Here is all one needs to know to explain why gold did what it did today:
The new home sales number showed the steepest drop in three years! Any questions?
What that translated to is very simple - Death to the Tapering! Long Live the QE Kings!
If that rotten July number was not bad enough, the insult to injury was the downward revision to the June number.
My view on this is simple - I have been posting charts of the Ten Year Treasury Note yield for some time now and have been remarking that it keeps pushing higher and higher and is closing in on that 3% mark. There is no way that rising interest rates in an environment in which salaries/wages are stagnant and job creation consists mainly of part time jobs is NOT GOING TO IMPACT HOUSING SALES.
I feel like I have been beating a dead horse but I repeat - the FED cannot be pleased with what has been going on in the Treasury markets because this entire phony "recovery" is predicated on one thing and one thing alone - CHEAP MONEY. Take that away and there is nothing else to support it.
The other side note to this is that these rising rates are going to significantly impact the US Federal Governments borrowing costs. When the national debt is over $17 trillion-gazillion-bazillion-whatever, and rising, even small rises in interest rates will have a significant impact to the nation's bottom line.
Bottom line - rising interest rates are a pox on the nation and on the economy and the Fed knows it.
Take a look at the Homebuilders' ETF. It is on course to close below its 50 week moving average even though it is valiantly trying to remain above it. The shorter dated moving averages have already turned lower indicating that the short term trend is down. I am monitoring this to see if we get any bearish downside crossovers of that 50 week. Either way, this sector is not particularly friendly on the charts.
It was easy to see that for today, the bonds were the beneficiary of buying related to no end to the QE bond buying program. When that housing number hit the market, they never looked back erasing all of this week's earlier losses and then some. The yield on the Ten Year backed down towards 2.81% after peaking near 2.92% this week. A collective sigh of relief along with a great deal of backslapping and hi- Fives was heard at the offices of the Fed.
Gold is right on the door of the psychological $1400 level in the aftermarket today. The December contract has missed that number by a mere $.10 as I type these comments.
Silver pushed up through $24 and looks very strong heading into next week as well. It looks to have very little in the way of impediments until it nears $24.70. If it clears that, silver could get quite exciting, very quickly. It will be interesting to see if it can hold above $24 as it goes out here on Friday afternoon. There are sellers around at that level as well as the $1400 level in gold.
The US Dollar was undercut by the weak housing number as it lost any gains it had against most of the majors with the exception of the Yen (barely) and the Pound (barely). The forex markets are ultra sensitive to any news whatsoever right now that they regard as potentially impacting Federal Reserve policy. Thus, we will continue to see more volatility and unpredictable price swings upon the release of each bit of economic data. I for one have sworn off trading the currencies until I see something more definitive as far as a trend goes. I am not a masochist and will leave them to others who are more tolerant of ulcers and other stomach wrenching maladies.
The HUI still needs to clear 280 on a weekly closing basis to kick the mining shares into a stronger uptrend. Price action has been very constructive but there remains work to be done on that price chart to dispel any doubts.
Today was one of those days in which it was hard to find any commodity that moved lower. Cattle did but they have been so bullish of late that I can understand them not participating in the buying orgy today. Soybean traders have effectively managed to kill the crop once again, as they do every single year without exception. First it was too cold and too wet; then it was too hot, then it was too cool and the crop was lagging and needed heat to mature. Now that it has turned hot, it is too hot and too dry so it is time to kill all the beans once again. If you think gold and silver are nuts, try beans. They are worse especially when the mindless machines are buying.
Sharply rising soybean prices which are oftentime viewed as a proxy for food prices by some, tend to feed into silver buying on the thoughts of an inflation play. Remember, silver will outperform gold to the upside when inflation fears are dominant.
Personally I think the funds are driving soybean prices to ridiculous levels as all they are managing to do is to destroy foreign export demand for our beans at current levels. Old habits die hard in the commodity markets however and the combination of two words, "hot" and "dry" is all that is needed to spark a wave of short covering and more buying. We are not going to run out of beans anytime soon with those massive S American crops and even if this year's crop does get smaller from previous projections, there are more than ample supplies of soybeans that are going to be around. Wait until the combines start rolling...
Maybe silver can take out chart resistance before that happens. We'll see. I will be talking about this on the KWN Weekly Metals Wrap so tune in to listen to my comments. I will get some price charts up later this afternoon as my schedule permits.
By the way, J P Morgan continues to stand for delivery in gold. They have taken the lion's share of all deliveries this month.
"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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