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. We will be discussing this past week's "Yo-Yo" type price action in the metals.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/21_KWN_Weekly_Metals_Wrap.html
Saturday, September 21, 2013
Friday, September 20, 2013
Return of the Status Quo
Gold has now surrendered half of the gains that it put on as a result of Wednesday's FOMC announcement that the TAPERING was on hold. It is currently trading at 1337 as I type these comments.
While the US equity markets are a bit weaker, the S&P 500 is still sitting firmly above the 1700 level. Interest rates on the Ten Year are near 2.75% while the grain markets are imploding lower and crude oil continues to drop off its best post-FOMC announcement levels.
In short, we are pretty much back to where we were prior to the FOMC. Why do I say this? Simple - this morning Fed governor Bullard managed to do what many in the Fed have been doing since May of this year, namely, jawboning the markets and setting them up for another possibility of tapering later this year. What has it been, 2 days since we got that FOMC press release and here we already are talking about starting the Tapering once again. Good grief! This is like some sort of sick version of the movie "GroundHog Day".
It seems as if these people simply cannot restrain themselves from yakking away whenever a microphone is present. I do not know about some of you, but I get the distinct impression from watching these events unfold that the Fed literally has no earthly idea what to do next. They would like to start reducing the amount of bond buying but understand that they cannot, given the current economic conditions. So they talk about it perhaps to comfort themselves or even persuade themselves, that they really are being responsible stewards of the nation's monetary policies and are aware of the inherent dangers in a near-endless barrage of money printing. The truth is that the Fed is trapped in a net of their own making and I think some of these governors realize it. Maybe some of them are making speeches as a sort of CYA strategy just in case history is not kind to them. They can point to their various speeches and say: " Hey I was out there making a case for ending this QE stuff. Don't blame me!"
As I have written repeatedly this week, these QE programs have managed to take on near immortality simply because the job market in this nation is so pathetic that many consumers simply do not have the confidence or financial wherewithal to taken on new and large loads of debt. Velocity of Money keeps moving lower, not higher and thus the driving force needed to generate strong, upward price pressures in the economy is not there. With wages flat and many working at part time jobs, where is the force going to come from to propel economic activity in this nation strongly higher?
IN a debt based system, more and more, larger and larger, amounts of debt have to be taken on for the economy to grow. It is difficult to do that if consumers are afraid to spend with the same reckless abandon as they did during the boom years. Remember when re-financing was the coolest trick in town - turn your house into a giant ATM machine and use the savings from the lower rates to go and buy that new ATV or Jet-ski? Those days are long gone so if the consumer cannot tap their home equity and wages are going nowhere, where is the cash going to come from?
Maybe the Fed should just skip this nonsense about buying MBS's and Treasuries and just send checks to every tax paying household in the US to the tune of $85 billion each and every month? I don't know about you, but I think this money would get directly injected into the economy a helluva lot faster than it does by sitting in the reserves of the big banks or in the equity markets.I guarantee you that if I were to receive a nice, big, fat check from the Fed each and every month, I would have my ATV upgraded to a woodgrain dash and chrome wheels. Heck I would buy a new Polaris RZR just for fun! A nice COBALT boat would somehow find its way into my establishment also!
Obviously I am being facetious here but I think my point is made - most of this new money being created by the Fed is not moving into the system.
What ails this nation cannot be fixed by Fed action only; it requires STRUCTURAL REFORMS, and we are not going to get that while the current administration remains in office. It really is that simple.
At this point in time, seeing that inflation is not a serious concern of most market participants, it is going to take an issue dealing with CONFIDENCE to take gold sharply higher into a sustained uptrend. Remember gold is an asset that pays no interest; therefore it must appreciate in value if it is to be of any benefit to those who buy it as an investment. That means we must have all of the elements in place that are required to drive the price of gold higher.
First and foremost among those is CONFIDENCE, especially in the currency of a nation. A loss of confidence in a nation's currency results in rising prices as the currency's loss of value is reflected in that area first. This is why I keep coming back to the commodity complex as a whole... we must see a broad-based upward move in the commodity complex before gold will find strong, SUSTAINED, new speculative inflows. Currently we are not getting that.
