Friday, December 7, 2012
Silver still Mirroring the CCI
Silver continues to mirror the CCI with traders unsure of what direction to take things next.
Mining Shares Eroding further Against Gold
When I normally lay out a chart detailing the ratio of the mining shares to the price of an ounce of gold, I use the HUI. I will still put up one of those further below but wanted to show you a ratio chart using the XAU to illustrate just how cheap these mining shares have become relative to gold itself.
The chart is simply staggering. I have gone back as far as my data will allow me with this and cannot find a reading so low.
I cannot overemphasize how critical it is that the CEO's of these mining companies listen to the message of the market and make the necessary changes to their organizations.
The two biggest things I can read in this message is to:
1.) Get a handle on expenses and cut them
2.) this follows on #1 - return those savings to the shareholders in the form of higher dividends.
Do this, and investors will react positively. Why? Where else can you buy so much gold at such a discounted price to the current market value? Relative to gold, some of these shares are as cheap as they have ever been, period.
Checking in with the HUI, some of the shares that comprise that index are as cheap, relative to gold itself, as they have been in ELEVEN years.
The chart is simply staggering. I have gone back as far as my data will allow me with this and cannot find a reading so low.
I cannot overemphasize how critical it is that the CEO's of these mining companies listen to the message of the market and make the necessary changes to their organizations.
The two biggest things I can read in this message is to:
1.) Get a handle on expenses and cut them
2.) this follows on #1 - return those savings to the shareholders in the form of higher dividends.
Do this, and investors will react positively. Why? Where else can you buy so much gold at such a discounted price to the current market value? Relative to gold, some of these shares are as cheap as they have ever been, period.
Checking in with the HUI, some of the shares that comprise that index are as cheap, relative to gold itself, as they have been in ELEVEN years.
YenGold near all time Highs
TAke a look at the following chart of gold, priced in terms of the Japanese Yen, and then tell me that the Japanese monetary authorities and political leaders are not deliberately debauching their currency. "PRINT, PRINT, PRINT; BANSAI, BANSAI, BANSAI"! They are killing their own currency in terms of its purchasing power.
Thursday, December 6, 2012
Gold Pops above $1700; Silver above $33
Shorts decided to book profits today when the market appeared to have encountered some decent sized buying down near the session lows. Additionally, the upcoming payrolls report has traders uneasy and it seemed like the better part of wisdom for many was to take what money you might have had on the table and go home and watch the action from a safer vantage point.
Open interest declines are telling us that traders are heading to the exits, both longs and shorts as right now uncertainty seems to be the name of the game.
Tomorrow will provide us with a clue to market direction into next week as we close out the week.
Gold did run down towards the very strong support level noted on the chart at $1680 before running out of sellers. A push back through the $1700 that can remain above that point will be constructive from a technical perspective as it will reinforce the $1680 - $1685 region as good support on the chart.
I would not be the least bit surprised to learn in the future that foreign Central Bank buying of gold is occuring down near these levels.
John Brimelow's excellent Gold Jottings detailed very strong Indian buying of gold overnight. Once again it is the physical market which serves as to remind these paper pushers that there exists life outside of the Comex pits.
One continued fly in the ointment for gold is the pitiful price action of the HUI. At a bare minimum, it will need to close the week ABOVE the 440 level to give any hope of an intermediate term bottom. Seeing that it remains below the various Fibonacci levels shown on the chart, the bears are evidently in solid control of this sector for the time being. Something needs to change on this chart to spook some of them out and convince them to ring the cash register on their tidy profits.
The miners continue to lose ground against the price of gold itself. The ratio of the value of the index compared to the price of the metal is threatening to make a new ELEVEN year low. Keep in mind that this is the CLOSING price for the month so there is yet time to avoid this but the sector needs some help from somewhere.
Open interest declines are telling us that traders are heading to the exits, both longs and shorts as right now uncertainty seems to be the name of the game.
Tomorrow will provide us with a clue to market direction into next week as we close out the week.
Gold did run down towards the very strong support level noted on the chart at $1680 before running out of sellers. A push back through the $1700 that can remain above that point will be constructive from a technical perspective as it will reinforce the $1680 - $1685 region as good support on the chart.
I would not be the least bit surprised to learn in the future that foreign Central Bank buying of gold is occuring down near these levels.
John Brimelow's excellent Gold Jottings detailed very strong Indian buying of gold overnight. Once again it is the physical market which serves as to remind these paper pushers that there exists life outside of the Comex pits.
