"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, February 26, 2014

Wee Bit becomes Big Bit

Yesterday's headline was; " A Wee Bit of Commodity Weakness". Today, that "wee bit" became a lot larger as the combination of a waning upside momentum met early end-of-the-month book squaring.

February has been an incredibly profitable month for anyone who was long the commodity sector. So much so that the famed February Break apparently decided to "take a break" from showing up. Maybe it will appear here at the end of the month or perhaps it has been a bit postponed until early March.

Either way, several key commodity futures markets experienced some big downside reversal patterns. That is taking some of the buying momentum out of the general sector as traders, particularly hedgies, do not want to let these profits slip away prior to getting those monthly statements out to their clients showing them how smart and clever they have been with their investment capital this month.

Here is a BIGGIE - Natural Gas and a HUGE downside reversal pattern.

Check out OATS - which is not a very largely traded market from a spec standpoint but nonetheless tends to be regarded by many as a type of general bellwether for the grain sector.

Here is Cotton:

And of course, Copper, which I continue to maintain has not validated the move higher across so many different commodities as it has been a laggard ( something which should not go unnoticed by those talking up hyperinflation concerns ).

This last chart of copper is the one that has made me such a skeptic when it comes to the recent buying binge that occurred throughout the commodity sector. In my view, you cannot have bellwether copper going one way on chatter about rapid growth and escalating inflation concerns all the while you have the rest of the sector moving higher. Something was not making any sense.

The month is not yet over but I must admit that this is one of the weirdest months I can ever remember because they entire commodity sector was on a tear higher and for the life of me, I haven't a clue as to what the heck was behind the move in some of these markets.

It has certainly been a momentum-driven buying event but other than perhaps some desire for diversification away from equities and into commodities, I failed to see the reason for this sort of wild buying. There has been a tremendous amount of damage done to the bears in the sector who were forced out across so many of these markets. Now the question, at least in my mind, is where do we go from here?

Further clouding the issue is this end-of-the-month book squaring. I want to see how things look at the close of trading this coming Friday ( the last day of this month ) and then see if money is put back to work in the commodity sector to start off the month of March or if we go back to range trading with markets being moved more by their own specific set of demand/supply fundamentals instead of this rather mindless and indiscriminate entire sector buying that we have seen this month of February.

Notice by the way, that both gold and silver are moving lower in sync with the sector. Also putting some pressure on both of the precious metals is a firm US Dollar and generally stable interest rates which seemed to stopped moving lower, at least for today.

Gold has stalled out at the resistance zone noted on the chart but still remains above initial chart support as dip buyers are still coming in on the heels of further nervousness involving Ukraine. The ADX has been steadily rising indicating the good trending move to the upside but it too is beginning to show some signs of that fading upward momentum.

The USDX has managed to get a nice bounce away from strong chart support near the 80 level. The New Home sales number seems  to have made some Dollar bears nervous.

Try not to draw too much from any one day's worth of price action. Remaining flexible and not dogmatic is wise during this zany period.


  1. http://www.zerohedge.com/news/2014-02-25/here-fts-gold-price-manipulation-article-was-removed

  2. Lucid and pertinent thoughts Dan as usual. What is constantly overlooked by the perma pm bulls crying hyperinflation and so forth is the fact that it arrived some 4 years ago in some of the MENA countries along with sub Saharan countries also, and has now most recently arrived in Venezuela, Argentina, Ukraine, Turkey, and I could go on, but I hope even the hardest of knucleheads will kinda, kinda get the point, maybe? So, we have huge dichotomies taking place out there, and that is why it is so laughable when I hear mindless chatter about the Indian Rupee, Russian Ruble, Chinese RMB/Yuan replacing the $ in oil deals and so forth and so on. Wake up ladies! Anyway, as Dan says, we must remain vigilant to see whether this wholesale commod rally has true legs or whether it was just one big short covering jag. I do not know; sparks

    1. 90% of US Bonds issuances are bought by the Fed. No one believes in lending to USA.

      This can continue only until US can enforce its military diplomacy on the world. They have failed in Egypt, Iraq, Afghanistan, Syria,. Nobody believes in "Saddam has Weapons of Mass Destruction" type of lies anymore.

  3. it seems so logical that on a day when Russia , places his heavy artillery in Crimea , and the US starts making threats , BAC put a SELL on precious metals …. the world upside down

    1. Anon, Ukraine is not like Germany was; it should split in half between Russia to the east and itself to the west; sadly, it is a simple pawn in the ongoing geopolitical chess match; sparks

    2. This comment has been removed by the author.

    3. Steve , to think that the Ukreine is going to split in two smoothly is wishful thinking in my opinion . Most of the gas that we europeans use to heat our home , and I don't have the exact numbers but trust me is more than 50% of the gas consumed in Europe , comes from Russia across the Ukraine through pipelines , as I am sure you know , those are difficult to split , don't you think ? specially when the russians have no upside in splitting the country . I am not going to start a history lesson here , but it could easily spark a civil war . When you have two differentiated sides within the same geography , you can either have a civil war , or a amicable agreement … being european , I feel that amicable agreements don't seem to last long around here , you can ask the poles , the croatians , the french , the spanish , the brits , the italians , am I missing somebody ? oh yes the irish of course . This is not going on in the CAR , this is the hart of Europe , and there is a lot at stake . East vs west , and lots of gas in the middle . A molotov cocktail .

