PM Daily Market Commentary – 1/22/2015
Gold rose +9.10 to 1302.10 on heavy volume; silver gained +0.20 to 18.34 on moderate volume. From a volatility standpoint, the ECB announcement didn't disappoint; gold sold off prior to the meeting hitting a low of 1279.10, but then climbed once the announcement was made, making a new high for this cycle eventually hitting 1307.80 at its peak. The ECB 60 billion/month bond buy-fest plan was clearly gold and silver positive.
Silver outperformed gold; it has been doing this steadily for about a week now, and as a result the gold/silver ratio has been dropping, down -0.28 today to 71.00, well below its 50 MA and looking bullish. Its nice to see the ratio drop at long last.
The USD rocketed higher on the ECB announcement – the buck was up an incredible +1.64 [+1.76%], the largest one-day gain I've seen in recent years. This was driven by a massive drop in the Euro, which fell -2.48 [-2.13%] to 113.63. In this context, gold's move higher today was even more impressive. Gold is climbing in all currencies, which attests to the strength of gold's move higher. Of course in Euros, gold is doing great. That's worth a chart: gold's rise in Euros was +2.90%, or about $37 in US dollar terms.
Miners injected a note of caution into the party, trading sideways for most of the day, rallying slightly in the morning and then selling off a little in the afternoon. GDX closed off -0.53% on light volume while GDXJ dropped -1.96% on moderate volume. Mining shares look tired – while traders might be buying gold and silver, miners are clearly not that exciting to them at these prices. And where the miners go, gold does eventually tend to follow. I am a bit concerned that the miners are suggesting the ECB announcement and the Greek elections might end up being a "sell the news" event for first the miners, and then eventually followed by the metal itself.
SPX really ended up liking the ECB announcement and the rising dollar; it was initially unsure, dropping right at the open, but as the day wore on the buyers appeared and SPX climbed into the close, ending up +31.03 to to 2063.15. VIX dropped -2.45 to 16.40. The SPX managed to push through its 50 MA, and rallied right up to a previous high. Was this solely on the strength of the buck? European equities were generally higher today too. Perhaps equities just like money printing announcements. The US equity market is on the cusp of possibly making new highs.
Long bond ETF TLT fell today, down -0.36%. The 10 year bond fell a bit harder. Bonds appear to be putting in a top, weakened by the flows into the equity market. If bonds sell off here, and the dollar maintains its strength, SPX probably makes new highs.
The overall commodity index ($CRB) were one of the few sectors completely unimpressed by the ECB announcement – they fell -1.31% and made a new low. So much for "chopping sideways" and thoughts of a near-term rally. It also suggests that commodities don't believe that ECB money printing will lead to inflation – at least not commodity-price inflation anyway.
WTIC looked weak as well; while oil rallied strongly immediately prior to the meeting, once 0745 hit, oil started selling off and once the buck started rallying, the selling in oil accelerated. WTIC closed down -0.82 to 46.52. Oil appears to be hinting at resuming its move lower. A strong dollar makes for a tough environment for oil to rally – and today's massive dollar move did not help oil at all.
Gold is clearly in demand right now, and in recent weeks, so is silver. Both metals have diverged from the steadily dropping commodity index. In fact, precious metals are the only sector of the commodity index that is rallying – and gold is outperforming both platinum and palladium.
Greek elections are on Sunday. Will they be a sell-the-news event, or a spur to higher prices? Gold is quite overbought right now and miners look tired, so my tendency is to think sell-the-news, but who knows what a victorious Syriza will do with their new mandate?
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