US economic data spurs Commodity buying; Equities weaken

We were treated to several pieces of economic news in today' session. The ISM number, private jobs numbers from ADP and New home sales.

New home Sales numbers were up 25% in October compared to September. The spike was the sharpest monthly increase in more than 30 years. It should be kept in mind however that the September number was especially low.

Some things I am taking away from this report - first, the average price range of the homes sold was lower. Second - home mortgage loan rates have been rising. That is pushing down the price of the home that many buyers can afford. They are obviously opting for lower priced homes.

Regardless, that coupled with the news from ADP that 215,000 private sector jobs were added last month ( the market was expecting 178,000) brought in a significant amount of buying into the copper market. That yanked silver higher as those two metals have recently been moving more or less in tandem.

Later in the session gold then seemed to finally catch up as we got yet another one of those sharp, short covering rallies that gold has been famous for over the last few weeks. We'll have to see how long this one lasts. AT least the mining shares as evidenced by the HUI stopped moving lower today as well. For once we seem to have those going higher alongside of the actual metal on the Comex. That is always helpful to the bullish cause.

I am really not quite sure what the catalyst was for the pop higher in gold other than the fact that it managed to hold above an important chart support level near $1200. Also working in its favor is the fact that crude oil prices have been moving strongly higher now for the last few days. Traders continue to anticipate that the opening of that new pipeline from Cushing down to Port Arthur is going to relieve the burgeoning crude supplies at that key point even though stocks of the black liquid remain extremely high. Notably, refinery runs are very strong and this is helping to pull down the number of barrels in storage. Traders are expecting these newly refined products to be exported out through the Gulf of Mexico. This continues to put a floor under the unleaded gasoline market which had been dropping rather precipitously of late. Heating oil prices are firm. Lots of cold weather around.

We also had another burst of money flowing into the soybean and corn markets this morning. In effect, we had higher energy prices, some higher grain prices, a rise in cotton, a rise in the base metals, etc... It seemed as if the play for today was to generally buy commodities once again. When you get the kind of rally that we witnessed today in copper, and then in silver, it is going to be hard to press the gold lower. That means short covering as shorts do not want to lose profits or if they have sold near the bottom, develop large losses.

Interestingly enough, the sharp spike in interest rates did not offer much in the way of support to the US Dollar. It basically floated around the unchanged level for most of the session. That makes the strength in some of the commodity markets all that more notable.

I keep watching this S&P 500 and it keeps looking the same to me, namely "toppy" but so far it continues to hold up. I am once again noticing a higher day in the VIX. With the yield on the Ten Year note reaching a high thus far of 2.852%, we might be seeing a general round of NERVOUSNESS beginning to creep into these equities. I remain of the view that equities are going to have to break down to give us a SUSTAINED move higher in gold.

I mentioned that I would be watching the gold delivery process as it unfolds for the month of December. As expected, JP Morgan continues to be the standout LARGE STOPPER for their HOUSE account. Morgan has been buying the physical against hedge fund selling.

Gold's bounce up and away from that critical chart support level down near $1200 has been impressive. No doubt there will be some technical chartists looking at this and calling a double bottom on the intermediate term chart. I will need to see the metal scale $1280 at a minimum however and RETAIN those gains before concurring with that view. I would also need to see some more definite signs of a solid bottom in the HUI as an additional confirmation.

Also, the big test for gold, will come this Friday as we await the next payrolls number. If the number comes in stronger than expectations, look for that TAPERING chatter to start up again which would likely pressure the gold market as it should bring some strength into the Dollar.

The problem that the Fed has however is the same as it experienced this past summer. Rising interest rates threaten to crimp consumer borrowing. The Fed gets extremely nervous as a result when the yield on the Ten Year starts creeping closer to that 3% mark. If the bond and note markets react to the number by pushing lower and thus kicking rates higher, Fed officials, especially the more dovish ones, may not welcome the higher long term rates. I would expect them to hit the microphones and beginning tamping down any tapering expectations if that is indeed the case.

Keep in mind that as traders we are watching for a change in inflation expectations/sentiment to occur in the market. Once that occurs, the metals will respond accordingly. Until it does however, rallies will be viewed as shorting opportunities. Stay nimble and do not get married to any particular view. Let the market tell us when things are changing.

Copper going in one direction; Equities in the other

Most of the readers of this site are market savvy enough to understand the connection between copper prices and the overall global economic picture. It is not called, "Dr. Copper" for nothing. All things considered, one would normally expect to see Copper prices moving in the same direction as equities. In a normal world, this would confirm that stocks are moving higher based on solid, economic performance in general while industrial demand and global growth keep copper prices supported.

That has obviously not been the case for some time now. Part of this is due to the increased supply of copper that came on line as a result of the push into the $3.75 - $4.50 price region. The response from miners was to ramp up production. This new supply has been unable to be absorbed at those formerly rich prices and thus price has been moving lower as copper seeks an equilibrium between supply and demand.

