Investing in precious metals 101

PM End of Week Market Commentary – 12/26/2014

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  • Sat, Dec 27, 2014 - 04:15pm



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    PM End of Week Market Commentary – 12/26/2014

On Friday gold rose +20.90 to 1196.10 on light volume, while silver rose +0.32 to 16.08 also on light volume.  Both gold and silver rallied right up to their respective 50 MAs; gold closed near the highs keeping most of its gains, while silver fell back and lost about half.

This week's move could just be a head-fake lower – right now gold is working on a mildly bullish short-term pattern of higher lows and higher highs, but a failure to move back above the 50 MA would look pretty bearish to me.  Now that the tax loss season is mostly over, perhaps we'll see gold back above 1200 in time for the new year.

Mining shares rallied too, with GDX up +2.64% on moderate volume, and GDXJ +3.85% on moderately light volume.

For the week, gold was up +1.60 [+0.13%], silver up +0.01 [+0.09%], GDX down -0.92%, and GDXJ down -2.18%.   Gold and the mining shares struggled as the dollar continued rising, and commodities and oil continued to fall.  Gold is substantially outperforming the commodity index, especially since November.


This week the USD moved up once again this week, closing +0.48 to 90.32, a level the USD hasn't seen since 2006.  Since July, the dollar's move higher has just been relentless.  Every bit of good economic news from the US has caused more money to flow into the buck.

Currency trends can last for many years.  While the dollar's recent trend has been quite strong, here is a monthly dollar chart going back to 1980 to provide some larger context around the big move of the last six months.  Once the dollar moves above 92, the next big high will be around 120.  If the dollar goes that high, I suspect it will be because either Japan or Europe (or both) will be having a Russia-style currency crisis.

If we do have currency moves that massive, it will cause havoc in the world markets.  It won't help US business either, since our products will be suddenly a whole lot more expensive.  As you can see from the long term chart, currency trends can take years to finally play out.

Of course if you have US assets, you can always sell them and buy cheaper stuff overseas.


The miners dropped slightly this week, dipping lower in the beginning and recovering most of their losses by the end of the week.   Miners still look relatively weak, but they are drawing at least some interest from traders at these levels.  And they have managed to avoid making new lows, which is nice.

Still, miners remain below their 50 day MA.  Those moving averages help us remain disciplined.  So until GDX manages to rise above its 50 MA, the medium term trend remains down.  And indeed, the chart pattern does not look strong right now.  Tax loss selling season is nearing its end, and hopefully the new year will bring a lift to the downtrodden miners.

US Equities/SPX

The US equity market rallied Friday, closing up +6.90 to 2088.77, yet another all time closing high.  On the week, SPX was up +18.12 [+0.88%] although volume was quite low given the holiday.  VIX dropped -1.99 to 14.50.

On the year, SPX is up 14%.

Gold in Other Currencies

Gold is up slightly in most currencies this week except for the Ruble, which has strengthened dramatically vs the USD.  As a result, gold in Rubles had a $221 fall.  Imagine the hue and cry from the goldbug press if that happened to gold priced in USD.  "It's manipulation!!!"

Well it is manipulation, actually.  The Russian Central Bank is selling dollars, dumping their USD reserves and raising short term rates to the sky to make it very expensive to short the currency.

Gold in Yen continues to chug higher too, and looks to have almost erased the April 2013 gold crash – when priced in Yen, that is.

Rates & Commodities

Bonds (TLT) dropped slightly this week, losing -0.95% but remaining comfortably above the weekly EMA-9, showing they remain in a strong uptrend.  Bonds have had a great year, returning a 25% capital gain on top of the 2.5% yield (3.6% if you bought them back in January, 2014).  When the yield drops 1.1% at these levels, long term bonds provide big-time capital gains.

Of course, the same thing happens in reverse.  When yields rise, long term bonds can drop in value precipitously!

Commodities continued to fall this week; the CRB index was down -2.35%.  On the weekly chart below, you can see that the index started dropping back in June, and the decline really started to accelerate in mid-November.  Overall, the commodity index is down 15% this year.

Oil, refusing to confirm its almost-doji from last week, dropped -2.63 to 55.14.  The bounce off 53 is still in play, but oil will have to close above 58 for this to happen.  Given the velocity of the move in oil and the continuing downward move of the commodity index, I'd have to say the odds favor a continued move lower.  Oil has also been unable to close conclusively above its EMA-9 for months.  Traders really need to chase prices higher for any sort of rally to take place, and so far, I just haven't seen that happen.

Oil is down 42% on the year.  I bet the oilbugs are screaming manipulation to everyone who will listen…it helps their case that the Saudi oil minister jawbones oil down every chance he gets!  One would expect him to be more of a cheerleader for oil, given just how much his country sells every day.  Imagine if the chairman of Newmont Mining said, "the gold market is oversupplied, and we're going to produce at full volume – who knows how low it could go…"

Martin Armstrong

I've been following Martin Armstrong's if-then price targets for a while now; his computer attaches great importance to closes either above or below these important levels at specific points in time – in this case, the end of the year.  Here's my summary of what they are for gold, the Dow, and oil.

For gold, on a 2014 end-of-year close of:

For DJIA, on a yearly close of:

For Oil, on a yearly close of:

Physical Supply Indicators

* Premiums in Shanghai vs COMEX fell -3.09 to +3.10 over COMEX.

