Today's big move lower in gold, coupled with a sharp drop in WTI crude oil and further weakness in the Continuous Commodity Index, could be the beginning of a signal change that the global economy, despite the best efforts of the Central Banks and their unlimited money creation, is entering another period of slowing growth.
Quite frankly, the commodity complex has been signaling deflation for some time now with speculative flows OUT of the base metals and some of the foods. Grain prices are working lower as the high prices brought about by last year's drought have effectively shut off demand while end users wait for much cheaper South American supplies to make their way into the distribution channel.
All the while, against such a backdrop where hard asset prices are falling, the US equity markets have been powering higher and higher. The last report I read stated that they had now reached levels exceeding the height of the Towel of Babel related in the book of Genesis and that it had gotten the attention of the market gods.
It seems as if that disconnect that I spoke to some time back between Dr. Copper and the rest of the CCI, and the US equity markets has been getting even wider; that is, until today. It looks like we might, and I want to emphasize this word "might", be seeing some reality hit these idiotic equity bulls who keep shoving prices upwards no matter what happens in this world.
I was going to post a story on April Fools Day about California experiencing "THE BIG ONE" and subsequently falling into the ocean and disappearing somewhere with Atlantis, and then relate how the "BUY TV" analysts viewed it as wildly bullish because off all the construction work it would create with dirt having to be trucked in to fill in the gaping hole that was left.
Seriously, the way the Cyprus situation was swept under the rug and quickly forgotten about, the complete ignoring of rising tensions involving that nut in North Korea, the manner in which the labor participation rate in this country keeps sinking, (just name some other negative factory) and yet day after day after day seeing a rising stock market to levels that are this preposterous, makes me wonder if the story of the Pied Piper of Hamlin was actually an allegory about today's investor/trader class.
What I find quite noteworthy today is that with all the selling pressure in the commodity complex, along with the very weak equity markets here in the US and with rising bond prices (falling interest rates), the US Dollar was actually experiencing more selling than buying. That is interesting because even the Japanese Yen is experiencing that same idiotic safe haven buying that we see during these periods when investors get nervous. Normally that pushes the Dollar higher as well since it has been the go to safe haven for some time now. Not today. I do not know what to make of that yet but want to see some further price action the remainder of this week before commenting. It might be just a one hit wonder.
Also, remember yesterday when I was questioning what crude oil is doing up at these levels given the lack of growth globally and rising stocks at Cushing, not to mention the weakness in the commodity complex as a whole. Well, today it got clocked and is down over 2% as I type these comments. Let's see where it ends the day before drawing too many conclusions however.
The same goes with the S&P 500. Look at this chart...
The S&P just missed putting in a downside reversal because its session high did not exceed the session high from yesterday. Nonetheless, the sell off has been strong and is coming on high volume. We have seen these fake outs before however in this market as we just had one show up on the chart a mere six weeks ago that lasted every bit of a few days before we once again went on to make yet another new high. Maybe this one is for real. We'll see.
Momentum based indicators show a definite loss of upside momentum here but they have been doing that for some time now and yet the market keeps going up. It is almost as if this thing is being shoved higher by some mysterious hand that will not let it fall. If these hedge fund algorithms ever shift into a "SELL" mode in these equities, look out! They are all on one side of the boat in a big way.
As far as gold goes, it either holds here in this support region between $1550 - $1525, or it is going to sink to $1480 for starters. With the gold stocks continuing to stink up the place, gold is losing any help whatsoever from that quarter. Central Bank buys out of Asia and elsewhere have been keeping this floor solid in the gold market so they had better not falter in those purchases or else...
I am not even going to put up a chart of the HUI at this point as it is simply too ugly. There is a pivot region near 300 and that is more than likely where the pathetic thing is headed unless we see some spark to the gold price.
I will leave you with a ratio chart of the HUI to Gold price. It is now closing in on the 2008 low. Keep in mind, this is AFTER FOUR ENORMOUS QUANTITATIVE EASINGS attempts. What in the world will it take for these stocks to do anything if 4 rounds of QE cannot take them higher? Makes me seriously wonder if some of the gold mining companies are going to survive to be honest.
In the long run such a thing would bring less supply onto the world market which would be supportive for prices moving forward, not to mention allowing those healthy companies which remain to become more profitable. The problem is, how long is the long run going to take to get here......?
"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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