"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



Monday, October 20, 2014

USDA Harvest Progress Reports

Here are the latest numbers on the harvest from USDA.

Corn -

93% of the crop is mature compared to 87% last week and 93% last year at this time. The five year average is 94%.

31% of the crop is in the bin compared to 24% last week and 38% last year at this time. The five-year average is 53%.

Soybeans -

95% of the crop is dropping leaves compared to 91% last week and 93% last year at this time. The five-year average is 97%.

53% of the harvest is done compared to 40% last week and 61% last year at this time. The five-year average is 66%.

The weather looks very conducive to rapid harvest progress this week so expect to see some pretty strong progress by the time next Monday rolls around and we get more of these numbers from the USDA. As of now, skies should be clear with lots of sunshine through Sunday at least.

There is some fund buying in these grains for some reason that I cannot seem to put a finger on. Might be some more of that supposed rotation out of stocks and into what is viewed as "cheap" ags but that still seems a rather irrational reason for professional funds to throw money into a market. That big down day we had in the Dollar last week threw the macro trades into some convulsions and I suspect we are still encountering some residual fallout from that move in the currencies for mere technical reasons.

There is apparently a contingent of large speculators who seem to enjoy buying the grains nearly ever evening in the Asian session as they go stop hunting after shorts in the market. Whomever it is that has been doing this, has been at it for some time now. We are seeing more of it this evening as I type these comments.

I should note that guys like me who trade the livestock markets heavily have been complaining to the CME for several years about the antics occurring in that sector during the thinly traded Asian hours. After getting an earful from the industry participants as well, many who got sick and tired of watching their hedges get blown all to kingdom come for no apparent reason other than specs moving the markets around because they can do so, CME finally has moved to end the Asian trading of livestock. As of next week, FREEDOM is the new word for we long-suffering livestock traders.

Perhaps enough of the grain market participants can begin to make some noise about this same thing and maybe get the exchange officials to cut these insanely long grain trading hours back to size as well. I have to give credit to the exchange - it took them a long time but they did listen and they responded!
Hey guys - take a look at the grains now and let's shorten these trading hours. All we are getting in the Asian trade is hedge fund games.

By the way, for those who happen to keep an eye on cattle every now and then. They were limit up today. Limit down, limit up, limit down, limit up... I am having difficulty recalling ever seeing anything quite like this in the cattle.

Some quick comments on gold... the chart is showing the bulls currently in control of the market as they have been able to take price through two resistance zones on the chart. The first was near $1220; the next was near $1240. Just above the latter resistance zone, the 50 day moving average comes in near $1246. From a purely technical analysis aspect, bulls have a shot at making a run to near $1280 if they can manage to post two consecutive closes above that 50 DMA. The reason is because of the internal structure of the market with a fairly good sized contingent of hedge funds on the short side of the market.



The problem with this market for someone such as myself who likes to view a range of inputs in markets I am analyzing, is that fundamentally, the case for gold is not compelling. I am not alone in this view as the GLD continues to rapidly bleed out gold. The latest reported holdings out of that ETF, showed a sharp FALL in gold holdings of more than 9 tons from Friday! Clearly rallies in gold are being viewed as selling opportunities by some very big entities.

Total tonnage is now down 46.26 tons from the start of the year and is the lowest reported level of holdings since early November 2008! Think about that - it was only a month or so after the news of QE 1 was announced that the amount of gold was anywhere near current levels being reported in GLD.


In spite of this, gold over at the Comex continues to squirt higher. We also have the VIX coming down somewhat indicating a lessening of fears over equities, at least for the moment.




Here is the most current TIPS spread chart... notice that gold has been moving higher and inversely to the spread for the last week or so - something out of the normal pattern we have come to see over the last few months. This is suggestive of gold functioning as a safe haven, NOT from inflation ( which the market is not the least bit concerned about ) but rather as a place to park some funds for those who have been getting nervous over the wild price movements in the equity arena.




What this suggests to me is that any sign of stability in equities and/or a falling in the VIX, is going to spur selling in gold once more. Falling tonnage in GLD, a falling TIPS spread and a falling VIX do not bode well for gold. If one could tell me what these three things just mentioned will do the next day, or the next or the next, I think I would have a pretty good idea what to expect from gold but since none of us know for certain what we are going to get, especially in the way of stock market moves, the jury is out on gold with the short term technical dictating the price action at the moment.

