Longer Term view of Gold

As mentioned in a previous post this month, gold has fallen below TWO key Fibonacci Retracement Levels of the entire bull market that began in 2001 and ended in 2011. Using the low made in 2001 and the high made in 2011, and then the low made in 2008 and that same high made in 2011, we can construct two different sets of Fibonacci lines to see if we can any confluences which will give those regions/levels more significance should they not hold. The first level came in near $1298.60; the next level is at $1282.

These are not meant to be hard numbers but rather REGIONS where we can look for buying support to emerge. Thus far this month, both levels have fallen to the bears. If the bulls cannot recapture at the very least, the $1282 region, they are in serious trouble should this market end the month BELOW both levels.

I have noted a rectangle as Key Support. It begins near $1210 and extends down to the spike bottom near $1180 made earlier this past spring. It sure does look to me like gold is going to test at least the top of this range near $1210. If for any reason the market fails to rebound sharply from this level, the stage will be set for another test of $1180. If that gives way, this market will more than likely move all the way down to the 50% Fibonacci retracement level of the entire bull market move which comes in near $1086.

One could make the technical case that the price action over this year has formed a BEARISH PENNANT that has just failed to hold support. I would certainly hope not since the repercussions of this technical chart pattern would portend a move as low as $800, as inconceivable as that seems right now.

What I can say is that gold would be well below the cost of production were this to occur and last for any length of time. For that matter, even gold below $1100 is below the cost of production for many mines. The key will be, if it were to get there, how long it stays down there. It is one thing to spike into a region and then violently rebound. It is another for the price to languish there.

I have mentioned many times over the last few months that I believe gold miners should be using price strength to HEDGE portions of expected future production as downside price risk is just too high for any responsible mining outfit not to secure protection and at least lock in some guaranteed profitability on some production. It is a pity that more are not doing so as they would have been able to weather this storm in the gold price allowing their stock price to hold much better than many individual outfits are currently faring. I can only say that if gold were to violate that key support level, they had better be hedged. They can always lift some hedges at the time they sell some actual production but being naked and exposed to the vagaries of the market is simply asking for trouble.

As far as overhead resistance goes, in order for the bulls to dodge the proverbial bullet, the very least they need to do is to push price back over $1300 and change the handle. Even more however, would be to best this month's high which is near $1320.

FOMC Minutes Spooks Gold Bulls

The release of the FOMC minutes this afternoon, contrary to my expectations, did contain segments that seemed to be a surprise to the market. The tenor of those remarks leaned heavily in the direction of hawkishness and that is what gold sharply lower. It even dented the euphoria in the US equity markets as the S&P 500 initially shrugged off the comments, only to then weaken further as the reste of the session wore on.

The big beneficiary of this hawkish tone was the US Dollar, which in conjunction with speculation that the ECB will move to negative interest rates, soared against the Euro which seemed to fall into an abyss.

All in all, there was quite a bit of commotion across many of the major markets including the bonds which also saw more selling pressure. The all-important yield on the Ten Year Treasury note hit a high of 2.795% today.

I would keep a close eye on that as I feel very strongly that if this thing starts grinding back up towards the 3% level once again, we will be treated to a cacophony of noises coming out of various Fed governors, all of them extolling the virtues of continued QE in full force and warning of the fragile nature of the economic "recovery".

Before getting into gold, I have to make a comment about silver. Losing chart support down between $20.25 - $20.00 has inflicted some heavy chart damage. Barring some sort of news that can be construed as favoring inflation, momentum is to the downside with $19.20 - $19.10 as the next target region.

Moving to gold - I wanted to illustrate something to those who are perennially bullish gold. Notice where the greatest volume in gold has been recently - Yes, on DOWNSIDE MOVES. The only exception to this was the day on which Janet Yellen's testimony statement was released in which we learned ( as if we did not already know this ) Ms. Yellen was extremely dovish. That spooked a short covering rally but as with all recent rallies in gold, it was merely viewed as a selling opportunity.

More later ....

ECB to move to Negative Interest Rates

Several news sources are reporting that the European Central Bank is considering moving to Negative Interest Rates in yet another attempt to combat sluggish economic growth in the Eurozone.

Keep in mind that this comes on the heels of their surprise interest rate cut two weeks ago which caught the markets completely off guard. That hit the Euro hard back then and once again, it is getting slammed today as a result.

Gold seemed to catch a bit of a bid on this news but the moves higher are running into selling thus far.

One way of looking at this is that DEFLATION fears are becoming so serious to monetary officials that they are effectively nocking their last arrow on the string to fire. If this move fails to generate any lending/economic activity/growth, what then??

