"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


Wednesday, January 15, 2014

Is there a Change in Gold sentiment occuring?

When you sit here with nothing better to do with your life than watch numbers blipping on a computer screen, sometimes you observe some things that stick out because they are out of line with what you have been accustomed to witnessing. Such was the case with gold, at least for today's session.

As expected, the market moved lower after failing to take out overhead resistance in the zone noted on the chart ( $1,255 - $1,260). It then fell through chart support near $1,240 - $1,244 as follow through selling pressured prices lower. Further aiding its fall was strength in the US Dollar as the market reacted to the BETTER than expected December retail sales data.

That was on the heels of comments that the market regarded as Hawkish from two Fed officials in regards to the Tapering campaign.

I figured we were going to see steady selling coming into the market for the remainder of the session, especially when interest rates started moving higher again but then we got the Crude Oil stocks number. The EIA released data this AM showing a whopping 7.7 MILLION BARREL decline in oil stockpiles when the market was expecting 800,000! Talk about a missed expectation!

There are a couple of ways of looking at this. The first is that demand for crude oil is so strong that the economy is definitely on the mend and upward price pressures are now becoming a real possibility. The other is that the recent large refinery runs have filled the pipeline with gobs of product that now needs to be moved. The latter seem confirmed as refinery utilization rates fell to 90% of capacity. That was down from 92.3% last week. If refiners are cutting back on their runs, then one could argue that stockpiles of the refined products must be building. That could be construed as a sign of weakening demand or perhaps better, a supply that is exceeding the current demand level.

What caught my attention was the manner in which gold reacted following the EIA release. Crude vaulted higher on the news and as it did, it seemed to me that gold began moving off its worst levels pushing back up into the area of broken support which was now offering resistance at $1,240.  It was a modest reaction but it did look out of place because it was unusual. It looked as if Gold was looking at the big draw and the surge higher in crude as perhaps the incipient signs of upward price pressures. I noted that this occurred even as the Dollar was strengthening.

Then after a good half hour elapsed, it began to weaken a bit but thus far it has not revisited the region from which it moved higher when the crude oil data first came out.

Maybe gold is looking at the high crude oil draw and the better than expected retails sales as signs that the latest jobs number was a one off? I don't know but it popped higher for some reason. Someone wanted to buy it along with the mining shares I might add. I have slowly come around to the opinion that without a real concern over inflation, gold is going to run into selling on rallies. Instead of cheering for a lousy economy, the friends of gold might want to consider that as long as deflation concerns trump inflation concerns, the yellow metal is going to flounder.

What needs to occur, in my opinion, is that more of this funny money that has been created by the Fed ( along with the rest of the Central Banks of the West) needs to make it out of the stock market casinos and into their respective economies. Then that money needs to start changing hands more rapidly. In other words, we need to see the Velocity of Money begin to rise. AT the very least, we need to see the officially sanctioned rate of inflation as relayed to us by the feds, (you know  - that bogus one from the CPI) exceed the rate of return on 1 year money. Translation -gold needs NEGATIVE real interest rates to rise sharply. Either that, or some sort of strong selling wave to engulf the US Dollar. I do not see how we get either or those ( or both) without a shift away from the deflation theme to the inflation theme.

Confidence - that the Dollar will hold its "value" against the other majors needs to take a hit for gold to respond upwards. That is how I see it for now. Of course, the one luxury that we traders get to have ( we don't get many any more thanks to the advent of the computer algorithm and its ruinous effect on the stability and integrity of our financial markets ) is that we reserve the right to change our minds/opinions as often as we change our socks!


  1. Re; ^HUI. For a while you focussed, in your daily blogs, on the behavior of HUI in relation to the price of gold ( a kind of canary in the Gold mine). Now that HUI recently crossed over its 50 day mov. avg (potentially a good omen ) I do not see any mention of it in your recent missives. Am I missing something ?


  2. Not sure, but Dan seemed a bit underwhelmed by the management in most of these miners, and the hedgies with HTC CAPABILITIES seem to get the best of the nimblest traders. Dan, sorry if I spoke out of turn. In other words GOLD in your possession cannot be taken from you, very easily, while stock positions are manipulated easily with liquidity dumps by a number of suspects.

