PM Daily Market Commentary – 1/15/2014
Gold closed down -3.60 to 1241.30 on moderate volume, silver closed down -0.06 to 20.19 also on moderate volume. The gold/silver ratio moved down slightly, -0.01 to 61.48. Both silver and gold sold off until right before the NY open, after which they both rallied into the close. Silver looked especially good, suffering very minor losses and remaining above its 50 MA.
The USD moved up +0.40 [+0.50%] closing at 81.12, spiking higher on the release of the NY mfg index which was surprisingly strong. The dollar's move higher did seem to modestly impact PM, but the effect was neither strong nor permanent. Normally I would have expected more of an impact from a dollar move of this size, which I read as bullish for gold.
GDX opened down, but rallied steadily all day long, closing up +1.31% on light volume near its high. GDXJ looked similar but only moved up +0.92% on moderate volume. GDX remains above its 50 MA, which is now acting as support. In a few more days, if prices continue to stay above the 50 MA, we should see the 20 EMA crossing the 50 for both GDX and GDXJ, which would be a bullish sign – the last time that happened was back in August 2013.
The seeming lack of selling pressure is a good sign to me. On a day with the dollar up big, and the economic news is good, gold exhibited a very modest down day. What's more, the brief dip in the miners in the morning was bought. Miners continue to look good – they are not moving up on massive short covering rallies, but rather slowly and steadily, which is the way I like to see things happen. That tells me there is steady buying pressure pushing them higher. You can see the miners outperforming gold in the GDX:$GOLD ratio chart below, which gives us a clue as to when the buying started, and it should alert us if and when it stops happening.
Gold still needs a close above 1265 to get out of the medium term downtrend it is in – this would break the pattern of lower highs and lower lows that characterize the trend, while silver needs a close above 20.50 to accomplish the same task.
WASHINGTON — Lawmakers pressed the Federal Reserve on Wednesday to act more forcefully, and quickly, to limit banks’ involvement in the commodities business, which has been blamed for inflating prices on everyday items like electricity and canned beverages.
For months, Congress has been evaluating complaints that the huge commodities holdings of investment banks like Goldman Sachs and Morgan Stanley pose a risk to the financial system. Businesses and consumer groups have also expressed concern that the banks’ financial heft gives them an unfair advantage over other competitors as well as the ability to manipulate prices for essentials like energy, cotton and food.
On Tuesday, the Fed said it was considering some new rules and issued a request for public comment. In part, the Fed wants to determine whether the financial system could be hurt if banks incurred large losses in the volatile commodities markets.
But lawmakers want the Fed to take more action. Senator Sherrod Brown, who led Wednesday’s hearing on the issue, said he was “incredulous” that the Fed had been examining the matter for six years and had yet to make significant changes.
“The Fed’s proposal yesterday was a timid step,” said Mr. Brown, Democrat of Ohio. “It was too slow in coming, and there is still too much that we do not know about these activities and investments.”
Other members of the Senate subcommittee on financial institutions and consumer protection faulted the Fed for being overly focused on the internal workings of banks. In doing so, lawmakers said the Fed overlooked the effect that the banks’ commodities activities may have had on prices paid by the public.
When regulators evaluate a bank’s request to enter into a commodities-related business, they are supposed to weigh whether it will have a public benefit. But during questioning from Senator Jack Reed, a Fed official acknowledged that its evaluation focused primarily on the bank.
“So the public interest test goes by the wayside,” said Mr. Reed, Democrat of Rhode Island.
“That’s the way it’s set up in the statute,” said the official, Michael S. Gibson, the director of the Fed’s division of banking supervision and regulation.
The formal request released by the Fed on Tuesday seeks public input on 24 questions about how banks’ activities in the commodities business may benefit or harm consumers — or more broadly, the financial system.
In the 19-page notice, the Fed referred to costly accidents in the commodities business in recent years, including the 2010 BP oil spill in the Gulf of Mexico. The regulator said a similar crisis at a bank-owned facility could endanger the financial system.
“The recent catastrophes accent that the costs of preventing accidents are high and the costs and liability related to physical commodity activities can be difficult to limit and higher than expected,” the notice said.
Mr. Gibson testified that the Fed expected tighter regulation. But it is unclear whether those changes would prohibit or limit the banks commodities holdings or merely require higher capital reserves or more insurance.
The subcommittee held a similar hearing in July, after an article in The New York Timesreported that a chain of warehouses owned by Goldman Sachs had inflated the price of aluminum across the country. During that hearing, a witness from the brewing industry testified that Goldman’s warehousing practices — which can create long delays for manufacturers, higher rent for the warehouse and an inflated storage premium — ultimately cost American consumers $3 billion a year.
While banks were for decades forbidden from owning or trading physical commodities, those regulations have been eased over the last 15 years.
The Gramm-Leach-Bliley Act passed by Congress in 1999, which loosened restrictions on the banking industry, contained a special grandfather clause that gave two banks — Goldman Sachs and Morgan Stanley — wider latitude to delve into commodities. In 2003, the Fed first permitted some commercial banks to handle physical commodities. After the financial crisis in 2008, the Fed also let some bank holding companies, including Goldman Sachs and Morgan Stanley, retain their commodities units, as well as warehouses, ports, refineries and pipelines used to store and ship them.
Banks, and many traders, say their activities benefit consumers by adding liquidity to the market and helping companies manage risk and control costs. Mauricio Gutierrez, an executive at the power company NRG Energy, warned at the hearing that if banks were driven out of the markets, consumers would suffer.
“When banks exit the commodity trading space, there will be a void that will be filled by companies that are less regulated, less capitalized and less transparent,” he said.
But there have been abuses by banks. Last year, JPMorgan Chase and Deutsche Bank agreed to large settlements after investigations into price rigging.
Norman C. Bay, head of enforcement for the Federal Energy Regulatory Commission, testified that his agency had collected more than $873 million in penalties since its regulatory powers were broadened since the Enron electricity price-rigging scandal early last decade. Mr. Bay said the agency planned to expand its monitoring of electricity markets in the coming months; it recently gained access to real-time data from the Commodity Futures Trading Commission that Mr. Bay said would help the agency understand whether energy speculators were using futures swaps and other financial instruments as part of a strategy to manipulate prices.
The calls for tighter regulatory scrutiny during the last year have led some banks, including JPMorgan Chase, Goldman Sachs and Bank of America, to consider selling some or all of their commodities units. In his testimony, Mr. Gibson said the Fed had given JPMorgan a firm deadline sell one of its warehousing units, but he did not say when.
COMMENTS BY KEN:
In a prior email, I requested that the 75,000 folks who follow PP.com start an activistic campaign to bombard the authorities about the metals manipulations. Well NOW, we've got the excellent possibility. The Fed calls for public comment (see above). I am trying to get the BEST email address for this event. If I do, will share with all.
NOW is our chance to FLOOD the Fed. Please jump on board!! AND spread the word to everyone. I will send this out to about 3,000 folks on my list.
I watch the discussions here at PP from afar, and am continually amused by those who seem to blind themselves to the possibility of market manipulation (read: corruption) by the government and their proxies in the PM markets despite the glaring evidence. This may prove to be a particularly troublesome bone in the throat:
This guy definitely just moved up the NSA watch list.