"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


Friday, June 27, 2014

Inflation Expectations Continue to Firm

I have mentioned in the past that I would keep the readers up to date on the TIPS spread action, especially as it compares to the gold price. I have the data through Thursday of this week ( the Federal Reserve is always a day behind in getting the fresh data) but it does continue to confirm the idea that the broader market is still continuing to see inflationary pressures increasing, albeit at a controlled rate. I believe that this is linked directly to the recently dovish attitudes of three Western Central Bank heads - ECB President Trichet, who got the ball rolling with a reduction in rates in the Eurozone as well as engaging in negative rates for bank reserve deposits, Fed Chair Yellen and BOE Head Carney.

The TIPS spread remains near the highest level in 6 months, a positive key that is keeping gold supported recently. We need to also keep in mind that another of the factors that goes into determining the gold price is also a premium due to the geopolitical factors that might or might not be present. At the current time, the chaotic events in Iraq are undergirding the price of the metal. Lurking around also, although much less of a factor, are events in Ukraine.

The point I want to make here is that inflationary expectations might actually be falling at some point as signaled by the TIPS spread, but geopolitical events could be dominating trader/investor sentiment and such concerns could supercede any signal from the TIPS spread. If figuring out which way markets are going to go, or what the sentiment might be at any given time, were as easy as just looking at one input, we would all be living on our own S. Pacific islands.

Here is the chart update through Thursday.

Along this line, here is the current chart of the Goldman Sachs Commodity Index. As of the close of trading this week, the index is up almost 8% on the year.

From a broader perspective, it continues range bound as noted by the shaded rectangular region on the chart.

That brings me to the US Dollar. It too is range bound. Notice that there exist two defined trading ranges on this longer-term weekly chart. The first and large range has been in effect for a year now. It extends up towards 84 on the top and down towards 78.60 on the bottom. Within this range, is a shorter and narrower one which extends towards 81.50 on the top and near 79 on the bottom. The latter range has kept the Dollar confined for the past 8 months or so.

The relationship between the US Dollar and the broader commodity complex remains fairly consistent which is why the chart pattern for the commodity index and the Dollar index are both showing range bound markets for the time being.

The stock indices did what they have done for so long now - every time they appear to be rolling over, back up they spring. Equity bulls are not going to give up without a fight. The benchmark Russell 2000, a good indicator of investor sentiment towards risk, was up nearly 0.75% today and managed to close higher on the week, after looking like it was finally going to show some downside follow through from weakness earlier in the week.

The index remains well above its 50 day moving average after dipping down into that level last month.

While one can make the case for bearish divergences showing up, this index has continued to shrug off one divergence after another for over a year now!

One last thing ( for now ) I believe it was last week when I mentioned the Gold Commitment of Traders report noted that there was a considerable amount of short covering that occurred in the drive higher coming off of Janet Yellen's dovish remarks back then. Hedgies were caught off guard by that ( as was nearly most everyone else!) and headed for the exits in a big way. They covered around 16,600 short positions against only adding around 1700 new long positions.

I remarked last week that if one is bullish gold, they want to see any move higher in the market accompanied by the infusion of new money from powerful speculative interests and not merely short covering, which while it can be impressive, tends to fizzle out as quickly as it starts.

This week was a welcome change therefore for the bulls in that department. The buying from the hedge funds became much more balanced this week. Short covering was still the dominant feature among that category to the tune of some 24,800 shorts being lifted but here is the noteworthy development - they added nearly 23,000 new long positions. Can you see the difference from the previous week?

Also, this new buying ( dip buyers ) are the reason that gold is currently hanging quite tough up here. It has been stymied at the $1320 level but it is not setting back much at all. This is what steady determined buying does. It keeps a market supported on dips in price. Bulls will want to see this pattern continue. The last thing that one wants to see if they are bullish is for the longs to STOP BUYING these dips. We will know it very quickly if they do just that by the price action.

The events in Iraq, the rising TIPS spread, the lack of strong bullish conviction in the US Dollar at the moment, are all providing some wind at the back of the bulls.

That being said, gold seems to be looking for a catalyst to power it up through $1320 and allow it to maintain its hold ABOVE this key level.  With today's momentum driven markets, any sign that the upward momentum has stalled will get touchy, jumpy short-term oriented longs very nervous. Gold bulls will therefore need to prove their meddle next week. Lacking a fresh catalyst, gold's inability to quickly put $1320 in its rearview mirror, is going to embolden the bears. While bulls are certainly digging in on these dips, bears are also digging in here at this level.

