Gold gets "Whack-A-Moled"

Some of you might remember that cheapie little kids game called "Whack A Mole" in which you get a plastic hammer in order to beat the crap out of the little mole that sticks its head up through the plastic opening in the slide. Well, that is what gold reminded me of today. All it took for the metal to get "whacked" down through support was a jobless claims number. Once that hit the wires it was all downhill for the metal. And yes, it is not helping matters none that the Syria situation has turned into "Peace in our Times" as far as traders are concerned.

I mentioned in yesterday's piece that gold could drop down into the next support level near $1330 - $1325 should its support level give way. That is where it is currently sitting and truthfully, it looks like bears are growling and wanting more. If the market cannot hold above $1320, it can easily drop down to test the psychologically important $1300 level. Bulls would not want to see gold lose its "13" handle as that would be devastating psychologically, especially during a time of the year in which we generally have pretty hefty physical offtake over in Asia ahead of the festival seasons.

We simply have to wait and see what kind of response we get to the various economic data releases that are hitting the wire in order to get a better feel as to whether or not gold is going to hold support or not. The only thing I believe I can clearly say is that the bears have regained the short-term momentum in this market.

The following chart notes the ADX indicator which I like to use to judge trend strength. Notice that the ADX line has been moving lower, indicative of a LACK OF TREND. It is now rising, albeit ever so slightly while the -DMI ( Negative Directional Indicator) is also rising and is trading above the + DMI ( Positive Directional Indicator - blue line).  That is very clear - the market is moving sideways to lower with bearish forces in control. I do not know how to spell it out any clearer.

The shorter term 10 day moving average has completed a downside cross of the 20 day moving average which is a negative signal. I will be the first to admit that moving averages can be useless during phases in which markets are choppy as they can generate signals which can get you whipsawed but the facts are that the hedge funds are still in love with the things and thus they cannot be ignored. The fact that the price has now dropped below all four of the moving averages noted on this chart will get the attention of their algos... My thinking is that hedge funds are in the process of rebuilding those recently lifted short positions - the ones they were covering for most of the last two months and what drove the price over $200 off the low. That is not what any bulls want to hear right now. Perhaps some news will hit the wires that demands no break or let up whatsoever in the Fed Bond Buying adventure but that is an unknown and we have to work with what we have at the current time.

The HUI fell completely apart today ( again).... it has major support near 220 - 217 which it had better hold or else....

Silver proved just how fickle it can be as it was blasted into the nether regions today. The 50 day moving average is about 50 cents or so below today's close ( $21.38).... one would expect it to encounter some buying near that level if nothing else from some short covering. If not, the charts indicate a drop into a former congestion zone from $20.25 - $19.75.

Even as I type these late afternoon comments, price for both of the metals is continuing to sink lower....the damage on the charts is significant once again with the bulls under the gun to hold the market here or face increased losses.

Gold looks hesitant

By now it should be obvious that any Syrian premium that was in the gold market has now been effectively rung out. Price gains due to geopolitical events tend to be quite fleeting unless the events escalate which in this case they did not. As far as the market is now concerned, Syria is off the map and most traders realize nothing is going to happen over there to change the status quo in the least bit.

That means other drivers for gold are now coming back into focus. While the US dollar is weaker today, it is not helping gold much with the exception of perhaps allowing it to remain above an important level of chart support. From my perspective, the markets looks "heavy".

I keep coming back to the same thing I have been focusing on for the last couple of weeks now - namely - the recent gains in gold have come mainly from hedge fund short covering as their short positions had become rather large from an historical perspective. Now that they have covered a large number of those shorts ( bought them back) there is simply no additional source of buying on a large enough scale to take the market through important overhead chart resistance levels. Large speculators do not have any technical reasons to chase the price of the metal higher and thus they are NOT ENTERING this market in large numbers. Without thrust to counteract the pull of gravity, markets will tend to follow the path of least resistance and that is lower. It will take some sort of economic data news release to trigger any strong, concerted, and more importantly, SUSTAINED NEW BUYING.

As you can see from the price chart, gold is perched right on top of an important chart support level that extends from $1360 - $1355 or so. Bears are gunning to break it down through this region for they realize, if they do, that price will fall rather rapidly to $1325 - $1320. For the bulls to get anything going beyond this boring, nothing-to-the-upside aspect, they will need to clear $1380 at a bare minimum but more importantly, recapture that "14" handle.

