PM Daily Market Commentary - 1/5/2016
Gold rose +16.70 to 1180.90 on heavy volume, while silver climbed +0.14 to 16.62 on moderately heavy volume. Another big drop in the buck greatly aided in the PM rally; while the buck dropped by -1.16%, gold rose by +1.43%.
Most of today's strong intraday rally in gold was fairly closely aligned with a sharp drop in the buck. Candle print for the day was an “opening white marubozu” which does not mark a top. Resistance at round number 1200/50 MA is only $20 away. So far, there are no warning signs of a top. Gold is starting to become overbought, with RSI-7=75.
Open interest at COMEX for GC fell -752 contracts.
Rate rise chances (May 2017) fell to 31%.
Silver tried rallying alongside gold, but was unable to retain as much of its gains into the close. Candle print was a “spinning top”, which has just a 14% chance of marking a top. Silver is gradually approaching the 50 MA/17 resistance, which is where I expect the shorts to attack with a bit more enthusiasm. Today, the gold/silver ratio rose by +0.39 to 71.03, which is a bearish sign. Silver is looking a bit more iffy than gold.
Miners did very well, with GDX up +5.84% on heavy volume, while GDXJ rose +8.48% on exceptionally heavy volume. Today the miners broke conclusively above a recent consolidation area, and are now well above their 50 MA lines. The rally in the junior miners even reached the 200 MA. The GDX:$GOLD ratio is looking very strong, as is the GDXJ:GDX ratio. Miners are showing no signs of slowing down; candle print for GDX was an “opening white marubozu” which does not mark a top.
Platinum rallied +2.72%, palladium fell -0.08%, while copper fell -0.92%. Copper printed a “bearish harami” (64% chance of a top).
USD suffered a big loss, falling -1.19 to 101.51. The dollar's plunge took the buck through 102 support, and it appears to be headed for the 50 MA which is currently at 100.74. Candle print was a "long black" candle, which in this particular case might actually be a reversal: 33% chance. The Euro staged a strong rally, up +1.15% and managing to close above 106. Yen rose +1.64%, Pound was up +0.79%; the other major currencies appear to be finally putting in lows against the dollar. Of course, we have the Nonfarm Payrolls report coming tomorrow at 08:30; this dollar descent may reverse sharply if we get an unexpectedly strong payrolls number, so its probably wise not to expect too much. Until we break below the 50 MA, we're still just seeing a correction in the context of a longer term uptrend.
Crude moved higher, up +0.45 to 53.99. Crude sold off following a mixed petroleum status report, which showed a huge decline in inventories of -7.1 million barrels, but an even larger build in gasoline (+8.3 million barrels) and distilaates (+10.1 million barrels). Oil recovered from the sell-off, with traders buying the dip strongly enough to move oil well into the green by end of day. The “spinning top” candle print does not mark a top.
SPX fell -1.75 to 2269.00, printing a relatively rare “descending hawk” candle pattern – a 32% chance of a top here. Sickcare did best (XLV:+0.51%) while the financials led the market lower (XLF:-1.01%). VIX dropped -0.18 to 11.67.
TLT shot higher, up +1.57%, moving TLT up to touch its 50 MA. 20 year yields have fallen from 2.91% set three weeks ago, to 2.69% today. Bonds and gold right now are fairly well correlated; the bond rally should not be too much of a surprise given that correlation.
JNK faded a bit, losing -0.16% on the day, but it remains in a strong uptrend and well above its 9 EMA.
CRB rose +0.38%, taking CRB to a new closing high for this cycle. 3 of 5 sectors rose today, led by PM.
The Nonfarm Payrolls report at 08:30 will probably drive the short-term direction for PM, but indirectly by either deepening the dollar downturn or by causing a rebound.
Looking just at the technicals, gold and especially the miners remain very strong; silver is the weak link, and it is starting to noticeably underperform. The drop in the buck has been very helpful, as has the rally in bonds. As long as these things remain in place, gold should continue to move higher, although the metals are starting to look a bit overbought.
From the COT viewpoint, there are probably a reasonably large number of managed money shorts remaining, so the rally could have room to run above the 50 if it can manage to break above it conclusively. A bearish payrolls report could help a great deal. I'm not expecting one, but if it happens, gold could take another leg higher. Even if the buck just manages to avoid printing a reversal bar, that may be good enough to keep PM moving higher.
I don't really have a prediction; we'll just have to see how prices react to the report this morning.
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