“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






Wednesday, May 22, 2013

US Dollar - back to being King

It appears as if the globe is convinced that any economic recovery is going to begin here in the US first. It certainly is not going to be Europe that is leading the way. Data from China continues mixed while Japan is gaining traction at the expense of their currency. That leaves many investors from abroad looking to put their risk capital to work in the US equity markets. That is creating strong demand for Dollars with which to buy boatloads of US equities.

You can see the effects of this in the dollar chart. Note this is a weekly chart I am using. As it now stands, the Dollar is on track to make its SECOND and a CONSECUTIVE WEEKLY CLOSE above key resistance at last year's high just above 84.40 or so.


It has already cleared the important 61.8% Fibonacci retracement level of the entire sell off from the double top back in 2010. The last barrier from a Fibonacci retracement theory level it has to face is just above 85 at 85.05. That ties in rather nicely with the upper tine of the pitchfork. If that does not stop the upward march of the Dollar, odds will favor it completely retracing the entire downmove from 2010 and eventually reaching all the way to 89.

With weakness across the Yen, the Euro and the Aussie and Canadian Dollars, not to mention the Swiss Franc and the British Pound, it is difficult to see why the US Dollar will not make it through the 85 level.

If this does occur, it is going to more than likely bring about additional selling pressure across the commodity sector in general and that means we could very well see more hedge fund shorting activity into silver and gold. It will be up to the physical markets to therefore absorb the paper selling to prevent those recent lows from being retested yet again.

One of the other reasons that the US Dollar is rising in my view is the fact that interest rates are rising here in the US. In an environment starved for yield, you are going to get some of that money that wants to hold bonds moving to where it can obtain the highest yield or at least where it can invest where the interest rate trajectory is higher and not lower as is the case in the Eurozone.

15 comments:

  1. http://www.zerohedge.com/contributed/2013-05-23/will-japan-trigger-global-financial-meltdown
    By Phoenix Capital Research - Very short overview comment on Japan's current "ironies" and the globe's rock and hard place.

    ReplyDelete
  2. Its sad to say, but someone can push silver down with a feather. After a decline from 50 to 20, one would think it could be pushed up with a feather. The only reason the fed doesnt want to say what the consequences of QE are is because they know it will lead to massive inflation, and they cant say that. So they dance around it.

    ReplyDelete
    Replies
    1. but long term horizontal support on silver at 21.80-22.00 (see top of 2008) and daily recent bottoms.
      Maybe this support will hold?
      Else we'll probably re-visit 20$...

      Delete
  3. Bernanke's "Wash, Rinse, Repeat" Perpetual Motion Machine once again is working beautifully:

    Step 1: Initiate a "crisis" to send stocks down to relieve the overbought condition.

    Step 2: "Jawbone" about "Tapering" to send commodity prices plunging and boost the U.S. Dollar

    Step 3: Now that people are concerned about a bear market in stocks and deflation, goose the money supply even harder

    Step 4: Lower interest rates and ultra low commodity prices fuel "Animal Spirits" and investors start clamoring for stocks again.

    Step 5: Bernanke laughs, as he keeps pushing stocks higher and higher and commodities lower and lower, eventually he knows that the positive psychology will eventually improve employment and GDP, without a worry in the world about inflation.

    HOW EASY IS THAT? LOL......

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  4. Dan,
    I am posting this link because I have nothing but compliments for you and we think so much alike. I guess we are similar in ways because you are or have been a mentor to me even though we have never spoken.
    Thanks Dan for all you do!
    Martin

    http://tradermartinstake.blogspot.com/2013/05/another-take-on-mess.html

    ReplyDelete
  5. GDX/GLD ratio back down to world record lows.

    While the Wall St. crooks are out at The Hamptons living large, they have left instructions for the junior traders to hammer the gold shares relentlessly prior to the long weekend.

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  6. They can only hammer the gold shares because there are stupid wealthy people that still "STORE" their non-existent gold with the banks. In my opinion, it is 100% counterintuitive to why someone would own the metal in the first place. I hope EVERYONE who stores their gold with someone else loses it all because they do not deserve it, and they are only feeding a beast that steals from them. The only way the TRUE value of gold can be determined is if everyone took physical possession, which may never happen.

    If you do not have access to it, it is not yours in this crazy mixed up world.

    ReplyDelete
    Replies
    1. So it looks like the banks that "store" the gold for their clients, are shorting the paper gold market as if the gold being stored is their own. They have been lucky that the price has been going down, so they dont have to deliver.A huge rally would expose their fraudulent behavior, as they wouldnt have the gold to deliver.

