“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


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Friday, August 2, 2013

A Tale of Two Cities

Yesterday, as far as the trading/investing world goes, the US economy was on fire and heading north. The combination of the ISM number and the jobless claims had everyone convinced that TAPERING was back on big time. Talk about a change of pace for today when the payrolls number came. The world was coming to an end once again!

The abysmal number, plus the fact that the numbers from the previous months were revised downward, sent convulsions equally as strong as those of yesterday's running through the markets.

There was a total reversal in the price action in the bond market and in the currency markets. Whereas yesterday the Dollar was King of the Hill once again, today it was deposed in unceremonial fashion.

The violence of the price reactions indicate that many traders were whipsawed having taken positions yesterday only to be completely caught off guard by the rotten payrolls number. Shorts were forced out of the bonds as well as some of the other major currencies.

Overnight gold was hit quite violently in Asian trade. I am still unsure of what the exact catalyst might have been but it looks like it was a case of an opportunistic short raiding the market in the thinner conditions and going after downside sell stops. Well, whoever was sure reached them because once the $1300 level gave way, the market literally imploded on itself falling just shy of the next level of chart support that we mentioned here yesterday down at the $1280 level.

Gold was looking quite vulnerable to an even deeper sell off until that jobs number hit the wires. Then, it was a complete upside reversal erasing those losses and moving not only back above $1300, but also through yesterday's closing pit session price. My guess is that the predatory short got taken to the cleaners on that unexpectedly weak payrolls report.

So where are we in gold right now? Guess what  - I haven't a clue to be honest right now. The type of price action that we witnessed tells me that gold is almost completely dependent on each and every bit of economic news that is going to be coming our way. The worse the data is, the better for gold in the sense that it keeps any Tapering Talk  off the table. The better the data, the more chances that the Tapering Talk gains credence and that is a stiff headwind for the metal as that generally means a stronger Dollar and rising interest rates.

From a technical chart perspective, the resistance zone overhead, that is noted on the chart, is still definitely intact. The market is encountering strong selling up there as those who believe that inflation is not a problem are going to go after gold on rallies and sell into those. Based on the latest COT report of this afternoon, that is a growing majority of speculators who were all net sellers this week.

The really interesting fact is that the same COT report shows that the big commercial category, aka the bullion banks in particular, reduced both short and long positions but actually covered more shorts than they did longs this past week. That brings their NET SHORT position to a little more than 5,300, which is stunning for its meagerness! They are very close to becoming net longs for the first time since December of 2001.

The Swap Dealers were net buyers this week but they remain net shorts by about a 2:1 margin. My thinking is that some of those shorts could be hedges instituted for mining companies who are getting back into that strategy, as I have outlined previously here on the site.

Back to Gold - it has been unable to push through the downtrending 50 day moving average and that is emboldening the bears to continue selling at or near that level. Dip buying remains below the market, as evidenced the strong rally off the worst overnight levels, but again, that dip buying is extremely sensitive to the economic news being released.



This week's low now takes on as much significance as this week's high for the market still remains in a range trader with a bit of a weaker bias. If $1280 were to fail for any reason, gold could easily drop another $20 before some buying shows up.

You can see the ADX indicator down below the price and note that it is still in a bearish posture even though the downtrend has stopped. As stated before but I feel needs to be said again, just because a market stops going down does not necessarily mean it is going to start going back up! It could merely start in a consolidation phase and work sideways and perhaps even resume its downtrend at some point. It might also start a new uptrend. We simply do not know and will have to wait and see and act accordingly. Gold is doing precisely this  - it is moving sideways.

Part of the problem that the metal is encountering is the mining shares - they simply cannot sustain any upside movement for long. They were hit once again today with the HUI down nearly 2.5%.

As you can see on the chart, having pushed past a strong resistance level indicated by the chart gap, the market, upon subsequently retesting that level, failed to maintain its gains above it. That is a bearish technical sign. Would be longs over at the Comex notice such things and then back away from the metal fearing another downdraft that will catch them on the wrong side.


On the delivery process for the August gold contract which I promised to monitor on account of all the talk about tightness at the Comex and dwindling inventories, there was nothing much worth noting in the data that was released this morning. JP Morgan continues to be the large stopper with them taking the gold for their house account. Other than that - pretty routine.

I will try to get some more details up later this evening or tomorrow as my schedule permits but make sure to check in over at King World News for the Metals Wrap where I will be discussing some of this with Eric this weekend.



