"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

Trader Dan's free work will soon be available at www.traderdan.biz

Wednesday, May 15, 2013

US Dollar Attempting Weekly Breakout

The strength in the US Dollar has mainly been coming from investors fleeing Europe leading to an outflow from the Eurozone plus Japanese bond investment money that is in search of higher yields. Quite frankly, in the search for yield in a NEAR ZERO interest rate environment, global investors are throwing caution and any reservations that they may or may not have out of the proverbial window and rushing into the US equity markets in anticipation of further ONCE IN A LIFETIME TYPE GAINS.

In other words, the Central Banks have unleashed a speculative frenzy for stocks which is creating a massive equity markets bubble, especially here in the US. As money flows out of various portions of the globe looking for a home in US stock markets, that money must be EXCHANGED for US Dollar with which to buy US stocks. The result - the Dollar is surging higher while the Yen and Euro, along with the other majors, are dropping lower. In other words, foreign money flows are driving the US Dollar higher (this is in spite of the clearly and visibly dysfunctional US government and corruption currently enveloping it).

I expect this to continue until something rattles the cages of the equity bulls. What that might be or when it might occur is anyone's guess at this point. Manias of this nature can continue well past the point of sanity. When they end; they end in a blaze however.

While it continues on, the US Dollar keeps getting pushed past various chart resistance levels. I have noted this week's push into a band of resistance starting near the 84 level and extending up to the session high of today near 84.25. IF, and it is unclear yet, the Dollar closes the week ABOVE this level, it has one more obstacle to clear before it sets up technically for a run all the way back to the double top formation at 89. That last level of resistance is the 85 mark.

It is the confluence of the pitchfork and the 75% Fibonacci Retracement level from the doble top back in 2010 and the low in the summer of 2011 near 73. From a strict technical analysis perspective and based on Fibonacci retracement theory, a market that pushes through the 75% retracement level,can be expected to retrace the entirety of the preceding price move. Translation - back to 89 the Dollar goes.

I want to add here that this rally in the Dollar is that which has been undercutting the entirety of the commodity complex. Hedge fund algorithms are mechanically selling across the sector. Gold is being included in that. While physical market demand remains firm, sentiment towards it in the West remains miserable. It is all about YIELD, YIELD, and YIELD. Gold throws off no yield and stocks do. That is what this is all about right now.


  1. I have been doing this a long time. I have obviously seen lower prices over the years, but this is as desperate as I have seen it ever.In everything except stocks. It could be a major inflection turning point in everything. Why a 700 billion budget deficit is considered good news is as bizarre as it gets. I guess Bush deficits were a really bad thing but Obama deficits are really good. It certainly is a strange time.

    1. It's not the absolute level of the deficit, but the deficit as a % of GDP that matters. As of this year, it will actually be at around the same level of Reagan's first term, as well as the early 90's.

  2. If this story about oil glut because of U.S. supply increases has any ring of truth, oil is going to 80. If gold continues to underperform oil as miserably as it has, a 13 handle won't be long for this world.

    I'm just not buying this physical shortage story that's out there. The bullion banks have more than one card up there sleeves to keep the paper shell game going longer. I do agree with the other guy that eventually the cartel will be the ones to push it up to fleece the specs on the short side. Not quite yet though.

    1. I thought that you also would be happy to know that the 700 billion, at least, deficit this year doesn't matter. Isn't that welcome news!!! If the june longs stand for delivery, that would say a lot about the shortage or not.

  3. One thing we all have to keep in mind here is economy of scale.
    Imagine for a moment that you have say $100 million in liquid wealth, and believe me this is a modest amount in many circles.
    Where would you put it? In the Cando, Yen, Euro?
    Or would you want to be in the USD?
    Remember.. you want your wealth to be both safe and liquid.
    What are your choices?
    The USD is the reserve currency of the PLANET...it is the only pig at the party that has lipstick on!

    1. for now.......not forever.

      an end is coming to it sooner than most believe.

  4. There is no physical shortage of bullion in my neighborhood.

    Virtually all popular bullion coins are in stock, and in decent quantity, except for a few specialty items such as the Australian Lunar series.

