China back in the News

China, China and more China... that pretty much sums up what the big mover was in today's session. Talk out of that region was that the Chinese officials were moving to drain liquidity from their system in order to combat what they view as rising inflation concerns. Then again, perhaps a better way of phrasing this is that the Chinese officials would not be acting to add liquidity and maybe adopting some modest measures to deal with monetary aggregates.

The big deal is evidently about housing prices which continue to soar.

Traders interpreted this as bearish for commodities in general, especially copper as well as silver. They also seemed to be in a mood to further sell down crude oil but that tied more to the release of the crude stocks data.

What is interesting is to see the equity markets actually finally finding something to use as a reason to sell. It just goes to further prove the theory that what is lifting equity markets globally is not fundamentals but rather liquidity pools being created by the world's Central Banks. Take that away or even dare to breathe the words that it might be slowed or withdrawn and today's move lower in equities is what we get.

This is why I believe those analysts and pundits who continue to pound the table on buying equities based on their quaint notion that "the economy continues to improve" are full of it. Take away this giant tidal wave of Central Bank supplied liquidity and the world equity markets will fall so low that they could play handball with a snake!

Either way, it got gold. Traders who had been long decided to book profits after the nice pop higher while some of the macro traders moved back in on the short side. Further aiding the bearish mood today was the sharp drop lower in the gold shares once again. I am looking at the screen as I type this and the HUI is down over 3%. It certainly makes one think twice about staying long the metal when they see this as it usually presages a drop lower in the gold price the following day. We'll see if that is the case this time once again.

Silver is actually not doing too bad considering the big move lower in copper (down over 2%) but once again if failed to extend past $23. It is managing thus far to hold above a chart resistance level near $22.50 but just barely. It needs to clear $23 with some gusto to get the momentum crowd interested in buying it. If traders start coming around to the view that China is deliberately attempting to slow things down over there, it is going to add another headwind to silver and copper which will make it tough for gold to extend higher as well, especially as crude oil continues on the weak side.

The standout exception to the general wave of commodity selling today was in the grains which are trading in their own little world right now as hedge funds and other large traders jerk those markets all over the place due to the enormity of the spread trades they are currently employing.

I will get a chart up later on today as I am dealing with a lot of time constraints right now... thanks for your patience.