Here is a good story to read dealing with the news....keep in mind that this is not a done deal, yet... the idea is probably being floated to gauge market reaction.


http://www.bloomberg.com/news/2013-11-19/nikkei-futures-gain-on-weak-yen-after-u-s-stocks-retreat.html

Gold Crashes through Chart Support

So much for quiet trading ahead of today's release of the FOMC minutes from their last meeting! Volume had just dried up with the market killing time as the hour of the release drew near when a batch of large sell orders came out of nowhere and caught the market sleeping. The intention was to run the stops sitting down below yesterday's lows - guess what? They got them!

The surge in volume caused a temporary halt in trading. When trading resumed, momentum based selling then entered in large size dropping gold further. It fell through $1258 which was acting as a temporary floor.

Here is another example of how hedge funds can push price by taking advantage of lulls in liquidity. I am sure some in the gold camp will once again credit this "takedown" to the big bullion banks but that is simply not the case. They continue to lift their existing short positions and add to their exposure on the long side of the market. It is hedge funds who continue to reduce long side exposure and add to their growing, and profitable, number of short positions.

We will get to see this as the December contract enters its delivery period soon. I suspect we will see J P Morgan taking delivery of a rather large amount of gold. Either way, we will see.

One bummer is the fact that this move lower through support occurred today, Wednesday, so unfortunately this week's CFTC report ( Commitment of Traders ) will not pick up the positioning of players.

Silver is dangerously flirting with the $20 level. If it loses support there, another 50 cent drop will come rather quickly with potential for further losses down towards $19.

More later today after the release of the FOMC minutes. Let's see what they might say and whether or not it has an impact on the markets or if they have correctly anticipated the contents.

Crude oil is sinking further today having bounced back above $93 yesterday. That seems to be a general pivot region with the market oscillating around this level.

Gold Waiting on Bernanke Speech and FOMC minutes

Dull trading in gold today as most players remain hesitant to place any large bets ahead of this evening's speech by outgoing Fed Chairman Ben Bernanke. Additionally, the bulk of market participants are waiting for the release of the actual FOMC minutes from their most recent meeting. The idea is that it will give them a better or deeper look into the thinking occurring among the majority of Federal Reserve voting and non-voting members and thus some clues into their next move in regards to the timing of any Tapering.

I think some shorts rang the cash register and took partial profits ahead of the speech/minutes just in case there might be some surprises although I personally am not expecting anything other than what we have already been conditioned to think based on the recent comments by some Fed governors.

Volume was mediocre at best; lackluster is another word I would use to describe it.

Wonder of wonders, we actually got a wee bit of downside follow through in the S&P 500 pit today. Maybe it was selling related to Maria Bartilomo's reported move over to the Fox Business Channel. Now, if Rick Santelli would make a move over there, we would have no reason whatsoever to watch CNBC.

Even with the follow through to the downside, there is no significant chart damage other than the most short term of signals, which is more for scalpers and other short-term oriented traders.

By the way, did any of you readers see the report talking about how the payroll numbers were deliberately distorted (upwardly of course) just prior to the presidential election back in November 2012? Some of us were marveling how it was nearly inconceivable at the time that the unemployment number would miraculously get down below the all-important threshold  of 8% that Obama had set for judging the success of his measures to supposedly improve the economy. It undercut Romney's argument that the economy was flat and that job growth was anemic just in time for voters to make a decision before heading out to the polls. Pathetic isn't it....

Many talk about gold, silver, platinum being "PRECIOUS" metals meaning that they are relatively rare in comparison to more commonly found metals. Methinks the MOST PRECIOUS COMMODITY out there right now is the TRUTH. There certainly isn't any coming from the current administration about much of anything.

I am not going to post any chart of gold up today as it is basically meaningless until we get through the release of the FOMC minutes tomorrow. Barring any unforeseen developments elsewhere, I expect gold to tread water until then.

The Goldman Sachs Commodity Index (GSCI) continued to head lower today even with a bit of mild weakness in the US Dollar. The same theme of general selling across the complex continues.

The biggest move in the markets that I trade regularly that I noticed today was in the cattle which were slammed lower, especially feeders as high priced beef seems to be choking off domestic demand right now. Corn popped higher again, along with wheat as the usual chatter about low prices stimulating demand showed up once more. Beans continued to see selling as S. American planting weather seems fairly benign at this point. Traders are looking for large acreage numbers again down there. Demand for the grains/beans is going to be the big wild card and the big unknown. Compared to the prices of last year, both beans and corn are bargains right now. It is not a question of whether demand will pick up at these lower prices - It most certainly will. The question is whether this demand will be strong enough to absorb the big supplies of both and whether or not farmers are going to let go of stocks or hang on until after the first of the year.

