"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
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Judging from the price action in gold, it seems as if all three factors that are currently driving this market are gelling together into one powerful inducement to buy the yellow metal. As discussed in my recent radio interview over at King World News on the Weekly Metals Wrap, sovereign debt fears originating out of Europe, inflation fears in China and elsewhere in that region of the globe, and a continuation of the extremely loose monetary policy currently in place by the Fed are producing a toxic mix for the bears in the gold pit as buying momentum is driving them back as bidders are overwhelming their offers.
Gold was strong all evening last night with buyers eager to snap it up below $1550. That was a good technical signal that dip buyers were coming in and that long side liquidation was not going to be a problem this time around. As the market moved into the early part of the New York trading session, it held well even as sellers were making an appearance near the $1555 level. Once the minutes from the Fed's recent meeting were released, it was Katie bar the door as traders rightly interpreted those minutes to read the strong possibility that additional monetary stimulus in the form of another round of QE will certainly be forthcoming should the economy remain stuck in its current moribond condition. My pal Jim Sinclair has been saying this for quite some time now and I have been echoing the same - namely - the hawks on the FOMC have gone into hiberation and the doves are currently in the ascendancy. Unless we get some real humdingers of economic reports coming our way, chances are very good that a few more stinkers of a job reports are going to get the QE guns a blazin' again. This goes back to the third of the points I raised at the beginning of these comments - Fed monetary policy is not going to turn tight any time soon and such an environment is strongly bullish to gold.
Gold now is in position to challenge its all time high. It is difficult to see how it will not best that level if conditions in Euro land continue to deteriorate. Downside support lies first near $1550 on followed by $1530.
Regardless, once these minutes began circulating around the wire services, the gold market saw a strong influx of fund buying that drove the metal right through overhead resistance centered near the $1560 level and shoved it to within a few dollars of its recent all time high. I also noted that the US Dollar, which had been very strong coming into New York and looking as if it was finally going to get a strong close over the stubborn chart resistance near 76.50 on the USDX chart, simply fell apart and sank well off its best levels of the session, once again failing to close above that critical level. That Dollar weakness then saw another round of commodity buying by the hedgies in general which benefitted silver, although it moved into the plus column once gold took out $1560.
My read on all this price action was the speculative side of the market was already looking ahead for more QE and was loading up on the long commodities/short dollar trade once again. In other words, risk was back in even in spite of the fact that many investors and traders are extremely worried about what is transpiring in Europe.
Where we stand now is very simple - gold once again scored brand new all time highs when priced in both terms of the Euro and of the British Pound - and is within easy striking distance of its all time high in US Dollar terms. This is signaling the lack of confidence in the respective monetary authorities of those nations and in their political leaders to take the necessary steps to actually get to the root of the structural problems that have led to their terrible fiscal condition.
I might make mention here of the Japanese Yen. Remember that big, coordination intervention by the ECB, the BOJ and the Fed to knock the stuffing out of the Yen after the tragic earthquake and tsunami hit struck? The Yen is within 3 1/2 points from its strongest level, or the high point, from which it rapidly descended when the Yen selling spree by these Central banks began. In hindsight, we can now see how even coordinated intervention cannot completely reverse a currency's trend if speculative money wants to keep coming in and buying up that currency. The Yen rally is tied to more risk aversion trades as the carry trades using that particular currency get unwound driving it higher in the process. There is also a type of trade which takes the Yen as a type of proxy for the entire Pacific reason, and just bids it up as trading the Yuan is not nearly as liquid as the Yen or even the Korean Won for that matter.
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Sovereign debt fears out of the Euro Zone are filling investors' minds with fear and trepidation as many believe a contagion effect is inevitable. News concerning Italy has sent stock market bulls scurrying for cover today and has emboldened the bears who have been mericlessly squeezed out over the last two weeks once the S&P was miraculously recussitated from the 1250 level on the price charts. The thinking is that a rash of credit downgrades might commence hitting large bank balance sheets in particular which would have a similar effect on Europe as the collapse of Lehman did on the US back three years ago to this very month.
Risk trades went out the window today as most commodities were jettisoned along with equities while the bonds and the Dollar were both sharply higher as the latter two were beneficiaries of a safe haven flow. With the Euro looking shaky, traders were willing to buy the greenback in spite of the lack of any serious effort on the part of the current US administration to come to terms with the runaway costs of entitlement programs, which is where the serious money is going to have to be cut in order to get federal spending under control.
