Reports are that the $16 billion, 30 year bond auction, generated poor demand. That should not come as much of a surprise after the big rally has dropped yields down to levels that no one in their right mind would want to lock up capital at for 30 years.
Bonds dropped nearly a full point on the auction news but are once again finding buying at a critical technical juncture. No surprise there also in this heavily rigged market.
Thursday, May 12, 2011
Wednesday, May 11, 2011
China still struggling against inflation
Look for continued buying in the gold market coming out of China as that nation contends with serious inflation problems. Their version of the CPI showed a gain of 5.3% in April, down from 5.4% in March, but above what most of the market was looking for (5.2%). Keep in mind that real rates in China are currently negative on one year savings accounts.
This helps explain why gold is holding much better than silver right now. Silver is being seen as a speculators' playground while gold is keeping with its historic role as a safe haven. The reason for its downdraft today is related to hedge fund selling algorithms which blindly sell every single commodity across the board with no discrimination whatsoever.
Such things are welcome in Asia as opportunities.
Gold has bounced back above $1500 in late session trading as the session nears an end in New York. Silver is currently acting as a drag on gold but if it can hold above $35, gold should bounce moving into Asian trading this evening as the margin related selling winds down.
This helps explain why gold is holding much better than silver right now. Silver is being seen as a speculators' playground while gold is keeping with its historic role as a safe haven. The reason for its downdraft today is related to hedge fund selling algorithms which blindly sell every single commodity across the board with no discrimination whatsoever.
Such things are welcome in Asia as opportunities.
Gold has bounced back above $1500 in late session trading as the session nears an end in New York. Silver is currently acting as a drag on gold but if it can hold above $35, gold should bounce moving into Asian trading this evening as the margin related selling winds down.
XAU needs to find support very soon
The large cap mining stocks continue to get obliterated as evidenced by the XAU which is now perched precariously above a critical support level on the weekly chart. The entirety of the gains of 2011 have now been erased by this continued ratio spread trade which will not let up.
To give you an idea of how obscene this trade has become, when the XAU was trading at today's levels back in January of this year, gold was trading in the low $1300's!
What is astonishing is the silence of far too many mining company CEO's while their stock value is getting systematically destroyed. A bounce in the metals should bring some valued based buying into the mining shares particularly at these levels.
To give you an idea of how obscene this trade has become, when the XAU was trading at today's levels back in January of this year, gold was trading in the low $1300's!
What is astonishing is the silence of far too many mining company CEO's while their stock value is getting systematically destroyed. A bounce in the metals should bring some valued based buying into the mining shares particularly at these levels.
Gold - 4 Hour chart update
Gold made it back above the 50% Fibonacci retracement level of its most recent decline from its record price but was unable to maintain its footing over that level. That led some of the longs to bail out and enticed some short selling. Price then fell below $1500 once again which will need to be regained to give the bulls the edge in this market.
Gold is caught in a tug of war beween speculative selling related to hedge fund algorithms and safe haven buying on account of sovereign debt fears in Europe. In terms of the Euro, while it is weaker today, it is actually holding fairly well compared to the massacre across the rest of the commodity complex.
I am optimistic that this market is entering a consolidation phase and is carving out a new trading range. Right now we have $1520 on the top and $1460 on the bottom until we get some subsequent levels to form on the chart.
Gold is caught in a tug of war beween speculative selling related to hedge fund algorithms and safe haven buying on account of sovereign debt fears in Europe. In terms of the Euro, while it is weaker today, it is actually holding fairly well compared to the massacre across the rest of the commodity complex.
I am optimistic that this market is entering a consolidation phase and is carving out a new trading range. Right now we have $1520 on the top and $1460 on the bottom until we get some subsequent levels to form on the chart.
Silver - 4 hour chart
Risk-off trades have returned with a vengeance today. I believe a fair amount of the selling is tied to hedge fund panic type selling related to the conviction of a hedge fund manager on insider trading violations. That seems to have terrified the hedgies and has them running out of everything with the exception of the US Dollar. It has also put a mild bid back into the bonds (once again - everytime they appear to get ready to rollover, they are resuscitated - more evidence that the US bond market is the largest rigged market on the planet right now - these things have more lives than a cat). It is my firm conviction that the US monetary authorities are doing everything in their power to break the back of the commodity rally and prop up the rotten and utterly worthless paper IOU market (Treasuries). They are fully at war with the speculative community.
