“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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Wednesday, January 29, 2014

Gold Tug of War Continues

Today was the big day for another long awaited ( one month) release from the FOMC in regards to their Tapering campaign. There was a general line of thinking that the Fed might not be as aggressive in the tapering as previously anticipated due to the very weak payrolls number that came out not long ago but that was dispelled rather ignominiously when the Fed announced another $10 billion reduction in the bond buying program down to $65 billion/month. They are cutting the rate of Treasury purchases by $5 billion and the rate of Mortgage backed securities by $5 billion as well.

The unanimous vote was revealing as it shows an apparent determination on the part of the Fed to begin weaning the markets off of some of this funny money creation. Needless to say, the equity markets did not seem too happy about the news.

Then again, it is difficult to understand exactly what input the markets were reacting today given the continued fears/concerns over the emerging markets currency/credit issues. Yesterday a sharp surprise rate hike by Turkish officials seemed to bring a sigh of relief into the markets. Today, that quickly dissipated.

The VIX shot higher as the equity markets dropped lower and as it did, back on came the safe haven trades once again. The Yen was up sharply and the Swiss Franc rose also as investors decided to take some money out of stocks just in case things go from bad to worse. Once again, even with the news out of the FOMC, (which one would have expected to be Dollar positive), the US Dollar could not move higher. That had gold moving higher once again as we are seeing a relationship forming in which stocks move lower along with the Dollar as Gold moves higher.

I am not sure how much longer this precise link is going to endure in our fickle market of nowadays but it is keeping gold prices from otherwise breaking down at a time in which many commodity markets are continuing to see weakness. Natural gas was the big exception with prices cleaning out practically every single overhead buy stop on the planet today on huge volume. That sort of thing always catches my attention. Soybeans, corn and wheat however were pummeled today. Copper also moved lower.

Gold is basically caught in a tug of war between downward pressure originating from those selling the metal as the Fed begins to scale back the huge sums of liquidity it has been providing the markets and upward pressure from safe haven flows tied to the emerging markets crisis. In the former, gold acts more as a commodity; in the latter as a currency. Depending on which input the market is focusing on any given day, the metal moves accordingly. There is still no definable pattern.

Based on what I can see the next move in gold is completely dependent on how the emerging market situation is viewed. If it escalates, gold should stay firm. If it recedes somewhat from traders' minds, it will move lower.

The same exact thing is occurring in the interest rate markets. Today's FOMC statement and its hawkish tone should have brought selling into Treasuries taking interest rates HIGHER ( also supporting the US Dollar). Instead, the Treasury markets witnessed lower long term rates as deflation fears trumped hawkish FOMC notes.

Incidentally I have been monitoring some of the delivery process for gold. Thus far JP Morgan has been the big issuer or seller. That is in stark contrast to their buying or stopping last month. As we enter the February contract's delivery period, it will be interesting to see if this new pattern remains the same or if they move back to the heavy buy side stopping that we saw from them in December.

While the HUI has been higher today, it has still been unable to clear chart resistance near the 230 region. So far the index has not confirmed any upside breakout as of now. It has also bottomed out but cannot seem to get an upside trend going. Much the same thing is taking place with gold. Its technical chart pattern on the daily looks pretty good but it acts as if it is looking for some other shoe to drop somewhere before it really breaks out to the upside in a clear and unambiguous manner. As things stand, traders seem willing to sell rallies into overhead resistance and buy dips into downside support.

When this changes is unclear.

By the way, silver still is capped at $20 as it attracts large selling above that zone.



43 comments:

  1. Why is JP selling if they just announced the bottom is IN.

    ReplyDelete
    Replies
    1. I'll venture a guess, prophet. You want to sell gold and everyone listens when you speak. You say that the bottom is in, people buy, drive the price up and voila, you can sell at the elevated price.

      Delete
    2. but...but..that would be very rude!
      Do you really think our gentle banks could do such terrible act? :)

      Delete
    3. I know, Hubert. I feel ashamed now that I doubted the sincerity of our financial institutions.

