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


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


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


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Wednesday, May 7, 2014

Yellen Speaks - Gold Breaks

Fed Chairwoman Janet Yellen was out today and sounded an upbeat assessment on the US economy, faulting the severely cold winter months earlier this year on the spate of poor economic numbers for much of Q1. Traders took that as a clear sign that the Fed is going to continue winding down its QE program, bringing it to an end later this year. She did however emphasize that it would be " a considerable time" before any interest rate hikes would occur after QE ends.

In other words, while the Fed may be slowly turning off the liquidity spigot, they do not see the economy strong enough to handle higher interest rates. Yellen also stated that most of her fellow Fed officials expected to normalize monetary policy in 2015 or 2016. That still is quite a ways off and a lot can happen between now and then.

Regardless, gold moved lower as once again investors opted to view the testimony as further evidence that one of the supporting factors behind a higher gold price is going to be eventually removed. Apparently the equity markets did not like that either, at least the S&P 500 did not seem to as it continues to waver back and forth between slight losses on the day and slight gains at this point in the session.


You'll note on the gold chart that once again gold has failed to penetrate an overhead resistance level and is now retreating lower. It continues to remain mired in this range trade. The ceiling is now just shy of $1320 with the floor near $1280 and extending down towards $1265 or so. Any CLOSING BREACH of $1280 and the odds will favor a new leg lower in gold. Bulls are once again on the ropes and will need some flare up over in Ukraine to bail them out.




Traders/Investors continue to closely scrutinize Chinese economic data for confirmation of slowing growth. Generally speaking, when they get that, they look to sell copper and of course, silver. Copper prices are thus highly sensitive to any data coming out of China with copper bulls very nervous about getting too aggressive in the face of any suspected slowdowns in the Asian giant's economy.

Speaking of Chinese data, the China Gold Association reported that Q1 gold demand was essentially flat compared to last year when total gold consumption there rose 32%.  The sum total demand for the January - March period was up 0.8% at 323 metric tons. Gold jewelry demand remains strong but it was bar demand that got hit - it fell 44%. Dow Jones made an interesting note that the Association's report was very much in line with the World Gold Council's recent April report which suggested flat demand for gold from China this year. Keep in mind that while gold demand is not soaring, 323 tons in the first quarter is not exactly a trifle.

Still, the takeaway, at least for me, is that without geopolitical-event related support, gold is going to new more than a few new friends among Western-based investors. Asian demand has always been the key to producing bottoms in the gold price but even more importantly, it has been helping to offset reduced Western-investment based demand for the metal. Some feel that the drain on the giant gold ETF, GLD, has been the source of a great deal of this Asian-based demand. If that demand falters, or better yet, if the RATE OF INCREASE slows, then that is not conducive to higher gold prices.

I note with great interest that GOLD BAR demand dropped significantly compared to the same period last year. There have been rumblings that China is supposedly going to increase its official gold holdings in preparation for making the Renminbi ( Yuan ) more widely accepted in international trade. etc. This morning's data would suggest otherwise, at least for now. Of course China is not going to telegraph in advance that they might want to buy large quantities of gold. All that would do is make them pay a heck of a lot more for it. Still, that drop in gold bar demand is noteworthy and should not be ignored especially with GLD reported holdings heading south. The Laws of economics still apply to gold - falling demand without a decrease in supply means lower prices. Either supply must shrink or demand must increase, or a combination of both must occur, to move the price higher.

Oil prices moved higher today as the government reported a drop in inventories of crude when traders were expecting a build. The 1.8 million barrel drawdown is the first in a month long series of builds. Sadly for we consumers, that kicked unleaded gasoline prices up a bit breaking the string of daily lower closes.

Soybeans are back to playing their yo-yo games. After plunging early in the session, bulls managed to take them back up nearly erasing the losses. Within minutes, back down they went again. By the way, this is one of the reasons I continue to mock those who advance the thesis that any sharp move lower in gold  ( aka 'Flash Crash' ) is evidence of the government-sanctioned bullion bank ransacking of the gold price. The sheer ferocity of these insane plunges in price and then equally violent rebounds higher in so many of our commodity markets on an almost daily basis is the new normal, thanks to the maddening proliferation of computers doing the "thinking" for hedge fund managers, whom by the way, if the data is accurate, and I have no reason to doubt it, are not exactly making a killing in the markets these days.

