PM Daily Market Commentary - 6/10/2015

davefairtex
By davefairtex on Thu, Jun 11, 2015 - 5:17am

Gold rose +9.30 to 1185.00 on moderate volume, and silver climbed +0.07 to 15.98 on moderately heavy volume.  Both metals tried rallying again today - gold had some success, while silver once again sold off during the NY session losing most of its gains.  Silver printed an inverted hammer candle today: no buyers out there for silver.

Gold has now moved back above its 9 EMA, and broke its downtrend line by a slim margin.  It also managed to put in a swing low, a sign of a reversal.  If silver weren't so dreadfully weak, I'd be more optimistic.

Mining shares rallied weakly today, with GDX up +0.96% on moderate volume, while GDXJ climbed +1.43% on moderately light volume.  GDXJ, once again, is outperforming.  While the GDX:$GOLD ratio looks bearish, the GDXJ:GDX ratio continues to look quite strong.  Somebody is buying those junior miners.  Same thing with the silver miners: SIL:$SILVER has been on a steady ramp higher for the past three weeks.

Someone is buying junior and silver miners in preference to the metal these days.  While metal continues looking weak, the high-risk miners are staging a slow comeback.  This is a dramatic change from 2013-2014, and if you own any of these junior miners, you are feeling much happier.

Newmont Mining sold off for a second day on massive volume, after pricing its secondary offering at $23.51/share.

There is a great multi-page article in Market Realist on gold mining stocks - lots of good analysis, talk of Peak Gold, charts revealing all-in sustaining costs (less taxes & impairment), and how various miners have cut costs in recent years and what that might lead to going forward.  Short summary: 2015 is the year of Peak Gold, according to Goldcorp.  Discoveries peaked 20 years ago, and they project production will peak this year.  Perhaps that's why the junior gold miners are looking so strong right now.  Something to think about.

http://marketrealist.com/2015/06/north-american-gold-miners-currently-placed/

The dollar dropped again today, losing -0.52 [-0.55%] to 94.65.  Mostly this was due to a big jump in GBP [+0.91%] and JPY [+1.34%] - the Yen rallying hard on jawboning from BOJ head Kuroda:

http://www.bloomberg.com/news/articles/2015-06-10/yen-gains-most-in-3-months-as-kuroda-says-more-weakness-unlikely

“The yen is unlikely to weaken further in real effective terms if you think with common sense, given how far it has come..."

BOJ wanted a weak Yen, now they have weak Yen, but once it broke 80 they started to get worried it would go into free-fall, just as I mentioned last week.  BOJ wants to keep printing to stir inflation, and at the same time they want to see if they can jawbone the currency up and away from a breakdown.  It will be interesting to see if they can manage to do that.  To me, Japan is a few years ahead of the US.  If BOJ can both print, and keep their currency from falling, it will be a miracle.  Likewise, I believe it is the prospect of large currency moves that will stop the Fed from engaging in wanton currency debasement - at least for too long anyway.

SPX (US equities) rose steadily in the futures markets, and then catapulted higher starting at market open in NY, rising +25.05 to 2105.20.  SPX is now back above its 9 EMA and 50 MA, and has definitely confirmed the swing low from yesterday.  VIX dropped -1.25 to 13.22.

Bond ETF TLT dropped once again, falling -0.88% making yet another new low.  Bonds are more or less in free fall at this point, finding no buyers.

The CRB (commodity index) climbed higher today, up +0.78%; many different commodity elements rallied today.

WTIC (west texas crude) continued higher today, up +0.49 to 61.09, however oil seems to be encountering difficulties, having a semi-failed rally on the day.  In recent months, every time oil climbed into the 61-62 resistence zone, it has encountered selling and today was no exception.  If oil managed a close above 62.50 that would be a very bullish sign.  However, some of the selling pressure might be coming from companies who find it profltable to drill at $60/bbl and so they start hedging every time oil rises that high.  Its a thought anyway.

