“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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


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Wednesday, January 2, 2013

Gold up to Start the New Year

While both gold and silver had nice days today, they both made their best levels earlier in the session. The rest of the session was pretty much spent going nowhere and fading off their highs.

Try not to read too much into any of these markets, with a few exceptions, based on one day's performance. What we are witnessing is both a combination of relief buying associated with a miserable, rotten piece of legislation that will accomplish nothing except to ACTUALLY INCREASE THE DEFICIT but has temporarily served to asssuage fears overs the so-called "fiscal cliff" and the fact that hedge fund managers are committing lots of brand new money into the markets to start off the year. This positioning or allocation of hot money is going to come in regardless of the fundamentals in those markets which have been selected by the hedgies as the go-to investments for the New Year.

In the grains, a host of that new money was greeted with jubilation by bears who wasted no time in using the machine buying to sell at a much better price than they were originally hoping for.

The liquid energies went the opposite direction as crude ran nearly to $94 before it too faded and fell back off its best level. Copper had a huge up day which certainly did not hurt the cause of silver one bit. As a matter of fact, the base or industrial metals, were all soaring skyward in union at one point as the algorithms gorged themselves on that sector in today's session.

One would think by judging the performance of the S&P 500 that the US has hardly a care in the world. Like I said in a post last week or so, hedge fund buying and selling tends to be very short-sighted in its activity so those with a longer time frame of reference are often left confused by what appears to be buying or selling divorced from anything in the real world. Get used to it as the mindless machines and this industry will be with us, unfortunately, until at least we get an environment in which the average saver can obtain a decent rate of return on their savings accounts and can forego the casino world of the US stock markets.

Gold did clear that stubborn resistance level at $1680 which is promising and has helped to turn the technical posture on the charts. Silver regained the very strong resistance level of $31 so both of these metals no doubt saw some significant short covering as a result. I am a bit concerned about the depth of the fade in silver as it fell nearly 50 cents off its session high. That level near $31.55 or so coincides with the falling 20 day moving average so if the bulls can take it through this level and hold it there, we should see it make a rather quick run to $32.30.

Downside support in silver is near the $30.40 level followed by $30.

The yen continues to fall apart which is helping to keep the Dollar from further weakening to the extent that we are used to seeing when these risk trades are coming on full bore. The British Pound made a 52 week high against that same US Dollar today.

Bonds fell apart today as no one wanted anything to do with them as a safe haven. Then again, I have been feeling this way about US TReasury debt since the second round of QE began. I will be surprised if the bonds completely break down at these levels since any move higher in interest rates at this point will absolutely brutalize the US fiscal condition even worse and I doubt that the Fed is not going to notice that. They are not directly targeting the back end of the yield curve with QE4 but rest assured a spike in the Ten Year Note is not going to go unnoticed by our master planners. Every time it appears that the long bond is about to finally start a strong downtrending move, it promptly reverses and move higher. Maybe this time will be the start of an exception to that. We'll see.






8 comments:

  1. Hi Dan, not sure if you follow Martin Armstrong or even care but he seems to be signaling concern about Gold in the early part of the year though still bullish long term. I just started following the guy about a year ago but have heard his track record is pretty good?

    Happy New Year to you and your family and as always, thanks for your generosity in providing your service free of charge. Hey, if everything was free there would be no inflation huh :)
    http://armstrongeconomics.com/2013/01/02/gold-support-resistance/

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    1. Lisa;

      Thanks for the kind words. I do not follow Armstrong (or anyone else for that matter) as I have learned over the years to just read the charts and see if I can understand what they are saying. That is not to come across as arrogant; it is merely what I have had to do in order to never second guess my own analysis. As a trader, I have to enter or exit a position based on how I see the market at any given time and then trade accordingly. If I were to start getting different opinions it would basically end up only making me second guess myself. Once that happens, and one's view of a market is thrown into doubt, you might as well hang up the trading career. As a trader you have to rely on your judgment and your analysis and then act accordingly. Sometimes you are a hero; sometimes you end up being a zero but if you employ decent money management techniques, you will survive to play yet another day!

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  3. This comment has been removed by the author.

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  4. >...any move higher in interest rates

    Situation has changed significantly since the Fed became one of the largest (~$1.7T) holders of the US debt:
    1) rates are being very effectively suppressed by Fed's interventions,
    2) Fed pays back to the government all income earned on the treasuries (and MBS); i.e. the US debt held on Fed's balance costs nothing to the government (in contrast to the treasuries held by foreign countries, ~$5.5T):

    www.zerohedge.com/news/2012-12-27/worlds-most-profitable-hedge-fund-about-make-us-treasurys-life-much-easier

    www.itulip.com/forums/showthread.php/11371-Treasury-International-Capital-report

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    1. RussianBear -

      by the time obama, with help from the republican establishment is finished, we will have a national debt of $20 trillion, not to mention unfunded entitlements. It does not matter at this point whether or not Fed owns some of the outstanding US debt. The sheer enormity of that debt means any rise of consequence in the interest rate markets, will have drastic implications to the us government. it really is a simple mathematical fact.

      Consider it this way - the Fed has agreed to buy $40 billion per month of Treasury debt (mostly short to mid term in length) for the year 2013. That comes out to be $480 billion. The budget deficit will be over $1 Trillion.... and will be increasing with the passing of each year. If interest rates were to begin moving back to towards the norm, say closer to 4-5%, do the math. It is frighteningly staggering and that is an understatement.

      the corollary to this of course is that it also assumes that the status quo where foreign holders of US Treasuries are content to hold a debt which is going to be constantly diluted by successively more issues in a currency which is very likely to lose value against a large number of the other majors.

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  5. I keep looking at DX weekly and a near perfect h&s pattern is taking shape with right shoulder done...points to level around 73-4 and will be helped by debt ceiling and ratings agencies...

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  6. Hello Everyone,

    Good Posting. I am also thinking to invest some money in gold. But from new year eve the prices of gold & silver are decreasing. So i want to know that which time is the best for investing in gold. Should i have to stay for sometime or its the best tome for gold investment & which form of gold is the best for investment.

    Thanks
    Rakesh

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