* The GLD ETF lost -12.25 tons of gold, and has 712.30 tons remaining.  That's a big move lower.

* ETF Premium/Discount to NAV; gold closing (15:59 close price on December 26) of 1195.30 and silver 16.04:

  OUNZ 11.92 -0.03% to NAV [down]
  PSLV 6.19 -0.43% to NAV [up]
  PHYS 9.89 -0.34% to NAV [up]
  CEF 11.57 -10.17% to NAV [down]
  GTU 40.44 -8.48% to NAV [down]

ETFs were mixed this week – the funds with delivery options shrank premiums slightly, while the non-delivery funds went much deeper into discount.

Futures Positioning

There was no COT report this week.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term DOWN, medium term DOWN, long term DOWN.

Silver: short term DOWN, medium term DOWN, long term DOWN

Everything is still in a downtrend.


Both gold and silver traded lower during the week, but the rebound on Friday erased almost all those losses.  A modest move higher in gold would push it above its 50 MA, which would be a helpful positive sign.  Falling commodity prices are not helping, but bids are still there for the yellow metal, unlike oil, natgas, gasoline, etc.

Silver has just been chopping sideways for the past few weeks.  Normally I would expect it to follow energy lower, but it too has a bid, while the commodity index does not.  That's modestly positive.

All the moving averages are falling, which is bearish.  The gold/silver ratio was unchanged this week, still in an uptrend, and bearish.  GDX:$GOLD ratio is lower this week, as is GDXJ:GDX.  Both remain below their 50 MA, and are back to looking bearish.

Physical demand is mildly positive.

The buck continues moving higher, as do bonds, as does the equity market.   Commodities are moving lower, led by energy which has had a terrible year, and looks quite weak going into the last week of 2014.  It is not a great environment for gold.

Still, gold does seem to have more of a bid than the rest of the commodity index – gold has been outperforming the index since November, and that's a hopeful sign.  Or perhaps it is only hopeful because it is nice to see something else doing worse than gold for a change.

Let's hope for a yearly close above 1228.

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  • Sat, Dec 27, 2014 - 10:17pm



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    channels as a way of judging PM performance

If I go to Investopedia and look up channels, I’ll get an idea of how to enter a single channel. However, I think that that misses the real power of channels.
Here is what I would term the principal of channel validity:

without having to know which fundamentals affect a stock, those fundamentals will limit the high and low to a certain range, which range will not keep the same value with time, but will increase or decrease in value with time.

When a fundamental changes, the channel will invalidate — but the new channel that forms still will not break out of a larger, overriding channel, unless the larger, overriding fundamentals change.

What this means, is you can go to the longest scale possible, and look for highs and lows that all fall into two (usually) parallel lines. I’d say look for 6 or more highs and lows all colinear, with highs having the same slope as lows.

Use those to draw your overriding channel. Now, notice that sometimes the stocks run along the bottom or top of the channel, or cross the channel. Those are all lower-order channels. Again, find the colinear highs and lows, and draw your channels.

Then again establish sub-channels… the pattern repeats, on smaller scales, until you have no more interest, because the variation can not be useful due to trading fees.

Now, when I apply this to the gold and silver prices, I get that gold and silver are still trending lower. But palladium is trending higher.

Of course, at some time, the miners are going to start going bankrupt; then the fundamentals have changed; so you can start a new channel.

One other thing: if you go back through historical channel invalidations, you may be able to see what events can trigger the invalidation of a certain scale channel.

  • Sun, Dec 28, 2014 - 12:53am



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Really appreciate the cliffs notes version of the Martin Armstrong year-end price targets.  Your work here on PM's and energy (and shale oil) are greatly appreciated.  We are all waiting for that "once in a lifetime" entry point for both PM's and oil. 



  • Sun, Dec 28, 2014 - 07:56am



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So after telling us about these channels, are you going to provide us some examples?


  • Sun, Dec 28, 2014 - 01:12pm



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    Totally agree with Nate

Dave: you are indispensable!!    Now I can watch and wait and then decide. Please keep info coming from Armstrong that might help us–I'll go there too.


  • Sun, Dec 28, 2014 - 03:52pm



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Hi Dave,

Great work as usual, but I'm a little concerned that you follow Martin Armstrong lol. His track record isn't very good when it comes to market predictions. Then again, the market has fooled pretty much everyone but the sheeple over the last 5 years (including Captain Sheeple – despite the name).

Seriously, have you back tested Armstrong's work to see how it stands up to market reality? I stopped following him in 2009 because his time-interval analysis proved to be wrong "time and time" again.

I respect your market analysis so I'm intrigued to understand what value you derive from his work.



  • Sun, Dec 28, 2014 - 07:45pm



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    Many thanks Dave,( and

Many thanks Dave,( and Michael R ) for all your help!

  • Mon, Dec 29, 2014 - 03:54pm



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    Greeks: I should have bought gold

All is not well in Greece this morning.

When Fearmongering Goes Bad: Greece Scrambles To Prevent Deposit Run

Recall that just over two weeks ago, Goldman came out with a Fire and Brimstone worst-case scenario to scare Greek MPs into electing Brussel's designated presidential candidate.  Failure to do so could  lead to "Cyprus-style prolonged bank holiday" coupled with preemptied bank runs.

And Jean-Claude Juncker explicitly warned Greeks not "to vote wrong."

I wonder how many Greeks this morning are kicking themselves for not moving their meager savings into gold? 

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