Here's where things stand from my perspective.  Right now, there is no catalyst for gold to move higher, and silver cannot seem to stage a rally to save its life.  However, while this is happening, I also see that some traders are choosing to buy both silver mining shares as well as junior gold miners, which are some of the riskiest choices open to the PM trader.

If we believe that Peak Gold really will be 2015 which will drive the senior miners to start acquiring juniors in order to keep production up, and an ever-increasing quantity of silver will be required in order to make all those solar panels, this stealth-buying of the highly risky miners makes sense.

Food for thought...

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14 Comments

petercastillo's picture
petercastillo
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Gdxj

Great analysis Dave. Thank you. I've been exchanging with a couple of people on Twitter about the strength in juniors for a few weeks already. Weekly rsi7 in gdxj:gdx is hitting a 4 year high, and although it should correct some time in the near future, it is looking very strong, and likely to continue outperforming seniors. Would make sense, since juniors topped ahead of the rest of the sector. Volume into gdxj has been huge since 2014, a sign that these things have been under heavy accumulation for a good year already. I would expect another move lower since that ratio is so overbought, and we might see the juniors even lead the way down, as usual, but volume into that decline will be key. If it happens on low volume, there is just no weak hands willing to sell. At that point, i'd bet the farm that the bear mkt's days are numbered for the metals and the major trend will shift back higher. There is an amazing amount of open air above for that gdxj chart to move up, IMO. Again, thank you for your work! Have a great day!

Peter

Jim H's picture
Jim H
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Jim H broken record

Dave,  Thank you for the olive branch at the end of the string yesterday regarding manipulation.... I will though point out that the short term manipulation I described ala the TF Metals write up was merely a very short timescale version of the longer term 2012 trend in shorts that you posted.  Fractals.  

Anyway, my point today is your statement;

Silver printed an inverted hammer candle today: no buyers out there for silver.

Again, given that the bullion banks, can, and have (again, see my post from yesterday) used significant short term increases in the level of naked shorting to blunt price increases that would have otherwise taken place... how can you state that the action was due to no buyers?  How do you know that there weren't lots of buyers.. but just more sellers (of naked shorts?).  You are making unsubstantiated statements that fail to recognize how these markets actually work.  Since we only get netted weekly data showing the positions... we really have no idea how many buyers, nor sellers, there were yesterday... all we have is price action.            

Jim H's picture
Jim H
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GDXJ

BTW,  Kranzler agrees with you Dave and Peter .. from today;

http://investmentresearchdynamics.com/sot-35-the-system-is-collapsing-ti...

Interestingly, and something which has gone completely unnoticed, there’s been a big rally in the junior mining stock sector, which is up 18% since March 10.  The junior mining stock sector of the market has outperformed everything since March. This tells us that the smartest money is expecting a big move in gold and silver (click to enlarge):

GDXJvsSPX

I am holding several junior miners, including PVG and MUX, and looking to build out more.   

petercastillo's picture
petercastillo
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Gdxj

Good morning Jim! One thing to keep in mind though, we have seen a lot of strength from juniors, HOWEVER, there is no way to tell yet that the tide has definately turned. I am about 60-70% confident that we'll be heading lower soon, possibly LED by juniors. With that said, IF we get that move lower, and volume is medium to low, I will be convinced that the strong money interests are now holding the cards, and the trend should turn bullish soon after. There is a very well structured bottoming pattern in place in GDXJ right now, and we should stay within that pattern's boundaries. We could see a move down to between $22.5 - $17, and still be within the pattern. I firmly believe the pattern will hold, and we will test the top rail of that.pattern, above $32 at some point in the next 6-12 months. A break out above on good volume, and it's only open.air above. Patience is required, and of course, technical analysis is a road map, not a crystal ball! But this is just what I am seeing developing.

Peter

Jim H's picture
Jim H
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Thanks Peter...

You said it all here in three words,

Patience is required

I have dry powder... smallish junior positions now, and a core PHYS holding in case the day of physical vs. paper market disconnect comes out of the blue some weekend.  Glad to have more folks here discussing the miners and the market.  

cmartenson's picture
cmartenson
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What's driving gold?