One continued fly in the ointment for gold is the pitiful price action of the HUI. At a bare minimum, it will need to close the week ABOVE the 440 level to give any hope of an intermediate term bottom. Seeing that it remains below the various Fibonacci levels shown on the chart, the bears are evidently in solid control of this sector for the time being. Something needs to change on this chart to spook some of them out and convince them to ring the cash register on their tidy profits.
The miners continue to lose ground against the price of gold itself. The ratio of the value of the index compared to the price of the metal is threatening to make a new ELEVEN year low. Keep in mind that this is the CLOSING price for the month so there is yet time to avoid this but the sector needs some help from somewhere.
ECB's Draghi Undercuts the Euro
Over the last few weeks, the Euro has benefitted from growing concerns over the fiscal health of the US. The current grossly misnamed "fiscal cliff" talks have allowed money flows to make their way back into the common currency at the expense of the US Dollar.
That has changed in today's session. ECB President Mario Draghi's comments at a press conference have been interpretted as quite dovish by the trading community. Even though the ECB kept interested rates unchanged, the talk in the market quickly moved in response to what many feel was Draghi's leaving the door open for rate cuts in the not-too-distant future. What this means is that the interest rate environment in the Eurozone will remain negative in real terms. This is the type of scenario in which gold thrives.
While Goldman's report from yesterday pronounced an end of the negative real interest rate environment in the US sometime late next year or early in 2014 (something which I strongly disagree with by the way as higher interest rates will crush this economy), Draghi's comments seem to have paved the way for the continuation of such over in the Euro Zone for teh foreseeable future.
The result can be seen in the EuroGold chart which has experienced a nice bounce even as the Euro itself has come under some strong selling pressure here in the US session.
That has changed in today's session. ECB President Mario Draghi's comments at a press conference have been interpretted as quite dovish by the trading community. Even though the ECB kept interested rates unchanged, the talk in the market quickly moved in response to what many feel was Draghi's leaving the door open for rate cuts in the not-too-distant future. What this means is that the interest rate environment in the Eurozone will remain negative in real terms. This is the type of scenario in which gold thrives.
While Goldman's report from yesterday pronounced an end of the negative real interest rate environment in the US sometime late next year or early in 2014 (something which I strongly disagree with by the way as higher interest rates will crush this economy), Draghi's comments seem to have paved the way for the continuation of such over in the Euro Zone for teh foreseeable future.
The result can be seen in the EuroGold chart which has experienced a nice bounce even as the Euro itself has come under some strong selling pressure here in the US session.
Wednesday, December 5, 2012
Goldman Sach's Right Hand does not Know what its Left Hand is Doing
In an odd piece of news today, Dow Jones is reporting that Goldman Sachs has issued a report stating that gold is "near an inflection point" which is likely to come next year and is "pointed lower after".
I find it odd because the reason that Goldman states this is because it expects an improved US economy that will supposedly blunt safe-haven demand for the metal based on its assumption that REAL interest rates will rise.
It's twelve month forecast for the price of gold is cut to $1800 with its 2014 view of $1750. That is hardly a big letdown but still it begs the question - Is this the same Goldman that just last week issued a report predicting that the Federal Reserve will be forced to implement QE4 at this month's FOMC meeting? You might recall that in that report Goldman predicted a $45 billion/month Treasury buying program to be announced by the Fed based on the fact that the US economy was still sluggish and that growth was lagging. This is of course in addition to the already announced and implemented $40 billion/month of MBS paper by the Fed.
Additionally, in that same report Goldman stated that this bond buying program would continue all the way through 2103. In the year 2014, economic conditions would improve enough that the Fed could ramp down the combined QE3 and QE4 programs to $50 billion/month which would continue into the early part of 2015. They also stated that they believed the Fed would not raise interest rates until 2016.
So which report are we to believe? Where is the rise in REAL interest rates supposed to be coming from? Is it from the Fed which they just last week predicted would not raise rates until 2016? Is it from the Fed which is expressly focusing on keeping LONG TERM interest rates low by embarking on another round of QE for the next 2 1/2 years?
I am merely stating what these two separate reports coming within a week's time frame are saying.
It is obvious that the people within Goldman who prepared the former report were not consulted with by the people who issued today's report. This is perhaps a great way of making sure that no matter what happens, your "team" got it right.
By the way, do you not find it ironic that on the same day that Goldman issues today's report, Fox Business is reporting that both Goldman and JP Morgan are considering layoffs due to the rotten business climate?
I find it odd because the reason that Goldman states this is because it expects an improved US economy that will supposedly blunt safe-haven demand for the metal based on its assumption that REAL interest rates will rise.
