“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, July 17, 2013

$1300 Rejects Gold

Gold was stopped cold in its tracks today at the psychological round number resistance level of $1300. It had initially reacted to Ben Bernanke's comments, (which most market analysts and players viewed as dovish) by moving smartly higher. During the Q&A session which followed, gold was slammed lower by a wave of very strong selling.

In watching the price action it occurred to me that just as we suspected in our notes from yesterday, nothing new or fresh proceeded from the Chairman. In other words, there was NO FODDER for the bull. Gold had already run higher last Wednesday when Bernanke first reversed himself from his comments in June. At this point in the game however, that is now old news. What gold needed to propel through $1300 was something far more definitive than what Mr. Bernanke gave the markets today.

Think about it this way - the QE will continue as long as the economy needs it. Okay - what is new about that? We have seen this QE going on for some time now and to the minds of most market participants, there is still no real inflation threat looming on the horizon. What is there to make them waver the least in their convictions that inflation is benign? Answer - there isn't anything... YET.

Now, if crude oil and unleaded gasoline do not soon set back then that might change. But with a large grain harvest expected, food prices look to be moving lower. As stated previously in another piece I wrote - energy prices may be high and moving higher but food prices are going the other way. Just look at a chart of new crop corn or wheat, or sugar, or cattle, etc.

Both of these need to be moving up simultaneously to impact the consumer (and business to a certain extent although that segment is more impacted by higher fuel and energy costs) and to generate the all-important headlines needed to derail an entrenched, "there is no inflation" psyche.

Technically, two things happened today: Gold failed to extend past an obvious chart resistance level while simultaneously, the HUI FAILED TO CLOSE THAT IMPORTANT CHART GAP I noted in yesterday's missive.



Both occurrences are viewed as technical failures and will bring in additional selling by the shorter-term oriented trader. What will be key for gold is whether or not it can generate enough buying to keep it above the "former resistance zone now turned support" that can be seen on the chart. Let's call that the zone between $1270 - $1260. If it can hold here, it will bounce back and set up yet another try to best $1300. If not, down towards $1240 it will go.

I should also note that volume in today's rejection at the $1300 level is very strong. I view that as a bearish sign that a lot of bulls threw in the towel and gave up on a breakout above $1300. Also, guys who have been playing gold from the short side were emboldened to come back in.

I am unclear just yet as to how much of this jump in volume is associated with rollovers as those are occurring in increasing frequency as we move deeper into July. Most traders will be moving out of the soon-to-be-in-delivery August contract and heading into the more active December. That might have distorted the volume somewhat and thus take what I say here about it with a grain of salt but nonetheless, volume was strong regardless.

Silver? What more can you say about it other than the fact that it too failed to push past tough overhead resistance at $20. The level is now reinforced with significance on the technical price chart. For this metal to start any fireworks whatsoever, that barrier MUST BE BREACHED. If not, it ain't going nowhere. Poor English grammar but solid trading analysis.

Silver bulls simply must prove their mettle or the bears will grab control of that market and take it down for another test of $18.

One more thing I want to note was that the yield on the Ten Year note closed the day just below the 2.5% mark ( 2.491 to be exact). Interest rates have set back ever since Bernanke made those comments last Wednesday. Here we are now a week later and they have yet to exceed their recent peak. That being said, it might not be too much longer before they try sneaking up again. Everything will depend now on the content of each piece of economic data that gets released.

24 comments:

  1. Nice work Dan! Following the tape here. Thanks for the lessons. I'm treading cautiously. One day the euphoria in the other market will end. I was taught to read cash flow statements as income is too easy to manipulate or at least too obscure.

    Eg. YHOO misses revenue, blah blah. But does anyone mention that their FY 2012 operating cash flow was -$281 million! or that they have 20% less cash than they did a year ago Q2? And yet the stock is up 10%...

    The reason so many of us 'missed' the rally in the general markets is that fundamentally, many of the companies are exactly where they were in 2009--E.g. IBM, CAT, DD, WMT, PFE, PG to name a few dow comments are generating as much operating cash flow TTM as they did in FY 2009.


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  2. Corp
    Rev misses
    Neg cash flows
    Increasing int rates
    Increasing oil prices...
    Increased regs
    Strong dollar
    No wonder the insurance for all had to be sacraficed for business by the administration. But what about those great consumers
    Increased taxes
    Incraesed ins
    Increase int rates
    Lower wage growth while lowest labor participation rates
    Increasing consumer credit all somehow equals strong recovery and soon to be reduced QE???????