      Delete
  2. Dan,

    I also , don't understand .. there have been massive withdrawals from JPM , their stocks are pretty thin, do you think they may try to force the price lower in order to get back to the other side of the trade ?

    Best

    ReplyDelete
  3. Hi Dan, great blog once again! I was wondering if you could show a chart showing gold overlapping the Canadian Dollar on a longer term timeframe?
    They seems to be a fairly strong correlation between the two. Although everytime there is a divergence, they always come back together closing the gap. Recently our Can. $ got whacked pretty good and seems to be continuing the trend lower! I wonder which one will move closer to the other? Kinda hope its not gold going lower to close the gap! Also the vix on a longer timeframe is showing a huge triangle which looks to be on the verge of breaking out to the upside? could you comment on these??
    sincerely
    derry

    ReplyDelete
  4. Right now it's looking like a good day for DUST tomorrow?
    Gold down 6+

    ReplyDelete
    Replies
    1. Breath holding don't make money. That's how Marshan Lynch would answer that! Ha!
      In phase with a DUST position for now.

      Delete
  5. Hi Dan, was really surprised to see bonds rallying on the taper news. Seems counter intuitive - the market is pricing in deflation and weak economic growth but the Fed says the economy remains on track. My guess is that the Fed is wrong and will have to adjust its future tapering plans, possibly even reversing course. Also, let's not forget the really weak end of year/quarter gold price...this for me suggests that gold has more room to move to the downside. Happy Lunar New Year!

    ReplyDelete
  6. Dan, my guess continues to be that JPM (as an agent for the FED) was stopping (taking delivery) gold and silver contracts last year, not to profit, but to accumulate "ammunition" reserves which they could use to slow the rise of PM prices this year. I said more about that in my Optimist commentary in August. If that guess is right, then JPM issues into the market could be a sign that the FED is bullish on price rises ahead, but is now actively working to moderate the rate of price increase. Cheers! Jim

    ReplyDelete
  7. Hilarious. PM's totally slammed within days of the hysterical calls for outlandish prices.

    Check out Facebook, that's where the big money is invested.

    People are checking out of emerging markets and gold and piling into U.S. and European stocks.

    Stay in the system.

    ReplyDelete
  8. Hi Dan,
    I read somewhere above, that JPMorgan was a big seller of this month's COMEX delivery.
    Gold held up till the last day of the Jan-contract.
    Does this coincide for you?
    Regards

    ReplyDelete
  9. oops, I just realized, the same sort of question/topic has been issued by other people above.
    nevertheless...

    ReplyDelete
  10. the market keeps on flying on bad news …. they just haven't realised taper is off … Pavlov anyone … and the economy sucks !! . It remands me of Kurt Russell in Gladiator , just before the first battle with Germania … FIGHT don't be afraid , until the end , and if suddenly you see yourself surrended by beautiful women in a beautiful place , don't be surprised , that means you are dead ! and there is nothing to be afraid !! haha … Greed is bad … bad , bad , bad … but hey ! … FEAR nothing … keep on buying … all is gonna be good … ask Mark , he ll tell ya

    ReplyDelete
  11. Unfortunately it looks like the "Super Surge" is happening in Facebook, Under Armor, Pitney Bowes, Harman International, etc.

    Because the U.S. Consumer cannot be stopped from Internet chatting, buying expensive workout clothes, and paying up for $3,500 JBL stereo systems in their new automobiles.

    The epic boom continues, without any fear of inflation or higher interest rates.

    The Glorious Guilded Age of 2010 - 2015 continues unabated, while guys like Peter Schiff, Doug Noland, Bob Janjuah stand back slack jawed in amazement.

