Strong buying overnight in the early part of the Asian trading session took gold into a region of formidable chart resistance near the $1,280 level. At that point sellers entered sensing that the bulls were booking profits and prices needed a breather.
With the nervousness surrounding last week's emerging markets currency/credit crisis subsiding somewhat, gold ran out of reasons to keep moving vertical. If you notice, the Japanese Yen and Swiss Franc, the beneficiaries of last week's rush to safety plays, are weaker today. Also, the S&P 500 is trading higher while the US Dollar has managed to obtain a firm bid. With the VIX moving lower as well, it appears that for the moment, the market is less concerned about the emerging market issues that plagued it last week. How long this lasts is anyone's guess but for the immediate moment, gold is being sold and stocks are being bought once again.
If anything, last week's price action in response to the emerging markets reinforces in my mind the notion that gold MUST HAVE SOME SORT OF CONFIDENCE SHATTERING event(s) to push it into a sustained uptrend. The recent move up has consisted of a great deal of short covering and while there has indeed been some fresh buying, that has been largely outnumbered by speculative short covering.
As I have written many times here at this site, short covering rallies can be quite ferocious and oftentimes spectacular, but by their very nature, they tend to fizzle out as quickly as they start. Markets require the application of THRUST/FORCE to escape the downward pull of gravity and that necessitates SUSTAINED money flows ( new buying ). If that new buying is lacking, gravity will win out and price will back down.
When it comes to gold that means any sort of credit/currency crisis must be one which escalates in the minds of traders/investors. Such escalation fans more fear and nervousness and that will drive money into gold. Given the current state of low inflationary expectations, it will take this sort of strong emotion to keep those flows active. At the first sign of stability or easing of tensions, gold will tend to surrender its gains with the more recent pattern of buying stocks/selling commodities coming to the ascendancy once again.
What this translates to when it comes to technical price action is selling at resistance zones. Gold thus far has managed to plow through several layers of overhead chart resistance and in the process turned the daily chart positive ( the weekly remains decidedly bearish however). With traders looking for reasons to sell rallies, these resistance zones on the daily chart will take on more importance. Any hesitation by the bulls to extend the rally at these zones will bring in selling as very short term bulls bail out with any paper profits that they might have while longer term oriented bears look to re-enter on the short side.
It is always interesting to watch the battle lines being formed on the charts. Right now dips are being bought in gold based on the improving daily chart picture while rallies tend to stall - at least temporarily - at these resistance zones. Translating to numbers - resistance is the zone near $1280 with support being provided by the zone near $1260-$1258.
I am watching to see what gold does if equities start moving lower once again and particularly if the Dollar cannot hold any gains. I will provide an update later in the session as the direction towards the pit close becomes evident.
Monday, January 27, 2014
Saturday, January 25, 2014
Weekly Gold Chart and Comments
Gold posted a nice close to finish out the week although the mining shares were once again refusing to go along with the strong move over at the Comex. That always give me a reason for concern as one likes to see both the shares and the metal moving higher in sync to reinforce the bullish cause.
I wanted to start off with a weekly chart to provide a bit of a longer term perspective before moving in for a closer look at the daily and even shorter time frame charts.
On the weekly chart, using the Directional Movement Indicator (one of my favorites as it is an old, but reliable friend), you can see that the Negative Directional Movement Indicator ( RED LINE ) remains above the Positive Directional Movement Indicator ( BLUE LINE ) as it has been since late in 2012. In other words, the BEARS REMAIN IN CONTROL of the gold market despite gold's heroic performance this past week.
The ADX, the trend indicating line, is moving lower showing that the defined downtrend has been interrupted after it showed a slight rise forming on the failure to extend past $1,350 in late October 2013. So how do we interpret this?
On this intermediate time frame, no trend currently exists with the bears dominating. We would need to see the directional indicator lines cross and reverse dominance to realize a shift of control in favor of the bulls. That has clearly not occurred on this time frame.
Also notice that the 30 week moving average has been a good defining parameter for the metal at this time frame. It has served as support when the market was moving higher as can be seen from looking over to the left hand side of the chart. Retracements in price were held at this level as buying emerged.
During the sideways phase that lasted for all of 2012, the weekly moving average was not of much use ( moving averages NEVER ARE during sideways or consolidation phases ) but once price started trending lower in early 2013, it did serve to cap all rallies on the upside as can be seen occurring between July 2013 and the end of the year. Currently price can be seen approaching this level from down below. Also note that the moving average has stopped heading lower and is turning up. That is a friendly sign to the bull's cause but as noted above, the DMI is not yet indicating a bullish victory on this time frame.
Let's pull in to a bit closer term look by using the daily chart/.
This presents quite a different picture. Notice that the Positive Directional Indicator ( BLUE LINE ) is decidedly ABOVE the Negative Directional Indicator ( RED LINE ). Translation - Bulls have seized control of the market on the shorter time frame.
If you look a little closer you can see that the ADX line has stopped moving lower and is actually turning higher as the price moves higher. That is a good sign for the bulls as it indicates that they have the potential to turn this into an upside trending move if they can continue to follow through on the upside buying. The ADX remains below 25 however so I would not yet call the market as being in an uptrend. Some technicians like to see the ADX above 30 before stating a trend has formed but I am a bit more aggressive and will look at the 25 level. By the way, this is more of an art form than an exact science so do not write this down in stone.
Notice that this same 30 period moving average has been a decent level to watch as it provides overhead resistance ( see the left side of the chart ) for price rallies. Price has popped above it and is sitting right at a band of overhead chart resistance. It pushed past the top of the band on Friday but fell back.
