"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, October 31, 2013

Gold testing Chart Support

Not much to add to my earlier comments about gold from today as well as those of yesterday. A 3.8% drop in the HUI pretty much guaranteed that gold was going nowhere today.

As a matter of fact, very few commodities were in the green today - just about everywhere one looked, it was lots of RED on the screen. The reason - hard to say for certain but with the Dollar up more than 1/2%, it would have taken some pretty firm fundamentals in these individual markets to shrug off the macro-related selling. As it was, any market whose fundamentals were weak, was especially prone to a bout of selling today.

Gold simply had no reason to move higher today against those headwinds. As can be seen on the chart below, it is working its way down into a chart support region. If it holds here, the bulls can claim a sort of moral victory given the strength in the Dollar and the continued weakness in the Commodity Sector, especially the grains and crude oil (think food and energy and then think no inflation issues there).

Tomorrow, Friday, is the usual "no fun" day for gold as it tends to get whacked a lot at the end of the week for some reason. This is however a seasonally strong period for the metal so it might be able to dodge a bullet. We'll see. Right now the short term momentum is with the bears after the failure at chart resistance. The probe lower is meant to uncover whether or not the bulls are hanging around or not.

here is one of the commodity sector - the Goldman Sachs Commodity Index. There is certainly nothing in this chart that would indicate the least bit of fear in regards to rising commodity prices. If you want to know why silver puked today, just study this chart - silver is joined at the hip with the broader sector.

By the way, gold failed to extend much past the 50 day moving average and has instead plunged back below this key level. This is one of the reasons the selling is now coming back in once again. Hedge funds see that failure as another sell signal. It is going to be up to Asia to put a floor in this market once again.

More Bad News for Consumer Spending

As most of you who are regular readers of this site know by now, I am of the opinion that the US economy is extremely weak in spite of the massive bubble in the equity markets. My reason for having this view is that the consumer, the backbone of this debt-based system, is not in a happy mood.

Opinion polls reflect the pessimism of the public at large as the majority believe the US is in decline as a nation and is on the wrong track. Wages are stagnant and as a result of that abomination known euphemistically as the "AFFORDABLE" Care Act ( it is anything but that for the vast majority), many workers have been cut from full time to part time status or have lost their health insurance benefits. That means they will have to foot the bill for that out of their own pockets now. Translation - that leaves less money for discretionary consumer spending.

Now comes the news that as of this Friday, the temporary boost in food-stamp benefits that was passed not all that long ago will expire. Analysts are projecting that will leave 48 million Americans with an estimated $16 billion LESS to spend over the next three years - according to an article from Dow Jones Wire Services this AM.

This will hit low-income shoppers the hardest. That demographic tends to frequent the discounters, dollar stores, mini_marts, etc.

Also, the story relates a fact that I had forgotten but was glad to be reminded of - the temporary payroll tax cut which was enacted but expired some months ago  also leaves consumers with less money to spend.

Perhaps the one saving benefit of these deflationary type pressures has been the drop in crude oil and by consequence gasoline prices and heating oil prices. If we get the type of winter that some of the firms are suggesting, consumers will be thankful for that at least.

Regardless, my take remains the same - there are too many deflationary factors at work from a structural standpoint to allow the Velocity of Money to increase any time soon. That will be a tough headwind for gold to deal with without some sort of other catalyst that cracks the confidence in the Dollar.

I am carefully monitoring interest rates here in the US as that will also have a significant impact on the consumer borrowing and spending issue.

Wednesday, October 30, 2013

Gold Stuck in the Mud

I wanted to see how gold would settle today before commenting further. As stated in my earlier post, now that the big FOMC non-news event is out of the way, the market is selling the fact. If this is the best that gold can do, it is difficult for me to see what it is going to take to drive it up through resistance. It just hearkens back to the US Dollar as far as I am concerned. If that weakens, gold moves higher; if it strengthens, gold moves lower.

I can say this however, it is not helping the cause of gold to see crude oil going lower. That market has been a very reliable harbinger of shifts in trading sentiments in regards to inflation or the lack thereof. Swelling stocks of the black goo are indicating just how sluggish any "growth" is for the US economy. How inflationary pressures can be anticipated with energy costs moving lower, grains generally weaker and wages stagnant remains a mystery to me.

Now that the US Dollar has held at chart support, I would expect gold to weaken until the Dollar meets some overhead resistance. Could that happen as soon as tomorrow? Sure it could. You name it; just about anything can occur in these convoluted markets anymore.

All that this means is that we need to take each trading day as they come and try not to read too much into any one day's price action. If you get some follow  through from one day to the next, be pleasantly surprised and grateful for any sort of "good behavior" in the market because chances are it will be fleeting.

Here is the thing which continues to stand out for me. The speculative crowd continues to dishoard gold. As long as the reported gold holdings continue to plummet in the biggest gold ETF, GLD, I cannot be bullish towards gold. That does not mean I am necessarily wildly bearish; it simply means that a primary catalyst for a SUSTAINED MOVE HIGHER is not there. It leaves me more neutral until I see something which gives me reason to have a strong conviction in regards to short term price direction.

Here is the chart:

By the way, the CFTC is slowly updating the data for the Commitment of Traders data which was impacted by the recent government partial shutdown. It confirms the same thing that the above chart is showing, too wit, that speculators have recently been flirting more and more with playing gold from the short side. They are still net long but are adding more shorts than longs as well as liquidating some existing longs. This tells me that specs are still looking at rallies as opportunities to short the metal.
As of October 15, there was a one week shift of a whopping 22,000 contracts reduction in the net long exposure of the gigantic hedge funds. That reporting week period saw them adding 20,000 brand new shorts! That is absolutely astonishing.
I have gone back to look at the week in which gold dropped below $1200 in June of this year by way of comparison to see what they did in regards to their shorts. Guess what - this most recent week of data provided by the CFTC shows that the number of fresh short positions added by these hedge funds through October 15 has DWARFED the increase in hedge fund short positions added in a single week even when gold was imploding lower back in June of this year. These large powerful specs are selling gold with a vengeance, at least through Tuesday, October 15th!
That is why we get such fierce upmoves when gold rallies of late - it is this hedge fund short covering which is behind that.
Also, just some additional FYI stuff - the small spec crowd was selling gold heavily during that week of October 15th as well.
We should have the October 22 data before the end of the week and then we will have this Tuesday's (October 29) data very soon so that will bring us up to speed and back to normal.
I will say this however - that report of the week of October 15th is a real eye-opener! If the behavior of the hedge fund crowd back then is any indication of what they are doing this week, it is going to be very difficult for gold to rally.
That is why I keep saying that it needs a strong catalyst of some sort. Hedgies are selling and until that changes, it is going to take a grossly weaker Dollar to break it up and out past overhead chart resistance.
I would also like to make mention of the fact that I have been keeping an eye on the gold delivery process for the month of October. JP Morgan's HOUSE ACCOUNT has been a very big stopper again this month. They are buying and taking delivery.
That leads me to something that I need to say in order to deal with what I consider to be erroneous conclusions by some in the gold camp about a new buzz word - FLASH CRASH. (When it comes to gold it seems we are always dealing with the latest thing does it not? First is was Gold Forward Lease Rates, then BACKWARDATION, then this, then that and now it is apparently FLASH CRASHes which are all the rage.
Let's just state for the record, Morgan is buying gold and taking delivery. The COT report shows the Producer/User/Merchant category near their SMALLEST NET SHORT position in YEARS. Hedge Funds are adding shorts at a furious pace. Gold holdings in the ETF, GLD, are dropping like flies. So why in the world does the "gold cartel" need to waste time and effort supposedly dropping large sell orders on gold during the thin Asian trading session in an attempt to discredit it?
Answer - they don't. Specs are already using rallies to sell the metal.
I will say it again - the gold cartel does not attack gold when it is in a bearish trend which it currently is. They attack it when it is in a rising, bullish trend as they seek to slow its rise. During such times, the hedge funds are doing the buying and the bullion banks are doing the selling. Right now, the bullion banks are using selloffs to buy. Morgan is not taking long positions for its house accounts for no reason - they are taking delivery of the metal. How in the hell can they be the ones causing the FLASH CRASH if they are long and are standing for delivery?
Anyone who trades futures for a living as I do and has to sit here each and every night and watch the various markets like corn, soybeans, wheat, cattle, and hogs for example, undergo the various machinations that these damned hedge funds or large players inflict on them during the Asian session when there is so little liquidity,  knows from first hand experience how convoluted the price action can become at times. Large orders for that time of the evening, knock price around and drive it in the direction favored by those who have positions in place. Their plan is to take in into stops, either above or below the market and then set off a chain of buy or sells which they can use to profit from. It is all perfectly legal but in my opinion, completely unethical and disgusting. Yet, the exchanges seem more than willing to tolerate this sort of crap as long as they can collect the trade fees.
My beef is with the exchanges more so than those who commit this sort of legalized theft. It is all just chalked up to the "price discovery" process and tolerated. The best cure for this happens to be a big player on the other side who one day just eats their lunch and gives them a lesson that they will never forget.
For now however, let's forget about the idea of sellers trying to sell futures and maximize their selling price - those selling into thin market conditions are attempting to influence price by moving it in the direction they favor - Right now those are hedge funds or some other large players, not bullion banks. The only way this will stop is for another large player to stuff them. For that to occur, we need to see a shift in sentiment in regards to gold where another category of specs are eager buyers or any price weakness. So far we are not seeing that.
Remember, it is MOMENTUM BUYERS which drive our markets nowadays so before that crowd will enter in size, gold will need to clear the various chart hurtles that are necessary to get their attention and more importantly, the attention of their computers.
I leave you with this chart of Gold.... notice where it has run out of steam to the upside. It will have to clear this band of overhead resistance to run out some more shorts and to entice more new longs from the momentum crowd. The indicator is rolling over meaning that bulls need to step up quickly to avoid a setback lower in price.
A push past this week's high will be a big deal if it happens as it will allow price to test $1380 and perhaps as high as $1395 or so. If it fails to extend, support comes in first new $1340 - $1335, (It is near there as I type this) and then again down near $1320.
If the US Dollar index can clear 80, gold will drop to test $1320 in my view. If the Dollar fades and the Euro in particular can recapture 1.38, we should see gold strengthen. We are back to watching the gyrations in the Forex markets once again it would appear.

Tea Leaf Reading Time Again

Yes indeed, that honorable profession, that noteworthy use of precious time, that virtuous expenditure of human energy, has once again been called forth by the monthly proclamation of the divine oracles - namely the FOMC.

Ah yes, those dispensers of wisdom from above, of knowledge and insight, have graced us mere mortals with another round of insightful analysis into the workings of the machine we know as the US economy. And pray tell, what did they tell us this month? Not a damn thing that we already did not know!

They held steady - no tapering of the bond buying program - not that anyone out there expected them to announce such a thing - so now it is back to parsing the statement for CLUES into the inner workings of our monetary masters. "Let us see if we can anticipate their next move for in it, lies our fortune", is today's mantra.

For Pete's sake, are as many of you out there as sick and tired as I am of this pathetic routine already? What a nauseating display of groveling by the once dynamic forces of US capitalism - sitting around waiting and licking their lips to see whether their masters will toss them some chew sticks.

Regardless, the initial moves that I am seeing is weakness in gold, strength in the US Dollar and believe it or, downward price action in the US equity markets. This seems to me to be a case of "Buy the rumor; sell the fact". The markets were essentially bid up, (gold and equities) in anticipation of a continuation in the bond buying without any tapering and that is exactly what they got. So now what? Bull markets need to be fed and one has to wonder where the food is supposed to come from next?

Yes, the Fed is on hold probably until next spring at the earliest as far as tapering goes but some are gleaning a - drum roll here please - an early taper in December because  - another drum roll here - the Fed did not seem to be quite as negative on the economy as many were expecting them to sound, especially with so many of the various governors making the rounds right after the government shutdown ended and were sounding like the sky was falling.

this is leading Dollar bears to cover short bets and as such, bringing in selling to the gold market. It is also hitting silver. Interest rates are moving higher as a result. Here we go again....

I have not written much this week mainly because I am trying to spend my time in doing something more constructive than sit here and watch this idiocy all day long, day after day - I have been engaged in carving some pumpkins for Halloween, something much more enjoyable and in the larger scheme of things - much more lasting that the sentiment for each and every trading day. As a matter of fact, I am willing to bet that my carved pumpkins last for at least three days - far longer than the shifting mind sets of traders who seem to have managed to condense the entire business cycle into a 24 hour period instead of 6 months like it used to be.

Let's see where gold settles when the day ends... for now, $1360 has been reinforced as resistance which has held.

The dollar also looks to have found support above critical support near the 79 level on the USDX.

Looks like more range trade ahead which means the HFT crowd will be back to screwing with the markets once again and continuing to plunder the rest of us. I am thinking of making a new video game for Xbox. Instead of Call of Duty, I am going to make the HFT crowd the alien invaders while the "good guy" traders, get points for crushing them and sending them home crying to their mammas. Hey, I can dream can't I?

Saturday, October 26, 2013

Gold Closes out the Week Above the 50 Day Moving Average

Trying to get a read on gold lately has been challenging to say the least. It has been up; it has been down; it has had some wild swings intraday and then sat there on other days. However, it has finally managed to end the week above the 50 day moving average. For you technical analysis geeks like myself out there, that is a significant accomplishment.

I discussed this with Eric King on this week's Metals Wrap over at KWN but I wanted to detail it the price chart as the visuals are more often conducive to making a point.

