Paul Singer...[Who] stated that the best trade in a generation is to short “long term claims on paper money.”

A savvy investor like Paul Singer would not make a public market call like that unless 1)  he had already positioned his fund accordingly  2)  he had some sort of insight about what was happening “behind the scenes” either first-hand or from insiders who were in a position to give him information and 3) he was 99% certain that his insight and information was correct.  In other words, it highly likely Singer had already made huge position bets for his fund and his own money which would capitalize on a systemic disruption of some sort...

5.   I believe that whatever type of financial explosion occurred is related to the sudden firing of Deutsche Bank’s co-CEOs, Anshu Jain and Jurgen Fitschen.

the S&P 500 is has dropped 2.5% in the last 10 trading days . 

the US dollar index has plunged 170 basis points in the last six trading days.  This is a huge move for a currency in such a short time period. 

I believe that something big and hidden melted down in global financial system during the last two weeks.

He recommends GOTS (getting out of the system).

davefairtex's picture
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5683
did something blow up?

My first reaction is that if something blew up, lots of stuff would probably be selling off, not just long treasury bonds.  DB's stock would probably have taken a hit as well.

Definitely the selling in the longer-duration bonds has become general - but junk bonds are still apparently immune.  In that situation, JNK should blow up spectacularly.  It hasn't.  TLT is looking to make a low today, so is SPX.  Oil is rallying, so are commodities.  It doesn't feel like the disorderly liquidation that happened back in 2008.

As we have seen recently, when people get scared, they buy US - USD, US treasury bonds, US equities.  They even buy gold.  In recent weeks, that is the stuff that has been selling off.  My sense is, either foreigners are ringing the cash register on their big gains, or the last 12 months of the Greek-associated "flight to safety" is now being unwound.

Look at the close correlation in the last 12 months between the EUR/USD currency pair and the Greek stock market.  I believe this tells us that the Euro weakness is almost entirely a Greek phenomenon, and hence the recent Euro strength (and Dollar weakness) has less to do with derivatives blowing up, and a lot more to do with the unwind of the Grexit/Euro collapse trade.

Greece still might exit in the medium term, but I think the market believes Greek can will be kicked a bit further within the next few weeks.

Definitely US manufacturing is looking ill, but a reasonable amount of US services is doing fine.  It seems like the advantage is going to services since its a larger sector.  Will the US tip over into recession?  It might.  It hasn't yet, and I'm still seeing relatively good non-manufacturing ISM "New Orders" numbers.  Until the non-mfg ISM tips over and sinks, US should remain out of recession.

US market might sell off anyway just because foreigners are bailing out.  I've noticed a correlation between recent dollar weakness and selling in US equities.

I believe there is a group of people out there that expect the dollar to turn into worthless confetti at any moment, and so they're predisposed to see currency movements through that lens.  I used to listen to those people, but when I noticed they kept saying the same thing regardless of what happened out there in the real world, I stopped listening to them.

I think Automatic Earth did a very good job explaining about how deflation and debt repayment drives currency movements.

sand_puppy's picture
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 2033
Thanks, Dave

I needed your perspective on the big picture.

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