PM Daily Market Commentary – 3/6/2014
Gold closed up +13.60 to 1350.40 on heavy volume, with silver up +0.28 to 21.48 on relatively light volume. Gold's move today took place at 0900 EST – most likely gold's big move was a result of volatility in the currency markets rather than anything gold-specific, given the timing of the move.
The USD had a bad day, pounded down -0.45 [-0.56%] to 79.68 hitting a new cycle low. The buck appears to be headed to test the 79 level. If it continues lower, that increases the likelihood that gold will break through 1360 resistance and have a breakout of its own.
So why did the dollar drop? It was a euro-centric story today, and the effect on the dollar was just collateral damage. At a press conference today, ECB chief Draghi provided no new stimulus and did not hint at any rate cuts or other extraordinary measures, and this caused the euro to break out to a new cycle high of 138.62. This rise in the euro caused the dollar to drop.
My macro read still indicates deflation in the eurozone, and the ECB is basically doing nothing about it. Deflation, of course, is good for people holding the deflating currency. The longer the ECB doesn't print, the higher the euro will go – causing the dollar to sink. And as we saw today, that was good for gold. If traders decide to "buy the breakout" on the euro and it moves steadily higher, this could really help gold.
One wonders if the ruling of the German Supreme court last month had anything to do with the ECB's unwillingness to intervene with money printing operations.
GDX inched higher, up +1.09% on moderate volume; GDXJ was up +2.16% also on moderate volume. Miners are creeping up towards the top of their consolidation zone, heading slowly towards a breakout. One easy conclusion is, if gold breaks out, so will the miners. Both are not far away from it.
The commodity index $CCI rallied once again, up +0.67%. This time copper and oil both rallied too – although copper's chart is one of those bearish descending triangles that tends to end in disaster. Trader Dan is baffled as to why copper is doing poorly, while the whole rest of the commodity index is rallying hard. He thinks that copper (seen as a key indicator of economic activity) will either suddenly catch up, or the rest of the commodity complex will tank – they can't keep diverging like this.