"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


Monday, November 18, 2013

Big Test Ahead for Gold

Gold continues to follow its recent pattern of experiencing a sharp move higher due almost entirely to short covering only to then consolidate a bit and sink lower once again. We have pointed out that hedge fund short positions are growing while their long positions are slowly being reduced. As more of these large speculators position on the short side of the market, it will be vulnerable to these short-duration rallies whenever any news comes out that can be construed as friendly towards the ongoing QE program. The flip side is that any news, such as what happened today, which can be construed as bringing about a Fed Tapering sooner rather than later, generates strong selling pressure in gold. These same hedge funds begin leaning on it once again, especially if it has popped higher and moved into a technical area of resistance on the price chart.

Gold's inability to garner much in the way of concerted buying today, in spite of general weakness in the US Dollar and some late session pressure in the S&P 500, has to be disconcerting if one is a gold bull. If gold for any reason, loses support down there at the region I have noted on the chart as "Key Support", it will be at $1220 before one can blink. Asian demand had better be strong is all that I can say.

Adding to its woes is another plunge in the price of crude oil as it broke below $93 barrel. As a matter of fact, this is the first time it has CLOSED before that pivotal level meaning odds favor another leg lower in this market. Keeping it somewhat supported is ideas that talks with Iran are going nowhere. If however, we do see some sort of agreement over there, look out for crude as that will bring Iranian supplies back onto the world market, a market already swimming in supply.

There was also weakness in nearby futures pits such as silver and copper. Cattle were pummeled lower today and hogs were also weak. Corn dropped over 2% in price as the apparent lowering of the ethanol mandate effectively undercut some of the demand from that commodity, a commodity which I might add, needs all the demand it is going to get seeing that we are looking for a record corn crop. The all-important feed grain hit a 38 month low today. Does that sound remotely like we are having inflation fears in the commodity/food/energy sector?

All in all, there was a general trend of selling across a wide gamut of the commodity sector as headlines such as "DOW 16,000" were blaring pretty much across any financially related web site out there.

Meanwhile we were treated today to the Dueling Banjos from Deliverance. Not really but it makes a nice lead in sentence. What I am referring to is contrasting speeches from two Fed governors, Charles Plosser and Bill Dudley. Dudley loves QE stating its advantages outweigh its disadvantages ( by that he must mean its destruction of safe, risk free investment alternatives for seniors and those on fixed incomes, retirees, and those contemplating retirement). Plosser on the other hand, whose idea is more to my liking, says the Fed should cap the bond buying program and state clearly how many bonds/MBS's it intends to buy. Strangely enough, both were in agreement that the US economy is slowing improving in their view. That last part should be classified under the category "Fiction" on the financial websites and broadcasts covering their remarks.

The S&P 500 generated another one of those short term sell signals today, not that it will mean a single thing since that market has become an example of life in the international space station where gravity does not exist.

Gold shares, as evidenced by the HUI has better generate some buying in tomorrow's session or that index risks moving back down towards the 210 level. I noticed that Barrick was hit again today as it was down over 2%.

We'll see if we get any followthrough to the downside in the S&P although I doubt it. The mania continues with nothing that can seemingly derail it. The only FEAR that I can see anywhere at this time is the FEAR of missing the bull train in stocks or more comically, fear of missing being a part of Bitcoin.


  1. And from the less published criminal ruling class (BIG TBTF 's) as well as their paid conspirators CFTC AND CONGRESS) http://blogs.marketwatch.com/capitolreport/2013/11/18/no-one-was-available-at-cftc-to-show-up-for-pivotal-senate-hearing/?
    Wow those glam stocks were hammered

  2. Bonds have completely erased the drop from November 8.

    BitCoin is going completely vertical.

    Always a sharp selloff to keep people out of stocks, even though it keeps climbing higher.

    Oil and gasoline prices continue plunging, which is likely to cause Yellen some worry, thus she's going to do something to stimulate homebuilder confidence, consumer expectations, and small business hiring.

    No telling what she will do next.

    Hopefully she's do something stupid to stoke inflation.

  3. This comment has been removed by the author.

  4. BitCoin now at 780, LOL....

    Peter Schiff and all the other "hard money" advocates must be puking up blood, watching this "digital fantasy currency" going completely bonkers while gold and silver are getting sold en masse.

    1. Schiff just made a CNN appearance today and he's calling the DJIA to drop below 13,000.

      I don't know if all this economic babble is entertaining or annoying. Can you tell? I think it's just numbing now. Makes me want to just stay out of everything and in digits.

