“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, March 19, 2014

Fed to Continue Tapering - Gold Jettisoned as Dollar reacts

All that was required to launch the US Dollar higher away from strong downside chart support near the 79 level on the USDX chart was a hawkish sounding Fed. With the announcement today that they would trim another $10 billion/month off of their bond buys, interest rates shot up on the long end of the curve and with that, so did the Dollar away from support.

The rally in the Dollar, along with higher interest rates ( the latter is the big deal) resulted in a barrage of selling in gold as bulls rushed for the exits. The result was a clean break of the first level of chart support noted on the chart. The selling did not abate until gold reached the secondary support level noted.

This level had better hold or gold is going to fall back closer to $1300.

The breakdown in the ADX indicates the uptrend has been halted. I am closely watching those Directional Movement lines to see if we get a downside crossunder of the +DMI below the -DMI. So far the bulls remain in control of the market but if that support level gives way, I would expect to see it reflected in this indicator. That could very well put the bears back in control on the daily chart.





Keep in mind, based on the long term monthly chart I posted up the other day, the bears have retained control over this market but their hold was slipping. If the daily chart breaks down further, they are going to be emboldened further and a lot of those who were forced out during this recent rash of short covering, are going to come back in on the short side once again.

The jury remains out therefore. Let's see what we get. We are going to need some positive economic data to confirm the Fed's rather rosy view of the economic outlook. They are content to place a fair amount of blame for the recent poor data on the record breaking cold temps. That may be true but the warmer months are arriving and we will know very quickly whether or not that is indeed the case.

One last thing - the Euro failed to best 1.40. In my view, that will be required for gold to best $1400.

34 comments:

  1. … in the mean time , I am in second third MUX at 2.79 … one bullet left on MUX

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    1. Both GOLD and HUI took out 20DMA today w/ momentum. Unless something outta left field to turn them back up I'd say this rally is over.

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    2. You may be right let's just see if it can hold on to this base. I have a problem with the nature of the rally ie massive short covering, but let's see, this the first time this year we find ourselves in this situation, and this sell off in my opinion was very anticipated. I m ok with it down to 1310sh area. Below there I run like forrest gump!

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  2. This comment has been removed by the author.

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    1. Thanks for your help Dan...I went long DUST last week based on what I have been learning from you. Your posts over the weekend went a long way in steeling my confidence to hold onto my position all day today (something I normally would not have done, and rather sold too early)

      My attention is focused on the weekly chart now and the potential engulfing bearish candle that is close to forming on Friday. That has been a great indicator since at least March 2012 of big downswings, imo

      Thanks again, keep up the incredible work...and count me as a buyer of any forthcoming book!

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  3. Wow, another day of total annihalation of MUX, TRX, and a series of others.

    Hands down the worst sector ever. More and more mining executives who failed to sell at the highs are going to be crying the blues after suffering from yet another brutal mining depression.

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  4. GDX/GLD ratio totally plunged today, already back below .20, wow this is incredible how it cannot even get above the lows from 2009.

    http://stockcharts.com/h-sc/ui?s=GDX:GLD&p=D&yr=6&mn=0&dy=0&id=p32554197479

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    1. Fun when Dan can teach us to be patient as the main "patient" will be the SPX. Come on Glam stocks what is wrong with you? This time Mark you have no hope with this recovery. If they keep trying to print lies when the truth is that we are decending and have not stopped since 2008, except large sums of money made by the 1% on bs economic news, low revenue growth with earnings on the backs of wage cuts, personnel cuts, and stock buybacks. Did the Fed think that simply controlling interest rates and pure liquidity dumps, while allowing the US to get destroyed will work? I think the time is near when all confidence in what the Federal Reserve can and will be lost. This is terrible news, but it does serve them right. Meglomania is a mental health disease and it is one that describes these masters of nothing. All bullets fired, more debt than the world has ever seen, full control of media and finance websites shouting from the rooftops, yet the people will only have ears for their one and only true god. Not "We are doing Gods Work -Blanfein, or I am richer than you - Dimon. Both of these individuals will be judged and found wanton. CT is another place that we will vent fury on the progressives. “The fact is, the state does not have the balls to enforce these laws. The laws would not survive the public outcry and resistance that would occur,” Connecticut Carry Director Ed Peruta said in a statement this week. Go Ed Peruta.

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  5. Can't believe how whimsical the markets are...everyone knew that it was more likely then not the FED would continue its tapor. The removal of the 6.5 unemployment threshold as the trigger to begin raising interest rates speaks volumes as to the FED's failure and the reliability of what everyone knew as the government's meaningless headline unemployment number. How anyone can actually believe this FOMC statement was hawkish is fantasy.

