Silver on the Ropes

Silver Bulls had better flex any muscles they might have very quickly as the Bears are out growling and seem quite determined to go a stop huntin'.

The rectangular area shaded and marked support is an important inflexion point for the metal. If it does not bounce from this region and head back up again, in effect reinforcing its range trade, odds will favor a continuation lower to $20 and possibly down to $19.

The 50 day moving average is resuming its downward trend after having leveled off back in late August. It should now serve as an overhead cap to price on any rebound higher unless there is a solid, discernible change in the fundamentals and more important, in sentiment, towards the precious metals.

Gold has also lost an important level of chart support in today's session. This level, $1280, was very important as the price has tended, since August, to uncover some decent buying down here. In the middle of October, it did fall below this point, but its stay down there was only a couple of days in a row at best. If gold can recover in Asia this evening or by Thursday of this week, it will have dodged a bullet. If not, look for the next key support level to come under a test. If the Dollar takes out 81.50 on the USDX, gold is going lower.

Long Term Monthly Gold Chart

Can you see the significance of the 1280 region? It is the 38.2% Fibonacci Retracement level of the entire rally from the secondary low made back in April 2001 and the peak above $1900 made in September 2011. On the monthly chart, the price fell below that level reaching 1180 (1179 to be exact) but it did not see any downside followthrough the next month as it immediately rebounded eventually pushing back above $1400 before failing once again.

Now it is back to testing that level and though it is early in the month of November still, if gold closes out this month below that level, December will be a critical test of the resolve of the bulls. Failure to stay above $1280 on a month ending basis on TWO CONSECUTIVE MONTHS, would increase the likelihood of another test of that spike low near $1180. Were that to fail, the next critical target for gold would be near the 50% retracement of the entire decade long bull market in gold ( 2001- 2011).

That would probably represent a good area for longer term oriented players to begin buying as you are talking about prices below the cost of production for many gold mining companies.

I am not predicting a move to this area as of now, I am merely setting up some possible scenarios IF PRICE PERFORMS AS I MENTIONED ABOVE. Remember, we are trying to listen to the voice of the market only and tuning out anything else. That is the only way to ultimately be successful as a trader/investor.

One thing that this chart also shows us is that in order for the bulls to turn this chart to their advantage, they MUST take price at a bare minimum back above the $1400 level and hold it there.

Much of this will depend on market expectations in regards to the overall inflation picture. Today, crude oil is falling sharply again having neared $93. If it fails to secure a foothold near this level, steeper losses are ahead. It is most difficult, if not impossible, to make an argument for inflation if energy prices are sinking.

On the food side of the ledger, soybeans are moving higher and have been since that USDA report last week but that is coming mainly on the heels of reported sales to China. China is notorious for booking sales but then cancelling those sales later if prices drop so beans need some more time to see how the demand is going to hold up at these higher levels. Corn appears to have found a short-term interim bottom but it is difficult for me to get bullish on corn when a record crop is still coming our way. Much depends on the S. American growing season. If it continues to get off to a good start, both corn and beans should stop moving higher sooner rather than later. I am monitoring both charts to get a sense of these all important foods, not to mention wheat, which also has stabilized. That however seems to me to be more a function of spillover buying from the corn and bean markets than any outright bullish wheat fundamentals.

Stay tuned...

Gold Falls Under $1300

The combination of rising interest rates here in the US on the heels of a stronger-than-expected headline number for the jobs report and a higher Dollar left gold without much support in today's session.

Technical and psychological damage was done, first by losing the "13" handle and secondly by failing to hold near $1296.

The 1280 level did hold the metal today but I suspect it was more a case of shorts ringing the cash register after having a good week than it was a concerted buying binge. After all, if the US Dollar is prone to further gains in the week ahead, why would there be any rush to jump into gold in a large way? Why not wait for some further weakness to see if that develops and pick it up at a lower level? That would seem to be more prudent would it not?

What gold does early next week will be important. If it drops lower and fails to hold again at or near the $1280 level, odds favor a further move down to test the swing low near $1250. Bulls need to rapidly regain the "13" handle to re-establish the range trade that had been ongoing between $1300-$1305 on the bottom and $1320 on the top. Only if they can best the $1320 level do they have a shot at taking price backs towards $1338-1342.

Oh and by the way, the CFTC has gotten caught up on the Commitment of Traders data and we are now current with today's release covering the price action through Tuesday of this week.

Can we use this report to PLEASE, PLEASE but an end to this nonsense of "FLASH CRASH" chatter that is the latest fad among too many in the gold community seeking to affix the blame for a poor showing in gold to the nefarious bullion bank crowd. The data (again only thru Tuesday of this week ) shows that the brunt of the selling in gold has been originating from the Managed Money or Hedge Fund crowd.

