Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/8/3_KWN_Weekly_Metals_Wrap.html
Saturday, August 3, 2013
Friday, August 2, 2013
A Tale of Two Cities
Yesterday, as far as the trading/investing world goes, the US economy was on fire and heading north. The combination of the ISM number and the jobless claims had everyone convinced that TAPERING was back on big time. Talk about a change of pace for today when the payrolls number came. The world was coming to an end once again!
The abysmal number, plus the fact that the numbers from the previous months were revised downward, sent convulsions equally as strong as those of yesterday's running through the markets.
There was a total reversal in the price action in the bond market and in the currency markets. Whereas yesterday the Dollar was King of the Hill once again, today it was deposed in unceremonial fashion.
The violence of the price reactions indicate that many traders were whipsawed having taken positions yesterday only to be completely caught off guard by the rotten payrolls number. Shorts were forced out of the bonds as well as some of the other major currencies.
Overnight gold was hit quite violently in Asian trade. I am still unsure of what the exact catalyst might have been but it looks like it was a case of an opportunistic short raiding the market in the thinner conditions and going after downside sell stops. Well, whoever was sure reached them because once the $1300 level gave way, the market literally imploded on itself falling just shy of the next level of chart support that we mentioned here yesterday down at the $1280 level.
Gold was looking quite vulnerable to an even deeper sell off until that jobs number hit the wires. Then, it was a complete upside reversal erasing those losses and moving not only back above $1300, but also through yesterday's closing pit session price. My guess is that the predatory short got taken to the cleaners on that unexpectedly weak payrolls report.
So where are we in gold right now? Guess what - I haven't a clue to be honest right now. The type of price action that we witnessed tells me that gold is almost completely dependent on each and every bit of economic news that is going to be coming our way. The worse the data is, the better for gold in the sense that it keeps any Tapering Talk off the table. The better the data, the more chances that the Tapering Talk gains credence and that is a stiff headwind for the metal as that generally means a stronger Dollar and rising interest rates.
From a technical chart perspective, the resistance zone overhead, that is noted on the chart, is still definitely intact. The market is encountering strong selling up there as those who believe that inflation is not a problem are going to go after gold on rallies and sell into those. Based on the latest COT report of this afternoon, that is a growing majority of speculators who were all net sellers this week.
The really interesting fact is that the same COT report shows that the big commercial category, aka the bullion banks in particular, reduced both short and long positions but actually covered more shorts than they did longs this past week. That brings their NET SHORT position to a little more than 5,300, which is stunning for its meagerness! They are very close to becoming net longs for the first time since December of 2001.
The Swap Dealers were net buyers this week but they remain net shorts by about a 2:1 margin. My thinking is that some of those shorts could be hedges instituted for mining companies who are getting back into that strategy, as I have outlined previously here on the site.
Back to Gold - it has been unable to push through the downtrending 50 day moving average and that is emboldening the bears to continue selling at or near that level. Dip buying remains below the market, as evidenced the strong rally off the worst overnight levels, but again, that dip buying is extremely sensitive to the economic news being released.
This week's low now takes on as much significance as this week's high for the market still remains in a range trader with a bit of a weaker bias. If $1280 were to fail for any reason, gold could easily drop another $20 before some buying shows up.
You can see the ADX indicator down below the price and note that it is still in a bearish posture even though the downtrend has stopped. As stated before but I feel needs to be said again, just because a market stops going down does not necessarily mean it is going to start going back up! It could merely start in a consolidation phase and work sideways and perhaps even resume its downtrend at some point. It might also start a new uptrend. We simply do not know and will have to wait and see and act accordingly. Gold is doing precisely this - it is moving sideways.
Part of the problem that the metal is encountering is the mining shares - they simply cannot sustain any upside movement for long. They were hit once again today with the HUI down nearly 2.5%.
As you can see on the chart, having pushed past a strong resistance level indicated by the chart gap, the market, upon subsequently retesting that level, failed to maintain its gains above it. That is a bearish technical sign. Would be longs over at the Comex notice such things and then back away from the metal fearing another downdraft that will catch them on the wrong side.
On the delivery process for the August gold contract which I promised to monitor on account of all the talk about tightness at the Comex and dwindling inventories, there was nothing much worth noting in the data that was released this morning. JP Morgan continues to be the large stopper with them taking the gold for their house account. Other than that - pretty routine.
I will try to get some more details up later this evening or tomorrow as my schedule permits but make sure to check in over at King World News for the Metals Wrap where I will be discussing some of this with Eric this weekend.
The abysmal number, plus the fact that the numbers from the previous months were revised downward, sent convulsions equally as strong as those of yesterday's running through the markets.
There was a total reversal in the price action in the bond market and in the currency markets. Whereas yesterday the Dollar was King of the Hill once again, today it was deposed in unceremonial fashion.