19 comments:

  1. United States of America, the world superpower...

    Really??? Really??? Is this REALLY the center of the Universe? NO it is just a black hole, sucking the blood of so-called "investors". To continue the monitoring of whatever comes from the "elite" is just a waste of energy and money. All the minor tremors we are witnessing are just the warning of what is to come.

    On the side note (but still related to the "Superpower"): Russia giving political asylum despite pressure from THE president OBAMA is just one more clue to add to the drama. The only power left to the USA is the atomic power... MY bet? Obama do not have the balls facing Putin while Iran, Turkey, Venezuela, China, Arab countries... are just waiting to see if the tiger is down for good.

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    1. I hope they both don't have the balls facing each other too far indeed, because it could mean WWIII.

      If you have 2 hours this weekend, you may like to watch this :
      http://www.youtube.com/watch?v=KkQk50qtTwo

      I love the moment when Mac Namara reminds us that IT IS A MIRACLE that WW III didn't actually occur, and that Castro was actually pushing Krutchev to launch his missiles on the US during the Cuban crisis.
      Many times before, the way for a collapsing empire to try to get out of its crisis was to start a war. Let's pray it won't be the case this time with the middle-east.
      As Mac Namara failed to "empathize" with north vietnam, I'm not sure how well US / western world is empathizing with this area nowadays.

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  2. Hello Dan; Just wanted to set the record straight and clear the air here at the end of the week regarding my comments of late. Never have my intentions been to denigrate, castigate or defame any of the many commentators on the various sites. My arguments are with their persistant and wrong ideas, which in some cases now are stretching into years, and their inabilities to fess up and say they were wrong, but instead they continue the constant drumbeat of everything that has long ago been baked into the cake.

    I completely agree with the ultimate demise of all the fiat currencies, but PLEASE, will they ever drop the $ as their whipping boy, or are they looking at different charts than me, because I can not see any currencies out there that I want to own vs. the $.

    Lastly, the total embrace of the West to East movement of gold and how that guarantees an ultimate bullish resolution for the pm's. What exactly is special about Russia, India, and China and their politicians and central bankers? Exactly what are their policies, objectives, and expertise in what we all know are uncharted waters in these convoluted and broken mkts, anyway? And do not even get me started on Japan, Venezuela, Argentina, and you get my point as I could go on and on and on.............

    We may think it makes no sense, but to me, stks and bonds, which made a double bottom, are headed higher. Energy also, with nat gas, then rbob, and finally heating oil and crude running out of steam here, as long as all hell does not break out in MENA this weekend, is the last nail in the commodity bull coffin.

    As always, steve in sparks

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    1. Steve;

      thanks for that....

      My own take on calling tops and bottoms is pretty clear - I generally try not to do it simply because I am not clever enough to do it consistently. One does not need to nail an exact top or bottom to be successful as a trader - they can make a decent living just catching the middle of the ride. Sure , if you can get in a bit earlier you can make more but it all depends on what the chart action is telling you and how well you really know that individual market. That is why I tend to wait for some sort of confirmation before making a statement about a top or bottom. I guess it is just the years' worth of getting the snot beat out of me when I have been wrong that makes me more cautious, especially with my own trading capital!

      My advice to the readers is to simply eat the hay and spit out the sticks. I personally ignore all the predications and what have you because the truth be told, no one really knows what the future holds for us. There can be informed speculation as to what will come but let's face it - it is all just that, speculation/guesses/predictions, when all is said and done being done by mere mortals. I believe that when the dust settles we are ALL going to learn something that we did not know before. I just hope and pray that it is not too painful a lesson.

      We all agree that the US is on an unsustainable path debt-wise and that at some point, it will impact the Dollar, but as you state, Japan is a basket case and the Euro zone is not any better in my view. Both are poster children for runamok debt levels.

      And while some of the BRIC nations are indeed becoming more formidable competitors to the US, they do indeed have their own set of issues.

      Personally, I would love it if the Fed were to just go away but I am realistic enough to know that will probably never happen in my lifetime. Maybe we will have to wait until 2016 when we get a change in administrations for the US to attempt to get back on some solid financial and regulatory footing but I am beginning to wonder if much can be done to stop the slide at this point. The numbers keep getting bigger and bigger with the passing of each and every year and at some point the math is too large to overcome.

