"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


Tuesday, May 31, 2011

Monthly Gold Charts - May 2011

Saturday, May 28, 2011

Trader Dan on King World News Weekly Metals Wrap

Eric King over at King World News and I discuss the metals market along with the Dollar and the mining shares on the Weekly Metals Wrap.

You can listen to the interview by clicking here:

Also, I am not sure why the Followers are missing on my blog. I have noticed that several other blogs appear to be having a similiar problem. Apparently something is wrong with the Google Blogger software. Hopefully they will get it fixed soon.

Please do not think that I yanked down all the followers! I appreciate all of you.

Friday, May 27, 2011

Gold Comments

First, let me take the time to express my sincere and heartfelt gratitude for so many kind comments from so many of you. It is difficult to express how such words of encouragement can impact a weary warrior.

Secondly, I am okay health wise so no need for concern there but am just weary with the day to day battle against the hedge funds and their computer algorithms and subsequent volatility. Trading is an invigorating occupation as it engages the full powers of the mind but it can also wear one down as the extent of price swings makes it difficult at times to gauge what is actually occuring. With 24 hour round the clock markets, getting sleep is sometimes the trader's toughest trading decision!

These markets are nothing like the ones I cut my teeth on when I first began my trading career more than 2 decades ago. Back then, we had volatility, but it was the exception not the norm most of the time. The markets were what I call, "well behaved" back then. Then again, I also vaguely seem to remember being able to buy a fully loaded Camaro Z28 for $3,500 back in 1970 or so!  I was too young to be driving back then anyway. Disclaimer ( I did buy a used one however some years later - it was a 1971 with that LT1, 350 engine - I lost count of how many speeding tickets I got on account of that car - if that thing had come equipped with a set of wings, it would have gone airborne - those of you who know the Beach Boys "Little Deuce Coup" - will know what I mean).

I said all this to let you know that I still plan on posting, but I am backing off the number of posts in order to recharge and refresh a bit. Trying to write and trade and track markets at the same time takes a toll.

With that in mind, here is my latest... by the way, Eric King and I will be doing the regular Weekly Metals Wrap together over at King World News so tune in for that when it gets posted.

Please note several aspects about the gold chart.

Fist of all, from a trend following perspective, it is trading above all the major moving averages once again. That tells us that the chart is bullish. Secondly, the 10 day moving average (blue line), which had been moving down until last Friday, has now turned up and is trending higher. It is also getting ready to make a bullish upside crossover of the 20 day moving average (red line). That will be bullish as well.

Also note that the market held above the 40 day moving average (dotted line) even on its setback in price, failing to close BELOW that level once. That means that the trend following funds were still active and were buying the dip or retracement  in price.

The MACD, a good trend following indicator, is bullish.

Based on what I can see here, gold looks as if it wants to make a try at $1550, one of those even numbered levels that takes on a technical significance as price approaches it. It is important to note that this is occurring late in May, a time frame during which gold tends to show seasonal weakness. This seasonal weakness however can be attributed to factors, which while important, are not what are driving gold at this time. The festival seasons from Asia and India are over and the strong jewelry related demand is therefore missing. However, gold is not deriving the bulk of its strength from that source but rather from currency related matters.

By currency related matters I mean investor concerns over the stability of paper currencies due to the tremendous amount of debt being run up by so many nations. European sovereign debt woes remain a strong source of gold related buying, especially from investors on the Continent. This is reflected in the very strong gold price in terms of the Euro and of the British Pound. As you know, Euro priced gold set a new record high this week.

Here in the US, our total federal debt level is at 100% of GDP. We are looking at entitlement programs which will be bankrupt within less than a decade on the current trajectory. Many states are in precarious financial condition which large numbers of municipalities and counties facing their own set of problems. Much of this is tied to the collapse in real estate values and thus affects valuations which are a source of property tax revenues. News on the housing market continues to reflect a sector that is mired in a supply glut at a time when demand is feeble. That is not a recipe for improving valuations anytime in the immediate future.

Ever since Fed governor Bullard let the cat out of the bag and basically told the market that the Fed would not be withdrawing accommodative monetary policy until at least July 2012, the Dollar has been moving steadily lower. That keeps REAL INTEREST rate yields negative and has strengthened the conviction in many traders’ minds that such an environment is going to be the norm for at least another year. Gold LOVES those kinds of conditions and thus has moved steadily higher ever since Bullard’s comments.

While it may dip in price moving forward, as long as this negative real interest rate environment is present, it is going to attract strong buying on such occasions, particularly if Euro-priced and British Pound-priced gold continue their impressive chart action.

Also, an additional kicker for gold is that the CCI, the Continuous Commodity Index, is now trading above 650 as it puts a bit of distance between itself and that critical technical chart level of 640. The commodity markets are signaling that prices had fallen far enough and that this fall had been sufficient to scare the Fed out of any further hawkish talk. I would be surprised to see much in the way of comments coming out from the usual hawks on the FOMC. As long as these economic data numbers that we keep getting are coming out on the low side of expectations and disappointing investors, the doves at the FOMC are going to be getting the airtime.

Note that the Dollar has broken down through the 50 day moving average at this hour and is also down below support near 75.20. A week close today does not bode well for next week.

Thursday, May 26, 2011

Trader Dan taking a bit of a break

I wanted to apologize for the lack of regular postings this past week. I am a bit worn out with these markets of late and am attempting to keep my sanity. I will be posting but until I can get some rest and recuperate a bit, I am going to ease off a tad. Thanks for understanding.

Trader Dan

Wednesday, May 25, 2011

US Dollar running into some selling

The US Dollar has been able to keep its footing above the 50 day moving average on its daily price chart which is technically bullish but it does seem to be running into plenty of willing sellers between 76.50 - 76.00.

While the Daily chart is much improved its weekly chart still shows it in a definite downtrend.

If the Dollar is going to extend its rally from current levels, it is going to need to take out 76.50 for starters and hold that level going into the close of the trading week.

While gold has been pretty much ignoring what the Dollar has been doing of late, the Dollar still is exerting an influence on the overall commodity sector. Its recent weakness of the past three trading sessions, which I believe is tied to dovish talk coming out of the Fed, has enabled the fund money flows to come back into the commodity sector in general. This has pushed the CCI back above the 640 level, a level which I believe is indicative of the appetite of the hedge fund community for risk. Above 640, they love risk; below 640, they hate risk. Wax on; Wax off.

If the Dollar does rally through 76.50, it is doubtful that the CCI will be able to hold above the 640 level. If the Dollar falls further down towards the 50 day moving average near 75.25, the CCI will continue to push higher.

Since silver is perhaps the strongest recipient of the risk trade, the weaker the Dollar, the more likely we will see silver back up near $40.

What is happening right now is that the same weakness in economic data releases from the US showing an economy that is in danger of stalling, data which had initially worked to throw the risk trades off the table, now seems to be working in the opposite with traders/investors viewing the dovish comments from certain Fed officials as a sign that the Fed is not going to change an accomodative monetary policy. In other words, interest rates will stay at extremely low levels for at least another 12 months. Some are thinking a step further will be some form of stimulus coming from the Fed as well.

If this thinking is for real and begins to take hold, the Fed will be extremely hesitant to cross the market since the reaction would be a huge sell off in equities and a smashing of the commodity markets by hedge funds running out of risk trades. That would instill fears of deflation once again, somethign which the Bernanke-led Fed will not permit.

For now, the commodity complex is signaling that the market has baked into the cake the end of QE2 but not the end of low interest rates with some expecting further stimulus. The more the expectation of additional Fed stimulus grows, the weaker the Dollar will become and the stronger gold will be.

We will have to watch the Dollar's price action to get some sort of clue to what the consensus of the investor community is in this regards.

Investors looking to the Fed for stimulus again?

It is perhaps a bit premature to jump to conclusions but today's price action in the overall commodity sector seems to be signaling that a subtle shift is occuring in the minds of some investors in regards to the Fed and the upcoming end to QE2 at the end of next month.

Fed governor Bullard might have been the one who got the ball rolling by his comments from yesterday when he stated that there would more than likely be no monetary tightening until later next year. That put a firm bid under many commodity markets and kicked some of them strongly higher yesterday. It also seemed to pull the Dollar down somewhat from its best levels of the session even while it was supported by an aversion to the Euro based on the woes in Euroland.

Today we are seeing a sharp rise in the CCI (Continuous Commodity Index) which has taken it up past that key 640 level that I am closely monitoring. We are also seeing the Dollar unable to push higher. With money flows coming back into the commodity sector, it comes as no surprise that those markets which led the sector lower are now leading the sector higher. That is why silver is so strong this morning. Also, crude oil is trading closer to $101.

What might be happening is that investors are looking at the ugly chart pattern forming on the S&P and seeing this recent near-collapse in commodity prices and putting two and two together. What I mean by that is they are thinking that while the come-down in commodity prices, notably energy and some foods has been welcome, no one wants to see a collapse of the magnitude of 2008. It was not that long ago when I posted a comment here at my site and wondered whether a deflationary mindset was creeping back in. That word, "deflation", sends dread and fear running down the backs of Chairman Bernanke. Bernanke will not let such a mindset get firmly established.

With fears of a slowdown in growth for the emerging markets, and a concerns that recent US economic data has been weak, traders are beginning to suspect that the doves at the Fed are going to have their way and that some sort of stimulus is going to be forthcoming from the Fed. Keep in mind that the Fed views as part of its mandate, growth in employment. With this sort of data coming out and with the thinking in connected circles that the sharp fall in commodity prices has taken the wind out of the inflation genie for the short term, the Fed now has room to come up with some sort of stimulus, whether that be another round of QE or something else.

Again, one day does not a trend make but I do find it noteworthy to see the extent of the money flows coming back into the commodity sector today. That would not be occuring unless traders believed that the Fed was going to shift gears and perhaps become more accomodative. It could be that the consensus is that the Fed overshot it to the upside the first time around, then overshot it to the downside by sounding too hawkish of late and now may be trying to find a happy medium.

Either way, for today at least, watching copper moving up nearly 2.5%, enough traders think that something friendly is coming down the pike and is paving the way for "risk trades" to return.

Tuesday, May 24, 2011

4 Hour Silver Chart

Silver pushed past resistance at the top of its narrow range which came in near $36. It ran higher in very early Asian trade but has not been able to extend its gains and push beyond $37. It has a band of overhead resistance near $37.50 that will be formidable and will need to give way if it is going to make a push towards $40.

Fed's Bullard gives Commodity Rally the Green Light - Goldman helps out

If you are looking for a reason to explain the strength seen across a widespread portion of the commodity sector today, particularly silver, crude oil and gasoline, look no further than comments from the St. Louis Federal Reserve President Bullard, who actually provided a date in the future at which the Fed might begin pulling back on its monetary accomodation.

He was speaking at a Rotary Club meeting in Missouri when he stated that it might be in the SECOND HALF OF NEXT YEAR that the Fed would begin to effectively tighten.

The Fed Funds futures contract is signaling a move higher in the Fed Funds rate in the July 2012 contract.

Once the market digested those comments, some of the commodity markets got a fresh influx of hot money flows lifting them strongly higher on the session. No surprise that Goldman would issue their call to buy commodities. They obviously knew in advance.

That buying was enough to take silver out of the top of its recent tighter range near $36. It has a chance now to make a run towards $37.50. Only a good breakout above $40 will see it resume its uptrending move in earnest.

Crude oil punched through $100 today, no mean feat considering the selling it has been experiencing of late due to risk aversion flows. Goldman Sachs, whose call for lower commodities a few weeks back, touched off an avalanche of selling, changed their colors and came out today with a buy recommendation for several commodity markets, including crude oil. Crude was already moving higher on that news but when the Bullard comments hit the wire, it got an extra kick higher.

While today's move higher in crude is impressive, it is still stuck in a range trade on the technical price charts and will need a solid close above $101 at a bare minimum if it is going to set off any fireworks in there. Unleaded gasoline needs a closing push through today's session high near $302.50 to get something going in there.

