"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, April 30, 2014


One word can sum up the press release by the FOMC today: " BORING".

It pretty much said the same thing as last month's statement with the exception that the Fed cut another $10 billion off the bond buying. That however seemed to be generally expected. In effect, the Fed has just repeated that it is on track to end the QE program this year but will continue to monitor the data like the rest of us. They seemed to put the blame on the slow growth in Q1 squarely on the back of the severely cold weather. We shall see what subsequent data yields. Along that line, this Friday's payrolls number will therefore be much more significant than today's statement.

One thing is sure - the DOW seemed to like what the Fed said today. Another new high! The S&P however is much more restrained however.

Early in the session Gold once again fell down towards the key $1280 level but as has been its pattern of late, it attracted enough buying to kick it off of the worst levels of the session. Traders remain conflicted between a rotten GDP number and a fairly strong ADP jobs number. As time came for the release of the FOMC statement, the price began moving higher and actually made it into positive territory. It would seem that some shorts got a bit nervous and thought that the Fed might back away from the tapering somewhat. They decided to cover and that took the price higher. Their concerns were unfounded however as once the statement hit the wires, the price moved lower again.

The situation in Ukraine is keeping some buying rolling into the market. I am of the firm belief that were it not for that geopolitical situation, gold would be trading closer to $1260 if not lower at this point.

Aiding gold somewhat is the fact that the US Dollar is weak. It is flirting with support near 79.30 ( USDX ). Below that is more important chart support near the 79 level. This morning's GDP number seemed to send Dollar bulls scurrying for the moment with the thinking being that the Fed will certainly be hesitant to announce any interest rate hikes. Higher interest rates will support the Dollar.

One of the problems that gold has at the moment is the continued moved lower in the Chinese Yuan or Renminbi. A weaker currency there, means gold becomes more expensive to buy. While it remains unclear to what extent this could impact the amount of gold purchased by China, it certainly does not help demand and right now, gold needs all the demand news it can fetch.

Why do I say that? Because that barometer of Western Investor gold demand, the big gold ETF, GLD, has reported holdings showing that the amount of gold held there has now fallen below the closing level of last year. In other words, the trend of Western investors moving away from gold has resumed after a brief interruption.

Here is the chart:

Note how holdings are barely above a 5 year low. Western money managers and large institutions are not interested in holding an asset that pays no dividend or throws off any sort of yield in the current environment. This is the reason that gold needs the sort of support from geopolitical events, such as what is occurring in Ukraine, to keep it propped up.

Along that line, it was reported today that home prices in China are not rising at the same pace as they have been previously. Average prices rose 9.1% in April but that was down from a 10.% rise in March and a 10.8% increase in February. First quarter home sales were down 7.7%.

Traders are watching any sort of news out of China that might suggest a weakening or perhaps more properly, a slowing of the rate of growth as that will have a big impact on many commodity prices.

From what I can see at this point, any rallies in gold are likely to be viewed as opportunities to sell. With the Fed effectively tightening down on the liquidity spigot, gold is losing one of its key supportive factors. The Fed is not tightening in a direct sense but they are certainly slowing down the flow of money creation. I would think that at some point this is going to benefit the Dollar. Today it certainly did not. Interest rates actually moved a tad lower with the yield on the Ten Year down to 2.653 as I type these comments. I am not sure what to make of that to be honest.

One thing that I am continuing to monitor with increasing interest is the move higher in the Euro. The last thing the Europeans want right now is a stronger Euro. Their monetary authorities are concerned about the lack of inflation and that is precisely what a strong currency is going to bring, not to mention crimping their export markets. The ECB has been making noises about bringing in its own version of QE if deflation pops its head up. That will be worth watching, especially if the Euro manages to clear 1.39 and treks higher.

Silver continues to attract selling at the $20 level and buying near the $19 level meaning its boring, range bound trading pattern continues. Copper continues its retreat from near the $3.10 level. Much of the recent gains can be attributed to hedge fund short covering in the red metal. It will be interesting to see if it maintain its footing above the $3.00 level. From what I can see of its price chart, the metal is not showing any significant pick up in global economic growth at this time. Just more of the same - slow, mediocre growth but nothing especially torrid. I would need to see copper prices at the very least above $3.20 to see a shift in trader sentiment in this regard.

Hogs are continuing their yo-yo like trading - rallying to limit up one day, then dropping sharply the next, then back up, then back down. Discombobulated is the best word that I can think of to describe trading in this pit right now. That being said, any hog producers out there would do well to begin instituting some hedge coverage on expected 4th quarter hog marketings. Profits are enormous for that time frame - do not let them slip completely out of your fingers.

If you want to hold out some portion of your production betting on even higher prices, so be it; just do not bet the farm. Be prudent and secure some of the best 4th quarter profits that I have ever seen in the hogs on a portion of your marketings.

Don't let the usual bullish hype around the disease lull you into a state of complacency. Some are suggesting that producers are not going to be expanding due to virus issues. That sort of thing has been proven wrong already by the last USDA quarterly hogs and pigs report. Don't expect for one moment that those advocating this will be correct - they are not. Listening to them will cost you - big time. Secure some coverage and sleep well before gambling with your earnings/livelihood. There are some decent combination futures/option strategies that you can employ. Check with your broker to get some help along that line.

The corn and bean markets took a bit of a break today from moving higher as the forecasts called for some warmer weather which will allow farmers to get into the fields and make some planting progress. One never knows about weather forecasts but bulls pulled some winnings off the table, just in case. The bullish chart pattern however remains intact. Traders are going to want to see evidence of strong planting progress before becoming too bearish.

Incidentally, news today from the CME Group that it is considering limits for its gold and silver futures contracts. That has elicited the expected response from the GIAMATT crowd crowing, "we told you so", when it comes to the wild price swings in gold. Sadly for them it proves nothing at all about "nefarious evil doers" manipulating the price of gold for the government. What it does prove, if anything, is that computerized algorithms continue to wreak havoc in our financial markets and the wild volatility, so often unpredictable in nature, is scaring business and would-be customers away from the exchanges. They are grappling with how to deal with all of this. Limits might help but I doubt it. Position size reductions would be more instrumental in my view but that will probably never happen. Watching hogs go from limit down to limit up in the same day is a perfect example of what the computers have done to the price discovery process. If that is not enough for you, try trading old crop soybeans if you are bored and you will get a first hand lesson into the nature of modern computer algorithms.

Not much has changed on the gold chart which I am presenting here:

As you can see, it remains mired in its trading range. The range is constricting further however as first the top side moved down to near $1320 and now has moved down to just above $1300. The bottom is intact near $1280. Two things worth noting however - the stochastics indicator ( used for range trading ) just gave a new sell signal while the ADX line is beginning a very slow rise. Normally that indicates the presence of a trending move. With the -DMI ( Red Line ) above the +DMI ( Blue Line) that translates to a trending move lower. The chart pattern however does not as of yet show a clearly defined trend. That will require a strong close BELOW $1280 to achieve.  Stay tuned - this Friday might be a game changer.

The mining shares are a tad weaker based off the HUI today.