From a fundamental perspective, if these emerging market credit concerns greet the market Sunday evening and Monday morning, one would expect gold to punch through and move higher. ( Remember the side note I stated repeatedly not too long ago and that gold needed something to dispel CONFIDENCE to kick it higher). That is what happened this week with the currency/credit issues in emerging markets.
Here is how I am looking at this right now - traders with a shorter time frame perspective should go with the flow on the daily but keep in their mind that the intermediate term chart shows a market with a BEARISH pattern. That means rallies are going to be viewed as SELLING opportunities until the weekly chart becomes positive. At that time, the mentality should change and dips should be bought.
Let the longer term charts guide your "big picture" view when you trade. If you are nimble and can move into and out of the market quickly, you can trader on much shorter time frame intervals. Just understand what you are doing and don't get caught up in all the usual hype that will start back up once again now that the metal has moved higher and improved the short term charts. STAY OBJECTIVE and ignore the voices. Let the charts guide your decisions.
I wanted to start off with a weekly chart to provide a bit of a longer term perspective before moving in for a closer look at the daily and even shorter time frame charts.
On the weekly chart, using the Directional Movement Indicator (one of my favorites as it is an old, but reliable friend), you can see that the Negative Directional Movement Indicator ( RED LINE ) remains above the Positive Directional Movement Indicator ( BLUE LINE ) as it has been since late in 2012. In other words, the BEARS REMAIN IN CONTROL of the gold market despite gold's heroic performance this past week.
The ADX, the trend indicating line, is moving lower showing that the defined downtrend has been interrupted after it showed a slight rise forming on the failure to extend past $1,350 in late October 2013. So how do we interpret this?
On this intermediate time frame, no trend currently exists with the bears dominating. We would need to see the directional indicator lines cross and reverse dominance to realize a shift of control in favor of the bulls. That has clearly not occurred on this time frame.
Also notice that the 30 week moving average has been a good defining parameter for the metal at this time frame. It has served as support when the market was moving higher as can be seen from looking over to the left hand side of the chart. Retracements in price were held at this level as buying emerged.
During the sideways phase that lasted for all of 2012, the weekly moving average was not of much use ( moving averages NEVER ARE during sideways or consolidation phases ) but once price started trending lower in early 2013, it did serve to cap all rallies on the upside as can be seen occurring between July 2013 and the end of the year. Currently price can be seen approaching this level from down below. Also note that the moving average has stopped heading lower and is turning up. That is a friendly sign to the bull's cause but as noted above, the DMI is not yet indicating a bullish victory on this time frame.
Let's pull in to a bit closer term look by using the daily chart/.
This presents quite a different picture. Notice that the Positive Directional Indicator ( BLUE LINE ) is decidedly ABOVE the Negative Directional Indicator ( RED LINE ). Translation - Bulls have seized control of the market on the shorter time frame.
If you look a little closer you can see that the ADX line has stopped moving lower and is actually turning higher as the price moves higher. That is a good sign for the bulls as it indicates that they have the potential to turn this into an upside trending move if they can continue to follow through on the upside buying. The ADX remains below 25 however so I would not yet call the market as being in an uptrend. Some technicians like to see the ADX above 30 before stating a trend has formed but I am a bit more aggressive and will look at the 25 level. By the way, this is more of an art form than an exact science so do not write this down in stone.
Notice that this same 30 period moving average has been a decent level to watch as it provides overhead resistance ( see the left side of the chart ) for price rallies. Price has popped above it and is sitting right at a band of overhead chart resistance. It pushed past the top of the band on Friday but fell back.
From a fundamental perspective, if these emerging market credit concerns greet the market Sunday evening and Monday morning, one would expect gold to punch through and move higher. ( Remember the side note I stated repeatedly not too long ago and that gold needed something to dispel CONFIDENCE to kick it higher). That is what happened this week with the currency/credit issues in emerging markets.
Here is how I am looking at this right now - traders with a shorter time frame perspective should go with the flow on the daily but keep in their mind that the intermediate term chart shows a market with a BEARISH pattern. That means rallies are going to be viewed as SELLING opportunities until the weekly chart becomes positive. At that time, the mentality should change and dips should be bought.
Let the longer term charts guide your "big picture" view when you trade. If you are nimble and can move into and out of the market quickly, you can trader on much shorter time frame intervals. Just understand what you are doing and don't get caught up in all the usual hype that will start back up once again now that the metal has moved higher and improved the short term charts. STAY OBJECTIVE and ignore the voices. Let the charts guide your decisions.
Friday, January 24, 2014
Market Response to Emerging Market issues Taking a Deflationary Tone
These credit/currency related crises that we have experienced since 2008 all have produced the same thing after the market begins to sift through the details - a DEFLATIONARY reaction.
By that I mean a rush into the relative safety of US Treasuries out of equities. The result is a drop in interest rates as investors seek return OF capital and not necessarily return ON capital.
In the process, the Japanese Yen has tended to be the recipient of inflows. I am still unclear as to why anyone would regard the Yen as a safe haven currency but I suspect it might have more to do with Yen carry trades being unwound which puts upward pressure on the funding currency as those trades are reversed.
The other thing which typically has happened is we get a spike higher in the Volatility Index or VIX. Here is a chart of what I prefer to call the Complacency Index. For those of you who might be newer to the markets, this index measures investor sentiment in general (derived from option premiums). When it is rising, it indicates investor unease/discomfort/concern with current events. When it is soaring it indicates downright fear/panic. When it is falling or flatlining it reflects complacency/ease/lack of concern/confidence.
To provide you with a better longer term perspective - I am also adding this weekly chart. Note that the current spike upward does not seem to be much when viewed in this light does it?
