Investing in precious metals 101

PM Daily Market Commentary – 12/23/2015

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  • Thu, Dec 24, 2015 - 03:49am



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    PM Daily Market Commentary – 12/23/2015

Gold fell -2.10 to 1069.70 on very light volume, while silver rose +0.06 to 14.31 on light volume.  A strong intraday rally in the buck caused trouble for gold today, but did not seem to affect silver, which appeared to be bouyed by a strong rally in the commodity complex led by a rebound in energy.

Although gold fell today, the modest loss was entirely a currency effect.  The holiday-season volume was quite light, and gold remains above its 9 EMA.  Basically, there was no material change in gold's chart.  We are still looking for a close above 1088.30 for gold's next leg up.

Silver is starting to look more constructive, inching closer to its previous high of 14.64.  As usual, silver appears to be driven at least in part by commodity prices.  If the commodity rally continues, silver could easily break out more violently one day seemingly for no reason, just because that's how silver seems to work.  Call it manipulation to the upside, if you like, but a thirty-cent rally could happen quite quickly.

GDX rose +2.08% on light volume, while GDXJ climbed +1.35% also on light volume.  GDX managed to break its downtrend line today – depending on how you draw it, the break was either by a slim margin, or more conclusively.  GDX moved back above its 9 EMA, and showed some strength in the face of both a dollar rally and a decline in gold.  It appears that the miners still have a modest bid going into end of year.

The buck staged a strong intraday rally which ended up failing, with the dollar selling coming in around noon Eastern time.  USD climbed only +0.12 to 98.37, printing a bearish-looking inverted hammer candle on the day.  In spite of the modest move higher, the USD downtrend remains in place.

SPX rallied for the third straight day, climbing +25.32 to 2064.29, managing to close back above its 50 MA and the 200 MA by a few points.  The SPX rally was led by a strong rally in energy equities; energy ETF XLE was up +4.35% today, which is a big move for XLE.  To my mind, the rally in energy has pretty much locked in a move higher in equities as long as it continues.  VIX fell -1.03 to 15.57.

JNK climbed +0.50%, a nice rally but perhaps weaker than one might have expected given the strong move higher in oil.   JNK is now back above its 9 EMA, but I don't get the sense its party time in junk bonds again.

Bond ETF TLT sold off again today, dropping -0.72% and it has dropped back below its 3 moving averages, moving to the lower end of its recent trading range.  The choppy trading continues in bonds, but so far the uptrend remains intact.

CRB staged an impressive rally today, climbing +1.90% and closing conclusively above its 9 EMA for the first time in two months.

WTIC rose +1.42 [+3.89%] to 37.89, rallying strongly following a bullish Petroleum Status Report which showed a large drop in oil inventories of -5.9 million barrels.  This outcome was hinted at by the API report yesterday, but it appears that the drawdown exceeded the market's expectations.  Not only that, the oil market was quite oversold and ripe for a rally.  WTIC is now clearly back above its 9 EMA, for the first time in six weeks.  Brent managed to print a swing low today, and it also managed to close above its 9 EMA too, by a slim margin.  WTIC looks much stronger than Brent.

US Natural gas ($NATGAS) rose +0.08 [+4.34%] to 2.00, building on the rally that started Monday.  At this point, it appears that natgas has formed a swing low in the weekly timeframe as well as the daily; as a result, this is probably a medium term low for natgas versus a one-day short covering move.  Rallies in natgas producers DVN and CHK were in the double-digit ranges, with CHK +10.55% and DVN +11.30%.  A shale driller I follow, OAS, was up a massive +19.85% on the day.

Commodities are starting to recover, led by energy.  If the buck continues to fall, this should pull PM higher, with silver leading gold.  At some point, COMEX buyers will decide to show up in force, and then the shorts will all have to run for cover and we should get a nice spike higher.  Miners are supportive of this story; they are now looking more positive than they were just a few days ago.

