"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

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Tuesday, August 19, 2014

Is the Dollar King Once More?

It sure looks like it is. It all comes down to interest rate differentials in my view. The US, out of the big three, the Euro Zone and Japan, is the only economy where we are even talking about higher interest rates. The other two are not there yet as growth is stagnant at best in those economies. Please do not misunderstand what I am saying here - I am not saying that interest rates here are going to rise anytime soon. I am saying however that if and when rates finally do begin to rise, traders are convinced that they will do so FIRST here in the US.

Today's Construction data reminded currency traders of that fact.

Yesterday I mentioned that stubborn band of overhead chart resistance that has served to keep the Dollar's upward progress in check. Today it finally blew right through that!



The ramifications for the commodity complex in general are all too well known by anyone who has been watching the markets over the last few years. Higher Dollar tends to equal Lower Commodity prices overall.

We are seeing that in the Goldman Sachs Commodity Index which continues to get pummeled lower. It just missed setting a fresh TWO YEAR LOW in today's session especially with crude oil being obliterated. Crude has not been at these levels this year since the third week of January!

I think it bears repeating - were it not for geopolitical tensions in Ukraine, it is highly doubtful gold would be able to withstand this outside pressure. Gold needs an environment in which REAL rates are either flat or negative as there is very little opportunity cost to hold the metal under such circumstances. However, in an environment in which interest rates are likely to rise, and rise at a clip that will keep them above any incipient rate of inflation, gold is going to experience obstacles to a rise in its price level. Investors/traders are not going to lock up precious capital in an asset that throws off no yield and one that many do not see as necessary given the current lack of inflationary pressures.

Gold bulls will need to be cautious therefore and alert to any signs that geopolitical tensions surrounding Ukraine might be lessening. So far we are not seeing any drastic outflows from the GLD, ( not that its current levels of holdings are anything to be the least bit excited about ) but if we do begin to see such an occurrence, it will not augur well for a stronger gold price moving forward.

Based on the current data that we have, gold demand has been dropping off somewhat from last year's torrid pace. If investors begin to more largely embrace the higher interest rate scenario, that is not going to help it.

On the grain side of things - traders knocked the new crop beans lower today as news of the improvement in the crop conditions ratings from USDA yesterday became more widespread. Also aiding the downward progress was reports from the Pro Farmer crop tour of very strong yields in the fields that the tour surveyed.

The tour will be moving to a different location today and will be reporting its findings from that area.

Bean bulls are still playing up that "tight old crop stocks" situation however. My guess is that is going to continue until about the time that the combines begin rolling more heavily in the southern part of the country. That coincides pretty closely with the delivery process for the September contract so that should prove to be rather interesting to say the least.

The livestock markets were hit with another wave of selling after a brief respite  from the carnage that was unleashed in there on the heels of the Russian ban. The change in market sentiment in this sector has been remarkable for its rapidity. We have gone from euphoria to panic in a mind-boggling short period of time. We are going to have to see how the ban impacts the beef and pork markets especially once the buying for Labor Day wraps up this week.

One good thing about this for we meat lovers is that it has brought back to earth the stratospheric prices that we have been both seeing and unfortunately, paying, for our necessary vice.

Silver looks like it is back on course to test the $19.00 level once more. Copper has thus far shrugged off the strong construction data and is testing chart support near last week's low at $3.08. If the red metal were to fail there, odds are that the grey metal will see $19.00.

Sugar prices hit a six month low today while Cotton prices continue to languish below $0.65/pound.









30 comments:

  1. So...is it too early to rub the crash callers faces in it? All the guys who made or renewed their crash calls in stocks over the past month? They weren't "early". They weren't undone by "corruption and manipulation". Or by markets that are "a joke" (that's code for "I'm getting creamed here and my retirement plans have been pushed back to age 92")

    They were just WRONG. Accept it. Own it. Wrong is Wrong. Change or Die.

    All those goofballs on your shoulders who've been whispering in your ears and clicking your mouse, Dump 'Em! Save Yourself! No one is going to do it for you.

    And btw, metals are trendless. Going nowhere. Imho, for years probably.

    ReplyDelete
  2. Eric O, you are right for the most part, BUT I think we could be approaching another downside break here shortly as gold approaches its 3 year anniversary top. Silver already into its 4th year of a bear mkt. When you lose that hedge sponsorship as we have in pm's and energies, you have nothing much to hang your hat on. Afterall, that 147 print back in '08 for crude was most assuredly not based on real physical supply/demand issues. Rather it was a Goldman/Morgan engineered pump. Nothing more here.

