PM Daily Market Commentary - 11/11/2015

By davefairtex on Thu, Nov 12, 2015 - 3:38am

Gold fell -3.00 to 1085.70 on  heavy volume, while silver dropped -0.09 to 14.30 on moderately heavy volume.

Looking at the chart, gold appears to be replaying what it did back in July/August of this year.  The downside velocity has slowed down dramatically, but gold continues edging lower, bounded on the bottom by support at 1080.  Selling pressure at COMEX has not abated - intraday gold rallies are still being sold.  They will keep doing this (because it makes money) until the buyers at COMEX reappear.

Silver made yet another low today, the 10th red day in a row, inching below the previous low of 14.25.  The large overhang of Managed Money longs are being slowly forced to sell.  Falling commodity (and oil) prices over the past 6 days haven't helped.  Next support is 13.91, the low set back in August.  Silver is very oversold, but lines on a chart won't stop the selling - only buyers at COMEX will do that.  So far, they haven't.

And then we have the mining shares.  GDX rose +1.34% on light volume, while GDXJ climbed +1.90% on moderately light volume.  There looks to be decent support for GDX around the 13.50 level.  If PM continues to fall that support most likely won't hold, but as an indication of trader interest its a relatively bullish sign. During this decline, the buyers have appeared at support twice now - once before at the 50 MA, and again here at 13.50.  Contrast that with gold and silver, where no support was visible at any point during the decline.

Lest you think that gold alone is being hammered, platinum blew through its previous 6-year low today, down -18.40 [-2.04%] to 882.80.  In fact, looking at the historical platinum/gold ratio, we can see that platinum is substantially undervalued vs gold.  The ratio now stands at 0.81, while the historical average is "roughly" 1.0 to 1.5.  This is fairly common - most metals have done far worse than gold during the 4 year commodity downtrend; gold has held its value the best.  Yay gold!  (Doesn't that make you feel better?)

The buck fell -0.23 to 99.16.  The buck's drive higher is now taking a break; it can work off its "overbought" situation by moving sideways, or by correcting.  Right now its moving sideways.  My computer is still long USD.  Here's one reason why the buck is so strong: its about a reverse carry trade in Europe.

Italian 5-year bonds (rated BBB-) have a yield right now of 0.58%.  US 5-year (AA+) is 1.72%.  A trader (say, in Europe) could short the Italian 5-year, and use the proceeds to buy the US 5-year and collect the 1.14% spread.  This results in capital flows from Europe, to the US, driving the buck higher.  In essence, Draghi's bond-buying campaign is resulting in ridiculously low prices for Eurozone bonds, which drive money to the US in a reverse carry trade.  This case was laid out by the market comment writer at Armstrong Economics, here:

SPX dropped -6.72 to 2075.00, wiping out yesterday's rally.  The slow-motion correction in SPX is moving equities closer to support at the 200 MA.  While SPX is now below its 9 EMA and has been for several days, it does not look like it is in any hurry to crash.  VIX rose +0.77 to 16.06.

JNK fell again today, dropping -0.22%.  Risk-off signal continues.  Likely, JNK is also closely tied to falling oil prices.

Bond ETF TLT fell -0.21%; while the downside momentum for bonds has greatly slowed, there doesn't seem to be a particularly strong bid.  I think the issue is, traders are a bit nervous about buying long dated bonds if the Fed is going to start a campaign of interest rate increases.  Conversely, if the rate increases either don't happen, or if the market figures out they are cosmetic-only, bonds should do well.  Right now, worry about rates appears to be dominant.

The CRB fell -0.56%, making a new low for this cycle.  CRB is apparently heading for a re-test of the lows set back in August - which in truth are only about 2% away at this point.  Clear downtrend in commodities in all time frames.

WTIC fell once more, dropping -0.56 to 43.07.  There is lots of bearish news to drive oil lower; besides inventory builds, everyone seems to be pumping more oil, sending oil cargoes to the US, and so on.  Oil equities are beginning to feel the pinch, and have started to drop more seriously.  I don't see a lot of talk from the shale space about it being profitable at $43/bbl WTIC.

