PM Daily Market Commentary - 5/23/2016

davefairtex
By davefairtex on Tue, May 24, 2016 - 4:08am

Gold fell -3.70 to 1249.20 on moderately heavy volume, while silver dropped -0.15 to 16.40 moderately light volume.  Trading was relatively quiet, with metals prices moving slowly lower in line with the current downtrend.  Silver underperformed gold.

Although gold's trading range today was narrow, it nevertheless managed to both make a new low and close below the 50 MA. These are both bearish indications, especially since USD ended up more or less flat on the day.  Right now price just seems to be fading, and today's new low eliminates the possibility of last week's reversal bar turning into a rebound.  To me, risk increases as we move below the 50; momentum traders will see a measurable shift and may well bail out, waiting for either a new catalyst and/or lower prices before jumping back in.

Silver looks worse than gold - although silver has managed to find support at its own 50 MA, the rally last Friday was anemic after the big move down following FOMC minutes release, and like gold, silver also made a new low today.   I feel much more concerned about lower silver prices than I do about gold simply because of the weakness shown on the chart.  If silver drops below the 50, next stop is likely the 200 at around $15.20.

The gold/silver ratio has steadily risen; from the low of 70.40 at the end of April (which also marks the recent high for silver), the ratio is now 76.17, up +0.47 today alone.  This confirms my sense that silver is not behaving well at the moment.  Copper remains ill, and that's not helping either.

Miners sold off somewhat, with GDX down -1.12% on light volume, and GDXJ off -1.79% on moderately light volume.  Mining shares were doing relatively well until the last 20 minutes of trading, when they experienced a fairly significant wave of selling that drove prices from green to red in a hurry.  Traders who had bought the dip decided they didn't want to take the miners home overnight - that's a bearish sign, and it runs counter to the strong bid that has been underneath the miners over the last four months.

It now looks as though the 9 EMA is acting as resistance.  Both Friday and today, prices were unable to rise above the 9 EMA, even on an intraday basis.  That's the behavior we see in downtrends.  I see risk increasing.  If 23 support breaks, we could easily see more 7% down days for GDX.

Platinum fell -1.04%, palladium dropped -1.54%, while copper was mostly flat, down just -0.12%.  While platinum and palladium both made new lows, copper avoided this fate.  Copper really needs to close back above the 9 EMA to stop the beatings, and this would help silver too.

The USD traded sideways in a narrow range, down -0.05 to 95.24.  This is the second day where nothing much happened for the buck.  This is probably all the pop we get to see out of that FOMC minutes release.

How likely is a rate raise?  My guess is, they're desperate to collect some "ammo" in case the economy runs into trouble later on.  You can't lower rates to rescue the economy unless you've first raised them.  An interview with one of the "doves" on the FOMC:

http://www.cnbc.com/2016/05/22/financial-times-us-close-to-passing-test-for-june-rate-rise-fed-official-says.html

“I want to be sensitive to how the data comes in, but I would say that most of the conditions that were laid out in the minutes, as of right now, seem to be . . . on the verge of broadly being met,” said Mr Rosengren, who has a vote on rates this year as part of the regular rotation of regional Fed presidents on the FOMC.

WTIC fell -0.37 to 48.11, still managing to close above its 9 EMA.  While oil has declined 3 of the last 4 days, the declines have been minor.  The market has more or less ignored the mildly bearish inventory build numbers as well as the news stories on record oil storage quantities.  I'm guessing the focus is on the removal of 1.6-2.0 million barrels of production due to fires and instability.

SPX fell -4.28 to 2048.04, dropping back below its 9 EMA.  In spite of last week's swing low/confirmed takuri line candle pattern, which usually would be a fairly high percentage reversal, SPX continues to look weak.  Utilities (XLU:-0.89%) was the worst-performing sector today, while materials (XLB:+1.17%) did best.  Market continues to fluctuate, but the interest rate sensitive issues have been hit hardest over the past week - ongoing fallout from the perception of an increased likelihood of rate rise this coming June.  VIX rose +0.62 to 15.82.

If we don't get a rate rise, those prices that have fallen will snap right back.

TLT climbed +0.22% - it is still slowly recovering from the losses following the FOMC minutes last Wednesday.  Risk off.

JNK rose +0.06%, more or less moving sideways over the past three weeks.  No signal.

CRB dropped -0.55%, falling below its 9 EMA.  It still looks strong, having made a new high just four days ago.

In spite of the sideways move by the buck over the past few trading days, gold did not come back to life.  This suggests lower prices are probably ahead, unless the dollar reverses direction more emphatically - and that would pretty much require a rally in the Euro.  Silver is saying the same thing, only at a higher decibel level.  Miners too have run into resistance at the 9 EMA.  Let's see which way the buck jumps, and how PM reacts to the move.  For right now, the downtrend in gold remains in place.

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5 Comments

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1428
No Interest Rate Rise?

Not that another 25 bps would be anything.  In fact, the savings account rate hasn't even  budged since first 25 bps increase.  But considering (secretly) they don't know what they are doing and it is an election year I don't there will be anymore rate increases until after elections due to uncertainy of the effect.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5069
rate rise: the market's assessment

If the FOMC surprises, and doesn't raise rates, gold probably has a pretty good day.  So if you really are certain there won't be a rate rise, you can pick up a few GC contracts immediately before 14:00 on June 15th, the date of the release.  Or you could go all in on some high risk junior miners.  There is big money to be made if your assessment is correct, and the market is leaning the other way.

Me, I don't have the infallible information pipeline to the Almighty, so I tend to remain on the sidelines during FOMC until things become clearer.

And speaking of market's assessment, here is a link to the CME "Fed Watch" futures: where traders put real money on the outcome.  This doesn't imply they are geniuses - all it does is give a sense of what the market is thinking right now.

http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

 

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
Bond market tales:

Want proof of what the global deflationary collapse looks like in the future?Look no further than the recent issuance of the 50 year bonds  in Europe.France,Spain and Belgium have issued 50 year bonds that were well received.They are considered risk free (because the EU will bail them out)with a yield of more than 2% and the bond will carry a slightly higher coupon than a short duration.The more important takeaway for me is the disaster that we have left for our children and grandchildren.SERIOUSLY,god help them!

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5069
50 year bonds

EE-

My immediate instinct when I saw those bonds was, "if I were a bond trader, that's one I'd short for sure."  I have 50 years for the trade to work out.  I don't think there's a big upside, and the downside is immense.

What I can't figure out is, how can the ECB bail out the Spanish issue if/when Spain leaves the EU and they go back to being denominated in the Peseta?  Do the buyers imagine the EU will survive for 50 years?  Or that Spain will remain?  Or that ultra-long rates will stay at 2%?

Or are these just trading sardines?

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
All great questions

To be honest I don't have  the answers.I feel it is just another insane way to raise money and delay the inevitable.As usual,like Goldman,these folks will be long gone and the masses will dig out from underneath.

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