"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


Thursday, April 10, 2014

Safe Haven bids boost Gold

Gold put in a nice showing today building on last week's bounce away from chart support near $1280 and the change in handles from "12" to "13".

The FOMC minutes released yesterday continue to put pressure on the US Dollar, but even more importantly, acted to depress US interest rates. That is the key driver for gold in my view at this time. Gold seems to struggle when interest rates here in the US rise as investors see little threat of inflation and seek out assets that will throw off some sort of yield rather than the yellow metal which only provides gains if it continues to rise in price. In a benign inflation environment, many do not believe gold will continue to rise.

For those who are new to this blog, a bit of a disclaimer here - I am giving you the broader market view of the inflation picture ( plus that of the Fed ), not my own view. As someone who lives in the real world and sees grocery prices moving higher, health insurance premiums rising, local taxes and fees rising, etc., I reject the argument that consumers are not getting squeezed by such things. However, until the broader market consensus shifts towards genuine fears of inflation, rallies in gold are going to be viewed as selling opportunities.

By the way, those record high beef prices that are finally being felt at the grocery store should begin to decline over the course of the next few weeks. It takes a while for the higher priced beef ( and pork for that matter ) to make its way into the pipeline but wholesale beef prices have already peaked for now and are working lower. Consumers should see some relief on both the beef and the pork front  beginning within the next few weeks. What happens this summer depends on whether or not grocers can move the high priced stuff during the warmer months. There is an old adage that the "best cure for high prices is high prices" and that is what we will soon see as demand will shift to chicken until consumers get sick of that. Maybe then beef and pork prices will stabilize at lower levels and we can all afford to eat bacon and throw some red meat on the pit smokers. Grocers are usually hesitant to raise retail red meat prices ( they have excellent margins in meat ) for fear of stunting demand but with the goings on in the livestock markets over the last few weeks, many have had no choice but to bite the bullet, raise prices and hope for the best. From what I am hearing, consumers are noticing and are balking.

Back to gold -

From a chart perspective, gold continues to remain within the broad trading range that I have outlined for some time now. It will need a catalyst of some sort to kick it higher or send it lower. What that might be remains unclear to me.

As you can see from the chart, it has run into some selling near the resistance level noted near the $1320 region. Above that, resistance is layered in approximately $20 increments, first near $1340 and then again near $1360.

Downside support comes in near and just above $1300 followed by our old friend near $1280.

On the ADX, which indicates a trendless market, the bulls have regained the short term advantage ( when it held at $1280). Stochastics are rising as price moves up in the range showing the near term friendly picture. How this market handles this $1320 level today and tomorrow, will be a key as to how to approach it. The trading range is pretty broad ( up near $1400 on the top and $1280 on the bottom ). We could see this range tighten up a bit and narrow down somewhat from the current $120.

As mentioned above, I cannot see what would cause this market to break out of its current range at this time. The Dollar would either have to drop off sharply breaking down below 79 on the USDX or interest rates would have to plummet sharply here in the US, along with perhaps a larger selloff in the broader equity markets to take it up out of the top end of the range. On the downside, we would need to see a sharp rally higher in the US Dollar ( alongside especially of a sharp selloff in the Euro ) and a surge in interest rates above the 3% level in the Ten Year to take it down below $1280 in my view.

Take a look at Eurogold ( gold priced in terms of the Euro ). Notice how it too is essentially rangebound. The ADX reveals the lack of a clearly defined trend. The top of the range is up near the 1000 euro region; the bottom down near 880 - 860. If gold could clear the 1000 euro level, we might finally have something to write about. Can it do that? Who knows but if the ECB were to actually proceed with their chatter about their own version of QE and forcing banks to pay interest on reserves held there at the ECB, then we might finally see the Euro weaken sharply enough to send gold higher and through that 1000 level.

Apparently Europe is having the same problems over there as we are over here - a lack of inflation and in their case, an excessively strong currency, which no one over there wants.

Back to the safe haven thing - equities are showing some surprising signs of weakness today, which is odd considering that they got all bulled up yesterday on those dovish FOMC minutes.

