"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


Friday, August 31, 2012

Hedge Fund Silver Shorts getting Squeezed Out

Take a look at the following charts of the positions of the hedge fund community in the silver market and notice what has happened to them as a result of the break of overhead resistance levels on the technical price charts. Shorts are being forced out as fresh longs invade the market.

You should also note that this data does not include today's HUGE move higher which no doubt caught a large number of fresh top pickers off guard.

Monthly Gold Charts

Silver Breaks its Downtrend

For nearly the last year and a half, silver has been in a sustained downtrend in price although it has managed to find a floor of support near the $26 level. This week it has finally broken that downtrend. If this metal is going to begin a sustained rally, any setback in price should find buying emerge near the downsloping blue line shown on the chart. Failure to hold this level and particularly now the $30 level, will see the metal fall back into that triangle formation with support then coming in down closer to $28.

Note that the metal is now trading above the 50 week moving average while both shorter term moving averages are now moving higher. The trend is up.

More Pain for the Middle Class courtesy of Bernanke

Check out the following chart of the Continuous Commodity Index or CCI and note that it has managed to put in a weekly close above the 38.2% Fibonacci Retracement Level of the move lower from its all time recent high made last year. If the market pysche remains the same, look for this index to now make an eventual run back towards the 597-600 level.

We can look at these charts as subjects of interest to us as traders/investors but what this particular stock represents is increasing pain for consumers and the hard-pressed middle class in one of the worst, if not the worst "recovery" since the Great Depression.

Think of this as increased frustration at the grocery store, at the gas pump, at the hardware store, at the local restaurant, etc. While some of this rally is the result of the drought and I will of course not lay that at the feet of the Fed, it is a simple fact that the breakout on this chart today, is the DIRECT RESULT of Mr. Bernanke's insistence on implying that another round of bond buying is on the way.

When you pull into the gas station and fill up your car or truck, and are sent reeling at the cost, you can lay some of the blame right at his feet and the feet of his elitists on the FOMC who insist on pacifying Wall Street instead of having concerns how their policies are destroying Main Street.

Bernanke Jawboning the Markets

The long awaited speech from Fed Chairman Ben Bernanke at the Jackson Hole Summit has come and gone without any definitive action being announced. However, the Helicopter Man let it be known that he believes the first two rounds of QE were a rousing success.

Once again he promised that the Fed stands ready to act if the economic conditions or data warrant it. As usual, the markets, hungry for more of the spiked punch bowl, wasted no time in casting off their initial disappointment with a huge round of indiscriminate buying directed at the risk asset categories.

Gold blew through tough overhead resistance at $1680 and looks like it now has a clear path towards the magical $1700 level. Silver too punched through resistance and looks like it wants to make a run at $32.50.

My own personal view of this is that Bernanke is engaging in a round of verbal intervention, aka, jawboning the markets higher to aid his Boss' re-election efforts. He knows full well that he is going to be replaced if Romney wins. Chatter is now that the FED will proceed with the next round of QE at their upcoming September meeting.

As I have stated repeatedly on this site, why do the actual bond buying if you can achieve the same results by merely promising or strongly suggesting that you are going to do it. This is what he has been doing for a good portion of the last two months.

The S&P 500 is trading just off its peak, interest rates on the long end are low, the Ten Year is trading below 1.6%. So what in the heck would they accomplish by pushing rates any lower than they already are? The problem is not that money is cheap to borrow; it is that no one is borrowing it or the banks are not lending it because there are no jobs! The velocity of money graph shows a line heading straight down. Why in the hell do these money masters believe that another round of manufactured bond buying is going to reverse that course?

Contrary to Mr. Bernanke's lavious praise of QE and its supposed success, I believe it has been a colossal failure and enormous waste of future taxpayer money. Over $2.5 TRILLION has been spent on bond buying and what do we have to show for it except an expanded Fed balance sheet and a currency that was nearly tanked as a result. The only thing that saved the Dollar from this debacle was the fact that the Euro was even worse. Were it not for that, the US Dollar would have cratered below the 72 level and with it, the way of life for most Americans.

One casualty of this madness however will the average American middle class citizen who will watch helplessly while their food, energy (gasoline and heating oil) costs soar ever higher while their wages remain stagnant. If I did not know better, I would swear that these arrogant elitists are determined to destroy what is left of the shrinking middle class in order to appease their overlords on Wall Street, who want the funny money injected - long term consequences be damned.

Thursday, August 30, 2012

Volatility on the Rise

It is interesting to note the price action of the CBOE Volatility Index or VIX of late. The S&P 500 appears to be struggling to break through the 1420 - 1425 region. That combined with growing concern that tomorrow's Bernanke comments are not going to be sufficiently "QE bullish" is fueling nervousness among traders who are fearful of being caught in any downdraft resulting from disappointment among the "punch bowl" crowd.

This same concern is also providing selling pressure in the metals with gold bears capping at the $1680 level while nervous longs exit the market. Dip buying however is coming into the metals from traders who suspect that the ECB is getting its act together on its bond buying program.

The result is that both metals have faded from chart resistance levels but are not breaking down technically.