I am also noticing that commodities in general ( there are some exceptions ) are weak today especially as the US Dollar has actually worked up off its session lows and moved into positive territory. Yesterday the Euro was seen as a safer place to park money than the US Dollar - that has completely reversed today. ECB President Draghi's comments are certainly not helping the Euro especially when he stated that while the economy is recovering, risks on the downside remain and unemployment remains very high. Not exactly a full-throated endorsement of confidence is it?
Copper, another key benchmark, is also lower today. This late session recovery in the US Dollar and further downward movement in equities is actually bringing deflation fears back to traders' minds and as those fears strengthen ( at least for this immediate moment) gold is fading lower along with silver and copper and the other metals.
By that I mean a rush into the relative safety of US Treasuries out of equities. The result is a drop in interest rates as investors seek return OF capital and not necessarily return ON capital.
In the process, the Japanese Yen has tended to be the recipient of inflows. I am still unclear as to why anyone would regard the Yen as a safe haven currency but I suspect it might have more to do with Yen carry trades being unwound which puts upward pressure on the funding currency as those trades are reversed.
The other thing which typically has happened is we get a spike higher in the Volatility Index or VIX. Here is a chart of what I prefer to call the Complacency Index. For those of you who might be newer to the markets, this index measures investor sentiment in general (derived from option premiums). When it is rising, it indicates investor unease/discomfort/concern with current events. When it is soaring it indicates downright fear/panic. When it is falling or flatlining it reflects complacency/ease/lack of concern/confidence.
To provide you with a better longer term perspective - I am also adding this weekly chart. Note that the current spike upward does not seem to be much when viewed in this light does it?
I am also noticing that commodities in general ( there are some exceptions ) are weak today especially as the US Dollar has actually worked up off its session lows and moved into positive territory. Yesterday the Euro was seen as a safer place to park money than the US Dollar - that has completely reversed today. ECB President Draghi's comments are certainly not helping the Euro especially when he stated that while the economy is recovering, risks on the downside remain and unemployment remains very high. Not exactly a full-throated endorsement of confidence is it?
Copper, another key benchmark, is also lower today. This late session recovery in the US Dollar and further downward movement in equities is actually bringing deflation fears back to traders' minds and as those fears strengthen ( at least for this immediate moment) gold is fading lower along with silver and copper and the other metals.
Emerging Markets Stress Continuing
Yesterday I mentioned that stress in emerging markets was providing strong safe haven flows into bonds and into gold. The Commodity currencies were generally under pressure as a result with Europe benefitting as well as the Japanese Yen. The Dollar is not getting much of a safe haven flow, which coming on the heels of this sort of thing is rather remarkable. US Treasury yields are sinking once again.
The Turkish Lira was a big event yesterday; today it is the Argentinian Peso. Ukranian credit markets, etc,. The list could go on. This is where the bid in gold is coming from especially as equity markets weaken.
This is one of those events where things can spiral out of control very quickly, especially in this age in which huge leveraged bets have been placed.
We will keep a close eye on this but one thing is certain - at least for now - gold is responding like one would expect it to do during times of economic uncertainty.
I am also noticing the VIX is rising once again. It is by no means in "fear/panic" territory but some of the complacency that has marked the US equity markets for so long is having some second thoughts.
The Turkish Lira was a big event yesterday; today it is the Argentinian Peso. Ukranian credit markets, etc,. The list could go on. This is where the bid in gold is coming from especially as equity markets weaken.
This is one of those events where things can spiral out of control very quickly, especially in this age in which huge leveraged bets have been placed.
We will keep a close eye on this but one thing is certain - at least for now - gold is responding like one would expect it to do during times of economic uncertainty.
I am also noticing the VIX is rising once again. It is by no means in "fear/panic" territory but some of the complacency that has marked the US equity markets for so long is having some second thoughts.
Thursday, January 23, 2014
Emerging Markets Spark Flight to Safe Havens
I mentioned in an earlier post today that there was a general flight out of equities after the overnight news that Chinese manufacturing had experienced a rather significant slowdown. U S equity markets were spanked hard in the process ( of course the usual dip buyers showed up once again as they have been well rewarded for so doing time and time again).
Interestingly enough, it was the commodity-based currencies such as the Aussie and Kiwi ( initially along with the Loonie) which saw some heavy selling. The Aussie and Kiwi, with their close exposure to China, got hit the hardest which is understandable. I must admit at finding it odd to see the Kiwi rally back from its worst levels of the session like it did however.
I learned later in the session that the Turkish Lira hit another record low against the US Dollar. This was in spite of direct market intervention by the Turkish Central Bank.
This occurrence, along with the weakness in most emerging market currencies, was what sparked some strong buying in the Japanese Yen and the Swiss Franc today. It is also the reason, in my view, that gold experienced another one of those mini-melt ups that it has been famous for lately. It was odd to see the US Dollar sinking so severely on a day in which risk aversion was in, especially in regards to the EM's, but I think it was the lackluster US economic data, coupled with sinking interest rates here in the US coming on the heels of those big money flows into bonds, that undercut any safe haven bid that we might otherwise have seen coming into the Greenback.
Europe and Japan seemed to be the winners in the currency wars today.
Obviously that brought a fair amount of buying into gold as a safe haven, something we have not seen in a while as it and silver have tended to trade more in sync with the risk on/risk off trades, rising on the former and sinking on the latter. Well, today we got the latter ( risk off) and gold benefitted so go figure.
Just goes to prove how fickle these markets are anymore and why extrapolating too much from one day to the next's price action is not too advisable. During episodes such as this, TECHNICALS RULE THE DAY so whichever side, bull or bear, happens to have the technical on their side, will win the day's battle. That is what we saw today in gold.
I should note that silver does not know what it wants to do. It still is having large troubles with the $20 region as it is attracting selling up here. It cannot decide whether it wants to be a safe haven with gold or a risk on trade with copper. Right now it is caught in the middle of them both.
