Wednesday, March 2, 2011
4 Hour Long Bond Chart
The Bonds were not able to recapture much strength after the Beige Book was released.
Open Interest Tale of Two Cities
Speculators are pouring into gold based on the data we have from the exchange recapping yesterday's open interest readings. There was a very good increase of a bit over 6,000 contracts with the bulk of that coming in the June contract as apparently some of the newcomers have decided to forego buying the April and having to roll in a few weeks' time. These new additions were what drove gold past its all time yesterday. As long as this continues, gold will keep moving on to make new highs.
Silver on the other hand showed a drop of 412 contracts with the bulk of that coming out of the March contract which continues to dwindle and is now down to 2,251 contracts. March remains at a discount to the May continuing that pattern which lowers the odds of any short squeeze in that contract month before the March goes off the board. We are still monitoring that situation closely for any developments however. Deliveries were rather small yesterday with only 9 contracts issued and stopped.
Even without any fireworks in the March contract delivery process, silver continues soaring ahead. It is proving that it doesn't need any! I do find that drop in open interest yesterday when it pushed past the recent 30 year high noteworthy. There are obviously a large number of shorts who are in deep trouble in this market. They are continuing to get run over and are moving out as longs keep pressing them.
As a matter of fact the big silver shorts, the banks, have been steadily drawing down their short side exposure by 10,000 contracts since September of last year. Even at that however, the ground is littered with bleeding shorts. Interestingly enough, that last Commitment of Traders report showed all the speculative money, no matter from what category, managed money, general public or other large reportables, all on the long side on a net basis. The only group of traders on the short side on a net basis are the Commercial/Swap Dealers class and right now that class is getting run over.
Silver on the other hand showed a drop of 412 contracts with the bulk of that coming out of the March contract which continues to dwindle and is now down to 2,251 contracts. March remains at a discount to the May continuing that pattern which lowers the odds of any short squeeze in that contract month before the March goes off the board. We are still monitoring that situation closely for any developments however. Deliveries were rather small yesterday with only 9 contracts issued and stopped.
Even without any fireworks in the March contract delivery process, silver continues soaring ahead. It is proving that it doesn't need any! I do find that drop in open interest yesterday when it pushed past the recent 30 year high noteworthy. There are obviously a large number of shorts who are in deep trouble in this market. They are continuing to get run over and are moving out as longs keep pressing them.
As a matter of fact the big silver shorts, the banks, have been steadily drawing down their short side exposure by 10,000 contracts since September of last year. Even at that however, the ground is littered with bleeding shorts. Interestingly enough, that last Commitment of Traders report showed all the speculative money, no matter from what category, managed money, general public or other large reportables, all on the long side on a net basis. The only group of traders on the short side on a net basis are the Commercial/Swap Dealers class and right now that class is getting run over.
Tuesday, March 1, 2011
The Industrial Metals Trade vs The Safe Haven Metal Trade
One of the by products of the surging crude oil price has been to create a bid underneath the precious metals markets of gold and silver and to put a damper on expectations of future growth in the overall global economy.
Copper, a base metal, and one which thrives when the economy is improving or growing, has been the beneficiary of the improving economy theme since late last year and had been outperforming gold as the market was becoming more convinced that the worst of the economic problems were behind us and that the entire global economy was on the mend.
The surge in crude oil prices associated with the outbreak of unrest and social instability across the Middle East has caused a dramatic reversal of that recent sentiment. The concern is now focused on how long crude oil prices will stay near current levels and whether or not there is additional upside should events there further deteriorate.
As such, players are dialing back their expectations on global growth a bit and this is leading to some reassessment in regards to copper exposure. Investors and traders are basically saying, "Why own copper which could be hit if things do indeed slow down and why not increase my exposure to gold and silver".
This shift is reflected in the charts presented below. The line indicates the spread between gold and copper. As such, it tends to give us a peek into what the hedge funds are doing with their funds. Since the beginning of February, money has been coming out of copper and into gold. The same holds true for silver which has exploded against copper although it was outperforming the red metal for the last few months of 2010.
As long as crude oil continues strong or works higher, this trade should work and will help to shore up any downside in both gold and silver. It could be a very volatile trade however should crude oil prices reverse sharply for any reason. If that were to occur, the "improving economy" sentiment would see money flow back into copper and perhaps out of gold and silver. That is not to suggest that gold or silver will top; it is merely to say that there might be some reallocation of hedge fund money back into copper and out of gold and silver.
Copper, a base metal, and one which thrives when the economy is improving or growing, has been the beneficiary of the improving economy theme since late last year and had been outperforming gold as the market was becoming more convinced that the worst of the economic problems were behind us and that the entire global economy was on the mend.