In spite of the strength being shown by gold, some of the big investment banks and their advisory services are still coming out with bearish second half of the year calls on gold. The reason - they expect the economy to continue to improve and interest rates to rise early next year. I am not sure about that prediction but it is basically the same expectation that stock market bulls are relying on. We'll see if it is correct or not.

Lastly, here is the current chart of the GLD holdings. The reported holdings at 785.02 tons has not changed since the beginning of this week. Maybe we will get something new over the weekend or early next week. I sure hope so - these guys are slower than molasses on a winter day in getting us new data to work with.

Compared to exactly one month ago, total reported tonnage is down .26 tons. For the year, holdings were at 798.22 at the start of 2014. Doing the math we get gold tonnage down 13.2 tons for the year thus far. Western-oriented gold bulls are going to need to do much better than this.


  1. Ah, but all that gold in the GLD inventory is paper, Dan - I know this, because Paul Craig Roberts said that "The entire Gold hoard is now gone" http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/6/27_Paul_Craig_Roberts_-_The_Entire_U.S._Gold_Hoard_Is_Now_Gone.html

    This, of course, in itself is not news - KWN have been spreading that kind of story about empty vaults for a long time, and it hasn't either stopped the flow or upped the price much

    HOWEVER, the truly scary story is not that the Gold is "gone", but that it is double gone - because when it gets to China, it disappears, and isn't there either! Empty warehouses! Infinite re-hypothecation across the shadowy shadow banking sector.

    So, where has the gold gone? I think we should be told. Clearly, it's not Germany or China. Or Ukraine, for that matter. Personally, I suspect Belgium. I mean, after all, they've been buying up US T bonds like its going out of fashion, and on and given their strategic location just south and east of the UK, I reckon they would be ideally located to snaffle the gold as it was in transit from London to Zurich or East of Suez.

    As a consequence of this rigorous sleuthing analysis - hat tip to another Belgian, Hercule Poirot http://en.wikipedia.org/wiki/Hercule_Poirot - I am now in a position to share the following cast-iron forecasts with you and your readers, viz, that within one week

    - photos will appear on KWN showing, variously, a woman blowing a bubble, a womans mouth with a gold pill in it, and a female croupiere in a 1980's casino

    - articles attributed to contributors with alleged combined market experience exceeding 500 years

    - use of the phrases "entire world" and "powerful interview" at least twice a day, and references to contributors as being "out of" somewhere or other as if they were boxers entering a ring

    - China, COMEX and the LBMA being there next week pretty much as they are today, with no defaults, "biggest ever short squeezes" or collapses of the ponzi banking system (but nonetheless still accompanied by breathless forecasts of silver at $50 - 65 - 100 - 500 and reference to "capping" as the reason why it is not)

    The point of this post? - I think someone should keep a library of the pet mantras and themes which people like Paul Craig Roberts*** keep reciting, and should get a small prize whenever they spot a new one. COMEX default, 100:1 paper leverage, housing bubbles, ponzithisthatandeverything - they are all there, and the introduction of a bit of variety into the mix (or some new photos on KWN) would surely merit a small celebration

    *** Paul Craig Roberts is nowadays habitually referred to as "Dr." and with this in mind I would henceforth like to be know as "Nurse PostcolonialBrit", if only to ensure a steady supply of medication

    1. Look at his resume then look at your own....case closed.

    2. Got It Wrong,
      Paul Craig Roberts has been out of the Washington loop for thirty years and therefore irrelevant. I will give him credit for being the king of tin foil Napoleon's in all things conspiracy.

    3. you are familiar with my resume, I suppose?

    4. PostColonial; And I thought I was the only one that laughed at the boy Roberts. When they have to use a middle name + the Dr. bullshit, I just sigh. He writes books and talks. Ask him for his track record in the mkts and what do you think you will get? The best part is that he was once a Treasury Dept towel boy, oh my. It is an ongoing battle of bullshit between King's headlines and what his 85 year mkt veterans have to say, > of course their water-proof bibs are wiped clean. Have a good weekend all!!

    5. PostColonial,

      Yes, it is correct, it is a not a global conspiracy but a pyramidal conspiracy.
      Behind the global conspiracy is the US pulling strings.
      Behind the US is Israël pulling strings.
      Behind Israël is Belgium pulling strings.
      Behind Belgium is a small Belgium village pulling all the strings.
      I will soon give you its name, but don't you ever name it loud please, or the curse of Mordor will be unleashed on you.
      Belgium rules the world (the Wallon side, of course!!)