Today's move higher in gold seems a bit overdone to me, but that is more a hunch rather than anything grounded in pure Technical analysis as the gold chart is very much improved by today's strong push higher. We'll see if the bulls can grab the initiative completely in tomorrow's session or if they decide to bank what paper profits that they made today and rest content with those.
Interestingly enough, it was the commodity-based currencies such as the Aussie and Kiwi ( initially along with the Loonie) which saw some heavy selling. The Aussie and Kiwi, with their close exposure to China, got hit the hardest which is understandable. I must admit at finding it odd to see the Kiwi rally back from its worst levels of the session like it did however.
I learned later in the session that the Turkish Lira hit another record low against the US Dollar. This was in spite of direct market intervention by the Turkish Central Bank.
This occurrence, along with the weakness in most emerging market currencies, was what sparked some strong buying in the Japanese Yen and the Swiss Franc today. It is also the reason, in my view, that gold experienced another one of those mini-melt ups that it has been famous for lately. It was odd to see the US Dollar sinking so severely on a day in which risk aversion was in, especially in regards to the EM's, but I think it was the lackluster US economic data, coupled with sinking interest rates here in the US coming on the heels of those big money flows into bonds, that undercut any safe haven bid that we might otherwise have seen coming into the Greenback.
Europe and Japan seemed to be the winners in the currency wars today.
Obviously that brought a fair amount of buying into gold as a safe haven, something we have not seen in a while as it and silver have tended to trade more in sync with the risk on/risk off trades, rising on the former and sinking on the latter. Well, today we got the latter ( risk off) and gold benefitted so go figure.
Just goes to prove how fickle these markets are anymore and why extrapolating too much from one day to the next's price action is not too advisable. During episodes such as this, TECHNICALS RULE THE DAY so whichever side, bull or bear, happens to have the technical on their side, will win the day's battle. That is what we saw today in gold.
I should note that silver does not know what it wants to do. It still is having large troubles with the $20 region as it is attracting selling up here. It cannot decide whether it wants to be a safe haven with gold or a risk on trade with copper. Right now it is caught in the middle of them both.
Today's move higher in gold seems a bit overdone to me, but that is more a hunch rather than anything grounded in pure Technical analysis as the gold chart is very much improved by today's strong push higher. We'll see if the bulls can grab the initiative completely in tomorrow's session or if they decide to bank what paper profits that they made today and rest content with those.
Gold Field Mineral Services
The metals consultancy GFMS released an update to its 2013 Gold Survey which was very interesting. A few things in particular stand out to me.
The first was something we have been talking about here for some time now and that was the fall off in world investment demand for gold last year. GFMS stated that demand fell 11% last year to 1,342 metric tons. In terms of value, world gold investment dropped by 25% to just under $61 billion; the lowest level since 2009.
The firm projects world gold investment for the first half of 2014 to total 762 tons, down 14% on the second half of 2013, but also 65% higher than the first half of 2013.
They mentioned solid Asian demand which they suggest ( surprise, surprise) will keep a floor of support beneath the market. Chinese gold jewelry fabrication increased 31% last year and Chinese physical bar investment rose 47% to a record high. The consultancy noted that this buying was essentially bargain shopping as price sensitive buyers picked up the metal when it fell in price.
Net official sector buying ( World Central Banks) fell 34% to 359 tons last year. They believe that official sector net buying for the first half of the year will total 132 tons, down 10% from the preceding six months and down 37% from the first half of 2013.
Central Bank demand is a big factor in the gold price, something that many seem to forget at times.
They also projected gold prices to average $1,225 in 2014, 13% below that of 2013. They do not believe that the price will breach $1,300.
In short, the firm has stated the same thing I have been saying here for quite some time now -namely that while Asian demand for gold is strong and is providing a floor of support for the metal, Western-based investment demand ( I am inserting "Western" whereas they are taking a global view) in and of itself has been falling as money flows into equities in search of yield.
This is the reason I monitor the reported holdings of GLD, the big gold ETF. It is as good as any a gauge of Western investment demand for the metal. Until its ceases dishoarding gold, Asia is going to have to carry the slack. The problem with that is that these buyers generally DO NOT CHASE PRICES higher, especially if they understand that they do not need to compete with Western interests. They tend to wait for price setbacks to buy.
Keep all of this data in mind folks when you read the sensationalized claims about Asian gold demand soaring, etc.... It is indeed solid, I am not disputing that, but Western investment demand is the key to any SUSTAINED RISE in the price of gold.
One thing is certainly going to be interesting to watch is how that Asian demand responds to these higher gold prices of late.
Incidentally, I am noticing that the HUI is stronger today but has not confirmed an upside breakout as of the time I type these comments. Charts are improving however.
The first was something we have been talking about here for some time now and that was the fall off in world investment demand for gold last year. GFMS stated that demand fell 11% last year to 1,342 metric tons. In terms of value, world gold investment dropped by 25% to just under $61 billion; the lowest level since 2009.
The firm projects world gold investment for the first half of 2014 to total 762 tons, down 14% on the second half of 2013, but also 65% higher than the first half of 2013.
They mentioned solid Asian demand which they suggest ( surprise, surprise) will keep a floor of support beneath the market. Chinese gold jewelry fabrication increased 31% last year and Chinese physical bar investment rose 47% to a record high. The consultancy noted that this buying was essentially bargain shopping as price sensitive buyers picked up the metal when it fell in price.
Net official sector buying ( World Central Banks) fell 34% to 359 tons last year. They believe that official sector net buying for the first half of the year will total 132 tons, down 10% from the preceding six months and down 37% from the first half of 2013.
Central Bank demand is a big factor in the gold price, something that many seem to forget at times.