The violence of the price reactions indicate that many traders were whipsawed having taken positions yesterday only to be completely caught off guard by the rotten payrolls number. Shorts were forced out of the bonds as well as some of the other major currencies.
Overnight gold was hit quite violently in Asian trade. I am still unsure of what the exact catalyst might have been but it looks like it was a case of an opportunistic short raiding the market in the thinner conditions and going after downside sell stops. Well, whoever was sure reached them because once the $1300 level gave way, the market literally imploded on itself falling just shy of the next level of chart support that we mentioned here yesterday down at the $1280 level.
Gold was looking quite vulnerable to an even deeper sell off until that jobs number hit the wires. Then, it was a complete upside reversal erasing those losses and moving not only back above $1300, but also through yesterday's closing pit session price. My guess is that the predatory short got taken to the cleaners on that unexpectedly weak payrolls report.
So where are we in gold right now? Guess what - I haven't a clue to be honest right now. The type of price action that we witnessed tells me that gold is almost completely dependent on each and every bit of economic news that is going to be coming our way. The worse the data is, the better for gold in the sense that it keeps any Tapering Talk off the table. The better the data, the more chances that the Tapering Talk gains credence and that is a stiff headwind for the metal as that generally means a stronger Dollar and rising interest rates.
From a technical chart perspective, the resistance zone overhead, that is noted on the chart, is still definitely intact. The market is encountering strong selling up there as those who believe that inflation is not a problem are going to go after gold on rallies and sell into those. Based on the latest COT report of this afternoon, that is a growing majority of speculators who were all net sellers this week.
The really interesting fact is that the same COT report shows that the big commercial category, aka the bullion banks in particular, reduced both short and long positions but actually covered more shorts than they did longs this past week. That brings their NET SHORT position to a little more than 5,300, which is stunning for its meagerness! They are very close to becoming net longs for the first time since December of 2001.
The Swap Dealers were net buyers this week but they remain net shorts by about a 2:1 margin. My thinking is that some of those shorts could be hedges instituted for mining companies who are getting back into that strategy, as I have outlined previously here on the site.
Back to Gold - it has been unable to push through the downtrending 50 day moving average and that is emboldening the bears to continue selling at or near that level. Dip buying remains below the market, as evidenced the strong rally off the worst overnight levels, but again, that dip buying is extremely sensitive to the economic news being released.
This week's low now takes on as much significance as this week's high for the market still remains in a range trader with a bit of a weaker bias. If $1280 were to fail for any reason, gold could easily drop another $20 before some buying shows up.
You can see the ADX indicator down below the price and note that it is still in a bearish posture even though the downtrend has stopped. As stated before but I feel needs to be said again, just because a market stops going down does not necessarily mean it is going to start going back up! It could merely start in a consolidation phase and work sideways and perhaps even resume its downtrend at some point. It might also start a new uptrend. We simply do not know and will have to wait and see and act accordingly. Gold is doing precisely this - it is moving sideways.
Part of the problem that the metal is encountering is the mining shares - they simply cannot sustain any upside movement for long. They were hit once again today with the HUI down nearly 2.5%.
As you can see on the chart, having pushed past a strong resistance level indicated by the chart gap, the market, upon subsequently retesting that level, failed to maintain its gains above it. That is a bearish technical sign. Would be longs over at the Comex notice such things and then back away from the metal fearing another downdraft that will catch them on the wrong side.
On the delivery process for the August gold contract which I promised to monitor on account of all the talk about tightness at the Comex and dwindling inventories, there was nothing much worth noting in the data that was released this morning. JP Morgan continues to be the large stopper with them taking the gold for their house account. Other than that - pretty routine.
I will try to get some more details up later this evening or tomorrow as my schedule permits but make sure to check in over at King World News for the Metals Wrap where I will be discussing some of this with Eric this weekend.
Thursday, August 1, 2013
July ISM Number Gooses the Market
Talk about a stark contrast from one day to the next! Yesterday we were all sifting through the inner parts of the FOMC statement and noting the dovish tone and the more downbeat assessment of the US economy from the Fed. Today the ISM (Institute for Supply Management) number for the month of July hit the wires and boy howdy was it a shocker.
Activity for US manufactures took a big leap upward to 55.4 from June's 50.9 reading! That was the best reading since June 2011.
If that was not enough, the employment component of the data jumped to 54.4 from 48.7. That, coming on the heels of today's jobless claims number, which came in at 326,000 versus an expected 345,000 got the attention of traders in a big hurry. With that, stocks were off to the races, bonds plummeted and the Dollar soared against all of the majors.
Guess what, gold barely moved! I find that rather remarkable considering the fact that we had a HUGE MOVE UP in the Dollar based on talk that the TAPERING was back on. Normally, with tapering talk back on, a surging Dollar, rising interest rates, etc. gold could have been expected to get knocked for a loop. It is holding steady as I type these comments and is oscillating on both sides of the unchanged level.