    ReplyDelete
  12. Follow up of my trades :
    - SP out of my short 1784 at 1787, lost 3 points. I must say I wasn't quite convinced when I saw the bullish divergences on the 15 minutes yesterday and the huge volume right on the 1770 support area (distribution, large buying?), but I was too pissed of to have missed the short from 1810 to not give it a chance, especially if we broke 1770 I was targetting 1740 at a strict minimum. Never mind, but small loss anyway.

    - Gold. Yup, 1268 confirmed as the bloody resistance area once again and unfortunately holding quite well. I'm still there hanging with my 2/3 left, as I bought that position from 1220 and now with no loss (1/3 out at 1238, then a quick in/out on another 1/3), but I'll sure close this position if we close the day under the upwards ma20, right in the current area of 1240.

    - Silver : well, I've just opened a speculative long small position as well here, really small, at 19.10 $ exactly, because once more we are in contact now with the 19 $ area which is the strong long term support on my charts, and because we had 2 consecutive hourly candles with a nice upwards reaction twice from 18.98 up back to 19.10.
    So...it allows me to put a stop loss right under that level around 19.95... meaning a risk of 0.15 $ for a potential profit of 1 $ (back up to 20$) for the first 1/3 out, and who knows, much more if we break above, so even if the odds are 10 to 1 on this one, it was difficult to resist a small bet here on the long side, without much technical indicator to support it except the price level by itself.

    I hope my explanations are not too boring, I'm trying to share and explain why my trading decisions are not mainly linked to my anticipation of what the market will do next, but rather on the risk/reward ratio I'm being offered when prices are getting close to a support / resistance, plus usually a few nice evidences supporting the probability of a price reversal (for silver, the hourly candles, etc...).
    Have a nice evening,

    ReplyDelete
    Replies
    1. I've been short with DUST today but the HUI is not getting hammered that bad for what gold is doing. May very well get out by days end.
      With the hammering in gold today it could rebound tomorrow.
      Not holding my breath though.

      Delete
    2. @Hubert DuHaut:
      Keep on doing that!
      It is very interesting to read, and it will help yourself by compelling you to reconsider your actions when documenting.

      I am short mid-term at an avg of 1.235 (XAU), and I'm doing at the moment what you often warned of: trying to guess the next move.
      I am not involved fully at the moment, so i follow my mid-term view, that gold will go lower unless we see inflation AND the big guys (not the funds, but the "feds") are playing the mkt from the short side still for some months to come (sub 1000 in gold maybe).
      just a guess, i know, but i wanted to contribute something honest to your open reporting.
      regards

      Delete
    3. @steins, I find DUST is a tough trade while gold is in this range & have avoided it lately. You have to guess where gold/miners are going to be the day before, as all the movement occurs before trading day starts. Today buying at open (30.64) and selling at close (29.93) would have been a losing proposition. On top of that, the HUI was down ~2.6% today, DUST(3x) was up 6.6%, so you give up close to 1% potential return.

      Buying yesterday afternoon would have been a good bet as gold, silver, & the HUI all crapped out at resistance. That said, it's still tough going as yesterday's high on DUST was higher than today's close....

      I am of the opinion (still) that the GG bid for OSK.TO put a floor on the juniors (unless of course gold break down).

      Delete
    4. LOVE your posts. I too bought the dip, first ever paper gold purchase, I deal with physical. That bounce off upper 1230's support sold me. Hoping for a little range bound trade, or more. Again, keep it coming.

      Delete
    5. thanks, ok.
      My moves upwards on gold / silver are contrarian short term inside a downtrend (weekly time unit).
      I won't fight the tide, as long as the weekly ma20 will be a downwards resistance on gold. So if the only support left, i.e ma20 daily going up is broken, I'll be completely out of my trade with a small profit anyway.

      On silver, same : it doesn't look really nice, but as long as 19 $ holds, who knows, maybe it will hold once more? :) So I'm risking little to see if we head back once more towards 20. Why not try?
      But globally, we are still in a downtrend on the weekly time unit, and if the daily time unit gives way and reverses once more..well...no way I'll be a bull.