The CCI, Continuous Commodity Index, while higher today, is still trading below 640. I view this level as a pivot around which it is rotating and which it must clear on the upside if we are going to see a solid revival in the overall "buy commodities" theme. There are still more than a few individual commodity sectors which are lagging badly, among them the grains and the livestock markets. If those both turn in conjunction with higher energy and metals prices, then I think we are on to something again with the risk trades. If not, it will be more range trading and consolidation for the sector as whole with traders having to hand pick which markets that they want to buy instead of just plopping down money on anything tangible and then waiting for prices to go higher.

In a perverse sort of way, Bullard's comments managed to get the best of all worlds for the Fed - they put a bid under the equity markets as traders were less fearful of monetary accomodation coming off anytime soon while bonds moved higher, shoving yields lower, on the idea that the easy monetary policy was indicative of the Fed's caution towards any economic recovery. Today was one of those days where the Fed got to have its cake and eat it too.

While the broad equity markets were on the plus side today, the mining stocks as exemplified by the HUI and the XAU confirmed technical bottoms by todays strong showing. They have been flirting with bottoming action for nearly a week now but were not quite able to get the job done. The solid push through last week's high for both indices is a bullish chart development and augurs for further gains, provided that we do not get any contradictory statements coming from any other Fed governor soon.

Monday, May 23, 2011

US Dollar now solidly above the 50 day moving average

The "risk aversion/slowing global growth" trades have resulted in a huge unwind of carry trades over the last month. This unwind is bringing upward pressure on the funding currencies of choice, not the least of which has been the US Dollar due to the ultra low interest rates here in the US.

This continued exodus from risk has pushed the US Dollar firmly above its 50 day moving average and put it into position to actually challenge its 100 day moving average, a critical technical level on the price charts. While there is not the least bit of fundamental support for strength in the US Dollar, these technical factors which are driving it cannot be ignored by traders/investors. How much longer the Dollar can benefit from being the "NOT the EURO" trade is unclear but it is coming quite close to the region marked on the chart which will give us a clue as to its direction over the coming summer months.

Note on the chart the two horizontal lines drawn that form a zone between 77.00 - 76.70. Note also that the downward sloping 100 day moving average line falls right into the middle of this zone.

If the Dollar rally is going to fail, it will fail near this zone. If it does not, then there exists a very good chance that the risk trade unwind will push the Dollar upwards toward the 200 day moving average and the region near 78.

What is most interesting however is how gold is responding to this bout of strength in the Dollar - it is not breaking lower but is moving steadily higher. I referenced this in my earlier comments from today where I spoke to the strength in both Euro priced and British Pound priced gold. What these charts are telling us and what this price action is crying is that gold is trading as a currency with its own virtues in a time in which there is a growing lack of confidence in the monetary authorities of both Euroland and the US, as well as other nations around the planet.

Keep in mind also that the summer time is generally not a season during which gold exhibits a great deal of strength on an historical basis. Should we see the kind of resilience continue in gold over the summer that we are currently seeing, I think it will be an early indicator that we are going to see a new record high price in the yellow metal sometime during the 3rd quarter of this year. Stay tuned on this one.

Ron Paul's commentary on the debt ceiling

I recently took quite a bit of flak from those supporters of Ron Paul who disputed the account published in the New York Sun that the Congressman from Texas had advocated selling off some of the nation's gold to pay for its debts.

I was then and still am opposed to that idea on several grounds not the least of which is the idea that there is insufficient gold, even at the current market value, to make a serious dent in the gargantuan $14 trillion + debt burden of the US. That then begs the question as to which class of debtors would get the option of being paid in gold, US citizens who own the debt either directly or indirectly through investments made in pension funds or mutual funds, etc., or foreign creditors such as China who hold a tremendous amount of our overall debt.

First of all, who would make such a decision? Secondly, no matter which group was chosen, the other group was going to be provoked into an angry response. Certainly if China were snubbed in favor of our own citizens, they being our banker, the fallout would not at all be pleasant. If China were paid in gold and our own citizens left to be paid in a depreciating fiat currency, the noise of protest and outrage here at home would be deafening.

The main issue I have with selling our gold to pay off our debt is that it smells too much to me like a scenario in which a drunken spendthrift has run his family into the debt house forcing the unfortunate souls to sell anything they have left of value to extricate themselves from their prison. In our case however it is a prison imposed by the reckless folly and stupidity of the political class of this nation.

I see a future for gold in a revised monetary system and I believe that the US would be much better served by retaining our nation's gold holdings intact (whatever we happen to have left of those holdings is anyone's guess) rather than selling off such a precious asset.

I would love to get further into this topic but that is not my intention at this time. In the interest of fairness and to give credit where credit is due, the honorable Congressman from Texas has issued a statement on his website detailing his strong opposition to extending the debt ceiling. Let me say that this is Ron Paul at his best and he has my complete support when he makes a statement of such nature.

I would much rather see statements of this kind, followed up with action by a majority of Republicans in Congress, that would enforce a fiscal restraint on our reckless and dangerous spending, rather than any talk of potential gold sales.

Hats off to the Congressman for this one. From Dr. Paul's comments below:

Stop Raising the Debt Ceiling
The federal government once again has reached the limit of its legal ability to borrow money, meaning it cannot issue new Treasury debt without action by Congress to increase the debt ceiling limit. 

Please be sure to read the entire set of comments by clicking here:


Gold strength in Euro and British Pound terms firming up US Dollar priced gold

The same concerns that are sending equity market bulls scurrying for cover, namely, European sovereign debt fears and  a growing sense that an overall slowdown in the global economy is coming, are sending gold higher in a display of resilience which undoubtedly has been causing a lot of angst among gold bears.

Take a look at the following charts to see the remarkable performance of the yellow metal.

Meanwhile, U S Dollar priced gold has clawed its way back towards heavy resistance near the $1520 level. If gold can take this out and hold above it for a few hours, it sets up a run towards $1530, which is the last barrier standing between it and $1550.