    4. technical analysis works fantastic if you now how to read the charts , and we have here a few who can do it , and do it well starting with Dan , when you sniff tail risk , then the charts are meaningless in my opinion . We have had a horrible year at comex , the momentum is horrible , we ve had 8 good weeks , but it was preceded by a horrible 70 … , I am not buying gold because there may be a war in the Ukraine , I am buying gold because I do not believe that you can grow yourself out of debt with more debt , not at this levels anyway . I have kept my holdings throughout this calamity in the gold market , and I ve added some …. I took a decision to sit this one out and after 2013 I am ready for the worst trust me , they can throw a bus at me , and I won't blink . The bear market in gold in my opinion has its days counted , and if it wasn't for the issue in the Ukraine , perhaps we could see the very needed corrections all shorts are claiming for … if we get it , I will be ready , but with gold at 1330 , and having hit a major wall of strong hands shorts , IF something sparks in the Ukraine , and we still are around this levels in gold , look out shorts ! …. Lets see what happens when the olimpics are over … the russians have been very quiet up until now … and of course the clusterfuck of economic data doesnt help either . Thank God BAC put a sell on gold , right ? Anyway , some food for thought

  4. Thanks Dan for your post. I will learn from you eventually :). Last time sold too early, this time didn't sell my GLD options. wow. Do we see 1340 again soon?

  5. This comment has been removed by the author.

  6. Yes, looking more and more like another "Arc of a Diver" pattern forming on gold, XAU, CRB Index whereby inflation is instantaneously punished.

    And check out those bonds today, absolutely stellar performance with the U.S. 10-yr. down to 2.67%, the 2-yr. down to .32% which is a complete joke, might as well be free money.

    And don't look now, but the JGB 10-yr. is a paltry .58% and their 30-yr. is a measly 1.63%.

    Proof that whoever prints the most and prints fastest wins.

    Because never before have so many investors been so enamoured with paper confetti vs. physical hard assets.

    Truly extraordinary times we live in

  7. Dan, you say that Gold is not manipulated and merely pushed around by hegefunds.

    Can comment on this FT article regarding Gold manipulation?


    Thank you.


    1. I posted and reposted that article because they took it down. Thanks to Jim Sinclair for noticing.

    2. Lee and Got-it-Right;

      Let me once again take some more time ( of which I have precious few of which) to once again answer - I have written in the past and am ON RECORD as stating that I believe the Fed and the monetary authorities keep a close eye on the gold price as one of the many indicators that they follow. I have also stated that I believe gold is the ANTI-DOLLAR. I think I coined that expression so perhaps I should patent it. Either way, the authorities were extremely nervous about the price of gold when it was soaring higher while the US Dollar was threatening to break below multi-year lows during the last decade and into the first year of the new decade and then some. I have no doubt that there was a concerted effort to SLOW down its rise by the authorities.

      That being said, I am also on record as stating that once gold broke down from its highs along with the rest of the commodity complex., deflation concerns were in the ascendancy and inflation fears vanished. This occurred as the Dollar became the go to currency.

      Once that occurred, there was no longer any need for the authorities to "manipulate the price of gold". Why? Because hedge funds were dumping commodities in general and piling into equities in search of yield in a near zero interest rate environment.

      That is why I have spoken out against this idiocy that every single time the price of gold has a sharp selloff, the same crowd is always yelling "manipulation". They possess, with a religious fervor, the misguided notion that no matter what else happens in the rest of the markets that gold MUST ALWAYS RISE IN PRICE and soar to new heights. If it does not, it is the feds behind it using their agents the bullion banks. Like I said, I believe that was true when gold was in a bull market and the Dollar was in a bear market. Such is no longer the case.

      I have taken the time to refute the amateurish view that any large sell orders during the Asian trading session must be the feds attacking the gold price. That comes from people who do not trade for a living.

      Lastly, as far as the article in the Times goes, do I believe that there is collusion in the London fixes? Answer - sure I do. When the banks are left to themselves they are always going to do whatever profits them the most. But talking about the PM fix and the happenings at the Comex are two separate things.

      Gold does not trade in isolation. Its price is impacted by many other factors most importantly, money flows and sentiment. I do not care what the banks are doing at the fixes in the sense that if sentiment towards gold is strong and money is flowing into the gold market, its price is going to rise regardless.

