Gold Chart

Gold has come off of one horrific week in terms of price action. As noted on the price chart, the metal pushed into the region where it recently had its LOWEST CLOSE in some time. You might recall that after the spike down towards $1320, physical demand was unleashed in what can only be described as a torrent. That demand spooked bears and resulted in a wave of short covering that took price nearly $160 off that low. It was at that point that the big selling re-entered.

The resistance at $1485 - $1475 proved to be a bridge too far and down went the metal. It encountered some decent buying near $1440 but once that gave way, especially once $1420 collapsed, sell stops did the rest. Once it lost its "14" handle, many buyers stepped back, expecting that downside momentum would enable them to acquire the metal even cheaper.

I am now watching to see whether or not this market can hold support down at the shaded rectangle I have marked on the chart. Personally, I am welcoming this move back to that recent low because I want to see how it now responds. I do not like buying into markets with spike lows or selling spike tops mainly because the risk/reward can be too great based on the entry point and the exit point that tells you that the trade has soured. A test of a low, that holds is a much better entry point with lower risk. The flip side to this is that if $1320 fails to hold, it will confirm that bearish flag formation noted on the chart with a potential price projection down closer to $1100. Yikes!

It did not help matters any for gold to see in the most recent 13F reports to the SEC, that very large institutional investors have been jettisoning their shares of the gold ETF, GLD. Northern Trust dumped some 910.5 thousand shares alone in Q1 with BlackRock in second place dumping 428.5 thousand shares. If you take the largest institutional investors combined, their selling accounted for nearly 75% of the shares being dumped in GLD.

Paulson is holding firm but it would appear most are not. This is where the pressure keeps coming on the paper markets over here in the West. Institutions see no reason whatsoever to own the metal when they can better put that client money to work achieving historic gains in the US equity market bubble.

The current investing strategy is therefore very simple here in the West - SELL EVERYTHING GOLD and GOLD RELATED and buy equities; i.e. anything that is not a gold or silver mining equity.

With nearly every single passing day bringing us yet another new lifetime high in US stock markets, the pattern is clear - institutional money, and hedge fund money, are buying equities in what they now firmly believe is a NO LOSE SCENARIO. This sure bet is what the Fed and the Central Banks globally hoped to create and they have done just that.

As mentioned many times here - trying to fight the tape is a fool's errand. Traders have to go with the money flow. Investors had better be damned careful is all that I can say. There is a vast difference between trading and investing. This is coming from a professional trader so please do not casually dismiss this.

The Fed has managed to annihilate the very concept of "RISK". If anything, the only risk that now exists is the RISK OF NOT BEING IN the STOCK MARKET and angering your clients who are sure to take their money elsewhere. Money has no loyalty - it goes to where it can gain the largest yield and all money managers understand this. If they wish to retain their client base, they must chase stocks, whether or not they want to. Again, this is just  a reminder, they are not investing client money - they are trading it.

We are living through monetary history. Others coming behind us are going to pour over this period that we are privileged to be first hand participants in trying to come up with explanations for this speculative frenzy in equities that we are now experiencing. Mark it well and remember it; you can tell your kids and grandkids what it was like to watch an entire generation collectively lose their minds and throw caution out of the window. This is what ZERO YIELD environments produce.

Surging US Dollar derailing Gold and Silver

This past Wednesday I posted a chart of the US Dollar detailing its strength from a technical chart perspective. Based on today's price action, in response to a surprisingly strong Reuters/University of Michigan Consumer Sentiment Index, the Dollar has cleared  a major chart resistance level and now looks to be on target to challenge the 85 level, which is the last major block preventing it from returning to its former double top up near the 89 level. I would refer you to that chart in the previous post from Wednesday to see for yourself the remarkable strength currently being exhibited by the US currency.

I should also note here the continued extremely weak showing by the Australian Dollar, a currency whose fortunes typically tend to parallel the overall commodity sector. After falling below par with the US Dollar last Friday, May 10, it has continued moving lower dropping a further 3% against the greenback this week. A falling Aussie does not bode well for the overall commodity sector in general.

With the US Dollar soaring higher, with consumer sentiment ramping up towards the economy (no doubt the precisely desired outcome by the Central Banks when they created the perfect conditions for a bubble in the equity markets), consumers are feeling the wealth effect which comes from seeing their 401K's, pensions and other retirement plans increasing nearly every single day, while at the same time poor demand for unleaded gasoline has sent prices dropping at the pump. Hey, what could be better than this?  My investments are soaring, my costs are the gas pump are dropping and my food bills are even going lower, is the thinking of the average consumer out there right now. Smile, relax, enjoy life, be happy, - there isn't a care in the world.

You have to hand it to the Central Banks; they appear to have made fools out of the honest money crowd and upended the laws of economics and the very theory of money itself. Apparently we can have our cake and eat it too. All we need to do is to have the Central Banks create unlimited amounts of paper money and we can forego any concerns whatsoever about debt.

I must admit to being an adherent to the Austrian school of economics. Right now, we look like well-read DOLTS with all our predictions having been proved utterly wrong.

I tend to use sarcasm here at this site quite frequently to make my point but this time around I am not being sarcastic at all - if the Fed, the Bank of Japan, etc., can create Trillions in Dollars, Yen, etc, with no inflationary fall out whatsoever, If they can create these sums of "money" with absolutely NO EFFECTS OR CONSEQUENCES,  if they can create a runaway bull market in equities, if they can simultaneously drive commodity prices LOWER in the process of so doing, and if they can create conditions in which consumer sentiment can actually move higher, why stop at all? Why not merely have the Fed and the Bank of Japan just keep their bond buying programs in place indefinitely? I am serious - why even bring up the subject of an exit from the QE stuff? After all, they have been engaging in this stuff for years now without any fallout so why stop? Just keep it up into perpetuity thereby guaranteeing a permanently rising stock market with a never ending wealth effect for the average citizen. After all, who wants to leave Nirvana and go back to the messy details of the real world where things like debt and living way beyond one's mean can pour cold water on our wondrous illusion!

Or to put it in terms of popular culture - who in the hell would want to take the RED PILL when they can eat the BLUE PILL and blissfully live in the Matrix? The RED PILL brings pain, discomfort and despair that comes from understanding the truth. Those in the MATRIX can continue to watch Reality TV shows and live out their own lives vicariously through that of others.

Interestingly enough, wages remain flat so while consumers are not bringing home more disposable income, their costs are dropping making them feel better about things in general. I am sure it is now only a matter of time before they start rushing out and begin loading up on those big ticket items; cars and trucks, ATV's, recreational vehicles, new appliances and big screen TV's.

Given this state of mind, is it any wonder that gold is being unceremoniously jettisoned over here in the West? Heck, even the "safe haven" bond market is breaking down. Just today, the yield on the Ten Year note has reached as high as 1.95%! Less than three weeks ago it was yielding 1.6%!

"Safe Havens?" "We don't need no stinking safe havens"!