Gold bounces from Support

Gold attracted relatively good buying today as it appeared SAFE HAVEN buying was back in vogue (at least for today). Chatter that I am picking up is that more investors/traders are growing concerned that we have dodged one fiscal cliff bullet only to have to face a ricochet sooner rather than later and deal with the whole problem all over again.

That led to weakness in stocks (along with the idea that earnings are going to disappoint as the numbers begin coming out) and instead saw money flow back into bonds, the safe haven currencies ( the Yen and the US Dollar) and into gold.

Also, anecdotal reports are coming in expressing very solid physical demand for the metal at current levels.

As stated yesterday, value based buying can provide a floor of support for a market and can bottom it but it takes more than that to actually propel a market higher into a strong sustained uptrend. That requires momentum based buying and so far that is lacking. When I wrote yesterday that gold was needing a catalyst to get it moving higher, my meaning was a TECHNICAL CHART catalyst to bring in hedge fund money on the buy side.

Right now, hedge funds are still liquidating longs or even adding to the short side to play gold. To get their friendly attention, gold will need to take out the resistance level noted on the chart and get at least TWO CONSECUTIVE CLOSES above that level or ONE SOLID CLOSE ABOVE the $1700 level that can then remain above $1680 on any subsequent price dip.

Downside chart support below $1640 and ranging to $1626 must hold or price will be at $1600 relatively quickly.

Between index fund rebalancing, confusion over the various conflicting statements coming out of the FEd governors and uncertainty regarding the health of any so-called global recovery, markets have been giving off some rather conflicting signals. I am hopeful that once we at least get through the index rebalancing we will get a clearer picture of what the markets in general want to do and gold in particular.

The HUI did manage to recover the broken support level of 420 by the time the trading session was closed but so far the shares are not providing any sort of lift to the sector at all.

Gold Looking for a Catalyst

With a growing number of pundits calling the 12 year bull market in gold as coming to an end, the large money flows that are necessary to drive gold higher have recently been lacking. If you look at the S&P 500 and look at the gold chart, it is not hard to see where the bulk of investment flows have been going; namely equities.

This fits with the theme being sounded by GET-TV that the bull market in stocks is proof that the global economy is recovering. Again, please no nastygrams on this; I am merely repeating what the pundit class that regularly appear on TV are saying.

I find it rather amazing that very few seem to be the least bit concerned about the growth in the size of government indebtedness. Then again, as I have been saying a lot lately, hot money has nothing to do with long term views; it is tied to near term thinking and oblivious if not downright disdainful of anything beyond the next 6 months.

As of today, the thinking is that the Fed has won the battle and that world economies are poised for a rebound. Funny how all this seems indifferent to the currency debasement war going on among the Central Banks of the West.

Gold is trading firmly below its 200 day moving average having been stopped cold there on Friday afternoon and again earlier in the session today.

Support on the downside lies at last week's low just below $1630. That area has held previously so if it goes for any reason, look for a rather quick move to $1600.

Upside - nothing doing until this market gets back above its 200 day moving average which, for now, is a selling zone for those looking to sell rallies in the metal.

Something must change to get fund flows coming back into the metal to get it moving higher.

SAme goes for the HUI. The mining shares are obviously out of favor with momentum-based hedge funds. To get any sort of upside momentum going, the former 50% Fibonacci retracemetn level near 457 has to be taken out. That would put the index back ABOVE both the 50 day moving average and the 200 day moving average which are now both trending lower.

The support level in solid red near 420 needs to hold or the HUI is going to sink all the way to 400 and even as possibly low as 390.

Value based buying can hold the support level if large enough in size but it cannot take the index strongly higher. That needs momentum players and they are busy chasing equities in other sectors right now.

Trader Dan on King World News Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Markets and Metals Wrap.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/1/5_KWN_Weekly_Metals_Wrap.html

Commodity Index Back to Where it Started the Year

Don't you just love the Fed? Are you not glad they provide such a calming, soothing, effect on our finanical markets? Are you not glad they are there to provide balance to the unruly animal spirits that send prices careening wildy in one direction or the other?

The above questions are obviously meant to be highly sarcastic, filled with a strong measure of contempt and disgust towards these pestilential meddlers.

I submit that the Federal Reserve is the source of the all the wild volatility and the cause of these nearly incessant mad buying and selling binges that have left the general public suspect of the US stock market and opting against investing in it.

The Fed simply cannot keep its mitts off of the market as it announces one thing or another, resulting in panic buying and panic selling by traders/investors as they seek to protect themselves from adverse price movements based on the whims of a few unelected bureaucrats who supposedly have our best interests at heart.

In my opinion, what we are witnessing has nothing to do with FREE MARKET CAPITALISM and everything to do with taming markets that have the audacity to go in a different direction than that which is desired by our Central Planners.

I have been opposed to this idiocy known as QE ever since the word found its way into our modern vernacular for the one reason that it is nothing but a device employed by a privileged few to oppose the market forces that are necessary, nay, essential, to clearing excesses built up in an economy (which by the way were created by the same Central Bank interest rate policies in the first place).

The Fed blows the bubbles and then spends the rest of its time trying to deal with the fallout from its own stupidly shortsighted policies.

In so doing, it is constantly interfering in the process that the economy must go through in order to wring out excess or malinvestment and provide some stability and normalization.

Fund Money Flows Continue Wreaking Havoc

In yesterday's post I mentioned to not put too much into a single day's price action as hedge funds are allocating money into various markets and yanking it out of others to start off the New Year.

The result so far has seen gold giving back all of its gains from yesterday, plus some, with silver surrendering nearly all of its gains as I write this. Silver looked shaky to me yesterday given the fact that the other base metals were so strong. In that environment, it should not have faded 50 cents off its best level of the session.

Even copper is surrendering some of its sharp increase from yesterday along with palladium, which is getting smacked. Platinum however is going the other way and that is up.

Don't forget that we are now in an age in which the word "SUBTLE" is unknown amongst the giant hedge funds.

They come crashing into and flying out of markets in the blink of an eye (check that - faster than that thanks to their algos) with very little regard if any to the disturbances that their buying and selling create in the markets in which they decide to play. This positioning is going to continue into tomorrow but maybe by the time the dust settles on the trading floors at the close we will have a better indication as to what to expect the start of the first FULL week of trading next Sunday evening/Monday morning.

Part of the weakness in gold and silver today is coming from two fronts - the first of which is the lowering of projected gold prices for 2013 and 2014 by analysts at some of the major investment banks. The chatter on that front is that the economy is improving enough to reduce the FEAR FACTOR that has supported gold prices. With that removed, returns on stocks look promising to many hedge fund managers and that has them looking more at equities and the base metals rather than the precious metals. Apparently the minutes from the latest FOMC meeting, in which there was some debate among the various governors about the duration of the QE3 and QE4 programs has gotten some looking for a cessation of the easy money policies of the Fed sooner than the market was expecting.

I do not buy into that notion since the only thing propping up the economy has been easy money policies but as said before, everything nowadays in these markets is ultra short term thinking. I have jokingly told some friends that a LONG TERM TRADE in these new normal is 60 minutes!

The other reason is the inability of the gold shares to sustain any sort of upward momentum. Yesterday, the HUI gapped above resistance at 450- 452 but then immediately began to attract selling. Today, that selling has intensified as the index has been steadily sinking lower since the start of the session.

I am going to refrain from too much on the technical analysis front today for the above-mentioned reasons but let's just say for now that the $1700 level is now become reinforced as a formidable overhead resistance level that MUST be breached for a trend to begin in gold. Prior to that however, gold must clear and STAY ABOVE $1680 if it is going to go anywhere in US Dollar terms.

Gold in Euro terms and in Yen terms looks significantly better right now than it does in US Dollar terms.

