Gold Breaks Psychological Support

Gold has fallen through psychological support at the round number of $1300 surrendering its "13" handle and replacing it with a "12". This will add to the already bearish sentiment towards the metal which once again has failed to act as a safe haven during a time of crisis. For that matter, neither are US bonds providing any kind of haven right. With the US fiscal condition being at the heart of the current crisis, it would certainly be counterintuitive to see US bond prices moving higher.

Additionally, gold has also broken technical chart support down at the recent low at $1290. Bulls must quickly take prices back above this level and preferably above $1300 if they are to avoid suffering deeper losses. Bears are growling today and flexing their muscles having picked off downside sell stops and that has turned the momentum negative. Hedge fund computers will certainly notice that.

There is some additional downside support coming in near $1280 extending to $1270. Should that fail, losses will accelerate. Bulls need some help and they need it quickly.

Losses in the soybean market have also worked to pull the rug out from under silver, which still maintains a connection to this market, even though that link has weakened a great deal in recent times. Many traders tend to look at soybean prices as a sort of proxy for food prices in general and if the former are moving lower, they tend to discount any inflation fears and thus sell silver.

The link was much stronger back in my early days of trading however. Silver is one of those markets that takes its cues from several inputs and right now, those inputs are negative.

The physical market can stem the bleeding in these precious metals but that buying in and of itself cannot push prices higher without momentum based buying and right now momentum is trending lower.

I have also included a longer term weekly chart of gold to illustrate the problem with this market from a technical analysis standpoint. Start at the beginning of 2013 and look at the bottom indicator, the old, very reliable and familiar RSI, or Relative Strength Index. For the entirety of this year, this index has not moved above the 50 level for this weekly time frame. As a matter of fact it has oscillated between 50 on the top and 20 on the bottom. By definition, this is a market that is in a BEARISH posture. If gold were able to at least push high enough to take the RSI above 65, I would feel more comfortable about its prospects for the immediate future. It cannot even accomplish that in spite of the recent FOMC press release stating that there would be no letup in the bond buying program. What is it going to take to get this metal to have anything to the upside if it cannot push higher and remain higher on that sort of news?

Forget all the chatter about BACKWARDATION, DWINDLING COMEX STOCKS, etc. None of that matters. As stated before the only thing that matters is PRICE ACTION. Why is this so important? Simple- because in today's markets Hedge Funds are the drivers of trends and they are not buying this market except for bursts of short covering after which subsides, they promptly return to selling. Translations - they are currently missing in action from the buy side. Until they return, price will move lower. If any of those aforementioned issues were indeed so significant, the price action would reflect it. It is not.


Also, the largest gold ETF on the planets, GLD, continues to experience drawdowns of its reported holdings. How in the world can that be considered anything but bearish as it indicates a lack of sustained speculative interest in the yellow metal?



Back to the chart however - if you note those Fibonacci Retracement levels provided on the chart. I displayed only the 38.2% level for the sake of clarity and to avoid cluttering the chart. Note that the rally higher that began in late June/early July off the spike low below 1200 only managed to reach the 38.2% retracement level off last year's high near 1800 before the metal began moving lower once again. It thus failed to extend above the psychologically important $1400 level. That attracted additional selling.

It is now trading within the confines to the pitchfork with the upper line acting as resistance. If the line is valid, the market has the potential to drop towards the median line again which unfortunately is now below $1200 based on this time frame. Also, since the RSI has been mired in that trading range between 50 and 20 and is now headed lower, it is conceivable that we could see it begin moving  lower until it nears that same level once again.

With all the money printing occurring across the planet, it is difficult to conceive of gold moving lower again but from a purely Technical Analysis perspective, it is quite feasible. Only time will tell if Asian demand for the physical metal is strong enough to overcome Western oriented selling and finally put a LONG TERM bottom in this market.

It would certainly help matters if the Indian government would lift that ill-advised and senseless import curb on gold. After all, a 10% tax on gold coming into the country will only do one thing - kill demand, at least it will kill "legal demand". The festival season will soon be upon us so perhaps saner heads will prevail over there. We will see.