You can see the VIX Chart below:

Saturday, August 25, 2012

Trader Dan on the King World News Markets and Metals Wrap

Be sure to check out my recent interview with Eric King on the KWN Markets and Metals Wrap by clicking on the following link to listen in.

We discussed the sizeable short covering beginning to occur in the precious metals and the change in sentiment that has been confirmed by the price action along with some key levels to watch in both markets as we move ahead.

Also, be on the lookout for a written interview to be posted there soon.

Thursday, August 23, 2012

Euro Gold closing in on its All Time High

The following chart reveals the strength of gold when priced in terms of the Euro Currency. Notice that it has been steadily working higher and is within striking distance of an overhead resistance level coming in just shy of 1350. If can push through this level, it should be able to match or exceed its all time high.

It has been in a consolidation pattern since late last year but with a definite higher bias as can be seen from the series of higher lows riding along the lower red support line. Notice that mini-trend higher has accelerated since April of this year.

Silver Tacks on the "30" Handle

Short Covering from panicked speculators has led to a sharp rise in silver prices that is also drawing in new buyers who chase momentum.

Note that hedge funds while remaining net longs, had also begun playing silver from the short side as the European sovereign debt crisis had most investors looking at the slowing economic growth environment as one in which to short both copper and silver.  Yesterday's change of wording in the FOMC Statement sent shock waves through the shorts who ran like hell setting the stage for a signficant amount of technically related buying in today's session which commenced in Asian trade last evening.

I am expecting the following chart to change significantly in tomorrow's COT report, even though it will only capture this Tuesday's price action and not the big upmoves Wednesday and today.

We should note here that around noon Chicago time, St. Louis Fed President Bullard, seemed to put the kibosh on the QE 3 party. That promptly took the wind out of the bulls' sails dropping crude oil into negative territory and dragging gasoline lower with it. Silver and then gold both dropped off their best levels during this time frame however both markets remain solidly higher heading into their pit session closes.

With the US equity markets falling apart on Bullard's comments, we will have to keep an eye on the mining sector shares as represented by the HUI to see if they can hold their gains. Both gold and silver bulls will not want to see the HUI go negative after pushing to a significant chart resistance level at the 460 point. Short term oriented traders will sell the shares if this index cannot continue to push past this stubborn 460 level.

Silver needs to close out the week on a strong note to punch through the downtrending resistance line noted on this weekly chart. The ability to put a handle of "30" in front of the price is extremely helpful from both a psychological and technical perspective but a solid trending move is still not yet in the cards until silver can decisively gain the $32.50 level. Even at that, dip buyers should begin making their appearance in this market as the technical posture has changed significantly this week.

Wednesday, August 22, 2012

Interest Rates Key to Silver Direction

We have said for some time now that Silver will only benefit in a period in which inflation is the main fear and not deflation. That of course implies that the bond and note markets will begin pushing rates HIGHER out of inflation fears.

With this is mind, observe the following chart comparing the price action of Silver to the Yield on the Ten Year Treasury Note. The Silver price is the lighter colored line while the black line is the yield on the ten year. Note how uncannily similar the chart patterns are of the two beginning near the month of October 2010. Why is this? Simple - if interest rates are rising the fears of a slowdown are receding. Silver tends to benefit in such an environment.

Today we were treated to a FOMC statement which hinted at a majority moving towards further action on the bond buying program should economic data warrant such. Perversely for the Fed, any attempt to engage in such a program, which by its nature is designed to PUSH DOWN longer term interest rates, will have the result of sending huge money flows into the commodity sector in general and the precious metals in particular. This will get the attention of the bond vigilantes who will then attempt to sell into the Fed buying driving rates higher instead of lower. After all, whom, besides the Fed, wants to own a bond during a time in which the main fear is inflation???

Gold Needs a Strong Close to End this Week

The following weekly chart provides a bit of longer term perspective as it shows the very solid level of buying support that has marked an accumulation phase by some very large players down below the $1585 - $1565 level. That buying has forged a bottom in this market while it slowly gathered steam for an upside breakout that forced the hands of the speculative shorts and enticed momentum based money flows back onto the long side of the market.

There are two main points to bring away from this chart. The first is that gold has managed to clear a downsloping trend line going back to the its all time peak (in non-inflation adjusted terms). It will tremendously aid the bullish cause should this market close above that line and especially above the $1665 level to end this week.

The second is to note how the market has been recently marching higher along the bottom tine of the pitchfork managing to close each week ABOVE this line since its spring low. This series of higher lows is indicative of a market that is seeing DEMAND arise at a progressively higher price level. That in itself is friendly.

If this market can clear psychological round number resistance at $1700, I expect it to make a fairly rapid run to the $1788 - $1800 level. The reason? Because the move will be starting from a relatively low level of speculative players on the long side in this market.

Remember Open interest has bled out of this market to the extent of over 400K contracts since its peak last year in August. That is an astonishing washout in a year's time! Speculators took their money and headed elsewhere looking for gains. If this market looks as if it is going to begin another trending move to the upside, those funds that were leaving in droves, will be returning in droves to try to capture the move higher and capitalize.

