That is basically what we got from the Fed today instead of the $10 billion cut in bond buying that the market had priced in. I mentioned yesterday that based on the very benign inflation environment, the Fed might just stand pat due to the recent lousy economic data. They did just that. Personally I think it was two factors which swayed them in this decision - more on that later.
Stocks loved it, bonds loved it and gold loved it. The Dollar hated it. What else is new?
It is perverse in the sense that interest rates on the long end of the curve had been steadily moving higher for about 3 months now based on the increasing expectations of a tapering move by the Fed. We have been paying close attention to the yield on the Ten Year Treasury and have noted that it just missed hitting the 3% level at the beginning of this month.
Here is what I consider perverse about this... consider this... the Fed starts some hawkish talk and begins to prepare the markets for a slowdown in the rate of its bond buying program. The market reacts to this apparent change in policy by bidding up interest rates. This then results in mortgage rates moving higher.
The Fed, obviously alarmed at what they believe will negatively impact the very fragile real estate market then backs away from any tapering plans whatsoever sending interest rates on the Ten Year back down to the 2.75% level where they are currently sitting as I type these comments.
Where does this leave us? Quite frankly, in an enormous mess the way I see it. The Fed does not have the luxury of doing a surprise sneak-attack on the markets without preparing them for a tapering of the bond buying program. For the Fed to announce out of the clear blue sky, without the least bit of warning, that it was going to scale back its bond buying program, would send the stock market into convulsions and rattle the entire interest rate market as well as the currency markets.
They therefore must prep the markets, plowing the ground and giving the markets time to come to terms with any change in monetary policy in order to avoid chaotic market reactions. Here is the catch however - in giving the markets time to prepare, the market response is to sell bonds along the long end of the yield curve thus resulting in rising long term rates. This negatively impacts the real estate market and borrowing in general as the rotten employment picture prevents many people from otherwise qualifying for loans that they might have previously been able to had rates remained at lower levels.
Then the times comes for the Fed to make the actual announcement that they have spent so much effort prepping the markets for only to realize that these same markets have pre-empted any need for the Fed to act. The result? - the Fed does nothing whatsoever!
In short, I can easily envision a scenario in which the Fed is completely trapped unable to do anything at all well into the foreseeable future. It is going to take STRUCTURAL REFORMS to improve the job market and as long as the current Administration is in power, I do not see that happening any time soon. Thus the status quo continues and goes on and on and on...
In regards to gold, it is scooting higher as a large number of shorts were forced out with today's surprise move by the Fed. It did take out that overhead resistance at $1330 which is a positive and is also now trading above $1350, another resistance level. There is $1360 which I am watching right above where it is currently trading to see how it handles that. Beyond that $1380 is the next target.
The key to gold will be whether or not the speculative world believes that the continuation of the Fed's QE4 policy unabated will generate any long-anticipated inflation. Obviously the bond market does not expect any or bonds would not be moving sharply higher. Thus far inflation has been tame. It is going to take a change in perceptions in that regard to bring in a brand new wave of hot fund money into gold as well as the rest of the commodity complex.
The ironic thing about seeing crude oil and especially gasoline rallying sharply higher today is that rising energy prices, while inflationary in their own right, also have recently tended to be seen more as a brake or drag on economic activity and consumer spending and thus are seen as factors leading to a slowdown in growth rather than a catalyst for higher inflation. If specs begin piling into the energy markets based solely on the lack of tightening from the Fed, then these specs may short-circuit any hopes that the Fed has that its latest NON-MOVE will be stimulatory in nature.
Herding cats will prove easier than herding these destructive hedge funds.
Oh what a tangled web the Fed has created!
Wednesday, September 18, 2013
Tuesday, September 17, 2013
Commodity Sector Stagnating
I mentioned in some recent posts that gold is having trouble sustaining any rallies due to the fact that as far as the bulk of traders/investors are concerned, inflation is a non-issue right now. You have falling grain prices as the market gears up for large harvests and now you have falling crude oil prices as well. Gasoline is backing off as the driving season/ vacation time is finished. The softs are struggling with coffee prices and sugar prices unable to get much going in the way of upside action and you even the livestock markets looking like they are liable to run out of upside. In short, commodities in general are seeing little in the way of strong buying. This is negating any influence from the sector as far as contributions to higher food or energy prices.