Perhaps at some point this will change - we will try our best to note that if it does. As far as I am concerned we are essentially in uncharted waters and all of us are trying to use the wisdom and experience we have gained from the past to decipher how this mess is going to end. It is certainly a challenge to say the least.
While the US equity markets are a bit weaker, the S&P 500 is still sitting firmly above the 1700 level. Interest rates on the Ten Year are near 2.75% while the grain markets are imploding lower and crude oil continues to drop off its best post-FOMC announcement levels.
In short, we are pretty much back to where we were prior to the FOMC. Why do I say this? Simple - this morning Fed governor Bullard managed to do what many in the Fed have been doing since May of this year, namely, jawboning the markets and setting them up for another possibility of tapering later this year. What has it been, 2 days since we got that FOMC press release and here we already are talking about starting the Tapering once again. Good grief! This is like some sort of sick version of the movie "GroundHog Day".
It seems as if these people simply cannot restrain themselves from yakking away whenever a microphone is present. I do not know about some of you, but I get the distinct impression from watching these events unfold that the Fed literally has no earthly idea what to do next. They would like to start reducing the amount of bond buying but understand that they cannot, given the current economic conditions. So they talk about it perhaps to comfort themselves or even persuade themselves, that they really are being responsible stewards of the nation's monetary policies and are aware of the inherent dangers in a near-endless barrage of money printing. The truth is that the Fed is trapped in a net of their own making and I think some of these governors realize it. Maybe some of them are making speeches as a sort of CYA strategy just in case history is not kind to them. They can point to their various speeches and say: " Hey I was out there making a case for ending this QE stuff. Don't blame me!"
As I have written repeatedly this week, these QE programs have managed to take on near immortality simply because the job market in this nation is so pathetic that many consumers simply do not have the confidence or financial wherewithal to taken on new and large loads of debt. Velocity of Money keeps moving lower, not higher and thus the driving force needed to generate strong, upward price pressures in the economy is not there. With wages flat and many working at part time jobs, where is the force going to come from to propel economic activity in this nation strongly higher?
IN a debt based system, more and more, larger and larger, amounts of debt have to be taken on for the economy to grow. It is difficult to do that if consumers are afraid to spend with the same reckless abandon as they did during the boom years. Remember when re-financing was the coolest trick in town - turn your house into a giant ATM machine and use the savings from the lower rates to go and buy that new ATV or Jet-ski? Those days are long gone so if the consumer cannot tap their home equity and wages are going nowhere, where is the cash going to come from?
Maybe the Fed should just skip this nonsense about buying MBS's and Treasuries and just send checks to every tax paying household in the US to the tune of $85 billion each and every month? I don't know about you, but I think this money would get directly injected into the economy a helluva lot faster than it does by sitting in the reserves of the big banks or in the equity markets.I guarantee you that if I were to receive a nice, big, fat check from the Fed each and every month, I would have my ATV upgraded to a woodgrain dash and chrome wheels. Heck I would buy a new Polaris RZR just for fun! A nice COBALT boat would somehow find its way into my establishment also!
Obviously I am being facetious here but I think my point is made - most of this new money being created by the Fed is not moving into the system.
What ails this nation cannot be fixed by Fed action only; it requires STRUCTURAL REFORMS, and we are not going to get that while the current administration remains in office. It really is that simple.
At this point in time, seeing that inflation is not a serious concern of most market participants, it is going to take an issue dealing with CONFIDENCE to take gold sharply higher into a sustained uptrend. Remember gold is an asset that pays no interest; therefore it must appreciate in value if it is to be of any benefit to those who buy it as an investment. That means we must have all of the elements in place that are required to drive the price of gold higher.
First and foremost among those is CONFIDENCE, especially in the currency of a nation. A loss of confidence in a nation's currency results in rising prices as the currency's loss of value is reflected in that area first. This is why I keep coming back to the commodity complex as a whole... we must see a broad-based upward move in the commodity complex before gold will find strong, SUSTAINED, new speculative inflows. Currently we are not getting that.