      Delete
    6. I hear ya. I like this 1235-1240 support. This is the 3rd time it has been hit and the first 2 times it bounced right off it. But if the stock market does another big day and it's not a dead cat bounce, then we will break it down. But I think gold stays range bound per Dan's last 4 hour chart post. Good luck to you.

      Delete
    7. MDLGTO, thanks for the reply.
      Yes, I have to admit that in some ways I'm just trying to stay in phase with the movements. Got back out with a very small gain.
      Paid the broker fees and made a couple hundred, not much at all.
      Overall I really have not gone much of anywhere for the past few weeks. But it's good practice.
      Not committing much money at all until we get a trend.
      Thanks

      Delete
  13. Wells, from the looks of the way Chipotle and Google are trading after hours, up huge despite missed earnings, it looks like we are still very far away from reaching that zone of "This Is It!" and "It Is Now"!

    As long as these NDX stocks continue going parabolic and making new lifetime record highs, there is going to be absolutely zero interest in commodities, especially gold.

    I mean, just look at the charts of Wheat and Sugar as an example, I have never seen such brutal, consistent selling and liquidation of anything like that. Probably worse that the selling of mortgage debt and CDO's post 2007. This looks to be as one of the most devastating commodity bear markets in history.

    ReplyDelete
    Replies
    1. Mark, there are two strong schools of thought when going long, buy the lows or buy the highs anticipating that the trend will continue. Commodities are cyclical so buying the lows WILL be profitable if you have patience. Skimming 5, 10, 20% now on FB is fine but the long term cyclical trend is easier to predict and will generate much greater annual returns when averaged out.

      Delete
    2. @ John Kitchner
      "Skimming 5, 10, 20% now on FB..."
      could you tell please, what "FB" stands for?

      Delete
  14. This comment has been removed by the author.

    ReplyDelete
    Replies
    1. Hubert;

      My opinion of newsletter hawkers is that if they were any good as traders, they would not need to write newsletters - they would be trading for a living where they are forced to rely on their own skill/expertise to survive, not off the wealth of others who pay them regardless of if they happen to be correct or not. A professional trader does not get paid if they are wrong - it is that simple. Why should a pestilential newsletter writer get paid if they are wrong? Answer - they should not and no one should waste their money on crap like that. My view of them is that they are like an enormous plague of locusts that devour all that is green and lush in their path leaving devastation and emptiness behind them. I would love to see a strong wind from the east blow them all out to sea and rid us of them for good.

      Delete
    2. Hi Dan,

      I didn't see your answer when I erased my message above, but maybe you were writing it simultaneously.
      Just to make readers understand why you wrote this, part of my message was warning about a specific newsletter writer who is asking huge money for his "services", who was repeatedly wrong in his free "sneak peeks" areas (and right, but it's just as hard to be wrong all the time as it is to be right...) but still pretending afterwards that he is right (like calling rightfully the bottom in gold...yes, after 2 failed attempts), and doing some advertising about his services.
      Then I thought I shoudn't have been specific with his name after all, especially due to some of his "relationships", and I erased my post.
      Thanks for warning the readers back about the essence of the message : don't pay a cent to newsletter writers giving some trading advices, unless maybe you really think they are extrememely good at it with before thanks to your own track records. They are here to sell and they are definitely not good at all. There are plenty of forums to learn about trading for free and much more useful than some expensive newsletter...

      Delete
  15. @ Mark

    I'm curious as to how long you are holding U.S. stocks? European stocks are obviously not as overvalued as the U.S. Facebook, Netflix, Under Armour etc. look like blow offs to me. If a stock is up 100% in 1 year already, and then rises 20% in a day at the end. Don't you think it's time to get out?!