The metal had a strong move overnight as yesterday's dovish FOMC put the kibosh on the gold bears and had them second guessing whether or not they should aggressively sell in the face of such a dovish statement. However, it did run out of buyers up near $1330 and then retreated back down towards $1308 where once again, just like it has been doing of late, buyers showed up in a big way.
So here we are back near the bottom of the price range again and that means one thing from a technical aspect - the support zone I noted on yesterday's chart is intact but it MUST HOLD to prevent a drop to $1300. If that gives way, gold will move towards $1280.
Can you notice how the bears are selling up against that downtrending 50 day moving average? Can you also see how stubborn this overhead level of chart resistance is?
What is weighing on gold today, in spite of its strength, is the fact that the miners are moving lower once again. This is making some longs nervous because the shares seem to have gone back to leading bullion whether it is higher or lower of late.
Let me comment here also a bit further on the backwardation thing - I mentioned that I would keep us posted if the delivery month contract, August, were to move to a premium over the next month contract, which for all practical purposes is the October. Currently, as of this hour, the BIDS for August are running about $0.40 premium to the bids for October and are actually on a par with the December. They are also a mere $1.00 discount to the February 2014 gold contract. NOW, we have the beginnings of a true backwardation structure on the futures board that we have not previously had. It is not completely there yet but for today, it certainly is moving that way.
Now whether or not this translates to a higher price is uncertain. So far, as mentioned above, even with the August contract moving out to a slight premium to the October, gold is failing at overhead chart resistance. It has not broken down technically but it also has not broken out to the upside either.
I have written repeatedly here that PRICE ACTION is the ultimate arbiter of whether or not a development is bullish or bearish. Gold thus needs to prove itself.
Let me give you an example using corn... just today the BASIS for cash corn in Cedar Rapids, Iowa is a whopping + $1.20. That is huge! It means that old crop corn in that location is fetching $1.20 more than the nearby September futures contract which is currently trading at $4.87 as I type this. Cash buyers of corn at that particular elevator are therefore willing to pay, as of today, $6.07 for a bushel of corn when all they have to do is to wait a month and they could get it for $4.87! Someone must need it quite badly.
However, here is the point, while the basis is positive the corn chart is awful....
the price is sinking lower, the basis is positive. In other words, a FUTURES TRADER who moved to buy corn based SOLELY on the positive basis, would have ended up losing a huge amount of money, not to mention the fact of lost profit potentials from using the price action to dictate a short position instead.
I understand that corn is not the same as gold mainly because we have TWO different crop years we are discussing right now and are trading off of in the futures markets, but the main point that I am trying to make, AS A TRADER, is that PRICE ACTION DICTATES whether or not any event has significance to market participants. Never forget this concept if you are to be successful TRADING.
The delivery process for the second day in August gold futures was relatively quiet compared to the large issues from Deutchse yesterday. Again, Morgan was a large stopper with the house taking the bulks of the sales while ABN AMRO was the large issuer. Not much to take away from this right now. We'll keep an eye on it as the delivery process unfolds.
Incidentally, let me take a bit of time to bring up a topic that some might find a bit odd but I feel needs to be addressed in a more public manner. It concerns some of the things being said about King World News here among posters at my site.
First of all, Eric King and his lovely wife Lizz are personal friends of mine. They spend long hours working to bring us interviews from some very smart people many of whom share the same economic world view that I do. While I may not always agree 100% with some of their views, my long term view on where the US is eventually heading is the same as the majority of the guests that appear there.
It needs to be kept in mind - I write primarily as a TRADER. that is vastly different than someone who has an INVESTOR mindset. Traders by nature have to be more short-term oriented if they are to survive in these leveraged markets. An investor can take a longer term approach and not be as concerned about the ups and downs and vagaries of a sector that they have invested money into if they have done their homework or due diligence and are settled in their convictions. Nor do they generally have the exposure to the kinds of leverage that we traders must take on.
What this translates to in real life is that a trader can have a longer term, fundamentally based view of a market while simultaneously understanding that same market can be moving in the opposite direction of that long term view. During such times, prudence dictates that one go with the flow of the money in order to be successful. That means one can be short term or even intermediate term bearish while maintaining a long term bullish view. The opposite is also true - a market can be moving higher while the long term fundamentals suggest it is heading lower.
I know this seems to confuse some who read this site but as I have often said, I wear TWO HATS over here - one of a TRADER and the other of an INVESTOR.
That being said, KWN is not and never has claimed to be a "Trader's Website". It is more of a big picture view of things and thus tends to have a longer term perspective on the precious metals. There are some guests there, myself included, who tend to focus more on the technical aspects of the gold and/or silver markets on a weekly basis and analyze price action accordingly. That means there are times when I am going to be in a bearish posture while some of the other guests are going to be bullish. Please understand this.
So I am asking those who post here to please keep this in mind and to cease from making any derogatory comments about the network or its guests. I personally have no problems if OPINIONS are debated or questioned as there is always two sides to any markets, bull and bear, but I do have a major problem with insulting someone's character or denigrating them personally because of a difference of market opinion. That honestly serves no useful purpose.
My purpose in spending time writing at this website and doing interviews over at KWN, is to try to teach others some of the things I have learned over a lifetime now of trading so that they can make their own INFORMED decisions as to what they want to do with their money. You know the old saying: "Give a man a fish and feed him for a day. Teach a man how to fish and feed him for a lifetime."
For so doing that, some of the personal emails I have received in private of late are downright vile merely because I have chosen to differ from some others who are prominent among the gold community.
Look, we are all human and we are all going to be wrong from time to time. That should not come as a news flash to any decent individual who is honest with themselves and others. If any of us were omniscient, he or she would have more money that Bill Gates. I would like to be able to boast that I have never had a losing trade. In my dreams only is such a thing true. The idea is not to be 100% perfect; it is rather to be right MORE OFTEN that you are wrong. If you can do that, and do it on a consistent basis, you can make money as a trader and as an investor because even investors with long term horizons must deal with unforeseen events or circumstances that alter the fundamentals behind the assumptions that moved them to invest accordingly in the first place.
Humility is a grace/virtue that all of us, myself included, would do well to pursue as we remember our own foibles and weaknesses. That does not mean we cannot be passionate about our beliefs nor go after falsehood or error; but unless we have firsthand evidence, that is plain to all thinking folks with common sense, that someone is corrupt, attacking them personally and denigrating their character merely because they have a different opinion on a market is not something that any of us should be in the business of doing.
So posters here - please keep this in mind as I am going to try to be a bit tougher on things if I see them getting out of hand. Exchange of ideas and views is welcome, not character attacks....
Activity for US manufactures took a big leap upward to 55.4 from June's 50.9 reading! That was the best reading since June 2011.
If that was not enough, the employment component of the data jumped to 54.4 from 48.7. That, coming on the heels of today's jobless claims number, which came in at 326,000 versus an expected 345,000 got the attention of traders in a big hurry. With that, stocks were off to the races, bonds plummeted and the Dollar soared against all of the majors.
Guess what, gold barely moved! I find that rather remarkable considering the fact that we had a HUGE MOVE UP in the Dollar based on talk that the TAPERING was back on. Normally, with tapering talk back on, a surging Dollar, rising interest rates, etc. gold could have been expected to get knocked for a loop. It is holding steady as I type these comments and is oscillating on both sides of the unchanged level.
The metal had a strong move overnight as yesterday's dovish FOMC put the kibosh on the gold bears and had them second guessing whether or not they should aggressively sell in the face of such a dovish statement. However, it did run out of buyers up near $1330 and then retreated back down towards $1308 where once again, just like it has been doing of late, buyers showed up in a big way.
So here we are back near the bottom of the price range again and that means one thing from a technical aspect - the support zone I noted on yesterday's chart is intact but it MUST HOLD to prevent a drop to $1300. If that gives way, gold will move towards $1280.
Can you notice how the bears are selling up against that downtrending 50 day moving average? Can you also see how stubborn this overhead level of chart resistance is?
What is weighing on gold today, in spite of its strength, is the fact that the miners are moving lower once again. This is making some longs nervous because the shares seem to have gone back to leading bullion whether it is higher or lower of late.
Let me comment here also a bit further on the backwardation thing - I mentioned that I would keep us posted if the delivery month contract, August, were to move to a premium over the next month contract, which for all practical purposes is the October. Currently, as of this hour, the BIDS for August are running about $0.40 premium to the bids for October and are actually on a par with the December. They are also a mere $1.00 discount to the February 2014 gold contract. NOW, we have the beginnings of a true backwardation structure on the futures board that we have not previously had. It is not completely there yet but for today, it certainly is moving that way.
Now whether or not this translates to a higher price is uncertain. So far, as mentioned above, even with the August contract moving out to a slight premium to the October, gold is failing at overhead chart resistance. It has not broken down technically but it also has not broken out to the upside either.
I have written repeatedly here that PRICE ACTION is the ultimate arbiter of whether or not a development is bullish or bearish. Gold thus needs to prove itself.
Let me give you an example using corn... just today the BASIS for cash corn in Cedar Rapids, Iowa is a whopping + $1.20. That is huge! It means that old crop corn in that location is fetching $1.20 more than the nearby September futures contract which is currently trading at $4.87 as I type this. Cash buyers of corn at that particular elevator are therefore willing to pay, as of today, $6.07 for a bushel of corn when all they have to do is to wait a month and they could get it for $4.87! Someone must need it quite badly.
However, here is the point, while the basis is positive the corn chart is awful....
the price is sinking lower, the basis is positive. In other words, a FUTURES TRADER who moved to buy corn based SOLELY on the positive basis, would have ended up losing a huge amount of money, not to mention the fact of lost profit potentials from using the price action to dictate a short position instead.
I understand that corn is not the same as gold mainly because we have TWO different crop years we are discussing right now and are trading off of in the futures markets, but the main point that I am trying to make, AS A TRADER, is that PRICE ACTION DICTATES whether or not any event has significance to market participants. Never forget this concept if you are to be successful TRADING.
The delivery process for the second day in August gold futures was relatively quiet compared to the large issues from Deutchse yesterday. Again, Morgan was a large stopper with the house taking the bulks of the sales while ABN AMRO was the large issuer. Not much to take away from this right now. We'll keep an eye on it as the delivery process unfolds.
Incidentally, let me take a bit of time to bring up a topic that some might find a bit odd but I feel needs to be addressed in a more public manner. It concerns some of the things being said about King World News here among posters at my site.
First of all, Eric King and his lovely wife Lizz are personal friends of mine. They spend long hours working to bring us interviews from some very smart people many of whom share the same economic world view that I do. While I may not always agree 100% with some of their views, my long term view on where the US is eventually heading is the same as the majority of the guests that appear there.
It needs to be kept in mind - I write primarily as a TRADER. that is vastly different than someone who has an INVESTOR mindset. Traders by nature have to be more short-term oriented if they are to survive in these leveraged markets. An investor can take a longer term approach and not be as concerned about the ups and downs and vagaries of a sector that they have invested money into if they have done their homework or due diligence and are settled in their convictions. Nor do they generally have the exposure to the kinds of leverage that we traders must take on.
What this translates to in real life is that a trader can have a longer term, fundamentally based view of a market while simultaneously understanding that same market can be moving in the opposite direction of that long term view. During such times, prudence dictates that one go with the flow of the money in order to be successful. That means one can be short term or even intermediate term bearish while maintaining a long term bullish view. The opposite is also true - a market can be moving higher while the long term fundamentals suggest it is heading lower.
I know this seems to confuse some who read this site but as I have often said, I wear TWO HATS over here - one of a TRADER and the other of an INVESTOR.
That being said, KWN is not and never has claimed to be a "Trader's Website". It is more of a big picture view of things and thus tends to have a longer term perspective on the precious metals. There are some guests there, myself included, who tend to focus more on the technical aspects of the gold and/or silver markets on a weekly basis and analyze price action accordingly. That means there are times when I am going to be in a bearish posture while some of the other guests are going to be bullish. Please understand this.
So I am asking those who post here to please keep this in mind and to cease from making any derogatory comments about the network or its guests. I personally have no problems if OPINIONS are debated or questioned as there is always two sides to any markets, bull and bear, but I do have a major problem with insulting someone's character or denigrating them personally because of a difference of market opinion. That honestly serves no useful purpose.
My purpose in spending time writing at this website and doing interviews over at KWN, is to try to teach others some of the things I have learned over a lifetime now of trading so that they can make their own INFORMED decisions as to what they want to do with their money. You know the old saying: "Give a man a fish and feed him for a day. Teach a man how to fish and feed him for a lifetime."
For so doing that, some of the personal emails I have received in private of late are downright vile merely because I have chosen to differ from some others who are prominent among the gold community.
Look, we are all human and we are all going to be wrong from time to time. That should not come as a news flash to any decent individual who is honest with themselves and others. If any of us were omniscient, he or she would have more money that Bill Gates. I would like to be able to boast that I have never had a losing trade. In my dreams only is such a thing true. The idea is not to be 100% perfect; it is rather to be right MORE OFTEN that you are wrong. If you can do that, and do it on a consistent basis, you can make money as a trader and as an investor because even investors with long term horizons must deal with unforeseen events or circumstances that alter the fundamentals behind the assumptions that moved them to invest accordingly in the first place.
Humility is a grace/virtue that all of us, myself included, would do well to pursue as we remember our own foibles and weaknesses. That does not mean we cannot be passionate about our beliefs nor go after falsehood or error; but unless we have firsthand evidence, that is plain to all thinking folks with common sense, that someone is corrupt, attacking them personally and denigrating their character merely because they have a different opinion on a market is not something that any of us should be in the business of doing.
So posters here - please keep this in mind as I am going to try to be a bit tougher on things if I see them getting out of hand. Exchange of ideas and views is welcome, not character attacks....
Wednesday, July 31, 2013
Gold Chart via ADX by request
Here is a look at the daily chart of gold as it stands after the dust has had a chance to settle from the commotion resulting from the FOMC statement of today.
Here is my take on the metal as of now:
it has made a nice recovery off of the low just below $1200. It is stalling out however at the resistance zone noted on the chart. That comes in near $1350 and extends towards $1360.
Bulls will need to push past this region soon or gold does run the risk of seeing some stale long liquidation which would have the potential to drop the metal back down towards $1280. Based on what I am seeing of this chart, if they do clear through $1360 there does not appear to be much in the way of overhead chart resistance until near $1390.
This particular indicator, which I detailed a while back on the site here is showing that the downtrend has definitely stopped. That is evidenced by the continued downward progress of the ADX line (dark purple) which is heading lower from a lofty 47 reading. Remember, a rising ADX indicates the presence of a trending market, either up or down is immaterial.
As far as the two directional indicators go, the red line or -DMI remains above the blue line or +DXI using this particular time frame for reference. This tells me that for right now the bears are still in control of this market and the downtrend has the potential to resume if any downside support levels give way.
If however the bulls can power through that overhead resistance, this indicator would more than likely generate a buy signal.
Other indicators are in a buy mode already but they too are showing signs of a stalling in upside momentum.
Gold had a strange and somewhat convoluted reaction to the Fed minutes as if it was unsure of what to do. First it moved a bit higher, then sold off strongly as players focused in on the statement dealing with the lack of inflation. Then later in the afternoon, the metal gathered strength moving back higher again as the focus shifted to the more dovish tone of the FOMC statement.
Confirmation of that was provided by the rally in the long end of the curve as bonds came well off their worse levels of the session and actually moved into positive territory about the same time as gold broke higher. Evidently, both the bond market and the gold market are now expecting no curtailment of the Fed bond buying program.
We may have to wait until FRiday to see if anything changes that current sentiment.
Here is my take on the metal as of now:
it has made a nice recovery off of the low just below $1200. It is stalling out however at the resistance zone noted on the chart. That comes in near $1350 and extends towards $1360.
Bulls will need to push past this region soon or gold does run the risk of seeing some stale long liquidation which would have the potential to drop the metal back down towards $1280. Based on what I am seeing of this chart, if they do clear through $1360 there does not appear to be much in the way of overhead chart resistance until near $1390.
This particular indicator, which I detailed a while back on the site here is showing that the downtrend has definitely stopped. That is evidenced by the continued downward progress of the ADX line (dark purple) which is heading lower from a lofty 47 reading. Remember, a rising ADX indicates the presence of a trending market, either up or down is immaterial.
As far as the two directional indicators go, the red line or -DMI remains above the blue line or +DXI using this particular time frame for reference. This tells me that for right now the bears are still in control of this market and the downtrend has the potential to resume if any downside support levels give way.
If however the bulls can power through that overhead resistance, this indicator would more than likely generate a buy signal.
Other indicators are in a buy mode already but they too are showing signs of a stalling in upside momentum.
Gold had a strange and somewhat convoluted reaction to the Fed minutes as if it was unsure of what to do. First it moved a bit higher, then sold off strongly as players focused in on the statement dealing with the lack of inflation. Then later in the afternoon, the metal gathered strength moving back higher again as the focus shifted to the more dovish tone of the FOMC statement.
Confirmation of that was provided by the rally in the long end of the curve as bonds came well off their worse levels of the session and actually moved into positive territory about the same time as gold broke higher. Evidently, both the bond market and the gold market are now expecting no curtailment of the Fed bond buying program.
We may have to wait until FRiday to see if anything changes that current sentiment.
August Gold enters its Delivery Period
With all the chatter out there about shortages of gold, Comex warehouse stocks drawdowns, etc., the delivery process for August gold could be interesting.
I must say that given all the recent fanfare, to see Deutsche Bank being a large issuer on the first delivery day seems to take the steam out of this talk. They are delivering 1,103 contracts worth of gold at 100 ounces each.
JP Morgan was the largest stopper with 847 contracts picked up for the house and 200 for their clients.
Remember when we had all that talk that Deutsche was taking delivery of Comex gold in order to return it to Germany.... Well...
The truth is that the gold delivery process has always been and will remain opaque. Firms may stop in previous months only to show up as big sellers in subsequent months. We simply have no way of knowing why they are buying or selling because we are not insiders working within their firms.
That is why, while the process is always interesting to observe, drawing conclusions from it can be rather risky.
A better gauge of the demand for gold is merely watching the price action. That will tell you what you need to know and eliminate all the worry and fuss over trying to figure out who is doing what behind the scenes in the gold market. If elephants are walking through a plot of ground, they always leave big footprints that are difficult to not see! Remember that.
I must say that given all the recent fanfare, to see Deutsche Bank being a large issuer on the first delivery day seems to take the steam out of this talk. They are delivering 1,103 contracts worth of gold at 100 ounces each.
JP Morgan was the largest stopper with 847 contracts picked up for the house and 200 for their clients.
Remember when we had all that talk that Deutsche was taking delivery of Comex gold in order to return it to Germany.... Well...
The truth is that the gold delivery process has always been and will remain opaque. Firms may stop in previous months only to show up as big sellers in subsequent months. We simply have no way of knowing why they are buying or selling because we are not insiders working within their firms.