While it would be most unpleasant for the gold bulls, I would personally like to see this metal move lower in order to set up a RETEST of the $1200 level and perhaps that summer low itself to see how the metals acts. If it bounces from there, that would tend to indicate that we finally have a final, lasting bottom. In that case, I believe buyers would be quite active and very vigorous. But the truth is the bulls thus far have had very little conviction especially as indicated by the continued poor performance of the mining shares. We need to see solid bottoms in that sector and in the bullion before there is another chance of a solid up-leg in price.


Also, please keep in mind something I suggested mining companies to do some time ago now.... hedges must be put in place to secure profits. Any mining company that refuses to lock in profitable prices on mined metal is basically taking the role of a speculator with its shareholders' wealth on the line. If you can mine gold at a profit, and fail to act to lock in that profit, exposing your shareholders to the vagaries of the market, that is foolish. Mining companies should be in the business of securing profits; not running a pseudo hedge fund out of their risk management division. Leave the risk to we speculators; that is what we do by profession.

This is also one of the reasons that we are probably seeing rallies being sold so heavily. I believe some miners are indeed using those to secure solid hedges for some of their production and to lock in those profits.

It will take a complete shift in sentiment towards gold and of course, silver, from one of bearishness to one of bullishness in order to dissuade me from seeing hedging as a sound practice at this time. While it is tempting for any mining company to remain unhedged in a rising gold price environment however, it should be obvious that management has no more clue as to where the price of gold is headed over the short term than any other informed market participants.

Falling Commodity Prices undercut Gold and especially Silver

I have been posting a chart of the broad commodity sector for many years now here on this site and elsewhere. Earlier on, I employed my favorite, the Continuous Commodity Index or CCI, which unfortunately died an untimely and unheralded death at the hands of its originators. I have recently moved over to employing the Goldman Sachs Commodity Index in lieu of the more widely known CRB index, which I believe is far too heavily weighted in energies to paint an accurate picture of the broader commodity complex.

Regardless of the reasons I have chosen, the chart speaks for itself. Commodity prices are going no where to the upside. They have not broken down decisively to the downside either but the chart looks like it is leaning lower than higher. This fact, and the fact that the US labor markets are atrocious, is what is undercutting both gold and especially silver.

I have said it many times now, silver must have an inflationary environment if it is to thrive. That is lacking and as long as it is, silver is going to UNDERPERFORM gold.

Also consider something else when you view this chart - the US Dollar is trapped in a broad sideways range between roughly 79 on the bottom and 84 on the top. Currently it is working in the lower portion of this range. In the past Dollar weakness has led to widespread buying of commodities across the board, irrespective of their fundamental supply/demand equation. That is no longer the case. Buying commodities merely because the US Dollar is weaker is no longer a wise option as the markets are beginning to focus more on the fundamentals of specific commodity markets. That in itself is healthy in my opinion as hedge fund buying in the past has skewed price discovery and is not healthy for any commodity over the long haul as it sends false signals to the industry.

Speculative driven rallies in any commodity lead to exorbitantly high prices which foster more production. There is a definite time lag but it is nonetheless axiomatic. We are seeing that now across many individual commodity markets.

The Birth of Obamacare and the Death of American Jobs and Hope

Today is the day that the monstrosity perversely named, "The Affordable Care Act" goes into effect. This job killing abomination is single-handedly decimating the very middle class that it was deceitfully claimed by the Dissembler in Chief to benefit the most.

I have been explaining to friends and acquaintances the deleterious impact of this horrible law but found an excellent article out on the web at one of the websites that I frequent which encapsulates perfectly the carnage that this albatross around the neck of the US economy is inflicting.

Read it and weep....when you do, keep in mind that these are real people, our fellow citizens and neighbors, whose lives are being wrecked by this perversion of liberty.

Get ready to read/hear even more of these horror stories. If you wonder why I keep saying over and over again that unless the US undergoes STRUCTURAL REFORMS, the economy is not going to improve enough to allow the Fed to begin scaling back its bond buying program. you will find your answer here. 