    6. This comment has been removed by the author.

    7. PCB...that was pretty funny, thanks!

      Can anyone imagine if KWN allowed poster comments? I can't even imagine the tone or direction the conversations might take.

      Thank goodness this blog isn't LITTERED or TRASHED with a slew of crude, juvenile (and moronic) racist, sexist, anti-social toxic comments by only a few unbalanced low brow neanderthals who feel they have a right to spew and display their nonsensical prejudices in public.

      And yes, I'm talking specifically about a certain blog and small group of arrogant miscreants on there who should've been gone long ago (who at one time were banned briefly, yet reinstated for who knows what short-sighted assinine reason).

      In the end I could care less and it's one of the reasons I left. And probably why fewer and fewer people visit there.
      In the end, you reap what you've sown or allowed to fester.

      Maybe, just maybe, that site should've listened to the chorus of posters who disapproved of those neanderthals when the advice of many to do so was given OVER TWO YEARS AGO.
      Now look at 'ya. Ha!

      Hindsight is 20/20 and far too late.
      Foresight saw it coming long ago.
      What a joke.

    8. Richard Branson is in cahoots with the evil banksterz and is using the Virgin Galactic to remove ALL THE GOLD FROM PLANET EARTH!!! The people must revolt!

    9. http://en.wikipedia.org/wiki/Paul_Craig_Roberts

      Assistant treasury sec for econ. policy, co-founder of Reaganomics, businessweek and WSJ editor. But he's a lightweight because..... you believed the corporate media when they said you're crazy if you don't swallow the official 9.11 story?

      Or is there something else that marginalizes him? He's one of the few Americans to emerge from the highest levels of government/media and take on the system on all levels. I think that merits respect, not derision from true lightweights like those above.
      PCB, I bet you are misquoting him to begin with. Did he say the government stock, or GLD/Comex? You conflate the two right out of the gate, which is telling. You wanted to take a crap on a man who at the least has honor and principle, even if you disagree with him. Whatever tool at hand will do, even if you misrepresent it. I have to add: Unless you've only studied it with passing interest, if you believe the establishment story on 9/11 you are a very gullible person.

  2. Postcolonial:

    That is hands down the funniest post I've ever seen here.

    You are spot on.

    Nothing is going to happen to COMEX for the next 100 years.

    If anything, if the gold and silver markets start a second leg of a long term bull market, the COMEX will be bigger than many stock exchanges when the next gold bubble tops out.

    My prediction is the demand for gold and silver is going to emerge out of nowhere. One place is Japan, which is now attempting to encourage the use of fuel cell cars instead of electric cars. The fuel cells need a lot of precious metals. There will be other uses for gold which have not been announced yet.

    As far as KWN goes, we will continue to see scantily clad women with lipstick, silver men on silver surfboards in Outer Space, and a plethora of 40-year veterans, all of who missed the greatest stock market bull market in world history. Including "Dammed Lies and Propaganda" Richard Russell.

    Platinum and palladium are acting very well, and copper seems to have turned the corner, cementing the evidence that the global economy continues to improve, although at a slow pace.

    And the thirst for paper assets remains unlimited, evidenced by the incredible strength in paper assets all over the world. Whether its muni-bonds, junk paper, leveraged debt, PIIGS debt, you name it.

    1. Mark,
      All of the people you have mentioned are guilty of huckstering the neophytes. I would beg to differ regarding your opinion of the global economy improving. The wheels have already started coming off of the bus, and it is going to eventually grind it's way into the retaining wall sooner or later. I'm not saying the end is nigh, just that we will have a few broken bones and a black eye before this is all over with.

  3. Hi Dan,

    There was some big changes in the silver COT as well. Also, unlike GLD, silver has lost some inventory lately. Anything worth mentioning here?

  4. I'm with TheGilliom on silver Dan. No chicken dinner for me after the big reversal off the recent low, but I'm still hopeful that the buying has started to exhaust itself and will head back below the twenty handle soon. As usual thanks for all the insight my friend and have a few cold ones this weekend.

  5. Hi Trader Dan,

    You mention the Russell looking tired but putting up a fight. Banks look very tired.

    Can you comment on the S&P Banking sector chart? When I look at say KBE it certainly looks to be rolling over. Russell looked the same before its latest run - bottom line banks are not participating in this rally.

