PM Daily Market Commentary - 12/10/2015

davefairtex
By davefairtex on Fri, Dec 11, 2015 - 4:25am

Gold fell -1.00 to 1071.00 on moderately light volume, while silver fell -0.04 to 14.10 on light volume.  PM traded in a narrow range, with a slight downward bias.  A strong dollar rally (+0.60) made sure that gold didn't go anywhere.

Nothing changed in the gold market today, although gold did close (just) below its 9 EMA.

Silver is slowly weakening.

GDX dropped -0.42% on light volume, and GDXJ fell -0.36% on light volume too.  Miners remain above the 9 EMA, but not by very much.

PM overall appears as though it is slowly headed lower, at least in the near term.  Perhaps next week will bring some clarity as to direction.

Here's something I recently ran across, the "Parabolic SAR" detector which attempts to show the current trend for a particular item.  You can tune it to react more quickly, or more slowly.  Below is a monthly chart of gold, with the SAR (represented by the blue dots) showing the current trend, which has been down since 2012.  There was a momentary trend break for exactly one month in October 2015.  This clear downtrend helps to explain why all the rallies get stuffed in gold: regardless of the enthusiasm of the western central banks to consistently hose gold, shorting rallies is just the logical thing for traders to do in a downtrend.

The USD managed a decent rebound after yesterday's big drop, rising +0.60 to 97.93.  USD moved back above its 50 MA, but it remains in a downtrend.

SPX tried to rally today but largely failed, climbing +4.61 to 2052.23, remaining below all three of its moving averages and printing an inverted hammer candle on the day.  The day's rally collapsed in the last hour of trading.  In spite of the strong dollar rally, traders did not want to take SPX home overnight - this is a bit of a danger sign, and suggests to me that SPX will probably be heading lower.

JNK fell again today, erasing yesterday's rally and then some, falling -0.41% and making a new multi-year low.  It feels like JNK is pulling the equity market lower, a continuing sign of risk off.

Bond ETF TLT rose +0.13, remaining above its 3 moving averages.  Nominally at least that's bullish, but the chart overall looks perhaps neutral.

CRB fell -0.30%, and is just above its recent low.

WTIC fell -0.63 to 36.58, making a new 6-year low, invalidating the doji reversal bar from three days ago.  The failure to rally on yesterday's positive inventory report remains a bad sign for market sentiment.

PM is still not ready to rally.  The problem remains, oil just can't find a bottom, and neither can commodities.  Equities are starting to materially weaken too now.  Hopefully the FOMC meeting next week breaks something loose - but I'm thinking it might just be equities that end up getting hit.

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10 Comments

stevejermy's picture
stevejermy
Status: Bronze Member (Offline)
Joined: Dec 13 2011
Posts: 49
COMMODITIES - PM SEPARATION

Hi Dave,

Is it your sense that you're expecting gold to move in unison with commodities and oil, hence the wait for oil's floor?

I understand this, if so, but have been interested in the moment when gold parts company with commodities and oil, the logic being: first, a growing public international recognition that the low commodities and oil prices are unequivocal evidence that the global economy is heading into a serious contraction, despite the central bankers best printing efforts; second, a dawning recognition that the game is thus up on the equities, assets, and property bubbles; third, a rush for safety, into PM and tangible assets. In this respect, its interesting that gold doesn't seem to be following oil or commodities south.

To me, this moment will be a big one, the Road Runner recognition one - it might be that comes upon us in a gradual way, but with increasing momentum, and that we don't actually need a black swan. Rather, it is the moment when all the black swans will be released ...

Steve

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5465
gold moving with commodities

Gold has historically been closely correlated with commodities much of its time.  (See chart below)

However, its always had two components to it - the commodity component, and the safe haven money component.

My sense is, as long as the commodity correlation holds, the commodity component is dominant.  Once that breaks in a significant way, that will be the signal you refer to.  At least, that's my view anyway.

So for gold to rise, either we must wait for oil to bottom out, or for people to start to lose confidence in government & central banking.  Of course, that's just my opinion...

sand_puppy's picture
sand_puppy
Status: Diamond Member (Online)
Joined: Apr 13 2011
Posts: 1930
Gold Rises when the FIRST of the Big Boys Flee Fiat

DaveF wrote:

So for gold to rise, either we must wait for oil to bottom out, or for people to start to lose confidence in government & central banking.

I would add that it is not the median portion of the mainstream consensus to come to this opinion, but just the initial wave of big money seeking a safe haven in gold.

When just a leading edge of (a few percent) of the Big Players decide to flee fiat to gold, this will mark end of availability for us little guys.  Quoting Chris from above:

My view is that the next downturn will come with enough uncertainty, counterparty and even sovereign risk that physical gold demand in the West will finally turn back into positive territory...

Given the relatively small size of the gold market,...

My final prediction is that once this process starts, most people will find themselves priced out and that physical shortages will prevent all but the most well-connected from even obtaining any gold.

So we have to be two steps ahead of the crowd on our gold purchases.  And again, just an opinion....

Jim H's picture
Jim H
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Joined: Jun 8 2009
Posts: 2387
Commodities...

Dave,  I will save you my usual commentary.. because what's the point?  You say the price of Gold is somehow real.. I say that at this time it has no connection to real supply vs. demand.  

What I will ask is this;  Please show comparative correlation (coefficient) charts for some other pairs, i.e. Cu vs Fe, Pd vs Pt, or each of these vs. overall commodities.  I am guessing that none of the other "commodities" goes through such dramatic oscillations, especially the business of dipping into negative correlation for months at a time.  

