“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, October 18, 2013

No follow through for Gold

Once again gold reminded us all of the serious obstacles it faces in generating any widespread interest outside of the usual circles comprised of gold bugs and other die hard fans of the metal. It puts on a spectacular upside spectacle one day and the next it just seems to wither up and die. That is what happens when you get a sharp burst of short covering - violent moves higher which quickly run their course - that cannot attract any follow through momentum based buying but instead runs into another round of eager sellers.

In other words, the metal is still stuck in a trading range unable to break out either way with much conviction. I think this goes to the point of what I have been saying of late - until or unless we see some sort of event/events which precipitate a change in the CONFIDENCE of the global investment community towards the monetary authorities and/or political leaders, rallies in the metal are going to be viewed as selling opportunities. Why? Because the investment community is convinced, absolutely, that there is no inflation nor will there be any for the foreseeable future.

Need proof of this - see the following chart (again - for the umpteenth time). Commodity prices are relatively stable and have been for some time now. If anything, the sector has a slightly negative bias to its chart as the index has been slowly grinding lower the last two years now.  This is the reason gold, and especially silver, are going nowhere. The momentum based crowd is not interested in chasing prices higher nor will they be until or unless there is solid evidence that the "BUY TANGIBLES" theme is back in vogue.




Much of this will depend on what the fortunes of the US Dollar are over through the end of the year. The dollar is weak but has not completely broken through technical chart support. I would only become concerned about the Dollar if it were to first mount a WEEKLY CLOSE below the 79 level but more so if it crashed through 78. That to me would indicate that a SHIFT IN SENTIMENT towards the greenback has indeed occurred. That would signal that LOSS of CONFIDENCE thing that I just mentioned. Should that take place, I do believe we would see a concern that inflation would result from the weakening currency and that would bring about the possibility of TANGIBLE asset buying once more on the part of the speculative community. That is simply not present right now.

What is present is the mania in US equities. This beats even the craze leading up to the 2000 fiasco if you ask me. The VIX or Volatility Index is plumbing multi-year lows as the S&P 500 pushes into one new record high after another. There is NO FEAR out there anywhere in sight. The only fear that I can see at this point is the FEAR OF MISSING OUT ON A MARKET THAT CAN NEVER STOP GOING HIGHER. Yes, indeed, the era of the never-ending bull market in stocks is firmly upon us.

Tell me something, how in the world is gold ever going to mount any sort of sustained move higher or generate the sustained buying (another way of saying the same thing) necessary to push it constantly upwards when the stock market makes one new high week after week  - This all the while the pundits and other talking heads assure us that stocks are still cheap! Who wants gold when you are guaranteed spectacular profits in a NO WAY YOU CAN LOSE MONEY scenario, all courtesy of the fools at the Federal Reserve who still cannot see a bubble if it walked up to them and slapped them across their clueless faces?


When even the perma bulls begin to say out loud what many of us have been saying for years now (this market is resistant to any bad news of any kind) you know you damn well have a mania taking place. The deal is however, that as a trader or shorter-term oriented investor, you have to put aside any reservations you have and go with the herd if you are going to make any money. All I can say however is that you had better be quick on the draw and be able to get the heck out of Dodge in a hurry if things turn sour. Until it does, enjoy the ride.

A quick look at the gold chart... This is a 4 hour chart. Notice the trading pattern - a broad range noted within the colored rectangles making support and resistance. Also notice that since the short covering burst higher yesterday on pretty good volume, that same volume just dried up as the price approached the top of the trading near $1330 - $1340. What that tells me is that speculators are not the least bit interested in chasing the price higher RIGHT NOW. For that to change, we will need to see something on the technical price chart where a overhead resistance levels gives way in convincing fashion. That will draw the momentum crowd into the long side. For now, they are either shorting the market or staying out of it altogether as they seek more profitable opportunities to deploy their massive capital firepower elsewhere.