The Dollar is experiencing a sharp rally higher today and that is bringing general selling pressure across the commodity sector but oddly enough, if this were a RISK OFF trade, the bonds would be moving sharply higher - they are not! Iinstead they just fell apart as I wrote this.

I am watching the price action in the long bond with EXTREME INTEREST right now as it is right on the verge of a major breakdown. As of now, I am not clear what message this is sending but I find it ironic that long term rates on Treasuries are moving higher today after all the backslapping and self-congratulations we witnessed among the political class yesterday after their "triumph" of avoiding the fiscal cliff, for two months. Maybe, just maybe, the larger market is getting sick and tired of the dysfunctional government in the US and their inability to GET SPENDING UNDER CONTROL in a serious, adult-like fashion. Could it be the markets are sending a message to "GET YOUR HOUSE IN ORDER OR ELSE"?

Again, I am not sure but if these bonds do break down, all bets are off as to the US economy in the months ahead. The last thing that policy makers or the economy wants to see at this juncture is higher long term interest rates.

By the way, as I am finishing this commentary up, the FOMC minutes suggesting that the bond buying program, especially QE4, might end sooner than the end of the year, just wiped out the floor of support under this market. If the FEd is not going to buy these worthless IOU's in the quantity that it first announced for that duration that it also announced, then one has to wonder who in their right mind would want to hold them given the fact that interest rates are just too damn low on them. Rates will have to rise if the Fed no longer sucks up $40 billion a month of these things.

That Dollar rally is probably coming as a bit of relief to the currency with traders thinking that those same FOMC minutes are supportive to the currency, given the thinking that the Fed might not be proceeding to debauch the currency at the same rate as previously expected.

Let's see what tomorrow brings...and how long any of this lasts. It could all be forgotten by the time New York opens tomorrow morning for all that any of us know.

I am reminded of that famous scene in the Original "Planet of the Apes" in which Charlton Heston, cries out, "IT'S A MADHOUSE, A MADHOUSE". He must have been talking about today's financial markets.

Just how Bad is it?

I highly recommend the following article for those who are trying to keep up with the nation's financial condition. It is a very good summary of the enormity of the problem that is rapidly coming down the traintrack.

It’s a Spending Problem

By Yuval Levin

January 2, 2013 2:37 P.M.

http://www.nationalreview.com/corner/336777/it-s-spending-problem-yuval-levin

Sadly, because the problem of growing US indebtedness is not a flashy one, nor one that tugs at the heart's emotions, it is generally ignored by the useless mainstream media. For that part, it is also way off the radar screen of the vast majority of the American citizenry who are far more knowledgeable about what is going on in "Pawn Wars"  or "Gator Boys" than they are in the bakyard of their own nation.

I pulled the chart out of the article to highlight the extent of the catastrophe coming our way. Do yourself a favor and read the entire article and then reflect on the fact that the so-called "FIX" to the problem that our wondrous leader and the Congress came up with does absolutely NOTHING to even put a dent in it.

Do any of you remember that experiment which was conducted some time ago when chimpanzees were used to pick stocks for investments? If I recall correctly, they threw darts at a dartboard containing the names of various stocks and then those were chosen to make up a trial portfolio which was then compared to another portfolio chosen by the "experts". There was no measurable difference in the end result.

http://www.marketwatch.com/story/dart-throwing-chimpanzee-still-beating-funds

Maybe we should bring on the Chimpanzees and vote them into office to guide our nation's policy. They surely cannot do any worse than what we now have....

By the way, the chart below is drawn AFTER the FIX passed by Congress yesterday and signed, (by auto-pen from Hawaii) from the once again vacationing Golfer in Chief). Feeling better yet??

The Cesspool on the Potomac

If you ever needed any further proof (not that we do at this point) how hopelessly corrupt Washington DC has become, take a look at the following report from "The Washington Examiner".

