Ten Year Treasury Closing in on 3% Yield

First of all, apologies for not being able to post this week. The vagaries in the grain markets have been making me old before my time. Then again, the volatility in most nearly anything that resembles a commodity futures market these days is becoming almost unbearable at times. There is simply too much hot money moving into and out of markets on the drop of a dime for traders to get much in the way of rest.

There are two nasty habits that I have developed over the years - one is eating; the other is sleeping. I figure if I could give up both of those, I would have more spare time on my hands than I knew what to do with. It seems I am working on giving up the latter with the markets acting in the manner in which they have of late.

A quick comment in passing - gold has surrendered its "Syria" premium. I warned of this in some posts last week. Buying gold based on geopolitical fears always requires one to be very nimble and very quick as a trader because the events can change so rapidly that gains oftentimes prove quite effervescent.

Mr. Obama's buffoonish handling of this entire matter has resulted in any fears of imminent missile attacks being quickly surrendered. Most traders are now taking a wait and see attitude. With Russia's President Putin forcefully resisting any US action, many are thinking that the crisis is going to simply fade away for the immediate future. Personally I never thought I would live to see the day in which I put more confidence in Russia's President than I did in my own nation's President.

Also, the more I learn about the nature of these so-called "moderate reformers"  as our imperious leaders are dubbing them, the less I like them. Say what you will about Assad, Christian churches and individuals were generally safe under his reign. The "moderate reformers" are now butchering them. And we are supposed to be siding with them??? What kind of idiocy is that?

What this means to gold traders is that we are back to focusing on other drivers for the price of gold. That brings me to interest rates. One of the biggest headwinds that gold is facing is rising interest rates in the US. Those are coming on the heels of what many seem to feel is improving US economic data. That is translating to more of "THE TAPER". Some of you might not be old enough to remember a fun television show years ago called "Fantasy Island".

In the opening to the show each week, the little fellow ( I think his name was Tatoo or something) used to be shown looking up into the sky and shouting out the phrase, "THE PLANE, THE PLANE". Or as it is better pronounced, "DEE PLANE, DEE PLANE"!

That is what this tapering talk reminds me of. Everyone is looking around waiting for the various economic data releases and when they get them, they immediately cry out, "DEE TAPER, DEE TAPER".

Thus when we get friendly economic news, interest rates push higher as Treasuries get sold. That drives the Dollar higher on the crosses and puts pressure on the gold market. Remember, outside of the gold community, many investors view gold as a non-interest bearing asset. Thus in a rising interest rate environment, one in which real rates are not negative, gold tends to experience selling pressure. Again, I am not advocating anything here - I am merely stating the sentiment of many large investors. Gold traders need to understand this.

That being said, take a look at the following chart of the Ten Year Treasury Note. It just missed hitting the 3% mark by less than 20 basis points today! Yields have not been at this level since July 2011, more than two years ago!

This is some of the reason that gold is getting sold down today. Additionally, technical factors such as its inability to hold above $1400 are bringing in long liquidation and some fresh shorting. Shorts began hunting for stops below $1380 in the December and got them. That is bringing in more selling as stale longs are bailing out and fresh shorts are moving in.

Now that $1380 has fallen, the next level of chart support comes in at the 50 day moving average down near the $1360 - $1355 level. Bulls need to either hold it there or to quickly take it back up through $1400 to show their mettle.

Weakness in the mining shares has also been working to undermine gold as the HUI failed to extend past a strong chart resistance level near 280.

Just be prepared for more volatility as the market reacts to each and every bit of economic data/geopolitical events. No one ever said trading was easy; if it was, all of us would be busy counting our coconuts on our personal S. Pacific island.

Trader Dan Interviewed at King World News Metals Wrap

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

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/8/31_KWN_Weekly_Metals_Wrap.html

Gold Uptrend Pausing

Recent action in gold during the latter part of this week is suggesting a pause in the fledgling uptrend. The metal seems to have run into a heavy band of resistance near the $1440 level and is setting back.

Gains during the early part of this week, tied to concerns over the situation in Syria, have been fading as the refusal of the British Parliament to go along with the Obama administration's plan to lob cruise missiles into Syria took some of the safe haven bid away from gold. Traders/investors have read this to mean that an imminent strike was less likely.

Truth be told, the President has foolishly put himself into a box and has destroyed US credibility and prestige by his inept comments about a "red line" and his bellicose comments since then. This has introduced an element of uncertainty into both gold and crude oil prices which has recent buyers of both heading for the exits and booking some short term profits rather than risking losing them.

