"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


Friday, December 6, 2013

Gold Ricochets off of $1210

Earlier this week gold scored a low near $1210 before violently reversing on an "out of nowhere" short covering rally. Today, the initial reaction of the metal after the payrolls number was to plunge right back down towards $1210 again. However, it then staged another violent reversal higher on very strong volume. This action has gotten my attention.

As a general rule of trading - a market that fails to move lower AND STAY LOWER on what is considered bearish news is a market that odds favor having bottomed - at least temporarily. Again, with so many computers running our markets nowadays, one has to be careful with generalizations but this sort of price action is noteworthy nonetheless.

Another interesting thing - the mining shares are also moving higher along with the broader equity market this morning. They are not up by much but they are certainly not going down for a change.

Yet another thing - the Japanese Yen is also sharply lower. That currency has tended to be a reflection of trader sentiments towards risk at times. During times of risk aversion; check that - during times in which traders are fearful of SLOWING ECONOMIC GROWTH - the Yen has been the recipient of strong money flows. The Yen is now moving lower.

Another thing - Copper is moving higher.

Another thing - the VIX just collapsed lower today with the index thus far down some 8% as I type this. The fear/concern/worry from earlier this week apparently just evaporated.

Could it be that there are some incipient signs that the market sentiment is shifting towards one in which it really does believe that the economy is actually improving enough to see some actual stronger growth? The case is not yet clear. What is fogging it for me is the price action in the long end of theTreasury market. Were it not for that today, I would nod in the affirmative to the question I just posed; however, interest rates are moving lower  ( not by much but they are lower) in today's session. That does not quite fit in with an increasing rate of growth sentiment.

Putting in a temporary bottom does not necessarily also mean and uptrend is about to resume. Just take one look at the corn market as a recent example. It stopped moving lower, temporarily, but has not been able to develop any sort of lasting move higher.

One thing I do know - gold has been an easy one way bet as far as a trade goes for some time now. Short rallies and make money as the price drops. The easy money might be over, at least for now... let's see how this thing closes today before getting too dogmatic however.

By the way, JP Morgan continues to be the large stopper for December gold during its delivery period. They are gobbling up all the issues.

One other item to note - silver is lagging gold today. That is not what one would expect to see if the "improving economy" theme was becoming much more widespread. Lots of variables to consider as traders.

It is really unfortunate that the Commitment of Traders report due out later today will not include the price action from Wednesday and from today. Both days experienced these violent reversals. I would love to get a bit of a better look inside the market but sadly we will not get that until next week. By then it is too late to do us any good. This report really needs to be more timely but under the current setup the CFTC simply does not possess the financial resources/wherewithal to be able to generate something that up to date. Also, the brokerage firms do not have the manpower either to keep their reports to the CFTC that timely also.

I will get something up later on today after the dust settles. We can take a look at the closes and go from there.


  1. Ya trying to re-enter with a short on gold, but dang is today a good day or will this rally to Dec 17/18 FOMC. Then when no taper is announced as it makes more sense to start next year, will gold get smashed from there?
    Any thoughts/opinions on this one?

    1. Elijah;

      I think traders will want to see the next month payrolls report to see if today's was a one off or if the employment picture is actually improving as much as this report seems to suggest.

      The thinking seems to be that the TAPERING is on but there still remains enough doubt that the Fed will actually taper right away that it is keeping some buying coming into gold. The result is this whipsaw action as lots of two sided trading is occurring.

      Also, some think that if the payrolls number continue to get better, inflation pressures will finally begin to surface. Remember, at least in my view, it is this lack of jobs that is keeping the VELOCITY of MONEY from rising and thus preventing rising inflationary pressures.

      I am on the sidelines and flat as a result of this for right now. Just watching and observing and keeping my powder dry. There are better opportunities elsewhere right now.