One last thing - the VIX or volatility index, dropped lower and is sitting near 13.38. There is not the least bit of fear/uncertainty or whatever in these markets, which is rather remarkable given the high degree of margin debt.

Monday, April 28, 2014

Speak Loudly and Carry a Wet Noodle

That pretty much sums up the market's reaction to the announcement of a new set of "sanctions" unveiled by the current administration against Russian President Vladimir Putin and Russia over events in Ukraine.

Sellers in gold wasted no time in declaring their view of the "strong message" ( note sarcasm here ) being sent to Russia proceeding to knock it back down below the $1300 level.

Further aiding the move lower was the heavy selling in Newmont and more weakness in Barrick over the announcement that any merger between the two was off the table for now.

The Yen also moved lower signaling the absence of any safe haven play as bonds also moved lower. Equities are moving in and out of positive territory as I type these comments. Safe havens are on hold, at least for today. There remains a great deal of volatility with short term technical factors dominating trading today.

I mentioned last Friday that I do not believe gold has much upside here because at this time I do not see events in Ukraine spreading outside of that region. If the market felt like those events could be a harbinger of more to come, gold would be much stronger. That it is not, is evidence enough that while the situation remains tense, most do not see it spreading beyond that region. Rallies in gold are therefore attracting selling even as dips lower are attracting buying from some due to the ongoing geopolitical developments. As stated so many, many times here now, buying gold due to geopolitical events is extremely risky. You have no idea what might or might not happen and thus it is entirely a crapshoot. That is not trading; it is not investing either for that matter; it is gambling. If you want to gamble, head to Las Vegas or Reno - at least they have some great looking showgirls while you are losing your money.

Corn continues to attract buying as traders are concerned over the slow start to planting this year. Also, the cool, wet conditions have raised concerns about poor germination of those crops which have been seeded. Soil temps are not warm enough and the market wants to see more sunshine.

This past Friday's Cattle on Feed report was considered friendly to the market as it caught some by surprise who were expecting to see larger numbers moving ahead. Feeder cattle continue to make all time highs as most small specs are caught on the short side and are getting squeezed out in a brutal fashion. How some of these guys paying the kinds of prices that they are for feeders are going to be able to make any money on them is a big mystery to me but that does not seem to be impacting things at the moment. Hogs are bleeding out of some the premium in there as traders take a "show me" attitude towards the slaughter numbers and the impact from the PED virus.

Crude oil continues weak in today's session further retreating from the double top near the $105 level.

Silver has once again attracted selling as it neared $20. It remains stuck in a narrow range between that level and $19 on the bottom.

Friday, April 25, 2014

Safe Havens Boost Gold

Once again, it is back to tracking events in Ukraine when it comes to gold. Traders are running away from risk and into the usual safe havens ( gold, bonds and the Yen).

This is going to be the scenario until something changes over there so get used to it. As I mentioned yesterday, it is basically a crap shoot. Those who expect the events to get worse are buying gold; those who expect them to be more contained are selling the rally. Both sides are utterly dependent on what happens next but more importantly, what is PERCEIVED to be the course of events.

Personally I do not see a lot of  upside for gold here because the situation, as tense as it is, has not thus far spread to anywhere outside of Ukraine. In that sense, while it is not insignificant, it is not likely to have much impact ( other than the short term market gyrations associated with geopolitical events ) on regions outside of that immediate area. It certainly is not going to move the Fed one way or the other when it comes to Tapering plans or interest rate policy. As mentioned many times here, that will be completely dependent on subsequent US economic data releases.

This is the reason that gold is struggling to maintain the "13" handle in spite of the escalation in tensions. If the bombs start going off in earnest or we get larger scale shooting or conflict, gold will be bid higher but many traders do not see this thing moving beyond Ukraine at this point.

What we have seen is a bout of sharp, short-covering from speculative interests who had been pressing the metal from the short side. They are standing aside and allowing events to unfold further before coming back in to sell in size. That is allowing an air pocket above the market and price is moving in the path of least resistance which for now is higher.

I would caution those who are looking to buy the metal here. Just be careful - geopolitical events are very tricky - you might hit it big and then again, you might not. Whatever you decide to go, no matter which way, long or short, do not be slow on the draw if need be. You can never anticipate when events on the ground will change and flip the market in the other direction.

As a trader you do not always need to be in the market. Sometimes the sidelines is the proper place. Let others chop each other up while you wait for the trend to re-establish itself after the excitement lifts. I have made it a habit never to chase gold over geopolitical events because one never knows how those will turn out. If you own some physical gold, you can be content with that but do not chase it higher if you are a trader. Even if you miss out on a move, the structure of the market becomes too unstable and that sort of thing is asking for disaster in these highly leveraged futures now that computers are doing the brunt of the trading.

I am noticing that crude is getting hit hard today. We have large supplies of the stuff but some are unsure how to trade it due to the geopolitical concerns. For now the bears are flexing their muscles. Gasoline is a bit weaker today but the stuff has moved up some $0.50/gallon since mid-January this year much to the chagrin and frustration of consumers who were relishing the lower prices back then.

Moo-Moos and Piggies parted ways today with hogs going down and cattle going up. Packers have been able to move the higher priced beef for now while pork demand has hit a temporary lull it would seem. Consumers are going to learn quickly, if they have not done so already, that beef prices are at record highs. Again, I look for relief later this year but the summer grilling season is going to suck.

Corn continues to draw buying from those playing up the cold, wet planting season weather. There is no doubt that planting is running behind normal. Most expected it to do so given the intensity of the cold winter and the fact that some of the Great Lakes were frozen over. The big question is whether or not we will have a good growing season regardless. Some chatter that El Nino will help out the crop is around but it is a bit early to bank on that. For now, the bulls are in charge of the corn market. They were certainly back to playing " the US is going to run entirely out of old crop soybeans" theme  in the bean market once again today as May hit the magical $15.00 level. We'll see if China begins any cancellations in earnest and whether or not imports from S. American begin to really take off.

I will get a chart up later for both gold, the COT stuff and the mining shares. I do not know whether or not the COT data will show the hedge fund short covering that has been occurring this week. My guess is that it will not, at least not in size because the big move from down below $1280 did not come until events flared up over in Ukraine on Thursday, two days after the cutoff point from the CFTC. Same goes for silver - hedge funds have been playing it increasingly from the short side and the combination of a stronger durable goods number, plus the psychological support from a higher gold price no doubt sent a fair number of shorts scurrying to cover but that occurred after Tuesday of this week. In other words, do not read too much into today's COT data. With what happened on Thursday, it is interesting but far too dated to give a clear read on how things stand here at the end of the week.

 Considering the move higher in gold and its ability to recapture a "13" handle, the miners look rather lackluster at the moment. Maybe that will change by the closing bell. The HUI continues to trade down below both its 50 day moving average and its 200 day moving average, not exactly a glaring example of a big market endorsement of the sector. There is value-based buying at work in the sector but the momentum crowd is MIA.

