Commodities Getting Some Money Flows

Trying to keep track of the vagaries of these markets in this goofy era is becoming a near exercise in futility. Sentiment flops back and forth faster than the lead in some basketball games changes hands.

Take Copper as an example - yesterday it was fearful of the impact of high energy prices on global growth so down it went. Today, or I should say overnight, there was news out of China that Industrial Production there rose 8.8% in May from a year earlier. During the month of April, it rose 8.7%.

Some immediately seized on that number and jumped into the copper market in a buying mood. Forget the fact that that was last month's number and that futures markets are generally regarded as "FUTURES" markets, not "PAST TENSE" markets. Forgotten in the increase of 1/10 of a percent were the issues with the double and triple counting of Copper in Chinese warehouses for loan purposes and the current debacle in Iraq.

But it was not only copper that was bid higher today. I am not really sure what the heck was going on but for a good part of the session, one has hard-pressed to find a single commodity futures market in the red. Money was coming into nearly every one of them for some odd reason. Why I say, "odd", was because the US Dollar was actually higher today, unlike yesterday when it was not a beneficiary of any safe haven play. Today it was. Go figure.

Regardless, take a look at what this surge in energy prices, courtesy of ISIS in Iraq, has done to the GSCI.

It has pushed the index up towards the top of a mini-range near 662-663 which has held it for the last three months. If the market was worried about higher energy prices slowing global growth yesterday, which it was, today it could care less. "She loves me; She loves me not". These markets are turning an entire generation of traders into 3 minute bar chart junkies.

One could say that there might be some sector rotation out of equities and into commodities, but, if traders really are worried about higher crude oil prices cutting global growth estimates, the last thing one would want to do would be to pour money into growth sensitive commodities. Bonds, yes - commodities?

This is further proof in my mind that today's markets, dominated as they are by unthinking computers, more often than not have the attention span of a dwarf gnat.

You see extreme shifts in sentiment within hours instead of within weeks or months. All it takes is a few big buy or sell orders to get the ball rolling and the computers take over and that is all that matters in that market for the rest of the day.

As an example - we received the USDA Supply and Demand reports this Wednesday revealing a larger global supply of soybeans than the market was anticipating. Also, abundant rainfall and good growing weather induced USDA to up the yield per acre number above most analyst expectations. So, on Wednesday and Thursday the beans, ( both old and new crop) were reacting to a bearish report and bearish weather. Today, someone got the ball rolling to the upside again leaving the pit reporter scratching his head trying to come up with a reason for the move higher. The best the poor fellow could do was to say that the "weather has been so good no one believes it will continue and thus people started buying".  See what I mean?

Kick in a few big buy or sell orders in these computerized markets and you can pretty much take any market anywhere  you want it to go at any time. And notice - this is not being done by players involved with the feds - it is just the nature of the modern market. The key to successful trading used to be understanding the fundamental behind the markets in which one plies their business - not any more - the key has become anticipating what hedge fund computers are going to do and WHEN they are going to do it. Get that right, and you can make a tidy sum even if you happen to be completely ignorant of the difference between a sheaf of wheat and an ear of corn or a pod full of beans. Hedge funds ARE THE MARKET. Don't forget that.

I would not mind it all that much because at one time the large funds ( not hedge funds in general) were run by some knowledgeable guys who intimately knew the markets in which they traded as far as the fundamental factors went. I know - I used to trade against and with them. Today's hedge fund managers are mostly clueless. Take away their mechanical thinking device ( aka computer) and they are helplessly ignorant of anything remotely resembling a fundamental. What is the sad reality is that they could care less about it! Who needs any fundamental knowledge when computers are running the show based on the last price print.

I am noticing here later in the session that gold has now moved into positive territory as have the mining share indices. This reminds me a lot of the recent Ukraine situation during which traders were afraid to be short ahead of the weekend not knowing what might transpire. In the event of Iraq, traders are becoming increasingly worried that this ISIS group is going to take Baghdad. If things go from a disaster over there to an even worse disaster, no one wants to be short.

Gold is knocking right on the door of chart resistance near $1280. As a matter of fact, it has reached initial resistance near $1277. If gold can push past $1280 and hold those gains, it looks to me like it is going to make a run towards $1295 and possibly $1300.

If the Bears are going to be able to prevent a large shorter squeeze from taking place, they will need to hold the line right here; right now. If not, they will be forced out allowing the market to run to the resistance area noted above.

That this is taking place in gold, and in the rest of the commodity sector for that matter, while the Dollar is actually firm, is noteworthy. The Dollar looked as if it was ready to rock and roll to the upside as it was into that resistance zone near 80.70-80.80 but then Iraq struck and down it went once again. Of course, as it went down, the Euro was moving higher but that reversed today with the Euro moving away from the 1.360 level and hovering almost smack dab in the middle between 1.360 and 1.350 which is a key support level.

Feeder cattle, ( fats as well ) are both very strong and that is helping to keep the commodity indices higher. Feeders are soaring into stratospheric levels with floor traders all aghast that they can possibly move to these levels. Funds are pushing everything on the other side of the market out of their way as their buying orgy continues. These things are becoming dangerous if you ask me however.

Shorting them has turned out to be disastrous for the general public which was holding almost the entirety of the short interest in this market. Hedge funds know that and are bleeding them into submission.

Unleaded gasoline has moved a bit lower this afternoon but still remains above the $3.00 mark. Better go fill up your truck this weekend before they raise the price at the pump next week ( if they did not do so already).

I will get some COT stuff up later as my schedule permits.

Crude goes One way; Copper goes the Other

I hope you enjoy paying high prices at the gasoline pump because they are back on their way once more.

Take a look at the following chart and you will see what I mean. This resurgence, ( completely avoidable) has sent crude oil prices soaring and that means that the products are following right behind.

I have noted an area of resistance on the chart near $3.10 - $3.11, which if bettered, will send gasoline to a test of last July's high just above $3.15.

Here is the issue before us - rising energy prices often confuse traders because many have come to regard them as evidence of inflationary pressures. The problem in this economy is that it is so weak, so fragile, that rising energy prices will act in the exact opposite fashion - they will serve to depress growth and drive the price of key commodities lower.

Here is an updated chart of our pal, "Dr. Copper".

Can you see what it is saying? I have made some notations on the chart detailing the fundamental news that has been the driver of each move lower recently.

Today's Iraq news was interpreted as bearish for global growth because of the surge in energy prices and the "tax effect" it will have on growth in general. 


The move lower in copper was affirmed by the sharp drop in interest rates as the yield on the Ten Year fell  below 2.6% after it had been managing a slow but steady climb out of the ceiling near the 2.40% level late last month.

Stocks in general also responded to the Iraq developments by selling off. All three indices that I follow, the Dow, the S&P 500 and the Russell 2000 were down around .6%.

The HUI was one of the exceptions as the gold sector had a nice day.

The index broke above the resistance level near 218-220 and has now extended into the former range trade that was marked by a top near 228-230 and the bottom near 218-220. Let's see if this index can push up to the top of that former range and possibly breach it or if it stalls out and retreats lower. Near term momentum is now with the bulls and as long as the ISIS is on the move and succeeding, gold and these shares should find some decent buying support.

I want to continue to keep a close eye on the Copper market. If that thing breaks down, it could spell some real trouble coming our way. Higher energy prices could very well squash any nascent recovery dead in its tracks.

By the way, this is just one reason in my mind that should convince American citizens that it remains imperative we fully develop our own bounteous supply of domestic energy sources. That includes building that Keystone pipeline to bring Canadian crude ( our stable friend and neighbor to the North) down to our refineries along the Gulf Coast. Frankly I am weary of having the price of gasoline held hostage by events that transpire in that most volatile and backwards regions on the planet ( the Middle East). Far too many who live there are caught in some sort of time warp and seem to revel living in 8th century AD conditions and thinking. One has to pity some of the younger folk there in particular who have seen the freedoms that the West currently enjoys and might not ever live long enough to experience them. What a tragic waste of human potential.

Iraq Cities Fall to Terror Groups - Oil soars

Watching this disaster unfold before our eyes makes me sick beyond words can express. To realize how many of our men and women gave their lives or were horribly wounded and left crippled and shattered to secure the cities that have now been handed back on a platter to the terror groups looking to form their long cherished Islamic Caliphate, fills me with disgust and contempt towards an administration that has no comprehension how reckless its foreign policy is.
Better yet, it has no foreign policy whatsoever. Since when does one secure a country and then abandon it without having any sort of Forces Agreement in place?

Our top military generals who understood the region and were involved in the war effort there, all warned that this is exactly what would happen. They were ignominiously ignored by an administration that has snatched one defeat out of the jaws of victory after another.