    ReplyDelete
  3. With the HFT crowd a violent reversal is always quite possible...

    Remember, the market is the Master Manipulator...

    ReplyDelete
  4. These things can turn on a sixpence (or a "Dime" for those who lack a proper grown-up currency)

    We live in confused times, in which many traditional metrics and values appear to be out of favour, and many indicators often seem unclear, if not downright contradictory

    Frankly, I sense that we could be in for a bumpy ride if volatility reasserts itself, and the longed-for America Resurgent! / China Collapses! narrative may be some very considerable way off. Its easy to scoff at Lesser Mortals, but imagine if Putin was currently strutting around Ferguson handing out cookies like Nuland did in Kiev, or if China continued to grow at 7.5% whilst the USA languishes in "Bad Weather", or if a twist in the Ebola, MH-17 or ISIS narratives suddenly caused a crisis of confidence in US "exceptionalism" amongst its Asian and Middle Eastern trading partners.

    This could turn on a dime (or a sixpence)

    ReplyDelete
    Replies
    1. as an Addendum to this, people can surely realise that e.g. Argentina is not best pleased with Uncle Sam right now. Argentina! What a joke! Who cares what they think! And Greece and some of the other food exporters in the EU! Pah! Greece! They're bust anyhow! And Thailand. http://www.globalresearch.ca/us-pivot-to-asia-stumbles-in-thailand/5396542 Thailand! You must be kidding me! And India. And Turkey. And Malaysia. The list of "insignificant" nations who have had it up to the back teeth is growing

      Meantime, Japan is on its knees, South Korea is getting cozy with China and the Russians and the Germans are "in play"; Saudi Arabia and Qatar might or might not last to see the decade out before their despotic monarchies are overthrown, and the sub-Saharan African nations might or might not consent to become once more "The White Man's Burden" rather than suck up yet more no-strings-attached unmilitarized infrastructure from the Chinese

      The World is changing; you may think that popular opinion in Argentina, Greece and Thailand is irrelevant, but the Argentinians, Greeks and Thai's don't share your views on that; and nor do an increasing number of Unexceptional People. Taking such things for granted could easily be mistaken for hubris / pride before a fall - especially if viewed in hindsight after a fall, if it occurs

      These are troubled times, and the period 2016 - 17 is going to be a very, very uncomfortable experience for many of us; that's a long time to wait, but the blinking of an eye in the greater scheme of things. Enjoy today's buoyancy while you can

      Delete
    2. http://www.zerohedge.com/news/2014-08-20/world-comments-ferguson

      Delete
  5. Dan- thanks for the post. On Gold, do you think the the deflationary environment could actually be helping to support Gold? If CPI drops, would it not provide data (a reason) for a more dovish Fed to delay a rate hike and even the imminent end of QE? you mention if the prospects of a rate hike increase, Gold has obstacles. But with the GSCI at a two year low and rate hikes therefore less likely to reach a mandate of 2% inflation could that become supportive of Gold in an indirect way as a monetary commodity rather than a expendable commodity?

    On beans, are you counting new crop November contract and later?
    Thanks

    ReplyDelete
    Replies
    1. trinity;

      yes,November on out are new crop beans. September is a hybrid - a little bit of old crop and a little bit of new crop as combines roll in the south and bring in southern beans that month. However, the main harvest is a bit off right now.

      Delete
    2. Thanks Dan that explains the divergence between the Sept bean contract and the later ones. More weakness this morning in grains and livestock...

      Delete
  6. XLNT reporting Dan!

    ags notes from tonite's commentaries:

    "Smoke’n hot ethanol margins and robust ethanol exports for the first six months of the year, has helped keep a floor under the corn market in the face of this large crop."

    the soybean-corn ratio 'normal' is about 2.60.. going back to 'normal' would have nov beans into the 9's... if dec corn goes to 3.10 on the huge harvest actually printing, then it's low 9's.

    StatsCan crop report is scheduled for August 21st. September ag options expire Friday, August 22nd.

    the weather forecast is large rains for the midwest this week, and another round of large rains next week, all dry areas are now forecast to get hit!

    ukraine halted wheat exports today til further notice, their prime minister comments were out there by 10am et... also stated in wheat: "commercial buying stepped up to the plate. Quality concerns remain an issue."

    cheers!

    ReplyDelete
  7. 77, you need to go back and do your math; beans are going much lower if corn, like I think is headed to 290; about the only thing the bulls can hang their hats on is spec on an early frost. not a good bet

    ReplyDelete
  8. Looks like a good day for the energy sector despite oil being down - mkt starting to realize cheap oil is closer than anyone imagines.