The US stock markets are getting hit with some selling ahead of the weekend as traders are nervous holding long positions over the weekend in which anything can or might happen. Caution/prudence dictates standing aside, especially if you have some decent profits. I suspect that a fair number of money managers/institutions are welcoming this move lower in the broader equities. Valuations have not been cheap keeping many from buying. Their problem has been that they do not want to miss the move up but are hesitant to buy when many issues are trading up so close to chart highs. The setback will allow some strategic positioning to begin taking place.

So far, 1880 - 1890 on the S&P has proven to be a bridge too far for the bulls. Its session low at 1853 is right about even with the 50 day moving average. The 100 day comes in near 1830 which also corresponds  closely to the mid-March swing low at 1823. If the 50 day does not hold it, I would look for prices to drift down towards that level to see if the market can uncover some buying there.

More later...

Thursday, April 24, 2014

HUI Chart

A quick chart update...

The 200 day moving average is serving to cap the move higher, for now. Nothing definitive either way, bull or bear. It's a crap shoot and traders do not shoot craps.

Stop Hunting - the Financial Version of the Hunger Games

Just a quick post for now to detail some goings on this morning.... more later including some charts...

The Durable Goods number that came out this morning and caused some ripples. By the way, those are "big ticket" items. The orders jumped 2.6% from February last month beating the market expectations of a 2% rise. It was also the largest increase since November.

The result of this was to set off a round of short covering in the copper market as those who have been shorting copper based off of problems in China and expected slower growth there, were caught off guard by the strength of the number here. China is the world's largest user of copper but the US is still important to that market.

I noticed that as copper strengthened on this bout of short covering, so too did silver. It seemed those leaning on the industrial metals from the short side decided to head to the sidelines and await some further data before pressing their case.  Copper has been quietly sneaking higher over the last month tacking on some $0.25/pound and while the chart is not especially friendly, it seems to have found a bottom below $3.00 for now. As many of you who read this blog regularly know, I track that market quite closely as I believe it is a much better barometer of what is going on as far as growth or lack thereof than most anything else.

The way I am reading that chart right now is that growth is not solid but neither is it all that sluggish. In other words, things are improving, but not by all that much. If copper can clear $3.20 then I will feel more comfortable about future economic growth prospects.

Hey, how about that REVERSE FLASH CRASH where the "good, benign, saintly" manipulators came in an shoved gold higher in some sort of perverse spike upwards? First it was run lower and a huge number of downside sell stops were picked off enriching quite a few floor traders in the process, only to careen higher forcing a huge number of buy stops to be run.

I am reminded of the old song:

" A hunting we will go, a hunting we will go; Hi, Ho, the derry O, a hunting we will go".

Just insert the word 'stop' in front of the word 'hunting' and you about have it.

By the way, do not expect to hear any round of criticism from the GIAMATT crowd about the ricochet higher in price. After all, that is reserved only for downward moves in price. Spikes higher are perfectly acceptable because we all know that everyone who wants to buy gold in large quantities wants to make sure that they buy it in such an obvious fashion that they drive the price higher so that they can pay a much higher price for it than if they had otherwise quietly been accumulating it.

I am using a bit of sarcasm here to just prove the point I continually make here at this site - today's wild swings in price are evidence of the broken nature of our markets due to the proliferation of computerized trading which rips price higher and lower as the new norm. Remember this the next time gold drops lower and up start the usual: "FLASH CRASH - evidence of evil manipulators at work" nonsense flares up.

Here is what actually happened and it had NOTHING, ZERO, NADA to do with manipulators or some secret esoteric anonymous large trader lurking in London or anything else - News hit the floor that Russia has decided to hold military exercises near the Ukranian borders and that included air operations.

Pro-Russian forces in eastern Ukraine are continuing to clash with Ukranian forces and that announcement sent stocks temporarily lower while gold shot higher as safe haven plays popped up. You can usually see that sort of thing when the Yen reverses and scoots higher.

It looks to me like the initial spike higher has attracted some sellers now that things seemed to have calmed down a bit. We will have to wait and see how the dust settles today. As long as there are any fears of further escalations over there in Ukraine, the market will be supported. If those fears fade, watch for more selling pressure to re-emerge once again.

Tuesday, April 22, 2014

Goldman Sachs Saves Gold from Falling Apart

Yes, you read that headline correctly, much to the chagrin of the GIAMATT crowd. What am I referring to? Answer - this morning, two analysts from that firm upgraded their recommendation on the precious metals mining sector to "Neutral" from "Sell". They cited " a more responsible use of shareholder wealth". I found that rather interesting to say the least.

What was even more interesting was the headline that the story came down the Dow Jones wire under: " Gold Miners Now Less Likely to Torch Your Money". While it is a serious matter to those who have been so hurt by investing in this sector, I had to chuckle at the caption that the reporter chose. I think it pretty much summed up the sentiment of many toward these miserable things.

It was this upgrade of the miners which kept gold from utterly collapsing below critical chart support centered around the $1280 level. Hedge fund selling leaned on the market early in the session with a couple of approaches to $1280 on decent volume. Price rebounded away from that support but could not manage to make much upward progress. A big push finally took it down through $1280 but with the gold miners refusing to follow, short covering took the price back up again.

Obviously, there is a fierce battle occurring over this chart level. Whichever side blinks first, is going to lose it. As mentioned in recent posts, speculators are becoming more interested in playing gold from the short side, although, I wish to reiterate, they remain net long still. They are selling while bullion banks are buying to cover shorts. Ignore any talk about this being a plot of the bullion banks to take gold lower therefore.

Hedge funds are already net short copper, very close, if not already there now, net short silver, and are reducing their net long exposure to gold. If the gold price cannot find its feet right here, right now, watch for increasing long side liquidation and a new wave of fresh shorting.

Here is a look at the gold chart:

Notice how it is flirting dangerously with that red line that has held it going back to early this month. If it cannot recover quickly, price should move to test $1260, and then $1240 if that were to fail. Again, were it not for that Goldman recommendation on the mining shares, we would not be talking about $1280 at this point but rather whether or not $1260 is going to hold. Those who keep with this non-stop gold is being manipulated lower by Goldman Sachs and JP Morgan talk would do well to thank them at this point for saving their investment account from even worse harm.

There is nothing gold for the bulls as far as any sort of upside potential unless gold were to push past $1320 for starters. We'll have to see how Asia responds to the move lower this evening. Last night was not exactly a stellar endorsement. Maybe picking up the metal another $7 - $10 lower will make a difference.

Incidentally, those Newmont Mining/Barrick merger rumors are continuing today.

It sure did not help gold any today watching crude oil get whacked lower. It is still trading above the $100/barrel level so it is not exactly falling apart but it does appear that the $105 ceiling is still very much intact.

In yesterday's post, I mentioned the planting progress or more properly, the lack thereof, in regards to corn. The "corn is never going to ever get planted this year" guys pounced all over that driving it back up above the $5.00 mark. That pressured beans as traders are concerned more farmers will have to shift to beans instead of corn. You will have to watch the weather forecasts to figure out which way these things will go from here on out.

 Welcome to the start of grain trading season!

