Silver - Nothing Doin' Yet

Yesterday silver looked as if it was setting up to make another test run at stubborn overhead resistance near the $32.50 level, the top of its recent trading range. Today - well, to put it bluntly, "nothin' doin'".

The ferocity of the retreat away from yesterday's high is a bit surprising to me given the big push higher yesterday. A couple of things - end of the month positioning is being seen in quite a bit of the markets that I regularly trade today and that is causing some pretty wild swings in price.

Secondly, the continued meltdown in the mining sector shares (HUI and XAU) is completely undermining strength in the metals over at the Comex. Any time would-be bulls get ready to make their move into the metals, they take one look at the HUI or the XAU and then go back to sleep. There is no reason to chase precious metal prices higher as long as the mining shares continue to reek.

The HUI is on track for its worst monthly close in THREE YEARS. What it will take to generate any buying of sufficient size to reverse the downtrend is unclear. Value-based buyers are present but are being overwhelmed by the non-stop selling hitting the sector. I get the sense from the price action that the shares are on the receiving end of a position among several larger players that has gone seriously awry. They are being forced out kicking and screaming but also bleeding profusely. When you continue to stretch a valuation of the HUI to gold to levels last seen more than FIVE YEARS AGO, someone is in trouble. When the overstretched rubber band finally does snap back, it will be quite fierce but as to when that might occur, I am unclear.

For now, there is still no sign of any definitive bottom in the mining sector.

For that to occur, the Comex metals are going to have to be able to cast off the share-related drag on their price and clear the top of their respective trading ranges. That has not yet been able to occur.

As you can see on the price chart below, the RSI failed, once again, to take push past the 60 level. That means the sideways range trade remains in effect.

Yesterday the market pushed strongly through the 50 day moving average; today it plunged right back down below it. It does remain at this point above the 200 day moving average; a slightly friendly development unless proven otherwise.

I am not sure what it will take to push these metals higher. Yesterday there was a rash of shortcovering and some fresh buying based on the lousy Q4 GDP number that had traders convinced that any talk of premature ending of QE4 was nonsense. Today, there was some second guessing that even with the higher unemployment claims number. Some are looking past today's numbers towards the payrolls number and are expecting to see some decent numbers. If the number comes in higher than expected, I would guess the metals will see further pressure on the idea that the Fed will cut short the QE program in spite of the backward looking GDP number. Remember, markets look forward not backward.

If the number comes in as expected or below consensus expectations, I think we can look for the metals to breathe a sign of relief as it will reinforce the idea that while the economy might be recovering somewhat, it is still not able to stand on its own two feet without continued easy money policies.

That means, we wait and see what the morrow brings. Sentiment in the shares is rotten; absolutely rotten but it can still get worse. Some keep pointing to this fact as proof that a turnaround is near. They might be right. The problem is you will need more than lousy sentiment to start a sustained rally - you need bullish enthusiasm. Haven't seen any sign of that yet.

Euro Yen Cross Continues Streaking Higher

Remember our old friend, the Euro-Yen cross from its hey day back prior to the credit crisis of 2008? We used this cross as a gauge of risk sentiment particularly during the massive Yen carry trade of that time frame. The cross came under tremendous pressure when that carry trade was unwound and the investing world was rushing into safe havens and out of speculative positions.

When the Euro was the subject of "the Euro is finished" talk during the height of the European sovereign debt crisis, this cross was hit particularly hard. However, once the ECB got into the act and the Europeans put together their bond buying program, the Euro began a steady recovery against the Yen. Thus far we are not hearing any significant chorus of monetary officials/political leaders out of the Euro Zone making noises about the strength of the Euro. That is why money keeps flowing into the Euro.

I think it is no insignificant matter than the recent rally in the US equity markets  which has seen the S&P move to a FIVE YEAR HIGH just so happens to parallel the rise in this cross. That cross has been and still remains one of the more accurate measures of risk sentiment that we have, along with the bond market of course.

Take a look at the recent action of the cross as it confirmed a bottom in November last year and the subsequent action in the S&P 500 which also rallied off a short term swing low that same month. With the exception of the selling pressure in the last few days of 2012 (based no doubt on tax related selling), the two have been moving in lockstep.

Clearly, speculative fever has been revived in regards to stocks based on this cross. The question now becomes, will the commodity sector be next? That is why as long as this cross continues higher, I am going to be very closely watching the price action of the Continuous Commodity Index or CCI. So far that index has not been following the cross higher as it actually went in the OPPOSITE direction of the cross during the month of November. However, it is beginning to show signs of paralleling the cross. If this connection, which was in exact lockstep leading up to the peak in commodities back in 2008 becomes re-established, watch for the precious metals, in particular, silver, to start more of a sustained trend higher. Let's pay close attention to this as well...

Gasoline Prices on the Rise

A mere two months ago, consumers were enjoying some of the lowest gasoline prices seen since early last summer. Call me a conspiracy nut but I no longer believe in coincidences seeing that these lower gasoline prices just so happened to strangely correspond to the lead up into the past election day.

Now that this is behind us, gasoline has been on a tear higher, along with crude oil I might add. You no doubt have noticed the increase at the pump already. Rising energy prices are something that cannot be long overlooked by those scanning the horizon for signs of inflationary pressures. I mentioned yesterday that heretofore, gold has ignored the strength in crude and the rise in distillates. That may be getting harder for it to do if this strength continues.

Remember, at some point, because of the pervasive impact of higher fuel/energy costs on nearly all segments of our economy, the price of transported goods must rise to reflect the higher costs for producers/manufacturers/distributors. When it does, the impact on the CPI should be seen. What is lagging right now is FOOD costs. You will recall that we have seen episodes in the recent past where both FOOD and ENERGY prices were rising in tandem. That occurence cannot be ignored.

For now, energy is taking the lead. We'll keep a close eye on this to see if unleaded gasoline can run as high as the $3.20 level or not.

Perhaps the stubborn refusal of energy prices to break lower is one of the factors contributing to the continued weakness in the bond markets...

The Punch Bowl Runneth Over

Fear not ye despairing lads and lassies. Surely thou wert fearful that said supply of spirits to enliven yonder punch bowl wert in peril of being dried up. Hark - the sum of all economic activity in the realm didst verily sink a fortnight plus ago. This turn of events must surely bring forth the purveyors of joy and bliss to aid thee.

Okay - I got a bit carried away - the big news, and I do mean "BIG" news this morning that has gotten the commodity sector excited and is in the process of pushing the US Dollar lower, is the fact that 4th quarter 2012 GDP actually managed to SHRINK! Yes, you got that right - it shrank! As a matter of fact, the reading was the worst since Q2 2009! Remember that we were back in an official recession during that time frame.

Ironically, and this to me is a big deal, government spending decreased and that is perhaps one of the biggest reasons for the reduction in growth. I have mentioned previously on this site that government spending was a large factor behind recent improvements in the rate of growth in this nation and that were it subtraced from the numbers, we would be showing very little in the way of actual growth. Lo and behold, I did not expect the growth rate to actually shrink were it removed from the equation.

Here is the ironic part - the US MUST REDUCE SPENDING as it is headed down a road that will certainly lead to economic ruin. When government debt is 100% of GDP it is unsustainable. Any who doubt need merely look across the Atlantic Ocean to Greece, Spain, Italy, Portugal, etc. Heck, even one of the French officials made the slip of the tongue in admitting the obvious, namely that France was bankrupt! While the US DEbt/GDP ratio is not yet at levels seen in the PIGS, it is most surely headed in that direction.

So guess what, if the US government attemps to rein in spending, economic growth will contract because this deficit spending by government is contributing to a large portion of the "growth" in this economy. But keep in mind, that government does not actually create wealth - it merely takes it from one sector of the economy with one hand and redistributes it to another sector with the other hand. To the extent that it adds "growth" to an economy, it is BORROWING FUTURE GROWTH INTO THE PRESENT when it deficit spends. Borrowed money must eventually be paid back and when it is in a debt-based economy. growth shrinks.


That brings us squarely back to the Fed - before this morning's GDP number was released, the world of investors were waiting with bated breath for the oracles to come forth from Delphi and issue their prophetic insight into the state of the US economy. Another duller way of saying this is that the conclusion of the FOMC meeting is today and the market was waiting for what statements would come out of that. Prior to today's GDP report, there were genuine fears of a curtailment in the QE4 program coming sooner rather than later. Today's GDP number should put those fears to rest.

This is what has gotten both gold and silver in such a tizzy this AM. Hedge fund shorts in silver in particular, that were put on below $31 are now being forced out. Same goes for gold shorts by hedge funds that were put on below $1660, those too are being covered. The reason? Traders are now revising their views of any premature end to QE4; based on today's contraction, it ain't gonna happen anytime soon.

I am going to wait until later in the day to see how the pit session closes and in particular, how the S&P 500 REACTS  before doing any charrting as I want to see those before making any conclusions as to near term technicals.

One thing I do want to point out however is that in spite of the pitiful GDP numbers, the bond market is FALLING. This is to me, perhaps, the most important price action of today's session. One would have expected slowing growth to rev up bond buying; it is not. The opposite is what is happening. The yield on the Ten Year note is now OVER 2.0% as I type these comments. We will have to monitor this extremely closely. Something big might just be afoot!

Continuous Commodity Index Rises - So does Silver

Silver continues it pattern of mirroring the movements of the Continuous Commodity Index ( CCI ). Today was one of those "Let's buy Commodities" Day by the hedge funds, especially in the Crude Oil and Metals markets (Palladium, Platinum, Copper). With the Dollar lower, it was the return of the "RISK ON" trade and thus recent short sellers in silver were pushed out as some fresh buying was taking place.

From a technical chart perspective, silver managed to return above broken support at the $31 level. Where it goes from here is anyone's guess. If the "Buy commodities" theme continues, silver will rise. If money flows reverse or slow into the sector, then sillver will move lower again. It really is that simple.

Volume of trades below the $31 level dried up and seemed to pick up a bit today when silver pushed above $31.25. From what I can see on this chart, if silver prices drop back below $31.10, it will probably move lower and retest yesterday's low. If it can push past $31.80 on the topside, it should revisit $32.25.

We will just have to watch.

Take a look at the following chart of the CCI and again compare it to the Silver chart. See how closely the two track each other. It is quite remarkable.

Following is a chart of the US Dollar, which is stuck in a broad coiling pattern. It is encountering selling up towards 81 and buying down towards 79. I believe that were it not for the persistent weakness in both the British Pound and the Japanese Yen, that this particular Dollar index would have already broken down to the bottom.
Those two particular currencies TOGETHER make up 1/4 or 25% of the value of the index and have both been dropping quite hard.

Here is another chart detailing the GOLD/CRUDE OIL ratio (note that I am using WTI and not Brent). As you can from the chart, gold has basically been losing ground against crude oil since late last year. This ratio is currently trading near 17 to 1. For now, inflation fears from a steadily rising crude oil price ( it is up above $97 today and looks to make a run towards $100) are not concerning the gold market.

The HUI is attempting to hang onto a key chart support level at the 400 level. As I mentioned on both the KWN Weekly Metals Wrap and in a separate post here on the site, this key mining sector index has not had a MONTHLY CLOSE BELOW the 400 level in three years. It has spiked below this level but on all occasion since then, it has managed to climb back over the 400 mark. Tomorrow is the end of the month so I am going to be paying very close attention to what it does. Bulls will not want to see this index close below 390.

Lastly, the S&P 500, the bubble that keeps on expanding, is now trading above the 1500 mark and looks as if it is now heading to 1530. It is takes that out, it is going to retest the ALL TIME HIGH. How do ya like those Federal Reserve officials and their skill at blowing one bubble after another. Are they good or what!

Trader Dan on King World News 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.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/1/26_KWN_Weekly_Metals_Wrap.html

Technical Failure Continues to Haunt Gold

continued selling in gold after yesterday's confirmation of a failure to take out overhead resistance near the 50 day moving average and its further retreat from psychological resistance at the $1700 level.

Today price once again fell below the 200 day moving average as the double whammy from long liquidation from short-term oriented bulls, in conjunction with fresh short selling from speculators, has overwhelmed bids coming from the swap dealers and bullion banks who are covering previoulsy established shorts up near the overhead resistance zone.

The RSI continues to confirm the move lower within the broad sideways trading pattern that has now existed since the middle of December last year.

It is the same story for the present - speculators are not interested in gold or in anything related to gold, such as shares right now, as they are after a chance to secure better returns on investment into the broader equity markets.

Once again the S&P 500 has made yet another fresh 5 year high! (at least the bond market is finally showing some signs of rationality as it is sinking sharply). The yield on the TEn Year is knocking on the door of a 9 month high right now as it is currently sitting at 1.934%.

What is missing in gold and in the gold shares is money flows. It is really that simple. Heck, even a crude oil price that is rising, in spite of not especially bullish fundamentals, cannot seem to generate any inflation-based buying in gold right now. It is simply off the radar screen of the big hedge funds and momentum based buyers. I am not sure what it will take to recapture their enthusiasm from a fundamental standpoint at this juncture but from a technical standpoint it still goes back to the fact that gold must get a "17" handle in front of it to generate any bullish excitement.

Downside support still remains in place between $1640-$1630 on the chart having not as of yet been tested. One can assume that the same buyers whose actions have forged out that technical base of support still remain viable but we will need to see evidence of their eagerness to buy before just presuming that it is so.

Again, there is no help whatsoever coming from the mining shares which continue to effectively undercut any hint of bullish sentiment that might dare to form in the actual metals as far as the Comex futures go. I am beginning to get a sense of real capitulation selling in the mining sector. The despair, anger, frustration and downright disgust being expressed by even some long term holders of the miners is growing, rightfully so I might add as money invested in them was lost opportunity elsewhere. We will continue to look for signs therefore of a lasting bottom in that sector but so far, I do not see it as of now.

The HUI is perched periously atop major support - if that gives way for any reason - and it does not matter what that reason might or might not be at this point - the final washout in the mining sector will be underway with the transition to some very strong hands. It should be kept in mind however strong hands are "strong" because they are willing and ABLE to sit on trading losses long after weaker and less capitalized holders have thrown in the towel.

Just be careful about willy-nilly buying dips in price in these mining shares right now. Wait until you see some evidence that the selling has been exhausted. Generally speaking, that tends to take the form of a spike bottom in the gold mining shares but of course, no two days in trading are ever the same. That is what makes it difficult and requires constant diligence and flexibility.

Note on the chart below, a monthly chart, that the HUI is pressing very hard against that support level coming in near the 400 level. It is imperative that it does not close below that level before this month ends or else it will more than likely move lower and test the 370-360 level.

Considering that the price of gold was sitting closer to $1100 back in January 2010 when the HUI last had a MONTHLY CLOSE below this level, it is astonishing how pitiful the mining sector has performed especially seeing that gold is trading over $500 an ounce higher than it was back then. Why in the hell cannot some of these miners show any significantly stronger profits and offer a better return on investment for their shareholders? Thankfully there are some well run companies out there but their stocks tend to get lumped into the same outhouse as the rest of them do. I have said it before and will say it again, unless the CEO's of some of these mining companies get serious about returning shareholders value (and that means making hard decisions to rein in costs and become more efficient) they should not be surprised to see those same shareholders voting with their feet and taking their hard earned investment dollars elsewhere.

Common Sense Perverted in the Bastion of Leftism

Take a look at the following story if you have enough composure to contain the sense of revulsion and outrage that should affect all decent, caring human beings.

For his act of compassion and concern, the center of the politically correct universe will make this poor good Samaritan's life a living hell with their damned idiotic runamok political correctness.

Keep in mind that it was the District of Columbia vs. Keller in the Supreme Court case of 2008 which finally determined that the 2nd amendment right to keep and bear arms was an INDIVIDUAL RIGHT. It was DC's asinine anti-gun policies that finally brought people to their senses about what was happening to their consitutional rights.

http://www.washingtontimes.com/news/2013/jan/23/man-who-shot-dogs-biting-boy-could-face-charges/

Gold Shoved Back Down

Yesterday I mentioned that gold had stalled out at its 50 day moving average, which just so happens to come in very near the psychological resistance level of $1700. Today it was knocked lower and hit its 200 day moving average on the downside which has stopped its descent, for now.

There looks to me to be a couple of things going on here. The first is a technical failure with its inability to get a handle of $17" in front of it. That must occur for momentum based buying to come in, buying which I might add is necessary if this thing is going to to anything to excite the bulls. The Swap Dealers and Bullion Banks are selling very heavily at this level and are absorbing all of the bids coming into the market.

The second is that I get the distinct feeling that what we are seeing is disenchanted short term oriented traders who are are giving up in disgust at gold's lackluster performance and are looking for more fertile grounds elsewhere. And why should they not at this point seeing that it is the equity markets that are attracting all the hot money flows. 

Yet again we see the S&P 500 just made a FIVE YEAR high! That is where the action is and that is where the money flows are going to go. Bernanke and his merry crew of modern day alchemists have gotten precisely what they are looking for. Even the bond market refuses to break sharply lower with interest rates hovering stubbornly near the 1.84% level on the 10 Year.

The VIX moved a bit higher today, surprisingly so but then again, maybe the fact that the S&P stop less than 3 points away from the 1500 level has even rattled the cages of even the most die-hard equity perma-bulls. That index has already risen 5% since the end of last year and the month of January is not even over yet.

Back to gold however, the RSI has once again retreated lower failing to best the 60 level indicating that the gold market continues to be stuck in a broad trading range bounded by $1630-$1640 on the bottom and $1697-$1700 on the top. Volatility in the gold option pit is nearly comatose indicating the absence of any speculative fever whatsoever. Quiet markets like this make me nervous because they can make big moves in either direction at any time. With gold, the tendency is to make the big move lower when the gold shares continue reeking to high heaven. The HUI feel through its floor of support at 420 as if it were non-existent.

AS I have written previously, one can make all manner of bullish arguments for the gold shares but until the LARGER INVESTMENT COMMUNITY actually subscribes to that view and begins putting their money into the sector, nothing is going to happen. Repeat after me - SPECULATORS DRIVE MARKETS and without speculators willing to chase prices higher, stocks go nowhere.

Case in point - compare the S&P 500 with the HUI and you will see where the speculative money is going... I was telling a friend the other day that gold share investors would have been better off doing absolutely nothing after the credit crisis erupted in 2008 and leaving all of their money in a broad equity index mutual fund rather than actually attempting to understand what was happening to our financial system.

I guess that either group cannot complain in one sense - both the S&P 500 and the HUI are right back to where they were in 2008. So consider it as FIVE LONG WASTED YEARS. Motto - Drink heavily and deeply and do nothing but watch reality shows with the rest of the population.

The dumbed-down citizenry of this nation whom still do this day have no clue as to what actually happened with the economic system are no worse off than those of us who do know! Ah yes, ignorance is indeed bliss it would seem.

This is yet another important reason to lean to read price charts to move into and out of markets when the signals inform you. It will save a lot of frustation not to mention make it much more profitable for you as an investor.

This having been said, the next level of chart support on the HUI does not come in until near 400. Barring any surprises, that is more than likely where the index is heading. It had better hold there and especially above 380 for should it not, there is no support on the chart until 342 or so.

The Silver chart looks a little better than the gold chart right now but it failed to take out $32.50, that critical resistance level we have been talking about on the KWN WEEKLY METALS WRAP and is now retreating. There is a band of support (former resistance) that can be seen near today's session low which will need to hold to prevent the metal from dropping back to $31.

The RSI is still in an uptrend but it, just like with gold, failed to extend beyond the 60 level. Translation - while the market bias is still friendly, it remains mired within a broader range bounded by $32.50 on the top and supported near $30 on the bottom. For silver to get anything going to the upside it must first take out yesterday's high near $32.50 and preferably get a close above $33.

Complacency Index at 69 Month Low!

The following chart of the Volatility Index or the VIX as it is more commonly referred to is stunning. With today's further decline, the index has now reached levels last seen in APRIL 2007!





The VIX is a measurement of sentiment. It tends to rise and spike sharply during periods of fear or unease and decline during periods of complacency.

What we are basically seeing with today's move is investor complacency is at EXACTLY the same level SIX MONTHS BEFORE THE BOTTOM FELL OUT OF THE US EQUITY MARKETS in late 2007. I remind you that at that time, hardly a bear could be found anywhere with the exception of a few sharp traders/investors, managers who were warning of extreme overvaluations.



What is even more interesting (or frightening) is that the S&P 500 was sitting at the EXACT SAME LEVEL back in that month of April 2007 as it is this month, January 2013! Take a look and see.

Want some more mind-numbing news? The S&P 500 is  NOW LESS THAN 100 points off its all time high and 85 points off its peak level during what everyone now agrees was a MASSIVE BUBBLE in equities in the year 2000.

I must say that based on the current economic conditions, or even expected economic conditions some 6 months out, I find it hard to believe that the current level of the US equity market are rational. That they are sitting at these levels is a testimony to the ability of the US Federal Reserve, the ECB, the BOE and the BOJ to stuff massive and gargantuan amounts of liquidity into the system in order to stave off deflation. Oh yes, they have managed to stave off deflation pressures alright, at least for the time being. What they have done is to create another massive bubble in the equity markets once again. I cannot think of a better poster child to demonstrate the degree to which paper assets can be inflated by meddling Central Bankers than the US equity markets.

With bullish sentiment once again at extreme levels, not many bears around, with an economy that continues to crawl along in an "L" shaped recovery, and with no end in sight to the massive US federal budget deficits and overall federal debt, I personally believe that the US equity markets are now a huge accident waiting to happen.

Maybe I will be proven wrong for another few months as the economy/market run on these drugs in its system, but I will not be the least bit surprised to see a significant fall in stocks when it does occur. Methinks we are all going to have ringside seats to the greatest experiment in monetary history determining whether or not endless creation of nearly unlimited sums of paper currency can usher in an era of lasting prosperity and effectively do away with any fallout whatsoever from the accumulating of massive indebtedness.

One last thing - by the end of the current administration's term, the projected US federal deficit is expected to be in the vicinity of $20 TRILLION. Chew on that for a while and you will see why this market scares the hell out of me, especially with the vast majority of investors utterly complacent with hardly a care in the world.

I hope that I, along with you my readers all live long enough to see how monetary historians are going to record this. I suspect they will marvel at the blind folly of so many. It is almost as if an entire generation of investors have lost their collective minds.

REmember, as traders, we cannot fight the tape and expect to make money but that does not mean that we cannot marvel at the rank ignorance of our era.



50 Day Moving Average Stymies Gold

Gold seems to have run into extremely HEAVY selling pressure at the 50 day moving average, which incidentally, just so happens to be coming in just below the $1700 level. It appears a concerted effort is being made to prevent gold from acquiring a "17" HANDLE, which is what the momentum based buyers are waiting for.

If you look at the chart closely, you can see the defensive fortification being erected by the bears. So far the market refuses to break down but it is stalling out a bit here and will need to quickly push past $1700 soon or we will see some short-term oriented day trader types start looking for the exits.

Notice that I am including the RSI indicator merely to show that it too is stuck below the 60 level, indicating the continuation of a consolidative (sideways) type of trading pattern in the metal. Until we get a clean break of 60 on this indicator, and preferably a run past 65, the pattern is sideways within a defined range of $1695 - $1700 on the top and $1665 or so on the bottom.

Gun Free Zone Shooting - Yet Again

I am including this link because I hope you have had the time to view the short (less than 2 minutes) video at Youtube which is at the link shown below in the previous post.

Mocking the stupidity of something is a good way to show the absolute uselessness of it as a means of actually saving precious lives but even though many of us at this site can hopefully understand that the main goal is to actually PREVENT innocents from being murdered, there still exist too many in this nation who opt for SYMBOLISM OVER SUBSTANCE. Such fools continue to advocate for laws which accomplish nothing except to disarm law-abiding citizens and strip them of the means to defend not only their person, but those around them.

Here is the link containing the headline: As a sideline, more years ago than I care to remember, I actually took a couple of courses at this very location.

http://www.breitbart.com/Big-Government/2013/01/22/Another-Gun-Free-Zone-Another-Shooting-This-Time-In-Texas

Happy Days are Here - A Cure for Gun Violence has been Found!

http://www.youtube.com/watch?v=wAFAywYZK-M&feature=youtu.be

Bank of Japan Rally

The big news today is the long-awaited but pretty much expected response by the Bank of Japan to engage in further stimulus measures by basically committing to open-ended purchases of government securities and setting an inflation target of 2%.

The idea is to stave off the deflationary funk that has gripped Japan for well over a decade and more with the deliberate intent to further suppress the value of the Yen on the foreign exchange markets.

Because the purchase commitment seems to have been pushed into 2014 before it begins in earnest, speculators did the exact opposite of what the new government was attempting; they shoved the Yen higher shortcircuiting its steady downward trend.

Now we will have to wait and see what happens next if the Yen continues appreciating instead of depreciating as they had hoped for. If the specs defy the intent of the powers-that-be in Japan and refuse to get on board with the program, my guess is that we will see a public response by the Japanese monetary authorities as their political bosses, not to mention INDUSTRY LEADERS, will pressure them to undercut any Yen strength.

Traders outside of the forex markets are looking at the move by the Japanese as highly inflationary elsewhere which is perhaps the main reason behind the mvoe higher in both gold, silver, copper, platinum and palladium today.

It is ironic however to see the Yen moving higher over disappointment that the Japanese did not adopt an AGGRESSIVE enough policy to induce further yen weakness and by consequence higher inflation while at the same time the metals, both precious and base, were moving higher on expected inflation coming down the road.

Throw in one more weird day in the long bond as interest rates actually moved lower even while the equity markets continue with their giddiness. Nothing fazes the bulls on Wall Street right now and I do mean, nothing. Paper asset inflation is alive and well.

I wanted to show you a weekly chart of the Silver market over at the Comex to give you an indication of where this thing is in the larger scheme of things.

Notice that the pattern shown continues to constrict with an upward bias to it. Can you see how significant that the region beginning from $34.50 up to $35.00 has become?

Silver is currently attempting to make up the losses it incurred in December of last year. It began that month near $33.50 and then fell down below $30 hitting a low near $29.25 before rebounding slightly to end the year.

It is currently about $1.20 lower than from where it started December 2012. If talk about silver shortages to the extent that are being rumored is true, then this market will CONFIRM those rumors by launching a breakout on this technical chart and that means, at a bare minimum, a solid breach of $35.50 on a weekly closing basis. For now the chart bias is not wildly bullish but it is friendly as the market is in a consolidation pattern with a slightly higher bias.

As stated previously, higher platinum and palladium prices are tending to reinforce momentum based buying in the silver market. It also aids the cause of the metal that the soybean market is responding to some potential weather issues in South America with prices moving higher over at the CME group futures. A very large crop is expected from down that way this year so traders will be monitoring any indication that the weather might impact yields and thus overall supply. Rising grain prices tend to keep upward pressure on the Continuous Commodity Index ( CCI ) and thus helps silver as traders buy on the expecation of inflation pressures at the wholesale level.

Excerpt from Reverend Martin Luther King's "A Knock at Midnight" Speech

I wonder what Dr. King would be thinking were he alive today to survey the current age in which moral relativism seems to now be the rule rather than the exception. By that term, I mean the notion that one man's morality is as good as the other's. That "sin" is in the eye of the beholder and that there exists no absolute measurement as to what constitutes right and what constitutes wrong or sin.

Here is a powerful excerpt from that famous speech which I highly urge readers of this site to take time to review and carefully consider:

"It is also midnight within the moral order. At midnight colours lose their distinctiveness and become a sullen shade of grey. Moral principles have lost their distinctiveness. For modern man, absolute right and wrong are a matter of what the majority is doing. Right and wrong are relative to likes and dislikes and the customs of a particular community. We have unconsciously applied Einstein’s theory of relativity, which properly described the physical universe, to the moral and ethical realm.

The entire speech can be read here at the following link:

http://mlk-kpp01.stanford.edu/index.php/encyclopedia/documentsentry/doc_a_knock_at_midnight/

In honor of Martin Luther King Day

Following is a quotation from this CHRISTIAN PASTOR while he sat in a Birmingham, Alabama jail cell. It is of course taken from what is now famously termed, "The Letter from Birmingham Jail".

Here is one excerpt:

You express a great deal of anxiety over our willingness to break laws. This is certainly a legitimate concern. Since we so diligently urge people to obey the Supreme Court's decision of 1954 outlawing segregation in the public schools, it is rather strange and paradoxical to find us consciously breaking laws. One may well ask: "How can you advocate breaking some laws and obeying others?" The answer is found in the fact that there are two types of laws: There are just and there are unjust laws. I would agree with Saint Augustine that "An unjust law is no law at all."

Here is yet another:

Let us turn to a more concrete example of just and unjust laws. An unjust law is a code that a majority inflicts on a minority that is not binding on itself. This is difference made legal. On the other hand a just law is a code that a majority compels a minority to follow that it is willing to follow itself. This is sameness made legal.
Let me give another explanation. An unjust law is a code inflicted upon a minority which that minority had no part in enacting or creating because they did not have the unhampered right to vote. Who can say that the legislature of Alabama which set up the segregation laws was democratically elected? Throughout the state of Alabama all types of conniving methods are used to prevent Negroes from becoming registered voters and there are some counties without a single Negro registered to vote despite the fact that the Negro constitutes a majority of the population. Can any law set up in such a state be considered democratically structured

And yet her is one more:

Of course, there is nothing new about this kind of civil disobedience. It was seen sublimely in the refusal of Shadrach, Meshach and Abednego to obey the laws of Nebuchadnezzar because a higher moral law was involved. It was practiced superbly by the early Christians who were willing to face hungry lions and the excruciating pain of chopping blocks, before submitting to certain unjust laws of the Roman empire. To a degree academic freedom is a reality today because Socrates practiced civil disobedience.


Notice how Dr. King drew on the idea of natural law or a higher moral law as he terms it. It is on this basis that an unjust law is no law and is therefore to be disobeyed.

You will also notice that this letter is chocked full of references to the Scriptures. It makes me wonder if Dr. King would even be welcome in today's Democratic party which just this past year was determined to strip any reference of God whatsoever out of its official party platform.


Here is the link to the entire letter. I highly recommend that it be read in full as it is rich with insight.

http://users.wfu.edu/zulick/341/birmingham.html

Trader Dan Interviewed on King World News 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.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/1/19_KWN_Weekly_Metals_Wrap.html

Do You Support "Individual Freedoms"?...

Then guess what - according to a study done by a West Point "Think Tank" funded by none else than your own taxpayer money, America needs to be warned against you and those like you! Think I am making this idiocy up? Read the following link:

http://www.washingtontimes.com/news/2013/jan/17/west-point-center-cites-dangers-far-right-us/

Yes, instead of studying the tactics of Islamic terrorists or digging deeper into the brilliant strategies of Alexander the Great, Genghis Khan, Julius Caesar, Hannibal, etc., what apparently is the now pressing need of US military officers is how to deal with all those folks who actually subscribe to something called "A Bill of Rights"!

My goodness, this very phrase, "Bill of Rights" is terrifyingly dangerous now is it not? It sure as hell closely resembles that dangerous belief cited in the study as "individual freedoms" YIKES!

Here in a nutshell is the conclusion that this nonsensical study has come to... are you ready? Here it comes:

LIBERALS/PROGRESSIVES = GOOD
CONSERATIVES              = BAD

It wasn't enough that the left has taken over the schools and institutions of higher learning and used those to spread its political correctness lunacy. One would have thought that at least the military academies would be immune from this. Apparently not.

Wake up folks.... the day appears to be coming sooner than many of us expected where even allegiance to the basic freedoms and rights prescribed in our Founding documents is enough to make you an enemy of the state.

Yes, if you cherish individual liberty, limited self government and a system of Federalism as laid out in the Constitution, you are now included in the same class as those who would advocate a violent overthrow of the US government.

Commodity Complex Showing Signs of Life

The following chart of the Continuous Commodity Complex or CCI, shows a downtrending channel that has held the complex for the last several months. In November of last year, the index broke through the 50 day moving average and remained ABOVE it for more than a week before succumbing to selling pressure heading into the end of last year.

Early this year it was trading below both the 50 day moving average and the 200 day moving average. As of today, it is now back above both and is also nearing the downsloping line that marks the top of the trend channel. It is no surprise therefore to see SILVER looking very strong on its chart right now especially with the very bullish patterns on the platinum group metals showing no signs of abating for the immediate near term.

Were it not for the weakness in the grain complex this morning, the CCI would be right on that line at the top of the channel. Let's watch this action very closely as it will indicate whether these incipient signs of life in the commodity complex are the beginning of a period of sustained upward trending moves across this sector.

Keep in mind that in spite of the massive injections of liquidity by the Central Banks of the WEst (I include Japan in this category), commodity prices have heretofore been rather unresponsive. The reason has been that traders were initially more fearful of a global slowdown than they were of any inflationary result. Based on the jobless claims number this AM here in the US and data from other global regions, that the slowdown fears are receding and growth expectations are solidly in place. In other words, it appears that for now, the Central Banks have won the battle over deflation.

So what does this mean for commodity prices? Simple - based on the charts, and the action in the interest rate markets (more on that later), traders are speculators are beginning to transition towards the growth play (RISK ON) and away from the slowing global growth scenario (RISK OFF).

Watch that solid blue line that I have marked as RESISTANCE near 575 - 577. If this index pushes FIRMLY past that line, we will know that the price of wholesale commodities in general are going to begin a sustained rise higher. This should further unleash bullish forces in the precious metals but especially in silver compared to gold.

With this in mind, take a look at the chart I have constructed below. It is a ratio chart comparing the level of the S&P 500 ( a broad view of the US equity markets) to the level of the US Long Bond. I use this as a type of indicator to help me discern where money flows are heading and whether or not speculators have an appetite for risk.

Notice since late in 2011, the trend has been in favor of equities over bonds. Yes, there have been periods within this trend where RISK has been out of favor leading to money flows out of equities and back into bonds, but the trend is pretty solid. What I wish to point out especially however is that the ratio is accelerating and has been since late spring of last year. It has increased even more sharply since fall of last year. Any wonder why the equity markets are shooting higher? Hot money is flowing into equities at the expense of bonds all in anticipation of GREATER RETURNS in this ultra low interest rate environment.

In this light, can you understand why we now have a top in the US Long Bond? As mentioned in a post a while back, I would be surprised by a RAPID, SHARP DROP in the long bond as the economy is certainly not strong enough to sustain any pressure from rising rates. At the same time however, I expect to see a SLOW GRADUAL GRIND LOWER which will accelerate as the impact from all the liquidity created by the Fed's QE programs begins to gather steam and inflation expectations increase.

I want to also emphasize that I expect significant difficulties to arise once the Fed attempts to unwind its balance sheet. Personally I am beginning to wonder if they are ever going to be able to do so?

Note on the chart that bonds have fallen to major chart support but managed to eke out a return above that level and are currently holding. However, their rally off the level looks weak. Watch out if this support level gives way on a weekly basis close, as it will entail the definitive shift away from deflation fears and shift the balance of power to the hands of those looking for inflation as the next worry.

Once such an event occurs, I would anticipate a solid move higher in silver in particular.

Quiet Day in Silver

Not much in the way of upside for Silver in today's session but not much to the downside either before dip buyers came in. The action is suggesting more of a pause in a market that is attempting to gather enough force to take out the overhead barrier. You can see that level marked on the chart as RESISTANCE.

Bears will be in trouble if this level gives way and especially if the 50 day moving average gives way.

Downside support lies first at this week's low near the $31 level followed by the 200 day moving average near $30.65

RSI is tracking sideways but remains above the previous peak, a friendly development.

Well Done Governor Perry

Statement by Gov. Perry on President Obama’s Executive Actions

Wednesday, January 16, 2013  •  Austin, Texas  •  Press Release

 

Gov. Rick Perry released the following statement regarding President Obama's executive actions:
"The Vice President's committee was appointed in response to the tragedy at Newtown, but very few of his recommendations have anything to do with what happened there.

"Guns require a finger to pull the trigger. The sad young man who did that in Newtown was clearly haunted by demons and no gun law could have saved the children in Sandy Hook Elementary from his terror.

"There is evil prowling in the world - it shows up in our movies, video games and online fascinations, and finds its way into vulnerable hearts and minds. As a free people, let us choose what kind of people we will be. Laws, the only redoubt of secularism, will not suffice. Let us all return to our places of worship and pray for help. Above all, let us pray for our children.

"In fact, the piling on by the political left, and their cohorts in the media, to use the massacre of little children to advance a pre-existing political agenda that would not have saved those children, disgusts me, personally. The second amendment to the Constitution is a basic right of free people and cannot be nor will it be abridged by the executive power of this or any other president."

http://governor.state.tx.us/news/press-release/18060/

It All Begins in the Public Education System

If you want to know why or how this nation can have raised a generation that is so appalling ignorant of its own system of government, a system of checks and balances designed to prevent any one individual or institution from lording it over the people, please read the following quotation.

"[A]bout a hundred years ago, Professor John Dewey of Columbia University came up with a very different conception of education -- one that has spread through American schools of education, and even influenced education in countries overseas. John Dewey saw the role of the teacher, not as a transmitter of a society's culture to the young, but as an agent of change -- someone strategically placed, with an opportunity to condition students to want a different kind of society. A century later, we are seeing schools across America indoctrinating students to believe in all sorts of politically correct notions. The history that is taught in too many of our schools is a history that emphasizes everything that has gone bad, or can be made to look bad, in America -- and that gives little, if any, attention to the great achievements of this country." --economist Thomas Sowell

Let's take what any citizen/patriot understands - the United States is NOT A DEMOCRACY. It never has been nor should it ever become one. The Founding Fathers despised democracy which they regarded as nothing but RULE BY THE MOB. Being the students of history that they were, they had learned the lessons of the city states of ancient Greece and were thus determined to prevent such a system of government from developing here in the new nation that they were constructing.

As I mentioned in a previous post - one of the fears of the Founders was the TYRANNY OF THE MAJORITY. That is why they gave us a system of checks and balances and a separation of powers within a REPUBLIC, based on a system of FEDERALISM - The fact that this is not widely understood nowadays is a testimony to the ignorance of this generation.

Here is the pertinent clause in the US Constitution:

Article IV, Section 4

The United States shall guarantee to every State in this Union a Republican Form of Government, and shall protect each of them against Invasion; and on Application of the Legislature, or of the Executive (when the Legislature cannot be convened) against domestic Violence.

Note well - it does not guarantee the States a DEMOCRATIC Form of Government.

It many cases it is not the fault of the teachers but rather the school boards and the administrators which dictate what can and cannot be taught in the classroom. Based on what we see in today's society, the teachers' unions, school boards and administrators have raised a generation of dupes. If we want to take back our nation from the grip of those on the left who would impose their version of utopia upon the rest of us, then we had better start looking at what we allow our children to be taught and even more importantly, make the time to get involved in their education.

They are our children and the future of our nation; not wards of the state to be indoctrinated against our own values and traditions.

Silver Builds on Previous Gains; Nears Breakout Point

Both silver and gold are moving higher today as they add to gains made in yesterday's session, gains which I might add, tremendously improved the technical chart picture for silver.

See the chart posted yesterday evening in reference to silver but note also the following chart detailing the strong move higher in the Continuous Commodity Index.

It is closing in on its 50 day moving average which closely corresponds to the level near 565, the line marked, "initial resistance" on the chart.

As you can see, since September of last year the entire commodity complex as a whole, has been trapped within a defined downtrending channel. This is important to note because it has enabled the idea that the Fed's easy money policy are not proving to be inflationary, to gain credence. After all, if wholesale prices of basic commodities are trending lower, it is difficult to make the case that an inflationary episode lies just around the corner.

This latest move higher in the index must therefore be closely monitored as any change in the technical posture of this chart, will be the first sign of inflationary pressures beginning to surface in the economy at large. If, and this is a big, ""IF", the index pushes past BOTH resistance levels noted on the chart and breaks out of the channel, especially if it clears the region near 578, expect to hear increased chatter about inflation. This should especially benefit silver, which is much more sensitive to inflation pressures than is gold, or least has been if recent past is any indication.

Quite frankly, I have been a bit surprised that it has taken so long for the sector to see much in the way of money flows, especially with the equity market moving so strongly higher on the thesis that the global economy is recovering. If it is, especially in the case of China, then commodities as a whole would also benefit under such a scenario. Throw in the fact that a Yen Carry Trade, or even a Dollar Carry Trade, could easily be used by aggressive hedge funds to leverage themselves up to the gills once again to try to take advantage of the ultra low borrowing rates to fund such a carry trade, and the ingredients for a rally in this sector should seemingly be coming into vogue.

Moving back to the silver chart, it pushed through the 200 day moving average in yesterday's trade but instead of falling back below that level, it has added to gains and is now threatening a  breach of what has been tough overhead resistance near the $31.50 level. If it takes that out, it will make a try at the downtrending 50 day moving average just shy of the $32 level.

The RSI looks good as it has pushed through the peak made in that indicator coinciding with the first push to $31.50 at the beginning of this year.

Incidentally, the Platinum group metals are both putting in strong performances today; this is helping silver as it tends to feed into an impulse to buy industrial metals.

Gold is strong today as it works towards its overhead resistance first near $1685 but more specifically near the $1696 level. That level also happens to be where the falling 50 day moving average comes in. Expect some opposition to the metal if it makes it to that point.

Gold needs to put a handle of "17" on itself if it wants to get any excitement going in terms of sparking some short covering and more momentum oriented buying. If it does, all of those fresh hedge fund short positions that were added below $1650 over the last two weeks will be in serious trouble.