PM Daily Market Commentary - 3/10/2016

davefairtex
By davefairtex on Fri, Mar 11, 2016 - 2:11am

Gold rose +19.20 [+1.53%] to 1273.10 on very heavy volume, while silver climbed +0.31 to 15.62 on heavy volume.  Today's big move in gold seemed to be all about the ECB rate announcement, but there were also signs from the intraday price action that the western gold buyers continue to buy the dips.

On the daily dollar chart, we see a large failed rally in the dollar, followed up by an equally-large sell-off.  The buck closed down -1.04 to 96.12, a huge move which generally serves to support a move higher in gold.  The dollar's move was all about the huge rally in the Euro, which was up +1.64%.  Intraday, the buck first rallied on the ECB's announcement, but 90 minutes later decided to reverse course and then sold off really hard.

One thing we can be sure of: this is NOT the outcome that Chairman Draghi wanted.  A stronger Euro was not part of today's playbook.  No doubt he will appear this weekend to chide the stupid traders who did the opposite of what he had intended.  This happened last time as well.  I think they are starting to lose control.

I have a pair of intraday charts today that give us some hints about the strength underlying gold right now in the west.  Below you see a chart of the COMEX GC contract (paper gold!) above the ICE DX contract - basically the USD.  At the time of the ECB announcement, we see the DX spike higher, and that appears to pull the price of gold lower - so far, everything makes sense: currency drives gold.  But then something surprising happens.  At about 8am gold reverses course and starts to rally.  45 minutes later, the dollar tops out.

What does this mean?  COMEX buyers bought the dip in gold 45 minutes before they had support from the Euro currency move to do so.  Certainly for the rest of the day the falling buck/rising Euro supported the move higher in gold, but those first 45 minutes of gold-buying suggests a strong bid for gold independent of what the currency is doing.

And here's what gold looks like on the daily chart.  We see two days of selling that led to a brisk dip below that 9 EMA which was bought, with gold reversing back up and closing at the highs for the day.  Was gold saved by the Euro rally?  Or would the buyers have bought the dip anyway?  I think it was a little bit of both.

GLD gained +5.95 tons to 798.77.

Once again silver managed to find support roughly around the 9 EMA.  Like gold, it sold off after the ECB announcement, but then followed gold higher as gold rebounded.  Silver didn't make any new highs, but did manage to keep almost all of its gains into the close.  For a change, silver actually outperformed gold today, up +2.06% to gold's +1.53%.  Gold/silver ratio is now down -0.42 to "only" 81.48.

Miners gapped up at the open given gold's early-morning rally and climbed for most of the day; GDX was up +4.46% on heavy volume, and GDXJ rose by +4.40% on heavy volume also.  While the miners have vaulted back over that 9 EMA, the rally today didn't make any new highs and the volume on these rally days is consistently less than on the days when price drops.  The distribution pattern remains intact; my sense from the volume bars is that the big money isn't participating the way it did previously.

Platinum rose just +0.16%, palladium climbed +0.94%, while copper fell -0.40% - that's a bad day for copper on a day the buck tanks more than 1%.

SPX didn't particularly like the ECB announcement, and it appeared to sell off as the dollar fell, but then rallied at end of day to close almost flat, up +0.31 to 1989.57.  In the near term, SPX could go either way, in spite of that swing high we saw two days ago.  VIX fell -0.29 to 18.05.

TLT sold off today, dropping -0.41% and it continues to look relatively weak.  That's nominally risk on, except the chart just looks like bonds are weak rather than the equity market looking strong.

JNK jumped up +0.71%, a good-sized move for JNK which made a new closing high for this cycle.  That suggests risk on.

CRB fell -0.19%, a terrible performance from commodities given the big move lower in the buck.  Just to stay even, commodities should have risen at least 1%.  CRB is still in its short term uptrend.

WTIC also fell, losing -0.16 [-0.42%] to 38.02 - not much of a move, but given what the buck did, it was not great.  Still, WTIC remains near the top of its recent range, above the 9 EMA and the 50 MA, and in a clear uptrend, so its not all bad.

So what is the market's first-day read on the ECB printfest and the increased negative rate?  It seems similar to the response given by the Japanese market: buy the currency, buy gold.  This is not the result that Draghi was hoping for.  In past days, dropping rates and money printing would have led to a drop in the Euro and gold and universal risk-on acclaim, but not any longer.  To me these price moves are evidence that we are on the downslope of Peak Confidence in Central Banking.

Do you guys see now why I said that "they" cannot control the markets?  Where is the great gold smash following the ECB announcement?  It didn't happen.  Either they suddenly decided to abandon their "incredibly successful manipulation campaign" for no good reason - or the strong renewed interest in gold in the west is trumping any attempts to push prices lower.

I always maintained that the downtrend was about the absent western gold buyers, and once they returned, we'd see some fireworks.  So far, so good...

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4 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
2011 Margin Hikes

The last time the "commercials" appeared to be on the ropes (May '11), the CME raised margin requirements an unprecedented 5 times (84%) in ~10 trading days.  I suspect the big banks have too much on the line to roll over w/out more of a fight.  Let's see what they pull out this time and how the market reacts.

http://www.reuters.com/article/businesspro-us-markets-silver-slide-idUSTRE7437XU20110505

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5417
commercial record during 2009-2011

Here's a chart of the record of the commercial shorts and how well they "predicted" the various moves.  H and L mark where they nailed the highs & lows.  FAIL marks where...they totally failed.  First fail was in 2010.  That was the sign of the start of what Armstrong might call the phase change - a doubling of price in a very short period of time.  They also failed to cause a top for the next leg up - they actually had to cover.  They nailed the next low, but then had another, even more massive fail on the way to the peak in May.

That's when the margin increases started to happen.  They must have been getting desperate.

I think when I zoomed in, it turns out they actually started to cover prior to hitting the top.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5417
EIA Says: "Low for oil may be in"

The clever folks at EIA are telling you the low for oil may be in only $13 after the 26 low.  As they say, "nobody rings a bell at the low."  Typically there is a lot of fear, huge volume, and huge volatility as lots of money races in and out wondering if "this is it."  In some sense, volume and volatility are the markers of the low.

1) This is why we watch prices rather than reading news.  Who wants to be $13 late?

2) More likely than not, this news article marks a near-term high for oil.  Call me cynical.

3) If you are tempted to think that "the oil market is broken" because prices are rising and it makes no sense to you, it may just be that you aren't in possession of all the facts, someone else is, and they are buying.

http://www.bloomberg.com/news/articles/2016-03-11/iea-says-oil-price-may-have-bottomed-as-high-cost-producers-cut

Oil prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus, the International Energy Agency said.

Production outside the Organization of Petroleum Exporting Countries will decline by 750,000 barrels a day this year, or 150,000 barrels a day more than estimated last month, the agency said. Markets are also being supported by output losses in Iraq and Nigeria, and as Iran restores production more slowly than planned following the end of international sanctions, it said.

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Re: Margin Hikes

Stop confusing me w/ the facts and data :)

that's a great chart... thx for posting. 

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