Look at the following chart of the OUTRIGHT LONG positions (Not NET LONGS) of the big managed money/hedge fund community in gold. Since peaking close to 260K contracts near the all time high in gold last year, it has dropped over 50% to the present time. As stated many times over the past few months - the hedge fund community lost interest in gold as it was not trending. They went elsewhere looking for opportunities and found them to a great extent in the grains.

However, this camp LOVES trending markets with lots of momentum, which is why gold will move sharply higher if the algorithms remain solidly on the buy side. That will see the following chart detail a rather abrupt turn higher with the line rising instead of falling. So much of course depends on the actions of the Central Banks but the markets seem to be more and more convinced that the next "PROBLEM" it is going to have to deal with is becoming one of inflation and rising prices rather than deflation and falling prices, thanks mainly to the accomodative monetary policies that many are now expecting to be forthcoming from all corners of the globe.

Silver Breakout Leads to Gold Breakout

Gold put in a very strong showing in today's session the instant the FOMC press release hit the market. All that was necessary was the fact that a few words were changed from "some" to "many" and to "fairly soon". Once traders saw those words, it was off to the races and no looking back.

Traders interpretted this change of wording as evidence that the committee was now largely leaning to a new round of bond buying should future economic data releases confirm the slowdown in growth.

We have noted for some time that Silver would underperform gold during a time in which deflationary or slowing global growth fears are dominant. The exact converse is true when traders begin shifting towards inflationary expectations. Silver leads and then gold follows.

Two days ago silver broke out of its recent congestion pattern as it surged through the $28 level. Gold moved higher that day also pushing through the top of its congestion pattern also as the surge in the grains, combined with higher crude oil, gasoline and heating oil prices had traders concerned that the heretofore rather benign inflationary environment was about to change and change in a big way.

Note on the chart below that gold is now firmly out of the "newest congestion zone" which had been bounded by roughly the $1630 level on the top and is working back into a former congestion zone which top is in a broader range between $1700-$1680.

Short covering by that segment of the hedge fund community which had been playing gold from the short side kicked into high gear once $1630 was taken out and continued today immediately upon the release of the FOMC statement. Fresh buying also came in as momentum based funds now have both metals on their radar screens.

We should now see dip buying surface on any retreats in price as the algorithms are now in the buy mode. Only a drop back below $1610-$1600 would derail this nascent move higher.

PIMCO Buying Gold

Dow Jones is reporting this morning that PIMCO's Commodity Real Return Strategy Fund, with about $20 billion in assets, has raised its gold holdings to 11.5% of it total assets from 10.5% two months ago. The position was apparently taken when gold dipped towards $1500 according to comments from Nic Johnson, its co-portfolio manager.

Their concern is a triple one - loose monetary policy, high levels of sovereign debt and rising commodity prices are going to fuel an inflation outbreak as we move ahead.

Sounds familiar doesn't it?

Here is the point - the chart in gold showed tremendously strong support in gold on any retreats in price down below the $1600 level a short while back. Gold would dip down into these levels but would immediatey attract strong buying and would rebound back higher. WE remarked that this sort of chart action showed ACCUMULATION by deep-pocketed players, whether those were of Asian origin or large investment funds elsewhere. REgardless, these well capitalized players are positioning themselves for what they see coming down the road.

Note, that this is not MOMENTUM BASED buying. That crowd only enters the markets AFTER it starts moving higher and takes out technical resistance levels. They are now coming into gold and into silver. ACCUMULATION puts a floor in a market; momentum based buying drives it higher into a trend.

We'll need to keep a close eye on the yield on the Ten Year Note to see how that acts as we move forward. If the inflation play is replacing the deflation play, we have seen the lows in interest rates for a very long time.

Tuesday, August 21, 2012

Grain Prices Remaining at Lofty Levels

Word out of the crop tour this AM has sent both corn and soybean prices strongly higher dragging wheat along for the ride.

The supply seems to keep shrinking as each successive yield estimate comes in with a lower number. Once the market comes to grip with the actual supply number for this year, the focus will shift to the demand side of the equation and whether or not the market is doing its job of rationing supplies.

One thing is for certain - we, the consumer, are going to be reeling at the grocery store very soon.

Take a look at my Grain Composite Index - if you thought grain prices were high back at the peak of the commodity bubble in 2008, you ain't seen nuthin' yet! The Index is firmly above that level.

The strong day in the grains, combined with big moves in both gold and silver and another bullish call on oil from Goldman Sachs, has sent the CCI, the Continuous Commodity Index, through the top of its recent trading range. If the CCI does not surrender its gains before the end of the week and remains above that resistance level, from a technical analysis perspective, the trend in commodities will have shifted to UP.

Note how the top of this recent trading range has been in the same zone as the 61.8% Fibonacci retracement level. That makes today's move even more significant. I do not see much in the way of overhead resistance past this point until we get closer to 582 - 585 in this index.