Price is now moving into a zone of strong support which has held the metal for well over a year now. Should this zone give way, and I want to emphasize that I am not saying it will, it would signify that in spite of Central Bank efforts to prop up global economic growth, such efforts are failing. I suspect that even the high-flying equity market would not be able to ignore such a signal for very long.

Take a look at a chart I have created comparing the price of copper against the emini S&P 500. Notice that since 2008, the general price movement of both items has mirrored each other. Copper prices have tended to rise and fall right along with equities. That is "normal". What is not normal is what we have had since February of this year when a huge divergence formed. While copper prices moved generally lower, stocks of course have been heading into the stratosphere.

How long this sort of abnormal disconnect can continue is anyone's guess but in my mind, it merely confirms the view of those of us who believe that the equity markets are nothing but a massive Federal Reserve-fueled bubble being supported only by huge doses of the bond buying programs of these Central Banks. Sooner or later, all markets tend to revert more to the norm. This is the reason why I am closely watching the copper market as it now enters the region of chart support.

Another reason I am noting copper because silver prices have tended to move more in sync with it of late. This goes back to that industrial component of the grey metal. If copper prices are not reflecting solid economic growth (especially in the realm of manufacturing), then silver is going to struggle UNLESS THE FOCUS OF INVESTORS SHIFTS TO ITS PRECIOUS METAL ASPECT. Even at that, it would necessitate a reason to buy the metal and that reason would be a shift in inflation expectations which currently are non-existent in the minds of the majority of market players.

We currently have these two factors therefore working against any sort of sustained rally in silver prices; namely sluggish economic growth worldwide and a lack of inflation expectations. If one or both of these factors shifts, then silver should find buying support. We do want to watch how copper handles itself if it were to drop into this red rectangle. If it can manage to bounce up and away from this region, we should see silver catch some of that as well and perhaps cement a bottom on its chart. Time will tell...

What's Up with the VIX?

One of my favorite Sentiment Indicators has been and continues to be the Volatility Index or VIX. I prefer to call it the Complacency Index. Low readings, such as we have been recording for some time now, indicate the absence of investor fear or concern. High readings reflect worry or uneasiness. Sky high readings indicate PANIC.

I am not sure what is going on but the VIX has scored a five week high today for some reason. I tend to watch this indicator in conjunction with the action in the equities as a way to gauge any potential shift in overall confidence.

In my view, the only thing that can bring a firm bid into gold and reverse the current bear market in the metal is a heightening of fear/unrest/unease or better, a growing lack of confidence.

Yesterday we had a move higher in the Dollar. Today that has been erased. With the Dollar weakening gold is getting a bit of a bid today. Also aiding the metal is the sharp, and I do mean 'sharp' rise in crude oil. It touched $96 ( basis WTI ) in today's trade and is currently up over $2.00 barrel as I type these comments.

Let's continue to monitor the progress of the VIX and especially monitor the price action in the S&P 500. Upside momentum continues to wane in the latter market but then again it has been for some time now. I keep picking up one negative divergence after another but the market keeps shrugging those off with dip buyers continuing to come in. If the stock market does finally actually respond to one of these negative chart signals, I expect the VIX to jump even more. At that point we will watch gold closely to see if it can gather some better buying interest.

Stay tuned...

Commitment of Traders out today

Due to the Thanksgiving Holiday last week, the usual Friday release of the Commitment of Traders report from the CFTC was delayed until today, Monday.

Here are a couple of charts noting the latest data through Tuesday of LAST WEEK. It is a shame that we cannot get the data as soon as each day is completed but alas, things are what they are. I am especially interested in seeing whether or not the hedge fund category has gotten a bit more aggressive on their long liquidation than they did last week.

Notice that their reduction of longs was relatively modest by recent comparison but that they were quite aggressive in playing the short side of the gold market. See the huge spike upward in the red line?

Something else caught my interest. Notice the Commercial category ( Red line)which includes the Processer/User/Merchant(s). It is noted on the chart by the Ellipse. For the first time ever on this particular chart they are now NET LONG. That is a rather remarkable development. In and of itself, it does not mean all that much since it is speculative money flows that drive today's markets but it is noteworthy nonetheless. We'll watch this number as well as that of the Swap Dealers in subsequent reports to see if this new trend continues. My guess is that as gold moves lower and especially if it stays down near the cost of production for any significant length of time, we will see both Swap Dealers and this Commercial Category building more long side exposure to the gold market.

Based on the reported Deliveries so far this month at the Comex for the December gold contract, JP Morgan continues to be the largest stopper. Again, at the risk of overly repeating myself - it is speculators that drive markets, not commercials so the most important group to monitor will be these enormous hedge funds. While their overall net long position is very close to the same level is was earlier this summer when gold spiked to an $1180 low, they are still NET LONG this market and have not yet managed to move to an overall NET SHORT position.

In other words, strong physical buying of the metal MUST SURFACE almost immediately or these hedge funds are going to batter the metal even more as they are now following the lead of their computers and getting more aggressive towards the short side.