Many of them are losing money which is to be expected when they cannot find a market with a trend. Their computers are too stupid to understand how to trade markets in a range making them vulnerable to constant whipsaws and compounding their losses. Chalk up for one us old dinosaurs also known as "discretionary traders" meaning that we actually analyze and think before we initiate a trade and not just blindly follow some damned machine. I have said it many times here that it does not take much in the way of trading skill to pile on huge positions in a market that is trending when you know that all the rest of the computers out there are going to be sending the same signal at the same time. All that is then required is to then push prices higher or lower, knowing that the rest of your industry will be doing likewise with the result that it makes one look like an investing/trading genius.

The US Dollar managed to blip higher today on the heels of Yellen's comments. I am reading this slight firming as traders interpreting her comments as evidence that rates will rise here in the US well before they do elsewhere in Europe, Britain or Japan. Still, the Dollar is flirting with some important downside chart support. I still believe that were to Euro to somehow reach 1.40, all manner of bloody hell is going to be let loose among Eurozone manufacturing and exporting interests. They do not want a Euro that strong but for now, the ECB, other than saying a few things about that, are apparently content to tolerate the currency near current levels.

Look at the gold price in terms of the Euro and you can see that it too is going nowhere. It is however perched just above a key chart support level near 920. Will it bounce or will it break through? That remains to be seen. If it does fall through this level, it would more than likely occur simultaneously with a downside breach of $1280 in Dollar terms for gold which would push the market into the stronger potential for a trending move lower. The jury is still out however.



The jury does seem to have come in however on the mining shares based on the HUI. The index has fallen through chart support near 220. The day is not finished yet so the possibility exists that the index could rebound prior to the closing bell. However, if it does not, it would tend to augur further losses ahead for both the shares and the metal. There is a band of light support near 218; if that fails to force a rebound higher in the shares, then 216 comes into play.


Silver once again failed to reach $20, much less penetrate that level. It looks as if it is back to testing the $19 region, which has thus far been able to hold it except for a brief penetration before the price rebounded. I am curious to see if copper prices can hold above $3.00 and am wondering what might happen to silver can it not.

Hogs got whacked with an ugly stick today as traders bleed out some of the premium in those summer months. I keep urging hog producers out there to secure some 4th quarter hedge coverage. Do not let those good profits get away from you. Lock in some expected 4th quarter production. Gamble if you must but not without securing a portion of protection. Specs - I am speaking to producers here who are bona fide hedgers, not you.

Let's see how the dust settles today and how time constraints are for me. Perhaps I can post some additional comments depending on what happens later.

45 comments:

  1. The "Mega Crisis" in the metals and mining sector continues unabated.

    GDX/GLD ratio imploding again, back to .19, probably on its way to re-test the world record lifetime lows of .175 set in December 2013.

    Keep in mind that the 2009 low was .22 after the biggest, fastest, steepest, collapse in world history from the 2007 high of .63.

    Today's plunge happened literally within 24 hours of "shocking forecasts" reported by KWN, "Silver to Skyrocket", "Silver to $80", yada, yada, yada......

    ReplyDelete
  2. as far as I know gold bars are a very tiny piece of the pie … just saying … in any case all the data coming out of China regarding gold purchases its meaningless , but I guess in this zombie market numbers matter … anyway … going fishing

    ReplyDelete
  3. Mark, your phone is ringing. It is David P. from somewhere in a European slum and he is asking for cab fare. Can you wire him a couple of $'s? Oh, by the way, I think yesterday told the story with $ getting belted and pm's not exactly rocking and rolling. Today palladium is the biggest % loser and maybe I will win out afterall. 1280 or lower close and gold bulls start crying all over again, but wait, there is backwardation! ha ha ha

    ReplyDelete
  4. Dan,

    With positive news out of Ukraine today, Yellen upbeat on the economy, don't you think it strange that the yield on the 10 Year is down. Wouldn't you think yields would have risen. Is the bond market saying the economy is going to head south?

    ReplyDelete
    Replies
    1. BOBBO;

      I think it is more related to the fact that Yellen basically said no rate hikes until sometime in 2015 - 2016. The big banks are saying mid 2015. I would still keep a close eye on US economic data releases. if they show strength, I expect those rates to creep up on the long end.

      Delete
    2. Brassey....

      Yeah, why doesn't "David P." disclose his full name?

      Hey, our bet on PALL is for 6 months I think, let's say Labor Day will determine which one of us has to shell out a Ruth's Chris gift card....

      How about we use $77 as the benchmark, just above the breakout area. It closes over $77 I win, it closes under you win.

      Fair enough?

      Delete
    3. 77 Sunset Strip, sure Kookie, lend me your comb on Labor Day; Fair Enough; swb

      Delete
  5. Yellen, or Putin, or stocks rebounding, or the fact that the sun rose in the East.