      It is however a huge leap of the imagination to somehow suggest that because there are perhaps some dubious things going on among those banks at the Fixes that somehow the price of gold is not soaring higher.

      In my book those who adhere to the "Gold is always manipulated ALL THE TIME" thesis are becoming a cult with a cultish mentality. They are incapable of seeing anything that challenges their deeply held faith. That in itself is scary because one thing that marks all cults is the absence of reason and sound judgment. Group think takes over.

    3. Thanks for your thoughtful reply Dan. I am in agreement with most of your post. I did however observe countless times in 2013 massive positions being sold at 3am during a holiday when there was no buyers around. Not sure I would sell the equivalent of 6 months mine supply in 15 seconds to no buyers. Not a great trading strategy. Cheers!

    4. Dan
      Put the above in a file one your desktop and cut and paste next time the question comes up. Give you more time for analysis.

    5. True Courage...


  8. Dan, I would just ask you to not comment on all these requests from the brand new Hoosiers asking you about this that and the other thing; tell them to get a life; sparks

    1. I second this. No matter how much you try to explain things and clarify your position, some people just have too much of agenda, so they keep pouncing mindlessly on peripheral things and bring up articles from this or that self-serving snake-oil salesmen and demand that their gibberish be analyzed. One word comes to mind: hyenas.

    2. When I look at the people who have the agenda you refer to I am glad to be in their company. Your opinion on the other hand is useless and worthless.

  9. Oats? Dan, that must be a marker to see who is ripping off your analysis and selling it in their newsletters.

    "Oats. a grain, which in England is generally given to horses, but in Scotland supports the people." -Samuel Johnson.

    Great analysis as usual. Thank you.

    1. MDLGTO;

      sure enough - if we see any Oat charts over at the plagiarism online ( also referred to as Weiss) we will have another perfect example of what they just did.

  10. Its been 4 years now that gold has traded over $1,000 and the COMEX has yet to "implode".....

    If fact, its probably functioning smoother than ever right now.

    Especially when the big pension funds and other major institutional investors are still more interested in buying the common stock of Under Armor, Michael Kors, Nike, and Buffalo Wild Wings.

    I mean really, just look at those charts, hands down some of the most eye-popping ever recorded in stock market history.

    Wonder if any trends journal researchers picked up that back in 2009.

    But of course, every month we'll see an article that says "Any Minute Now!!!..."


  11. How is Economic Data so upbeat vs falling velocity of money? If economy was recovering velocity of money would have risen & normalised?

    How are stock markets at historic peak when velocity of money has crashed and lending borrowing has been so depressed?

    If economic growth was truly present then why are industrial commodities so depressed?

    Either economic data are fabricated or velocity of money or equity indices?

    Can anyone answer this ?

  12. Shark:

    When money velocity starts working into the system you will see an incredible multiplier effect as banks start dishoarding cash and start making business loans again. When that happens you will see an incredible economic boom after 5 years of restrained lending and choking small businesses.

    After that, inflation could easily pick up as unemployment is worked down and wage inflation pressures start influencing the inflation indexes.

    That would be the best news possible for the gold bulls: A raging economic boom. Huge demand for jewelry will help skyrocket the gold price back up to $1,650 once the Dow hits 20,000.

  13. Just around.d the corner. LOL. Been in lending business 35 years..never worse. Ever. Demand is a major, major issue. The big giant elephant in the Keynsian Mark argument.

  14. http://www.zerohedge.com/news/2014-02-27/another-recessionary-print-core-capex-posts-first-annual-decline-2012
    My point

  15. Tks Mark. great explanation.

    Wan't to ask you and Mr. Dan,

    Can Fed Control the violent outbreak of velocity of money as the amount of M1 created in 5 years is north of 4 trillion?

    Assuming that such a huge amount of money if suddenly starts to multiply due to velocity then it will not create just inflation, but hyperinflation.

  16. White Wolf, Thats very imp piece of info you gave. Demand Failure.

    Mark/Dan : I guess we do not need to worry about Velocity for now. Rather its how soon Yellen will Reverse Taper and QE5!.

    Thus it fits with my theory that commodity breakout is not pro-growth, rather its to do with dollar breakdown & coming hyperinflation due to complete failure of confidence in Fed's Reflation attempts.

    Infact precious metals will be the most to rise among the commodities. Industrial metals & energy will rise later as a knock on effect.

  17. Shark. Who is going to get the loans? Who wants them? How do they pay them back? Ask MARK those questions.

  18. Exactly. If GOLD is going up...it is strictly a currency devaluation and loss of confidence issue where central banking institutions create worthless policies. That is happening with the Keysian idiots shouting it is just around the corner.

  19. No demand, ever shrinking labor force, rising lousy scrappy regulations, shrinking incomes. The pie is/has shrunk, who is eating it and destroying capital..investment hedge funds. Manipulation markets and stealing money through pump and dumps. Go Tesla...would buy in to get burnt even with your money


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