Big Test Ahead for Gold

Gold continues to follow its recent pattern of experiencing a sharp move higher due almost entirely to short covering only to then consolidate a bit and sink lower once again. We have pointed out that hedge fund short positions are growing while their long positions are slowly being reduced. As more of these large speculators position on the short side of the market, it will be vulnerable to these short-duration rallies whenever any news comes out that can be construed as friendly towards the ongoing QE program. The flip side is that any news, such as what happened today, which can be construed as bringing about a Fed Tapering sooner rather than later, generates strong selling pressure in gold. These same hedge funds begin leaning on it once again, especially if it has popped higher and moved into a technical area of resistance on the price chart.

Gold's inability to garner much in the way of concerted buying today, in spite of general weakness in the US Dollar and some late session pressure in the S&P 500, has to be disconcerting if one is a gold bull. If gold for any reason, loses support down there at the region I have noted on the chart as "Key Support", it will be at $1220 before one can blink. Asian demand had better be strong is all that I can say.

Adding to its woes is another plunge in the price of crude oil as it broke below $93 barrel. As a matter of fact, this is the first time it has CLOSED before that pivotal level meaning odds favor another leg lower in this market. Keeping it somewhat supported is ideas that talks with Iran are going nowhere. If however, we do see some sort of agreement over there, look out for crude as that will bring Iranian supplies back onto the world market, a market already swimming in supply.

There was also weakness in nearby futures pits such as silver and copper. Cattle were pummeled lower today and hogs were also weak. Corn dropped over 2% in price as the apparent lowering of the ethanol mandate effectively undercut some of the demand from that commodity, a commodity which I might add, needs all the demand it is going to get seeing that we are looking for a record corn crop. The all-important feed grain hit a 38 month low today. Does that sound remotely like we are having inflation fears in the commodity/food/energy sector?

All in all, there was a general trend of selling across a wide gamut of the commodity sector as headlines such as "DOW 16,000" were blaring pretty much across any financially related web site out there.

Meanwhile we were treated today to the Dueling Banjos from Deliverance. Not really but it makes a nice lead in sentence. What I am referring to is contrasting speeches from two Fed governors, Charles Plosser and Bill Dudley. Dudley loves QE stating its advantages outweigh its disadvantages ( by that he must mean its destruction of safe, risk free investment alternatives for seniors and those on fixed incomes, retirees, and those contemplating retirement). Plosser on the other hand, whose idea is more to my liking, says the Fed should cap the bond buying program and state clearly how many bonds/MBS's it intends to buy. Strangely enough, both were in agreement that the US economy is slowing improving in their view. That last part should be classified under the category "Fiction" on the financial websites and broadcasts covering their remarks.

The S&P 500 generated another one of those short term sell signals today, not that it will mean a single thing since that market has become an example of life in the international space station where gravity does not exist.

Gold shares, as evidenced by the HUI has better generate some buying in tomorrow's session or that index risks moving back down towards the 210 level. I noticed that Barrick was hit again today as it was down over 2%.

We'll see if we get any followthrough to the downside in the S&P although I doubt it. The mania continues with nothing that can seemingly derail it. The only FEAR that I can see anywhere at this time is the FEAR of missing the bull train in stocks or more comically, fear of missing being a part of Bitcoin.

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/2013/11/16_KWN_Weekly_Metals_Wrap.html

Deflation Fears in Europe

In my reading this morning I came across a rather revealing story on the Dow Jones wires concerning that surprise interest rate cut over it the Eurozone last week. Do you remember? That was when we learned that the ECB had cut its main interest rate down to paltry 0.25%, which by the way is a record low.

Now come some comments from one of their council members, a Luc Coene by name who tells us why the bank acted with no advance warning.

The actual story was reported in a Belgian newspaper, L'Echo. In it, Coene states that recent low inflation figures had greatly concerned the members of that council.

here is a quotation: "Once the first signs of deflation are showing, it's already too late to do something. So we've avoided playing with fire".

This confirms my suspicion that the bond buying programs of the Central Banks are losing efficacy.

Here is the problem - what happens when or if the economy no longer responds to ultra low interest rates, Quantitative easing/bond buying programs, government stimulus measures etc?  Then what?????

I have said it before and will say it again - the problem is excessive levels of debt combined with deep-rooted, systemic structural issues that MUST be dealt with. Monetary policy cannot in and of itself CURE ANYTHING. All it does is to create huge imbalances and distortions in certain asset classes. We are witnessing this first hand in the ever-inflating bubble in the equity markets.

The Yellen-led Fed will do absolutely nothing to slow this process.