Again, my view is that gross speculation is in the main driver's seat here.

My evidence is that whether we put the Yen in the Top chart or Gold on top, we see the same thing day after day.

Dave, how do you account for this?  to me it says "big boyz with fast computers and deep pockets playing fancy arbitrage and pair-trade games."

And this one from a few weeks back...

It's hard for me to tell the Yen apart from Gold...

Michael_Rudmin's picture
Michael_Rudmin
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Posts: 839
Yes, that's very strange...

..ehmm... oh, wait a minute: the line is missing a zero:

=vlookup(AH12430, BackReport!$C126:$Q15432,8, false)

Not

=vlookup(AH1243, BackReport!$C126:$Q15432,8, false)

. And since 28% of programs reference the output,

So that explains it...

(yes, it's a joke, but the explanation COULD be that simple)

Jim H's picture
Jim H
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More Theatre, More Psyops

What could be more tasty and counterintuitive than artificially tying Gold to the worst of the worst fiat currency?  For sure it's Big Boyz doing it... but are these regular big boyz... or the real BIG BOYZ that have agendas beyond just making money?  

Enforcing a theme through association... the bottom could fall from under the Yen at any time... and what might fall with it?  Why again?  Just because.      

davefairtex's picture
davefairtex
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correlations with gold

So I've done a large number of correlations vs gold as part of my big study on "what moves gold anyway?"

Short answer to your question: USD/JPY is just a standard inverse-dollar currency correlation.  The reason it looks so well lined up is because its one of the few currencies that is both USD/XXX and one you actually watch.  The Euro is EUR/USD, so you can't see how closely it matches.    If you could watch USD/EUR, my bet is, it would align even better.  I've also noticed that USD/THB is pretty well correlated to gold also.

Over the longer haul, silver is most closely correlated with gold.  JPY is pretty well correlated, but not as close as the Euro, and definitely not as close as silver.

Top circled area: Gold/JPY correlation, 10 points, daily chart.  Ranges between -0.5 to 1.0.

Second circled area: Gold/Silver correlation, 10 points, daily chart. Ranges between 0.25 to 1.0.

The more time spent above the "0" line, the tighter the correlation.  Most of the time silver is around 0.75, never dropping below 0.25.  Yen ranges a lot more broadly, spending some time negatively correlated to gold.

Here are some different instruments and their correlations with gold, over gold's lifetime, with a 20 point window, on the weekly chart.  Correlation values are the "average" over time.

  -0.37: USDX (Inst-USDXMa3(2212))
  -0.11: SSMI (Inst-SSMI(1284))
  -0.08: CAC (Inst-CAC(1320))
  -0.06: FTSE (Inst-FTSE(1641))
  -0.04: DJIA (Inst-DJIA(6193))
  -0.04: DAX (Inst-DAX(1281))
  -0.03: IBEX (Inst-IBEX(1160))
  -0.02: ECM.86 (Inst-ECM.8.6(8003))
  -0.00: NIKKEI (Inst-NIKKEI225(3439))
   0.08: SSEC (Inst-SSEC(905))
   0.09: MXX (Inst-MXX(1231))
   0.12: USD.CNY (Inst-USD.CNYMa3(1794))
   0.13: AORD (Inst-AORD(1611))
   0.17: KOSPI (Inst-KOSPI(936))
   0.17: USD.CAD (Inst-USD.CADMa3(2316))
   0.18: TSE (Inst-TSE(2092))
   0.19: Crude (Inst-NYMEX.Crude(1681))
   0.21: BSE (Inst-BSE(937))
   0.22: SET (Inst-TH.SET.Index(962))
   0.24: USD.INR (Inst-USD.INRMa3(2212))
   0.25: USD.AUD (Inst-USD.AUDMa3(2315))
   0.26: Copper (Inst-COMEX.Copper(2920))
   0.26: JKSE (Inst-JKSE(929))
   0.29: USD.GBP (Inst-USD.GBPMa3(2315))
   0.29: USD.JPY (Inst-USD.JPYMa3(2314))
   0.30: USD.THB (Inst-USD.THBMa3(1794))
   0.33: USD.EUR (Inst-USD.EURMa3(855))
   0.60: Silver (Inst-COMEX.Silver(2714))
   1.00: Gold (Inst-Gold.LBMA(11856))

 

Yoxa's picture
Yoxa
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Posts: 293
Million Dollar Coin

100kg gold coin from the Canadian Mint
Just for fun, here's a picture of Canada's "million dollar gold coin"... 100kg of pure gold.

