"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

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Thursday, June 23, 2011

Gold under pressure from SPR release and abysmal Jobless claims number

What a difference a single day can make! Yesterday, gold managed to punch through $1550 and close above that level at the end of pit session trading but as the afternoon wore on, it slowly slid lower and inched closer to $1550 once again. As the market opened for early Kangaroo trading, it then fell back below $1550 and remained a tad weaker throughout early Asian trading. That all came to an abrupt end when news hit the wires that the US was releasing some 30 million barrels of oil from its Strategic Petroleum Reserve (SPR).

Crude oil immediately swooned falling below $90 (it has since recovered). As it did, the hedge fund algorithms kicked in and began unloading commodities across the board. If that were not enough, the Jobless Claims number reminded the entire planet why those who were filling our ears with their nauseating talking points of "Green Shoots" some months ago, should have to do mandatory community service on the Discovery Channel's, "Dirty Jobs" show. The number was terrible.

That sent the risk aversion trades into high gear and out the window went everything that did not resemble a US paper IOU or the Dollar. IN looking across my quote screens this morning, the only commodity on the planet that I can see which is currently showing green is the Cocoa market. Everything else is in the red. Time to hoard chocolate.

The result of this hedge fund carnage has been to send the CCI (Continuous Commodity Index) crashing down to major chart support just below 630 and the S&P 500 to within a few whiskers' width of the psychologically and technically significant chart support level of 1250. If the CCI and the S&P crash through those levels the Fed is going to be forced to do some sort of stimulus on the monetary front as it will signal a deflationary mindset has now gained the ascendancy. Based on my reading of Bernanke's comments yesterday, I think he left the door open for such action if they believe the need should arise.

I might add here that the oil release from the US of $30 million barrels of crude is equivalent to less than TWO DAYS TOTAL USAGE here in the US. Call me cynical but while the release was much heralded as a response to the loss of Libyan crude oil in the marketplace thanks to Mr. Obama's "kinetic military action" or non-hostile hostilities over there, I believe it is totally related to the same's poll numbers which are going down the toilet faster than an unwanted baby alligator which has gotten too big for its 55 gallon aquarium. High gasoline prices are threatening to make him a one termer (I can only hope) and what best to do but to dump some oil on the market to try to knock a dime or so off the price at the pump. Here's a new flash to the clueless one - instead of these cheap political gimmicks, stop spending money that we do not have and open the country up to domestic drilling. That would actually be a much better long term fix instead of playing political games with what is supposed to be for emergency purposes. The only emergency that I can see is his sinking poll numbers and that is no emergency as far as I am concerned but rather cause for rejoicing.

Back to gold however - the failure to extend past $1550 has sent the market back down into the former range with $1550 on top and $1520 on the bottom. Buying associated with sovereign debt fears is keeping it from sinking much below that $1520 level for the time being. ECB President Trichet today said that the risk signals from the situation in Greece are "flashing red" as far as stability in the Euro zone are concerned. That is why gold is so firm on the Continent. Earlier in the session gold had just posted another all time high when priced in British Pounds and still is very close to its all time high price in terms of the Euro. Fears of some sort of contagion spreading to the big European banks are running very high over there. As long as these fears remain downside in gold will be limited, even with the hedgies throwing everything out the window.

The HUI and XAU are both moving lower in conjunction with the weakness in the broader equity markets but thus far remain above the recent lows. The XAU currently looks to be the stronger of the two indices as the large caps are holding better than the juniors generally speaking.

The Dollar is on a tear higher but has yet to take out the 76.50 level on its chart. Until it can do that convincingly, it remains rangebound also.

I will try to get a later update on gold this afternoon after we get a chance to see how things are when the dust from all this commotion settles a bit. Heck, they knocked the old crop corn market down the limit yesterday and ran it to extended limits today but it has since rebounded well off its lows. Certain markets will respond to their fundamentals once the technical fund selling has exceeded value levels. The algorithms ALWAYS overdo it - either to the upside or to the downside.

14 comments:

  1. Dan,
    totally agree -here is a comment from Dave in Denver along the same line

    By now everyone knows that Obama is going to release 30 million barrels of oil from the Strategic Petroleum Reserve over the next 30 days in order to help alleviate the shortages caused by the Libya situation. But, as a good friend pointed out to me today, why did Obama wait until the price of oil had already fallen 22% from its recent high around $115 per barrel? How can there be a "shortage" if the price has already dropped like that without the SPR supply? It tells me that the Government wants commodities prices even lower in order to promote the appearance of no price inflation for the purpose of justifying the next round money printing.

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  2. As Howard Green on Canada's BNN suggested this morning: ... Is the SPR release of 30 million barrels a form of QE3?

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  3. Wow - beyond top shelf stuff, thanks Dan!

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  4. Sorry Dan I have to disagree, it's only a day and half of oil!
    Thanks

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  5. i can thank komrade Obama for making physical silver cheaper for me to buy more of with his toilet paper currency, thanks again Komrade.

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  6. Dan,

    My P & F charts flipped today and now signal a >20% price increase for $XAU and $HUI ... very interesting stuff given the down trend.

    Warm regards for all the work you put out there for us!

    derek

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  7. Check out Mike Krieger's latest, "Widespread Panic" on ZH. He nails it:

    http://www.zerohedge.com/article/mike-krieger-widespread-panic

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  8. Precisely Mr. Robert, precisely !!

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  9. in an ironic twist of fate, isn't obama's incompetence 'good' for gold? in other words, if a fiscally responsible president were elected in '12, wouldn't the POG fall, and quite a bit?

    i want to see AU 5K like the rest of us, so watching the slow train wreck does make the days interesting...

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  10. The U.S. Monetary System and Descent into Fascism - An Interview with Dr. Edwin Vieira

    This is a very important article to read and discuss! It is long but worth the time to read it.

    http://news.goldseek.com/GoldSeek/1308856035.php

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  11. Hi Dan,

    I don't know if you'll have time to answer this comment, but my thoughts anyway :

    1) for gold, it's been a long while we haven't had a real deep correction. It seems due to happen, as many longs are now weak hands who could be easily scared out of the market if their losses grow, which will fuel the market down further.

    2) for silver, you say that "they" don't want a deflationary mindset, but JPM is stuck with an impressive pile of shorts. Meanwhile, time is running up, as the COMEX stocks are dwindling. They have little time left to strike. And they will probably try to. When? Summer is the best time because of seasonality. Silver market is narrow. And end of QE2 announcement the ideal timing, as silver price feeds on fears of inflation.

    So, I'm afraid we may have a bad july month for commodities.
    I'm afraid they'll end for just a while with their QE, time for silver to go even lower, time for JPM to get out of the mess.
    They'll take gold and the markets with it.
    Just for a few weeks, before they start QE again.
    But enough time to create a big drop in coomodities.
    Thanks for your regular analysis on these markets :)

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  12. "down the toilet faster than an unwanted baby alligator"

    classic Norcini. Keep 'em comin Dan!

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  13. Nothing can stop this oncoming tsunami

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