PM Daily Market Commentary - 1/11/2016

davefairtex
By davefairtex on Tue, Jan 12, 2016 - 1:48am

Gold fell -10.40 to 1093.70 on very heavy volume, while silver dropped -0.07 to 13.85 on moderately heavy volume.  Capitulation-level selling in oil, and related losses in the commodity complex as well as a stronger dollar provided a tough environment for PM.

In spite of the somewhat large loss today, gold is actually performing fairly well, all things considered.  There is usually some selling after a big rally, and a number of PM-correlated assets suffered fairly dramatic losses in recent days.  Today's loss still left gold a fair distance above its 9 EMA, which means gold's short term uptrend remains in play.  Computer model isn't as optimistic as I am; it just went short gold today.

Silver's drop today was fairly mild; it found support on its uptrend line.  Silver remains substantially weaker than gold from a chart perspective - it is below all 3 moving averages, and appears to be moving down to test the lows.  Computer model is now short silver.

The miners were stomped today, with GDX falling -4.13% on heavy volume, while GDXJ lost -3.64% on moderate volume.  GDX eventually found support on the confluence of its uptrend line and the 50 MA.  I suspect if gold continues to sell off this support won't last long.  The heavy selling in the miners was a bit surprising, since they have been doing well up to this point.  Miners have printed a swing high.

Platinum suffered big losses, losing -3.94%, and palladium dropped -2.91%.  Copper made a new 6-year low after falling -1.94%, closing at 1.98.  That's why I say gold did fairly well; it was only down -0.94%.

The buck rose steadily throughout the day, climbing +0.33 to 98.93, moving back above its 50 MA.  The dollar uptrend remains intact.

SPX had a volatile day, hitting 1901.10 at one point but rallied back to close up +1.64 at 1923.67.  SPX printed a doji on the day, which is a reversal bar.  It will be relatively easy for the market to confirm the reversal - it only needs a close above 1936.  My computer model flipped to long today.  It will be interesting to see if it is right about this one; I'm a bit more pessimistic.  VIX fell -2.71 to 24.30.

The Shanghai Exchange also had a bad day dropping 5%, but the losses on the SSEC didn't seem to hit the US market nearly as hard as it has in the past.

JNK fell -0.15%, moving slowly lower.  I'm surprised it didn't suffer more given the losses in oil.

Long bond ETF TLT fell -1.09%, a relatively large loss.  In the recent equity market correction, bonds really haven't done so well, relatively speaking, and a big loss on a flat day for equities seems to be a bad sign.  Perhaps this is a result of all the central bank selling of Treasuries in order to prop up their currencies.

CRB dropped a big -2.58%, setting yet another new low.  There is just no relief for the commodity complex.

WTIC continued dropping today, falling -1.75 [-5.32%] to 31.13, at one point hitting a low of 30.88.  I hate to keep repeating myself, but oil is just being crushed.  Oil is dramatically oversold in any timeframe you care to name, and I suspect any hint of good news will cause price to come screaming back up again - but so far, no good news has appeared.  Computer model remains short oil.

Here's a trade.  Oil for delivery in Dec 2018 settled at 46.65.  If you go long Feb 2016 crude and short Dec 2018 crude, this means you can take delivery of 1000 barrels of oil in Feb for $31.13, store it in a tank somewhere, and make a risk-free $15.52 per barrel when you deliver it 2 years from now.  Unfortunately, it costs 50 cents per month per barrel (19% per year!) to rent a tank at Cushing, OK, so that will eat up $12 of that profit, so maybe that trade isn't as good as it seemed at first glance.

Gold on the other hand costs a whole lot less to store - a safe deposit box might be $30-$50/year (0.2% for 27 oz), and of course if you bury it in your backyard, storage is free. Maybe that's why the gold/oil ratio has screamed higher in recent months: perhaps it is all about the storage costs.

Compared to its commodity cousins, gold continues to perform quite well.  You can see this in any number of different ratios; $GOLD:$CRB, $GOLD:$WTIC, $GOLD:$SILVER, $GOLD:$COPPER.  Those ratios are all at either bumping up against 2008 highs, or multi-decade highs.  If we assume we're in a deflationary period at the moment, we can say that while gold doesn't perform "well" in a deflation, it sure does perform a whole lot better than the other commodities.  Could it be that gold's "money-ness" is significantly based on a low relative storage cost?

So we are still waiting for a low in oil and commodities.  Gold continues to distinctly outperform its cousins in this deflationary downtrend, and so far at least the price of gold isn't continuing to move lower.  While that's (somewhat) good news for gold owners, it does suggest something possibly interesting: if and when the deflationary period ends, the bigger opportunity might be in things other than gold.  Its just a thought.