Silver, after briefly moving back above $39 in Asian trading, was once again obliterated. Ditto for the energies, gasoline in particular, which dropped so sharply at one point during the trading session, that trading was halted and then reopened under extended trading limits. Consumers will of course welcome this sell off.
One can now make the case that a bearish flag formation has been formed on the daily silver chart but I should note here that it still remains well above the recent low near $33. Additionally, a large number of longs have already liquidated their positions in this market meaning that those who bailed out down near $34 and under are already gone and are no longer around to provide downside fuel from their selling. Open interest readings indicate that a decent number of new shorts were also blown out of the water leading me to believe that this market is very soon going to begin consolidating and working sideways as only the bravest, or perhaps the most foolish, are going to be placing large bets in the silver market any time soon. Trading this market in size is a guaranteed, sure-fire way to become bankrupted. My counsel is to forget about figuring how much money you might be able to make on your trading positions and begin worrying about how much you might lose.
As said in yesterday's post, this market is running on wild swings in emotion bordering on near despair to wild-eyed optimism. Markets like this are to be avoided in size (if you are going to trade them, trade small) until they calm down and begin consolidating which lets them wring out this idiotic emotion. I will welcome a move that drifts down towards $34 if that happens to see how the market reacts to this level once again and to give us a chance to see whether or not the bottom forged near $33 is a good one. For now, we have a bottom at $33 and a top at $39 which is the new trading range until proven otherwise. There is a chance that $35 could hold on the downside depending on how much further the Dollar can rally.
You will note that silver did make it up to the 38.2% Fibonacci retracement level before it failed so from a technical standpoint it is producing fairly accurate readings on the chart right now.
Silver, after briefly moving back above $39 in Asian trading, was once again obliterated. Ditto for the energies, gasoline in particular, which dropped so sharply at one point during the trading session, that trading was halted and then reopened under extended trading limits. Consumers will of course welcome this sell off.
One can now make the case that a bearish flag formation has been formed on the daily silver chart but I should note here that it still remains well above the recent low near $33. Additionally, a large number of longs have already liquidated their positions in this market meaning that those who bailed out down near $34 and under are already gone and are no longer around to provide downside fuel from their selling. Open interest readings indicate that a decent number of new shorts were also blown out of the water leading me to believe that this market is very soon going to begin consolidating and working sideways as only the bravest, or perhaps the most foolish, are going to be placing large bets in the silver market any time soon. Trading this market in size is a guaranteed, sure-fire way to become bankrupted. My counsel is to forget about figuring how much money you might be able to make on your trading positions and begin worrying about how much you might lose.
As said in yesterday's post, this market is running on wild swings in emotion bordering on near despair to wild-eyed optimism. Markets like this are to be avoided in size (if you are going to trade them, trade small) until they calm down and begin consolidating which lets them wring out this idiotic emotion. I will welcome a move that drifts down towards $34 if that happens to see how the market reacts to this level once again and to give us a chance to see whether or not the bottom forged near $33 is a good one. For now, we have a bottom at $33 and a top at $39 which is the new trading range until proven otherwise. There is a chance that $35 could hold on the downside depending on how much further the Dollar can rally.
You will note that silver did make it up to the 38.2% Fibonacci retracement level before it failed so from a technical standpoint it is producing fairly accurate readings on the chart right now.
Tuesday, May 10, 2011
Silver shedding open interest
Based on the reported open interest and volume numbers by the exchange, silver's rally yesterday was sparked by fresh shorts who sold the bottom last Thursday and Friday and are now having those sky high margins hit them for a change. Perhaps they have now learned that what is good for the goose is also good for the gander.
The market has had a nice pop off the low down near $33 but has yet to regain its footing above the 40 and 50 day moving averages. Until it does, its technical posture, while greatly improved, still remains bearish on the daily chart. You will note on the chart that unlike gold, which has retraced half of its recent losses, silver has not yet been able to recapture the 38.2% retracement level of its recent leg lower.
