Ten Year Treasury Yield Surges to a 14 month High

Take a look at the following chart of the yield on the Ten Year Treasury Note. It closed at 2.135% return today, the best level since the first week of April, 2012.

While I personally believe that the economy is too weak to withstand higher interest rates for a prolonged period of time, all that matters right now is money flows. Money is flowing out of safe havens and flooding into equities in search of Yield, Yield, and more Yield.

The Central Banks of the West, and Japan, have created a RISK FREE environment for equity traders and have unleashed a full fledged mania in the process. Mark this well as you are seeing what happens when moral hazard is on full display.

I have said it before here and will say it again, the only risk in the mind of hedge fund managers, institutional fund managers and pension fund managers, is the RISK OF NOT BEING IN STOCKS.

I want to see if this note can take out the dotted green resistance line that shows up near the 2.30% level; that would be a big deal in my view.

Speculators continue to Sell gold

I will get some more details on the Commitments of Traders report later this weekend but wanted to get a graphic up to show just how strongly speculative sentiment here in the West has turned against gold (no doubt that is every bit tied to the bubble in the equity markets, courtesy of the Fed).

You can more or less see the sentiment towards gold by looking at the upper solid dark blue line which dates back to 2006. It rises and falls along with the actual price of the metal. Can you see what direction that line has taken since late 2012 when gold was priced near $1765? It has been steadily declining with a few upward blips. That indicates the outflow of speculative money from gold which as we all well know by now, has been heading into equities in search of yield. Incidentally, you can see the same thing in the gold ETF, GLD, with the steady drawdown in the amount of metal in its holdings.

Now focus on the bottom red line which is a mirror opposite of the upper blue line. You can see that it bottomed out at the same time gold peaked near $1765 on the chart and has been relentlessly climbing higher. That is FRESH SHORT SELLING. Can you see how the hedge funds are building on the short side of the market? As a matter of fact, this is the largest outright short position of that category of traders on record!

Folks, I have to say something here at the risk of irritating some others in the gold community that I consider to be friends. Many keep pointing to this fact of a building speculative short position as a bullish development. It is not. It is bearish. Why? Because as I have stated ad infinitum over here, Speculators drive markets today, not commercials. As long as the specs are interested in selling gold, the market will struggle to overcome chart resistance levels and reverse to the upside. Yes, there is definitely the potential for some strong and sharp short covering whenever you see specs with a building short position, but it requires a CATALYST before that will occur. At some point we will indeed get such a catalyst (we got a preview of it this past week at the introduction of Bernanke's speech when he mentioned that a premature slowdown in QE would not be wise) but until we do, the trend is very obvious.

Let me just say that as a trader, not an investor, and please note this vital distinction, unless I have deep and unlimited pockets, for me to go against the flow of hedge fund money, is financial suicide. This crowd can run over commercial interests and send them crying to their mammas. How in the world are you or I as smaller traders going to be able to handle that sort of selling pressure? No, we have to be wise and only take a contrarian position if the technicals are telling us that it is time to do so. When those guys reverse course and begin covering, it will not come in a stealthy manner!

There is a tendency among some to keep saying over and over again: "this growing short position is wildly bullish". The implied notion among some advocating this (not all of them) is that you should jump in a take a long position in the futures because they just know that the market is going to suddenly reverse to the upside and you will miss the big move if you don't. Well, it may just do that. Then again, it may just not! What if it does not? Down it will go and down will go your trading account with it. Instead of buying on "HOPE" wait for the chart pattern to indicate that a turn is at hand. At least that way you can mitigate the risk somewhat because you will have a definite chart point at which you can tell whether or not the trade has gone wrong.

Again, I want to repeat, this is intended for those who are trading not those who are investing in gold or buying it to protect themselves from the debauchment of currencies which is occurring. The latter group buys gold for peace of mind and will methodically accumulate the metal as price moves down. That is a far cry from buying a LEVERAGED futures contract.

In summation - hedge funds here in the West are selling gold on rallies with strong quality buying emerging on trips back down towards $1360 and below. That buying is coming from the bullion banks and swap dealers in the paper markets. We all know how solid the demand is at those levels in the physical markets, especially in Asia. This looks to be the pattern until proven otherwise by the price action.

Trader Dan Interviewed at King World News Metals Wrap

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

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/5/25_KWN_Weekly_Metals_Wrap.html

US Dollar - back to being King

It appears as if the globe is convinced that any economic recovery is going to begin here in the US first. It certainly is not going to be Europe that is leading the way. Data from China continues mixed while Japan is gaining traction at the expense of their currency. That leaves many investors from abroad looking to put their risk capital to work in the US equity markets. That is creating strong demand for Dollars with which to buy boatloads of US equities.