One last thing - let me comment on something going around the web drawn from my friends over at GATA. This will probably not endear me to some but I feel it needs to be said as there is too much trading misinformation out there. It seems that some keep taking note of large sell orders hitting the gold market during relatively thin trading conditions taking price lower. This is made a big deal out of and offered as proof positive that some nefarious powers want to break gold lower in order to discredit the metal and is thus part of the manipulation scheme.

Let me first and foremost note that I firmly believe the powers that be here in the West carefully monitor the gold price and that they are active through the bullion banks to try to keep the metal under wraps and prevent it from careening higher. However, and this is key - this occurs during times when gold is in a strong, sustained uptrend especially when bullish enthusiasm and excitement is at its best. Gold does compete with the US Dollar and thus it is important that anything that tends to undermine confidence in that Dollar or more specifically in the political and monetary leaders of the US be kept under wraps as much as is possible.

That being said, when gold is moving lower, the bullion banks are generally buyers, not sellers. The sellers are hedge funds and other large speculators. Just take a look at the Commitment of Traders report if you doubt that. Here is a good question for those who keep incorrectly pointing to these large sell orders as evidence that the culprits (whom they always equate to the bullion banks/government ) are deliberately suppressing the price of gold - how come we never hear a peep out of you when the gold price is shooting sharply higher with massive buy orders driving up through series after series of previously placed stop loss orders?  Where is it written that the price can only be driven downward by some nefarious force seeking to maximize their trading profits? Can there not be those large capitalized traders who seek to push a market sharply higher and inflict the maximum amount of pain possible to short sellers when they spot market conditions that permit this?


Look, I trade a host of markets nearly round the clock and I can tell you point blank that in many of the markets I trade, especially the grains and the livestock markets, during the early morning hours here in the US, all manner of crap takes place. I have lost track of the number of times that some hedge fund or large spec has come in and jammed prices higher or lower, depending on which way there were positioned and then waited for the stops to get set off in order to make a quick killing. Every entity that pulls this sort of stunt is of course picking an opportune time in which to maximize the impact of their order placement. There is nothing the least bit out of the ordinary about this, even if one happens to believe it is certainly unethical as I do. ( I believe the exchanges' decisions to move to 24 hour round-the-clock trading in some markets was a huge mistake as it lends itself to this sort of legalized theft).

Gold therefore is no exception to this nor is there any reason for me to believe that anything occurring in there recently is anything out of the ordinary. Hedge funds, whom I believe have destroyed the integrity of our markets, are a like a plague of locusts that have descended upon us as they shove markets all over the place, many times without rhyme or reason. They are not the least bit interested in maximizing a selling price - they are interested in pushing price in the direction in which they are positioned.

Also, keep in mind that once upon a time, in a galaxy far, far away, large sellers or large buyers went about their business in as quiet and sophisticated method as was possible. They tried to hide their large sells or large buys so as not to alert other traders to what they were doing and thereby get in or get out before the herd came along. Those that followed such skilled practices are for the most part, long gone, dead or retired. The modern hedge fund has a computer that replaces the brains of the trader and it is programmed to sell a certain amount or buy a certain amount of contracts without regard to its impact on most occasions. In other words, they are brutally clumsy because the idea is to simply get out and get out FIRST before the next guy. Why wait and try to be sly about it when the entire trading strategy consists of responding to whatever the last price tic happens to be?

How I view this gold market right now then is that hedge funds, while still net long the market, have been increasingly interested in playing gold from the short side. That means they will be selling rallies or seeking to knock price lower when they feel like they can do so and have the greatest impact on price. What is necessary to prevent gold from succumbing to their selling then is for those who are interested in buying the metal to come in and make their presence felt with the same gusto/determination that the short sellers are exhibiting. If and when they do, we can pick that up on the price chart as it shows up as a SUPPORT level. If their buying is sufficiently large enough, they can force the price higher and in turn pick off the buy stops of other short sellers and turn the tables on them. That is what happened yesterday.

Let's see what next week brings to us and whether or not gold resumes its range trade and heads lower or if bulls can chase it higher and up and out of the top of that trading band.