    That is the nature of a bear market. All news is bad.

    ReplyDelete
  6. Make mine a double . . . . .and serve it to me in a dirty glass!

    ReplyDelete
  7. just keep your physical hedged. I was getting cute and was going to reshort at 1317-1319. Well, that never came...

    If it weren't for the net longs on some of these large commercials, I would be short tons. I am not saying these commercials rule, but they can see further down the road than we can.

    The dollar is bouncing close to 79, the long bond yield keeps dropping, and this is the best gold can do?

    the 30yr bond contract at 136 and pushing at resistance. could it hit 138-140? looking at a one year chart, it looks like it could. That would be good for gold - perhaps. But what is this rising price indicating?

    ReplyDelete
  8. Eph,

    With the Fed tapering their bond purchase program, who is doing all the buying on the long end of the curve to keep pushing rates lower?

    ReplyDelete
    Replies
    1. There is a theory that although the Fed is reducing purchases, to make up the difference, bonds are being bought by proxies, like Belgium...

      Delete
  9. While I can get annoyed at reading all the negative spin on Zerohedge all the time, they very often do have good articles. The one topic they were pounding on for the past year was the diminishing federal deficit over the past three years. It really has narrowed a lot, and the falling issuance I think has to be behind the drop in yields to some extent.

    Outside of DC in MD, Prince Georges County, house prices there are down as much as 40% from the boom of 2005-06. The deflationary forces are still there for the average guy. In ABQ middle class houses are still off at least 25% from 8-9 years ago, and rents have not moved up much. Imagine if mortgage rates were back at 5-6%, like back then. That's deflation for the average person.

    Dan talks about the velocity of money dropping, and indeed the fall has been mindblowing. Money just isn't getting circulated, and I do not see any catalyst on the horizon. Bernanke continues to say there will be no hyperinflation, and he is correct. The only way there can be inflation is if the govt just wrote a check to everyone. But the money is not going into the real economy.

    ReplyDelete
    Replies
    1. yep , the velocity of money is no where to be seen ,and guess what thats what is needed , yes there is no inflation , but also there is no activity … if , when , they open the gates , prices are going to sky rocket across the board , just by the sniff of it , in the same way prices for luxury goods have already skyrocketed .. the fed can not have it both ways … its all nice and dandy for now , but the medicine hasn't been tested yet with the masses ..
      They have this wonderful prototype car , showing in a wonderful saloon , that looks very good , but it just has no engine in it … there is a note hanging on that says , do not touch , and above everything , do not dare to lift the hood .

      Sad , its just sad that people are so dumb .

      Delete
    2. Anon,
      I believe that is accurate. The dry leaves have been accumulating at increasing levels and what is needed is a match, or a lighter, sunshine, or freaking flint, and when (not if) that happens, it will burn fast and high.

      Delete
  10. Sell in May...you know the rest. See ya in the Fall when maybe the stock market will do the same.

    ReplyDelete
  11. I like to buy gold for the 4th of July. this year may be one of the best times to add.

    ReplyDelete
  12. Gold is in such demand in India that people are paying premiums that add up to around $1500 an ounce.

    ReplyDelete
  13. The environment for Gold is looking better by the day, manipulation of economies world wide. Growing Government and private debt, asset bubbles in various property, bond and stock markets. Falling employment and tax revenues in most countries. The wheels are coming off the Keynesian experiment, soon it will require vastly increased QE money printing to keep the ponzi alive. No asset class has hinted at the deflation better than Gold and the miners, they will be the assets with the most upside once the next round of QE arrives. Until that time arrives Gold may well deflate some more, hold and accumulate the metal and use the paper markets as a hedge. So it's long physical Gold and short paper Gold at various price points, that way you have the metal with the cover to accumulate at lower levels as presented thanks to the not for profit CB funded shorts in Comex and other paper Gold markets.

    ReplyDelete
    Replies
    1. Once you already have your golden safety net, and you hedge this position by shorting paper, why should you feel the desire to accumulate and build an stronger and stronger position?
      Noone knows if gold will perform again as it did in the 2000.

      Delete
    2. I believe the current elites will take the easy road and rather than forsake power resort to massive QE. The purpose of hedging is we don't know the timing of when the ultimate loss of faith in paper money will occur, Gold being the anti paper currency will be suppressed as far as possible and ultimately revalued. See James Rickards lastest book 'The Death of Money' It's not how Gold has performed since 2000 it's how Gold has performed since 2000 BC Gold still has value FIAT becomes valueless by decree.

