"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


Saturday, September 29, 2012

Trader Dan on King World News Metals Wrap

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


Friday, September 28, 2012

Gold Still Stuck near $1785 - $1800

Over the last two weeks, gold has had some difficulty clearing the stubborn resistance level beginning near $1785 and extending towards $1800, round number psychological resistance. It has poked its head into this zone but cannot breach it as of yet.

When examining the chart it is not difficult to understand the significance of this region. Note that there have been two occasions in the last year, one back towards October 2011 and the other earlier this year in Jan/Feb, when gold either punched through this level or came extremely near to it, but failed to close ABOVE it.

Look carefully at what happened the following week after the failure to extend higher - there was a downside reversal in both cases which led to a protracted period of falling prices that did not culminate until gold was near the $1525 - $1550 level. It was at this level, that we later learned, Asian Central Bank buying prevailed. That buying was of such size that it absorbed all of the speculative selling and then some forming the bottom of this now YEAR LONG trading range.

Gold is currently knocking right on the door of this upper boundary which is why it has heretofore been stymied.

There is something however that is at least hinting that this third time might be different. Notice those two previous attempts to clear $1800 were followed by those aforementioned downside reversals the next week. This week, following on last week's failed attempt to clear $1800 is different. We did get a significant down day this week which looked as if it might be setting up the same pattern of a downside reversal, but lo and behold, instead of a proliferation of sellers, we uncovered very strong buying which took the price well off the intraweek low closing the market up near the high of the week. Yes, it did not take out $1800, but it also did not fall apart.

I am looking at this as a potentially subtle hint that we might be able to extend higher in gold next week or at the very least, not break down technically as we have done previously.

This week's low, down just below the $1740 level therefore becomes quite significant from a technical analysis perspective. If we drop back down towards this level and gold bounces higher once again, the bears are going to begin covering. If the market can then extend the bounce and push into the zone $1785-$1800 and better that, it will touch off a wave of significant, and I do mean "significant" short covering that will initially send the price towards $1825- $1830. I think that if we get this, we will move quite quickly to the all time high up near $1900 before we pause.

If we violate this week's low to downside and especially if we close down below it, expect a sharp drop down to $1725 - $1720 and then to $1700 if that fails to attract some strong buying.

We will simply have to wait and see what early week action gives us next week as the market is now at a crossroads where both sides are either going to perform or have to yield the field of battle. Gold bulls do have the advantage right now based on the close of this week but they will need to stand their ground and push through the selling cap that is being imposed by the bullion banks/swap dealers.

Euro Gold and Swissie Gold Score New Lifetime Highs

Monthly Gold Charts

Tuesday, September 25, 2012

Gold Firm but Unable to Continue through Upside Resistance

Gold is trading firmly today as risk appetite is back on after a bit of a hiccup yesterday. Many investors/traders are growing a bit more sanguine about the impact of any QE program and are still concerned about slowing global economic growth in spite of Central Bank actions to stimulate borrowing and spending. That is leading to more two-sided trade in gold, and in silver I might add, as traders sort out clues to see which direction the economy might be taking.

Frankly, I think it is pathetic that we have reached a point in our nation's history that the actions of the Fed have so discombobulated common sense. No one knows whether to call "Good", "Bad" or "Bad", "Good", as far as any impact on the direction of the stock market. In other words, we really have reached a point where many traders do not know what to do with either good or bad news. If the news were to become too "good", traders are concerned that the Central Banks might not keep the liquidity spighots open as long as initial expectations. If the news were to become too "bad", traders would take comfort in the cornucopia of easy money but then how exactly is such "bad" news conducive to solid economic growth?

I personally have reached a point where I believe the US financial markets have become utterly useless when it comes to actually being an efficient allocator of precious investment capital. The signals are too distorted by Central Bank activity. Call me a purist but I believe that there should have been no QE whatsoever whether it was QE1, QE2 or QE3 as I do not believe the system would have crashed without it.

Yes, the large banks would have taken a huge blow and might have possibly failed but so what? There are many banks in this nation that are rock solid, with conservative  and well-performing loan portfolios. All that would have happened is that the poor performing loans would have been either written off or sold for a fraction of their face value to some of these good banks.

I will be the first to admit that the blow to the economy would have been very severe, but I also believe we would already perhaps be entering the healing period instead of just making the current addiction even worse.