21 comments:

  1. There are 2 million reasons why gold can't mount a comeback and it was evidenced last week.
    Come on Dan. Discuss the Fed trouncing any possible gold or silver comeback with it's sole objective.... to keep people from thinking that the metals are a safe place to keep their money.

    ReplyDelete
    Replies
    1. twippers;

      I have just discussed my views on the gold manipulation issue. The bullion banks are buyers of gold at the present; hedge funds are selling. JP Morgan continues to stand for delivery on Comex gold. They are picking up the metal that the hedge funds are throwing away. That is a fact and is not open to debate or dispute, whether you agree with it or not my friend.

      Also, look at the gold ETF, GLD - what more proof do you need to see that Western based investment entities ( hedge funds, etc.) are not buying gold? The thing continues to disgorge large quantities of the metal and has been doing so non-stop for many months.

      Your problem is that you cannot see the obvious because your theory has blinded you to the reality of the current time. When/if gold actually does shift back into vogue and the ETF begins to show increases in the metal holdings, then the bullion banks will go back to the work on the short side. Then you and I will be in agreement about the efforts to suppress the price.

      It is really simple - until the global investment community becomes convinced that inflation is a serious issue - they are not going to leave the stock market to go put risk capital into gold or any other commodity for that matter in a large way. Why should they when they can make 5% nearly every single month if not more by being in equities?

      That is why I keep trying to educate folks about the Commodity sector indices. They are moving lower; not higher. When they flip and the trend shifts to one of a bullish nature, then and only then will gold move higher. It does not need any supposed Fed selling to push it lower right now. Speculative forces are doing that just fine and dandy by themselves right now.

      Delete
    2. Always enjoy listening or reading you Dan. This was a good piece. I do disagree however with your take on manipulation.

      Why would anyone massively short gold going into a dedt ceiling and budget crisis when historically gold has rocketed upward in the same situation?

      Why short gold on the announcment of dove Yellen?
      Why sell huge contracts when no one is buying?

      The answer to me is obvious and BTW has worked. To break the spirit of the investors. Taking gold down as you suggested in the middle of a rally would accomplish nothing. Who would even notice? There is a far greater negative affect to smashing gold after the fact when the bulls are getting ready to buy more.

      Do you really think the Govt. wants you to empty your bank account and buy gold at a time like now? That is the last thing they want.

      Their strategy has worked to a tee as everyone's including yours spirit has been broken. I look for this to end soon.

      Cheers!

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    3. Dan,

      Not to sound all conspiracy theory, but is it not possible the hedge funds you speak of are also Fed-backed entities. Remember, the ESF is LOOSELY regulated and has a job of stabilizing markets (That is OFFICIAL explanation from the Congress AND Treasury/Fed). Whether they use, bullion banks OR hedge funds really doesn't matter... should the Fed ONLY use bullion banks to do their bidding, it would be way too obvious. They have UNLIMITED funds at their disposal, unlimited supply (paper), and have no LEGAL limits to their "SECRECY/CAUTION".

      Delete
    4. Got it Right;

      Thanks for the comments.

      Here is something for you to consider as a rebuttal however - nearly every single commodity market here in the US moved lower on the news of the government shutdown, most importantly, the CRUDE OIL market and the liquid energies. Why was that? Answer because traders rightly feared the DEFLATIONARY impact of lots of furloughed government workers with no paychecks. Also, private businesses with government contracts, did not get paid and thus in many cases either had to borrow money to pay salaries or deferred payments depending on the state of their own finances.

      If crude oil was sinking rapidly, that is certainly not an inflationary event nor does it do the least thing as far as changing inflation expectations. If anything, it kills those expectations.

      Now, why would gold mount a rally in the face of such deflationary events? Answer - it won't nor could it be expected to be. ONLY if the shutdown moved into a stage where there were genuine and legitimate fears of the US defaulting on its interest payments. I personally never bought into that theory because there are sufficient revenues coming into the Treasury each and every week to more than cover interest payments on the national debt.