I saw it in person yesterday on display at the Royal British Columbia Museum. I couldn't figure out how to upload my picture so this image is from the website of the Canadian mint.

It's an impressive object although not particularly useful!

davefairtex's picture
davefairtex
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Posts: 5423
juniors

petercastillo-

I agree the GDXJ:GDX ratio is pretty overbought at this point, and that we could see some selling.  Like you, I'm hoping its low volume.

How about you post some charts!  :-)

 

davefairtex's picture
davefairtex
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Posts: 5423
how do we know?

JimH-

Again, given that the bullion banks, can, and have (again, see my post from yesterday) used significant short term increases in the level of naked shorting to blunt price increases that would have otherwise taken place... how can you state that the action was due to no buyers?  How do you know that there weren't lots of buyers.. but just more sellers (of naked shorts?).  You are making unsubstantiated statements that fail to recognize how these markets actually work.  Since we only get netted weekly data showing the positions... we really have no idea how many buyers, nor sellers, there were yesterday... all we have is price action.       

Once again you ask a good question.  You could be right.  There could be a trillion dollars of buying pressure per day that is being absorbed by the evil bullion banks.  How would we know?

Well, actually we would know.  Turns out, TA has the answer.  It's called "volume".

Volume is actually a super important contributor to TA.  If I saw only small price movement, and massive volume, I'd know something exactly like what you describe was happening.  When really strong buying meets unlimited naked short selling at a particular price, it results in huge volume coupled with no price movement.  That stuff is extremely visible, both at the "one-minute" scale, as well as on the daily charts.  It would totally grab my attention if I saw it.  Volume spikes are something I watch very closely, and something that out-of-the-ordinary would really make me start to think.

Same concept in the other direction.  If after a very long downtrend you see a very small doji candle along with massive volume, that's a really good sign because the short sellers ran into a bunch of buyers out there with orders to "buy everything" at a particular price.

Both cases are generally reliable reversal signals.  Higher volume = more reliable.

So - bottom line - I know your story isn't what is happening because of volume.  Low volume = tepid interest.  And I watch stuff intraday.  Price spikes higher...moves sideways, and then sells off once again.  Buyers have no conviction.  It is as you say - they are spooked by the shorts very easily.  But that's what a downtrend is all about: buyers getting spooked easily because of no conviction.

I'm really not making this stuff up just to make you upset.  Its just what I see.

davefairtex's picture
davefairtex
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Posts: 5423
one more correlation batch

Chris-

If I narrow the timeframe down to just the last few years, i.e. from 2013 onwards, USD.JPY turns out to be much more closely correlated.  Repeat same calculation, same parameters: JPY is now 0.41 (#2), with silver 0.87 (#1),  AUD 0.33 (#3), NIKKEI -0.49, DJIA -0.39.   EUR is only 0.17.

Here's my last chart...I promise...

 

petercastillo's picture
petercastillo
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Joined: Mar 25 2014
Posts: 3
Correlations

I have come to learn that if you want to know the possible direction of any security, analyze its own chart. It may feel as if the Yen or Euro trade exactly as gold does, and vice versa, but if you look at FXE (Euro) or FXY (Yen) weekly charts, you'll see that they have almost no long term correlation at all. Don't look at a US dollar chart and trade gold based on the dollar chart.. trade gold off of the gold chart. Dave, I would love to post some charts, but they would be too many!! I look at this stuff from a lot of different angles, as I'm sure you do as well!!! Thank you for your insights!! Keep up the good work.

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