      Take a look:

    2. News Unit

      Just my opinion, but, everyone who has predicted some kind of DOW correction or crash has been wrong..for many years now.
      Economic babble is a good description.
      The Fed wants the Dow higher…and they have the power to do it.

    3. Mark,
      Your Bitcoin market represent 0,1% of the market capitalization of gold.
      You really want to compare them at this stage?
      Of course volatility is much higher with such a smallish market when it becomes the new funny new thing.
      No gold investor is puking up blood because a micro mouse market is growing at the pace of a bubble.
      But don't forget to remind us : when do you buy bitcoin, and when do you sell? That's the only data interesting to see if you get out alive and with a profit from this market.

  5. QE to Infinity and Beyond!
    Maybe Yellen and company ought to take a look a Japan. Article in Monday's WSJ pointed out that no one is borrowing even though banks want to lend.

    Lesson here for Yellen, Obama and and the rest. It takes more that cheap money to make a growing economy.

    The current situation has business keeping cash in their treasury while sitting on it's hands on investment for fear of the next DC directive. When a company spends it cash on share buy back that sends the message that they can't invest in anything else to get growth.

    No simple answers here folks but putting a full stop to the wholesale legislation/regulation coming out of DC would be a start.

  6. I don't know guys I think Bitcoin will crash and burn. This is just a diversion by the usual suspects to get people out of gold for the last leg down. While the smart ones will be feeding on cheap miners and bullion they'll also be selling Bitcoin to the unsuspecting.
    On the other hand what if gold bounces off $1000 then rolls over heading to $800?!
    It's anyone's guess at this point.

    1. So far the pump in Bitcoin is using all the same tactics that got gold to 1900 - china's buying, its going to be part of a new reserve currency, it's a USD alternative, it can't be reprinted line fiat...and on and on.

  7. @Alex : I think gold is not sitting below a support, but right above a daily support at 1268 (area, so call it 1265-1270, and Dan is taking into account the intradays lows down to 1255). As long as a support holds...it holds.

    1. Sorry Hubert I meant intraday. @ Dean. Many people have been making predictions while the govt has been spending has been high through stimulus packages etc. As the banks have not been lending due to consumers running out of collateral and lack of employment, qe has made it easier for the govt. to spend due to cheaper borrowing costs. Now that the govt. has cut spending dramatically, corporate earnings will begin to disappoint. No one knows the exact day but its like turning down the gas knob on a barbeque. Since money velocity is at all time lows, govt. spending has filled the gap. Now that the the govt. has cut spending, supply exceeds demand which ultimately causes layoffs which is deflationary. Our economy has now become addicted to govt. spending and needs more and more because the benefits marginally diminish. Remember bull markets climb the wall of worry. It looks like everyone is pretty positive about stocks. Stocks were a great buy in 2009 bc the govt was spending huge amounts of money to try and stimulate the economy. When the budget deficit expands that's time to buy stocks. When the budget deficit shrinks, it's time to get out. Obama was bragging how the budget deficit will be 30-40% lower this year. But he should take credit when the economy crashes. We've hit the point of no return and need to reform our monetary system from debt based currency, abolish the debt and start over.

  8. @Mark, this one is for you :)

    "Tendencies that repeatedly prove reliable over complete market cycles are sometimes defied over portions of those cycles. Meanwhile, investors who are convinced that this time is different can ignore what follows. The primary reason not to listen to a word of it is that similar concerns, particularly since late-2011, have been followed by yet further market gains. If one places full weight on this recent period, and no weight on history, it follows that stocks can only advance forever."


    ( I only disagree with the forever part that some support, not to the part when you write that one should be long and benefit from it as long as it lasts. Problem with it is that you have no guarantee you'll be fast enough to go away without getting burned, unless you bought at quite lower prices)

  9. Hubert if you had to guess, is it 60-40 it bounces off 1270ish here or goes to 1220. I think we bounce after this 2nd tap on this level. Just wondering your thoughts.

    1. Hi Td,
      I don't know.
      Do you see a bullish divergence on the volumes on the 1270 price level on the daily time unit? I don't have access to my platform right now. OBVD rising may indicate accumulation on this level. Beyond that, Lower time units don't say much. I have no clue or I would be in the market already. But I'm not the only "trader" here so maybe someone else can help :)

    2. Tdfx,
      So I went to check on my Platform, and actually :
      - at every price bounce on 1270, the OBVD is lower. So there are more people selling after every bounce than people bought when prices went up, which is not exactly bullish :(
      - on the 2day time unit, both Cdurs are still synchro going down
      - the daily bollinger inf is going down
      - the weekly MACD 9 20 7 is hitting its propagation axis without breaking through.