You can see the effects of this in the dollar chart. Note this is a weekly chart I am using. As it now stands, the Dollar is on track to make its SECOND and a CONSECUTIVE WEEKLY CLOSE above key resistance at last year's high just above 84.40 or so.

It has already cleared the important 61.8% Fibonacci retracement level of the entire sell off from the double top back in 2010. The last barrier from a Fibonacci retracement theory level it has to face is just above 85 at 85.05. That ties in rather nicely with the upper tine of the pitchfork. If that does not stop the upward march of the Dollar, odds will favor it completely retracing the entire downmove from 2010 and eventually reaching all the way to 89.

With weakness across the Yen, the Euro and the Aussie and Canadian Dollars, not to mention the Swiss Franc and the British Pound, it is difficult to see why the US Dollar will not make it through the 85 level.

If this does occur, it is going to more than likely bring about additional selling pressure across the commodity sector in general and that means we could very well see more hedge fund shorting activity into silver and gold. It will be up to the physical markets to therefore absorb the paper selling to prevent those recent lows from being retested yet again.

One of the other reasons that the US Dollar is rising in my view is the fact that interest rates are rising here in the US. In an environment starved for yield, you are going to get some of that money that wants to hold bonds moving to where it can obtain the highest yield or at least where it can invest where the interest rate trajectory is higher and not lower as is the case in the Eurozone.

Long Term Interest Rates grinding Higher

Keep an eye on the yield on the Ten Year Treasury Note. It is back above the key 2% level once again. The rate peaked for this year about 2 months ago in mid March before moving lower. At that time it was a tad above 2.05%. Rates have moved 40 basis points higher in a month's time. That is quite rapid.

I find today's movement a bit peculiar to be honest because it came against the backdrop of an equity market that had first made a new all-time high before reversing lower later in the session. One becomes accustomed to seeing money flows out of bonds and into stocks and therefore, when stocks are being sold off and bonds also are being sold off simultaneously, it is a bit out of the norm.

Let's see where this thing goes tomorrow and the remainder of the week.

Incidentally, I wrote up some comments on today's price action for Eric King over at King World News. Check in there to find them a bit later this evening.

Have the Mining Shares finally Bottomed?

While one day does not a trend reversal make (and it is very important to keep this is mind), the HUI has found some buying support (finally!) near the confluence of several important technical support levels on the price chart.

I am using a weekly chart to show both the Fibonacci retracement levels and some horizontal support zones plus the pitchfork lines.

The first thing to note is that the index did close below the last Fibonacci retracement level noted which is the 75% retracement of the entire rally off the 2008 low and the 2011 high. That level is near 272. Strict adherence to Fibonacci theory teaches us that if this level gives way, odds favor a complete retracement of the entire upside move meaning we could see the HUI move all the way back down to near 160. However, we have had only one week in which the index CLOSED for the week below this level. Usually we would want to see TWO CONSECUTIVE WEEKLY CLOSES below this level to increase the likelihood that the index will move back to its starting point of the rally. That has not occurred yet.

Also, as you can see, there is a band of horizontal chart support  shown by the red rectangle that comes in near the 240 level. This level of support dates back to early 2009 and still has some validity to it.

Lastly, just outside the median line of the pitchfork lies an area of support coming in right at 240. It seems to me that if this index is going to hold, it is going to hold here and now at this level. If not, it will more than likely track the lower dotted line over the next few weeks.

To feel that the worst is over in this sector, I would like to see the index move back above last week's high near 275 or so to close out this week. If it can do that, I believe we will have seen a final bottom in the mining shares. The jury is out until Friday.

Here is a look at Goldcorp (GG). Notice the Outside Day Bullish Reversal Pattern coming after a very prolonged move lower in price. That tends to give the pattern more credibility. I would prefer to see a higher volume reading, much like the one seen back in April, to go along with today's nice showing but if the bulls can build on this the remainder of this week, they might spark some more serious short covering in this particular share by Friday. We'll see.

Today's Commentary by Trader Dan posted over at King World News

Dear friends and readers;

Eric King over at King World News has asked me to put together some commentary on today's wild ride in the precious metals markets. Please check in over at www.kingworldnews.com to read those along with the charts detailing the price action.

I need some time to go and find my stomach!

Trader Dan

CME reporting Silver Trading halted 4 times last evening

I will get more info posted on this as it becomes available from the CME Group. As mentioned in the brief piece I posted last evening, volume on the collapse in price was extremely light. There was an air pocket underneath the market but once price fell towards that major support zone near the $20 level, it rebounded quite ferociously. Further aiding the buying off the lows is the fact that Copper is proving to be quite resilient.