By the way, for those who enjoy inflicting pain upon themselves, try trading coffee if you are bored. After imploding early last week, it went flying upward on Thursday last week just about erasing the losses from the two previous trading sessions. It then fell yesterday but decided to rally over 7.5% today. In the process it managed to score a 9 week high. To put that in a bit of perspective - that is an over $4,200 move in a single contract in one day! Maybe tomorrow or Thursday it will give it all back up again. Seriously, unless you really know this particular market, leave it alone. I know a couple of guys who traded that stuff and ended up having it cost them their commodity trading career.

I mention it only as an example of just how wild and unpredictable these commodity futures markets have become on account of the computer generated buying and selling. It is the norm, not the exception. Remember that whenever you are tempted to swallow that "flash crash" nonsense that constantly surfaces whenever gold has a sharp move lower. These sorts of insane price swings are everywhere, in every market anymore.

Let's see how gold fares the rest of today. Perhaps I will post a more updated chart later this evening depending on how things go. Bulls are piggybacking on Goldman's recommendation to keep the price supported for now.

Monday, April 21, 2014

Gold Holds $1280 support; Remains Rangebound

Not much going on in gold today - it ran down to test the bottom of its trading range near $1280 and bounced off of that. Strength in the Dollar and a general sea of red across much of the commodity complex, undercut any reason to get aggressive buying it but enough interest was stirred down near that critical support level to prevent a sharper drop.

Gold shares were of no help for most of the day with the HUI exhibiting general weakness but towards the end of the session many of the share components of that index managed off their worst levels of the session. Gold over at the Comex seemed to come up alongside some of those shares.

I noticed that GG moved higher, gaining over 2% as I type these comments as management has effectively given up on their efforts to acquire Osisko. The market liked that in regards to GG but understood the implications for Osisko with that stock dropping 5.8% as I type this. That effectively clears the way for Yamana and Agnico-Eagle to pick it up. Both of those stocks were hammered lower. Obviously the market thinks they are going to end up paying too much for it given the weak gold price and its rather dubious prospects at this stage.

It will be up to the Asians to prop this thing up tonight here in the West ( in the morning over there in the East ). If they pull back for any reason, gold is in trouble. We'll watch the overnight trade and hopefully be able to see some clues as to their intentions.

The late comeback enabled the HUI to dodge the proverbial bullet today as it was flirting with a key technical chart support level near its session low. The bottom is holding as a result; however, any further strength in the US Dollar will probably see that fail. The currency markets, along with the US interest rate market, are the key drivers for gold right now.

Corn moved lower today, along with wheat which was derailed by talk of rainfall in the parched regions where it is badly needed. Beans were also pressured today although the bulls did their usual ramp job on the close as they came in and bought a bunch of them back. There was also a round of short covering as frustrated bears waiting for the funds to finally get out of these things got impatient and said, "the hell with it" and closed out some trades. Some large specs are convinced that the US is going to run out of beans before we get any of the early harvest from this year's crop coming in and that is why they keep coming back and buying the beans. When this theory/sentiment shifts, we will know it.

This afternoon we got the plantings progress number from the pencil pushers. Corn came in at 6% planted compared to last year's 4% at this time and the 5 year average of 14%. I would remind you that these numbers are not nearly as important as they once were given the significant advancements in the speed at which US farmers can get those seeds in the ground nowadays but old habits seem to die hard in the grain markets and there are some who still view these numbers as if they mean anything this time of the year. They still have enough clout as far as their buying and selling goes that one has to react to this goofiness but it is what it is and traders have to understand that and position accordingly. Both corn and soybeans have built up a nice demand base as prices retreated from all time highs last season. The question is, especially for beans, will that demand base remain intact given the potential for a large bean crop up here in the Northern Hemisphere this growing season. Along that line, any more credit related issues concerning the Chinese and soybean purchases is going to be ONE VERY BIG DEAL.

Cold Storage will be coming out this week so we livestock traders will be watching for that. I enjoy getting the emails and comments from some concerning the sky-high prices that they are seeing for both pork and beef in their local grocery stores. The drama is playing out as expected. What I can tell you is that I am very confident that we will see prices move lower this fall for both but this spring/summer is going to be one which is not going to be a lot of fun for those of us that enjoy bar-b-q. Sadly, this is what happens when we get back to back drought years  in cattle country ( 2011 + 2012) along with record high prices for corn and meal ( some blame goes to that pestilential ethanol crap). One simply cannot do a single thing to change the breeding cycle of bovine bovinus ( that is my pitiful attempt to throw some fancy Latin phrases around to impress the reader ) as it takes time to rebuild a cattle herd.

I hope the readers had an enjoyable Easter weekend. It is back to the sawmill now.

Saturday, April 19, 2014

Weekly Gold Chart

I wanted to take just a short bit of time between firing up the pit smoker and throwing some bovine flesh upon it to put up a quick chart of gold for the readers.

As I mentioned on Thursday, gold is totally at the mercy of events in Ukraine for the time being.

You can see on the chart that the metal has been range bound for some time now ( about one year ). Please keep this is mind when you read more breathless talk about gold being poised for a big move "any time now". How many of these "any time now's" have we read over the last year? Whether it is the GOFO talk or backwardation talk or "Russia is going to dump the Dollar" talk, or whatever.

Technically not a single one of these premises, or others not listed, have changed the technical posture of this market for a year.  If and only if the price breaks out of this range, can we say with certainty that the market has become concerned with these things. For now, it could care less and thus neither should we.

The green rectangle defines the range which is near $1400 on the top side and just below $1200 on the bottom side for a range of some $200. Just last month ( March ) the price had rallied up to the top of the range only to meet with selling. That pushed it back down with it looking likely that it was headed down towards $1200 once more. However, events flared up in Ukraine and gold received some strong bids due to safe haven flows. Those bids came in near $1280.

The circumstances due to these geopolitical concerns have created a new and higher bottom at the $1280 level. However, gold has been unable to push past $1320 for any length of time. That has carved out a new range within the broader range. This is marked on the chart as "Tighter Trading Range".

These two levels are our new boundaries which are confining the price for the time being. If the market senses any lessening of tensions in Ukraine, chances are that $1280 will not hold on the bottom. If not, there is a band of congestion between $1260 - $1240 that will draw it like a magnet should it fail. There is little support between $1240 and $1200 meaning that if $1240 were to fail, $1200 will be tested.

On the upside, only a breach of $1320 would give the bulls the needed impetus to make a run to $1350.

If events in Ukraine fade from traders' minds, the focus will shift back to US economic data with participants looking for clues to the Fed's future actions on in US interest rate front. Any improvements on the jobs front will immediately fan the flames of higher interest rates next spring, which the market continues to waver back and forth on. Higher rates will pressure gold as it should support the US Dollar. Again, we do not know what the economic data will look like and thus that leaves the markets very susceptible to sudden and sharp price swings either way as price responds to changes in expectations or sentiment along those lines.

Lastly, here is the current Commitment of Traders data viewed in chart form as to the positioning of the large hedge funds in comparison to the price of the metal.

There was a rather large shift this week in the positioning of the hedgies as they were both liquidating stale longs and adding new shorts. The combination dropped their current net long position by some 8000 contracts or so. This is the reason for my concern if the $1280 level does not hold - there will be a significant amount of long liquidation among this category of traders if it does not.

