"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 Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Wednesday, July 10, 2013

"TO QE or not to QE, that is the Question"

And the answer is....


Even though I have become accustomed to this madness since the Fed first started its QE programs back in late 2008, I still marvel in wonder at the reaction of the investment/trading world to the words that proceed out of the mouth of a mere mortal, who puts his underwear and socks on just like the rest of us lesser beings.

The initial reaction of gold to the much anticipated FOMC minutes today was one of apparent confusion. It first spiked higher only to then fade and lose most of its gains after the minutes hit the wire. Trading seemed to reflect the confusion arising from what I can only term, "convoluted" remarks from the FOMC. On the one hand there were comments about tapering the program by the end of this year; on the other were the usual remarks about the dependency on economic data releases. Basically what the market got was a big, large batch of NOTHING. No one was the least bit clearer or the least bit more insightful into when the Fed would or would not begin to taper. The erratic trading was proof of that to me.

Wait a little while and PRESTO; out popped Uncle Ben and his Magic Money Machine and that was all she wrote: all hell broke loose in the currency markets, the bond markets and of course, the gold market.

What Bernanke did was to give probably one of the most dovish statements coming out of his mouth in some time. And what did the demi-god of finance declare to the mortals? "highly accommodative monetary policy will be needed for the foreseeable future".

And with that, gold was off to the races. As I stated in several private emails - all this chatter about backwardation and Gofo or Tofu or whatever didn't amount to a hill of beans. What mattered and more importantly, WHAT MOVED THE GOLD MARKET, were the words that came out of the Chairman's mouth. That is what scared the hell out of the Bears who had managed to successfully beat back the initial challenge to Resistance near the $1265 level when the FOMC minutes were released.

They were however, no match for the delicious probability of more funny money for the FORESEEABLE FUTURE.

My guess is that what has happened in  the halls of the Fed was that the spike in interest rates on out along the long end of the yield curve had them terrified. Just today there was a story on CNBC about the impact of rising mortgage rates making it more difficult for prospective home buyers to qualify for properties that just a couple of months ago would not have been a problem.

What to do? Why send out Ben and sound like a DOVE and take care of those pesky bond vigilantes who had the audacity to actually attempt to run the bond market at cross purposes to their lawful masters.

Quite frankly I am unsure what to make of the bond market at this juncture. The long bond would have to clear 137 to convince me that the rise in interest rates has been anything other than temporarily halted. They are still a good way from that level last trading near 134`15 as I type this.

Back to gold - from a technical perspective, it finally cleared overhead resistance on the chart (see above) as the move occurred in relatively thin trading conditions allowing the market to experience only light selling pressure as stops were run. You can see that there are now two levels of chart resistance that need to fall for the metal to get a little more upside excitement. The first is near $1290 which is basically what has stopped this evening's progress. The second is psychological round number resistance at $1300. The latter will be a BIGGIE. If it goes, you will see some more sharp short covering and a good shot at $1350 and a solid end to the short term downtrend.

I want to see those recalcitrant mining shares have a good day tomorrow to give the bullish cause more conviction. It is difficult for me to envision them not doing so, as the US Dollar is now imploding on the Forex markets. The Euro is up over 2% as is the Swiss Franc. Even the sickly British Pound is up 1.5% and the Yen, why everyone is suddenly back in love with it. All this because of some words... amazing, absolutely amazing!

Equities of course are loving it - we will probably see the S&P take out its all time high as the party is back on with tapering fears no where to be found, at least for today.

More monetary crack cocaine for the markets - it was either that or watch the borrowing costs of the US government soar higher in the face of an already insurmountable national debt as lenders demanded higher interest rates to accept its IOU's.

17 comments:

  1. Well it looks obvious that Ben Bernanke is not about to relinquish his crown as "The Greatest of All Time" to Draghi or Uncle Abe or anyone else.

    Now that he has successfully destroyed the price of the CRB Index, he can afford to cut the market participants some slack and induce a little bit of "Risk On" for awhile in order to revive the bond market out of its slump.

    Yep, you heard that right, bonds are now considered a "Risk" asset.

    So now we are on our way to Dow 16,000 or 18,000, a 10-yr. yield back down to 1.8%, and Gold will probably trade right up to the $1,625 resistance area where Jim Sinclair's "Angels" are hanging out at the Battered Women's Shelter.

    Shortly thereafter, Bernanke will open his Pie Hole and start flapping his gums about "Fed Mandate of Price Stability" and tank the CRB index again when things get too frothy.

    And when I mean frothy, I mean AMZN at $350, PCLN at $1,000, and Panera Bread, Starbucks, and Whole Foods at preposterous highs with P/E ratios approaching 70 and crude oil at $135.

    Then The Bernank will step on the emergency brake via mere "words" and the Cartel will once again make a huge fortune shorting gold again from $1,625 to who knows how low it will go the next time.

