Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
Saturday, July 9, 2011
Friday, July 8, 2011
Gold Chart update and comments
Gold shot up through overhead resistance near $1530 on news that the employment situation in our nation remains in the pits. Quite frankly, this economy is going nowhere, notwithstanding the chatter from the perma bulls in the equity camp who apparently do not understand that corporate profits are strong BECAUSE THEY HAVE SLASHED THE LARGEST EXPENSE FOR MOST BUSINESSES, namely payrolls. While Wall Street cheers the earnings reports, believing that somehow those will turn into more hiring, Main Street continues to suffer from stubbornly high prices for food, energy, medical and insurance costs in an environment in which home prices remain mired in a rut and wages are stagnant.
Methinks I hear the sound of the QE horses neighing in the barn to be released. The payrolls number for May were disappointing but many chose to believe that was an anomaly which would be corrected in the June numbers. Now that the Junes are shockingly low and the May's were downwardly revised further, another month of this is going to set the Fed up to rally forth with further monetary accomodation. The pressure from the Democrats on the Fed will begin rising to obscene levels as they watch their poll numbers heading in the same direction as the payrolls numbers. PANIC, is too mild of a word to describe what they are experiencing right now.
Once again we are back to watching the all-important $1550 level in the yellow metal as that holds the key to its fortunes. Twice within the last 6 weeks or so it has come close to knocking down that door but was unable to maintain its footing above this level. The perma bears at the Comex, the bullion banks, will be attempting to hold it in check near this level as they can read the price charts just like we can and understand the implications of a successful breach of this defensive line on the charts. Should they fail, gold is going to revisit its all-time highs. It has alredy set a new all time high when priced in terms of the Euro.
The more investor confidence in the ability of both the monetary authorities and the political leaders to deal with the structural causes of what ails so much of the global economy continues to fade, the firmer the gold price is going to remain. Recent weakness in gold was a symptom of fears concerning deflationary pressures building back into the commodity sector as a result of the withdrawal of QE. Hedge funds were throwing the entire asset class away. Those fears were replaced by fears of inflation raging in the far-East, notably with China that arose on an announced rate hike. That reminded investors of the negative real rates in many nations in the emerging Far East, an enviroment extremely conducive for gains in gold. Today another set of fears arose, namely fears of a stagnating economy which will keep the Fed on hold as far as any restriction of the extremely loose monetary policy environment that they have created.
Under normal conditions that would have put pressure on the Dollar especially with the Euro seeing a rate hike recently,. HOwever, safe haven bids came into the Dollar as the US Treasury market witnessed a strong surge of buying which boosted the greenback today. The fact that the Yen and the Dollar are moving higher today, with the Bonds also moving sharply higher while the US equity markets sell off sharply is evidence that the risk trades are off for today. This is what explains the volatility in silver in particular as it is being racked by its safe haven status and its perception as a risk trade.
The mining shares are also caught in a type of crossfire between the lower broad equity markets and the strength in gold and relative stability in silver. They have put on a very good showing this week but further work remains if they are going to put in a strong upside breakout of the nature that would presage a trending move higher. The XAU would need a good weekly close above the 210 level first.
Commodity markets in general are mixed with corn leading the way to the upside among the grains as most of us traders have long ago dismissed the recent acreage numbers as utterly worthless. Demand shot through the roof on the recent plunge below $6.00 in new crop corn and towards that level in the old crop. Apparently the rest of the world did not believe USDA either.
The flip side is the energy markets as crude oil was off nearly $3.00/barrel at one point in the session today. Gasoline, while lower also still remains above $3.00 at the wholesale level. The CCI is back to revolving around the 640 level.
The US Dollar looks like it is going to finish the week above the 50 day moving average after closing below it last week. More of the same see-saw type yo-yo action in there. Until it can conclusively post a closing print above 76.50 it is going no where. Support lies near 74.50 on the downside. You can see how tight a range it is trading in.
![]()
![]()
Methinks I hear the sound of the QE horses neighing in the barn to be released. The payrolls number for May were disappointing but many chose to believe that was an anomaly which would be corrected in the June numbers. Now that the Junes are shockingly low and the May's were downwardly revised further, another month of this is going to set the Fed up to rally forth with further monetary accomodation. The pressure from the Democrats on the Fed will begin rising to obscene levels as they watch their poll numbers heading in the same direction as the payrolls numbers. PANIC, is too mild of a word to describe what they are experiencing right now.
Once again we are back to watching the all-important $1550 level in the yellow metal as that holds the key to its fortunes. Twice within the last 6 weeks or so it has come close to knocking down that door but was unable to maintain its footing above this level. The perma bears at the Comex, the bullion banks, will be attempting to hold it in check near this level as they can read the price charts just like we can and understand the implications of a successful breach of this defensive line on the charts. Should they fail, gold is going to revisit its all-time highs. It has alredy set a new all time high when priced in terms of the Euro.
The more investor confidence in the ability of both the monetary authorities and the political leaders to deal with the structural causes of what ails so much of the global economy continues to fade, the firmer the gold price is going to remain. Recent weakness in gold was a symptom of fears concerning deflationary pressures building back into the commodity sector as a result of the withdrawal of QE. Hedge funds were throwing the entire asset class away. Those fears were replaced by fears of inflation raging in the far-East, notably with China that arose on an announced rate hike. That reminded investors of the negative real rates in many nations in the emerging Far East, an enviroment extremely conducive for gains in gold. Today another set of fears arose, namely fears of a stagnating economy which will keep the Fed on hold as far as any restriction of the extremely loose monetary policy environment that they have created.
Under normal conditions that would have put pressure on the Dollar especially with the Euro seeing a rate hike recently,. HOwever, safe haven bids came into the Dollar as the US Treasury market witnessed a strong surge of buying which boosted the greenback today. The fact that the Yen and the Dollar are moving higher today, with the Bonds also moving sharply higher while the US equity markets sell off sharply is evidence that the risk trades are off for today. This is what explains the volatility in silver in particular as it is being racked by its safe haven status and its perception as a risk trade.
The mining shares are also caught in a type of crossfire between the lower broad equity markets and the strength in gold and relative stability in silver. They have put on a very good showing this week but further work remains if they are going to put in a strong upside breakout of the nature that would presage a trending move higher. The XAU would need a good weekly close above the 210 level first.
Commodity markets in general are mixed with corn leading the way to the upside among the grains as most of us traders have long ago dismissed the recent acreage numbers as utterly worthless. Demand shot through the roof on the recent plunge below $6.00 in new crop corn and towards that level in the old crop. Apparently the rest of the world did not believe USDA either.
The flip side is the energy markets as crude oil was off nearly $3.00/barrel at one point in the session today. Gasoline, while lower also still remains above $3.00 at the wholesale level. The CCI is back to revolving around the 640 level.
The US Dollar looks like it is going to finish the week above the 50 day moving average after closing below it last week. More of the same see-saw type yo-yo action in there. Until it can conclusively post a closing print above 76.50 it is going no where. Support lies near 74.50 on the downside. You can see how tight a range it is trading in.
Wednesday, July 6, 2011
China's Inflation problems continue to be Bullish for Gold
It seems as if every time traders (whose attention span these days is easily exceeded by that of a gnat - a little Dr. Zeuss here) forget the struggles that many nations in the developing Far East (particularly China) are having with inflation, news arises that serves to remind them that gold is not a US game only anymore.
Overnight, China once again hiked interest rates to try to tame this unruly beast. As a matter of fact, it is the third time this year that they have done so in an attempt to keep the monster from further rampaging through their streets. As they did before, it was another 1/4% or 25 basis points hike that was employed. As of tomorrow, the one year deposit rate will be 3.5% with the one year lending rate rising to 6.56%.
There are several points to take away from this. First, if investors/traders begin to believe that these minimal rate hikes will actually have their intended effect, they will see it as a huge negative to global growth overall.
Second, the Chinese well understand the risk trade and are attempting to defuse the hedge fund commodity buying associated with that trade. Rising agricultural and energy prices do not make the Chinese ruling class happy because those things make the working class unhappy. Get the hedgies selling commodities as an asset class in general, and prices for those goods will work lower, or so their thinking is.
Thirdly, with their officially reported inflation rate running above the interest rate on one year money (the Chinese have taken a page from the US authorities and are playing games with their equivalent to our CPI), REAL INTEREST RATES are negative. That environment is one in which GOLD thrives.
