Gold and Silver

Gold fell from $1600.40 an ounce on March 28th to April 17th's close of $1386.25, a decline of 14.4% At its $1321.50 low on Tuesday, Gold was down 19.1% from its March close.  

As bad as gold was, silver was worse:

Silver is down 19% to Gold's 14%. The daily percent price change each day since the start of April is shown below:

	GC	SI
1-Apr	-1.2%	-3.8%
2-Apr	-0.5%	-1.0%
3-Apr	-0.9%	-0.6%
4-Apr	-0.1%	-0.1%
5-Apr	1.5%	1.7%
8-Apr	-0.2%	-0.3%
9-Apr	0.9%	2.7%
10-Apr	-1.8%	-0.8%
11-Apr	0.4%	0.2%
12-Apr	-4.2%	-5.0%
15-Apr	-9.6%	-12.0%
16-Apr	1.6%	1.0%
17-Apr	-0.3%	-1.4%

 Gold and silver moved down nine days and up 4 days.  Other than past Friday and Monday's monster moves, the markets had typical normal percentage changes with 7 days moving less than 1% up or down and 6 days closing more than 1%. How typical are these moves? And how extraordinary are the 4%, 5%, 10% and 12% daily movements in gold and silver?  (Note these are all based on closing prices.  Daily ranges, of course, were much higher.)

Below is a graph showing the daily close over close percentage changes for all 15 commodities in the VistaCTA basket from VistaCTA's May 2009 inception to the 17th's close:  

Silver's April 15th 12% single day decline was among the seven worst one day declines for any commodity in this period.  Oddly enough, the worst single day close/close fall was also silver, on September 23rd, 2011, when it fell 19.5%! The day before, September 22nd, it fell 10.1%. The two day 29.6% decline dwarfed the  two day 17% decline we saw this week. That coincided with the 3rdQ 2011 market break.

The structure of commodity markets may both contribute and contain major declines to two days.  It takes one day's surprise to create the margin calls that then bring the market lower as stressed longs are forced to liquidate.

Commodities have been in drawdown since April 2011. The economy is in sore need of demand and growth.  Only time will tell if this price action is a continuation move or reversal opportunity. 

Two Years of Commodity Drawdown

As of this month, the commodity markets have been in drawdown for two years.  While the commodity market may have a number of sectors, a good case can be made that precious metals, especially gold, may be the dominant factor.  Gold peaked in April of 2011 and has been falling since then. 

As gold goes, so goes the commodity market.

This won't be a quantitative post but mostly a qualitative observation on the role of gold in the commodity universe.  Nearly all commodity indexes and commodity index tracking vehicles also peaked two years ago April and have also been falling for two years. 

In addition to metals, the two other aggregates are energy and agriculture.  Neither seems able to offset the overarching effect of gold.  Last summer's drought, while a disaster for growers, brought short term relief to the indexes and longs. Summer's sharp upward move has been completely retraced in soybeans and nearly so in corn and wheat. Energy has not been much better.  Weekly crude has been in a slow gradual coil pattern around the $90 handle. 

If gold rules the commodity roost, then where goes gold? My outlook, unsurprisingly, is bearish and remains bearish until I see more than a $100 move to the upside from December Gold's $1505.60 close.