The package of legislation to come out of that vile place screams to heaven itself how far gone this nation is and how nothing can be done to reverse the inevitable slide into decay and mediocrity.

One thing I am more and more convinced of with the passing of each week - the fact that former Senators/Congressmen are allowed to serve as lobbyists for industry once they are either defeated in an election or choose to retire is a major source of the scum that floats on the surface of the water in Washington D.C.

Get rid of that and institute term limits and maybe we can eliminate some of the ills that afflict DC.

Tim Carney: How corporate tax credits got in the 'cliff' deal

January 2, 2013 | 6:00 pm

The "fiscal cliff" legislation passed this week included $76 billion in special-interest tax credits for the likes of General Electric, Hollywood and even Captain Morgan. But these subsidies weren't the fruit of eleventh-hour lobbying conducted on the cliff's edge -- they were crafted back in August in a Senate committee, and they sat dormant until the White House reportedly insisted on them this week.

http://washingtonexaminer.com/tim-carney-how-corporate-tax-credits-got-in-the-cliff-deal/article/2517397#.UOTPwUbDVSJ

Gold up to Start the New Year

While both gold and silver had nice days today, they both made their best levels earlier in the session. The rest of the session was pretty much spent going nowhere and fading off their highs.

Try not to read too much into any of these markets, with a few exceptions, based on one day's performance. What we are witnessing is both a combination of relief buying associated with a miserable, rotten piece of legislation that will accomplish nothing except to ACTUALLY INCREASE THE DEFICIT but has temporarily served to asssuage fears overs the so-called "fiscal cliff" and the fact that hedge fund managers are committing lots of brand new money into the markets to start off the year. This positioning or allocation of hot money is going to come in regardless of the fundamentals in those markets which have been selected by the hedgies as the go-to investments for the New Year.

In the grains, a host of that new money was greeted with jubilation by bears who wasted no time in using the machine buying to sell at a much better price than they were originally hoping for.

The liquid energies went the opposite direction as crude ran nearly to $94 before it too faded and fell back off its best level. Copper had a huge up day which certainly did not hurt the cause of silver one bit. As a matter of fact, the base or industrial metals, were all soaring skyward in union at one point as the algorithms gorged themselves on that sector in today's session.

One would think by judging the performance of the S&P 500 that the US has hardly a care in the world. Like I said in a post last week or so, hedge fund buying and selling tends to be very short-sighted in its activity so those with a longer time frame of reference are often left confused by what appears to be buying or selling divorced from anything in the real world. Get used to it as the mindless machines and this industry will be with us, unfortunately, until at least we get an environment in which the average saver can obtain a decent rate of return on their savings accounts and can forego the casino world of the US stock markets.

Gold did clear that stubborn resistance level at $1680 which is promising and has helped to turn the technical posture on the charts. Silver regained the very strong resistance level of $31 so both of these metals no doubt saw some significant short covering as a result. I am a bit concerned about the depth of the fade in silver as it fell nearly 50 cents off its session high. That level near $31.55 or so coincides with the falling 20 day moving average so if the bulls can take it through this level and hold it there, we should see it make a rather quick run to $32.30.

Downside support in silver is near the $30.40 level followed by $30.

The yen continues to fall apart which is helping to keep the Dollar from further weakening to the extent that we are used to seeing when these risk trades are coming on full bore. The British Pound made a 52 week high against that same US Dollar today.

Bonds fell apart today as no one wanted anything to do with them as a safe haven. Then again, I have been feeling this way about US TReasury debt since the second round of QE began. I will be surprised if the bonds completely break down at these levels since any move higher in interest rates at this point will absolutely brutalize the US fiscal condition even worse and I doubt that the Fed is not going to notice that. They are not directly targeting the back end of the yield curve with QE4 but rest assured a spike in the Ten Year Note is not going to go unnoticed by our master planners. Every time it appears that the long bond is about to finally start a strong downtrending move, it promptly reverses and move higher. Maybe this time will be the start of an exception to that. We'll see.