I mentioned in an earlier post today that there was a general flight out of equities after the overnight news that Chinese manufacturing had experienced a rather significant slowdown. U S equity markets were spanked hard in the process ( of course the usual dip buyers showed up once again as they have been well rewarded for so doing time and time again).
Interestingly enough, it was the commodity-based currencies such as the Aussie and Kiwi ( initially along with the Loonie) which saw some heavy selling. The Aussie and Kiwi, with their close exposure to China, got hit the hardest which is understandable. I must admit at finding it odd to see the Kiwi rally back from its worst levels of the session like it did however.
I learned later in the session that the Turkish Lira hit another record low against the US Dollar. This was in spite of direct market intervention by the Turkish Central Bank.
This occurrence, along with the weakness in most emerging market currencies, was what sparked some strong buying in the Japanese Yen and the Swiss Franc today. It is also the reason, in my view, that gold experienced another one of those mini-melt ups that it has been famous for lately. It was odd to see the US Dollar sinking so severely on a day in which risk aversion was in, especially in regards to the EM's, but I think it was the lackluster US economic data, coupled with sinking interest rates here in the US coming on the heels of those big money flows into bonds, that undercut any safe haven bid that we might otherwise have seen coming into the Greenback.
Europe and Japan seemed to be the winners in the currency wars today.
Obviously that brought a fair amount of buying into gold as a safe haven, something we have not seen in a while as it and silver have tended to trade more in sync with the risk on/risk off trades, rising on the former and sinking on the latter. Well, today we got the latter ( risk off) and gold benefitted so go figure.
Just goes to prove how fickle these markets are anymore and why extrapolating too much from one day to the next's price action is not too advisable. During episodes such as this, TECHNICALS RULE THE DAY so whichever side, bull or bear, happens to have the technical on their side, will win the day's battle. That is what we saw today in gold.
I should note that silver does not know what it wants to do. It still is having large troubles with the $20 region as it is attracting selling up here. It cannot decide whether it wants to be a safe haven with gold or a risk on trade with copper. Right now it is caught in the middle of them both.
Today's move higher in gold seems a bit overdone to me, but that is more a hunch rather than anything grounded in pure Technical analysis as the gold chart is very much improved by today's strong push higher. We'll see if the bulls can grab the initiative completely in tomorrow's session or if they decide to bank what paper profits that they made today and rest content with those.
Thursday, January 23, 2014
Gold Field Mineral Services
The metals consultancy GFMS released an update to its 2013 Gold Survey which was very interesting. A few things in particular stand out to me.
The first was something we have been talking about here for some time now and that was the fall off in world investment demand for gold last year. GFMS stated that demand fell 11% last year to 1,342 metric tons. In terms of value, world gold investment dropped by 25% to just under $61 billion; the lowest level since 2009.
The firm projects world gold investment for the first half of 2014 to total 762 tons, down 14% on the second half of 2013, but also 65% higher than the first half of 2013.
They mentioned solid Asian demand which they suggest ( surprise, surprise) will keep a floor of support beneath the market. Chinese gold jewelry fabrication increased 31% last year and Chinese physical bar investment rose 47% to a record high. The consultancy noted that this buying was essentially bargain shopping as price sensitive buyers picked up the metal when it fell in price.
Net official sector buying ( World Central Banks) fell 34% to 359 tons last year. They believe that official sector net buying for the first half of the year will total 132 tons, down 10% from the preceding six months and down 37% from the first half of 2013.
Central Bank demand is a big factor in the gold price, something that many seem to forget at times.
They also projected gold prices to average $1,225 in 2014, 13% below that of 2013. They do not believe that the price will breach $1,300.
In short, the firm has stated the same thing I have been saying here for quite some time now -namely that while Asian demand for gold is strong and is providing a floor of support for the metal, Western-based investment demand ( I am inserting "Western" whereas they are taking a global view) in and of itself has been falling as money flows into equities in search of yield.
This is the reason I monitor the reported holdings of GLD, the big gold ETF. It is as good as any a gauge of Western investment demand for the metal. Until its ceases dishoarding gold, Asia is going to have to carry the slack. The problem with that is that these buyers generally DO NOT CHASE PRICES higher, especially if they understand that they do not need to compete with Western interests. They tend to wait for price setbacks to buy.
Keep all of this data in mind folks when you read the sensationalized claims about Asian gold demand soaring, etc.... It is indeed solid, I am not disputing that, but Western investment demand is the key to any SUSTAINED RISE in the price of gold.
One thing is certainly going to be interesting to watch is how that Asian demand responds to these higher gold prices of late.
Incidentally, I am noticing that the HUI is stronger today but has not confirmed an upside breakout as of the time I type these comments. Charts are improving however.
The first was something we have been talking about here for some time now and that was the fall off in world investment demand for gold last year. GFMS stated that demand fell 11% last year to 1,342 metric tons. In terms of value, world gold investment dropped by 25% to just under $61 billion; the lowest level since 2009.
The firm projects world gold investment for the first half of 2014 to total 762 tons, down 14% on the second half of 2013, but also 65% higher than the first half of 2013.
They mentioned solid Asian demand which they suggest ( surprise, surprise) will keep a floor of support beneath the market. Chinese gold jewelry fabrication increased 31% last year and Chinese physical bar investment rose 47% to a record high. The consultancy noted that this buying was essentially bargain shopping as price sensitive buyers picked up the metal when it fell in price.
Net official sector buying ( World Central Banks) fell 34% to 359 tons last year. They believe that official sector net buying for the first half of the year will total 132 tons, down 10% from the preceding six months and down 37% from the first half of 2013.
Central Bank demand is a big factor in the gold price, something that many seem to forget at times.
They also projected gold prices to average $1,225 in 2014, 13% below that of 2013. They do not believe that the price will breach $1,300.
In short, the firm has stated the same thing I have been saying here for quite some time now -namely that while Asian demand for gold is strong and is providing a floor of support for the metal, Western-based investment demand ( I am inserting "Western" whereas they are taking a global view) in and of itself has been falling as money flows into equities in search of yield.
This is the reason I monitor the reported holdings of GLD, the big gold ETF. It is as good as any a gauge of Western investment demand for the metal. Until its ceases dishoarding gold, Asia is going to have to carry the slack. The problem with that is that these buyers generally DO NOT CHASE PRICES higher, especially if they understand that they do not need to compete with Western interests. They tend to wait for price setbacks to buy.
Keep all of this data in mind folks when you read the sensationalized claims about Asian gold demand soaring, etc.... It is indeed solid, I am not disputing that, but Western investment demand is the key to any SUSTAINED RISE in the price of gold.
One thing is certainly going to be interesting to watch is how that Asian demand responds to these higher gold prices of late.
Incidentally, I am noticing that the HUI is stronger today but has not confirmed an upside breakout as of the time I type these comments. Charts are improving however.
Upward Rigging of the Gold Price Continues
I must admit; I just cannot help myself having a bit of fun. I wanted to try these catchy titles the same way that the GIAMATT crowd web sites do in order to generate more site hits to increase their ad revenue dollars!
I should know as my poor inbox gets inundated with such articles whenever gold has experienced a sharp selloff of late. "See - we told you so", seems to be the message.
The poor bears however have no friends for no one writes snappy titles to defend them whenever gold has one of these big up days like it is having today.
On to more serious business however - there was a strong combination of data releases that really lit a fuse under the gold market in today's session. Unemployment numbers, the Chicago Fed's index, China, etc. Each of these data releases showed slowdowns in growth.
If that were not enough, India's ruling Congress party chief, Sonia Gandhi was reported to have requested the Ministry of Commerce to ease restrictions on gold imports into India. The gem and jewelry industry is complaining, rightfully so in my view, that this 10% barrier is forcing their costs to rise and impacting their businesses negatively. Any easing of this tariff would be viewed by gold traders as friendly towards India gold demand. At least that is how the market seems to be regarding it at the moment.
Back to the US data however but more specifically, back to its impact on the US DOLLAR. It fell SHARPLY and guess what???? - Yes, Gold rose sharply. No manipulation, no theories, just a simple correlation between the Dollar and the Anti-Dollar or ol' Yeller. The weak economic data, which reminded people of just how weak that last payrolls number was, once again spurred more of the same talk that the Fed was going to be on hold in the regards to the Tapering.
Side note here - one wonders just what will happen if the next payrolls number just happens to be above 200K. Will all of today's talk disappear once again? From a trader's perspective, it is like trying to catch a yo-yo.
With equities selling off sharply on the sharp reported fall in the Chinese manufacturing index, investors are fearing more slowing growth and that translated to sinking interest rates here in the US as bonds were the recipient of money flows today. Those money flows dropped interest rates and that pulled the rug out from beneath the US Dollar which has been supported by a general tend of rising rates here in the US.
The yield on the Ten Year as I type these comments is down to 2.8%. At the start of this year it was trading above 3%! The Dollar has tended to generally track the yield on this note.
Watch the Dollar to get a clue as to whether or not gold can muster the energy to punch through this tough overhead resistance barrier that it has now once again entered.
Around 10:00 AM CST, the Kansas City Fed numbers were released and this data showed a big improvement in the manufacturing in the Plains area. The number rose to 5 from -3 in December. That showed manufacturing growth for the month, the exact opposite of what we got from the Chicago Fed. Gold seemed to fade a bit when that number hit the wires.
This market remains so incredibly sensitive to Tapering/Not Tapering issues that for all practical purposes, we are trading each and every single economic data release with the view to how traders are generally interpreting that data. Predicting this sort of thing in advance is fool's work so just be warned that volatility will continue to remain quite high until we get some sort of clear, defined TREND in this data. Right now there is no consensus and that will lead to sharp bouts of buying/selling depending on which side panics. Today it was the bears' turn; tomorrow - who knows?
This is the reason I continue to urge caution for those traders who are still attempting to work this gold market. KEEP YOUR POSITION SIZE SMALL OR MANAGEABLE. You are liable to get hurt and hurt badly if the economic data does not come out your way. It is not trading at this point because there is no clear trend. You are essentially gambling or rolling the dice and hoping that the roll comes out in your favor. There is no skill to that, just chance, and good traders do not rely on chance.
Let's see how the dust settles at the end of the day but more importantly, how the market reacts to the next payrolls number coming our way.
A couple of charts for you to examine... note the daily chart and the strong push above the 50 day moving average. That is quite positive. Also, the ADX has gotten a clear crossover of Positive Directional Movement Indicator ( BLUE LINE ) above the Negative Directional Movement Indicator ( Red LINE ). Clearly that bulls have regained control of the market at this time frame. As a matter of fact, the ADX, the trending indicator, is actually beginning to rise, just as gold is moving higher. It is still below 25 so the trend is not yet confirmed but it is very close. What the bulls need is one more ingredient and that is a strong push through that very tough overhead resistance zone noted on the chart. That means we need to see prices above $1,262, preferably a bit higher, to give us the real possibility, the first in a while I might add, of an upside trending move.
Look at the 4 hour time frame. Here you can see the strong volume on today's big move higher ( a lot of this is due to panicked shorts when that data came out). This REVERSE FLASH CRASH is CLEAR PROOF that gold prices are being manipulated higher. After all, who would buy in such a fashion? Sorry - I think I need some help restraining myself at this point. ( it comes from having to deal with all the nasty emails that constantly fill my inbox from the gold acolytes in the cult).
Seriously, look at where the bulls have taken this thing - right on the verge of a breakout! We have a big hurdle to clear with that next payrolls report but suffice it to say, that IF THE US DOLLAR experiences another strong selling-related plunge as it is doing today, gold should break free to the upside. I am noting that the Dollar is holding initial support near the confluence of the 40 and 50 day moving averages. Failure there and it has a strong possibility of visiting 80.20 - 80.00.
I should know as my poor inbox gets inundated with such articles whenever gold has experienced a sharp selloff of late. "See - we told you so", seems to be the message.
The poor bears however have no friends for no one writes snappy titles to defend them whenever gold has one of these big up days like it is having today.
On to more serious business however - there was a strong combination of data releases that really lit a fuse under the gold market in today's session. Unemployment numbers, the Chicago Fed's index, China, etc. Each of these data releases showed slowdowns in growth.
If that were not enough, India's ruling Congress party chief, Sonia Gandhi was reported to have requested the Ministry of Commerce to ease restrictions on gold imports into India. The gem and jewelry industry is complaining, rightfully so in my view, that this 10% barrier is forcing their costs to rise and impacting their businesses negatively. Any easing of this tariff would be viewed by gold traders as friendly towards India gold demand. At least that is how the market seems to be regarding it at the moment.
Back to the US data however but more specifically, back to its impact on the US DOLLAR. It fell SHARPLY and guess what???? - Yes, Gold rose sharply. No manipulation, no theories, just a simple correlation between the Dollar and the Anti-Dollar or ol' Yeller. The weak economic data, which reminded people of just how weak that last payrolls number was, once again spurred more of the same talk that the Fed was going to be on hold in the regards to the Tapering.
Side note here - one wonders just what will happen if the next payrolls number just happens to be above 200K. Will all of today's talk disappear once again? From a trader's perspective, it is like trying to catch a yo-yo.
With equities selling off sharply on the sharp reported fall in the Chinese manufacturing index, investors are fearing more slowing growth and that translated to sinking interest rates here in the US as bonds were the recipient of money flows today. Those money flows dropped interest rates and that pulled the rug out from beneath the US Dollar which has been supported by a general tend of rising rates here in the US.
The yield on the Ten Year as I type these comments is down to 2.8%. At the start of this year it was trading above 3%! The Dollar has tended to generally track the yield on this note.
Watch the Dollar to get a clue as to whether or not gold can muster the energy to punch through this tough overhead resistance barrier that it has now once again entered.
Around 10:00 AM CST, the Kansas City Fed numbers were released and this data showed a big improvement in the manufacturing in the Plains area. The number rose to 5 from -3 in December. That showed manufacturing growth for the month, the exact opposite of what we got from the Chicago Fed. Gold seemed to fade a bit when that number hit the wires.
This market remains so incredibly sensitive to Tapering/Not Tapering issues that for all practical purposes, we are trading each and every single economic data release with the view to how traders are generally interpreting that data. Predicting this sort of thing in advance is fool's work so just be warned that volatility will continue to remain quite high until we get some sort of clear, defined TREND in this data. Right now there is no consensus and that will lead to sharp bouts of buying/selling depending on which side panics. Today it was the bears' turn; tomorrow - who knows?
This is the reason I continue to urge caution for those traders who are still attempting to work this gold market. KEEP YOUR POSITION SIZE SMALL OR MANAGEABLE. You are liable to get hurt and hurt badly if the economic data does not come out your way. It is not trading at this point because there is no clear trend. You are essentially gambling or rolling the dice and hoping that the roll comes out in your favor. There is no skill to that, just chance, and good traders do not rely on chance.
Let's see how the dust settles at the end of the day but more importantly, how the market reacts to the next payrolls number coming our way.
A couple of charts for you to examine... note the daily chart and the strong push above the 50 day moving average. That is quite positive. Also, the ADX has gotten a clear crossover of Positive Directional Movement Indicator ( BLUE LINE ) above the Negative Directional Movement Indicator ( Red LINE ). Clearly that bulls have regained control of the market at this time frame. As a matter of fact, the ADX, the trending indicator, is actually beginning to rise, just as gold is moving higher. It is still below 25 so the trend is not yet confirmed but it is very close. What the bulls need is one more ingredient and that is a strong push through that very tough overhead resistance zone noted on the chart. That means we need to see prices above $1,262, preferably a bit higher, to give us the real possibility, the first in a while I might add, of an upside trending move.
Look at the 4 hour time frame. Here you can see the strong volume on today's big move higher ( a lot of this is due to panicked shorts when that data came out). This REVERSE FLASH CRASH is CLEAR PROOF that gold prices are being manipulated higher. After all, who would buy in such a fashion? Sorry - I think I need some help restraining myself at this point. ( it comes from having to deal with all the nasty emails that constantly fill my inbox from the gold acolytes in the cult).
Seriously, look at where the bulls have taken this thing - right on the verge of a breakout! We have a big hurdle to clear with that next payrolls report but suffice it to say, that IF THE US DOLLAR experiences another strong selling-related plunge as it is doing today, gold should break free to the upside. I am noting that the Dollar is holding initial support near the confluence of the 40 and 50 day moving averages. Failure there and it has a strong possibility of visiting 80.20 - 80.00.
Wednesday, January 22, 2014
Range Trade in Gold remains Intact
Yesterday gold ran up and tested the top of the range ( $1,260 - $1,255) where it encountered selling pressure and backed down once again. That has proved to be a strong overhead resistance level against which bears seem to feel quite comfortable selling. Shorter- term oriented bulls, who can read a price chart and understand price action, simply have no stomach, at the present time, to press their luck. They are grabbing any paper profits they have and running to the bank with them.
As usual the GIAMATT ( Gold is always manipulated all the time) crowd is blaming the nefarious gold cartel citing the usual early hours hedge-fund selling for derailing old yeller but the facts are far less sensational and much more boring. Hedge funds playing the metal from the short side love to move in during the period of low liquidity in Asian trade to get the most "bang from their buck" as they seek to drive prices in their favor.
I have seen this stunt so many times during the overnight session in the many markets that I trade that I have longed for the days in which paper orders were run into the pit and handed off to brokers. One never knows when observing price movements during these periods of low liquidity whether news has broken that would validate the movement or whether it is just more game playing. The weary trader has no choice but to respect the move in price and then observe how prices act when liquidity increases as the session moves on. If the move was indeed valid, more often than not, prices will not reverse but will continue in the direction of the overnight push. If the push was hedgies playing games only, the price will reverse when the full contingent of pit players shows up at the exchange.
The exchanges, now that they are public, for-profit businesses who answer to shareholders, want to maximize profits and they do that by catering to big traders, no matter what time zone that they wish to play in. Meanwhile, those of us who unfortunately happen to be carbon-based life forms which require sleep, are forced to endure this idiocy in order to watch the exchanges' stock price keep moving higher. Just part of the job description nowadays is all that one can say about it.
By the way, after yesterday's shellacking of the soybean market, I thought it would be an opportune time to post a more recent chart of the Goldman Sachs Commodity Index. All of that index fund rebalancing has been wrapped up for some time now. You can see that we did get a wee bit of a bounce off the support zone but that upward price pressures remain quite muted. This helps explain the price action in gold and in silver I might add. While prices for both metals have improved, the index remains near 52 week lows thus undercutting any "buy precious metals for an inflation hedge" rationale. The market is still quite sanguine about inflation fears at the moment. I keep watching for any evidence that this might be changing but thus far I do not see any. We get bits and pieces here and there but nothing that is constant nor any sort of pattern that we can detect at the moment. Neither the inflation camp or the deflation camp seems to have the advantage. It is an uneasy truce.
I should note here that the IMF raised the issue of deflation in a report issued Tuesday. They termed it a legitimate concern. Yeah - we are all shocked, I mean, shocked, to discover this! Parents - nota bene - when giving your children career advice, urge them to strongly consider becoming a bureaucrat working for an agency like this. You can achieve the miracle of getting paid a salary to produce mind-numbingly dull research which is essentially useless.
We have another one of those payrolls numbers report coming our way soon so we will get an opportunity to see if last month's was a one off as I suspect it was or whether it is more reflective of an actual sharp drop off in hiring. The revisions will be important in this regard so look past the initial headline number to see what the pencil pushers might or might not do with that paltry number they produced last time around.
The thinking is a strong number, much more in line with the 200K+ that we had been getting, will smooth the way for the Fed to taper as they have announced. A weak number along the line of the previous month, and they will be put on the defensive and forced to hold off on any tapering. One way or the other, it is going to be interesting to watch the gold price action. Those of you who are masochistic by nature, please make sure to have an unusually large position on in gold heading into the report. The rest of us can watch what happens to earthworms who happen to crawl out onto a sun-heated sidewalk in the middle of the summer - there really is not any difference.
Some news in gold that has been making its rounds is that the big international banks who participate in the London Fix have been meeting to discuss establishing an external audit of the entire process. Personally I have always found it rather bizarre that the fix has continued for so long in our modern age. With the ability to collect data (price, volume, etc.) from all over the globe in mere seconds, what is the point of continuing this thing. I believe this process lends itself to far more dubious outcomes than any supposed shenanigans that have been claimed to been occurring over at the Comex over the last year. If a group of large grain elevator operators from all over the country got together to set the price of corn for that day, would not farmers be rightly suspicious?
I do not claim to understand the basis upon which various gold contracts are entered into, nor do I care to know, but I just do not like the idea of any group of large entities, especially banks, meeting (whether in person, by phone or videoconferencing or through whatever means) to determine any price of any commodity anywhere. If a farmer in Peoria can sell his corn to a local elevator operator at a higher price than say a farmer in Des Moines might get, why should he not be able to get it? After all, it is local supply and demand at work and is that not what a free market is supposed to be about? If the grain elevator at Peoria needs the corn worse than the grain elevator at Des Moines, let him bid it up in the cash market. The corn will flow to where it is needed the most until the local demand there is sated and an equilibrium sets in.
I might be simple-minded in this regard but I think the same practice should be occurring in gold, or any other market for that matter. Then again, this is why I am a trader and not a contract writer.
One last bit of news - the S. African union that controls the miners down there had planned a strike against both the gold mining and platinum mining industry for tomorrow. Apparently they have temporarily called off the gold strike. They plan to proceed with the platinum industry strike. And some folks wonder why big hedge funds choose to use the ETF's instead of the mining shares??? Last time I looked, no union decided to strike GLD. It is just another element over which an investor has no control and thus another element of risk that many big investing funds are choosing to avoid altogether by foregoing investing in gold mining companies.
The US Dollar remains rather directionless at this time. It is range bound with a bit of a higher bias to it as can be seen from the small upward channel to the right of the chart. It broke its downtrend that began last summer in late October and has firmed a bit especially to start the new year. Upward progress is capped near 81.50 while support seems pretty solid near the 80 region. I would expect gold prices to suffer were the Dollar to break out above 81.50 and hold those gains. The flip side is that a downside breach of 79.50 should see some good buying enter the gold pit. If the Dollar were to fall through 79, things could get mighty interesting.
If I had to pick at this moment, I would say that the near term chart structure favors additional Dollar strength rather than weakness but I am certainly not married to this view as the chart picture is anything but strongly lopsided.
As usual the GIAMATT ( Gold is always manipulated all the time) crowd is blaming the nefarious gold cartel citing the usual early hours hedge-fund selling for derailing old yeller but the facts are far less sensational and much more boring. Hedge funds playing the metal from the short side love to move in during the period of low liquidity in Asian trade to get the most "bang from their buck" as they seek to drive prices in their favor.
I have seen this stunt so many times during the overnight session in the many markets that I trade that I have longed for the days in which paper orders were run into the pit and handed off to brokers. One never knows when observing price movements during these periods of low liquidity whether news has broken that would validate the movement or whether it is just more game playing. The weary trader has no choice but to respect the move in price and then observe how prices act when liquidity increases as the session moves on. If the move was indeed valid, more often than not, prices will not reverse but will continue in the direction of the overnight push. If the push was hedgies playing games only, the price will reverse when the full contingent of pit players shows up at the exchange.
The exchanges, now that they are public, for-profit businesses who answer to shareholders, want to maximize profits and they do that by catering to big traders, no matter what time zone that they wish to play in. Meanwhile, those of us who unfortunately happen to be carbon-based life forms which require sleep, are forced to endure this idiocy in order to watch the exchanges' stock price keep moving higher. Just part of the job description nowadays is all that one can say about it.
By the way, after yesterday's shellacking of the soybean market, I thought it would be an opportune time to post a more recent chart of the Goldman Sachs Commodity Index. All of that index fund rebalancing has been wrapped up for some time now. You can see that we did get a wee bit of a bounce off the support zone but that upward price pressures remain quite muted. This helps explain the price action in gold and in silver I might add. While prices for both metals have improved, the index remains near 52 week lows thus undercutting any "buy precious metals for an inflation hedge" rationale. The market is still quite sanguine about inflation fears at the moment. I keep watching for any evidence that this might be changing but thus far I do not see any. We get bits and pieces here and there but nothing that is constant nor any sort of pattern that we can detect at the moment. Neither the inflation camp or the deflation camp seems to have the advantage. It is an uneasy truce.
I should note here that the IMF raised the issue of deflation in a report issued Tuesday. They termed it a legitimate concern. Yeah - we are all shocked, I mean, shocked, to discover this! Parents - nota bene - when giving your children career advice, urge them to strongly consider becoming a bureaucrat working for an agency like this. You can achieve the miracle of getting paid a salary to produce mind-numbingly dull research which is essentially useless.
We have another one of those payrolls numbers report coming our way soon so we will get an opportunity to see if last month's was a one off as I suspect it was or whether it is more reflective of an actual sharp drop off in hiring. The revisions will be important in this regard so look past the initial headline number to see what the pencil pushers might or might not do with that paltry number they produced last time around.
The thinking is a strong number, much more in line with the 200K+ that we had been getting, will smooth the way for the Fed to taper as they have announced. A weak number along the line of the previous month, and they will be put on the defensive and forced to hold off on any tapering. One way or the other, it is going to be interesting to watch the gold price action. Those of you who are masochistic by nature, please make sure to have an unusually large position on in gold heading into the report. The rest of us can watch what happens to earthworms who happen to crawl out onto a sun-heated sidewalk in the middle of the summer - there really is not any difference.
Some news in gold that has been making its rounds is that the big international banks who participate in the London Fix have been meeting to discuss establishing an external audit of the entire process. Personally I have always found it rather bizarre that the fix has continued for so long in our modern age. With the ability to collect data (price, volume, etc.) from all over the globe in mere seconds, what is the point of continuing this thing. I believe this process lends itself to far more dubious outcomes than any supposed shenanigans that have been claimed to been occurring over at the Comex over the last year. If a group of large grain elevator operators from all over the country got together to set the price of corn for that day, would not farmers be rightly suspicious?
I do not claim to understand the basis upon which various gold contracts are entered into, nor do I care to know, but I just do not like the idea of any group of large entities, especially banks, meeting (whether in person, by phone or videoconferencing or through whatever means) to determine any price of any commodity anywhere. If a farmer in Peoria can sell his corn to a local elevator operator at a higher price than say a farmer in Des Moines might get, why should he not be able to get it? After all, it is local supply and demand at work and is that not what a free market is supposed to be about? If the grain elevator at Peoria needs the corn worse than the grain elevator at Des Moines, let him bid it up in the cash market. The corn will flow to where it is needed the most until the local demand there is sated and an equilibrium sets in.
I might be simple-minded in this regard but I think the same practice should be occurring in gold, or any other market for that matter. Then again, this is why I am a trader and not a contract writer.
One last bit of news - the S. African union that controls the miners down there had planned a strike against both the gold mining and platinum mining industry for tomorrow. Apparently they have temporarily called off the gold strike. They plan to proceed with the platinum industry strike. And some folks wonder why big hedge funds choose to use the ETF's instead of the mining shares??? Last time I looked, no union decided to strike GLD. It is just another element over which an investor has no control and thus another element of risk that many big investing funds are choosing to avoid altogether by foregoing investing in gold mining companies.
The US Dollar remains rather directionless at this time. It is range bound with a bit of a higher bias to it as can be seen from the small upward channel to the right of the chart. It broke its downtrend that began last summer in late October and has firmed a bit especially to start the new year. Upward progress is capped near 81.50 while support seems pretty solid near the 80 region. I would expect gold prices to suffer were the Dollar to break out above 81.50 and hold those gains. The flip side is that a downside breach of 79.50 should see some good buying enter the gold pit. If the Dollar were to fall through 79, things could get mighty interesting.
If I had to pick at this moment, I would say that the near term chart structure favors additional Dollar strength rather than weakness but I am certainly not married to this view as the chart picture is anything but strongly lopsided.
Friday, January 17, 2014
Beef Lovers should Prepare for Sticker Shock at the Meat Counter
As some of you who regularly read this blog are no doubt aware, from time to time I will comment on the cattle/beef and hog/pork markets as those are the markets that I cut my teeth on and still are my bread and butter. While the consumer has thus far been insulated from any negative fallout from the massive money creation of the Fed and its QE programs, something has been happening in the livestock markets which will affect everyone who enjoys a good quality steak or beef roast. What I mean by this is that a shortage of cattle has sent wholesale beef prices soaring into record all-time high territory with the trade unsure of just how high prices are going to go before this balloon runs out of hot air.
Take a look at the following chart of the wholesale price of choice beef ( this is a composite price). I have included the data going back exactly 4 years to give you a sense of what has been quietly occurring. Beef prices have increased a whopping 65% in this period! Think about that again!
Yet, many consumers have not yet noticed it because grocers and restaurant owners have been trying to absorb some of the price rise so as not to hurt their business. They share the same concern that many of us also have, namely, an economy, that while the consensus is that it is slowly improving, certainly has not experienced any of the type of growth rates that we are accustomed to seeing with economies coming out of recession. They are aware that consumers remain extremely price conscious and thus have opted not to pass on the bulk of the increase in prices. That is about to change and change rapidly.
The price rise has been of such magnitude that they are no longer in a position to absorb the impact of the high prices without passing it on the consumer. It generally takes a while for the beef that has been purchased to work its way through the pipeline so the brunt of this increase will not show up for a few more weeks, but show up it certainly will.
Just get ready folks - that steak is going to seem like a meal that only royalty can partake of! Personally I am of the view that it is too bad that beef is a perishable commodity - I could have sold gold and loaded up on beef steaks and unloaded them out of the freezer and retired had I been able to do that!
Take a look at the following chart of the wholesale price of choice beef ( this is a composite price). I have included the data going back exactly 4 years to give you a sense of what has been quietly occurring. Beef prices have increased a whopping 65% in this period! Think about that again!
Yet, many consumers have not yet noticed it because grocers and restaurant owners have been trying to absorb some of the price rise so as not to hurt their business. They share the same concern that many of us also have, namely, an economy, that while the consensus is that it is slowly improving, certainly has not experienced any of the type of growth rates that we are accustomed to seeing with economies coming out of recession. They are aware that consumers remain extremely price conscious and thus have opted not to pass on the bulk of the increase in prices. That is about to change and change rapidly.
The price rise has been of such magnitude that they are no longer in a position to absorb the impact of the high prices without passing it on the consumer. It generally takes a while for the beef that has been purchased to work its way through the pipeline so the brunt of this increase will not show up for a few more weeks, but show up it certainly will.
Just get ready folks - that steak is going to seem like a meal that only royalty can partake of! Personally I am of the view that it is too bad that beef is a perishable commodity - I could have sold gold and loaded up on beef steaks and unloaded them out of the freezer and retired had I been able to do that!
J P Morgan - "Bottom may be in for Gold"
Three Morgan analysts were reported today as issuing some research which essentially is calling for a bottom in the gold market. That is what Dow Jones is reporting from Barron's Blog.
They were especially upbeat on some S. African miners, most notably Harmony and Sibanye. They were downright negative on Randgold and not at all enamored with Anglo.
Regardless, the report was enough to have investors chasing gold mining shares today as well as putting a bid back into gold over at the Comex. It did seem to me that as the session wore on and as news about the call became more widespread, gold continued to move higher. Nothing like a big name bank to give traders/investors their convictions....
You do have to ask why JP Morgan has been loading up on all that gold when it comes to the Comex delivery process. Hey, nothing like acquiring lots of the metal and then letting your analysts give the market a bullish call which essentially guarantees that the price is going to rise and you are going to secure some excellent profits.
It will be interesting to see how the "gold is always manipulated all the time" guys and gals are going to deal with this. AS I have been saying, the big bank(s) have been buying gold - why would they be interested in capping it now that they have amassed so much of it? They have been buying from the hedge funds who were dumping it. That is an incontrovertible fact.
From a technical analysis perspective, gold's ability to hold support down near $1,220 - $1,224 was very constructive. It is now challenging firm overhead resistance. Note that it has moved decidedly above the 50 day moving average which is also constructive but more importantly, look at the DMI lines ( Directional Movement Indicators). The +DMI or Positive Directional Movement Indicator has now touched the -DMI or Negative Directional Movement Indicator Line for the first time since October of last year. What this means is that the bulls are very close to gaining control of this market, if they have not done so already. I personally want to see the price push through $1260 on the topside at a bare minimum to confirm that the near term trend has changed.
They were especially upbeat on some S. African miners, most notably Harmony and Sibanye. They were downright negative on Randgold and not at all enamored with Anglo.
Regardless, the report was enough to have investors chasing gold mining shares today as well as putting a bid back into gold over at the Comex. It did seem to me that as the session wore on and as news about the call became more widespread, gold continued to move higher. Nothing like a big name bank to give traders/investors their convictions....
You do have to ask why JP Morgan has been loading up on all that gold when it comes to the Comex delivery process. Hey, nothing like acquiring lots of the metal and then letting your analysts give the market a bullish call which essentially guarantees that the price is going to rise and you are going to secure some excellent profits.
It will be interesting to see how the "gold is always manipulated all the time" guys and gals are going to deal with this. AS I have been saying, the big bank(s) have been buying gold - why would they be interested in capping it now that they have amassed so much of it? They have been buying from the hedge funds who were dumping it. That is an incontrovertible fact.
From a technical analysis perspective, gold's ability to hold support down near $1,220 - $1,224 was very constructive. It is now challenging firm overhead resistance. Note that it has moved decidedly above the 50 day moving average which is also constructive but more importantly, look at the DMI lines ( Directional Movement Indicators). The +DMI or Positive Directional Movement Indicator has now touched the -DMI or Negative Directional Movement Indicator Line for the first time since October of last year. What this means is that the bulls are very close to gaining control of this market, if they have not done so already. I personally want to see the price push through $1260 on the topside at a bare minimum to confirm that the near term trend has changed.
Thursday, January 16, 2014
Quiet Day in Gold
Not much going on in gold today so no comments are really called for in my view... I will leave you with a chart with a few annotations... gold is currently trendless with neither side ( bull or bear) having a clear advantage at this juncture. Bulls have failed to break it out above $1,260; Bears have failed to break it down below $1,220. Until one of these levels gives way, it is directionless.
Price is oscillating around the 50 day moving average. Gold shares slightly higher today are helpful along with lower interest rates.
We will see what tomorrow brings...there are better markets to trade than gold right now to be frank.
Price is oscillating around the 50 day moving average. Gold shares slightly higher today are helpful along with lower interest rates.
We will see what tomorrow brings...there are better markets to trade than gold right now to be frank.
Wednesday, January 15, 2014
Is there a Change in Gold sentiment occuring?
When you sit here with nothing better to do with your life than watch numbers blipping on a computer screen, sometimes you observe some things that stick out because they are out of line with what you have been accustomed to witnessing. Such was the case with gold, at least for today's session.
As expected, the market moved lower after failing to take out overhead resistance in the zone noted on the chart ( $1,255 - $1,260). It then fell through chart support near $1,240 - $1,244 as follow through selling pressured prices lower. Further aiding its fall was strength in the US Dollar as the market reacted to the BETTER than expected December retail sales data.
That was on the heels of comments that the market regarded as Hawkish from two Fed officials in regards to the Tapering campaign.
I figured we were going to see steady selling coming into the market for the remainder of the session, especially when interest rates started moving higher again but then we got the Crude Oil stocks number. The EIA released data this AM showing a whopping 7.7 MILLION BARREL decline in oil stockpiles when the market was expecting 800,000! Talk about a missed expectation!
There are a couple of ways of looking at this. The first is that demand for crude oil is so strong that the economy is definitely on the mend and upward price pressures are now becoming a real possibility. The other is that the recent large refinery runs have filled the pipeline with gobs of product that now needs to be moved. The latter seem confirmed as refinery utilization rates fell to 90% of capacity. That was down from 92.3% last week. If refiners are cutting back on their runs, then one could argue that stockpiles of the refined products must be building. That could be construed as a sign of weakening demand or perhaps better, a supply that is exceeding the current demand level.