    ReplyDelete
  9. Jesse finally lost it .......

    Daily Gold and Silver Weekly Charts - Cap, Cap, Cap

    If I were of a mind to discredit the precious metals, I would not continually suppress the price.

    For one thing, this is not practical, since the lower the price goes the more strain it can by incenting those who are not buying the story to buy even more of the metal.

    Rather, once I got the price down to a level with which I was comfortable for the management of perception purposes, I would inject all sorts of uncorrelated and meaningless volatility into the market, both up and down.

    Nothing discredits an asset with the hallmark as a safe have than uncorrelated and almost incomprehensible volatility. Prices shoot up and down for no particular reason. Who wants to base their wealth in that sort of thing.

    The paper metals are a charade. The day of reckoning comes a little close with each passing cycle of shenanigans. And the central bankers and their Banks and sycophants fear it.

    They may act even more bold to hide their fears, which is their wont to do. The bigger the lie, the more brazen the delivery.

    But at the end of the day they will have to stand and deliver. What they will deliver is a pile of paper IOUs, lies, and a load of outrageous bollocks to be gobbled up by the bourgeoisie who will all be the powerless outsiders. And no one will be held accountable. It will be MF Global writ large.



    Its sad, really it is - I once respected this guy, but now its just the same tin whistle every day - come rain or shine, the same old tune

    ReplyDelete
    Replies
    1. Maybe the same old tune but not necessarily incorrect. I agree with Dan's reasons for gold being rangebound but that doesn't mean it isn't subject to capping pressures either. I can't prove that it is, but then you can't prove that it isn't either. I guess we could always believe the various central bankers who have admitted to controlling the gold price. At least if they do, they don't have to work very hard at it these days.

      Delete
    2. kjm;

      The so-called capping of gold, (assuming there is some going on right now which I do not concur with) is being done by those watching commodity prices plunging and inflation fears subsiding. Also, with the Dollar rising, there is no reason for gold to rally in this environment, absent geopolitical events.

      Gold is mired in a sideways trade between $1280 and $1320. Above $1320 is $1340. Below $1280 is $1240.

      Silver is being sold off by macro funds jettisoning the inflation trade.

      Delete
  10. There was a CPI print yesterday, which led to an entirely predictable continuation of the recent sustained collapse in the price of Silver

    Cap Cap Cap indeed

    ReplyDelete
  11. "Asymmetrical volume, heavier volume on the declines than advances, has been the hallmark of consolidation phases and the stock rally since 2009. Bear failing to recognize this important change from previous cycle(s) as an adaptation to global risks are more likely to interpret them as bearish. For example, it was bearish in the previous cycle, so it must be bearish in the current one. This is a mistake."

    http://edegrootinsights.blogspot.com/2014/08/technical-review-of-us-stocks.html

    ReplyDelete
  12. kwn plumbing the depths of mediocrity once again. the Godfather never talks about Dow Theory Signals anymore, as he has abandoned his rules of 60 years. he also fails to note that triangle patterns are typically continuation patterns that 75% of the time break in the direction of the prevailing main trend. and his head and shoulders sighting is dubious at best. and as for this other joker Grant Williams, I have tried unsubscribing to him and his daddy Mauldin Economics, more times than I can remember and yet the slop keeps showing up. these guys all pat each other on the back and regurgitate each others thoughts time in and time out and zzzzzzzzzzzzz, time for bed. very old and less than inspiring.

    ReplyDelete
  13. Eur Usd heading lower.
    Seems to be the simple and easy trade at the moment.
    Blue support is drifting down and is now in the 1.33 area.

    WTI for the moment bouncing on the weekly inf bollinger band (bollinger bands are here for that, as prices remain inside them most of the time...), but we've bounced twice on it now on the daily time unit and it's starting to head down...so watch out. The more it is tested, the more likely prices will push it down further and further.

    ReplyDelete
  14. This comment has been removed by a blog administrator.

    ReplyDelete
    Replies
    1. Zzz...shut up stupid bot.
      As you don't even have money for advertising, I wonder what are the competences and salary of the idiot writing those empty statements. Is he paid per million of bullshit lines? Is he paid the hour?
      I'm every day impressed by CAPITAL STARS, the most shitty website which manages to survive and send its bullshit over and over again.
      Parasites.
      Noone will click on your link.

      Delete
  15. I'm going to short the SP500 if we get close to 1990.
    I just don't think it can make it above 2000 so easily.
    We'll see.

