"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


Wednesday, October 30, 2013

Gold Stuck in the Mud

I wanted to see how gold would settle today before commenting further. As stated in my earlier post, now that the big FOMC non-news event is out of the way, the market is selling the fact. If this is the best that gold can do, it is difficult for me to see what it is going to take to drive it up through resistance. It just hearkens back to the US Dollar as far as I am concerned. If that weakens, gold moves higher; if it strengthens, gold moves lower.

I can say this however, it is not helping the cause of gold to see crude oil going lower. That market has been a very reliable harbinger of shifts in trading sentiments in regards to inflation or the lack thereof. Swelling stocks of the black goo are indicating just how sluggish any "growth" is for the US economy. How inflationary pressures can be anticipated with energy costs moving lower, grains generally weaker and wages stagnant remains a mystery to me.

Now that the US Dollar has held at chart support, I would expect gold to weaken until the Dollar meets some overhead resistance. Could that happen as soon as tomorrow? Sure it could. You name it; just about anything can occur in these convoluted markets anymore.

All that this means is that we need to take each trading day as they come and try not to read too much into any one day's price action. If you get some follow  through from one day to the next, be pleasantly surprised and grateful for any sort of "good behavior" in the market because chances are it will be fleeting.

Here is the thing which continues to stand out for me. The speculative crowd continues to dishoard gold. As long as the reported gold holdings continue to plummet in the biggest gold ETF, GLD, I cannot be bullish towards gold. That does not mean I am necessarily wildly bearish; it simply means that a primary catalyst for a SUSTAINED MOVE HIGHER is not there. It leaves me more neutral until I see something which gives me reason to have a strong conviction in regards to short term price direction.

Here is the chart:

By the way, the CFTC is slowly updating the data for the Commitment of Traders data which was impacted by the recent government partial shutdown. It confirms the same thing that the above chart is showing, too wit, that speculators have recently been flirting more and more with playing gold from the short side. They are still net long but are adding more shorts than longs as well as liquidating some existing longs. This tells me that specs are still looking at rallies as opportunities to short the metal.
As of October 15, there was a one week shift of a whopping 22,000 contracts reduction in the net long exposure of the gigantic hedge funds. That reporting week period saw them adding 20,000 brand new shorts! That is absolutely astonishing.
I have gone back to look at the week in which gold dropped below $1200 in June of this year by way of comparison to see what they did in regards to their shorts. Guess what - this most recent week of data provided by the CFTC shows that the number of fresh short positions added by these hedge funds through October 15 has DWARFED the increase in hedge fund short positions added in a single week even when gold was imploding lower back in June of this year. These large powerful specs are selling gold with a vengeance, at least through Tuesday, October 15th!
That is why we get such fierce upmoves when gold rallies of late - it is this hedge fund short covering which is behind that.
Also, just some additional FYI stuff - the small spec crowd was selling gold heavily during that week of October 15th as well.
We should have the October 22 data before the end of the week and then we will have this Tuesday's (October 29) data very soon so that will bring us up to speed and back to normal.
I will say this however - that report of the week of October 15th is a real eye-opener! If the behavior of the hedge fund crowd back then is any indication of what they are doing this week, it is going to be very difficult for gold to rally.
That is why I keep saying that it needs a strong catalyst of some sort. Hedgies are selling and until that changes, it is going to take a grossly weaker Dollar to break it up and out past overhead chart resistance.
I would also like to make mention of the fact that I have been keeping an eye on the gold delivery process for the month of October. JP Morgan's HOUSE ACCOUNT has been a very big stopper again this month. They are buying and taking delivery.
That leads me to something that I need to say in order to deal with what I consider to be erroneous conclusions by some in the gold camp about a new buzz word - FLASH CRASH. (When it comes to gold it seems we are always dealing with the latest thing does it not? First is was Gold Forward Lease Rates, then BACKWARDATION, then this, then that and now it is apparently FLASH CRASHes which are all the rage.
Let's just state for the record, Morgan is buying gold and taking delivery. The COT report shows the Producer/User/Merchant category near their SMALLEST NET SHORT position in YEARS. Hedge Funds are adding shorts at a furious pace. Gold holdings in the ETF, GLD, are dropping like flies. So why in the world does the "gold cartel" need to waste time and effort supposedly dropping large sell orders on gold during the thin Asian trading session in an attempt to discredit it?
Answer - they don't. Specs are already using rallies to sell the metal.
I will say it again - the gold cartel does not attack gold when it is in a bearish trend which it currently is. They attack it when it is in a rising, bullish trend as they seek to slow its rise. During such times, the hedge funds are doing the buying and the bullion banks are doing the selling. Right now, the bullion banks are using selloffs to buy. Morgan is not taking long positions for its house accounts for no reason - they are taking delivery of the metal. How in the hell can they be the ones causing the FLASH CRASH if they are long and are standing for delivery?
Anyone who trades futures for a living as I do and has to sit here each and every night and watch the various markets like corn, soybeans, wheat, cattle, and hogs for example, undergo the various machinations that these damned hedge funds or large players inflict on them during the Asian session when there is so little liquidity,  knows from first hand experience how convoluted the price action can become at times. Large orders for that time of the evening, knock price around and drive it in the direction favored by those who have positions in place. Their plan is to take in into stops, either above or below the market and then set off a chain of buy or sells which they can use to profit from. It is all perfectly legal but in my opinion, completely unethical and disgusting. Yet, the exchanges seem more than willing to tolerate this sort of crap as long as they can collect the trade fees.
My beef is with the exchanges more so than those who commit this sort of legalized theft. It is all just chalked up to the "price discovery" process and tolerated. The best cure for this happens to be a big player on the other side who one day just eats their lunch and gives them a lesson that they will never forget.
For now however, let's forget about the idea of sellers trying to sell futures and maximize their selling price - those selling into thin market conditions are attempting to influence price by moving it in the direction they favor - Right now those are hedge funds or some other large players, not bullion banks. The only way this will stop is for another large player to stuff them. For that to occur, we need to see a shift in sentiment in regards to gold where another category of specs are eager buyers or any price weakness. So far we are not seeing that.
Remember, it is MOMENTUM BUYERS which drive our markets nowadays so before that crowd will enter in size, gold will need to clear the various chart hurtles that are necessary to get their attention and more importantly, the attention of their computers.
I leave you with this chart of Gold.... notice where it has run out of steam to the upside. It will have to clear this band of overhead resistance to run out some more shorts and to entice more new longs from the momentum crowd. The indicator is rolling over meaning that bulls need to step up quickly to avoid a setback lower in price.
A push past this week's high will be a big deal if it happens as it will allow price to test $1380 and perhaps as high as $1395 or so. If it fails to extend, support comes in first new $1340 - $1335, (It is near there as I type this) and then again down near $1320.
If the US Dollar index can clear 80, gold will drop to test $1320 in my view. If the Dollar fades and the Euro in particular can recapture 1.38, we should see gold strengthen. We are back to watching the gyrations in the Forex markets once again it would appear.