An interesting thing happened however to the gold market - it completely ignored the reversal of the risk trades and actually functioned exactly like a safe haven market is supposed to function in such an environment. It shot up through the critical technical resistance level at $1550 and while it did fall below that level briefly as silver get slammed, it clawed its way right back above that level and ended today's trading in New York firmly above $1550. That bodes very well for the future prospects of the metal as the bears have been able to successfully block its upward progress there for three separate attempts over the last 6 weeks. Given the strength in the Dollar, this is excellent price action as it translates into higher prices for gold measured across a wide variety of various major currency terms.
What we are now watching to see is whether or not it can attract buyers on any dip back down below that level or whether it sinks below $1550 and fails to regain its footing and incurs speculative long lonquidation instead of dip buying. If it can hold $1550 and plow through the last technical level shown on the chart below ($1560), it will be at its all time high very quickly. As it stands now, it has already made a new all time record high when priced in terms of the Euro and in the British Pound. That strength will aid the metal and SHOULD attract dip buyers as it is extremely difficult to be bearish on any commodity when it is making new all time highs when priced in terms of other currencies. What adds another element of interest to this current drama is the fact that gold is moving higher during the summer doldrums. Quite frankly, a fair contingent of traders are off of vacation with their families right now. Unless they are checking in regularly, they might well be surprised when they return.
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Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
Gold shot up through overhead resistance near $1530 on news that the employment situation in our nation remains in the pits. Quite frankly, this economy is going nowhere, notwithstanding the chatter from the perma bulls in the equity camp who apparently do not understand that corporate profits are strong BECAUSE THEY HAVE SLASHED THE LARGEST EXPENSE FOR MOST BUSINESSES, namely payrolls. While Wall Street cheers the earnings reports, believing that somehow those will turn into more hiring, Main Street continues to suffer from stubbornly high prices for food, energy, medical and insurance costs in an environment in which home prices remain mired in a rut and wages are stagnant.
Methinks I hear the sound of the QE horses neighing in the barn to be released. The payrolls number for May were disappointing but many chose to believe that was an anomaly which would be corrected in the June numbers. Now that the Junes are shockingly low and the May's were downwardly revised further, another month of this is going to set the Fed up to rally forth with further monetary accomodation. The pressure from the Democrats on the Fed will begin rising to obscene levels as they watch their poll numbers heading in the same direction as the payrolls numbers. PANIC, is too mild of a word to describe what they are experiencing right now.
Once again we are back to watching the all-important $1550 level in the yellow metal as that holds the key to its fortunes. Twice within the last 6 weeks or so it has come close to knocking down that door but was unable to maintain its footing above this level. The perma bears at the Comex, the bullion banks, will be attempting to hold it in check near this level as they can read the price charts just like we can and understand the implications of a successful breach of this defensive line on the charts. Should they fail, gold is going to revisit its all-time highs. It has alredy set a new all time high when priced in terms of the Euro.
The more investor confidence in the ability of both the monetary authorities and the political leaders to deal with the structural causes of what ails so much of the global economy continues to fade, the firmer the gold price is going to remain. Recent weakness in gold was a symptom of fears concerning deflationary pressures building back into the commodity sector as a result of the withdrawal of QE. Hedge funds were throwing the entire asset class away. Those fears were replaced by fears of inflation raging in the far-East, notably with China that arose on an announced rate hike. That reminded investors of the negative real rates in many nations in the emerging Far East, an enviroment extremely conducive for gains in gold. Today another set of fears arose, namely fears of a stagnating economy which will keep the Fed on hold as far as any restriction of the extremely loose monetary policy environment that they have created.
Under normal conditions that would have put pressure on the Dollar especially with the Euro seeing a rate hike recently,. HOwever, safe haven bids came into the Dollar as the US Treasury market witnessed a strong surge of buying which boosted the greenback today. The fact that the Yen and the Dollar are moving higher today, with the Bonds also moving sharply higher while the US equity markets sell off sharply is evidence that the risk trades are off for today. This is what explains the volatility in silver in particular as it is being racked by its safe haven status and its perception as a risk trade.
The mining shares are also caught in a type of crossfire between the lower broad equity markets and the strength in gold and relative stability in silver. They have put on a very good showing this week but further work remains if they are going to put in a strong upside breakout of the nature that would presage a trending move higher. The XAU would need a good weekly close above the 210 level first.
Commodity markets in general are mixed with corn leading the way to the upside among the grains as most of us traders have long ago dismissed the recent acreage numbers as utterly worthless. Demand shot through the roof on the recent plunge below $6.00 in new crop corn and towards that level in the old crop. Apparently the rest of the world did not believe USDA either.
The flip side is the energy markets as crude oil was off nearly $3.00/barrel at one point in the session today. Gasoline, while lower also still remains above $3.00 at the wholesale level. The CCI is back to revolving around the 640 level.