Shifting a bit to the mining sector stocks - the HUI has pushed past 440 and is maintaining its gains as of this hour. It is on course to make a try at heavy resistance centered near 460. If the HUI closes a week above this level, it portends a trending move to the upside which would initially target 540 -555.

Silver has cleared heavy resistance at 29 and is closing in on the last level of chart resistance between it and a handle of "30". If it does that, look for the momentum funds to come piling into this market.

Monday, August 20, 2012

Stealth Mode Rally in Silver Maybe not so Stealthy Anymore

I remarked last week that silver had been slyly working its way higher in very quiet fashion but was knocking on the door of overhead resistance. Today it broke that resistance and so far is doing it in convincing fashion.

Based purely on technical factors, it should try to make a run at $29 where heavier supply awaits. That stands between it and a handle of "30" which will most certainly catch the attention of the momentum crowd.

Take a look at the shorter term moving averages (not labelled). These are the 10 day and 20 day respectively. Notice that late last week BOTH MOVING AVERAGES crossed above the longer term 50 day moving average. This has not been the case since the middle of March of this year! Also notice that both of those are now trending in an upward direction as they pick up the upward shift in momentum.

You will also see the heavier blue line which is the 100 day moving average. That comes in near 28.83, a bit below horizontal resistance near the 29 level. Expect a battle beginning at that level and extending up to $29. This is one of the reasons I expect to see a fairly large amount of supply hit the market near this point. If the silver bulls can eat through and absorb that selling, it will mark a decided shift in sentiment towards the metal.

Downside support lies first near $28 and is staggered at 50 cents intervals below there down to $27.

I should note that this is occuring against a backdrop of a higher CCI (Continuous Commodity Index) which is beginning to move closer to the top of its recent trading range. Note also that this top of the recent trading range happens to correspond EXACTLY with a criticial Fibonacci Retracement level, namely the 61.8% near 566.

If the CCI can clear 570 with gusto, Silver will see an increase in buying.

Saturday, August 18, 2012

Trader Dan on King World News Markets and Metals Wrap

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


Friday, August 17, 2012

Ancient Rome had Nothing on Modern Day America

Historians have chronicled the decline of the Roman Empire detailing in great extent the internal rot and moral decadence that helped speed its eventual fall. The lack of ethics and virtue was bemoaned even in those days by some of its leading philosophers/statemen.

I find it therefore rather disconcerting to see the the eerie parallels between the symptoms of rot and decay prevalent in Rome before it fell and the current US financial system, which has become a cesspool/stinking outhouse in terms of any vestige of decency and integrity.

Witness the case of one Jon Corzine, which if there was any semblance of justice and virtue left in the current administration's Justice department, would have swiftly be sent to prison where he could play "drop the bar of soap" with his fellow inmates.

With that in mind, take a look at the following article and see if you can constrain your feeling of righteous revulsion.

Guilty As Sin And Free As A Bird – Corzine Edition

He Simply Doesn’t Know Where The Money Is, But He’s Bored And Feels Like Starting A Hedge Fund

Hey, I’ve got good news and bad news this fine and wonderful morning. The good news is that there may well be a new investment opportunity for those of us eager to improve our financial means. The bad news is that it consists of a hedge fund run by none other than Jon “I simply do not know where the money is” Corzine.

Thursday, August 16, 2012

HUI Chart

The Mining Sector shares have shown some strong performance over the past three weeks having solidly rebounced from down near 390 moving up through several overhead resistance levels.

A push through overhead resistance near 440 sets up a run towards a major resistance level centered near 460, which is the point that needs to be bested for a trending move to the upside to develop.

Silver Quietly Sneaking Higher

Silver has managed to rally right to the top of its consolidation pattern without any fanfare and I should add, the participation of a great deal of managed money flows. In other words, without the benefit of the momentum crowd. CAll it a type of stealth rally.

I find this very interesting as it is occuring against the backdrop of rising Treasury yields and a rising equity market. Clearly, for whatever the reason, something seems to be occurring on this inflation front that is moving below the radar screen of many investors. Could silver be sniffing out the first whiff of an inflation play?

Take a look at the following chart and note that the shorter term moving averages, the 10 day and the 20 day, are now trading either ABOVE the longer term 50 day or near par with it. This is a big change that has not been seen on this chart since early March of this year! That is quite astonishing! Keep in mind that hedge funds, while they remain overall net longs, have drastically reduced that position and had actually been adding some fairly large short bets. EVen with that, someone is buying this metal and very quietly pushing it higher.

Let's keep a very close eye on this as it could portend a strong upside move if it can solidly clear the overhead resistance noted on this chart, especially if it does that to end a week of trade.

Wednesday, August 15, 2012

Are we Witnessing a Shift in Investor Sentiment?

As many of you who listen in to my regular weekly radio interview on the KWN Markets and Metals Wrap are aware, in my mind, the most important financial market is the bond or interest rate market. Everything revolves around interest rates and as such, those levels are the key in understanding where traders/investors are in their thinking at any given moment in time.

Take a look at the following chart denoting the interest rate being paid or the yield on the US Ten Year Note. Within the span of a mere 3 weeks or so, this yield has shot up from down near 1.4% all the way to 1.8%. That is a very rapid shift. It is now sitting at levels that we have not seen since the middle of May of this year.