    ReplyDelete
    Replies
    1. This is exactly correct - End the FED

      Delete
  2. My sentiments exactly Dan...God help us all! Just utter nonsense and foolishness. I would not be surprised if it all reverses in the coming hours.

    Great post Dan, Thanks.

    ReplyDelete
  3. what I do is circle fomc days around 48 hours and then go from there; today was classic as we all know that nothing was said and that algos hosed everyone off; I stay short yen and gold/sil and gol/plat still look bearish to me; tomorrow I sell any bulge in wasde numbers because this is going to be the hugest crop of all time; $8 beans and $3 corn coming boys, so take care; that is all, steve in sparks, nv

    ReplyDelete
  4. Unfortunately, I agree with you, Steve. I believe for different fundamental reasons though. Gold and Silver CANNOT be allowed to be "tattletales" by the Fed and Treasury. Therefore, it cannot be allowed to appreciate on every announcement of QE (because QE is going to go until infinity or until the fiat fails and Gold and Silver would therefore continue to go parabolic to levels even Sinclair cannot imagine). So, PM will continue to get "sold off" until the physical metal is drained, or the backs of the gold bugs are broken. That is the battle. Will the PM buyers be able to buy up all the physical? It is now, IMHO, a zero sum game and the two sides are going for broke...

    Disclosure: I have more physical than I should and small insurance policy with Sept puts in both metals.

    ReplyDelete
  5. "we will probably see the S&P take out its all time high as the party is back"

    Hi Dan,
    But the allocation of cash may, as you mentionned before, still favor SP500 vs gold, i.e if bears covered today, I don't see a reason to think that bulls will come back running into gold yet.
    At the moment, ema15 and last highest at 1265 yesterday made me a long bull again.
    We've just reached 1300 this morning = the inf.bollinger of the monthly time unit, and I'm already 50% out there.
    This is the first level of resistance.
    Next on my chart is the 1320 level (fibo 300-1940) then 1345 (fibo 750-1940).
    I don't imagine a V bottom on gold this summer until they change the rules of the Comex because of stocks depletion (much higher margins).
    Instead, maybe more hedging from mining companies as you mentioned, and probably a range for a few weeks, time for the market to heal a bit of the technical damage and some bulls to get more confidence that a bottom was hit.
    Of course, it's all theory, but in my trading orders, it translates into : already out 50% of my long 1265 at 1300, and next 50% out at 1340. I don't target higher at the moment. I'm playing the possibility of a new (and last?) drop down later this summer if we get close to 1345 now.

    @Hubert : sorry, but there is no chaos, unless you pay attention only to "Fundamentals" and speeches and Bloomberg news. I mean, even Under normal market conditions, prices fluctuate and are rarely at their "value". They fluctuate because a market is a reflection of human psychology, driven by greed and fear. So markets are more volatile now maybe, they go further out from their "value", but eventually T.A still proves to be a good tool in terms of probabilities, and along with a sound money management, this is enough to avoid big losses and make a few gains.
    T.A made it likely from 1st of july that we'd get back to 1300 $ because of the Bollinger Bands on the monthly unit.
    It also identifies 1300 $ as a resistance for the same reason : it's a bollinger band.
    So T.A tells you what could be your likely target and price where you may decide to sell a bit of your position if you reach it.
    T.A helps you read what seems like chaos.
    The twice bounce on 1205 $ Fibo was indicating that 1205 was valid as a support, and it worked.
    Of course, it's only probabilities, not certainties, but imho that's all you need, just like in poker.
    I don't care what Bernanke said yesterday. Actually I'm not sure that even if he had said the opposite, gold prices wouldn't have bounced somehow during the month to go reach the 1300 $ even for a brief while because this very extended oversold condition.
    Now, that the market goes up a bit doesn't make me a bull on the coming months yet. It's just a retracement. 1325 would be a first 23,6% fibo retracement of the 1805-1180 down move. Really nothing impressive to say that the bear market is over. But ok, 1205 is holding, at least for now, and comex stocks are plumetting, and autumn is usually strong for the PMs, so I'm a bit optimistic :)

    ReplyDelete
    Replies
    1. I am not going to argue on this anymore. Different people. different thinking.

      However you will never be able to convince me that:

      1- The 3 falls in gold were not orchestrated by people who acted not based on fundamentals (meaning order because the move can be explained by logic) but their own personal reasons (protection of US dollar for example) and this means chaos.

      2- Fibonacci numbers are very, very well known by the people I mentioned above. They know how to play with it and there is NOTHING you can do about it because you do not have their financial power.

      3- You "don't care what Bernanke said yesterday". Good for you BUT this is what makes the market move and if you do not listen to him you are out of sync with the market.

      4- You said:
      "T.A made it likely from 1st of july that we'd get back to 1300 $ because of the Bollinger Bands on the monthly unit.". I am saying to you: You are wrong! The move is due to the FED being cornered and Bernanke and Co. have NO choice but continue QE and the market yesterday decided that QE is going to continue and tapering is off the shelves for now on. IF the minutes had shown that a majority of the FED members wanted QE to end next month the POG would have crashed $150 in one day. This is TA? Definitely not. It would have been pure manipulation.

