PM Daily Market Commentary - 12/9/2015

By davefairtex on Wed, Dec 9, 2015 - 11:20pm

Gold fell -2.10 to 1072.00 on moderately heavy volume, while silver was unchanged on moderate volume.  PM staged a decent rally during the London trading hours, but sold off shortly after the NY open - this actually happened with a fair number of other commodities also.

The dollar was crushed today, dropping -1.15% which is a very large move for the buck.

Gold managed to rally as high as 1085 today, but the sellers then came out and pounded gold back down into negative territory.  Gold is still managing to hold on above its 9 EMA, so that's good, but it doesn't look quite ready to rally yet.  The fact that gold was unable to rally on a day when the dollar sold off so strongly is not a great sign.  It says that traders in Europe are selling gold hard, which makes sense - if Draghi isn't printing the way they expected him to, then selling (paper) gold is a reasonable action to take.

Since the center of gravity right now for gold seems to be in Europe, you get a gold/XEU chart today.  Notice how the 9 EMA has provided strong resistance during this move down - and today's move is just a continuation of that sell-off.

Silver tried to rally today also, but it was sold right along with gold soon after the market opened in New York, along with copper, oil, and some other commodities.   Given the big drop in the buck, silver looks weak.

While gold and silver were weak today, the miners actually continued moving higher, with GDX up +1.35% on moderately heavy volume, while GDXJ rose +1.14% on moderate volume.  It appears that the miners have bounced off support at the 9 EMA, which bodes well for a continued move higher - if gold can manage avoid selling off.  Next step for GDX is a close above the 50 MA.

USD is ignoring any prospect of a rate rise by the Fed, and instead is still reacting to Mario Draghi's "not nearly enough" announcement last Thursday.  The bounce in the buck looked anemic after the major drop on Thursday, and today's sell-off is more or less the expected follow-through after the anemic bounce.  Today's close marks a "lower low" for the dollar, which is the mark of a downtrend.  It also dropped USD below its 50 MA, which is another bearish sign.  The Euro is up 4% in 5 days.  This is absolutely not what the "central banking" doctor ordered.

[When I was just out of high school, I visited the Jack Daniels distillery in Tennessee; I still recall their answer when I asked "just how much do you guys make every month?"  The reply was always this: not nearly enough.]

We will see what happens Dec 16th when the FOMC makes its announcement.  I think the falling dollar will give the Fed more room to raise rates.

SPX dropped -15.97 to 2047.62, closing below its 50 MA.  SPX is now below all three moving averages, which is bearish.  It appears that capital is continuing to flee the US equity market - the falling dollar says money is returning to Europe.  VIX rocketed higher, up +2.01 to 19.61.

JNK found some buyers and rose +0.23%; perhaps just some shorts ringing the cash register after yesterday's big move down, or people seduced by the 6.3% yield.

Bond ETF TLT fell -0.11%, still clinging to a position just barely above all three moving averages.  With the equity market selling off, one might expect TLT to be rallying, but my guess is that the Europeans are selling everything with a US label on it, which will limit the bond market's upside for as long as that continues.

CRB tried to rally today and failed, climbing just +0.09%, a truly feeble move given the sharp drop in the buck.  No joy in Mudville for commodities.

WTIC staged a decent rally after a bullish-looking Petroleum Status Report pushing oil up as high as 39, but traders promptly sold the rally hard, resulting in WTIC closing down -0.64 to 37.21.  While yesterday's high volume doji candle could still mark a low, today's failed rally on what should have been good news is a bearish sign.  Markets that can't rally on good news will probably sell off further.

Gold's failure to rally on a weak dollar day is not a good sign - neither is WTIC falling on a bullish inventory report.  Stars and moons haven't aligned just yet for a PM rally to start.  COT report says it should happen soon, and the miners seem to agree, but the overall commodity picture appears just too weak to support a rally just yet.

Here's the thing: as long as confidence remains in central banking, gold will remain strongly influenced by the commodity markets.  Gold is still outperforming commodities overall (the $GOLD:$CRB chart shows this), but any major breakout of the gold/commodity linkage requires a snap in confidence.

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HughK's picture
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Whither oil?

Davefairtex said:

I'm not saying everything depends on oil, but - ok maybe I am, at least near term anyway.  If oil cannot find a bottom and continues to plummet, PM will struggle and silver will likely fall further.

Dave and all,

Thanks as always for the great market commentaries.  

Art Berman sees the oil price staying low for a while.   I wonder if we just won't get out of the commodities rut until the rest of the global economy gets to the ka- stage, i.e. major deflation and market crashes.

Here's one of the diagrams from his post, showing oil oversupply:


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descending wedge

Just as a technical observation, I see a bullish descending wedge in oil and natty gas that will likely resolve in a bounce higher. $35/brl may not be a 'real" bottom, but it's looking like a tradable bottom. Bearish sentiment is ubiquitous, which is a contrarian signal most of the time...

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