You can see that some of these effects are in play in today's trading session. The S&P 500 was knocked strongly lower this morning as news filtered into the marketplace of the rate hike. Combined with a lousy ISM number, it was enough to take stocks lower across the board.
Furthermore, yields on Portugal's debt continue to rise as Moody's downgrade to junk status of the same has made traders extremely nervous about Europe in general. Their 10 year is now at a record 12.44% while their two year is at 15.72%. YIKES! There are issues also with Irish debt and chatter is rising about Italy's and of course, Spain is not exactly a picture of robust health. This is serving to pressure the Euro and by default bringing strength into the US Dollar.
Benefitting from all this has been the US long bond, which after plummeting last week has started this holiday-shortened week off by rising nearly a full 1 1/2 points off its worst level of the past week. Bonds are benefitting from both a safe haven trade and fears that the Chinese rate hike will work to slow growth in China during a time in which US employment numbers remain stuck in nowhere land.
While commodities in general are weaker today based on the CCI, Gold, and silver, are actually benefitting from strong flows linked to safe haven buying. Silver remains as it always does, a schizophrenic market which cannot make up its mind whether it wants to be a poor man's safe haven or part of the risk trade. Today and yesterday is was a safe haven - tomorrow, who knows?
Gold on the other hand has been attracting a very strong safe haven bid ever since the Moody's downgrade hit the market. Yesterday it surged back above $1500, giving the bulls a psychological boost and today it has managed to push past the $1520 level, a level which has been noted previously as the bottom of a recent trading range, and through which gold must push if it is going to put a dent in the "sell the rally" mentality that has arisen in the yellow metal due to its position BELOW the 50 day moving average. It is no coincidence that the 50 DMA comes in at $1520 on the charts also. That is why a push through this level is so significant from a technical standpoint
I am closely watching how this market is going to act the rest of the day to see if it can maintain its footing above $1520. If gold is going to have a decent shot at recapturing its former range between $1520 and $1550, then the former level needs to hold on any subsequent retest back down toward there. As I write this about mid-morning CDT, gold has pushed further north and is now above $1530. Shorts are getting squeezed by some very strong buying.
Helping matters has been the good showing of the mining stocks in general as indicated by the HUI and the XAU. Both have continued to push up from their important recent bottoms with the XAU managing a push through its 50 DMA in yesterday's session. They both look like they are taking a bit of a break in their move higher today however. The XAU has pushed nearly 15 points off its support level near 190 while the HUI has tacked on nearly 40 points from its critical bottom around the 490 level. Traders are now stepping back to take the lay of the land and see whether or not they should take them higher or backfill a bit. If gold can better $1530 and hold there, the miners should move higher.
One very good thing however can be said about the mining stocks in general - both the XAU and the HUI set back and retested their previous swing lows that were made in mid June. The retest attracted BUYING however instead of SELLING and that confirms those lows as an important technical bottom on the price charts. Traders felt that prices for the shares were just way, way undervalued against the metals down at those levels and there were no longer any sellers left that were large enough to take them down through the value-based buying that arose at those levels.
They are not trending yet as that will require a closing push through 560 on the HUI and 210 on the XAU but they no doubt have some of the shorts in that complex nervous. The fact that they are moving higher today while the broader equity markets are seeing good selling pressure is indicative of that.
Oh, and by the way, I find it deliciously ironic that the politically-motivated release of oil from the SPR by the current administration has failed miserably. Have you noticed that crude oil is right back to where it was trading before the announcement of the oil release?
![]()
![]()
Overnight, China once again hiked interest rates to try to tame this unruly beast. As a matter of fact, it is the third time this year that they have done so in an attempt to keep the monster from further rampaging through their streets. As they did before, it was another 1/4% or 25 basis points hike that was employed. As of tomorrow, the one year deposit rate will be 3.5% with the one year lending rate rising to 6.56%.
There are several points to take away from this. First, if investors/traders begin to believe that these minimal rate hikes will actually have their intended effect, they will see it as a huge negative to global growth overall.
Second, the Chinese well understand the risk trade and are attempting to defuse the hedge fund commodity buying associated with that trade. Rising agricultural and energy prices do not make the Chinese ruling class happy because those things make the working class unhappy. Get the hedgies selling commodities as an asset class in general, and prices for those goods will work lower, or so their thinking is.