Now what? I remember seeing those Iraqi citizens with their ink-stained fingers voting for their leaders. Now some of them are being beheaded.

Look, whatever your view towards the Iraq war might have been, it is now a fact that our troops have seen their blood, sweat, tears and sacrifice thrown away and spat upon by their commander in chief. Imagine if this is what we had done after WWII? I was watching one soldier's interview last evening who had fought in battles to secure these exact cities say he now understood something of what the troops who had fought in Vietnam felt when they watched the helicopters leaving Saigon.

Crude oil is rightfully now pricing in a disruption to world oil supplies as a result of the barbarians on the move. 

 Gold is rising higher as fear now settles in upon the world once again over the possibility of the major oil regions in the South of Iraq eventually falling under their control. One owns gold for these very reasons but if I hear a single gold perma-bull crowing about their yellow metal god rising and rejoicing on that account, I think I will spit out of disdain. The more I try to put myself in the place of those soldiers whose deaths have been so cheapened by this administration, the more I want to weep for my nation.

What a wretched and yet completely avoidable disaster. I feel like I am watching a slow motion train wreck of my beloved country unfolding before my eyes. In every area of the US, we are witnessing a disintegration of all that we hold dear. I am not sure what is worse - that this is happening so blatantly or the fact that nearly 50% of the US citizenry is completely ignorant of the demise of the nation. While they sit and watch their damned reality TV shows their nation is falling apart.

From a technical chart standpoint, crude oil has broken out above key chart resistance near $105 and is currently at a nine month high! Look for this market to be well supported as long as the Iraq oil fields and production are vulnerable. Who knows where this market might run at this point? It is now at the mercy of events on the ground in Iraq. As of yet, I have read of no planned response to the ISIS advance. Maybe our current administration will wait until Baghdad falls and then come up with something, whatever that might be.

In contradistinction to the trumped up sensationalism that was reported on the perma gold bull sites when it came to Ukraine, anything that impacts the world oil markets is a much more serious concern. Notice how bonds are being bid higher, equities are falling and crude is soaring. Markets really do worry about anything that deals with a major oil producing region because crude oil is the life-blood of the world's economic engine.

Copper is sinking lower on the news as it fears higher oil prices potentially choking further an already sluggish global economy. We were reminded of this with total's retail sales and the jobless numbers. Both served to reinforce the notion of an economy that remains fragile. Then one throws on top of that the potential for higher oil/energy prices, and it is not hard to understand the "oil tax" effect on growth.

Silver is following gold today instead of copper and has managed to best some selling near the $19.25 level that was holding it in check. With hedge funds on the net short side of the silver market, there is definitely some short covering occurring with this Iraq development.

Gold has easily punched through $1270 as the bears run for cover on this news. Now the big question is whether or not the bulls can take it up through $1280 and hold it there. If they can, we have something going.

I will get a chart of gold up later today _ I want to see how it handles itself later in the session and want to watch the mining shares to see if they can take out any key chart resistance levels. Letting the dust settle somewhat after these news events rock markets is sometimes the best thing to do before formulating a trading response. One can move in and out very quickly to take advantage of some short term price spikes or drops, but making a longer term strategic decision around something so volatile as this is unwise. Be careful that you do not build too large of a position in anything. Besides, it does not take much to make some nice short term gains when markets move this much anyway as a little can go a long way.

Gold Chart

Gold has been trekking slowly higher on low volume as it inches away from support at $1240. Calls for slower global economic growth seem to be putting some firmness in the market as some shorts pull out and move to the sidelines with some bargain hunters moving in as well. Also, the ECB's recent move to provide some monetary stimulus, while knocking the Euro lower, has chased a few shorts out of the gold market in spite of the continued weakness in that key currency.

Notice on the chart that price has managed to move back into the first of three FORMER support zones which were violated to the downside. Gold pushed through the first of these and is knocking on the lower boundary of the middle support zone.

For the bulls to be able to shift the sentiment more towards their liking, they will need to take price back through $1277 for starters but for a more convincing feat, $1280.

For now, the low volume makes this current recovery look more like a dead-cat bounce but any break through $1280 that remains above that key level will have to be respected.

In looking over the ADX, it shows the bears still remain in control but the current leg lower has been halted near $1240. That zone is shaping up to be just as important as $1280 had been. As I have written previously, below this level, a goodly number of hedge fund positions from earlier this year will be underwater.