They also projected gold prices to average $1,225 in 2014, 13% below that of 2013. They do not believe that the price will breach $1,300.
In short, the firm has stated the same thing I have been saying here for quite some time now -namely that while Asian demand for gold is strong and is providing a floor of support for the metal, Western-based investment demand ( I am inserting "Western" whereas they are taking a global view) in and of itself has been falling as money flows into equities in search of yield.
This is the reason I monitor the reported holdings of GLD, the big gold ETF. It is as good as any a gauge of Western investment demand for the metal. Until its ceases dishoarding gold, Asia is going to have to carry the slack. The problem with that is that these buyers generally DO NOT CHASE PRICES higher, especially if they understand that they do not need to compete with Western interests. They tend to wait for price setbacks to buy.
Keep all of this data in mind folks when you read the sensationalized claims about Asian gold demand soaring, etc.... It is indeed solid, I am not disputing that, but Western investment demand is the key to any SUSTAINED RISE in the price of gold.
One thing is certainly going to be interesting to watch is how that Asian demand responds to these higher gold prices of late.
Incidentally, I am noticing that the HUI is stronger today but has not confirmed an upside breakout as of the time I type these comments. Charts are improving however.
Upward Rigging of the Gold Price Continues
I must admit; I just cannot help myself having a bit of fun. I wanted to try these catchy titles the same way that the GIAMATT crowd web sites do in order to generate more site hits to increase their ad revenue dollars!
I should know as my poor inbox gets inundated with such articles whenever gold has experienced a sharp selloff of late. "See - we told you so", seems to be the message.
The poor bears however have no friends for no one writes snappy titles to defend them whenever gold has one of these big up days like it is having today.
On to more serious business however - there was a strong combination of data releases that really lit a fuse under the gold market in today's session. Unemployment numbers, the Chicago Fed's index, China, etc. Each of these data releases showed slowdowns in growth.
If that were not enough, India's ruling Congress party chief, Sonia Gandhi was reported to have requested the Ministry of Commerce to ease restrictions on gold imports into India. The gem and jewelry industry is complaining, rightfully so in my view, that this 10% barrier is forcing their costs to rise and impacting their businesses negatively. Any easing of this tariff would be viewed by gold traders as friendly towards India gold demand. At least that is how the market seems to be regarding it at the moment.
Back to the US data however but more specifically, back to its impact on the US DOLLAR. It fell SHARPLY and guess what???? - Yes, Gold rose sharply. No manipulation, no theories, just a simple correlation between the Dollar and the Anti-Dollar or ol' Yeller. The weak economic data, which reminded people of just how weak that last payrolls number was, once again spurred more of the same talk that the Fed was going to be on hold in the regards to the Tapering.
Side note here - one wonders just what will happen if the next payrolls number just happens to be above 200K. Will all of today's talk disappear once again? From a trader's perspective, it is like trying to catch a yo-yo.
With equities selling off sharply on the sharp reported fall in the Chinese manufacturing index, investors are fearing more slowing growth and that translated to sinking interest rates here in the US as bonds were the recipient of money flows today. Those money flows dropped interest rates and that pulled the rug out from beneath the US Dollar which has been supported by a general tend of rising rates here in the US.
The yield on the Ten Year as I type these comments is down to 2.8%. At the start of this year it was trading above 3%! The Dollar has tended to generally track the yield on this note.
Watch the Dollar to get a clue as to whether or not gold can muster the energy to punch through this tough overhead resistance barrier that it has now once again entered.
Around 10:00 AM CST, the Kansas City Fed numbers were released and this data showed a big improvement in the manufacturing in the Plains area. The number rose to 5 from -3 in December. That showed manufacturing growth for the month, the exact opposite of what we got from the Chicago Fed. Gold seemed to fade a bit when that number hit the wires.
This market remains so incredibly sensitive to Tapering/Not Tapering issues that for all practical purposes, we are trading each and every single economic data release with the view to how traders are generally interpreting that data. Predicting this sort of thing in advance is fool's work so just be warned that volatility will continue to remain quite high until we get some sort of clear, defined TREND in this data. Right now there is no consensus and that will lead to sharp bouts of buying/selling depending on which side panics. Today it was the bears' turn; tomorrow - who knows?
This is the reason I continue to urge caution for those traders who are still attempting to work this gold market. KEEP YOUR POSITION SIZE SMALL OR MANAGEABLE. You are liable to get hurt and hurt badly if the economic data does not come out your way. It is not trading at this point because there is no clear trend. You are essentially gambling or rolling the dice and hoping that the roll comes out in your favor. There is no skill to that, just chance, and good traders do not rely on chance.
Let's see how the dust settles at the end of the day but more importantly, how the market reacts to the next payrolls number coming our way.
A couple of charts for you to examine... note the daily chart and the strong push above the 50 day moving average. That is quite positive. Also, the ADX has gotten a clear crossover of Positive Directional Movement Indicator ( BLUE LINE ) above the Negative Directional Movement Indicator ( Red LINE ). Clearly that bulls have regained control of the market at this time frame. As a matter of fact, the ADX, the trending indicator, is actually beginning to rise, just as gold is moving higher. It is still below 25 so the trend is not yet confirmed but it is very close. What the bulls need is one more ingredient and that is a strong push through that very tough overhead resistance zone noted on the chart. That means we need to see prices above $1,262, preferably a bit higher, to give us the real possibility, the first in a while I might add, of an upside trending move.
Look at the 4 hour time frame. Here you can see the strong volume on today's big move higher ( a lot of this is due to panicked shorts when that data came out). This REVERSE FLASH CRASH is CLEAR PROOF that gold prices are being manipulated higher. After all, who would buy in such a fashion? Sorry - I think I need some help restraining myself at this point. ( it comes from having to deal with all the nasty emails that constantly fill my inbox from the gold acolytes in the cult).