Initial support has moved up towards $1500 which is acting as a floor right now. One has to be tremendously impressed with the strength in gold coming in the face of a Dollar that has breached overhead chart resistance and a sharp move lower in the US equity markets. Additionally, the brainless hedge fund algorithms are busy throwing away anything looking remotely like a commodity today (no one is going to eat since the stock market is falling) which is not having any impact on gold whatsoever. It truly is functioning like a safe haven.

Also, while the equity market weakness is weighing on the mining shares, both the HUI and the XAU continue to hold above recent lows.

Saturday, May 21, 2011

Silver - Commitment of Traders

This week's release of the Commitment of Traders report by the CFTC contained some noteworthy developments in regards to the silver market. I discussed this with Eric King so make sure to listen in to the KWN Weekly Metals Wrap where we cover this.

If you want to have a visual to go along with that discussion, I am providing it here in the form of this chart.

First of all, the hedge fund category (Managed Money), has been steadily liquidating their long positions in silver for some time now and that continued this past week. The result is that their overall net long position is now at levels last seen in this category dating back to the late February- March 2010 time frame. At that time, the price of silver was trading between $16.50 and $17.30!  Yet here we are with silver sitting closer to $35. In other words, the price of silver has doubled since then while the hedge fund position is at the same level as it was when price was half of what it is today.

What this tells us is that once silver falls back into favor with the speculative crowd, it will launch its next leg higher from a substantially higher price level. Let's assume for the moment  that the interest to be on the long side reaches levels commensurate with what we have seen recently. It is easily conceivable that the price could effectively double from the point at which that next leg higher commences. I do not know from what level that will occur or the time frame, but with the large specs having been greatly cleaned out of the silver market, there will be enormous upside potential in this market when conditions are ripe.

The flip side of this and the second point worth noting is that the big commercial net short position is shrinking quite rapidly. As you can see on the chart by following the horizontal line across the chart, their net short position is now the smallest it has been since May 2009, a full two years ago! Silver was trading between $12 - $14 back then.

Also related to this is that the Swap Dealers are now net longs. They have not been on this side of the market since late November of last year.

What I am atttempting to say that this consolidation period for the metal is extremely healthy for the long term. It continues to see more and more speculative long side liquidation but that is being met by a very large amount of short covering from the biggest shorts in the silver market. The result of this has been to lock silver into a range trade which is keeping the metal from breaking down substantially further and producing the curent trading range that we see on the price charts.

We therefore would have to see a sharp pullback in commercial short covering activity for the market to collapse in price. They are steadily buying and their buying is of sufficient size that it is absorbing the hedge fund liquidation-related selling. Quite frankly, as long as the bullion banks keep buying I do not see where we will get the firepower of selling that would be necessary to cause silver to fall apart. One would almost have to see the hedge funds actively take to the short side of the market to generate enough force to press silver down through the kind of buying that the commercials are now providing.

The more the hedge fund long side exposure keeps dropping, the better as far as I am concerned provided that this trading range continues with the market holding above the recent lows in price. The ideal setup for silver would be for it to build a rock, solid base of support at a new and higher price level, let's say somewhere near and around $30 or so, from which it can then make the next leg higher in this now decade long+ bull market.

Trader Dan on King World News Weekly Metals Wrap

Click here to listen to my regular weekly radio interview with Eric King at King World News on the KWN Weekly Metals Wrap.


Friday, May 20, 2011

Gold very firm in terms of European Major Currencies

While US Dollar priced gold has been holding relatively firm lately, it remains well off its recent record high near $1580. That has not been the case with gold priced in terms of the major European currencies. Take a look at the following charts and note that gold is trading very close up against its record price in terms of two out of three European majors.

What this tells us is that the metal is attracting significant safe haven buying by investors out of Europe who are increasingly concerned over the unstable financial picture of some of the member nations of the EU. These sovereign debt woes continue to unnerve investors who are attracted to gold as a place to park their wealth.

I believe that this is one of the reasons that gold in US Dollar terms will not break down technically but continues to find substantial buying on dips into the lower part of its trading range. If gold does forge ahead into new highs in terms of any of these European currencies, look for US Dollar priced gold to break out of its range trade and make a run towards $1550.

While gold priced in terms of the Swiss Franc is not as strong on its chart as the two currency-priced charts above, it is still holding very firm. The Swiss Franc is still retaining some of its historical safe haven status and its relative strength against both the Euro and the Pound, and of course the Dollar, is working to keep the price of gold a bit weaker.

Thursday, May 19, 2011

Bonds rescued right on schedule once again (It's a miracle!)

The Long Bond, after putting in a bearish engulfing pattern in Wednesday's session saw solid followthrough selling in the overnight session and into early Thursday morning. About mid morning Thursday they began to recover after being down nearly a full point at one time. By the time the session closed, they had managed to come all the way back and ended up closing only 3 ticks lower. Once again they were rescued just as they were breaking down technically on the price charts (don't you love our free markets here in the US).

The Fed has to love the hedge funds rushing out of risk trades and stuffing money into the bond market. What QE-related purchases of Treasuries could not accomplish (lower longer term interest rates), the risk off trades have performed. With the Fed supposedly going out of the bond buying business at the end of next month, someone has to buy these paper IOU's.

Look for more bond selling if the equity markets can mount any sort of strong rally. If the equities give up the ghost and begin fading, the bond bears will receive the usual ignominious treatment that they are getting accustomed to receiving from this market.

Either the stock market rallies or the bond market rallies; both are not going to go up together. Let's see which poison the Fed chooses to administer to the public.

4 Hour Gold Chart

Not much going on today (Thursday). A slow day with nothing having changed for gold which remains in its recent range.

Ditto for Silver which is also working in a range with $36 or so on the top side and $33 down on the bottom.

The Continuous Commodity Index was lower today surrending a large portion of its gains from yesterday but is attempting to hold above the broken support line on its weekly chart. We would want to see it be able to do so tomorrow (Friday) as a strong finish to end the week would bode well for gold and silver next week. The flip side is a weak finish would see pressure on the metals to start off next week barring any unforeseen geopolitical events over the weekend.

