Gold Chart by Request

Here's a look at the latest after today's sharp selloff in gold. Note that the metal is approaching the support zone which has held it for some time now.

You can see that the former support zone between approximately $1592 - $1588 or so, turned into a resistance zone and attracted selling yesterday when gold failed to extend past it and back to $1600.

Central Bank buying out of Asia has been attracted to the metal on approaches to this lower support zone in time past. We will have to wait and see if that buying materializes again.

One thing I find quite ironic. Let me mention it and see if you do also. The Bank of Japan, has adopted the policy of its new Prime Minister whose stated goal when he ran for election was to deliberately produce a 2% inflation rate. That was for the express purpose of getting the Japanese economy out of the deflationary trap which has snared it for decades now. When you really examine that policy, all it essentially consists of is massive buying of all maturity ranges of Japanese government debt, along with some targeted buying of certain ETF's and some other financial assets. The scope and the size of this buying has various estimates that I have seen but it looks to be in the neighborhood of (US) $1.4 Trillion or so.

What is the methodology to induce inflation when we cut to the chase? Simple - drive the currency lower pushing the costs of imported goods higher while making Japanese goods much more competitive on the global market. Also, keep interest rates artificially at such extremely low levels that it spurs borrowing and thus consumption.

What has been the result for gold priced in terms of the Yen? Answer - it shot up to an all time high just yesterday.

Now turn your attention to the US here. What is the policy of the Federal Reserve? Buy enough government bonds to keep interest rates, both short and long term, artificially low in order to spur borrowing and thus consumption.

Somehow this is supposed to produce inflation in Japan without it being inflationary here. Okay - what is the difference? Well, the US Dollar is going higher and higher against a large basket of other majors. This is shortcircuiting the inflationary implications of a weaker currency and has thus far enabled the Fed to play the exact same game that the Bank of Japan is playing but without the same consequences.

Regardless, Gold in US Dollar terms keeps being sold by hedge funds while gold in Japanese Yen terms keeps rising.

I can note this divergence and apparent contradiction but quite frankly what irritates me to no end is to hear various talking heads, pundits and analysts, praising the Fed for its efforts and avoiding inflation in the process. Why praise them? The only thing preventing their policy (the exact same policy as Japan's) from knocking the Dollar into the same abyss as the Yen is the fact that the some of the other major currencies have stunk to high heaven.

With the US stock market moving higher alongside of the Dollar, foreign investors are chasing US stocks hoping to catch the move up and profit additionally from the Dollar appreciating against their own domestic currency - a DOUBLE BAGGER as we say. That is generating strong inflows of foreign currency to our shores creating yet another source of artificial demand for the Dollar.

I am not sure what will cause the US Dollar to reverse course but the US is at 100% Debt to GDP ratio with a growing federal budget and a looming entitlements crisis. We continue to read reports of various trade deals between China and some of its trading partners that call for direct exchange in their native currencies and so forth obviating the need for any US Dollar involvement whatsoever. The US fiscal house is in such serious disorder that it is screaming a warning at the top of its lungs and yet utter complacency prevails.

These things have a habit of continuing on merrily until one day they just don't. I do not know when that will be but I know it will be. Instead of giving this problem the serious attention it deserves, our leaders are instead fixated on homosexual marriage and gun snatching. Nero at least produced something constructive while Rome burned even if it was only a song on his fiddle. This current crop of leaders.....

Gold Knocked Back Down into Support

Another coordinated hit on the gold price in today's session. Goldman Sachs issues a "short gold" advisory on the same day that news breaks about Cypress having to sell gold to raise funds for its bailout requirement.

What is so perverse about all this is that I do not believe there is a thinking person on this planet that does not attribute this bubble rally in the US equity market to the Fed's massive doses of QE. Yet, when the FOMC minutes are released (that is another story all in itself as they were released yesterday) the stock market utterly ignores the comments from those on the FOMC who believe that the bond buying program can begin to be wind down later this year. Yet, those same comments, again, completely ignored by the equity markets, are supposed to be the catalyst for a huge smashing of the gold price. Come on already! Do they really believe that people are that damned stupid?

