Investing in precious metals 101

PM Daily Market Commentary – 7/7/2015

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  • Wed, Jul 08, 2015 - 05:17am



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    PM Daily Market Commentary – 7/7/2015

Gold fell -15.60 to 1153.70 on very heavy volume, while silver was crushed, dropping -0.70 to 15.01 on extremely heavy volume.  Both gold and silver made new lows, with silver breaking 15.25 support and dropping into the mid 14s before rebounding.  The collapse started at 09:00 EDT for no reason that I could determine; there was no economic report that was released at that time.

While gold made a new low, it managed to avoid dropping below its March 1141 low, which was a fantastic performance compared to every other PM element, all of whom did much worse.  While gold made a new low in dollars, gold remains well within its recent consolidation range when priced in Euros.  This suggests that at least some of gold's drop today was currency-related.

Silver had an extremely bad day; it blew through 15.25 support in the first 10 minutes of the decline, and the selling (or shorting, if you prefer) didn't stop until 14.62.  The volume was immense, as a large number of long stops were liquidated.  There was a bounce off the lows, but it was only moderate rather than vigorous.  Based on this, my sense is we probably have a few more days of selling after this support break.  Multi-year low for silver is 14.15.  If we break that, we have to go back to 2009 to see where support might be.  Perhaps 12?

Platinum and palladium both sold off as well, with platinum off -2.38% making a new six-year low (dating back to 2009), and palladium dropped -4.82%, making a new cycle low.  Copper dropped too, falling -2.92%, and that was after copper staged a 50% rebound off its day low.  Copper also made a new six-year low dating back to 2009.  It was an ugly day for metals in general.

Miners were pounded, with GDX falling -4.87% on heavy volume, dropping below the March lows.  GDXJ fell -5.10% on moderately heavy volume, also making a new low but remaining well above its March lows.  When things break below previous lows, they often continue selling off for days – that's a real risk here with the mining shares, and especially the senior miners.

The dollar moved higher today, climbing +0.60 to 97.08.  The buck is continuing its rise at the expense of almost every other currency.  The AUD continues to make new six-year lows, which reflects the poor performance of copper and concerns about China.  Both Greece and China are combining to propel the dollar higher.

SPX (US equities) had an eventful day, selling off hard along with everything else at 09:00.  It bottomed out after plunging through its 200 MA, and then rebounded strongly, eventually closing up +12.58 to 2081.34.  Looking at the different sectors, it was a dividend payer rally and a recovery in energy equities led the market back up.  You don't really want to see utilities leading if you are a bull.  VIX fell -0.92 to 16.09.

Bond ETF TLT rallied again today, up +0.94%.  Bonds have broken out of their recent consolidation, and are now flirting with a break above the 50 MA.  Money looks to be flowing both into US equities and bonds.  Bonds need another 3% move before they can break above the previous high, which would end the bond downtrend.

The CRB (commodity index) had a moderately bad day today, dropping -1.07% and making a new low.  However given the dollar strength it could have been worse, and commodities in general were likely helped by the rebound in energy prices.

WTIC (oil) sold off along with everything else, hitting 50.58 at one point before bouncing back, printing a doji on the day and closing up +0.21 to 52.89.  Based on the strongly positive response by energy equities and the fact that oil is in a short-term oversold condition, we may have an interim low in oil.  Will that low hold?  That's another question.

Gold was the top performer in the PM space, which is great if you own gold, but its not so good from the standpoint of where things go next.  Today's silver smash has pushed the gold/silver ratio to 76.86, which is a new high – the last time we were at these levels was in 2008, where gold/silver ratio peaked at around 80.  That's the general theme right now: "the last time prices were here was during 2008-2009."  It suggests all is not well in the commodity space.

Silver generally leads, and so the pounding that silver took today is a bearish sign for PM.  Will gold hold 1141?  Let's hope so; if gold falls through 1141, all thats left is the 1130.40 low from November last year, and then we have "air" down until about 1000.

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  • Wed, Jul 08, 2015 - 11:40am



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    gold: strongly bid bid at 1146

Looks like gold tried breaking lower today; the shorts took two shots at 1146 and both failed.  The subsequent rebound has pushed gold to 1156 and nicely into the green.

Oil is gently positive, silver is just barely green, and copper is flat.

I read a bloomberg article that suggested a lot of the selling in commodities yesterday came from Shanghai, where a bunch of things went limit down yesterday as contagion from the selloff in the Shanghai equity market.  "People are selling everything in sight to get their hands on cash…"

That's what Tom is waiting for.  Gold and silver (and literally everything else) will be thrown right out the window in a real crash, as people sell everything to raise money to make their margin calls.  I'm thinking we're seeing a small sample of this from Shanghai.

Look up "limit down" to get a sense of how dangerous futures can be.   Concept: when prices drop by more than a specified amount, trading is halted for that item.  If you are operating on a thin margin, and your contract goes limit down for a number of days in a row, you basically can't get out of your trade.

China’s stock rout spread to the country’s commodities markets as investors rushed to raise cash.

Everything from silver to sugar to eggs tumbled with the Shanghai Composite Index, which crashed to a three-month low on Wednesday. Government measures to stabilize equities are failing to stop a stock market collapse.

“People are selling everything in sight to get their hands on cash,” Liu Xu, a trader at private asset-management company Guoyun Investment Co. in Beijing, said by phone. “Some need to cover their margin calls in the stock market, while others are gripped by fear that the Chinese economy will be affected by this crisis.”

Metals including nickel and silver on the Shanghai Futures Exchange fell to their daily limits, while rubber entered a bear market. The volume of copper traded was almost six times the three-month average. Steel rebar and iron ore, as well as eggs, sugar and soybean meal dropped to the lowest level allowed by their exchanges.

  • Thu, Jul 09, 2015 - 01:39am


    Arthur Robey

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    People are selling everything

People are selling everything in sight to get their hands on cash…"

I think that this is what Nicolle Foss warned me about when I asked her about the wisdom of holding PM's. 

She said that there are too many claims against too few assets. (Land, water, houses, photocells etc.)

It all depends on your time horizon, whether you play in micro-seconds (algos) or generations (arabs). I play in generations. I anticipate that silver will bottom out around $10/oz. in August 2017. The advantages of this rear view extrapolation are that you will have forgotten these words in 2017, and I have very little skin in the game. (Are you listening NSA? Very little skin.)

Don't rely on silver's electrical properties. Gaphene is superior and is also transparent.

One of the most useful properties of graphene is that it is a zero-overlap semimetal (with both holes and electrons as charge carriers) with very high electrical conductivity.

Edit:Here is a graph of the price of graphene from the same (interested) source. Note the y axis log scale.



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