As you can see from the following chart, the commodity sector is heading lower once again. Note that the index here is trading below the 50 day moving average ( BEARISH) and is sitting right on top of the 100 day moving average. If it cannot find its footing there, it has more downside to come. That will not help gold but especially will it not help silver which needs an inflationary environment in which to thrive.
Throw on top of that an abysmal employment situation and a Velocity of Money reading that is moving lower, and the ingredients for wholesale inflation are not anyway in sight.
Gold, being a hedge against inflation, is therefore losing one of its fundamental pillars of support.
If we did not know this already, we were reminded of it today when the inflation number for August showed a mere 0.1% increase from the month of July, shy of the 0.2% that the Labor Department reported for the month of July compared to its previous month of June.
This sets up a rather interesting scenario was the markets focus on the upcoming FOMC statement for clues of "THE TAPERING". If inflation is not a threat based on the government's numbers, then will the Fed feel any particular urgency to go ahead and announce any tapering whatsoever? Given the weak employment readings of late, they may just stand pat and do nothing but repeat the same old mantra about monitoring economic data for clues to the economy's strength, etc.
IT seems as if the number floating around out there is a $10 billion reduction in the amount of bond/MBS buying from the current $85 billion. But that may prove to be too much. It is hard to say so we will have to see what the doves say and what the hawks say and go from there. If they announce what amounts to a "dovish" statement, gold may get a bit of a relief rally but until the rest of the commodity sector sees fresh inflows of speculative money, rallies in gold look like they are going to be sold at this point with equities remaining the go-to investment of choice for the big players.
As you can see from the following chart, the commodity sector is heading lower once again. Note that the index here is trading below the 50 day moving average ( BEARISH) and is sitting right on top of the 100 day moving average. If it cannot find its footing there, it has more downside to come. That will not help gold but especially will it not help silver which needs an inflationary environment in which to thrive.
Throw on top of that an abysmal employment situation and a Velocity of Money reading that is moving lower, and the ingredients for wholesale inflation are not anyway in sight.
Gold, being a hedge against inflation, is therefore losing one of its fundamental pillars of support.
If we did not know this already, we were reminded of it today when the inflation number for August showed a mere 0.1% increase from the month of July, shy of the 0.2% that the Labor Department reported for the month of July compared to its previous month of June.
This sets up a rather interesting scenario was the markets focus on the upcoming FOMC statement for clues of "THE TAPERING". If inflation is not a threat based on the government's numbers, then will the Fed feel any particular urgency to go ahead and announce any tapering whatsoever? Given the weak employment readings of late, they may just stand pat and do nothing but repeat the same old mantra about monitoring economic data for clues to the economy's strength, etc.
IT seems as if the number floating around out there is a $10 billion reduction in the amount of bond/MBS buying from the current $85 billion. But that may prove to be too much. It is hard to say so we will have to see what the doves say and what the hawks say and go from there. If they announce what amounts to a "dovish" statement, gold may get a bit of a relief rally but until the rest of the commodity sector sees fresh inflows of speculative money, rallies in gold look like they are going to be sold at this point with equities remaining the go-to investment of choice for the big players.
J P Morgan back in the News again
Our old "friends" over at J P Morgan are back in the news again today and not in a good fashion. It seems that the CFTC is looking deeper into the so-called "Whale" issue which concerned events back in early 2012. Comments out of the CFTC noted that they could use the new Dodd-Frank powers granted to some of the regulatory agencies to charge the firm with "RECKLESS" manipulation. Interesting to say the least....
Morgan is thus far balking at any settlement of the issue which would require them to admit manipulation on their part.
I should also note that the CFTC is focusing on a large build up in Morgan's derivative positions...
I will try to keep you up to date on this development.
Gold and silver thus far are yawning at the news as the "Whale" issue was related to the credit default swaps market.
Morgan is thus far balking at any settlement of the issue which would require them to admit manipulation on their part.
I should also note that the CFTC is focusing on a large build up in Morgan's derivative positions...
I will try to keep you up to date on this development.
Gold and silver thus far are yawning at the news as the "Whale" issue was related to the credit default swaps market.
A Change of Pace
Now, for what is really important news.... this one is especially for my readers from down under!