      Conclusion : I have NO signal telling me to go long. The risk imho is to see 1270 give way for now. Of course, it's only what I read and the market will do what it wants. But with the elements I have, I can't go long for now.

  10. Like your humor Dan.... what else is left?

  11. Hmm..Carl Ichan has now stated that a substantial market drop (DOW) is possible.
    Note that he only says it is possible.
    Ichan is someone who's opinion is credible.

    However…in the event the market starts to roll over, the Fed will direct buy equities to save it…end of correction.
    The DOW is guaranteed and backstopped by Bernanke.

  12. Thanks Mark to compare gold and bitcoins, as they are indeed very similar.

    1) Market Capitalization. 1 to 1000. lol
    2) Volatility. Definitely low vol, and a store of value in both cases. relol.
    During the last 24 hours, Bitcoin started at 450 Euros, to reach 650 Euros, to krach down to 440 Euros, and now trading at 475 (this minute anyway).

    But bitcoin is the symbol of what Hype + Web can do in a smallish market when everyone in the planet suddenly wants to have one bitcoin to look trendy and be part of the train. Totally insane.

    1. Yeah - this is crazy. When BTC was $130/coin l thought it was overpriced. I'll be staying away from this fad. Going to be a lot of people buying the top i think.

  13. ** Trader DanNovember 17, 2013 at 8:06 AM
    John Kitcher;

    Eric asked me to ask you if you are on a military base over there?

    John Kitcher November 18, 2013 at 2:56 PM
    No I'm not. I've tried to access via broadband at four different places now (as well as via one proxy server) and they all failed to enter the site. The message I kept on getting on Chrome was "Oops! This link appears broken". On internet explorer "this page cannot be displayed". Thanks (I reposted this here as thought you would be more likely to look at the most recent comments section)

    1. John;

      thanks for the feedback... I will let him know and see what he says if anything about this.

  14. Waiting for the early morning thin volume smash

  15. Is it out of the realm of possibilities in this mixed up situation, that gold could actually regain the 1300 mark very soon?

  16. hedge fund shorts and others have been trying to break the 1270 level and somebody large has been providing support.

    I think we could see another short covering rally here. I think JPM wants to keep prices around 1300 until december. Perhaps they have a large customer who wants to take delivery.

  17. 1300 seems to be the no pass line. If GS and JPM are calling for 1000 , then that's exactly where it is headed.

    Just as a matter of interest, there is more mainstream calls for a US equity correction….they all are about to feel the power of the FED.
    No way Bernanke will allow a correction under his watch, no way Yellen will allow a correction as she steps in.
    Of course keep in mind that a good correction in the DOW is now around 1%, we could see a horror show 2% drop.

  18. GDX/GLD ratio getting pounded to the world record lows again as miners are smashed again.

    Ratio Traders who shorted these mining stocks and went long U.S. consumer stocks made a lifetime worth of gains in the last 2 1/2 years.

  19. Prophet

    Bitcoin doesn't stand a chance. Not that it is a bad idea but how long do you think the US Gov't is going to allow a money exchange system that is non-traceable, non-taxable and basically represents freedom from the prying eyes of the IRS, NSA and bypasses central banks ?
    Dream on...
    Interesting article by Yra Harris

    Pay attention to the end of the article where he talks about the value of the stock market.
    Also interesting is in the comments below the article, Yra talks about how the Fed has destroyed the natural price discovery mechanism.

  20. Mark

    In reference to your comments about Bitcoin and all the hard money types puking about it.
    Is not Bitcoin the same as gold only in digital form?
    The concept of Bitcoin and Gold are identical just in different forms.
    No counter party risk, not based on debt, dividable, portable, not easily obtained etc etc.. The biggest difference? and advantage right now? Bitcoin is freely traded without being corrupted and manipulated in something like the Comex. What would the value of a Bitcoin be if you were allowed to dump a billion worth in a fictitious paper market?
    We have seen what the Fed (and India) has done to gold, do you really think they will give Bitcoin a free pass ?
    They will destroy anything that challenges their fiat currency.

    1. One comment. To me their are no markets freely traded any longer. Heck, the reports that the corrupt markets trade in are no longer even honest attempts to get the correct data. And the reporters that report the supposed corrupt data, that the corrupt players trade on corrupt markets, are corrupt. So.....in a nutshell, what kind of confidence does anyone really have anymore?

  21. Hey Wolf

    You summed it up nicely !
    I hope your analysis hasn't been corrupted by corruption LOL !


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