The World Gold Council released its 3Q gold demand trends report, here:  At least one analyst I trust thinks they greatly understate demand from China, but with that in mind, its still interesting to read what they write.  Bottom line: lower prices stimulate physical demand, and have now (finally) resulted in a drop in mine production, and most of the world gold demand is in jewelry.

Third quarter gold demand rose by 8% year-on-year, reaching a two-year high of 1,120.9 tonnes. Q3 2015 was a period of two distinct halves: ETF outflows contributed to a price dip in July, which boosted consumer demand around the world. Subsequently, a positive shift in institutional investor attitudes led to modest ETF inflows in August and September, which pushed prices back up. Central banks bought another 175.0 tonnes, in recognition of gold’s diversification benefits. And after a long period of growth, the supply of gold from mine production contracted by 1% in the third quarter.

Of course this is the physical market, not the COMEX.  Because of the amount of gold supply relative to demand, physical buyers don't have a strong impact on price in the short term.  Long term, they must, but unlike with oil or other commodities with relatively small amounts of above-ground supply, gold prices are driven by the leveraged buyers and sellers at COMEX - the linkage between physical demand and leveraged demand is weak.  Think about this.  If oil demand rose by 8% in one year, oil prices would scream higher, because we'd actually run out of oil fairly quickly with such a large increase in demand.  There are only 90 days of above-ground oil supply.  But gold demand can rise by 8%, and since there are 40 years of above-ground gold supply, price doesn't change - because we're in no danger of actually running out.

But even in this situation where leveraged paper dominates, gold has performed the best of all the metals during the 4 year commodity price drop.  Demand for paper gold has outstripped demand for real copper, platinum, silver, lead, tin, and so on.  My sense is, people still like gold, whether it be paper, or actual metal, far more than they like the other real things.

Today, both gold and silver (and platinum too) remain quite oversold; so far, no rebound.  Miners are the only bright spot in the complex, since they continue to attract buying interest at these price levels.   For us small fry, now is not the right time to buy the mining shares, but once gold changes trend - and it eventually will - the miners will benefit the most of any PM asset class.  I can see signs that big money is buying.  However they are doing this slowly.  This stealth support does keep price in the miners from dropping rapidly, but its not enough to cause an actual rally in the shares.

Not yet anyway.

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davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5786
gold at support

Gold is right at its long term support level, touching 1073 just a few minutes ago.  Low for this entire downtrend: 1072.30, just 70 cents away.

Our favorite yellow metal has suffered along with pretty much everything else I watch: crude is the biggest loser, down -2.68% to 41.78, copper -2.64%, silver -0.46%, natgas -0.62%, equities -0.58%.  Its all getting sold right now.

Even if support holds this morning, I am not sure it will hold this week, given the general tone of the market.  I think we have to make a new low before we get the rebound.  That's just a guess though.




cmartenson's picture
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 6060
Major gold spike underway

A huge bounce straight off support and a big battle underway..."someone" is working very hard to keep selling gold, others are now buying.

Let's see what happens...

Jbarney's picture
Status: Silver Member (Offline)
Joined: Nov 25 2010
Posts: 233

Price is "low"....I am going to just keep buying silver.  Take advantage of it being cheap.  Not watching the minutes or hours....just keep checking in, buy when I have even a little bit of cash.

Interesting, one of the guys I purchase from said he had seen an up- tic in activity of late, it could be related to holiday buying I guess.  Got a little cash....maybe another purchase this weekend.

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5786
silver buying

Martin Armstrong suggests the low for gold will happen relatively soon.  If you believe he's a decent forecaster, and I do, buying now - or within the next few months - seems like quite a reasonable idea.

We are definitely hovering at or below the costs of production for silver.  That's certainly not the case for property.  As a trader, I could see a case made for selling your house, and buying gold with the proceeds. 

Selling something overpriced, and buying something underpriced.

One of the harder things to do in life, I'm afraid.

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