For some time now the general sentiment in the broader markets has been that economic growth is slowing, in spite of Central Bank efforts to stimulate it. We have seen that in data coming especially out of the Eurozone. We have also seen it in Japan, whose Central Bank just recently evidenced how stubborn the deflationary pressures have been in their economy.
Here in the US, last Friday's payroll numbers, which was mildly disappointing, the market reacted by selling the US Dollar with the thinking that the Fed would go slower on any potential rate hike.
In the commodity markets, we have seen in sinking commodity indices in responses to sharp moves lower in crude oil, natural gas, unleaded gasoline, grains, sugar, etc. across the board.
Thus far the sentiment has been in which there is no inflation with the general threat being regarded by Central Bankers as one of deflation , or in their terms, disinflation.
It is this sentiment which has resulted in money flows out of commodities in general and into equities.
In attempting to discern when/if this sentiment might be changing, I have been closely monitoring both copper and crude oil prices. Just yesterday I mentioned that the close of copper below the $3.00 level was something that concerned me, especially with crude oil prices going into a downside freefall.
Something else I watch is the action in the Australian Dollar. I view this currency as a sort of "quasi growth currency". The reason is because so much of Australia's economy is dependent on the export of the huge amount of raw materials it produces. Basically, if world economic growth is moving higher, especially growth in its neighbor China, the Aussie tends to benefit. The converse is true if growth is slowing.
With that in mind, take a look at this intermediate term chart of the currency. Notice the sharp rise beginning in early 2009 which was when the Fed launched its first QE program. Optimism was high that it would be successful in liquefying the financial system and growth would ensue.
Somewhere along the line however, it dawned on markets that Central Bank efforts, including those of the ECB and BOJ, as well as stimulus efforts by China, were not having the intended effect. The currency then began a slow, grinding move lower.
As of this week, it has surrendered exactly one half of its gains from the beginning of QE1, back in early 2009.
So where from here? Good question.
Today, there were two pieces of news that hit the market which came as bullish surprises for the economy. The first of these was Eurozone GDP numbers which, while still pitifully weak, were better than anticipated. The second was US retail sales, which surprised to the upside as well coming in at +0.3% for October compared to an expected +0.2% rise.
Together, both pieces of data had the effect of pushing the Euro higher at the expense of the Dollar but it was especially was seen in the Nasdaq. That market has been lagging the S&P 500 and the DOW, which as the reader knows, have both made new lifetime highs this year. The Nasdaq has not. Today however it pushed up towards levels last seen in March 2000.
I am watching very closely to see if there is any sort of hint, that sentiment might therefore be shifting away from the "slowing growth" scenario to one of "the global economy is over the deflation scare and now will work towards one of growth". Please note that I am NOT saying such a sentiment is here; I am merely stating that to be successful at this business, one has to constantly gauge sentiment which influence money flows and money flows influence price.
It is that simple, especially when it comes to silver, but even gold as well.
Next week we are going to get some more pieces of economic data as well as the minutes from the Fed's October FOMC meeting. This will give us some fresh data to work with to see what kind of response the market has.
My thinking is that if there is indeed any shift that has actually taking place, something of more significance than the price action of a single week, it will begin to show itself in the Australian Dollar chart and in copper and in crude oil.
I noticed that crude oil cut yesterday's horrendous losses by half in today's session and that the XLE was up more than 1%. It is interesting to note that the XLE has performed much better overall than the price of crude itself. Today looked a lot like some big players were taking the opportunity to renew their exposure to the energy sector.
Remember, silver needs a "solid growth environment", one in which inflation dominates, rather than disinflation or deflation, if it is to thrive. In my view, silver is NOT a safe haven. If the sentiment begins to shifts towards one of slow but steady global growth, silver will probably bottom down here. If the sentiment is a short term phenomenon and we start getting more evidence of economic stalling, it is going back down again.
Time will of course make things clear, but I would strongly caution would be silver bulls who are constantly warning us about how crappy the US economy really is and how the stock market is really just a huge bubble, to be careful what they wish for in terms of stocks. they really seem to believe that if stock prices implode silver will soar and therefore are always rooting for equities to tumble as they constantly nitpick and criticize anything positive about the US economy that might actually happen to be reported.
Let me just say this - If equities were to fall out of bed because markets begin fearing overpriced stock valuation in a slow growth environment, guess which way silver is going? Hint - it ain't higher!
If this keeps up, watch for the CME Group to raise margins on gold futures contracts soon. Volatility is sitting at more than a one year high in gold. Option guys take note.
The US Dollar has been on an amazing bullish tear higher with the currency being the beneficiary of a roaring stock market and the sentiment that if any industrialized nation in the globe is going to raise interest rates, the US will be the first to do so.
The currency has rallied more than 10% since early May of this year, a pretty impressive feat no matter how some keep trying to dismiss it. As it has rallied, gold has moved lower, creating a very good inverse relationships that the market has been comfortable with.
The Dollar however is running into some selling resistance noted at the uppermost resistance level noted on the chart just shy of the 88.50 level.
Can you see the stair-stepping pattern that has been forming on the chart? During the initial phase of the current bull market in the Dollar, the currency displayed some resiliency near 79.50 - 79.00 that sparked some buying among technicians who noted the bottoming action. When it broke out above resistance near 81.50, instead of setting back somewhat as many markets are prone to do as they digest their gains, the Dollar merely tracked sideways for a very brief period before it rocketed higher supported by overwhelmingly strong fundamentals.