From a technical analysis perspective, it has reached an inflection point. ON the way down, this 1.8% level, held the market in check back late last year and early this year. Once it was broken to the downside in May, it subsequently tried to rally back above that level but failed. From that point on, it was straight downhill.

Now it has regained this level. Where it closes this week is going to be critical to our understanding of where things are headed in the following weeks. Apparently, investors have moved past the European debt crisis in their thinking (at least for the present). Something has gotten their attention to the point that they are pushing up interest rates.

Now, whether the Fed is particularly happy with this remains unclear but one has to suspect that the last thing the Federal Reserve wants to see is these longer dated rates getting too far out of hand. Also, keep in mind that the higher these yields move, the higher the cost of servicing the gargantuan, humungous, mind-boggling, stupendously large (how's that for superlatives?) US federal debt burden will become.

Given the mediocre condition of the US economic recovery, it is difficult for me to envision yields breaching this overhead resistance level. Still with a great deal of speculative short positions in the US bond and note futures markets, their short covering might be enough to take them higher for a while longer. A lot of those positions were put on as a result of anticipating the "slowing global growth" scenario; in other words, deflationary forces.

If this market however does not reverse course soon, chances are we might have seen a long term low point in interest rates. Stay tuned on this one folks as it will have implications for gold.

Also, I am wondering if the following chart might have something to do with bond and note traders shifting away somewhat from the "falling prices" scenario. I doubt that this in itself would be sufficient to take the bloom off of the deflation rose but when combined with the soaring price of grains, it certainly has to regarded at the very least as a contributing factor.

Note that the gasoline market has retraced 61.8% of its entire decline from the peak made earlier this year. That is a key Fibonacci retracement level. If it powers up and through this level, particularly if it closes the week above this level, odds will favor a push towards $3.20 initially followed by a test of the high near $3.40 if the former level does not hold. Generally speaking, if a market fails at the 61.8% level, it will drop back towards the 50% level and retest that to see if the bulls are still eager to buy.

By the way, if the shift towards inflation fears has gained ascendancy over the fear of deflation, you silver guys will be very happy indeed. Again, let's watch what develops. It is still too early too tell and we are not out of the wood yet on the European debt mess but things are indeed getting interesting.

Tuesday, August 14, 2012

Retail Sales Number Derails QE Expectations

This morning's Retail Sales number came in above expectations giving those expecting a Fed move on the QE front at the upcoming Jackson Hole summit reason for pause. The number caught a lot of folks off guard and while it was not spectacular, it was not in the "the consumer is not spending money" category. The market interpretted it as another reason for the Fed NOT TO ACT.

Gold, which had been moving higher in its recent consolidation range until yesterday, immediately fell back on the data as the further squashing of another round of bond buying in early September seems even more remote at this point.

Still it did attract value based buying just above the $1590 level and is currently back above the psychologically significant $1600 level. Whether it can stay there without strong expectations of a forthcoming QE is unclear however.

It does seem as if stubborn strength in crude oil, particularly in Brent, is keeping selling from becoming too aggressive in gold especially with the bonds moving lower and interest rates moving up again. The CCI and the CRB are both higher today which helps feed into more of an inflation scenario rather than the deflationary psyche which has gripped these markets for so long. Additionally, an article in a prestigious European based newspaper dealing with a potential breakup of the Euro has kept a decent floor under the gold price.

A quick explanation for those who seem unclear about my comments from yesterday regarding hedge fund money flows. I mentioned that gold needs a spark to break it out of this range to the upside; one which will bring in speculative flows from the hedgies on the long side of the market to send it forth on a trending move higher. Let me remind those who are unclear on this - hedge fund money flows dominate our financial markets today, whether we like it or not. If they are not committing to a market in size on the long side, it is not going to be able to sustain a trending move higher. Most of that crowd are momentum players meaning that they need to find a market that is moving and has some momentum to it, whether that is up or down, in order to make any money off of their algorithms. For the most part, the hedge fund crowd is mindless relying on its computers to do their thinking for them. When markets range trade, they lose interest because these systems generally do not perform well in sideways markets. Locals and other large traders love these conditions on the other hand.

What is supporting gold on the downside is not hedge fund money but rather value based buying originating out of Asia and from other large entities which actually study fundamentals and make buying or selling decisions based upon that analysis. We curse the hedge funds when they are liquidating longs or establishing new short positions in gold or in silver but keep in mind, it is these same clumsy trading clods that also drive these metals higher when their computers flip over to the buy side. Love 'em or hate 'em, they are a force to be reckoned with; any analysis of the markets that disregards their impact is not worth the paper it is written on.

Monday, August 13, 2012

Gold Retreats from the Top of its Trading Range

Nothing doing on gold being able to break out from its consolidation pattern. Last week I showed a chart with gold right at the very top of that range and working into a heavy resistance level. Today it failed to better that resistance and was shoved back lower meaning that the odds favor it working lower within that range from here as we wait for the next round of buying support to surface. It should be able to garner buying near $1600 initially on down towards $1585 should that not hold it.