What we have now instead is an enormous money printing scheme that has heretofore a somewhat dubious record of achieving any lasting or permanent success. If you want proof, take a look at the Japanese economy and its stock market index I might add. The Land of the Rising Sun has never recovered from its failed experiment of propping up bad banks with its own version of QE.

As I have said before and will say again, the problems ailing the US economy or those of the Euro Zone or elsewhere, cannot be plastered over with bond buying programs and other government-type stimulus measures. These issues require STRUCTURAL REFORMS and among the number one reform is an end to the madness of spending money that you do not have. Spendthrift political leaders, in their desire to effectively buy votes for re-election, will spend their respective nations into the toilet before they do the right thing for their nation's long term prosperity and economic security. Hey, but why bother with that when you can spend the future savings of the children and grandchildren of this generation? They do not vote so who gives a damn about what we are bequeathing to them!

Back to gold however - while it is up today I am concerned that it looks to be stalling out up here. With the general public (small specs) holding the largest net long position on record there is a risk of downside stop hunting occuring if the short term oriented longs decide to start cashing in their chips. So far gold is merely flatlining along the next "STEP" on the chart. As you can see, it has worked sideways along these steps gathering energy before it then takes a sharp leg higher where it repeats the process. As long as support down at the most recent step holds, it will be okay as attempts to reach the sell stops will be thwarted by solid dip buying. However, if the dip buyers ease off for any reason, these stops will be vulnerable as a large number of small speculators are holding long positions entered into above the $1780 level. Those are underwater already so they remain liable to getting forced out if the market were to break below the $1755 - $7150 level.

I would expect any stop related selloff to generate some buying interest however especially down towards $1735 - $1725, the region labelled as "Secondary Support" on the chart.

The trend in gold is up until proven otherwise but that does not mean we cannot or will not experience temporary price retracements in the short term. That is a far, far cry from a trend reversal. Keep in mind that my perspective is that of a trader, not a longer term oriented investor. Unless you are very nimble and fleet of foot, leave the short term trading swings to the professionals. Acquire the physical metals on dips in price and then let nature take its course. By nature of course, I mean the feckless political leaders and Central Bankers of the West.

Incidentally, news out today shows that there has been some decent buying of gold by Central Banks, among them S. Korea and Paraguay. John Brimelow's excellent Gold Jottings details the tonnage involved. It does show that various Central Banks around the world are providing a solid demand base for the actual physical metal. This is a source of fundamental support that continues to exist underneath the gold market. Remember it was this type of buying earlier this year that thwarted the hedge fund shorts from breaking down the gold price when gold was flirting with the $1550- $1525 level. This buying was able to absorb a huge amount of the supply hitting the market.

Saturday, September 22, 2012

One Obviously Well Informed Deer

I could not resist posting a link to the following story. 

This is one deer that every gun lover and hunter should pass up taking a shot at if they were to ever see it come into their crosshairs. Why? We need this deer to pass on its genes to its progency. Now if we could just get some more American Citizens to do the same maybe we could get our country back again!


By the way, for any of you leftists who happen to read this blog, it's a damn shame that a deer's got more sense that some of you.

Texas couple snaps photo of deer destroying Obama front yard sign

A Texas couple determined to find out who had been damaging a sign in their front yard proclaiming their support for President Obama's re-election bid caught the offender on Wednesday. Tom Priem, a software support engineer in Austin, told FoxNews.com he and his wife, who live on a block where political signs dot front yards, were fed up with seeing only their Obama sign repeatedly defaced.


Trader Dan on King Worlds 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, September 21, 2012

Euro Gold on Track for all Time High Monthly Close

Gold priced in terms of the Euro notched a brand new all time high today at the London PM Fix and came within a mere Euro of matching its all time high based on the futures charts. It is on track, provided it has a decent week next week, to finish out the month at an all time high monthly closing price. It will be extremely difficult for the bears to mount a SUSTAINED sell off in gold as long as this chart stays firm.

Gold And Silver Fail to hold Resistance Levels

Both of the precious metals had mustered enough energy to finally best those respective chart resistance levels earlier in today's session but were repelled around midmorning and unable to keep their footing above important chart resistance. It sure seems to be, based on the price action, that there was extremely heavy capping action occuring.

It seems to me that the noteworthy strength in the mining sector as evidenced by the robust performance of the HUI has given the bulls a great deal of confidence in stepping up to buy the dips in both metals.