So far, it seems this is the pattern that we can expect to see in gold - a slow, steady grinding move lower instead of any sharp falls in price. The price drops, then stabilizes, then drops some more, then stabilizes, etc.  I think this is mainly a function of the extended move lower for nearly the last three years and the remaining stubborn and persistent bullishness on the part of some of the large hedge funds that moved onto the long side earlier this year. Most of those who have given up on gold have already done so and are in equities. Those that persist in gold are a bit more ideologically persistent and will only exit reluctantly if successive support levels give way.

Keep in mind that a market can find a long term bottom and still not make any sharp moves to the upside. Instead it can continue meandering back and forth, working essentially sideways for quite some time ( quite longer than many traders have patience for ). Some seem to think that once a market bottoms, it is off to the races once again. Nothing could be further from the truth. As a matter of fact, most markets do not as a general rule put in spike reversals without a abrupt shift in fundamentals but instead slowly transition from bear markets or bull markets through a period of consolidation ( sideways trade ) which can last for a fairly long period, before then entering a solid trending move in the other direction. Sometimes the initial trend actually resumes.

When it comes to gold this has been perfectly illustrated when the market topped out in August 2011 just above $1900. It experienced a sharp selloff, then stabilized above $1530 whereupon it moved sideways for nearly 1 1/2 years when it was stuck in a range between $1800 on the top and $1530 on the bottom. Then it dropped out of that range falling over $300 all the way to $1180 whereupon it once again entered another period of sideways trade which it has remained in for nearly a full year now. The top of that range is up near $1400 and the bottom remains near $1180.

There is really no telling how long gold might remain in this "RANGE TWO". It could be for months or it could be for years. No one really knows. If we compare the secondary range to the initial one, this current one has at least six more months to go (wouldn't it be nice if markets were all that well behaved - we would all be so wealthy we could retire the national debt all by ourselves).

Within these broad ranges there exist smaller, tighter ranges. Those tend to show up better on the Daily Chart. Just keep these things in mind whenever someone gets too wildly bullish or too wildly bearish.

Gold is stuck in a very broad range with the shorter term charts showing a bearish pattern for the time being. If gold were to take out the bottom of the former range near $1280, then it would have the potential to move back up towards the top of that range near $1320. Again, as noted above, a break below $1240 however would give the potential for a move all the way back to $1200.

By the way, GLD has not given us any updated numbers for some time now.

USDA Supply-Demand Report Day

USDA released its Supply/Demand numbers this AM. Based on those, they are expecting a record US corn crop of 13.935 billion bushels on a yield of 165.3 bushels/acre. The 2013-2014 ending stocks are expected at 1.146 billion bushels, down from their last estimate of 1.157 billion. The 2014-2015 carryover is expected to total 1.726 billion bushels.

Soybean production should total 3.635 billion bushels this year using a 45.2 bushel/acre yield. Analysts had been looking for  a 3.267 billion bushel crop using a yield of 45.0 bushels. Carryover is expected to jump significantly to 325 million bushels, up from the current marketing year's 125 million bushels. USDA once again lowered those ending stocks in the beans which has been the wild card that is keeping this market trading in such a schizophrenic fashion. Traders are simpy unsure of how to deal with such a tight carryover in the face of a huge new season crop. The spread action is resulting in contortions and erratic swings in price.

USDA also raised global bean production to 299.99 million metric tons. That is up from the current marketing year's 283.79mmt. Brazil registered  an increase of 2.5mmt to 91mmt.


USDA lowered total global wheat production to 701.62 million metric tons. They did however raise total global wheat stocks to 188.61 million metric tons up from their last month's 187.42 million metric ton forecast.

On the domestic front, USDA pegged total wheat production to 1,942 billion bushels which was actually well below analyst's average of 1.959 billion. However they raised both the 2013-2014 and the 2014-2015 ending stocks for wheat. The current marketing year jumped 10 million bushels to 593 million from last month's 583 million. Next year's carryover is expected to be 574 million bushels, up from May's projection of 540 million bushels. Wheat was hit hard on this data especially KC wheat.

All in all, other than the tight soybean carryover for the current marketing year, one would be hard-pressed to find anything friendly in any of these reports. It is however good news for consumers and for the livestock and poultry industries.