The last time gold managed this feat (it was back in early August) the metal put on another $100 or so. That is not to say it is going to do so again but what happened as a result of this was that the hedge fund buy programs began to kick in. For whatever reason, market technicians have decided that markets closing above or below the 50 day moving average is a big deal, especially when they manage to do so on at least two consecutive days.

If you look at the chart and go back into November of last year you can see that the metal had managed to push past the 50 day moving average up near $1740 or so. It then managed to keep its footing above this level but unfortunately FAILED TO EXTEND HIGHER the next two sessions. The initial breach was constructive but the inability to BUILD on that performance was disappointing. ON the third day after the breach of the 50 DMA, the market then failed to hold above this level and back down it went. From that point on, in both January and February, this moving average capped all further upside progress.

It was not until July this year that the moving average came into play again. Notice the technical battle that occurred around this level that month. In early August, price once again cleared the 50 DMA. This time it managed to STAY ABOVE the average. Three days later, it took out the high of the day on which it first broke above this barrier. From that point on, the market rallied sharply until it ran out of steam up near $1430 or so.

So where does that leave us this week? Answer - looking for the performance of the metal early next week. If the market can push past the high of Friday and close strong on Monday, it should begin to gather some upside steam as I believe we will see some shorts begin to exit as well as attract some fresh momentum based buying. If it sets back, we want to see it STAY ABOVE the 50 day moving average, at least on the CLOSE of the pit session.

I should note here that Friday's high just so happened to reach right into a strong zone of resistance centered near $1350. That gives the performance of gold early next week even more significance. The bulls have managed to grasp the initiative in the market even if it is only a slight victory at this point. It is up to them to press their advantage at this juncture if they wish to cause some more discomfort for the shorts. If they can do so, $1375 should be an easy target for this initial push. Take it through there and they have a good chance to make a push to $1395- $1400.

If the market fails to extend higher as stated above, then bulls will want to see the price stay above $1300. There is some light chart support first near $1320-$1316 and more down near $1305.

I will say something else here that is important but is yet a good way's off. If gold were for some reason able to clear that spike high above $1425, it would be a TEXTBOOK CHART PATTERN of an important bottom. That would attract a major amount of buying which would set the market up for a run to $1480 - $1490. Again, that is a long way off but one can hope can they not? Let's see if the metal can even get a "14" handle on it before getting too carried away!

I want to note here that the HUI has also managed to claw its way back higher and is also perched above the 50 day moving average as well. that is a nice confirmation. Gold bulls never want to see the shares moving lower while the metal puts on some gains.

I personally believe that the plight of the US Dollar is going to be what determines whether or not we see gold and the shares tacking on some additional upside. I noted earlier this week in a post that confidence in the US Dollar appeared to be waning based on its price action and the chart pattern. There seems to have been a shift in sentiment towards the greenback that came on the heels of the government shutdown and the resultant increase in the US borrowing limit. That was further compounded when with one voice the various FOMC governors, even the usual hawks among that group, were signaling that any bond buying tapering was off the table for the rest of the year at a bare minimum. Subsequent weak economic data confirmed that in the minds of trader and as it did, more selling hit the US Dollar.

If you look at the following price chart, you can see the Dollar's recent woes in pictorial form. Notice how the price has been contained in a broad range since mid-March of LAST year. It did make a brief breakout above the range when the Fed was suddenly sounding hawkish on the QE bond taper caper this summer but once that came and went, back down into the range it went. This time however is it now plumbing the bottom of the range. As you can see, it has not been below the low of that range now over a year. If, and this is a BIG "IF", the dollar were to fail and fall through that low, it should continue until it falls to the next important level down near 78. If that were to give way, heaven help us all because all manner of chaos is going to break out in the commodity sector once again.

It is going to be interesting if that occurs to see what the response of the Fed is going to be because odds are that the speculative crowd will start coming back blindly onto the long side of the commodity sector once again in anticipation of a wave of inflationary pressures related to the falling currency. Again, this is just a guess at this time as I have no way of knowing whether or not the Dollar is indeed going to fail to hold at support. I am merely laying out scenarios that we could see if it does.

This is the biggest problem that I see with this unending madness known as QE. It lays the groundwork for the undermining of any confidence in the Dollar and sets it on a course of weakness. I do not want to see the Dollar weaken as an American but with this idiocy being engaged in by the Fed, and especially with the choice of Yellen ( the Dove of Doves), it is difficult for me to envision a scenario in which the Dollar embarks on a strong bull move as long as the hawkish voices on the FOMC are silent.  Keep in mind it was all the hawkish talk coming of the Fed this past summer that pushed the Dollar higher along with a rise in interest rates. Until that sort of thing re-emerges, what would be the factors that could drive the Dollar higher again? The only ones I see would be if there were a resurgence of issues related to sovereign debt back over in the Euro Zone again.

Oh what a mess these meddling Central Bankers have created for us all. Heaven spare us from this plague of locusts! Has this become the new norm and are we now destined to see a perpetually rising Federal Reserve Balance Sheet (now approaching $4 TRILLION) for the rest of our lives? When does this end?

I have said this many times before but it bears repeating - as a TRADER, I have to go with the swings and the shifting sentiment in the markets in order to survive and make a living but as a long term oriented investor and a concerned and deeply worried citizen, I also have to look at gold as the only insurance against these modern day alchemists known as Central Bankers. They are going to be the ruin of us all.

Trader Dan Interviewed at King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Metals Wrap.


Thursday, October 24, 2013

So much for China concerns

Yesterday the focus was on concerns about a potential slowing of Chinese growth as officials there let it be known that they were attempting to throttle back a housing market that is showing serious signs of price inflation. That led to widespread selling of growth related commodities across the board as evidenced by the sharp selloff in crude oil ( a good deal of this was related to the increase in crude oil stocks as well) and in copper, a particularly growth sensitive metal. It also tripped up gold.

Talk about a change in sentiment in one day! Today the tone was set by more abysmal economic data coming out of the US. Factory activity showed the slowest gains in a year. If that was not bad enough, a larger than expected number of people applied for first time jobless benefits. Both served as a gloomy reminder of how poor the labor market is here in the US. Throw in comments by Fed governor Evans, that the sky is basically the limit when it comes to Quantitative Easing and the size of the Fed's balance sheet, and the Dollar struggled all day while gold shot higher with traders there now firmly convinced that there will be no let up in the Fed bond and MBS buying program anytime soon.

What seemed to be happening was a near reversal of yesterday's trade in which macro funds were throwing away commodities. Today even crude oil managed to bounce well off its intraday lows and trades tied to the weaker Dollar surfaced.

In all honesty, I am having a great deal of difficulty reading many of these markets as their price movements are becoming increasingly unpredictable and disconnected from underlying fundamental realities. In this I am not alone. Many traders are worn out from the herky-jerky price swings, most without rhyme or reason and are scaling way back in position size or sitting out altogether. Both make a lot of sense right now. If you cannot understand why a market is doing what it is doing, be careful. That is not the time to try being a hero.

What we are witnessing is this larger macro trade distorting many individual commodity markets. Let me explain - there are certain funds that are long-only funds which offer their clients exposure to the long side of the commodity sector in general. They have not been doing all that well of late truth be told. But, and this is a big "but", their theme mainly consists of keying off any weakness in the US Dollar and then buying across the board in the commodity sector as they benchmark to one of the various commodity indices out there. That means they buy BLINDLY, with no regard whatsoever to the individual fundamentals of supply/demand in those markets.

The idea behind their buying is that weakness in the US Dollar is going to eventually result in inflation and thus they push the "buy tangible assets" theme. So into the commodity markets they come crashing, with their various buy orders shoving prices higher. Then, in those particular markets where the fundamentals are bearish, sellers come in to meet that buying. When these index funds take a break from buying, the price then falls off during the session only to come right back up as they buy once again. The result is a series of maddening price swings which confuses floor traders and others alike who are attempting to get a handle on the market.

The problem this is creating is that no one really understands when this sort of buying will fade and when it will come in because it is tied to the vagaries of the currency markets. Right now the Dollar is having trouble moving higher because traders are convinced that the Fed is going to remain on the dovish side until at least March of next year. But just like yesterday, when we get some sort of hint that China might be tightening monetary policy or trying to slow price pressures across their economy, the hedge funds come in and press it from the short side. If there is any Dollar weakness, the index funds come in a buy and back and forth it goes.

I honestly do not have any idea when this is going to end. I wish it would but it is the spawn of those monetary elites that sit on the FOMC. When you have an entire economy's well being or lack thereof completely addicted to an endless ocean of funny money, it is going to result in all manner of malinvestment and price distortion.

That is why I am hesistant to read too much into any one day's price action. Who the hell knows what we are going to get the next day anymore?

I will make one rather easy prediction however - by the end of the year, we are going to read of a lot more hedge funds going bust. These whipsawing markets are murdering most of them.

Wednesday, October 23, 2013

China back in the News

China, China and more China... that pretty much sums up what the big mover was in today's session. Talk out of that region was that the Chinese officials were moving to drain liquidity from their system in order to combat what they view as rising inflation concerns. Then again, perhaps a better way of phrasing this is that the Chinese officials would not be acting to add liquidity and maybe adopting some modest measures to deal with monetary aggregates.

The big deal is evidently about housing prices which continue to soar.

Traders interpreted this as bearish for commodities in general, especially copper as well as silver. They also seemed to be in a mood to further sell down crude oil but that tied more to the release of the crude stocks data.

What is interesting is to see the equity markets actually finally finding something to use as a reason to sell. It just goes to further prove the theory that what is lifting equity markets globally is not fundamentals but rather liquidity pools being created by the world's Central Banks. Take that away or even dare to breathe the words that it might be slowed or withdrawn and today's move lower in equities is what we get.

This is why I believe those analysts and pundits who continue to pound the table on buying equities based on their quaint notion that "the economy continues to improve" are full of it. Take away this giant tidal wave of Central Bank supplied liquidity and the world equity markets will fall so low that they could play handball with a snake!

Either way, it got gold. Traders who had been long decided to book profits after the nice pop higher while some of the macro traders moved back in on the short side. Further aiding the bearish mood today was the sharp drop lower in the gold shares once again. I am looking at the screen as I type this and the HUI is down over 3%. It certainly makes one think twice about staying long the metal when they see this as it usually presages a drop lower in the gold price the following day. We'll see if that is the case this time once again.

Silver is actually not doing too bad considering the big move lower in copper (down over 2%) but once again if failed to extend past $23. It is managing thus far to hold above a chart resistance level near $22.50 but just barely. It needs to clear $23 with some gusto to get the momentum crowd interested in buying it. If traders start coming around to the view that China is deliberately attempting to slow things down over there, it is going to add another headwind to silver and copper which will make it tough for gold to extend higher as well, especially as crude oil continues on the weak side.

The standout exception to the general wave of commodity selling today was in the grains which are trading in their own little world right now as hedge funds and other large traders jerk those markets all over the place due to the enormity of the spread trades they are currently employing.

I will get a chart up later on today as I am dealing with a lot of time constraints right now... thanks for your patience.

Tuesday, October 22, 2013

Are we Beginning to see a loss of Confidence in the US Dollar?

Based on the price action, the answer to that question is it is certainly looking like that. The Dollar is within a hair's breadth of a strong region of support. If it does not hold, we will know the answer to this question is "YES".

I have also noticed that in conjunction with this move lower in the Dollar, interest rates at the long end of the yield curve are also beginning to drop once again. That is not good for the Dollar.

The catalyst for this was today's stunningly poor payrolls number for the month of September. Forecasts were for 180,000 jobs being created. Instead we got a pathetic 148,000! With that, it was a big "KERPLUNK" for the US Dollar and that sent gold careening higher as once again any notion of a slowdown or "taper" in the Fed bond buying program was immediately shelved.

It has been my opinion for some time now that gold will not mount any sort of SUSTAINED move higher unless there is a loss of CONFIDENCE in the US Dollar, which is in effect the same thing as a loss of confidence in the US political leadership and to a certain degree, monetary authorities. Trying to maintain an objective view of this when it comes to my own beloved nation is difficult at times to do but after watching the President's 1-800 INFOMERCIAL on the failed rollout of his healthcare law, it does not take a big stretch of the imagination to say that he looks like a cheap carnival barker pedaling a batch of snake oil instead of the responsible and serious leader of the free World which global investors expect.

Global investors are not stupid nor are they reckless with their capital. One shudders to think what would be happening to the US equity markets were it not for the fact that most of the $85 billion being created each month by the Fed is being stuffed into them. That is the only reason that they have not plummeted along with the Dollar.

All I can add to this is to say "Watch Out" if the US Dollar Index cracks chart support. That is far more important than any public opinion poll citing favorability numbers because it is a poll in which investors are voting and telling you exactly what they think about the current leadership of the nation.

Friday, October 18, 2013

No follow through for Gold

Once again gold reminded us all of the serious obstacles it faces in generating any widespread interest outside of the usual circles comprised of gold bugs and other die hard fans of the metal. It puts on a spectacular upside spectacle one day and the next it just seems to wither up and die. That is what happens when you get a sharp burst of short covering - violent moves higher which quickly run their course - that cannot attract any follow through momentum based buying but instead runs into another round of eager sellers.

In other words, the metal is still stuck in a trading range unable to break out either way with much conviction. I think this goes to the point of what I have been saying of late - until or unless we see some sort of event/events which precipitate a change in the CONFIDENCE of the global investment community towards the monetary authorities and/or political leaders, rallies in the metal are going to be viewed as selling opportunities. Why? Because the investment community is convinced, absolutely, that there is no inflation nor will there be any for the foreseeable future.

Need proof of this - see the following chart (again - for the umpteenth time). Commodity prices are relatively stable and have been for some time now. If anything, the sector has a slightly negative bias to its chart as the index has been slowly grinding lower the last two years now.  This is the reason gold, and especially silver, are going nowhere. The momentum based crowd is not interested in chasing prices higher nor will they be until or unless there is solid evidence that the "BUY TANGIBLES" theme is back in vogue.

Much of this will depend on what the fortunes of the US Dollar are over through the end of the year. The dollar is weak but has not completely broken through technical chart support. I would only become concerned about the Dollar if it were to first mount a WEEKLY CLOSE below the 79 level but more so if it crashed through 78. That to me would indicate that a SHIFT IN SENTIMENT towards the greenback has indeed occurred. That would signal that LOSS of CONFIDENCE thing that I just mentioned. Should that take place, I do believe we would see a concern that inflation would result from the weakening currency and that would bring about the possibility of TANGIBLE asset buying once more on the part of the speculative community. That is simply not present right now.

What is present is the mania in US equities. This beats even the craze leading up to the 2000 fiasco if you ask me. The VIX or Volatility Index is plumbing multi-year lows as the S&P 500 pushes into one new record high after another. There is NO FEAR out there anywhere in sight. The only fear that I can see at this point is the FEAR OF MISSING OUT ON A MARKET THAT CAN NEVER STOP GOING HIGHER. Yes, indeed, the era of the never-ending bull market in stocks is firmly upon us.

Tell me something, how in the world is gold ever going to mount any sort of sustained move higher or generate the sustained buying (another way of saying the same thing) necessary to push it constantly upwards when the stock market makes one new high week after week  - This all the while the pundits and other talking heads assure us that stocks are still cheap! Who wants gold when you are guaranteed spectacular profits in a NO WAY YOU CAN LOSE MONEY scenario, all courtesy of the fools at the Federal Reserve who still cannot see a bubble if it walked up to them and slapped them across their clueless faces?

When even the perma bulls begin to say out loud what many of us have been saying for years now (this market is resistant to any bad news of any kind) you know you damn well have a mania taking place. The deal is however, that as a trader or shorter-term oriented investor, you have to put aside any reservations you have and go with the herd if you are going to make any money. All I can say however is that you had better be quick on the draw and be able to get the heck out of Dodge in a hurry if things turn sour. Until it does, enjoy the ride.

A quick look at the gold chart... This is a 4 hour chart. Notice the trading pattern - a broad range noted within the colored rectangles making support and resistance. Also notice that since the short covering burst higher yesterday on pretty good volume, that same volume just dried up as the price approached the top of the trading near $1330 - $1340. What that tells me is that speculators are not the least bit interested in chasing the price higher RIGHT NOW. For that to change, we will need to see something on the technical price chart where a overhead resistance levels gives way in convincing fashion. That will draw the momentum crowd into the long side. For now, they are either shorting the market or staying out of it altogether as they seek more profitable opportunities to deploy their massive capital firepower elsewhere.

One last thing - let me comment on something going around the web drawn from my friends over at GATA. This will probably not endear me to some but I feel it needs to be said as there is too much trading misinformation out there. It seems that some keep taking note of large sell orders hitting the gold market during relatively thin trading conditions taking price lower. This is made a big deal out of and offered as proof positive that some nefarious powers want to break gold lower in order to discredit the metal and is thus part of the manipulation scheme.

Let me first and foremost note that I firmly believe the powers that be here in the West carefully monitor the gold price and that they are active through the bullion banks to try to keep the metal under wraps and prevent it from careening higher. However, and this is key - this occurs during times when gold is in a strong, sustained uptrend especially when bullish enthusiasm and excitement is at its best. Gold does compete with the US Dollar and thus it is important that anything that tends to undermine confidence in that Dollar or more specifically in the political and monetary leaders of the US be kept under wraps as much as is possible.

That being said, when gold is moving lower, the bullion banks are generally buyers, not sellers. The sellers are hedge funds and other large speculators. Just take a look at the Commitment of Traders report if you doubt that. Here is a good question for those who keep incorrectly pointing to these large sell orders as evidence that the culprits (whom they always equate to the bullion banks/government ) are deliberately suppressing the price of gold - how come we never hear a peep out of you when the gold price is shooting sharply higher with massive buy orders driving up through series after series of previously placed stop loss orders?  Where is it written that the price can only be driven downward by some nefarious force seeking to maximize their trading profits? Can there not be those large capitalized traders who seek to push a market sharply higher and inflict the maximum amount of pain possible to short sellers when they spot market conditions that permit this?

Look, I trade a host of markets nearly round the clock and I can tell you point blank that in many of the markets I trade, especially the grains and the livestock markets, during the early morning hours here in the US, all manner of crap takes place. I have lost track of the number of times that some hedge fund or large spec has come in and jammed prices higher or lower, depending on which way there were positioned and then waited for the stops to get set off in order to make a quick killing. Every entity that pulls this sort of stunt is of course picking an opportune time in which to maximize the impact of their order placement. There is nothing the least bit out of the ordinary about this, even if one happens to believe it is certainly unethical as I do. ( I believe the exchanges' decisions to move to 24 hour round-the-clock trading in some markets was a huge mistake as it lends itself to this sort of legalized theft).

Gold therefore is no exception to this nor is there any reason for me to believe that anything occurring in there recently is anything out of the ordinary. Hedge funds, whom I believe have destroyed the integrity of our markets, are a like a plague of locusts that have descended upon us as they shove markets all over the place, many times without rhyme or reason. They are not the least bit interested in maximizing a selling price - they are interested in pushing price in the direction in which they are positioned.

Also, keep in mind that once upon a time, in a galaxy far, far away, large sellers or large buyers went about their business in as quiet and sophisticated method as was possible. They tried to hide their large sells or large buys so as not to alert other traders to what they were doing and thereby get in or get out before the herd came along. Those that followed such skilled practices are for the most part, long gone, dead or retired. The modern hedge fund has a computer that replaces the brains of the trader and it is programmed to sell a certain amount or buy a certain amount of contracts without regard to its impact on most occasions. In other words, they are brutally clumsy because the idea is to simply get out and get out FIRST before the next guy. Why wait and try to be sly about it when the entire trading strategy consists of responding to whatever the last price tic happens to be?

How I view this gold market right now then is that hedge funds, while still net long the market, have been increasingly interested in playing gold from the short side. That means they will be selling rallies or seeking to knock price lower when they feel like they can do so and have the greatest impact on price. What is necessary to prevent gold from succumbing to their selling then is for those who are interested in buying the metal to come in and make their presence felt with the same gusto/determination that the short sellers are exhibiting. If and when they do, we can pick that up on the price chart as it shows up as a SUPPORT level. If their buying is sufficiently large enough, they can force the price higher and in turn pick off the buy stops of other short sellers and turn the tables on them. That is what happened yesterday.

Let's see what next week brings to us and whether or not gold resumes its range trade and heads lower or if bulls can chase it higher and up and out of the top of that trading band.