Thirdly, with their officially reported inflation rate running above the interest rate on one year money (the Chinese have taken a page from the US authorities and are playing games with their equivalent to our CPI), REAL INTEREST RATES are negative. That environment is one in which GOLD thrives.
You can see that some of these effects are in play in today's trading session. The S&P 500 was knocked strongly lower this morning as news filtered into the marketplace of the rate hike. Combined with a lousy ISM number, it was enough to take stocks lower across the board.
Furthermore, yields on Portugal's debt continue to rise as Moody's downgrade to junk status of the same has made traders extremely nervous about Europe in general. Their 10 year is now at a record 12.44% while their two year is at 15.72%. YIKES! There are issues also with Irish debt and chatter is rising about Italy's and of course, Spain is not exactly a picture of robust health. This is serving to pressure the Euro and by default bringing strength into the US Dollar.
Benefitting from all this has been the US long bond, which after plummeting last week has started this holiday-shortened week off by rising nearly a full 1 1/2 points off its worst level of the past week. Bonds are benefitting from both a safe haven trade and fears that the Chinese rate hike will work to slow growth in China during a time in which US employment numbers remain stuck in nowhere land.
While commodities in general are weaker today based on the CCI, Gold, and silver, are actually benefitting from strong flows linked to safe haven buying. Silver remains as it always does, a schizophrenic market which cannot make up its mind whether it wants to be a poor man's safe haven or part of the risk trade. Today and yesterday is was a safe haven - tomorrow, who knows?
Gold on the other hand has been attracting a very strong safe haven bid ever since the Moody's downgrade hit the market. Yesterday it surged back above $1500, giving the bulls a psychological boost and today it has managed to push past the $1520 level, a level which has been noted previously as the bottom of a recent trading range, and through which gold must push if it is going to put a dent in the "sell the rally" mentality that has arisen in the yellow metal due to its position BELOW the 50 day moving average. It is no coincidence that the 50 DMA comes in at $1520 on the charts also. That is why a push through this level is so significant from a technical standpoint
I am closely watching how this market is going to act the rest of the day to see if it can maintain its footing above $1520. If gold is going to have a decent shot at recapturing its former range between $1520 and $1550, then the former level needs to hold on any subsequent retest back down toward there. As I write this about mid-morning CDT, gold has pushed further north and is now above $1530. Shorts are getting squeezed by some very strong buying.
Helping matters has been the good showing of the mining stocks in general as indicated by the HUI and the XAU. Both have continued to push up from their important recent bottoms with the XAU managing a push through its 50 DMA in yesterday's session. They both look like they are taking a bit of a break in their move higher today however. The XAU has pushed nearly 15 points off its support level near 190 while the HUI has tacked on nearly 40 points from its critical bottom around the 490 level. Traders are now stepping back to take the lay of the land and see whether or not they should take them higher or backfill a bit. If gold can better $1530 and hold there, the miners should move higher.
One very good thing however can be said about the mining stocks in general - both the XAU and the HUI set back and retested their previous swing lows that were made in mid June. The retest attracted BUYING however instead of SELLING and that confirms those lows as an important technical bottom on the price charts. Traders felt that prices for the shares were just way, way undervalued against the metals down at those levels and there were no longer any sellers left that were large enough to take them down through the value-based buying that arose at those levels.
They are not trending yet as that will require a closing push through 560 on the HUI and 210 on the XAU but they no doubt have some of the shorts in that complex nervous. The fact that they are moving higher today while the broader equity markets are seeing good selling pressure is indicative of that.
Oh, and by the way, I find it deliciously ironic that the politically-motivated release of oil from the SPR by the current administration has failed miserably. Have you noticed that crude oil is right back to where it was trading before the announcement of the oil release?
Saturday, July 2, 2011
Trader Dan on King World News Weekly Metals Wrap
Please click on the following link to listen to my regular weekly radio interview with Eric King of the King World News Weekly Metals Wrap.
Friday, July 1, 2011
Gold nearing Critical Support Level
The euphoria over the Greece bailout continues unabated today with the equity markets rallying further upward and gold moving the other direction. The chatter is that traders are getting rid of gold supposedly for reasons related to the ebbing need for a safe haven. As always, market commentary follows price action and that is no exception when it comes to gold.
The truth is that last week's Commitment of Traders report showed a very large speculative long side exposure by the hedge funds and as remarked upon in our regularly weekly interview on the KWN Metals Wrap, any downside violation of a major chart support level set up the very real possibility of a good amount of liquidation by these stale longs. That is what has occurred.
Part of the trigger came when the USDA issued what I believe is a totally unrealistic corn acreage number. That number, which is still being met with a huge amount of skepticism among many analysts and traders such as myself, set off a massive wave of liquidation across the entire grain complex. That liquidation then spilled over into the livestock sector as well as other non-related commodity markets as margin calls proliferated and algorithm related selling across the commodity sector picked up. Both gold and silver were whacked with silver leading the way lower as could be expected in that sort of environment. The CCI plummeted yesterday dropping back down below 630 after another failed attempt to recapture the technically significant 640 level. Quite clearly, rallies in the commodity sector are currently being sold.
It certainly does appear that there is a concerted effort taking place by the powers-that-be to take commodity prices lower. The fact that a politically-oriented release of oil from the SPR came in the face of crude oil prices that were ALREADY FALLING AT THE TIME THE RELEASE WAS ANNOUNCED is sufficient reason for me to hold to my view that the release was designed to do one thing and one thing only; knock crude oil prices and by virtue of that, gasoline prices lower, in order to boost the sagging poll numbers of the current administration, and by virtue of that, the welfare of the entire Democratic party which will face a wipeout of epidemic proportions in next year's election if they do not get energy prices lower, especially at the gas pump.
Then there is the issue of annoyingly high food prices to contend with. A nice easy way to knock those lower is to go after the lynchpin of the entire food sector, the corn market. Take it down and you can lower not only food prices for those products using corn, but you can get lower wheat prices and also lower meat and chicken prices all in one fell swoop. Just like the useless jobs report numbers that we constantly get which then are revised the following month after the initial release has its intended effect, the USDA will come back next month and lower the acreage number but the damage will have already been done to the corn market.
I suspect however that some traders are getting wise to these games by now. Crude oil prices, while lower today, remain some $4.00/barrel above the level that the news of the SPR release took them. Corn, while seeing additional downside action today, is working higher off its worst levels as end users are furiously buying and getting hedge coverage into place to take advantage of this gift. Export buyers are probably already booking orders while they can.
None of this matters to the brain-dead hedge fund community however which lets their computers do their "thinking" for them. I wish to repeat here for what seems like the umpteenth time - hedge fund computer selling hits every single commodity market when their algorithms generate sell orders. There are no exceptions, even for gold. What has been occuring however in the gold market until this week was that safe haven buying was coming in and that kept the metal well supported in comparison to the damage that was being inflicted on the broader commodity markets. The bailout of Greece has temporarily derailed this safe haven bid and we are now left to the usual physical demand of the type that proceeds out of India and the middle and far East. That demand is not of sufficient size at this time to absorb the hedge fund selling and thus the market has been unable to regain its footing above $1520, which is what it needed to do in order to prevent a deeper setback in price.
For the time being we are looking to see if the demand can keep price supported here at critical support between $1480 - $1470. This level MUST HOLD to prevent further long side liquidation on the part of the hedge funds. If the physical market can soak up enough gold down here, then we have a shot at stabilizing here during this season of the summer doldrums and building a base for the rally coming later this year.
We must get back above the $1500 level in gold to give the bulls a shot at stemming the bleeding here but more importantly, the 50 day moving average to short-circuit the "sell the rally" mentality currently in place for the gold market. That level coincides with $1520, the bottom of the former range that gold was consolidating within.
The weekly gold chart still shows the BEARISH ENGULFING PATTERN formed the week of May 2 dominating its chart picture. The market had been holding up and been resisting any downside follow through from that week but had not been able to clear and hold $1550 which was needed to negate that chart signal. That week's low, $1462, is the last level of support for the bulls. They cannot afford to let that level go if they wish to avoid a move down towards $1435.
![]()
![]()
The truth is that last week's Commitment of Traders report showed a very large speculative long side exposure by the hedge funds and as remarked upon in our regularly weekly interview on the KWN Metals Wrap, any downside violation of a major chart support level set up the very real possibility of a good amount of liquidation by these stale longs. That is what has occurred.