These steep sell offs followed by steep recoveries are always unsettling. What silver needs is a period of consolidation which will allow this excess volatility to get wrung out and let things calm down a bit. There has been way too much emotion in this market and that is being reflected by these wide price swings.
I like the fact that it continues to move away from the $33 level but I would feel a bit more comfortable from a bullish standpoint if it could at the very least clear last Thursday's high which is near $39.40. That would also put it above that 38.2% retracement level referenced above.
We will have to watch and see what level the stronger-handed shorts begin to dig in. There does look to be some resistance entering in here above $38 as I write this.
Once again, as usual, the shares continue to weigh on the entire sector.
The market has had a nice pop off the low down near $33 but has yet to regain its footing above the 40 and 50 day moving averages. Until it does, its technical posture, while greatly improved, still remains bearish on the daily chart. You will note on the chart that unlike gold, which has retraced half of its recent losses, silver has not yet been able to recapture the 38.2% retracement level of its recent leg lower.
These steep sell offs followed by steep recoveries are always unsettling. What silver needs is a period of consolidation which will allow this excess volatility to get wrung out and let things calm down a bit. There has been way too much emotion in this market and that is being reflected by these wide price swings.
I like the fact that it continues to move away from the $33 level but I would feel a bit more comfortable from a bullish standpoint if it could at the very least clear last Thursday's high which is near $39.40. That would also put it above that 38.2% retracement level referenced above.
We will have to watch and see what level the stronger-handed shorts begin to dig in. There does look to be some resistance entering in here above $38 as I write this.
Once again, as usual, the shares continue to weigh on the entire sector.
Gold - 4 Hour chart update
Gold has retraced exactly 50% or half of its losses from the recent all time high to last week's low just above $1460 and is now encountering selling resistance as anticipated. Bulls will need to push price through $1520 to prevent a drift lower back down towards $1500 initially. This will lead to a period of sideways trade allowing the market to consolidate and perhaps shed some of the excess volatility.
Volume is rather mediocre at this point reflecting the relative caution among many players. A breach of $1520 should see volume intensify while a downside break of $1500 will do likewise. An uneasy truce is currently being reflected in the market between bulls and bears with neither side willing to get too agressive at the present time. Things can change very quickly in these markets however.
Volume is rather mediocre at this point reflecting the relative caution among many players. A breach of $1520 should see volume intensify while a downside break of $1500 will do likewise. An uneasy truce is currently being reflected in the market between bulls and bears with neither side willing to get too agressive at the present time. Things can change very quickly in these markets however.
Monday, May 9, 2011
Gold - 4 Hour chart update
The spike off of the region near $1460 and subsequent move strongly back above $1500 is indicative that a bottom has been found in the market. Keep in mind that $1500 is a psychological resistance level.This is not to say that the market now goes straight back up however and returns to its all time high in short order. What it does say is that buyers see value in gold below $1480. Now we will wait to see where selling might develop. That will give us a better feel for the new range than gold is carving out.
If you note on the chart, the 50% retracement level of the last leg down from the recent peak comes in just above the market near the $1520 level. That looks like a reasonable target for the short term. Let's see how it handles that region. A push past here could potentially press as high as the $1530 level. If price can best that, then $1550 comes back into play. If prices fade here and selling comes in, then we will head down towards $1500 again to retest that level.
The potential fly in the ointment, much to my surprise, is the lackluster performance of many of the gold shares as evidenced by the HUI and XAU. While both are higher today, neither one has mustered sufficient strength to have taken out Friday's session high on the charts. That is rather disappointing considering that these stocks led the metals on the way down. I fully expected them to lead on the way back up for a short while. As of right now, they are in a follower's role instead. It is also noteworthy that they are lagging against a backdrop of a rather strong day in the broader equity markets.
I should also point out that while the Dollar is now weaker as traders repurchase the Euro positions that they have thrown away last week, the strength in both gold and silver was occuring while the Dollar was actually higher earlier in the session. As the greenback began to fade going into the afternoon, that generated more buying across the metals, and the crude oil market as well I might add, which took them to their best levels on the day. Hitherfore, price in gold could not get above $1510 and stay there. It took that out as the Dollar dropped back below 75.
