Gold Clears $1600 - Psychological Boost to Bulls

The abillity of the gold market to push a "16" handle on the price can be considered a minor victory for the bulls. You can see from the chart below, that within its broader consolidation pattern, gold had been experiencing a somewhat tightening or constricting of its range. The upper boundary of that "mini-pattern" has been the $1600 level. The ability of the bulls to take it through this region gives them a very slight advantage over the bears in the immediate term and provides the possibility of a push towards more stubborn resistance beginning near the $1620 level.

Keep in mind that every bit of today's move higher was predicated on the notion being floated that the Fed is going to ease and provide additional stimulus measures as soon as next month. What the Fed giveth, the Fed can taketh away in a real hurry. What this means is that as long as traders feel fairly confident that the stimulus is coming sooner rather than later, gold will attract dip buyers. On the other hand, if anything comes along to disabuse them of this notion, the market will drop back down towards the bottom of the recent range where the big Asian buyers are lurking.

I have stated many times that I believe any additional bond buying programs are an enormous waste of time which will do absolutely nothing to deal with the underlying problems in the US economy, which are structural in nature. Simply put - there is already too much debt in the system. Trying to lower interest rates even further in order to encourage additional borrowing is a fool's exercise.

For Pete's sake, the yield on the Ten Year note is at 1.406% today. Speaking sarcastically here I am sure that all those fence sitters out there just itching to spend money they do not have will immediately launch forward with those plans if the Fed manages to push the yield down to 1.25%.

They can do all they want to entice banks to lend instead of holding money at the Fed and earning interest but if consumers are afraid of sinking further into debt in this jobless economy, what good will conjuring up more attempts to entice lending do?

Also do not forget - the Fed has spent a minimum of $2.5 Trillion between QE1 and QE2. What lasting good did any of that do??? Answer - nothing.

QE3 Timetable Moves Up to August

The market is abuzz this morning with chatter that the Fed is going to open the candy store next month instead of waiting until September as many had come to believe.

That is all you need to know to understand why nearly every commodity on the Board is moving higher today as well as equities.

Welcome to the brave new world of "investing".

As I mentioned in my post yesterday, if the Fed succumbs to this madness, hold onto your hats for food prices are going to shoot directly to the moon. The entire grain complex is putting back on a large portion of what it took off yesterday. If the Fed does indeed pull the trigger on another round of this idiotic bond buying, hedge fund algorithms are going to jam food prices due north.

Interestingly enough, about the only segment of the commodity complex not moving higher today is the energy complex. The current data releases continue to confirm slow demand due to the poor economic conditions.

Smithfield Importing Brazilian Corn

I mentioned in my morning piece today that some of the pressure in the corn market was tied to news that Smithfield, the largest US pork producer, was sourcing corn from Brazil instead of domestically here in the US. That is big news as it indicates how tight current supplies are and how the rise in price is already beginning to do its job of rationing demand.

According to a consultant at Brazil's Safra & Mercado, reported by Dow JOnes which has been all over this story, corn at Brazilian ports is currently fetching $290/ton compared to US corn at the Gulf of Mexico which is closer to $345.  It costs anywhere from $30 - $40 ton to ship the grain to the US.

There is no doubt that the meteoric rise in the grains this summer on account of the severe drought is going to impact all of us at the grocery store in the near future. My concern in all this is what might happen should the Fed foolishly choose to go forward with another round of QE. Keep in mind that the rise in the grains has been fundamentally driven. In other words, there are legitimate supply/demand fears pushing the price higher.

If the Fed does indeed begin another round of bond buying in order to prop up the US equity markets, a huge amount of hedge fund speculative money is going to flow directly into the commodity sector in a very crude fashion. Think of it as a shotgun instead of a sniper's rifle. They will blast everything in sight higher.

In the grains this will have the immediate effect of pushing prices even higher further exacerbating the impact of the drought. The problem will occur because the money flows can be so huge that even deep-pocketed commercial sellers will have difficulty standing in front of such a torrent of buying. I shudder to think what might happen if their computers drive the price of corn to $9.00!

Remember those food riots that began a while back in Algeria and the spread across parts of Northern Africa and the Middle East? Some, including myself, believe that those riots were the catalyst for what have now become rather euphemistically known as the Arab Spring. When food prices begin soaring, they impact the poor first and when a large enough segment of society becomes restless, it is always a safe bet that further instability soon follows. While Bernanke tried deflecting the entire blame for the surge in wheat prices back then on the weather, the truth, as we pointed out at the time, was that the entire commodity sector, including wheat and the rest of the grains, began moving higher at the exact same time as QE I commenced. QE2 just made matters even worse.

It is bad enough dealing with the devastation coming from a drought - it is entirely another matter dealing with the potential devastation coming from a bunch of meddlers in the economy.

These monetary masters and their utterly useless strategy of buying bonds are playing with fire.