Hog producers out there, take advantage of the rally in the 4th quarter hogs/early Q1 2015 hogs and the sell off in corn and beans to continue locking in some expected production and securing some feed coverage when you do. You will guarantee yourself some outstanding profits and be able to sleep quite well at night. Your margins are outstanding right now so do not let them slip away from you. Scale into those hedges and leave out no more than 25-35% for gambling purposes. Any sort of unexpected bearish surprise in this month's Quarterly Hogs and Pigs report will have you kicking yourself in the rear end repeatedly. You can always leave your upside open with some well-managed option plays such as bull call spreads if you want to do some speculation but do not forget that you are a producer, and not a speculator.
Gold was supported in the overnight session on news that the World Bank cut its global economic growth forecast to 2.8% for the year. That is down from their January forecast of 3.2%. The Bank blamed emerging market countries for their unwillingness to deal with counterproductive policies. The report also mentioned concerns about China's housing market. Gold seemed to draw some safe haven buying on that news which continued into the Western session trading.

The Gold Volatility Index actually fell lower making yet another multi-month low. It sure does appear as if gold has entered its "summer doldrums".  

That general "safe haven" theme could be seen in the stronger Yen once again ( the idea that the Yen is a safe haven is laughable but the markets have transformed the currency into a safe haven for some reason). Also, bonds ticked higher on the news with the result that interest rates dropped lower. US stock markets moved lower on that news and have also remained lower as I type these comments. "Caution" is the theme of today.

It is interesting to note that copper was weak on the news but that silver decided to move with gold instead of the red metal.

Once again Crude oil is back to throwing off mixed messages about the state of the US economy when compared to copper. US EIA data showed a 2.6 million barrel drop in oil inventories. Someone is using the stuff and keeping this market supported. If the economy was completely in the tank as some are suggesting, we would not be seeing crude oil prices staying this well supported. I am keeping a close eye on that $105 level. It has thus far been acting as an overhead cap but if it goes, $108 comes into play.

The miners ticked higher today with the HUI inching towards overhead chart resistance beginning near 215.50 and extending to 220. It looks like it is setting up a range trade for now.

I am, however noting that as the session is wearing on, gold and the miners are surrendering some of their gains. Both remain in the black at the moment but they have certainly faded from their session-best levels.

The US Dollar, as viewed through the prism of the USDX, once again made a try at the 81 level but could not clear it. It has been in a slow, grinding-like trend higher but really needs to push past that 81 level to make a run at heavier resistance near 81.45 - 81.50. It has managed to best its initial resistance level near 80.70-80.80 and so far is holding above there. I do believe that if the greenback can clear 81.50, gold will not hold at $1240. We'll see. Just an opinion and we all know here what opinions about markets are worth. Price action is the ultimate arbiter.

Further along the currency front, the Euro is continually its descent towards chart support near the 1.350 region. That support extends down to 1.348 or so. I should note here that there is some chatter about the Euro being used a "funding currency" ( aka - carry trade) in regards to other European currencies.

US Dollar takes out Chart Resistance

It appears as if the weakness in the Euro finally enabled the Dollar to take out overhead chart resistance. Last week, when the ECB announced its new monetary stimulus measures, the Dollar shot sharply higher as the Euro initially plummeted lower but neither currency stayed with the first move as they reversed course when traders booked gains on bets placed ahead of the action by the ECB.

Now that the shorter-term technical action has given way to the larger trend, the Dollar has scooted higher as the Euro inches down towards important chart support near 1.35.

Take a look at the following chart and you can see the Thursday knee-jerk spike higher in the Dollar on the heels of the ECB announcement followed by a lower close but that has been erased as the new week commences. The greenback has pushed past the first level of chart resistance near the 80.70-80.80 level and so far is holding onto its gains. A good close here and the currency could be setting up for a test of major overhead resistance near 81.50. Closing in New York above 81.00 would probably send it on its way for that test.

The ADX, shown below the chart, indicates the presence of a strong uptrending move. Bulls are currently in control of this market. From a fundamental standpoint it is not hard to understand the Dollar's strength. Out of the Yen and the Euro, interest rates in the US are better with market players currently of the opinion that is any of these three regions are going to experience higher rates at some point, it will be the US before the other two.