      5- We are, in my opinion, seeing the beginning of the end for the USD and a new move UP for gold. My reasons have nothing to do with TA... but are based on the economic/political/monetary events that have been taken place from the moment the greedy American "elite" decided to push China UP.
      Chinese push for supremacy is what all of this is about. Obama, Bernanke and the "elite" know it and they are trying to save whatever is left. They will end up like Russia in the 90s. Revolution and CHAOS.



      Delete
    2. I think you got it Hubert. Sad but true. Santellie's rant says it all. All about the 10 year and the Mortgage backed securities and worthless Bank Balance Sheets right now. Eventually the Dollar has to cave or else zombie land for US mfgrs.
      Well, I snuck in and so far am going to stick around. But based on the Florida Trial ..where the State can now try you for one thing and end up slapping another charge against you at the end. Wow, how about them apples. The judge is pure and simple a Statist. With that said, I am accumulating more LEAD and firing devices. It helps me sleep better at night guarding some gold and silver. :) Thanks for all you do here Hubert.

      Delete
    3. Hi Hubert,
      I don't intend to convince you, just to exchange points of views. I'm never sure I hold "the truth" :)
      About your points,
      1. I agree with you. But I'd say T.A makes you focus on prices and price movements first, therefore protects you from chaos. No matter what you think the market should do, don't try to reason it : follow T.A and if prices go some other direction, just respect it and use stop losses. I'm a long term investor in gold, but I cut my losses when we broke 1539 then 1469 $ levels because of T.A and discipline. I didn't like it at the time. Now I'm happy I did it.

      2. agreed...and yet not. They can trap you sometimes. But look at Fibos : if they knew and were almighty, the we would systematically break through those levels. And yet...they work. So if they work, that's all I need to know.

      3. don't agree. How many times did I read lately that it was not understandable how gold prices could plunge on this or that news, that the move was counter-intuitive or that it was a blatant proof of manipulation. How many times Sinclair wrote that "the price of gold will not be allowed to bother the Chairman of the Fed the day he speaks". It means that the news doesn't make the direction anymore. Then in this manipulated environment, why should I care what the guy says? But this time, we didn't have a krach, or if there was a raid, it didn't work. Is it not worth noticing?

      4. don't agree : 1300 is a weak retracement of the 1805-1180 plunge. It's nothing. It's not even the first 23% fibo. It's hardly more than "noise". It's no proof that the bear market is not over, even if the Fed is "cornered". I'm not excluding new lows soon.

      Delete
  6. This comment has been removed by the author.

    ReplyDelete
  7. When QE4 was announced gold did not go up a little bit. When Bernanke says that QE will not be tapered just yet gold jumps up. And this is from a person who has a track record of saying sg and doing the opposite a few months later.
    Not much logic in all this...

    ReplyDelete
  8. for some reason, i still hesitate to jump back into gold miners...i think if we test and clear 1300 then ill go for a little 20 bucks higher in gold trade, but i still dont really feel it...i wonder if there is any chance we ever re-test the 1200 - 1180 area....hmm...but i do think the Fed will never end QE now for sure...and probably never taper...but when to enter gold, that is the question

    ReplyDelete
    Replies
    1. Precious Wood: I think a lot of people are thinking the same thing. First, having been burned before. But as important is the generally received idea that miners can't break even below 1,300 - 1,400 gold. On the way up the first time around they were generating free cash flow at lower levels ($1,200-just look at the statements of cash flows for the better miners in 2009-2011). This time there is more skepticism. That's probably a good thing in the long run.

      Delete
    2. yeah, i understand...i sustained a heavy barrage myself on the way down...the thing is, i heard that gold and miners re-enter confirmed bull phase around 1550-1600...but theres nooo way im watching gold go up there before moving...ive been out for a while and i watched it fall from 1480ish to 1180 so that was good, but just seeing gold move up a few bucks makes me so eager to dive in shoulders-first...i like how dan says noone gets the top/bottom but just ride the 60-70 percent and get wealthy that way..i can see how that works, and its sounds well wise...but another part of me says call the Fed's bluff, jump in the GDX and hold for a long time...a black swan will surely force fundamentals to overcome a short-medium turn negative technical picture. (

      Delete
    3. That's why there is dollar cost averaging

      Delete
  9. Gold miners still getting sold on any pop.

    Can't blame them, lots of guys still desperate to get out of these names.

    We could see yet another world record low in the GDX/GLD ratio by the close.

    Meanwhile, XLY is reaching "escape velocity" by being up 12 consecutive days to new world record highs.

    $15 to $59 in 4 years which is amazing for a major ETF.

    $75,000 invested is now worth $290,000.

    ReplyDelete

Note: Only a member of this blog may post a comment.