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  3. Looking at these markets to closely will only confuse, trying to pick a bottom or the next move almost impossible. I suggest looking at and comparing the XAU and HUI to the DOW and S&P500 and it will be clear which has deflation already priced in, which is better value, which has more upside, which has more downside.

    Within the next year or two if deflation rules the XAU and HUI may be down slightly or already bottomed and the DOW and S&P500 will have crashed and burned. If stimulus continues at current levels the XAU and HUI have enormous upside from here. This is a multi year buying opportunity with limited downside.

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  4. Dan,

    Thank you for your act of kindness, continually updating this blog with good and proper information.

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  5. Vietnam Central Bank Sells Gold;
    Since the first gold auction on March 28, the State Bank of Vietnam has sold 1.1936 million taels of gold or 46 tons in the last 44 auctions.
    http://www.vcbs.com.vn/en/News/Detail.aspx?id=81729

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  6. Here's a comparison:

    GLD priced in many different foreign currencies

    http://stockcharts.com/freecharts/candleglance.html?GLD:FXE,GLD:FXY,GLD:FXC,GLD:FXS,GLD:FXA,GLD:FXB,GLD:FXF|D

    XRT priced in the same currencies

    http://stockcharts.com/freecharts/candleglance.html?xrt:FXE,xrt:FXY,xrt:FXC,xrt:FXS,xrt:FXA,xrt:FXB,xrt:FXF|D

    It is undisputable.

    The world is making a massive bet that the U.S. Consumer is the safest, most assured investment theme available right now.

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  7. Hello,

    I'm trying to be "complementary" to Dan's analysis, rather than repeating with other words :)

    To go long on the middle-term, I'm at least looking for a signal that the downtrend is losing momentum / strength.
    What would be a very early signal of, at least, a weakening of the downtrend? Is there already one for now?

    Imho no, as long as the main downward channel below is not broken on the upside.

    http://s24.postimg.org/ne4pwu7xh/gld.jpg

    Before 1348 $, before 1320 $, even before 1307 $ (middle of body of 2week candle down), bulls now have to go past 1300 $ and going down resistance going down.
    As long as they fail to break through this level, the resistance is here, and it pushes prices down.
    I don't want to be a bull in a channel like this (except very short-term and if we are on a support zone, not just under the resistance).

    The Bollinger bands are contracting, especially the lower one, going up fast, which supports the case for a lower volatility in the coming days, and probably no failure of the 1200 $ support area.
    If 1200 $ holds its ground and we can get rid of this terrible downward channel later on this summer, I''ll already be a bit more optimistic about being long. "a bit".
    But now? There is just no signal to buy on the longer term time units. I'll patiently wait for one.
    Have a nice day all,

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    Replies
    1. P.S : the median of this fork shows the 1260-1270 $ area mentionned by Dan. Would be great for the bulls if it held. Could then hope for the mlh sup and reach the 1345 $ area.

      http://s13.postimg.org/vn352wj1j/gld.jpg

      1300 $ resistance is also the ema15 which has been a solid resistance on all the way down until now.

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  8. Morgan Stanley now up 120% over the last 52-weeks, as "Paper Pushing" and deal making are now considered the key driver of economic growth.

    Meanwhile the poor gold mining executives continue to battle depression-era industry conditions daily, basically just trying to fight and survive to get through the end of the year.

    At this point, Tim Cook could buy the entire HUI with only 60% of Apple's cash reserves.

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  9. 10 year T's reaching again up 1.47% today. Bernanke losing control?? Admitted w/o QE forever, market tanks. Sharpton loose in all cities trying to get a major revolt going. Got Gold and Lead??
    No matter what the temporary state of manipulation, It will end very badly and gold will become the king once more. 6,000 years of history and Pitiful Ben will go down as the most reviled Fed Chairman of all times.

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  10. Ahh, who is worried about $108 crude and rising interest rates?

    Nobody seems to care.

    Retail stocks are still pinned like glue to all-time highs with no sign of weakness, while the mining stocks are still flopping around like dead fish at 4-year lows.

    And don't even look at the "Too Big To Fail" bank stocks like Bank of America which are now going parabolic.

    Like all the legacy issues from Countrywide and Robosigning have been completely forgotten.

    What Bernanke has been able to accomplish has been nothing short of spectacular. He'll go down in history as the 8th Wonder of the World.

