PM Daily Market Commentary – 3/24/2014
Gold closed down -25.50 to 1309.00 on very heavy volume, while silver dropped -0.35 to 19.94 on moderate volume. From the time gold opened in Asia through the close in New York gold sold off repeatedly, with every rally attempt being sold. Gold closed near the dead low of the day. A particularly strong move down happened just after 09:30 in London, when a bunch of long stops were hit and 6000 contracts were sold on a big move through 1320 support. Silver did very slightly better, selling off on less volume with a smaller relative price move, however neither chart looks good.
Gold can expect some support at the 1300 "round number", which also happens to be the confluence of it's 200 and 50 DMA lines. I don't see any chart support for silver until it hits 19.
The dollar tried rising above its 50 day MA and failed, closing down-0.19 [-0.23%]. However the dollar's move down did not aid PM at all.
The downside move in PM is no longer about copper, commodities, or the dollar, it is now only about gold and silver. The bears have clearly seized control and will continue pushing the market lower until buyers at the COMEX once again show up. My guess is, the COT report will show on Friday that managed money sold a large number of contracts this week in addition to increasing their short positions. Perhaps the reduction of the Managed Money short position down to 16k contracts was an indication that a medium term top had been reached in gold.
GDX was crushed today dropping -4.68% on extremely heavy volume, blowing through its 50 and 200 day MAs and closing at the dead lows of the day. GDXJ behaved similarly, dropping -6.70% on extremely heavy volume also moving through its 50 day MA and closing near the lows. The big price drop on heavy volume is distribution, plain and simple. All of the ratios continue to confirm this behavior; GDX:$GOLD is bearish, as is GDXJ:GDX. The low-volume rally on Friday foreshadowed today's drop; rallies on low volume during downtrends are in general bearish signs.
There is a temptation to see price drops as an opportunity to buy gold or mining shares on the cheap. While this is true, if the goal is to wait until the price stops dropping, one should probably wait until other buyers show up before plunging in to "buy the sale." Currently, since no buyers have shown up, it is probably safer to wait. The move down could stop tomorrow, or it might be several weeks, or it may retest the December lows before it stops falling. A good trader will wait for the market to show its hand before jumping in, to minimize risk.
What we are waiting for is a large volume spike without a move lower in price. Not all prices bottom with this pattern but if such a pattern shows up it probably will mark the low.