That is why, while the process is always interesting to observe, drawing conclusions from it can be rather risky.
A better gauge of the demand for gold is merely watching the price action. That will tell you what you need to know and eliminate all the worry and fuss over trying to figure out who is doing what behind the scenes in the gold market. If elephants are walking through a plot of ground, they always leave big footprints that are difficult to not see! Remember that.
FOMC - Worried about a Lack of Inflation
That is the big thing to take away from today's FOMC statement in my opinion.
Here are the two key excerpts in my view:
"Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."
"The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back towards its objective over the medium term."
If anything, the Fed became more "dovish" if you ask me as they are back to talking about deflation concerns. This translates to no let up for the foreseeable future ( to use Bernanke's words from his recent Congressional testimony) for the bond buying program referred to as QE.
One would expect this to weaken the Dollar against some of the majors, as is currently taking place, and by default help to shore up the gold price. However, it is this concern about the lack of inflation that should get the attention of gold traders. They are focusing more on that than they are on the weakness in the US Dollar.
However, and I think this is important, their statement just further underscores the fact that all future Fed actions in regards to the QE program are going to continue to be heavily reliant on future economic data. If the data shows steady improvement, talk about tapering will increase. If the data shows weak or lackluster growth, tapering talk will be put off. In other words, traders/investors are on the same exact page with the Fed in that we are all going to be sitting around looking at each piece of economic data as it is released and attempting to view it in the light of potential Federal Reserve action based upon it.
An example - if we get a strong payrolls number in the upcoming jobs report, tapering talk will pick up, the Dollar will rise, gold will sell off and the bond yields will rise. If the number is anemic, the opposite will occur. As you can see, we are effectively right back to where we were before today's FOMC statement was released.
Isn't it peachy that our markets have degenerated into entrail reading of the FOMC?
Here are the two key excerpts in my view:
"Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."
"The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back towards its objective over the medium term."
If anything, the Fed became more "dovish" if you ask me as they are back to talking about deflation concerns. This translates to no let up for the foreseeable future ( to use Bernanke's words from his recent Congressional testimony) for the bond buying program referred to as QE.
One would expect this to weaken the Dollar against some of the majors, as is currently taking place, and by default help to shore up the gold price. However, it is this concern about the lack of inflation that should get the attention of gold traders. They are focusing more on that than they are on the weakness in the US Dollar.
However, and I think this is important, their statement just further underscores the fact that all future Fed actions in regards to the QE program are going to continue to be heavily reliant on future economic data. If the data shows steady improvement, talk about tapering will increase. If the data shows weak or lackluster growth, tapering talk will be put off. In other words, traders/investors are on the same exact page with the Fed in that we are all going to be sitting around looking at each piece of economic data as it is released and attempting to view it in the light of potential Federal Reserve action based upon it.
An example - if we get a strong payrolls number in the upcoming jobs report, tapering talk will pick up, the Dollar will rise, gold will sell off and the bond yields will rise. If the number is anemic, the opposite will occur. As you can see, we are effectively right back to where we were before today's FOMC statement was released.
Isn't it peachy that our markets have degenerated into entrail reading of the FOMC?
Copper nearing Chart Support - At Key Level
More and more copper is taking its cues from economic data and developments out of China. I can well remember the days when the US was king as far as Copper prices went. If the US economy was humming along and if housing was strong, it was a fairly simple bet that copper prices were going to move higher or stay firm.
Nowadays it is China that is the primary driver of copper prices. Last week's announcement that the authorities over there were ordering production cutbacks in order to deal with what they consider to be a surplus of goods, sent base metal prices on a downward spiral. Copper dropped hard, pure and simple.
However, there is still a US influence on the market and today's GDP number seems to have breathed enough life into the red metal that it has thus far been able to hold above what I consider to be a key technical support level on its price chart, namely the $3.00 zone.
Dr. Copper, as it is affectionately known in trading circles on account of its excellent predictive capacity when it comes to diagnosing the health of the global economy, is signaling a period of relatively flat, decidedly unimpressive growth.
As you can plainly see from the chart pattern, there is nothing bullish about the metal whatsoever. The one redeeming factor has been its refusal to break below the $3.00 level. If, and this is another one of those big "IF's", copper were to collapse through that level, it would signal another slowdown coming our way. My hunch is that the Central Banks of the developed world will more than likely maintain enough monetary stimulus to try to prevent this from happening however.
That should translate into a further continuation of the sideways pattern on the chart with the metal attracting enough buying to keep it limping along above the $3.00 level. It will take some pretty strong economic news to push it up and away from the top of the pattern, but especially above that downtrending 50 week moving average.
What this translates too is that as far as inflation signals go, the red metal is certainly not generating any at this time. That takes away one plank from gold if the industrial metals are generally weak.