The US Dollar looks like it is going to finish the week above the 50 day moving average after closing below it last week. More of the same see-saw type yo-yo action in there. Until it can conclusively post a closing print above 76.50 it is going no where. Support lies near 74.50 on the downside. You can see how tight a range it is trading in.
It seems as if every time traders (whose attention span these days is easily exceeded by that of a gnat - a little Dr. Zeuss here) forget the struggles that many nations in the developing Far East (particularly China) are having with inflation, news arises that serves to remind them that gold is not a US game only anymore.
Overnight, China once again hiked interest rates to try to tame this unruly beast. As a matter of fact, it is the third time this year that they have done so in an attempt to keep the monster from further rampaging through their streets. As they did before, it was another 1/4% or 25 basis points hike that was employed. As of tomorrow, the one year deposit rate will be 3.5% with the one year lending rate rising to 6.56%.
There are several points to take away from this. First, if investors/traders begin to believe that these minimal rate hikes will actually have their intended effect, they will see it as a huge negative to global growth overall.
Second, the Chinese well understand the risk trade and are attempting to defuse the hedge fund commodity buying associated with that trade. Rising agricultural and energy prices do not make the Chinese ruling class happy because those things make the working class unhappy. Get the hedgies selling commodities as an asset class in general, and prices for those goods will work lower, or so their thinking is.
Thirdly, with their officially reported inflation rate running above the interest rate on one year money (the Chinese have taken a page from the US authorities and are playing games with their equivalent to our CPI), REAL INTEREST RATES are negative. That environment is one in which GOLD thrives.
You can see that some of these effects are in play in today's trading session. The S&P 500 was knocked strongly lower this morning as news filtered into the marketplace of the rate hike. Combined with a lousy ISM number, it was enough to take stocks lower across the board.
Furthermore, yields on Portugal's debt continue to rise as Moody's downgrade to junk status of the same has made traders extremely nervous about Europe in general. Their 10 year is now at a record 12.44% while their two year is at 15.72%. YIKES! There are issues also with Irish debt and chatter is rising about Italy's and of course, Spain is not exactly a picture of robust health. This is serving to pressure the Euro and by default bringing strength into the US Dollar.
Benefitting from all this has been the US long bond, which after plummeting last week has started this holiday-shortened week off by rising nearly a full 1 1/2 points off its worst level of the past week. Bonds are benefitting from both a safe haven trade and fears that the Chinese rate hike will work to slow growth in China during a time in which US employment numbers remain stuck in nowhere land.
While commodities in general are weaker today based on the CCI, Gold, and silver, are actually benefitting from strong flows linked to safe haven buying. Silver remains as it always does, a schizophrenic market which cannot make up its mind whether it wants to be a poor man's safe haven or part of the risk trade. Today and yesterday is was a safe haven - tomorrow, who knows?
Gold on the other hand has been attracting a very strong safe haven bid ever since the Moody's downgrade hit the market. Yesterday it surged back above $1500, giving the bulls a psychological boost and today it has managed to push past the $1520 level, a level which has been noted previously as the bottom of a recent trading range, and through which gold must push if it is going to put a dent in the "sell the rally" mentality that has arisen in the yellow metal due to its position BELOW the 50 day moving average. It is no coincidence that the 50 DMA comes in at $1520 on the charts also. That is why a push through this level is so significant from a technical standpoint
I am closely watching how this market is going to act the rest of the day to see if it can maintain its footing above $1520. If gold is going to have a decent shot at recapturing its former range between $1520 and $1550, then the former level needs to hold on any subsequent retest back down toward there. As I write this about mid-morning CDT, gold has pushed further north and is now above $1530. Shorts are getting squeezed by some very strong buying.
Helping matters has been the good showing of the mining stocks in general as indicated by the HUI and the XAU. Both have continued to push up from their important recent bottoms with the XAU managing a push through its 50 DMA in yesterday's session. They both look like they are taking a bit of a break in their move higher today however. The XAU has pushed nearly 15 points off its support level near 190 while the HUI has tacked on nearly 40 points from its critical bottom around the 490 level. Traders are now stepping back to take the lay of the land and see whether or not they should take them higher or backfill a bit. If gold can better $1530 and hold there, the miners should move higher.
One very good thing however can be said about the mining stocks in general - both the XAU and the HUI set back and retested their previous swing lows that were made in mid June. The retest attracted BUYING however instead of SELLING and that confirms those lows as an important technical bottom on the price charts. Traders felt that prices for the shares were just way, way undervalued against the metals down at those levels and there were no longer any sellers left that were large enough to take them down through the value-based buying that arose at those levels.
