PM Daily Market Commentary – 8/06/2013
Gold finished the day down $20.60 on moderate volume to 1282.50, with silver off $0.14 to 19.52, moving the gold/silver ratio down to 65.60. Silver is, surprisingly, outperforming gold. Perhaps its a rallying industrial sector (silver-positive) interacting with the early-tapering (gold-negative) thesis.
Starting in asia trading, gold dropped $10 down to 1290, traded flat until 0730 AM EST at which point it started to sell off even more and it just never recovered. There was a news event at 0945 EST that caused gold to make a new low, hitting 1278 and tripping a bunch of long stops, but I'm not sure what the event was. It wasn't a scheduled event that I knew about. The move overall was not dollar-related, since the buck also dropped.
Gold mining shares were absolutely pounded. While gold was off -1.38%, GDX (gold mining shares ETF) gapped down at the open in NY and fell all day long, finally closing at the dead lows (always a bad sign) off -5.51%. The GDX:GLD ratio illustrates just how bad a day the miners had. It appears that gold dropping through 1300 support prior to the NY open caused traders to sell miners, with moderate to heavy volume on most of the names I track. Some were even close to making new cycle lows – NEM, AEM, AUQ – but all the miners sold off pretty hard. Selected juniors sold off even harder; one junior I like, PVG, was off -12%!
Here's a look at GG's chart – it had a gap-down open, and then just dropped all day long, closing very close to the lows, on moderate volume. Yesterday GG was seemingly supported by the 50 MA, but that support just didn't seem to matter today when gold dropped through 1300. And so when GG's 50 MA gave way, traders threw it overboard, perhaps waiting for a better entry point to pick it up – likely traders had stops below that 50 MA. If gold retests 1180, GG may well also make new lows too. For what its worth, GG wasn't a particularly bad performer among mining shares today.
Trends in motion tend to stay in motion. Even if gold and miners look cheap now, its dangerous to buy until we see evidence of a bottom, and confirmation on the following day. The reason is because the downtrend in gold and miners can last longer than we might think. Sometimes an oversold market can drop and become oversolder, then even more oversold, and then when you think it can't get any worse, it goes down some more before reversing.
While we can talk about a possible gold "support range at 1270-1280" we cannot know, until the market gives us some sort of clue, when this latest move down will actually end. And perhaps more importantly, for purposes of finding a lower risk entry point, we must set aside for the moment all the goldbug fundamental factors that operate on medium to long term timeframes. Prices in this market are driven in the daily timeframe by futures market supply & demand, and right now the futures longs are nowhere to be found, and the futures shorts are enthusiastic and selling every rally.
In this situation, we must wait for the futures buyers to show up. That means, we wait for the bounce, then the confirmation the next day, and then that will be the signal to jump back in. There is no reason to try and guess if "today will be the low." Buying within $30-$40 of the low is certainly good enough.
Gold is once again in a downtrend in all timeframes. When will it stop and reverse? We will let the market tell us.