That has resulted in some short term sell signals in the metal with both indicators shown on the chart below suggesting a waning of upside momentum. Again, this does not mean that the longer term move higher in gold is finished; it does mean that unless the bulls are able to quickly reassert themselves and take control of the market by pushing price through this very stubborn band of overhead resistance, price will more than likely drift lower to see at what level dip buyers are interested in coming in. Losing psychological support at $1400 today and that "14" handle was not helpful to their cause.

Right now, without a strong catalyst from the situation in Syria, many are hesitant to chase the metal higher and are uncomfortable getting too aggressively long at current levels, especially with some reports circulating that physical offtake has slowed down a bit due to price sensitivity. Seasonal factors do still favor the bullish cause but it may take some further move lower in the metal to bring the physical market buyers back in larger numbers.

Keep in mind something I wrote earlier this week - gains in the price of gold due to geopolitical concerns do not tend to last long unless there is a worsening of the overall scenario. When news or rumors first surface about such things, the price of gold tends to quickly reflect the worse case scenario that traders envision based on that current set of information. Unless that changes for the worse, any lessening of concerns generally results in a very rapid retracement of price gains tied to the original story.

How much of gold's recent gains are tied to the Syria situation are not quite exact but it appears to me that the break out above $1360 can be attributed to it. This means we could see gold retreat back towards that level unless we do indeed see missiles flying very soon.

A concern that I do have about the gains made this week are also from a technical standpoint due to my reading of the Commitment of Traders report. We had a very sizeable amount of short covering in the "Managed Money" or Hedge Fund category, much more so than we did new buying from that same category. I cover this in detail in the Metals Wrap interview with Eric King over at King World News so be sure to listen in to that.

A quick point about this however - we need more than short covering to sustain this uptrend. Gains tied to short covering are very quick and very powerful at times. However, once that panic buying has finished, unless there is SUSTAINED NEW BUYING TO TAKE ITS PLACE, the market will run out of the thrust it needs to maintain those gains.

What this means is that Western investment demand for gold must not falter. That will be evident IF and ONLY IF overhead resistance above $1440 - $1450 is vanquished.

Gold backs off from chart resistance

The region near $1434 - $1440 is proving to be a bridge too far for the gold bulls for the time being. You can see that this level held the market in check twice previously, once in late May and again in early June.

Bulls ran it up into this resistance zone this week but thus far have been met by solid selling. As stated in yesterday's comments, the market is overbought and is thus susceptible to a bout of profit taking.

There is psychological support first at $1400, then at $1380 and much better chart support down near $1355.

Markets which are reacting to news events can be very treacherous often making wild swings in price so traders be careful. Do not get too aggressive in here unless you have very deep pockets and are not overly leveraged. Better to make a smaller sum of money on a winning trade,  or lose a smaller sum of money on a trade gone bad, then to bet the farm and end up being a tenant worker!

There is a time to be brave and a time to be cautious.

Mining Shares Run into Chart Resistance

The mining shares, as evidenced by the HUI, have been very strong over the last three weeks making a nice run from near the 220 level all the way to 280. It is at this latter level that they have hit a wall for the time being. It was this same level back in late May/early June of this year which stymied their upward progress and sent them back to a test of the 245 level, a test which they subsequently failed before making a final low just below 210.

For now this level has been reinforced on the price chart. Translation - bears are digging in up at the recently made highs in the stocks that compose this particular index.

Based on some swing pattern analysis, the HUI has the potential to make a move lower into the 245 region ( the rectangular red box labeled support) where, if the uptrend is going to continue, they should uncover some decent buying.


If that were to fail, the index could sink back into the former gap region which extends down to 235. I would not expect that to fail should it happen for if it did, it would foreshadow a move back to 220.

For the bulls to ignite a sharper advance, 280 needs to be cleared and HELD.

The gold market is going to be very similar to the crude oil market for the near term in the sense of volatility tied to the situation in Syria. While I believe that gold has priced in a missile strike, I am unclear as to the extent or duration of such a strike. If it is indeed the pin prick which many feel it will be, it will accomplish nothing and will soon be forgotten. If it were to escalate into something deeper, then I feel that gold and crude will react more strongly.

The President's foolish blustering about "red lines" and ultimatums have boxed him into a  corner in which he appears buffoonish and inept if he does nothing but which runs a serious risk of further undermining the already sinking credibility of the US if the response is seen as a mere effort for him to save political face.

