"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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Silver is pulling gold higher today in a continuation of what the grey metal was doing late last week. It appears that the market is still keying in on the stronger-than-expected Chinese trade data from last week.
I should also note that the Goldman Sachs Commodity Index or GSCI has been higher the last two trading sessions with some short covering in the soybean market helping pull the grain complex a bit higher as traders attempt to balance today's USDA crop numbers with previous market expectations. It never hurts silver to see the broader commodity complex ( as a whole ) moving higher.
However, in the precious metals sector, what has my attention is the fact that the mining shares continue to lead the bullion higher. This is important as far as I am concerned because whether or not we like it or agree with it, the shares have been pretty accurate over the last two years in leading the metals lower. Now, if they are indeed reversing course and putting in some long term bottoms, then they should once more take the lead in the precious metals sector but this time to the upside.
Take a look at the following chart of the HUI. I am always fascinated by the price action of various markets that I track/trade but this HUI chart, especially that GAP REGION is incredibly interesting to me. So much of the price action over the last two months has revolved around this gap on the charts. It acted as a ceiling for the better part of a month beginning in late June until it was broken in the second half of July. Then it was giving a hint of something greater for the bulls but the miners promptly surrendered their gains leaving the index to plunge back through it to start this month.
Back up the index went into the gap last week on the Chinese news but it was unable to hold its gains into the bell Friday so that it closed within the gap. Today, it GAPPED ABOVE THE GAP - same exact thing it did back late last month.
Now the question is, will the bulls be able to finally drive the bears out of the shares cementing a solid, long-lasting bottom and the beginning of a sustained uptrend or will it run to the TOP of THE RANGE near the 260 level and sell off again signaling that the RANGE TRADE is alive and well? Who knows for certain but one has to be impressed thus far with the price action in that the last setback in price the first week of August uncovered willing buyers above the recent panic selling low down under 210. That tells us that buyers were more eager to get in than they previously had been...
I wanted to provide a quick update for those who are following the "backwardation" talk out there.
I am currently showing the August, October and December gold futures contract all at the same exact bid. Also, the December has a mere $0.80 discount to the February. The futures market has still not entered a backwardation state but it is just about there. I will continue to monitor this and report on it should it occur.
Also, thus far I have not seen anything that would signal any problems with the delivery process for the August gold contract but one thing that does stand out is that J P Morgan continues to be the consistent, large stopper of gold for their "House" account. Morgan is acquiring a lot of gold.
It is going to be interesting to see whether they retender it before the month ends or at some point during another delivery month process but either way, they are acquiring it right now.
I am still watching that $1340 level in the December gold contract. So far it is proving to be formidable resistance. Strength in the gold shares is helping keep a very firm bid in gold but it is silver that is really proving a great degree of lift to the yellow metal.
That push through $20.50 is squeezing the shorts and it now looks as if the metal has a decent shot at testing $22.00.
Downside support for silver is first at $20.50 followed by $20.
Incidentally, gold is moving higher in spite of the fact that the US Dollar is stronger today.
A very strong day in the mining universe today with some nice upside moves among the various miners. For once, instead of acting as a drag on gold, the shares helped lift it higher.
That being said, nothing much has yet changed from a technical chart perspective. The bulls have made a valiant effort here and have prevented the bears from kicking off another leg lower in price but all they have managed to do, thus far, is to secure that downside support level and keep price contained within a well-defined range.
For a trending move of any magnitude to develop, one side or the other needs to violate the range and take control of price. It is difficult for me to see the mining shares undergoing another leg lower in price unless gold were to violate that spike low back at $1180. Thus the bulls have held the range but they cannot yet prove that they are in control of the market. That they will not do unless or until they take the index conclusively through 260, preferably on a weekly closing basis.
I think that there are two things going on in the gold mining world that could be engendering this buying. First, is the fact that the vicious beating the shares have undertaken have finally got the attention of management. For way too long these guys have not run a tight ship but have let costs get out of control and done little if anything to mitigate that. The result of poor cost control in combination with a sinking gold price had investors shirking the entire sector with the result that some of the better managed companies were taken down in a sort of "throw the baby out with the bath water" mentality.
Now, that the sector looks to be getting serious about controlling costs and getting lean and mean, value-based investors are taking a second look at them.