In spite of the Quantitative Easing policy which one would expect to be conducive to inflation, the US job market is comatose and as long as wages are stagnant and the jobs situation remains as abysmal as the following article suggests, the fuel for inflationary pressures ( an increase in the Velocity of Money) is not going to be present. That will keep a lid on the price of gold.

Here are the first two paragraphs of the article followed by the link. I strongly urge my readers to check it out. It is eye opening. I will warn you that it is also extremely depressing because none of this had to be; none of it. This is an example of how foolish and ignorant government policy destroys an economy but more precisely, wrecks human lives.


In a few days, Obamacare’s October 1 launch date finally will have arrived. Ever since its passage, supporters of the law have made countless attempts to convince the American people of its viability, dismissing predictions of lost jobs, decreased hours, and rising costs, among others.
Yet from major corporations to local mom-and-pop shops, from entire states to tiny school districts, a wide range of companies and institutions have seen Obamacare’s negative impact on their workers, budgets, and production. Here are 100 examples of how Obamacare is falling short of what was promised.

http://www.nationalreview.com/article/359861/100-unintended-consequences-obamacare-andrew-Johnson

USDA Surprises Corn and Bean Markets

The USDA released one of those famous Grain Stocks reports this morning and it immediately sent the corn and bean markets into a royal tizzy.

Analysts were way off on their projections of both old crop corn stocks and soybean stocks. By that, they were well below the actual numbers that the USDA gave us.

Apparently, the analysts failed to understand that the best cure for high prices is high prices. The simple truth is that the US has lost some market share because of the stubbornly high prices for both corn and beans in front of what is expected to be a record corn crop and the 4th largest soybean crop in history. Many farmers are being ill served by some advisory firms who refuse to accept the fact that the psychology of buyers in the grain markets have changed from the last two years.

If that were not enough, S. American supplies of both corn and beans are abundant and with planting season kicking off down there this month, there is every reason to expect large intentions in the Southern Hemisphere. Obviously weather down that way will play a major role in overall production but early indications ( and common sense for that matter) indicate a desire to plant a large amount of acreage and take advantage of the relatively high prices that the board is still offering producers.

End users of grain and beans are not foolish and unless they need the grain right away, are obviously trying to wait for more plentiful supplies to flow into the pipeline as the combines begin to roll in a big way this week.

This surprisingly bearish news for corn and beans was tempered a bit by the Wheat news  which was mixed. Ending stockpiles came in BELOW the estimates but the current year crop production is expected to be slightly larger than estimates. That is leading to choppy trading in that market for the time being.

If that were not enough, the hog market got hit with a wicked curve ball from USDA with the Quarterly Snout Count in the form of a big bearish surprise.

Were it not for the stubbornly bullish sentiment in the hog market due to the PED virus, hogs would be much lower than they are trading in today's session.

I bring up these things to point out that the futures market is signaling lower corn and soybean prices and perhaps a peak in pork prices for the short term. This will eventually feed through the pipeline and impact FOOD prices DOWNWARDLY. In other words, both reports are not signaling any inflation from this sector for a while. (Beef is still a wildcard as supplies of cattle will be tight but the question is whether or not consumers are going to pay the kind of money for beef that will be required to keep prices elevated).

With crude oil weakening as the lackluster economy stifles demand for energy, both food and energy prices are seeing some downward price pressure. That undercuts the inflation argument considerably, especially with the stagnant job market contributing to stagnant wages.

We are seeing this reflected in gold this morning which ran up to $1350 overnight only to be met with a barrage of selling. Traders/investors are not going to chase gold prices higher unless they have clear evidence of rising prices across the economy. Right now, they are not getting that unless of course one looks at the result of that abomination known as Obamacare on the premiums of health insurance policies all across the land.

There is still dip buying occurring in the gold market but that in and of itself is insufficient to take the market strongly higher and KEEP IT THERE. Gold still needs a spark, a catalyst of some sort and right now it is hard to envision what that might be.

As usual, the hedge funds hold the fortunes of gold and silver in their hands. Their next move is anyone's guess. Further clouding the picture today is that it is both the end of the month and the end of the quarter and there is a large amount of positioning and book squaring occurring which is making reading price movements quite difficult.

Trader Dan Interviewed at King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/28_KWN_Weekly_Metals_Wrap.html

Another Piece of Economic Data - Another Reaction in Gold

The drama remains exactly the same as it has for some time now....a piece of economic news is released and it either confirms or dispels ideas of Fed tapering of bond buying. This time it was the jobless claims number which came in at 305,00 first time claims versus market expectations of 330,000. The news was interpreted as a jobs market improvement or more accurately, a job market that is not deteriorating as bad as some expected and therefore bolstered Fed tapering ideas. Up goes the US Dollar and down goes gold as a result.

Get used to this - every single economic data release is going to be dissected and examined for "clues" to our monetary masters' next move. This is the tragic state to which our once proud financial market system has been reduced. As stated many times here before, go and grab a Daisy and start plucking the pedals as you recite the phrases, "She loves me; she loves me not" and you pretty much have the modern trading algorithm.

If you have noticed, even the bond market has been reduced to playing this infernal game as it has lower today, with interest rates subsequently moving back up again. Up and down, up and down....

The only major markets seemingly unaffected by this were the equity markets which rose on the news. Then again, they rise on any news these days, whether bad or good. What else can be expected here in the land of perpetual bull markets in equities  where bear markets have been rendered an obsolete concept from days gone by.

From a technical analysis perspective, gold is having trouble maintaining its footing above key resistance centered between $1330 - $1335. Rallies are attracting selling and dips towards $1300 are attracting buying. It is still in a range until it proves which way it wants to go. Weakness in the gold mining shares would seem to indicate that it wants to break lower but thus far that has not been the case. In other words, I have no idea where this thing is headed in the short term.

I have included the RSI or Relative Strength Indicator to show you the range trade and lack of clear direction. Notice that for the better part of three weeks, this indicator has been mostly confined between 60 on the top and 20 on the bottom; not a particularly friendly reading. We did get that sharp spike on the day of the FOMC statement which took the RSI through the top of this range and looked as if more promising things were ahead for the metal but it quickly surrendered its gains with the indicator reverting back to its previous pattern.

On this time frame, the RSI would need to clear at least 65 for me to get the least bit excited about the metal but more importantly, it would have to push past the previous price peak made the day of and the day after the FOMC statement. At this point, that does not appear to be in the cards WITHOUT ANOTHER CATALYST coming from somewhere. After all, if gold cannot sustain a rally with a clear statement coming from the Fed that the economy is too weak for them to consider tapering at this time, then what in the world is it going to take to push this metal higher? My answer to that is the same - a LOSS OF CONFIDENCE in the currency and with the Dollar refusing to break down significantly right now, we are not seeing any signs of that. Perhaps the upcoming federal debt ceiling will change some minds in that regards but the jury is still out on that.

The problem for gold remains the same thing I have been saying for weeks now - speculative money is not interested in chasing prices higher. Money inflows are simply not there and without them, this market cannot sustain any rallies. Something is going to have to change in investor/trader sentiment to bring this hot money back into the gold market, and the silver market, for that matter. Until it does, it looks to me like the bears still have the advantage until proven otherwise.

Gold Finds a Few Friends near $1300

As many already know by now, gold had been moving steadily lower throughout the New York trading session when a late-in-that-session small wave of buying brought the market back off its worst levels and actually allowed it to trade on the plus side of unchanged for a brief moment. I am unclear as to what the reason was that caused the bounced but it did occur rather rapidly and without much fanfare or fresh news that I saw. My thinking is that some shorts who faded the move higher on the release of last week's FOMC statement, decided to ring the cash register when the market traded down both into a technical support level on the chart. Also, the market had completely surrendered all of the gains it put on related to that same FOMC release and then some. Perhaps the thinking was to go ahead and book some gains and wait for another bounce higher into which to sell.