Gold has now entered firmly into a zone in which we can expect opposition all the way to the psychologically significant $1800 level. Keep in mind that gold tends to move towards these round numbers, fall back, consolidate a bit, pop through, fall back and hover near the round number and then move higher with that same round number then acting as a floor of support.

The reason for this, in my view, is human nature. Every time a handle changes on the gold price, it tends to put a bit of a sticker shock on prospective buyers. It's the same sort of thing that causes retailers to mark an item for sale at $19.95 instead of $20.00. We all know it's going to cost us $20 but for some reason it just seems a bit cheaper with that $19 handle on the front of it. This is especially important if you are a guy buying a new elk rifle for $995 instead of $1,000 as it makes explaining to the wife all that much easier when you confidently and calmly assert how "cheap" you bought that rifle! Ditto for the new ATV which you can say you picked up at that "steal deal" of $13,000 ($13,995) instead of having to say that it cost you "$14,000.

I am trying to help the guys out here but I am sure that the same reverse psychology has been and will be applied by the members of the fairer sex when informing us of all the great "bargains" they too have managed to find.

Generally, what then happens is that market participants as well as physical market buyers, become accepting of the fact or acclimatized to the new and higher price level. Having seen for instance a handle of "18" in front of gold, any setback in price that yields a "17 suddenly looks like a good deal where a month ago it was deemed as expensive. This is generally the nature of all bull markets except of course, when they enter a parabolic phase where greed and/or fear take over. Prices will gradually but steadily rise higher, setting back on occasion or pausing, and then pushing higher and resuming the primary trend. At some point the trend will reverse and as it does, the psychology or sentiment towards that particulary market then undergoes a reversal as well.

Where does this leave us from a technical chart perspective? Simple - if gold can push through $1800, I would expect this sort of price action to unfold, with some pausing, some consolidation and then a move higher leaving $1800 behind and it moves towards the all time high once again. The big test of course will be seeing whether it can first breach this $1800 level.

 Actually the price action in gold has been very orderly thus far. A sharp move higher, followed by a few days of sideways action as the market consolidates its gains, followed by another sharp leg higher and again a pause. The result has been a stair-stepping pattern on the price chart, which is a very healthy, steady rise in price. It's those vertical launches that quite frankly make me nervous as they can fizzle out nearly as fast as they began.

That being said, the late price action looks as if the market is a bit tired. I would not be surprised to see some additional early week selling as trading kicks off to start the new week Sunday evening. Dip buyers should remain active however on any tests of downside support. See the chart below for those levels.

I will give a more detailed look at the Commitment of Traders report this weekend but for right now, I want to note that the overall net long positions of the nonreportables, the smaller traders/general public, is at its highest level ever. Combine that with the late session selling and the retreat from a strong resistance level, some caution among short term oriented traders is warranted.

Wednesday, September 19, 2012

HUI looks strong - Following S&P 500 Higher

The mining shares are seeing some very good inflows of speculative money. The result has been an advance for 8 out of the last 9 weeks. The chart shows the index blowing through resistance levels with relative ease with the next Fibonacci retracement level within striking distance.

As the trend is higher, we would expect dips in price to be bought. Initial support for the index is down near the 50% retracement level that comes in near the 505 region. AT some point longs will decide to take some money off the table after a run of this nature but as to where and when this will occur, we will need to watch the price action to get a clue.

If the index were to somehow close a week above the 555 level, it is very likely that we would see the index scoot rather quickly to 600.

Global markets are all being jammed higher as Central Banks are orchestrating a tidal wave of liquidity. The reality is that none of this will do a single thing towards dealing with the ROOT CAUSES of the problem but that is what Central Bankers do in response to any financial or economic crisis - they ramp up the money supply in the hope that it will spur borrowing and lending.

I maintain that it will not  - not without an environment in which jobs are being created and borrowers feel somewhat confident that they can actually afford to make those loan payments. I have said all along, that if the Central Bankers are intent on providing funding for the banks in the hopes that they will loan the money, they are mistaken. Heck, if the feds are hell bent on printing money, instead of basically getting it into the hands of the banks, why not just send a check to each taxpaying household instead! If you are going to deliberately debase the currency, at least have the decency to give some of it to the people whom you are counting on spending it!

Let's call this the Trader Dan stimulus plan. I think that they should start with a government check in the amount of $10,000. I could use some new tractor accessories.