Simply put, it is no secret that the ECB and the BOJ both do not WANT stronger currencies. The Abe government in Japan has essentially been exporting deflationary pressures by its policy designed to weaken the Yen there and generate inflation. The ECB responded to that by doing their version of monetary stimulus as they do try to whip the deflation boogey-man. The Dollar has been benefitting from both policies with the Fed attempting to wind down its QE program.

I am struck by the fact, that in spite of one prognostication after another, in spite of one "secret letter from a banking contact" after another, in spite of one "Belgium buying of US Treasuries is the only thing keeping Treasuries supported", the US Dollar keeps moving higher.

The simple truth is that it comes down to interest rate expectations - remember that and you can ignore all the "1001 reasons for the Dollar to crash" chatter. One can easily cite various reasons for the Dollar to move lower but those who constantly assure us that the Dollar is doomed, someone neglect to mention the factors that also are weighing on its competitors.

If/When the Dollar chart breaks down and it enters a trending move lower, then we can pay attention to some fundamental reasons behind the move down but for now, the trend in the Greenback is up.

Here is the Euro chart showing its technical action.

The double top on the chart has been confirmed (remember - this was caused by Draghi talking it down) with the late May close below 1.37. Bulls tried gunning it back up to that level but failed to reach it last Thursday/Friday with the result that it is now moving lower again closing in on key chart support.

The ADX is rising with the -DMI rising indicating that the bears currently have control of the market. A downside breach of this support zone should send the currency down to 1.340 with potential for a move to 1.330.

While gold is currently experiencing a bit of a pop here and is flirting with initial resistance centered near the $1260 level, if the Euro loses chart support and the Dollar takes out its next resistance level, I believe the metal is going to be hard-pressed to make much upward progress.


Corn bulls tried to take the grain higher playing up the "oversold" chatter but yesterday's crop condition report seemed to take the wind of their sails. It set a near 4-month low in today's session as growing conditions continue to look ideal at this time. Ditto for SRW wheat which set a near 10 week low today. Soybeans however remain in their own little world with traders bull-spreading July/Nov ahead of tomorrow's USDA  Supply-Demand report which they expect will show another reduction in old crop carryover. The bean market has one of the most unusual set of fundamentals that I can ever recall seeing. It would not surprise me to see USDA tighten those ending stocks further but the question I have is just how many beans we are now importing into the country as a result of these sky high prices. One thing I know for certain - the spreaders are knocking these things all over the place almost daily.

These lower corn prices have sent the feeder cattle market soaring to all time highs with no sign of a top. The livestock reporters I have given some comments to for their reports say that players are all astonished at the level these things have soared to. It is amazing what back to back droughts ( 2011 - 2012) have done to the supply of these feeders.

Copper seems to have found its footing above the $3.00 level for now as traders seem to have lost some of the nervousness over the situation in China for now. The red metal looks like it is treading water for now as players wait for further news along that front before reacting too aggressively. Silver seems to have found some support after falling below $19 last week. Sellers seem to be coming in just shy of $19.25.

Crude oil ( WTI ) has once again been stopped dead in its tracks by that stubborn $105 level. If prices do manage to close through this level, it should make a run at $108. Downside support remains $102.00 - $101.60.

The HUI (the shares that comprise it) should run into some resistance beginning near the 216 level and extending to 220.

Volume in gold remains very subdued.

The gold ETF, GLD, has not issued any updates to its reported holdings recently. The recent build has been constructive.

The VIX, or Volatility Index, has not been this low since 2007! Complacency is the theme of the Day.

Speaking of volatility indices, take a look at the Gold Volatility Index. If gold is worried about something, it sure is not being reflected here! The index is mired near multi-year lows.

Gold Comatose; Corn Sinks on China news

Watching gold trade today was worse than watching paint dry. At least the latter provides some satisfaction when the painter steps back and surveys his handiwork. The former, however, is stuck in no-man's land.

It looks to me like it is drawing some support from the ECB's action last week but that is about all that I can see at the moment.

The mining shares are stuck going nowhere as well.

India appears to be doing some buying as the price falls which is not unexpected. The key for the metal will be how eager Western based investors are eager to acquire the metal.

Other than that, it is a waste of time.

The grain market however had some news this morning that rattled corn bulls - it appears that China found some unapproved little gene critter, namely MIR162 in a shipment of DDGs. That is a big "No-NO' for the Chinese so they wasted no time in ordering no more import licenses for US-origin DDG's. I am a bit unclear on this second part but it appears that they are going to require some companies there to ship the recently unloaded batches back to the US. Corn took that news quite hard and surrendered a good portion of last Friday's short covering rally.