It did not hurt gold also to have the HUI, which has been falling faster than Obama's approval ratings, finally manage a bounce higher today. That, more than anything, seems to be to have been the catalyst for the move higher off of the lows at the Comex.

Technically, market remains range bound between an overhead resistance zone noted on the chart and a support zone beneath the market which extends to psychological support at round number $1300 and to just below that level which is where the market bounced early in the session last Wednesday when the FOMC statement was released.

For gold to have a chance at moving higher now, it will need to take out that $1332 level. Whether it is setting up a large range trade between $1375 and $1305 or so remains to be seen. If it is repelled by $1332 - $1330, it will be seen as a strongly bearish reaction. If that is the case, I would look for aggressive selling that will test the bottom of support down near $1296.

The bulls bought themselves a bit of time today but they have a lot of work to attract some fresh converts to their cause.

With copper and silver both lower today, with crude oil moving lower and with the grains not managing more than a bounce higher at this point, any inflation issues that might be seen originating from the commodity complex are nowhere in sight at the present time.

Also, in what has to amount to an amazing slight of hand feat, the Fed, through its various talking heads, has managed to drive down that all important yield on the Ten Year Treasury note away from what I believe they are viewing is the DANGER ZONE of 3.0% yield. More than anything else, I believe that they are watching this very closely and will fine tune their comments and statements into corralling this particular instrument. Expect to see the DOVES appear on any approaches by the Ten Year back to that level.

Along that line, I believe gold will be ultra sensitive to this as well since it was talk about a rising interest rate environment that has been hurting the yellow metal.

And lastly, hats off to Senator Ted Cruz for doing whatever it takes to remove this albatross which should be known as the "UNAFFORDABLE" Health Care Act from around our collective necks by mounting a filibuster in the Senate.

Just yesterday I received the "good news" how affordable this abomination is for me personally with an increase of $850/year, IF, I can even keep the same plan which remains unclear at this point. My agent tells me he has been talking to all of his clients and giving them the bad news for the last two weeks. No one is happy about it, and I mean, No one and yet the political class tells us that we are stuck with it as the establishment Republicans actually are spending their energies not to get rid of this job killing, freedom sapping mess but instead are attacking Senators Cruz and Lee who are trying to get rid of it.

They are just as much to blame as the Democrats who saddled us with this pile of excrement in the first place. Ironically, the Unions, who have an unholy marriage with the Democrat Party, are furious that they are not getting waivers to opt out of the thing. Serves them right for promoting it and spending their hard-working members' dues to shove it through the Senate and into law. It is the members who are the ones who will get hurt the worst from this terrible, ill-conceived and horrendous law. Maybe, just maybe, this will be another body blow to the union leadership as their members wake up and realize how poorly served that they have been.

Oh and if that were not enough, we are back to reaching the limit of the governments' borrowing ability once again. Sigh - what an empty shell the United States has become of its once great, proud self. The way things are going, the NFL will stand for the NATIONAL FLAG FOOTBALL LEAGUE before long. They will probably do away with the Super Bowl and replace it with a "Completion" Bowl for every single team so as to make sure that no one feels left out or bypassed.

GLD compared to Comex Gold Futures

In response to those who dismiss the idea that GLD is a measure of Western investor sentiment towards gold and therefore as such has little if anything to do with the price of gold, I present the following composite price chart as an illustration.

Please note that this chart shows the MONTHLY CLOSING PRICE only and therefore eliminates a lot of the daily "noise". Can any objective, unbiased observer of these two plotted lines state that the two lines are NOT IN PERFECT SYNC? They both rise together- they both fall together. If instead of plotting the two lines on separate scales for comparison's ease, I overlay the two price plots using no scale, the lines become indistinguishable from one another.

Keep in mind that I have no desire to enter into any discussions or arguments either pro or con as to the theory that gold is being withdrawn from GLD in order to meet higher demand in Asia and to take advantage of the higher premiums on gold in that region of very strong offtake of the physical metal. That may or may not be true. As a trader, speculation such as this does not particularly interest me as it is useless when forming an approach to a market in which one wishes to trade. Buying a market based on hunches, guesses, theories, hearsay, etc., is a very quick path towards ruin for any trader unless one has extremely deep pockets and is quite content to absorb potentially large losses.