Perhaps at some point this will change - we will try our best to note that if it does. As far as I am concerned we are essentially in uncharted waters and all of us are trying to use the wisdom and experience we have gained from the past to decipher how this mess is going to end. It is certainly a challenge to say the least.
Thursday, September 19, 2013
Whiplash in Crude
If you ever wanted proof that the Federal Reserve has become the single largest source of market volatility, chaos and confusion, take one look at the following hourly chart of Crude Oil.
Notice that crude was moving higher prior to the announcement at the 1:00 PM Central Time hour. When they news hit about them standing pat, it rocketed higher, pulling gasoline along for the ride. The move was good for a full $2.00/barrel add on to the price.
Why did this happen? Because computer algorithms from the hedge funds started buying everything in sight without asking any questions. If it was not nailed down, they bought it. The so-called reason cited was that the policy not changing was inflationary.
Excuse me - but we have had 5 years of QE now and we still have yet to see the inflationary fruits of these policies. The reasons are numerous but most important is the fact that the jobs market in this nation is comatose. We are learning with the passing of each day the crippling effects of this most misnamed piece of legislation that was shoved down our throats, namely, the AFFORDABLE CARE act. What a pile of hooey! Everywhere one looks health insurance costs are going up, not down and more and more we learn that employers are cutting hours and health care benefits as a result of this abomination. Hell, even the President's union buddies want no part of this monstrosity after they were among its loudest cheerleaders back in 2010.
The labor market is weak and consumers just do not seem to be in any mood to saddle themselves with loads of debt anymore. Low rates - courtesy of this QE help consumer borrowing ( as well as business borrowing ) but many consumers who are working several part times jobs to make ends meet are in no hurry to bury themselves under a debt load again. Along that line I recently read somewhere that the NUMBER ONE dream of most Americans is no longer owning their own home but rather has become one of being debt free! That is a stunner and reflects just how pessimistic the nation at large has become as they watch the slow disintegration of their country.
Regardless, the crude oil market completely gave up any gains related to yesterday's fund buying orgy and actually lost ground sinking below the launch point generated by the FOMC release.
Here is the thing with crude as I see it - while some want to look at the crude oil market as a natural recipient of hot money playing the inflation psyche I see it as a huge drag on the national economy. Think about it - we have report after report, as noted above, of folks unable to obtain full time employment. So many are being forced to take two or even three part time jobs in order to pay their bills. What do you think happens to the spending habits of such folks when they pull their automobile or truck into the gasoline station to fill up and look with dismay at the rising price of gasoline which will not stay down for long? I have a buddy of mine up here who filled up his truck the other day with diesel ( it has duel tanks) and had the "satisfaction" of getting away with spending "only" $150.
That is money that has to be spent if he is to get around to work. That is a huge chunk of cash for most folks to have to plop down on the counter in order to keep their wheels turning. What is left over from their dwindling disposable income then must be stretched into paying higher medical insurance premiums which are now rising all across the country in every single state. You tell me that these things are somehow NOT A DRAG on the growth of the US economy! Of course they are.
The way I see this crude oil market is that it is the battleground for the war between the deflationists and the inflationists.
This is also one of the reasons I keep coming back to the overall commodity sector and watching the various commodity indices such as the Goldman Sachs Commodity Index or as some prefer to watch, the Reuters/Jefferies CRB index. If the commodity complex as a whole cannot rally strongly and sustain those gains on the heels of this latest FOMC announcement, then I suspect gold is also going to be greeted with further selling on rallies once again as soon as the rash of short covering is finished.
Keep in mind something I have said here before - the recent gains in gold prior to the FOMC release of yesterday were driven PRIMARILY by large speculator short covering and NOT by the FRESH INFLOW OF NEW HOT MONEY. If gold is to maintain any rallies, and silver also for that matter, this must change. Speculators MUST feel the urgent need to acquire both metals at successively higher prices and be willing to commit wholeheartedly to their conviction if both of these markets are going to be able to sustain these rallies and actually trend higher.
While it is nice to see both metals moving higher, we are in no way out of the woods for either of them until we see some significant changes on the price charts, changes that involve the complete obliteration of overhead resistance zones that still loom quite large.