Based on the Futures Only data, hedge funds sold a total of 10,319 futures contract in the period from Wednesday, Oct 30 - Tuesday, Nov 5. Using the Futures and Options data combined, that number grows to 13,018. Over that same period gold declined in price $37 from $1345 to $1308. This does not even include the further declines seen Wednesday thru this Friday where gold reached a low of $1280 before bouncing slightly. Clearly, the selling hitting the gold market is coming from hedge funds so let's put this latest sensational but utterly wrong concept behind us and move on to get to the truth. Note - the little bit of selling that we did see from the Commercial/Producer side of the equation came from long liquidation and not fresh short selling.

Do you not find it exasperating to see some continue to promote this ridiculous theory all the while  the largest gold ETF, GLD, continues to lose gold as Western based investors sell their holdings of the metal and buy stocks instead? What is so hard to understand about this? Investors and fund managers are looking to maximum returns. If they are long only funds, they will buy things that go up, namely equities. If they can go long or short, they will sell those things moving down, or at least failing to go up in the hopes of making some better profits on the way down. It really is as simple as that.

The question that none of those who keep promoting this rubbish can answer is what nebulous force is compelling investors to sell out their gold holdings in the ETF and gobble up equities instead? Is this same compulsion moving their fingers to hit the sell button when it comes to their gold shares as well? Is it Sauron who has returned in the form of the Necromancer and whom has cast a spell upon them all? Maybe it Darth Sidious who is using the dark side of the force filling them with an irresistible urge to sell?

Seriously, this is the sort of thing that gives many otherwise fine people in the gold community a bad name and discredits them when they really do have some good data to present that is worthy of note and thoughtful consideration. But when nearly every single move lower in gold is blamed on the bullion banks and the powers that be, it really becomes somewhat tragic.

US Dollar Strength Derailing Gold

One look at the following weekly chart pretty much says all that one needs to know about what is happening to gold and why. This week and last week, the US Dollar has been higher. Guess what happened to gold over those same two weeks? Yep - it went lower.

The two weeks previous to those the US Dollar was weaker. Guess what gold did back then? Yes - it went higher.

It is all coming back to the US Dollar once again. Simply put, rising interest rates in the US tend to favor additional strength in the US Dollar as traders fear that apparent stronger economic readings will bring the Fed back in on the TAPER SIDE of the QE equation.

When you toss in the fact that Euroland just got hit with a surprise rate reduction yesterday, is it any wonder why traders are favoring the US Dollar right now? It is also helping the greenback immensely that foreign investment appetite for US equities which continue their one-way trek higher is boosting demand for the US currency as well.

All of this adds up to some very difficult headwinds for gold to overcome.

You can see on the chart that the US Dollar is in a slight, but observable upwardly moving price channel. Moves down into support at the rising bottom trendline of the channel, are keeping the greenback above the rectangular support zone noted.

Also, note that the indicator is at levels commensurate with rallies.

By the way, for the ag guys out there such as myself, today's USDA report was considered friendly towards corn and bullish for beans while bearish for wheat. We might have seen an interim bottom in the corn market although we are still talking about a record US corn crop. USDA reduced the harvested acreage number but kicked up the per acre yield. However, the emphasis on this report seems to be on the demand side of the ledger with the agency expecting that to increase due to the low cost in comparison to previous years. Recent  export sales have moved up significantly over the last couple of weeks leading some to expect additional demand to surface.

More on this later....

Bulls Buy the Dip in Stocks - Get Rewarded Once Again

Pavlov's Dogs could not have been conditioned any better than those who have used every single bout of weakness in US equities to reload the boat and secure more stocks.

The stronger-than-expected jobs number ( combined with upward revisions to previous months ) initially jolted the market as TAPERING FEARS were running rampant as soon as the numbers hit. Down went stocks as traders began crying that the punch bowl was going to be taken away. Not to fear however; dip buyers began talking up the numbers as a good thing and thus positive for stocks ( Heads - I win; Tails - you lose). The technical support zone held and back up they went.

Note that the volume is very large on the move higher which no doubt is a great deal of short covering as once again attempting to short this market has proven to be a fool's errand. At some point, and I honestly do not have the faintest idea when, the bulls will go to the well once too often and we will finally see this bubble pop, but for now, it continues to shrug off any warnings of internal deterioration.

Each time this market has moved lower, bulls have moved in, bought the dip and then been rewarded by a move to yet another all time high. However, this time around we do have the POTENTIAL for a double top up above 1770. Shellshocked bears are going to be watching very closely for any signs of this market stalling  out. They have gone back into hibernation today but will awaken in a surly mood if the technical chart tells them to pounce.

Signs of Internal Weakness Showing up in the S&P 500

Attempting to short this market has been proving very difficult for all but the most fleeting of trades as the mania in US equities continues unabated. There are some signs however that this market is losing some upside momentum. Not that this has tended to matter all that much these days since the bullish traders have been well rewarded for buying every single dip in the market. It takes some very sharp moves lower to dissuade a winning strategy.

This is a 4 hour chart of the emini S&P 500. Notice that the market ran up to the all time high above 1770 and failed to extend. This is leading to selling in the session as this is a short term sell signal for technically oriented traders.