Show me one person who believes that were the Fed to pull the plug on the QE program that it would have NO EFFECT whatsoever on the equity markets and I will show you a talking rock! Yet somehow, miraculously, the stock market can completely ignore any talk of an early cessation of QE while gold is mauled! Yeah....

I suspect that Goldman needs to get long gold for what they see coming down the road and has to get the hedge funds and the public selling it so that they can take the other side of the trade for themselves.

I will send up a chart later on today as I am pressed for time right now but gold is back down into the zone that has attracted strong Central Bank buying previously.

Also, I should note here that silver held up fairly well today considering the mauling that gold received. It was only down 33 cents or so. Not bad given a $30 plunge in the price of the yellow metal....

The VIX is falling off the edge of the world into the abyss. There is no fear anywhere. Total and complete complacency rules.

Japanese Money Flooding European Bond Markets

The mystery, at least in my mind, of the rising Euro is now clear. Outflows of Japanese institutional money is pouring into the European bond markets in search of higher yield.

Consider the following - the yield on a 10 year Japanese government bond has fallen to 0.525%. Yes, that is not a typographical error. If you buy one of those things, you are locking money up in an IOU for TEN YEARS to obtain a half a percentage point of interest. If that is not bad enough, the underlying currency is also freefalling in value. Now, who in the world would want to do that besides the monetary authorities in Japan who are becoming and likely are going to end up staying that way, as the largest, if not sole buyer of Japanese government debt?

Believe it or not, with all the massive problems in Spain and Italy, the yield on the Spanish 10 year bond has now fallen to its LOWEST level in a year. Italian bond yields are down to 4.36%! Dow Jones is reporting that last Friday and this Monday, the yield on the 10 year notes of France, the Netherlands, Austria and Belgium hit RECORD LOWS! This is Japanese money fleeing into European bonds.

Now here is what is even more mind boggling - the Bank of Japan's own data shows that Japanese institutions hold a gargantuan $6.34 TRILLION of domestic government bonds! This is not a tide of money, it is a tsunami looking for yield!

Bubble in the US stock market? Yes, in my opinion but the bubble is going to get even bigger. Heaven help everyone of us on the planet when this man-made disaster finally reaches its crescendo!

UNLEASH THE KRAKEN.... here it comes..... where is Perseus going to come from?

Yen Gold Scores All Time High

Currency Debasement = Higher Gold Prices. Any questions?

By the way, if you think this is something, you should see what is happening to crude oil prices in Yen terms. The Japanese political and monetary leaders are certainly doing their best to kill deflation over there. Pity the average Japanese citizen whose stock portfolio is looking great while their standard of living is dropping into the toilet.

Commodities catching a Bid today

The overall tone of the commodity complex is firm in today's session as the CCI is up. From what I can see, some of this is tied to news out of China that inflation is relatively tame. This has traders breathing a sigh of relief that there will be no raising of short term rates anytime soon in China. Traders are already fearful enough of slowing growth so the last thing that they want to hear coming out of China is anything that might dampen what economic growth there is.

The second main thing is the Chilean copper strike at the giant state owned mine, Codelco. Chile produces approximately 1/3 of all global copper and thus anything that might interfere with the supply piques traders' interest. The immediate result of any strike will be to alleviate concerns about the rising stocks of the red metal at the LME, one of the main factors behind the grind lower in copper prices as hedge funds have noted that and have been heavy sellers of the metal. We are seeing some short covering occur in there.

There has been a subsequent spillover effect on silver also as a result.

Further aiding the rise across the commodity spectrum has been the weakness in the Dollar brought on by strong buying of the Euro. I am not sure what the strength in the Euro is all about. I only know that I want no part of it. Maybe there is some thinking that all the problem nations, Cyprus, Portugal, Greece, etc. will drop out of the thing leaving the stronger nations behind. Who knows what these guys are thinking anymore? As I have stated previously again and again, a long term trade to this modern generation of mindless gnats is 60 minutes.

There is also a bit of strength in the grains today as shorts cover recent extremely profitable trades while they wait for tomorrow's USDA report. It would not surprise me to see a bearish report to be quite honest although some traders, after having been burned and buried by the last report, are no doubt heading to the sideways preferring retreat as the better part of valor until they can see what numbers the bean counters over there will spit out this time around.

A comment on Silver - it has managed to pop to $28 today on the heels of all of the above - the big test for the bulls however will be to take the metal firmly past that level and hold it there. Right now, traders are still interested in selling rallies. If copper continues to firm however, they might have some second thoughts about the wisdom of doing that. Strikes are dangerous things to trade however. They can end as quickly as they begin and when that happens, traders have a nasty habit of turning around and looking at each other while they say, "what the hell is the market doing way up here?" You know what happens after that!

As usual, US equity markets are higher. What else is new? I am noting however weakness in the Russell 2000 today. That, and the Transports are also weak. Hmmm......

Doesn't seem to phase these guys however as they are pushing the Dow and the S&P 500 higher. My thinking at this point is why not just take the Dow to 16,000 and the S&P 500 to 1600 and get it over with.  The bears are not permitted to get any downside due for national security reasons so they might as well  just take the market higher into bubble territory all the while they shout out loud how cheap stocks still are.

And for those who might be wondering, Yup, the VIX is lower once again. NO FEAR.... Party Hearty.

Silver Showing some potential Bullish Divergence

Bullish and Bearish Divergences in Technical Indicators are becoming increasingly more common nowadays because of the nature of the Fed induced volatility which brings wild swings in price and then periods of uncertainty or confusion as traders attempt to sort out what the latest round of either verbal or outright intervention into the marketplace brings with it.

I have written at length about the woes of silver due to hedge funds playing it along with copper, from the short side of the market. Last week's break of significant technical support down at the $28 level brought in even more hedge fund shorts.

However, silver is showing some signs of bullish or positive divergence which merit watching. For those who are newer at this, bullish divergences occur whenever a technical indicator fails to produce a new low while the underlying commodity is in the process of making new lows. In other words, the commodity and the indicator are diverging.

In the case of bullish divergence, the technical indicator has been moving lower but note that the lows it is making are successively higher than the previous lows in the indicator even as the metal has been moving lower and making successively lower lows in the process.

Keep in mind that bullish divergences are often times mere continuation patterns so never buy a market based solely on a divergence. What will make things interesting however is if silver prices can climb back above broken support now turned resistance at that $28 level and HOLD ABOVE it.

Downside momentum is slowing even as traders have been selling rallies in silver so any sign of an overhead resistance level giving way is going to induce some of the shorter term oriented shorts to book some good profits.

Let's keep an eye on this.

One thing to also watch, last week's low near $26.50 is now a critical support level. If it fails to hold, a test of round number support near $26 will happen almost immediately. That MUST hold to prevent a drop to $24.

I must admit that it is difficult seeing these precious metals continuing to move lower with the massive Bank of Japan stimulus package and the rotten jobs number of last week serving to reinforce the idea of QE3 and QE4 continuing to last throughout the remainder of this year, but there are real concerns about the efficacy of these stimulus measures. After all, when we consider the fact that by the time QE3 and QE4 reach the month of December of this year, a total of $3.5 TRILLION will have been conjured into existence as the sum all four Quantitative Easing programs. In spite of where we currently are in this money creation binge, job hiring seems to have stalled out.

Let's face it, consumers without jobs cannot engage in spending sufficiently large enough to provide any serious or solid economic growth. Oh, yes, they can use government benefits to purchase goods and services but not at a size sufficient to jolt this economy higher. More importantly, the VELOCITY of MONEY needed to spur inflation is simply not there.

One has to wonder what exactly will be the trigger or catalyst that is needed to shake off the deflationary psyche among the hedge funds towards commodities in general and get them to begin anticipating inflation. It is more than evident that the stock market rally is nothing else but a spectacular display of PAPER ASSET INFLATION brought about by the Fed's unlimited paper dollar creation schemes. As stated repeatedly now at this site, that money is almost exclusively ending up in US equities in the desperate chase for yield in a ZERO INTEREST RATE environment. It has bypassed commodities for the most part even after QE3 and QE4 were both announced and them implemented.