  1. Dan,
    Gold is dropping as we speak. I wonder where it will be tomorrow morning.

    1. If the bulls can ever make it go up as easily as the bears can make gold go down, we will be looking at numbers in the 1340 range as being "free".

  2. "the gold cartel does not attack gold when it is in a bearish trend which it currently is. "
    Really? Then who smacked the gold price down after no tapering news? It's not because gold cartel were wrong footed before the FOMC?

    "They attack it when it is in a rising, bullish trend as they seek to slow its rise. "
    Why? Generally, they sell during the rise. Why would they slow down the rise?

    1. Chaicewww I use to think like you when I followed the gold pumpers. What cartel? But now I know better after losing so much I gained, but still happy I got off easy compared to most. When a market is in a downtrend good news is bad and bad news is even worse. And yes this is clearly a classic buy the rumor and sell the news. Same thing happend last year when gold made it's final run from 1530 to just under 1800, then the fed accounced a DOUBLING in QE, and what did gold do??? It didn't budge cause it was already priced in, the market just NEW. And the downtrend into a crash started from there. While the amateurs hung onto continued QE, and high debt, and derivatives and all the other stuff pumpers sold them on they were too blind to see the trend change in the market. I think until gold touches to $1000 or somewhere there the trend will contiune to be down.

    2. Pardon the spelling errors above :)
      accounced = announced
      NEW = KNEW

  3. chalice;

    if you are asking a question and want to learn something, I can provide the answer- if you are interested in being a smart ass and blaming every bit of selling the gold market, you would do best to stay away from this site.

    I told you - Buy the Rumor; sell the fact. Any trader who has been around these markets for more than a little while understands how markets react to anticipated news. The bullish news was already baked into the cake. It would have required a bullish surprise which no one was expecting for gold to launch higher off of the FOMC news release.

    That is simply how markets act.

    If you want to argue that the move lower today was totally the result of price suppression by the gold cartel, you are at the wrong web site.

    Then again, if the points I made about the ETF, the COT, the deliveries, the smallest commercial net short position in years has not already taught you something, nothing else I can say is going to help you.