Also, the Dollar is back down near the low end of its 85-87 range. What it does will also determine what gold will do. Tell me what the Dollar will do tomorrow, and I will tell you what gold does. In other word, short term technical will rule this market while traders wait for other fundamental inputs to plan their next approach to the metal.



35 comments:

  1. Dan, good thoughts as usual. I am so sick of them running grains overnite on zero volume that I can not speak. Dollar and stks are stuck here quietly tonite, as are the Steelers.

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    Replies
    1. Steve;

      Copy that my friend. It is the same group that does it every single chance they get during Asian trade. It is also the reason I have to laugh and shake my head at the stupidity of the Gold is Always Manipulated All The Time crowd when they ignorantly attribute sharp moves lower in gold during the same period to bullion bank and official sector suppression of the gold price. It is nothing of the sort - what it is, is the same group of clowns who run all of these markets in the thin overnight sessions.

      Delete
    2. A good question too Dan and Steve, is why do these guys in Asian trading session always seem to choose to go short and take the price of grains or gold down.

      Why not inflate the prices to make profits by going long these commodities instead? Profits can be made this way too right?

      Thats what makes one wonder are these prices being taken down for profit or for some other reason maybe?

      Delete
    3. There is no point in trading against the trend. There is no grand conspiracy.

      Delete
  2. Thanks Dan, great stuff tonight.
    Me thinks the EU might say or do something soon that knocks back the euro a bit.
    The yen hasn't been real helpful lately either. Not sure how long Yenzooka Abe can refrain from some other form of stimulus to boost the Nikkei.
    Silver's a dog, period.
    Oil retesting $80 seems likely to provide some excitement moving forward like it did last week.

    ReplyDelete
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    1. Thinking the EU may just wait until next week to see what the Fed does at their meeting to see if they end QE like they said they would.

      EU may be thinking they won't as its unacceptable to have the stock markets go down judging from the Fed talking heads actions last week.

      Delete
    2. Barney, are you able to post a Comment without obsessively referring to QE in it?

      Dan's article notes that the price of Gold has made some interesting movements in the recent past, and that GLD has lost Gold over a sustained period. Neither of these events appear to be in any way related to QE, but I suppose when all you have is a hammer, everything starts to look pretty much like a nail

      Delete
  3. Dan
    Thanks for making the effort for the late posting.

    GAIMATT folks could learn a lesion if they wanted too.

    The hedge funds have gotten to be bigger than the market.

    ReplyDelete
    Replies
    1. Mike;

      You're welcome....

      Hedge funds ARE THE MARKET anymore Mike.... they have gotten so big that they overrun even the commercials.

      Delete
    2. Dan
      Thanks for the response. I actually agree with you but expressed myself poorly.
      Trying to say that in thinly traded hours the hedge funds liquidity overcomes the markets liquidity.
      That's what allows them to manipulate the market.
      If the CME wanted to be a worldwide market, they could be.
      They would need to limit trading size and volume by participants to account for overall market liquidity.

      That gets us into the realm of overregulation that is probably too difficult to accomplish. Closing the market as they did in thinly traded hours is probably the better solution.

      Go Giants.

      Delete
  4. "As of next week, FREEDOM is the new word for we long-suffering livestock traders."
    Wow! Congratulations!! That's great news!

    Very interesting comments on gold, thanks!

    SP500 bounced down just under the ema15, with the macd 1 hour reversing down...but of course it occured when I was asleep :)
    So now I'm watching the immediate resistance on the way up in the 1915-1920 area. Last daily candles are rather bullish, so I think a rallye towards 1920 then 1935 is also possible. Hard to take a position right now for me, except on the shortest time units, but I'm not watching the screens often enough to do just that.

    ReplyDelete
    Replies
    1. P.S : the Daw really looks weak. It's been underperforming US. Flows from Europe to US stocks?
      Anyway, it's easier to be short on Dax than SP500.
      That's also why I'm not playing short SP unless I'm right at the top resistance and with a short term confirmation. SP maybe the strongest in this mess.
      If US crash, they probably will crash last.