The surge in crude oil prices associated with the outbreak of unrest and social instability across the Middle East has caused a dramatic reversal of that recent sentiment. The concern is now focused on how long crude oil prices will stay near current levels and whether or not there is additional upside should events there further deteriorate.
As such, players are dialing back their expectations on global growth a bit and this is leading to some reassessment in regards to copper exposure. Investors and traders are basically saying, "Why own copper which could be hit if things do indeed slow down and why not increase my exposure to gold and silver".
This shift is reflected in the charts presented below. The line indicates the spread between gold and copper. As such, it tends to give us a peek into what the hedge funds are doing with their funds. Since the beginning of February, money has been coming out of copper and into gold. The same holds true for silver which has exploded against copper although it was outperforming the red metal for the last few months of 2010.
As long as crude oil continues strong or works higher, this trade should work and will help to shore up any downside in both gold and silver. It could be a very volatile trade however should crude oil prices reverse sharply for any reason. If that were to occur, the "improving economy" sentiment would see money flow back into copper and perhaps out of gold and silver. That is not to suggest that gold or silver will top; it is merely to say that there might be some reallocation of hedge fund money back into copper and out of gold and silver.
Gold - Daily Chart update
Gold went on to make a new all time high today steadily gathering strength as the trading session wore on. The catalyst was soaring crude oil prices which generated both a safe haven and an inflation bid in the metal.
There are two things to note about this:
First - the metal did this in the face of a safe haven bid going into the Dollar. That generally translates into gold rising in terms of most of the other major currencies. For example - gold priced in terms of the Japanese Yen is within striking distance of its all time high. Euro-priced gold is 23 euros shy of its all time price in that currency. That is a good sign from a trading standpoint because it indicates that the market is not moving solely on Dollar related issues but is strong based on its own merits.
Second - While the speculative money has been returning to the gold market since it hit bottom near $1310 back in January, they are still not near their peak exposure based on recent measurements. Translation - although the market has come a long way the long side, while definitely getting busy (which is what we want to see by the way), is still not all that crowded.
With the market trading well above all of the major moving averages, the speculative long crowd is in the driver's seat for the time being. It would take a plunge down below $1400 now to run a large number of them out. The market is in a posture which should engender buying on dips rather than one of selling rallies based on its current technicals.
We should look for support to surface initially near $1410 and if that failed to attract enough buyers, then $1400 comes into play. That would need to hold to prevent a bit deeper pullback in price, that might possibly take it down towards $1380.
Upside is now in uncharted territory once again so are making projections where resistance might be expected to surface. There looks to be some resistance near $1445 followed by $1450. If the market pushes through these levels in the next few days, quite frankly there does not appear to be all that much standing between it and a run towards $1500.
There are two things to note about this:
First - the metal did this in the face of a safe haven bid going into the Dollar. That generally translates into gold rising in terms of most of the other major currencies. For example - gold priced in terms of the Japanese Yen is within striking distance of its all time high. Euro-priced gold is 23 euros shy of its all time price in that currency. That is a good sign from a trading standpoint because it indicates that the market is not moving solely on Dollar related issues but is strong based on its own merits.
Second - While the speculative money has been returning to the gold market since it hit bottom near $1310 back in January, they are still not near their peak exposure based on recent measurements. Translation - although the market has come a long way the long side, while definitely getting busy (which is what we want to see by the way), is still not all that crowded.
With the market trading well above all of the major moving averages, the speculative long crowd is in the driver's seat for the time being. It would take a plunge down below $1400 now to run a large number of them out. The market is in a posture which should engender buying on dips rather than one of selling rallies based on its current technicals.
I would like to see the metal push a bit further past the old all time high and work closer to $1440 to begin accelerating as I believe that would force out some of the larger shorts who are better capitalized but do not have the depth of pockets of the pestilential bullion banks.
Upside is now in uncharted territory once again so are making projections where resistance might be expected to surface. There looks to be some resistance near $1445 followed by $1450. If the market pushes through these levels in the next few days, quite frankly there does not appear to be all that much standing between it and a run towards $1500.
Gasoline thieves drilling holes in gas tanks
Check out the following story. I would not be overly concerned about this however since we just heard from Ben and he assures us that these price rises are only temporary and modest. Why worry? Be Happy!
Gas thieves drilling holes into tanks of parked vehicles
You can read the entire story here:
http://www.wbtv.com/Global/story.asp?S=14163056
Gas thieves drilling holes into tanks of parked vehicles
You can read the entire story here:
http://www.wbtv.com/Global/story.asp?S=14163056
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