Part of the trigger came when the USDA issued what I believe is a totally unrealistic corn acreage number. That number, which is still being met with a huge amount of skepticism among many analysts and traders such as myself, set off a massive wave of liquidation across the entire grain complex. That liquidation then spilled over into the livestock sector as well as other non-related commodity markets as margin calls proliferated and algorithm related selling across the commodity sector picked up. Both gold and silver were whacked with silver leading the way lower as could be expected in that sort of environment. The CCI plummeted yesterday dropping back down below 630 after another failed attempt to recapture the technically significant 640 level. Quite clearly, rallies in the commodity sector are currently being sold.
It certainly does appear that there is a concerted effort taking place by the powers-that-be to take commodity prices lower. The fact that a politically-oriented release of oil from the SPR came in the face of crude oil prices that were ALREADY FALLING AT THE TIME THE RELEASE WAS ANNOUNCED is sufficient reason for me to hold to my view that the release was designed to do one thing and one thing only; knock crude oil prices and by virtue of that, gasoline prices lower, in order to boost the sagging poll numbers of the current administration, and by virtue of that, the welfare of the entire Democratic party which will face a wipeout of epidemic proportions in next year's election if they do not get energy prices lower, especially at the gas pump.
Then there is the issue of annoyingly high food prices to contend with. A nice easy way to knock those lower is to go after the lynchpin of the entire food sector, the corn market. Take it down and you can lower not only food prices for those products using corn, but you can get lower wheat prices and also lower meat and chicken prices all in one fell swoop. Just like the useless jobs report numbers that we constantly get which then are revised the following month after the initial release has its intended effect, the USDA will come back next month and lower the acreage number but the damage will have already been done to the corn market.
I suspect however that some traders are getting wise to these games by now. Crude oil prices, while lower today, remain some $4.00/barrel above the level that the news of the SPR release took them. Corn, while seeing additional downside action today, is working higher off its worst levels as end users are furiously buying and getting hedge coverage into place to take advantage of this gift. Export buyers are probably already booking orders while they can.
None of this matters to the brain-dead hedge fund community however which lets their computers do their "thinking" for them. I wish to repeat here for what seems like the umpteenth time - hedge fund computer selling hits every single commodity market when their algorithms generate sell orders. There are no exceptions, even for gold. What has been occuring however in the gold market until this week was that safe haven buying was coming in and that kept the metal well supported in comparison to the damage that was being inflicted on the broader commodity markets. The bailout of Greece has temporarily derailed this safe haven bid and we are now left to the usual physical demand of the type that proceeds out of India and the middle and far East. That demand is not of sufficient size at this time to absorb the hedge fund selling and thus the market has been unable to regain its footing above $1520, which is what it needed to do in order to prevent a deeper setback in price.
For the time being we are looking to see if the demand can keep price supported here at critical support between $1480 - $1470. This level MUST HOLD to prevent further long side liquidation on the part of the hedge funds. If the physical market can soak up enough gold down here, then we have a shot at stabilizing here during this season of the summer doldrums and building a base for the rally coming later this year.
We must get back above the $1500 level in gold to give the bulls a shot at stemming the bleeding here but more importantly, the 50 day moving average to short-circuit the "sell the rally" mentality currently in place for the gold market. That level coincides with $1520, the bottom of the former range that gold was consolidating within.
The weekly gold chart still shows the BEARISH ENGULFING PATTERN formed the week of May 2 dominating its chart picture. The market had been holding up and been resisting any downside follow through from that week but had not been able to clear and hold $1550 which was needed to negate that chart signal. That week's low, $1462, is the last level of support for the bulls. They cannot afford to let that level go if they wish to avoid a move down towards $1435.
Australian Reserve Bank Director issues sobering warning
A reader from New Zealand sends us an article from down that way reporting on a speech given by Australian Reserve Bank Director Warwick McKibbon. I am including the link here as it needs to be read in full. I find the contrast between his sobering assessment of things and that of the many of the US financial authorities quite remarkable. By the way, I must mention that I have always found the RBA to be one of the more sensible and solid Central Banks.
The article is entitled:
"GLOBAL 'TRAIN WRECK' COMING". That pretty much says it all.