    All this talk of a shortage is pure bunk.

    However, I expect gold prices to recover soon as the coming economic boom being priced in by the stock market will stimulate huge demand for gold jewelry and many types of collectible coins.

    1. Your neighborhood does not reflect the supply and demand fundamentals globally, nor does it reflect demand in sizable quantities, and you haven't indicated at what price. There will always be plenty of gold, since it is not consumed, but at what price? So, there is a physical shortage somewhere for somebody, your neighborhood does not happen to be one of them. Silver, on the other hand is a completely different story.

  5. Except mining equities. The HUI is only 20% drop from where it was in 2008 when the DOW was at 6000!!! The DOW HUI divergence since QE infinity has been literally breathtaking. Either the market is wrong, or metal prices are about to collapse.

    1. Such is the power of the "Grand Illusion Makers", nothing in these markets reflect reality nor the fundamentals that used to drive most markets. The utilitarian value of the PM's never did collapse and never will. What you are witnessing is the extreme volatility of of a global fiat monetary system gone wildly insane.

    2. Re the HUI: maybe neither. Maybe it is closer to full valuation. Or put another way, if they are such a bargain, why are they barely breaking even at 1350-1400 gold. Gold pundits said gold mines would offer utility like dividends through ample FCF. Surely that would be the case with $1600 gold. That hasn't been the case. Even when gold went from ~$800-~$1900, gross profit barely rose as a percentage of revenue. Even though oil has been flat over the past two years, costs continue to rise.

  6. The GDP is statistics forgery bearing no resemblence to it's precursers , which had no overwhelming government spending weighting and at one point was named GNP/ Gross National Product. And GDP would be negative without using understated price inflation, and padding public spending. Sheiks and tycoons transact gold for oil, but traders and fund managers cannot hedge because they get
    ons do not jive with history.
    The oil market is not even transparent enough or anyone but the tycoons and sheiks

  7. Recent record levels of insider distribution of equity holdings have been a footnote or overlooked in the hysteria and investment climate. Now balance and decision making are anonymous programs mainly assumed by algos and cloistered portfolio experts, but China and it's smaller brethren have still found the means to hedge their dwindling dollar and dollar-denominated reserves.
    In the same way in which the off-budget, off the books USA spending is heresy to mention, a national security travesty or at least not yet reported.

  8. so, the message is clear regarding gold and silver : don't stand in front of the bear train, don't try to average down your position by buying more.
    Be a trader, get out of the way, wait for a buy signal and get back in.
    Unless you are short since 1480 and then enjoy the ride...

    1. Don't forget to buy and hold just for the long haul keeping in mind the bigger picture. A savings account in real money is the best insurance against all economic hard times. Forget about trading in and out unless you are a Dan Norcini. This "bear train" will be short lived this time, when the world fully awakens to the massive fraud perpetrated on them by the central banks of the world.

    2. yes ben. Long-term core physical gold position as an insurance against the worst. But no leverage, no overstretch long position by averaging down the purchase price.
      then it's paper for dynamic trading, and it's Dan and some readers of this blog, and then they must consider when to get in, sell, on which time horizon...in this category, no need to try to pick the bottom before having a relevant buying signal, while we are still in a downtrend... have a nice weekend,

  9. u know it is funny how all the pm bulls can recite chapter and verse about how fouled up America is; problem is that it is all baked into the cake; they never comment on Venequela, Argentina, Myanmar, Viet Nam, Japan, China or of course imploding Europe, not to mention the glorious MENA; it is all relative sports fans, and for the time being PM's are no good

    1. If you have a grasp on fundamental economics and have a firm principled approach to reality, then PM's are always good in good times and bad. One and one are always two, no matter what the epistemological magicians may tell you. In economics, there are no nations, only central banks and international corporations.

    2. Interesting Ben
      I met a fellow (lawyer) several months ago who claims the US is a corporation...not a country or government.
      The Government is just window dressing

  10. Something is rotten in the Kingdom of "the Free Market".

    USD is up and trying to reach new highs while...

    Fed is printing and printing with no shame, trying to revive the dead US economy.(because of deflation?)
    CPI is down 0.4% (deflation it is!)
    US markets are up to new highs (Strong economy and inflation sure to come!!!)
    Gold is knocked down and is now down 11.4% vs last year (deflation it is)

    At least it is sunny here and I am going to inflate my soccer ball and deflate some stress...

  11. GASP!

    The DOW closed in the red today!
    Back up the truck! buy the dip!

  12. Dan.
    Have you heard any possibility that the manipulated action on gold could be related to the request by Germany (and 100% sure to be followed by all other countries that have gold in the US or England for a total if I am right of over 11000T or more than 4 years world gold production(!!!) between the 2 countries )to get part of its gold back after the FED showed Germany the finger when they asked to see the gold?

    The request was done in 01/2013. Less than 2 weeks later gold is taking down and has been down since then. Interestingly enough gold started to be down at roughly the same time (October 2012)the FED was showing the finger to Germany.

    Could it be that the huge manipulated fall of gold has been orchestrated so other countries do not ask for their gold to be returned to the original owner AND/OR to give the FED the opportunity to buy back the gold it did not have in its vaults?

    When you add Brown sale of England's gold for peanuts ( UK has more than 5600T of gold that belongs to other countries) and the fear of the FED regarding the value of gold when it comes to the preservation of the USD you wonder if what we are seeing today in not exactly that...UK and USA buying gold on the cheap in order to show that they DO have the gold.

    1. It would be an amazing story if the US does not have the gold of the other countries. How would we ever know unless they give the gold back? Of course if they have the gold, why wait 7 years to give only a small portion back? Why doesn't Germany just demand its gold now?

  13. Something fishy here guys.

    If Germany's gold is missing courtesy of the US FED do you really think either nation would let it become mainstream news?
    What's with the 7 years? Why was it even publicly reported?

    None of this makes sense

  14. http://www.testosteronepit.com/home/2013/5/12/russias-plan-for-the-brics-to-dismantle-the-dollar-system.html

  15. Russia summons US ambassador over spy allegations
    English.news.cn 2013-05-16 11:09:09

    BEIJING, May 16 (Xinhuanet) -- Russia’s foreign ministry has summoned the US ambassador to Russia to discuss an alleged spy detention in Moscow.

    The talks on Wednesday lasted about half an hour. No details about the meeting have been revealed. Russia’s Federal Security Service on Tuesday detained Ryan Fogle, a US Embassy secretary. He was charged with trying to recruit a counter-intelligence officer for the CIA. Fogle was later handed over to US Embassy officials.

    This is the first case of an American diplomat publicly accused of spying in about a decade.

    (Source: CNTV.cn)

  16. Interesting that both copper & WTI (and Brent) are up today (5/17) despite a soaring dollar.

  17. Here we go....1320 will be breached.
    I now believe DOW to 20k.

    Does it make sense...no....

    Whether gold ever recovers is the question I have.

  18. See?...DOW did a very rare close in the red yesterday...shoulda bought the dip!

    Even the Bears are now saying the DOW will continue to climb without a meaningful correction. Good time to buy? The numbers do not lie. Both for the DOW and for Gold.

  19. So...finding a Bull in the Gold market is exceedingly rare right now, conversely, finding a DOW Bear is like saying you've spotted Big Foot, or the Loch Ness Monster.

    For Gold, there is only predictions on how low it will go. Last week the predictions were on average around $1250, now the chorus is calling for $500.00. No more rally calls..none..zilch..zero. Pack up your gold tents and go home everyone.

    For the DOW, there is only predictions on how high will it go. Several weeks ago it was $17k...hah..only the worthless and weak think so small. Now..$20k is almost being guaranteed and some Bulls are claiming "that ain't good enough", still undervalued at that price!!

    Anyone feel free to jump in here to tell me where this is all headed. I am glad I reduced my gold exposure (and increasing my short)..I was thinking that there are some buying opportunities but now I am happy to just watch the blood bath from the sidelines (don't worry,a lot of that blood is mine also).
    This isn't like catching a falling knife..more like catching a falling anvil.
    I don't know when it has been more bleak, these are dark dark days for gold.

  20. https://twitter.com/mjb4632/status/334762266580897793/photo/1


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