    I am always ready to teach those who are willing to learn but I do not have the time, inclination or patience to argue with Johnnie-One_notes.

    1. Dan - you need a 'like' button on comments! I'm contemplating adding to my short. Thought we may have blasted through to upper $1300-range on the FRB announcement so was holding off. I don't see anything driving gold higher for the time being. With gold unable to maintain $1350, l think that the bullish fizz will soon sparkle out. Enjoy your week!

    2. "Buy the Rumor; sell the fact"
      Exactly, and true about every single market!

      It is how the market reacts to news which is interesting, not the way you thought it should have reacted.
      Don't be convinced what the market should do and then blame it to manipulation. Just follow the market and adapt to it.
      Don't look for manipulation everywhere because it is the gold market. Why would "they" need to use ammo to suppress gold prices when hedge funds are already doing the job for them?
      Think that anyone in paper gold market, all speculators, all investors, can also make money by shorting the market provided that it goes down indeed. It's about profit, not evil dark forces everywhere; every single day, shooting at gold.

  4. Hello...thanks to Dan to share patiently and with details all those specific things about gold market.

    My comments will be purely technical.
    I'm not posting a chart today : I invite readers of this site to really make the effort to use a graphic chart free Platform as you can find everywhere, so that we can educate each other and talk from a common reference point. I can't imagine how one can try to guess price directions without watching any other indicators. Or then, you are a very experienced trader, and just as Luke Skywalker, you can hear Ben Kenobi's voice in your head urging you to switch off your instruments and follow the Force to pick the bottom and strike the Death Star.
    So my question is to everyone individually :
    Are you Luke Skywalker and do you believe in the Force to make a profit?
    If so, go on without any graphical Tools and blame it on manipulators if the market doesn't do what the Force told you.
    If not, please, find a graphical chart Platform. We will use a few simple indicators, I'll explain why I use them, Under Dan's control of course, and we can exchange together about the reliability.
    I still don't know why my bloody computer decides to put a big U every and each time I write the word Under, but that's the deepest mystery to me.

    Technically speaking, let's take the weekly time unit.
    The Bollinger Bands get closer and closer, and we see that indeed, volatility is decreasing. After the huge move down from 1800+ to 1200-, imho I think the market simply needs time and is looking for a consensus equilibrium price once more. Markets are moving like that. Please Dan correct me if I'm wrong. A big impulsion which doesn't last usually very long and moves prices strongly. Then a period of lower volatility where prices are getting into a new balance point and acccumulate energy for the next move. We are there now. There is no need to get excited about a big move in gold. Patience is required as long as this volatility is decreasing.
    Let's Watch the 3day time unit. Why such an exotic time unit that nobody is watching usually? I'm experimenting the tactic currently of looking for the time unit where the Bollinger Bands are in a RANGE. Because statistically, prices remain Inside the Bollinger Bands most of the time. When you trade, you like to have odds on your side. So a RANGE of the Bollinger Bands will most likely help you define the current "field" of the market in terms of price volatility and extremes. Now on the 3day time unit, I see a range between 1275 and 1400 +. It means that on that time unit, prices are likely to remain into that range, and it marks 1275-1280 as a likely support, same with 1400+ as a resistance.
    Now I don't know how other people trade, but I'm often using 3 TIME UNITS simultaneously. The upper time unit will be 4 to 5 times slower that the lower.
    Example : daily / weekly / monthly.

    My trading décisions are made in the middle time unit.
    Currently, this time unit is the 3day time unit. Which means I will probably do nothing as long as we are drifting Inside this range. I will be interested in watching prices if they get close to the Bollinger Bands or to another price graphical chart support / resistance on this time unit.
    THEN, I will try to validate this signal by checking both the upper and lower time units as well.

  5. Conclusion : I'm doing nothing for now :)
    Of course, if my units were instead : 4 hours / 1 hour / 15 minutes; and my trading décisions were on the 1 hour time unit, maybe I would trade differently, with different targets and different time horizons.
    It all dépends on the time unit you decide to trade, and this is very important.
    Most often on this site, I take for reference the Month / Week / Day units, and trade on the Weekly time decision (swing / investment perspective).