Here is the link.
http://www.stuff.co.nz/business/world/5218159/Global-train-wreck-coming
The article is entitled:
"GLOBAL 'TRAIN WRECK' COMING". That pretty much says it all.
Here is the link.
http://www.stuff.co.nz/business/world/5218159/Global-train-wreck-coming
Thursday, June 30, 2011
USDA Shocker
The widely anticipated USDA Crop report came out this AM and stunned the grain world with its much larger than expected corn acreage number. Widespread flooding in combination with much cooler than normal weather across the northern tier of the country had resulted in major planting delays due to excessive ponding and water-logged soils. Farmers simply could not get into their fields to plant in numerous regions. That is what makes the number given to us by the USDA this morning so incredulous. Either way, the corn market was absolutely devastated as it was swamped with orders from panicked longs trying to get out. The front month July contract, which is in its delivery period is trading without price limits and is currently down over $0.70/bushel while the most active December contract (the new crop) has more than 200K orders to sell at the limit price. This massive sell off in corn has taken down wheat (over $0.50 as I write this) and soybeans and led to sharply lower prices across the cattle and hog markets. The result has been to take the CCI (Continuous Commodity Index) lower in spite of the fact that the RISK TRADES are back on again today with the Dollar moving lower. Were it not for the USDA shock numbers, I believe we would have seen strength across the entire commodity complex. As it is, the selling in the grains is leading to margin related selling across some of the other commodity markets this morning which is putting pressure on the entire sector as a whole. This is coming in spite of the fact that the long bond market continues its recent collapse as trader euphoria over the Greek bailout continues to produce what can only be described as more "irrational exuberance" among the equity market bulls. Traders are acting as if inflation is back in the cards and are jettisoning bonds after stampeding into them for the last two months. ( I might note here that the bonds are moving off their worst levels of the session as I write this so perhaps the selling in there is beginning to dry up somewhat - we will have to see how they close today). Personally I think the rally in stocks borders on insanity but the shorts are all being systematically squeezed out (AGAIN). The short term effect of the political release of oil from the SPR has totally evaporated with the crude oil market higher in price than when the news was released. GAsoline prices have jumped nearly $0.30/gallon off the recent low and are back above $3.00 at the wholesale level on the NYMEX. Clearly energy prices are stubbornly refusing to stay down for long. If that were not enough, Jobless claims numbers came in at 428,000 for the week, well over analyst expectations of 420,000. That makes 12 straight weeks of reading above 400K, not exactly the thing that signals the economy is improving. Consumer confidence readings continue to weaken. Yet, we get a huge rally from off the critical technical chart support level of 1250 in the S&P, which has gone straight up for 4 days in a row based on what? Greece? It is now trading above the 50 day moving average after having fallen down below that important average only a short month ago. Try as I can I do not see anything of note on the data front that suggests anything has improved to the point of pushing a 50+ point rally in the S&P. Must be a national security issue to keep the stock market levitated. Then again, what else would Goldman and Morgan be doing with their spare time if not propping up the US equity markets. Either way, the big rally in equities is having the effect of pushing money back into the mining sector shares as those ratio spread trades have seen some unwinding at the expense of the actual metals. I am therefore very hesitant to read too much into the action of the miners since they are currently joined at the hip with the broader equity markets. The downtrending 50 day moving average has been the lid on both the HUI and the XAU since late April of this year. Only if the bulls can push both indices solidly above this level will we be able to conclusively say that the miners have a shot at beginning a trend higher. For the HUI that comes in near 533 and for the XAU the level is near 203. The XAU looks the firmer of the two as the large cap miners are holding better than the juniors in general. The indices have a bottom in near 490 on the HUI and 190 on the XAU which continues to hold firm but that is a far cry from meaning we are going to see an uptrend develop. That will take more conclusive technical price action. Gold ran into selling near $1515 as it was unable to get back above $1520. As long as it is unable to climb over its 50 day moving average, rallies will be sold. Lingering worries about sovereign debt issues in the Euro zone coupled with concerns over the US Dollar's fortunes are keeping safe haven flows into the metal but not of sufficient size at this point to flip the technicals to a bit more friendly posture. As was the case yesterday, for starters, gold needs a solid pit session close over $1520 to turn the chart picture more friendly. Downside support in the market remains near this week's low of $1490.  Oh, one last thing |
Subscribe to:
Posts (Atom)