  6. Dear all,

    About inflation : great minds don't think alike.
    Some think hyperinflation is coming, due to hyperliquidity.
    20. Totally irrational exuberance driven by hyper liquidity.

    21. Hyper liquidity can become hyper inflation via the velocity of money in a crisis of confidence of the dollar. Therefore hyperinflation will be a currency motivated event. - Jsmineset.

    Some think that deflation is coming due to ... lack of liquidity!!

    "The events of 2008 when the money market funds briefly fell below par was a warning sign that we are in a bear market for liquidity. The Federal Reserve is now deeply concerned about liquidity and understands the possibility insofar as the bond market is concerned. But rather than address the issue directly that is causing the collapse in global liquidity, the Fed is directing its attention to try to slow any potential panic selling of bonds by constructing a barrier to any panic exit…"

    "Obviously, curtailing banks from proprietary trading has also helped to reduce liquidity and this has the bankers screaming that this new policy should be reversed for it is creating a highly fragile bond market. However, what is being overlooked here is the reality of CONTAGION. Because we are in a serious bear market for liquidity, volatility will rise exponentially as liquidity declines." - M.Armstrong.

    So... are we in a hyper liquidity environment or a liquidity crunch?
    Why the heck is this so hard to define?

    Have a nice weekend,

  7. Why anyone coninues to take Sinclair seriously is beyond me. He is not only a charlatan that has adviced people to sell their pensions and buy gold shares before the crash in 2008 and again during 2011-2014, he is a fraud spreading misinformation and lies about his company behind closed doors during Q and A's. Worse then KWN, that one.

    1. Jasper Agreed. Here is another charlatan I caught recently - Larry Edelson from his June 16th posting on Money and Markets:

      "Moreover, if you think I’ve lost my mind, consider this: My best forecasts have always been accompanied by the same shrill voices of others telling me I’m nuts.

      When I foretold of the 1987 stock market crash months ahead of time, they told me I was crazy.

      At the depths of the 1987 crash when I said that the stock market would see new highs merely two years later, they wanted me committed for life. Yet that’s precisely what the stock market did."


      Now here he is in a recent video sounding astounded like everyone on Armstrong's 1987 forecast, so it just doesn't sound like he made those forecasts back then, but Marty did:


      Makes you wonder how many of his other claims to fame are frivolous or only half truths - unfortunately it's not easy to go back in time and check someones track record.

    2. As a matter of fact the way he talks (beginning of video) and the way he words stuff here is like he is describing himself the way he describes Martin almost word for word - just bizarre.

      I dunno am I missing something here??

  8. Actually, Edelson has a pretty good track record, a couple of friend of mine have used him as a money manager, and so far, he's been able to keep his clients fully invested in the proper sectors. He also did manage to get his clients to step aside temporarily during the 2011 Euro Zone mini-crash.

    1. I have a friend who was part of his "Gold and Silver Trader" subscription and it was a big mistake one wrong call after another including going aggressive short on the gold double bottom in Dec. As it was rallying up he called it a sucker rally and reiterated weekly to stay short as everyone was crushed on the short side. A few months later in a webinar he was calling the "sucker rally" bullish patterns.

      From the things I've seen from him he's just another dolt. And how do you explain his claims to the 1987 crash as I illustrated above.

  9. Though I've been following a few forecasts recently, it doesn't mean I'm following them or agree with them.
    From what I see now, I am absolutely not sure we made a "June High" in gold which will be followed by a summer low.
    As far as I'm concerned, gold may as well decide to keep going up on its own up to 1420 for starters.
    Silver seems to grow in potential as well, with an important level in the 21.8 - 22.2 area.
    I don't know if bulls waiting for a "summer low" are going to be very frustrated or not, but I think PM deserve to be monitored closely for now.
    The OBVD on Silver shows we are closing an importance level of resistance as well. Shorts may start panicking on the way up here.
    I'll try to be very reactive taking a long position if the opportunity comes.
    The fact that gold held 1300 $ was also a good sign for bulls.
    Let's see.

  10. Hi,

    I'll wait for the next post from Dan to write the full analysis, but here are already my charts regarding Gold on the long term.



    Just my conclusion : IF gold makes it above 1325, I would not be surprised to see gold head towards 1355-1365 area where it would meet a first area of resistance on the 2week/2month... if it can break through, I see a next target at 1400-1410. I would be quite surprised to see gold keep going above 1420 without a correction at one of those two levels.

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