“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, January 10, 2014

Dollar Drops; Commodities move Higher

Almost like clockwork, the abysmal payrolls number undercut recent strength in the US Dollar. Just like that -   up went the Goldman Sachs Commodity Index. Tell me that the Dollar is not the key to the complex!

It did not hurt that index one iota that the USDA issued a shock report today which contained a bullish surprise for corn prices. It was not that the number they gave us was so bullish; rather it was that no one expected it. The market was leaning heavily on the short side and the pencil pushers over at USDA threw everyone a curve ball.

Quite frankly I do not believe the final number that they gave us. It is what the market has to work with however for the time being, and thus we experienced a gigantic short squeeze in corn that helped keep wheat from falling completely off the cliff, as the USDA number for that grain was decidedly bearish.

The soybean number was also unfriendly as they showed a bit larger crop than the market had been expecting but it was the huge buying in the corn pit that tended to pull money into the entire grain complex. That prevented the beans from selling off on the report.

On top of that you had coffee moving higher, hogs moving higher and the liquid energy complex moving higher. Base metal copper was higher. Given that environment to expect silver or gold to move lower was unwarranted. As a matter of fact, we had a pretty substantial short squeeze in the gold market to accompany some of the short squeezes across the generality of the sector.

Gold has now completely recovered its losses from the "fat finger" trade of Monday to the point that any discussion about the particulars of that event are moot at this point. I stand by my contention that it was an erroneous trade but who cares at this point.

The lousy jobs number has given shorts reason for fear in gold and encouraged some more bottom picking in the metal. This is due to revived talk of a hold on any Fed tapering. However, it is now moving into a very strong resistance level on the price chart. Further upward progress, WITHOUT the accompaniment of a weaker Dollar and more upward price pressure across the commodity complex in general, is going to be much more contested.

Also, based on the strong November jobs number, plus the upward revision in today's report to that already strong number, today's numbers for December should be treated with a bit of skepticism, especially after private firm ADP gave us such strong numbers on Wednesday. A lot of time can pass between now and the next payrolls number but I would not be surprised to see that number move much higher, more in line with what we have been getting recently. If that is the case, look for any move higher in gold, based solely on ideas that the Fed will be on hold for Tapering, to meet with some aggressive selling on the part of the hedge fund community.

Bulls have the opportunity to try to take price up towards the last level of chart resistance I have noted between $1255 - $1260 or so. If they can best this level, they will have recaptured control of the gold market for the time being, at least from the daily or short-term perspective, and even have a shot at a quick run to $1280.

It is going to be educational to see how Asia responds to this price rise. Will the move up curtail some of the strong physical offtake we had been experiencing over there or will price-conscious buyers step away from the market to see if they can get the metal cheaper? We will find out.

A look at the weekly chart below shows the market still under the control of bearish forces, as it has been since late 2012. Today's move was a nice gift to the bulls but looking at the chart from this longer term perspective, it has FAR MORE WORK to do before changing the picture from one of bearishness to one of bullishness.  


  1. The lopsided number of Gold/Silver bears are creating a nice wall of worry on which Gold and Silver are climbing. The key thing here is: Is there enough energy to climb over the $1270 mark on the wall without slipping down. January should tell the story. Slip and we are back to the 1190 to 1260 range.

  2. Rick Rule on KWN Wednesday. Spreading fear if China and Korea buying huge chunks of gold miners at very low prices.
    Just FYI don't want to rant.

  3. Bonds soaring today, along with utilities and REITs.

    Looks to me we'll never see anything over 3% on the 10-yr. yield in our lifetimes.

    Historians will be looking at this point in history with utter amazement:

    In a scant 5-years after the financial crisis:

    - Dow and S & P at new records

    - 10-yr yield below 3% for the longest period on record

    - Zero inflation evidenced by TIPS spread and collapsing commodity indexes

    - Wild speculation in social media, biotech, specialty retail

    - Any and all financial market turbulence instantly quashed with Central Banker Jawboning

    Top 1% getting even richer, 94 million unemployed workers enjoying an unprecedented windfall of welfare, disability, food stamps, etc.

    All happening with no bad consequences whatsoever.

    Golf Clap for Bernanke, Yellen, Draghi, and Uncle Abe

    1. yeah but there is inflation. Why do people not see it? Just see the prices you pay for stuff. But inflation isn't prices going up, prices going up are the SYMPTOM of inflation. Look at the money supply, the inflation has happened already. I so HATE these there is no inflation comments. What planet are you on? If TIPS and the gov't said the sky is green, does that make it so as well. Frustrating.

  4. Jim Rogers. Martin Armstrong. A few others. They all say, sometime in 2014-2015 the market will turn. 50% correction is absolutely normal.

    Wake me up at 950 or ill check back regularly after June. No point checking on a daily basis regardless if the POG is going up or down. JMO.

  5. There are only trained Pavlov dogs and huge liquidity bounces right now. Any beliefs in any numbers coming from any US bank, Fed agency, white house, military complex, main stream media, would be like listening to Satan himself. US has completely gone socialist. Pravda and Marks rule the day. There will be he'll to pay....eventually, once the attacks on gov't start here we should start to see commodities start to rise. Once the purging of these Socialists..communists..totalitarian statist starts then we can begin to heal. Raise your weapons and charge.

  6. Thanks, Dan, for your recent posts. Over the past six months your blog has educated me about inflation, gold, and the relationship of the equity rally to the low interest environment.
    I have given up trying to be a trader. My temperament really is not adaptable to it. And I am not sure I really want to be involved in competing against other traders for my earnings in what is close to being a zero sum game.

    But, while I was trying to trade, your blog saved me from steeper losses last year as I began to learn here.
    So, I bid farewell to the commenters here. And thanks again, Dan. Happy new year.
    - Peter in Maryland USA

    1. Peter;

      I am genuinely pleased to learn that some of the things I have written proved to be of some help to you. Yes, trading is not an easy profession. Many times price action will leave you scratching your head wondering what the heck just happened!

      I do think that you can apply the techniques/principles you might have been able to pick up here at the site when it comes to choosing stocks for your investment portfolio. Look for their technical action to confirm any view that you might have and whether or not you want to add them to your longer term oriented portfolio. I think that the marriage of due diligence in stocks combined with solid technical analysis skills can save you from large losses and help you with picking stocks which will bring some returns. At the very least, it can help you recognize a stock that is breaking down on the price charts. That way you can be your own guru and need not rely on anyone else but yourself!

      Come back from time to time and visit us.

      Sincere best wishes,

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