    As for poker, I'm often getting AA.
    Last at the bubble (4th place, 3 being paid) of a single table.
    I'm at the button with AA with a small stack of 1200, blinds 100/200.
    Player 1 checks, I simply call, the SB folds, BB goes all in with K6... I call and he wins with 2 pairs, KK and 66.
    Every time I'm trying to play poker a bit for fun and to improve myself, I'm being reminded how I hate to be beeaten on those kind of 87% odds in my favor, having to risk all my stack.
    The difference with trading : I never risk all my stack in one trade.
    OK, enough with poker :)
    I'll never put a foot in Vegas, but you can say hi to Esfandiari for me.

    ReplyDelete
    Replies
    1. For trading, you have found the holy grail, or close to it. In hold em poker, it doesnt exist.

      Delete
    2. Really, I haven't found the holy grails, I'm honestly following a few simple indicators, and I've been trying to explain how and when and which.
      Don't overstimate me, I'm no "hero" arnie even if I appreciate your remarks.
      Besides I'm sure any real trader including Dan is making better trades and more often than me, they just don't comment about them live like I do on the forum.
      Many times recently, what helped me is the support shown by mere Bollinger Bands. Period.
      SP 500 by the channel upwards on the 2week time unit.
      Period.
      I am convinced many people can do strictly the same... but if too many people do the same, those indicators will lose of their efficiency and I'll have to find other ones :)

      Delete
  16. Eur Usd in critical situation under my blue support line intraday.
    It's mandatory for me that Eur Usd closes above 1.3290 to preserve this support line at least at the closing of the day.
    Else, despite bolllinger bands here, prices could accelerate down even further.
    I'm still short, position unchanged, ultimate target 1.3150 = next fibo level.

    ReplyDelete
  17. Yes, Richard Russell must be kicking himself for sitting out of the greatest stock market rally of all time.

    And gold is getting pounded once again with the U.S. Dollar soaring.

    Virtually EVERYTHING is going in the exact opposite direction that these clowns predicted.

    Yet they still have a following of "Come Hell or High Water" devotees, and General Jim at jsmineset is scheduleing another Q & A session in Nashville for another flock of blue hairs.

    Wonder if someone will mention the chart of the U.S. Dollar and GLD and exclaim:

    "The Story Will Be Told Here"

    LOL....

    ReplyDelete
    Replies
    1. Jim "Schettino" Sinclair is like a cross between the infamous captain and a WW1 general sacrificing wave after wave of soldiers after having sold out himself years ago.

      Delete
  18. Dan, you refer to positive real rates being negative for gold, but how far do they need to go to achieve that? Do we accept the inflation rate that they give us, or is it intentionally miscalculated, as Shadowstats tells us, and is more like 6% inflation? If Shadowstats is correct it would be virtually impossible to achieve positive real rates without crashing the entire economy. How credible is John Williams on his calculation of the inflation rate? If Williams is correct then we will have very strong underlying support for gold, as negative real rates are probably the strongest of all the fundamentals gold has going for it.

    ReplyDelete
    Replies
    1. Peter;

      Unfortunately for Mr. Williams, the MAJORITY of market participants do not follow or care about his real inflation rate. I too do not believe the official CPI numbers but having said that, it is not what we believe, but rather the market believes, or at the very least, is focusing on.

      Right now, as far as the majority is concerned, inflation is not a problem. I will concur with that as far as the price of commodities in general is suggesting. That is why I post charts of the GSCI.

      Also, in looking over the TIPS spread, which is what the bond market players focus on, it is declining.

      In short, rising interest rates in this environment are negative for gold. That is because gold throws off no yield and therefore there is lost opportunity cost in holding the metal. If, the rate of inflation that the market is working with were to be increasing faster than the rise in interest rates, then gold would be moving higher.

      It is all about market perception or sentiment.

      I suspect gold is going to stay range bound for a lot longer than many people are thinking.

      Today we have the FOMC minutes so we could see some excitement either up or down when those hit the wires. Yellen will be speaking this Friday if I understand that correctly. That too might move the market.

      Delete
    2. Thank you for your interesting response, and I am inclined to agree with you with regard to gold short to medium term. Belief (sentiment) is such a critical factor in investment, that I imagine is closely related to technical analysis, which may be the only measure we have of this sentiment. So sentiment therefore also becomes a 'fundamental', because if we know what the sentiment is we know what will move the markets. Then there are other investors too who don't feel the sentiment itself, being detached emotionally, but try to estimate the sentiment of others in as objective a way as possible, and use this as their criterion for investment.

      Delete

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