Investing in precious metals 101

PM Daily Market Commentary – 2/24/2015

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  • Wed, Feb 25, 2015 - 08:56am



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    PM Daily Market Commentary – 2/24/2015

Gold fell -0.50 to 1200.80 on moderate volume, while silver dropped just -0.01 to 16.28 on moderate volume.  Both metals traded lower throughout the London session, with gold spiking down and hitting its intraday low of 1190 at exactly 1000 EST – several economic reports hit the wires at that moment, and the dollar spiked briefly higher at that same time.  Janet Yellen was also in front of Congress around that time.  Silver hit its intraday low of 16.04 at 1131.  Both metals rebounded closing more or less flat by end of day, with both printing a doji.

For the second day in a row, buyers have appeared for gold when price has dropped below 1200 – and the same appears to be true for silver in the 16.00-16.20 range.  This is a good sign, but it remains to be seen how long it will take before prices definitively reverse.  After today's price action, gold only needs a close above 1205 to mark a swing low, while silver needs a close above 16.30.  A spike above those price levels doesn't count – the buyers have to be willing to take gold home overnight, not simply drive price momentarily higher.

Chris is definitely right about the games that take place every day at COMEX – and not just in gold.  Prices are driven – momentarily – hither and yon in an attempt to make a quick buck by big organizations who can dump a whole lot of paper in the market in a hurry.  However, those are relatively lower-risk operations, since the traders who execute these raids most likely bail out of their long or short positions by end of day.  But when the market in aggregate decides to "buy and hold" – even if it is just overnight – its quite different from a risk standpoint than simply a spike move/raid conducted in one direction or another with an eye towards making fast money that day by hosing either longs or shorts.  That's why we need a "closing price" above certain levels to indicate a trend reversal.  The requirement eliminates the noise injected by the usual daily trader shenanigans.

Once again the mining shares in went different directions; this time GDX fell -0.58% on light volume, while GDXJ rose +0.27% on light volume too.  Volume in the mining shares has been steadily falling for weeks.  Even though the downtrend in gold continues, the mining shares are not being sold, at least not the way they were in previous gold downturns.  Traders are largely hanging on to their mining share positions – I believe this is bullish.

The USD fell -0.16 to 94.52, after reaching an intraday high of 95.07 at exactly 10:00 EST.  I am unsure what caused the dollar spike – perhaps those reports, or maybe it was Janet Yellen's prepared remarks before Congress.  Either way, the buck's reaction was initially positive, only to sell off for the remainder of the day, closing near the lows.  The Fed has done a whole lot of talking about raising rates, but "for some reason" always seems to find some excuse to keep rates in place.  There is a new fragment of nuance injected by Janet Yellen today, however: "don't you all run off and sell if we remove the word 'patient' from the outlook."

Ms. Yellen signaled the Fed is moving toward dropping the reference to being patient from its statement, but sought to dispel the notion it would mean rate increases were certain or imminent.

“It is important to emphasize that a modification of the [interest-rate] guidance should not be read as indicating that the [Fed] will necessarily increase the target rate in a couple of meetings,” Ms. Yellen told the Senate panel.

Instead, she said, a change in the language would put on the table for discussion the possibility of raising rates after two meetings.

“The modification should be understood as reflecting the [Fed’s] judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting,” she said.

Got that?  Removing that single word "patient" would "put on the table for discussion" the possibility of raising rates – but only after two meetings!  Please don't sell!  Please!

Over the past four weeks, the buck has chopped sideways within a trading range, bounded by 93.50 on the low end and 96.00 on the high side.  The buck may have reached a near-term limit on the market's belief in the Fed raising rates – and without a flow of money into the buck, its hard to see how the US equity market can continue rising given the fundamental headwinds against it.

Which brings me to SPX, which climbed +5.82 to 2115.48, making yet another new closing all time high.  SPX remains above all of its moving averages, which even if you didn't hear about the "new closing all time high" should give you a clue that SPX is still in a strong uptrend.  One doesn't short instruments that remain in a strong uptrend, regardless what one thinks about the macro picture.  VIX dropped -0.87 to 13.69.

Long bond ETF TLT finally broke out of its consolidation in a big way – it shot up +1.31%, blasting through its 9 EMA and closing just under its 50 MA.  JNK climbed as well, but only rose +0.18%.  Still, JNK has been on a steady climb higher ever since crossing its 9 EMA back on Jan 20.  The same factors that propel JNK higher also assist SPX – namely the animal spirits of "risk on".

How can TLT rally right along with SPX and JNK when the dollar is falling?  Where does the money come from?  All I can imagine is that money is coming out of hiding from bank deposits – perhaps on the news that the Eurogroup approved the details of the Greek government's can-kicking request.  (Who doesn't like a can-kicking request?)

The CRB (commodity index) rose ever so slightly, up +0.13% – it tried to rally more strongly today and failed, and it remains in bear mode, below all three of its moving averages.  That's three red boxes and a grey.

WTIC fell -0.22 [-0.45%] to 49.16.  Crude has had trouble with the 50 MA, which has acted as resistance over the past several weeks.  Although rig counts have dropped in the US, the production slowdown hasn't yet occurred, and there is a record amount of oil in storage.  Like $CRB, WTIC is once again below all 3 moving averages, and heading lower.  That's bearish.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Industrial Metal GSCI.IM 1.51% -8.83% rising falling falling falling ema9 on 2015-02-24 2015-02-24
Agriculture GSCI.AG 0.39% -19.75% falling falling falling rising ema9 on 2015-02-20 2015-02-24
Precious Metal GSCI.PM -0.30% -12.57% falling falling falling falling ma50 on 2015-02-17 2015-02-24
Energy GSCI.EN -0.37% -45.80% falling falling falling rising ema9 on 2015-02-23 2015-02-24
Livestock GSCI.LV -0.71% -7.53% falling falling falling falling ema9 on 2015-02-20 2015-02-24

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  • Wed, Feb 25, 2015 - 09:25am



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    ukraine and athens

Ilargi over at Automatic Earth has a post today that I think is particularly interesting, contrasting the extreme ease that Ukraine has had in obtaining loans from the West vs what Greece just went through.  In the case of Ukraine, there is no talk of programs – not really – and no collection of Troika examiners and no confabs by the Eurogroup FinMin gang where whoever-it-is from Ukraine gets grilled on their failure to stick to their agreements.  No talk of sustainability – all the usual rot is completely missing.

No, the entire attitude is different.  Ukraine just gets the money.  40 billion – 22.5 of which will come from Europe.  For those keeping score, it took pulling teeth and a whole lot of sturm und drang to for Greece to extract a quarter of that out of the Eurogroup – this, to help a country who was used as a money-laundering transfer point for the EU backdoor bailout of the German and French banks, and is now being slowly ground to dust so that none of the guilty politicians in the core Eurozone countries are forced to fess up to the bank-friendly "transfer" that they arranged.

Ukraine gets a pass, while Greece is slowly raked over the coals.  That will work out long term.  You just watch.

Best I can figure it, Eastern Europe is enthusiastic to fork over money in order to throw Ukraine on the fire to delay what is viewed by them as the latest Russian advance.

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