Gold running into Resistance at $1780; Silver at $35

Same comments this AM as last evening. Both metals are being capped by those respective resistance levels.

Tuesday, September 18, 2012

The New Style of Warfare - Bloodless but Extremely Devastating

Take a look at the following article and you will see that the Biblical concept of "the borrower becomes the lender's slave" is once again proving itself to be true in any age at any time.

Beijing hints at bond attack on Japan

A senior advisor to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country to its knees, unless Tokyo reverses its decision to nationalise the disputed Senkaku/Diaoyu islands in the East China Sea.


And one wonders why so many of us in the gold community are becoming increasingly shrill in our denunciation of the US government's reckless borrowing binge, particularly under the current Administration, which has to take the grand price for the most inept, reckless and profligate one in our entire history as a nation.

China is now the US' largest creditor. Take a guess at what will happen should the Chinese get it into their head one day to go and reclaim Taiwan, over any US objection. 

This is also a reason that I despise beyond the words to convey, the Federal Reserve's asinine decision to print into existence another $40 BILLION each and every month as far as the eye can see in order to buy more US agency debt to further increase the size of its balance sheet. A policy that by design deliberately debauches the US Dollar coupled with a federal government that is now more than $16 TRILLION in debt. Where exactly does that leave the US as far as any bargaining power???

When the hell will the American people wake up and realize what is happening to their country?

Incidentally, silver is having a bit of a struggle clearing the $35 level as it pauses to decide its next move. If it can push past this strong resistance level, especially if it can clear $35.50, it should be able to easily put on another $2.00 before encountering technical chart resistance. Downside support for silver is at the round number of $34 followed by $33 and then $32.50.

Gold needs to close strongly through $1780 to make a good run at $1800 again.

Sunday, September 16, 2012

Hedge Fund Silver Positions

Here is the latest breakdown of the hedge fund positions in the Silver market at the Comex based on Friday's COT data.

Speculative money flows continue into Silver as hedge fund managers position themselves further on the long side of the market and continue reducing their short side exposure.

Friday, September 14, 2012

Bonds Might Have Topped Out, for Good

Today's price action in the long bond is highly suggesting that the multi-decade bull market in US bonds is over. The inflationary impact off three successive experiments in Quantitative Easing has seemed to have finally gotten the attention of that endangered species once known as the bond vigilante. Remember, this latest round of QE is not targetting US Treasuries but rather agency debt. That removes a major source of demand.

With the US Dollar falling apart thanks to a deliberate attempt by the Fed to debauch it, buyers, particularly foreign buyers, are going to demand higher rates to compensate them for the currency risk.

either way, today is shaping up to be a big day for the future of long term interest rates.

Thursday, September 13, 2012

Commodity Sector Looks Set to Leg Higher

The long term monthly chart provides an excellent perspective of the hard asset sector. Note how back in 2008 when the credit crisis first erupted and a deflationary mindset took over, that the sector crashed to earth in a brutal fashion. It took two doses of QE to jam it north, the first ending before the second round was announced. Of course, the second round of QE provided the fuel to send the index soaring to a new record high.

Once again deflationary expectations took over due to the European Sovereign debt crisis, a slowing Chinese economy and of course, a US economy in the toilet. Down goes the commodity index once again in a big way.

All that did was to pave the way for yet another round of stimulus, one from the ECB, another from the Chinese authorities who are doing a government works project and now today's QE 3, courtesy of the scam artists at the Fed.

Any guess where this index is now going to go? If the chart is accurate, it should make a push towards 600 where it fill face a big test. If it plows through the 600 level, heaven help us all because the odds will then increase of it pushing back towards 650 and higher.

HUI Technical Chart

The HUI is closing in on a KEY technical resistance level on its weekly chart at the 50% Fibonacci Retracement level of its last year summer high and this years trough. That level is basically right at the high made in today's session as it comes in beginning at the 504 level. If the HUI closes the week through this level on a good strong note, look for the index to move towards the 540 level. Note that all of the major moving averages, whether the shorter term 10 and 20 week or the 50 week moving average are either turning higher or flattening out and beginning to turn.

Stock Market Rally nothing but Rampant Paper Asset Inflation

Well, the Fed wants the stock market higher in time for the election (it seems Mr. Bernanke wants to retain his position as head of the Fed) and they got it.

Take a look at the following charts of both the Dow and the S&P 500, each of which is setting at more than 4 1/2 year highs based on what???

