"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


Tuesday, May 20, 2014

Gold Holds Support; Constricts Further

There was some news today dealing with gold demand from out of China, now the world's largest gold consumer, and it was not particularly friendly for the yellow metal.

The World Gold Council announced that Q1 gold demand was 18% less than the previous year for the same time period. It was the 55% drop in bar and coin purchases that was primarily behind the fall off.

India was not exempt either as its gold demand fell 26%.

The WGC data showed an overall drop in global demand by 52% compared to a year ago resulting in a four year low.

Combine this with the big drop in GLD holdings, and you can see why gold has thus far been stymied in any attempt to mount a sustained upward move in price. The demand simply is not there.

That could change but until it does, the metal will continue to attract selling on rallies.

By the way, as an aside, this is another of the reasons that I suggest that the readers here ignore the now commonplace, breathless talk about "gold backwardation". If gold demand were that strong as these non-stop gold promoters insist, the WGC would not be reporting falling demand. Then again, some of these charlatans will no doubt inform us that the WGC is in bed with the powers that be and is distorting its own data in order to steer investors away from gold.

Sweeping away all the cobwebs and clearing the fog from their obfuscations, the gold price chart continues to reveal that pattern that is making me nervous about its fortunes. The pattern of LOWER HIGHS is not changing. Rallies are attracting selling at progressively lower points and while support is holding, the persistent inability of the mining shares to get anything going on the upside, is suggesting ( note - this is not conclusive yet ) that the support level is not going to hold.

The events in Ukraine remain a wild card however. The upcoming vote is going to be closely watched but more so, the reaction to that vote. Also, any further weakness in the broader equity markets will bring, as it did in today's session, more safe haven buying into the yellow metal. Some equity players are unsure whether the weakness in the smaller cap stocks is going to spillover into the larger caps. It seems that anytime stocks waver in the least, gold gets a safe haven bid. It is just one more thing for traders to have to decipher when attempting to approach this market for a trade. One thing is for certain - trading gold has become a shortest of time frame trades. One cannot hold a position for any length of time in this completely unpredictable and volatile environment.

Just today, after the Russell 2000 had managed nice back to back recoveries from the recent selling, it fell lower again. Currently it is down 1.96% compared to the 0.84% fall in the S&P 500 index and a 0.99% drop in the Dow. At the same time, the yield on the Ten Year Treasury has moved slightly lower once more. One can see the corresponding linkage when these safe haven/ risk aversion moves are underway. Small Cap stocks underperforming mid to large caps is a sure sign of this risk aversion trade. Both the Yen and the Dollar are also a wee bit higher at the moment. Disappointing sales numbers from retailers seemed to be the culprit that induced the selling in the equities, brought a bid into gold and the other safe havens.

Here is a chart of the GDXJ. As you can see, it is working on putting in the lowest daily closing price since April 17th of this year; in other words, the lowest close in a month. It is sitting right at a key support level so if the juniors are going to manage a bounce, they are going to have to do it almost immediately or risk another leg down. The ADX is rising once more indicating that the potential for a trending move is now more realistic but until that support level gives way, the index is still in a range, albeit at the bottom of the range.

The Daily Chart of the HUI is not any better. It is working on the lowest closing price in three months.

On the grains front - traders are back to chasing soybeans higher once more,  as if we are going to run completely out of beans before turning right around and throwing them all out. This market is about as convoluted as I can ever recall seeing it, especially the old crop as the situation involving those tight carryover stocks is at the forefront of their minds again. Technically based buying is was seen in new crop beans as overhead resistance levels were taken out which brought in momentum-based buying. That buying then evaporated and sellers took over. Right now the beans are lower but whether or not they stay there or go on another wild tear higher is anyone's guess.

The initial catalyst behind the early session buying was news that China  was into the US bean market as USDA this morning announced a purchase of 110,000 mt of optional origin beans. Combine those two words, "China" and "beans" and the result is always buying in the pit.

KC wheat is outperforming the Chicago wheat market as deterioration of that crop was reported yesterday. While recent rains will have helped ameliorate the slide in condition ratings, traders were looking backward at the damage and felt that perhaps some got too optimistic on prospects too quickly. After all, wheat prices had dropped over $0.80/bushel in less than two weeks time. Throw in the fact that the HRS crop is behind schedule for planting and that was enough to convince some shorts to go ahead and book some gains.

Corn is being pressured however by a strong planting pace ( 73% compared to the 5 year average of 76% and last year's 65%) although some of the northern tier states are running behind the norm. It does look like there is going to be an open window up there however this week so traders are looking at substantial progress to be made by the time next Monday rolls around and we get the new and updated planting progress report. Generally speaking, from this point on out, rains will now tend to be viewed as helpful for the crop.

For corn, 34% of the crop has emerged compared to the 5 year average of 42% and last year's 17%. Beans are 9% emerged compared to an 11% five year average and last year's 3%.

The cheaper corn, along with good pasture conditions, and tightness for feeder supplies is driving feeder cattle prices to record high prices. How high can they go is the big question at this point.

Let's see what we get when the trading for today's session ends. Trying to extrapolate from daily market action nowadays is becoming almost an exercise in futility due to the wild price swings and shifting sentiment. Perhaps we need to just take things on an hourly basis. That seems to be the new "long term" horizon.

Spurs up one game on the Thunder. I like KD and believe he is a great role model but I like the Spurs more.