Thursday, October 17, 2013

Still Searching for My Stomach

Apologies for little postings of late - I have been having a love/hate relationship with my computer as has been giving me grief. That and the fact that these markets are grinding me down as I try to read that which is nearly unreadable right now.

I have had my kids drag me on enough amusement park rides to know that I hate the blasted things but compared to what gold has been doing the last few days, I am beginning to have second thoughts about that. As a matter of fact, if I could make a living riding roller coasters and barrels of fun, etc. instead of having to trade these markets, I might just retire from this madness.

The kind of volatility we are seeing favors one group only, the HFT crowd, who love this unpredictable and meaningless "noise" that so many different commodity markets are currently exhibiting.

Take gold for example - most, including myself, believed that as soon as we got resolution on the borrowing limit deal here in the US, gold would sell off while equities would rally. Guess what -  equities rallied and gold did too. Prior to that most of us thought gold would move higher on threats of US default while stocks would sell off. Guess what - gold sold off just like equities.

The two markets have been moving in the same direction more than they have been parting company it seems. Counterintuitive, is a word one hears bandied about when it comes to gold these days. Counterintuitive seems to sum up most of the commodity markets in general anymore. Not much makes the least bit of sense.

Gold seemed to use the government shutdown and budget deal as a reason to rally today based on comments being made by various Fed governors. In a rare display of unanimity, the governors all stated that there was not going to be any Fed bond buying slowdown ( NO TAPER) because the government shutdown had resulted in a slowing of economic activity, not to mention the fact that not even the Fed had any access to the usual government economic data.

When traders figured out this Fed speak as being brutal for the Dollar, they proceeded to beat the snot out of the greenback. That was all that gold needed for an excuse to rally. Keep in mind that this is something I am trying to repeatedly emphasize - since there are no visible inflation signs as far as the investment class is concerned, and since there does not appear to be any chance of the economy growing rapidly with an increase in the  Velocity of Money, it is going to take an issue of CONFIDENCE to get gold moving higher. That is what we saw today. Traders took note of the response of the Chinese to the US fiscal mess and lack of serious leadership in Washington DC and combined that with the ultra low interest rate continuing into the indefinite future based on those various Fed governors, and ran en masse out of the US Dollar.

You can also be assured that the deal that our feckless leaders came up with ASSURES us that we will be watching another replay of the dog and pony show come late January/early February next year once again. In other words, the circus show taking place at Versaille on the Potomac hardly inspires any sane thinking individual or gives them the least bit of confidence that those buffoons heading up the political parties have the faintest clue the kind of long lasting damage that they are inflicting on the nation as a whole.

Personally the establishment elites disgust me.

Either way, once the Dollar dropped through chart support, some strong buying in gold tripped the overhead buy stops and up, up, up she went. By the way ladies and gents, this was another one of those stunning short covering events in which hedgies were leaning on the short side and got caught off guard and were forced to run. One thing that concerns me about these kinds of rallies - as a general rule they tend to be rather short lived; furious, exciting, dramatic, but not enduring. Specs have had a tendency to sell into these rallies of late so we will have to be careful and not read too much into the price action of one day but at least gold managed to recapture that "13" handle, which takes some of the excessive bearishness out of the market, at least for a day or so.

The key for gold is whether or not bulls can build on today's performance and actually take out some more overhead chart resistance levels or whether the bears will show up at these areas and meet them as willing and eager sellers. We will know soon enough, especially with the Friday curse ahead of us. If the bulls can close the market over $1300 for the week, they will have dodged a serious bullet. That does not get them out of the wood however' it just buys them some time and a bit of breathing space since the intermediate trend is still down.

If you notice the market broke down below the bottom of the recent trading range but recovered quickly and negated what looked to be a bearish wave lower. Until I see the price break out of the topside of this range however, and that means clearing $1330 for starters but particularly $1350, I cannot get too excited about the metal's future prospects, barring a further collapse lower in the US Dollar. If the Dollar cracks up, gold will take out overhead resistance and will see a further wave of short covering that will set up a run towards $1380 and then on to $1400. Right now, I am watching to see where the various sides will manifest themselves for further clues into this market which has been nearly impossible to predict of late.

Saturday, October 12, 2013

Velocity of Money Falling

The following chart is a bit dated as it only covers through the first quarter of this year but even at that, the trend is glaringly obvious - down!

Combine this with a CRB index or Goldman Sachs Commodity Index that cannot gain any upside traction, abysmal to miniscule job creation and of those, many are now part time jobs thanks to Obamacare, flat to relatively stagnant wages, and you can understand why, even without this chart, that the factors necessary to push prices sharply higher are currently missing.

I also would include something which is more anecdotal but which I feel is also a contributing factor to the deflationary pressures being exerted upon the US economy in general, namely, the fallout from Obamacare in the area of soaring health insurance for a large number of Americans. You have already or will have very soon, heard the horror stories as they continue to increase about health insurance premiums tripling for many Americans. In an environment in which wages are flat, that price increase comes right off the top of the consumers' disposable income. That means less money available for discretionary spending.

I believe this is what we are seeing reflected in this chart.

From the standpoint of gold, this helps explain why the metal keeps sinking lower. With the US Dollar not falling apart, the urgency to own the metal is subsiding among Western-based investors. That is evident from the continued drawdown in the reported gold holdings of the giant ETF, GLD.

Also, when one considers especially an artificially goosed US equity market working its way higher and higher throwing off ridiculous gains practically month after month, investment capital is going to need a compelling reason to be taken out of that sector and allocated into gold. Since gold pays no yield all investment gains from the metal must necessarily come from capital appreciation. In other words, if the price of gold does not keep rising, why own it when the Fed has created a perpetual motion machine in the form of US stocks?

This is why I keep coming back to the same point that I have been making - it is going to take something, some event, some occurrence, something, to break CONFIDENCE in the US Dollar or in the US monetary and political leaders for gold to respond upward in price.

 Most of you who read this site, and I myself believe that the US is on an unsustainable path which is going to end badly.  I believe over the long term, we will be proven correct but here is the current issue - as bad as the US is, does anyone believe that the UK, Japan, the Euro Zone, etc are really and truthfully any better? They have the same problem as we do, out of control spending at their national levels and gargantuan debt levels. There remains malinvestment in China which has its own set of problems while Brazil also has its issues to deal with.

The current monetary system, with the US Dollar as the Reserve currency is fatally wounded but what is there realistically to replace it at this point? Answer - nothing! At some point there will be but for now, the game continues. This is what allows the Federal Reserve to enlarge its balance sheet to obscene levels ( it is currently sitting near a mind-blowing $3.7 TRILLION and rising) without the Dollar imploding into Hades. It should come as no news to those who are informed that thanks to the Federal Reserve's shortsightedly stupid programs known as Quantitative Easing, the Fed is now the largest owner of US Treasury debt in the world. This is a Ponzi scheme, the likes of which the world has never seen and will never see again for it is one of near Cosmic Proportions.