Let's give them some time before we render a verdict and watch the price action to see what we will get next before becoming too dogmatic. Personally I worry about gold when I see the HUI surrendering so much of yesterday's gains the very next day after the big FOMC-related rally. At the very least the gold mining stocks should have seen some upside follow through. Instead they sold off and moved lower. Until I see that 280 level give way on the chart of the HUI, call me a skeptic on these miners. I have that Missouri attitude - "SHOW ME"!
Notice that crude was moving higher prior to the announcement at the 1:00 PM Central Time hour. When they news hit about them standing pat, it rocketed higher, pulling gasoline along for the ride. The move was good for a full $2.00/barrel add on to the price.
Why did this happen? Because computer algorithms from the hedge funds started buying everything in sight without asking any questions. If it was not nailed down, they bought it. The so-called reason cited was that the policy not changing was inflationary.
Excuse me - but we have had 5 years of QE now and we still have yet to see the inflationary fruits of these policies. The reasons are numerous but most important is the fact that the jobs market in this nation is comatose. We are learning with the passing of each day the crippling effects of this most misnamed piece of legislation that was shoved down our throats, namely, the AFFORDABLE CARE act. What a pile of hooey! Everywhere one looks health insurance costs are going up, not down and more and more we learn that employers are cutting hours and health care benefits as a result of this abomination. Hell, even the President's union buddies want no part of this monstrosity after they were among its loudest cheerleaders back in 2010.
The labor market is weak and consumers just do not seem to be in any mood to saddle themselves with loads of debt anymore. Low rates - courtesy of this QE help consumer borrowing ( as well as business borrowing ) but many consumers who are working several part times jobs to make ends meet are in no hurry to bury themselves under a debt load again. Along that line I recently read somewhere that the NUMBER ONE dream of most Americans is no longer owning their own home but rather has become one of being debt free! That is a stunner and reflects just how pessimistic the nation at large has become as they watch the slow disintegration of their country.
Regardless, the crude oil market completely gave up any gains related to yesterday's fund buying orgy and actually lost ground sinking below the launch point generated by the FOMC release.
Here is the thing with crude as I see it - while some want to look at the crude oil market as a natural recipient of hot money playing the inflation psyche I see it as a huge drag on the national economy. Think about it - we have report after report, as noted above, of folks unable to obtain full time employment. So many are being forced to take two or even three part time jobs in order to pay their bills. What do you think happens to the spending habits of such folks when they pull their automobile or truck into the gasoline station to fill up and look with dismay at the rising price of gasoline which will not stay down for long? I have a buddy of mine up here who filled up his truck the other day with diesel ( it has duel tanks) and had the "satisfaction" of getting away with spending "only" $150.
That is money that has to be spent if he is to get around to work. That is a huge chunk of cash for most folks to have to plop down on the counter in order to keep their wheels turning. What is left over from their dwindling disposable income then must be stretched into paying higher medical insurance premiums which are now rising all across the country in every single state. You tell me that these things are somehow NOT A DRAG on the growth of the US economy! Of course they are.
The way I see this crude oil market is that it is the battleground for the war between the deflationists and the inflationists.
This is also one of the reasons I keep coming back to the overall commodity sector and watching the various commodity indices such as the Goldman Sachs Commodity Index or as some prefer to watch, the Reuters/Jefferies CRB index. If the commodity complex as a whole cannot rally strongly and sustain those gains on the heels of this latest FOMC announcement, then I suspect gold is also going to be greeted with further selling on rallies once again as soon as the rash of short covering is finished.
Keep in mind something I have said here before - the recent gains in gold prior to the FOMC release of yesterday were driven PRIMARILY by large speculator short covering and NOT by the FRESH INFLOW OF NEW HOT MONEY. If gold is to maintain any rallies, and silver also for that matter, this must change. Speculators MUST feel the urgent need to acquire both metals at successively higher prices and be willing to commit wholeheartedly to their conviction if both of these markets are going to be able to sustain these rallies and actually trend higher.
While it is nice to see both metals moving higher, we are in no way out of the woods for either of them until we see some significant changes on the price charts, changes that involve the complete obliteration of overhead resistance zones that still loom quite large.
Let's give them some time before we render a verdict and watch the price action to see what we will get next before becoming too dogmatic. Personally I worry about gold when I see the HUI surrendering so much of yesterday's gains the very next day after the big FOMC-related rally. At the very least the gold mining stocks should have seen some upside follow through. Instead they sold off and moved lower. Until I see that 280 level give way on the chart of the HUI, call me a skeptic on these miners. I have that Missouri attitude - "SHOW ME"!
If at First you don't Succeed, Try, Try again
Okay - we knew this was coming but one day after the big FOMC announcement! Please, give me a break! What I am referring to is the new "call" from Goldman Sachs that Tapering will now start in December of this year. Yes, you read that right.
Remember, it was Goldman who just a short time ago came out with a prediction of a $10 billion "dovish" tapering (their words) in September and thus advised clients based on that to buy all dips in the US equity markets and the conditions for rising stocks would still remain in place in that sort of easy money environment.
Well, lo and behold this morning news greeted me that Goldman was predicting a Fed Tapering beginning with the December 18 meeting of the FOMC. They commented that there would be insufficient data at the October meeting to change the Fed's newly announced NON-TAPER but by December this year the Fed will move. They also are predicting a complete end of the program by September 2014.
This should be interesting to watch unfold to say the least. Goldman, as well as a lot of other large firms, received a major black eye as they completely misread the Fed. I guess watching stocks soar to new all time highs however is some pretty damned good consolation for them all!
By the way, give credit to those guys who did call for a non-action on the part of the Fed over at King World News, especially Egon for going out on a limb like he did.
I can tell you one thing as a trader - I simply get out of markets before major announcements like that. I can suggest possibilities but that is just what they are, possibilities. Trading on a guess is a quick way to the poor house. If you get it right - you are a hero. If you get it wrong, your account becomes a zero. That is not trading; it is gambling and there is a world of difference between the two things.
Remember, it was Goldman who just a short time ago came out with a prediction of a $10 billion "dovish" tapering (their words) in September and thus advised clients based on that to buy all dips in the US equity markets and the conditions for rising stocks would still remain in place in that sort of easy money environment.
Well, lo and behold this morning news greeted me that Goldman was predicting a Fed Tapering beginning with the December 18 meeting of the FOMC. They commented that there would be insufficient data at the October meeting to change the Fed's newly announced NON-TAPER but by December this year the Fed will move. They also are predicting a complete end of the program by September 2014.
This should be interesting to watch unfold to say the least. Goldman, as well as a lot of other large firms, received a major black eye as they completely misread the Fed. I guess watching stocks soar to new all time highs however is some pretty damned good consolation for them all!
By the way, give credit to those guys who did call for a non-action on the part of the Fed over at King World News, especially Egon for going out on a limb like he did.
I can tell you one thing as a trader - I simply get out of markets before major announcements like that. I can suggest possibilities but that is just what they are, possibilities. Trading on a guess is a quick way to the poor house. If you get it right - you are a hero. If you get it wrong, your account becomes a zero. That is not trading; it is gambling and there is a world of difference between the two things.
Wednesday, September 18, 2013
Wash, Rinse, Repeat
That is basically what we got from the Fed today instead of the $10 billion cut in bond buying that the market had priced in. I mentioned yesterday that based on the very benign inflation environment, the Fed might just stand pat due to the recent lousy economic data. They did just that. Personally I think it was two factors which swayed them in this decision - more on that later.
Stocks loved it, bonds loved it and gold loved it. The Dollar hated it. What else is new?
It is perverse in the sense that interest rates on the long end of the curve had been steadily moving higher for about 3 months now based on the increasing expectations of a tapering move by the Fed. We have been paying close attention to the yield on the Ten Year Treasury and have noted that it just missed hitting the 3% level at the beginning of this month.
Here is what I consider perverse about this... consider this... the Fed starts some hawkish talk and begins to prepare the markets for a slowdown in the rate of its bond buying program. The market reacts to this apparent change in policy by bidding up interest rates. This then results in mortgage rates moving higher.
The Fed, obviously alarmed at what they believe will negatively impact the very fragile real estate market then backs away from any tapering plans whatsoever sending interest rates on the Ten Year back down to the 2.75% level where they are currently sitting as I type these comments.
Where does this leave us? Quite frankly, in an enormous mess the way I see it. The Fed does not have the luxury of doing a surprise sneak-attack on the markets without preparing them for a tapering of the bond buying program. For the Fed to announce out of the clear blue sky, without the least bit of warning, that it was going to scale back its bond buying program, would send the stock market into convulsions and rattle the entire interest rate market as well as the currency markets.
They therefore must prep the markets, plowing the ground and giving the markets time to come to terms with any change in monetary policy in order to avoid chaotic market reactions. Here is the catch however - in giving the markets time to prepare, the market response is to sell bonds along the long end of the yield curve thus resulting in rising long term rates. This negatively impacts the real estate market and borrowing in general as the rotten employment picture prevents many people from otherwise qualifying for loans that they might have previously been able to had rates remained at lower levels.
Then the times comes for the Fed to make the actual announcement that they have spent so much effort prepping the markets for only to realize that these same markets have pre-empted any need for the Fed to act. The result? - the Fed does nothing whatsoever!
In short, I can easily envision a scenario in which the Fed is completely trapped unable to do anything at all well into the foreseeable future. It is going to take STRUCTURAL REFORMS to improve the job market and as long as the current Administration is in power, I do not see that happening any time soon. Thus the status quo continues and goes on and on and on...
In regards to gold, it is scooting higher as a large number of shorts were forced out with today's surprise move by the Fed. It did take out that overhead resistance at $1330 which is a positive and is also now trading above $1350, another resistance level. There is $1360 which I am watching right above where it is currently trading to see how it handles that. Beyond that $1380 is the next target.
The key to gold will be whether or not the speculative world believes that the continuation of the Fed's QE4 policy unabated will generate any long-anticipated inflation. Obviously the bond market does not expect any or bonds would not be moving sharply higher. Thus far inflation has been tame. It is going to take a change in perceptions in that regard to bring in a brand new wave of hot fund money into gold as well as the rest of the commodity complex.
The ironic thing about seeing crude oil and especially gasoline rallying sharply higher today is that rising energy prices, while inflationary in their own right, also have recently tended to be seen more as a brake or drag on economic activity and consumer spending and thus are seen as factors leading to a slowdown in growth rather than a catalyst for higher inflation. If specs begin piling into the energy markets based solely on the lack of tightening from the Fed, then these specs may short-circuit any hopes that the Fed has that its latest NON-MOVE will be stimulatory in nature.
Herding cats will prove easier than herding these destructive hedge funds.
Oh what a tangled web the Fed has created!
Stocks loved it, bonds loved it and gold loved it. The Dollar hated it. What else is new?
It is perverse in the sense that interest rates on the long end of the curve had been steadily moving higher for about 3 months now based on the increasing expectations of a tapering move by the Fed. We have been paying close attention to the yield on the Ten Year Treasury and have noted that it just missed hitting the 3% level at the beginning of this month.
Here is what I consider perverse about this... consider this... the Fed starts some hawkish talk and begins to prepare the markets for a slowdown in the rate of its bond buying program. The market reacts to this apparent change in policy by bidding up interest rates. This then results in mortgage rates moving higher.
The Fed, obviously alarmed at what they believe will negatively impact the very fragile real estate market then backs away from any tapering plans whatsoever sending interest rates on the Ten Year back down to the 2.75% level where they are currently sitting as I type these comments.
Where does this leave us? Quite frankly, in an enormous mess the way I see it. The Fed does not have the luxury of doing a surprise sneak-attack on the markets without preparing them for a tapering of the bond buying program. For the Fed to announce out of the clear blue sky, without the least bit of warning, that it was going to scale back its bond buying program, would send the stock market into convulsions and rattle the entire interest rate market as well as the currency markets.
They therefore must prep the markets, plowing the ground and giving the markets time to come to terms with any change in monetary policy in order to avoid chaotic market reactions. Here is the catch however - in giving the markets time to prepare, the market response is to sell bonds along the long end of the yield curve thus resulting in rising long term rates. This negatively impacts the real estate market and borrowing in general as the rotten employment picture prevents many people from otherwise qualifying for loans that they might have previously been able to had rates remained at lower levels.
Then the times comes for the Fed to make the actual announcement that they have spent so much effort prepping the markets for only to realize that these same markets have pre-empted any need for the Fed to act. The result? - the Fed does nothing whatsoever!
In short, I can easily envision a scenario in which the Fed is completely trapped unable to do anything at all well into the foreseeable future. It is going to take STRUCTURAL REFORMS to improve the job market and as long as the current Administration is in power, I do not see that happening any time soon. Thus the status quo continues and goes on and on and on...
In regards to gold, it is scooting higher as a large number of shorts were forced out with today's surprise move by the Fed. It did take out that overhead resistance at $1330 which is a positive and is also now trading above $1350, another resistance level. There is $1360 which I am watching right above where it is currently trading to see how it handles that. Beyond that $1380 is the next target.
The key to gold will be whether or not the speculative world believes that the continuation of the Fed's QE4 policy unabated will generate any long-anticipated inflation. Obviously the bond market does not expect any or bonds would not be moving sharply higher. Thus far inflation has been tame. It is going to take a change in perceptions in that regard to bring in a brand new wave of hot fund money into gold as well as the rest of the commodity complex.
The ironic thing about seeing crude oil and especially gasoline rallying sharply higher today is that rising energy prices, while inflationary in their own right, also have recently tended to be seen more as a brake or drag on economic activity and consumer spending and thus are seen as factors leading to a slowdown in growth rather than a catalyst for higher inflation. If specs begin piling into the energy markets based solely on the lack of tightening from the Fed, then these specs may short-circuit any hopes that the Fed has that its latest NON-MOVE will be stimulatory in nature.
Herding cats will prove easier than herding these destructive hedge funds.
Oh what a tangled web the Fed has created!
Tuesday, September 17, 2013
Commodity Sector Stagnating
I mentioned in some recent posts that gold is having trouble sustaining any rallies due to the fact that as far as the bulk of traders/investors are concerned, inflation is a non-issue right now. You have falling grain prices as the market gears up for large harvests and now you have falling crude oil prices as well. Gasoline is backing off as the driving season/ vacation time is finished. The softs are struggling with coffee prices and sugar prices unable to get much going in the way of upside action and you even the livestock markets looking like they are liable to run out of upside. In short, commodities in general are seeing little in the way of strong buying. This is negating any influence from the sector as far as contributions to higher food or energy prices.
As you can see from the following chart, the commodity sector is heading lower once again. Note that the index here is trading below the 50 day moving average ( BEARISH) and is sitting right on top of the 100 day moving average. If it cannot find its footing there, it has more downside to come. That will not help gold but especially will it not help silver which needs an inflationary environment in which to thrive.
Throw on top of that an abysmal employment situation and a Velocity of Money reading that is moving lower, and the ingredients for wholesale inflation are not anyway in sight.
Gold, being a hedge against inflation, is therefore losing one of its fundamental pillars of support.
If we did not know this already, we were reminded of it today when the inflation number for August showed a mere 0.1% increase from the month of July, shy of the 0.2% that the Labor Department reported for the month of July compared to its previous month of June.
This sets up a rather interesting scenario was the markets focus on the upcoming FOMC statement for clues of "THE TAPERING". If inflation is not a threat based on the government's numbers, then will the Fed feel any particular urgency to go ahead and announce any tapering whatsoever? Given the weak employment readings of late, they may just stand pat and do nothing but repeat the same old mantra about monitoring economic data for clues to the economy's strength, etc.
IT seems as if the number floating around out there is a $10 billion reduction in the amount of bond/MBS buying from the current $85 billion. But that may prove to be too much. It is hard to say so we will have to see what the doves say and what the hawks say and go from there. If they announce what amounts to a "dovish" statement, gold may get a bit of a relief rally but until the rest of the commodity sector sees fresh inflows of speculative money, rallies in gold look like they are going to be sold at this point with equities remaining the go-to investment of choice for the big players.
As you can see from the following chart, the commodity sector is heading lower once again. Note that the index here is trading below the 50 day moving average ( BEARISH) and is sitting right on top of the 100 day moving average. If it cannot find its footing there, it has more downside to come. That will not help gold but especially will it not help silver which needs an inflationary environment in which to thrive.
Throw on top of that an abysmal employment situation and a Velocity of Money reading that is moving lower, and the ingredients for wholesale inflation are not anyway in sight.
Gold, being a hedge against inflation, is therefore losing one of its fundamental pillars of support.
If we did not know this already, we were reminded of it today when the inflation number for August showed a mere 0.1% increase from the month of July, shy of the 0.2% that the Labor Department reported for the month of July compared to its previous month of June.
This sets up a rather interesting scenario was the markets focus on the upcoming FOMC statement for clues of "THE TAPERING". If inflation is not a threat based on the government's numbers, then will the Fed feel any particular urgency to go ahead and announce any tapering whatsoever? Given the weak employment readings of late, they may just stand pat and do nothing but repeat the same old mantra about monitoring economic data for clues to the economy's strength, etc.
IT seems as if the number floating around out there is a $10 billion reduction in the amount of bond/MBS buying from the current $85 billion. But that may prove to be too much. It is hard to say so we will have to see what the doves say and what the hawks say and go from there. If they announce what amounts to a "dovish" statement, gold may get a bit of a relief rally but until the rest of the commodity sector sees fresh inflows of speculative money, rallies in gold look like they are going to be sold at this point with equities remaining the go-to investment of choice for the big players.
J P Morgan back in the News again
Our old "friends" over at J P Morgan are back in the news again today and not in a good fashion. It seems that the CFTC is looking deeper into the so-called "Whale" issue which concerned events back in early 2012. Comments out of the CFTC noted that they could use the new Dodd-Frank powers granted to some of the regulatory agencies to charge the firm with "RECKLESS" manipulation. Interesting to say the least....
Morgan is thus far balking at any settlement of the issue which would require them to admit manipulation on their part.
I should also note that the CFTC is focusing on a large build up in Morgan's derivative positions...
I will try to keep you up to date on this development.
Gold and silver thus far are yawning at the news as the "Whale" issue was related to the credit default swaps market.
Morgan is thus far balking at any settlement of the issue which would require them to admit manipulation on their part.
I should also note that the CFTC is focusing on a large build up in Morgan's derivative positions...
I will try to keep you up to date on this development.
Gold and silver thus far are yawning at the news as the "Whale" issue was related to the credit default swaps market.
A Change of Pace
Now, for what is really important news.... this one is especially for my readers from down under!
Australian Wild Pig Drinks 18 Beers, Gets in Fight with Cow
http://www.natureworldnews.com/articles/3981/20130914/australian-wild-pig-drinks-18-beers-gets-fight-cow.htm
Seriously--- after the horrific news from yesterday involving that Naval Yard shooting, I thought that it might be helpful to get a bit of news that is not so saddening. One cannot read the reports from that terrible crime scene without realizing that something is wrong with the culture in this nation. At times it seems as if we are rotting from within. Virtue, honor, decency are becoming the truest of scarce commodities. Once again however we learn about another shooter with mental illness issues - how do these people keep falling through the cracks and are thus enabled to carry out their twisted deeds?
Australian Wild Pig Drinks 18 Beers, Gets in Fight with Cow
http://www.natureworldnews.com/articles/3981/20130914/australian-wild-pig-drinks-18-beers-gets-fight-cow.htm
Seriously--- after the horrific news from yesterday involving that Naval Yard shooting, I thought that it might be helpful to get a bit of news that is not so saddening. One cannot read the reports from that terrible crime scene without realizing that something is wrong with the culture in this nation. At times it seems as if we are rotting from within. Virtue, honor, decency are becoming the truest of scarce commodities. Once again however we learn about another shooter with mental illness issues - how do these people keep falling through the cracks and are thus enabled to carry out their twisted deeds?
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