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PM Daily Market Commentary – 1/6/2015

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  • Wed, Jan 07, 2015 - 04:21am



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    PM Daily Market Commentary – 1/6/2015

Gold rose +14.00 to 1219.00 on heavy volume, while silver was up +0.36 to 16.55 on moderately heavy volume.  Gold traded slowly higher for much of the day until about 1145 EDT when it suddenly broke higher, stopping out a whole bunch of shorts.  Silver traded even more enthusiastically.  Both gold and silver held on to much of the gains into the close.  Silver closed well above its 50 MA, and the gold/silver ratio dropped -0.77 to 73.66, both bullish signs.

Gold has been steadily breaking out above previous highs, it is comfortably above its 50 MA, and trading volume has been rising right along with the price.  That all looks good.  Gold needs a close above 1240 to put a nail in the coffin of the August gold downtrend.

The buck rallied today, stubbornly refusing to confirm the inverted hammer candle from yesterday.  The USD was up +0.17 to 91.82; the Pound and the Euro both had bad days, with the Euro off -0.58% and the Pound down -0.70%.  Falling oil prices also hurt the Ruble, which is now back to 63.17.

The fact that gold continues to rally in the face of dollar strength tells us that gold is doing well in the other currencies.  I've been saying that a lot, but here's a chart to show what that really means.  In the chart above, you can see that gold is looking much improved in dollar terms (although still not in an uptrend).  In the chart below, gold in Euro terms looks fantastic.  What is my specific evidence?  Recent price breakout.  Rising 50 MA.  Rising 200 MA.  Price above 50 MA.  50 MA above 200 MA.  Without a doubt, gold is in an uptrend in Euros.

So which chart is "right" – the USD chart, or the Euro chart?  Well I believe they both are – both charts have influence on where the gold price goes next, since trading happens in gold in both currencies, and both markets are about equal in size.  But of course if you are based in the US, and your expenses are in dollars, then looking at the Euro chart probably doesn't make you feel all that much better.

Still, if we project forward to a time when the dollar has a currency problem – long after the Euro and Yen implode – we can see how gold will protect us from that currency problem.  But I believe the global markets must first work through Euro and Yen problems before the buck will feel any pain at all.

Mining shares did very well today, GDX breaking out above a previous "lower high", ending its August downtrend.  GDX closed up +5.30% on heavy volume, while GDXJ rose +6.53% on very heavy volume.  Junior miners have been lagging seniors for a while now, but they are starting to catch up.  All of the ratios are continuing to improve.  And did I mention that GDX breakout?  For me, that's a big deal.  This doesn't mean we immediately shoot the moon, but it will give the disciplined shorts pause.

SPX dropped again today, closing down -17.97 to 2002.61.  Equities appear to have found some support at "round number 2000", although it still feels like there's more left to be done on the downside.   VIX rose +1.20 to 21.12.

TLT had a huge move today, up +1.80%.  The long bond is going vertical, which generally doesn't last for too long, but it reflects either a short squeeze in bond shorts or a price-insensitive panic move out of somewhere else.  The 10 year treasury did well also, with the yield on the 10-year breaking below 2% for the first time in a year.  Clearly bonds continue to be the favorite destination in 2015.  JNK continued to fall, down -0.47%.

The overall commodity index ($CRB) fell once again (dropping 7 of the last 8 trading days), closing down -0.60%.  Oil's price decline has accelerated again; that support I thought was there at 53 has evaporated, and traders are bailing out.  WTIC dropped -1.94 [-3.88%] to 48.01.  Shale drillers are all dead at these prices – over the long term.

Gold and oil really have decoupled.  Chart below shows just how violent the recent move has been in the last 3 months.  I had to use a monthly chart (dating back to 2005) to show context properly.  You can now get 25 barrels of oil for each gold ounce.  You can see this is the best oil/gold deal in 10 years.  The highest ratio is 34:1, set back in 1986 when oil was trading at $10.  I'm thinking we might be getting close to a top.

We live in interesting times.

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