It's twelve month forecast for the price of gold is cut to $1800 with its 2014 view of $1750. That is hardly a big letdown but still it begs the question - Is this the same Goldman that just last week issued a report predicting that the Federal Reserve will be forced to implement QE4 at this month's FOMC meeting? You might recall that in that report Goldman predicted a $45 billion/month Treasury buying program to be announced by the Fed based on the fact that the US economy was still sluggish and that growth was lagging. This is of course in addition to the already announced and implemented $40 billion/month of MBS paper by the Fed.
Additionally, in that same report Goldman stated that this bond buying program would continue all the way through 2103. In the year 2014, economic conditions would improve enough that the Fed could ramp down the combined QE3 and QE4 programs to $50 billion/month which would continue into the early part of 2015. They also stated that they believed the Fed would not raise interest rates until 2016.
So which report are we to believe? Where is the rise in REAL interest rates supposed to be coming from? Is it from the Fed which they just last week predicted would not raise rates until 2016? Is it from the Fed which is expressly focusing on keeping LONG TERM interest rates low by embarking on another round of QE for the next 2 1/2 years?
I am merely stating what these two separate reports coming within a week's time frame are saying.
It is obvious that the people within Goldman who prepared the former report were not consulted with by the people who issued today's report. This is perhaps a great way of making sure that no matter what happens, your "team" got it right.
By the way, do you not find it ironic that on the same day that Goldman issues today's report, Fox Business is reporting that both Goldman and JP Morgan are considering layoffs due to the rotten business climate?
Tuesday, December 4, 2012
VIX Rising but still no worries (Yet)
The Volatility Index or VIX, is a useful index for measuring investor/trader sentiment in regards to the broader stock market's health. It reflects option premiums and is therefore a decent way of peering into the thinking of those who write the things and what they are expecting/fearing in the immediate future. As with any market index, it has its shortcomings but all in all, it is remains a good gauge of sentiment.
While the following chart is not scientific it is helpful in understanding the impact of the Federal Reserve's monetary strategies over the past few years. I prefer to look at this chart as a demonstration of official monetary sector meddling into the affairs of capitalism/free markets.
In simple terms, the lower the index moves, the less fear or concern option writers and thus investors in general have towards the health of the US stock markets. When the index is rising, it reflects unease/discomfort/fear in those degrees.
Note how sharp spikes upward have been accompanied by expectations of the ending of previously announced and implemented rounds of Quantitative Easing. You can see the first of these spikes back in April 2010 when QE1 was coming to an end. It was not long after that the Fed announced the next round of QE, this one involving outright purchases of Treasury bonds. That was good for another outbreak of "DON'T WORRY- BE HAPPYitis" among the Wall Street crowd.
Of course, once that virus ran its course and QE2 expired in the summer of 2011, back came the awful realities of the gargantuan mountain of indebtedness overhanging the US economy. Even with those artificially induced lower long term interest rates, those stubborn consumers were not spending fast enough to offset the proliferation of bad debts, foreclosures and delinquencies. Throw on top of that massive problems in the Eurozone and investors actually seemed to awaken from their drunken stupor of indifference long enough to begin worrying.
"Tsk, Tsk' said the Central planners and out came the European Stability Mechanism in conjunction with the Fed's "Operation Twist" (the sale of maturing shorter dated debt in exchange for the equivalent amount of longer dated debt) and PRESTO! - ALL WORRIES GONE. "I CAN SEE CLEARLY NOW, THE RAIN IS GONE. I CAN SEE ALL OBSTACLES IN MY WAY.... IT'S GONNA BE A BRIGHT, BRIGHT, BRIGHT SUNSHINY DAY".
Down falls the fear level among investors as the injection of drugs courses through their veins. Greece however flared up again, as did Portugal, as did Spain and others in the Euro Zone and that produced a fleeting burst of anxiety/concern among investors early this year. With the ECB and the Eurozone ministers working feverishly to calm worried markets, it did not take long before all was well once again.
Now, as we have entered the final quarter of this year, the Fed has announced another round of QE (QE3), this time consisting of the purchase of $40 billion per month of Mortgage Backed Securities. It is odd, considering the reaction of the market to past pronouncements from the Fed, that the VIX actually spiked a bit higher instead of sinking even further on the news.
The index did move lower however in October when proof of the actual buys under this latest round of QE were evident. However, it should be noted that the index is beginning to rise again.
While the following chart is not scientific it is helpful in understanding the impact of the Federal Reserve's monetary strategies over the past few years. I prefer to look at this chart as a demonstration of official monetary sector meddling into the affairs of capitalism/free markets.