Australian Wild Pig Drinks 18 Beers, Gets in Fight with Cow
http://www.natureworldnews.com/articles/3981/20130914/australian-wild-pig-drinks-18-beers-gets-fight-cow.htm
Seriously--- after the horrific news from yesterday involving that Naval Yard shooting, I thought that it might be helpful to get a bit of news that is not so saddening. One cannot read the reports from that terrible crime scene without realizing that something is wrong with the culture in this nation. At times it seems as if we are rotting from within. Virtue, honor, decency are becoming the truest of scarce commodities. Once again however we learn about another shooter with mental illness issues - how do these people keep falling through the cracks and are thus enabled to carry out their twisted deeds?
Australian Wild Pig Drinks 18 Beers, Gets in Fight with Cow
http://www.natureworldnews.com/articles/3981/20130914/australian-wild-pig-drinks-18-beers-gets-fight-cow.htm
Seriously--- after the horrific news from yesterday involving that Naval Yard shooting, I thought that it might be helpful to get a bit of news that is not so saddening. One cannot read the reports from that terrible crime scene without realizing that something is wrong with the culture in this nation. At times it seems as if we are rotting from within. Virtue, honor, decency are becoming the truest of scarce commodities. Once again however we learn about another shooter with mental illness issues - how do these people keep falling through the cracks and are thus enabled to carry out their twisted deeds?
Monday, September 16, 2013
Gold Cannot Shrug off Bearish Sentiment
Rallies continue to be sold in the yellow metal as the bounce higher ran out of steam near a tough resistance level at $1330. Many traders were watching to see how gold would react on any approaches to this level and whether or not it could maintain its gains having secured a foothold there. It did not... that triggered some long liquidation as well as bringing in fresh short sellers.
Bears are trying to break the market down below the $1300 level. Bulls are attempting to hold it above there. We will know very soon which side has the advantage near term. Rallies however continue to be seen, for now, as fresh selling opportunities. It is going to take some more positive performance on the price charts for that to change. The failure to hold above $1330 is not helpful to the bulls in that regard.
There seemed to be some strange goings on in the Treasury market today with the long bond soaring to 131' 12 overnight only to puke out most of its gains as the trading session wore on. Treasuries look as unsure of their next move as the gold market does right now. Higher yields seem to be here to stay but no one knows exactly "how high" those yields will be before stabilizing. The truth is that the US economy is in no shape to handle higher interest rates and most bond traders realize that. They are also trying to come to terms however with any Federal Reserve "tapering" or "lack of tapering" to gauge whether they should be buying bonds or selling bonds. Each piece of economic news is therefore having an overexaggerated impact on the long bond as it confirms or denies traders' perspectives. The result is more volatility and herky-jerky type price action as firm convictions are lacking.
Markets like these are the realm of the one- three minute bar chart geeks and scalpers.
Bears are trying to break the market down below the $1300 level. Bulls are attempting to hold it above there. We will know very soon which side has the advantage near term. Rallies however continue to be seen, for now, as fresh selling opportunities. It is going to take some more positive performance on the price charts for that to change. The failure to hold above $1330 is not helpful to the bulls in that regard.
There seemed to be some strange goings on in the Treasury market today with the long bond soaring to 131' 12 overnight only to puke out most of its gains as the trading session wore on. Treasuries look as unsure of their next move as the gold market does right now. Higher yields seem to be here to stay but no one knows exactly "how high" those yields will be before stabilizing. The truth is that the US economy is in no shape to handle higher interest rates and most bond traders realize that. They are also trying to come to terms however with any Federal Reserve "tapering" or "lack of tapering" to gauge whether they should be buying bonds or selling bonds. Each piece of economic news is therefore having an overexaggerated impact on the long bond as it confirms or denies traders' perspectives. The result is more volatility and herky-jerky type price action as firm convictions are lacking.
Markets like these are the realm of the one- three minute bar chart geeks and scalpers.
Sunday, September 15, 2013
Summers Drops out of the Fed Chairman Contest - Dollar Weakens
The market is interpreting Larry Summers's withdrawal from consideration as Ben Bernanke's replacement for head of the Federal Reserve as negative for the dollar and thus as a positive for gold this evening. The reason? - Summers's was viewed as a more hawkish replacement for the soon-to-be retiring Bernanke. That leaves the door open further for Yellen, who is viewed as very dovish and thus more inclined to stay the course on the Fed bond buying program.
Gold has responded higher on the news but has run into a solid wall of selling just above key short-term resistance at $1330. The December contract has posted a high thus far of $1336. It will take a further push through this level in either European trading or in the New York session to run the bears out who sold into the news.