      That is why I do not subscribe to your notion that this recent move lower in gold during this time had anything to do with a supposed government sponsored take down of the gold price so as to discredit the metal. It just flies in the face of common sense and of trader sentiment.

      Gold needs an inflationary environment in which to move higher. One with negative real interest rates and a growing loss of confidence in the monetary and political leaders. When we get that, you will not have to worry about gold moving lower. It will then move higher; government resistance or not.

      The key for gold is CONFIDENCE. Right now the soaring stock markets have investment flows headed into that sector and not into gold. It really is that simple. Things always change however and that will too. We will recognize it when it does.

      Delete
    5. Dan ironically this comes out today which supports my comments on the weekend.

      http://rt.com/op-edge/us-debt-gold-price-threats-481/

      Delete
    6. Got it Right;

      The theory contained in this article depends entirely on the premise that a US default on interest payments was threatened by the shutdown of the government and the failure to raise the borrowing limit. I have already refuted that fallacy once but for the last time will do so again...

      There was never the least bit of danger that the US would default on any interest payments due on the national debt. Why? because the government takes in more than enough money to service the interest payments. It is a matter of prioritizing.

      Hell, even the House Republicans approved a bill that they sent over to Harry Reid's graveyard, aka, the Senate, called the Full Faith and Credit Act...

      http://beta.congress.gov/bill/113th/house-bill/807

      I am a believer in the idea that the feds work to suppress the gold price but the kind of utter crap and nonsense coming out of the camp of those who also support this view has just about pissed me off enough to recant it. There is way too much simplistic nonsense written by people who do not have the faintest idea about trading or how our modern markets work nowadays.

      Engdahl was the same dipstick who once wrote about the terrible calamity known as the Swine Flu and how that was going to become a near biblical plague. As a hog trader I knew he was full of crap back then and remains so today.

      Gold will not move higher unless there is a loss of confidence. Repeat this enough so that you can finally understand it please.

      Dan

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    7. I agree 100% with your last comment that gold needs a loss of confidence to move from here NOW. My point was that it already should be at much higher levels ($1550-1600) but isn't because the powers that be have executed perfect psychological warfare for almost a year.

      Smashes always take place just prior to or after a gold friendly events. That is what made it so easy for me to predict. It was like clockwork. The article simply points out the motivation.

      We're on the same side Dan and I enjoy your work and comments. Manipulation is a touchy subject because it means you can take charts and throw them in the garbage. Kinda like religion and politics and healthcare (i'm Canadian BTW) very sensitive.

      Cheers!

      Delete
  2. Today is a bad day to measure anything gold since it's the option expiry day and even in the uptrend, a third Friday is usually a loser for gold stocks which are often led down by gold. IMO next week will be more telling if gold can push higher or will it get smacked down again and the tight range has to resolve itself fairly quickly. At present it still looks like it might see 1200 before it sees 1400 but again no one really knows when the tide will turn.

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  3. Hi Dan,

    Thanks very much for your detailed comments.
    imho you are spot on just as Eric de Groot, who has an interesting approach of intermarket analysis and concentration of the market necessary before a technical trigger.
    As you mentioned, SP is in bubble territory...but such bubbles can lead the market to extreme concentration levels before exploding, i.e SP can go even much higher before the collapse happens.

    I'm not sure that gold would rallye pretty much should USD weaken vs USDX basket of currencies...because that would mean USD weak against other fiat currencies, so an arbitrage from fiat to fiat...I imagine more that USDX may remain somehow in a range but that this "event" we are expecting will make gold go stronger against all fiat, including euro, yen, even swiss franc. There must be no fiat safe haven nowadays for gold to rallye, it seems.