This is not our battle as there is no good outcome to intervening in this internal fight in a nation that has not threatened us or our allies directly. Either way, we will have to stay on our toes as traders as no one can be quite sure how all of this is going to play out or of the market reaction.

Syria News Sends Gold and Safe Haven Treasuries Higher

There are two news stories serving as catalysts for the move higher in gold in today session.

The first of these is talk that the US is planning on lobbing some cruise missiles into Syria in response to unsubstantiated reports that the Assad regime has used chemical weapons against civilians. The has the attention of not only the safe haven markets, (the Yen is also getting another one of those goofy safe haven bids) but also the crude oil market, which is soaring moving above $109 at one point in the session.

The second news item is that the US is up against that pesky debt ceiling once again. It never ceases to amaze me how damned inept these politicians are and how they cannot live within their means.

Either way, that has the focus of the markets back on the US fiscal house disorder which is helping to put a bit of pressure on the Dollar in spite of the fact that global investors want to own the thing whenever a crisis or shock event appears on the radar screen.

I mean the entire thing is weird. Here we are talking about a nation that is running over $17 TRILLION in its national debt ( and remember we are not even talking about unfunded liabilities here) and there are those who are dense enough that they want to own more US Debt as a SAFE HAVEN. I honestly cannot stretch my mind around the two sets of words ever being coupled together in the same sentence; it is a fact however that the global investment community has been conditioned as well as Pavlov's dogs to buy the blasted things every time they get nervous.

Gold has run into some pretty good selling at the highs made back in late May/early June after putting in some sizeable gains since Thursday of last week.  Working against further gains in today's session is the weakness in the mining shares ( HUI ) as those are following the broader stock market lower due to Syria fears.

Remember, gold buyers never like to see the shares going lower with the metal moving higher as it makes them nervous and more likely to snatch profits rather than dig in and buy more at the highs. Additionally, gains in gold due to geopolitical events tend to not hold as a general rule unless the events indicate a worsening of the situation. It looks to me like the market has priced in a missile strike; whether that escalates into something further is unclear.

I personally think it is ill-advised for the US to be meddling over there in Syria as I see no strategic interest of ours being threatened. Assad is a dictator of that there is no doubt but whose business is it of the US what he does or does not do in his own country? As long as he is not threating us or any ally or ours, why should we be lobbing million dollar plus missiles into that nation? To do exactly what anyway? If he were to go, who exactly replaces him?

Also where is the US Congress on this? Apparently Congress has ceded its war making authority to the executive branch. That seems to be a pattern nowadays.

No doubt some of my political views on this will offend some but that is a perk that comes with writing at ones own blog!

Back to gold however - the market has run into a band of resistance just shy of $1440. You can see how price has met up with selling at this level since late May of this year. Bulls have taken it firmly above the 100 day moving average however and three major moving averages ( 10, 20 and 50 day) are all moving higher with price trading ABOVE those levels. Also, the ADX line continues to rise and is at 23.45 indicating the presence of an incipient uptrend.

The lower indicator is nearing overbought levels however so some caution is warranted if you are long. That does not mean price is ready to collapse; it merely means that one might wish to protect some profits while they wait for another entry point if we get a correction lower in price. Any correction should encounter dip buyers just above psychological support at $1400 and again at the confluence of the 10 day moving average and the 100 day moving average in the vicinity of $1375 - $1370. The trend is up and that is the key right now. If it changes, we will try to pick that up using the indicators.

Syria is a wild card however and no one can predict exactly how events are going to unfold over there so traders with a short term horizon need to be vigilant. If that band of overhead resistance  gives way gold will catch some upside wind due to the plethora of buy stops sitting just above there that should carry it on towards $1480 where I would expect some formidable selling to appear.

The miners need to find some sponsorship.....

by the way, Silver knocked RIGHT ON THE DOOR of its April high today before setting back a bit. That is near $24.80. Frankly, I do not see much in the way of resistance to a move higher if it clears that until one gets near $26. This market is extremely overbought and can spin on a dime so caution is also warranted. Bulls, do not get too complacent but stay alert for any shift. A 25% gain in the price of the metal since late June is nothing to sneeze at.

Trader Dan Interviewed at King World News Markets and Metals Wrap

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

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/8/24_KWN_Weekly_Metals_Wrap.html

Weak Housing Number Propels Gold Higher

Here is all one needs to know to explain why gold did what it did today:

The new home sales number showed the steepest drop in three years! Any questions?