I find it rather interesting to note a very large rally in the long bond as the market there is fully one point higher on the same news. In other words, US interest rates on the long end of the curve are dropping with traders seeing a dove replacing Bernanke. Of course the S&P 500 is greeting the Summers news as wildly bullish for US equities with that index clearing 1700 in Asian trade. It looks as if it is Happy Days are Here Again for equity bulls as the punch bowl will be spiked further if the current sentiment now being reflected in this overnight trading is indeed correct.
We will have to closely watch the FOMC meeting for further clues into subsequent action but for now, Wall Street loves it.
I am concerned for gold however - if it cannot clear this overhead chart resistance on news that is obviously impacting the Dollar, the Treasury markets and the equity markets to this extent, then I am not sure exactly what it is going to take to move it into a sustained uptrend. I do want to note however that there is widespread weakness in the grain markets this evening as wide swaths of the Midwest were hit with significant rains over the weekend. That will tend to pressure food prices somewhat if this downward trend continues and thus take some of the heat off the food inflation front. Also undercutting strength in gold this evening is weakness in crude oil/energies.
We wait to see what New York bring us....
Gold has responded higher on the news but has run into a solid wall of selling just above key short-term resistance at $1330. The December contract has posted a high thus far of $1336. It will take a further push through this level in either European trading or in the New York session to run the bears out who sold into the news.
I find it rather interesting to note a very large rally in the long bond as the market there is fully one point higher on the same news. In other words, US interest rates on the long end of the curve are dropping with traders seeing a dove replacing Bernanke. Of course the S&P 500 is greeting the Summers news as wildly bullish for US equities with that index clearing 1700 in Asian trade. It looks as if it is Happy Days are Here Again for equity bulls as the punch bowl will be spiked further if the current sentiment now being reflected in this overnight trading is indeed correct.
We will have to closely watch the FOMC meeting for further clues into subsequent action but for now, Wall Street loves it.
I am concerned for gold however - if it cannot clear this overhead chart resistance on news that is obviously impacting the Dollar, the Treasury markets and the equity markets to this extent, then I am not sure exactly what it is going to take to move it into a sustained uptrend. I do want to note however that there is widespread weakness in the grain markets this evening as wide swaths of the Midwest were hit with significant rains over the weekend. That will tend to pressure food prices somewhat if this downward trend continues and thus take some of the heat off the food inflation front. Also undercutting strength in gold this evening is weakness in crude oil/energies.
We wait to see what New York bring us....
Saturday, September 14, 2013
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 Markets and Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/14_KWN_Weekly_Metals_Wrap.html
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/14_KWN_Weekly_Metals_Wrap.html
Friday, September 13, 2013
Surprise Late Session Rally in Gold
I just completed my weekend interview with Eric King over at King World News for the Metals Wrap. We were discussing the very late in the session price action in gold and talking about the impact of the news story that he broke with Andrew Maguire about the whistleblowers from Morgan and the gold price manipulation scheme.
I remarked at how unexpected the late-in-the-day rally was to me and was wondering what might have caused the surge in volume late on a Friday to produce it.
It certainly appears that as the story made the rounds, a lot of interest was generated in buying both from fresh longs now looking for a bottom as a result and some nervous bears who were unsure how the market would react to it.
We now await the open of trade in Asia Sunday evening to see how traders over there will react to the story and whether or not gold can at least clear the $1330 level to signal whether or not another short term bottom is in the market.
I am putting up a THREE HOUR CHART, to show you the spike upward during the last three hours of trading. I also noticed that for a Friday afternoon, the volume was unusually high. Normally, we see hardly any volume whatsoever that time of the day on a Friday as most traders are long gone for the weekend.
Should be interesting Sunday night - just not sure what we are going to get....
I remarked at how unexpected the late-in-the-day rally was to me and was wondering what might have caused the surge in volume late on a Friday to produce it.
It certainly appears that as the story made the rounds, a lot of interest was generated in buying both from fresh longs now looking for a bottom as a result and some nervous bears who were unsure how the market would react to it.
We now await the open of trade in Asia Sunday evening to see how traders over there will react to the story and whether or not gold can at least clear the $1330 level to signal whether or not another short term bottom is in the market.
I am putting up a THREE HOUR CHART, to show you the spike upward during the last three hours of trading. I also noticed that for a Friday afternoon, the volume was unusually high. Normally, we see hardly any volume whatsoever that time of the day on a Friday as most traders are long gone for the weekend.
Should be interesting Sunday night - just not sure what we are going to get....
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