      Delete
  7. Why are some of you guys letting price drops affect you so much?

    On a long-term point of view :
    - you have a physical position, so you are safe
    - you can buy a bit more on the dips, for example if we reach 1200
    - it's probable that all this QE will eventually lead to a loss of confidence in the fiat currency, and start a hyperinfationary event. When it happens, physical gold stocks will be emptied in half a day, prices will go to the sky, and you'll benefit from it while others will cry.

    On the short-term :
    - most people don't understand what's happening and will not until it's too late
    - many seek refuge in the dollar, which can still weigh on gold price and help dollar index. So be it.
    - follow the trend and the prices, not the opinions, the feelings of the gold bug community. This is short term, you are dynamic, reactive, you can get out from the market and back in. This is paper trading.

    So overall, what's the problem?
    There is no problem.
    You have your long-term insurance on the long-term.
    You trade dynamically the ups and downs on the short-term.

    RELAX...
    Have a nice weekend,

    ReplyDelete
    Replies
    1. well written man...just what i needed after waking up on a saturday...

      Delete
  8. Dan,
    I hope you won't mind I post this chart about gold here, even if the title is about USD.
    It's the weekend and it seems to me that we are at a dangerous crossroad, is why.
    I like the beauty of T.A.
    Here is the chart.

    http://s16.postimg.org/7q5ev5gxx/gld.jpg

    - In red, the Andrew's pitchfork. See how the mlh sup worked as a resistance in 3 occasions? Now, see how its median is now a resistance to prices at the close? This is the 5th day that we are flirting with it without convincingly breaking through. This median also stopped the progression of prices during 5 days between 19th and 24th of april.

    - In green lines, the previous range 1560-1805 and it's symetric projection at 1320. Not only did we bounce precisely at this target of 1320, but 1560 and 1320 are also precisely the 23% and 38% Fibonacci retracement levels of the whole upwards move in gold from 300 to 1940 $. Not bad!

    - the purple horizontal lines correspond to the Fibonacci retracements of the 750-1940 upwards move. You see it has also an important role regarding price évolutions.

    - last but not least, from september to april, gold prices were contained in a downward channel you can see with 2 black lines on the chart. It is not unusual that, when prices drop through the support level of such a channel, prices then revert back to that very support which became a resistance (inversion of polarity). That is precisely what happened. Even better, the market chose the perfect timing, so that this meeting takes place on 3rd of may, which is the moment that line met with the purple fibonacci retracement.

    All this to explain why I put all those lines in my chart. I'm following them because I think they make sense and can help us detect future opportunities for getting in / out of the market.

    Now for the recent price action :
    - prices are capped by the median.
    - every bounce on 1320-1340 zone is weaker than previous one. (we dropped first from 1580, then from 1490, now the top was 1410 and we may already be reverting down)
    - the MACD 9 20 7 is about to give us an indication (signal crossing or not)

    IF prices cannot go through the median, IF the BLUE LINE is valid within next days and proves itself to be resistance, I think we should be very careful because price action would be so weak that 1340 are likely to be tested again, and with a kind of down triangle forming, could be broken.

    IF prices go through the median, I'll Watch the 2 orange segments which are likely to contain prices both ways as long as volatility is down and the median keeps being a magnet for the prices.
    Wishing you a nice weekend,

    ReplyDelete
    Replies
    1. Hubert;
      thanks for the chart.
      that is a lot of detail there!
      I agree with you about the resistance levels moving lower. The market is trying to hold that $1320- $1340 bottom but it cannot seem to get anything going to the upside as the big hedgies come in and slam it back down. The thing to note here is that even in spite of their selling, the hedge fund category remains net long, although that is the smallest level since July 2007. So far they have remained net long. It would not take them very long, if $1320 failed, to move to being net short this market. Something needs to occur to trigger a turn of sentiment among this category of traders if the market is going to put in a permanent rather than a tradeable bottom.

      Might I ask you to see if you can put the dates on the x axis of your charts? It would make it a bit easier to get the time frame down for this spoiled trader!

      Delete
  9. A chart and comment on potential short covering fuel. Zerohedge just did a short piece on this too:
    http://jessescrossroadscafe.blogspot.com/2013/05/comex-gold-short-increases-dramatically.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

    ReplyDelete
  10. Short, simple essay. Graham Summers, Phoenix Capital Research commenting on Japan and the US's potential Splashdown Sequel. Investors and savers will relate to this broad point of view.

    http://www.zerohedge.com/contributed/2013-05-24/feds-hands-are-tied-right-financial-system-begins-crack

    ReplyDelete