In simple terms, the lower the index moves, the less fear or concern option writers and thus investors in general have towards the health of the US stock markets. When the index is rising, it reflects unease/discomfort/fear in those degrees.
Note how sharp spikes upward have been accompanied by expectations of the ending of previously announced and implemented rounds of Quantitative Easing. You can see the first of these spikes back in April 2010 when QE1 was coming to an end. It was not long after that the Fed announced the next round of QE, this one involving outright purchases of Treasury bonds. That was good for another outbreak of "DON'T WORRY- BE HAPPYitis" among the Wall Street crowd.
Of course, once that virus ran its course and QE2 expired in the summer of 2011, back came the awful realities of the gargantuan mountain of indebtedness overhanging the US economy. Even with those artificially induced lower long term interest rates, those stubborn consumers were not spending fast enough to offset the proliferation of bad debts, foreclosures and delinquencies. Throw on top of that massive problems in the Eurozone and investors actually seemed to awaken from their drunken stupor of indifference long enough to begin worrying.
"Tsk, Tsk' said the Central planners and out came the European Stability Mechanism in conjunction with the Fed's "Operation Twist" (the sale of maturing shorter dated debt in exchange for the equivalent amount of longer dated debt) and PRESTO! - ALL WORRIES GONE. "I CAN SEE CLEARLY NOW, THE RAIN IS GONE. I CAN SEE ALL OBSTACLES IN MY WAY.... IT'S GONNA BE A BRIGHT, BRIGHT, BRIGHT SUNSHINY DAY".
Down falls the fear level among investors as the injection of drugs courses through their veins. Greece however flared up again, as did Portugal, as did Spain and others in the Euro Zone and that produced a fleeting burst of anxiety/concern among investors early this year. With the ECB and the Eurozone ministers working feverishly to calm worried markets, it did not take long before all was well once again.
Now, as we have entered the final quarter of this year, the Fed has announced another round of QE (QE3), this time consisting of the purchase of $40 billion per month of Mortgage Backed Securities. It is odd, considering the reaction of the market to past pronouncements from the Fed, that the VIX actually spiked a bit higher instead of sinking even further on the news.
The index did move lower however in October when proof of the actual buys under this latest round of QE were evident. However, it should be noted that the index is beginning to rise again.
This is rather noteworthy to me as a trader/chartist. If this was a commodity, I would be looking to buy it based on the chart pattern. It has failed to make new lows and instead has a mini uptrend occurring since August of this year. Could it be that the Fed's QE's are beginning to lose their luster on the markets? Are the amounts considered to be insufficient by the broader market? Or is it perhaps the current "fiscal cliff" talks which are overwhelming trader sentiment in general? Either way, something has this market a bit nervous when compared to the recent degreeof complacency that we have witnessed in response to recent Fed announcements.
This leads me to believe, based on the analysis by Goldman last week and the comments from some current Federal Reserve governors, that another round of QE (QE4) is forthcoming. The Fed is simply not getting enough bang for their buck from QE round 3.
There are a couple of other factors at work here also. Many in the investment class are worried about tax hikes coming next year. Combine that with concerns about taxes on dividends nearly tripling and a spike in capital gains taxes and some investors are cashing out now before the Obama regime's grab of more money commences. Throw in further uncertainty about the impact of Obamacare on business and further regulatory burdens, and a growing number of investors are cashing in before 2012 ends. Clearly nervousness is rising meaning that the Fed is not only now fighting the deflationary forces arising from excessive debt levels but it is also fighting the results from the recent election.
At this point, based on the charts, it looks to me like some market participants are bracing for another fall back into recession in the US. Look at the chart of the Ten Year Treasury Note Yield. It is basically flatlining.
Gold Bulls Attempting to Hold the Line at the 100 Day Moving Average
Today's breach of both psychological as well as technical chart support centered near the $1700 level has set the bulls on their heels while raising the spirits of the gold bears.
The market has not been able to get its feet solidly underneath it since that beating it took last Wednesday. When the overnight seller/sellers of large size managed to shove it down below the low of that last Wednesday, they found the stops that they were hoping to find and then some.
The market is now moving purely on technical momentum as there is really not a lot in the way of fundamental developments. The Dollar is actually lower today while at the same time reports indicate strong buying of gold in Asian markets. Don't forget also the surge in gold bullion coins as the public begins to finally show some signs of nervousness/unease with the general state of the US financial picture.