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  6. well one thing is different this year , we know now the US is no longer alone calling the shots out there … it will be interesting to see how that plays out on the old mighty dollar

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  7. Thanks Dan.
    The imminent, historic, explosive collapse of "the pig" (USD) will have to wait another day. I'm sure the dollar haters out there who want a currency collapse were disappointed today.

    The longer and deeper the taper runs the more pressure it'll put on the Chinese economy and the yuan...and the ruble.
    My guess is that the withdrawal of the Fed's QE will greatly impact China and Russia (and others) more then they'd like to let on.
    At some point SOON the EU will start their own version of QE but they'll wade in slowly at first. At that point I'd expect a weakening Euro to happen and a strengthening USD. And probably a weaker yuan, ruble etc to still occur.

    Unless Russia or China actively tries (and succeeds) to submarine the USD or US economy the USD will persevere longer then the anti-dollar cult crowd thinks is possible.
    The Russian/US situation makes anything possible in the FX markets because we could quickly find ourselves in new territory if Russia moves to take back most of Eastern Ukraine and the Odessa region. I think it likely.

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    1. Did I use enough KWN-ism's in the above post?
      If I could've C&P'd a pic of a nuclear explosion, a dollar vortex or a pic of The Joker burning a pile of money I would've done so. ;-)

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  8. Sir, the last sentence, do you mean 1300 or 1400? Tks

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  9. Right now I'm seeing a head and shoulders forming on gold. Then another H&S if it touches to 1250. Not good for the yellow metal.

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  10. The idea of higher interest rates cuts a lot of ways. With a 18 trillion debt, each 1% increase is 180 billion more in interest payments. So that just adds to the deficit. So that doesnt sound dollar friendly. Maybe there is another take on it. I would like to hear it.

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    1. I am with you Arnie. Don't see how the USA can cover the debt payments when rates normalize.
      I don't want the government to default but don't see how the fed can keep rates down when the economy starts growing. Maybe that's the secret. No growth ever.

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    2. I would like to add Mike , the 800 pound gorilla that by now everyone has gotten used to , is the fact that the little growth that we have now is the result of ctrl P policy , as soon as that goes , and it will be gone by the fall , the gorilla is staying . At that point lets see what they can achieve by low rates , lets see how long the banks will take before they start lending their not so precious anymore dollars to a population that has been exhausted financially , and that has probably forgotten by now how to start up a small business. I tell you what , those idiots in Washington will probably come up with the wonderful idea of rebuilding America , most probably financed by the only institution left with no lending risk since they can print all the bills they like i.e. the FED , and guess through whom will those bills be handed to build all these projects ? thats right , the very same banks that have been the primary beneficials of the ctrl P policies , and that put us in this mess in the first place , having paid fines mostly with tax payers money , and not having gone to jail . The people gets fucked again … we are all muppets . Its funny , they say they will raise rates by mid 2015 , but they keep getting GDP forecast wrong , again and again … lets hope the weather is good , oh well it will be June … that explains I guess . The only way out is outright socialism . Obama promised change , and you are going to get a hell of a change by the time he is gone …

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    3. Nobody seems to think that China is R.I.P., like me, but if I am right and nobody seems to think that an inflection point has arrived, well then, look out below son. Copper led the parade 10 years ago, topped before silver and gold and now is falling out of bed. Check out what the Chinese are now doing by way of Macau and the real estate mkts in Orange County, Vancouver, New York, London, and Hong Kong. Hear a bell ringing? The big messes are always about real estate and it goes from there. The tiny gold, silver, and other commods are just part of the symphony, as the fat lady has sung. Last man standing is the stk and bond mkts of the world and when they go, boy, they go. BTW, anybody ever look at the Baltic Dry Index numbers? Yeah, that shows a real worldwide recovery, huh? sparks

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    4. AGREE COMPLETELY ..it is finally over run for cover. At least I don't have to listen to the jumpers any longer. TIMBER

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  11. yep , the difference is that most chinese can eat off the ground , have no cars , no bricks and mortar house , no modern appliances , no air conditioning and a long etc of things that we in the western world have gotten used to and that take for granted . They don't give a shit about financial crisis , fiat currency and most of them don't have a clue who Obama is … for them it will be just another bump in the road , a chinese can live in a year with a hundred times less any westerner can .. they are a socialist country att the bottom with an elite social, class at the top , that means 100 million mega wealthy and 900 million dirt poor , imagine if they will ever stop trying … ask a chinese for obama care see what happens , he probably thinks you come from mars

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  12. On one hand you have TD giving us logical and rational reasons why gold is where it's at and where it's headed and on the other hand you have people who actually pay money for these type of explanations....