  2. Dan,
    I read your comments and have watched the dollar drop over the last ten days when taper talk was all around. Gold has responded differently to this talk as well. Something seems to have changed. The people who short gold are doing so with impunity. Not believing for a second that they do not have a sure thing. This site is reflective of that trend. Something feels very different why is the dollar not powering up here. I have no idea but can observe this change, is it a blip or a sign of a real change?

    1. Concord;

      We'll see what happens but something appears to be changing. by the way, those who comment here tend to be those who are students of the markets. The trend has been lower. That is a fact. It has nothing to do with an "anti-gold" bias. It has everything to do with making money by being on the correct side of a trade. Those who were Johnnie one notes and always long gold, always coming up with some reason for it to "go to the moon" anyday now, have lost their rear ends.

      The trend is your friend Concord, and when it changes, you change with it or else be prepared to watch your losses mount. This is what I am trying to teach here. Let the market be your guide and ignore the claptrap.

    2. Dan,
      My comments were only pointing out the idea that those shorting gold are sounding just like the very people who promoted it saying it would never go down and all weakness should be bought. Anyone who has not learned the painful lesson that you talk of has not read this site over the last seven months. I was pointing out that maybe and I stress maybe gold has put in a bottom. As I say this I almost regretting I said it. I do have a belief that gold should be much higher but it does not mean it won't go a lot lower.

    3. Trend is your friend. That is one thing I have learned here at this blog. And somewhat I may have learned how to listen to the markets: with COT, the ADX indicator, the inflation/deflation signs. Thanks Dan.

    4. Peter;

      You are quite welcome. That is exactly what I am attempting to do here! Way to go! Good trades to you.


  3. Dan, I think you nailed it in your take today, albeit with the caveats you mention. Could be that gold rode the deflation train to a top in 2011 and will not board that train again. Today's reversal could signal a more traditional scenario where economy improves, money velocity picks up, prices rise, and Fed begins multi-year tapering by dribs and drabs which is seen to lag inflation. Gold rises gradually, then interest rates pop, Fed panics into new QE, and gold soars. Not there yet, but I think you're right in underscoring today's signal.

    1. Robert;

      Yes, good thoughts there. I keep looking for any sign of a SHIFT in the sentiment in regards to inflation or at least growth. That will bottom gold.

  4. http://www.bloomberg.com/news/2013-12-05/barrick-s-thornton-weighs-return-to-gold-hedging.html

    Simply amazing. Barrick will return to hedging. Who do you think is going to get the work to hedge? Who do you think will take the other side? GS GS GS....

    Barrick is a zombie, and why anyone would invest in this company is beyond me. Watch the miners to increasingly hedge at these prices and lower. They are the worst timers, just like the "consensus-minded" governments. Totally contrarian, despite what the gold bugs say.

    BTW once December is out of the way and this JPM stopping is done watch gold fall once again. I wouldn't get caught up too much in this "counterintuitive" move....

    Maybe Turd Ferguson is correct when it comes to JPM stopping.

    The bullion banks (now include GS by working with ABX to hedge their production) are betting on higher prices longer term. Plus, this will be done in forward markets away from COT data.

    Dan is right, the hedge funds have a lot of ammo left to short. I wouldn't be surprised to see them close to net short at some point (i.e. 1,000 COMEX gold)....

    1. and people say there is no conspiracy....

    2. Eph 6:7

      I have to laugh when I read statements from some out there in cyberspace that claim that the mining companies best know their market and therefore are the best at anticipating what the price of gold will do. I don't know whether to laugh or to cry at such stupidity.

      If these miners do begin to hedge, they will hedge at the bottom. For the most part, they do not know how to read a simple price chart. Instead of hedging when gold broke down below $1535 and signaled the beginning of a bear market, many of them sat there and did nothing. The market has severely punished them as a result. They could have locked up some very goof profits and secured themselves some downside price protection.

      at one time Barrick was actually good at hedging ( during the 90's). They then listened to too much of the same hype that circulates constantly through the gold community and left themselves completely unhedged when the trend changed.