      For me, this is a moral issue believe it or not. I believe it is deeply immoral to leave a debt of the magnitude that this generation is leaving for our children and grandchildren to pay. They had no part, no voice, no say-so whatsoever in amassing it and yet it is their quality of life that will be the most impacted while those who approved this madness will be long gone in their graves, not having lived longed enough to see what their ignorant stupidity inflicts upon posterity.

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  3. Unbelievable!!!!
    Actually two articles on Fox tonite. House republicans going after Corzine!!! Maybe they can catch a Diamond in the rough knowing the letter about customer funds and London collateral will also squeeze JPM some more. I sure hope these DEMO thiefs, I mean, Bankers are strung up.
    Next up hot off the press, FED wiped out all gains and on bond portfolio to date with the 10 year sky ball!!!
    I guess Mark is correct about Ben being famous and imitated by others for years to come. Sure looks like CHAOS to me. Can you get Maxwell Smart out of retirement to clear up this mark to market mess?
    Just sayin things are getting very interesting!!! I would say some very nervous high ups.

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  4. When we first crashed to 1320 from 1500 +, you mentioned that you'd welcome a re-test near the lows in order to check how the support holds.

    I think we are pretty much in the same configuration now on a weekly basis. After all this downwards price action, maybe at least a re-test of the 1200 $ zone is necessary before we can get much higher than 1300 $+

    Anyway, even if it's good to keep an eye on gold prices on a daily basis, after such desillusions and a price drop from 1950 to 1170, I think the technical damage will take time = months to repair, with a solid support base needing to be built. Unless of course, all hell breaks loose and then that's precisely why we hold phyz as a core long position on the investor's point of view.
    Have a nice weekend!

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  5. Dan,

    Not to sound like a conspiracy theorist, but I wonder if the good old boys (banksters), didn't intentionally smash gold in thin Asian trading last night ahead the bad economic news. I mean if gold would have come in at where it was trading prior to the smash, gold would have put a lot of pressure on the shorts due to the pop. These guys always seem to know what is going to happen and then front run it. Must be nice to almost always be right.

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    1. Shawn,
      This is exactly what happened.
      I used to have my own blog and for more than 2 years, I was able to say if the jobs numbers where good or bad, a few hours before the announcement.
      This was based on the "NO REASON" up or down price of gold.
      My "success" rate was over 90%.


      If you can get a chart -and the time- check it out.

      Delete
    2. Shawn;

      Anything is possible in this day and age of widespread corruption. It really is difficult to say however. In some of the other markets that I trade (the livestock and grain markets) the Asian session is particularly prone to the shenanigans of what I consider to be rogue hedge funds. They come in overnight when the liquidity is very low and will jerk and markets all over the place depending on what side of the market that they are on.

      Then, when the pit session opens and the volume and liquidity increase, they are unable to get away with that sort of thing.

      So as far as the gold hit on Thursday evening goes, it could have indeed been a player acting on the behalf of the feds or it could have been a hedge fund which was playing gold from the short side and looking to make some fast money. It is hard to say but the price plunge was certainly bizarre to say the least.

      Delete
  6. Right on the money. As a follower of one of the best known metals traders who is also a regular KWN contributor the conclusion, it was officially sanctioned by none other than a large central bank called the F.. designed to stop Gold rising at the jobs number release.

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  7. As a new follower, I appreciate Dan's comprehensive comments on the market.

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  8. i did not realise that the HUI had closed below that crutial gap..thats pretty significant indeed...i felt like the trend has been a bit lower since gold hasnt kep with its momentum to breach 1350..kind of like the last few times it ran out of steam, it would just naturally go lower, buty here we were making lower lows and lower highs..at least thats what i get from a zoomed out chart...news can really ruin the pretty trend that a chart is making, but still with that, gold looks like its going to test lower rather than higher...next week i may join the evil ones (and buy some DUST) and bet on gold+miners going lower if 1300 is breached again...but there was some wierd last minute after hours action in gold....from 1307 to 1313

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  9. Watching the action the past year or so... it is pretty clear that anytime there is bad economic data set to be released that the FED/JPM/banks will preemptively strike at the metals to keep them in check. For instance... jobs number is tomorrow morning? Well no problem we will just smash gold for 20 bucks in the middle of the night when everyone is asleep and then when it spikes off of the bad number in the morning it will only be right back to where it was before we smashed it. I have been watching this pattern for at least 18 months now and it is sickening that they get away with it and no one says a damn word. There will be consequences for your actions MFers. I have DECADES to wait this out. It's only a matter of time until this charade comes down.