Precious Metals Succumbing to Deflationary Forces Today

Both Gold and Silver are under selling pressure today as the sell off in the grains seems to have pushed a large amount of hot money out of the commodity sector. Soybeans are currently locked at limit down as is the front month corn contract. Talk that Smithfield is importing corn from Brazil has sent supply side bulls scurrying for cover and demand side bears are pressing their case. The pool in the July was 112K at one time and is now down to 26K currently. In the November Beans, the pool is at 37K as I write this.

Traders had been bidding up commodities in general of late as evidenced by the recent climb in the CCI (Continuous Commodity Index) but apparently the onset of some rain in the Corn Belt combined with continued Dollar strength and nervousness surrounding Spain and other European nations, is too much for some of the new longs to handle. They are heading to the exits today in both commodities and in equities.

One of the results of this has been to push the yield on the Ten Year Note down to an amazing 1.411 as I write this. Clearly interest rates continue to plummet globally as traders rush for anything that they feel can provide some sort of shelter. It is an astonishing thing to see yields in Denmark actually go negative!

The Dollar has also pushed into a new 52 week high today and is currently trading over the key 84 level on the USDX. It looks poised to head higher at this point. that is going to give us some extra headwinds for the precious metals do deal with, particularly silver.

For the last two weeks, every time silver has pushed below the $27 level, it has always popped back above that level before the session has closed. That has indicated the presence of strong buying. If these buyers do not surface before the end of today's trading session, silver will very likely head lower and retest the key $26 level. It must hold that level to prevent another round of long liquidation and fresh short selling by hedge funds playing the "slowing global economy" theme. Weakness in the mining shares is not aiding the cause of the bulls right now.

Gold coin sales are apparently slowing compared to the same period last year as reported by Dow Jones this morning.

Here is the short blurb:

The US Mint's sales of gold coins have been "unusually low" in
July, even when adjusted for the seasonal summer lull in gold coin demand, says
HSBC. With 17,500 troy ounces of gold sold as of July 23, the Mint is far
behind the 65,500 troy ounces it sold in the same month of 2011.

Again, with inflation fears being trumped by slowing growth fears, gold is catching fresh short selling as well as long liquidation. However, it is once again down into the region that has seen strong buying based out of Asia emerge. From here down towards $1525, strong hands have been accumulating. We will watch to see if they are still making their presence felt.

The Complacency Index or the VIX as others properly call it, is finally waking up. Maybe, just maybe, we are finally seeing some of these numbed, see no evil traders begin to get nervous. Hard to see what more they could need to rattle their cages but they apparently have a great deal more confidence in Central Bankers and monetary officials than I do.

The HUI chart has turned ugly once again and is now threatening to close in on the May low near the 370 level. Pressure on the mining shares has been very strong. Some of this is manipulative in nature; some of it is related to the ratio spread trade with hedge funds buying the bullion and shorting selective shares and profiting from the spread between the two. Notice how effective the Fibonacci retracement levels have been when analyzing the price action of this index.

The S&P 500 is flirting with its 50 day moving average, a key technical level on the price charts. Notice how it bounced off of this level earlier this month and proceeded to maka a run back towards what might be a double top forming near 1375. Support is layered under this market as noted on the chart. A breach of 1300 could get things mighty ugly very quickly. We will see if the usual suspects arrive just in time to once again "miraculously" revive the index and prevent it from inflicting technical damage on the charts as they have done so often this year.

Trader Dan on the King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Markets and Metals Wrap.

http://tinyurl.com/cj2or58

More on Unleaded Gasoline - Ethanol

Yesterday I posted a chart and a very brief comments noting the rise in gasoline prices at the Nymex. Today we are seeing additional gains in this crucial market with the price currently up 1.5% as crude oil soars back through the $90/bbl level.

With the news out this morning that jobless claims ROSE by a GREATER THAN EXPECTED AMOUNT, we are once again being treated to the PERVERSE scenario where BAD IS NOW GOOD.

What I mean by this is what I have been saying for so long now that I feel as if I am beating a dead horse at this point - namely - the US financial markets have now reached a point where they have become completely and totally dependent on EXPECTATIONS OF FURTHER LIQUIDITY by the Federal Reserve.

That is what is driving the stock prices higher this AM as well as a host of various commodity prices; traders have again become convinced that the pressure on the Fed to "do something" is increasing with the passing of each day as each new data release reinforces the notion that the economy is in the crapper and descending further into the bottom of the out house.

Ironically, the higher that these damnable hedge fund algorithms in control of all the hot money floating around the planet push the S&P 500, the lower the odds that the Fed is going to actually start another round of bond buying. Why should they when the hot money crowd is already goosing the price of gasoline back to near the $3.00/gallon wholesale price BEFORE anyone has even hinted that the next round of QE is imminent?

Imagine where the price of gasoline is going to go if indeed the Fed was foolish enough to actually announce a definitive start date for a QE3 or QE4 or whatever!

