PM Daily Market Commentary - 3/3/2016

By davefairtex on Fri, Mar 4, 2016 - 12:55am

Gold rose +24.40 to 1264.90 on heavy volume, and silver climbed +0.30 to 15.27 on moderate volume.  Gold tracked sideways until the US market open, at which point it climbed steadily higher until it broke out above the previous high, reaching 1269.30 at its peak.

I couldn't see a specific driver for gold today.  The dollar did start to sell off at about the same time gold started its rally, but the move in gold was not simply a currency effect.  From the daily chart perspective, gold just looked ready to break higher - it appeared to be in an ascending triangle pattern, and today was just the day it broke out.  I like the fact gold held onto most of its gains through end of day.  Gold looks poised to follow through tomorrow.  Next high is 1307.80, set back at the beginning of 2015.

GLD tonnage rose +4.76 tons to 793.33 tons.

Gold's rally today carried silver through the 200 MA but the rally stopped right at the downtrend line.  Silver made good progress today, and actually performed as well as gold did, which is nice to see.  However you can see that while gold made new highs, silver is a long way from doing that.  The gold/silver ratio remains unchanged today; percentagewise, the gains in silver were exactly equal to the gains in gold.  If gold continues moving higher it will pull silver higher too - but silver's chart remains substantially weaker than gold.

Miners managed to break higher alongside gold, with GDX up +4.04% on heavy volume, while GDXJ was up +6.46% on very heavy volume.  The senior miners are lagging a bit - while they did make a new high, it was not particularly convincing and today's volume was lower than the previous selling days earlier this week.  My sense is that the big money isn't buying this breakout.  The GDXJ chart looks substantially stronger, with a conclusive breakout on heavy volume.  Its nice to see the juniors outperforming; that's bullish for PM overall.

A warning sign: while GDX has made a new high, the GDX:$GOLD ratio has not.

Platinum rose +1.57%, palladium shot up +4.24%, and copper continued moving higher, up +1.05% to 2.21.  Copper continues to strengthen, following through off yesterday's breakout.  Copper is an important indicator; lots of things correlate to it.  One fun inverse correlation are junk credit spreads; when copper rises, junk credit spreads fall, and vice versa.  In normal times the correlation is rough, but it was particularly pronounced during the 2008 crash; copper fell when CCC credit spreads skyrocketed, and once copper started to recover, credit spreads retreated.

The buck fell -0.62 to 97.60, printing a swing high and dropping below the 50 MA.  Our dollar rally may be at an end; mostly this was about the Euro [+0.78%] and the AUD [+0.81%] which has been on a tear recently.  AUD likes copper prices to rise, much like the CAD.  For those who fixate on USD/JPY as a reliable indicator of gold prices - Yen fell slightly today, while as we know gold took off like a rocket.  FWIW, longer term, THB (Thai Baht) has a closer correlation with gold than JPY.

SPX continued moving higher, up +6.95 to 1993.40.  Today was once again about energy - XLE led [+1.51%], followed by industrials [+0.71%] and financials [+0.68%].  VIX dropped -0.39 to 16.70.

TLT moved higher today, up +0.36%.  It was actually up substantially more, but sold off into the close.  The TLT chart still looks weak, regardless of today's rally.

JNK rallied today too, up +0.27%; it is still signaling risk on.  PIMCO announced it was time to buy junk bonds:  Treat the article as a possibly interesting signpost (or perhaps just a cynical attempt for you and me to buy junk debt and make PIMCO's existing junk debt pile more valuable) rather than an "everyone back into the water" bit of financial advice.

CRB continued its rally today, up +0.26%, managing to close just above its 50 MA for the first time in four months.  CRB has yet to confirm its double bottom and the current rally is a slow work in progress, but at least CRB is heading north rather than south,

WTIC oil (CLJ16) closed down -0.04 to 34.69, setting a new high today at 35.32, but unable to retain those gains into the close.  Oil printed a doji on the day.  Oil equities were substantially more enthusiastic, with XLE up +1.51% and the services subsector OIH was up a massive +4.02%.  What got into the services today?

Well, one company (NYSE:NE) announced an offer to buy back up to $200 million of its junk bonds, and offered a price about 10% above market.  The market seemed to interpret this as a sign of management confidence in the ability to fund the company, and also a good deal for the company too, as the company's offer price was less than 70 cents on the dollar.  Unlike all the stupid stock buyback that companies have done recently, any time you can get a buck of value and only pay 68 cents for it, that's an instant value-add for the shareholders, and the drop in interest expense adds directly to the bottom line.  This announcement pushed prices higher for all the offshore drilling companies, many of whom saw gains of 10% or more on the day.

I mention this only because of the debt issue.  This is a more concrete sign that some junk debt issues may have become too oversold.  But all junk debt isn't equal; drill ships will have value once oil prices rebound.  Those shale wells and drilling rights - I'm less certain of that.

Gold looks ready to break out to new highs, silver is trailing behind, while the miners seem a bit more reluctant than they did previously.  Gold's breakout today seems a bit detached from any "fundamental" driver - the Euro crisis isn't getting worse (Euro rallied today), there seems to be an ongoing short term risk-on theme right now in the credit markets (TLT downtrend, JNK uptrend), bank stocks are rallying (BKX up +1.22%), copper is rallying, and oil is recovering.  Today's move in gold wasn't about inflation or a safe haven flight, nor is it about some sort of measurable physical shortage - gold just seems to have a upward momentum all its own right now.

It feels like westerners have re-discovered gold, and have decided over the past month to buy.  Sometimes price momentum (and headlines) creates its own logic.  Of course once this crop of buyers runs dry, gold will correct - if you look back at the charts, corrections happened even during the 2009-2011 rally - but so far, buyers are stronger than sellers, so price moves higher.

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Penny551's picture
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I couldn't see a specific

I couldn't see a specific driver for gold today. 

Those more cynical might suspect that today was an attempt to suck in a few more spec longs before the heavily short Commercials pull the rug out in conjunction w/ tomorrow's Payroll #s. We'll see, I guess. 

Well, one company (NYSE:NE) announced an offer to buy back up to $200 million of its junk bonds, and offered a price about 10% above market.

I thought the nice move up today in NE was all the PP readers backing up the truck after it was mentioned in the comments yesterday ;)  Good eye on that one!

KugsCheese's picture
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Hike Baby Hike!

Penny551's picture
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Posts: 154
"Pull the Rug Out"

Well, I guess my "pull the rug out" on the BLSBS #'s didn't work out too well!  Silver up $0.50 last.  I suppose the JPM crowd isn't "all powerful", but I still suspect that once PM is ready to turn lower/consolidate on it's own that JPM etc will be there to give it an extra push to cover their shorts.b 

davefairtex's picture
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if you like NE...

You'll love what happened to SDRL.  It was up 107% today.  Now that's a short squeeze.  A bunch of traders were expecting it to go BK, but things went the other way, and they all had to panic out.

NE had that happen too, but to a lesser extent.  It was only up 20%.

So far, gold is printing a nasty-looking doji today, as are the miners.

Penny551's picture
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Joined: Nov 8 2012
Posts: 154
Good eye

Thx for that insight Dave. Did you catch the Doji on GDX (PM in general) today?

I finally added another GDX put just before the close.  I tend to be a great contrarian indicator, so mentioning that may be a nice buy signal!

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