      Delete
  14. Meanwhile, on the SP500.
    The trend is up.
    Those who are predicting an "imminent collapse" have done so for more than a year. Well?
    Imho better follow T.A rules and don't try to sell a top. Just wait to see how prices get out of this nice and perfect channel parallel to a linear ma20 on the 2week candle chart.

    http://i59.tinypic.com/21jp403.jpg

    ReplyDelete
  15. Hi Dan,
    brilliant comment again, but a small detail:
    Yellen started to speak at 10:00 AM ET,
    and Gold started to fall at 4:00 AM ET.
    Only makes sense if mkt was anticipating.
    Obviously got confirmed at 10 AM and kept on selling abt as long as it was anticipating before.
    Regards

    ReplyDelete
  16. What gives....freedom and individual or the people grow tired of the manipulated economy. Consolidation in almost all industries now. Very few small businessman able to hold on. This will now be left up to the "Big Gov" to see if their new model of trying to control all markets will last. Personally I believe they went way too far way too fast. People are starting to really starve. The manufactured and proclaimed recovery is just that. Potempkin everywhere with the possibility of many things. Mostly the wealthy will now start to suffer instead of trickle down it will become a great sucking of wealth upwards. Due to the control of the money supply, regulations, and the masses have no to limitd opportunity period. We will see but this spurs a great sucking of wealth and this the time big planning gov't will not be able to spur inflation. Consolidation in almost all industries is and has enslaved most people to accept survival. SAD.

    ReplyDelete
  17. Stock market is rolling over. Watch the BKX carefully. Look at the 90 day.

    ReplyDelete
    Replies
    1. rolling over where? we are still up 800 points from 2011 lows.

      The more i see and hear bearishness and disbelief in this rally the more realistic break out higher and a run to new highs becomes in my view..

      SnP500 2000 is only a few points away.

      Delete
    2. Even long term bear Grantham is saying 2250.

      Delete
    3. I don't know folks. While INDU & SPX are ever pushing new highs, the story is getting shakier…I read in the Times (yes, the Gray Lady) this morning that the last Sotheby's auction of Picassos (catnip for the Noveau Riche) et. .al. held yesterday left 1/3 of the inventory unsold & the Christie's auction the day before was nearly as bad. Couple this with TWTR crashing and MoMos correcting, housing stagnating, & GDP flatlining + it is a bit ominous.

      Delete
  18. I would say this to everyone. STOP making predictions or even writing what others are predicting. Its either bullish or bearish, uptrend or downtrend, trading range or not. And within that their are numbers that make sense. Everything else is noise.

    ReplyDelete
  19. I sell loans to real people not packaged vs to big businesses so they can buy buy back stocks, promise non existent dividends to suckers. You have your opinions I have mine. If the market goes higher, it leaves more room to fall. If the powers that be want to continue their charade so be it. There are bulls and bears. The bears are growling, you are just disillusioned like Mark. Good luck to you.

    ReplyDelete
  20. Through channels of old we are going to bury the bank's in bad debt, leave their products in disarray. There is many ways to skin a cat. This US treasury will find it difficult to pay their debt without true Americans. God is Alive. You can take that to your mattress.

    ReplyDelete
  21. White Wolf

    Sorry, but many guys these days are constantly making excuses.

    Exhibit A is Richard Russell, who has missed out on most of the biggest DIA and DJTA rally in world history, so he blames it on "Lies, manipulation, propoganda", yada, yada, yada. Really sad to see a "60-year veteran" close out his career like that.

    Bottom line is that anyone like Dan who trades for a living doesn't look for excuses, he just goes with the signals the market provides him, long or short. And doesn't try to be a top picking or bottom picking hero.

    What will you say when the S & P 500 is over 2,000 next year? Same "charade" as usual? Why not profit from it?

    Think about it. With interest rates so low, zero inflation, so much pent up demand from the economy that is growing so slowly, there could be considerably more upside in stocks from here. Why fight it?

    ReplyDelete
    Replies
    1. fight what … ? YTD , SPY flat … GDX up 11%

      Delete
  22. Keep lying Mark. It suits your soul.

    ReplyDelete
    Replies
    1. White Wolf;

      I understand how you feel and how you are viewing things but why call Mark a liar for merely stating the obvious. He has a different opinion of the US economy than you do. That is all. You do have to admit that he is absolutely correct about some of the "market gurus" out there who have kept their followers completely out of the US stock market and either in cash or in precious metals which have gone nowhere and done nothing.