In another interesting development, the small traders, the general public, were selling gold this past week as well. Is the bloom coming off the metal for this category? They are net long still but this is the least bullish they have been in five weeks. Sentiment could be changing in the speculative community and that will bear close monitoring.

Happy Easter.

Thursday, April 17, 2014

Geneva Talks Pressure Gold

"She loves me; she loves me not", could be the expression best used to "time" one's entry into or out of the gold market lately. Just look at the headlines I have chosen to employ the last few trading days and you will get the idea. Back and forth they have gone as the mood of the market has been flipping from day to day. Most of gold's recent gains are related to the situation in Ukraine; take that away and the other fundamental factors remain bearish. Gold is therefore ultra sensitive to any sort of swing/change in what is taking place over there.

Today, apparently talks in Geneva ( 6 hours worth ) between the US, Russia and the EU, yielded some fruit, at least in the mind of traders. A framework was agreed upon which it is hoped that tensions could be throttled back. We'll see how that goes but for today, it was negative for gold prices, especially with yields on US Treasuries rising and a stable to firm Dollar. The yield on the Ten Year jumped today to 2.721% as I type these comments from a low near 2.60% earlier this week.

Again, at the risk of beating a dead horse, buying gold based on geopolitical tensions is always tenuous at best because as soon as those tensions are viewed as diminishing, gold is going to come under selling pressure not only from longs who are seeking to book any gains that they might have achieved before those are lost, but also from opportunistic shorts who are hoping for additional long liquidation to take the market down into sell stops that they have been eying.

We got that today in the form of a breach below psychological chart support at the $1300 level. Once gold lost that "13" handle, the stops kicked in and took it down sharply. It did get some buying right above $1290 but the technical damage was done at that point.

Looking at the daily chart, the market looks heavy heading into next week. Keep in mind that we have a long holiday weekend in the West with Easter coming up. That means a lot can happen between now and Sunday evening ( in the West) or Monday morning in Asia. If we do not see any flareups over in Ukraine over the weekend, gold could be in for some more selling come then. Everything is contingent on events meaning the market can go either way.

Back to the chart however...The big move down on Tuesday this week has cast a bearish pall over the market. It did bounce from the support level near $1280 but that was due to events in Ukraine. Two things have happened as a result of this. First, is that the price fell BELOW the 50 day moving average on Tuesday; that is negative. Then today, it fell BELOW the 200 day moving average once again. It should be noted in a trendless market moving averages are notorious for producing whipsaws but nonetheless, technicians keep an eye on these things to try to gauge just who might have the upper hand, bulls or bears.

The support noted is not that far off meaning if tensions lighten up a bit over the weekend, we will more than likely see gold test that support level. If it holds, fine. If it does not, $1260 will be seen in short order followed by a trip to $1240 if that fails to stir up active buying. All of this to say one simple thing - $1280 is shaping up to be a most significant chart technical level. If the bears crash it, watch for them to really pour on new, fresh short positions.

The ADX continues to move lower indicating the trendless feature of this market. The trading range, once between $1400 and so on the top and $1280 on the bottom has now constricted to near $1320 on the top with the bottom remaining the same. Bears are currently in control based on the directional movement lines.

A big contributor to the lack of upside enthusiasm in gold continues to be the poor showing by the gold mining shares. As mentioned yesterday, the market does not like these bidding wars it is seeing among some of the larger firms and is punishing their stock prices as a result. By more importantly, look at the technical price chart of the HUI and you will see what the problem is:

The HUI ended last week on a horrible note and it has been bleeding lower for most of this week. As things now stand, it is precariously perched just on top of chart support near 216 closing in the lower half of today's trading range. If it loses that, there is not much in the way of help until the index would near 211- 210. If 210 were to go, all bets would be off for the gold shares as one could begin to make the case that the index is on course to surrender all of the gains of the year. Let us hope not for the long suffering bulls.

Disgruntled Bulls - Please keep the hate emails and the nasty posts to yourself as I am just relating how things could shape up from a purely technical posture.

The overall commodity sector ( as a whole ) is working higher adding some support to gold but as far as any sort of upside trending move higher, the GSCI is not indicating one at the moment. Instead we see the index continuing to make a series of lower highs and relatively stable lows. Keep in mind something I wrote yesterday - this index is designed to key off of the most active or front months in the commodity futures markets. Currently a goodly number of these markets are showing markets in a backwardation structure. What is important to note about this is that the futures markets are anticipating a comedown in commodity prices as we move deeper into this year. Markets, being forward looking by nature, are discounting any serious threat of upward price pressures later this year. Of course, unforeseen events, especially weather, can always trigger reassessments of such things, but for now, the markets are signaling a break in upward price pressures in the commodity sector towards the third quarter of this year.

Along this line, economic data coming out of China will be closely scrutinized.
There are already rumblings of credit issues in that regards involving Chinese buyers of soybeans. That is not insignificant and will be closely watched due to its implications in the grain markets. Old crop beans seemed a bit nervous about this today although with the way the funds have been buying them, they did not break down all that much. Quite frankly, that soybean market makes me nervous. There remains a large number of farmers who are sitting with last year's beans in their storage bins who apparently will not let go of them. I have no idea what they are waiting for. If the function of the market is to ration demand, it is certainly doing that judging from the export numbers we got this morning. Maybe we need to see another week of poor numbers to convince some of these guys that prices are getting rather lofty. The thing is however, as long as the funds can push them higher without any serious hedge pressures from commercial entities, they are going to do just that. Standing in their path is a quick way to become a "former" commodity trader.

With the markets being closed for Easter, it will be a nice break away from the madness. We Christians celebrate the Resurrection of the Lord Jesus Christ from the grave as the evidence that His sacrifice for our sins was accepted and that they are now atoned for. We also believe that the resurrection is proof that Jesus was who He said He was, namely the Son of God. For those who believe, it is a glorious message!

"I am the resurrection and the life; he who believes in Me, shall live, even if he dies."   ( John 11:25).

Happy Easter! 

Wednesday, April 16, 2014

As Ukraine Heats up so does Gold

Gold is being batted back and forth between two opposing forces at the moment. The negative force continues to be the slowing Chinese economy with traders fearing a slackening of demand from that key consumer. The positive is escalating tensions in the eastern part of Ukraine.

Separatists, or pro-Russian citizens, are continuing to clash with pro-Western citizens with the Ukranian military getting more involved, although there have been reports of defections over to the Russian side from some Ukranian military units.

This is supporting gold, as is the weakness in the US Dollar.

Much is being made in certain gold perma-bull websites about rising meat prices as evidence that inflation is here to stay. Such stories are meant to justify claims that gold should be moving significantly higher in anticipation of even further upward price pressures but such stories are inflammatory and not forward looking.

Wholesale meat prices have already peaked out. My view is that we have seen the highs for this season for both beef and pork prices. As we move further into the year, particularly towards the end of the 3rd quarter and on into the 4th, look for prices to fall significantly from current levels. What is currently being witnessed is the catch up in the retail price of red meat as it takes a while for the more recently killed, higher priced product to make its way into the food distribution channel. By the end of this year, and certainly by the beginning of next year, beef and pork prices will have come down considerably from current sticker-shock price levels.