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7 Comments

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Rob Kirby's confirmation.

Is he talking his book? He says that the event horizon is max 3 months. 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5462
three months

Arthur-

I'm jaded.  When he was asked by Greg Hunter how he can say gold supplies are tight, and yet the facts on the ground indicate that gold seems to be available with relatively reasonable premiums, he basically punted and fell back to the old standby: "bolt from the blue, gold will be gone" etc, etc.  This is the same line the gold promoters have used for the past 20 years.

There is always some emergency just around the corner.  Did you ever notice that?  The line has never changed: "you just gotta buy (from ME) right freaking now or else it will all be gone gone gone."  If that seems like a standard sales technique to you, that's because it is.

I mean, price is good right now, at or below cost of production and so its actually a reasonable time to dollar cost average in, but I just don't like the hype.  Don't buy because some gold sales guy told you it will all vanish in some massive emergency coming Real Soon Now.  Buy because it is reasonably priced, you'd rather have gold than a bank deposit (i.e. making an unsecured loan to your bank for which you receive 0% interest), and you'd like some insurance against bail-ins and other bank shenanigans.

I intensely dislike the gold promoters that try to sell based on the fear of an imminent apocalypse.

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 654
Dave, I did NOT see some

of what you talk about.  He did not say buy from me, no sales pitch that way!  But, yes, within 3 months, could scare people to buy. Does he REALLY buy by the TON?  His explanation of the ESF was a very good point, I thought.  Where DO all those dumped treasuries of China, Russia, and others, go anyway.

I always manage to get SOMETHING out of anything, even if incorrect or a sales pitch.  Could he be RIGHT about the process of the ESF?

 

Ken

Uncletommy's picture
Uncletommy
Status: Platinum Member (Offline)
Joined: May 4 2014
Posts: 586
Gentlemen: answer me this ?

Not being in a position to squander my minimal resources on something like gold, silver, etc.as a hedge against bad times, is it a bad idea to stay with working assets like land, oil, water, food, toilet paper, etc. rather than tying up your funds in PM? Even P&G has shown weak performance against the S&P average, yet has a net profit margin of 12.21% over the last year.Yes, they're down 15+% over the last 52 weeks and under performed the S&P, but are churning out a 3.27% dividend. Could that the reason Warren B. invests in water treatment companies, utilities, railroads, etc.? My tiny portfolio has loss a pile of value over the last few years, but continues to churn out cash at a fairly reasonable rate due to investments in consumables. There are only so many I-phones, DVD's, crock pots, Kreurig machines, etc. a person can buy in the course of a year that will do them any good, long term. I'm enjoying chicken, potatoes and some spaghetti squash for dinner that I cooked with natural gas that I'm invested in on land that is paid for with the only liability being taxes and upkeep. Am I doing something wrong? Watching the currency markets is an indicator of something, but I'm not sure what. Is Mr. Kirby right? Any opinions out there?

http://www.theglobeandmail.com/globe-investor/investment-ideas/its-no-si...

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5462
buy from me

Ken-

He did not say buy from me, no sales pitch that way!  But, yes, within 3 months, could scare people to buy

Eh, what part of "he sells gold" and "he is scaring people into buying gold" did I miss?  He may not have made the "buy from me" pitch in the very same sentence but ... you didn't miss the linkage, did you?

"Golly Mr Kirby, you just scared the bejeezus out of me...now to make my fear go away, wherever could I possibly find some of this about-to-vanish miraculous yellow metal...whoa, you sell it?  Really.  Who would have guessed?  I can go from scared to relieved just by handing you money!"

 

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 654
Dave, maybe for the village idiot

but not for us PPers.  Still was there NO VALUE in his comments about ESF???"  I hadn't heard THAT one from anyone else.  Why did you miss my main question? Plus, I imagine that many people who watch USA HUNTER's videos, aren't fools enough to run to Kirby for metals, no?  I sure didn't and am still waiting for gold to drop further before buying a TON. Not because of Kirby but because of PP.com!

What gives, Dave?

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 147
A Rational Voice

Dave,

I appreciate your continual focus on data, price and rational thought. Listening to people who dramatise and stir-up emotion is not helpful, particularly when dealing with a topic that is as emotive as money and investing. I equate it to reading tabloid newspapers - even though you know that most of it is nonsense, it can still affect your thinking on some level, even if only by osmosis! 

So thanks again for providing a voice of reason during turbulent times.

E.

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