Seriously, look at where the bulls have taken this thing - right on the verge of a breakout! We have a big hurdle to clear with that next payrolls report but suffice it to say, that IF THE US DOLLAR experiences another strong selling-related plunge as it is doing today, gold should break free to the upside. I am noting that the Dollar is holding initial support near the confluence of the 40 and 50 day moving averages. Failure there and it has a strong possibility of visiting 80.20 - 80.00.
I should know as my poor inbox gets inundated with such articles whenever gold has experienced a sharp selloff of late. "See - we told you so", seems to be the message.
The poor bears however have no friends for no one writes snappy titles to defend them whenever gold has one of these big up days like it is having today.
On to more serious business however - there was a strong combination of data releases that really lit a fuse under the gold market in today's session. Unemployment numbers, the Chicago Fed's index, China, etc. Each of these data releases showed slowdowns in growth.
If that were not enough, India's ruling Congress party chief, Sonia Gandhi was reported to have requested the Ministry of Commerce to ease restrictions on gold imports into India. The gem and jewelry industry is complaining, rightfully so in my view, that this 10% barrier is forcing their costs to rise and impacting their businesses negatively. Any easing of this tariff would be viewed by gold traders as friendly towards India gold demand. At least that is how the market seems to be regarding it at the moment.
Back to the US data however but more specifically, back to its impact on the US DOLLAR. It fell SHARPLY and guess what???? - Yes, Gold rose sharply. No manipulation, no theories, just a simple correlation between the Dollar and the Anti-Dollar or ol' Yeller. The weak economic data, which reminded people of just how weak that last payrolls number was, once again spurred more of the same talk that the Fed was going to be on hold in the regards to the Tapering.
Side note here - one wonders just what will happen if the next payrolls number just happens to be above 200K. Will all of today's talk disappear once again? From a trader's perspective, it is like trying to catch a yo-yo.
With equities selling off sharply on the sharp reported fall in the Chinese manufacturing index, investors are fearing more slowing growth and that translated to sinking interest rates here in the US as bonds were the recipient of money flows today. Those money flows dropped interest rates and that pulled the rug out from beneath the US Dollar which has been supported by a general tend of rising rates here in the US.
The yield on the Ten Year as I type these comments is down to 2.8%. At the start of this year it was trading above 3%! The Dollar has tended to generally track the yield on this note.
Watch the Dollar to get a clue as to whether or not gold can muster the energy to punch through this tough overhead resistance barrier that it has now once again entered.
Around 10:00 AM CST, the Kansas City Fed numbers were released and this data showed a big improvement in the manufacturing in the Plains area. The number rose to 5 from -3 in December. That showed manufacturing growth for the month, the exact opposite of what we got from the Chicago Fed. Gold seemed to fade a bit when that number hit the wires.
This market remains so incredibly sensitive to Tapering/Not Tapering issues that for all practical purposes, we are trading each and every single economic data release with the view to how traders are generally interpreting that data. Predicting this sort of thing in advance is fool's work so just be warned that volatility will continue to remain quite high until we get some sort of clear, defined TREND in this data. Right now there is no consensus and that will lead to sharp bouts of buying/selling depending on which side panics. Today it was the bears' turn; tomorrow - who knows?
This is the reason I continue to urge caution for those traders who are still attempting to work this gold market. KEEP YOUR POSITION SIZE SMALL OR MANAGEABLE. You are liable to get hurt and hurt badly if the economic data does not come out your way. It is not trading at this point because there is no clear trend. You are essentially gambling or rolling the dice and hoping that the roll comes out in your favor. There is no skill to that, just chance, and good traders do not rely on chance.
Let's see how the dust settles at the end of the day but more importantly, how the market reacts to the next payrolls number coming our way.
A couple of charts for you to examine... note the daily chart and the strong push above the 50 day moving average. That is quite positive. Also, the ADX has gotten a clear crossover of Positive Directional Movement Indicator ( BLUE LINE ) above the Negative Directional Movement Indicator ( Red LINE ). Clearly that bulls have regained control of the market at this time frame. As a matter of fact, the ADX, the trending indicator, is actually beginning to rise, just as gold is moving higher. It is still below 25 so the trend is not yet confirmed but it is very close. What the bulls need is one more ingredient and that is a strong push through that very tough overhead resistance zone noted on the chart. That means we need to see prices above $1,262, preferably a bit higher, to give us the real possibility, the first in a while I might add, of an upside trending move.
Look at the 4 hour time frame. Here you can see the strong volume on today's big move higher ( a lot of this is due to panicked shorts when that data came out). This REVERSE FLASH CRASH is CLEAR PROOF that gold prices are being manipulated higher. After all, who would buy in such a fashion? Sorry - I think I need some help restraining myself at this point. ( it comes from having to deal with all the nasty emails that constantly fill my inbox from the gold acolytes in the cult).
Seriously, look at where the bulls have taken this thing - right on the verge of a breakout! We have a big hurdle to clear with that next payrolls report but suffice it to say, that IF THE US DOLLAR experiences another strong selling-related plunge as it is doing today, gold should break free to the upside. I am noting that the Dollar is holding initial support near the confluence of the 40 and 50 day moving averages. Failure there and it has a strong possibility of visiting 80.20 - 80.00.
Wednesday, January 22, 2014
Range Trade in Gold remains Intact
Yesterday gold ran up and tested the top of the range ( $1,260 - $1,255) where it encountered selling pressure and backed down once again. That has proved to be a strong overhead resistance level against which bears seem to feel quite comfortable selling. Shorter- term oriented bulls, who can read a price chart and understand price action, simply have no stomach, at the present time, to press their luck. They are grabbing any paper profits they have and running to the bank with them.
As usual the GIAMATT ( Gold is always manipulated all the time) crowd is blaming the nefarious gold cartel citing the usual early hours hedge-fund selling for derailing old yeller but the facts are far less sensational and much more boring. Hedge funds playing the metal from the short side love to move in during the period of low liquidity in Asian trade to get the most "bang from their buck" as they seek to drive prices in their favor.
I have seen this stunt so many times during the overnight session in the many markets that I trade that I have longed for the days in which paper orders were run into the pit and handed off to brokers. One never knows when observing price movements during these periods of low liquidity whether news has broken that would validate the movement or whether it is just more game playing. The weary trader has no choice but to respect the move in price and then observe how prices act when liquidity increases as the session moves on. If the move was indeed valid, more often than not, prices will not reverse but will continue in the direction of the overnight push. If the push was hedgies playing games only, the price will reverse when the full contingent of pit players shows up at the exchange.
The exchanges, now that they are public, for-profit businesses who answer to shareholders, want to maximize profits and they do that by catering to big traders, no matter what time zone that they wish to play in. Meanwhile, those of us who unfortunately happen to be carbon-based life forms which require sleep, are forced to endure this idiocy in order to watch the exchanges' stock price keep moving higher. Just part of the job description nowadays is all that one can say about it.
By the way, after yesterday's shellacking of the soybean market, I thought it would be an opportune time to post a more recent chart of the Goldman Sachs Commodity Index. All of that index fund rebalancing has been wrapped up for some time now. You can see that we did get a wee bit of a bounce off the support zone but that upward price pressures remain quite muted. This helps explain the price action in gold and in silver I might add. While prices for both metals have improved, the index remains near 52 week lows thus undercutting any "buy precious metals for an inflation hedge" rationale. The market is still quite sanguine about inflation fears at the moment. I keep watching for any evidence that this might be changing but thus far I do not see any. We get bits and pieces here and there but nothing that is constant nor any sort of pattern that we can detect at the moment. Neither the inflation camp or the deflation camp seems to have the advantage. It is an uneasy truce.
I should note here that the IMF raised the issue of deflation in a report issued Tuesday. They termed it a legitimate concern. Yeah - we are all shocked, I mean, shocked, to discover this! Parents - nota bene - when giving your children career advice, urge them to strongly consider becoming a bureaucrat working for an agency like this. You can achieve the miracle of getting paid a salary to produce mind-numbingly dull research which is essentially useless.
We have another one of those payrolls numbers report coming our way soon so we will get an opportunity to see if last month's was a one off as I suspect it was or whether it is more reflective of an actual sharp drop off in hiring. The revisions will be important in this regard so look past the initial headline number to see what the pencil pushers might or might not do with that paltry number they produced last time around.
The thinking is a strong number, much more in line with the 200K+ that we had been getting, will smooth the way for the Fed to taper as they have announced. A weak number along the line of the previous month, and they will be put on the defensive and forced to hold off on any tapering. One way or the other, it is going to be interesting to watch the gold price action. Those of you who are masochistic by nature, please make sure to have an unusually large position on in gold heading into the report. The rest of us can watch what happens to earthworms who happen to crawl out onto a sun-heated sidewalk in the middle of the summer - there really is not any difference.
Some news in gold that has been making its rounds is that the big international banks who participate in the London Fix have been meeting to discuss establishing an external audit of the entire process. Personally I have always found it rather bizarre that the fix has continued for so long in our modern age. With the ability to collect data (price, volume, etc.) from all over the globe in mere seconds, what is the point of continuing this thing. I believe this process lends itself to far more dubious outcomes than any supposed shenanigans that have been claimed to been occurring over at the Comex over the last year. If a group of large grain elevator operators from all over the country got together to set the price of corn for that day, would not farmers be rightly suspicious?
I do not claim to understand the basis upon which various gold contracts are entered into, nor do I care to know, but I just do not like the idea of any group of large entities, especially banks, meeting (whether in person, by phone or videoconferencing or through whatever means) to determine any price of any commodity anywhere. If a farmer in Peoria can sell his corn to a local elevator operator at a higher price than say a farmer in Des Moines might get, why should he not be able to get it? After all, it is local supply and demand at work and is that not what a free market is supposed to be about? If the grain elevator at Peoria needs the corn worse than the grain elevator at Des Moines, let him bid it up in the cash market. The corn will flow to where it is needed the most until the local demand there is sated and an equilibrium sets in.
I might be simple-minded in this regard but I think the same practice should be occurring in gold, or any other market for that matter. Then again, this is why I am a trader and not a contract writer.
One last bit of news - the S. African union that controls the miners down there had planned a strike against both the gold mining and platinum mining industry for tomorrow. Apparently they have temporarily called off the gold strike. They plan to proceed with the platinum industry strike. And some folks wonder why big hedge funds choose to use the ETF's instead of the mining shares??? Last time I looked, no union decided to strike GLD. It is just another element over which an investor has no control and thus another element of risk that many big investing funds are choosing to avoid altogether by foregoing investing in gold mining companies.
The US Dollar remains rather directionless at this time. It is range bound with a bit of a higher bias to it as can be seen from the small upward channel to the right of the chart. It broke its downtrend that began last summer in late October and has firmed a bit especially to start the new year. Upward progress is capped near 81.50 while support seems pretty solid near the 80 region. I would expect gold prices to suffer were the Dollar to break out above 81.50 and hold those gains. The flip side is that a downside breach of 79.50 should see some good buying enter the gold pit. If the Dollar were to fall through 79, things could get mighty interesting.
If I had to pick at this moment, I would say that the near term chart structure favors additional Dollar strength rather than weakness but I am certainly not married to this view as the chart picture is anything but strongly lopsided.
