"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 31, 2013

Copper nearing Chart Support - At Key Level

More and more copper is taking its cues from economic data and developments out of China. I can well remember the days when the US was king as far as Copper prices went. If the US economy was humming along and if housing was strong, it was a fairly simple bet that copper prices were going to move higher or stay firm.

Nowadays it is China that is the primary driver of copper prices. Last week's announcement that the authorities over there were ordering production cutbacks in order to deal with what they consider to be a surplus of goods, sent base metal prices on a downward spiral. Copper dropped hard, pure and simple.

However, there is still a US influence on the market and today's GDP number seems to have breathed enough life into the red metal that it has thus far been able to hold above what I consider to be a key technical support level on its price chart, namely the $3.00 zone.

Dr. Copper, as it is affectionately known in trading circles on account of its excellent predictive capacity when it comes to diagnosing the health of the global economy, is signaling a period of relatively flat, decidedly unimpressive growth.

As you can plainly see from the chart pattern, there is nothing bullish about the metal whatsoever. The one redeeming factor has been its refusal to break below the $3.00 level. If, and this is another one of those big "IF's", copper were to collapse through that level, it would signal another slowdown coming our way. My hunch is that the Central Banks of the developed world will more than likely maintain enough monetary stimulus to try to prevent this from happening however.

That should translate into a further continuation of the sideways pattern on the chart with the metal attracting enough buying to keep it limping along above the $3.00 level. It will take some pretty strong economic news to push it up and away from the top of the pattern, but especially above that downtrending 50 week moving average.

What this translates too is that as far as inflation signals go, the red metal is certainly not generating any at this time. That takes away one plank from gold if the industrial metals are generally weak.

Moving over to crude oil and the energy sector... Crude has dropped off its best levels and unleaded gasoline prices are back under the $3.00 level (barely). Thus the energy sector has seemingly run out of upside steam for the moment. That is not to say that it is about to fall apart; what it is saying is that the recent strong drive upward has stalled out.

Couple that with what is expected to be a very large corn crop and soybean crop, and there is not any help for the inflation boogie man coming from the food sector either.

In other words, we are continuing to see the absence of any strong, sustained upward move across the broader commodity complex. With the job market here in the US remaining subdued, it is difficult for me to see, at this time, where the inflation pressures are going to come from, particularly if WAGES REMAIN FLAT.

I should also note here that the yield on the Ten Year Treasury Note briefly popped above the 2.7% level this morning before retreating slightly. keep in mind that the last time it moved above that level, Fed Chairman Ben Bernanke changed his somewhat hawkish stance displayed in June to that of a SUPER DOVE in July when he uttered those now famous words about QE continuing "for the foreseeable future". That sent the yield crashing lower but once again, it has quietly snuck back up again. HMMM... wonder what the FOMC statement will therefore give us this afternoon???? Maybe they will have to sent more Fed governors back out to disavow what they might have written for us.

Either way, it looks as if gold is going to continue being held hostage to the vagaries and whims of the Central Bankers, as is the entire economy for that matter.

I will leave you with this chart of the Australian Dollar for now. The Aussie is particularly sensitive to the commodity cycle as the economy down under is heavily dependent on the production of raw materials, a large chunk of which end up being sold to China. As you can see, it is sinking and sinking heavily. This does not bode well for strength across the commodity sector.


  1. Good letter Dan; the way I read copper is the top was 4.60 and we have now gone sideways from 3-4 for 22 some odd months and the support will give way, just like the pm's did; r.i.p. China, just like cotton, and now corn and beans; looks like pm's anticipationg bearish fomc; nsnbc international is the latest site to take up the gold backwardation along with Fleckenstein over at kwn; it is getting old, very old; that is all, steve in sparks

  2. I can't help remembering what you wrote recently about silver's strong correlation with copper.

    So if copper should collapse under the 3 $ level, one may expect silver to correct further as well.
    It's going to be a long summer...hope you'll manage to get a break and go on holidays, far from all this for a little while!
    Take care all,

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  4. Dan,
    The FED statement should put pressure on copper price.

    What is more important is that the statement is a proof that the FED is not in control anymore. Bernanke and his acolytes are on the defensive, trying to extinguish the fire that have started themselves.

    Where is the super-confident FED? Nowhere to be seen. The result is in my opinion very clear:

    - 10 Y treasury is going to go hugher.
    - Gold is going to go higher.
    - The "manipulated" ""new"" GDP is going to be flat where it should be lower.
    - The housing market is going to go down.
    - GOLD is finally going to show its true color.

    GAME OVER despite the mid-term elections.


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