Keep in mind that this market must have a spark to take it up and out of this range. Until it does, the consolidation pattern remains in effect.

There are several factors working in gold's favor but until we get the hedge fund community to come back in on the long side in a big way, the needed firepower to kick off a trending move is not there.

Saturday, August 11, 2012

Trader Dan on King World News Markets and Metals Wrap

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


Friday, August 10, 2012

Gold right at the Top of its Recent Trading Range

Gold has pushed to the very top of its recent trading range as it works within the confines of its consolidation pattern noted on the chart below.

It either mounts a solid breakout this time around or it will fall back towards $1600 and slightly below once again.

I have noted that for the last 5 weeks or so, the lows have been slowly creeping higher hinting at market strength. It simply needs a spark, something to ignite it and push it past the strong selling pressure emerging between $1620 - $1630.

Today's strength is predicated on news out of China showing its economy slowing also. Traders are expecting the Chinese authorities to therefore be more inclined towards further monetary accomodation there also.

However, bond yields are moving lower today and equities are flat to lower suggesting that traders are hesitant to read too muchn into the Chinese news. The focus continues to be on Jackson Hole at the end of this month and early September for the ECB. My guess is that neither one of these Central Banks is going to do anything on the bond buying front.

As a general rule of thumb, the 4th quarter tends to favor a stronger gold price which is helpful to the cause of the bulls. The summer doldrums however are in full force as volume in the gold pit is pitifully low. In such an environment, relatively small orders are able to push prices around rather easily resulting in times at some wild swings. Right now watching gold trader is about as interesting as watching paint dry.

The HUI has pushed strongly past the resistance level at 420 and is now on course for a push towards the 440 level.

The HUI to Gold ratio continues to improve with the mining shares leading the bullion price for a change.

Thursday, August 9, 2012

Euro Gold Hinting at Upside Breakout

US centered investors/traders more often than not develop a US Dollar-centric view of the price of commodities, gold included. As such we oftentimes can miss how a large portion of the global investment community can be viewing the price action of an individual asset.

It is no secret that the current epicenter for global economic troubles is Europe. Sovereign debt woes and squabbles among the various members of the EU have led to a sort of impasse which is sapping confidence from investors in that corner of the world.

The result has been a significant amount of gold buying as a safe haven among Europeans.

This is quite noticeable when one compares the current chart of gold priced in Euros to a gold chart priced in US Dollar terms.

Frankly, Euro gold has a much stronger chart than US Dollar priced gold currently has. As a matter of fact, you can see from the following chart, that Euro Gold is a mere 50 euros or so just off its all time high! Compare that to US Dollar priced gold which is currently trading closer to $300 off its best all time level.

Unless we get a significant downside move in EuroGold, US Dollar gold bears are going to have their work cut out for them getting much more in the way of additional downside price action.

Unleaded Gasoline Flirting with the $3.00 Level

One of the casualties of all this chatter about another round of funny money from the Monetary Masters of the Universe is the price of Unleaded Gasoline. Throw in a dose of tensions in the Mid-East on top of this, and you get a market that is clearly going to cause headaches for the Central Planners if they stupidly unleash another round of Quantitative Easing at the end of this month or early in September.

Consumers will soon be reeling from the effects of rising grain prices related to the worst drought in decades to have struck the critical corn and soybean growing regions of the US. The impact of this surge in grains is going to be most deeply felt later this winter and into early spring of next year as the poultry, pork and beef industry will have no choice but to pass this surge in feed costs along to the consumer. However, it will not take that long for the impact to felt as cereal, bread, pasta, etc, all start rising within the near future.

Consider this, the central bankers have not yet given the decided go-ahead for another round of bond buying and already we are watching the price of commodities moving ahead, right at the exact time that the US economy is on life-support, with its job creating engine having blown a gasket.

These meddling Central Bankers may feel it is their divinely-inspired purpose in life to create an environment of ever-rising stock markets, but in the process of so-doing, they have sown the seeds for the ruination of the middle class and have heaped another lead weight on those already struggling to barely get by.

Food and energy are the two essentials for modern life. They are about to get more expensive if Wall Street pressures the Fed and the ECB into another round of bond buying.

Take a look at the CCI Chart below. Notice that it has been in a downtrend since early last year. This time however it looks as if it is trying to change that. It is currently bumping up against an overhead resistance level near 565. Unlike the rally in July-Aug of 2011 and that of Jan-Feb of this year, which rallies prompty and abruptly fizzled out as prices then resumed a sharp fall, this latest rally is showing signs of "sticking" and moving sideways in more of a consolidation type pattern rather than a bear market bounce.

If this index takes out the key 38.2% Fibonacci retracement level coming in near 575, look for gold to break out above its resistance levels on the chart as well. Why? It will indicate that trader psychology has moved past any deflation scares and is now shifting toward the inflation front. Such an event would have to be accompanied by a breakdown in the longer dated Treasuries and bond markets.

