PM Daily Market Commentary – 3/13/2014
Gold closed up +5.20 to 1372.40 on very heavy volume, while silver closed down -0.12 to 21.20 on moderate volume. Gold continued its rally from yesterday, but it would appear there was some selling that occurred, because the volume was high for such a small move in price. Silver's drop along with gold's rise pushed the gold/silver ratio +0.61 to 64.74, a new high for this cycle.
The buck was largely unchanged, +0.02 to 79.61, however it had a large trading range, and may have found a low, rallying off 79.27 which it touched just briefly in London trading. USD didn't quite print a doji, but was close. A dollar reversal after 6 weeks of a steady move down in the buck would not be unexpected. It would be bad for gold and the rest of the commodity index.
Yesterday my question was, will gold fall or the miners play catch-up? Catch-up it was, with GDX breaking out and closing up +2.64% on heavy volume, and GDXJ up +3.65% on very heavy volume. The volume bars are just what we want to see in a bull move – increasing volume on the breakout and a good-sized price change. The GDX:$GOLD ratio also got a big boost, and is looking much healthier after today's move.
In the chart below, you can see the approaching "golden cross": the (rising blue) 50 MA crossing over the (flattening red) 200 MA. That's a very bullish sign for longer term traders.
Commodities were off slightly, -0.12%. Are they just taking a break, or will we see a meaningful correction? My guess: it depends at least partially on the dollar. A sustained dollar rally would probably hurt the whole index, and gold too of course.
For its part, copper dropped -1.18% – so much for my "copper bottomed" thesis of yesterday. It is not conclusively ruled out, but I would have preferred to see a move above 3 today rather than a move down to 2.92 on heavy volume. A break below 2.90 (yesterday's low) will likely lead to more selling, and silver probably won't like that if it happens.
US treasury bonds staged a massive rally today, sending 10 year rates down 7 basis points to 2.65%. Money is flowing from equities into bonds: SPX dropped 21 points [-1.17%].
There is all sorts of uncertainty in the world right now. Rumblings of war in Ukraine, China vs Japan over some uninhabited rocks, a missing airliner under very mysterious circumstances, rebels in Libya selling oil to North Korea, China's export and debt issues, and Europe's deflation. In these circumstances we should expect treasury bonds to rise, the dollar to rise, and – I suppose even gold too. It amazes me that the SPX is only 2% off its all time high, but if this stuff were easy, we'd all be millionaires.
Great detailed article by AEP from the Telegraph that lays out the current deflationary predicament in the Eurozone. When I read it, I was left with the sense that the cause of all this deflation was a huge mystery. And the fix he proposes is so obvious, one wonders why those stupid idiots at the ECB don't simply execute on his plan and make everything better again.
Deflation is the direct result of a massive debt bubble that pops. The pop happens because of debt overload – the private sector simply cannot take on any more debt, even with rates that are very low. What's more, banks have a bunch of bad debt on the books which must be written down. They become reluctant to loan. This combination leads directly to credit contraction, which is the direct cause of deflation.
There is no mystery – and no real fix either, except time, default, and debt-equity conversion.
But we cannot accept this answer. Ambrose is our current mainstream cultural philosophy encapsulated in one financial writer. Through him, we see that we are addicted to "quick fixes by the central bank." Just a bit of money printing, rate dropping magic by our central planners and all will be well. Surely they can manipulate things once again, pull some trickery out of a hat to get the debt juices flowing again to bring back the good times. Blow that debt bubble a little larger. Perhaps negative interest rates. Or something. Anything but facing the music of default and debt/equity conversion. We can't possibly do that.
The stupidity in the eurozone is the plain refusal to acknowledge the bad debt. To do that would require a whole lot of banks to be recapitalized, losing a whole lot of shareholders (and bondholders) a ton of money. And power. And jobs. But that's the only stupidity I see.
Yes, another 4800 contracts of shorts gone to short-heaven on the breakout. This price level wasn't as important as the previous one, and its not as clear this one was anything more than a quick raid by a big guy looking for some of those last remaining short stops to hunt down. They'll keep doing this trick until it stops working – basically the same process they did on the way down, but in reverse.
A breakout that fails is actually a somewhat bearish sign to me; I'm much happier seeing a slow grinding up-move rather than a big exciting spike that doesn't last.
The next important level is 1434. If we breakout above that price level…that's a huge deal since it technically confirms the double bottom.