PM Daily Market Commentary - 10/28/2015

davefairtex
By davefairtex on Thu, Oct 29, 2015 - 2:19am

Gold fell -11.30 to 1155.70 on very heavy volume, while silver rose +0.07 to 15.94 on very heavy volume also.  Gold and silver were both bid up strongly going into the FOMC announcement at 14:00, and the dollar was selling off.  Everything changed after the announcement; the buck skyrocketed, and both metals sold off hard, gold more so than silver.

Immediately prior to the FOMC announcement, gold had climbed steadily above the 200 MA, and looked to be preparing for a strong move higher.  However, as soon as 14:00 arrived, gold was hit with a $7 downspike, and after that traders bailed out of their long positions until the low for the day of 1152.  The astonishingly strong dollar rally was entirely responsible for gold's decline; gold in euros actually rose on the day, making a new closing high.  That doesn't make anyone owning gold in the US feel better, but gold's move today was entirely a currency effect.

Before 14:00, silver had broken clearly above its old high as well as the 200 MA, but like gold it sold off immediately following the announcement.  Unlike gold, silver managed to recover some of its losses and close green, right at its 200 MA.  The immense volume on the day illustrates how strongly things swung from bullish to bearish during the day; shorts were forced to cover on the initial rally through the 200 MA, and then longs bailed out left and right immediately following the FOMC announcement.  After all the fuss, silver still retains a decent position - much better than gold.  Most likely silver was aided by the very strong commodity performance on the day.

 Miners had also rallied strongly prior to the FOMC announcement; after the announcement, they lost all of that rally and then some by end of day.  GDX ended up down -0.94% on moderately heavy volume, while GDXJ was off -1.46% on moderate volume.  From my viewpoint, the miners held it together pretty well today, given the huge move in the dollar.  Normally, large dollar moves are quite negative for the miners.  GDX remains within its consolidation range; the correction so far in the mining shares still looks light.

Immediately prior to FOMC, the buck was off 0.58; as soon as the announcement hit, the buck immediately spiked 0.50 higher, and it kept rising right into the close.  By end of day, USD was up +0.87 [+0.90%] to 97.86, big reversal of fortune intraday for the buck.  The dollar is up almost 4% since mid-October, which is a very large move for the world's reserve currency.

Gold holders may be feeling put upon right now.  However if you own gold and you live in Europe, you don't feel quite so bad.  Take a look at the gold-in-euros chart.  Gold made a new high today, and even closed green.  It still remains above its uptrend line, is above all 3 moving averages - and overall looks quite bullish.  Today's sell-off after the FOMC meeting...you might not have even noticed.

SPX fell immediately following the FOMC report, but then rallied steadily for the rest of the day, closing up +24.46 to 2090.35.  SPX has retraced almost all its losses from the August sell-off; if the move continues, we will be talking about new highs in the near future.  Why on earth is anyone buying equities given all the bad earnings news?  Well, I suspect over the last week, it probably is not us.  If you lived in Europe, and your currency was in free-fall, you might run to hide in the US market too.  Or in gold.  Or anywhere.

JNK rose +0.22%, getting a reprieve from a follow through of yesterday's swing high.  Most likely this was due to the rebound in oil prices.

Bond ETF TLT fell -0.40%, hit probably because of the equity market strength.   Bonds are still slowly moving higher, and remain in a firm uptrend.

The CRB rose +1.95%, a massive move especially considering the huge dollar rally.  Perhaps we won't be seeing that new low for CRB just yet.  This likely put a floor under silver today after FOMC.

WTIC staged a very strong rebound today starting just at 10:00 Eastern, marking a swing low and rising +2.78 [+6.41%] to 46.17.  At one stroke WTIC is back into its trading range, above the 50 MA and 9 EMA, and it most likely has reversed direction at least in the short term.  I'm not sure what moved the market - it was a massive, high volume $1 spike in just one minute right at 10:00 that kicked off the whole rally, which didn't really stop until the market closed.  I had the sense that a great deal of short-covering was taking place.  A $1 1-minute move is quite a disagreeable thing if you are short oil.  Was this manipulation?  Could be.  A lot of people have a very big stake in the price of oil.  Gold owners imagine the world revolves around them.  I'm not so sure.

As PM holders, we certainly didn't get anything good out of Chair Yellen, who once again threatens a rate hike come December which will depend on improvement in jobs and increased inflation expectations.  We will probably have to wait for the next Nonfarm Payrolls report (due out next Friday, Nov 6) to see how likely this rate cut threat is.

If we make the assumption that the economy is slowly deteriorating - the trucking report Chris cited is pretty bad news, and its a leading indicator - the good news is that we have an idea of how the gold market will respond to a disappointing Nonfarm Payrolls report.  I think there's a zero percent chance the Fed will raise rates if payrolls continue to show weakness.

I'm just guessing here, but I think dollar strength and PM weakness has at most another week to play itself out.  Market has shown that Nonfarm Payrolls trumps Yellen - or perhaps it just calls her bluff.  In the meantime, this slow-motion gold correction provides a chance to get on board at cheaper prices.

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4 Comments

stevejermy's picture
stevejermy
Status: Bronze Member (Offline)
Joined: Dec 13 2011
Posts: 51
Fascinating analysis, Dave,

Fascinating analysis, Dave, particularly the highlighted area:

I'm not sure what moved the market - it was a massive, high volume $1 spike in just one minute right at 10:00 that kicked off the whole rally, which didn't really stop until the market closed. I had the sense that a great deal of short-covering was taking place. A $1 1-minute move is quite a disagreeable thing if you are short oil. Was this manipulation? Could be. A lot of people have a very big stake in the price of oil. Gold owners imagine the world revolves around them. I'm not so sure.

... If we make the assumption that the economy is slowly deteriorating - the trucking report Chris cited is pretty bad news, and its a leading indicator - the good news is that we have an idea of how the gold market will respond to a disappointing Nonfarm Payrolls report. I think there's a zero percent chance the Fed will raise rates if payrolls continue to show weakness.

If you're a gold bug, then everything looks like gold manipulation. But if you're a central banker or treasury official then the gold price and oil price and your currency price are all areas for you to focus on as you seek to move your national (and global) economy in a way that will promote economic growth, and get you and your government(s) out of the future earnings and debt hole that they're digging themselves deeper and deeper into.

It would be fascinating, Dave, to see if there is some parrallel sense of silent hours intervention in the oil price or the $ price or the euro price to mimic what you've exposed in gold.

In parallel, check out what Alasdair Macleod is saying about $ monetary hyperinflation here: https://www.goldmoney.com/our-research/market-updates/fiat-money-quantit...

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 384
Sorry Dave, not buying the currency move

The USD has retraced half its gains since FOMC release, yet gold still languishes. Seems to me that FOMC is just a signal to dump gold. Thoughts?

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 384
A little more

Sorry, I realise that was a really lazy statement. USD jumped from 96.65 at 18:00 to finish at 97.85 at 19:00. As of now it is 97.26. Gold was at 1176.7 at 18:00 to plummet 1156 at 19:00 and currently rests at 1146. In short, Dollar retrace isn't reflected in gold. Now i don't doubt that this is sentiment. But the question is, what drives sentiment?

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 384
Bad manners

Three posts in row - bad form on my account. The rise on the day (in gold) seemed a little suspicious to me. Almost as if the pins were being lined up to be knocked down. I wonder if there was deliberate mal-practice to shake some bulls loose.

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