PM Daily Market Commentary – 9/15/2015
Gold fell -3.20 to 1104.30 on light volume, while silver fell a penny to 14.38. In spite of relatively good days for many commodities, gold and silver lagged behind, perhaps because of the dollar which had a good day today.
Gold remains above the 1100 support level for now, but it is slowly inching lower as we approach the FOMC meeting – which, it turns out, starts Wednesday and finishes Thursday.
Silver sold off today, hitting 14.24 and then bouncing back, but silver has not had the buy-side interest that copper or oil has seen. It printed a doji candle today, but the volume was definitely on the low side so any bullishness from that candle can be ignored. Going into FOMC, silver looks bearish with little interest from the buyers at COMEX. The previous low at 13.91 is not so far away.
Miners tried rallying in the morning but couldn't hold onto their gains, losing most of them by end of day. GDX climbed +0.31% on light volume, while GDXJ fell -0.36% on light volume also. Senior miners are once again having real trouble moving back above the 9 EMA – as is gold, silver, and the juniors too. GDX remains just marginally above 13 support level.
The USD rose +0.35 to 95.76, strengthening somewhat. It still looks relatively bearish, but the buck is definitely strengthening. Today's move started at around 08:30, which coincided with two economic reports: Retail Sales, and Empire State Manufacturing Survey. The Retail Sales report was positive, while the Survey was negative. After the release, the dollar started rallying and just kept moving higher through end of day. Perhaps this report increases the case for a rate hike? Its hard to say.
SPX had a strong rally today, breaking out of its wedge pattern to the upside. SPX rallied from the opening bell in NY through to the close. The move in SPX was not correlated to any report release time. VIX dropped -1.71 to 22.54.
Bond ETF TLT was crushed today; the bond sell-off started at 08:30 (Retail Sales report time) and it just didn't stop until the market closed. TLT fell -1.92%, and it closed at the dead lows of the day. Bond traders are famous for liking bad news – my guess is that the strong Retail Sales report didn't please them. Or, perhaps, it was foreigners trying to read the tea leaves on the likelihood of a rate hike. Higher US rates are bad for bonds.
The CRB (commodity index) went mostly sideways, rising only +0.11% and remaining within its descending triangle pattern.
WTIC (oil) rallied relatively strongly, climbing +1.03 to 45.15. Oil too remains within its descending triangle pattern, but if it continues to move just a bit higher, it could stage a breakout. The Petroleum Status report is due out tomorrow at 10:30, and if it is bullish, we may get an oil breakout. (And if it is bullish, and we don't get a breakout, that tells us the next move is likely down).
HAA has 100 oz gold bars right now in NYC at 1131.41/oz [+2.21% over spot], and 1000 oz silver bars in NYC at 14.98/oz [3.50% over spot]. Eagles in NYC are quoted at 19.21 [32.71% over spot]. Premiums fell slightly today.
One thing that stands out: bonds are having a consistently bad time right now. Is it central bank selling to fund their currency support programs? Or is it domestic? Perhaps both? Its hard to say, but money is definitely flowing out of bonds.
Commodities are a mixed bag, and PM seems to be lagging right now. Its a decent setup for a reversal post FOMC – sometimes long-awaited events like this end up being "sell the news" events. This is the scenario: the Fed dutifully raises rates, which theoretically should cause gold to drop, but everyone who wanted to sell gold has already bailed out pre-FOMC and so after a brief sell-off, gold then surprisingly rallies on the "bad news" of the Fed rate hike.
Its a possibility anyway.
FOMC meeting starts tomorrow, and ends Thursday with the release at 14:00 and a press conference at 14:30.
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Its possible that gold is rallying one day early; I've seen this happen before, traders are all worried about the Fed action so they sell off all the way up to FOMC, but one day before the release, all the selling is done and suddenly the mood just flips.
It could also be shorts ringing the cash register; who wants to be short going into FOMC, its just a dice roll at this point.
At the rate we're going, miners, gold, and silver are all going to cross the 9 EMA, and both gold and silver may even cross the 50, depending on how we close. Assuming we hold the gains into the close, which is always a concern.
Here's my best shot in the dark in the short time I have to spend on the question of what's about to happen with interest rates. I'm hoping that better analysts than I will improve upon my crude guess.
Tomorrow the Fed. will not raise interest rates because
1. Today we got an a new piece of (fuzzy-number) data indicating that there is some deflation happening, i.e. the CPI-U changed by -0.1% in August. No inflation (one of the Fed's stated goals) = no interest rate hike PMs and miners are booming today, while most of the market is in a holding pattern, and, all else equal, no rate hike = higher gold prices, so it seems that PM markets say that no rate hike is coming tomorrow. It seems that other commodities – esp. oil – are up too.
2. The market doesn't expect a rate hike, with the Fed Funds futures assigning a 23% probability to a rate hike. (Note, I don't get the discrepancy between this 23% probability and the 30% probability that this ZH article is talking about, although I vaguely get that it has to do with the fact that 100 minus the Fed Funds futures price is what that security expects the interest rate to go towards over time – the medium term?) But whether the correct chances of a hike according to this instrument are 23% or 30%, the main point is that the Fed is unlikely to raise rates unless the market expects it, b/c a mostly unexpected rate hike would lead to volatility.
3. Now some big bankers are saying that the Fed will raise rates, including UBS and Wells Fargo, and my instinct tells me to believe the opposite of what they are saying. But, this is a weak argument based fast-thinking impressions and I seem to recall Goldman Sachs saying that now was a bad time for a rate hike.
Maybe this is a prediction shared by many at PP, but I wanted to take a risk and make it explicit, just as a way to practice thinking about how our markets are behaving now. I wouldn't bet big on my prediction, but I will sign my name to it, and I realize that what the Fed does tomorrow doesn't matter that much in terms of the structural limits to growth that we're facing in the medium and long run.
And I'm over by 15 minutes…back to work… 🙂
Jim Rickards: US economy is too weak, no rate hike tomorrow: