GLD Holdings Vs. Gold Price

At the request of one of the regular posters here, I have constructed a chart comparing the reported holdings of the large gold ETF, GLD, to the price of gold over at the Comex.

As the frequent readers know by now, I view GLD as a proxy for Western-based investment demand for the metal, similar to the manner in which the World Gold Council views it as they just related in their most recent report published this past week.

Notice the symmetry between the two lines on the graph. Both tend to rise and fall together. By the way, when the data is graphed on a logarithmic style plot, the relationship is even more similar.

Weekly View of Gold

Here is a quick look at the intermediate term chart of gold.

There are several things that stand out to me as I survey this chart.

Let's start with the various phases. I have delineated these with the variously colored shaded rectangles for your convenience.

I think the chart speaks for itself.

The peak above $1900 in September 2011, was the climax of the then bull market. Subsequent to that, the market entered what can now be clearly seen as a transition phase. However at that time, we as technicians were unclear as to whether the great bull was finished or was merely taking a rest, gathering itself for another rampage higher.

This transition phase, or consolidation, occurred over a period of 15 months in which the price was essentially range bound. The top of the range that formed was $1800 and the bottom was $1530-$1525.

There is something interesting about this range which we can see clearly in retrospect. The $1800 ceiling was a triple top just as the $1530-$1525 level was a triple bottom. The old trading adage that "triple tops or triple bottoms rarely hold" turned out to be true, but not for the upside. The reason for that is because the US Dollar bottomed out near 79 (USDX) that very same month ( October 2012). As it rallied, any hope for gold taking out $1800 was dead.

In April 2013, gold officially entered its current bear market with a clean break to the downside of that broad range trade defined during the Transition Phase. We remain in that bear as of this weekend.

Please note that gold throughout the bear that has unfolded, gold was demonstrated all the classic signs commensurate with bear markets, namely a series of LOWER highs, with the exception of a horizontal support zone that had formed near $1180.

Unlike the previous trading range where the highs were at the same level ($1800) and the lows at the same level, ( $1530-$1525), the current state has shown us that very good buying has been present down at the $1180 level. So much so that once again, another Triple bottom had formed there.

The market clearly violated that level three weeks ago but has since then not seen much in the way of additional downside follow through. That is evidencing a reluctance to extend the break lower at this time. Normally, when one sees a clean break either ABOVE or BELOW a broad consolidation range, in order to validate it, good technicians like to see three things: First - a move OUTSIDE THE RANGE of 2% or more; Secondly, - strong follow through, and Thirdly - SUCCESSIVE strong downside closes.

In the case of the first requirement, a 2% move below $1180 means price would need to drop another $24 to confirm the breakout. That it did with the market easily falling past $1156.

On the second point - we also got the strong downside follow through the previous week with the price moving as low as $1130. That is a 4% move below the $1180 level.

However, and this to me seems to be the key ingredient that it thus far missing - the all important WEEKLY CLOSES have yet to confirm a 2% move down. In other words, from the perspective of a technician looking to confirm the downside breakout of the triple bottom at $1180, gold would need to sustain a WEEKLY CLOSE BELOW $1156 to confirm a new leg lower.

As you can see from the chart, it clearly has not done that. The week immediately following the downside support breach put in a close at $1169.80. That was well above the 2% threshold. This Friday's close was actually ABOVE the $1180 level, coming in at $1185.60. Thus, as of now, we have not gotten CONFIRMATION that the downside breach of $1180 is valid as far as setting up another leg lower.

By the way, can I just make a quick comment here - any of those pestilential gold newsletter writers who are always bullish gold no matter what, and who state that gold is in a bull market, are not worth being paid a  single dime. Any supposed 'technician' who cannot get something this evident correct is rather frightening in their ignorance. Gold has been a bear for almost 20 months how. Save your money and spend it on something more productive than keeping such misleading writers in  the business of producing such nonsense.

Now that we have covered this, let's come back to something I stated a while back in a previous post. Throughout the entirety of this bear market, there has been countertrend rallies, which have provided opportunities for those traders who are very short term oriented to profit from by playing from the long side of the market. The caveat I added was that they need to be very quick on the drawn however as the rallies have all tended to end with rather sharp downside moves meaning that most of the profits from such trades can be lost unless a trader has been nimble and fleet of foot.

Take a look at this chart in its entirety and note the BLUE ARROWS. I placed them below what we technicians refer to as "Spike Bottoms". Notice also that in ALL THREE PHASES of the gold market, BULLISH, TRANSITION, and BEARISH, these spike bottoms are present. What does this tell us? Simple - gold has a tendency to put in spike bottoms when it reverses direction.

Traders who understand this particular "quirk" of gold's personality can take advantage of that. These are signs that the market has been sold out temporarily. Notice that after each and every one of these blue arrows, the price has rallied. During the current bearish phase, it has provided traders with both the opportunity to make a long side bet as well as eventually finding a higher level from which to reenter on the short side. Remember, the trend is down until proven otherwise but one can always place short term trades while positioning also in the direction of the prevailing trend at key technically significant levels.

Please note that I have also drawn in a RESISTANCE ZONE on this chart which bulls might possibly be able to reach if this Friday's rally turns out to be more than another of those one day wonders. It comes in near $1240 on the chart and is shown by the blue rectangle. That level served to hold the market back in May of this year when it fell to that point and then rallied $100 up to $1340 before failing. However, it gave way most convincingly in September this year, was briefly violated in a short term countertrend rally but the price could not CLOSE above it. It should thus now serve as an upside cap on any subsequent move higher in price. If the market does manage to put in a WEEKLY CLOSE of any significance above $1240, it would decidedly change the complexion of the price chart. One would then have to give some real credence to a solid bottom being in for gold. Only time will tell us however whether or not this is the case. Anything prior to that is pure GUESSING.


Lastly, let me leave you with a LONG TERM MONTHLY chart of gold.

Clearly gold has lost long term trendline support on the monthly chart confirming the current bear. It is however finding some support in the confluence of the zone I have noted. The Fibonacci retracement level of the rally from the 2008 to the 2011 top is $1152. It fell through that level but was able to recover. That is a positive sign.

However it still remains BELOW both trend line and has yet to exceed the previous month high of $1255.60. To give some bullish credence to this otherwise dour looking chart, the metal would at a bare minimum need to exceed that point to get technicians a bit more upbeat on its prospects.

A MONTHLY CLOSE ABOVE $1340 would be necessary to give even more confidence that something more important is afoot.

As stated many times here, and which needs to be repeated - There seems to be a mistaken impression among many people that markets that are going down will bottom and then launch into a bull market with little or no warning. The reverse also seems to be another just-as-frequently mistaken view, that a market which has been going up, will stop going up, reverse and then enter a bear market.

In some cases, notably in the grains, this can be occasionally true due to unpredictable weather driven events. But more often than not, there are TRANSITION PHASES, as I have detailed above, that will occur. These are periods of sideways trade during which a market will move up and down, back and forth, for many months at a time, generally going nowhere outside of the range. Gold may very well be going back to a pattern like that. Or it may not; it could be forming a temporary respite from the selling before making a new leg lower. Or it could be ready to move past $1340 and start something more exciting.

The simple truth is that there is not a single human being on this planet who really knows. We all have our ideas and opinions, but that is exactly what they are, ideas and opinions. Until we get some sort of confirmation any dogmatically asserted opinions, no matter how often that they are repeated, are just people looking for attention as they make their guesses. Don't fall for that.

The market will tell us what it wants to do when it is good and ready to do so. Our business as traders is attempting to ferret out exactly what that voice might be saying.

Watching for Evidence of a Shift in Sentiment

For some time now the general sentiment in the broader markets has been that economic growth is slowing, in spite of Central Bank efforts to stimulate it. We have seen that in data coming especially out of the Eurozone. We have also seen it in Japan, whose Central Bank just recently evidenced how stubborn the deflationary pressures have been in their economy.

Here in the US, last Friday's payroll numbers, which was mildly disappointing, the market reacted by selling the US Dollar with the thinking that the Fed would go slower on any potential rate hike.

In the commodity markets, we have seen in sinking commodity indices in responses to sharp moves lower in crude oil, natural gas, unleaded gasoline, grains, sugar, etc. across the board.

Thus far the sentiment has been in which there is no inflation with the general threat being regarded by Central Bankers as one of deflation , or in their terms, disinflation.

It is this sentiment which has resulted in money flows out of commodities in general and into equities.

In attempting to discern when/if this sentiment might be changing, I have been closely monitoring both copper and crude oil prices. Just yesterday I mentioned that the close of copper below the $3.00 level was something that concerned me, especially with crude oil prices going into a downside freefall.

Something else I watch is the action in the Australian Dollar. I view this currency as a sort of "quasi growth currency". The reason is because so much of Australia's economy is dependent on the export of the huge amount of raw materials it produces. Basically, if world economic growth is moving higher, especially growth in its neighbor China, the Aussie tends to benefit. The converse is true if growth is slowing.

With that in mind, take a look at this intermediate term chart of the currency. Notice the sharp rise beginning in early 2009 which was when the Fed launched its first QE program. Optimism was high that it would be successful in liquefying the financial system and growth would ensue.

Somewhere along the line however, it dawned on markets that Central Bank efforts, including those of the ECB and BOJ, as well as stimulus efforts by China, were not having the intended effect. The currency then began a slow, grinding move lower.

As of this week, it has surrendered exactly one half of its gains from the beginning of QE1, back in early 2009.

So where from here? Good question.

Today, there were two pieces of news that hit the market which came as bullish surprises for the economy. The first of these was Eurozone GDP numbers which, while still pitifully weak, were better than anticipated. The second was US retail sales, which surprised to the upside as well coming in at +0.3% for October compared to an expected +0.2% rise.

Together, both pieces of data had the effect of pushing the Euro higher at the expense of the Dollar but it was especially was seen in the Nasdaq. That market has been lagging the S&P 500 and the DOW, which as the reader knows, have both made new lifetime highs this year. The Nasdaq has not. Today however it pushed up towards levels last seen in March 2000.

I am watching very closely to see if there is any sort of hint, that sentiment might therefore be shifting away from the "slowing growth" scenario to one of "the global economy is over the deflation scare and now will work towards one of growth". Please note that I am NOT saying such a sentiment is here; I am merely stating that to be successful at this business, one has to constantly gauge sentiment which influence money flows and money flows influence price.

It is that simple, especially when it comes to silver, but even gold as well.

Next week we are going to get some more pieces of economic data as well as the minutes from the Fed's October FOMC meeting. This will give us some fresh data to work with to see what kind of response the market has.

My thinking is that if there is indeed any shift that has actually taking place, something of more significance than the price action of a single week, it will begin to show itself in the Australian Dollar chart and in copper and in crude oil.

I noticed that crude oil cut yesterday's horrendous losses by half in today's session and that the XLE was up more than 1%. It is interesting to note that the XLE has performed much better overall than the price of crude itself. Today looked a lot like some big players were taking the opportunity to renew their exposure to the energy sector.

Remember, silver needs a "solid growth environment", one in which inflation dominates, rather than disinflation or deflation, if it is to thrive. In my view, silver is NOT a safe haven. If the sentiment begins to shifts towards one of slow but steady global growth, silver will probably bottom down here. If the sentiment is a short term phenomenon and we start getting more evidence of economic stalling, it is going back down again.

Time will of course make things clear, but I would strongly caution would be silver bulls who are constantly warning us about how crappy the US economy really is and how the stock market is really just a huge bubble, to be careful what they wish for in terms of stocks. they really seem to believe that if stock prices implode silver will soar and therefore are always rooting for equities to tumble as they constantly nitpick and criticize anything positive about the US economy that might actually happen to be reported.

Let me just say this -  If equities were to fall out of bed because markets begin fearing overpriced stock valuation in a slow growth environment, guess which way silver is going? Hint - it ain't higher!

Gold Volatility Index Soaring

If this keeps up, watch for the CME Group to raise margins on gold futures contracts soon. Volatility is sitting at more than a one year high in gold. Option guys take note.

U S Dollar Stuck Just Below 88.50

The US Dollar has been on an amazing bullish tear higher with the currency being the beneficiary of a roaring stock market and the sentiment that if any industrialized nation in the globe is going to raise interest rates, the US will be the first to do so.

The currency has rallied more than 10% since early May of this year, a pretty impressive feat no matter how some keep trying to dismiss it. As it has rallied, gold has moved lower, creating a very good inverse relationships that the market has been comfortable with.

The Dollar however is running into some selling resistance noted at the uppermost resistance level noted on the chart just shy of the 88.50 level.

Can you see the stair-stepping pattern that has been forming on the chart? During the initial phase of the current bull market in the Dollar, the currency displayed some resiliency near 79.50 - 79.00 that sparked some buying among technicians who noted the bottoming action. When it broke out above resistance near 81.50, instead of setting back somewhat as many markets are prone to do as they digest their gains, the Dollar merely tracked sideways for a very brief period before it rocketed higher supported by overwhelmingly strong fundamentals.

It then stalled out near 84.50 where it consolidated a bit further before embarking on yet another leg higher. That rally took it all the way to just short of 87. The greenback set back and retreated all the way to the former resistance zone which served as downside support.

From there it encountered another wave of buying which took it all the way back up to 87, which it obliterated, soaring to its recent high near the 88.50 level, where it is currently consolidating some more.

As chart technicians, we are now watching to see whether this is just another pause in the relentless move higher in the greenback or the beginning of a deeper move lower. Thus far, the available evidence points to this as merely another pause. However we need to stay vigilant as always.

The fundamentals that have driven the Dollar higher against the majors are still in place. the current "Long Dollar" trade has gotten a bit crowded with specs heavily net long. Perhaps some of what we are seeing today in the Forex markets is some correcting of that imbalance. For now, as long as the Dollar remains above 87.00 on a closing basis, it looks like the pause that refreshes.

Time will tell...let's see what we get next week....

Informa Expects 2015-2016 marketing Year Soybean Acreage to be a Record

Informa Economics, a respected private grain advisory firm, today released its widely anticipated acreage numbers for next year's bean and corn crops.

The firm projects a whopping 88.3 million acres will go to beans next year here in the US with corn acreage at 88.3 million as well. That is up 4 million acres from this year's bean acreage number. On the corn, we had 90.9 million this year.

Soybean prospects are strong because of the high prices compared to corn and the fact that they are cheaper to grown.

The beans were acting heavy in today's session but it does seem as if the Informa numbers added to some of the selling pressure that we are currently seeing in there.

Keep in mind that the recent rally has occurred in spite of the USDA projecting a nearly 33% increase in total global bean supplies over the next year. Logistical issues related to rail car and truck availability, as well as slow farmer sales, have contributed to the recent panic buying among some end users of meal but maybe the market is coming back to grips with the fact that there is not going to be any shortage of beans this year.

More later....

Another Gold "Reverse Flash Crash" Ahead of the Weekend

Don't expect to hear a peep out of the Gold Is Always Manipulated All the Time" crowd about today's massive short squeeze. Here is what a huge short squeeze looks like on a chart. Pretty impressive isn't it?

Don't expect to hear such pithy and insightful "analysis" such as: "Who would buy in such large size regardless of the impact on the market if they were really trying to obtain the best possible buying price? Surely this is 'proof' that our claim of market manipulation by sinister forces is true".

"These insiders and powerful forces are determined to drive the price of gold ever higher and are not even trying to hide their blatant attempts at upward price manipulation".

No, you will get none of that because in their world, this is just the "right and just and fair" thing for gold to be doing. When gold sells off sharply, it is "evil bullion banks acting as agents of the Fed" behind the move. When gold moves higher as computer programs go beserk to the upside, all is good and true and right on the world once more. it is Hallelujah time in the gold cult church! Breakout those hymn books and get those priests and prophets back up there in the pulpit once more to encourage the faithful to remain true and steadfast!

Putting all that foolishness behind us, we can once again see how much fear and panic buying can be created when a powerful short squeeze once again kicks off in a market. Just look at huge spike in volume. It has even dwarfed the massive volume that we saw in this same market exactly a week ago last Friday when that jobs report came in a bit lower than what the market was expecting and the Dollar encountered a sharp selloff.

Once more we are getting a sharp move in the Forex markets, this time being the Euro, which is getting its own version of a short squeeze as many traders are caught short the Euro and are getting out on the heels of a bit better than anticipated Eurozone GDP number.

So far the gold market is not backing down back under the $1180 level, which is the key for the bulls to have a legitimate shot at running this back up to try to put a "12" handle in front of the metal once more.  If they can close this market over that level, they have a very good shot at doing that next week although the 20 day moving average, which comes in near $1194 would be the first upside target to be bested before a test of $1200 would be in order. Stay tuned on this one.

I am going to be most interested in seeing what kind of numbers we are going to get out of that GLD once more after this squeeze. Will the ETF attract some new buying or will those looking for other pastures for their monies take advantage of the rally to liquidate. We will see soon enough.

I can tell you that some of the other markets I am trading today are seeing some very strange and bizarre swings occurring in them, notably the meal spreads. The Yen is volatile as well having hit a fresh seven year low early in the session but apparently the rally in the Euro against the Dollar is sparking some short covering in the Yen as well.

I will get some more up later on today after the dust settles. Suffice it to say for now, the gold bulls are seizing the day but they need to flex their muscles a bit more in the mining shares. The HUI is confirming the move higher thus far but has yet to really strongly exceed the peak made on last Friday's big up day.

Let's see what we get on the close - never a dull or boring moment in our modern markets is there?

Hey who knows, maybe some are now reading the lower energy prices, as stimulative in nature, much more so than any monetary stimulus measures that the Western Central Banks might be undertaking and are looking at that as a reason to put some money into commodities once more. Up until now they have all been part of a deflationary wave building in the commodity sector but sentiment is fickle, like the mob in the movie "Gladiator" and can change in a heartbeat.

Euro Rally Pulls up Gold

I am still trying to get some information as to the driving force behind the unexpectedly sharp rally that is taking place in the Euro from off its worst early session levels.

The common currency rallied almost a full 100 pips off its low in the span of a couple of hours but especially within the last hour. As it moved up, gold shot up as well as silver and even copper.

As soon as I can find out something I will throw it up here at the site, assuming I have some time to do so. It is a busy morning with extreme volatility being seen across a large number of individual commodity futures markets.

Take a look at the combo chart showing gold on the bottom and the Euro on the top. Note that the relationship is almost perfect!  As mentioned before here, gold is going to take its cues from the currency markets.