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  4. Honnestly, the big rallye last day improved the bull's perspective quite a bit.
    The last daily candles are not bad at all...
    It was a one day short covering, sure enough, and we couldn't break immediately 1330 on a friday, but I don't know, I feel this could be a nice point to start rallying back towards 1400 $.
    Here is a 3day candle chart, if I look at the Bollinger, and at the Cdur which is oversold, rather indicating that on this time unit, there is not much fuel left for further drop, I think there is a possibility that we break the above resistances and get back into this wider range between 1280 and 1400+ once again.
    I still consider the possibility of 1000 $, etc...but one has to take into account that we closed the week above 1300 $ anyway, and that there has been a nice repulse higher from the 1270 $ area, when most were expecting a continuation of the bear trend towards 1240-1230 and below.
    So...I'm actually considering going bull with a target of 1400.
    Have a nice weekend,

    http://i40.tinypic.com/15i4xme.jpg

    ReplyDelete
  5. A few more précisions.

    1) on a 2 week time unit, we finish on a not too ugly candle with a long downleg, and the Bollinger Bands may at last enter Phase 4 (contraction), with the inf Bollinger Band at the same level as the long term uptrend support for gold, in the area of the last lows. That would give a net of supports in that area which improves the likelihood that 1180 is indeed the bottom of this downtrend, and it would be hard to be breached.

    2) on the 3day scale time unit, the volatility is decreasing, and prices cannot beat the Bollinger Bands anymore. Before, prices were going below the bands, but not any more, up nor down, with bands quite parallel now. To me it seems to say that gold is now in a large range between 1260 and 1420 where prices can wildly oscillate, but without really a strong trend, up or down. That makes those who want to read a strong trend crazy, whether they think gold is headed towards 1000 or towards 3500. Right now I'd say that odds seem to favor the Bollinger Bands to hold, i.e the range to endure between 1260 and 1420.

    3) on a daily time unit, the last candles are nice, and may actually favor the short term breaking through of the upper résistances, with prices heading back towards 1420, making bears crazy in the range, after having made bulls crazy just before. Because of the 3day time unit, I'd favor a ping pong of prices within the range, therefore logically a race to 1420 $, especially with the "strong" latest candles on the daily time unit.

    But then, where to get into the mqrket? Now, just Under a resistance?
    Bof...
    I think I will wait for a retracement pull back towards 1300 $ area.
    If it occurs, and if 1300 holds, I think I'll try a long towards 1400+.
    Indeed, 1300 is not only a psychological level, but also the middle of the strong up marubozu of thursday. If it holds, it will be the reverse of a "ligne de poussee" for the bulls, which will favor the bounce even more.
    So...probably somthing like watching a pullback to 1300, and if it holds, long, target 1400+ and stop loss 1290 like.

    Have a nice weekend,

    ReplyDelete
  6. Is it possible for a trader or larger trading entity to spread their trading around the world ?

    For example, to be long in the US (which presumably is picked up on the CoT report) and short in London or Hong Kong ?

    In other words, does the CoT report show the true positions of worldwide 'players' ?

    ReplyDelete
    Replies
    1. Cop Watcher;

      Yes, it is not only possible, it is most probable. Large, sophisticated trading firms employ spread positions all the time and leg into and out of the same.

      the COT therefore only shows positioning in the Comex gold markets but not elsewhere.

      Spread trading requires very good understanding of the markets in which it is employed and the ability to rapidly alter one's positioning adjusting ratios and size at the drop of a hat.

      Delete
  7. Excellent analysis Dan.

    Hilarious how the armchair anarchists always blame "The Powers That Be" knocking down the bullion price, or its always the nameless, faceless "Central Planners" responsible for these bear raids.

    The fact is this.

    Nobody wants t have any capital tied up in gold when names like Google and Chipotle shoot up 12% in a single day.

    Most likely, its some hedge fund holding a small position in gold that is dumping it all at once because they are tired of sitting around with dead money and they want to put it to work.

    And all of those who say we are on the verge of a "Frightening Collapse, Any Minute Now!" must be delusional, with IWM trading at world record highs, no relative weakness in financials, zero inflation expectations, and ultra-cheap interest rates.