Gasoline has erased almost all of last Thursday's enormous drop after spiking off of the $3.00 level on Friday. Hurry up and fill up your truck before the price goes back up! That nice drop in prices that some were expecting to see at the pump suddenly has been cut in half for no particular reason other than the fact that the hedgies were buying today.
It is noteworthy that unlike what happened in 2008 during the commodity downdraft, this time around we have had a plethora of new short sellers enter the commodity arena. Back then it was predominantly long liquidation which was met by commercial short covering. This time a lot of players decided to actually institute brand new short positions hoping to catch a wave lower. Based on the market action of today, with the Dollar dropping back near 50 points off its best level of the session, a lot of these Johnnie-come-lately shorts were crushed across both the metals markets and the energy markets. some also had their heads handed to them in the wheat market.
I want to observe the price action for tomorrow and the next day to see what the markets might be telling us as to what lies ahead. It is a bit too soon to say conclusively but it does indeed appear many of these commodity markets have bottomed out. Again, I want to repeat, this is not the say they are going to now reverse and go straight back up again. It is to say that there evidently remains many well funded players whose macro view has not changed and who are looking to buy into these price breaks as they wait for the downtrend in the Dollar to reassert itself at some point.
Bonds finally faded later in the session after stupidly moving higher even as the equity markets were soaring upward and the Dollar was swooning. That market bears watching as it has been signaling a big slowdown in the US economy with its move higher of late. Whether rates have moved as low as they are going to based off of that thinking is unclear. Some might feel that long term rates are not going to be much cheaper and are now selling bonds.
If you note on the chart, the 50% retracement level of the last leg down from the recent peak comes in just above the market near the $1520 level. That looks like a reasonable target for the short term. Let's see how it handles that region. A push past here could potentially press as high as the $1530 level. If price can best that, then $1550 comes back into play. If prices fade here and selling comes in, then we will head down towards $1500 again to retest that level.
The potential fly in the ointment, much to my surprise, is the lackluster performance of many of the gold shares as evidenced by the HUI and XAU. While both are higher today, neither one has mustered sufficient strength to have taken out Friday's session high on the charts. That is rather disappointing considering that these stocks led the metals on the way down. I fully expected them to lead on the way back up for a short while. As of right now, they are in a follower's role instead. It is also noteworthy that they are lagging against a backdrop of a rather strong day in the broader equity markets.
I should also point out that while the Dollar is now weaker as traders repurchase the Euro positions that they have thrown away last week, the strength in both gold and silver was occuring while the Dollar was actually higher earlier in the session. As the greenback began to fade going into the afternoon, that generated more buying across the metals, and the crude oil market as well I might add, which took them to their best levels on the day. Hitherfore, price in gold could not get above $1510 and stay there. It took that out as the Dollar dropped back below 75.
Gasoline has erased almost all of last Thursday's enormous drop after spiking off of the $3.00 level on Friday. Hurry up and fill up your truck before the price goes back up! That nice drop in prices that some were expecting to see at the pump suddenly has been cut in half for no particular reason other than the fact that the hedgies were buying today.
It is noteworthy that unlike what happened in 2008 during the commodity downdraft, this time around we have had a plethora of new short sellers enter the commodity arena. Back then it was predominantly long liquidation which was met by commercial short covering. This time a lot of players decided to actually institute brand new short positions hoping to catch a wave lower. Based on the market action of today, with the Dollar dropping back near 50 points off its best level of the session, a lot of these Johnnie-come-lately shorts were crushed across both the metals markets and the energy markets. some also had their heads handed to them in the wheat market.
I want to observe the price action for tomorrow and the next day to see what the markets might be telling us as to what lies ahead. It is a bit too soon to say conclusively but it does indeed appear many of these commodity markets have bottomed out. Again, I want to repeat, this is not the say they are going to now reverse and go straight back up again. It is to say that there evidently remains many well funded players whose macro view has not changed and who are looking to buy into these price breaks as they wait for the downtrend in the Dollar to reassert itself at some point.
Bonds finally faded later in the session after stupidly moving higher even as the equity markets were soaring upward and the Dollar was swooning. That market bears watching as it has been signaling a big slowdown in the US economy with its move higher of late. Whether rates have moved as low as they are going to based off of that thinking is unclear. Some might feel that long term rates are not going to be much cheaper and are now selling bonds.
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