      Delete
    2. @Hubert- Daw = Dax? It's amazing that the DJIA has held up as well as it has. Horrible earnings/guidance this week by IBM, MCD, KO, VZ. Oil industry stocks down on low crude: CVX, XOM.

      So 20% of the average's components are suffering. A lot of others not performing great (BA, WMT). The heavy lifting is being done by increasingly fewer and fewer stocks. Long winded way of saying divergence, but I like to see what that means.

      Delete
  5. In the not to distance future, gold and the US$ will rise together. Maybe as soon as the end of next year. Spot gold in the $1275 area is a turn point but with all up days lately it may not make it there at this time.

    Only computer trading programs can give you whiplash at such a fast pace. Floor traders are a thing of the past.

    Coming hints of what taxation will look like when the hammer finally falls with O'bummer care will cool the economy but won't prevent foreign money from flowing into the US markets.

    ReplyDelete
  6. Dan

    I do believe the market will drop again and the VIX will rise. History has shown that the market typically retest a sharp move at least once before it regains its footing. That will probably happen here at some point in the near future. If that happens it might properly gold.

    ReplyDelete
  7. Dan

    One think I might add is that, as you say, gold is going up DESPITE outflows of the GLD. Therefore perhaps, other than short covering it could be the lack of SUPPLY that is one reason for the rise (similar ot the poiint you made about the SLV). I've talked at length on here about the tremendous demand coming from the East with much of the world's mine supply being eaten up by China alone. In fact take a look at these recent figures provided by Harvey Organ:

    "As I reported to you the big news on the weekend, came from China where weekly demand (gold withdrawals) came in at 68.4 tonnes. On a 7 day week this works out to 9.77 tonnes per day The world ex China and ex Russia (they keep all gold produced) produces 6.02 tonnes per day (2200 tonnes per year). This news came on hot on the heels of a huge importation of gold into India last month of approximately 100 tonnes. Today, it was Russia’s turn. Despite the fact that Russia’s rouble is faltering terribly and in fact is at multi year lows and also its bonds are faltering with the 10 year Russian bond yield at over 4%, Russia found it necessary to purchase 37 tonnes of gold last month."

    Therefore potentially higher prices are needed to increase the supply of gold to satisfy this incredeible demand.

    This price rise comes apparently with no increase in investment demand (outflows of the ETF). So if sentiment does change and you do have investment demand returning (perhaps if tapering is put on hold) you will see some huge up days.

    The jury is very much out. I won't get excied unil gold can break out about $1,300 and out of its downtrend from mid July 2014.

    ReplyDelete
    Replies
    1. Excuse typos. No spell check when I use my iphone! :-)

      Delete
  8. Wasn't Harvey Organ (among others) bleeting about low silver inventories and the JPM/SLV manipulation scheme not that long ago?

    The same type of overly dramatic claims about gold by him and others will probably turn out the same way....wrong and misleading.

    I could be wrong about that but it seems like just about every unknowable assertion by the barkers out there has been totally wrong thus far. Just like the empty vault meme going around will turn out to be B.S.

    At what point do people stop taking the word of these hornblowers seriously?
    They're making it up as they go along.

    ReplyDelete
    Replies
    1. DarkPurpleHaze I don't entirely agree with lots of things I read but that doesn't mean that everything is complete nonsense. Are you saying that gold import figues are made up?

      Are you saying that the LIBOR scandal was a conspiracy? They rigged that, why not rig other things?

      Are you refruting the evidence provided by GATA on manipulation?

      Are you refruting the Fed that have actually come out and admitted they step in and manage the price of gold from time to time?

      I'm not one of these end of the world loonies but I also think there's far too many smoking guns here to believe there isn't much more going on than just a COMEX price when it comes to these markets.

      Gold will go up when it's good and ready not when these "experts" tell us. But that doesn't mean they don't have some valid points.

      Delete
  9. http://www.arabianmoney.net/gold-silver/2014/10/19/all-the-worlds-gold-to-be-confiscated-and-buried-in-switzerland-by-2020-argues-jim-rickards/

    Wacky. Insane.

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    Replies
    1. Don't have time to read his article in depth but it does sound nuts on the face of it. It's a shame because I've always respected Mr Rickards' opinion. His book "currency wars" was excellent.