Which brings me to another point -  no nation out there which is holding US Treasury obligations as part of their reserves wants to see the Dollar crash and the "value" of those reserves go up in smoke. Thus, no one rocks the boat other than some bilateral trade agreements here and there and noise about a new reserve currency. For all that noise and all those grumblings, the US Dollar is still enthroned as the king of the current monetary system.

This is why I go back to what I have been saying when it comes to gold - only if confidence is lost in the US Dollar will we see gold sentiment shift here in the West. I would watch the Dollar more closely than anything right now as a result. Interestingly enough or perversely enough if your mind thinks like mine, a rising interest rate environment would theoretically make US Treasury debt more attractive in the sense of better yields but this same rise in interest rates tends to crush any incipient forms of life in the US economy further aggravating its already out of control national debt ( less economic activity means lower tax revenues). If that were not bad enough in itself, it also makes servicing any interest payments of newly issued debt even more challenging for a country whose DEBT to GDP ratio is already over 100%. And yet, this rising interest rate environment is what had pulled the Dollar higher until recently.

In the long term this is why I believe gold will ultimately benefit but between the long term and the shorter term in which trading/investment decisions are made, there remains some formidable headwinds to the upward progress in the price of gold.

Trader Dan Interviewed at King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.


Friday, October 11, 2013

Investment Demand for Gold in the West continues to Weaken

Love or it hate it, the largest gold ETF on the planet, GLD, is still one of the best, if not the best indicator of the size of Western investment demand for the yellow metal.

As noted here many times now, the reported gold tonnage in this vehicle, continues to sink.

You thus have two key indicators here in the West, GLD and the HUI or index of gold shares, both of which are telling us that gold has fallen out of favor with the investment class. Whether we like this or not is immaterial. It is a fact and reflects the sentiment towards gold here in the West. To be successful at trading one must learn to accept what the market is saying even if you disagree with it. That means becoming a hard-nosed, thick-skinned realist and tuning out anything to the contrary.

When sentiment turns, you either turn with it or lose money. It is really that painfully simple.

Now, you may be correct in the long run and your view may ultimately be vindicated, but you could end up broke by then. Let the market itself speak to you and tell you when it has come around to your way of thinking. Otherwise, you are apt to look as foolish as someone spitting into a hurricane. It may make you feel better than you are defiant and standing tall, but all you are going to end up with for your effort is a wet face, courtesy of yourself!

Here is a chart of the total tonnage of GLD. Notice how it continues to sink lower and lower. Until this disgorging of gold is over and the trend reverses, rallies in gold will be sold. While Asian demand will be strong, in and of itself that is insufficient to reverse the disgorging trend here in the West.

Wednesday, October 9, 2013

What are the Gold Shares Saying?

The HUI to gold ratio continues to plumb new lows over the last few months having already moved well below the spike bottom made back in late 2008 when the first news about Quantitative Easing hit the markets. The falling ratio is disturbing.

Either one of two things is going to happen - either gold shares are going to stage a rebound sooner rather than later or the price of gold is going to start moving lower at a faster rate than the shares. There always remains the possibility that both will rise higher in sync with the shares outperforming to the upside. That would restore the ratio but thus far the technical charts of the HUI index do not show any serious buying by anyone but the value crowd.

The ratio has fallen through every single Fibonacci retracement level shown on the chart drawn off the 2000 low and the 2003 high. Classic Fibonacci theory would tell us that if the 75% retracement level is bested, odds favor the entire move being erased. that is more than sobering; it is a catastrophe.

It is telling that no matter what gold does, the shares simply cannot seem to gain much in the way of traction to the upside. Perhaps that will change but thus far the shares, which have been rather good at predicting in what direction the price of gold will be going, are heading lower.

One wonders just how far this ratio will continue to move. This is the reason that I have strongly recommended to miners that if they have the opportunity to lock in some good profits on gold under production, that they do so, at least a decent percentage of that production, to ensure those profits. In other words, hedge or use some forward contract methods so that they do not sit there and watch the metal sink lower on them without any downside price protection.

The ratio at such low levels would seem to be saying that there is a distinct possibility of lower gold prices ahead. Gold at $1300 is certainly not the same as gold at $1900 but if a miner can dig it out of the ground and secure profits at that price, why risk all of those profits? Something is going on in the mining shares which simply makes investors reluctant to buy them even after such a protracted decline. Perhaps investors are wondering whether profits are in the picture before they put hard earned capital at risk.

Gold Stuck in Limbo

It cannot get into heaven and it does not yet appear to be headed down into hell. So it goes nowhere bouncing up and down, without any apparent rhyme or reason. In short, trading gold right now is a complete waste of time unless you are a glutton for punishment or have the absolute shortest of time spans before pulling the trigger on an ultra short term trade. Translation - unless you want to scalp this market, leave it be until it makes some sense.

I still feel that the intermediate and even the short term trend is down but with the sort of wild intraday price swings it is currently experiencing, there are better opportunities elsewhere to trade.

It does seem as if there is a large enough contingent of dip buyers who are trying to keep it levitated above $1300 to make it tough for the market to actually break and stay below that psychological support level. Based on the current action in the mining shares however, odds favor a breakdown of that level sooner rather than later in my view. While the HUI did manage to close near the high end of today's session ( some of the individual stocks that comprise this index actually closed in the green), the chart pattern on the HUI still looks atrocious. I would want to see some improvement in the miners before feeling any positive vibes toward the actual metal.

It was rather comical reading the comments today from those who were foolish enough to try offering reasons for the inexplicable. First was the news that Yellen - Ms. Dove of Doves, will be heading the Fed. That was viewed as friendly towards stocks and somewhat towards gold. Then the market seemed to focus back on the partial government shutdown and upcoming debt ceiling battle and that brought out the forces of deflation. Then we got some employment numbers from private firm ADP. "Go this way and that way and this way and that way".

When the FOMC news hit the wire gold was all over the place as traders tried to make sense of the oracles who sit on that committee.

Some FOMC governors wanted to taper; some did not; some were concerned about the Fed's credibility; some were concerned about this and some were concerned about that. Some wanted to taper before year's end. All of this is moot in my view because what some may or may not want is rather immaterial in my view. What is not immaterial and what will ultimately have the final say is the economic data coming our way. I repeat, it is difficult for me to see them tapering anytime soon based on the anemic, miserable state of the US economy.

Back to the charts only briefly for the reasons explained above ( it is stuck in a range trade).

Price remains stuck in a very broad range between $1280 or so on the bottom and $1340 or so on the top. Within that broad range is a secondary range with $1300 or so on the bottom and $1320 or so on the top. Bulls have no chance of getting anything going until they clear $1340 and keep the price from falling back below that level. Bears have no chance of getting anything sustained to the downside until they push through $1280 and prevent price from recapturing that level.

