PM Daily Market Commentary - 5/19/2016

By davefairtex on Fri, May 20, 2016 - 2:13am

Gold fell -3.80 to 1255.70 on very heavy volume, while silver was crushed, dropping -0.41 to 16.51 on moderately heavy volume.  The losses in the metals were a follow-on to yesterday's FOMC-minutes surprise; gold showed surprising strength, while silver did not.

Gold started moving lower in Asia and London, encouraged lower by an intraday rally in the dollar.  The low point for gold (1244.60) was at the intraday peak of the buck, around 09:00 Eastern.  Once the buck started to retreat, gold rallied, and it managed to regain most of its losses by end of day, printing a bullish takuri line candle.  The high volume lends emphasis to today's relatively bullish candle print.

On the chart, we can see a breakdown from the descending triangle pattern, but instead of selling off hard, the breakdown was bought.  Likely the buyers were cheered by the dollar's inability to continue rallying.  Although gold dropped momentarily through its 50 MA, it regained the 50 by end of day

Looking at how things went, the buck would seem to be key.  Buyers didn't push prices higher today until the dollar topped out.

Silver's plunged alongside gold, but while gold managed to rally back, silver was largely unable to do so.  I can't say quite why silver floundered while gold did well.  Certainly the silver chart was weaker going into the FOMC - that was a clue, and the loss of 17 support yesterday was another.  Volume on the down-days has been increasing, which is bearish.

We can see on the chart that silver did manage to find buyers way down at the 50 MA, around 16.35, but that's a long way from 16.93 which was yesterday's close.  There does look to be support around 16.25-16.35, the site of silver's big breakout in mid-April.  If copper can rally, maybe silver will too.

What's that, miners on sale?  GDX rose +1.70% on moderately heavy volume, while GDXJ was up +1.25% on heavy volume.  The miners rallied long before gold had recovered - they were red for only the first 90 minutes of trading.  All it seems to take is a hint that the gold price isn't collapsing and the bid comes right back.  Still, the volume today was less than half the volume from yesterday's sell-fest, and so I'm not sure today's move marks a return to happy days just yet.  Candle print is "thrusting", a 35% chance of a bounce here.

If the buck starts to move lower and gold can confirm today's candle print, then we might just be back to the races again.  The trouble is, we have to wait for the market to tell us just how surprised they were by the Fed's hawkishness.  That has to play out before we get a sense for how long this correction will last.  If the buck still has more rallying to do (and/or the Euro feels like dropping some more), likely we'll see lower prices in PM and this bounce will just be a blip on the way to lower prices.

Platinum fell -1.36%, palladium dropped -2.52%, while copper was largely unchanged, up +0.05%.  Like gold, copper also managed to rally back off its lows, which is definitely a hopeful sign.  My code suggests that copper's "high wave" candle print has a 42% chance of marking the low.

The USD rose +0.09 to 95.29, breaking above its previous high set in early April.  It was up more intraday, but could not hold onto its gains.  If this is all the dollar can do, that's great for gold, but I'm concerned there may be more gains ahead for the buck.  BRExit vote is coming - like Winter - and will bring with it a certain level of chaos.  The euro closed right around 112 today; if Armtrong is right, we won't see 115 again in the Euro, and in some sense this might end up being more of a Euro-centric story than a dollar-centric story.

WTIC fell initially along with gold and silver, but rallied back, printing a takuri line candle of its own, closing up +0.32 to 48.77.  Oil remains above its 9 EMA and continues to look quite strong.  Perhaps geopolitics beats finance, and as I said yesterday, sometimes there are people willing to help that situation along here and there.  Even nice guys like Putin.  When Nigeria explodes, and fire sweeps Ft McMurray, cui bono?  Anyone with an oil well, it turns out.

SPX fell -7.59 to 2040.04.  It fell more substantially early in the day, but managed to recover much of the losses by the close, printing a weak takuri line candle of its own (26% chance of a bounce).  Losses were highest in financials (XLF:-0.95%) and industrials (XLI:-0.94%) with utilities doing best (XLU:+1.01%).  Looks like a more standard correction sector-loss setup to me.  DJIA fell more, and/or bounced less.  Both appear to be in steady if shallow downtrends at this time.  VIX rose +0.38 to 16.33.

TLT came back, up +0.43%, managing to regain its 50 MA, after selling off hard yesterday.  Might this mark the extent of the surprise from FOMC?  Perhaps.  Risk off from TLT.

JNK fell -0.23%, inching below its 9 EMA and giving us a risk off signal as well.

CRB dropped -0.82%, a brisk drop but it remains above all 3 moving averages after making a new high several days ago.

So buyers for gold and the miners, but not silver.  If the buck tops out here, I suspect gold will recover.  How much more surprise-fuel do we have left in the tank from FOMC?  Its hard to know.  A confirmation on gold's reversal bar would be a sign that the surprise is short-lived.  Miners would probably rally if that happened.  I'd consider jumping back in anyway.

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