FOMC Day

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.