  3. this is what caught my attention

    Price Increases Accelerate

    The indexes for both prices paid and prices received were significantly higher. The prices paid index rose twenty-one points to 36.6, its highest level in more than a year, pointing to a substantial pickup in the pace of input price increases. The prices received index rose ten points to 13.4, indicating an acceleration in the pace of selling price increases as well. Employment indexes suggested an improvement in labor market conditions. The index for number of employees rose twelve points to 12.2, indicating a modest increase in employment levels, and the average workweek index rose to 1.2—a sign that hours worked held steady.

  4. Dan,

    do you give no credence to Shadowstat's inflation numbers which are much higher than the "managed down" current govt numbers? He uses the govt methodology from 1980. Even at mid 4% Williams shows now its almost double govt numbers.


    1. Watt;

      I certainly agree with you that the government numbers are not worth the paper that they are printed on. However, we have way too many people in our mentally lazy generation so the vast majority take the government's statistics as gospel and then approach the markets from there.

      keep in mind I am trying to think as a trader and see what the crowd is thinking. Right now the crowd could care less about inflation but if they start peeling off bit by bit, the gold market should start reflecting any shift in sentiment in regards to inflation. Also the TIPS spread will be helpful in this regard as well.


  5. Hi dan....yes I do believe shdowstats has it correct. the only point I was trying to make was that this looks to me like even the gov's own numbers may be starting to show that inflation is creeping in....I don't know if you ever listen to this spirited gentleman but I found his guest interesting...the interview starts at the halfway point


    1. David;

      Thanks for those very interesting statistics. If you could keep us up to date on those it would be terrific.

      I try to watch markets to see if their behavior shows any signs of changing. That is usually a tip off that the sentiment is turning in a pit. I never like to make too dogmatic of an assertion based on just one day's price action but I do try to see if a pattern is beginning to emerge. If the stats showing upward price pressures, I think gold would be among the first markets to note it.

      Thanks again,

    2. john Williams has been calling for hyperinflation for 15 years; his credibility matches the government's so if you are out there still looking for the answer, I keep on telling you all to go to sparks, nv; the answer is, there is no answer; swb

  6. "There are a couple of ways of looking at this. The first is that demand for crude oil is so strong that the economy is definitely on the mend and upward price pressures are now becoming a real possibility."

    There is some evidence of this in the product supplied numbers.

    Weekly Petroleum Status Report Highlights:
    "Total products supplied over the last four-week period averaged 19.1 million barrels per day, up by 4.2% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.6 million barrels per day, up by 2.7% from the same period last year. Distillate fuel product supplied averaged 3.6 million barrels per day over the last four weeks, up by 5.4% from the same period last year. Jet fuel product supplied is up 11.9% compared to the same four-week period last year."

    Those are quite good y-o-y numbers. Some of it is likely due to refinery runs intended for export, but probably not all of it. If you follow the oil markets you should be looking at those particular numbers every week.

  7. Dan, given miners are already so depressed, would you expect them to outperform gold (ie, drop less rapidly) if 1180 gets taken out on the weekly/monthly? (Sorry for the repost...I posted at the end of the day previously and you may not have seen it).

    1. John Kitcher;

      I am really not sure if the miners have already discounted the fall in the price of gold or not. In looking at ABX it is already trading $4.00/share higher than its worst reading last year back during the same time frame when gold first hit $1180. This time around, when gold retested that same zone, it stayed above $15. It acts like the worst in gold is over but it does seem to me that its price back when it hit $14 was already reflecting an $1180 price.

      The GG takeover bid is clouding things a bit as far as getting a read on the sector in general but I am impressed that the HUI is holding relatively firm on the chart. It has moved up nearly 10% off its worst levels while gold has moved about 6% off its worst level. That makes me tend to think that the HUI at 188 or so had already priced in a gold price of $1180 or a bit lower. The shares are catching up a bit and correcting that now with the stability being seen in the gold price.

      I suppose the big test for me will be what happens to Asian demand when the Chinese New Year buying spree is over. Will the demand remain as robust, especially if price moves higher? That is a key question.