The current bias is negative based on the indicators presented with those favoring the bears. Additionally, volume on up bars is lackluster reflecting the lack of bullish enthusiasm.

Simply put, I am not sure how much longer this will continue but until one side or the other grabs the ball and runs with it, we appear to be stuck in limbo. Hopefully something will change soon and we can get some sort of decent trend, even if it is down to at least escape this nauseating go-nowhere - do nothing market.

What I am watching is the slide in crude oil prices along with lower gasoline prices. That is certainly not contributing any upward pressure on the overall commodity complex in general which continues to slide lower. It is difficult to see gold managing any sort of lasting rally as long as this index drifts to the downside.

Saturday, October 5, 2013

Friday, October 4, 2013

Mining Shares Continue Weak

While I would dearly love to be able to provide some bullish news for those who favor gold, unfortunately I cannot. The charts are simply not showing any reason to refute the bearish case.

Consider in particular the HUI, or index of mining shares. I have deliberately included a weekly chart to provide a longer term perspective.

Notice the second indicator which is a proprietary one that I employ - it is basically a trending indicator. What is really striking is just how bearish the price action in this sector has been for the last two years. As you can see, this indicator only flipped positive for a mere 12 weeks out of the entire period since October 2011. In other words, 12 weeks out of 104 week total. That is just horrendous!

What is most discouraging is the indicator has resumed moving lower once again as it is now down for the last 5 weeks in a row. For a brief moment, it appeared that it was going to make an effort to cross above the "0" line and become positive but hopes for that faded at the end of August.

About the only thing I can say the least bit positive about this particular indicator right now is that it has the "possibility" of setting up a bullish divergence if the HUI moves down to the previous low made in late June but even at that, it would only confirm the existence of a friendly divergence, but not necessarily an actual buy signal.

Below that indicator is the Directional Movement Indicator, another trend following tool. Note that the Red Line or Negative Directional Movement has been above the Blue Line, or Positive Directional Movement for most of the last two year period. It is currently far above that blue line even now. In other words, though the solid ADX line is moving lower indicating that the downtrend has been broken or suspended which is perhaps a better way of saying things, the bias is still to the DOWNSIDE unless or until proven otherwise.

When you look at the 50 week moving average which is over 100 points ABOVE the current price and headed lower, it is impossible to make any sort of bullish argument for this sector.

One can argue that the gold shares might be attractive from a "Value" buying perspective but the problem with that is that many expect them to fall even further yet and are certainly in no hurry to buy. Maybe in 2014... who knows at this point....

Like I said, it is very difficult to find any bullish consolation in the entire sector. What has me concerned is this bearish price action in the shares is suggesting that the worst is not over for the actual gold price. We will see how predictive these things are, one way or the other.

Wednesday, October 2, 2013

Bonds and Gold back to Safe Havens Again?

I noted in yesterday's comments that neither US bonds or the gold market were acting like the typical safe haven trade that one would have normally expected to see during a time of crisis ( debt ceiling, government shutdown, etc.).

Gold was sold off on fears of a slowing economy as were the majority of commodities in yesterday's trading. Bonds were also dumped.

Today, we seem to have the exact opposite price action occurring - gold is up, the majority of commodity markets are in the green and the bond market was soaring earlier in the session. It is almost as if the big macro trade was back on today with the lower US Dollar spurring buying of commodities rather indiscriminately as was prone to happen during past episodes of that particular trade.

What I find almost bizarre is seeing report after report about analysts/investors worried about the current government shutdown being prolonged and a risk of a failure to get any sort of agreement to raise the debt ceiling which would result in either a credit downgrade of the US rating or default. such fears are preposterous in my view as the US takes in plenty of money to service its interest payments. However, think about this - the supposed fear is one of default or a credit downgrade and yet the lemmings cannot seem to stuff enough of these US government IOU's (bonds, notes, etc.) into their portfolio merely because the US stock market has been experiencing some weakness in today's session.

The analogy is obvious - let's say my next door neighbor is head over heels in debt and has been paying his bills by borrowing money from the folks in the neighborhood. He has enough of an income coming in that he can pay the interest that he has promised to pay to anyone willing to lend him money but one thing is for sure, he cannot pay back the principal. Now, he finds that his expenses continue to rise because he refuses to make any changes in his extravagant lifestyle so he announces with great fanfare that he is going to borrow more money from another set of neighbors promising to pay them back both principal and interest. Would any of you feel comfortable lending to this leech? Yet, that is exactly what is transpiring in the bond market today. The very items that investors are supposedly worried about being downgraded ( U S debt obligations) are being scooped up in droves by eager buyers.

I don't know whether to laugh at such lunacy or weep that so many can be so ignorant and oblivious to the staggering amounts of debt that the US government and its spendthrift politicians continue saddle the nation with.

Crowds go mad en masse and only come to their senses one by one, and slowly at that.

Gold seemed to get a bid today on the heels of the ADP jobs number. The private firm released a number that was LOWER than analysts had been expecting and this fed into the idea that the Fed would be forced to maintain the QE at full capacity.

Seriously, this sort of nonsense gets really old. The Fed will be doing QE until the cows come home without any structural changes to the US economy (getting rid of obamacare) and reform of regulations that are impeding companies from expanding and thus hiring. As stated here previously, if 4 rounds of QE has yet to produce any sort of runaway inflation why does anyone believe that a prolonging of the current program (QE4) is going to somehow be a catalyst for future inflation.

The truth is that gold is stuck in a broad sideways pattern in which dips get bought and rallies get sold. Until it shows me something on the price charts which indicates anything to the contrary, I expect this pattern to continue. For traders, that will mean rallies are selling opportunities while dips can be used to cover.

Crude oil has a big rally today for some reason - that which was cited was an EIA report showing a drawdown in stockpiles at Cushing as well as news from TransCanada which released news that the southern leg of the Keystone pipeline which it is constructing is 95% and should be open to move crude sometime after October. That was seized upon as a reason to buy crude oil futures, especially after the sharp fall in price the last few days as the thinking was this would help to further drawdown crude stockpiles at that all important hub.

It's funny how thinking shifts from day to day isn't it? Yesterday, government shutdown fears entailing furloughed workers and no salaries for many was viewed as a drag or negative factor for growth in the US economy. Today, it is no where to be seen! 

Personally, my view is that this is further evidence that the hedge fund computers have destroyed any integrity that might have been left in our financial markets. To see silver implode lower one day only to watch it shoot back up the next is beyond silly - it is a sign of a dysfunctional market system.

I have noted some levels on the gold chart below which are worth monitoring. Other than that, there really is not much worth saying about gold today. Until it gets a clear break out of this range trade, the market is going to bee-bop back and forth as it responds to the vagaries of shifting sentiment and economic news.

Lastly, surprise, surprise, the gold stocks, as evidenced by the HUI are higher today. Take a picture of that screen because no one is liable to believe you if you don't document this rare occurrence.