To make money as a trader, one needs to understand market sentiment. Market sentiment is gauged by price action as well as studying the positioning of traders against with one is competing in this Zero Sum business.

My theory in trading is the KISS rule. Keep It Simple Stupid. I find it ironic to say the least that when gold was moving on to make new all time highs, and when GLD was reporting new record tonnage amounts nearly every day, we did not hear a peep out of anyone suggesting that the build in GLD reported holdings was in anywhere a bearish development. Quite the contrary; nearly everyone that I am aware of pointed to the surge in GLD holdings as evidence of superb investor demand for gold. I distinctly recall reading breathless reports about how GLD was eclipsing individual nations as one of the largest holders of gold. All of this was excitedly detailed as strongly bullish for the metal.

Now as the reported inventory of GLD shrinks we are also told by many of these same pundits that someone this too is bullish for gold because it indicates strong demand for gold, this time in Asia. Seriously folks, it seems that no matter what the holdings of GLD are, whether they are rising or whether they are falling, that it is always a bullish development! "Heads - I win; Tails - You lose".

All that I am saying is that when the price of gold was rising and moving into new all time highs, the reported holdings of GLD were rising right along with it. As the price of gold has fallen, the reported holdings of GLD have been falling right along with it. While there is no doubt in my mind that the gold being held in GLD has been sold to SOMEONE, the facts are that the reported holdings are sinking.

Since we know that Asia loves physical gold and the West seems to love paper gold, it is obvious that a large chunk of this gold has evidently moved from West to East as the inventory of GLD has been drawn down. This simply proves my point that GLD is a measure of WESTERN INVESTMENT DEMAND for gold and that currently, that demand is falling off as the large hedge funds are buying equities for return and not gold.

Is it not obvious from looking at the Commitment of Traders reports that the big Managed Money accounts are not building the kind of massive long positions that they once were back when gold was soaring into new record highs? Is it also not a fact that this same group of hedge funds has been adopting a more negative tone towards gold based on a  study of their overall short positions?

They may or may not be correct in their assessment from a longer term point of view but our modern markets have by nature become much more short-term oriented whether we like it or not.

Until I see something in the inventory of GLD that indicates GROWTH of their holdings and something on  the Commitment of Traders reports that indicates a solid shift towards a more strongly bullish view in regards to gold by the hedge fund crowd, and until I see a surge upward through overhead chart resistance in the HUI and among the various mining stocks that comprise that index, I have to go with my current assessment that Western investment demand for gold is lagging. As I have stated before, all of this could change at the drop of a hat. Those of us who have a bullish long term view towards gold will be vindicated and hopefully rewarded for our convictions but for the immediate time being, we still lack a catalyst for a sustained upward move in gold until we see some evidence on the charts that this has indeed taken place.

Lastly, for those who want to dismiss anything related to the Comex or to GLD as to having any real connection to the price of the physical metal, I would remind you that many may feel the same exact way, but until the MAJORITY of investors/traders come around to that point of view, railing against the chief barometers used by that sizeable majority will not cause a shift in the current ambivalence towards gold held by the Western investment crowd. Old habits die hard especially in the realm of investing. If you have any doubt about that, just consider the amount of money that large Western investment crowd has made by "NOT FIGHTING THE FED" even though there is a growing number of analysts who see the stock market rise as nothing but a massive bubble blown by 5 years of QE.

Fight the good fight in the meantime, continue to extol the wisdom of holding physical gold against the inevitable but do not be under any illusions about "the herd's" capacity to be irrational for longer than nearly anyone could have expected. It is the LOSS OF CONFIDENCE in the ability of the Monetary Authorities to keep this house of cards supported that will bring back Western buying into all things gold. We mortals have no way of knowing when that will occur but we will certainly recognize it when it does.