Also notice that the volume has been drying up as the market makes all time highs once after another. It does seem as there are beginning to be some skeptics as to how much longer this can keep up and how much higher stocks can move.

Note also the negative divergence, another technical signal that upside momentum is waning.

I would expect that this index could see a dip down into the support zone I have marked on the chart. If the trend of buying dips continues, the bulls will show up again to feed on some more stocks as they position for yet another move into a new all time high once again. If this support level fails, we may have something a bit more serious at work here, although call me a doubter at this point.

Believe it or not, the VIX actually moved a bit higher today, for a change. A bit of nervousness or just another round of profit taking? We'll see.

Strange Day

I am not sure what is going on in many of the markets that I trade/monitor today but whatever it is, it is certainly very odd. There have been some incredible price swings today in so many markets that I cannot name them all here. Suffice it to say, the computers are once again wreaking havoc, all with the blessing of the exchanges, I might add, who love the fees that they generate from this meaningless churning.

As mentioned in today's earlier post, gold has been all over the place. If you look at the 12 hour chart posted below, you can see one big candle with a large upper shadow and a large lower shadow. Would you like me to translate what this means in trader lingo? Here we go:" What in the hell is going on in this market?"

I could say the exact same thing when it comes to the soybean market, the yen, the S&P 500 and the bonds. Hell, even the coffee market is strange today. The US Dollar soared earlier only to set back as the Yen moved higher on that stupid "safe haven" trade that more and more infects the brains of traders who should know better that to stash money into a nation with a DEBT TO GDP ratio of over 200%, which is banana republic territory.

Gold found support beneath the psychological level of $1300 and at the technical level of the 25% Fibonacci level of the recent retracement from the low below $1260.

Where it goes from here is anyone's guess. All that I can say about it is that if it were to now breach today's low, it is going to $1280 for starters. If it can climb above today's high, it should be able to push to near $1340.

One would think that with interest rates near zero over in Euroland as a result of today's surprise rate cut, that the Euro would be struggling to hold water. Not so! The damned thing has managed to move up nearly a full point and a half off its session low. Go figure! Then again, don't go figure because that is an enormous waste of brainpower and effort.

It does seem however that as the US equity markets move lower, the Euro and the Yen are strengthening and the Dollar is weakening. How long this lasts is also anyone's guess.

In Summary - who knows what, why or when things are doing what they are doing.

One thing I do know however is that we have a biggie of a USDA grains report tomorrow AM. That should be fun if today is any taste of what we are likely to get coming off of those numbers. Remember, the USDA missed last month's report due to the government closure. This adds another element of volatility as it makes it about 2 months since we have had some "official" data to work off of. Lots of private firms are coming out with their numbers but those will get trumped by whatever the pencil pushers over at USDA give us.

Golden See-Saw

She's up - nope - wait a minute - She's down - hold on - She's back up a bit...

No, I am not referring to a horse running a race but rather to gold. Talk about some wild price action. So many cross currents and so much volatility... trying to trade gold on a day like this is an exercise in futility except for the most short term of traders, namely the scalpers.

The first mover this AM was an "out of nowhere", surprise rate cut over in the Euro Zone. The initial reaction to gold was "Yippee". Up it went on ideas of ultra loose monetary policy in that region of the globe. Shortly after that sent gold higher, US GDP data came in much better than expected and that pulled the rug completely out from beneath the metal as the Dollar surged higher on notions that the "TAPERING" was back on once again.

Traders were whipsawed severely this AM as both sides found something that they could trade off of but neither side got a clear advantage, YET, although it appears that the bears are attempting to seize a bit more ground as I type this up.

Bulls looked like they had seized the short term advantage when they powered gold up through $1325 on the rate cut surprise and European easy money policy. When the GDP number came out in the US it further bolstered the US Dollar and that sent the new longs scurrying and the bears began growling. That combined selling dropped the price below the important "13" handle level with gold sinking to as low as $1296. However, bulls came back in and regained that $1300 level.

Although the metal remains lower, it is still holding that 13 handle. It is IMPERATIVE that it do so. If it does not, look for a new push to begin soon that will test the resolve of the bulls as the bears try to take it down towards $1280 and perhaps even $1270.

As stated here frequently over the last couple of weeks - the key driver for gold right now remains the US Dollar. When the Euro is sinking over 1% against the Greenback and the USDX itself is up nearly 0.9% on the day, gold will face formidable selling pressure.

Also, crude oil is sinking yet again today having given up yesterday's short-covering rally induced gains.

Let's see what we get as the session wears on today before drawing any further conclusions at this point.

Have you noticed that today the "good news" ( I say this with all manner of sarcasm) about the US GDP number which has started the early TAPER TALK once again, seemingly has no impact on the S&P 500 for now?

Gee - I wonder if it can reach 1800 before Thanksgiving? Yep - there isn't a worry in the world about the state of the US economy. The VIX, Volatility Index, remains mired down near multi-year lows. Complacency rules supreme here in the US.