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PM Daily Market Commentary – 12/10/2014

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  • Thu, Dec 11, 2014 - 07:39am



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    PM Daily Market Commentary – 12/10/2014

Gold dropped -6.50 to 1225.60 on moderate volume, while silver fell -0.03 to 17.08 on moderately light volume.  Both metals retreated slightly on lighter volume, a normal enough response following yesterday's big breakout.  Silver actually hit a new high intraday, and the gold/silver ratio ended up dropping -0.25 to 71.78.  A dropping gold/silver ratio is typically bullish for PM overall.

The dollar had another big down day, dropping -0.50 to 88.19, moving cleanly down through its EMA-9.  That makes three straight down days for the buck.  The move lower didn't seem to help PM or the mining shares at all.

Although gold was only down modestly, GDX sold off harder, closing off -2.83% on moderately heavy volume.  GDXJ did worse, down -3.45% on moderately heavy volume also.  Mining shares continue to underperform, which is dragging the GDX:$GOLD and GDXJ:GDX ratios lower.  The GDXJ:GDX ratio made new all time lows today.  Traders just don't want the junior miners right now – I thought it might have been dollar related, but now I'm not so sure.

Bonds broke higher yet again to a new cycle high, up +0.73%; the 20 year treasury is now yielding 2.54%.  JNK on the other hand sold off hard, down -1.19% making a new low.  Junk bonds are a coal-mine canary – they are a decent leading indicator for equity market performance.  When junk bonds fall, it usually signals bad times ahead for equities.

SPX was down for its third straight day, this time off a more serious -33.68 to 2026.14.  Isn't it interesting – equity market down 3 days, USD down 3 days – they seem to be tied closely together.  Perhaps foreigners are ringing the cash register on their successful US equity purchases and bringing some of their winnings back home.  The VIX shot higher, +3.64 to 18.53.

Commodities fell, closing down -0.63%.  They continue to bounce along the bottom, waiting for a reason to rally.  Oil sold off again, with WTIC down a big -2.05 to a new low of 61.22.  At this rate, oil will be in the 50s before long.  Brent dropped -2.60 to 64.24, also making a new low.

Gold and silver seem to have diverged strongly from oil in recent months.  A ratio I look at occasionally is the gold:oil ratio – how many barrels would an ounce of gold buy?  Back in June, an ounce of gold would buy 12 barrels, but today it would buy 20 barrels.  That's a really big move, and its more about oil dropping than about gold rising.

Here is a longer term perspective, to show you the general range.  Since this is monthly data, we don't yet have the latest values – but you can see that 20 barrels/oz isn't at the top of the historical range, in case you were thinking about exchanging your gold bars for oil barrels.  Still, 20 is pretty high if viewed over just the last 15 years.

All this illustrates is that if you are upset at the losses in gold, just imagine if you had an oil asset.  Six months ago it was cranking out $110 per barrel, now you're lucky to get $62.  That's gotta hurt.

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