Macro Trade Day

If you look at the following Continuous Commodity Index chart ( CCI ), you will see that it is sharply lower today. Even LUMBER, which has been on a tear higher is moving lower today. There are very few commodities that are not in the red today.

For whatever reason, hedge fund longs are dumping commodities across the board. I find that rather interesting to say the least, especially with another $1.02 TRILLION in QE coming our way next year. Some are blaming the sell off in gold and silver on the stronger-than-expeced GDP number this morning, but once you get through the headline number, you realize that the feds used a highly dubious inflation number for their "deflator". The chatter on this number was that it "was so much better than expected that it casts doubt about the longevity of the Fed's QE program". Try to stop laughing here.

Out of that 3.09% growth rate for the third quarter government expenditures were responsible for 0.75% of that number. In other words, nearly a quarter of the stated growth number is due to government spending.

Hidden deeper within the report is the fact that personal savings shrank during the quarter as did household per-capita disposable income. What this usually translates to is that consumer spending increases are not coming from rising incomes but rather from either a drawdown in their savings or from increased cash flow due to home mortgage refinancing. My guess ( and perhaps some enterprising reader can run the data to check ) is that consumers are ramping up those credit card balances once again.

Either way, the idea that the Fed is going to suddenly begin thinking seriously of drawing down its balance sheet sooner than expected based on this data is whimsical to say the least. Besides, my view of the QE programs is that it is designed FIRSTLY to keep US government borrowing costs lower and then SECONDLY to keep the big banks happy with very little daylight between item FIRST and item SECOND. If you think the US government's fiscal condition is now a mess, wait 'til you see what happens to it if interest rates start moving higher and the cost of servicing that mountain of debt comes back to bite them ( and us).

Now, if you want to hear another view as to why gold and silver are going down - hold onto yoru hat here: Traders fear that the breakdown in the "fiscal cliff" talks will result in the automatic spending cuts kicking in next year and reducing GOVERNMENT EXPENDITURES while tax rates rise thereby throwing the country into recession and reducing industrial demand for silver and putting pressure on gold in a deflationary environment.

Hmmm - back when I took logic in school I learned what I thought the real world actually believed - that two mutually incompatible things cannot both be true. "A" and "Not "A". But surprise, that is not how the financial world apparently operates. You see - economic growth is proceeding at a much faster rate that we were thinking giving us hope for a continued improvement in the US economy of such magnitude that the Fed is going to discontinue QE sooner than expected.  TRUE

The fiscal cliff talks are not proceeding well meaning we are going to get severe spending cuts meaning government expenditures will not be there to support the GDP numbers and economy meaning that the growth rate is going to slow and thus the economy will slow with it. ALSO TRUE.

Yep - there you have it. The economy is growing well; the economy is not going to grow well. If you can make any sense of this lunacy, please clue me in because I cannot wrap my pitiful brain around this no matter how hard I pretend to be a hamster on a wheel.

Let's move over to gold however. The bears had been greedily eyeing that 200 day moving average for downside sell stops. Strong physical market buying had stymied them however. Today, that buying dried up long enough to allow them to reach those stops and down she went. Volume is pretty heavy meaning a sizeable flush is occuring with a big transfer out of weak hands into strong hands taking place.

Some have questioned why Central Bank buying is not showing up. Rest assured; it is!

Here is a look at the chart around midday today. Note that 200 day moving average and how the market accelerated to the downside once that was taken out. By the way, there was a rash of put options that were bought earlier this week so someone made a lot of money in a very short period of time.

Gold has now reached the next level of chart support shown here. That comes in between 1640 - 1630, an area denoted by horizontal support drawn off early highs as well as the intersection of two different Fibonacci retracement levels. So far this region is holding the metal. If it fails for any reason, we will more than likely see gold down at $1600 - $1590 very quickly. For this market to have bottomed, we will need to see it move back above that same 200 day moving average and hold above that level. This moving average tends to attract buying or selling based on the algorithms of the funds so there will be a tendency for funds to try to sell against this level. If that selling is absorbed, one can feel very confident that the market has bottomed.  so far we are still looking to try to confirm a support level but the jury is still out on that as of now.

The HUI is providing ZERO help at this time. As you can see on its chart, there is not much in the way of chart support under this market. It might, MIGHT, be able to bounce off that former downsloping trendline that held it in check but if that fails to stem this collapse, then it is going back to 400 or even 390.