PM Daily Market Commentary – 6/23/2014
Gold closed up +3.60 to 1318.40 on moderate volume; silver was up +0.02 to 20.89 on heavy volume. Both gold and silver traded sideways in a narrow trading range all day long. Silver printing an almost-doji after such a long move up is a sign that we may be near a short-term top. Traders who bought silver down at 18.75 are sitting on $2 in gains; any retracement will probaby lead to selling.
The buck dropped -0.08 to 80.33, with the dollar heading slowly lower.
GDX was up +1.74% on moderate volume, making a new cycle high, while GDXJ was up +1.82% on heavy volume, however GDXJ failed to make a new high. On the chart, GDXJ is definitely looking weaker than GDX, which is a somewhat bearish sign.
SPX was flat today, closing at 1963. The equity market just tracked sideways, while the VIX rose to 10.98.
Bonds moved slightly lower through its 50 MA today, closing down -0.31%.
Brent crude was off -0.69 to 114.12.
If you get the sense that not much happened today, you'd be right. Momentum in PM is slowing, and without any major new economic news and/or geopolitics, the slowing momentum will probably lead to a short-term correction in PM prices soon.
Gold and especially silver made new highs prior to market open today. It didn't look like any particular kind of news event caused the move, just – continued buying pressure causing yet another breakout. Silver is incredibly overbought, but it doesn't seem to want to rest just yet.
So after listening to the podcast today, I wondered, is there evidence for inflation? And when I say inflation, I don't mean just rising prices (that could be due to shortages, geopolitics, taxes, etc) I mean growing credit money along with private wages & salaries. Here's what I found:
Seems like yes, we have inflation. We're not back to where we were back in the good old days of the housing bubble where bank credit grew at 10% per year, but 3.67% isn't too shabby. Well, perhaps it is shabby if you think of how much money printing the Fed had to do to get it going. 0% rates driving companies to borrow money & buyback stock is perhaps not what the Fed had planned – law of unintended consequences and all that, but what are you gonna do?
Now then, remember what Albert Bartlett talked about with most people not really understanding the consequences of "exponential growth?" Any guesses what 5-10% per year of money growth looks like when charted without the year-over-year but instead as an absolute quantity?
You can see the little "pop" up in the red curve at the start of 2014 too, where bank credit started to grow vs 2013. That's what causes general inflation – usually: growing bank credit, along with rising wages & salaries.
And by the way, I do realize that the "wages & salaries" number is an total aggregate quantity – concealing a wealth of inequality. Bankers bonuses are in there, right alongside the burger-flipper at McDs. But enough people's wages are rising to make the total number move steadily higher.
Perhaps this is responsible for PM's overall move higher in 2014?
Dave, re: inflation rising, here is a credible opinion that inflation will trigger the market decline many expect:
Are you arguing that the price movements have to do with inflation?
Also isn't 2-3% a year roughly average for inflation, so why are we surprised to see inflation somewhere in that ballpark?
Also, with that argument. Why have metal prices plummeted in the past 3 years even though credit market debt has increased? Why now would metal prices react to increasing money supply?
I do agree that there has been no identifiable news that would have created this reaction in prices beyond technical analysis. I am just struggling to see the connection with inflation.
I think 2013 was evidence of no inflation, which may have caused PM to have "issues". And that situation reversed in early 2014, which may have allowed PM to rally back somewhat.
Its a theory anyway. It could also be that sellers just couldn't push PM any lower either.
But we all love our theories, and there did seem to be a turnaround in bank credit early 2014, and that did match up with the rebound in PM.
As for why metals prices sank from 2011 onwards – perhaps they were just pushed up too high in anticipation of Chinese extravagance forever and/or money printing leading to truly massive inflation, and what we experienced since then in the base metals was the snap-back to the 2011 rally.