One will have to see if any of this impacts meal since DDG's compete with that on the feed side.

So far the weather for this year's bean and corn crop looks very benign. There is  plenty of rain and no major heat in sight at the moment. This afternoon we received the weekly crop conditions update from the USDA. Those of us who have traded grains for a long time refer to these weekly reports as the ones that the guy in the pickup truck calls or emails back in to the office while sitting on the side of the road in farm country after looking out of his window to see the rows along the road.

That being said, 3/4 or 75% of the corn crop is in Excellent/Good condition compared to 63% last year at this time. On the soybean front, this week is the first week of the conditions ratings for this year's crop and it came in very strong - 73% is rated Excellent/Good. The USDA did not give us a conditions rating report last year on the beans but suffice it to say for now, the crop looks very good.

The only thing that some guys may want to try to get some mileage on in the corn is the fact that the rating dropped 1% from its Excellent/Good rating last week. Most were expecting some mild improvement because of the abundant rainfall. However, when you have 3/4 of the crop with those ratings, it is hard to find anything that would considered negative for the crop right now.

Iowa and Illinois are the two biggies for corn ( not to slight Indiana, Nebraska, Ohio, Minnesota, etc) so it might be worth mentioning that there was a tad of deterioration in the Iowa corn crop that came out of the "fair" category into the "poor" and "very poor" categories.

Last week's "Fair" rating was 17%. This week it dropped to 15%. One percent went into the "poor" category bumping that up from last week's 1% to 2%. The other remaining one percent went into the "Very Poor" rating which was at 0% last week and now stands at 1%.

However, the "Excellent" category jumped this week to 18% from last week's 17%. That improvement came out of the "Good" category which gave up 1% to 64% after registering a 65% last week.

I am not sure how traders will react to that.

Illinois however was a different story. The "Excellent" category saw a FOUR POINT increase to 21% from last week's 17%.  Corn rated "Good" there was unchanged but it was in the "Fair" category that the four percent came out of to increase the Excellent rating. Last week it stood at 27% rated "Fair". This week that fell to 23% with those 4% points moving to Excellent.

By the way, the Indiana crop registered a 2% jump in the Excellent category with all of that coming out of the "Fair" category.

Corn is 92% planted compared to last week's 80% and last year's 83%. The five year average stands at 90%.

Planting is running a bit behind in Michigan, Minnesota. Wisconsin and North Dakota. My understanding is that it had been a bit cooler and wetter than normal up in along the northern tier. They are all well ahead of last year's slow pace however even though they are behind the 5 year average. 

All in all, I cannot really find anything to be negative on based on this week's ratings but who knows what these people will do at times?

Soybeans are now 87% planted compared to last week's 78% and last year's 69%. The five year average is 81% for this time of year. Beans are well ahead of last year and the 5 year average.

The percentage of beans that have emerged is 71%. That compares to 50% last week and only 46% last year. The five year average is 62%.

If the weather cooperates that bodes well for a good crop.

China news seemed to buoy beans somewhat in the session as news came out from USDA that they had booked a 117,000 ton purchase of beans for the 2014-2015 marketing year. Traders were busy bidding new crop beans up as a result. Get used to this market getting tugged back and forth between those who have a bullish demand side view and those who have a bearish supply side view. Further complicating trading in the beans is that persistent tight carryover which keeps the bulls coming back for more. This week's USDA report will once again be closely scrutinized for further evidence of tightening old crop supplies. The closer we get to the delivery period for that July contract, the more goofy things might get in there.

A quick note on the US Dollar - it moved higher today as the Euro seemed to trade more in line with the behavior that one might expect from a currency whose monetary overlords have made clear that they view any strength in it as unwanted and unwelcome. It still remains above support near the 1.35 level so the bottom is still intact. The Dollar flirted with the bottom end of its overhead resistance level near 80.70-80.80 today but could not extend past it once again. It sure is trying to do so. The Yen however is not cooperating as it has gone essentially nowhere the last 5 trading sessions.

The S&P 500 scored yet another all time high today as did the Dow which is now knocking on 17,000. What has my interest however is the Russell 2000 which is really looking like it wants to make another run at the 1200 level. Watch this key index closely - if it takes that level out, stocks are going to all head higher. and that is probably going to make gold's going even tougher.