Note what has been happening to the yield on the Ten Year Treasury Note over the past two weeks, but particularly this current week. It has managed to clear a resistance hurdle at the 1.7% level. We need to keep a close eye on this. If we are going to get a full asset shift away from bonds and a solid rotation into equities and tangibles, yields will continue to rise steadily higher as money exits from this sector. My guess is that the Fed is also keenly watching this particular chart. The LAST THING That they want is higher longer dated interest rates.

Saturday, August 4, 2012

Gold and Silver Continue Marking Time

Both Gold and Silver remain in consolidation patterns with tightening ranges as speculative HOT money flows which are exiting are being met by value-based buying and accumulation by stronger hands.

The loss of speculative interest in the precious metals over the last few months can be seen by the steady decline in overall open interest (the number of contracts open). Generally speaking, whenever speculators are interested in establishing positions in a particular market, the open interest will rise. When they are not, the open interest will fall.

Look at the following open interest chart of gold and tell me which of the two above-mentioned possibilities is occuring? Answer - speculative interest has been drying up in the gold market.

The reason for this is simple - the hot money crowd has no clear conviction as to whether or not the two big Central Banks of the West are going to move forward with a clearly defined bond buying program (aka - Quantitative Easing) of sufficient size to counter the effects of the sovereign debt crisis in Europe and the abysmal rate of growth in the US. That has sent them looking elsewhere for trading opportunities which they have found in the grain markets. While open interest has been shrinking in gold and in silver, it has been soaring across the grains.

Take a look at the following chart of Soybeans and note the vast difference in the open interest and by consequence, the VAST DIFFERENCE in its price chart.

What this once again demonstrates is that the driver of today's markets remains the gigantic hedge funds and the rest of the hot money crowd. Once they train their guns on a market and come in on the long side in size, it will move higher. Whenever they lose interest, it will drift lower and if they exit their longs in large numbers, it will move lower quite sharply unless it is countered by extremely large buying of commercial interests and other deep pocketed spectulative forces.

Keep this in mind whenever you read comments that the current malaise in the gold and silver markets is being orchestrated by the bullion banks so that they can position themselves on the long side of the market for the next wave higher. That is pure nonsense. The gold and silver markets are currently moving lower because the hot money crowd has currently lost interest in them and is putting its money to work in other markets for the time being as they chase profits. Markets in sideways patterns do not make money for hedge funds. They require TRENDING MARKETS to ply their algorithms. Any hedge fund manager that wishes to retain its clients will, by necessity, be forced to look for markets that are trending and once they find them, that is where their monies will be put to work.

I wish that my friends in the gold community who keep attributing every single period of downward price action or sideway activity in the gold market to some nefarious suppression attempt by the bullion banks would realize that they are losing credibility among professionals whenever they assert such things. As a firm believer in the view that the feds have a vested interest in keeping the gold price under wraps, it is distressing to read some of the recent comments that I have seen attempting to explain why gold and silver are currently not trending higher.

I have stated clearly previously and repeatedly, that an objective analysis of price action and open interest that includes the Commitment of Traders reports, reveals that price suppression by the bullion banks occurs during periods of RISING OPEN INTEREST during which the large buy orders of speculative forces are met and attempted to be countered by large blocks of sell orders originating from the bullion banks. The selling, which is vastly different from ordinary scale-up selling programs that we see in every single commodity futures market, is designed to absorb as many of the hedge fund buy orders as possible to slow the upward progress of the gold market.

I have remarked in the past that sellers by nature wish to receive as HIGH A PRICE AS POSSIBLE for their product and thus will not try to OPPOSE a rise in price brough about by determined speculators. They will wisely sell only as much as is needed to offset their risk or lock in profitable prices for the future. AS price continues to rise, they will sell more at these higher levels and are obviously happy to see speculators take prices ever higher. Why would they ever attempt to actually knock the price lower if they are a legitimate hedger? If someone is determined to pay me a lot more money for my product, I'll be damned if I am going to make a serious effort to try to prevent them!

That is not what we see in gold however as bullion bank sell orders oftentimes come with a ferocity that is mind boggling to any trader that can watch the screen. However, this almost inevitably and with only rare exceptions occurs in a rising gold market with rising open interest. Note on that previous gold chart shown above that we did witness an exception with a bout of short covering among some of the big bullion banks on that run to $1900 and a corresponding decrease in total open interest - that was indeed a rarity but one that will at some point be witnessed again in the future.

The exact opposite occurs in a falling gold market - open interest declines as the bullion banks who have instituted the majority of the short positions then use the long liquidation wave to cover those shorts and realize their cash gains in the paper market. Remember as existing longs sell out and existing shorts buy back or cover their positions, open interest shrinks or declines. The result is that the NET LONG position of the speculators shrinks while the NET SHORT position of the bullion banks decreases. Recently we have even seen the relatively rare situation where the SWAP DEALERS, another normally negative force in the gold market, have actually managed to briefly hit a NET LONG position, albeit a small one.

That is what we are currently witnessing in both gold and silver - nothing more and nothing less. When we do get the return of speculative monies into the gold and silver markets once overhead technical resistance levels are taken out, look for the bullion banks and swap dealers to once again resume their selling programs.