    "The Fed, through their evil, sycophant banker shills have driven gold lower by 6% in just three days...."

    U'mmm....yeah right. I guess none of it has to do with a sagging commodities complex or China entering a deflating bubble phase or the FACT that the Fed has withdrawn about $30 billion monthly from the QE hot money funnel into Asia over the last 3 months.
    I guess the response to that would be...."The Fed is lying and is providing the same QE under the table to the market and didn't really taper."

    The crusaders of "the truth" can only mock and demonize that which they don't fully understand and instead create an eccentric narrative they're comfortable with.

    When some phyz gold SELLING starts to take place in China because some individuals need some capital liquidation during China's correctiom that also will be blamed on evil Fed capping of gold.

    It's ironic that some of talking heads out there are actually manipulating facts or perception within their own "flock" by continually claiming an evil scheme is in place that's pitted against them. Crazyville.


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  13. Well looks like today its going to be "Do or Die" time for:

    - Sprott Asset Management
    - Matterhorn Asset Management
    - Euro Pacific Capital

    If gold really starts breaking down into another bear leg, then its pretty much "lights out" for those firms.

    As they are likely going to be spending the next several weeks fighting a massive wave of redemptions.

    And I will also wager that there will be no more Q & A sessions scheduled either.

    It's "Gut Check" time.

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    1. but Mark, they are 50 year billionaire veterans of the mkts; sparks

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    2. Mark - I admire your unwavering POV - it's been what, over a year now? So much so that you have copycat posters.

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  14. When I first heard about tapering, I thought that it meant that the fed would actually be selling some of the stuff they had bought. But instead its going from printing 85 billion a month to 55 billion a month. So all that does is add to the debt. If tapering meant draining the money, that might mean something. But its still adding.

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    1. Yep, it's still adding $55 bln a month but the $30bln a month ($360 bln/year) they took away is significant and impacts other markets and their hedges that they had in play that anticipated Fed flows to continue or even increase.
      Markets and currencies oversea's are turbulant for very real reasons, not just evil/sycophantic one's.
      $55 bln a month is still an incredible amount of money but just imagine the Asian (or EU) market reaction WHEN the Fed greatly diminishes or closes their swap window and chokes off the flow of USD even further.

      That's when the USD starts to regain some real juice.

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  15. Copper made a Bull Hammer Last Night. Important Intermediate Bottom.

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    1. I do not know Shark what u mean by intermediate bottom for copper; all I know is that it topped 3 yrs ago and is valiantly trying to hold a triple bottom here and if it fails like gold did at 1550, then the objective is $1.50. Now then, if you like China's chances to start buying again, or if you like American home building to be on the mend, then I guess you can buy. I think that has as much chance of succeeding as a fart in a windstorm. Why buy for what a 15-25 cent rally when there is such mileage underneath? It wasn't that long ago that we had this mkt at a buck, you know? Commod Super Cycle is dead. Take care, sparks

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  16. Gold & Silver could also make Bull Hammers today as all the bad news has been factored in.

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  17. Boehner + McCain = Rockpile; very, very, sad; sparks

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  18. Well gold seems to be holding its own, even the miners. But who can blame them when you have TBTF bank stocks like JPM going vertical, making 5-year highs?

    Obviously we are in the midst of a massive economic recovery and investors are voting with confidence by buying bank stocks of every race, stripe and color.

    Check out the 52-week highs list, mostly financials.

    Man, the world has never been better for the paper pushers and the fractional reserve exponential derivative dealers.

    Gold mining?

    Well, that industry is still mired in the greatest depression in decades.

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    1. Mark,

      You are right about gold miners. As for the overall economy and stock markets, yeah, they could go up, even exponentially from here, but the subsequent correction is not likely to be neither mild nor short lived. If you have your money tied in the markets you are taking a huge risk and can hope for meager returns. I'll wait on the sidelines until it corrects (perhaps 30%) before going back in. the professional traders have no choice but to play the ball. I can afford to wait.

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  19. it will be good if we hit 3315 3310 tomorrow , last buying threshold in my opinion … option expiry …. we shall get there with a little luck . At that point even if I do mostly equities , wouldn't mind taking a punt at comex . Hubert , any level you recommend leaving a buy order with a tight stop ? Thanks !

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  20. Hey, looks like another rollover on GDX going into the bell, man the hedge funds love to short these names.

    Poor Jim Sinclair and Rob McEwen seeing their net worths evaporate, must be very frustrating.

    Expecially when the CEO's of all the "cult" consumer companies like Micheal Kors, Panera Bread, etc. are getting rich beyond belief.

    Same with the CEO of SanDisk and Xilinx, I mean really, those stocks are going totally parabolic and their net worths are going ballistic.

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