As we watch the mining shares sinking further into the red nearly day after day after day, one begins to wonder at what point the shorts are going to say, "ENOUGH" and finally ring the cash register. There is an old saying in trading, "Bulls make money; Bears make money; but Pigs get slaughtered".

By the way, copper is getting some buying coming into it on the heels of a strike in Chile. That is serving to prop up the red metal in spite of growing warehouse stocks. We are seeing some of that buying of the red metal spilling over into silver, at least in Asia this evening.

I am continuing to monitor the yield on the Ten Year note to see if traders are showing any signs of anticipating an outbreak of inflation. So far nothing doing.

There is a very gradual uptrend on the yield showing up on the chart that has been underway since summer of last year, but I personally will not be impressed that longer term yields are going solidly higher unless I see this chart consistently remaining above 2.0 percent and that is just a bare minimum to be quite honest that would get my serious attention.

Total and Complete Complacency

Payrolls down to a pitiful 88,000 jobs created. Alcoa warning on earnings. N. Korean sabbling rattling in a big way. Bail-ins as precedent. Surging numbers of Americans sinking into poverty. Record numbers of Americans on Food Stamps and Disability. Shrinking Labor Force...

NOTHING and I mean NOTHING matters to these equity guys. It is all about missing the rally instead of being cautious in the face of so many serious headwinds.

While Central Planner continue to drone on about "No Bubble", every single sign that I can see about this stock market rally is screaming in my ears, "BUBBLE".

There is no fear anywhere; it is absolutely mind boggling to see this sort of mass hypnosis.
The Complacency Index continues to hover at SIX YEAR LOWS. Absolutely astonishing!

Dow Jones Industrial versus Dow Jones Transports

Dow Theory conventionally holds that moves higher in the Dow should be validated or confirmed by matching moves in the Dow Transportation Average. When divergences between these two indices occur, it is something that one wants to generally take note of. It does not always signify a market reversal but the signal is reliable enough that only the foolhardy would ignore it.

The first chart is of the Dow Jones Industrial Average. Note how it is well above its 50 day moving average and has been since the start of this year. 

Next is a chart of the Dow Jones Transports. Quite a difference between the two charts is there not? On Wednesday of this past week, the Transports fell below their 50 day moving average for the first time this year. Thursday saw the index remain below it also. Friday, the late session recovery pulled the Transports back above the moving average effectively preventing a further deterioration. However, this weakness in the Transports needs to be monitored as it could be a precursor to further weakness in the broader stock market.

The rationale behind the Dow Theory is quite simple - the Transports basically include the stocks of those companies involved in moving things. If the economy is humming along, things are moving and lots of them. That tends to bolster the profits of those companies involved in the transportation of goods which feeds into higher stock prices for that sector. That confirms or validates the move higher in the broader stock market.

I sometimes wonder if the shift in the nature of the US economy from that of a manufacturing based economy to more of a service based economy has tended to marginalize this formerly reliable connection somewhat. Still, with the weakness showing up in the Russell 2000 (see the chart posted on Friday) and with a growing number of corporations that make up the S&P 500 showing negative first quarter earnings guidance, I am growing increasingly concerned that we are going to see the US stock markets roll over into a deeper and more protracted move lower. Thus far price retracements have been very shallow and of short duration because the stock market bulls have tended to ignore just about everything negative and have chosen to focus exclusively on the $85 billion worth of QE3 and QE4 being pumped into the system by the Fed.

I shudder to think what we are going to witness next if this massive amount of money creation fails to stem the deflationary tide that continues to rear its head not only here in the US but globally. The problem has been and remains, EXCESSIVE LEVELS OF DEBT.

My belief is that unless one can suspend the laws of economics and invalidate everything we have ever learned from history, there is a point at which the Piper is going to have to be paid and no amount of Central Bank money alchemy is going to prevent it.