A large portion of this move lower is being blamed on the break down in the so-called "negotiations" over what has been dubbed the 'fiscal cliff'. I say so-called because one side shows no concern whatsoever for the enormity of the sums of indebtedness that they are heaping onto this nation's back. Be that as it may, there is about as much possibility of anything that would actually SERIOUSLY impact the long term fiscal deterioration of this country coming out of this group of politicians as there is of a snowball emerging unscathed from a journey into hell. They will continue spending us all to hell.
The fact is that the US is technically bankrupt, if one wants to use the actual definition of the word, and will be forced to borrow increasing amounts of money with which to fund its profligate manners. The Federal Reserve will buy a huge chunk of those IOU's in their mad attempt to continue pushing down longer term interest rates thereby further distorting the market signals and just compounding the damage that will be inflicted when it comes time to pay the piper.
QE4 is coming your way this month to be followed in the future by QE5, QE6 and then QE to infinity as my good friend Jim Sinclair has rightly dubbed it.
I am not sure what the trigger event will be but at some point, the VELOCITY OF MONEY, will begin to pick up. When that occurs, the Dollar will drop into the abyss and all of us will pay the price for this exercise in idiocy by the Fed as we watch our way of life descend with it. I dread the coming day when a shopper will head into the grocery store and come out with a single box of Corn Flakes costing $10.00.
Back to the Chart - Gold is trying to hold at the 100 day moving average level which is a key technical support point especially for the hedge fund computer algorithms. If this level cannot inspire an immediate bounce higher, one that takes the price back above $1720, we are going to head to $1680 to see if that will stop the bleeding. That is a big chart level of support with a significant amount of sell stops sitting below it so believe you me, some of these gold bears are salivating at the prospect of getting to those. The big question is whether or not the Asian buyers put an end to this downdraft or are willing to wait for prices to fall even further before they step in and end the bear's party.
If for some reason this market were to get to $1680 and break down, the next level of support does not surface until near $1640. One suspects that Asian Central Banks and other Central Banks around the globe are getting their order desks ready.
The market has not been able to get its feet solidly underneath it since that beating it took last Wednesday. When the overnight seller/sellers of large size managed to shove it down below the low of that last Wednesday, they found the stops that they were hoping to find and then some.
The market is now moving purely on technical momentum as there is really not a lot in the way of fundamental developments. The Dollar is actually lower today while at the same time reports indicate strong buying of gold in Asian markets. Don't forget also the surge in gold bullion coins as the public begins to finally show some signs of nervousness/unease with the general state of the US financial picture.
A large portion of this move lower is being blamed on the break down in the so-called "negotiations" over what has been dubbed the 'fiscal cliff'. I say so-called because one side shows no concern whatsoever for the enormity of the sums of indebtedness that they are heaping onto this nation's back. Be that as it may, there is about as much possibility of anything that would actually SERIOUSLY impact the long term fiscal deterioration of this country coming out of this group of politicians as there is of a snowball emerging unscathed from a journey into hell. They will continue spending us all to hell.
The fact is that the US is technically bankrupt, if one wants to use the actual definition of the word, and will be forced to borrow increasing amounts of money with which to fund its profligate manners. The Federal Reserve will buy a huge chunk of those IOU's in their mad attempt to continue pushing down longer term interest rates thereby further distorting the market signals and just compounding the damage that will be inflicted when it comes time to pay the piper.
QE4 is coming your way this month to be followed in the future by QE5, QE6 and then QE to infinity as my good friend Jim Sinclair has rightly dubbed it.
I am not sure what the trigger event will be but at some point, the VELOCITY OF MONEY, will begin to pick up. When that occurs, the Dollar will drop into the abyss and all of us will pay the price for this exercise in idiocy by the Fed as we watch our way of life descend with it. I dread the coming day when a shopper will head into the grocery store and come out with a single box of Corn Flakes costing $10.00.
Back to the Chart - Gold is trying to hold at the 100 day moving average level which is a key technical support point especially for the hedge fund computer algorithms. If this level cannot inspire an immediate bounce higher, one that takes the price back above $1720, we are going to head to $1680 to see if that will stop the bleeding. That is a big chart level of support with a significant amount of sell stops sitting below it so believe you me, some of these gold bears are salivating at the prospect of getting to those. The big question is whether or not the Asian buyers put an end to this downdraft or are willing to wait for prices to fall even further before they step in and end the bear's party.
If for some reason this market were to get to $1680 and break down, the next level of support does not surface until near $1640. One suspects that Asian Central Banks and other Central Banks around the globe are getting their order desks ready.
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