      Now that the price has collapsed, they begin to look at hedging.

      My thinking is that if they can dig gold out of the ground at current levels and actually make some sizeable profits in so doing, they should lock in some of the those profits by hedging but then also need to manage the hedges and adjust them according to changing market conditions. That requires having knowledgeable traders in their risk management departments, assuming they even have a risk management department.

      One can manage a bona fide hedge through the use of options and various option strategies if they know what they are doing. The question in the mining sector is there many that do.

      Those companies without any active production are at a distinct disadvantage however because technically speaking, they have no production to hedge. That is a different issue.

      Morgan has stopped 3,593 contracts thus far out of 3,757 issued for December delivery. The biggest issuer thus far is HSBS for their house account. They usually are always one of the largest issuers, along with Bank of Nova Scotia.

      I watch these deliveries but tend to not draw too many conclusions from them because many times, one of the big stoppers one month may turn around and become a big issuer a couple of months down the road.

      We are not privy to their inner dealings and thus drawing too many conclusions from this data can be dangerous, especially for a trader. It is interesting stuff however.

    3. Ya curious about this JPM stopping, is this expected to go all month of December?
      Why don't they just do that next month at $1,000ish.

      Dan can you shed some light on this, or am I the only one confused about why this is happens and the timing of it.

      Thank you!

    4. Elijah;

      Just wrote some comments to Eph about the delivery thing. It is interesting stuff but it is not a trading tool or a timing tool for trading. Anyone who would attempt to use it for that, just like some try to do with the COT stuff, is asking for trouble and big losses in their trading account.

      I file it under stuff to read and note and then watch PRICE ACTION. That is all that matters to a trader. The market tells us whenever something is important and when it is just more fluff put up on the gold sites. By the way, I am noting some selling coming back into gold here as the session draws to a close. It will be interesting to see how that goes and whether or not the gold shares can actually put on some decent gains. They are treading water down here even with the S&P over the 1800 level again. That bothers me.

  5. Dan:
    A couple of thoughts about the COT report.

    1) It sure seems as if a lot of big moves happen on Wednesday and Thursday just after the COT reporting deadline. I'm not a conspiracy guy and haven't done any real research on this but am responding with my gut feel.

    2) Seems to me the entire brokerage and trading industry is computerized so there should be no problem with their reporting trades and positions minutes after the close. Same should hold for CFTC and their publishing cycle. Seems these reports could be nightly.

    So what am I missing here.

    1. Mike - it is more an issue of the timing of the economic data releases. We get a lot of those on Friday's unfortunately.

      Yes, the industry is computerized by it still takes manpower to run the reports, get the data collected and then get it to the CFTC which also has to be able to collate it all and publish in a form that is legible.

      Maybe some day we will have near daily reports of the commitments data but I am not holding my breath on that one!

    2. I have been saying it for years about the COT; have a good wknd everyone! sparks

  6. It does look like something in the markets has changed.

  7. Hi Dan,
    You mentioned recently that you'd want to see 1218 break at the close to be more bearish. I think it didn't. We always managed to bounce from the day's lows above 1218.
    I was watching also 1220 on a daily time unit, and 1225 as well on the 2weeks/2 months because of a kinda fibonacci level, so as long as 1225 holds on a friday night, and 1220 holds daily, I consider that the bears are put in check, despite their efforts.
    So, maybe we'll have to "dynamite" this support around 1220 with 200 tons in 5 nano seconds on sunday night :), anyhow, for now it's holding, which brings a small light of hope.
    Wishing you a nice weekend,

  8. http://www.timesofisrael.com/government-dream-of-a-cashless-society-already-a-reality/

    Yup...it's coming :(

  9. Trader Dan
    I recently came into possession of gold and want to know to monetize it. I don't know yet which form it's in (bullion, gold dust, nuggets, etc.), but want to understand the gold market, where do I sell it? In the US or foreign market?

    please advise

    Concerned gold owner


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