It then stalled out near 84.50 where it consolidated a bit further before embarking on yet another leg higher. That rally took it all the way to just short of 87. The greenback set back and retreated all the way to the former resistance zone which served as downside support.
From there it encountered another wave of buying which took it all the way back up to 87, which it obliterated, soaring to its recent high near the 88.50 level, where it is currently consolidating some more.
As chart technicians, we are now watching to see whether this is just another pause in the relentless move higher in the greenback or the beginning of a deeper move lower. Thus far, the available evidence points to this as merely another pause. However we need to stay vigilant as always.
The fundamentals that have driven the Dollar higher against the majors are still in place. the current "Long Dollar" trade has gotten a bit crowded with specs heavily net long. Perhaps some of what we are seeing today in the Forex markets is some correcting of that imbalance. For now, as long as the Dollar remains above 87.00 on a closing basis, it looks like the pause that refreshes.
Time will tell...let's see what we get next week....
Informa Economics, a respected private grain advisory firm, today released its widely anticipated acreage numbers for next year's bean and corn crops.
The firm projects a whopping 88.3 million acres will go to beans next year here in the US with corn acreage at 88.3 million as well. That is up 4 million acres from this year's bean acreage number. On the corn, we had 90.9 million this year.
Soybean prospects are strong because of the high prices compared to corn and the fact that they are cheaper to grown.
The beans were acting heavy in today's session but it does seem as if the Informa numbers added to some of the selling pressure that we are currently seeing in there.
Keep in mind that the recent rally has occurred in spite of the USDA projecting a nearly 33% increase in total global bean supplies over the next year. Logistical issues related to rail car and truck availability, as well as slow farmer sales, have contributed to the recent panic buying among some end users of meal but maybe the market is coming back to grips with the fact that there is not going to be any shortage of beans this year.
More later....
Don't expect to hear a peep out of the Gold Is Always Manipulated All the Time" crowd about today's massive short squeeze. Here is what a huge short squeeze looks like on a chart. Pretty impressive isn't it?
Don't expect to hear such pithy and insightful "analysis" such as: "Who would buy in such large size regardless of the impact on the market if they were really trying to obtain the best possible buying price? Surely this is 'proof' that our claim of market manipulation by sinister forces is true".
"These insiders and powerful forces are determined to drive the price of gold ever higher and are not even trying to hide their blatant attempts at upward price manipulation".
No, you will get none of that because in their world, this is just the "right and just and fair" thing for gold to be doing. When gold sells off sharply, it is "evil bullion banks acting as agents of the Fed" behind the move. When gold moves higher as computer programs go beserk to the upside, all is good and true and right on the world once more. it is Hallelujah time in the gold cult church! Breakout those hymn books and get those priests and prophets back up there in the pulpit once more to encourage the faithful to remain true and steadfast!
Putting all that foolishness behind us, we can once again see how much fear and panic buying can be created when a powerful short squeeze once again kicks off in a market. Just look at huge spike in volume. It has even dwarfed the massive volume that we saw in this same market exactly a week ago last Friday when that jobs report came in a bit lower than what the market was expecting and the Dollar encountered a sharp selloff.
Once more we are getting a sharp move in the Forex markets, this time being the Euro, which is getting its own version of a short squeeze as many traders are caught short the Euro and are getting out on the heels of a bit better than anticipated Eurozone GDP number.
So far the gold market is not backing down back under the $1180 level, which is the key for the bulls to have a legitimate shot at running this back up to try to put a "12" handle in front of the metal once more. If they can close this market over that level, they have a very good shot at doing that next week although the 20 day moving average, which comes in near $1194 would be the first upside target to be bested before a test of $1200 would be in order. Stay tuned on this one.
I am going to be most interested in seeing what kind of numbers we are going to get out of that GLD once more after this squeeze. Will the ETF attract some new buying or will those looking for other pastures for their monies take advantage of the rally to liquidate. We will see soon enough.
I can tell you that some of the other markets I am trading today are seeing some very strange and bizarre swings occurring in them, notably the meal spreads. The Yen is volatile as well having hit a fresh seven year low early in the session but apparently the rally in the Euro against the Dollar is sparking some short covering in the Yen as well.
I will get some more up later on today after the dust settles. Suffice it to say for now, the gold bulls are seizing the day but they need to flex their muscles a bit more in the mining shares. The HUI is confirming the move higher thus far but has yet to really strongly exceed the peak made on last Friday's big up day.
Let's see what we get on the close - never a dull or boring moment in our modern markets is there?
Hey who knows, maybe some are now reading the lower energy prices, as stimulative in nature, much more so than any monetary stimulus measures that the Western Central Banks might be undertaking and are looking at that as a reason to put some money into commodities once more. Up until now they have all been part of a deflationary wave building in the commodity sector but sentiment is fickle, like the mob in the movie "Gladiator" and can change in a heartbeat.
I am still trying to get some information as to the driving force behind the unexpectedly sharp rally that is taking place in the Euro from off its worst early session levels.
The common currency rallied almost a full 100 pips off its low in the span of a couple of hours but especially within the last hour. As it moved up, gold shot up as well as silver and even copper.
As soon as I can find out something I will throw it up here at the site, assuming I have some time to do so. It is a busy morning with extreme volatility being seen across a large number of individual commodity futures markets.
Take a look at the combo chart showing gold on the bottom and the Euro on the top. Note that the relationship is almost perfect! As mentioned before here, gold is going to take its cues from the currency markets.