Second - and I think this is important - I have been mentioning of late that any serious miner would, by necessity, be forced to re-examine its view towards hedging or locking in prices for some forward production. TO NOT DO SO, in an environment which is so confusing for so many investors, with so many cross currents, with so many conflicting data points, and with so much uncertainty regarding Federal Reserve actions or lack thereof, is fraught with danger. Only the most foolhardy would turn their company's profits into a slot machine and bet the wad on the farm.
Look, you can be bullish gold for the longer term and still be realistic enough to understand that there is no guarantee that the price is going to rise sharply in the near term. If you can dig the metal out of the ground at a profit, it only makes sense to lock in a reasonable profit and leave the risk to someone else, namely a speculator. After all, that is what a properly designed hedge is supposed to do, eliminate or at the very least, mitigate price risk for your finished product.
That some miners are doing both; cutting costs, getting leaner and meaner, and eliminating the uncertainty of effervescent profits by instituting some reasonable and sound hedges, has some investors feeling more comfortable about holding them for the long term. This is good for the industry.
Is Gold the Bull in the China Closet? I ask that silly question merely because it sounded catchy. Seriously, the big news today was the ENORMOUS SUPRISE coming out of the Chinese Export/Import Data. It caught everyone by complete surprise especially with all the recent talk about the Chinese authorities mandating production cutbacks to deal with what they regard as an oversupply and excessive product output. When was that - a week ago? - then it had everyone in a panic and totally pulled the rug out from beneath the base/industrial metals. Today, it is the exact opposite. Now the base/industrial metals are flying higher, along with gold. Tomorrow - who the hell knows what to expect out of that nation?
Either way, for today, the news of the gigantic surge in imports sent silver and copper higher with gold getting pulled alongside them both. Also helping gold was the rise in jobless claims fanning talk that the TAPERING is back off. Yesterday it was back on thanks to Plosser. Today it is dead.
"Long live the Tapering!". "Death to the Tapering!" "Long live the Tapering!". " Death to the Tapering!". and on and on and on and on and on it goes.
As if we did not have enough confusion already in these markets with the contradictory statements coming out of the various Fed governors and the bizarre, often polar opposite pieces of economic data coming out of the US, now we have to deal with a BI-POLAR China. So which is it sirs - are you ordering your mandatory production cutbacks or not?
My suspicions on that big import number from China is that the Chinese are stockpiling and picking up materials at these lower costs. The Chinese are masters are acquiring replacements for their national stockpiles when prices are cheap. That does not mean they intend to use them anytime soon. It merely means that they have the storage capability to hold these in reserve and release them in the event of any shortage as they can then alleviate rising prices. My own view therefore is that the import numbers are due to strategic acquisitions and not for immediate consumption. We'll see if this is another one of those ONE DAY wonders or something more lasting.
Chatter in the gold pit was that the Chinese data means more gold buying from China which by the way is on course to supplant India as the world's largest buyer of gold. Again, we'll see if we get the kind of sustained physical offtake out of Asia to counter the continued investment-related selling of gold over here in the West.
Bulls have managed to stave off a deeper price setback by taking price back above the important $1280 chart level of support and thus returning the metal to within its recent trading range. Helping their cause has been the rally in the HUI/miners which are also exhibiting schizophrenic type behavior of late. Sharp plunges down 6% on day, followed by a rise a couple of days later of over 5%. Trading these things is something best left to those who are masochists and self-flagellators.
Note on the gold chart that the market has merely rallied back up into the recent zone that has contained the range trade for some time now. It is a nice recovery off the support zone after briefly plunging through that level so the bulls have bought themselves some time but they still need to clear that downtrending 50 day moving average AND take the price out above the TOP of the range if they are going to spook any of the deeper-pocketed shorts.
The ADX still is moving lower indicating the lack of any clear direction.
It is the Dollar however that is setting the tone for gold as it is getting beaten up against the majors today in a big way. There is a band of support near the 80.50 level on the USDX chart that looks like a magnet right now. Apparently, the world, having fallen in love with the Dollar due to the rising interest rate environment and its one way stock market, is having thoughts of a trial separation due to incompatible differences.
Big news in the cattle market today as Tyson announces that it will no longer accept cattle finished up on Zilmax. That has sent the industry into convulsions this AM. Tyson claims it is an animal welfare issue but that is more than likely a smoke screen to endear itself with the animal rights people and the Politically correct crowd. My own feeling, and that of some others, is that it is a ploy to gain additional overseas export business at the expense of some other packers. Tyson may endear themselves to PETA but they do so at the expense of angering the entire cattle industry, which is the folks who raise the cattle that they put down for meat. All I can say is that Tyson had better be prepared to put higher cash on the table for these cattle in the future to compensate their producers for the higher costs and lower per head profits that they are now going to have to face thanks to this idiotic decision.
