PM Daily Market Commentary - 3/16/2016

davefairtex
By davefairtex on Thu, Mar 17, 2016 - 2:31am

The FOMC as a source for volatility did not disappoint - gold rose a massive +30.30 [+2.46%] to 1263.10 on moderately heavy volume, while silver climbed a respectable +0.35 [+2.26%] on moderately heavy volume also.  Gold and silver both spiked higher immediately following the FOMC announcement at 14:00 Eastern, and continued to move higher through the press conference at 14:30.  Both metals closed near their highs for the day.  Today was all about the Fed.

Simply put, the Fed was more dovish than expected, reducing the projected number of interest rate increases this year from four to two, among other things.  Econoday explains:

http://mam.econoday.com/byshoweventfull.asp?fid=471648&cust=mam&year=2016&lid=0&prev=/byweek.asp#top

Citing global and financial risks right at the very top, the Fed in its FOMC statement sounds dovish, issuing no rate hike as was expected and pulling back its own rate hike expectations by 50 basis points to match market expectations, from 1.4 percent for the funds rate at year-end to 0.9 percent. The assessment of the economy has been downgraded from "solid" in the January statement to "moderate" in today's statement. Business investment is no longer described as "advancing" but instead as "soft" as are net exports. Household spending is once again described as moderate but the description of the jobs market remains "strong".

Gold's response to the dovish release was an immediate $10 spike higher, and the buyers just kept pushing prices ever higher throughout the rest of the day.  It sure felt to me that the market was surprised by the Fed's actions - it definitely surprised me too.  It felt like a bunch of new gold shorts that "sold the breakdown" were squeezed right out.   Perhaps everyone read the same COT report I did, drew the conclusion that price was probably headed lower, and then had to scramble to unwind their positions when events went the other way.

In spite of the big move, GLD gained just +2.97 tons, with the total now at 795.20.

Silver popped back above its 9 EMA with today's rally, but remains within its recent trading range.  Silver also underperformed gold, which reminds us that the current PM rally is still about safe havens, and not about inflation.   I think silver will end up going where gold tells it to go.  :-)

Miners staged a massive rally today, with GDX up +6.81% on extremely heavy volume, while GDXJ did even better, up +8.02% on very heavy volume.  GDX printed a new high, and a new closing high, and invalidated the previous swing high set two weeks ago.  The miners are back!  I guess all we get is a two-day correction.  The immense volume underscores the intensity of the rally in the miners today.  The "tell" might have been the positive day yesterday on a day when gold itself dropped.  The bid under the mining shares remains quite strong.

If you were watching in real time, you actually had a chance to get on board this crazy miner rally; five minutes after gold had already risen $10, miners had only rallied perhaps 1%, and if you were nimble you could have jumped aboard and bought the reversal.

Are the miners the "tell" as to where gold heads next?  They seem to be projecting new highs ahead.

Platinum rose +2.14%, palladium climbed +1.51%, and copper was up +0.78%.  Everything did relatively well.

The buck tanked hard following the dovish Fed announcement, dropping -0.74 to 95.93.  The commodity currencies did particularly well, with AUD up +1.44% and CAD up +1.94%.  Some of gold's price move was currency-related, but certainly not all.

WTIC staged a strong rally today, up +1.88 [+5.12%] to 38.60.  Much of the gain came after a relatively positive-looking Petroleum Status Report at 10:30 Eastern which showed a small 1.3 million barrel inventory build, and a continued strong demand for gasoline, up 6.4% y/y.   Oil piled on even more gains after FOMC at 14:00.  The rally in oil caused a breakout in oil equities (XLE) which rose +1.73% to a new closing high for this cycle for XLE.

SPX staged a modest rally, up +11.29 to 2027.22, moving somewhat more convincingly across its 200 MA.  Mostly, the SPX rally was about energy; financials and healthcare were actually in the red today.  Utilities rallied, presumably because their yield is now more attractive with fewer rate hikes expected.  VIX was hit hard, dropping -1.85 to 14.99.  All in all, the continued move higher in SPX is not about some new bullish case; its really just about the ongoing recovery of oil equities as the oil price continues to recover.

TLT rose +0.30%; TLT has found support on its 50 MA for the last four days, and may be putting in a stealth low.  It is not signaling "risk off" just yet, however.

JNK rallied strongly, up +0.71% wiping out two days of losses, but no new high.  Risk on signal from JNK. 

CRB rallied +1.57%, a very nice move putting in a new closing high for this cycle.  The commodity rebound explains in part why those commodity currencies are also recovering, along with all the basic materials equities.

I was going to write a bunch about the FOMC and rates and the like for the summary today, but I thought better of it.  Sometimes all that stuff just gets confusing.  Instead, I'm going to keep it simple: what are prices telling us?

Well, the miners are saying we have new highs ahead.  GDX is on the cusp of a breakout higher, as is GDXJ.  Miners tend to lead.  Gold also looks poised for a rally and possibly a breakout as well.   Gold's recent three day sell-off might be the only correction we see for a while.  Silver is lagging, but it has been doing that for a while, so nothing new or alarming there.  It is possible this is just a one-day wonder, but usually these FOMC meeting results provide several days of moment along a direction, and that's where I'd place my bet.

The COT positioning usually predicts the movement of prices in the short to medium term - usually, but not always.  This time around, a dovish change in the FOMC trumped what appeared to be the start of a correction in gold.  Prices continue to tell us that the demand for gold in the west continues to outpace the selling pressure from the commercials.  As always in this game, prices win.

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2 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 149
"Gravestone Doji"

Another bearish candle on GDX (on high volume)... Let's see if it matters this time!  

I would feel much better about the whole PM picture if we could clean up the CoT, make a higher low, and then all the pieces would be in place for the big move.  Why can't the market just do what I think it should?!? ;)

Dave- you're analysis has been outstanding and balanced throughout this move...rare in the PM space!

Steve

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5070
higher lows

Steve-

Certainly the "standard scenario" isn't playing out this time.  Naturally.  Now that I finally got a handle on how things work.  :-)

That does suggest, however, there might be a sea change happening.  Maybe the commercials miscalculated, went too heavily short and too soon, and the buying pressure just continues to increase.

Or maybe I'm just too impatient, and it will resolve itself in the normal way but it just needs a few more weeks to do so.

Thanks for saying my commentary is balanced, its really what I strive hard to do.  Cheerleaders may be fun to read, but they end up losing you money over time.

And thanks for NOT saying I'm "Fair and Balanced."  :-)

 

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