Wednesday, May 18, 2011

Continuous Commodity Index back above its recently broken support level

Some of the readers might recall seeing the chart of the CCI that I posted not long ago detailing my concerns as to whether a deflationary mindset was creeping back into the markets. That was based on the pattern of the weekly CCI chart which showed a breakdown of the support level thereby forming a double top in the process.

Today, the risk trades were back in force with the US equity markets roaring higher once again. That had most commodity markets seeing hedge fund money flowing in after it all flowed out for the past two weeks.

In the process, the CCI was able to move back above the broken support level shown on the chart which set off the double top alarm bells. This is a significant development as it shows that the bulls are not yet ready to throw in the towel on the commodity sector as a viable asset class. Here is the key however - today's move was impressive but there are still two days remaining in the trading week.

How this index closes Friday afternoon will be a very big deal. If it can hold this level which comes in near 640 and stay above that, preferably moving above the previous week's high at 650 while so doing, it would give us the very real possibility that a bear trap was sprung and this index is going to try pushing back towards 660 for starters. That would immensely benefit both gold and silver bulls.

Should the index fail and drop back below 640 for the week on the close, the bears would have dodged a bullet and the bulls will be back on defense.

Obviously we are all back to trading risk or not risk. "Wax on Daniel San; Wax off Daniel San". If Risk is back on, then the index will move higher. If not, it will move below support once again.

By the way, the long bond chart shows the return of risk trades in today's session with a huge downside move forming a bearish engulfing pattern on the daily chart. Whether that holds is anyone's guess. As manic as the hedge funds are, they could stage an outside day reversal to the upside tomorrow. However, after having moved nearly vertical for the past 5 weeks, the bonds are overbought technically giving traders a reason to book profits based off the bearish chart signal today.

I would feel a bit more confident about a breakdown in the bonds if we get some followthrough selling in tomorrow's (Thursday) session. They are still above the 10 day moving average and need to at least take that out to get the bulls wavering a bit further. Also note that the bonds have completed a move to the 50% Fibonacci retracement level from the decline off the late October high where they promptly failed. The bulls will need some ammunition to prevent some bears from getting a bit more confident.

4 Hour Gold Chart

Gold continues its range trade and has now moved to the top of that range between $1500 and $1480 - $1470. A strong push past $1500 would be a psychological boost to the gold bulls and would unnerve a few of the weaker shorts as well. We could expect to see their short covering provide enough fuel to take it to $1510 should that occur.

It will take a close through $1520 to let it challenge $1530 and give it the potential to then attack $1550.

Downside moves towards $1480 - $1470 continue to attract buying and with the Dollar fading from near the 76 level again, that buying should continue. I would not expect $1470 to give way unless the USDX were to be able to push towards 76.50.

Must be a Slow Day at the FDA

Apparently the Food and Drug Administration has nothing better to do with their time than hunt down those crafty food terrorists also known as the Amish.

I am shocked, simply shocked, that raw, unpasteurized milk was being sold to willing buyers. It is just a matter of time before the names of these devious dairy farmers appear on the no-fly list. Then again, maybe the feds will come up with a "no horse buggy ride" list instead.

Feds sting Amish farmer selling raw milk locally

A yearlong sting operation, including aliases, a 5 a.m. surprise inspection and surreptitious purchases from an Amish farm in Pennsylvania, culminated in the federal government announcing this week that it has gone to court to stop Rainbow Acres Farm from selling its contraband to willing customers in the Washington area.

You can read the entire story here:



Tuesday, May 17, 2011

XAU attempting to bottom

The XAU and the HUI are both showing some good resilience at these levels. Three times over the last 4 trading sessions the XAU has bounced from off the level near 193. It is can take out 200, it should spark some short covering which will be indicative of the shares moving a bit higher from current levels as they are grossly oversold.

Gold - 4 Hour chart update

Gold is rangebound as is silver as it continues to attract buying on forays down towards $1480 and below. It has resistance at the top of its range coming in first near $1495 and then again up near $1510.

Silver - 4 hour chart

Silver has bounced off of support down near $33 once again and is moving higher at this hour. Thus far it is reinforcing that level as good buying support with selling coming in near $36 - $37. It might very well be carving out a new range.

Keep in mind that as equity markets move higher, so too will silver and as equity markets move lower, silver will follow. It is all about risk trades and money flows for the time being and whether or not the hedge funds are putting those on or taking them off.

Ron Paul proposes that the US sell gold to pay its debt

Those of you out there who believe that Ron Paul can do no wrong, would be well advised to read his comments proposing that the US sell some of its gold reserves to pay its debts.

Chalk up a hair-brained idea from the Congressman from Texas. While we are at it, why not just sell off the Brooklyn Bridge, Yosemite, Yellowstone and the Everglades. And to think that I actually believed he was very solid on monetary matters.

The Republican party, which by the way has control of the House of Representatives, could simply refuse to raise the debt limit and insist on obtaining strict spending cuts to get the US economic house in order but that would require something that most of our elected representatives do not have. AFter all, all spending bills are required to originate in the House. If the House does not approve the spending bill, the money cannot be spent.

Instead the proposal reeks of the same sort of desperation seen by spendthrifts who end up scouring their old dresser drawers and boxes in their closets looking for family heirlooms and other valuables to go hock at the local pawn shop. The very fact that this idea is actually floating around out there fills me with complete disgust and disdain for the political class. These damn fools spent us all into the toilet and now are considering having to sell what belongs to the US citizenry to cover their rear ends.

Study history - the nation with the most gold will be the nation which holds economic supremacy. Here's a bit of advice for the pols in Washington, including Mr. Paul - stop spending money you do not have. It is not your money that you are spending; it is ours and our children's money.

This is one of the few times that I believe the spokesman for the Obama administration makes sense.

If the US was wise, it would be the first to introduce some sort of gold backing to its currency (after significantly upwardly revaluing the official price at which those holdings are currently valued). That combined with serious attempts to rein in the out of control spending and pro-growth policies would enable the US to begin to grow its economy and create the necessary jobs to supply the desperately needed revenues that the policy makers are looking for.

Of course, if they actually did sell it, India and/or China would gobble it all up in one fell swoop.