The same goes for soybean prices ( barring any serious weather event this growing season ). New crop beans are priced a whopping $2.70 below old crop beans as the market is moving on historically tight ending supplies of beans. With record acreage going to beans this growing season, we should also see some relief from these high-priced beans as well, although it will take some time before the market feels comfortable enough to push bean prices lower.

Corn prices are pivoting around the $5.00 level. While they have come off the lows near the $4.00 level, they remain far below the historic peak near $7.75 - $8.00. Wheat is reacting to continued dryness in key growing regions of the Plains but some of its premium is also due to the Ukranian situation. Traders fear supply disruptions from this key wheat-growing region and have bid prices higher in anticipation of possible shipment disruptions associated with the unrest over there.

The GSCI or Goldman Sachs Commodity Index is trading up near the top of its range as several commodity sectors have been moving higher. If it could clear 680, we might have something in the overall sector indicating some strong upward pressure and a breakout but so far the current board structure in many commodity futures markets is not suggesting SUSTAINED higher prices.

If China continues to slacken further, traders are not going to feel comfortable committing large sums of money into the sector in general.

The Dollar is basically going nowhere as it remains trendless. When it weakens, commodities, especially gold, tend to get a bid. When it strengthens, the opposite is generally true.

Nothing has changed in that regard.

We are back to watching geopolitical events and trading around those for the time being.

By the way, China's GDP number was a tad bit better than the market was looking for but even one of their officials said that the double digit growth that had marked it for some time was over. Gold popped a bit higher when the number came out last evening expressing a sigh of relief.

Tuesday, April 15, 2014

China Demand News, Lessening Ukraine Tensions Sink Gold

Last evening I posted the news concerning the World Gold Council's report about Chinese gold demand for 2014. Please see that post for the details.

Also, chatter continues to surface that China's economy is slowing. Now whether or not that is indeed the case can be argued, ( I tend to think that it is because of what is happening with the price of copper )  but many traders are viewing such talk as bearish for the price of the metal. The reason? If the economy slows the thinking is that there will not be as much money around with which to buy gold. Along this line is news out of China that its money supply grew only 12.1% in March compared to the same period the previous year. The People's Bank of China has a target of 13% growth. This is the first time since April 2012 that the target has been missed.

Another way of saying this is that Chinese credit growth is slowing and that has the buyer of both base and precious metals spooked ( palladium and platinum have been running on Ukraine issues ). This is the reason that silver is getting whacked with an ugly stick today and why copper is swooning once again.  

Traders are going to be watching the GDP numbers for China due out overnight here in the US. This will more than likely be a market mover for copper.

Remember, I am just telling you what the market is trading on; I am not saying it is gospel truth so please, gold perma-bulls, keep the nastygrams at a minimum.

Related to this are reports about Chinese use of gold for collateral in financing business deals. Estimates vary about this but the Financial Times reports that the WGC estimates it may be a high as 1,000 metric tons. That is not an insignificant number!

Today, if that were not bad enough for gold, traders interpreted President Putin's call for talks for a diplomatic solution to the situation in the Ukraine as a lessening of tensions. That is taking some of the risk premium out of gold although traders are reluctant to press it down below support at this time as that situation is anything but resolved. Still, any ratcheting down of tensions is negative to gold.

It must be kept in mind by those who buy gold based on geopolitical events that this is perhaps one of the most riskiest of reasons to buy the metal. I have said it before and will repeat it - price rises in gold due to geopolitical events can and will evaporate just as quickly as they began. Remember that when you bet the farm on more "end of the world as we know it" talk coming from the gold bugs.

Most seasoned traders look to sell such rallies knowing that once the event is full priced in, there is no longer any fuel for a further rally unless things worsen beyond what the market has currently priced in. It is the old adage of "buy the rumor and sell the fact".

From a technical perspective, nothing has changed in relation to gold in one iota. It is still in a broad trading range. Our old friend, the $1280 region continues to define the lower portion of the range while the top of the range has been pressed lower towards $1320. To change the complexion, one or the other level must give way. If the bulls can break through this week's high, they should be able to reach $1340 where another test will occur. On the bottom, a breach of $1280 would portend another drop of $20 towards $1260. Support is layered in $20 increments.

Once again the usual claptrap about GOFO and backwardation in gold has surfaced. Ignore it and listen to what the market is saying. Gold is range trading - no more and no less.

By the way, for those of my European friends who trade the yellow metal, Euro gold has support near the 930 level. Resistance is near 960 followed by 980.

A quick look at silver by request.... notice that while the metal has bounced off its initial level of chart support shown by the upper red rectangle, it has as of yet, been unable to move convincingly above it. A close BELOW $19.50 and the odds favor a move down towards $19 once again.

The metal remains below its 50 day moving average, which is bearish. Also, the ADX, while it has been steadily falling indicating the lack of a clearly defined trend is showing some subtle signs that is has stopped falling and may be getting ready to rise. If, and this is a big "if" at the current time, we see it breach $19 and be unable to get back above it, the ADX will be rising indicating the potential for a fresh leg lower in the metal. That would set it on course to fall towards $18.35 - $18.20.

On the grains front - soybeans continue moving higher as that tight old crop carryover situation here in the US has resulted in a bidding war for available supplies, in spite of the fact that the big S. American crop is now workings its way into distribution channels. The market is ensuring a huge acreage number for this season here in the northern hemisphere. Farmers are no doubt going to oblige.

The beans seem to be pulling everything higher including wheat and corn, which is off to a slow planting start this season. I personally have learned to ignore all that talk about "slow plantings" because too many of these newbie traders have never seen a piece of modern farm equipment but the fact is that the market still reacts to this sort of talk so one has to respect it. As mentioned in a previous post, I am hopeful for large and healthy corn and bean crops this season up here as our livestock and poultry producers need a break from this high priced feed.

The Euro failed at 1.39 and has now fallen to 1.38. There is some support on the charts near the 1.37 level. If that fails, we could see the beginning of a trending move lower for the Euro.

One last thing - any of you hog producers out there, please be mindful about what I wrote this weekend about 4th quarter hog prices. Don't let the wildly bullish talk from some who keep talking about how "cheap" 4th quarter hogs are in relation to the summer months beguile you into missing out on locking in some excellent profits. They are cheap for a reason!

Traders - keep in mind that I am speaking about producers who have to manage price risk and can secure good to excellent profits in their expected production with strategically placed hedges. They must take a different approach to markets than we speculators.

There are several option strategies which can be employed. Talk to your broker if you have any questions. One can secure price protection on various percentages of expected marketings while keeping some open as "gambling stocks" in the event of higher prices later this season. Just be careful as a great deal of uncertainty remains in this market and that is causing some wild swings in price. That will continue until the market settles this virus issue one way or the other. If you roll the dice betting on nothing but higher prices, your odds of getting it right are 50-50. I would not want to bet the farm on that especially if I had the opportunity to guarantee myself some good profits and thus sleep well at night.

Monday, April 14, 2014

World Gold Council Report Pressuring Gold

The WGC just laid a heavy weight on the gold market this evening as their report detailing Chinese demand for the metal ( or more properly - its lack thereof ) is getting more circulation.