A lot of technicians are watching the 1830 - 1820 zone on the S&P 500. That is a big support level. If it were to give way, especially on a closing weekly basis, we could finally see some deeper losses in stocks. As you can see on the weekly chart, that is some uptrend so unless bulls are sent packing by an avalanche of selling, odds favor them coming in and continuing to buy dips. Maybe we can get some range trading/consolidation in stocks for a change instead of this nearly one-way ticket north.

The gold mining shares are providing little if any support to gold judging from their mediocre performance today. One gets the impression that they do not know whether to follow the broader market lower or the metal higher. Either way, it is not exactly a ringing endorsement of further strong gains in the actual metal. Then again the day is yet young and we could see some better buying enter before the close of today's session.

Switching gears just one more time - recent hog slaughter data shows its running a bit more than 7% below last year's levels. USDA told us in their recent Hogs and Pigs report that the worst we could expect was 5%. Their own data is proving the inaccuracy of that last quarterly report; however, the trade is still confused and unclear. Those who are lending credence to that report have been able to gain some advantage but yesterday's bizarre and extremely rare move from limit down to limit up within the matter of a few hours time shows just how unsettled this issue is in the industry. It is going to take at least another full month to sort it out and even then we might not really know for sure. In all my years of trading the livestock markets, I have never seen the hogs so unsettled or so volatile. They are making my old deceased friend, the pork bellies contract, look tame by comparison and that is saying something. I miss that contract and all the shenanigans that accompanied it.

Corn is moving lower today as once again improving weather conditions are stirring talk of field work taking place. Beans are moving lower probably due to some profit taking by longs who have been making small fortunes playing the demand side of the bean equation. Large expected soybean acreage this season is taking a backseat to insatiable demand for beans. While prices for corn and beans are far off record highs from two years ago, they are still very profitable. I am happy for our hard working farmers but I still must take this opportunity to vent against that boondoggle ethanol mandate. I hate that stuff with a passion because of its adverse impact on our livestock sector. That plus the idea of burning 40% of our corn crop in our gasoline tanks strikes me as the height of stupidity. Whenever I hear some politician from the corn belt start talking up a 15% ethanol blend, I want to scream. Anyone seen what that stuff does to seals?


  1. So, gold is now again a safe-haven? Wonder how long it will take the investors to treat it as a volotile risk asset.
    As for the corn, it has nothing to do with the efficiency or logic, and everything with profit made on this crop and the DOA Cargill pays. Why are you even surprised?

  2. stay in the system … the feds have got your back …… and your wallet

    1. and your car , and your house , and your life , and your kids life , and your wife …. greedy bastards … but who knows right ? BTFD … maybe today is not the day … but it surely looks like one of those days ….

  3. http://www.marketwatch.com/story/lew-warns-russias-siluanov-of-more-sanctions-2014-04-10?link=MW_latest_news
    Very interesting. Appears the Petro dollar is scaring Lee. Bullish for oil and gold.

  4. my humble observation is that 2014 will be quite challenging for stk bulls, and bears alike; sparks

  5. Thanks for analysis Dan. Spot gold just missed breaching 1300 yesterday. Amazing that on my platform it seemed to halt at 1300.80. Then nice pop from the fed minutes, wonder who got them early this time? Also interesting to see indices sell off. Not before time. Agree on ethanol crop is a croc of an idea that one when people are going hungry. Maybe a return to an agrarian society would help pollution, Obamacare & employment....

  6. Trader Dan,
    Great analysis as usual. It's refreshing to read comments from an accomplished speculator that isn't laced with fear mongering or heavy opinion. Like James Cagney always said.."Just the facts ma'am" It's amazing the ECB hasn't turned that chatter into QE yet considering their terrible situation. Just how big of a move up in the dollar could we expect to see if they went heavy on the QE? Do you think it impossible for king dollar to break 100 again? That would destroy the bogus US recovery sending our economy into the toilet while at the same time commodities would be super cheap and give us prices reminiscent of the 2008 crash. What a buying opportunity that would be for all of us.

    1. Just thinking that Germany is the key here. They have long memories of the Weimar. Interesting thought but how do they do it? No political power to enforce the printfest payback. If the Germans make money, Germans Keep money. I think it is as simple as that.

    2. Wolf, I'm no expert on the inner workings of the ECB and that's why I asked Dan's opinion. As far as Weimar being in the memories of the Germans, that was nearly five generations ago and happened because Germany had a revolutionary government that couldn't borrow money and the banks worried they were going commie. We have a much different situation nowadays with them being a member of the EU. I'm not sure what needs to be done or agreed upon by the members, but I'm pretty sure they will get something done soon because the higher the Euro goes the worse off their economy will get.

    3. Is it just me or is silver looking really weak right now? Gold / Silver Ratio is 66.15 as I type this question for the brain trust.

    4. silver looks weak to me also. that makes me think gold won't get any real legs. don't know why silver can't make gains but I don't see much lasting upside in PMs 'till they both get moving. silver usually leads (falling GSR) when a bull gets running.

    5. nortwind, maybe with China contracting two months in a row and silver being an industrial metal speculators are selling the rallies. It's not looking good for the silver junkies right now.

    6. john taylor;

      Hard to say whether the ECB would actually go down the road of charging banks interest to park their reserves there but if they start getting a whiff of deflation, and especially if the Euro were to strengthen and run through the 1.40 level, they might start getting more serious about this stuff and talking it up a lot more. The truth is that the euro zone hates the stronger euro as they need those export markets to pull them out of their economic funk and that strong currency is making their products non-competitive.

  7. Well today is proof positive that if investors get scared of stocks they immediately flee to the safety and security of Fiat Paper, whether it be Treasuries, JGB's, Bunds, California Muni-Bonds, Junk Bonds, or Corporate Debt.

    Just pull up a bond screen and get ready for your jaw to drop.

    Everybody and their brother is running helter skelter back into fixed income, much to the delight of Bill "Drawbridge" Gross and Jeff Gundlach, once again having the challenge of dealing with huge fund inflows and scrambling to "put the money to work".


    Heh, it usually dumps as fast or faster than stocks, and the mining equities act just like the Russell 2000 penny stocks, except they seem to go down in up markets as well as down markets, lol....

    Never a dull moment.

    Just waiting for a few Central Bankers to start panicking, make a few adjustments like the scientists on the control panel in The Outer Limits, and burn the short sellers once again with a Doug Noland-style "Rip Your Face Off Rally".

  8. Hah, just pulled up Bloomberg, Japan's 30-yr. bond is now yielding a paltry 1.69%, German 30-yr. Bunds at 2.43%.

    One year T-Bill from Uncle Sam pays you a whopping .09%!!!!

    Wow, just amazing how people have the utmost urgency to pile into this type of paper, irrespective of how much money is being printed.

    Heck, Janet Yellen now has the green light to concoct some new type of scheme or scam "get this cash off the sidelines" and "put this money to work" by helping businesses create jobs.

    And with absolutely zero inflation as shown in the implied TIPS spread, which is now sitting at near 30-year lows, as shown at the Cleveland Fed website:


    Janet has absolutely nothing to worry about, she can launch any program she wants with zero consequences on interest rates.

    1. Mark;

      Thanks for providing that link. It is very useful.

      Can you do us a favor and try to give us an update on that chart every month as a reminder? I will try to remember it but I can get sidetracked at times and might forget. I think that is a big deal because it is probably the best gauge we have of what "the market" expects in regards to the inflation picture out there. We all have our own opinions on this but what the consensus is of the big players is helpful.

      Yes, I do often wonder whether or not the Fed would go down that "we are going to charge banks interest to park their excess reserves with us" road.

    2. Demand creation through forced lending? Pumping stock market and liquidity swamping did not work, education and auto lending failing, next up negative savings. At least the stock market frenzied pumpers will run to the next great solution..won't work in a debt based consumer driven economy where 99% of the constituents are broke and about ready to lose their jobs or get a new one at McDonald's. Might have worked 5 years ago but the bank's took the bailouts and paid most of their CEO' s to create a new non GAAP accounting method called thievery.

  9. Thanks Dan. I've definitely noticed the higher meat prices at the grocery store and butcher.
    I'm seriously considering buying a freezer if the trend continues.
    I hear what you're saying about ethanol and how messed up it is to raise food to burn in a car engine. Warped.
    I had a FlexFuel car not long ago that could use either E85 fuel or regular gasoline. Someone warned me early on about the seal issue's so I stopped using it plus the E85 wasn't as smooth performance-wise as thje regular gas.
    The E85 was $0.25 cheaper a gal. but I stayed with the regular and felt better in doing so.
    The corn/gas angle bothers me also.

    1. Dark, all you gotta do is ask yourself how many states grow corn and multiply by 2 senators and you now know why this bogus corn ethanol passed some 10 years ago. In lots of states, premium is cheaper than regular because everyone knows that ethanol is no good. Also, if you want to know why Bush 1 turned an about face on Hussein > he went into Kuwait, check out Zapata. Last but not least, the Clinton and Bush Scumbag Families are huge in the drug business, or why else would we still be in Afghanistan? The Taliban had almost completely eradicated opium, you know? And please, do not tell me that Bin Laden had anything to do with 9/11; off my soapbox in sparks and headed for Vegas for the wknd; good luck everyone in the mkts

    2. DarkPurple;

      The higher meat prices will break at the retail level in around a month or so. They might pop higher in late summer for a bit but should hopefully retreat by September. next year should be better for meat prices at the grocery counter. This is a cyclical thing right now exacerbated by an unusual combination of fundamental factors.

    3. I hope it subsides as you mention but I can't help but wonder if thr drought (or pig disease) isn't going to stick around years in some cyclical weather pattern.

      It boggles my mind that the US doesn't have a desalinization plant infrastructure underway or on the drawing board.
      How can we have two vast oceans and the Gulf of Mexico on our coasts and no sea water desalinization plants to supplement the area's of the country that are chronically dry???

      The lack of foresight and prioritization regarding our countries potable water or irrigation needs is beyond short-sighted. It's not like fresh water is suddenly going to become plentiful and we have a surplus.

      California not having any salt/fresh water conversion plants of significance is a head scratcher.

  10. What is Armstrong saying about the drop in the stockmarket? Nothing. The drop is not mentioned at all over the last days. Right on gold and wrong on the stockmarket, What happened to the 8.6 year cycle answers everything.

    1. Concord, the stock market is down like 3.5% in the last few days so what are you talking about?

  11. You must be in the indexes. I own FB, biotech and some others. It has been brutal. The Nasdaq is crashing. I hope you are right. I hear nothing from Armstrong and find it interesting he is silent about it on his site. Maybe he will comment tomorrow.

    1. concord, remember, he is just a letter writer with a million cycle theories about politics, wars, markets and so on; just relax on your positions and remember what Dan says and that is that is that in these busted mkts, you have to be light, light, especially if using leverage; I am a percentage player and we have to be closer to a top than anyone can know, but I will not fade it yet; I just like fading everyone at the crap table and watching them all leave, bellyaching; sparcks

    2. I know how you feel it's like an amusement park ride without the amusement. Dan mentions it quite often on this blog, and Martin has mentioned numerous times that the volatility would be strong in April. Just get a good grip and hang on for one bumpy ride brother. I'm sure the bulls will be buying the dips!

    3. Thank you Steve, I am little thick by being light do you mean what? I am not using leverage but hate giving back gains. I am holding as you say because I think the market is not done yet. I am concerned though and I like hearing you don't think it is done. The Nasdaq had two ten percent corrections before it topped as I remember in 2000. Thanks I am interested in your point of view.

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  13. steve brassey, could you please explain to me why you continue to slander Martin Armstrong on this blog with impunity? I'm not trying to pick a fight with you or be his daddy. It's just a little annoying to hear you talking smack about a man that I admire. Do you have any reason other than jealousy to talk smack? Let's not kid ourselves, Martin Armstrong is very wealthy intellectual that could buy all of us combined 100 times over. I admit he may have acute dyslexia but give the guy a break.lol


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