"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 free work will soon be available at www.traderdan.biz

Thursday, August 8, 2013

China, China and more China

Is Gold the Bull in the China Closet? I ask that silly question merely because it sounded catchy. Seriously, the big news today was the ENORMOUS SUPRISE coming out of the Chinese Export/Import Data. It caught everyone by complete surprise especially with all the recent talk about the Chinese authorities mandating production cutbacks to deal with what they regard as an oversupply and excessive product output. When was that - a week ago? - then it had everyone in a panic and totally pulled the rug out from beneath the base/industrial metals. Today, it is the exact opposite. Now the base/industrial metals are flying higher, along with gold. Tomorrow - who the hell knows what to expect out of that nation?

Either way, for today, the news of the gigantic surge in imports sent silver and copper higher with gold getting pulled alongside them both. Also helping gold was the rise in jobless claims fanning talk that the TAPERING is back off. Yesterday it was back on thanks to Plosser. Today it is dead.

"Long live the Tapering!".  "Death to the Tapering!" "Long live the Tapering!". " Death to the Tapering!". and on and on and on and on and on it goes.

As if we did not have enough confusion already in these markets with the contradictory statements coming out of the various Fed governors and the bizarre, often polar opposite pieces of economic data coming out of the US, now we have to deal with a BI-POLAR China. So which is it sirs - are you ordering your mandatory production cutbacks or not?

My suspicions on that big import number from China is that the Chinese are stockpiling and picking up materials at these lower costs. The Chinese are masters are acquiring replacements for their national stockpiles when prices are cheap. That does not mean they intend to use them anytime soon. It merely means that they have the storage capability to hold these in reserve and release them in the event of any shortage as they can then alleviate rising prices. My own view therefore is that the import numbers are due to strategic acquisitions and not for immediate consumption. We'll see if this is another one of those ONE DAY wonders or something more lasting.

Chatter in the gold pit was that the Chinese data means more gold buying from China which by the way is on course to supplant India as the world's largest buyer of gold. Again, we'll see if we get the kind of sustained physical offtake out of Asia to counter the continued investment-related selling of gold over here in the West.

Bulls have managed to stave off a deeper price setback by taking price back above the important $1280 chart level of support and thus returning the metal to within its recent trading range. Helping their cause has been the rally in the HUI/miners which are also exhibiting schizophrenic type behavior of late. Sharp plunges down 6% on day, followed by a rise a couple of days later of over 5%. Trading these things is something best left to those who are masochists and self-flagellators.

Note on the gold chart that the market has merely rallied back up into the recent zone that has contained the range trade for some time now. It is a nice recovery off the support zone after briefly plunging through that level so the bulls have bought themselves some time but they still need to clear that downtrending 50 day moving average AND take the price out above the TOP of the range if they are going to spook any of the deeper-pocketed shorts.

The ADX still is moving lower indicating the lack of any clear direction.

It is the Dollar however that is setting the tone for gold as it is getting beaten up against the majors today in a big way. There is a band of support near the 80.50 level on the USDX chart that looks like a magnet right now. Apparently, the world, having fallen in love with the Dollar due to the rising interest rate environment and its one way stock market, is having thoughts of a trial separation due to incompatible differences.

Big news in the cattle market today as Tyson announces that it will no longer accept cattle finished up on Zilmax. That has sent the industry into convulsions this AM. Tyson claims it is an animal welfare issue but that is more than likely a smoke screen to endear itself with the animal rights people and the Politically correct crowd. My own feeling, and that of some others, is that it is a ploy to gain additional overseas export business at the expense of some other packers. Tyson may endear themselves to PETA but they do so at the expense of angering the entire cattle industry, which is the folks who raise the cattle that they put down for meat. All I can say is that Tyson had better be prepared to put higher cash on the table for these cattle in the future to compensate their producers for the higher costs and lower per head profits that they are now going to have to face thanks to this idiotic decision.

Crude is getting hit quite hard today and is down nearly 2% as I type these comments as it works closer to the $100/barrel level. The recent rally in crude up towards $110 had me as a big skeptic, Egypt, Syria, etc., notwithstanding, because my view is that the US economy is far too weak to support higher energy prices associated with crude at those levels. When you get a payrolls number like we got last week and then you get another confirmation of a pathetic jobs market like we got this morning, just who in the hell is supposed to be able to afford to pay these kinds of prices for unleaded gasoline and maintain demand at sufficiently high levels to justify them up here?

This is why I maintain that it is the US Dollar that is the main driver behind gold today with some help from the base metals. Look, we are seeing crude oil breaking down on its chart and we are seeing the grains moving lower (except for today) meaning food and energy costs are mostly going down (yes, there are some exceptions but I am speaking mainly in generalities).. That means we have the possibility of lower energy costs, lower food costs all in combination with a jobs market that is going nowhere fast.

Where is the INCREASE in the VELOCITY OF MONEY going to come from to fuel the fires of inflation in that sort of environment? This is why I think we will need to see gold's focus almost entirely on the currency markets in order for it to generate sustained gains. It will not be inflation anytime soon in my view that will bring buying into gold. Instead - It will have to be a loss of confidence in the currencies.

Gold has recently been moving lower in terms of both the Yen and the Euro but it is moving higher in these terms today. It will be interesting to see whether or not this is a reversal of the recent trend lower and the start of something else or a one or two day event that fades. For now, the world is back in love with the Yen and the Euro as the shorts get squeezed out by the dealers.