    Ben Bernanke has engineered the greatest "Green Shoots" environment for stocks ever recorded in modern history.

    ReplyDelete
    Replies
    1. Nobody? I hold a substantial amount of capital in physical gold. Do I count? Or are you implying that "nobody but an idiot" would have capital tied up in gold? That's alright, we're all entitled to our opinions. My opinion of your commentary is currently on its way to the waste water treatment plant.

      Delete
  8. Does anyone remember when Obama said to buy stocks? I mean Obama came out and clearly said: "Buy stocks!" That was when the market took the dump in 2009. Now they aren't saying a whole lot. I'm looking forward to trying to get some kind of read off this Janet Yellen. Can't wait to hear her speak at the next FOMC. One thing is certain to me and that is this market is not going sideways. It's either going way up or way down or it will increase in these unstable oscillations.

    It will be interesting to see some stocks go to $2,000 without forward splits. What happened to forward splits? GOOG, AAPL, CMG, PCLN, NFLX, LNKD, etc. all moving up nicely. These are a whole lot more attractive than the usual higher dividend stocks. The days of investing in IBM, PM, MO, DIS, and GE might be finished. This new TECH BOOM with FB, GOOG, AAPL, and the upcoming Twitter is making the "dot com boom" look like nothing at all.

    Someone needs to do an article or COMMENT titled "How to invest ahead of Hillary Clinton's election." That's the next item on the list. All the rest of the market news whether it be rumors of war, economic implosion, dollar destruction, FEMA CAMPS, gun confiscation, and any other ghost story are all useless noise.

    But there is one topic not well discussed with this alternative media crowd and that is this Clinton Global Initiative. Just what really is this Clinton Global Initiative? Should we be constructing some bunkers after all complete with all survival items? Perhaps Americans really should start stacking physical gold and silver?

    ReplyDelete
  9. ONE MORE QUESTION FOR THE SAVVY, SMART, and SUBTLE investors:

    Have you noticed how these stocks having to do with GUNS and AMMUNITION are doing? They are kind of a little sector of their own:

    RGR, SWHC, and OLN are the main ones. I notice Gander Mountain went private after doing well and CAB is quite a mover. I'm not sure if you can include TASR in this but it might be related.

    Walmart is bring a whole line of guns back into their sporting goods including the military style assault weapons and tactical shotguns. The ammunition sales is still being limited per customer but there's no shortage of it. Each day the shelves are cleared off at my local Walmart and then overnight they replenished again with new boxes. For some reason they are just rationing ammunition sales but the prices are holding steady. There is even a whole new bunch of ammunition geared toward "self defense" even with phrases like "STOP THE THREAT!" on the box.

    It's really weird how Walmart cleared out the guns after Sandy Hook and a few shootings and now they are coming back with an absolute vengeance in products. I suppose they will clear out the carousels again at the first sign of another shooting. Not sure what the next scene in the political theater is. Any ideas?

    ReplyDelete
  10. Negative GOFO + High Open Interest in Shanghai Metals Exchange = High Gold Premiums in the East.


    Step 1.
    Bullion Banks smash the price with the COMEX paper game and initiate downtrend momentum.

    Step 2.
    Weak hands offload GLD shares and the banks buy them up and redeem them for Physical Gold (hence the 30% bleed in gold holdings at the ETF).

    Step 3.
    Ship the Physical Gold to Asia and pocket the spread; between $30 to $80 per ounce.

    China+India+CBs are buying gold, more that is being mined anually yet price keeps falling, until all weak hands are purged from GLD and then gold price will rapidly snap back.

    ReplyDelete
  11. China and India are buying gold for the new currency. In the past (Great Depression and prior), BOTH countries were running around with devalued silver. Bank of England devalued Silver from $1.39 to $.445, and put a hurting on those countries. India was on a quasi gold standard, but only because they were OWNED by England.

    Now, they are buying hand over fist, and will emerge from this better than most. I am not so sure they are deals being brokered by all nations involved...

    ReplyDelete

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