PM Daily Market Commentary - 5/11/2016

davefairtex
By davefairtex on Thu, May 12, 2016 - 4:35am

Gold rose +11.40 to 1278.70 on heavy volume, while silver jumped up +0.31 to 17.45 on moderate volume.  Both metals rallied steadily in Asia and London, peaking at around 08:00 Eastern.  Gold retained more of its gains today than silver, although silver strongly outperformed gold.  Both metals seemed aided by a falling dollar.

Gold made all of its gains long before the US market opened, aided by the dollar that more or less sold off all day long.  Gold printed a swing low today, managed to close back above its 9 EMA, and the volume on today's move was pretty decent.  Gold encountered some selling after the US market opened, but managed to rebound by end of day.  These are all positive signs, and if the dollar has marked a near-term top, this is more evidence on the side of a potential gold breakout to new highs.

A move above its downtrend line would be another buying opportunity.  Risk to the trade is lower if the buck is falling at the same time.

Silver moved with much greater enthusiasm than gold, both on the way up during Asia and London hours, and also on the way down during trading in New York.  Even though silver lost a fair amount of its gains prior to the close, it still managed to close above its downtrend line, printed a swing low, and is now back above the 9 EMA also.  Volume is somewhat low for silver; the chart overall looks a bit weaker than gold's chart in spite of its larger move today; the downtrend line is steeper, the recent lows were deeper.

Miners went back and forth several times today, encountering some brisk selling in the morning only to rally into the close.  GDX closed up +2.66% on moderate volume while GDXJ rose +3.49% on heavy volume.  While intraday there were some more serious signs of selling pressure, and the daily volume pattern remains somewhat bearish, the price chart suggests that if gold can continue rising off its swing low, miners will probably break out to new highs.

Platinum rose +1.18%, palladium was up +2.09%, and copper tried hard to rally and failed, closing up just +0.07% and printing a doji with a very long upper shadow.  Copper is still struggling to find a bid.

The USD fell -0.48 today, closing at at 93.79, printing a swing high and closing below its 9 EMA.  Is this all we get for our dollar rally?  Perhaps it is.  If the buck starts to move more seriously lower, that may well be enough to push gold through 1307.  Certainly the miners would likely make new highs.  That's a guess, of course.

WTIC had a fantastic day, jumping +2.22 [+4.99%] closing at 46.75 and making a new high for this cycle.  The driving force behind crude's move was the Petroleum Status report, which showed a very surprising -3.4 million barrel drop in inventories.  Upon release, this caused crude to immediately launch higher, dragging oil equities reluctantly along behind (XLE:+0.31%).  Market rallies on good news: that's normal, and bullish.  Uptrend continues.  If this ever stops - if we don't see a rally on good news, that's when its time to sell.

SPX ran into some more serious trouble today, losing -19.93 [-0.96%] closing at 2064.46.  Something new happened in equities today - cyclicals (XLY:-2.01%) and sickcare (-1.20%) led the market lower, with the sell off in cyclicals driven by Macy's (M:-15%!!) and Disney (DIS:-4.04%) which both reported surprisingly bad earnings.  The drop in Macy's was massive.  Up until now, moves in SPX have been driven by commodity prices; today even though we saw oil leap higher, the rest of the market more or less tipped over and sank.  VIX approved, rising +1.06 to 14.69.

TLT rose +0.57%, a nice move, making new highs for this cycle.  TLT remains in a reasonably strong uptrend, and signals risk off.

JNK fell slightly, losing -0.03% - an odd, unexpected, and possibly quite bearish reaction on a day when there was such a strong move in oil.  Who Moved My Junk-Bond Cheese?  I'm calling that risk off.

CRB jumped higher, rising +1.69% and closing back above its 200 MA.  Commodities continue to generally move higher, but the move is only happening in fits and starts.  Regaining the 200 is a bullish sign for CRB.

Although miners have been enduring more selling pressure than usual, PM looks generally strong, and is supported by a nascent near-term peak in the buck, rising oil prices, rising commodity prices, and falling equities which should prod a bit of capital rotation out of equities and into the PM space.  Feels to me like the momentum for PM right now is higher.

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davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
New Jersey: govt pensions come first?

Here's something I saw over at Armstrong's site: New Jersey legislature has passed the first step towards amending the state constitution so that the state must make guaranteed pension fund contributions.

https://www.armstrongeconomics.com/international-news/north_america/new-jersey-to-follow-illinois-down-the-drain/

Naturally, politicians have a state pension, as do all other government workers.

Armstrong suggests this places pension obligations above other spending; if there isn't enough money, pension contributions are made, while everything else gets cut.

One would assume that New Jersey would be forced to either raise property taxes to fund the pensions, or cut spending of other types in the event of a shortfall.  Armstrong makes the point that owning a home in New Jersey might result in you becoming a "Milch Cow."

I really would like it if my 401k was constitutionally guaranteed against seizure, but of course the likelihood is they'll end up trying to seize my 401k to pay for the pensions of the government workers.

Unintended consequence of low interest rates: an increase in your property tax to fund government pensions.  Taxes are deflationary, because they subtract from disposable income.  That's one reason why Greece is doing so badly: they are constantly raising taxes, forcing the Greeks to cut back on their spending.

Geniuses.  Pity the former Dallas Fed Governor wasn't able to see this ahead of time.  Gosh, maybe its not a good idea to try to have seven people try to control the economy?  They might not be able to figure out all the unintended consequences of the actions they take...

And of course this is what happens if you DON'T have a constitutional amendment setting your pension in front of everything else:

http://www.marketwatch.com/story/central-states-chief-warns-of-insolvency-or-steeper-cuts-to-pensions-2016-05-09

A video tribute to the legislature of New Jersey: "It's good to be da king!"

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