  1. Thanks Dan,

    You take a complicated situation and explain it effortlessly. The tapering talk is the one that is hardest to figure. Bernanke makes the most dovish comments two weeks ago, confirmed last week in the Fomc minutes and still the taper is likely. Does that mean Bernanke is no longer in charge? Or what is it? A friend of mine who has friends in high places assured me they have to taper. And gold will fall most likely, perhaps between that time gold will rally. But when as you say it is based on lack of confidence in the currencies it seems unless it is catastrophic it will not hold. Thank you again Dan for your sage insights, you are like a war reporter from the frontlines.

  2. I still think we need a stronger economic recovery for gold to break out. Strong nominal GDP growth will push inflation higher and the bond market will really break. That creates the capital flows needed for alternative assets. It would also unleash the velocity of money and likely lead to an inflationary recession. What does the Fed do if the economy is recovering, wages are rising and interest rates soaring as investors puke out bonds that have a duration far higher than expected?

    Also, I can't stand this obsession with tapering and gold. Most of the current bull market was built without quantitative easing. The Fed last started hiking rates in June 2004 and it consistently hiked by 25 bps a meeting until June 2006 => $400 gold to $600 gold, a 50% gain in 2 years despite rates hiked from 2% to 6.25%? Why? The velocity of money paused in its now decade and a half long decline.

    If the Fed slows its endless purchases does that really signal deterioration for gold? Maybe for short-term traders, but the market doesn't seem to hold that theme for all that long. The gold market began selling off with QE3 and hasn't recovered. The correlation seems more happenstance with short-term catalysts than a true fundamental link. Let's see consumer credit ex student loans start really growing, then gold will move much higher.

  3. I also am sick and tired of tapering and in general anything and everything about various Fed mouthpieces giving interviews of late; of course the best of all time was the born loser Greenspan, who for younger readers had a company called Townsend-Greenspan, that could not throw rocks into the ocean from the beach and so that is why he became the panderer of all time beginning with the Nixon administration I believe ; changing gears, it is beautiful to hear how desperate the long and wrong bean and grain bulls are for them to start talking about an early frost when we have just gotten into Aug and they know that next Monday the numbers will bury them once again, as SA had a bin buster and so are we; that is all, steve in sparks

    1. Steve - short covering might have run its course in the Yen today....

    2. Dan; One would think so; if they close > today's highs, I take my medicine; steve in sparks

  4. Newmont Mining No. 1 % gainer on S & P 500 today.

    Up 9.25%. 90 minutes before the bell.

  5. Dan,
    mammalians feel pain and fear like we do. And there are many hints that they feel heartpain, too.
    If you ever had a pet, you should know by experience, that they have a soul.

    I'm no vegetarian, but every meat I eat, I eat with respect for the living thing and with the consciousness that it had to give his life for my pleasure. I think the minimum we should expect, is that the animals are treated and slaughtered in a HUMANE way. And if that costs more, then it must cost more. Eating less meat and more vegetables is not only good for them, but good for ourselfes, too.

    I want you to watch a short video:
    It's the story of a frightended foal with a broken heart.

    G√ľnther Aufhauser, Austria, a very successful manager and millionaire, one day quit the business, because he was seeing no sense in making even more money anymore and started "Gut Aiderbichl". A farm concept to give old or sick animals a home, but not like an animal home, but like a farm, where they have a natural environment. Today this great man is running over 20 farms from Austria over Germany to France, where old or sick animals find refugee and can have a peaceful end of their life.

    But for the frightened foal, living among the other young horses at an Aiderbichl farm, things didn't become any better.
    The foal was standing alone and sometimes refusing to eat. It clearly was sick.

    One day Aufhauser's team had the idea, that maybe it was suffering from heartpain: the missing mother, that was the problem. They began to investigate and indeed could find the mare!

    In this video you can witness their reunion.

    There is a german narrator, but the pictures and the sound how they react long before they can see each other, speak for itself.

    Germanic people, before becoming Christians, were famous for lving in harmony with their animals. This affinity to treating animals in a human way can be observed even today. There are worlds between the treatment of animals in mostly germanic countries, or in arabic, black or jewish societies.

    By watching this video your germanic soul will speak to you.
    This has nothing to do with political ideology! It simply has something to do, if we listen to our inner voice, telling us what is right or wrong or if we ignore it.


    1. endzeit;

      I am unaware of any serious or substantiated claim that the feed additive Zilmax causes any pain or suffering to cattle. It is fed only during the last month in the feed ration and increases feed conversion.

      I go into this with NPR radio with which I just now finished doing an interview that will be released tomorrow.

      Besides, there are other feed additives out there for use for cattle, none of which Tyson has refused to accept. Cargill has not chosen to follow suit and it is unclear whether the other packers will follow Tyson in this. I suspect they will not - if they do it will be because they are trying to compete for foreign export business not out of animal welfare reasons.

      Also, I personally know some cattle producers and hog producers and can you, as an unequivocal fact, they care FAR MORE about their animals' health and well-being than you or I do. Those animals are their livelihood and they are not going to do anything that might knowingly impact the health of those animals.

      and yes, I am a dog owner and a dog lover. That has nothing to do with this my friend. It is about fact over feelings in my view.

    2. My impression was, that you were argueing a more humane treatment of animals as unnecessary cost factor, of animals being only goods anyway. Thanks for the clarification.


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