PM Daily Market Commentary - 7/27/2015

davefairtex
By davefairtex on Mon, Jul 27, 2015 - 9:16pm

Gold fell dropping -4.90 to 1093.50 on very heavy volume, while silver fell -0.20 to 14.51 on moderate volume.  Gold briefly moved above Friday's close in Asia trading, but that only lasted a few hours.  Gold was sold heavily during the London session and by the time the NY market opened, gold was in the red.  Perhaps it was Shanghai's big drop, its hard to say.

While gold dropped just -0.45% in dollar terms, gold priced in Euros fell -1.52%, a nasty plunge.  That's because the Euro rallied, and the dollar fell. For gold to drop on a day with a large down move in the buck says that gold was quite weak.   I had hoped the new low on Friday coupled with the massive volume and the rebound was signaling that buyers were ready to bid gold higher.  Unfortunately, that just didn't happen.

Silver fell harder than gold today, dropping -1.36%.  Volume wasn't all that heavy, but it looked to me that silver was being dragged down by the fall in the overall commodity complex.

Miners rallied strongly for the first 40 minutes of the trading day, and then sold off all day long, right into the close.  It was an ugly-looking day for the miners.  GDX fell a big -3.69% on heavy volume, erasing most of the gains from Friday's rally.  GDXJ fell -3.49% also on heavy volume, but managed to keep more of its Friday rally gains.  Both miner ETFs looked equally bad from an intraday perspective - after that first 40 minutes, prices fell literally all day long with only a short respite at end of day.

Platinum fell -0.67%, palladium dropped -1.88%, copper fell another -1.86% and made yet another new low, hitting 2.35.  Just for fun: wheat -1.76%, corn -4.66%, soybeans -3.05%.  Some of those other charts look really awful.  As has been the case for a while now, today's fall was not just about gold.

The dollar fell -0.74 to 96.61, dropping through the 9 EMA.  The Euro has climbed right up against its 50 MA; a cross of the 50 would be a bullish sign for the Euro, which normally would be good news for gold.  However today, not even the strong drop in the buck managed to save gold.  Heaven only knows what would happen if the dollar were to rally.

SPX dropped yet again, the 5th straight down day for SPX, closing off -12.01 to 2067.64.  SPX found support right at the 200 MA.  Volume in this 5-day sell-off is fairly heavy, but most of the sectors that are dropping strongly have to do with commodities.  VIX rose +1.86 to 15.60.

Bond ETF TLT rose yet again, climbing +0.52%, having risen 8 of the last 9 days.  The long bond is steadily improving, and is not far from cresting the previous "lower high" that dates back to mid-May.  If it can manage this, bonds will have ended the downtrend that dates back to the start of this year.

JNK sank again, falling -0.42% in an ongoing "risk off" signal, having dropped 6 of the last 7 days.  Losses in JNK have not become disorderly just yet, but it definitely doesn't appreciate the lower commodity prices.

The CRB (commodity index) fell yet again, dropping -1.15% and making a new six-year low dating back to March 2009.  The low for CRB in February 2009 was 200.16; today's close was 202.69.  Just one more day of this and we'll break down to new lows dating back to 2002!  Gold (weekly, 20 points) currently has an 0.72 correlation to CRB, and the correlation is rising.  This says - currently - that as CRB goes, so goes gold also.  Gold in the daily timeframe is even more strongly correlated to CRB at a rating of 0.89.  You can believe the gold promoters - "gold is money, not a commodity" - or you can watch how it trades, its up to you.  For me, it appears that sometimes gold is money, and sometimes its just another commodity.

WTIC (oil) fell as well, dropping -0.98 [-2.04%] to 46.98, in a slow free-fall heading towards that 42 low set back in March.  Oil has fallen 8 of the last 9 days also.  Oil equities are just getting crushed - however the oil equity/WTIC ratios still look fairly bullish.  For instance, CVX:$WTIC still looks relatively strong, which tells me that traders still believe the oil price weakness won't last.  However if traders start to believe that oil will stay down here at $47/bbl for any significant length of time, energy equities could fall a very long way.

It is a risk-off picture right now.  Commodities probably need to mark a low before gold makes a convincing rebound, just based on the way the correlations are right now.  Gold can still print a swing low by closing above 1101.  Can it manage to do this?  It couldn't manage this on a day with the buck down -0.75%, but perhaps tomorrow things will improve.  Commodities are very oversold, and a bounce should happen soon.  All we can do is wait.

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6 Comments

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2840
Gold demand weakest since 2009 in Q2 as Chinese turned to stocks

Gold demand weakest since 2009 in Q2 as Chinese turned to stocks (Reuters)

Don't buy gold, everyone should buy stawks instead.

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1227
That ended well didn't it?

Gold demand weakest since 2009 in Q2 as Chinese turned to stocks (Reuters)

Don't buy gold, everyone should buy stawks instead.

Timing is everything.

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5466
its about money flows

Gold demand weakest since 2009 in Q2 as Chinese turned to stocks

I'm not surprised.  I've seen gold be negatively correlated with SPX here in the US.  Money flows into equities and out of gold - its a bit of a zero sum game, especially if credit isn't expanding.

Heck if you can double your money in equities, it just makes sense to sell all that boring old gold.  Right?

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2840
It just makes sense
davefairtex wrote:

Heck if you can double your money in equities, it just makes sense to sell all that boring old gold.  Right?

Yes. Until it doesn't.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5754
Wow, that's just wrong...
Time2help wrote:

Gold demand weakest since 2009 in Q2 as Chinese turned to stocks (Reuters)

Don't buy gold, everyone should buy stawks instead.

I am a pretty firm believer, because I can follow his methodology, in the work of Koos Jansen on the subject of SGE withdrawals being equivalent to Chinese gold demand.

There's no possible way that Chinese gold demand is anywhere near 2009 levels.  GFMS is part of the western team that constantly talks gold down and does everything it can to promote the talking point that gold is nearly worthless and that nobody wants it.

The equally worthless Reuters "reporter" could have spent the same one minute I did googling the SGE withdrawals and actually asked GFMS to explain themselves:

(Source

By my eye 2015 is running at about 2x the 2010 levels which were themselves higher than 2009.  So, nope, not even close to 2009 levels.

More like in the ball park of being as high as they've ever been and higher than last year.  Which, of course, matches the price decline that for those whacky Asians turns into higher levels of buying not lower, like their whacky western counterparts.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5466
good catch chris

Boy, there I was, taking the statement at face value when I should know better.  Good catch Chris.

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