      Have you not seen the incredible advancements in shale oil technology and the amount of growth that there has been in that field? That has been a terrific opportunity just to name one. There are areas where an investor or trader that does his or her homework can make money. One does not have to ignore the burgeoning indebtedness of western nations, the overregulation, etc, to realize that there are serious problems requiring serious men and women leaders to deal with them to also profit in areas that are indeed growing.

      Being successful at trading requires one to be flexible and able to adapt and change, all the while holding a certain view, but also understanding that not everyone shares that view.

      Be prudent, be flexible and remain objective my friend.

      Delete
    2. Sorry for the liar comment, but the little guy is getting crushed. Very bad taste and it deeply affects me both in my soul and in my wallet. Laughing and cheering is extremely insensitive. Just spurs me on. Big banks are pathetic and should have been destroyed. I have interviewed and worked for them. They are the problem. Not the solution.

      Delete
    3. Shale oil is all well and good, however, it's becoming harder and harder for Main St. America to make a living these days. One should only look at the supposed 6.3% unemployment rate. I guess it helps when 800,000 people stop looking for work.

      Delete
    4. Free Market;

      I agree with you that the labor participation rate is important; however, that should not stop one from diligently studying the markets and the economic fundamentals and finding areas in the economy where things are doing well and invest accordingly.

      There are growth areas out there; you just have to find them. It is much easier when everything is rosy and growth is robust but heck, if that were the case, all you have to do in order to "invest" is buy the S&P 500 and forget about doing any sort of research.

      Good traders/investors spent countless hours doing research which wears on you but that is the price that we pay to try to become successful at this most difficult of professions.

      Very best to you,
      Dan

      Delete
    5. Thank you, I appreciate that message - very uplifting. I do my best not to get down on things and keep going. My wife and I are about to start a small farming operation and may need some beekeeping advice in the near future. :)

      Delete
    6. Free Market;

      I have been raising honeybees even longer than I have been trading. Started when I was a kid.... let me know if you need any advice along that line. I will be more than happy to help you.

      Delete
  23. Mark is very interesting. He does intrigue me. There are times when he writes about what is happening in the stock market that is seems at the end of what he writes he wants to say, it is happening, but it shouldnt be. And then at other times, it seems he wants to say, it is happening and it should happen. Not sure which is which. But he is accurate in his facts. And he has obviously called out all the supposed experts.

    ReplyDelete
  24. silver stocks at the comex have gone down from the 184 mentioned to 174 currently, but the SLV metal has ramped up quite high.
    silver futs open interest is quite high and said to be shorts, so who will win the comex boyz or the SLV.
    probably wiser to hold powder dry for the usual july low in the precious metals!

    the usda report friday for ags has corn and wheat coming in high and beans coming in low. favor a reversal trade with trying a sell on a usda pop in corn and wheat and trying the buy on a downswoop in beans. wait as they can go limit say 5 mins after numbers!

    Dan you are great!! (one of the few old timers who tells it like it is)

    cheers!

    ReplyDelete
    Replies
    1. 77;

      USDA reports have an uncanny knack of engendering wild swings in price, that is for sure.

      The big test for silver will be whether or not it can hold $19. much of that depends on the market expectations in regards to growth. I keep telling those out there who love to bash the US equity markets and pooh-pooh any signs of economic strength whatsoever that they are working at cross purposes to their own interests is they own silver and at the same time are trash talking equities. Silver needs an inflationary environment to thrive and if the US equity markets were to implode lower, silver is going to struggle.

      Thanks for the compliment. I am just an ordinary guy trying to read some very difficult to read markets and trying to remain objective. These markets are obliterating hedge funds left and right so the name of the game right now is to be careful, not too overly aggressive, stay nimble and do not get married to any one point of view to the point where it blinds you to what the current market sentiment is. Sometimes easier said than done!

      Delete
  25. as expected long bonds are breaking out to the upside 138 to 140 here we come.

    ReplyDelete
  26. All I can say is that the economy is nowhere near "crashing" as long as consumer oriented names such as Expedia, Green Mountain, Limited Brands, and Tiffany are making outsized moves.

    And gold is not "going to the moon" if GDX/GLD ratio is still tanked near lifetime lows and GLD cannot even muster a weak rally with the dollar making multi-month lows.

    Everyone here should just follow price action only and try their best to go long winning sectors and go short weak sectors and ride the tide.

    And I would not worry about any "bail-in" on your deposit or investment accounts at the "Too Big To Fail" banks, as credit spreads at the moment are doing just fine.

    Stay in the System.

    And enjoy life.

    LOL....

    ReplyDelete