Now we just need the commodity complex to continue cooperating.

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  • Thu, Dec 24, 2015 - 04:30pm



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    armstrong on oil: $35 is the number

According to his computer, Armstrong says the magic number for the 2015 close in oil is $35 to avoid a long term bear market.  He further suggests that the price for oil may rise because of war – and/or that war will happen in order to move oil higher – and so he is concerned that a close over $35 might indicate an impending war.  To Armstrong, price tells the story on everything, because everything really is connected to everything else.

His is an interesting viewpoint.  This is why I'm always a little nervous being short crude futures.  That geopolitical thing can always appear when you least expect it, taking a few million barrels per day offline in the blink of an eye and price jumps $10 in a few seconds.

But if you are properly positioned, if you already know what will happen because you are one of the "in crowd," you end up making a great deal of money, after first buying up the beaten-down stock in all the oil companies prior to the big geopolitically-driven move higher.  You probably also buy up a bunch of crude oil futures on the sly – thus keeping the price of oil elevated even with oversupply issues running rampant…

This entire cauldron in the Middle East is shaping up to be World War III but it is over energy…. These people need a war in their mind to get oil prices back up. If oil closes in the States above $35, then we are NOT getting that long-term bear market signal. We need a closing BELOW $32.20 to negate a bull market. A closing for 2015 ABOVE. 

This is not a Christmas message I cared to write. Oil will be VERY CRITICAL as a signal for 2016 because we also have the War Cycle moving higher into 2017.

Current price for Feb Crude: $38.01.

"Everything is in the charts."  Mainly because the well-connected will not willingly miss out on a payday.

Would you?

For what its worth, my shorter-term model is long crude.  But I hasten to add, this model looks forward only a few weeks at most.

  • Thu, Dec 24, 2015 - 07:43pm



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    contrary oil indicator

US banks face the prospect of tougher stress tests next year because of their exposure to oil in a sign of how the falling price of crude is transforming the outlook not just for energy companies but the financial sector.

The Organisation of the Petroleum Exporting Countries on Wednesday lowered its long-term estimates for oil demand and said the price of crude would not return to the level it reached last year, at $100 a barrel, until 2040 at the earliest.

Anytime I hear projections like that (2040??  Is this Nostradamos Reborn?????), I sit up and take notice.  Nobody in their right minds would put money on a bet like that, so this is just sheer propaganda.

This is also the kind of stuff you see near lows.  I'm not saying we are here now, but horrid-sounding news continues to pour in even when prices are moving higher.  its some kind of inertia thing.  I saw it happen in March-April 2009.  Horrid news kept coming, and the market kept climbing.

Bottom line: ignore the news, watch the prices.  If the oil market continues to rise in the face of awful news, that's a very positive sign.

  • Fri, Dec 25, 2015 - 06:43am



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Regarding Oil equities, they're historically overvalued relative to oil itself.  I've been watching for this to resolve itself in the form of lower equity prices for the last year or so, but they seem unwilling to capitulate.

Nobody can say for sure, but any thoughts on if this is the "new normal," or should someone looking to go long oil just look at a "pure" oil play (USO, etc) or wait for the equities to correct to more normal valuations relative to the underlying asset? 

Also, Merry Christmas!

  • Fri, Dec 25, 2015 - 04:44pm



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    Oil prices

Very interesting article by Gail Tverberg on oil prices, energy correlation to growth, and resource limits:


  • Fri, Dec 25, 2015 - 05:15pm



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Aloha! Just exited CVX call options as another way to play the "oil long"! Whenever politics is in the trade mix anything is unstable!!


  • Sat, Dec 26, 2015 - 12:03am


    Arthur Robey

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Hummm. If oil price increase that will exacerbate the silver miners woes. Supply will decrease.  But consumption demand is falling steadily. 

Photography? There is still a demand? And where are photocells? Under Electronics? I Gain no optimism from it's future as an industrial Feedstock.

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