Trader Dan Interviewed on 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 on the KWN Markets and Metals Wrap.


Wednesday, August 1, 2012

Gold Chart updated

Here is an updated 12 hour gold chart showing the resistance level between 1620-1630 which so far has been able to hold gold's upward progress.

Note that gold did spike below the $1600 briefly out of disappointment with the comments from the FOMC but rebounded as dip buyers believe (hope springs eternal) that the Fed will certainly act next month. Also some are expecting some gold friendly statements from the ECB as far as measures they will undertake to support the Euro and deal with the sovereign debt issues over that way.

Regardless, the market failed at the upside of the newest congestion zone and thus remains trapped within that pattern albeit with a slight upside bias at this time.

New Slogan - Ban the Machines

To add to the plethora of bumper stickers promoting nearly every cause in the universe, "Hug a Tree", "Save the Whales", "Think Green" and my favorite "Dads Against Daughters Dating - DADD", maybe we can all add this one: "Ban the Machines".

I am of course referring to the near biblical plague on the financial markets otherwise known as the High Frequency Trading Algorithms.

There is no redeeming value whatsoever in these things - none.

Knight Capital Trading Glitches Strike Wall Street

Wall Street was hit by a messy opening on Wednesday due to technology glitches at Knight Capital Group (KCG: 7.99, -2.34, -22.65%), causing confusion and shares of the market maker to plunge more than 20%.
The Securities and Exchange Commission is talking to the New York Stock Exchange over erroneous Knight Capital trades, sources told FOX Business's Charles Gasparino. The SEC and NYSE are examining possible algorithm mishaps and looking into a possible “fat finger” trading error, while Knight told Gasparino it is looking into the trading problems.

Read more: http://www.foxbusiness.com/investing/2012/08/01/nyse-reviews-early-morning-trades/#ixzz22JezZAj3

Chatter begins that Ethanol Mandate is going to be Cut

I mentioned a short time ago that talk was growing - scratch that - extreme disgust was growing - among livestock and poultry producers - concerning the federal mandate for ethanol. In the midst of the most extreme drought to hit the US corn and bean growing region since 1988, supplies of corn have been shrinking to very tight levels. However, a good deal of this can be attributed to the federal mandate requiring ethanol blended gasoline. Some of you may know, but this ethanol comes mainly from distilling corn.

As a matter of fact, approximately 40% of all corn demand goes to this boondoogle. While the by product of ethanol demand, DDGS, can be fed to livestock, the facts are that without this mandate, a large share of the corn grown in this nation would be otherwise available for feed use, something that has not been lost on the nation's livestock and poultry producers who are suffering extreme hardships as they watch their feed costs escalate into the stratosphere, destroying their profits in the process and threatening their very livelihoods.

I suspect that this the level of this outrage is going to continue to increase in the weeks and months ahead. I also suspect that more and more pressure is going to be brought to bear upon the policy makers to temporarily rescind this mandate to alleviate the tightness in the supply situation for corn.

The question is whether this comes prior to the election or after the election. Keep in mind that Senators and Congressmen from farm belt states have generally been in favor of this mandate as it has, in the past, helped push demand higher for corn and thus favored a large number of their constituents. However, Senators and Congressmen from those states with large concentration of beef, dairy, pork and poultry producers have tended to be on the opposite side of this issue.

This could very well turn out to be a tremendous factor in determining when the bull market in corn comes to an end. A temporary rescinding of the mandate would lead to a decent sized drop in the price of corn and would tend to lessen some of the recent upward price pressures on the entire food complex.

We will continue to monitor this situation and keep the readers posted.

US Olympic Metals Winners - Introduction to Taxes 101

You push your body beyond the point of exhaustion. You spend endless hours away from friends and family honing your skills. You travel from city to city, from state to state and from country to country competing gaining experience in your sport. You have little spare time to enjoy the smaller things in life. While friends and acquaintances are texting and chatting about the latest movie or music video release, you are at the gym, in the pool, on the track, etc. Why? Because you are driven by a desire to be the BEST in the world.

After enduring the hardships, frustrations, trials, tribulations, setbacks, you finally succeed in making it to the Olympics to represent your country. There all the years of training and dedication finally pay off and you finish in the number 1, 2, or 3 spot, claiming a metal that shows the entire world you are indeed the best or among the best in the world. And then what...

If you are an American, the IRS comes knocking on the door with its hand out taking its "fair share" of your earnings.

Go for the Gold! (Pay the IRS.)

10:35 AM, Aug 1, 2012 • By JONATHAN V. LAST

Because conservatives are scrooges, the good folks at Americans for Tax Reform have gone through the fine print to find out what our Olympians will have to cough up to the IRS should they be lucky enough to win any medals in London.

Even by the standards of our government, the numbers are insane.
For instance: Americans who win bronze will pay a $2 tax on the medal itself. But the bronze comes with a modest prize—$10,000 as an honorarium for devoting your entire life to being the third best athlete on the planet in your chosen discipline. And the IRS will take $3,500 of that, thank you very much.

To read the rest of the article, please click on the following link: