“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Friday, May 2, 2014

Commitments of Traders Report

There is not really all that much happening with this report for the week. Today's fireworks will unfortunately not show up so we are left to waiting for another week to try to read what happened today.

Through Tuesday of this week, the big commercial category, the swap dealers and the hedge funds were all net sellers. The buyers were the "other large reportables" category and the small trader or general public.

All three category of speculators remain as net longs in gold, although the hedge fund category has rather sharply curtailed that exposure over the last 6 weeks. They have reduced their net long exposure by approximately 50,000 contracts since its peak of this year when they were at 138,429.

What I find rather noteworthy is that in spite of gold's retreat away from near $1400 in mid-March, and the continued sharp drawdown in reported ETF holdings out of GLD, speculators remain stubbornly bullish in regards to gold.

That is a double-edged sword. On the one hand, their refusal to liquidate more longs is preventing aggressive selling from taking place and keeping gold above chart support. They are certainly doing their best to hold the metal up.

The other side of that sword is that any downside CLOSING BREACH of an important chart support level ( $1280 - $1270 ) means we are going to see quite a wall of technically related selling occur.

A good example of this can be seen in the early morning reaction to the payrolls numbers. A big wave of selling engulfed the market immediately. Were it not for that flare up over in Ukraine, it is highly unlikely the market would have recovered from that.

So far the bulls are preventing prices from closing below that key support level. It has penetrated several times now only to encounter buying, buying tied to a geopolitical event.

Based on what I can see at this point, any lessening of tensions over in Ukraine are going to see aggressive selling. Any escalation will see further short covering as what took place today.

Any of you who are soothsayers and know how events over there are going to play out, please inform the rest of us so that we may place our positions accordingly.

In the meantime, we mere mortals must wait and see.

I am noting a bit of weakness or more accurately, hesitancy in gold to stay above the $1300 level here late in the session. It should be noted that some very big interests are looking to sell any rallies in gold as they see some of the fundamentals that have been supporting it being removed as the year progresses.

We are talking mainly a phasing out of the Fed's QE program. Today's payrolls number further fanned talk about that and potential interest rate hikes in early 2015. That seems a good ways off at this point but if traders see a trend of stronger economic data and especially any upward movement of the US Dollar, gold is going to come under more selling pressure. I would continue to watch interest rates here in the US.

The yield on the Ten Year which was up near 2.7% at one time early today, ended up falling as the safe haven bids brought it down to 2.591%. That is a pretty big swing for that particular Treasury.

Oddly enough, the VIX actually moved lower today. I am not sure what the heck to make of that. I would have expected to see it creep up somewhat. It could be that US stock traders are of the mindset that while the events over there in Ukraine are worth noting, the situation is not likely to spill over outside of that immediate area anytime soon. That might or might not be true but based on that VIX reading, I would think that traders are of that opinion until or unless the events prove otherwise.

The flip side for gold remains the same - geopolitical events are supporting the metal and will continue to do so as long as the market is concerned with chances of escalation in tensions. Look at what the downing of two helicopters can do if you doubt this!

Remember, when a situation is this fluid, stay nimble. Don't get married to any one position for too long. And I mean either long or short! If you really are risk adverse, just stay on the sidelines and watch the rest of the players chop each other up. Find another market to play in - there are plenty of them besides gold.

9 comments:

  1. Thanks Dan.

    Dragged forward from last thread...



    "Unfortunately...my comment on the last thread (2 threads now) about an over-the-top dramatic moment/masscre in the Ukraine seeming likely was just reported on as having just ocurred or just discovered.

    Via zerohedge.com

    UPDATE: Up to 38 reported choked to death in the burned buildings of Odessa.



    Yikes!"

    ReplyDelete
    Replies
    1. dark, be careful of the info from the Bulgarian Blaster;sparks

      Delete
  2. Yep...hearing you on that.
    Starting to see some details at Reuters etc.

    This is fresh stuff. I'm pretty sure additional incidents of mayhem will start creeping out over the weekend.

    Glad I don't live on the other side of the planet.

    ReplyDelete
  3. "Missed it by that much!"

    Gold faded late in the day and failed to recapture ground north of the 200 day, though just by a whisker. Storm warning flags still flying over the PM sector as far as I'm concerned. All could finally break either way, and Dan is right to advise most to simply watch from the cheap seats.

    ReplyDelete
  4. Just a newswatchers opinion, Ukraine is in play and will drive gold until resolved(not necessarily a great deal higher but enough to flummox the shorts). I think considering elections are May 25 and it is unimaginable how this could be accomplished peacefully. Europe and the world will be extra sensitive.

    ReplyDelete
  5. Trader Dan, your assertion that the gold buying that is pulling gold back over it's 200 dma is related to the Ukraine is simply wrong, the uptrend was in place well before the Ukraine. Momentum low came in early December, it's been on an upward trend ever since. This is demand reaching into the market, and it will only increase as currency debasement worldwide occurs. You might be being too U.S centric with regard to your gold analysis, inflation in the world is rampant, the U.S is also exporting it, this has an impact on the gold market. In countries where the currency is being debased they will see gold going up in price and want to buy, it's all very logical. Inflation might be under control here for now, but in many places around the globe it's destroying wealth, gold is a haven. Turmoil world wide will only increase as the currency wars continue, these are very high leverage, and risky times, far more complex and opaque than it ought to be and thus is set-up to failures large and small. Gold is protection and it is entering the next phase shortly. If gold pierces above $1350 and holds for even a few days it's game over for guaranteed profits on the short side, shorts will have to work and sweat a lot harder. Though as you say if it breaks below 1270-1275 than we're into 1180 again, but I really think the momentum, with the side benefit of the Ukraine, and gold is firmly moving back into its up trend. This is not hyperbole, look at the chart, look at the demand, its clear.

    Cheers

    ReplyDelete
    Replies
    1. Angelo, not enough volume today to make a believer out of me. Just a Friday short covering escapade, and maybe I am wrong, but 1350 is meaningless on my charts. sparks

      Delete
    2. Angelo - gold is not in an uptrend. It is range bound as the chart illustrates.


      If you want to call it an uptrend, feel free to do so.

      The problem in Europe is not inflation. It is deflation. Their own central bankers are saying this right now. that is why they are talking up the possibility of starting their own version of QE. Why do you think that they are trying to talk down the Euro?

      As for the inflation you are talking about, I do not see it in the commodity futures market. The GSCI weekly chart shows a pattern of lower highs going all the way back three years to 2011.

      It does show a bottom formed near 600 but nothing doing on the upside yet.

      Ukraine is supporting the gold market. Take that away and gold is facing some strong headwinds. So far it is holding $1280 but it dodged a bullet today when those helicopters came down.

      Delete
    3. 1350 on my chart is the major downtrend started in October 2012. The inflation is in emerging economies not the west - gold buying volume is what I am talking about, global demand.

      The channel top at around 1420 and low at 1180 is visible, but the price is getting sticky around the 200ma and 200wma and because of that I add a more weight to the uptrend since December, I would say the true channel low is $1280, more around the level producers (some) can actually make a tiny profit. $1180 to me is the extreme. If gold can pop $1350 I think the 200 ma becomes more supportive.

      Cheers

      Delete

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