Metals Commitments of Traders

To start this short set of comments, let's begin with Copper, which was hit hard this past week as news came out of China that the authorities were seriously investigating the double and triple counting of copper used to secure bank loans. I have mentioned in previous posts that the internal positioning of the LARGEST set of speculators in this market was something that I have not seen occur too often; more specifically one in which the hedge funds are positioned rather heavily on one side of the market with the "Other Reportables" taking the opposite side of their trade. I commented that one of these sides was going to be proven very right and the other side very wrong.

Looks like the hedge funds came away holding the short stick!

Take a look at the chart and then look at the COT chart. Notice what has happened to the price this week as that news hit the market to start off the week. The red metal dropped over 15 cents off its ending level last week before rebounding on Friday as some shorts rang the cash register.

Now here is the COT chart. Look at what happened to the hedge fund net long position and compare that to the Other Reportables who have had a significant exposure on the short side of this market. Sadly for us, the report does not cover the action from Wednesday to the close of trading today when copper plunged a further 10 cents since the drop the Tuesday cutoff date. Can you see the hedge funds running and what it did to the price?

Based on what I have seen of this report, when comparing it to the price action over the previous reporting period, it is not hard to see that hedge funds were getting hit hard on their wrong bet and were exiting in size. The late session bounce here on Friday makes it a bit harder to read as to whether they were coming back in to any significant increase in long side exposure once again or whether it was just pre-weekend short covering after such a big drop in price. I suspect it was more of the latter than the former.

The really big thing to me is just how aggressive the hedge fund community is becoming towards the bear side in the silver market.

Silver fell through important chart support centered near the $19 mark early in the week. Yesterday it popped higher on the ECB news but today it failed to extend or build on those gains. As has been the case for this metal for a while now, rallies are being sold. Just look at how the market fell early this week but then ran into more selling today as it failed to recapture that broken level of support near $19.

One look at the COT chart shows why. Hedge funds were aggressively attacking the metal this past reporting period. Interestingly enough, it was not so much of them bailing out of existing long positions as it was them adding a large number of brand new shorts. That is what drove the price down through $19. I have numbers going back further but for the sake of ease-of-reading of the chart, I am using data back to 2009 or five years ago. Hedge funds are now holding the largest net short position in at least five years!

I should continue to note here that the Other Reportables camp is still on the net long side - once again they are at odds with their large cousins but not nearly so balanced out as they have been in copper. It looks like some of these guys are spreading copper against silver with hedge funds taking the bull spreads and the other reportables taking the bear side of that spread.


When it comes to gold, hedge funds were big sellers this past week. Here is the thing however when it comes to gold - they continue to be stubbornly bullish as they remain net long just like the Other Reportables and even the small specs or general public do. In other words, yet another week, another deterioration in the chart pattern, and yet the entirety of the speculators refuse to get out and are still net longs. That continues to cause me to marvel. One wonders how much more money some of these guys are willing to lose before they decide to finally get out. I am concerned that as long as these stubborn bulls, who are mounting greater losses, continue to hang on, they are merely postponing any lasting bottoming process for the yellow metal. It seems that the bulls are going to go down with the ship.

At least one positive sign is that the little guys, the small specs or the Nonreportable Positions, look as if they are finally giving up the ghost. They remain net long but dumped about 1700 more long positions than they covered shorts this past week. Their net long position is the smallest it has been in nearly 4 months so that is somewhat constructive.

Here is the COT chart.

Here is the price chart comparing the net position of the hedge funds.

You can clearly see the speculative selling trend of this group and its impact on the price level As they sell, the metal moves lower. As stated above, they are still net long this market however and that troubles me.

Some are already talking up potential short squeezes but as I have said before - they are always talking POTENTIAL short squeezes - because, are you ready - in every single market on the planet that exists there is the POTENTIAL for a short squeeze. Big Deal! What is required is some sort of news or event that will trigger a technical buy signal to force some of the weaker shorts out. However, what is more important that any nebulous "potential short squeeze" is the prevailing trend of the speculator and right now that prevailing trend is one of selling.

I would much prefer to see these precious metals markets with the speculators all on the short side and sentiment miserable to convince me that we have truly formed a solid, long term bottom. Right now, all we are getting is rallies that get sold.

Let's see what next week brings us and whether or not the actions of the ECB this week will be enough to keep the gold price supported among those investors/traders based in the West.