Crude is getting hit quite hard today and is down nearly 2% as I type these comments as it works closer to the $100/barrel level. The recent rally in crude up towards $110 had me as a big skeptic, Egypt, Syria, etc., notwithstanding, because my view is that the US economy is far too weak to support higher energy prices associated with crude at those levels. When you get a payrolls number like we got last week and then you get another confirmation of a pathetic jobs market like we got this morning, just who in the hell is supposed to be able to afford to pay these kinds of prices for unleaded gasoline and maintain demand at sufficiently high levels to justify them up here?
This is why I maintain that it is the US Dollar that is the main driver behind gold today with some help from the base metals. Look, we are seeing crude oil breaking down on its chart and we are seeing the grains moving lower (except for today) meaning food and energy costs are mostly going down (yes, there are some exceptions but I am speaking mainly in generalities).. That means we have the possibility of lower energy costs, lower food costs all in combination with a jobs market that is going nowhere fast.
Where is the INCREASE in the VELOCITY OF MONEY going to come from to fuel the fires of inflation in that sort of environment? This is why I think we will need to see gold's focus almost entirely on the currency markets in order for it to generate sustained gains. It will not be inflation anytime soon in my view that will bring buying into gold. Instead - It will have to be a loss of confidence in the currencies.
Gold has recently been moving lower in terms of both the Yen and the Euro but it is moving higher in these terms today. It will be interesting to see whether or not this is a reversal of the recent trend lower and the start of something else or a one or two day event that fades. For now, the world is back in love with the Yen and the Euro as the shorts get squeezed out by the dealers.
Once again, just like we have been seeing recently, gold is coming under selling pressure as it moves a bit further into the Asian trading session. I find this rather disconcerting if one is a bull because Asia has tended to be the region of the globe where gold has been rather buoyant. If the market is losing sponsorship from this region of the world where physical demand is key, it bodes poorly for the metal's prospects in the West in particular.
During the N. American trading session today, gold moved down towards the bottom of the range I have noted on the chart. That is near $1280. It managed to bounce higher as buyers entered down at that level and kept the range trade alive. However, here in the Asian session, the sellers are back out in force and have taken it down through the bottom of the range below $1280. It is imperative that the bulls take this market back above that level or the bears are going to target another $20 drop in the metal into the next region of support on the chart near $1260.
I am also viewing the ADX line ( dark purple) which is slowly flattening out and looks like it is trying to rise again. If it does, and this is not a done deal yet, it will signify the RESUMPTION of the EXISTING DOWNTREND. In other words, the -DMI has not crossed below the +DMI through this entire bounce higher indicating that the bears still regained control of the market, even though it had made a significant recovery off the spike low at $1180. The downtrend, as a result, had been interrupted but is very close to being resumed again.
If that occurs, you will see intensifying sell pressure on the metal as the specs pile on the short side. Meanwhile, the bullion banks will be more than likely moving onto the net long side of this market.
Just like it has been doing of late, the HUI, the mining shares, are simply sucking the life out of the metal's prospects. No one wants to be an aggressive buyer of gold when they can see the gold mining shares going nowhere but further down. To witness a 6% plunge in that index in one day is unnerving to all but the most deep-pocketed, long standing gold bulls. The gap area that had initially been serving as overhead resistance has now been completely closed from the top side moving down meaning it has failed to serve as chart support. That would indicate that the next gap on the chart, ( the red rectangle zone ) will more than likely be tested soon.
Gold was under pressure throughout the entirety of the regular trading session on Monday flirting with psychological support at the $1300 level before managing to push back above it and close out the pit session above it.
As trade has moved into Asia this evening, the market is coming under pressure once again and has now fallen below $1300 moving as low at $1288 before managing a wee bit of a bounce. The market simply looks heavy as it is now backing down to the bottom of its range.
Remember, the $1280 level is where it was jammed lower last week just prior to the release of the payrolls number on Friday. If the market does not rebound back, it will move towards $1260.
Weakness in the mining sector continues to undermine the metal. Also, the grains are weaker undercutting the inflation from the food sector side of things.