With some grain prices setting ALL TIME RECORD HIGHS and gasoline soaring under that scenario, any so-called STIMULATIVE EFFECT from a round of QE would be non-existent. In cruder terms, the Fed would have shot its wad and have nothing to show for it.

Keep in mind that the sole purpose of Quantitative Easing is purportedly to LOWER LONG TERM INTEREST RATES to spur increased consumer and business borrowing. How in the hell are consumers supposed to ramp up borrowing with both FOOD and ENERGY prices roaring higher? Answer - they are not. So go ahead and launch another round of QE and keep the hedgies happy but in the end it will accomplish absolutely nothing except further increasing the size of the Fed's balance sheet and generating another round of huge bonuses on Wall Street.

Back to unleaded gasoline however - here is the news from yesterday's EIA report (Energy Information Agency). GASOLINE USE HITS 13 YEAR LOW FOR MID-JULY! How do you like them apples? Demand for gasoline was the lowest for this time of year in 13 years. Why? The EIA cited the weak economy and improved fuel economy. Yet the price of unleaded gasoline has rallied to near the $3.00 level from all the way down at $2.47 at the end of June.

So why is unleaded gasoline continuing to rally and become even more expensive when US domestic demand has fallen off the cliff? Let me first state that there is some built-in risk premium to the futures market over the seemingly always present tensions with Iran. That alone does not explain the price rise however.

Interestingly enough, this surplus gasoline is increasingly being exported overseas!

This brings me to a topic dear to my heart, specifically railing against the idiotic product known as corn based ethanol. This product , while a boon for farmers growing corn, has been an unmitigated disaster for our livestock and poultry producers.

Some may not realize that currently, 4 out of every 10 rows of corn planted goes to producing a product that ends up being burned in our gasoline tanks. That's right, about 40% of all domestic corn demand is the result of a federally mandated ethanol requirement. This "green agenda" has destroyed our livestock and poultry industries. Dairy farmers, Beef cattlemen, hog producers, chicken and turkey producers, are all being financially devastated watching the cost of their feed bills soar into the stratosphere while the price that they are able to fetch for their finished product is either stagnant or unable to rise at a fast enough clip to compensate them for their increased feed costs.

Even with the horrific drought, if 40% more corn was available to use as feed or for our export markets, prices would not be at these current levels and these various live animal producers would be able to avoid being financially crippled.

Interestingly enough, with corn prices rallying to record highs, ethanol plant margins are collapsing with crude oil at current levels. Some of these plants are going to end up shuttering their doors as they close down due to cost constaints. Additionally, there is increasing chatter that politicians are coming under pressure to do away with this foolish federal mandate for ethanol. While I would personally love to see this, with our current tree-hugger in chief in office, I doubt it would escape his veto pen.

That being said, some are buying unleaded gasoline as corn moves ever higher with the thinking be that political pressure is going to be doing nothing but increasing as the impact of this drought worsens. Think of ethanol as a way to stretch a gallon of gasoline - you basically dilute the stuff to 90% strength or 85% strength by mixing white lightning into it. Take away the ethanol and you have to use that much more actual gasoline to end up with the same finished quantity of fuel.

That may be what is pushing gasoline higher - imagine that - we have reached a point in our nation's industrial history where gasoline traders are now essentially trading corn.

Another fine example of a government produced FUBAR event.

Gasoline Prices back on the Rise

Call it a "stealth rally" as it has not been garnering any headlines, but unleaded gasoline futures have quietly been on the rise for the last three weeks after bouncing off of the $2.50 level and are now pushing back towards the important 50% Fibonacci retracement level of the entire decline from the late March peak .

Coming at the same time that we are seeing the grains soaring higher (see my recent article on this), it is soon going to be packing a one-two punch to consumers between food and energy costs. Prices at the pump had been coming down giving some relief to drivers and the transportation industry in general but this advance threatens to pull the plug on that soon enough if price pushes past the $2.96 level on this chart.

So let's take an inventory of what we have thus far - An absolutely horrendous employment picture, rising food prices, rising gasoline prices, underwater mortgages, and an Administration that is totally clueless when it comes to understanding the factors that contribute to job creation and a growing vibrant economy. Is it any wonder that retail sales are tanking and the economy is taking a nosedive? Feeling better yet????

Investors' Attitude: "What? Me Worry? Why?"

Given all that is transpiring across our global economic and financial system, the degree of utter complacency in the US equity markets is astonishing. Looking at the Complacency Index, my name for the Volatility Index or the VIX, one would think that there is hardly a care in the world.

All of this has a somewhat surreal feeling to me. It is almost as if the entire investing community is in a state of denial. It seems to believe that the "all powerful demi-gods" aka, the Central Bankers and monetary officials, are able to suspend the impact of excessive leveraging and exorbitant indebtedness.

"Yeah, things are not very good right now, but no worries. If things were to go from bad to worse, the officials will throw open the bar and we can all think from the freshly spiked punch bowl. Go back to sleep and wake me if there is really a crisis".

I don't know whether to laugh at such an attitude or weep that we have degenerated into this.