      I guess the short and sweet of it all is that gold is sitting in a sort of neutral posture right now with the intermediate term tilted in favor of the bears but with the bulls attempting to gain control on the shorter term basis. I want to see if it can clear $1260 with some gusto to get friendlier.

      I would not want it to breach $1200 and lose that important "12" handle or I am pretty confident that it would go back down and retry that $1180 level once again.

    2. Thanks Dan! Always good to get your opinion on things.

    3. It is very interesting how this post by Dan in August 2013 is so appropriate for this time frame. http://traderdannorcini.blogspot.com/2013/08/hui-rebounds-off-of-chart-support.html

      Every since that time I have added HUI to my list of markers to track in addition to GDX and GDXJ.

      It appears that while Gold is oscillating HUI is having higher highs and higher lows. ( Caveat: I have been diagnosed as having 50% cataract in the right eye )

  8. here is the link


  9. Dan ,

    How can you tale the difference between a long spec and a bullion bank ? can they get mixed up ?

    Thanks !

    1. Anon;

      The way it works is that the reporting process put in place by the CFTC is supposed to sort this out for us but the Swap Dealers are a bit of a grey area if you ask me. Generally speaking, their positions are regarded as hedges implemented to offset private contracts that they draw up with commercial entities seeking risk management help. The problem is no one really knows for sure what portion of their trading is for hedge-related business and what portion may or may not be speculation for their own firms. I do not think the regulators are that detailed at times unless something pops up that gets their notice.
      That basically means that they are large specs in that sense and in truth indistinguishable from the hedge funds at times. That being said, they still tend to take the opposite side of the trade from the hedgies when it comes to gold.

    2. Thats great , Dan , thank you so much for the info , really appreciate it … trading this markets feels like driving through Bangladesh !


  10. I may be missing something but judging by the latest TIC data it would seem that foreign support for the $USD is dying. (See line 21). I can't see any large scale pullback of QE occurring anytime soon. It will be interesting to see how the markets react to FED spin over the next several months if I am right about this.

    1. Gene;

      I try not to read too much into the TIC data because once a year, when they do the revisions, those numbers can really change. I am not of the view that China is going to back away from the Dollar anytime soon mainly because what else is there to take its place? The one thing about the US Treasury market is that it is so wide, and so deep, that is provides the kind of liquidity needed for the world's central banks to sterilize their trade flows.

      Besides, China has to do something with all those U S Dollars we keep sending their way. They are diversifying which is wise but they still gobble up an enormous amount of US debt. After all, we are a great customer to buy the stuff made over there and they still need those export markets to keep their economy humming along.

      The Dollar has remained relatively firm over the last few months as it is within a range but with a bit, just a bit of a friendly bias. Maybe that will change - we'll have to wait and see.

      Thanks for the comments

  11. Well we are at that "Do or Die" point for GDX, pushing up on puny volume and no traction on the CRB Index at all, despite the bleatings about "hyperinflation".

    Probably time to buy DUST for a fast 20% gain over the next two weeks.

    1. It feels eerie in the PMs. The calm before the storm?

    2. Interesting. BBY crashes, and consumer stocks barely budge (and AMZN moves higher. rationale: retail sales have moved online OR who cares, just keep buying the market). GS is the only 'honest' bank in that it still reports GAAP earnings...but no one is worried.

      Thinking about DUST...Seems like we want to see the gold stock falter first and then buy in. Gold is limp + HUI maddeningly close/just above 50dma. BUT some miners have been on a tear: PAAS nicely above 200dma, RGLD as well. Even ol' ABX making a bid. Feels like a recipe to lose money either way to me.

  12. Hi all,

    I have better than Bitcoins : 1900% up in one day :)

    Dan, I think you should check if you may short this one :) :)

    1. Hubert;

      That is why I never became an equity trader... too many dipsticks in that arena....

      hope you and yours are well...

    2. Thanks Dan, I'm fine, but far from family for a while...had to go to Algeria for a 3 months mission, so time is long without them, despite the work.
      One real advantage of being a trader : can do it anywhere, at anytime :)


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