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  11. real world can not handle crude at these levels; I sell more yen, silver, corn; that is all; steve in sparks

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  12. hey Dan, not too much to say about the gold other than it at least has put almost 3 wks behind it from the low, so that is encouraging but we have to remain patient, for sure. as for KWN, I have been trading for a few minutes now and Jeffrey Saut? wtf is he? am I supposed to now look for Peter Eliades and Joe Granville to start showing up to give me the bottom? lol, hahahaha, steve in sparks

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  13. A 40% haircut in gold so far has been much worse than the 10% chance that many big depositors see a 20% "Bail-In" in the U.S. or Canada in the near future.

    What is worse, is that those who invested in "To Big To Fail" banks like Morgan Stanley and Bank of America have already profited 20% in just a few weeks.

    And don't even get me started on the epic collapse in the price of sugar and coffee, which assures the masses who are anxiously awaiting the "Royal Baby" will be able to sip on their $3.00 Starbucks for years to come without any risk of a price increase.

    Just part of the "unintended consequences" of 3 QE programs which turned out to the a resounding success, with no adverse affects of inflation or sky high interest rates.

    Oh, the glory that is going to be lavished upon Mr. Bernanke as he gracefully steps aside with the Dow near 16,000 and the 10-yr. yield at a paltry 2.5%.....

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    Replies
    1. Hey Mark, take a snapshot of your glorious "new normal" and do it quickly so that, in the not too distant future, you'll have something to wistfully gaze upon while pining away for "the good old days" that were just too good to last.

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  14. Mark,

    Statist Control along with Central Bank control, Big Bank control is what you desire???
    Wow, maybe everyone can just sit this out and have the government and banks decide which pills we take, which drinks we drink, which food we eat, and take all our money and decide how we should invest. Sounds pretty Socialist/Communist/Totalitarian to me. You really believe all this? What happened on the "way to the farm" that individuals believe we should all be given State everything and give our souls to people who are going to help us. I will not submit and will live in a trailer in the mountains, with my guns, my dogs, my god, my gold before I ever give that to the state.
    Tell your handlers there is some non conformist out there that will not submit. They know it. :)

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  15. Meanwhile, Detroit is bankrupt...

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  16. And to anyone who can read french (I'm afraid Google "translate lol" will not help much), this is what is happening in Spain right now (couldn't find a translation).

    http://mobile.liberation.fr/monde/2013/07/17/j-ecris-d-en-bas-de-la-partie-effondree-de-l-espagne_918998

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  17. Under 1295, no hope for the bulls.
    1295 : ema15 resistance on the 2-day chart.
    1295 : upper resistance of the downtrend channel on the daily chart.
    1300 : 50% retracement of the last down move (1420-1180).

    Where did prices top today? 1295.
    Wait and see.
    I can't be optimistic as long as 1295-1300 act as valid resistance.

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  18. My vision about Silver :
    http://s2.postimg.org/3oizpcntl/slv.jpg

    - prices are capped by the ema15 on the 2-day candle chart.
    - ema15 is going down.

    Conclusion : no way I'm long before we break through this one (except again on shorter time units, etc...).

    I like to use T.A on different time frames, because every time frame can bring additional useful information.

    I don't trade short / long as a trader on short-time units, because this is a game where I'd fight against the best traders from the best banks. Guess who would be the fish? :)

    So I'm a "long only" guy, trying to average down the price of his lines. I'm learning here from Dan and sharing with the rest of you, not recommending any action ;)

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  19. funny how Japanese election this wknd has not been mentioned; if I am right we never see 1.000000 again; as for metals it is dog days; maybe I am crazy but I just do not see energy prices sustainable up here; sell more corn and beans boys and have a good wknd everyone, steve in sparks

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  20. http://d1w116sruyx1mf.cloudfront.net/ee-assets/channels/cdd_default/130719image1.jpg

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  21. New closing highs in most major stock indexes, which are pretty much laughing off $108 crude. No sign of any "Endgame" on the horizon, looks like its all blue skies and "Goldilocks" for the rest of 2014 with the U.S. Consumer leading the charge towards a global recovery and the biggest spending boom ever witnessed.

    Gold actually starting to look stronger.

    The key will be whether or not China's stock indexes surge Sunday night after they removed the floor on interest rates, that will put a huge bid under materials and industrial stocks and boost most emerging market indexes for the final push past 1,700 on the S & P 500.

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  22. Thanks for sharing this Trader Dan!! Do you know where I can buy gold in Omaha, NE?

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