Investing in precious metals 101

PM Daily Market Commentary – 5/5/2016

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  • Thu, May 05, 2016 - 10:57pm



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    PM Daily Market Commentary – 5/5/2016

Gold fell -1.90 to 1279.60 on moderately heavy volume, while silver dropped -0.03 to 17.38 on moderate volume.  Both gold and silver rallied, topping out immediately before the US market opened, but the rally sold off due to the very strong dollar.  Still, the very modest drop in gold in the face of today’s big move higher in the buck suggests there is serious underlying strength in PM.

We have a Nonfarm Payrolls report tomorrow which is sure to move prices around.  Often, the big guys like run stops both above and below yesterday’s trading range; I’m not sure I’d take any sort of risk position prior to the release.

Gold tested both ends of the spectrum today, rallying almost to 1290 before running into selling pressure, then dropping to 1270 where it found support right around the 9 EMA.  Even though gold has dropped for four days straight, the moves lower have been relatively small and support has appeared twice at the 9 EMA.  If the dollar rally starts to show signs of petering out, gold might be a reasonable buy at these levels, as long as you have a stop below the 9 EMA so your losses are limited if things go wrong.

Gold’s candle pattern today was a “southern doji”; only a 15% chance of a bullish reversal under these circumstances.

Silver’s attempted rally was much stronger than gold’s attempted rally, but it didn’t last in the face of the strong dollar move.  Still, silver has managed to remain above that 9 EMA once again, which is a positive sign especially given the continued weakness in commodities and especially copper which was hit hard for a fourth straight day.

Miners finally staged a rally, with GDX up +3.29% on moderately heavy volume, while GDXJ rallied +3.26% on moderately heavy volume also.  Both miner ETFs managed to crawl back above their 9 EMA, but today’s up-day volume was less than yesterday’s down-day volume; that’s generally bearish.  The miner rally on a more-or-less neutral move from gold is good news, as is the rally in the face of a strong dollar.

The GDX candle print today was a bullish harami – in this context only a 28% chance of a bullish reversal.

Platinum rose +0.58%, palladium dropped -0.08% falling through its 9 EMA, and copper was hit hard, losing -1.76% printing yet another ugly red candle.  That’s worth a chart.  I really don’t like what copper is saying right now, its quite bearish, and so far its not showing any signs of slowing down.  Something is wrong somewhere or copper wouldn’t be doing this.

The USD climbed a big +0.59 to 93.78, rising for the third straight day and moving back above its 9 EMA.  The dollar move is mostly about the Euro, which fell -0.73%; Euro printed a swing high yesterday and it followed through today.  While the rising dollar didn’t affect PM much, commodities in general appear to be suffering.

WTIC rose +0.46 to 44.51, which sounds great until you see the chart.  Oil actually rallied to a high of 46.07 at about 09:00 eastern, and then promptly lost most of it as oil proceeded to sell off right through end of day, printing a disagreeable-looking shooting star candle which turns out to be not all that dreadful (-27.4%).  Oil equities rallied in response.  Will oil continue to move lower?  My sense is, probably yes, as long as the dollar continues its rally.  I’m certainly not rushing to buy oil right now.

SPX fell just -0.45 to 2050.63, with energy (XLE:+0.82%) rallying while cyclicals (XLY:-0.64%) fell.  SPX managed to avoid making a new low and truth be told, it didn’t do all that much today.  It is probably waiting for Nonfarm Payrolls before it moves strongly in a particular direction.  VIX fell -0.14 to 15.91.

TLT had another good day, rising +0.67%, making a new high, and continuing to signal risk off.  That’s 6 days up out of the last 7 for TLT.  All the money flowing into the USD appears to be ending up in treasuries.

JNK was mostly flat, rising just +0.03% and remaining below its 9 EMA.  No signal today from JNK.

CRB tried rallying along with oil and failed, ending down -0.53% and printing a bearish engulfing candle pattern.  CRB appears unable to move back above its 200 MA.  Continued weakness in commodities should tug equity prices lower.

Gold, silver and the miners did well today, given the strong dollar rally.  Commodities continue to weaken, with copper specifically signaling trouble.  In spite of the strength of PM right now, I don’t think its safe to jump back into the water just yet – I’d prefer everything to be aligned for a move higher, and right now the strengthening dollar means that PM will be having to swim against the tide.  Maybe I’m just greedy and want the odds more heavily in my favor as much as possible before making a move.

Tomorrow we have Nonfarm Payrolls tomorrow at 08:30 Eastern.  A weak payrolls report is probably bullish for gold – bad news is good news, in that it takes a rate increase more conclusively off the table.  But that’s just a guess.

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  • Fri, May 06, 2016 - 01:17pm


    Jim H

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    Good call Dave…

Tomorrow we have Nonfarm Payrolls tomorrow at 08:30 Eastern.  A weak payrolls report is probably bullish for gold – bad news is good news, in that it takes a rate increase more conclusively off the table.  But that's just a guess.



  • Fri, May 06, 2016 - 01:24pm



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    Gold is Bad

'El Chapo' Guzmán's Sinaloa cartel was melting down its profits to sneak them out of the US (Business Insider)

  • Fri, May 06, 2016 - 02:12pm


    Jim H

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    Yes, I see that Gold is bad…

It's as bad as drugs!   from the article;

In addition to melting down gold and reselling it in the US, drug traffickers have also been known to buy precious metals and smuggle them, or the cash itself, out of the country in bulk — the same way they bring drugs in.

Thanks to Bloomberg for this helpful message.  Oh, yeah, and cash is bad too!  And people ask why I hold Gold outside the banking system, outside my home country.  Duh…..   


  • Fri, May 06, 2016 - 03:05pm


    Jim H

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    IAG… spectacular

When it comes to choosing miners… I tend to let the market tell me which ones will perform best.  For this latest up cycle, ImaGold (IAG) has been speaking loudly.    MUX is back to being a leader as well.  SA was a previous leader that has been more sedate in recent weeks.

I sleep much better at night being in miners vs. the 2X or 3X ETF's like NUGT and JNUG.  If you pick the right miners, and have a reasonably diversified mix, you can weather the downdrafts, while the updrafts can be almost as strong as a 2x leveraged ETF.



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