The reason? They expect demand from China to remain flat in 2014. That is a far cry from what has been the norm since 2002, from whence gold demand has increased every year since.

The report mentions what most of us who follow the gold market closely already knew - namely that Chinese gold demand in 2013 vaulted a remarkable 32%. Of course, that was the result of the very low price to which gold had fallen from its lofty perch up above $1900. China loves a bargain and gold was at bargain prices last year.

Dow Jones cites the managing director for the Far East at the World Gold Council as saying that they expect gold demand for 2014 to be 'on par with 2013'.

Gold began to drop sharply as the report circulated. My own thinking is that were it not for the current escalation in Ukraine tensions, it would have suffered much harder.

If WGC report is indeed accurate, and apparently many are thinking at this hour that it is, gold is going to face yet one more additional headwind. Remember, it has been this strong physical offtake from Asia, especially China, that has tended to bottom gold prices in the past especially in the face of reduced Western investment interest in the metal. If that Chinese buying fades, and if interest rates here in the US begin to perk up, gold could be in trouble.

It is too early to say yet, but bulls had better not blink or they are going to be playing defense. Funds, while still net longs in this market, are beginning to add to their short positions.

Saturday, April 12, 2014

Looking Closer at the Pork Market

Not that long ago I sent up a post about the Quarterly Hogs and Pigs Report issued by the folks over at the USDA. I took issue with some of that data as it conflicted with their own weekly slaughter data. Whether that is here or there no longer matters in terms of the futures market reaction because ultimately, the markets always have the last word on these things.

I have to always laugh at the commentary coming out of gold community when the breathless remarks about flash crashes makes the rounds as if somehow such things are unique to only the gold market. Those who regularly trade the ag markets can vouchsafe for the sharp increases in volatility and extreme intraday swings in price that now, sadly, seem to be the new normal.

The hog market has reached levels of volatility that I have never before witnessed in my entire trading career of nearly 25 years. I remarked the other day that they are much more like the old pork belly contract that some of us cut our trading teeth on. Just this week we went from limit down to limit up in the matter of less than two hours time without the least bit of news. I could blame it on JP Morgan attempting to suppress the price of hogs at the behest of the feds, but alas, that would be as ridiculous as those who continue to regale us with flash crash chatter and 1% mandated price caps in gold.

The reason for all this goes back to that Quarterly Hogs and Pigs Report we got at the end of last month. The simple truth is no one is really quite sure what the true impact from that devastating PED virus has been in the industry. We all know that it has been severe; what we do not know is the actual number of deaths resulting from it. In effect, the industry is still dealing with a huge unknown. That is contributing to the wild swings in price as those who disbelieve the report continue to buy any breaks in price while those who believe the report continue to sell any rallies in price.

One thing appears to be sure - the report has quelled the panic buying that was evident in the product market with wholesale pork prices now coming back down to earth after reaching levels that were unheard of. AT the risk of boring those who are primarily interest in gold, bonds and currencies and not the ag markets, the price of the pork trim that goes into making hot dogs, for example, jumped from near $0.63/pound at the beginning of the year to a eye-popping $1.45/pound earlier this month. That is an increase of over 100% in 4 months' time! I wonder if the folks over at Oscar Meyer and BallPark have recovered from their shock yet!

There is one bit of evidence however that shows, in spite of the impact from the disease, things are not quite as dire as many expected.

Take a look at the following chart. It is the total pork production here in the US for each week of the year. I have included the year 2012 just for a reference point but am primarily interested in this year's production compared to the previous year ( 2013) to gauge the impact from the virus.

The BLUE line is this year's production while the BLACK line is last year's. Notice that we started out the year with pork production exceeding last year's levels as the impact from the virus was not yet becoming evident. In early March the impact then hit and did it ever hit! By the middle of that month, total pork production fell some 32-33 MILLION POUNDS below the level in 2013. The panic then started big time. Prices for wholesale pork, which were already rising in anticipation of a shortage this spring/summer took off in earnest as apocalyptic type predictions began circulating through the industry.

I quipped to one of the news wire reporters that the US hog herd had been completely eradicated by the virus.

Please note that I am in no wise attempting to make fun of the severe impact that those hog producers who have sadly been impacted from this virus have had to contend with. I have the utmost respect for our hog producers who battle regulations and other difficulties associated with feeding us.  We are talking about their livelihood being impacted and that is no joking matter. I am however merely pointing out how news stories take on a life of their own whenever prices start escalating. It was the same thing with gold back when it first cleared $1800 and then $1900 a couple of years ago. Some things never change in the markets, remember that.

Back to the chart however - notice what appears to be happening with that BLUE line however in relation to the BLACK line as the month progresses. For all practical purposes, it is at the same exact level as that from 2013. How to explain this when we have so many pigs being killed by this scourge of a virus?

The answer is in the weight chart shown below. Once again we have the BLUE line for this year ( 2014 ) in comparison to the BLACK line ( 2013 ). Hogs are coming in between  7 - 9 pounds heavier than at the same time last year. The average reader will be tempted to say, " So what?".

Look at it this way, if weekly hog slaughter comes in near the 2 million mark, that is an extra 14 - 18 million more pounds of pork each week. Please note that I am not allowing for waste - this is just for the sake of simplicity. What is happening is that hog producers, especially those who have suffered losses and who do have remaining hogs, are feeding them to heavier weights in an attempt to mitigate some of the impact from the disease.

Hogs, like cattle, are priced by weight. Assuming the quality of the animal is the same, a heavier weight hog or steer is going to fetch more money from the packer for its owner. Now an extra 7 - 9 pounds may not sound like much, but if you are selling a fair number of animals, that extra money from the same animal certainly helps out.

What appears to be happening is that while hog slaughter numbers are currently running below last year's levels, the total amount of pork actually being produced is higher than the losses from the disease would seem to indicate at face value. Heavier hog weights are offsetting a large amount of the reduced slaughter numbers.

The big question that the industry has at this point is whether or not we have seen the worst of the impact from the virus as the recent Quarterly Hogs and Pigs Report indicated we would or if the worse is yet to come this summer. No one knows for sure and that is what is contributing to the volatility in this market.

I will say this however, the fact that total pork production is running pretty close to last year's levels at this point, makes me very suspect that the extremely high prices we are currently seeing in the wholesale pork trade is going to continue for long. As a matter of fact, I am coming around to the opinion that we have now seen the worst ( or best depending on one's perspective ) of the price rises in pork and that this year's peak in prices seen earlier this month are the BEST we are going to see for the remainder of the year. Please note that I am speaking of the entire carcass and not individual cuts which may fluctuate in price as seasonal demand ebbs and flows. Still, in the case of trim for example, how can one justify a price increase of over 100% in 4 months' time when pork production is now running only slightly behind last year's levels? That is pure panic that produced such a thing - it is certainly not based on reality.

