PM Daily Market Commentary - 1/4/2016

By davefairtex on Mon, Jan 4, 2016 - 11:38pm

Gold rose +13.40 to 1073.90 on heavy volume, while silver was up only +0.02 to 13.85 on heavy volume as well.  For the most part it looked like a safe haven move driven by the 7% drop in the Shanghai Exchange; the fact that gold maintained much of its gains while silver did not reinforces this viewpoint for me.

Gold managed to break above its downtrend line due to the spike that happened around 08:20, but it could not retain those gains through end of day.  It did manage to close above its 9 EMA, which is a positive sign.  As a result, the previous downtrend is broken, but I'm still waiting for the market to close above the 1088.30 price level before I start to imagine that the trend has actually changed.  Plus in my experience, safe haven gains aren't all that durable.  Still, if I were short, I'd be somewhat nervous at this point.

By 10:00 Eastern, silver was engaged in a substantial rally but the rally didn't last - silver managed to lose almost all its gains by the close.  The shorts appear to be just too strong for silver right now.  I'm not seeing higher prices for silver right now.

GDX rallied +2.70% on moderate volume, while GDXJ climbed +3.07% on moderate volume also.  Both mining ETFs managed to close above their respective 50 MAs, which is a distinctly positive event, especially given the weakness shown by silver, and the large correction in SPX.  Sometimes the miners get dragged down by equity market corrections, but that isn't happening now - so far, so good.  Miners are the only PM component above the 50.

Platinum fell -0.92%, while palladium dropped a big -3.17%.

The buck was all over the map today, first falling fairly dramatically then rallying sharply - but by the end of the day, the buck ended up only +0.17 to 98.92.  Still, the buck is slowly moving higher.  It remains above its 50 MA, and it appears to be in rally mode at this point.

SPX had major troubles today, selling off in the futures markets due to the 7% mini-crash at the Shanghai Exchange earlier in Asia, and after the open it sold off further.  By 11 AM Eastern SPX was off more than 50 points, it had broken support and drove to new cycle lows at 1989.  However by the end of the day, a rally in the last 30 minutes of trading pulled prices back up, and so SPX closed down "only" -31.28 to 2012.66.  VIX rose +2.49 to 20.70.

Because of the new low made today at 1989.68, SPX has now marked a third "lower low", a third "lower high", and regardless of the end of day rally, SPX is clearly weakening.  "Buy the dip" is a good plan during an uptrend - but SPX isn't in an uptrend any longer.

JNK fell -0.50%, is now back below its 9 EMA, and is back to signaling risk off. 

Bond ETF TLT rose +0.72%, managing to rise back above its 3 moving averages, which are clustered quite close together.  Bonds still haven't recovered from the big sell-off from last week, but further declines in equities would probably accomplish that nicely.  TLT is also reinforcing the risk off sentiment.

CRB fell -1.01% dropping back below its 9 EMA.  Commodities may be resuming their downtrend; they do not like trouble in China.

WTIC gapped up at the open in Asia and broke out above its recent trading range to 38.39 intraday, but managed to lose all those gains and then some by end of day, closing down -0.19 to 36.88.  Oil started sinking about the same time that silver did, around 10 am Eastern, with silver starting lower a few minutes before crude.  Oil is now back below its 9 EMA.  Computer is still short crude.

US Natural gas ($NATGAS) fell -0.06 [-2.72%] to 2.29; it appears to be weakening.  Computer just went short natgas today.

So gold is looking somewhat better, as are the miners, but silver and the rest of PM continue to look ill.  If world equity markets tumble then gold should get a boost, but it may not lead to any sort of durable rally unless things start to really go south and confidence in central banking starts to fail. 

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KennethPollinger's picture
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Dave: Is this useful?

But don’t overlook the flip side of a rising dollar -- which gives American-based global behemoths a kick in the teeth, because their exports become more expensive for foreigners.

The most common measure of the dollar relative to other currencies is the “dollar index.” As such yardsticks go, it’s terribly flawed. Only six other currencies go into the index, they’re all from developed economies and the euro makes up 57% of the index.

A better measure is the Federal Reserve’s trade-weighted dollar index, incorporating a wide basket of currencies from both developed and emerging markets. The number comes out only once a week, but it’s easy to spot long-term trends. The last two weeks, the number’s been the highest in nearly 13 years…


With almost half of all revenue for S&P 500 companies coming from overseas, it’s a wonder the broad stock market hasn’t struggled even more than it has in the past year.

z0040.jpgWith that context, it’s time to unveil another of our forecasts for 2016 -- or rather, update a forecast that we previewed late last year.

As you might recall, Jim Rickards believes the Federal Reserve will move toease policy later this year… even as it’s in tightening mode right now.

Let’s go back to the Fed’s decision to raise its benchmark fed funds rate by a quarter-percentage point on Dec. 16. “While Janet Yellen was careful to say that future Fed policy is data dependent and not on a set schedule,” Jim writes, “she did, to all intents and purposes, lay out a schedule based on her forecast for economic growth and inflation. The implied tightening cycle for the target Fed funds rate is 100 basis points [1 percentage point] per year for three years (through the end of 2018).”

On that pace, the fed funds rate would rise from its present range of 0.25-0.50% to roughly 3.25-3.50% by year-end 2018. (Which, by the way, is still way below the long-term average.)

z0100.jpgSpoiler alert: There’s no way in hell we’ll reach a fed funds rate north of 3% over the next three years.

“The Fed’s expected path is based on internal models of the interaction of labor markets, growth and inflation,” says Jim. “These models are badly flawed and obsolete.

“For evidence, we need look no further than the fact that Fed one-year forward growth forecasts have been incorrect by orders of magnitude for nine straight years.”

Then, invoking the old saw about second marriages, Jim says, “A belief that the Fed forecast for 2016 is close to accurate represents the triumph of hope over experience.”

z0120.jpgLet’s lay out a timetable for 2016. There are eight meetings of the Fed’s Open Market Committee -- four of them featuring a Janet Yellen news conference, when major announcements tend to be made.

  • March 16Another quarter-percentage point increase. “Yellen waited too long to launch a tightening cycle to simply turn on a dime,” says Jim
  • June 15Ditto. “The Fed rarely reverses course easily,” Jim elaborates, “and usually favors long periods of inaction between course changes
  • Sept. 21Here’s where things get interesting. “By late summer or early fall,” says Jim, “global weakness and possibly a U.S. recession will be the dominant stories” -- thanks in part to the aforementioned strong dollar. “But a rate cut in September 2016 will be politically impossible coming just 48 days before the U.S. presidential election. Yellen is a well-known liberal Democrat. Any effort by her to boost the economy (via portfolio channel effects) just before the election will invite a withering political backlash from the Republican nominee.”
  • Dec. 14: With the election in the rearview, Yellen is free to act and reverse course.

“There are two risks to this forecast,” Jim concludes, always mindful of probabilities.

“The first is that the recession data are overwhelming by spring, causing the Fed to hold off on the June rate hike. The second is that the Fed hikes again in September because not raising is seen as a form of ease with adverse political repercussions for the Fed.”

[Ed. note: Heh… And you thought all the drama was over when the Fed raised rates last month.

Look, we’re as frustrated as you are. It would be nice to assess investment possibilities without the dead hand of the Fed always looming in the background. And for that matter, the rest of the world’s central banks.

But it’s at this moment, this key inflection point in the currency wars, that some of the most lucrative profit opportunities are about to open up.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
A book on Real Gold shenanigans.

Here is a free book to read about how Real Gold is being treated. By all sorts of interesting characters.


It begins slow but builds up.

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