The fact that the mining shares seem rather comatose right now is not aiding the cause of the metal. Also, it does not help gold to see interest rates rising here in the US especially since most investors believe that inflation is a non-existent threat for the time being.

The one thing gold has going for it right now is that it is into a period in which it normally is strong from a seasonal perspective. That brings us to same factors which have always been supportive, namely far-Eastern buying of the metal. The question is the same however as it has been for some time now - can the physical market demand for the metal be enough to support a market which is lacking any serious investment demand from the West? The answer to that question is also the same - Yes, the physical market demand can put a floor of support under the gold price but it is important to understand that this demand, while it can be most impressive, is insufficient to generate a sustained bullish uptrend. That will not happen unless western based investors decide to chase the price higher, something which they are not currently doing.

One more thing - at the risk of beating a dead horse - you will note that for all this erroneous talk of "backwardation", the gold price simply cannot make much headway to the upside.

Miners' Hedging back in the News

While reading through some of the newswires stories this AM, I came across an interesting report about Pan American Silver.

You might recall that I had recently written that I believed we were going to see the increased use of hedging among gold and silver miners in order to get themselves some downside price protection and to actually lock in some profits during a period in time of wildly unpredictable price swings in the precious metals.

The story from Down Jones reports comments from CEO Geoff Burns as stating that PAAS had recently instituted hedges in order to reduce risk originating from the wild price swings. Here is his quote:

"Our action may have inadvertently sent the wrong message to the market and to our shareholders about our hedging philosophy and our view of the long-term prospects for silver and gold".

He also stated that he was "considerably more optimistic" about the short term prospects for both metals.

"More importantly, we need to unequivocally reassure our shareholders that the company's fundamental philosophy is still that of not hedging our precious metal production, thereby providing maximum exposure to the price of silver".

The report went on to say that PAAS had entered into forward contracts ( a means of hedging) 20% of its forecasted silver production and 18% of gold production.

They are now delivering the metal and repurchasing in order to close out all of these forward contracts before the end of the current year.

The thing I came away from reading the report is that the company instituted these hedges as part of "a short-term tactical response" to market conditions.

Apparently PAAS feels that the worst of the price decline in the precious metals is over. Remember, this is the thinking of one mining company but I did find it interesting that they were willing to employ some strategic hedging. They are to be commended for that in my opinion as mining companies should not be in the business of losing profits from mining operations. If they can lock in a decent profit on some of their production and mitigate or eliminate that risk, then they are wise to do so.

I would suggest that mining companies do not have the best track record when it comes to the prediction of gold and silver prices. I am of the opinion that any business, whether it be mining, agriculture, etc., that does not take steps to mitigate price risk is taking reckless chances with its shareholders' wealth. It in essence, has become a speculator in its own right. As a speculator, I do not need any mining company I might have chosen to invest in to be speculating on my behalf. I want them to show CONSISTENT and GROWING profits. If hedging is a means to do that, then so be it. I would much rather have a company that misses some upside rather than one that becomes unprofitable and ends up losing money for me. Heck, I can do that easily enough myself as a commodity trader!

No Worries in the Equity Markets

It is interesting to watch the day to day shifts in sentiment among traders/investors as the news headlines change in regards to Syria.

President Putin just made a master stroke of genius in taking our Keystone Cops bumbling leaders to school, i. e., Obama and Secretary of State Kerry, ( you know that fierce warrior who intimated that any punitive stroke of Syria inflicted by the US would be itty, bitty, teeny, tiny.) I am reminded of Alan Jackson's classic C&W hit, "It's all Right to be Little Bitty".

Seems as if no one in the Administration expected Putin to seize upon their hapless confusion and suggest that Assad should put his chemical weapons under international supervision. Whoops! there goes the imperative to punish Assad swiftly!

The markets sure seem to take it that way because it was off to the races in the equity world again today with the DOW pushing past 15,000 and the S&P closing on its session high.

Take a look at the S&P 500 chart - it has pushed right back up to the 50 day moving average once again after plunging below it on Syria fears.

Gold, after looking like it was going to try to push through $1400, swiftly succumbed to selling pressure in spite of the strength in the Euro. It sure does seem as if that "14" handle is proving to be difficult for the metal to hold right now. Same goes for silver in the sense that maintaining itself above the $24 level for any length of time is also elusive. As mentioned in the KWN Metals Wrap over the weekend, both of these markets need a steady influx of brand new, eager, speculative buyers to sustain their upward path and right now they are NOT getting that. They will not unless they can first clear those overhead chart resistance levels mentioned in that interview.

As we were reminded by last week's horrific payrolls number, the US economy is limping along with many Americans suffering and unable to secure viable FULL TIME employment. That does not apparently matter to Wall Street however.

I have been relatively quiet of late in regards to commenting on market action merely because I simply do not seem to have any clear sense of where some of these markets are heading from day to day. Reactions to various economic data releases, many which conflict the previous day's release, are unpredictable at best and bizarre at worst. To watch a market move higher on rotten economic news merely because it would argue for a delay in any Federal Reserve Tapering activity is clear evidence to this long-time trader that our financial market system no longer has much, if any, connection to anything real.

Still one cannot argue with the tape if they hope to be profitable as a trader and that means you either have to hold your nose and take your positions accordingly or do nothing and sit on the sidelines. Doing nothing however as a trader means no income so you have little if any choice but to roll with the tide.

Personally, America's nakedness is being exposed for the entire world to see. We are naked politically with a buffoon and his crew for our leaders, a man who has become a laughingstock outside of his adoring sycophants here in the US media. We are naked financially with a debt the size of which boggles ones mind if they are honest and clear-thinking. We are naked ethically which can be seen in the degeneracy our entertainment industry with the trash that it regularly spews out. We are naked intellectually, because we are to damned ignorant to learn from the lessons of history and lastly we are naked spiritually, because we have become gods unto ourselves.

So much for my soapbox for today. Watching the farce that this nation is becoming is too much for me to take without hoping that there are millions of my fellow citizens who feel the same way.

As far as gold goes, it needs a breakout on the technical price charts to get anything exciting going and to clear it from the range trade it is currently in.

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. KWN is back online after experiencing some unusual issues with their website....

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/7_KWN_Weekly_Metals_Wrap.html

Ten Year Treasury Closing in on 3% Yield

First of all, apologies for not being able to post this week. The vagaries in the grain markets have been making me old before my time. Then again, the volatility in most nearly anything that resembles a commodity futures market these days is becoming almost unbearable at times. There is simply too much hot money moving into and out of markets on the drop of a dime for traders to get much in the way of rest.

There are two nasty habits that I have developed over the years - one is eating; the other is sleeping. I figure if I could give up both of those, I would have more spare time on my hands than I knew what to do with. It seems I am working on giving up the latter with the markets acting in the manner in which they have of late.

A quick comment in passing - gold has surrendered its "Syria" premium. I warned of this in some posts last week. Buying gold based on geopolitical fears always requires one to be very nimble and very quick as a trader because the events can change so rapidly that gains oftentimes prove quite effervescent.

Mr. Obama's buffoonish handling of this entire matter has resulted in any fears of imminent missile attacks being quickly surrendered. Most traders are now taking a wait and see attitude. With Russia's President Putin forcefully resisting any US action, many are thinking that the crisis is going to simply fade away for the immediate future. Personally I never thought I would live to see the day in which I put more confidence in Russia's President than I did in my own nation's President.

Also, the more I learn about the nature of these so-called "moderate reformers"  as our imperious leaders are dubbing them, the less I like them. Say what you will about Assad, Christian churches and individuals were generally safe under his reign. The "moderate reformers" are now butchering them. And we are supposed to be siding with them??? What kind of idiocy is that?

What this means to gold traders is that we are back to focusing on other drivers for the price of gold. That brings me to interest rates. One of the biggest headwinds that gold is facing is rising interest rates in the US. Those are coming on the heels of what many seem to feel is improving US economic data. That is translating to more of "THE TAPER". Some of you might not be old enough to remember a fun television show years ago called "Fantasy Island".

In the opening to the show each week, the little fellow ( I think his name was Tatoo or something) used to be shown looking up into the sky and shouting out the phrase, "THE PLANE, THE PLANE". Or as it is better pronounced, "DEE PLANE, DEE PLANE"!

That is what this tapering talk reminds me of. Everyone is looking around waiting for the various economic data releases and when they get them, they immediately cry out, "DEE TAPER, DEE TAPER".