Impressive rally isn't it considering it has all been orchestrated by Fed QE programs. The problem is revealed however when viewing the following charts.

Thirteen years ago, it took a bit more than 42 ounces of gold to buy the DOW. In the year 2007, when the DOW made a brand new all time high in nominal terms, it took half the amount of gold to buy that same Dow, namely a bit more than 20 ounces. Today, as the DOW is once again flirting with moving back towards the all time high in 2007, it takes an astonishing LESS THAN 8 OUNCES of GOLD to buy that same DOW!

Are you getting the point of all this? All that the elitist monetary masters are creating in their alchemy laboratories is a RAMPANT case of paper asset inflation of the stock market. Stocks are losing value against gold and have been so doing since 1999. The more QE the Fed wants to spit out, the further this ratio is going to collapse until at some point it will probably end up with 3-4 ounces of gold being able to purchase the DOW.

Another way of stating this is: Do not be hoodwinked by the claptrap coming from the mouth of the monetary elites at the FOMC that inflation is tame and that expectations are subdued. We are witnessing one of the single greatest instances of inflation in the stock market in our domestic history!

Which One would You Want to Own???

Now that the Fed has made it abundantly clear that they intend to further debauch the US Dollar so as to keep Wall Street happy, watch for gold to once again begin outperforming against US Treasuries. Notice that each previous round of QE, has sent the yellow metal higher against the price of the long bond as the latter appropriately responds to an increase in inflation expectations by such activity.

Compared to previous QE's, this round is relatively modest by comparison as a $40 billion per month price tag still is less than $500 billion annually. Still, there is Operation Twist occuring alongside of this. Either way, I would expect the pattern to resume in favor of gold now that the deed is history.

The Fed and the ECB determine to Destroy the Middle Class

While Wall Street cheers the actions by the Fed to further enlarge its already bloated Balance Sheet, those of us who live on Main Street should get accustomed to further increases in our food and energy costs. What I find rather perverse, is the statement by the FOMC that "longer term inflation expectations remain stable". Yeah, maybe on the salaries and wages front but sure as hell not on the raw materials front.

Take a look at where hedge fund money is now flowing - right back into the hard or tangible assets category again. Get used to higher gasoline and heating oil prices and brace yourself for the food sticker shock you are going to experience in the weeks and months ahead.

I do not know whether to laugh at such utter stupidity or to weep for my nation's future. After the Fed has already conjured into existence the piddly sum of $2.5 Trillion for QE 1 and QE2, we now get another $40 billion/month of agency debt purchases for as far as the eye can see. A lot of good the first $2.5 Trillion did. this latest one will do the same - nothing as far as curing what the real problem is in the US economy.

This is supposed to keep long term interests rate low to encourage home mortgage borrowing. Right, I am sure all those folks who were holding their breath waiting for the yield on the Ten Year to drop further from the 1.4% level it was trading at six weeks ago before taking out that mortgage. Guess what, thanks to all this money creation from the both the Fed and the ECB, the bond market is now shifting away from the deflationary scenario towards one of inflation, regardless of the Bullsh*t in the FOMC about inflation expectations remaining subdued. The yield on the Ten Year is now 1.8% AFTER all this FOMC nonsense. NIce work guys! Maybe you can do yet another round and drive the Ten year over 2% for us.

It also looks as if the long bond might be breaking down the technical charts also. That tells us that LONG TERM INFLATION EXPECTATIONS ARE INCREASING. the exact opposite of what these serial liars told us this morning.

Make no mistake about it, the bond markets and the commodity markets are signaling inflation. Pay no attentiont to the worthless claptrap being spouted by these monetary buffoons. The real picture is in the price charts which are always forward looking.

by the way, the rally in the stock market, which is now sitting at higher levels than when the current inept-in-chief took over, is a perfect picture of what happens when inflation hits the paper asset category.

By the way, in case anyone did not notice, I am particularly incensed to see this QE nonsense. I am disgusted at what the long term impact is going to be on my children and their future. so, today, you all who are reading this, get to read a written rant instead of an audible one!

Sunday, September 9, 2012

Are Commodities coming Back in Vogue?

The following chart of the Continuous Commodity Index ( CCI ) shows a sector that apparently is catching the attention of the hedge fund community once again as risk trades come back into favor courtesy of what seems to be another wave of money printing/bond buying about to launch.

Notice that the price rally from the late spring low down near 503 first cleared the 25% Fibonacci Retracement level off the drop from the 2011 peak near 692. Instead of falling back through that level and making another fresh leg lower, the market bounced right off that same 25% retracement level and then spiked higher taking out the 38.2% retracement level where it now sits.

It has also broken the downtrend whether that be the shorter term one drawn off the August 2011 high or the longer term one drawn off the 692 peak.

What this tells us is that investor sentiment has now firmly shifted away from the deflationary viewpoint and is moving more firmly towards anticipating an inflationary period from all this Central Bank monetary activity. Also aiding the case is the newly announced round of government works projects in China which will keep building material prices from falling any further as China's appetite can be voracious.

Whether any of this is enough to fix what ails the global economy is uncertain ( I view it as accomplishing nothing in the long term but serving only as a bandaid which will have a short term impact) but one thing that is certain is speculators' responses to all this.

This is the reason that silver in particular is moving higher. It will always outperform gold during episodes in which inflation fears dominate as opposed to periods of deflationary fears. Note the recent strong performance of the copper chart, aka, Dr. Copper, as it has broken out of a four month long consolidation period after being unable to take out the $3.50 level. COT reports detail the influx of fresh speculative money flows into the red metal. This is also a good sign for silver which as a general rule of thumb, seems to have a tendency to move in a similar direction as copper.

Incidentally, I want to again refer you to a previous post below detailing the hedge fund long and short positions in both gold and silver. A simple question - does the long position of the hedge funds long anywhere near the previous peaks shown on that chart? The answer is "NO", it does not.

I want to repeat what I have been saying and writing about this gold and silver market for the last 8 years or so that I have been writing publicly about this topic - speculative money is what drives the markets. Commercial activity does not. As long as speculators are buying, prices will rise regardless of what the commercials are doing. Only when that buying abates and upward momentum stalls out, will a market reverse course. IF the fundamentals remain strong however, the dips in price will attract new buying once the initial wave of long liquidation from the day traders and other shorter-term oriented traders is finished.

Beware of those who tell you that prices cannot rise further because there is "X" amount of speculators in a market. Who is to say that these same speculators cannot buy more? How high can prices rise before upward momentum stalls out? Anyone who claims that they can predict such things is more full of crap than a Christmas goose. The markets will tell you when they are turning; ignore everyone else and I mean everyone and listen only to the voice of the market. After all, it is the only accurate voice out there when all is said and done.

Saturday, September 8, 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.


Click on this link to take you to the King World News audio transcript of some portions of the radio interview in addition to seeing the HUI to Gold comparison charts I have presented there.

Friday, September 7, 2012

Commitments of Traders Reports

Following are some charts detailing the positioning of the hedge funds in both the silver and in the gold markets.

Note the build in the longs and the reduction in the shorts as those funds who gambled on a breakdown in the price of the metals and sold them down near their support levels, were caught flat-footed and forced to cover.

The first chart is that of Silver:

The following chart is of Gold. Note that since May of this year, when gold was trading below the $1550 level, and when hedge fund short positions were at a maximum, those hedge funds playing gold from the short anticipating a breakdown in the price, were forced out and have been covering ever since. Meanwhile, new longs are coming into the market in a big way putting further pressure on the short camp.

Thursday, September 6, 2012

ECB Sterilization Details Sketchy

One of the big selling points by Draghi and those favoring the ECB bond buying program, to assuage investor fears of its inflationary impact, was that the purchases would be offset or sterilized so as to provide for "price stability". I suspect that this was emphasized to deal with the strong German opposition to the plan as the German experience with hyperinflation during the Weimar republic has deep roots in the German national psyche.

The question that myself and others have, is exactly how this sterilization is supposed to proceed. What will the ECB buy in order to reduce the amount of money in circulation in those nations that ask for the "bailout mechanism"?

Remember, any of those troubled nations' bonds that get purchased by the ECB mechanism will be sitting on the balance sheet of the ECB in exchange for Euros. One assumes that the nations will of course spend these Euros to meet their various obligations, whether those be pensions, salaries, infrastructure, medical, etc. That means this money can reasonably be expected to go into circulation. So what exactly does the ECB then do to extract a corresponding amount of money out of circulation so as to render its bond buys neutral?

I for one am most anxious to see the details as I do not believe for one moment that in practice this is what is going to happen. This for certain is going to be an interesting laboratory experiment.

It also seems to me that gold is not buying into any sterilization talk. It would not be sitting at a mere 14-16 Euros off its all time high if it did!

"And She'll Have Fun, Fun, Fun, 'til the Bankers take the Punch Bowl Away

Pardon an old Beach Boys fan for taking Liberties with one of their classic song's titles but this popped into my mind today watching the market response to the ECB's bond buying announcement.

US economy in the toilet? No problem - new 52 week high in the S&P 500. While you are at it, give that 'ol Japanese Yen the Whack-A-Mole treatment. Time for that carry trade again. RISK ON! Damn the Torpedos, Full Speed Ahead!

I really think that some creative genius should make a spoof of the Star Trek, the Next Generation series, involving Draghi and Bernanke as a combination of the Borq Queen pronouncing those fear-inspiring words, "RESISTANCE IS FUTILE!" At least for today, the markets have been absorbed into the Borq Collective and are now assimilated. All sense of individualism has been annihilated leaving only the will of the hive supreme.

Once again the Central Bankers of the West have unleashed another torrent of hot money flows right smack dab into the commodity sector guaranteeing that higher energy prices are here to stay. Did anyone check out what happened to gasoline, heating oil and crude oil today? WTI is now less than $3.00 from the $100/bbl level while gasoline is back over the $3.00/gallon level wholesale. Keep in mind that this is well after the end of the traditional "Driving Season". Anyone expecting or hoping for a bit of relief at the gasoline pump should get disabused of that notion.

Gold and Silver of course wasted no time in promptly blowing right through overhead resistance levels on the chart as the metals are now functioning exactly as they should function whenever a set of Central Bankers decide to further debauch their currencies. Take a look at gold priced in terms of the euro, or Euro-Gold. It moved within 14 euros of its all time high. The ECB's actions are certainly not being lost on European based buyers of the metal. They know damn well what this idiocy is going to precipitate.

Incidentally, Euro Silver has broken its downtrend and looks as if it wants to make a run towards the 28 Euro level. I would venture to say that if it breaks through that barrier, we will see $40 Silver here in the US.

Moving back to the US-centric view, one thing that I am watching that in my mind is even more significant that gold clearing the psychologically-important $1700 level is the fact that this occurred as the HUI has managed, FINALLY, to clear that huge overhead resistance level of 460. This level has held the miners in check since April of this year as any and all attempts to better, up to now, have failed. If the HUI can hold onto its gains into the end of the week, we should see it run to 480 whilst many of the miners reflect breakout patterns on their individual stock charts. A push through 480 sets it up for a run above 500 to 510 or so.

It is always more constructive to see BOTH the mining shares and the bullion markets taking out overhead resistance levels at the same time on their price charts. One has to be a bit more careful when bullion is moving higher while the shares are languishing.

By the way, some of today's market chatter is that the stronger ADP private employment data, combined with the action by the ECB, will make it much easier for Bernanke and company to say "NO" to another round of QE3 right away over here. That is where some of the profit taking in gold and silver is coming from. Let's watch and see how things settle out by the end of the day.

Tuesday, September 4, 2012

Gold Hits $1700, Eases off a Bit

Gold bulls managed to push the yellow metal to the psychologically significant $1700 for the first time in months. As can be expected, it could not hold ABOVE the level as selling from both fresh short sellers and some profit taking from longs, surfaced on the first approach to this round number.

Gold has a history of pausing around these even or round numbers, retreating, consolidating a bit, and then pushing through and moving to the next resistance level on the charts.

It looks to me like the weakness in the gold mining stocks in today's session, which are feeling spillover from the generally lower stock market, is enabling the capping action at $1700. I would personally like to see the HUI power through the 460 level as I think it would enable the gold bulls to beat back the bullion bank selling at the highs of today's session.

Incidentally, Euro Gold, or gold priced in terms of the Euro, is within a mere 20 euros or so of its all time high!

Silver is once again leading Gold to the upside as this market is now running on pure momentum as hot money pours in chasing prices higher. I am looking at $32.50 as a resistance level that needs to be cleared if silver is going to mount a push to the all-important $35.00 - $35.50 region. So far silver has pushed within .07 or 7 cents from $32.50 where the sellers showed up. Bulls however as of yet show no signs of growing weary and are buying dips in price. Support is rising and comes in at $31.50 near today's low and then $30.00 - $30.25

Saturday, September 1, 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.