See the entire article here.


Selling Gold at Fort Knox Emerges as Next Big Question in Debate on Federal Debt Limit

Congressman Paul Endorses the Idea, Amid Showdown Between Congress, Administration
By DAVID PIETRUSZA, Special to the Sun | May 17, 2011
NEW YORK — The next big question on the federal debt limit could be whether to start selling the government’s holdings of gold at Fort Knox — and at least one presidential contender, Ron Paul, has told The New York Sun he thinks it would be a good move.

Is a Deflationary Mindset creeping back in?

Take a look at the following four charts and judge for yourself.

First - the overall Commodity Complex as illustrated by the CCI (Continuous Commodity Index). It continues to trade below the support level delineating a double top pattern. Until it climbs back above this level, it tells us that commodities as a sector are currently out of favor with the hedge funds. While the steep, near term uptrend has currently been broken, the longer term uptrend remains solidly intact however.

Translation - while the hedgies are currently disgorging long positions in the commodity sector as a whole, the major trend towards higher commodity prices over the long haul is still very much alive. Short term trend - bearish. Long term trend - bullish.

Second - the Long Bond - it has now broken out to the upside and is moving higher dropping yields lower. The long bond in particular is a good gauge of trader expectations of inflation. Bonds are now in a "see no evil, hear no evil, speak no evil" mode when it comes to inflation. This is the exact same thing they did back in 2008 when the carry trade was unwinding and commodities were buckling.

Note that the bonds have moved exactly to the 50 week moving average, a critical resistance level. If they break through this, they are going to head towards the 50% Fibonacci retracement level of the decline that began last year when talk about the next round of Quantitative Easing began surfacing. They then completely broke down as traders correctly feared the inflationary impact of Ben's helicopter drop. This is the reason I suggest that if the equity markets begin to implode as QE2 supposedly comes to an end when the month of June expires, that the FOMC may very well possibly cook up a new QE3 if economic data continues to deteriorate and the payrolls situation does not begin to improve. The economy can only continue to muddle along for so long before cries for the Fed to "Do Something" will surface.

Thirdly - the US Dollar continues to trade above its 50 day moving average. While it has yet to close above tough resistance near 76 on the USDX it is still holding above that major moving average. If it falls back down below this level, it should encourage the risk trades to come back on, at least for a while. That would push commodity prices higher. If it moves higher and takes out 76 on a closing basis it would indicate that a run towards 77 is very likely. Such a thing would feed into further unwinding of the carry trade and would pressure commodities overall.

Fourthly and lastly - the S&P 500, which is the best representation of the broader US equity markets. While its daily chart is showing definite signs of weakness, the weekly chart still shows a market in a solid uptrend. This is perhaps the one thing that is keeping the deflationary mindset from becoming firmly entrenched and what is keeping this from becoming a replay of 2008. As long as this market holds the uptrend, weakness in the commodity sector should not become too serious. If this market were to break down on the weekly chart however, we would have to expect more weakness across the commodity sector as a whole, especially if the US Dollar were to break through 77 on the USDX.

Keep in mind that this is perhaps the worst volatility that we have experienced in some time. Various factors are producing severe crosswinds which are creating instability and confusion in the minds of traders/investors as such attempt to discern the impact of Central Bank action or inaction on the markets. Sovereign debt woes in Euroland have added yet another mixture to this bizarre witches' brew of uncertainty. Inflation fears in the emerging economic powerhouses of China and Brazil add yet another component for those attempting to see through the fog and ascertain the status of the overall global economy. Energy prices have soared fanning the fears of inflation only to come crashing back to earth once traders feared their dampening impact on global growth. Now that these same energy prices have dropped so sharply, does this work to improve growth prospects as the "energy tax" impact dissipates? Or is this a sign of deflation creeping back in? That same questions could be asked over food prices in general.

With all of these factors many traders are just saying, "enough" and are heading to the sidelines. That works to create even more volatility as it tends to exaggerate or amplify price swings in the markets on account of the reduced liquidity.

Expect the unexpected and you will be okay. Look at the longer term charts to keep your perspective and try not to be too distracted by the day to day gyrations. Respect the technicals on the charts as our modern markets are governed by these, whether we like it or not. If you do, you will come through this perhaps a bit bloodied but you will come through it as a survivor. Be foolish enough to attempt to impose your will on the market, and you will be crushed and left for dead on the trading floor. Remember that the markets could care less what any of us think or say about them. They are what they are. Professionals know this; Novices will learn this soon enough, much to their own chagrin and impoverishment.

Monday, May 16, 2011

Gold still rangebound

Gold is still running into selling above the $1500 level. If the bottom of the recent range is to stay intact, it will need to encounter good buying above $1480. If that were to fail, it will drift down towards $1460 where I would expect it to find some good support as sovereign debt issues in the Eurozone combined with US fiscal and economic woes should bring in value based safe haven buying.

Silver Fails to hold at $34

Silver has been finding good quality buying every time is has dipped below $34 over the last couple of weeks. This afternoon it crashed through $34 but this time it has not popped higher almost immediately. That has me concerned that it is headed down to retest the recent low near $32.50 on the downside. If that fails to offer support, chances are very good that we will see it test $30.

I am not sure whether it is the tail wagging the dog or the dog wagging the tail. By that I mean to say I am not sure whether the continued selling in gasoline and crude oil is weighing on silver or whether silver is helping to weigh on the crude and gasoline markets. I think it is actually the former right now as losses across the energy complex are creating a terrible drag on most of the commodity markets right now.

For silver to stabilize, we need to see the equity markets stabilize. So far, that is not happening. They looked as if they were going to do just that earlier in the session today but then the sellers came out of the woodwork and unloaded on equities and that was that. The S&P 500 looks like it has solidly broken down based off of today's price action as it took out last week's low and the previous week's low in the process. There is some support near the 1300 level in there which will need to hold or it is going to be a long summer for Bernanke and company, not to mention the current Administration. They had one thing going for them with all this QE created liquidity - while the job market was in the crapper, at least those who had 401K's and IRA's with stocks were feeling pretty good about those. If that support vanishes with a fading equity market, then what?

That is why this talk about ending QE2 at the end of June is worth second guessing. If the stock market implodes, and the labor markets fail to respond positively, do you really believe that the Fed is going to be able to resist the calls for more liquidity? That will surely give the doves on the FOMC the added advantage of being able to say, "we told you so".

Do not forget that the last time the QE1 program was ready to expire, the US equity markets began rolling over and that rollover, combined with the lousy job market, was enough to send officials into a tizzy. Out rolled QE2.

This time, now that Bernanke and company have managed to completely derail the commodity sector rally by their quasi, non-tightening, tightening talk, causing a virtual collapse in gasoline prices and many food prices. They can now state that they have "room" to push another liquidity program especially with the Dollar moving up from the 73 level on the USDX. Bernanke also has the added credibility of seeing his comments about energy and food prices being temporary and modest as a result of this recent debacle in the commodity markets. While they wanted energy prices down, they DO NOT WANT a return to a deflationary mindset in the investing world so this will be something that they will be keenly watching. Remember, the purpose of the Fed is to get the hedge funds to do their bidding for them. When prices were deflating, they were signalling, nay, begging, for the hedge funds to start buying up everything on the planet that was not nailed down. Once their slaves did their bidding, then they were irritated that they went too far and began pushing prices to the point where the public started complaining about high gasoline prices and the politicians began taking heat from their constituencies. That had to be rectified. But like disobedient slaves, more often than not the mindless hedge funds cannot be counted on to understand their master's true desires so if they start selling too much and actually begin loading up on the short side of too many markets, particularly the equity markets, then the master will be displeased.

Time will tell but I find it hard to believe that if the US equity markets continue reacting to an expected ending of QE2 at the end of next month, the way they have been acting the last two weeks, that Ben and company are not going to be forced to give them another bowl of punch.

Saturday, May 14, 2011

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen to my regularly weekly radio interview with Eric King of King World News on the Weekly Metals Wrap.


Friday, May 13, 2011

The site should be up and running now

Apparently Google's Blogger service had some sort of technical glitch which took down most if not all of its blogs for some time. I understand that the service should be up and running now so I will be posting some comments and charts as time permits.

Please read the comments I posted today (Friday) over at jsmineset.com.

Thursday, May 12, 2011

Long Bond Flops on Poor Auction results

Reports are that the $16 billion, 30 year bond auction, generated poor demand. That should not come as much of a surprise after the big rally has dropped yields down to levels that no one in their right mind would want to lock up capital at for 30 years.

Bonds dropped nearly a full point on the auction news but are once again finding buying at a critical technical juncture. No surprise there also in this heavily rigged market.

Wednesday, May 11, 2011

China still struggling against inflation

Look for continued buying in the gold market coming out of China as that nation contends with serious inflation problems. Their version of the CPI showed a gain of 5.3% in April, down from 5.4% in March, but above what most of the market was looking for (5.2%). Keep in mind that real rates in China are currently negative on one year savings accounts.

This helps explain why gold is holding much better than silver right now. Silver is being seen as a speculators' playground while gold is keeping with its historic role as a safe haven. The reason for its downdraft today is related to hedge fund selling algorithms which blindly sell every single commodity across the board with no discrimination whatsoever.

Such things are welcome in Asia as opportunities.

Gold has bounced back above $1500 in late session trading as the session nears an end in New York. Silver is currently acting as a drag on gold but if it can hold above $35, gold should bounce moving into Asian trading this evening as the margin related selling winds down.

XAU needs to find support very soon

The large cap mining stocks continue to get obliterated as evidenced by the XAU which is now perched precariously above a critical support level on the weekly chart. The entirety of the gains of 2011 have now been erased by this continued ratio spread trade which will not let up.

To give you an idea of how obscene this trade has become, when the XAU was trading at today's levels back in January of this year, gold was trading in the low $1300's!

What is astonishing is the silence of far too many mining company CEO's while their stock value is getting systematically destroyed. A bounce in the metals should bring some valued based buying into the mining shares particularly at these levels. 

Gold - 4 Hour chart update

Gold made it back above the 50% Fibonacci retracement level of its most recent decline from its record price but was unable to maintain its footing over that level. That led some of the longs to bail out and enticed some short selling. Price then fell below $1500 once again which will need to be regained to give the bulls the edge in this market.

Gold is caught in a tug of war beween speculative selling related to hedge fund algorithms and safe haven buying on account of sovereign debt fears in Europe. In terms of the Euro, while it is weaker today, it is actually holding fairly well compared to the massacre across the rest of the commodity complex.

I am optimistic that this market is entering a consolidation phase and is carving out a new trading range. Right now we have $1520 on the top and $1460 on the bottom until we get some subsequent levels to form on the chart.

Silver - 4 hour chart

Risk-off trades have returned with a vengeance today. I believe a fair amount of the selling is tied to hedge fund panic type selling related to the conviction of a hedge fund manager on insider trading violations. That seems to have terrified the hedgies and has them running out of everything with the exception of the US Dollar. It has also put a mild bid back into the bonds (once again - everytime they appear to get ready to rollover, they are resuscitated - more evidence that the US bond market is the largest rigged market on the planet right now - these things have more lives than a cat). It is my firm conviction that the US monetary authorities are doing everything in their power to break the back of the commodity rally and prop up the rotten and utterly worthless paper IOU market (Treasuries). They are fully at war with the speculative community.

Silver, after briefly moving back above $39 in Asian trading, was once again obliterated. Ditto for the energies, gasoline in particular, which dropped so sharply at one point during the trading session, that trading was halted and then reopened under extended trading limits. Consumers will of course welcome this sell off.

One can now make the case that a bearish flag formation has been formed on the daily silver chart but I should note here that it still remains well above the recent low near $33. Additionally, a large number of longs have already liquidated their positions in this market meaning that those who bailed out down near $34 and under are already gone and are no longer around to provide downside fuel from their selling. Open interest readings indicate that a decent number of new shorts were also blown out of the water leading me to believe that this market is very soon going to begin consolidating and working sideways as only the bravest, or perhaps the most foolish, are going to be placing large bets in the silver market any time soon. Trading this market in size is a guaranteed, sure-fire way to become bankrupted. My counsel is to forget about figuring how much money you might be able to make on your trading positions and begin worrying about how much you might lose.

As said in yesterday's post, this market is running on wild swings in emotion bordering on near despair to wild-eyed optimism. Markets like this are to be avoided in size (if you are going to trade them, trade small) until they calm down and begin consolidating which lets them wring out this idiotic emotion. I will welcome a move that drifts down towards $34 if that happens to see how the market reacts to this level once again and to give us a chance to see whether or not the bottom forged near $33 is a good one. For now, we have a bottom at $33 and a top at $39 which is the new trading range until proven otherwise. There is a chance that $35 could hold on the downside depending on how much further the Dollar can rally.

You will note that silver did make it up to the 38.2% Fibonacci retracement level before it failed so from a technical standpoint it is producing fairly accurate readings on the chart right now.

Tuesday, May 10, 2011

Silver shedding open interest

Based on the reported open interest and volume numbers by the exchange, silver's rally yesterday was sparked by fresh shorts who sold the bottom last Thursday and Friday and are now having those sky high margins hit them for a change. Perhaps they have now learned that what is good for the goose is also good for the gander.

The market has had a nice pop off the low down near $33 but has yet to regain its footing above the 40 and 50 day moving averages. Until it does, its technical posture, while greatly improved, still remains bearish on the daily chart. You will note on the chart that unlike gold, which has retraced half of its recent losses, silver has not yet been able to recapture the 38.2% retracement level of its recent leg lower.

These steep sell offs followed by steep recoveries are always unsettling. What silver needs is a period of consolidation which will allow this excess volatility to get wrung out and let things calm down a bit. There has been way too much emotion in this market and that is being reflected by these wide price swings. 

I like the fact that it continues to move away from the $33 level but I would feel a bit more comfortable from a bullish standpoint if it could at the very least clear last Thursday's high which is near $39.40. That would also put it above that 38.2% retracement level referenced above.

We will have to watch and see what level the stronger-handed shorts begin to dig in. There does look to be some resistance entering in here above $38 as I write this.

Once again, as usual, the shares continue to weigh on the entire sector.

Gold - 4 Hour chart update

Gold has retraced exactly 50% or half of its losses from the recent all time high to last week's low just above $1460 and is now encountering selling resistance as anticipated. Bulls will need to push price through $1520 to prevent a drift lower back down towards $1500 initially. This will lead to a period of sideways trade allowing the market to consolidate and perhaps shed some of the excess volatility.

Volume is rather mediocre at this point reflecting the relative caution among many players. A breach of $1520 should see volume intensify while a downside break of $1500 will do likewise. An uneasy truce is currently being reflected in the market between bulls and bears with neither side willing to get too agressive at the present time. Things can change very quickly in these markets however.

Monday, May 9, 2011

Gold - 4 Hour chart update

The spike off of the region near $1460 and subsequent move strongly back above $1500 is indicative that a bottom has been found in the market. Keep in mind that $1500 is a psychological resistance level.This is not to say that the market now goes straight back up however and returns to its all time high in short order. What it does say is that buyers see value in gold below $1480. Now we will wait to see where selling might develop. That will give us a better feel for the new range than gold is carving out.

If you note on the chart, the 50% retracement level of the last leg down from the recent peak comes in just above the market near the $1520 level. That looks like a reasonable target for the short term. Let's see how it handles that region. A push past here could potentially press as high as the $1530 level. If price can best that, then $1550 comes back into play. If prices fade here and selling comes in, then we will head down towards $1500 again to retest that level.

The potential fly in the ointment, much to my surprise, is the lackluster performance of many of the gold shares as evidenced by the HUI and XAU. While both are higher today, neither one has mustered sufficient strength to have taken out Friday's session high on the charts. That is rather disappointing considering that these stocks led the metals on the way down. I fully expected them to lead on the way back up for a short while. As of right now, they are in a follower's role instead.  It is also noteworthy that they are lagging against a backdrop of a rather strong day in the broader equity markets.

I should also point out that while the Dollar is now weaker as traders repurchase the Euro positions that they have thrown away last week, the strength in both gold and silver was occuring while the Dollar was actually higher earlier in the session. As the greenback began to fade going into the afternoon, that generated more buying across the metals, and the crude oil market as well I might add, which took them to their best levels on the day. Hitherfore, price in gold could not get above $1510 and stay there. It took that out as the Dollar dropped back below 75.

Gasoline has erased almost all of last Thursday's enormous drop after spiking off of the $3.00 level on Friday. Hurry up and fill up your truck before the price goes back up! That nice drop in prices that some were expecting to see at the pump suddenly has been cut in half for no particular reason other than the fact that the hedgies were buying today.

It is noteworthy that unlike what happened in 2008 during the commodity downdraft, this time around we have had a plethora of new short sellers enter the commodity arena. Back then it was predominantly long liquidation which was met by commercial short covering. This time a lot of players decided to actually institute brand new short positions hoping to catch a wave lower. Based on the market action of today, with the Dollar dropping back near 50 points off its best level of the session, a lot of these Johnnie-come-lately shorts were crushed across both the metals markets and the energy markets. some also had their heads handed to them in the wheat market.

I want to observe the price action for tomorrow and the next day to see what the markets might be telling us as to what lies ahead. It is a bit too soon to say conclusively but it does indeed appear many of these commodity markets have bottomed out. Again, I want to repeat, this is not the say they are going to now reverse and go straight back up again. It is to say that there evidently remains many well funded players whose macro view has not changed and who are looking to buy into these price breaks as they wait for the downtrend in the Dollar to reassert itself at some point.

Bonds finally faded later in the session after stupidly moving higher even as the equity markets were soaring upward and the Dollar was swooning. That market bears watching as it has been signaling a big slowdown in the US economy with its move higher of late. Whether rates have moved as low as they are going to based off of that thinking is unclear. Some might feel that long term rates are not going to be much cheaper and are now selling bonds.