    If you want to trade gold or anything else, you must make the effort to learn the basics, be very humble about your supposed skills and with the market, and most of all imho, protect your capital and for that, learn when to get into the market, when not to get into it (most of the time!!) and where to put a stop loss (not too close, not too far...it's a real skill!). Trading is a difficult art and I admire those who dare to live only from it.
    Have a nice day,

    1. This comment has been removed by the author.

  6. OK, one chart today, to discuss with you from a different angle.
    It is on the Weekly time unit.
    What I'm trying to show here is what Andrews called a "Shakeout", which is a twice inability to reach the median of consecutive Andrews pitchforks.
    Then the theory warns about the probability of (in this example) prices going up way beyond the last pivot (here 1430).
    In the red circles, I put the two consecutive "refusals".
    I'm not used to trade based on this kind of signal, but this is a bullish long-term omen that I like to take into consideration.

  7. Just for the record (I have a bit of time today), I sold my half long position at 1340 and bought it back now at 1334 (lol what a gain...).
    I am still half long position bull on gold.
    I set a stop loss just around 1320 $.
    I have a buy order in the 1290 $ area.
    I just can't stand being shaken out of this half long position bull when I am neutral in this market. For now, I'm not losing, so it's ok :)
    My target is still 1400+ as you know.
    No idea what will happen, I see the next support area at 1327 $.

  8. Ouch... keep those hedges on. DX breaks 80 and the algos go wild, busting gold. This shows that gold is vulnerable. Interesting thing that stocks rose as dollar fell. look at a mid-June to present chart. Will that trend break as dollar rise again? foreigners have been buying stocks here as they see a relative bargain. Will this trend break, too?

  9. Looks like another "Frightening Crash" occurring at the COMEX, gold back under the 50-day again.

    Mining stocks will probably gap down and get destroyed today.

    1. Yes, 1360 to 1320 in hours and 2310 to 21.73 in hours does fit my idea of a frightening crash. What I don't get is, where is the other side? The gold bulls must have much higher sights in mind. After all, the market did trade above 1900. So this price here is free. So someone needs to step up to the plate. Period.

    2. The gold bulls bid it up and are now selling and taking profits, while the suckers are thinking this is a buying opportunity.

  10. Ben is a busy guy.
    Rally the dow and the dollar drops, rally the dollar the dow and bonds weaken. Crush gold and something else pops...do you like playing whack a mole Ben?

  11. Nasdaq nearly green, only a couple of bucks off 12 year highs.

    QQQ investors have been able to sleep like a baby the last 5 years.

    Never any worries about:

    - Taper vs. No Taper

    - Inflation vs. Deflation

    - Eurozone crises, Middle East crises

    - Weak GDP, terrible unemployment

    - Currency gyrations

    - Wildly oscillating oil prices

    - Fed speak mis-statements

    That is why stocks like Starbucks are trading at $80 at world record highs. Because of deflation, the $2.50 brownie they sell only cost them about 14 cents, where 3 years ago that same brownie probably cost 25 cents.

    Profit margins are mindblowing.

    Bernanke will go down as one of the most extraordinary figures of our time, being able to print $1 trillion per year, year over year, and the result is to create huge prosperity for stock investors without the ill effects of inflation.

    1. @mark - at what level did you buy into the Nasdaq composite?

  12. Mostly true Mark....however
    Taper vs no Taper - what do you think would happen to the Q's if in December our hero Ben announced an abrupt end to QE ? can we say crash ?
    The Fed's next move will be to put their Jack boots on the throats of the commodities.
    Although commodities have been flat or down the last two years just wait til you see what the Fed has in store for the future.
    Starbucks would rather see the cost of the Brownie at .02 cents so they can sell the Brownie for $2.49, the no inflation recovery is safe and sound.
    Farmers are about to get their asses handed to them on a Bernanke paper platter.
    How do you get more money into the pockets of the mindless American consumer? you give them ever more cheaper food and energy.
    How do you do that? you let the Fed sponsored dogs loose on a relentless short selling blood bath in oil, Ag etc.
    He who owns the printing press makes the rules.
    Ben may go down as a hero but America will become the most hated country on earth for generations.

  13. It is absolutely immoral to suggest what Mark is saying about Bernanke. To suggest he is doing a great job because of stockholders is so far out of touch with over ninety per cent of Americans who have seen their life saving squandered due to no interest on their savings. Ben will be remembered as a man who destroyed the savers in this country and rewarded the bankers and one per cent who brought the country to its knees. Mark I believe is kidding with his silly proclamations about Bernanke. But the fact that he does makes him and his posts here suspect on all his drivel from gold to Sbux.

  14. Anyone looking to load up on silver, ONLY 1.49 over spot! Better hurry before it runs out:


    1. Prophet - I thanked you for sharing a segment of the mmacycles piece a while back but I don't think you saw. Do you rate the guy/is the subscription worthwhile?


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