Thus when we get friendly economic news, interest rates push higher as Treasuries get sold. That drives the Dollar higher on the crosses and puts pressure on the gold market. Remember, outside of the gold community, many investors view gold as a non-interest bearing asset. Thus in a rising interest rate environment, one in which real rates are not negative, gold tends to experience selling pressure. Again, I am not advocating anything here - I am merely stating the sentiment of many large investors. Gold traders need to understand this.

That being said, take a look at the following chart of the Ten Year Treasury Note. It just missed hitting the 3% mark by less than 20 basis points today! Yields have not been at this level since July 2011, more than two years ago!

This is some of the reason that gold is getting sold down today. Additionally, technical factors such as its inability to hold above $1400 are bringing in long liquidation and some fresh shorting. Shorts began hunting for stops below $1380 in the December and got them. That is bringing in more selling as stale longs are bailing out and fresh shorts are moving in.

Now that $1380 has fallen, the next level of chart support comes in at the 50 day moving average down near the $1360 - $1355 level. Bulls need to either hold it there or to quickly take it back up through $1400 to show their mettle.

Weakness in the mining shares has also been working to undermine gold as the HUI failed to extend past a strong chart resistance level near 280.

Just be prepared for more volatility as the market reacts to each and every bit of economic data/geopolitical events. No one ever said trading was easy; if it was, all of us would be busy counting our coconuts on our personal S. Pacific island.

Trader Dan Interviewed at King World News Metals Wrap

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

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/8/31_KWN_Weekly_Metals_Wrap.html

Gold Uptrend Pausing

Recent action in gold during the latter part of this week is suggesting a pause in the fledgling uptrend. The metal seems to have run into a heavy band of resistance near the $1440 level and is setting back.

Gains during the early part of this week, tied to concerns over the situation in Syria, have been fading as the refusal of the British Parliament to go along with the Obama administration's plan to lob cruise missiles into Syria took some of the safe haven bid away from gold. Traders/investors have read this to mean that an imminent strike was less likely.

Truth be told, the President has foolishly put himself into a box and has destroyed US credibility and prestige by his inept comments about a "red line" and his bellicose comments since then. This has introduced an element of uncertainty into both gold and crude oil prices which has recent buyers of both heading for the exits and booking some short term profits rather than risking losing them.

That has resulted in some short term sell signals in the metal with both indicators shown on the chart below suggesting a waning of upside momentum. Again, this does not mean that the longer term move higher in gold is finished; it does mean that unless the bulls are able to quickly reassert themselves and take control of the market by pushing price through this very stubborn band of overhead resistance, price will more than likely drift lower to see at what level dip buyers are interested in coming in. Losing psychological support at $1400 today and that "14" handle was not helpful to their cause.

Right now, without a strong catalyst from the situation in Syria, many are hesitant to chase the metal higher and are uncomfortable getting too aggressively long at current levels, especially with some reports circulating that physical offtake has slowed down a bit due to price sensitivity. Seasonal factors do still favor the bullish cause but it may take some further move lower in the metal to bring the physical market buyers back in larger numbers.

Keep in mind something I wrote earlier this week - gains in the price of gold due to geopolitical concerns do not tend to last long unless there is a worsening of the overall scenario. When news or rumors first surface about such things, the price of gold tends to quickly reflect the worse case scenario that traders envision based on that current set of information. Unless that changes for the worse, any lessening of concerns generally results in a very rapid retracement of price gains tied to the original story.

How much of gold's recent gains are tied to the Syria situation are not quite exact but it appears to me that the break out above $1360 can be attributed to it. This means we could see gold retreat back towards that level unless we do indeed see missiles flying very soon.

A concern that I do have about the gains made this week are also from a technical standpoint due to my reading of the Commitment of Traders report. We had a very sizeable amount of short covering in the "Managed Money" or Hedge Fund category, much more so than we did new buying from that same category. I cover this in detail in the Metals Wrap interview with Eric King over at King World News so be sure to listen in to that.

A quick point about this however - we need more than short covering to sustain this uptrend. Gains tied to short covering are very quick and very powerful at times. However, once that panic buying has finished, unless there is SUSTAINED NEW BUYING TO TAKE ITS PLACE, the market will run out of the thrust it needs to maintain those gains.

What this means is that Western investment demand for gold must not falter. That will be evident IF and ONLY IF overhead resistance above $1440 - $1450 is vanquished.