PM Daily Market Commentary – 4/2/2014
Gold closed up +9.90 to 1289.90 on moderate volume, while silver was up +0.24 to 19.98 on moderately heavy volume. From the open in asia, gold slowly moved higher and finally broke out above 1288 (yesterday's high) around 5am ET on a big volume spike, with silver following along. This move broke the intraday pattern of lower highs, which is bullish, but both gold and silver trailed off into the close, which is less bullish. Likewise, the overall volume today in gold wasn't all that spectacular, which also gives me pause.
The dollar managed to close above its 50 day MA today, up +0.15 to 80.39. For it to be rallying at the same time as gold is curious and it will be interesting to see if this can be maintained.
GDX, inspired by gold, rallied +2.66% on very heavy volume, as did GDXJ which rallied +5.47% on extremely heavy volume. Perhaps the shorts expected GDXJ to continue down (I know it worried me) and today's unexpected reversal forced them to cover in a hurry. GDXJ is not out of the woods yet – it still needs to close above the 38 level, the top of its recent consolidation box, for it to mark a clear breakout. Now let's see what the market will show us – is this renewed buying interest sustainable, or is it just a one-day burst of short covering? The volume was impressive, which gives me hope that this might be the real deal.
The PM ratios are starting to improve; GDX:$GOLD has been rallying for several days now, and GDXJ:GDX – well perhaps its improvement is more modest. The gold/silver ratio has done the best, dropping six straight days, now down to 64.58. None of them are bullish, not quite yet, but they're all showing improvement.
Bonds dropped today, so did commodities, as money flowed into equities – which of course broke to a new all time high today to 1890. Neither the relatively low trading volume, the historically high level of NYSE margin loans, nor the very low money market cash position for retail investors have caused the market seemingly any pause at all.
I read an article that mentioned the ECB is reducing its balance sheet. True enough. Here's the details. First the big picture – looks like a 900 billion euro drop since mid-2012. Imagine that, a central bank that's not printing money. Do they still exist? Apparently they do. Maybe this is what is supporting the euro.
And then the detail. Where did the drop happen? Mostly it was in the "Lending MPOs" area – which is mostly the LTRO operations. But some of it was also in the gold holdings – not because they sold gold, but because gold dropped in value.
If you want to see this stuff for yourself, look here at the ECB's balance sheet in text:
Or here for the total asset picture in chart form: