PM Daily Market Commentary – 8/1/2013
Gold finished the day down $14.30 on average volume to 1308.80, silver off $0.15 to 19.60, with silver performing better than gold today. The gold/silver ratio retreated further to 66.76. Gold is now below its 50 day moving average.
Todays downside move for PM could be attributed to a one-two punch today – a positive jobless claim report at 0830 EST (claims were lower than expected) and more significantly at 1000 EST the ISM Manufacturing Index report which was the strongest in more than 2 years. After the ISM report hit the market, gold immediately dropped $10 while at the same time the dollar rallied strongly, setting the trend for the rest of the day. The dollar closed up +0.86%, a big day for the buck.
Again, its not the news, but the market's reaction to it that matters. The ISM report was definitely a surprise, and the market responded by dropping price of gold $10 at the same time it shot the dollar higher. Today we might be able to say, the price of gold didn't drop, your dollar just buys you more. Gold's price move down was 80% based on the dollar move (i.e. gold in USD dropped 1.08%, but gold in euros dropped only 0.5%, gold in yen actually rose 0.59%, etc). USD seemed to find support on the red line (the 200 day moving average). A move back up to 85 will most likely hammer the price of gold quite hard.
From a technical perspective, gold closing at the low end of its range, with the dollar appearing to have staged a reversal to the upside, gold is looking poised to break below 1300 relatively soon. By saying this, I am assuming the dollar will most likely continue to rally for a time. A trend in motion tends to stay in motion. GDX confirmed this by dropping 3%, moving below its 50 day moving average for the first time in two weeks.
In terms of price drivers today, it appears that the gold futures market does not care two bits about shanghai premiums, the departure of gold from GLD (it was down 6.3 tons today), the imminent COMEX default (or not), gold backwardation, and so on. Its mostly about the buck, and somewhat about thoughts of tapering happening more rapidly than expected because of unexpectedly strong US manufacturing data.
Love it or hate it, in terms of the amount of money involved, the COMEX futures market is 36 times larger than worldwide physical gold buying. In one day, COMEX trades the equivalent of all the gold in GLD. So in terms of immediate effect on the price of gold, leveraged money is the dog, while physical buying is the tail. Dog wags tail. Over the "months to years" timeframe, physical buying will have an important (and perhaps even decisive) influence, but in the daily/weekly timeframe, its the mainstream storylines that take precedence, simply because of the amount of money involved. Again, we trade the markets we have, not the markets we might want or wish to have at some future time.
One bright spot is silver, which appears to be less hurt by this "US improvement" storyline than gold. Perhaps this is about silver's "industrial metal" side – more manufacturing means more silver demand.
Tomorrow we have the the BEA's employment survey results at 0830 EST (this survey gives us the headline employment number, projected to drop from 7.6% down to 7.5%), and Factory Orders at 1000 EST – two more opportunities to hear good news. According to the current futures market mainstream storyline, good news for the economy is good news for the buck, and bad news for gold.
Gold broke 1300 support today in asia; no buyers showed up, the shorts took control, and gold smashed through 1300 without much effort. I'd expect a significantly bad day in the miners tomorrow if this move holds to the NY open. This wasn't a dollar-based move, it was all gold being sold. Selling doesn't matter if enough buyers show up. They didn't.
My guess: dip-buying gold longs were scared away by the strength in the US manufacturing numbers, which presumably would lead to tapering starting in September.