They are not trending yet as that will require a closing push through 560 on the HUI and 210 on the XAU but they no doubt have some of the shorts in that complex nervous. The fact that they are moving higher today while the broader equity markets are seeing good selling pressure is indicative of that.
Oh, and by the way, I find it deliciously ironic that the politically-motivated release of oil from the SPR by the current administration has failed miserably. Have you noticed that crude oil is right back to where it was trading before the announcement of the oil release?
Please click on the following link to listen to my regular weekly radio interview with Eric King of the King World News Weekly Metals Wrap.
The euphoria over the Greece bailout continues unabated today with the equity markets rallying further upward and gold moving the other direction. The chatter is that traders are getting rid of gold supposedly for reasons related to the ebbing need for a safe haven. As always, market commentary follows price action and that is no exception when it comes to gold.
The truth is that last week's Commitment of Traders report showed a very large speculative long side exposure by the hedge funds and as remarked upon in our regularly weekly interview on the KWN Metals Wrap, any downside violation of a major chart support level set up the very real possibility of a good amount of liquidation by these stale longs. That is what has occurred.
Part of the trigger came when the USDA issued what I believe is a totally unrealistic corn acreage number. That number, which is still being met with a huge amount of skepticism among many analysts and traders such as myself, set off a massive wave of liquidation across the entire grain complex. That liquidation then spilled over into the livestock sector as well as other non-related commodity markets as margin calls proliferated and algorithm related selling across the commodity sector picked up. Both gold and silver were whacked with silver leading the way lower as could be expected in that sort of environment. The CCI plummeted yesterday dropping back down below 630 after another failed attempt to recapture the technically significant 640 level. Quite clearly, rallies in the commodity sector are currently being sold.
It certainly does appear that there is a concerted effort taking place by the powers-that-be to take commodity prices lower. The fact that a politically-oriented release of oil from the SPR came in the face of crude oil prices that were ALREADY FALLING AT THE TIME THE RELEASE WAS ANNOUNCED is sufficient reason for me to hold to my view that the release was designed to do one thing and one thing only; knock crude oil prices and by virtue of that, gasoline prices lower, in order to boost the sagging poll numbers of the current administration, and by virtue of that, the welfare of the entire Democratic party which will face a wipeout of epidemic proportions in next year's election if they do not get energy prices lower, especially at the gas pump.
Then there is the issue of annoyingly high food prices to contend with. A nice easy way to knock those lower is to go after the lynchpin of the entire food sector, the corn market. Take it down and you can lower not only food prices for those products using corn, but you can get lower wheat prices and also lower meat and chicken prices all in one fell swoop. Just like the useless jobs report numbers that we constantly get which then are revised the following month after the initial release has its intended effect, the USDA will come back next month and lower the acreage number but the damage will have already been done to the corn market.
I suspect however that some traders are getting wise to these games by now. Crude oil prices, while lower today, remain some $4.00/barrel above the level that the news of the SPR release took them. Corn, while seeing additional downside action today, is working higher off its worst levels as end users are furiously buying and getting hedge coverage into place to take advantage of this gift. Export buyers are probably already booking orders while they can.
None of this matters to the brain-dead hedge fund community however which lets their computers do their "thinking" for them. I wish to repeat here for what seems like the umpteenth time - hedge fund computer selling hits every single commodity market when their algorithms generate sell orders. There are no exceptions, even for gold. What has been occuring however in the gold market until this week was that safe haven buying was coming in and that kept the metal well supported in comparison to the damage that was being inflicted on the broader commodity markets. The bailout of Greece has temporarily derailed this safe haven bid and we are now left to the usual physical demand of the type that proceeds out of India and the middle and far East. That demand is not of sufficient size at this time to absorb the hedge fund selling and thus the market has been unable to regain its footing above $1520, which is what it needed to do in order to prevent a deeper setback in price.
For the time being we are looking to see if the demand can keep price supported here at critical support between $1480 - $1470. This level MUST HOLD to prevent further long side liquidation on the part of the hedge funds. If the physical market can soak up enough gold down here, then we have a shot at stabilizing here during this season of the summer doldrums and building a base for the rally coming later this year.
We must get back above the $1500 level in gold to give the bulls a shot at stemming the bleeding here but more importantly, the 50 day moving average to short-circuit the "sell the rally" mentality currently in place for the gold market. That level coincides with $1520, the bottom of the former range that gold was consolidating within.
The weekly gold chart still shows the BEARISH ENGULFING PATTERN formed the week of May 2 dominating its chart picture. The market had been holding up and been resisting any downside follow through from that week but had not been able to clear and hold $1550 which was needed to negate that chart signal. That week's low, $1462, is the last level of support for the bulls. They cannot afford to let that level go if they wish to avoid a move down towards $1435.