 

davefairtex's picture
davefairtex
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Posts: 5465
price of guessing: place your bets first

JimH-

What I will ask is this;  Please show comparative correlation (coefficient) charts for some other pairs, i.e. Cu vs Fe, Pd vs Pt, or each of these vs. overall commodities.  I am guessing that none of the other "commodities" goes through such dramatic oscillations, especially the business of dipping into negative correlation for months at a time.

I wouldn't mind earning a bit of extra money on the side.  But before I lever myself off the sofa to go through the exercise, first I will request that you actually place a wager.  :-)

I think you already (morally at least) owe me a silver eagle the last time you were sure that a COMEX default was imminent - I think that time was because of Harvey Organ's enthusiasm ("it was a sure thing") that carried you away back in late 2014.

Of course, you could always do your own investigative research yourself prior to posting.  Go to stockcharts, add the "correlation" option, use $CRB, select the "Weekly" option, and search amongst the commodities they provide to see if any of them also dip into "negatively correlated" territory now and then.

commodity choices: $PLAT, $PALL, $CORN, $SOYB, $WHEAT, $SILVER, $WTIC, $BRENT, $LUMBER, $NATGAS,

Hmm.  I wonder what you will find?  Imagine that: Jim H actually investigating the facts on his own, without relying on some mainstream goldbug writer to provide him an opinion!

Nah.  That'll never happen...I suppose I'll just remain on the sofa then...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5465
median consensus

SP-

I would add that it is not the median portion of the mainstream consensus to come to this opinion, but just the initial wave of big money seeking a safe haven in gold.

I agree with you on this point.

Up for discussion: what happens to the market when this occurs.

My contention: premiums will rise at shanghai, and so will price at COMEX - at least with the first wave.   Once big-bar PM actually becomes scarce, people will start taking delivery of bars out of PHYS and PSLV.  Premiums on both will rise, and assets in the ETF will fall.  GLD will be stripped.

Subsequent waves - that I am less sure about.  As Chris suggests, "off the shelf" retail PM might just vanish for a significant period of time.  Stuff might be available for "large premiums" but not at COMEX prices.

What we have to think about is, if we really wanted physical gold, where could we go to find it?

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1227
Commodity correlation

Dave,

I get your point about the correlation but your statement about the the correlation is somewhat misinterpreted.

My sense is, as long as the commodity correlation holds, the commodity component is dominant.  Once that breaks in a significant way, that will be the signal you refer to.  At least, that's my view anyway.

In your graphic you encircle anything with a positive correlation (>0) between gold price and commodities.

However your statement about the commodity component being dominant only hold for values >0.5 or <-0.5. At those times commodity prices tell you more about gold prices than anything else (for whatever reason). Whenever you are <0.5 but >-0.5 things other than commodity prices are more important.

Being positively or negatively correlated just means that the prices either head in the same or opposite directions for given price changes.

If this is truly constrained to being either commodity or safe haven driven then the interpretation is simple. At zero it is all safe haven, while at 1 or -1 it is all commodity related. Everything in between is a weighted allotment. Roughly a third of your figure above was 'more' safe haven driven than commodity. Right now it is strongly commodity driven as you indicate though.

Cheers,

Mark

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5465
correlation interpretations

Mark-

I look at things a bit differently.

For gold to be a "not-commodity", I feel it needs to be down at least in the -0.5 area in order to clearly differentiate itself from the rest of the commodity complex.  Anytime it is in the positive area means it tends to be more like a commodity than not, and above the 0.5 line its "very much like a commodity" - which is where it spends the majority of its time.  Mostly it hovers between "somewhat like a commodity" and "very much like a commodity."

Gold has outperformed commodities since mid 2014 ($GOLD:$CRB shows this clearly), so gold does retain a safe haven/money component to it even now.  But when gold is above the zero line, falling commodity prices will, all else being equal, pull gold prices lower.

More often than not, gold is "very much like a commodity."  Gold is never an "anti-commodity."  Contrast gold with the $USD, which is a pretty good anti-commodity, spending much of its time < -0.50.

If you like $GOLD vs $CRB correlations, try it with $WTIC.  It spends most of its time > 0.80.

I really don't think the occasional dips below 0.00 mean "safe haven".  I think a drop to < -0.80 would be a safe haven move.  In that case, deflation is massive, everyone is panic-selling copper (which nobody cares about when everything is melting down) and they are all trying to buy gold in order to keep from having their money bailed-in.

That's the signal I'm talking about.

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1227
Statistics are in the eye of the beholder...

Dave,

Ok, not how I typically see this used. For example if you have a correlation of 0.1, it is positive but in this case commodity prices would tell you almost nothing about what gold prices are doing. Not sure how that equates to the behavior that you are referring to. I can also see that negative values are likely to be spurious more than indicative of sentiment.

I guess the difference is that you seem to be more focused on the trend than the magnitude. Even at 0.25 gold would 'tend' to be like a commodity but I imagine that you would find it to be a lot noisier. Ultimately it is rarely all one or the other between commodity or safe haven, just more or less of each.

Cheers,

Mark

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5465
intraday effects

Mark-

If you watch things intraday, you will often see things move together.  Sometimes oil sells off, and that appears to pull gold lower.  Sometimes that happens with silver too.  And copper.  Gold & silver are almost joined at the hip - at least directionally if not by magnitude.  Often, dollar is anti-gold; dollar rises, gold falls.  Not always though.

I look at the correlation as the strength of the influence of commodities and the dollar over gold.  Sometimes its a strong influence, other times, its weak.

How else should I describe the relative strength of this influence?  From my experience, the correlation does seem to do a pretty good job of describing the strength of this influence.

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