    ReplyDelete
  16. Interesting :
    - last move down on gold was 1435-1180.
    - Let's trace the fibonacci levels : gold is now bouncing between 38% (1277) and 23% (1240). It is not rare that prices retrace back up the previous move, using fibonacci like a stairway. Maybe we'll go back to 1277, then the 50% at 1307, etc...
    - so as I see that 1240 is holding, I took a long position on gold again now at that level, because I see that 1237 seems to be the low for now. Stop loss again very close, and I'll raise it to 1240 as soon as (if) gold goes a bit higher.

    Under 1240, the ma20 daily, at the close of the day, I think I would get out of all my long position on gold.
    Longer term...I still have a bad feeling for bulls because of one technical element :( the OBVD (volume) between the two lows at 1180.

    Usually (speaking under Dan's control), it is a good sign when prices hit a horizontal support several times, to see the OBVD going up, because it means that somewhere behind the curtains, some actors are accumulating, there is a distribution which may be a signal of reversal. But here...I see a continuous drop in gold OBVD while the 1180 support zone is being attacked from lower and lower highs....so I can't be optimistic about the near future. No forecast here, but I don't see how one can be confident that the bottom is in yet...

    http://i62.tinypic.com/oh1r9v.jpg

    ReplyDelete
    Replies
    1. Still playing the short side here.
      Gold breaking down.

      Delete
  17. Time to audit the FED and put Brian Sack in front of congress and ask him what value main street USA is getting from these monstrous market interventions, huge buying of DOW S&P ETF Futures, mortgage and agency debt, bonds and shorting of commodities in the early hours, obviously not for profit. Enough rope and greed will eventually see these guys hang themselves. Check out Eric Scott Hunsader @nanexllc on the HFT manipulation rife since 2008, before yesterdays market open $DIA SPDR DJIA ETF 10,000 quotes for every trade over a 30 minute period to set market direction.

    ReplyDelete
  18. Morning Hubert; Like I always say, "Those who can, do; those who can not, teach; those who can not teach, consult; and those who can not consult, write newsletters". The answer is here in Sparks, and the answer is, "There is no answer". Take care and keep your selling shoes on; that is all; sparks, of course

    ReplyDelete
  19. Steve,

    What's the bet for Sunday?

    ReplyDelete
  20. very tuff call, Nate; I know u want to give me the horselaugh Monday; around town here it is oscillating between 2 & 2 1/2, and I guess I will play Denver and lay the number. who knows?

    ReplyDelete
  21. Just my opinion, but I think Denver by a mile! Russell Wilson is not that good, especially in away games. I had him for fantasy this year and he was awful. If their defense doesn't step up, I think Denver could pull it out by two TDs or more. If Welker doesn't drop passes (like he has in big games for the Pats), Denver takes it easily!

    The weather is gonna be nice, and Peyton wants to show Indy how much they screwed up.

    Sorry, Dan.

    ReplyDelete
    Replies
    1. Nate - no worries buddy. I am pulling for Seattle but will not be too disappointed if Denver wins because Manning is a class act and a rare breed in a game that has too many arrogant, classless jocks.

      I can tell you that the games in which Denver was beaten, the key was pressure from the defense, especially the defensive ends. Payton is not that mobile and has trouble if he is hurried. If Seattle can get quick pressure on him and maintain it, they have a chance to pull it off.

      The problem with beating Payton is that it is like having an offensive coordinator out there on the field. He can read defenses like no one else.

      Should be a fun game. I just hope the weather doesn't become a factor because I would really like to see a game between two teams, one of which has an amazing offense (Denver) and the other with a terrific defense.

      Delete
  22. Poor gold bugs can't get a break.

    Newmont Mining down 10% on blowout volume, while names like Chipolte and Google are charging towards lifetime record highs.

    I guess that eventually this trend will reverse, but by the time that happens most gold bugs and mining CEO's will have already seen their net worths vanish.

    Meanwhile, those speculators betting on the Fed who stayed in the system continue to ride a flotilla of liquidity pumping up U.S. stocks into Outer Space.

    Unreal how every single dip is bought in U.S. stocks, and every single rally is sold in the XAU and HUI.

    ReplyDelete