Moving over to crude oil and the energy sector... Crude has dropped off its best levels and unleaded gasoline prices are back under the $3.00 level (barely). Thus the energy sector has seemingly run out of upside steam for the moment. That is not to say that it is about to fall apart; what it is saying is that the recent strong drive upward has stalled out.
Couple that with what is expected to be a very large corn crop and soybean crop, and there is not any help for the inflation boogie man coming from the food sector either.
In other words, we are continuing to see the absence of any strong, sustained upward move across the broader commodity complex. With the job market here in the US remaining subdued, it is difficult for me to see, at this time, where the inflation pressures are going to come from, particularly if WAGES REMAIN FLAT.
I should also note here that the yield on the Ten Year Treasury Note briefly popped above the 2.7% level this morning before retreating slightly. keep in mind that the last time it moved above that level, Fed Chairman Ben Bernanke changed his somewhat hawkish stance displayed in June to that of a SUPER DOVE in July when he uttered those now famous words about QE continuing "for the foreseeable future". That sent the yield crashing lower but once again, it has quietly snuck back up again. HMMM... wonder what the FOMC statement will therefore give us this afternoon???? Maybe they will have to sent more Fed governors back out to disavow what they might have written for us.
Either way, it looks as if gold is going to continue being held hostage to the vagaries and whims of the Central Bankers, as is the entire economy for that matter.
I will leave you with this chart of the Australian Dollar for now. The Aussie is particularly sensitive to the commodity cycle as the economy down under is heavily dependent on the production of raw materials, a large chunk of which end up being sold to China. As you can see, it is sinking and sinking heavily. This does not bode well for strength across the commodity sector.
Nowadays it is China that is the primary driver of copper prices. Last week's announcement that the authorities over there were ordering production cutbacks in order to deal with what they consider to be a surplus of goods, sent base metal prices on a downward spiral. Copper dropped hard, pure and simple.
However, there is still a US influence on the market and today's GDP number seems to have breathed enough life into the red metal that it has thus far been able to hold above what I consider to be a key technical support level on its price chart, namely the $3.00 zone.
Dr. Copper, as it is affectionately known in trading circles on account of its excellent predictive capacity when it comes to diagnosing the health of the global economy, is signaling a period of relatively flat, decidedly unimpressive growth.
As you can plainly see from the chart pattern, there is nothing bullish about the metal whatsoever. The one redeeming factor has been its refusal to break below the $3.00 level. If, and this is another one of those big "IF's", copper were to collapse through that level, it would signal another slowdown coming our way. My hunch is that the Central Banks of the developed world will more than likely maintain enough monetary stimulus to try to prevent this from happening however.
That should translate into a further continuation of the sideways pattern on the chart with the metal attracting enough buying to keep it limping along above the $3.00 level. It will take some pretty strong economic news to push it up and away from the top of the pattern, but especially above that downtrending 50 week moving average.
What this translates too is that as far as inflation signals go, the red metal is certainly not generating any at this time. That takes away one plank from gold if the industrial metals are generally weak.
Moving over to crude oil and the energy sector... Crude has dropped off its best levels and unleaded gasoline prices are back under the $3.00 level (barely). Thus the energy sector has seemingly run out of upside steam for the moment. That is not to say that it is about to fall apart; what it is saying is that the recent strong drive upward has stalled out.
Couple that with what is expected to be a very large corn crop and soybean crop, and there is not any help for the inflation boogie man coming from the food sector either.
In other words, we are continuing to see the absence of any strong, sustained upward move across the broader commodity complex. With the job market here in the US remaining subdued, it is difficult for me to see, at this time, where the inflation pressures are going to come from, particularly if WAGES REMAIN FLAT.
I should also note here that the yield on the Ten Year Treasury Note briefly popped above the 2.7% level this morning before retreating slightly. keep in mind that the last time it moved above that level, Fed Chairman Ben Bernanke changed his somewhat hawkish stance displayed in June to that of a SUPER DOVE in July when he uttered those now famous words about QE continuing "for the foreseeable future". That sent the yield crashing lower but once again, it has quietly snuck back up again. HMMM... wonder what the FOMC statement will therefore give us this afternoon???? Maybe they will have to sent more Fed governors back out to disavow what they might have written for us.
Either way, it looks as if gold is going to continue being held hostage to the vagaries and whims of the Central Bankers, as is the entire economy for that matter.
I will leave you with this chart of the Australian Dollar for now. The Aussie is particularly sensitive to the commodity cycle as the economy down under is heavily dependent on the production of raw materials, a large chunk of which end up being sold to China. As you can see, it is sinking and sinking heavily. This does not bode well for strength across the commodity sector.
Saturday, July 27, 2013
Trader Dan Interviewed at King World News Markets and Metals Wrap
Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/27_KWN_Weekly_Metals_Wrap.html
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/27_KWN_Weekly_Metals_Wrap.html
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