PM Daily Market Commentary - 2/4/2016

By davefairtex on Fri, Feb 5, 2016 - 2:42am

Gold rose +13.00 to 1156.00 on very heavy volume, while silver climbed +0.18 to 14.87 on heavy volume.  Once again, today's gold story was mostly about currency: the buck lost another -0.81 [-0.84%], adding to yesterdays large move down.  Gold priced in Euros has just been chopping sideways.

The buck started falling in the afternoon in Asia, and it didn't stop dropping until an hour before the US market opened.  The big move down today in the buck helped the metals including PM, but didn't seem to provide any support for the rest of the commodity complex.   Both the Yen and the Euro were up almost 1%.  Money is fleeing the buck - back to the Yen, of all places - and I'm really not clear as to why.  Possibly the problems with the US banking system (linked to low oil prices and loans to the shale industry) are scaring the foreign money away, at least for now.  That's just a guess.

After blasting through the 200 MA, the dollar has no obvious support level until the previous low at 93.83, which is quite a ways away.  Another way of saying that is, "there's a fair amount of air between where we are, and the next support level."

Gold is now starting to "go vertical", which is generally the last thing it does before it tops out.  At this point in the typical gold cycle, the last few Managed Money shorts are being stampeded out of the market by the commercials by the relentless move higher.  This is the fun part of the cycle for the longs.  Once most of Managed Money has bailed out, the commercials will suddenly flip, and unload huge numbers of short contracts onto the market, more or less causing the top.  I believe we may be approaching this point now.  We are still seeing good volume as price moves higher, but the RSI is showing definite signs of being overbought.

Now then, risks to this cycle-top projection include something I saw last week in the COT report: namely, that the commercials were closing out both long and short contracts, seemingly fleeing COMEX.  If this continues for a second week in the face of this big move higher, then the move in gold may not stop here.  If this is the case, then we may be on the cusp of a real sea change in gold.  I think this is a lower probability outcome, but it is possible, and in the near term.  In fact, its what we've all been waiting for.  But I hate to cry fire in the crowded theater.  We'll know more tomorrow after the COT report comes out.  I believe it is more likely that the commercials will unload short within the next couple of days, and gold will enter its usual correction phase.

Silver is continuing to move higher, but not with the same level of urgency as gold.  It managed a reasonable gain today, but when PM is racing higher, silver should be having 3-4% up days, not 1.19% as it did today.  This tells me that something is a bit off about this PM rally.  Perhaps its still all about oil.  The 200 MA is coming up for silver, and it might encounter selling pressure there the same way it did back in October 2015.

Someone has decided its time to buy the mining shares.  GDX gapped over its 200 MA and kept moving higher.  Any remaining shorts have fled in panic from this near-vertical move, volume is massive for the second day in a row.  GDX rose +5.21% on huge volume, while the GDXJ managed only +3.43% on moderately heavy volume.  Juniors ran into selling right at its 200 MA, and printed a toppy-looking doji on the day.  In a normal PM move, juniors should be leading; there is something different about this move.  Functioning mines are receiving more trader interest than the more speculative juniors; it has been this way for the last month.  Gold leading silver, seniors leading the juniors - something is definitely up, but I don't really know what.

Platinum rose a big +3.33%, breaking above its recent prior high, palladium climbed +0.66%, and even copper rose +1.02%.  Copper is now clearly above its 50 MA, trading at 2.12.

SPX traded in a range today, closing up +2.92 to 1915.45.  Candle print today was a spinning top, which marks indecision, and that definitely feels like a good description for what happened.  VIX rose +0.18 to 21.84.  We have Nonfarm Payrolls tomorrow - perhaps the market is waiting for that before deciding on a direction.  The money fleeing the buck didn't seem to affect equities.

JNK fell -0.24%; it remains below its 3 moving averages deep in bear territory.

TLT rose +0.48%, a moderate move.  Bonds remain above the 9 EMA, and in a strong uptrend.  Bonds didn't seem to suffer from the falling buck.

CRB fell -0.45%, dropping back below its 9 EMA.  It is having trouble staging any sort of rally - but at least commodities are not moving steadily lower any more.

WTIC tried moving higher but failed, eventually giving back a chunk of its gains from yesterday's huge rally, falling -1.06 [-3.24%] to 31.69.  My computer is still short.  There is a lot of uncertainty right now - it does look like a major low is in the process of being set, but as of yet there is no clear trend.  It seems that every other day we have a 10% move and ever-larger volume.

The PM rally is definitely acting a bit strange; this isn't the ordinary commodity-price driven rally.  Silver is lagging, as are the junior miners.  But gold and the senior miners show no such reluctance.  Buyers at COMEX are back, and the gold price has now been pushed into an overbought position.  In normal times, a top would be coming soon, and price would fall.  Once price drops and finds support, that is the typical buy entry point.  So far, however, no correction, so no buy entry point.

Interesting times.

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davefairtex's picture
Status: Diamond Member (Offline)
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Posts: 5687
Nonfarm Payrolls: +151,000

Headline number was bad (last month: 292,000).  Immediate market reaction: sell SPX (down -10) and sell-then-buy-then-sell gold (currently flat).

We'll see how things settle out in an hour or so, but its not a good headline number.


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

Seems strange that after months of being told how money will be fleeing the emerging markets and driving the US$ higher that suddenly there is an inexplicable move in the other direction. Perhaps a lot of money out there knows something that the rest of us don't know but where is the money going instead? With Europe easing and Japan going NIRP the up is now down logic system says sell the US$? Is there any chance the FED or some US gov organization is pulling some other lever somewhere in the financial system to weaken the dollar? We are in a full currency war at this point, does the reserve currency have some other tool not being considered for influencing exchange rates? Somehow trying to scare people out of the dollar? Or are China and others just dumping their US cash reserves to prop up their own faltering systems?

Strange times indeed.

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
strange times

Yeah Mark I agree.  There are a lot of cross currents right now.

Today:  SPX down -30, gold down -2, silver down -0.08, GDX up +1.67%, buck up +0.57, oil flat, long bond flat.

Buck took off immediately after the NFP report.

Figure out what all that means, and you win the prize.  I wouldn't assume government action as your starting point.  Buck could have bounced because it was pretty oversold.  Gold is doing well to hang on in the face of a rebounding dollar.  Miners amazing, given the rest of the picture.

Money is definitely fleeing US equities after the NFP report, but its not leaving the country.  Perhaps...the dollar descent is over?

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