GLD continues dishoarding gold; Western investment demand remains weak

One look at the following chart pretty much tells the tale of gold demand in the West. It continues to sink and as it does, so does the gold price.

Today's slide in price is disconcerting as it has erased all of the gains it put in earlier this week. Friday is going to therefore be a big test for the yellow metal. Will buyers show up and keep the market supported above $1210 or do we go back down to revisit those lows once again?

With "The Hobbit, the Desolation of Smaug" due out tomorrow, let's hope it is not a case of the Desolation of Gold. Fridays have not normally been fun days for the gold bulls.

Is it a See-Saw or is it a Yo-Yo

When it comes to gold and silver of late, just pick either one. After the big move higher early this week, gold has now surrendered all of its gains and then some. It is now trading down $4.00 for the week compared to last Friday's close.

The region up near $1260 - $1265 has proved to be a bridge too far at this point. Unfortunately for gold, the move down into support at $1250 - $1245 uncovered not more buying but rather more selling. In other words, the dip buyers did not show up and thus they was nothing to hinder the floor locals and others from reaching those downside sell stops.

So where do things now stand? After what looked like it might be a promising week with the possibility of cementing a double bottom at the $1210 level, gold is back in limbo. Neither side has a clear advantage at this point although the bears remain in control of the market on an intermediate term basis.

Here's how things will likely shape up in the immediate future. Bears need to take out the $1210 level and HOLD PRICE FROM RECOVERING to force another leg lower and set up a quick test of the psychological $1200 level.

Bulls need to take out $1265 and HOLD PRICE ABOVE THAT LEVEL to force another round of short covering and bring in some additional momentum based buying and bottom pickers.
A very uneasy truce therefore exists. I would not expect that to last too long.

One thing I have noted today which makes it prudent not to become too dogmatic either way is the rather decent performance of the mining shares as evidenced by the HUI, which although it was indeed lower on the day, was down only 1% closing in the upper half of its session range. A key bellwether, Barrick, was actually higher on the day.

The question is whether a bottom is in for these miners or not. I am unsure at this point and require additional price action to get a better sense of things.

Something interesting is developing which merits some comments. The S&P 500 ( I monitor the emini when studying this index as it is so liquid) is sitting a mere 11 points about its 50 day moving average. The index has not been below this key technical indicator since the early part of October. It briefly dipped below there for all of three days before rebounding and going on to make yet another all time high.

This market continues to look top heavy to me but it has thus far failed to have any sort of extended correction lower. Dips are eagerly bought. If it were to violate this level on a closing basis, support comes in near 1745 and extends down to 1736. Only if the market were to strongly close below that level do I believe we will see a sharp selloff across the market and could then pronounce an intermediate top. Even at that I would want to see how the market acted if it did close below that level  ( 1736 - 1734). It if popped right back over that then it will probably prove to be yet another bear trap. 

Keep in mind that we are entering the Silly Season as I described it the other day in a post. The dwindling liquidity will set up occasions on which it will not take that sizeable of an order flow to produce some rather large moves. Anything therefore becomes possible as we get ever closer to the Year end.

Some of what took place today was in relation to the news about the budget compromise being brokered in the House. That is expected to pass and then make its way to the Senate, which will more than likely pass it and send it on to the President to sign.

Traders viewed that as one less obstacle in the path of the economy ( remember the last time we had a government shutdown all the talk was about the lack of government spending/paychecks to public employees, etc. would have a slowing effect on the overall economy and thus give the Fed no incentive whatsoever to do any tapering). The thought today was with that out of the way, if the Fed wants to taper, that will not be an issue.

I know a lot of this seems convoluted but it is what it is. Our markets today move all over the place on whims and fancies, but this is their nature.

Corn hit by Ethanol Bill; Grains Lower

The big market mover in the grain complex today was news that a Senate Bill which has a group of Senators pushing it, would do away with the ethanol mandate. That would be a HUGE thing if it were to pass and somehow become law but sadly, I do not think it will.

The farm lobby is strong and has some powerful friends in that same legislative body. Even if they were to fail to stop this bill from moving forward, signing it into law would undoubtedly tick off the environmental greenie crowd and that is a big supporter of the current administration.

Personally I am opposed to the idea of government "mandating" ethanol. If the product is viable in and of itself, and if the public really wanted it, the free market should determine that. I am opposed to the idea of the government FORCING people to use the stuff.

I understand it has been a real boon to growers, among whom I have some friends, but I also have friends who are in the cattle and hog business. While the by-product of ethanol production, DDGS, is certainly a good animal feed product, I believe that this forced usage of nearly 40% of our total corn crop unnecessarily drives feed costs higher for cattlemen, hog producers and poultry growers. That in turn drives the cost of our meat and poultry higher than it would otherwise be.

I do not like the corrosive affects of the stuff anyway. It tears the heck out of gaskets and such in lawnmowers and ATV's. But, like most government mandated anything, it will more than likely take on a form of immortality.

At least for one day however, we can bask in the hope of no more ethanol mandate. Certainly traders in the corn pit, which got rolled on the news, are having the usual knee-jerk response to news of this nature.

IN surveying the commodity sector today, the majority of the individual futures are mostly down. There are some exceptions - cattle are higher drawing some support off the lower corn prices and to a certain extent, so are hogs. Coffee is higher as is crude oil, but the products are weak with heating oil leading declines over gasoline.

Soybeans are sharply lower and wheat continues to work lower in price. Weakness in the grains is always welcome news to most everyone with the exception of the hard-working farmers who labor to put  them on our tables.

Silver is doing its usual thing and swinging all over the place although this time in the downward direction. It cannot seem to stay above $20 for long without attracting a plethora of sellers. Gold has fallen well below the initial chart support between $1250 - $1245. Interestingly enough, the HUI is falling far less than the actual metal. That is most curious and bears watching especially on a day in which we get the IAG news.

Markets very often bottom on bad news so if this is the case, we will hopefully see it. If not, the trend remains lower. Barrick is actually trading higher on the day as I type these comments. Most impressive as it has generated buying as it fell into that price gap from MOnday's trade. Stay tuned on this one... that is no small feat but the day is still not over.

Gold Miners taking it on the Chin once again

There is news this morning that IAM GOLD has completely suspended its dividend. Unlike Barrick and Newmont, which both REDUCED their dividend payments earlier this year, IAG has done away with altogether.

News like this never serves a sector well which has already been beaten up so badly. Coming at a time in which it appeared some of the mining stocks were attempting to cement a bottom, it could not have been worse.

In a note to clients, Goldman analysts noted that IAG has one of the highest cash costs in the sector ($1200).

Unfortunately the entire sector is getting hit hard again today. Barrick, which just this week looked as if it was ready to bottom, has now fallen back into that Monday gap on the charts and completely closed it and then some.

Meanwhile, the HUI has now made a new low for this move down. It has scored a new 52 week low and is actually trading below the MONTHLY CLOSING PRICE made back in October 2008.

Let's see what the rest of the day brings. There is still a chance that the index and some of the respective miners could stage a late session move higher. That would be a hugely positive sign. If not, well... not much more needs to be added.