What that translated to is very simple - Death to the Tapering! Long Live the QE Kings!

If that rotten July number was not bad enough, the insult to injury was the downward revision to the June number.

My view on this is simple - I have been posting charts of the Ten Year Treasury Note yield for some time now and have been remarking that it keeps pushing higher and higher and is closing in on that 3% mark. There is no way that rising interest rates in an environment in which salaries/wages are stagnant and job creation consists mainly of part time jobs is NOT GOING TO IMPACT HOUSING SALES.

I feel like I have been beating a dead horse but I repeat - the FED cannot be pleased with what has been going on in the Treasury markets because this entire phony "recovery" is predicated on one thing and one thing alone - CHEAP MONEY. Take that away and there is nothing else to support it.

The other side note to this is that these rising rates are going to significantly impact the US Federal Governments borrowing costs.  When the national debt is over $17 trillion-gazillion-bazillion-whatever, and rising, even small rises in interest rates will have a significant impact to the nation's bottom line.

Bottom line - rising interest rates are a pox on the nation and on the economy and the Fed knows it.

Take a look at the Homebuilders' ETF. It is on course to close below its 50 week moving average even though it is valiantly trying to remain above it. The shorter dated moving averages have already turned lower indicating that the short term trend is down. I am monitoring this to see if we get any bearish downside crossovers of that 50 week. Either way, this sector is not particularly friendly on the charts.

It was easy to see that for today, the bonds were the beneficiary of buying related to no end to the QE bond buying program. When that housing number hit the market, they never looked back erasing all of this week's earlier losses and then some. The yield on the Ten Year backed down towards 2.81% after peaking near 2.92% this week. A collective sigh of relief along with a great deal of backslapping and hi- Fives was heard at the offices of the Fed.

Gold is right on the door of the psychological $1400 level in the aftermarket today. The December contract has missed that number by a mere $.10 as I type these comments.

Silver pushed up through $24 and looks very strong heading into next week as well. It looks to have very little in the way of impediments until it nears $24.70. If it clears that, silver could get quite exciting, very quickly. It will be interesting to see if it can hold above $24 as it goes out here on Friday afternoon. There are sellers around at that level as well as the $1400 level in gold.

The US Dollar was undercut by the weak housing number as it lost any gains it had against most of the majors with the exception of the Yen (barely) and the Pound (barely). The forex markets are ultra sensitive to any news whatsoever right now that they regard as potentially impacting Federal Reserve policy. Thus, we will continue to see more volatility and unpredictable price swings upon the release of each bit of economic data. I for one have sworn off trading the currencies until I see something more definitive as far as a trend goes. I am not a masochist and will leave them to others who are more tolerant of ulcers and other stomach wrenching maladies.

The HUI still needs to clear 280 on a weekly closing basis to kick the mining shares into a stronger uptrend. Price action has been very constructive but there remains work to be done on that price chart to dispel any doubts.

Today was one of those days in which it was hard to find any commodity that moved lower. Cattle did but they have been so bullish of late that I can understand them not participating in the buying orgy today. Soybean traders have effectively managed to kill the crop once again, as they do every single year without exception. First it was too cold and too wet; then it was too hot, then it was too cool and the crop was lagging and needed heat to mature. Now that it has turned hot, it is too hot and too dry so it is time to kill all the beans once again.  If you think gold and silver are nuts, try beans. They are worse especially when the mindless machines are buying.

Sharply rising soybean prices which are oftentime viewed as a proxy for food prices by some, tend to feed into silver buying on the thoughts of an inflation play. Remember, silver will outperform gold to the upside when inflation fears are dominant.

Personally I think the funds are driving soybean prices to ridiculous levels as all they are managing to do is to destroy foreign export demand for our beans at current levels. Old habits die hard in the commodity markets however and the combination of two words, "hot" and "dry" is all that is needed to spark a wave of short covering and more buying.  We are not going to run out of beans anytime soon with those massive S American crops and even if this year's crop does get smaller from previous projections, there are more than ample supplies of soybeans that are going to be around. Wait until the combines start rolling...

Maybe silver can take out chart resistance before that happens. We'll see. I will be talking about this on the KWN Weekly Metals Wrap so tune in to listen to my comments. I will get some price charts up later this afternoon as my schedule permits.

By the way, J P Morgan continues to stand for delivery in gold. They have taken the lion's share of all deliveries this month.