Gold Trashed, Silver Obliterated

The short covering bounce that occurred last week at the end of the month of November sure did not last long! Traders welcomed in the new month of December by brutally mauling both of the precious metals with them particularly having it in for silver which is down nearly 4.4% as I type these comments.

Strength in the Dollar on the heels of higher interest rates in the US Treasury markets, brought a large amount of selling across the commodity complex, with the exception of crude and the liquid energies. The result - both gold and silver collapsed down through important chart support levels touching off an avalanche of sell stops and bringing in more new short selling as traders attacked the metals with a vengeance.

The carnage was even more evident in the mining sector  ( HUI ) which fell through psychological chart support at the 200 level. The beleaguered sector is no doubt going to see casualties as I expect that we are going to see the end of some small mining concerns as acquisitions/buy outs do not seem that far off now.

I hate pointing this out but the lowest monthly CLOSE of the last five years was 193.87 made back in October of 2008 just before the market got wind of the start up of the first batch of QE. Currently, as I type these comments, the HUI is at 197.43. a mere 4 points away from that level. If the miners cannot garner some serious buying support right here, right now, at these levels, I fear we are going to see this index drop all the way down to that spike low below 160 before this is all done.

Until we see some sort of evidence that the sentiment towards the metals has turned for the better, there is simply no interest in owning the miners, even at these distressed levels because no one really knows how long both gold and silver prices are going to remain at these lower levels. Only investors with the longest of time frames as interested in owning these. The vast majority do not want to tie up precious capital in non-performing assets, especially when those assets continue to plunge.

Silver lost chart support at $20 and plummeted very swiftly into the support level noted on our interview over at KWN this past weekend, namely, $19.25 - $19.00. It is now a definite teenager. Failure to hold here and a drop below $19.00 would portend yet another plunge in the near future towards $18.15 - $18.00.

Look at what happened in gold when it lost support in the red rectangle... sell stops were hit and triggered and in turn brought in a fresh wave of short selling into gold. The volume was very large as has been the pattern in gold for some time now. The short covering rallies seem ferocious when they occur, but their volume remains muted compared to the volume occurring within the direction of the trend, which is DOWN.

Switching over to the Daily Chart, there is also reason for concern. Note the LOWEST CLOSES of this year, not the lowest price, but the CLOSES. Gold is within $5 - $6 of that level. Bulls will not want to see current price penetrate that level without an immediate, sharp rebound higher. If such a thing were to occur (the breach of that level) it would indicate that the pent-up buying that was present this past summer when gold fell to that level is NO LONGER WITH US. Obviously, that would portend another drop lower that would challenge the actual spike low near $1180.

At this point, the bulls are in serious trouble unless they can take the price back above Friday's high near $1255. That would provide a glimmer of faint hope that a potential for a double bottom exists. As things now stand however, the Bears are firmly in control of the market. Bulls need a miracle.

I want to state again for the record, this is the reason that I become so disturbed by these constant predictions concerning what gold must or will do. Just last week we were treated to yet another one stating that a big short covering rally was imminent yet again because it was the opinion of this novice "expert" that there were a lot of hedge fund short positions in the market. Yes -  - this self acclaimed expert on gold possesses some esoteric knowledge that the rest of we mere peons do not which informs him exactly when a short position is too large and must be covered. Meanwhile gold gets pummeled down even further. When will we ever be rid of this sort of thing? And people wonder why gold keeps getting sold off - there are still too many damned bottom callers.

Here is the simple truth - the TREND IS LOWER. Until it changes, rallies are going to get sold, dwindling gold stocks or no dwindling stocks, hedge fund short positions or no hedge fund short positions, backwardation or no backwardation, Chinese buying or no Chinese buying, whistle blowers or no whistle blowers, etc, etc., etc. When the trend changes that will indicate that the sentiment towards gold, which currently is abysmal, will have changed. In other words, the market will tell us when the move lower is reaching an end.

More Bad news for Firearm Enthusiasts

The end run around the second amendment by the current administration continues....notice how they use the EPA to advance their agenda.

Closing of Mo. Lead Smelter May Lead to Higher Ammo Prices
 
http://www.newsmax.com/US/ammunition-lead-smelter-doe/2013/12/02/id/539448

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 King World News Markets and Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/11/30_KWN_Weekly_Metals_Wrap.html

Happy Thanksgiving to all my American Readers

I cannot do better than to recommend to you the following article which has appeared in the editorial pages of the Wall Street Journal since 1961.

I am also struck by the fact that in much of today's America, the very mention of the word "God" in context of a Christian expression of faith, would solicit howls of rage and protest from those whose chief aim is to rid the entire public arena of the very mention of His name.

Perhaps when that group gives thanks, if they do at all,  they give thanks to themselves. Those of us who are otherwise minded, know much better from whom our many blessings flow. We also understand that any nation intent on mocking the very Being who holds its destiny in His hand, should not be surprised when His many tokens of displeasure are to be seen in the land.

"Righteousness exalts a nation, but sin is a disgrace to any people".

The Desolate Wilderness

This classic editorial has appeared annually since 1961.

 

http://online.wsj.com/news/articles/SB10001424052702304011304579219801029860952