      Delete
    2. That's about as wacky of an assertion that I've ever heard...and I've heard plenty.
      And some people just lap this stuff up.

      Delete
    3. Jasper, he is cocksure about everything. "I do not know" is not in his dna. If you do not think he is the smartest guy in the room, just ask him. Gilder, Dent, Rickards. Writers and nothing more.

      Delete
    4. When I see Dent's banner ads for $700 or $200 gold I would guess we are in inning 8 of gold's decline.

      KWN's bullish S&P article the other day, I would guess we're in extra innings in equities.

      Delete
    5. There are better places to put your gold than Switzerland, anyway. The Swiss have lost their integrity since kow-towing to the US over banking confidentiality, and also devaluing their currency. The truth is they are susceptible to doing exactly what they are told to do, just like any other European country.

      Delete
  10. 1. Just like some US data, anything coming out of China might be skewed and self-serving.
    2.There's a reason why they refer to them as a "fix" or "scheme". Things like this have gone on for quite awhile.
    That doesn't mean I approve of it. The so-called TPTB obviously aren't going to let any fix scandal..libor, fx, gold or silver....drag them under. They simply won't let it happen.
    3.No, not in it's entirety.
    But here again, like I said above, it won't matter in the end. The game will go on.
    4. They admitted that long ago in the Washington agreement I believe.
    Just because some of us (myself included) have come across older dated CB arrangements that have come to light in our modern information age that we can reference via computers doesn't mean that those old CB agreements are going to go away.
    It's old news that's been brought to light fairly recently. There's nothing anyone can do to unravel these CB agreements that have been in place for decades.
    That part of it should be clear at this point.

    Dom...I'm not disagreeing with you and I wasn't dissing your comment overall. Sorry if it came across that way.

    I agree with the last part of your comment. There are some valid points, but will they matter in the end?
    I see all of this as business as usual...and it's been going on for decades.
    It won't end anytime soon despite the protests of the many who've only fairly recently become aware of those older agreements or how CB's collude together.

    That doesn't mean I condone it, it just means I realize I can't do anything about it. They'll do what they want to do and we're just spectators.

    ReplyDelete
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    1. DPH, I didn't take offence. Part of the reason I come here is I like contrary points of view. I've been wrong plenty of times so it's nice to test one's logic.

      I also have a position in gold and silver which makes me biased.

      Yes I agree the game will go on. I just think if they are correct and this is essentially a Ponzi scheme then it can't go on forever. Not if the figures quoted relating to physical demand are correct anyway. We'll see, perhaps the new scandal will be manipulation in precious metals?

      Personally I think there are too many powerful people with vested interests so I very much doubt it.

      Delete
  11. Thank Dan, excellent analysis on gold. 1324$ would be a target for a measure move

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  12. Linh, I don't think we will reach that price before another big fall. Even $1270 looks quite distant. Resumption of dollar rise, and compulsory Santa Claus rally look to oppose gold. Gold shares are pathetically weak, and often act as a harbinger.

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    1. Peter- The lack of bounce by the miners is interesting. HUI:GOLD has actually been going down since Oct 6 (and hit a fresh all time low Friday). LEAPS on miner calls have also continued to fall in price.

      And yet, the larger miners are actually doing better than they were a year ago, ostensibly having gotten their houses in order and bringing all in sustaining cost under $1,000/oz gold equivalent.

      I don't know if this presages a coming decline in gold or a shift in the dynamic of how the miners are played. If gold doesn't go down, it would seem to me, to be the first time a handful of the producers could actually be called a value.

      Delete
    2. Peter, as Dan said, the people who got a lot of money have a few choice for safe heaven: bond and gold. Meanwhile, USD temporarily back, SP500 crazy, oil too bearish and EUR kidding currency

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    3. Holding onto $1350 is what I'm looking for as an indicator we have a chance to reach $1400+.
      I don't see it happening at this point and I think gold will have a hard time just keeping $1280 in the short term if it even gets back there on this bounce.

      The action in oil and the USD is key. If the ECB starts up that corporate bong buying program and the euro swoons...look out below...$1180!

      Delete
    4. U'mmm....should read "corporate BOND buying program". Lol!

      But hey, you never know. When all is said and done they might just need some relaxing sedation. }:^)

      Delete

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