As usual the GIAMATT ( Gold is always manipulated all the time) crowd is blaming the nefarious gold cartel citing the usual early hours hedge-fund selling for derailing old yeller but the facts are far less sensational and much more boring. Hedge funds playing the metal from the short side love to move in during the period of low liquidity in Asian trade to get the most "bang from their buck" as they seek to drive prices in their favor.
I have seen this stunt so many times during the overnight session in the many markets that I trade that I have longed for the days in which paper orders were run into the pit and handed off to brokers. One never knows when observing price movements during these periods of low liquidity whether news has broken that would validate the movement or whether it is just more game playing. The weary trader has no choice but to respect the move in price and then observe how prices act when liquidity increases as the session moves on. If the move was indeed valid, more often than not, prices will not reverse but will continue in the direction of the overnight push. If the push was hedgies playing games only, the price will reverse when the full contingent of pit players shows up at the exchange.
The exchanges, now that they are public, for-profit businesses who answer to shareholders, want to maximize profits and they do that by catering to big traders, no matter what time zone that they wish to play in. Meanwhile, those of us who unfortunately happen to be carbon-based life forms which require sleep, are forced to endure this idiocy in order to watch the exchanges' stock price keep moving higher. Just part of the job description nowadays is all that one can say about it.
By the way, after yesterday's shellacking of the soybean market, I thought it would be an opportune time to post a more recent chart of the Goldman Sachs Commodity Index. All of that index fund rebalancing has been wrapped up for some time now. You can see that we did get a wee bit of a bounce off the support zone but that upward price pressures remain quite muted. This helps explain the price action in gold and in silver I might add. While prices for both metals have improved, the index remains near 52 week lows thus undercutting any "buy precious metals for an inflation hedge" rationale. The market is still quite sanguine about inflation fears at the moment. I keep watching for any evidence that this might be changing but thus far I do not see any. We get bits and pieces here and there but nothing that is constant nor any sort of pattern that we can detect at the moment. Neither the inflation camp or the deflation camp seems to have the advantage. It is an uneasy truce.
I should note here that the IMF raised the issue of deflation in a report issued Tuesday. They termed it a legitimate concern. Yeah - we are all shocked, I mean, shocked, to discover this! Parents - nota bene - when giving your children career advice, urge them to strongly consider becoming a bureaucrat working for an agency like this. You can achieve the miracle of getting paid a salary to produce mind-numbingly dull research which is essentially useless.
We have another one of those payrolls numbers report coming our way soon so we will get an opportunity to see if last month's was a one off as I suspect it was or whether it is more reflective of an actual sharp drop off in hiring. The revisions will be important in this regard so look past the initial headline number to see what the pencil pushers might or might not do with that paltry number they produced last time around.
The thinking is a strong number, much more in line with the 200K+ that we had been getting, will smooth the way for the Fed to taper as they have announced. A weak number along the line of the previous month, and they will be put on the defensive and forced to hold off on any tapering. One way or the other, it is going to be interesting to watch the gold price action. Those of you who are masochistic by nature, please make sure to have an unusually large position on in gold heading into the report. The rest of us can watch what happens to earthworms who happen to crawl out onto a sun-heated sidewalk in the middle of the summer - there really is not any difference.
Some news in gold that has been making its rounds is that the big international banks who participate in the London Fix have been meeting to discuss establishing an external audit of the entire process. Personally I have always found it rather bizarre that the fix has continued for so long in our modern age. With the ability to collect data (price, volume, etc.) from all over the globe in mere seconds, what is the point of continuing this thing. I believe this process lends itself to far more dubious outcomes than any supposed shenanigans that have been claimed to been occurring over at the Comex over the last year. If a group of large grain elevator operators from all over the country got together to set the price of corn for that day, would not farmers be rightly suspicious?
I do not claim to understand the basis upon which various gold contracts are entered into, nor do I care to know, but I just do not like the idea of any group of large entities, especially banks, meeting (whether in person, by phone or videoconferencing or through whatever means) to determine any price of any commodity anywhere. If a farmer in Peoria can sell his corn to a local elevator operator at a higher price than say a farmer in Des Moines might get, why should he not be able to get it? After all, it is local supply and demand at work and is that not what a free market is supposed to be about? If the grain elevator at Peoria needs the corn worse than the grain elevator at Des Moines, let him bid it up in the cash market. The corn will flow to where it is needed the most until the local demand there is sated and an equilibrium sets in.
I might be simple-minded in this regard but I think the same practice should be occurring in gold, or any other market for that matter. Then again, this is why I am a trader and not a contract writer.
One last bit of news - the S. African union that controls the miners down there had planned a strike against both the gold mining and platinum mining industry for tomorrow. Apparently they have temporarily called off the gold strike. They plan to proceed with the platinum industry strike. And some folks wonder why big hedge funds choose to use the ETF's instead of the mining shares??? Last time I looked, no union decided to strike GLD. It is just another element over which an investor has no control and thus another element of risk that many big investing funds are choosing to avoid altogether by foregoing investing in gold mining companies.
The US Dollar remains rather directionless at this time. It is range bound with a bit of a higher bias to it as can be seen from the small upward channel to the right of the chart. It broke its downtrend that began last summer in late October and has firmed a bit especially to start the new year. Upward progress is capped near 81.50 while support seems pretty solid near the 80 region. I would expect gold prices to suffer were the Dollar to break out above 81.50 and hold those gains. The flip side is that a downside breach of 79.50 should see some good buying enter the gold pit. If the Dollar were to fall through 79, things could get mighty interesting.
If I had to pick at this moment, I would say that the near term chart structure favors additional Dollar strength rather than weakness but I am certainly not married to this view as the chart picture is anything but strongly lopsided.
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