    Dan I know you are helping people learn technical analysis and honestly you have taught me a TON of the last two years. I would argue though that who cares? This is all just noise and in 10 years when the US budget is in 10 times the dire straights as it is now are they really going to be able to hold gold/silver back? And lets not be confused about who they are. It is blatantly obvious for anyone following these markets that the US government, through the FED and the PD's, have a vested interest in keeping gold and silver prices down, because the dollar will die (quicker) if they don't. If you can't see this then you are a fool.

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    1. Adam,
      Great Post!!
      With the losses on FED balance sheet mounting, speculation only, my bet is the debt ceiling raised and we start hearing calls for debt/GDP (new accounting trick backdate scheme JIT) matching, then print full steam ahead followed by continued gold/silver smashing and announcements of great rises in GDP coming in the near future. The beatings will continue until morale improves.

      Delete
  10. Hey Mark??
    I need some advanced training on Keynes theories. Can you help ease my brain some. Ok, here is the question. How does the $190 Billion dollar loss on the Feds $1.8Trillion dollar Bond portfolio not matter? Is it ...The will never be sold so there will never be a loss? or... It is only a short term phenomenon so when GDP skyrockets it will bring down the yield on the 10 year thus eliminate any worries on the rise in yields? OR Santa Claus will bring the Federal Reserve a gift in the form of bags of money that they can use to pay down the deficit thereby decreasing the yield?

    I know you know how the Magnificent Ben, or Larry, or Janet will pull this rabbit out of the hat. Certainly us conservatives think the Fed has run out of rope and pain is right around the corner for most of the US.

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  11. I like your last sentence. It's sickening to watch the pure bs that comes out of this government and its complicit media day after day. Think about it.... after what we know about these people - IRS targeting political opponents scandal, DOJ tapping reporters scandal, Benghazi, Liborgate, Fast and Furious - is it really crazy to think that these people are also rigging currency, bond, and commodity markets? The pending question is then that in a world where truth is treason, when do we finally meet reality?

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  12. Adam,

    My biggest fears:
    Are our young soldiers who are mercilessly sacrificed in the name of Red, White and Blue for wars that are meaningless just because we do not want to harvest our own natural gas?
    Did they really take down the chopper Seal Team 6 to silence them?
    2) Is there a great explosion about to hit so that every American who paid into his SS fund for the last (me) 39 years going to be trashed?
    3)Will we really go Cypress because they need to steal every bit of American money in the name of saving the US Banking System?

    I mean how stupid do you think we Americans are? I guess they control the press, have dumbed down Americans for years and now they are desperate. Take Care Adam. Really, I hope you own a car that cannot be taken over. I also hope you own some strong firing power.

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  13. Hi Dan, thanks so much for the silver chart update, the way it looks right now, many other traders wouldn't give it the time of day! And thanks to everyone else for all the interesting comments, I learn a lot from yous.
    Today I learned silver was the same price 12,298 days ago!(thanks to endless-mountain)
    This seems crazy to me!?? The Dow 'INDUSTRIAL' average surges to new highs!!!....silver plummets. A Crisis happens!!.. silver plummets....so much for safe haven with gold?? I can tell there is something going on behind the scenes but it is so hard to tell with all the "willies, manerinos, maxs', etc etc on the net with all great info but....it's great to see some hard work here on the charts to see real time price action crystallized in the charts!
    I learned the hard way I have a long way to go to have any success at trading! I'm not going to give up though and I do get the feeling that silver is a sleeping giant! I'm leaning towards so called stacking as I am hesitant to use the ETFs etc. as I think that the system is so corrupt and rigged and broken!
    For me I like the history around gold and silver. some of the best advice I get about gold and silver comes from my bible. I also am very intrigued by JFK story and his silver backed currency.
    Well I know I am a different commenter on here but thought you all would like a different take on things?
    I think silver was allowed to rise to the highs of 2011 to give the impression of a bubble (without cracking 50) to squash the anticipated interest steming from QE. Also up here in Canada you have the RC mint offering silver PLATED coins (for obsene prices compared to silver content!) and silver coins with colors all over them and funny looking silver coins with jewels in them, - I think to give the public the idea that silver is only for odd collecting items not money!
    What do I know, I'm just a contractor with a zeal for silver!
    One thing I do know is 0% of my friends and family have any interest for silver whatsoever or the markets for that matter, BUT some of my clients and co-workers/peers are starting to catch on to the goings ons in the markets! I just picked up a 100 oz. bar of silver for a friend!

    Hi Ho Silver!

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