Market Update December 17 2009
NOTE: Published for Metal Augmentor subscribers on December 17, 2009 at 11:27PM EST.
An acceleration of market sentiment away from risk (Greece’s sovereign credit rating was downgraded by S&P) and toward the idea that the U.S. economic recovery is credible and will lead to the Fed raising interest rates sooner than later, combined with profit-taking on the anti-dollar trades that have done so well this year, resulted in a big drop today in gold and silver and a jump in the dollar to its highest level since early September.
There is formidable resistance for the dollar index around the 78 level which is where the move got stopped out today and so there is a decent chance that the dollar will pull back from here, perhaps after a brief sojourn into breakout territory tomorrow or perhaps even Monday. Continued strength in the dollar above 78 on the index would imply that the move has somewhat further to go, perhaps to 80. Gold and silver both appear vulnerable to accelerated liquidation if the dollar does make a beeline for the 80 level, but for now we are comfortable with the thesis that the monetary metals may be very near if not at an interim bottom. If so, we should expect a quick bounce back up next week possibly to be followed by a more measured move toward $1200 in gold and $19 in silver by early January.
We are getting ready to deploy some sidelined funds for the upcoming bounce but our net short-term market positioning can still be classified as overall bearish (red flag). Decent speculative value continues to exist in companies such as MAG Silver and Dynasty Metals while most of the EveryInvestor and speculative plays identified by Metal Augmentor are holding up extremely well on this market pullback. Of course this was by design.
Tom, has the basis had any bearing on your thinking that “the monetary metals may be very near if not at an interim bottom”?
I’ve noticed the spread between current & 1m COMEX contracts has touched zero. Would it be fair to say any further selling of 1m futures will mean backwardation? (unless spot is sold down at the same rate).
I’m only looking at the daily settlement price, cause it’s free.
Somewhat — the gold basis has indeed skewed a bit lower toward backwardation and this could mean underlying physical buying is picking up on the price decline. COMEX gold and silver deliveries on the other hand remain pathetic and so this is still very much a speculative market with leveraged trades accounting for the vast majority of price moves. That said, there is no indication gold is going into bona fide backwardation at this point.