Gold Shoved Back Down

Yesterday I mentioned that gold had stalled out at its 50 day moving average, which just so happens to come in very near the psychological resistance level of $1700. Today it was knocked lower and hit its 200 day moving average on the downside which has stopped its descent, for now.

There looks to me to be a couple of things going on here. The first is a technical failure with its inability to get a handle of $17" in front of it. That must occur for momentum based buying to come in, buying which I might add is necessary if this thing is going to to anything to excite the bulls. The Swap Dealers and Bullion Banks are selling very heavily at this level and are absorbing all of the bids coming into the market.

The second is that I get the distinct feeling that what we are seeing is disenchanted short term oriented traders who are are giving up in disgust at gold's lackluster performance and are looking for more fertile grounds elsewhere. And why should they not at this point seeing that it is the equity markets that are attracting all the hot money flows. 

Yet again we see the S&P 500 just made a FIVE YEAR high! That is where the action is and that is where the money flows are going to go. Bernanke and his merry crew of modern day alchemists have gotten precisely what they are looking for. Even the bond market refuses to break sharply lower with interest rates hovering stubbornly near the 1.84% level on the 10 Year.

The VIX moved a bit higher today, surprisingly so but then again, maybe the fact that the S&P stop less than 3 points away from the 1500 level has even rattled the cages of even the most die-hard equity perma-bulls. That index has already risen 5% since the end of last year and the month of January is not even over yet.

Back to gold however, the RSI has once again retreated lower failing to best the 60 level indicating that the gold market continues to be stuck in a broad trading range bounded by $1630-$1640 on the bottom and $1697-$1700 on the top. Volatility in the gold option pit is nearly comatose indicating the absence of any speculative fever whatsoever. Quiet markets like this make me nervous because they can make big moves in either direction at any time. With gold, the tendency is to make the big move lower when the gold shares continue reeking to high heaven. The HUI feel through its floor of support at 420 as if it were non-existent.

AS I have written previously, one can make all manner of bullish arguments for the gold shares but until the LARGER INVESTMENT COMMUNITY actually subscribes to that view and begins putting their money into the sector, nothing is going to happen. Repeat after me - SPECULATORS DRIVE MARKETS and without speculators willing to chase prices higher, stocks go nowhere.

Case in point - compare the S&P 500 with the HUI and you will see where the speculative money is going... I was telling a friend the other day that gold share investors would have been better off doing absolutely nothing after the credit crisis erupted in 2008 and leaving all of their money in a broad equity index mutual fund rather than actually attempting to understand what was happening to our financial system.

I guess that either group cannot complain in one sense - both the S&P 500 and the HUI are right back to where they were in 2008. So consider it as FIVE LONG WASTED YEARS. Motto - Drink heavily and deeply and do nothing but watch reality shows with the rest of the population.

The dumbed-down citizenry of this nation whom still do this day have no clue as to what actually happened with the economic system are no worse off than those of us who do know! Ah yes, ignorance is indeed bliss it would seem.

This is yet another important reason to lean to read price charts to move into and out of markets when the signals inform you. It will save a lot of frustation not to mention make it much more profitable for you as an investor.

This having been said, the next level of chart support on the HUI does not come in until near 400. Barring any surprises, that is more than likely where the index is heading. It had better hold there and especially above 380 for should it not, there is no support on the chart until 342 or so.

The Silver chart looks a little better than the gold chart right now but it failed to take out $32.50, that critical resistance level we have been talking about on the KWN WEEKLY METALS WRAP and is now retreating. There is a band of support (former resistance) that can be seen near today's session low which will need to hold to prevent the metal from dropping back to $31.

The RSI is still in an uptrend but it, just like with gold, failed to extend beyond the 60 level. Translation - while the market bias is still friendly, it remains mired within a broader range bounded by $32.50 on the top and supported near $30 on the bottom. For silver to get anything going to the upside it must first take out yesterday's high near $32.50 and preferably get a close above $33.

Complacency Index at 69 Month Low!

The following chart of the Volatility Index or the VIX as it is more commonly referred to is stunning. With today's further decline, the index has now reached levels last seen in APRIL 2007!





The VIX is a measurement of sentiment. It tends to rise and spike sharply during periods of fear or unease and decline during periods of complacency.

What we are basically seeing with today's move is investor complacency is at EXACTLY the same level SIX MONTHS BEFORE THE BOTTOM FELL OUT OF THE US EQUITY MARKETS in late 2007. I remind you that at that time, hardly a bear could be found anywhere with the exception of a few sharp traders/investors, managers who were warning of extreme overvaluations.



What is even more interesting (or frightening) is that the S&P 500 was sitting at the EXACT SAME LEVEL back in that month of April 2007 as it is this month, January 2013! Take a look and see.

Want some more mind-numbing news? The S&P 500 is  NOW LESS THAN 100 points off its all time high and 85 points off its peak level during what everyone now agrees was a MASSIVE BUBBLE in equities in the year 2000.

I must say that based on the current economic conditions, or even expected economic conditions some 6 months out, I find it hard to believe that the current level of the US equity market are rational. That they are sitting at these levels is a testimony to the ability of the US Federal Reserve, the ECB, the BOE and the BOJ to stuff massive and gargantuan amounts of liquidity into the system in order to stave off deflation. Oh yes, they have managed to stave off deflation pressures alright, at least for the time being. What they have done is to create another massive bubble in the equity markets once again. I cannot think of a better poster child to demonstrate the degree to which paper assets can be inflated by meddling Central Bankers than the US equity markets.

With bullish sentiment once again at extreme levels, not many bears around, with an economy that continues to crawl along in an "L" shaped recovery, and with no end in sight to the massive US federal budget deficits and overall federal debt, I personally believe that the US equity markets are now a huge accident waiting to happen.

Maybe I will be proven wrong for another few months as the economy/market run on these drugs in its system, but I will not be the least bit surprised to see a significant fall in stocks when it does occur. Methinks we are all going to have ringside seats to the greatest experiment in monetary history determining whether or not endless creation of nearly unlimited sums of paper currency can usher in an era of lasting prosperity and effectively do away with any fallout whatsoever from the accumulating of massive indebtedness.

One last thing - by the end of the current administration's term, the projected US federal deficit is expected to be in the vicinity of $20 TRILLION. Chew on that for a while and you will see why this market scares the hell out of me, especially with the vast majority of investors utterly complacent with hardly a care in the world.

I hope that I, along with you my readers all live long enough to see how monetary historians are going to record this. I suspect they will marvel at the blind folly of so many. It is almost as if an entire generation of investors have lost their collective minds.

REmember, as traders, we cannot fight the tape and expect to make money but that does not mean that we cannot marvel at the rank ignorance of our era.



50 Day Moving Average Stymies Gold

Gold seems to have run into extremely HEAVY selling pressure at the 50 day moving average, which incidentally, just so happens to be coming in just below the $1700 level. It appears a concerted effort is being made to prevent gold from acquiring a "17" HANDLE, which is what the momentum based buyers are waiting for.

If you look at the chart closely, you can see the defensive fortification being erected by the bears. So far the market refuses to break down but it is stalling out a bit here and will need to quickly push past $1700 soon or we will see some short-term oriented day trader types start looking for the exits.

Notice that I am including the RSI indicator merely to show that it too is stuck below the 60 level, indicating the continuation of a consolidative (sideways) type of trading pattern in the metal. Until we get a clean break of 60 on this indicator, and preferably a run past 65, the pattern is sideways within a defined range of $1695 - $1700 on the top and $1665 or so on the bottom.

Gun Free Zone Shooting - Yet Again

I am including this link because I hope you have had the time to view the short (less than 2 minutes) video at Youtube which is at the link shown below in the previous post.

Mocking the stupidity of something is a good way to show the absolute uselessness of it as a means of actually saving precious lives but even though many of us at this site can hopefully understand that the main goal is to actually PREVENT innocents from being murdered, there still exist too many in this nation who opt for SYMBOLISM OVER SUBSTANCE. Such fools continue to advocate for laws which accomplish nothing except to disarm law-abiding citizens and strip them of the means to defend not only their person, but those around them.

Here is the link containing the headline: As a sideline, more years ago than I care to remember, I actually took a couple of courses at this very location.

http://www.breitbart.com/Big-Government/2013/01/22/Another-Gun-Free-Zone-Another-Shooting-This-Time-In-Texas

Happy Days are Here - A Cure for Gun Violence has been Found!

http://www.youtube.com/watch?v=wAFAywYZK-M&feature=youtu.be

Bank of Japan Rally

The big news today is the long-awaited but pretty much expected response by the Bank of Japan to engage in further stimulus measures by basically committing to open-ended purchases of government securities and setting an inflation target of 2%.

The idea is to stave off the deflationary funk that has gripped Japan for well over a decade and more with the deliberate intent to further suppress the value of the Yen on the foreign exchange markets.

Because the purchase commitment seems to have been pushed into 2014 before it begins in earnest, speculators did the exact opposite of what the new government was attempting; they shoved the Yen higher shortcircuiting its steady downward trend.

Now we will have to wait and see what happens next if the Yen continues appreciating instead of depreciating as they had hoped for. If the specs defy the intent of the powers-that-be in Japan and refuse to get on board with the program, my guess is that we will see a public response by the Japanese monetary authorities as their political bosses, not to mention INDUSTRY LEADERS, will pressure them to undercut any Yen strength.

Traders outside of the forex markets are looking at the move by the Japanese as highly inflationary elsewhere which is perhaps the main reason behind the mvoe higher in both gold, silver, copper, platinum and palladium today.

It is ironic however to see the Yen moving higher over disappointment that the Japanese did not adopt an AGGRESSIVE enough policy to induce further yen weakness and by consequence higher inflation while at the same time the metals, both precious and base, were moving higher on expected inflation coming down the road.

Throw in one more weird day in the long bond as interest rates actually moved lower even while the equity markets continue with their giddiness. Nothing fazes the bulls on Wall Street right now and I do mean, nothing. Paper asset inflation is alive and well.

I wanted to show you a weekly chart of the Silver market over at the Comex to give you an indication of where this thing is in the larger scheme of things.

Notice that the pattern shown continues to constrict with an upward bias to it. Can you see how significant that the region beginning from $34.50 up to $35.00 has become?

Silver is currently attempting to make up the losses it incurred in December of last year. It began that month near $33.50 and then fell down below $30 hitting a low near $29.25 before rebounding slightly to end the year.

It is currently about $1.20 lower than from where it started December 2012. If talk about silver shortages to the extent that are being rumored is true, then this market will CONFIRM those rumors by launching a breakout on this technical chart and that means, at a bare minimum, a solid breach of $35.50 on a weekly closing basis. For now the chart bias is not wildly bullish but it is friendly as the market is in a consolidation pattern with a slightly higher bias.

As stated previously, higher platinum and palladium prices are tending to reinforce momentum based buying in the silver market. It also aids the cause of the metal that the soybean market is responding to some potential weather issues in South America with prices moving higher over at the CME group futures. A very large crop is expected from down that way this year so traders will be monitoring any indication that the weather might impact yields and thus overall supply. Rising grain prices tend to keep upward pressure on the Continuous Commodity Index ( CCI ) and thus helps silver as traders buy on the expecation of inflation pressures at the wholesale level.

Excerpt from Reverend Martin Luther King's "A Knock at Midnight" Speech

I wonder what Dr. King would be thinking were he alive today to survey the current age in which moral relativism seems to now be the rule rather than the exception. By that term, I mean the notion that one man's morality is as good as the other's. That "sin" is in the eye of the beholder and that there exists no absolute measurement as to what constitutes right and what constitutes wrong or sin.

Here is a powerful excerpt from that famous speech which I highly urge readers of this site to take time to review and carefully consider:

"It is also midnight within the moral order. At midnight colours lose their distinctiveness and become a sullen shade of grey. Moral principles have lost their distinctiveness. For modern man, absolute right and wrong are a matter of what the majority is doing. Right and wrong are relative to likes and dislikes and the customs of a particular community. We have unconsciously applied Einstein’s theory of relativity, which properly described the physical universe, to the moral and ethical realm.

The entire speech can be read here at the following link:

http://mlk-kpp01.stanford.edu/index.php/encyclopedia/documentsentry/doc_a_knock_at_midnight/

In honor of Martin Luther King Day

Following is a quotation from this CHRISTIAN PASTOR while he sat in a Birmingham, Alabama jail cell. It is of course taken from what is now famously termed, "The Letter from Birmingham Jail".

Here is one excerpt:

You express a great deal of anxiety over our willingness to break laws. This is certainly a legitimate concern. Since we so diligently urge people to obey the Supreme Court's decision of 1954 outlawing segregation in the public schools, it is rather strange and paradoxical to find us consciously breaking laws. One may well ask: "How can you advocate breaking some laws and obeying others?" The answer is found in the fact that there are two types of laws: There are just and there are unjust laws. I would agree with Saint Augustine that "An unjust law is no law at all."

Here is yet another:

Let us turn to a more concrete example of just and unjust laws. An unjust law is a code that a majority inflicts on a minority that is not binding on itself. This is difference made legal. On the other hand a just law is a code that a majority compels a minority to follow that it is willing to follow itself. This is sameness made legal.
Let me give another explanation. An unjust law is a code inflicted upon a minority which that minority had no part in enacting or creating because they did not have the unhampered right to vote. Who can say that the legislature of Alabama which set up the segregation laws was democratically elected? Throughout the state of Alabama all types of conniving methods are used to prevent Negroes from becoming registered voters and there are some counties without a single Negro registered to vote despite the fact that the Negro constitutes a majority of the population. Can any law set up in such a state be considered democratically structured

And yet her is one more:

Of course, there is nothing new about this kind of civil disobedience. It was seen sublimely in the refusal of Shadrach, Meshach and Abednego to obey the laws of Nebuchadnezzar because a higher moral law was involved. It was practiced superbly by the early Christians who were willing to face hungry lions and the excruciating pain of chopping blocks, before submitting to certain unjust laws of the Roman empire. To a degree academic freedom is a reality today because Socrates practiced civil disobedience.


Notice how Dr. King drew on the idea of natural law or a higher moral law as he terms it. It is on this basis that an unjust law is no law and is therefore to be disobeyed.

You will also notice that this letter is chocked full of references to the Scriptures. It makes me wonder if Dr. King would even be welcome in today's Democratic party which just this past year was determined to strip any reference of God whatsoever out of its official party platform.


Here is the link to the entire letter. I highly recommend that it be read in full as it is rich with insight.

http://users.wfu.edu/zulick/341/birmingham.html