Hog producers might want to take notice of this and plan your risk management program accordingly. This industry has had some very difficult times over the last few years with corn prices soaring to all time highs near $8.00 and meal prices out of sight. Many producers have lost money for so long that they think they are hallucinating when they see these stratospheric prices in hogs and relatively cheap - by recent comparison - feed costs. I am glad for them as they are due for a break. However, one of the dangers of a market which is soaring upward and in which sentiment becomes so overwhelmingly bullish is that producers get caught up in the emotion and caution goes out the window. Why? Because they are just sure even higher prices are yet to come.

I would caution them to avoid making the mistake of allowing euphoria and greed to take the place of a sound risk management program. Hogs are at levels, even after the big retreat in price as a result of the Quarterly Report, where producers can lock in some incredibly, perhaps once in a lifetime kind of profits. Could they go higher? Sure they could - markets can do almost anything especially in our modern age of idiocy due to computers making trading decisions instead of human beings. But, they could also go lower, much lower IF, and this is a big IF, USDA's numbers actually get confirmed as being reflective of what is happening on the ground. Why take the chance especially if you can lock in GUARANTEED outstanding margins on some of your expected 2nd and 3rd quarter production. If you want to keep some out as gambling stocks that is fine, but why bet the farm on even higher prices especially seeing that the profits that the Board is currently guaranteeing you are ripe for the picking.

Also consider one more thing and this is from the technical perspective - look at the positioning of the big speculators in this market. Even after a sharp break in price, the big specs, HEDGE FUNDS and OTHER LARGE REPORTABLES, still remain overwhelming bullish on this market. Look at the positioning of the LARGE COMMERCIAL interests however, they are barely off an all time high RECORD SHORT POSITION. They expect lower prices, not higher....

This imbalance is not going to last forever. So far, the big specs have been willing to put their money at risk and defend those massive long positions by eagerly buying up dips in price as they are convinced that the worse of the impact of the PED virus is yet to come. Perhaps it is - perhaps it is not. If it is, then the big specs will have been proven to be correct ( much to the chagrin of the small specs who are siding with the commercials ). If it is not however, a mass exodus of speculative longs from this market would unleash a round of price carnage that would be devastating for any hog producer who did not take some measures to mitigate downside risk for his product.

I am especially worried about 4th quarter hogs as they are trading at levels which still seem rather bubbly to me based on the trend in total pork production that I am seeing. Fourth quarter hogs are still trading way above historical norms in price. I do not know if the current trend in these higher hog weights is going to continue the rest of the year - my guess is that it will as long as corn remains cheap. If it does, and if the expansion efforts that USDA noted in that recent Quarterly report continue, and which caught a lot of industry pundits by surprise I might add, we could see total pork production actually EXCEED last year's levels later this year.

I will admit that there are a lot of, "if's" in this analysis, but I note these things as one who has seen a lot of frenzies over the years of my trading career. They can end as suddenly as they begin with the result being a complete erasure of the entire move higher in a sector as the market moves back more toward historical norms.

One more thing and I am done - so far new crop corn is hovering around the $5.00/bushel mark. Beans remain expensive but that is mainly old crop. Soybean carryover should become more comfortable later this year, especially as market demand shifts to S. America. Let's hope that we have a good growing season for our corn and bean crops up here in the Northern Hemisphere this year with the result that we do not see any extreme price rises in feed costs. Hog producers, along with cattle producers I might add, have dealt with high priced grain long enough. They are due for a season of stable yet affordable prices for their feed. If they can get this, they should be profitable for the foreseeable future and that is good news to a group of extremely dedicated and hard working livestock producers.

Those livestock producers who can secure feed coverage and lock in profitable selling prices should do so knowing that they have secured themselves excellent profits and can sleep at night even while the computers wreak havoc in the futures market. They should also understand that they are not speculators but are producers - leave the betting to the specs.

Friday, April 11, 2014

Gold Stuck Below $1320

In looking at the following chart, it is not difficult to see that gold has run into a area of resistance near the $1320 level. Gold did a bit of a bid as some money exiting equities found a home in the yellow metal but many traders continue to use rallies as opportunities to sell out of existing long positions or establish new shorts.

Adding to the general lack of enthusiasm for gold at this time is the lackluster performance of the mining shares which continue to act as an anchor on any upward movement of the yellow metal.

Looking forward into next week, if gold is going to generate some more excitement, it is going to have to break through this week's high and convincingly clear the $1340 level. If it can do so, you will see some hedge fund short covering. If it stalls here near this level, watch for further long liquidation and some more new short selling to emerge. If the bears can change the handle from "13" back to "12", $1280 will come back into play at the lower portion of the recent trading range.

In looking over this week's Commitment of Traders report, we saw a reduction in the net long position of the hedge fund community of nearly 8,000 contracts. Most of that came from long liquidation ahead of the FOMC with a smaller contribution by the addition of some 2500 new short positions from the hedgies. That FOMC statement gave the bulls some fodder but it was a sort of two-edged sword.

One edge was clearly its dovish tone which suggested that interest rates will stay near zero for longer than many market participants were led to expect by the same Fed. The other edge was the clear concern expressed about the lack of inflationary pressures. The Fed, along with the ECB I might add, is clearly worried about deflationary issues. When the Central Bank expresses its concern over the lack of inflation in the economy, it is certainly not a ringing endorsement of a stronger gold price.

Along that line, the PPI numbers that came out today were quite a shock to the market as the number for March came in at a rise of 0.5%. The result was another set of headwinds to buffet gold as traders interpreted that data as evidence that the Fed could actually accelerate its bond buying program and any interest rate hike. Those are negative for gold especially when the market had just gotten the Fed's comments about the lack of inflation a mere two days earlier!

JP Morgan's earnings numbers set the negative tone for the overall stock market today. The broad selloff in equities was one of the reasons that gold did not break down as sharply as some might have expected. The Dollar showed some buoyancy today on the heels of that PPI number but not enough to set it up for a sharp rally.

All in all, it was a day in which volatility in the currency markets and in gold, was relatively mild by comparison to recent days.

Such was not the case in the grain markets, where news of Chinese rejection of corn shipments roiled that market with some spillover being seen in the soybeans. Apparently the Chinese are balking on imports of biotech corn. Reports indicate that China has rejected 1.45 million metric tons of US corn since mid-November. The reason? They claim it contained an unapproved variety of corn which was developed by the Swiss seed maker Sygenta. The variety is called Viptera. Also involved is another variety Duracade.

The National Grain and Feed Association, in a report circulated among its members, expressed the concern that pollen drift ( through the wind ) will make it unavoidable that the variety will impact corn shipments into China. Obviously big US grain shippers are worried. At least for today, that seem to supercede the latest USDA carryover numbers that we got this week.

A quick comment on the S&P 500. I mentioned in a post yesterday that an important support zone on the weekly chart was between 1830 - 1820. The market closed below that level today which puts it in a negative posture as we move into next week. Defensive plays in stocks were in vogue today. We'll see next week if that continues or whether the bulls use the sell off as another opportunity to buy back in. One thing is for certain - the aura of inevitability about a seemingly perpetually rising stock market, took a hit this week. Now we wait for the next batch of earnings reports and the next bit of economic data releases.

Enjoy the weekend... time for some meat on the smoker. Then again, with its high price right now, maybe cheerios are on the menu.