What caught my attention was the manner in which gold reacted following the EIA release. Crude vaulted higher on the news and as it did, it seemed to me that gold began moving off its worst levels pushing back up into the area of broken support which was now offering resistance at $1,240. It was a modest reaction but it did look out of place because it was unusual. It looked as if Gold was looking at the big draw and the surge higher in crude as perhaps the incipient signs of upward price pressures. I noted that this occurred even as the Dollar was strengthening.
Then after a good half hour elapsed, it began to weaken a bit but thus far it has not revisited the region from which it moved higher when the crude oil data first came out.
Maybe gold is looking at the high crude oil draw and the better than expected retails sales as signs that the latest jobs number was a one off? I don't know but it popped higher for some reason. Someone wanted to buy it along with the mining shares I might add. I have slowly come around to the opinion that without a real concern over inflation, gold is going to run into selling on rallies. Instead of cheering for a lousy economy, the friends of gold might want to consider that as long as deflation concerns trump inflation concerns, the yellow metal is going to flounder.
What needs to occur, in my opinion, is that more of this funny money that has been created by the Fed ( along with the rest of the Central Banks of the West) needs to make it out of the stock market casinos and into their respective economies. Then that money needs to start changing hands more rapidly. In other words, we need to see the Velocity of Money begin to rise. AT the very least, we need to see the officially sanctioned rate of inflation as relayed to us by the feds, (you know - that bogus one from the CPI) exceed the rate of return on 1 year money. Translation -gold needs NEGATIVE real interest rates to rise sharply. Either that, or some sort of strong selling wave to engulf the US Dollar. I do not see how we get either or those ( or both) without a shift away from the deflation theme to the inflation theme.
Confidence - that the Dollar will hold its "value" against the other majors needs to take a hit for gold to respond upwards. That is how I see it for now. Of course, the one luxury that we traders get to have ( we don't get many any more thanks to the advent of the computer algorithm and its ruinous effect on the stability and integrity of our financial markets ) is that we reserve the right to change our minds/opinions as often as we change our socks!
As expected, the market moved lower after failing to take out overhead resistance in the zone noted on the chart ( $1,255 - $1,260). It then fell through chart support near $1,240 - $1,244 as follow through selling pressured prices lower. Further aiding its fall was strength in the US Dollar as the market reacted to the BETTER than expected December retail sales data.
That was on the heels of comments that the market regarded as Hawkish from two Fed officials in regards to the Tapering campaign.
I figured we were going to see steady selling coming into the market for the remainder of the session, especially when interest rates started moving higher again but then we got the Crude Oil stocks number. The EIA released data this AM showing a whopping 7.7 MILLION BARREL decline in oil stockpiles when the market was expecting 800,000! Talk about a missed expectation!
There are a couple of ways of looking at this. The first is that demand for crude oil is so strong that the economy is definitely on the mend and upward price pressures are now becoming a real possibility. The other is that the recent large refinery runs have filled the pipeline with gobs of product that now needs to be moved. The latter seem confirmed as refinery utilization rates fell to 90% of capacity. That was down from 92.3% last week. If refiners are cutting back on their runs, then one could argue that stockpiles of the refined products must be building. That could be construed as a sign of weakening demand or perhaps better, a supply that is exceeding the current demand level.
What caught my attention was the manner in which gold reacted following the EIA release. Crude vaulted higher on the news and as it did, it seemed to me that gold began moving off its worst levels pushing back up into the area of broken support which was now offering resistance at $1,240. It was a modest reaction but it did look out of place because it was unusual. It looked as if Gold was looking at the big draw and the surge higher in crude as perhaps the incipient signs of upward price pressures. I noted that this occurred even as the Dollar was strengthening.
Then after a good half hour elapsed, it began to weaken a bit but thus far it has not revisited the region from which it moved higher when the crude oil data first came out.
Maybe gold is looking at the high crude oil draw and the better than expected retails sales as signs that the latest jobs number was a one off? I don't know but it popped higher for some reason. Someone wanted to buy it along with the mining shares I might add. I have slowly come around to the opinion that without a real concern over inflation, gold is going to run into selling on rallies. Instead of cheering for a lousy economy, the friends of gold might want to consider that as long as deflation concerns trump inflation concerns, the yellow metal is going to flounder.
What needs to occur, in my opinion, is that more of this funny money that has been created by the Fed ( along with the rest of the Central Banks of the West) needs to make it out of the stock market casinos and into their respective economies. Then that money needs to start changing hands more rapidly. In other words, we need to see the Velocity of Money begin to rise. AT the very least, we need to see the officially sanctioned rate of inflation as relayed to us by the feds, (you know - that bogus one from the CPI) exceed the rate of return on 1 year money. Translation -gold needs NEGATIVE real interest rates to rise sharply. Either that, or some sort of strong selling wave to engulf the US Dollar. I do not see how we get either or those ( or both) without a shift away from the deflation theme to the inflation theme.
Confidence - that the Dollar will hold its "value" against the other majors needs to take a hit for gold to respond upwards. That is how I see it for now. Of course, the one luxury that we traders get to have ( we don't get many any more thanks to the advent of the computer algorithm and its ruinous effect on the stability and integrity of our financial markets ) is that we reserve the right to change our minds/opinions as often as we change our socks!
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