Bloodbath Continuing in the Livestock Complex

Red meat lovers, take a look at the following charts and rejoice... relief from record high meat prices is on the way.

The Russian food ban from the US and Canada ( among other nations) seems to have gotten the ball rolling in earnest but now technical aspects have taken over with margin calls and forced liquidation dominating trade. Producers who were prudent enough to hedge and secure some downside price protection are sitting pretty right now. Those who did not, have let some enormous profits get away from them.

As mentioned previously, those of us who enjoy good Bar-B-Q have suffered through sky-high meat prices so far this year, but relief is on the way!

Combine falling livestock prices with a large crop coming this fall, and energy prices which have taken a dive recently, and one can see the impact on the overall commodity sector as evidenced by the Goldman Sachs Commodity Index.

It was this weakness across the commodity sector today which weighed on copper prices and helped pull silver lower even though gold was able to buck the trend and move slightly higher.

The extent of the collapse in commodity prices over the last six weeks has been stunning. Here is the chart.

It looks like gold is caught in a sort of tug of war between forces springing from the overall sector and upward pressures coming from the mining section.

The HUI is currently quite strong on the charts. As you can see from the chart below, it is flirting with strong overhead resistance near the 250 level. A closing push past this should allow the index to target further resistance near 260. Above 260, there is not much until one gets to 280 or so.

Here is another negative factor:

According to the most recent updated information, GLD holdings have now fallen below the starting level of this year. They were at 798.22 tons at the end of the year and as of yesterday stood at 795.86.

So what to make of this? I think one can make the argument that the gold shares have been the leaders of the gold price both on the way down and on the way up. So far, if I had to pick between following falling commodity prices and falling reported GLD tonnage and the mining shares, I would have to side with the miners. Their track record is very good at predicting future price action in the underlying metal.

That being said, with the negative factors of falling commodity prices, falling GLD tonnage and a stable to rising Dollar, the HUI needs to break out to the upside sooner rather than later to convince enough traders that the move higher in gold is more than a momentary flash. Many of the larger players are obviously moving into the mining shares based on the price action because they apparently feel that the downside is rather limited from this point. However it is difficult to see why some big specs would want to chase gold significantly higher given the above-cited negatives. If the Dollar does finally manage to breakout above that stubborn level of resistance near 81.60 basis the USDX, gold will have to overcome even more headwinds.

The jury is still out therefore. As you can see from the price chart, the level near $1320 is proving to be formidable overhead resistance. Also, the ADX continues to move lower indicating that a trending move is not yet underway but rather that the market continues to move in a range trade. $1280 is the bottom and $1320 is the top within a broader range of $1240 - $1340. Let's see what the next few days bring us.