"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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Take a look at the chart below and you can see that gold is trying to clear chart resistance near $1290 but thus far has been unable to do so. Incoming Fed Chairperson Janet Yellen's testimony has put to rest any fears of bond tapering in the immediate future and this has spurred a round of short covering once again in the gold market.
It seems as if every single time the Fed either seems to shift gears and become more dovish or economic data comes in worse than expected and dispels Tapering fears, we experience a round of short covering in gold. However, these rallies have tended to be fleeting at best as they are viewed as just another opportunity to establish fresh short positions by some of the larger speculators. In other words, the bearish chart posture in gold has traders selling rallies and not looking to buy dips at the present time.
Notice how gold tends to spike higher, followed by a period of a narrowing range only to then drop down and form a fresh new leg lower.
Bulls need at the very minimum to push past $1290 and reclaim a "13" handle in front of the metal or bears will quickly reassert themselves and press for another leg lower.
Note the sentiment among the large hedge funds when it comes to gold of late. Can you see the rapid build in short positions? In the last two weeks alone, hedge funds have added a massive 34,800 brand new short positions while they have dumped or liquidated 10,450 long positions. That is a sizeable swing no matter how one measures it and reflects the increasing bearishness that is gripping the gold market.
If support at this week's low does give way for any reason, look for additional fund long liquidation and even more momentum based selling to take hold.
The flip side to this is that any breach of overhead chart resistance will have some fuel to run as short positions will be vulnerable.
Frankly, QE expectations/lack of tapering seems to me to be losing its impact on the price of gold. My own view is that it is not proving to be inflationary in the least bit ( the money is not making its way into the broader economy) and therefore gold is beginning to have only fleeting responses to talk of uninterrupted continuance of the bond buying program. I continue to maintain that until CONFIDENCE is lost that gold is going to struggle, QE or no QE.
Look at the VIX, or Volatility Index. I prefer to call it the Complacency Index. It remains parked down near multi-year lows indicating a near complete absence of any fear or concern in the marketplace when it comes to stocks. The very concept of "RISK" has literally been rendered obsolete as Wall Street gorges itself on the liquidity being provided by the Fed. The addiction is hopelessly incurable in my opinion as the Yellen-led Fed will undoubtedly do nothing to upset this new normal.
It is almost comical watching stocks soaring into the stratosphere negating one negative technical warning after another and reaching levels that defy rational thinking, yet here we are.
The investing world has been perfectly conditioned by the Central Bankers to buy every single dip, throw caution to the wind, make the word "risk" archaic, and continue to shove stocks higher and higher and higher with no end in sight. It is absolutely astonishing to watch this thing unfold.
Apparently all that is needed to make the very concept of a bear market in stocks obsolete is for endless money printing. There appears to be no consequences whatsoever to this madness as it is now the new normal.
Maybe we will see 1800 in the S&P 500 before the month is out. Who knows? As a trader you have to go with the money flow and the chart but as an observer with a sense of history, you have to shake your head in both bewilderment and sadness. Bewilderment that so many otherwise intelligent individuals see nothing wrong with a near-permanent money creation scheme and sadness, that so many can be herded into something which has no rational basis other than the fact that it is going up.
I do need to make one quick comment - I have stated that the broad universe of investors see no inflation signs whatsoever. Yet, one thing should be very evident - the stock market is a perfect picture of near runaway inflation but in paper assets.
Gold is popping higher in extremely low volume late this afternoon as the prepared remarks from incoming Fed Chairperson Janet Yellen make the rounds through the news wire service. While the tone is extremely dovish, frankly I do not see any cause for news here as it is no secret that Ms. Yellen is perhaps one of the most dovish members of the current FOMC.
In spite of that, the typical knee-jerk reaction is taking place in gold and in the US Dollar, which was undercut by the comments within the statement. Those looking at the remarks are drawing the conclusion that the Tapering will be postponed until sometime next year. Recently, some have begun anticipating an earlier scaling back of the bond buying program.
My suspicions are that this rally is going to be viewed as a selling opportunity and not the start of a new leg higher. We'll see about that however. The volume on the move higher is extremely low as the news surfaced basically early in the kangaroo session in which many were not even paying attention or even trading while they waited for Asia to kick in and lift the liquidity a bit more.
I do find it rather interesting that crude oil is not moving higher on the news however. Crude has tended to be a decent proxy for the inflation expectation trade as in the past it has moved higher with a lower US Dollar and moved down when the US Dollar has been strengthening. Lately however, that market has been moving more in sync with its actual fundamentals and the facts are that the US has large supplies of crude with weakening demand due to the sluggish US economy.
Let's see what happens when the dust settles tomorrow and draw some conclusions then. From a technical perspective, the zone noted as "Key Support" has thus far held. If bulls can take the metal back up through $1300 and change that "12" handle, then we go back into the wider range trade which has marked gold for some time now. If not, and sellers sense weakness, look for another test of the recent low.
My own view of this QE stuff has evolved as I have watched the impact over the last few years. Frankly, I do not see what another month, two months, six months, or even a year is going to do other than keep the stock market bubble inflated. The money is simply not making its way into the larger economy in size. Velocity of Money is going nowhere. The reason is very simple - too much debt is in the system and there are too many structural issues in the US economy, most recently the fiasco being caused by that job-killing obamacare.
The one saving grace of this entire mess is that the deflationary impact of falling energy prices has helped consumers, especially those whose health insurance rates are now soaring higher. Grains, sugar, coffee, etc have also been moving lower, thankfully, but the verdict is out on whether the harvest lows are in for the grains or this is just another bounce in a wider bear market for some of the ag products.
Silver Bulls had better flex any muscles they might have very quickly as the Bears are out growling and seem quite determined to go a stop huntin'.
The rectangular area shaded and marked support is an important inflexion point for the metal. If it does not bounce from this region and head back up again, in effect reinforcing its range trade, odds will favor a continuation lower to $20 and possibly down to $19.
The 50 day moving average is resuming its downward trend after having leveled off back in late August. It should now serve as an overhead cap to price on any rebound higher unless there is a solid, discernible change in the fundamentals and more important, in sentiment, towards the precious metals.
Gold has also lost an important level of chart support in today's session. This level, $1280, was very important as the price has tended, since August, to uncover some decent buying down here. In the middle of October, it did fall below this point, but its stay down there was only a couple of days in a row at best. If gold can recover in Asia this evening or by Thursday of this week, it will have dodged a bullet. If not, look for the next key support level to come under a test. If the Dollar takes out 81.50 on the USDX, gold is going lower.
Can you see the significance of the 1280 region? It is the 38.2% Fibonacci Retracement level of the entire rally from the secondary low made back in April 2001 and the peak above $1900 made in September 2011. On the monthly chart, the price fell below that level reaching 1180 (1179 to be exact) but it did not see any downside followthrough the next month as it immediately rebounded eventually pushing back above $1400 before failing once again.
Now it is back to testing that level and though it is early in the month of November still, if gold closes out this month below that level, December will be a critical test of the resolve of the bulls. Failure to stay above $1280 on a month ending basis on TWO CONSECUTIVE MONTHS, would increase the likelihood of another test of that spike low near $1180. Were that to fail, the next critical target for gold would be near the 50% retracement of the entire decade long bull market in gold ( 2001- 2011).
That would probably represent a good area for longer term oriented players to begin buying as you are talking about prices below the cost of production for many gold mining companies.
I am not predicting a move to this area as of now, I am merely setting up some possible scenarios IF PRICE PERFORMS AS I MENTIONED ABOVE. Remember, we are trying to listen to the voice of the market only and tuning out anything else. That is the only way to ultimately be successful as a trader/investor.
One thing that this chart also shows us is that in order for the bulls to turn this chart to their advantage, they MUST take price at a bare minimum back above the $1400 level and hold it there.
Much of this will depend on market expectations in regards to the overall inflation picture. Today, crude oil is falling sharply again having neared $93. If it fails to secure a foothold near this level, steeper losses are ahead. It is most difficult, if not impossible, to make an argument for inflation if energy prices are sinking.
On the food side of the ledger, soybeans are moving higher and have been since that USDA report last week but that is coming mainly on the heels of reported sales to China. China is notorious for booking sales but then cancelling those sales later if prices drop so beans need some more time to see how the demand is going to hold up at these higher levels. Corn appears to have found a short-term interim bottom but it is difficult for me to get bullish on corn when a record crop is still coming our way. Much depends on the S. American growing season. If it continues to get off to a good start, both corn and beans should stop moving higher sooner rather than later. I am monitoring both charts to get a sense of these all important foods, not to mention wheat, which also has stabilized. That however seems to me to be more a function of spillover buying from the corn and bean markets than any outright bullish wheat fundamentals.
Stay tuned...
The combination of rising interest rates here in the US on the heels of a stronger-than-expected headline number for the jobs report and a higher Dollar left gold without much support in today's session.
Technical and psychological damage was done, first by losing the "13" handle and secondly by failing to hold near $1296.
The 1280 level did hold the metal today but I suspect it was more a case of shorts ringing the cash register after having a good week than it was a concerted buying binge. After all, if the US Dollar is prone to further gains in the week ahead, why would there be any rush to jump into gold in a large way? Why not wait for some further weakness to see if that develops and pick it up at a lower level? That would seem to be more prudent would it not?
What gold does early next week will be important. If it drops lower and fails to hold again at or near the $1280 level, odds favor a further move down to test the swing low near $1250. Bulls need to rapidly regain the "13" handle to re-establish the range trade that had been ongoing between $1300-$1305 on the bottom and $1320 on the top. Only if they can best the $1320 level do they have a shot at taking price backs towards $1338-1342.
Oh and by the way, the CFTC has gotten caught up on the Commitment of Traders data and we are now current with today's release covering the price action through Tuesday of this week.
Can we use this report to PLEASE, PLEASE but an end to this nonsense of "FLASH CRASH" chatter that is the latest fad among too many in the gold community seeking to affix the blame for a poor showing in gold to the nefarious bullion bank crowd. The data (again only thru Tuesday of this week ) shows that the brunt of the selling in gold has been originating from the Managed Money or Hedge Fund crowd.
Based on the Futures Only data, hedge funds sold a total of 10,319 futures contract in the period from Wednesday, Oct 30 - Tuesday, Nov 5. Using the Futures and Options data combined, that number grows to 13,018. Over that same period gold declined in price $37 from $1345 to $1308. This does not even include the further declines seen Wednesday thru this Friday where gold reached a low of $1280 before bouncing slightly. Clearly, the selling hitting the gold market is coming from hedge funds so let's put this latest sensational but utterly wrong concept behind us and move on to get to the truth. Note - the little bit of selling that we did see from the Commercial/Producer side of the equation came from long liquidation and not fresh short selling.
Do you not find it exasperating to see some continue to promote this ridiculous theory all the while the largest gold ETF, GLD, continues to lose gold as Western based investors sell their holdings of the metal and buy stocks instead? What is so hard to understand about this? Investors and fund managers are looking to maximum returns. If they are long only funds, they will buy things that go up, namely equities. If they can go long or short, they will sell those things moving down, or at least failing to go up in the hopes of making some better profits on the way down. It really is as simple as that.
The question that none of those who keep promoting this rubbish can answer is what nebulous force is compelling investors to sell out their gold holdings in the ETF and gobble up equities instead? Is this same compulsion moving their fingers to hit the sell button when it comes to their gold shares as well? Is it Sauron who has returned in the form of the Necromancer and whom has cast a spell upon them all? Maybe it Darth Sidious who is using the dark side of the force filling them with an irresistible urge to sell?
Seriously, this is the sort of thing that gives many otherwise fine people in the gold community a bad name and discredits them when they really do have some good data to present that is worthy of note and thoughtful consideration. But when nearly every single move lower in gold is blamed on the bullion banks and the powers that be, it really becomes somewhat tragic.
One look at the following weekly chart pretty much says all that one needs to know about what is happening to gold and why. This week and last week, the US Dollar has been higher. Guess what happened to gold over those same two weeks? Yep - it went lower.
The two weeks previous to those the US Dollar was weaker. Guess what gold did back then? Yes - it went higher.
It is all coming back to the US Dollar once again. Simply put, rising interest rates in the US tend to favor additional strength in the US Dollar as traders fear that apparent stronger economic readings will bring the Fed back in on the TAPER SIDE of the QE equation.
When you toss in the fact that Euroland just got hit with a surprise rate reduction yesterday, is it any wonder why traders are favoring the US Dollar right now? It is also helping the greenback immensely that foreign investment appetite for US equities which continue their one-way trek higher is boosting demand for the US currency as well.
All of this adds up to some very difficult headwinds for gold to overcome.
You can see on the chart that the US Dollar is in a slight, but observable upwardly moving price channel. Moves down into support at the rising bottom trendline of the channel, are keeping the greenback above the rectangular support zone noted.
Also, note that the indicator is at levels commensurate with rallies.
By the way, for the ag guys out there such as myself, today's USDA report was considered friendly towards corn and bullish for beans while bearish for wheat. We might have seen an interim bottom in the corn market although we are still talking about a record US corn crop. USDA reduced the harvested acreage number but kicked up the per acre yield. However, the emphasis on this report seems to be on the demand side of the ledger with the agency expecting that to increase due to the low cost in comparison to previous years. Recent export sales have moved up significantly over the last couple of weeks leading some to expect additional demand to surface.
More on this later....
Pavlov's Dogs could not have been conditioned any better than those who have used every single bout of weakness in US equities to reload the boat and secure more stocks.
The stronger-than-expected jobs number ( combined with upward revisions to previous months ) initially jolted the market as TAPERING FEARS were running rampant as soon as the numbers hit. Down went stocks as traders began crying that the punch bowl was going to be taken away. Not to fear however; dip buyers began talking up the numbers as a good thing and thus positive for stocks ( Heads - I win; Tails - you lose). The technical support zone held and back up they went.
Note that the volume is very large on the move higher which no doubt is a great deal of short covering as once again attempting to short this market has proven to be a fool's errand. At some point, and I honestly do not have the faintest idea when, the bulls will go to the well once too often and we will finally see this bubble pop, but for now, it continues to shrug off any warnings of internal deterioration.
Each time this market has moved lower, bulls have moved in, bought the dip and then been rewarded by a move to yet another all time high. However, this time around we do have the POTENTIAL for a double top up above 1770. Shellshocked bears are going to be watching very closely for any signs of this market stalling out. They have gone back into hibernation today but will awaken in a surly mood if the technical chart tells them to pounce.
